HomeMy WebLinkAboutAgenda Report - November 5, 2008 K-04%4
AGENDA ITEM YN
CITY OF LODI
COUNCIL COMMUNICATION
AGENDA TITLE: Adopt Resolution to Approve Amendment No. 1 to the Second Phase
Agreement for Funding the Planning and Development Activities of the Lodi
Energy Center (EUD)
MEETING DATE: November 5,2008
PREPARED BY: Electric Utility Director
RECOMMENDED ACTION: Adopt a resolution authorizing the City Manager to execute
Amendment No. 1 to the Second Phase Agreement for the Lodi
Energy Center and appropriate $1.765 million from Electric Utility
reserves.
BACKGROUND INFORMATION: On December 19,2007, the City Council approved execution of the
Lodi Energy Center (LEC) Phase 2 Agreement which provides for Lodi's participation in the development
process of a proposed 255 megawatt (MW) combined cycle natural gas power plant to be located at the
City's White Slough Water Treatment Facility. Lodi's share of the Northern California Power Agency
project is 30 MW, or 11.765 percent.
LEC Amendment No. 1 is recommended because of the need, due to changing industry conditions, to order
long lead-time LEC equipment and secure a production time "slot." The amendment authorizesthe
participating agencies to expend an additional $15 million for Phase 2, for a total Phase 2 cost of $40 million.
The increased Phase 2 costs would not increasethe total project cost, however, as they would be applied
against expenditures contemplated for Phase 3.
Lodi's proportionate share of Phase 2 costs is currently $2.941 million. Lodi's share of the additional cost
of Phase 2 is $1.765 million, for a total Phase 2 budget of $4.706 million. Electric Utility reserveswould fund
the extra expense.
I n order for the LEC Project to attain its targeted commercial operation date of April 2012, certain long lead
time "power island equipment needs to be ordered, and/or a productiontime secured, 24 to 33 months in
advance of the projected commercial operation date. In order not to delay the project, a manufacturing slot
for this critical equipment should be obtained in early 2009. A delay in plant completion could significantly
increase LEC participant costs.
It is anticipated that the power island vendors will require some form of advance deposit or option payment,
likely in the $5 to $13 million range (but possibly as much as $15 million), for a defined delivery schedule and
equipment pricing. The steam and gas turbines and the heat recovery steam generator, together with
ancillary equipment, are the likely critical power island components that will be considered under an option
arrangement.
APPROVED:
B air Ong, City Manager
Adopt Resolutionto Approve Amendment No. 1 to the Second Phase Agreement for Fundingthe Planning and
DevelopmentActivities of the Lodi Energy Center(EUD)
November 5,2008
Page 2 of 3
The Phase 2 Agreement incorporates two tiers of activities, Phase 2A and Phase 28, at combined total
authorized expenditures for all Project Participantsof up to $25 million ($16 million for Phase 2A and $9
million for Phase 28). Lodi's original share of these costs is $2.941 million ($1.882 million for Phase 2A and
$1.059 million for Phase 28).
Phase 2A activities formally began on March 6, 2008. On June 30, 2008 the Project Participant Committee
(PPC) directed the NCPA Project Manager to commence Phase 28 activities on August 1,2008. The
proposed LEC Amendment No. 1 revises the scope of Phase2B to include the activities related to securing
a production delivery schedule and equipment. It also authorizes the potential leasing of needed warehouse
and storage facilities at or nearthe proposed Project site.
The LEC Projectteam performed a financial analysis of the costs associated with delaying the project a
year to wait for the Phase 3 (construction) agreement, rather than making an advance depositor option
payment in January 2009 to keep the project on schedule.
A one-year delay will cost participating agencies up to $4 million per month in additional energy costs.
Also, project cost estimates have increased since Phase 1 due to higher construction and material costs.
If the factors impacting these costs continue, a one-year delay could result in an additional $26 million, or
8 percent, project cost increase.
The risk created by LEC Amendment No. 1 is the additional $15 million is required well in advance of the
Phase 3 agreement. If the project proceeds, this expenditure is included in the anticipated overall project
cost. If the project is canceled, however, then all or a portion of the deposit may be forfeited, depending
upon how much time has elapsed at the time of cancellation. In times when the demand for power island
equipment exceeds manufacturing capabilities, the manufacturing slot could be sold to a third party. The
value of the queue position to a third party is speculative in nature, however, and there is no guarantee
that it can be remarketed.
