HomeMy WebLinkAboutAgenda Report - June 2, 2010 D-08AGENDA ITEM **%
�Q CITY OF LODI
WRI COUNCIL COMMUNICATION
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AGENDA TITLE: Adopt Resolution Approving Termination of the Northern California PowerAgency
Natural Gas Procurement Program Third Phase Agreement and Authorizing the
City Managerto Execute (EUD)
MEETING DATE: June 2,2010
PREPARED BY: Interim Electric Utility Director
RECOMMENDED ACTION: Adopt a resolution approving the termination of the Northern
California PowerAgency Natural Gas Procurement Program Third
Phase Agreement and authorizing the City Manager to execute.
BACKGROUND INFORMATION: In 1991, Lodi entered into the Northern California PowerAgency
(NCPA) Natural Gas Procurement Program (NGPP) Third Phase
Agreement, underwhich NCPA bought fuel and pipeline rights for
Combustion Turbine Project 1 (CTI) and Combustion Turbine Project (CT2), The agreement is
outdated and largely ignored by participants. Over the years, problems with the agreement have arisen.
such as:
• No provision for forward purchases of gas by individual members to fix fuel costs and suit
members' differing risk management practices;
• Requirementthat the NCPA Commission approve purchases above $15,000, which reflects 1991
gas prices and is too low in today's market;
• Turlock Irrigation District wishes to terminate its involvement in the NGPP Agreement;
■ Palo Alto was deemed to terminate its participation in the NGPPAgreement in 1993 by adoption
of an NCPA Commission resolution without formal amendmentto the NGPP;
■ The Natural Gas Information Program eliminated the need for portions of the Agreement.
To remedy these flaws and others, and to update gas procurement practices, NCPA proposes to
terminatethis agreementand replace itwith two new FacilitiesAgreement (FA) schedulesfor CT1 and
CT2 that are consistent with member agreementsfor electric purchases. This termination has no effect
on Lodi Energy Center agreements. FA schedules require only NCPA Commission approval, as they
cover issues that may need revision at times, for reasons such as a changing market or regulatory
environment. The Facilities Committee recommends approval of these new FA Schedules.
The termination is contingent upon approval by the NCPA Commission of the new FA schedules.
FISCAL IMPACT: None.
FUNDING AVAILABLE: Not applicable
A enneth A. Wei el
Interim Electric Utility Director
radt Bartlam, Interim City Manager
CPA
HORTHEAN CALIFORNIA POWER AGENCY
TERMINATION OF
NATURAL GAS PROCUREMENT PROGRAM
THIRD PHASE AGREEMENT
This Termination of Natural Gas Procurement Program Third Phase Agreement ("this
Termination") is made and entered into as of this day of ,2010 by and
between the Northern California Power Agency, a Califomiaj oint powers agency, and the Cities of
Alameda, Lodi, Lompoc, Palo Alto, and Roseville and the Turlock Irrigation District (collectively,
the "Parties") (the Parties other than NCPA are referred to herein as "the Participants"), and
WITNESSETH:
WHEREAS, on March 28,1991, the Commission of the Northern California Power Agency
("the Commission") adopted its resolution no. 91-09, approving the Natural Gas Procurement
Program Service Schedule ("the Service Schedule") authorizingNCPA to procure contract and
other rights for the transportation, storage and supply of natural gas as fuel to the NCPA
Combustion Turbine (CTI) Project, the Combined Cycle (STIG-CT2)Project (Unit One -Lodi and
Unit Two- Ceres also known as Turlock), and for the needs of those NCPA members executing the
Service Schedule; and
WHEREAS, the Service Schedule contemplated that it would be superseded by a "third
phase agreement"; and
WHEREAS, on or about November 6, 1991 NCPA and the Participants entered into the
Natural Gas Procurement Program Third Phase Agreement (" the Third Phase Agreement") as
contemplatedby the Service Schedule and which by its terms superseded the Service Schedule; and
WHEREAS, on or about September 15, 1993 the Commission adopted its resolution no. 93-
16 which transferred the Natural Gas Procurement Program to the STIG-CT2 Project and
additionally attached Cgs Service Schedule A ("Schedu:le A") which is a service schedule related
solely to the Turlock Irrigation District. Said resolution, copies of which were executed by NCPA
