HomeMy WebLinkAboutAgenda Report - October 5, 2022 H-03CITY OF
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CALIFORNIA
AGENDA ITEM 14�03
COUNCIL COMMUNICATION
AGENDA TITLE: Adopt Resolution Authorizing City Manager to Enter into All Agreements Necessary to
Locate, Develop, Construct, and Operate a 20-48 MW State of California Funded
Natural Gas Power Plant in the City of Lodi
MEETING DATE: October 5, 2022
PREPARED BY: City Manager
RECOMMENDED ACTION: Adopt resolution authorizing City Manager to enter into all agreements
necessary to locate, develop, construct, and operate a 20-48 MW State of
California Funded Natural Gas Power Plant in the City of Lodi.
BACKGROUND INFORMATION: Staff recently learned that the PG&E transmission lines that transmit
power to the City are and will continue to lack the capacity to serve Lodi
during anticipated N-1 contingencies.' The North American Electric
Reliability Corporation (NERC) and Good Utility Practice mandate that transmission service be constructed in
such a fashion that is resilient enough to continue to provide full service in the face of predictable and expected
contingencies. During the unprecedented August/September 2022 heat storm such a contingency occurred on
September 7, 2022, causing one of the three dedicated 60 kV lines that serve Lodi to be shut down, resulting
in PG&E ordering the City to shed 35 MW on extremely short notice. Staff work since that event has revealed
that Lodi will continue to be subject to the risk of this type of load shed, in the event of future expected
contingencies, until at least 2028 when PG&E's 230kV project is anticipated to be constructed.
During the recent NCPA Annual Conference, Staff became aware of a State funded and extremely time
sensitive project to add a natural gas powered peaker plant to the electrical grid. The plant would be
constructed by the State under special legislation approved this year by the Governor 2, and not subject to
normal regulations or environmental review, in order to be up and running in time to avoid power disruptions in
the summer of 2023. Initial plans for the plant in another location fell through, resulting in this opportunity for
the City to have access to power in the event of future N-1 contingencies. The California Department of Water
Resources (DWR) is funding the project, which must be contracted by October 15, 2022, and operational
before the summer of 2023. The plant will be fully funded by DWR. Staff met with DWR staff on September
29 and confirmed the specifics of the program. DWR has contracted directly with Enchanted Rock LLC of
Texas for the plant construction and Lodi would subcontract its rights and obligations through Enchanted Rock.
The plant will only be able to be run during emergency situations to protect the integrity of the state wide or
local electrical grid.
1 An N-1 contingency refers to the loss of a single transmission line or element.
2 AB -205 Energy and AB -209 Energy and Climate Change, approved June 30, 2022 and September 6, 2022, respectively.
X41!
Stephen Schwabauer, City Manager
Adopt Resolution Authorizing City Manager to Enter into All Agreements Necessary to Locate, Develop, Construct, and Operate a 20-
48 MW State of California Funded Natural Gas Power Plant in the City of Lodi
October 5, 2022
Page 2 of 2
To make the project possible the City will need to incur a number of upfront, but reimbursable costs, and
provide a location for the plant. Staff is exploring locations at the former General Mills site, the City's Surface
Water Treatment Plant, and the City's Industrial Substation. Site location will be determined based on a
number of factors that have not been finalized as of the date of this staff report, but include access to adequate
gas supply, access to adequate distribution capacity, and ability to negotiate a lease if the project is located on
privately owned property.
Accordingly, the City Manager requests the City Council adopt a resolution authorizing the City Manager to
enter into the following agreements:
1) An agreement with Enchanted Rock LLC to lease a portion of the City's Industrial Substation at
1215 Thurman Street or the Surface Water Treatment Plant at 2001 West Turner Road, depending
on which site has the most advantageous utility access;
2) Alternatively, and only if the first two options are not serviceable, Staff requests authority to
negotiate a lease with Bond Manufacturing, at a lease price to be determined and subject to the
leasehold being assignable to Enchanted Rock LLC with the cost of the lease to be funded by DWR
through Enchanted Rock;
3) An Agreement with Enchanted Rock LLC for the development and construction of the power plant
at DWR's expense on the terms set forth in the Emergency Generation Site License Term Sheet
attached as Exhibit A to this staff report;
4) Such agreements with consultants as are necessary for City to perform its scope of work for the
project, including, but not limited to a professional services agreement with Scott Flake Consulting,
Inc. for project management; and
5) An agreement with NCPA to provide energy scheduling and operations services for the plant.
6) The City Manager will report back on the status of these agreements with the City Council upon
execution of all agreements or upon failure to negotiate a property lease for a suitable site.
FISCAL IMPACT: Not applicable.
FUNDING AVAILABLE: Funds advanced by City will be reimbursed by California Department of
Water Resources.
