AGENDA TITLE:
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Adopt a Resolution Authorizing City Manager to Execute Second Phase Agreement for Combustion Turbine Project Number Two Repower Project with Northern California Power Agency (NCPA) and Adopt a Resolution Declaring Intention to Reimburse Expenditures from Proceeds of Obligations Issued by NCPA (EU)
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MEETING DATE:
March 5, 2025
PREPARED BY:
Melissa Price, Assistant Electric Utility Director
recommendation
RECOMMENDED ACTION:
Adopt a resolution authorizing the City Manager to execute a Second Phase Agreement for the Combustion Turbine Project Number Two Repower Project with Northern California Power Agency (NCPA) and adopt a resolution declaring intention to reimburse expenditures from proceeds of obligations issued by NCPA.
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BACKGROUND INFORMATION:
Pursuant to various NCPA agreements and amendments, Lodi and other NCPA members maintain generation entitlement shares of the Combustion Turbine Project Number Two - Unit One (CT2 Project), co-located adjacent to the Lodi Energy Center.
The CT2 Project is a 49.9 megawatt steam injected gas turbine facility built in 1993 and commercially operational in 1996. The CT2 Project has reached its end of life and is no longer serviceable. NCPA proposes to repower the facility and bond finance said improvements on behalf of various member participants.
The Cities of Lodi, Lompoc and Roseville (Project Participants) are interested in retaining or developing power generation to meet the future electric demands of their electric customers by repowering the facility to extend the period of time during which it can operate. A future CT2 Repower Project will continue to provide energy, capacity and the ability to integrate hydrogen as a fuel source in the future.
The second phase of an NCPA Project includes all work performed for project surveys, preliminary investigations, study, design, or development. The proposed Agreement will also include major equipment deposits and procurement on long lead time items.
NCPA has developed the Agreement to conduct the above referenced activities and to enable and obligate the Project Participants to pay for all project costs incurred by NCPA. Each Project Participant and their respective share is listed below:
Participant Percentage MW Est. Second Phase Costs
City of Lodi 45.892% 22.9 $2.3 million
City of Lompoc 10.020% 5.0 $0.5 million
City of Roseville 44.088% 22.0 $2.2 million
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Total 100% 49.9 $5.0 million
Costs associated with the second phase activities are estimated to be approximately five million dollars. NCPA proposes to issue debt for the entire cost of the CT2 Repower Project and use a portion of the proceeds of such debt to reimburse expenditures made for the project prior to debt issuance. The total cost of the CT2 Repower Project, including Second Phase Agreement costs, is forecasted to be $50 million. All debt service will be paid by Project Participants based on their share noted above.
Federal tax regulations allow for the reimbursement of expenditures made prior to the date of bond issuance if the issuer declares an intention to reimburse those expenditures. While NCPA will be the actual legal entity to issue debt, NCPA Bond Counsel has recommended NCPA, as well as all Project Participants, declare their intention. This action preserves the right to reimburse the Project Participants from the proceeds of tax-exempt bonds that would be issued in the future. This action in no way obligates a bond issue, but merely preserves the right to recover previously spent funds through a future bond issuance. While the total cost of the proposed project is currently estimated at $50 million, a maximum not-to-exceed value for debt issuance is a required component of the proposed declaration of intent resolution. Given a market of increasing costs and inflation, the proposed amount is set conservatively at $75 million.
A Third Phase Agreement will be presented for consideration in the near future that would govern the rights and obligations related to the financing, design, construction, operation, as well as sale and purchase of energy and capacity from the CT2 Repower Project. NCPA will separately develop and seek approval of an agreement to terminate the existing CT2 Third Phase Agreement and to allocate and settle any ongoing or undischarged liabilities, credits or obligations.
On January 16, 2025, the Risk Oversight Committee received a report on this item and recommended City Council approval of the Second Phase Agreement for the Combustion Turbine Project Number Two Repower Project with NCPA.
STRATEGIC VISION:
5A. Infrastructure: Invest in innovative infrastructure with a high Return of Investment.
FISCAL IMPACT:
Lodi’s share of the costs for the Second Phase Agreement are estimated at approximately $2.3 million. This Agreement provides for investment in a long-term fixed asset that will help reduce exposure to potential market volatility and risk.
FUNDING AVAILABLE:
Costs associated with this Agreement are funded by Electric Utility Operating Funds (Fund 500) and are appropriated as part of the annual budget process for power supply costs.
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Jeff Berkheimer
Electric Utility Director
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Scott R. Carney
City Manager