and the Turlock Irrigation District, appears to have been intended as a contract. In addition, said
resolution also appears to attempt to terminate the obligations of the City of Palo Alto under the
Third Phase Agreement, and although an amendmentto the Third Phase Agreement to that effect
has not been approved, the Parties have since treated Palo Alto as not being a participant under the
Third Phase Agreement; and
WHEREAS, NCPA is, concurrently with the approval of this Termination, approving new
Schedules as attachmentsto its Facilities Agreement by which NCPA intends to procure contract
and other rights for the transportation, storage and supply of natural gas as fuel to the CT 1 and Unit
One of STIG-CT2. The intention is that each NCPA Project requiring natural gas will have its own
independent Facilities Agreement Schedule defining the terms by which the participants in the
respective projects have determined to acquire natural gas; and
AGENDA ITEM NO. 3.G
MEETING DATE: 05/17/2010
EXHIBIT B - Page 1 of 4
WHEREAS, the Facilities Agreement Schedules upon adoption will supersede the Third
Phase Agreement and the Parties desire to formally terminate the Third Phase; and
WHEREAS, section 25 of the Third Phase Agreement provides that it may not be
terminated without the consent of all Participants and NCPA and unless the means have been
established to timely pay, extinguish, or discharge, without liability to NCPA or any Participant, all
obligations entered into and liabilities incurred under the Third Phase Agreement; and
WHEREAS, this Termination includes the obligation of the Participants to pay for those net
costs and liabilities incurred under the terms of the Third Phase Agreement, whether known or
unknown, and the obligation of NCPA to pay Participants any funds owing under the terms of the
Third Phase Agreement; and
WHEREAS, the new Schedules, to which the Cities of Alameda, Lodi, Lompoc and
Roseville (but not the City of Palo Alto or the Turlock Irrigation District) will be subject as
signatories to the Facilities Agreement, include ratification of pre-existing term gas pipeline
agreements the term of which extends beyond the Effective date of this Termination and entered
into by NCPA under the terms of the Third Phase Agreement. The Cities of Alameda, Lodi,
Lompoc, and Roseville will be responsible for the on-going costs and obligations of those pipeline
agreements under the terms of the Facilities Agreement.
NOW, THEREFORE, the Parties agree as follows:
1. When this Termination takes effect in accordance with Section 6, NCPA shall
immediately cease purchasing natural gas under the Third Phase Agreement or incurring new
obligations under it, and shall immediately begin procurement of natural gas for the CT No. l
Project and Unit One of the STIG-CT No. 2 Project utilizing the new Facilities Agreement
Schedules.
2. Within sixty (60) days NCPA shall provide a closing statement to all Participants for all
known costs or liabilities incurred pursuant to the Third Phase Agreement separately setting forth
all credits and debits (which statement may be included in the monthly NCPA "All Resources
Bill"), and which shall be paid by the Participants in accordance with the terms of the Third Phase
Agreement. Should any Participant be entitled to payment of funds by NCPA, NCPA shall pay such
funds within the same time period during which Participants would he required to pay NCPA. If
and when any unknown costs or liabilities incurred pursuant to the Third Phase Agreement or
pursuant to Resolution no. 93-16 arise, NCPA shall present such net costs to the Participants who
shall pay such costs in accordance with the terms of the Third Phase Agreement or said resolution,
respectively, and if any Participant is entitled to payment of any funds, NCPA shall pay such funds
to such Participant at the same time as the Participant would be obligated to pay funds to NCPA..
The Parties agree that, in accordance with the intent expressed in Resolution no. 93-16,
none of such costs or liabilities shall be allocated to Palo Alto, which shall be treated for purposes
of this Termination as if the Third Phase Agreement had been amended to exclude that Participant
in 1993.
