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HomeMy WebLinkAboutMinutes - City Council - unsigned - 1991-05-31 - Special1 05/31/91 City Council, Special Meeting City Hall Conference Room Redding, California May 31, 1991 5:17 p.m. Mayor Buffum called the Special Meeting of the Redding City Council and Joint Meeting with the Electric Utility Commission to order with the following Council Members present: Arness, Fulton (arrived at 5:25 p.m. during closed session), Moss and Buffum. Council Member Dahl was absent. Electric Utility Commissioners present were as follows: Barzin, Gandy, Gelonek, Iwanick, Potter and Prielipp. Commissioner Toney was absent. Also present were City Manager Christofferson, Assistant City Manager McMurry, City Attorney Hays, Electric Utility Director Lindley, Electric Utility Resources Manager Coleman, Utility Planner Brown, Public Information Officer Bachman, City Clerk Nichols, and Secretary/Stenographer Rudolph. Closed Session (C-070-010) Mayor Buffum stated that Council and the Electric Utility Commission will adjourn to closed session pursuant to California Government Code Section 54956.8 to discuss real property negotiations with Redding Power (its negotiator being Armand Ehrlein). At the hour of 5:18 p.m., Mayor Buffum declared the meeting adjourned to closed session. At the hour of 7:00 p.m., Commissioner Gandy left the meeting. At the hour of 7:00 p.m., Mayor Buffum reconvened the meeting to regular session. Presentation re Redding Power (C-070-100) Electric Utility Director Lindley related that in early 1989, the Redding Power Plant (Plant) located on Clear Creek Road began operation. The plant is a wood-fired, utility grade, electric generation project owned by the Redding Power Joint Venture (Redding Power). Financing for the Plant was provided by three financial institutions (National Westminster Bank USA-80%, Home Federal Savings & Loan-18%, and Tri Counties Bank-2%). The financial institutions are presently in the process of foreclosing on the loan. Approximately $38 million of the principal is outstanding. Mr. Lindley explained that on March 5, 1991, National Westminster Bank USA (NatWest) met with staff regarding potential interest in the Plant by the City. During the meeting, NatWest stressed the need to consummate a sale as soon as possible and requested that the City execute a Confidentiality Agreement with Redding Power, which Council approved on April 16, 1991, and designated a negotiating team of Council Member Moss and Council Member Arness to represent the City. Mr. Lindley stated that on May 29, 1991, the negotiating team reached an agreement which is conditioned upon Council approving the Letter of Intent (LOI) by June 1, 1991. The LOI establishes the principles for the City to acquire clear title to the Redding Power Plant for the price of $14.5 million (less than half the amount owed on the outstanding notes, and less than one-third the cost of constructing an identical power project) and indemnifies the City from any costs or penalties that may result in the termination of the sale of power from the Plant to the Pacific Gas & Electric Company (PG&E). The LOI contemplates the execution of a Purchase Agreement within twenty-two business days (approximately one month) after execution of the LOI. Mr. Lindley indicated that if the LOI is approved, the City will need to acquire consulting services within a time frame which is too short to allow for the City's normal consultant selection process. One consultant contract will be required for an independent engineer's report as contemplated in the LOI and as needed for the financing documents. Another consultant contract will be required to complete the necessary tasks (permit transfers, 2 05/31/91 security, equipment maintenance, etc.) between the time when the Plant is acquired and the time when sufficient staff is available to coordinate these tasks and other Plant modifications necessary to meet the projected 1993 commercial operation date. Mr. Lindley stated that if the Plant is acquired, the Electric Department is recommending that the Plant be staffed and modified such that it is capable of transmitting its full power output directly into the City's Electric Utility system and that the Plant's combustion system be modified to producing full output capacity by burning natural gas. Mr. Lindley related that the Electric Department has concluded that such modification and operation of the generation facilities will provide the City's electric utility customers significant net benefits during the first ten years of the Plant's operation and over the life of the Plant (30 years), and that the City's cost of power will be reduced by an amount which is several times the $14.5 million purchase price over the 30-year period. It is the recommendation of staff that the resolution approving the LOI, authorizing the expenditure of $750,000 for the deposit as described in the LOI, authorizing staff to negotiate and the City Manager to sign a consulting contract for the independent engineer's report for an amount not to exceed $70,000; and authorizing staff to negotiate a consulting contract to provide for the transition between Plant ownership and acquisition of staff necessary for coordination of the plant modifications be adopted. Mr. Lindley indicated that although funds for this request are not included in the 1990-91 budget and a supplemental appropriation will be required, sufficient funds exist in the Electric Utility reserves to fund the deposit and the consulting services. The reserve funds, if used, may be refunded to the Electric Utility reserves if and when a new financing occurs to fund the purchase of the Plant. Mayor Buffum asked Chair Potter for the EUC's recommendation and comments. Chair Potter stated that the Commissioners will make individual comments to the City Council. Commissioner Gelonek opined that the purchase of the Redding Power facility is an opportunity for both the City and the rate payer and cannot be postponed. He stated that if the purchase shows a benefit to the rate payer today, then the City should proceed with it. Commissioner Barzin indicated that the project, based on staff's presentation, will be a money maker for the rate payer, and, the plant has enough life left in it for an additional 30 years running time; therefore, he stated his support of the purchase. Commissioner Prielipp related that the City Council should accept the Letter of Intent as written. He commented that the purchase will be favorable to the rate payer, and fits into both the short and long term resource plans. Commissioner Iwanick opined that the price is a little high, but it is still a good buy for the City, and recommended that the City go ahead with the project. Chair Potter stated that the project will tie into the California-Oregon Transmission Project (COTP) and strengthen the City's position. The plant will operate with gas has the ability to expand with a minimal dollar investment. He said that this it is an opportunity that should not be turned down, even if the price is perceived to be higher than the salvage value. MOTION: Made by Commissioner Prielipp, seconded by Commissioner Gelonek, that the Electric Utility Commission recommend that the Redding City Council accept the Letter of Intent as written and as signed by their negotiator, Armand S. Ehrlein. Voting was as follows: Ayes: Commissioners: Barzin, Gelonek, Iwanick, Prielipp, and Potter 3 05/31/91 Noes: Commissioners: None Absent: Commissioners: Gandy and Toney MOTION: Made by Council Member Arness, seconded by Council Member Moss, that Resolution No. 91-221 be adopted, a resolution of the City Council of the City of Redding approving the Letter of Intent (LOI) to purchase the Redding Power Plant located on Clear Creek Road, authorizing the expenditure of $750,000 for the deposit as described in the LOI, authorizing staff to negotiate and the City Manager to sign a consulting contract for the independent engineer's report for an amount not to exceed $70,000, and authorizing staff to negotiate a consulting contract to provide for the transition between Plant ownership and acquisition of staff necessary for coordination of the plant modifications. Voting was as follows: Ayes: Council Members: Arness, Fulton, Moss and Buffum Noes: Council Members: None Absent: Council Members: Dahl Resolution No. 91-221 is on file in the office of the City Clerk. Mayor Buffum opined that the City Council, the Electric Utility Commission and staff have taken advantage of an excellent business opportunity and expressed appreciation to all individuals involved with the transaction. ADJOURNMENT There being no further business, at the hour of 7:11 p.m., Mayor Buffum declared the meeting adjourned. APPROVED: _________________________________ MAYOR ATTEST: __________________________________ Ethel A. Nichols, City Clerk