FISCAL IMPACT: Up to $1.765 million. Not appropriating the money could delay project
construction, subjecting the Electric Utility Departmentand its customersto higher
Adopt Resolutionto Approve Amendment No. 1 to the Second Phase Agreementfor Funding the Planning and
Development Activities of the Lodi Energy Center(EUD)
November 5,2008
Page 3 of 3
wholesale power costs. Appropriated funds may eventually be returned to reserves
as part of a project debt financing.
FUNDING: EUD reservefunds.
Funding Approval:
Budget Manager
Gearge F. Morrow
Electric Utility Director
Attachments
AMENDMENT NO.1 TO THE
SECOND PHASE AGREEMENT
FOR
FUNDING THE PLANNING AND DEVELOPMENT
ACTIVITIES
OF THE
LODI ENERGY CENTER
This Amendment No. 1 to the Second Phase Agreement for Funding the
Planning and Development Activities of the Lodi Energy Center ("LEC
Amendment 1") is dated as of September 26, 2008, and is by and between the
Northern California Power Agency, a joint powers agency of the State of
California ("NCPA"), those members and non members of NCPA which have
executed the Second Phase Agreement for Funding the Planning and
Development Activities of the Lodi Energy Center which include the Cities of
Azusa, Biggs, Gridley, Healdsburg, Lodi, Lompoc, Santa Clara and Ukiah, the
Bay Area Rapid Transit District, the California Department of Water Resources,
the Modesto Irrigation District, the Plumas-Sierra Rural Electric Cooperative, the
Port of Oakland, the Power and Water Resources Pooling Authority, and such
other parties as may be identified in Exhibit C of the Agreement from time to
time (collectively, the "Parties"), and
WITNESSETH:
WHEREAS, the Parties have previously entered into a "Second Phase
Agreement for Funding the Planning and Development Activities of the Lodi
1
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
Energy Center" dated November 29, 2007 ("the Agreement") which became
effective on or about March 1, 2008; and
WHEREAS, the Agreement contemplates Lodi Energy Center ("LEC")
development efforts divided into Phase 2A and Phase 2B activities as described
in Exhibit A of the Agreement, with total approved budget funding of $25
million consisting of $16 million and $9 million allocated to Phase 2A and Phase
2B activities, respectively; and
WHEREAS, the Parties formed the Project Participant Committee ("PPC")
on March 6, 2008 and have since that date been conducting Phase 2A Project
activities including the preparation of the California Energy Commission
("CEC") Application for Certification ("AFC"), requisite air permit applications,
and the procurement of Emissions Reduction Credits ("ERCs"); and
WHEREAS, on June 30, 2008, the PPC directed the LEC Project Manager
to commence Phase 2B activities commencing on or about August 1, 2008; and
WHEREAS, the Project Participants are aware that certain critical power
equipment, such as the natural gas turbine, steam turbine and heat recovery
steam generator components of the power island assembly, require significant
lead times for fabrication and delivery, and thus such equipment must be
ordered in a timely manner that supports the LEC's scheduled Commercial
Operation Date of April 2012; and
WHEREAS, the Project Participants desire to lease, as needed,
warehousing and administrative facilities at or proximate to the proposed LEC
Project site in order to facilitate the timely preparedness for locating staff and
materials ancillary to the planning, design, engineering and ultimate
construction of the LEC; and
WHEREAS, the Project Participants are aware of the recent rapid
escalation of power generation construction and equipment costs and
2
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
consequently desire to control the delivered cost of certain LEC power island
equipment by procuring an option or take other actions to secure a known
delivered cost for such equipment; and
WHEREAS, the Parties desire to amend the Phase 2B activities listed in the
Agreement to provide for leasing needed administrative facilities and work areas
to provide adequate space for additional Project staff; and
WHEREAS, the Parties also desire to amend the Phase 2B activities listed
in the Agreement to provide for leasing needed warehouse facilities to house and
protect LEC equipment, specifically the power island components that must be
delivered and stored for several months prior to installation; and
WHEREAS, the Parties desire to amend the Phase 2B activities listed in the
Agreement to provide for the ability to take actions that allows for advanced
equipment ordering of the critical power island equipment, obtaining more
favorable equipment and pricing options, having the option for considering and
choosing more advantageous financing methods; these steps (actions) will result
in significantly more certainty regarding the timely delivery of the equipment,
and in locking -in at an earlier time a lower cost for the LEC equipment; and
WHEREAS, the Project Participants, in order to fund the expected cost to
attain the facilities needed for Project staff and Project power island equipment
