20100719 Regular City Council Meeting - MinutesMINUTES OF THE REGULAR CITY COUNCIL -
LIGHT & POWER MEETING OF THE CITY OF VERNON
HELD MONDAY, JULY 19, 2010, IN THE COUNCIL
CHAMBER OF THE CITY HALL LOCATED AT
4305 SANTA FE AVENUE, VERNON, CALIFORNIA
MEMBERS PRESENT: Gonzales, McCormick, Davis, Maisano, Newmire
MEMBERS ABSENT: None
The meeting was called to order at 8:01 a.m. by Mayor Gonzales.
The City Clerk advised of the following changes to the agenda:
1. The words "End of Consent Calendar" were inserted just
before the "Discussions" heading; and
2. Resolution number 1 concerning an agreement between the
City of Vernon and Associated Energy Partners; LTD was
removed.
The City Clerk announced that this was the time allotted for
public comments.
The Mayor asked if there was anyone in the audience who wished
to address the City Council. No one in the audience responded.
CONSENT CALENDAR
1. Approval of the following open purchase orders for the
2010-2011 fiscal year:
VENDOR
DESCRIPTION
ANNUAL LIMIT
AVF PROCESS CONTROLS
METER REGULATORS
$84,000.00
BELL PIPE & SUPPLY
PIPING /FITTINGS
$36,000.00
MEASUREMENT CONTROL SYSTEMS
GAS METERS, GAS SUPPLIES
$84,000.00
MENON PIPE & SUPPLY
GAS PIPING AND FITTINGS
$36,000.00
P&F DISTRIBUTORS
1PIPE MATERIALS / REPAIRS
$36,000.00
2. Approval of Light & Power Warrant Register No. 283,
totaling $7,936,206.40, which covers the period of June 15
through July 12, 2010, and consists of the following:
a. Ratification of wire transfers totaling $7,752,688.52;
b. Ratification of the issuance of early checks totaling
$74,870.53; and
c. Authorization to issue pending checks totaling
$108,647.35.
3 Approval of Gas Warrant Register No. 71, totaling
$300,119.14, which covers the period of June 15 through
July 12, 2010, and consists of the following:
a. Ratification of wire transfers totaling $256,121.63;
b. Ratification of the issuance of early checks totaling
$16,602.22; and
c.Authorization to issue pending checks totaling
$27,395.29.
4. Resource Procurement Report for the month of April 2010, to
be received and filed.
5. Resource Procurement Report for the month of May 2010, to
be received and filed.
Regular City Council - Light & Power Meeting Minutes
July 19, 2010
It was moved by Davis and seconded by McCormick, that the
matters on the Consent Calendar be approved as recommended.
Motion carried, 5-0.
DISCUSSIONS
1. Project Gust: Update on the progress and process of the
sale of the remaining wind project land in Tehachapi.
Director of Light & Power Donal O'Callaghan reported on
this matter.
The City had sold the first traunch of 12,000 acres for $40
million to a company called Nextera, that is now developing
it. The City has been working with Barclays Capital and
Latham & Watkins to put together documents, including a
Confidential Information Memorandum, to go out to the
market within the next two days.
O'Callaghan anticipated 17-20 companies that would be
interested in the public bidding process option. He stated
that Nextera was the logical choice for the second traunch
since they were already there. Conversations between the
City and Nextera have occurred whereby Nextera asked a lot
of questions regarding the City's goals and objectives, and
what the City's price expectations were for the remaining
traunch of land.
O'Callaghan's target price for the remaining traunch is
similar to that of the first traunch, but he was not
certain that could be achieved because of the land use and
other issues. O'Callaghan anticipated that Nextera would
join in the auction process rather than go it alone. The
best scenario would be for Nextera to come in and pay the
price of land paid for the first traunch, but that did not
seem likely based on conversations and the amount of money
sought ($60 million) and a Power Purchase Agreement that is
a sizeable project in today's market.
Project Gust is viewed as a two-phase process. First,
determining the level of interest within the first month,
and then obtaining final binding offers within the
following month. That is, trying to close the transaction
in October.
A transmission interconnect evaluation is very important as
to how the energy is transported out of the region.
Further, environmental permitting by the City would help
obtain a better price so long as the City could transfer
the permits over to a potential bidder. Wind studies and a
right of way application with Bureau of Land Management
("BLM") were also being considered. O'Callaghan wanted to
look at the possibility of a land swap with the BLM to
bring city parcels closer together or enhancing them in
terms of megawatts produced. Latham & Watkins and Peter
Hervish are exploring these issues.