Andrew Keys
Deputy City Manager/Internal Services Director
Stephen Schwabauer
City Manager
Attachments: Emergency Generation Site License Term Sheet
Resolution Authorizing the City Manager to Enter into all Agreements Necessary to Locate, Develop,
Construct, and Operate a 20-48 MW State of California Funded Natural Gas Power Plant in the City of
Lodi
Emergency Generation Site License Term Sheet
Preamble
This term sheet summarizes the principal terms of the proposed transactions among the City of Lodi, a municipal
corporation ("Utility") and Enchanted Rock, LLC, a Texas limited liability corporation qualified to do business in
California, and its affiliates ("ERock") as described below. Utility and ERock are referred to individually as a "Party" and
collectively as the "Parties". This term sheet is not intended to include an exhaustive list of any Party's rights or
obligations and does not create any obligations on the part of any Party. All binding obligations will be set forth in one
definitive agreement to be signed by the Parties, and no obligations are created until such definitive agreement is
signed.
Transaction Overview
In order to secure additional emergency generation capacity that will be available quickly and for the next five years
until additional long term capacity resources can be arranged, California Department of Water Resources ("CDWR") is
purchasing [•] MW [TBD] of natural gas reciprocating generators and associated equipment (the "Gen Sets") from
ERock, but it requires a site on which to locate and operate the Gen Sets. Utility is prepared to license site(s) that could
be used for these purposes to ERock and to allow ERock to sublicense such site(s) to CDWR for the foregoing purposes.
Therefore, to aid ERock and CDWR in accomplishing its objective of securing additional generation capacity, ERock and
Utility will enter into a Site License Agreement that provides for (1) Site Use and (2) certain construction management
services as further described below.
TERM
DESCRIPTION
SITE USE SECTION
Site
Utility will grant ERock a license to exclusively use and occupy a site
("Site") at the [site location TBD], in a location to be agreed upon by the
Parties, for the installation and operation of the Gen Sets. Utility shall
have legal control of the site and rights to license by October 15, 2022.
Sublicense
ERock shall be permitted to sublicense all its rights and obligations with
respect to a Site to CDWR.
Term
From the Execution Date through December 31, 2028
Site Access
ERock will pay Utility a fee ("Fee") of [•] ($X,XXX,XXX.XX) for 2023
Compensation
(prorated per quarter), [•] ($X,XXX,XXX.XX) for each subsequent year of
the Term. The Fee for 2023 will be payable upon execution of the
definitive agreements, and the Fee for subsequent years will be payable
on January 1 of the respective year, or as may be agreed upon by the
Parties.
[California Independent
Utility or assignee will act as CDWR's CAISO SC for the Gen Sets and will
System Operator
schedule them in accordance with CDWR's instructions. Utility will not
Scheduling Coordinator
have any obligation to schedule or dispatch the Gen Sets except in
Services (CAISO SQ'
accordance with instructions from CDWR or the CAISO. However, Utility
will not be required to schedule the Gen Sets in any manner that violates
any applicable permit or law. CDWR will cooperate with Utility and take
all actions necessary for Utility to be designated as scheduling
1 NTD: Scheduling coordinator requirements TBD
TERM
DESCRIPTION
coordinator. CDWR will be entitled to receive all CAISO and other
revenues related to the capacity or output of the Gen Sets and will be
responsible for all CAISO fees, charges, penalties, imbalance charges or
penalties and, if applicable, resource adequacy replacement costs and
shortfall charges. Utility will be entitled to assign the obligations of this
paragraph to NCPA or another qualified SC Service provider
[CAISO SC Services Fee]'
ERock will pay Utility $XX/year annually at the beginning of each
calendar year. For the initial year paid pro rata beginning with COD.
Project Management
ERock will pay utility $XX for project management activities related to
Services
interconnection of the project up to the commercial operation date
("COD") for Utility's expected costs, which shall be reimbursed in
accordance with the overall project milestones schedule. The project
milestone schedule will be determined by the parties and incorporated
into an agreement between the Parties.
Electrical
Utility will complete the study with all expenses related to the
Interconnection Study &
interconnection provided to ERock by October 15, 2022.
Pricing
Electrical
ERock will pay Utility $XX for costs incurred for Utility performed
Interconnection
interconnection scope as delineated in the roles & responsibilities
Reimbursement
document shall be in accordance with the project construction schedule.
Gas Interconnection
ERock shall coordinate with PG&E to supply gas service to the Site
location. All fees associated with PG&E gas service shall be paid by
ERock. Gas service from PG&E's meter shall be included as part of
ERock's project scope.
Gas Scheduling Services
ERock may choose to serve as the qualified gas scheduling service
provider to ensure gas supply to the project or may engage Utility for
such service.
If ERock chooses Utility to provide such service, Utility may assign such
services to NCPA or another qualified service provider and ERock will
pay Utility $XX/year annually at the beginning of each calendar year. For
the initial year paid pro rata beginning with COD.