delivery timing and price certainty, desire to increase the funding of the Phase 2B
activities authorized by the Agreement budgeted accordingly by up to $15
million, for a total Phase 2B budget amount of $24 million ($9 million currently
approved plus the proposed added $15 million), and thus resulting in a revised
combined Phase 2A and 2B total budget of $40 million ($16 million for Phase 2A
plus the proposed revised Phase 2B amount of $24 million);
91
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
NOW THEREFORE, the Parties hereto agree as follows:
1. The final WHEREAS statement of the Agreement is deleted in its entirety and
the following is inserted:
"WHEREAS, initiation of the Phase 2B activities consisting of all
remaining Second Phase activities listed in Exhibit A attached hereto,
including but not limited to the purchase of any remaining required air
pollution emission credits, additional engineering and permitting costs,
leasing warehousing and administrative facilities at or proximate to the
proposed Project site, and actions to secure critical power island
equipment delivery timing and cost certainty, at an estimated additional
cost of up to twenty-four million ($24,000,000) dollars, will not be
undertaken by NCPA except upon the Project Members' further
authorization pursuant to the terms of this Agreement, and subject to the
withdrawal of any Project Member after the completion of Phase 2A and
upon the initiation of Phase 2B."
2. Section 1.(c) of the Agreement is deleted in its entirety and the following is
inserted:
"(c) Upon the Project Members' authorization, provided pursuant
to Section 3 of this Agreement, to undertake Phase 2B activities, NCPA
shall conduct such additional work as may be necessary, including to
secure a CEC Order approving an Application For Certification of the
Lodi Energy Center, to obtain any further required air emission reduction
credits ("ERCs"), to secure the timely delivery and cost certainty of critical
4
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
power island equipment, and to lease needed warehouse and
administrative facilities at or proximate to the proposed Project site, to be
determined and agreed to by the PPC. Such activities shall be performed
at an estimated cost of up to twenty-four million ($24,000,000) dollars. The
Parties anticipate that Phase 2A and Phase 2B activities will be completed
by the end of 2009 at a combined total cost not to exceed forty million
($40,000,000) dollars."
3. Insert the following at the end of the third paragraph of Section 4. of the
Agreement:
Any Project related assets, which includes the procured option for power
island equipment and the lease of warehouse and administrative facilities,
purchased or acquired as authorized by Section 1(c) of this Agreement but
not utilized shall be sold by NCPA pursuant to the PPC's decisions and
procedures and the proceeds distributed proportionately among the
Project Members.
4. Exhibit A of the Agreement is deleted in its entirety and the following is
inserted:
61
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
Exhibit A, LEC Amendment No.1
PHASE 2A ACTIVITIES INCLUDE
• Finalize Phase 2 Project Participant Agreement
• Achieve Phase 2 Agreement execution by all Participants
• Establish Project Participant Committee
• Establish Project Development support and reporting infrastructure
• Establish Project Parameters (duct firing, future expandability, etc.)
• Investigate, appraise and attain necessary land and land rights from the City of
Lodi
• Perform environmental assessments
• Submit application to CEC
• Purchase or secure options for Project ERCs
Phase 2A are activities anticipated to be completed by end of 2008.
PHASE 2B ACTIVITIES INCLUDE
• Complete CEC process
• Exercise ERC options or fully secure any remaining necessary ERCs
• Develop Phase III and /or PPA agreements for Project commitment and
financing
• Develop Project Operations Agreement
• Develop Project fuel supply arrangements
• Commence Project detailed engineering and design
• Secure critical power Island equipment delivery timing and pricing through
advance ordering or other arrangements
• Lease of needed warehouse and administrative facilities at or proximate to the
Project site
• Execute Project Phase III and or PPA agreements
• Release bid for construction (Q12010)
• Commence construction (Q2 2010)
Phase 2B are activities anticipated to be completed by end of 2009
11
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
5. Invoicing for LEC Amendment No. 1 Budgeted Amounts
The Project Manager and the NCPA CFO shall recommend an invoicing
schedule to the Project Participants for the additional funding requirements
associated with PPC approved actions to secure the critical power island Project
equipment delivery timing and pricing certainty, and to lease any needed
warehouse and administrative facilities as agreed to by the PPC at or proximate
to the proposed Project site contemplated by this LEC Amendment No. 1. The
PPC shall duly develop, approve and authorize an invoicing schedule to collect
required LEC Amendment No.1 funds from Project Participants.