As for the Power Purchase Agreement for renewable energy,
there is current State legislation requiring 330 of our
load that has to be renewable by 2017, which is
challenging. There is a lot of debate over what that means
and how it's going to be achieved, including whether the
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July 19, 2010
system could even support 330-.. Past conversations with Cal
ISO confirmed that the current transmission system cannot
carry 330-.; 200-o was thought to be more realistic. However,
33% is the City's target with the investment in the
Tehachapi lands with a power purchase agreement to make
that possible. Senate Bill 722 relates to renewable energy
and proposed changes to some of the dates of
implementation. O'Callaghan stressed the need to keep
track of this legislation.
Under Project Gust, the goal is to obtain 500-. or greater of
the purchase price at closing and the remainder returned
over the next three to five years, contrary to the Red Rock
River project where O'Callaghan's'direction was to get all
of the money upfront because he wanted to have the
investment in that land back as soon as possible. This
would ease some of the City's cash flow issues.
O'Callaghan said he would keep the Council apprised of the
negotiations. He noted that the wind land agreement
contained a solar land option, which meant that the City
could purchase it within a year and a half. O'Callaghan
opined that the City would not purchase the land, but hold
the option without the risk of losing the option price, in
anticipation of the price going up.
The last Project Gust item under consideration is whether
the power purchase agreement should be 80 megawatts or 200
megawatts, depending on some of the projections.
O'Callaghan advised the Council that when you want 80
megawatts of wind energy, you have to take 100 megawatts
because the capacity factor on the Tehachapi wind is
probably about 34%. The usable function of 100 mega watts
from the perspective of renewable energy to your load is
34% of 100 mega watts, simply because the wind doesn't blow
all the time. The wind only blows 34% of the time, which
makes it expensive and is the reason for all the current
debates on wind renewable energy.
The discussion regarding Project Volt was continued to 11:00
a.m., when consultants were expected to arrive.
The resolutions related to agreements with Barclays Capital and
Latham & Watkins LLP were also continued to 11:00 a.m.
ORAL REPORTS
1. Brief reports and announcements from the Director of Light
& Power.
Director of Light & Power Donal O'Callaghan reported that
Senate Bill 722 relates to the acceleration of
implementation dates for renewable energy. By 2017, the
legislation requires that the City's portfolio consist of
20% renewable energy. A 4-year acceleration of that
requirement would significantly impact rates as renewable
energy is priced at a premium over traditional resources.
O'Callaghan stressed the importance of working with
Barkley's in closing the wind land deal (Project Gust) in
order for the City's customers to be competitive.
At 8:27 a.m., the City Council recessed into closed session to
discuss the items listed on the closed session agenda.
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July 19, 2010
At 8:30 a.m., the City Council resumed open session.
CLOSED SESSION REPORT OUT
1. The City Attorney reported that the City Council
unanimously voted to appoint Edwin Ochoa to the position of
Associate Resource Scheduler I.
RESOLUTIONS
1. RESOLUTION NO. 2010-91 - A Resolution of the City Council
of the City of Vernon Amending Resolution No. 9639 by
Amending Schedule No. XIII, of Said Resolution Regarding
the Compensation, Costs and Benefits of its Employees
(Amendment No. 17)
It was moved by McCormick and seconded by Maisano, that
Resolution No. 2010-91 be approved and adopted. Motion
carried, 5-0.
At 8:32 a.m., the Mayor called a recess until 11:00 a.m.
At 11:00 a.m., all five members of the City Council reconvened
in open session.
DISCUSSIONS - CONTINUED
2. Project Volt: Update on the progress and process of the
project.
Consultant Eric Fresch informed the Council of two
resolutions for its approval: one for a financial advisory
services agreement with Barclay's Bank and the second for
an agreement with the law firm of Latham & Watkins. The
purpose of the agreements is to allow Fresch to formally
pursue what the Council had recently authorized him to do,
which is seek options to restore the City's Light & Power
Department debt through innovative ways to get financed
funds from Wall Street markets. This would include pension
funds, life insurance companies, and private equity funds
that are interested in investing in infrastructure assets,
which is what the City's Light & Power Department is.
Latham & Watkins is working to be the first to put together
a system utilizing a distribution system for which the rate
payers pay revenues. John Lange, Global Managing Director,
for Barclay's Bank and Dave Rogers of Latham & Watkins were
present. Lange, Rogers and Craig Underwood of Bond
Logistix were identified as the same group of people who
put together the sale of the power plant back in 2008 when
the City netted nearly $400 million dollars that came just
in time to pay off a collapsed bond issue when it went to
150-o. This group, along with Donal O'Callaghan, then went
forward and purchased the wind property in Tehachapi for
$42 million, for which the City netted $40 million after
selling a third of that property.
