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HomeMy WebLinkAboutPoseidon Resources Corporation - 2006-02-27 0 0 Council/Agency Meeting Held:_ /� Deferre Continued to' dS7 ;W/i9/ 4 WL�Z� ElApproved ❑ Conditionally Approved ❑ Denied C' Ierk9 Sign re Council Meeting Date: 10/17/2005 Department ID Number: ED 05-30 CITY OF HUNTINGTON BEACH REQUEST FOR REDEVELOPMENT AGENCY ACTION SUBMITTED TO: HONORABLE CHAIRMAN AND REDEVELOPMENT AGENCY MEMBERS SUBMITTED BY: PENELOPE CULB ET -GRAF , EXEC VE DIRECTOR PREPARED BY: PAUL EMERY, ACTING DEPUTY EXECUTIVE DIRECTO SUBJECT: AUTHORIZATION TO ENTER INTO NEGOTIATIONS WITH /// POSEIDON RESOURCES CORPORATION Statement of issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachment(s) Statement of Issue: Poseidon Resources Corporation (Poseidon) proposes to construct and operate a seawater desalination plant at a site in the Southeast Coastal Redevelopment Area. The Redevelopment Agency of the City of Huntington Beach would like to ensure projected revenues are protected to the greatest extent possible. Funding Source: Not applicable Recommended Action: Motion to Upon approval or continuance of Conditional Use Permit No. 02-04 and Coastal Development Permit No. 02-05 to permit the Seawater Desalination Project authorize the Executive Director and staff to enter into negotiations with Poseidon Resources Corporation with the intent of preparing an Owner Participation Agreement (OPA) regarding development of a seawater desalination plant. Alternative Action(s): Do not authorize negotiations with Poseidon and advise staff how to proceed. L .. ODUJ c Paz UJ - x rf +r� • REQUEST FOR ACTION 0 MEETING DATE: 10/17/2005 DEPARTMENT ID NUMBERED 05-30 Analysis: Poseidon Resources Corporation proposes to construct and operate a seawater desalination plant at a site in Huntington Beach, located in the Southeast Coastal Redevelopment Project Area. Improvements in redevelopment project areas result in an increased property values within those areas. As such, tax increment generated by the increase in property value would be revenue to the City Redevelopment Agency. The Executive Director proposes that she and/or designated staff negotiate with Poseidon to prepare an Owner Participation Agreement, which would be brought to the Agency for approval and execution, to protect certain expected revenue projections. Three specific revenue provisions to be negotiated include, but are not limited to: In Lieu Property Tax The Agency would propose an agreement that would commit the project developer and any future property owner, public or private, to pay property taxes or an equivalent property tax in-lieu fee to the Redevelopment Agency for the duration of the Redevelopment Plan. This tax or in-lieu fee, assuming the assessed valuation of this property increases by the $186,500,000 construction cost estimate, would equate to 1% of valuation ($1,865,000). Of this $1,865,000, 20% would be allocated to the Housing Set Aside fund and a portion of the balance would then be passed through to other local tax entities. In a best-case scenario just over $1.1 million annually would go to the Redevelopment Agency. The City (as opposed to the Agency) will continue to receive the base year property tax revenue based on existing formulas of this revenue source. Utility Users Tax The Agency stipulates that Poseidon and any successors use of electricity in connection with operation of the project and site would be subject to terms and payments to the City under the City's Utility Users Tax. The Utility Users Tax, Section 3.36.060 of the Municipal Code, was adopted on 1970, when the only known technology for "pumping" water was raising water from the groundwater basin with electrical pumps. Poseidon is treating water, or manufacturing water, by pushing water through reverse osmosis membranes, which is uniquely different from transporting water by pumping. Resolution of this tax issue will need to be resolved through the negotiation of the OPA or through litigation. Poseidon has identified $16.8 million in electricity purchases for the plant. They have further opined that 6% of that electricity is for"non-pumping purposes". Under Poseidon's definition of pumping the City would receive approximately $50,000 annually in Utility Tax revenue from electricity purchases. G:\Emery\RCA-Poseidon Oct 17 2005.doc -2- 10/10/2005 3:22 PM • REQUEST FOR ACTION 0 MEETING DATE: 10/17/2005 DEPARTMENT ID NUMBER:ED 05-30 If it was determined that 100% of the electricity purchased is for the treating or manufacture of water (not pumping) than the City would realize approximately $840,000 annually in Utility Tax revenue from electricity purchases. Additional clarification through the OPA will delineate the sale or use of water by Poseidon and the appropriate application of the 5% tax for the sale of water to any entity that is neither a municipal water department, public utility, county nor municipal water district. Water Quality Funding The Agency would propose Poseidon agree to fund up to $200,000 (current tentative