6. Remainder of the Agreement
All other terms and conditions of the Agreement remain in full force and
effect.
7. Effective Date of LEC Amendment No.1
The Effective Date of this LEC Amendment No. 1 shall be the next calendar day
after formal approval by the governing bodies of all Project Members, subject to
the special terms in Section 22 of the Agreement that apply to CDWR.
IN WITNESS WHEREOF, each Project Member has executed this LEC
Amendment No. 1 to the Agreement with the approval of its governing body,
and NCPA has executed this Agreement in accordance with the authorization of
its Commission.
�l
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY Approved as to Legal Form
Date:
BAY AREA RAPID TRANSIT Approved as to Legal Form
By: By:
Date:
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
By:
Date:
CITY OF BIGGS
Date:
Approved as to Legal Form
By:
Approved as to Legal Form
3j
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
By:
Date:
CITY OF GRIDLEY
By:
Date:
Approved as to Legal Form
By:
Approved as to Legal Form
By:
IK
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
By:
Date:
[aI V96)0*IIh1NI1A11181Mel
By:
Date:
Approved as to Legal Form
By:
Approved as to Legal Form
By:
11
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
By:
Date:
CITY OF LODI
By:
Date:
Approved as to Legal Form
By:
Approved as to Legal Form
By:
IN
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
By:
Date:
CITY OF LOMPOC
By:
Date:
Approved as to Legal Form
By:
Approved as to Legal Form
By:
IKj
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
By:
Date:
Approved as to Legal Form
By:
PLUMAS-SIERRA RURAL ELECTRIC Approved as to Legal Form
CK616)10t7:MI MA
By:
Date:
By:
14
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
By:
Date:
PORT OF OAKLAND
By:
Date:
Approved as to Legal Form
By:
Approved as to Legal Form
By:
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
By:
Date:
CITY OF SANTA CLARA
Date:
Approved as to Legal Form
By:
Approved as to Legal Form
IG91
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
By:
Date:
CITY OF UKIAH
Date:
Approved as to Legal Form
By:
Approved as to Legal Form
IVA
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
NON-MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
Date:
CITY OF AZUSA
By:
Date:
Approved as to Legal Form
Approved as to Legal Form
By:
IB]
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
NON-MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
By:
Date:
MODESTO IRRIGATION DISTRICT
Da
Approved as to Legal Form
By:
Approved as to Legal Form
ML
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
NON-MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY
Date:
POWER AND WATER RESOURCES
POOLING AUTHORITY
By:
Da
Approved as to Legal Form
By:
Approved as to Legal Form
PA
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
NON-MEMBERS OF THE NORTHERN CALIFORNIA POWER AGENCY:
NORTHERN CALIFORNIA
POWER AGENCY Approved as to Legal Form
Date:
STATE OF CALIFORNIA DEPARTMENT OF WATER RESOURCES with
respect to its powers and responsibilities for the State Water Resources Development
System
Bv:
Raphael A. Torres, Deputy Director
Da
Approved as to form and legal sufficiency
IRA
David A. Sandino, Chief Counsel
Da
21
LODI ENERGY CENTER - PHASE 2 AGREEMENT, Amendment No.1
9/26/08 NCPA Commission Approved
RESOLUTION NO. 2008-216
A RESOLUTION OF THE LODI CITY COUNCIL AUTHORIZING
THE CITY MANAGER TO EXECUTE AMEN DM ENT NO. 1 TO THE
SECOND PHASE AGREEMENT FOR FUNDING THE PLANNINGAND
DEVELOPMENT ACTIVITIES OF THE LODI ENERGY CENTER
WHEREAS, Lodi is a memberof the Northern California PowerAgency ("NCPA)
and by way of City Council Resolution 2007-247 is a Project Participant in the Second
Phase Agreement (Agreement) for Funding the Planning and Development Activities of
the Lodi Energy Center (LEC); and
WHEREAS, on or about March 1, 2008, NCPA had attained 100% Project
subscription along with fully executed Agreements from all Project Participants including
Lodi; and
WHEREAS, the Project Participants met on March 6, 2008, and formed the
Project Participant Committee (PPC) as contemplated in the Agreement and such PPC
directed NCPA staff to commence Phase 2A Project activities; and
WHEREAS, on June 30, 2008, the PPC directed the NCPA LEC Project
Manager to commence Phase 28 activities on or about August 1,2008; and
WHEREAS, Project related air resources agency and CEC Application for
Certification (AFC) applications were submitted during August and September 2008,
respectively; and
WHEREAS, the Project Participants are aware that certain critical power
equipment, such as the gas and steam turbine components of the power island