AGENDA ITEM NO.: 3.G
MEETING DATE: 05/17/2010
EXHIBIT B - Page 2 of 4
The Cities of Alameda, Lodi, Lompoc and Roseville acknowledge that, upon approval of
the new Facilities Agreement Schedules as contemplated by this Termination, existing gas pipeline
agreements the term of which extends beyond the Effective Date of this Termination, shall be
deemed to be ratified by the Cities of Alameda, Lodi, Lompoc, and Roseville and authorized by
those new Facilities Agreement Schedules authorizing the NCPA Commission to periodically
authorize contracts with third persons for transportation and storage services. The Cities of
Alameda, Lodi, Lompoc and Roseville agree to pay costs arising out of the preexisting pipeline
agreements under the terms of the Facilities Agreement.
3. 'The Third Phase Agreement is hereby terminated, and except for the obligations to pay
outstanding costs and liabilities, net of any credit or debit adjustments, pursuant to section 2 of this
Termination as well as any unknown net costs that arise subsequent to the closing statement, and
the indemnity obligations of section 30 of the Third Phase Agreement which shall survive this
Termination, all rights, obligations, and liabilities of the Parties to each other with respect to the
Third Phase Agreement are extinguished and released.
4. This Termination may be executed in any number of counterparts and each executed
counterpart shall have the same force and effect as an original instrument and as if all signatories to
all of the counterparts had signed the same instrument.
5. Each Participant executing this Termination warrants and represents that it has agreed to
be bound by the terms of this Termination and that it has been executed after authorization and
approval by its governing body.
6. This Termination shall take effect upon the later of (a) the adoption and effective date
of the Facilities Agreement Schedules for gas purchases for the CTI and Unit One of the STIG-
CT2 project; (b) the effective date of such agreement or agreements by which TID makes
alternative gas purchase, management and transportation arrangements replacing such services
which it may have received directly or indirectly under the Third Phase Agreement or under
Resolution no. 93-16; (c) the effective date of the permanent assignment to TID of its share of all
pipeline rights which NCPA holds and to which TID is entitled to a 50% share on the pipeline
systems of NOVA Gas Transmission Limited, Foothills Pipe Lines Ltd., Gas Transmission
Northwest Corporation and Pacific Gas and Electric Co.; and (d) execution of this Termination by
all Parties.
IN WITNESS WHEREOF the Parties by the signatures of their duly authorized
representatives below have executed and delivered this Termination.
NORTHERN CALIFORNIA POWER AGENCY Approved as to form:
By:
Its:
General Manager
Date:
General Counsel
AGENDA ITEM NO.: 3.G
MEETING DATE: 05/17/2010
EXHIBIT B - Page 3 cf 4
CITY OF ALAMEDA
By:
Date:
CITY OF LODI
By:
Konradt B aril am
Its: Interim City Manager
Date:
CITY OF LOMPOC
By:
Its:
Date:
CITY OF PALO ALTO
By:
Its:
Date:
CITY OF ROSEVILLE
Date:
TURLOCK IRRIGATION DISTRICT
Approved as to form:
City Attorney
Approved as to form:
D. Stephen Schwabauer
City Attorney
Attest:
Randi Johl, City Clerk
Approved as to form:
City Attorney
Approved as to form:
City Attorney
Approved as to form:
City Attorney
Approved as to form:
Its:
General Counsel
Date:
AGENDA ITEM NO.: 3.G
MEETING DATE: 05/17/2010
EXH IBIT B - Page 4 of 4
1381743.3
NCPA Facilities Agreement Schedule FA 9.01
Draft
A. Introduction
Combustion Turbine Project No. 1 ("CT No. 1 ") consumes natural gas as a fuel in order
to generate electric energy for the benefit of the various Project Participants, and the CT
No. 1 Third Phase Agreement specifically defines fuel
resources to be included within the "Project". The Third Phase Agreement also
directs NCPA to fix rates and charges to the Participants to cover fuel supply
obligations for the Project, and directs NCPA to "do all things necessary and
possible to deliver or cause to be delivered to or for the Project Participants in
accordance with the respective Project Entitlement Percentages, the capacity
and energy of the Project in accordance with the operating principles listed in
Appendix B." Further, the CT No. 1 Third Phase Agreement is a Schedule to the
Member Service Agreement which provides that NCPA shall deliver or cause to
be delivered, to the point of delivery, the Members' respective participation share
of capacity and energy subject to Service Schedules attached to the Member
Service Agreement.