Contract Closeout:
Anytime following the completion of the third year of the Term, but no
• ROFR
later than the completion of four years of the Term, Utility may notify
• Counter Offer
CDWR of its intent to purchase the Gen Sets, at the end of the term of
• Decommission /
the license between ERock and CDWR, at a price equal to xx% of the
Salvage
estimated equipment value of +/- $yyM, reflecting economic value,
avoided decommissioning costs, and additional avoided
decommissioning administration costs. The Parties acknowledge that
this calculation equates to a total purchase cost to Utility of $zz for the
Gen Sets. Utility may assign this Option to NCPA or another qualified
Gen Set operator. CDWR to be a third party beneficiary to the purchase
option.
' NTD: Scheduling coordinator requirements TBD
TERM
DESCRIPTION
If Utility fails to notify CDWR of its intent to purchase or fails to
negotiate alternative purchase agreement by the completion of four
years of the Term, then ERock will prepare for decommissioning of the
Gen Sets, and at the completion of the Term will perform such
decommissioning including the removal of Gen Sets, commencing no
later than 30 days after Term completion.
Events of Default
The agreement between the Parties will include customary events of
default (following agreed notice and cure periods), including for non-
payment of amounts due and breaches of covenants and
representations, and remedies.
Limited Recourse
Except for gross negligence or willful misconduct, each Party's liability
under the License Agreement in any year will be limited to the amount
of fees payable in such year. No Party will be liable to another Party for
consequential or punitive damages.
RESOLUTION NO. 2022-244
A RESOLUTION OF THE LODI CITY COUNCIL
AUTHORIZING THE CITY MANAGER TO ENTER INTO ALL
AGREEMENTS NECESSARY TO LOCATE, DEVELOP,
CONSTRUCT, AND OPERATE A 20-48 MW STATE OF
CALIFORNIA FUNDED NATURAL GAS POWER PLANT IN
THE CITY OF LODI
WHEREAS, Staff recently learned that the PG&E transmission lines that transmit power
to the City are and will continue to lack the capacity to serve Lodi during anticipated N-1
contingencies; and
WHEREAS, during the unprecedented August/September 2022 heat storm such a
contingency occurred on September 7, 2022, causing one of the three dedicated 60 kV lines that
serve Lodi to be shut down, resulting in PG&E ordering the City to shed 35 MW on extremely
short notice; and
WHEREAS, Staff work since the September 7t" event has revealed that Lodi will continue
to be subject to the risk of this type of load shed, in the event of future expected contingencies,
until at least 2028 when PG&E's 230kV project is anticipated to be constructed; and
WHEREAS, Staff became aware of a State funded and extremely time sensitive project
to add a natural gas powered peaker plant to the electrical grid with the plant constructed by
the State under special legislation approved this year by the Governor and not subject to normal
regulations or environmental review; and
WHEREAS, the California Department of Water Resources (DWR) is funding the project,
which must be contracted by October 15, 2022, and operational before the summer of 2023; and
WHEREAS, DWR has contracted directly with Enchanted Rock LLC of Texas for the
plant construction and Lodi would subcontract its rights and obligations through Enchanted Rock;
and
WHEREAS, the proposed Lodi power plant will only be able to be run during emergency
situations to protect the integrity of the state wide or local electrical grid.
NOW, THEREFORE, BE IT RESOLVED, that the Lodi City Council does hereby
authorize the City Manager to enter into all agreements necessary to locate, develop, construct,
and operate a 20-48 MW State of California funded natural gas power plant in the City of Lodi,
approved as to form by the City Attorney, including, but not limited to the following:
1) An agreement with Enchanted Rock LLC, a Texas limited liability company authorized
to do business in California, to lease a portion of the City's Industrial Substation at
1215 Thurman Street or the Surface Water Treatment Plant at 2001 West Turner
Road, depending on which site has the most advantageous utility access;
2) Alternatively, and only if the first two options set forth in paragraph 1 are not
serviceable, authority to negotiate a lease with Bond Manufacturing, at a lease price
to be determined and subject to the leasehold being assignable to Enchanted Rock
LLC with the cost of the lease to be funded by DWR through Enchanted Rock;
3) An Agreement with Enchanted Rock LLC for the development and construction of the
power plant at DWR's expense on the terms to be set forth an Emergency Generation
Site License Term Sheet;
4) Such agreements with consultants as are necessary for City to perform its scope of
work for the project, including, but not limited to a professional services agreement
with Scott Flake Consulting, Inc. for project management; and
5) An agreement with NCPA to provide energy scheduling and operations services for
the plant.
6) The City Manager will report back on the status of these agreements with the City
Council upon execution of all agreements or upon failure to negotiate a property lease
for a suitable site.
Dated: October 5, 2022
I hereby certify that Resolution No. 2022-244 was passed and adopted by the City Council of
the City of Lodi in a regular meeting held October 5, 2022, by the following vote:
AYES: COUNCIL MEMBERS — Hothi, Khan, Kuehne, Nakanishi, and
Mayor Chandler
NOES: COUNCIL MEMBERS — None
ABSENT: COUNCIL MEMBERS — None
ABSTAIN: COUNCIL MEMBERS — None
OLIVIA NASHED
City Clerk
2022-244