assembly, require significant lead times for fabrication and delivery, and thus such
equipment must be ordered in a timely manner to support LEC's construction and
scheduled Commercial Operation Date of April 2012; and
WHEREAS, the Project Participants are additionally aware of the recent rapid
escalation trends of power generation construction and equipment costs and
consequently desire to control the delivered cost of certain LEC power island equipment
by making a deposit to secure a manufacturing schedule slot or taking other actions to
secure a known delivered cost for such equipment; and
WHEREAS, the Project Participants desire to amend the Phase 28 activities
described in the Agreement to provide for the timely delivery and cost certainty of critical
power island components through advanced equipment ordering, securing equipment,
manufacturing schedule, and/or pricing options, or other method in order to attain
deliverytiming and cost certainty of critical LEC equipment; and
WHEREAS, the Parties desire to amend the Phase 28 activities described in the
Agreement to include the leasing of any needed warehouse and administrative facilities
located at or proximate to the proposed Project site in order to provide for timely and
adequate staff work space and secure equipment and materials storage; and
WHEREAS, in order to fund the expected cost to attain power island equipment
delivery timing and pricing certainty, the Project Participants are willing to increase the
Phase 2B portion of the Agreement budget by up to $15 million, for a total Phase 2B
budget amount of $24 million ($9 million currently approved plus the proposed added
$15 million), and thus resulting in a revised combined LEC Phase 2A and 213 budget of
$40 million ($16 million for Phase 2A plus the proposed revised Phase 2B amount of
$24 million) of which Lodi will be responsiblefor its proportionate share; and
WHEREAS, Lodi acknowledges that expenditures/deposits/option premiums
incurred to attain greater equipment delivery and pricing certainty may not be
refundable, in whole or in part, in the event that the LEC is not ultimately financed or
constructed; and
WHEREAS, Lodi received from NCPA a 30 -day advance written notice to all
Project Participants by memorandum dated August 22, 2008, of its intent to seek NCPA
Commission approval to execute LEC Amendment No. 1 at NCPA's September 26,
2008, Commission meeting; and
WHEREAS, the NCPA Commission did approve execution of the LEC
Amendment No. 1 at NCPA's September 26, 2008, Commission meeting; and
WHEREAS, Amendment No. 1 to the Agreement will provide an opportunity for
the Project Participants including Lodi to explore and implement options to meet key
equipment delivery timing and cost requirements associated with the LEC Project and
therefore to help Lodi meet capacity and energy power goals, reduce reliance on third -
party power purchase agreements, and assist the State of California in meeting its
reserve requirements and energy goals.
NOW, THEREFORE, BE IT RESOLVED that the Lodi City Council does hereby
authorize (i) the City Manager to execute Amendment No. 1 to the Second Phase
Agreement for Funding the Planning and Development Activities of the Lodi Energy
Center and (ii) the Electric Utility Director to implement and administer such amended
Agreement in accordance with its terms.
Dated: November 5,2008
I hereby certify that Resolution No. 2008-216 was passed and adopted by the
City Council of the City of Lodi in a regular meeting held November 5, 2008, by the
following vote:
AYES: COUNCIL MEMBERS — Hitchcock, Hansen, Johnson, Katzakian,
and Mayor Mounce
NOES: COUNCIL MEMBERS— None
ABSENT: COUNCIL MEMBERS— None
ABSTAIN: COUNCIL MEMBERS— None
&OHL
City Clerk
2008-216
IWDF
% L efimikk, 1111'>111- I
i I Vto 0��* I I
Lodi Energy Center
City Council
November 5, 2008
Background
Lodi and 13 other public electric utilities are
participants in Lodi Energy Center
The LEC is to be a 255MW combined cycle
natural gas fired power plant
Located adjacent to existing NCPA STIG plant at
White Slough Water Treatment Project
• LEC is in development phase (permitting and
detailed engineering)
2
14 Participants
• Azusa
• BART
• Biggs
• CDWR
• Gridley
• Healdsburg
• Lod i
• Lompoc
• Modesto
• Plumas Sierra
• Port of Oakland
• PWRPA
• Santa Clara
• Ukiah
K
Lodi Energy Center
4
Phase 2
Phase 2A(through December 2008)
— Initial engineering studies
— CEC permitting evaluation
— Equipment specification
— Updated cost projections and timelines
— Acquisition of air pollution credits
Phase 2g (through December 2009)
— Detailed engineering
— Acquisition of permits
— Development of Phase 3 agreements
— Preparation of construction RFPs.
