Requested Action

 

This memorandum seeks Council approval of the following items, all related to the Magnolia Power Project:

1. Amendment No. 1 to the Burbank Interconnection Agreement between the City of Burbank and the Southern California Public Power Authority.

2. Amendment No. 2 to the Site Lease and Services Agreement between the Southern California Public Power Authority and the City of Burbank.

3. Reimbursement Agreement for GIS Expansion at Olive Switching Station between the City of Burbank and the Southern California Public Power Authority.

Background

 

The Magnolia Power Project (�MPP�) is currently under construction on the Burbank Water & Power plant site and is expected to be completed in the Spring of 2005.  MPP is being financed and constructed by the Southern California Public Power Authority (�SCPPA�) on behalf of the Cities of Burbank, Anaheim, Cerritos, Colton, Glendale and Pasadena.  When completed, MPP will have a maximum output capacity of approximately 310 megawatts.  The six participating cities have varying entitlement shares to that capacity, ranging from Colton�s 4.1% to Anaheim�s 38%.  Burbank�s share is 31%, the second largest.

 

In February 2002, the City Council approved various project agreements relative to Burbank�s participation in the project.  The major project agreements are:

1. Power Sales Agreements, under which SCPPA, as owner, agrees to sell each participant its share of the project output and each participant agrees to pay its proportionate share of debt service and operating costs.

2. Site Lease and Services Agreement, under which Burbank has leased 4.0 acres to SCPPA for the MPP site.  The lease also provides for sharing of space in a new Control and Services Building and sets forth terms for water and electric service that Burbank will furnish to the project facilities.

3. Construction Management and Operating Agreement, under which Burbank manages construction of MPP for SCPPA and will operate the plant when it is completed.

4. Burbank Interconnection Agreement, which provides for interconnection of MPP to Burbank�s Olive Switching Station and transmission service over Burbank�s existing 69 kilovolt distribution system to LADWP�s Receiving Station E, where each participant (except Burbank and Glendale) assumes responsibility for bringing power home to its municipal system. 

The present item involves minor amendments to two of the project agreements and a new agreement by which Burbank will reimburse SCPPA for a portion of the cost of new facilities being added to the existing Olive Switching Station.

 

Amendment No. 1 to the Burbank Interconnection Agreement

 

The original Burbank Interconnection Agreement gives SCPPA the right to construct interconnection facilities at Burbank�s Olive Switching Station.  As compensation to Burbank for the interconnection, the agreement provides, among other things, that SCPPA will bear a share of the ongoing cost of operating and maintaining Olive Switching Station.  SCPPA�s share of these costs is determined by a formula called the �Cost Responsibility Ratio,� which as set forth in Appendix D of the agreement is a simple fraction in which the numerator is the number of �connections� in the switching station used by MPP and the denominator is the total number of all switching station connections (i.e., MPP and non-MPP connections).  A �one-line diagram� showing these connections is set forth in Appendix B to the agreement.

 

The original agreement, as approved by the Council in February 2003, was based on a total of nine connections in the switching station, with none allotted to MPP.  The reason none were allotted to MPP was because the interconnection facilities had not yet been designed, hence the number of connections was unknown.  The design of the facilities is now complete and the facilities in fact are now under construction.  According to the final design, Olive Switching Station will have a total of twelve connections, two of which will be used by MPP.  This means SCPPA will be responsible for 2/12�s, or 16.6%, of the on-going O & M costs of Olive Switching Station.

 

The proposed Amendment No. 1 to the Burbank Interconnection Agreement would revise the one-line diagram set forth in Appendix B to reflect the configuration of Olive Switching Station as it will be when the interconnection facilities are completed.  The proposed amendment would also revise the Cost Responsibility Ratio in Appendix D, based upon the connections shown in the revised Appendix B.

 

Originally, it was intended that changes to the Cost Responsibility Ratio would be handled administratively, (i.e., without having to seek a formal amendment of the agreement) as connections were added to or removed from the switching station.  However, the original agreement did not include a way to revise the one-line diagram that determines the total number of connections in the station.  The proposed amendment corrects that oversight and would permit both the one-line diagram and the Cost Responsibility Ratio to be revised administratively to reflect future changes in the configuration of Olive Switching Station.