offer) per year in Water Quality programs as decided by the City. The funding could go towards wetlands restoration, bioremediation filtration basins, water quality education and demonstration programs and urban runoff diversion expenses. The City, at its discretion, would be allowed to accumulate funds year-to-year to "bank" future expenditures toward a major project or projects. Staff has determined that an OPA is the most effective vehicle to guarantee these revenues should a sale of the project to a public entity occur. The OPA could be subject to challenge should the successor-in-interest to the project be a public entity. However, the City has a greater likelihood of success in defending terms of the OPA based on state law and the assignment provisions of an OPA. Given the sensitive nature of the negotiation process, the Agency Board is requested to authorize the Executive Director, Deputy Executive Director, and other staff members to confidentially negotiate terms and methodology to ensure the revenues for this project. As with other similar negotiations, staff will provide updates and deal points to the Agency Board. Environmental Status: Not applicable. Attachment(s): City Clerk's Page Number No. Description 1. Letter dated October 10, 2005 from Poseidon Resources Inc. G:\Emery\RCA-Poseidon Oct 17 2005.doc -3- 10/10/2005 3:22 PM ATTACHMENT # 1 P O S E 10D O N R E S O • R C E S Via Messenger October 7,2005 RECEIVE® Dr. Penny Culbreth-Graft City Administrator OCT 10 2005 City of Huntington Beach CITY OF HUNTINGTON BEACH 2000 Main Street ADMINISTRATION OFFICE Huntington Beach, California 92648 Re: Letter of Intent Regarding Water Purchase Agreement and Owner's Participation Agreement Dear Dr.Culbreth-Graft: The purpose of this letter (the "Letter of Intent") is to set forth the commitment of Poseidon Resources Corporation and its subsidiaries ("Poseidon") to provide to the City of Huntington Beach ("City") with the following in connection with the approval by the City of a proposed Water Purchase Agreement and subsequent Owner Participation Agreement to be negotiated and entered into with the Redevelopment Agency: i) the City's right to purchase 3 million gallons per day (3,060 acre-feet/year) of product water from the Huntington Beach seawater desalination facility to be constructed by Poseidon following all regulatory and permit approvals , in accordance with the terms and conditions set forth in this Letter of Intent and -as agreed by the parties in a Water Purchase Agreement, an emergency water supply of up to 10 million gallons per day for up to seven days, and a commitment by Poseidon to enter into an Owner Participation Agreement (an "OPA") with the Redevelopment Agency to provide long term assurance of property tax and other economic benefits, as well as other rights and obligations to be negotiated by the parties. 1. Water Purchase Agreement. Upon direction and approval by the City Council, the City and Poseidon (collectively, the "Parties")intend to negotiate in good faith the defintive terms and conditions of a "Water Purchase Agreement" as generally described in Exhibit A, which is attached hereto and made a part hereof for all purposes (the "Term Sheet"). The Parties intend to complete such negotiations and execute the Water Purchase Agreement by January 31,2006. 2. Owner Participation Agreement. Poseidon and the Redevelopment Agency of the City intend to commence good faith negotiation of an Owner Participation Agreement Poseidon Resources Corporation 3760 Kilroy Airport Way,Suite 260,Long Beach,CA 90806,USA 562-490-2003 Fax:562-490-2403 Executive Office: 1055 Washington Boulevard,Stamford,CT 06901 October 7, 2005 Page 2 ("OPA") on terms and conditions mutually agreed to by the Agency and Poseidon and intend to complete such negotiations and execute the OPA by January 31,2006. 3. Liabili . This Letter of Intent is binding upon Poseidon to i) enter into a Water Purchase Agreement on the terms detailed in the attached Term Sheet, and ii) enter into an OPA with the Agency of the City on mutually agreed upon terms. However, this Letter of Intent does not constitute and will not give rise to any legally binding obligation on the part of the City to enter into such Water Purchase Agreement or OPA. Nothing contained in this Letter of Intent (including the Term Sheet) shall be deemed or construed to be an agreement or obligation of the City to conclude negotiations by the execution of the Water Purchase Agreement or an OPA. The provisions of this Letter of Intent(including the Term Sheet) do not create any rights on the part of either Party. 