This Facilities Agreement Schedule FA 9.01 describes the terms underwhich
NCPA will procure natural gas fuel for Combustion Turbine Project No. 1
B. Contracts, Restrictions and Approvals
NCPA will only procure natural gas fuel input for the CT No. 1 Project from
eligible Third Parties underforms of contracts approved by the NCPA
Commission. Gas supply contracts will be implemented in accordance with
NCPA's Energy Risk Management Policy and Regulations as may
be amended from time to time. In addition, at the direction of the NCPA's
General Manager, or his designee, Project Participants may be called upon to
approve the terms of a particular fuel transaction through the use of a member -executed
confirmation.
C. Economic Dispatch and Daily Fuel Requirements
The CT No. 1 Project currently consists of 5 peaking generators, 2 of which are
located in Alameda, 2 of which are located in Roseville, and 1 of which is located
in Lodi. An agreement selling the Roseville units to the City of Roseville has
been entered into and such sale will be effective in 2010. The capability of each
generating unit is more fully described in FacilitiesAgreement Schedule FA 2.01,
and unless called upon to insure reliability by the California Independent System
Operator, or its successor organization, each generator is economically dispatched in
accordance with the operating procedures detailed in Facilities
Agreement Schedule FA 3.01 and applicable agreements between the
participants. In either case the fuel supply requirementsof the Project are met
though NCPA's contractual relationship with a supplierfor index based gas
delivery. The cost of gas procured for the Project will be passed through to the
Project Participants in accordance with Facilities Agreement Schedule FA 1.01,
this FA Schedule 9.01 and the applicable provisions of the Project Third Phase
Agreement.
D. Forward Gas Purchases and Financial Hedges
In the normal course of business NCPA does not execute forward natural gas
transactions for the potential fuel supply needs of the CT No.1 Project due to the
inherent uncertainty in forecasting fuel supply requirements for small peaking
generators. No financial hedges for fuel supply costs associated with the CT No.
1 Projectwill be implemented pursuant to this Schedule.
NCPAwill assist any Project Participantthat desires to purchase natural gas in
advance for anticipated Project fuel supply needs upon written request of a
Participant provided that NCPA and the requesting Participant have executed an
enabling agreement for such purposes.
E. Member -Supplied Fuel
NCPA's accounting systems are not currently designed to accommodate
Member-suppliedfuel for use in the CT No. 1 Project and therefore Member -supplied
fuel is not permitted.
F. Fuel Transportation and Storage
Natural gas fuel consumed by the CT No. 1 Project must be transported to each
generator site. To obtain necessary transportation rights and services NCPA
Commission may periodically authorize contractswith third parties and/or
authorize subscriptions for transportation and storage services under pipeline
tariffs in accordance with Agency procurement policies and procedures.
NCPA Facilities Agreement Schedule FA 9.05
Draft
A. Introduction
Combustion Turbine Project No. 2 ("CT No. 2") consumes natural gas as a fuel to
generate electric energy for the benefit of the various Project Participants, and
the GT No. 2 Third Phase Agreement specifically defines fuel resources to be
included within the "Project". The Third Phase Agreement also directs NCPA to
fix rates and charges to the Participantsto cover fuel supply obligations for the
Project and directs that NCPA "will remain available to do all things necessary
and practical to deliver or cause to be delivered to or for each Project Participant,
such Project Participant's Project Participation Percentage, of the capacity of the
Project and the energy related thereto" and that "NCPA shall operate the Project,
or cause the Project to be operated in accordance with the principles contained
in the Facilities Agreement, as the same may be amended and supplemented
from time to time". Therefore, this Facilities Agreement Schedule FA 9.05 has
been developed to describe the terms under which NCPA will procure natural
gas fuel for CT No. 2.
B. Contracts, Restrictions and Approvals
NCPA will only procure natural gas fuel input for the CT No. 2 from eligible Third
Parties under forms of contracts approved by the NCPA Commission. Executed
gas supply contracts will be implemented in accordance with NCPA's Energy
Risk Management Policy and Regulations as may be amended from time to time. In
addition, at the direction of the NCPA's General Manager, or his designee, Project
Participants may be called upon to approve the terms of a particularfuel transaction
through the use of a member -executed confirmation.
