2005 AGN JUN 07 I06 (6/21/05 #7)

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CITY OF COLTON AGENDA REPORT FOR COUNCIL MEETING OF June 07, 2005 TO: Honorable Mayor and City Council FROM: Jeannette Olko, Electric Utility General Manager SUBJECT: Approve and Adopt Resolution for Gas Sales Agreement in connection with SCPPA Gas Acquisition Project DATE: June 2, 2005 Item #6 BACKGROUND: On February 1, 2005, Council authorized the City to enter into an agreement with Southern California Public Power Authority (SCPPA) for the City's participation in a project to acquire natural gas rights and related facilities ("Gas Sales Agreement"). It is the goal of this project to lock in gas availability and stabilize power generation fuel costs for all participants. SCPPA will purchase non-operating working interest in up to eight gas field acquisitions until the aggregate elections of all participants are met. Each acquisition will include an undivided interest in existing oil and gas leases for proven, developed, and producing gas properties and the associated extraction facilities. SCPPA may own all, a majority, or a minority interest in each acquisition, with the gas field operator holding any remaining interest. SCPPA will enter into an operating agreement that will establish the relationship among the gas field owners and provide a means of extracting, processing, and delivering the gas from the property to the inlet of an interstate pipeline, where 100% of the gas produced will be sold by SCPPA to the participating members for the life of the contract, which is expected to be 20-25 years. The Cities of Anaheim, Glendale, Los Angeles, and Pasadena are also participating in the project, as well as Turlock Irrigation District. DISCUSSION/ANALYSIS: The initial Gas Sales Agreement that was approved in February has not been executed because of subsequent changes in the status among some of the participants, which in turn required further modifications to the Gas Sales Agreement. It is therefore prudent that the revised Gas Sales Agreement and associated ordinance and resolution be brought back to Council for approval. The changes include the following: (1) the City of Burbank has elected not to participate in the project; therefore, they are no longer a Project A participant, and will not be part of the financing for the project; (2) LADWP has elected to execute a separate agreement with SCPPA and will be considered a Project C participant; (3) the City of Colton Electric Utility has lowered its nomination from 1,000 mmbtu/day to 500 mmbtu/day. As a result of these changes, the Project A participants are the Cities of Anaheim and Colton, and Project B participants are the Cities of Glendale and Pasadena. Project A participants will finance