6i
LEC Status
• Project development is progressing smoothly
• Site layout and plan completed
• Application for permits submitted to Air District
and to California Energy Commission
Developing facility sharing agreements with
existing STIG owners
Agreement for acquiring recycled water from Lodi
treatment plant in process
• Preparing detailed equipment specifications
Established fuels and financing subcommittees
1.1
Problem
• During Phase 2 work, it was discovered that costs and
lead-times for key power plant equipment were rising
dramatically
• Acquisition of such "Power Island" equipment following
Phase 2 would delay LEC operation by about a year due
to current 24-33 month lead-time
• Power Island equipment includes steam and gas
turbines as well as heat recovery steam generator (-as
much as $150M cost)
7
Impact of LEC Delay
• Project analysis says that the cost of a one
year delay could be significant:
— Additional cost of replacement power of about
$4 million per month
— Increased capital costs of $26 million based
on recent cost trends.
E:1
Solution
• Advance order long lead -term "Power Island" equipment
• Accomplished by obtaining an option on equipment with
a committed pricing structure and a manufacturing "slot"
• Cost of option is typically 7 to 10% of equipment cost
(-$13M more or less)
• Proposed Amendment No. 1 would provide funding for
option (plus a small amount for obtaining administrative
and warehousing space near LEC site)
Amendment No. 1
Adds acquisition of "Power Island" equipment
through option or other mean to Phase 2 work
scope
• Allows project to obtain administrative and
warehousing space at the project site as
required
Increases Phase 2 funding cap by $15M to a
total of $40M
Project Participant Committee would approve
any eventual expenditure " option" arrangement
10
Risk
• As with many projects, developme
can be at risk if project not constru
• All or part of "Option" cost may be
recovered if LEC not built
nt costs
cted
• Amount of recovery dependent on market
conditions at time of option sale
• If project built, option cost simply becomes
a deposit on budgeted equipment costs
11
Phase 2 Budget
($ millions)
12
LEC
Project
Lod i's
Share
Phase 2A
16
1.882
Phase 213
9
1.059
Subtotal
25
2.941
Amendment 1
75
1.765
Total
40
1 4.706
($ millions)
12
Phase 2 Cost Recovery
• Assuming project is constructed,
participants would be reimbursed for
development costs from bond proceeds
• Lodi share of development cost
reimbursement would be $4.7 million
• Timing of first bond issue is Spring 2010
13
Financing Schedule
October 2008
Select Bond Counsel & Financial Advisor
January 2009
Prepare RFP for Underwriter
Mach 2009
Select Underwriter
Summer 2009
Determine Financing Structure
Sept — D ec 2009
Prepare D ocuments & POS
TBD
Financing Commitment
N ovember 2009
CEC L i cense Granted
December 2009
31d Phase Agreement Complete
January 11, 2010
Approval by LEC Finance Subcommittee
January 25, 2010
Approval by LEC PPC
February 11, 2010
Approval by NCPA Finanoe Committee
Feb 2009
Rating Agency Presentations
February 25, 2010
Approval by N CPA Commission
Feb 26 to Mach 9, 2010
Marketing Bonds
Mach 13, 2010
Prepricing
Mach 16, 2010
Pricing/ Sdeof Bonds
March 31, 2010
Closing
14
Summary
• LEC Project Team has identified a need to obtain an
early manufacturing and pricing commitment now for key
"Power Island" equipment
• Alternative is to delay project by a year
• Cost of option could be as much as $15M
• Cost of year delay could be on order of $50M or more
• Amendment No. 1 requires unanimous approval of
participants
• Staff recommends execution of Amendment No. 1 to
Phase 2 Agreement
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Questions/comments?
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