 

The proposed Amendment No. 1 to the Burbank Interconnection Agreement is attached to this memorandum as Exhibit A.  The Amendment has been approved by SCPPA.

 

Amendment No. 2 to the Site Lease and Services Agreement

 

The original Site Lease and Services Agreement was approved by the City Council in April 2002.  The lease gives SCPPA the right to use three acres in the north-easterly quadrant of the BWP facility for an initial term expiring in December 2035, with a right to renew until 2057 � a maximum term of 55 years.  It also granted SCPPA an option to expand the leasehold area by an additional acre, which SCPPA has since exercised.  Rent during the initial thirty-year term is approximately $35,000 per month for the four-acre site. In addition, the lease allows SCPPA to construct a Control and Services Building where the old Magnolia 1 and 2 generators were located.  Burbank and SCPPA will occupy the completed structure.

 

Amendment No. 1 to the Site Lease and Services Agreement was approved in February 2003.  Its most important provision was to extend the initial term by one year, to December 2036, to coincide with the term of the project bonds, as requested by the project�s underwriters.

 

The proposed Amendment No. 2 to the lease would revise Appendices A and B only.  Appendix A sets forth a diagram of the 4.0 acre leasehold area. In the original lease, the diagram reflected the parties� best projection (as of April 2002) of what the footprint of the MPP site would look like, though most of the detailed engineering work remained to be done.  The boundaries of the site have changed slightly now that most of the engineering work is finished, and it is necessary to amend Appendix A to reflect the true location of the project boundaries in relation to the larger BWP facility.  Amendment No. 2 would make this change to Appendix A.

 

Appendix B of the lease sets forth the terms for water and electric service provided to MPP by Burbank.  The lease provides that when MPP is not in operation and Burbank is called upon to furnish electricity to the generation station, SCPPA will compensate Burbank by returning energy of like quantity and quality once MPP resumes operations.  At Burbank�s request, SCPPA has agreed to delete this �return-of-energy� provision and replace it with new one under which SCPPA would simply pay Burbank directly for electric service at a cost determined by a published wholesale index (the Intercontinental Exchange Mead 230 Index) in effect when the energy is delivered.  The proposed revision offers a more equitable way of pricing energy furnished by Burbank, given that the cost of energy would likely change before MPP would be able to return �like energy� to Burbank.  The proposed amendment also provides a way for the MPP Coordinating Committee, with Burbank�s concurrence, to select a different index or set a price based upon Burbank�s actual cost of generating such energy.

The proposed Amendment No. 2 to the Site Lease and Services Agreement is attached to this memorandum as Exhibit B.*  The Amendment has been approved by SCPPA.

 

Reimbursement Agreement for GIS Expansion at Olive Switching Station

 

The third item before the Council is a proposed agreement between Burbank and SCPPA under which Burbank would reimburse SCPPA for a portion of the cost of constructing the new interconnection facilities at Olive Switching Station.

 

The interconnection facilities are currently under construction pursuant to a contract awarded by SCPPA to ABB, Inc., in September 2003.  The design incorporates the same �gas insulated switchgear� (�GIS�) technology Burbank has employed in its recent Capon and Hollywood Way substation projects.  Under a right granted to it in the Burbank Interconnection Agreement, Burbank has required SCPPA to increase the size of the interconnection facilities so Burbank can use part of the new capacity for non-MPP purposes. 

 

The new interconnection facilities will add a total of five new �connections� to the switching station.  Two are external and will serve to interconnect MPP to Olive Switching Station.  These are the two connections discussed above with regard to the amendment of the Burbank Interconnection Agreement.  Two other connections are internal to the switching station, merely serving to connect the new GIS facilities to the Olive bus bar.  (Because they are internal, they have not been counted toward the total number of connections for purposes of the determining the "Cost  Responsibility Ratio.")  The fifth connection is for Burbank's exclusive use.