CITY OF YUBA CITY STAFF REPORT

Transcription

1 CITY OF YUBA CITY STAFF REPORT Agenda Item 9 Date: January 15, 2013 To: From: Presentation by: Honorable Mayor & Members of the City Council Public Works Department George L. Musallam, Public Works Director - Wastewater Summary Subject: Recommendation: Fiscal Impact: Ground Lease and Easement With Gilroy Energy Center (Calpine) Authorize the City Manager to execute on behalf of the City an acknowledgement modifying the insurance requirement of the lease agreement with Gilroy Energy Center related to City property on Burns Drive in Yuba City None on City Purpose: To provide authority to the City Manager to execute, on behalf of the City, an acknowledgement modifying the insurance requirement of the lease agreement with Gilroy Energy Center related to City property on Burns Drive in Yuba City. Background: On May 2, 2002, Yuba City entered into a Ground Lease and Easement agreement with Gilroy Energy Center (Calpine) providing authority to Calpine to use City property on Burns Drive. The agreement authorizes the construction of gas-fired electric generating facility which has been in operation since The lease agreement required Calpine insurance provider to have certain rating as required by the City s risk management at the time the agreement was executed. Analysis: The lease agreement required Calpine s insurance provider to have a rating of at least A:VII by A.M. Best Insurance Service or equivalent rating agency. This insurance rating is high and the best offered by insurance rating agencies. Calpine has asked that the City issue a waiver of this requirement and accept a lower rating. Their current property insurance provider has an A-rating which is considered excellent in terms of financial strength and ability to meet the obligations required in the agreement. Our risk management does not object to the change if the Council approves Calpine s request. Attached for your information is a copy of a letter from Calpine asking the City to execute an acknowledgment amending the insurance requirement of the executed lease agreement.. Agenda Item 9

2 Fiscal Impact:. Alternatives: None on City Do not approve staff recommendations. Recommendation: Authorize the City Manager to execute, on behalf of the City, an acknowledgement modifying the insurance requirement of the lease agreement with Gilroy Energy Center related to City property on Burns Drive in Yuba City Prepared by: Submitted by: /s/ George L. Musallam George L. Musallam Public Works Director /s/ Steven R. Jepsen Steven R. Jepsen Reviewed by: Department Head Finance City Attorney GM SM TH

3 GILROY ENERGY CENTER, LLC 717 TEXAS A VENUE SUITE HOUSTON, TX December 18, 2012 VIA OVERNIGHT DELIVERY The City of Yuba City 1201 Civic Center Boulevard Yuba City, CA Attn: City Administrator RE: Ground Lease and Easement, dated as of May 2, 2002, by and between The City of Yuba City and Gilroy Energy Center, LLC ("GEC") To Whom It May Concern: Reference is made to that certain Ground Lease and Easement, dated as of May 2, 2002, by and between The City of Yuba City and GEC, as assignee of Feather River Energy Center, LLC (as amended from time to time, the "Ground Lease"). Except as otherwise defined herein, all capitalized terms shall have the meanings given in the Ground Lease. Pursuant to Section 10.1(g) of the Ground Lease, GEC is required to maintain insurance issued by an insurer authorized to do business in the State of California with insurers possessing a rating of at least A:VII by A.M. Best Insurance Service or equivalent rating agency. Enclosed is a letter from Marsh Risk & Insurance Services explaining that two of insurance companies affording property coverage to GEC have an A- rating and that this represents the best terms and conditions reasonably available and commercially feasible in the commercial insurance market for electric generating plants of similar type, geographic location and capacity. Therefore, GEC hereby requests that The City of Yuba City agree to a waiver of the requirement in Section 10.1 (g) of the Ground Lease to maintain insurance issued by an insurer authorized to do business in the State of California with insurers possessing a rating of at least A: VII by A.M. Best Insurance Service or equivalent rating agency. Please indicate your agreement by signing and returning this letter to Katherine Piper at Katherine.piper@calpine.com.

4 December 18, 2012 The City of Yuba Attn: City Administrator Page -2- If you have any questions, please feel free to contact Katherine Piper at (925) Sincerely, Robert Parker Vice President Enclosure(s) AGREED AND ACKNOWLEDGED: The City of Yuba City By: Its: Date:

5 Michael McGowan Managing Director Marsh Risk & Insurance Services 345 California Street, Suite 1300 San Francisco, CA California Insurance License # Michael. V. October 10, 2012 Subject: Insurance Compliance for Gilroy Energy Center, LLC Ground Lease and Easement Agreement To Whom It May Concern: The undersigned, a duly authorized officer of Marsh Risk and Insurance Services ("Insurance Broker") hereby provides this letter to you in accordance with Article 1 0 of the Ground Lease and Easement Agreement dated May 2, 2002 between THE CITY OF YUBA CITY, CALIFORNIA ("Lessor"), and GILROY ENERGY CENTER, LLC, a Delaware limited liability company ("Lessee"). Insurance Broker hereby certifies that, as of the date hereof, Lessee has obtained and is maintaining in full force and effect insurance policies conforming, in all material respects, to the requirements set forth in Article 10 to the Ground Lease and Easement Agreement, except a requirement relating to property insurance, specifically listed below: Article 10.1 (g)- AEGIS (Associated Electric & Gas Insurance Services) currently has an A.M. Best's Rating of A- XII and Torus Specialty Insurance Company currently has an A.M. Best's Rating of A- XI. (Although the two insurer ratings are not in compliance with the A rating, an A- rating is considered Excellent in terms of financial strength and ability to meet ongoing obligations to policyholders as well as it still meets minimum financial security requirements within Marsh.) The exception noted above represents the best terms and conditions reasonably available and commercially feasible in the commercial insurance market for electric generating plants of similar type, geographic location and capacity. Sincerely, /twmj~~ Michael McGowan Managing Director