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ITEM #18 CITY OF COLTON AGENDA REPORT FOR THE COLTON PUBLIC FINANCING AUTHORITY MEETING OF OCTOBER 21, 2008 TO: Honorable Chairperson and Authority Members FROM: Jeannette Olko, Electric Utility General Manager SUBJECT: Approval of Resolution to Reimburse Certain Expenditures for the Agua Mansa Expansion Project from the Proceeds of a Proposed Tax -Exempt Financing DATE: October 15, 2008 BACKGROUND: In October of 2007, the Electric Department provided the results to the City Council on the feasibility of increasing the generation capacity of the Agua Mansa Power Plant. In its current configuration, the power plant is not able to produce electricity at a cost less than or equal to the purchase cost available in the electricity market. With growing demand for electricity and with the probability that legislation will require the replacement of coal-fired generation, the utility has need of additional base -load generation resources. On October 16, 2007, the City Council directed staff to proceed with the development of the Agua Mansa Expansion Project, commence activities to support licensing, development of project agreements, financing, and project design, procurement, and construction. Council also directed staff to meet with other SCPPA members to solicit interest in making the Agua Mansa Expansion Project into a SCPPA Study Project. On July 29, 2008, staff advised the City Council that despite efforts in briefing, providing materials to, meeting with, and involving potential participants in project management meetings, the utility did not believe that any participants were sufficiently committed to participate in the project. The Utility would then pursue adding the equipment necessary to convert the existing combustion turbine to a combined cycle system, with a gross output of approximately 60 MW rather than adding another combustion turbine, which would increase the gross output to 120 MW as initially discussed. The alternate configuration will meet the Utility's needs and offer the same economic benefits as originally planned. DISCUSSION/ANALYSIS: Prior to the issuance of bonds, several tasks need to be completed that will be paid for from the operating budget. These tasks include, but are not limited to, completing and filing the application for the SCAQMD Permit and the Mitigated Negative Declaration (MND), preparing and issuing RFPs for major equipment and Engineering, Procurement, and Construction (EPC), and financing document preparation. These expenditures need to be reimbursed to the Utility when the proceeds from the sale of the bonds are available.