4. Costs. Each of the Parties shall be responsible for its own costs and expenses relating to the documentation and completion of the Water Purchase Agreement and OPA. 5. Governing Law. This Letter of Intent shall be governed by and construed in accordance with the laws of the State of California without reference to the principles of conflicts of laws. 6. Counterparts. This Letter of Intent may be executed in one or more counterparts, each of which, when executed and delivered, shall be an original,but all of which together shall constitute but one and the same instrument. This Letter of Intent reflects Poseidon's commitment and obligation to enter into the referenced agreements to the benefit of the City of Huntington Beach. Sincerely, On behalf of Walter J.Winrow President&Chief Operating Officer Billy Owens Sr.Vice President Enclosure-Exhibit A Exhibit A SUMMARY OF PRINCIPAL TERMS AND CONDITIONS TO BE INCORPORATED INTO A WATER PURCHASE AGREEMENT PROJECT Reverse osmosis seawater desalination plant capable of delivering up to 56,000 acre-feet/year of desalinated water to be located in the City of Huntington Beach. SELLER Poseidon Resources Corporation, or its affiliate or subsidiary. BUYER The city of Huntington Beach. TERM 30 years from the Project commencing commercial operations. WATER QUANTITY 3 million gallons per day(3,360 acre-feet/year) WATER QUALITY Water to meet all drinking water quality standards under applicable law. DELIVERY POINT As mutually agreed by the Parties within 12 months after execution of the Water Purchase Agreement. DELIVERY SCHEDULE As mutually agreed by the Parties within 24 months after execution of the Water Purchase Agreement and consistent with the Seller's other obligations to sell water from the Project. PRICE Pricing shall be equal to the sum of(A)95%of Buyer's cost of water supplied by the Municipal Water District of Orange County("MWDOC") and (B)any subsidy received by Buyer from the Metropolitan Water District of Southern California("MWD")or any other third party for the purchase of water from the Project. Emergency Water Supply Seller shall deliver up to ten(10)million gallons per day ("MGD")of additional water from the Project, at cost,for up to seven(7) consecutive days in the event of a declared water emergency. RELIABILITY Seller shall deliver water to the Buyer at all times that the Project is operating. 1 0 0 OPERATION/MAINTENANCE Seller shall operate and maintain the Project in accordance with prudent industry practices and applicable laws and regulations. CONDITIONS PRECEDENT Obligations of Buyer and Seller to be subject to mutually- acceptable conditions precedent,including: • Seller having obtained all permits and approvals for the Project • The Project shall have been completed in accordance with applicable law and prudent industry practice FORCE MAJEURE Each party shall be excused from the performance of its obligations to the extent such performance is prevented by an event of force majeure. EVENTS OF DEFAULT The Water Purchase Agreement will include customary events of default. Upon the occurrence of an event of default,the non- defaulting party may pursue any remedies available at law or in equity. REPRESENTATIONS AND The Water Purchase Agreement will include customary WARRANTIES representations and warranties from both Parties. INSURANCE Seller will maintain customary insurance coverage with respect to the Project. RECORDS/INSPECTION Seller to maintain records pertaining to its performance under the Water Purchase Agreement, and Buyer to have right to inspect such records during regular business hours,upon request,to verify quantity, quality and completion of delivery of desalinated water to the Delivery Point. Buyer to have right to inspect Seller's measurement devices periodically during regular business hours to verify that calibration is accurate. ASSIGNMENT The Water Purchase Agreement will contain mutually acceptable assignment provisions,limiting Seller's ability to assign the Agreement only to parties with the capability to perform the obligations under the Water Purchase Agreement and as security for the financing of the Project. GOVERNING LAW California. 2 R A ROUTING SH T INITIATING DEPARTMENT: Economic Development SUBJECT: Authorization to Enter Into Negotiaitons with Poseidon Resources Corporation COUNCIL MEETING DATE: October 17, 2005 RCA ATTACHMENTS STATUS Ordinance (w/exhibits & legislative draft if applicable) Attached ❑ Not Applicable Resolution (w/exhibits & legislative draft if applicable) Attached ❑ Not Applicable Tract Map, Location Map and/or other Exhibits Attached ❑ Not Applicable Attached ❑ Contract/Agreement (w/exhibits if applicable) Not Applicable (Signed in full by the City Attorney Attached ❑ Subleases, Third Party Agreements, etc. Not Applicable Approved as to form by City Attome ) El Certificates of Insurance b the City Attome Attached (Approved Y Y Y) Not Applicable Attached Fiscal Impact Statement (Unbudget, over$5,000) Not Ap licable Attached ❑ Bonds (If applicable) Not Applicable Attached ❑ Staff Report (If applicable) Not Applicable Commission, Board or Committee Report If applicable) Attached ❑ p ( pp ) Not Applicable s/Conditions for Approval and/or Denial Attached ❑ Findin g pp Not Applicable EXPLANATION FOR MISSING ATTACHMENTS REVIEWED RETURNED FORWARDED Administrative Staff ) ( ) Assistant City Administrator Initial pL City Administrator Initial City Clerk ) EXPLANATION FOR RETURN OF ITEM: Only)(Below Space For City Clerk's Use RCA Author: