HomeMy WebLinkAbout2007-04-10; Municipal Water District; 633; Fifth Amendment to Water Purchase AgreementCARLSBAD MUNICIPAL WATER DISTRICT - AGENDA BILL
AB#
MTG.
DEPT.
633
4/10/07
Admin.
Services
APPROVAL OF THE FIFTH
AMENDMENT TO THE WATER
PURCHASE AGREEMENT
DEPT. HEAD <^3>^
CITY ATTY. rf&
CITYMGR. ^gr>
RECOMMENDED ACTION:
Adopt Resolution No. 1296 approving the Fifth Amendment to the Water Purchase
Agreement dated September 28, 2004, between Poseidon Resources and the Carlsbad
Municipal Water District.
ITEM EXPLANATION:
On September 28, 2004 the CMWD Board entered into an agreement with Poseidon Resources
regarding the purchase of water for a proposed desalination facility to be located near the
Encina Power Station (the Water Purchase Agreement).
On three separate occasions, the CMWD Board approved extensions of the time for completion
of certain tasks listed in the Water Purchase Agreement: September 26, 2006, November 12,
2006 and January 23, 2007. These extensions were intended to allow work to progress on the
project while the District staff and Poseidon Resources developed amendments to several
sections of the original Water Purchase Agreement requiring attention.
These negotiations have been completed, and staff is recommending that the Board approve
the Fifth Amendment to the Water Purchase Agreement attached to this agenda bill.
In summary, this Fifth Amendment will accomplish the following:
1 The current agreement allows for a potential term of 90 years, comprised of three
consecutive 30-year periods. At the end of each period both CMWD and Poseidon
Resources must agree to extend the term into the next 30-year period. The recommended
amendment provides a process that may be used if, at some time in the future, Poseidon
Resources is not able to extend the existing desalination plant site lease to cover the term of
the Water Purchase Agreement. The costs of pursuing any remedy under this section would
be funded by Poseidon Resources.
2 The current agreement lists a number of actions that must take place in the future, and sets
a date by which each action must be completed. If not completed by the stated date, either
party may terminate the agreement. The recommended 'amendment recognizes that a
number of the specified tasks have been completed, and that the remaining tasks (the
identification of specific system interconnection points, determination of a delivery regime,
the completion of supplemental water purchase agreements by Poseidon Resources, and
receiving the consent of Cabrillo Power to the Water Purchase Agreement) must be
completed by April 1, 2008.
3. The recommended amendment recognizes that the San Diego County Water Authority
(SDCWA) has made a final determination not to proceed with the development of a SDCWA
owned desalination plant on the Cabrillo Power property, and that all parties will now work
with SDCWA to secure the Metropolitan Water District (MWD) subsidy for the production of
desalinated water at the Poseidon Resources owned facility.
4. The recommended amendment provides a process for dealing with any lease default on the
part of Poseidon Resources, and how such a default would be cured. The costs related to
any such default and the cure process would be borne by Poseidon Resources.
5. The recommended amendment suggests the addition of language to the agreement
allowing the Executive Manager of CMWD to approve ministerial changes to the agreement
such as (but not limited to) minor extensions in deadlines, where such extensions do not
affect the statute of limitations.
FISCAL IMPACT:
None.
ENVIRONMENTAL IMPACT:
None.
EXHIBITS:
1. Resolution No. 1296 approving the fifth amendment to the Water Purchase
Agreement dated September 28, 2004, between Poseidon Resources and the
Carlsbad Municipal Water District.
2. Fifth Amendment to the Water Purchase Agreement.
DEPARTMENT CONTACT: Jim Elliott, 760-602-2409, ielli@ci.carlsbad.ca.us
FOR CITY CLERKS USE ONLY.
BOARD ACTION: APPROVED X CONTINUED TO DATE SPECIFIC D
DENIED D CONTINUED TO DATE UNKNOWN D
CONTINUED D RETURNED TO STAFF D
WITHDRAWN D OTHER-SEE MINUTES D
AMENDED D
EXHIBIT 1
1 RESOLUTION NO. 1296
2
A RESOLUTION OF THE BOARD OF DIRECTORS OF CARLSBAD MUNICIPAL
3
WATER DISTRICT (CMWD), APPROVING A FIFTH AMENDMENT TO THE WATER
4
PURCHASE AGREEMENT DATED SEPTEMBER 28, 2004
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7 WHEREAS, the Board of Directors of the Carlsbad Municipal Water District
8 approved a Water Purchase Agreement (Agreement) with Poseidon Resources
9 (Channelside) LLC to purchase from Poseidon up to 25 million gallons of water per day
10 (MGD) of product water, subject to the terms, conditions and arrangements included in
the Agreement; and
12 WHEREAS, by prior approval of the Second, Third and Fourth amendments to
13 i
the Agreement, the deadline for completion of certain actions described in section 2.3.1
14
of the Agreement has been extended to April 30, 2007; and
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WHEREAS, both parties agreed to the Second, Third and Fourth amendments to16
17 the Agreement on September 26, 2006, November 12, 2006 and January 23, 2007,
18 respectively; and
19 WHEREAS, the Carlsbad Municipal Water District staff and the Poseidon
20 Resources (Channelside) LLC staff have completed negotiations on several
21 amendments to the Agreement that require approval of the Carlsbad Municipal Water
22 District Board; and
23
WHEREAS, said amendments will enhance the ability of both parties to achieve
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success in their common goal of delivering desalinated water to the customers of the
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Carlsbad Municipal Water District in a time and manner consistent with the intent of the26
original Agreement;
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NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the
Carlsbad Municipal Water District, as follows
1 That the above recitations are true and correct.
2 That the Board of the Carlsbad Municipal Water District hereby authorize the
Chairman of the Board to execute the Fifth Amendment to the Agreement
PASSED, APPROVED AND ADOPTED at a Special Meeting of the Board of
Directors of the Carlsbad Municipal Water District of the City of Carlsbad on the 10th
day of April 2007, by the following vote:
AYES' Board Members Lewis, Kulchin, Hall, Packard
NOES' None
ABSENT Board Member Nygaard
CLAUDE A LEWIS, President
ATTEST:
LORRAINE M. WOOD,
(SEAL) ' ^
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EXHIBIT 2
FIFTH AMENDMENT TO WATER PURCHASE AGREEMENT
THIS FIFTH AMENDMENT TO WATER PURCHASE AGREEMENT (this "Fifth
Amendment"), dated as of April Q, 2007 is made by and between THE CARLSBAD MUNICIPAL
WATER DISTRICT, a municipal water district (the "District"), and POSEIDON RESOURCES
(CHANNELSIDE) LLC, a Delaware limited liability company ("Poseidon" and collectively with the
District, the "Parties").
RECITALS
WHEREAS, pursuant to the terms of that certain Water Purchase Agreement dated as of
September 28, 2004, by and between the District and Poseidon, as amended by that certain
Amendment to Water Purchase Agreement, dated as of May 19, 2005, that certain Second
Amendment to Water Purchase Agreement, dated as of September 26, 2006, that certain Third
Amendment to Water Purchase Agreement, dated as of November 12,2006; and that certain Fourth
Amendment to Water Purchase Agreement, dated as of January 23, 2007 (as amended, the
"Agreement"), Poseidon has agreed to sell to the District, and the District has agreed to purchase
from Poseidon, up to twenty-five (25) MOD of Product Water (unless otherwise defined herein,
capitalized terms shall have the meanings given to them in the Agreement), subject to the terms,
conditions and arrangements set forth in the Agreement; and
WHEREAS, pursuant to the terms of that certain Agreement Memorializing Certain
Understandings and Establishing a Framework for Cooperation, dated as of April 28, 2005 (the
"Framework Agreement"), by and among the Authority, the City, the District and the RDA, the
parties thereto entered into certain intergovernmental, financial and other matters with respect to a
potential regional desalination project the development of which the Authority was considering (the
"Regional Desalination Project"); and
WHEREAS, on July 27, 2006, the Board of Directors of the Authority voted, among other
things, to: a) not certify the final environmental impact report for the Regional Desalination Project
at the Encina Power Station; b) direct the Authority negotiating team to terminate negotiations with
Poseidon for acquisition of property interests for a Regional Desalination Project at Encina; and c)
reaffirm the Authority's intention to perform its obligations under the Framework Agreement; and
WHEREAS, by letter, dated September 25,2006, the City requested the Authority to clarify
whether the Authority's July 27,2006 Board actions constituted a final determination not to proceed
with a Regional Desalination Project pursuant to Section 10.3 of the Framework Agreement; and
WHEREAS, on October 26, 2006, the Board of Directors of the Authority clarified that the
July 27, 2006 Board action did constitute a final decision not to proceed with the Regional
Desalination Project pursuant to Section 10.3 of the Framework Agreement; and
WHEREAS, the Authority's final decision not to proceed with the Regional Desalination
Project formally triggers the Authority's obligation to assist the Project, which may include without
193684507
EXHIBIT 2
limitation the Authority's applying the Subsidy to the Project or designating the City as the
proponent of the Project for the purpose of receiving the Subsidy, subject to permits and financing
being obtained and construction being commenced on the Project on or before October 1,2008; and
WHEREAS, based on the foregoing, the Parties desire to adjust certain of the deadlines in
and to make certain other adjustments to the Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged by the Parties hereto, the
Parties covenant and agree as follows:
1. Amendments.
(a) The Agreement is hereby amended by adding the following new Section 2.1.6:
2.1.6 Lease Extension. The Parties agree to use commercially reasonable
efforts to obtain the right to extend the term of that certain Ground Lease and
Easement Agreement, dated July 11,2003 (the "Cabrillo Lease"), and entered into by
and between Poseidon and Cabrillo Power I LLC, to be co-extensive with the
Extension Terms available pursuant to Section 2.1.1. If by the date that is three (3)
years prior to the expiration date of the initial term of the Cabrillo Lease Poseidon
has been unable, during the initial Term of this Agreement, to obtain the right to
extend the Cabrillo Lease as described in this Section 2.1.6, then: (a) the District
may negotiate the extension of the Cabrillo Lease as described in this Section 2.1.6
and (b) if necessary, in accordance with the procedures established by law, the matter
may be brought before the District Board of Directors to, in its discretion, make the
findings necessary to use its power of eminent domain to acquire either: (i) an
extension of the Cabrillo Lease as described in this Section 2.1.6 or (ii) the Site and
lease the Site to Poseidon on terms consistent with the Cabrillo Lease and the
extension thereof described in this Section 2.1.6. Such extension or lease shall be in
form and substance reasonably acceptable to the Parties. Poseidon shall pay all costs
associated with such acquisition or condemnation proceedings, shall provide such
adequate security for such costs as the District may reasonably request, and shall
save, indemnify, hold harmless and, if necessary, defend (with counsel acceptable to
the District) the District from and against any and all such condemnation costs
(including without limitation attorneys' fees and costs) and Losses (as defined in
Section 20.1) in accordance with Sections 20.2 and 20.3 hereof. This Section 2.1.6 is
not intended by the Parties to impose upon the District a duty to acquire any real
property interest or otherwise exercise any power of eminent domain.
(b) Section 2.3.1 of the Agreement is hereby amended by deleting it in its entirety and
substituting the following in lieu thereof:
b
193684507
EXHIBIT 2
2.3.1 Certain Events. The Parties acknowledge and agree that: (i)
on June 13,2006, the City certified the Environmental Impact Report for the
Project under CEQA, (ii) as more particularly set forth in that certain
Poseidon Resources Corporation Corrosion Pilot Study, Final Report, dated
May 2, 2006 (the "Study"), a copy of which is attached hereto, designated
Exhibit 2.3.1 and incorporated herein by reference, Poseidon has completed
the development of the System Test pursuant to Section 7.2.1 and the
Consumer Plumbing Test pursuant to Section 7.2.2, and the District hereby
accepts the conclusions of such Study, and (iii) pursuant to Section 8.3, the
Parties determined that the concentration limits for Boron shall be 0.75 mg/1.
Provided it is not in breach of its obligations hereunder, either Party may
terminate this Agreement if, by April 1, 2008: (i) the Parties have not
determined the Interconnection Points pursuant to Section 9.2 (and, if
applicable, entered into the Appurtenant Facilities Agreement), (ii) the Parties
• have not determined the Delivery Regime pursuant to Section 9.3, (iii)
Poseidon has not entered into the Supplemental Agreements in accordance
with Section 1.2, or (iv) Poseidon has not obtained any required consent of
Cabrillo Power I LLC to the District's exercise of its rights under Section
14.2.2.
(c) Section 2.3.2 is hereby amended by replacing "the Determination Date" with
"April 1, 2008" in such section.