C. Economic Dispatch and Daily Fuel Requirements
The CT No. 2 consists of one generator, the capability of which is more fully
described in Facilities Agreement Schedule FA 2.05. Unless called upon by the
California Independent System Operator, the CT No. 2 is economically
dispatched in accordance with the operating procedures detailed in Facilities
Agreement Schedule FA 3.05. In either case the fuel supply requirements of the
Project are primarily met though NCPA's contractual relationship with a primary
supplier under a gas management agreement and supplemented with NAESB
agreements with various third Parties to encourage completive fuel supplies.
The cost for gas procured for the Project will be passed through to the Project
Participants in accordance with Facilities Agreement Schedule FA 1.05, this FA
Schedule and the applicable provisions of the CT No. 2 Project Third Phase
Agreement.
D. Forward Gas Purchases and Financial Hedges
NCPA is permitted to purchase natural gas fuel in advance of generation
provided that the term of the purchase does not exceed one month and delivery
would occur within the next calendar month following the transaction.
Transactions of this timing and duration are functionally equivalent to Balance of
Month Energy Transactions underthe NCPA Pooling Agreement. For individual
members contemplating longer term forward fuel purchases, NCPA will assist
any CT No. 2 Project Participantthat so desires upon written request of a
Participant provided that NCPA and the requesting Participant have executed an
enabling agreement for such purposes. No financial hedges for fuel supply costs
associated with the CT No. 2 will be implemented pursuant to this Schedule.
E. Member -Supplied Fuel
NCPA's accounting systems are not currently designed to accommodate
Member -supplied fuel for use in the CT No. 2 Project and therefore Member -supplied
fuel is not permitted.
F. Fuel Transportation and Storage
Natural gas fuel consumed by the CT No. 2 Project must be transported to the
generator site. To obtain necessary transportation rights and services the NCPA
Commission may periodically authorize contracts with third parties and/or
authorize subscriptions for transportation and storage services under pipeline
tariffs in accordance with Agency procurement policies and procedures.
RESOLUTION NO. 2010-73
A RESOLUTION OF THE LODI CITY COUNCIL
APPROVING TERMINATION OF THE NORTHERN CALIFORNIA
POWER AGENCY NATURAL GAS PROCUREMENT PROGRAM THIRD
PHASE AGREEMENT AND AUTHORIZING EXECUTION OF THE
TERMINATION BY THE CITY MANAGER
---T--------------��,..�..�__�..,.�..._____ __-- __-------- --�-- -- --
WHEREAS, on or about November 6, 1991, the Northern California Power Agency
(NCPA), Lodi, and certain other NCPA members entered into the Natural Gas Procurement
Program (NGPP) Third Phase Agreement authorizing NCPA to contract for the transportation,
storage, and supply of natural gas for the needs of Participants; and
WHEREAS, the NGPP Third Phase Agreement does not reflect current gas procurement
practices, and the Parties desire to formally terminate the NGPP Third Phase Agreement; and
WHEREAS, concurrent with the termination of the NGPP Third Phase Agreement,
NCPA will establish new Schedules as attachments to the NCPA Facilities Agreement to allow
NCPA to secure needed fuel transportation, storage, and supply.
NOW, THEREFORE, BE IT RESOLVED that the Lodi City Council does hereby approve
the termination of the NCPA Natural Gas Procurement Program Third Phase Agreement; and
BE IT FURTHER RESOLVED that the City Council authorizes the execution of the
Termination of Natural Gas Procurement Program Third Phase Agreement by the City Manager,
or his designee, in substantially the form presented with such revisions that are mutually
agreeable to the parties that the City Manager or designee finds beneficial.
Dated: June 2, 2010
I hereby certify that Resolution No. 2010-73 was passed and adopted by the City
Council of the City of Lodi in a regular meeting held June 2, 2010, by the following vote:
AYES: COUNCIL MEMBERS — Hansen, Hitchcock, Johnson, Mounce, and
Mayor Katzakian
NOES: COUNCIL MEMBERS — None
ABSENT: COUNCIL MEMBERS —None
ABSTAIN: COUNCIL MEMBERS — None
I JOHL
City Clerk
2010-73