Fresch was exploring opportunities in the market place
where big funds are not getting their normal return on
investment. The City Attorney's Office will work with
Orrick, Herrington & Sutcliffe, the City's bond counsel, on
this matter. This opportunity was viewed as "fleeting"
since this group usually works with the private markets.
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Regular City Council - Light & Power Meeting Minutes
July 19, 2010
Getting this group into Vernon was an effort gain access to
capital not otherwise available to a small Southeast Los
Angeles city, as compared to the LADWP, Silicon Valley or
the City of Santa Clara. The capital sought would be used
to improve the City's power system, keep customer rates
low, and to maintain and improve the City's infrastructure.
Fresch sees this as a great opportunity for the City's
Light & Power Department to get involved with a number of
capital projects.
Mayor Gonzales viewed this as an opportunity to improve the
City. Gonzales reflected on why the City first went into
the electrical power business back in 1933, when Southern
California Edison ran Vernon's electrical system. The City
decided to change due to the rising cost of electricity
that was a concern to the business community, causing the
City to purchase five diesel turbines to provide electrical
power to the City's business community. Gonzales stated
that the City should try to take advantage of these
opportunities. He wants the City to be here for another
100 years by making the right decisions with the experience
of Fresch, Barclays, and Latham & Watkins.
Councilman Maisano concurred with Mayor Gonzales regarding
the economy and doing everything we can to benefit the
City. He too looked at this as the right move for the
City.
Councilman McCormick stated that the areas Fresch has
helped with have been good for the City in one way or
another.
Councilman Davis agreed with Mayor Gonzales, stating that
the City has been here for so many years, and for all of
the ups and downs, as far as power is concerned, with
Fresch's help, along with Barclays and Latham & Watkins,
this is something to look forward to. Davis commented that
the City needs to look at how long this process is going to
take.
Fresch stated that, "We don't want to sell it [Light &
Power], we are just going to structure something that will
be sort of an asset, and well it's copyrighted. Fresch
will report to the Council on a regular basis, to be
certain they are in agreement with the direction of the
project, and reiterated that this will not be a sale.
Councilman Davis asked if this project would include the
entire electrical system, including transformers,
underground cables, substations, and communication in the
City. Fresch confirmed that it would.
Fresch said this program is not going to be like the City
of Chicago selling their parking meters or parking
structures or LADWP selling their building and their
transmission corridors. This program is a way the City can
access capital at a good return that allows the City to
retire all the debt that is currently in the City's Light &
Power Department, and have capital left over to invest in
something that is good for the City's electric system.
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Regular City Council - Light & Power Meeting Minutes
July 19, 2010
Councilman Newmire complimented Fresch on his vision,
stated that he looks positively to the future, and thanked
Fresch for his involvement.
Interim City Administrator Whitworth wanted to make sure
that everyone was aware of Donal and all others involved in
this project. Fresch has taken on a lot of projects in the
past and it's always in the nature of moving the City
forward and Whitworth wanted to show his support of what
he's done in the past and his hopes that Project Volt is
the injection the City needs to get up and going and moving
forward.
City Attorney Larry Weiner reminded the Council that it had
two resolutions on the agenda: one regarding an agreement
with Barclays Capital and the other regarding an agreement
with Latham & Watkins. Weiner was looking for City Council
approval of the basic financial terms set forth in the
contracts and then direction to authorize the Mayor to
execute the agreement with revisions that are satisfactory
to the City Attorney as they talk a little bit about the
definitions that are set forth in the contract and some of
the other terms that are there to make sure that both
parties are satisfied as to what was intended.
RESOLUTIONS - CONTINUED
1. RESOLUTION NO. 2010-89 - A Resolution of the City Council
of the City of Vernon Approving and Authorizing the
Execution of an Agreement by and between the City of Vernon
and Barclays Capital for Financial Advisory Services in
Connection with Project Volt.
It was moved by McCormick and seconded by Newmire, that
Resolution No. 2010-89 be approved and adopted. Motion
carried, 5-0.
2. RESOLUTION NO. 2010-90 - A Resolution of the City Council
of the City of Vernon Approving and Authorizing the
Execution of an Agreement by and between the City of Vernon
and Latham & Watkins LLP for Legal Services.
It was moved by McCormick and seconded by Maisano, that
Resolution No. 2010-90 be approved and adopted. Motion
carried, 5-0.
At 11:36 a.m., it was moved by McCormick and seconded by Davis,
that the meeting be adjourned. Motion carried.
ATT
Hilario Gonzal s
Mayor
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