(d) Section 3.1.2 of the Agreement is hereby amended by adding the following after
the second sentence thereof:
Since the Authority has made a final decision not to proceed with the
Regional Desalination Project, the Parties shall use commercially reasonable
efforts to cause the Authority to provide the assistance in obtaining the
Subsidy for the Project as contemplated by Section 10.3 of the Framework
Agreement. Such commercially reasonable efforts shall include, if
reasonably requested by Poseidon, the District taking the position that
Poseidon's activities with respect to the Project meet the conditions to the
Authority's obligation to provide such assistance contained in such Section
10.3. Notwithstanding the foregoing, however, the District shall have no
obligation to take the position that Poseidon's activities with respect to the
Project meet the conditions to the Authority's obligation to provide such
assistance contained in such Section 10.3 unless: (i) on or before October 1,
2008, Poseidon provides the District with written notice (and the District may
rely on such notice) that construction financing for the Project has been
obtained, and (ii) construction of the Project commences on or before
October 1,2008, and in that regard, the Parties acknowledge that construction
of the Project shall be deemed to have commenced on or before October 1,
193684507
EXHIBIT 2
2008, if Poseidon has obtained a required approval of any work authorized by
any required Legal Entitlement prior to such date.
(e) Sections 13.1.7 and 13.2.8 are hereby amended by replacing "Monitoring
System" with "System Monitoring Plan" in each such-section.
(f) The Agreement is hereby amended by adding the following new Section 14.6:
14.6. Lease Defaults. Within five (5) days of Poseidon's receipt of
any notice of any event of default with respect to Poseidon under the Cabrillo
Lease, Poseidon shall give the District copies of any such notice. Subject to
any rights of Poseidon's lenders for the Project, if Poseidon is unable or fails
to cure any such event of default, then the District, upon written notice to
Poseidon (or without notice if the District determines, in its reasonable
judgment, that an emergency exists), and without waiving or releasing
Poseidon from any of its obligations under this Agreement or the Cabrillo
Lease, may (but shall not be required to) cure such event of default (to the
extent that the District is capable of curing such event of default) by: (i)
making from its own funds any payments payable by Poseidon under the
Cabrillo Lease, or (ii) performing any other acts on the part of Poseidon that
Poseidon is required to perform under the Cabrillo Lease. Upon the District's
curing such event of default in accordance with this Section 14.6, Poseidon
agrees to repay to the District all sums paid and all reasonable costs and
expenses (including attorneys' fees and costs) incurred by the District in
connection with curing such event of default under the Cabrillo Lease, plus
interest thereon at the Overdue Rate on the Cure Reimbursement Amount
from the date incurred until paid in full (collectively the "Cure
Reimbursement Amount") and until the District actually receives the full
amount of the Cure Reimbursement Obligation from Poseidon, the District
may offset any amounts due to Poseidon under this Agreement by the amount
of the Cure Reimbursement Obligation outstanding from time to time.
(g) The Agreement is hereby amended by adding the following to the end of Section
21.2:
The District hereby authorizes the Executive Manager, on the District's
behalf, to enter into ministerial amendments to this Agreement. An
amendment 'to this Agreement shall be deemed ministerial if the City
Attorney advises the Executive Manager in writing that a proposed
amendment does not require special judgment or discretion and does not have
a material adverse effect on any rights or obligations of the District under the
Agreement. For example, by way of illustration and not by way of limitation,
an amendment to the Agreement that extends a deadline or time for
193684507
EXHIBIT 2
performance but does not impact any statute of limitations and does not
waive any right or increase any burden of the District generally would be
ministerial. After the Executive Manager so executes an amendment deemed
ministerial, such amendment shall be submitted to the Board of Directors of
the District for ratification at the regular meeting of the District next
following the date the Executive Manager executes such amendment;
provided, however, that if the District Board of Directors fails to ratify such
amendment, then it shall be deemed void and of no force or effect.
2. Controlling Law. This Fifth Amendment shall be governed by the laws of the State of
California in accordance with Section 21.5 of the Agreement.
3. Counterparts. This Fifth Amendment may be executed in any number of duplicate
originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be an
original and all taken together shall constitute one and the same instrument.
4. Amendment and Modification Only. The Parties hereby ratify and confirm all of their
obligations under the provisions of the Agreement as amended by this Fifth Amendment.
1936845 07
04/06/07 12:06 FAX 203 327 5563 POSEIDON RESOURCES 121007
EXHIBIT 2
IN WITNESS WHEREOF, the District and Poseidon, intending to be legally bound by the
provisions herein contained, have executed this Fifth Amendment to Water Purchase Agreement
effective as of the date first above written.
AL WATER
Title:
Approved as to Form
By:\ ZrOL#-Xr
Ronald R. Ball
City Attorney
POSEIDON RESOURCES
LLC
Title:
1936845 07