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HomeMy WebLinkAbout13 - Gas Sale Agreement with Hoag Memorial Hospital PrebyterianCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 13 May 13, 2003 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Utilities Department Eldon Davidson, (949) 718 -3400, edavidson @city.newport- beach.ca.us SUBJECT: Gas Sale Agreement With Hoag Memorial Hospital Presbyterian ISSUE: Should the City Council approve the agreement amendment for the sale of gas? RECOMMENDATION: Approve the Amendment to the Agreement for Sale of Gas to Hoag Memorial Hospital Presbyterian. DISCUSSION: Background: Since February 11, 1985, the City of Newport Beach has sold excess natural gas produced from the 16 city -owned oil and gas wells to Hoag Hospital Memorial Presbyterian. An initial agreement was executed in 1985 and has been amended in 1996 and 2000. This gas is blended with natural gas produced by Hoag and purchased gas from Southern California Gas Company (SCGas). The City sells between 200,000 to 250,000 therms of gas per year to Hoag at a current rate of $0.21 /therm. This rate was developed in 1996 and is based on 75% of the then current SCGas rate. No adjustments have been made to the price since then. Staff requests that an adjustment be made to the price based on the current day prevailing market price per therm as charged by SCGas, which is $0.45 per therm. Based on the 75% factor, the City would then collect $0.33 per therm. Gas Sale Agreement Amendment with Hoag May 13, 2003 Page 2 The City collects $44,000 a year under the current rate of $0.21 /therm. Based on current production and the new rate of $0.33 /therm, the City expects to collect approximately $69,000 a year. Staff is also requesting that the term of the agreement be extended for two years beginning June 1, 2003 through June 1, 2005. On April 23, 2003, Utilities staff met with the Oil & Gas Committee to discuss this issue. The Committee supported the decision to amend the agreement and requested that staff present it to the Council. Environmental Review: There is no environmental impact. Prepared by: Tim Deutsch, Administrative Manager Submitted by: F'�Z= &"66" - Eldon Davidson, Utilities Director Attachments: Sale of Gas Agreement Amendment— May 2003 Sale of Gas Agreement Amendment — December 2000 Sale of Gas Agreement — June 1996 MODIFICATION OF AGREEMENT FOR THE SALE AND DELIVERY OF NATURAL GAS THIS MODIFICATION OF AGREEMENT, made and entered into this day of May, 2003 by and between the City of Newport Beach, a municipal corporation, "City" and Hoag Memorial Hospital Presbyterian, a California non - profit corporation, "Hospital ". RECITALS A. City and Hospital entered into an Agreement for the sale and delivery of natural gas on December 14, 2000, expiring December 14, 2001. B. Section 5A of the Agreement requires Hospital to pay a rate equal to seventy -five percent (75 %) of the Hospital's current delivered gas rate. Now therefore, it is mutual agreed by and between the undersigned parties as follows: 1. Paragraph 1a of the Agreement is modified to read as follows: "The term of this Agreement shall be from June 1, 2003 through June 1, 2005, both dates inclusive" 2. Paragraph 5a of the Agreement is modified to read as follows: "Hospital shall pay for all gas delivered through the City gas transmission facilities at a rate equal to thirty - three cents per therm" 3. Paragraph 5b -1 of the Agreement is modified to read as follows: "City shall invoice Hospital on a monthly basis." IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the first date above written: APPROVED AS TO FORM: Robin Clauson Assistant City Attorney City of Newport Beach, a municipal corporation Homer Bludau City Manager Hoag Memorial Hospital Presbyterian a California non - profit corporation Peter M. Foulke, Exec. Vice President "Hospital" EXTENSION OF AGREEMENT FOR THE SALE AND DELIVERY OF NATURAL GAS THIS EXTENSION OF AGREEMENT, made and entered into this f4'�`day of December, 2000 by and between the City of Newport Beach, a municipal corporation, "City" and Hoag Memorial Hospital Presbyterian, a California non - profit corporation, "Hospital". A. City and Hospital entered into an Agreement for the sale and delivery of natural gas on June 19, 1996, expiring November 30, 2000. B. Section 1B of the Agreement authorizes the Agreement to be extended for an additional twelve (12) months, upon concurrence of both Parties. Now therefore the Parties agree to extend the Agreement for an addition twelve (12) months to November 30, 2001 IN WITNESS WHEREOF, the Parties hereto have executed this Extension of Agreement on the first date above written: APPROVED AS TO FORM: Robin Clauson Assistant City Attorney City of Newport Beach, a municipal corporation Homer BI dau City Manager Hoag Memorial Hospital Presbyterian a California non - profit corporation Peter M. Foulke, Exec. Vice President "Hospital" I AGREEMENT FOR THE SALE AND DELIVERY OF NATURAL GAS TO HOAG MEMORIAL HOSPITAL PRESBYTERIAN THIS AGREEMENT, made and entered into this I V` day of June, 1996 by and between the City of Newport Beach, a municipal corporation, "City" and Hoag Memorial Hospital Presbyterian, a California non - profit corporation, "Hospital ". RECITALS A. City owns and operates oil and gas producing wells with appurtenant facilities and delivery pipelines in West Newport, and; B. City has, as a result of its oil and gas operations, natural gas in excess of its needs; an d; C. City and Hospital have previously agreed to terms for the purchase /sale of natural gas under an Agreement, dated February 11, 1992, and; D. City and Hospital desire to sell /purchase natural gas at a fair market price, and; E. Hospital is a gas consuming entity within the limits of City, and is proximately located to City's facilities, and; F. Hospital desires to purchase City's excess natural gas under the terms of this Agreement, and; G. City and Hospital owned portions of the gas transmission pipeline and appurtenances are described in Exhibit "A ", which is attached and incorporated by reference, and; H. City desires to give Hospital an option to purchase a portion of City's gas pipelines subject to certain conditions, and; I. City and Hospital wish to formalize the terms of the purchase and sale of the natural gas in this Agreement. NOW THEREFORE, in consideration of the foregoing, City and Hospital mutually agree and understand that: 1 `J 1. TERM A. The term of this Agreement shall be from June 1, 1996, through November 30, 2000, both dates inclusive. B. The term of this Agreement may be extended for an additional twelve (12) months pursuant to agreement of the Parties. 2. MAINTENANCE & REPAIR A. The City and Hospital shall each be responsible for repairing and maintaining their respective production facilities, gas pipelines, valves and associated facilities and shall make any necessary repairs in a timely manner. B. City and Hospital each reserve the right to make repairs to the other's production facilities, pipelines, valves and related facilities should any of these facilities fall into a state of disrepair such that immediate repair is necessary to insure the system remains operable. C. Prior to making repairs to the other Party's production and transmission facilities, written notice of the defect shall be given to the other Party requesting that repairs be made. If the party receiving notice has not made repairs within five (5) business. days of the date of receipt of such notice, the Party giving j notice shall have the right to make the repairs and bill the responsible Party for the actual cost of those repairs. 3. CITY'S RESPONSIBILITIES City shall be responsible for: A. Providing natural gas through City owned transmission facilities and gas meter to the Hospital System. B. Making City gas available on a first priority basis to Hospital, provided, however, City's obligation to provide gas to Hospital exists only so long as Hospital is in compliance with the terms and conditions of this Agreement and, provided further, that City shall have the right to sell gas to another user in the event City is producing gas in excess of Hospital's gas consumption requirements. C. Odorizing City produced natural gas with an industry standard odorant chemical. D. Maintaining and operating City owned gas transmission facilities along West Coast Highway to the point of connection to the Hospital System. E. Maintaining a maximum pressure of twelve (12) pounds per square inch (p.s.i.) set at point of connection to Hospital System. 2 6 F. Allow Hospital to maintain the gas pipeline within City's utility easement across Hospital's property via a City issued encroachment permit. G. Calibrating the gas delivery meter and test meter for accuracy at such times as reasonably requested by Hospital. The delivery meter will be operated by City at City's tank farm. H. Granting Hospital a written right -of -entry onto City property to inspect City gas transmission and metering facilities. 4. HOSPITAL'S RESPONSIBILITIES Hospital shall be responsible for: A. Purchasing natural gas delivered by City at the agreed price. B. Purchasing and taking delivery of City gas on a first priority basis, so long as City's gas supply can satisfy Hospital gas needs. C. Maintaining and operating the Hospital System. D. Maintaining and operating the seismic safety valve and vault in Hospital System. E. Operating Hospital System so as to draw gas through City's gas transmission facilities at a more or less continuous demand rate. F. Notifying City of any changes in gas delivery rates or any intention to terminate gas deliveries in accord with this Agreement. G. Granting City a written right -of -entry onto Hospital property to inspect or repair Hospital gas delivery facilities. H. Granting City a written right -of -entry onto Hospital property to inspect or repair City gas delivery facilities. 5. GAS PURCHASE PRICE AND PAYMENT A. Gas Purchase Price Hospital shall pay for all gas delivered through the City gas transmission facilities at a rate equal to seventy -five percent (75 %) of the Hospital's current delivered gas rate, including transmission costs. The current delivered gas rate to Hospital is approximately 29 cents per therm. W 7 B. Payment (1.) City shall invoice Hospital on a quarterly basis. (2.) Hospital shall pay City the amount invoiced within thirty -five (35) days after the invoice is mailed. Funds shall be payable in U.S. Dollars; remittance by check is acceptable. Checks shall be made payable on demand to the "City of Newport,Beach" and shall be directed to the attention of the Revenue Division. (3.) Hospital shall be charged a penalty of one percent (1 %) of the outstanding balance for each thirty (30) days or part thereof for which payment is late. Payment shall be considered late on the fortieth (40th) day after the date after invoice is sent to Hospital by City. C. Priority Gas Purchase (1.) Hospital shall be required to pay for gas during all Hospital requested shutdowns of the gas line that exceed four (4) hours in any thirty (30) day period. Hospital shall pay for gas in an amount equal to the average gas production per day for the preceding three (3) month period. City will provide data to determine this average. (2.) Hospital acknowledges that when the gas shutdown is for more than four (4) hours, City will be required to shutdown the oil production facilities. Hospital shall, in these circumstances make all reasonable efforts to restore gas consumption as soon as possible. (3.) If during a Hospital required shutdown, Hospital can vent City's gas through the gas flare system, City will not have to shutdown production facilities. In this case Hospital is to make every reasonable effort to vent the City's gas. (4.) An interruption in use by acts of God, war, civil commotion, riots, strike, damage to Hospital by reason of fire or other casualty, and/or other casualty, beyond the control of Hospital will not be considered a Hospital requested shutdown. 6. MEASUREMENT A. Volume The volume of the gas delivered to Hospital shall be measured in Million British Thermal Units (MM BTU). 0 1z B. Calculation The City's deliveries of gas sold shall be calculated from the volume of gas taken at City meter installed at the City's oil production facility, and the heating value of gas. Hospital shall have the right to inspect and verify the calibration and accuracy of the City meter at all reasonable times. 7. OPTION TO PURCHASE A. City grants Hospital an option to purchase the right to the exclusive use of that portion of the gas line described in Exhibit "A ". The option shall expire 30 months after the date of this Agreement. To exercise the option, Hospital shall notify City of its intent to exercise the option prior to the expiration date and pay the City seventeen thousand dollars ($17,000) within fifteen (15) days after notice of its intent to exercise the option.. B. In the event Hospital exercises its option to purchase the exclusive right to use the portion of the gas line described in Exhibit "A ", City shall continue to retain title to the gas line, City shall continue to maintain and repair the gas line, and Hospital shall reimburse City for all repair or maintenance costs. C. If Hospital abandons use of said gas line by September 1, 1997, there will be no charge to Hospital for the use of the line. 8. NOTICE A. Notice to City All correspondence shall be sent through United States mail, postage paid, to the following address and attention: City of Newport Beach 3300 Newport Boulevard P.O. Box 1768 Newport Beach, California 92658 -8915 Attention: Don Webb, Director of Public Works B. Notice to. Hospital All correspondence and invoices shall be sent through United States mail, postage paid, to the following address and attention: Hoag Memorial Hospital Presbyterian 301 Newport Boulevard Newport Beach, California 92658 -8913 Attention: Robert Braithwaite, Vice President, Administration 5 q 9. TERMINATION A. Without Cause Both Parties shall have the right to terminate this Agreement without cause upon one hundred and eighty (180) days written notice. B. With Cause (1.) City or Hospital may terminate this Agreement on ten (10) days written notice if the City's gas source is depleted or the quality of gas deteriorates such that in an opinion of qualified engineer, Hospital is unable to feasibly utilize the gas. (2.) City may terminate this Agreement upon ten (10) days written notice if for any reason, except force majeure, Hospital refuses to accept City gas, as provided for in this Agreement, for a period of fourteen (14) consecutive calendar days, unless City has agreed in writing to Hospital non acceptance of gas. 10. RECORDS A. City shall maintain complete and accurate records with respect to metered consumption of gas delivered by City. All such records shall be maintained in accord with generally accepted accounting principles and shall be clearly identified and readily accessible. B. City shall provide free access to the representative of Hospital or its designees at all proper times to such books and records, and gives Hospital the right to examine same, and to make transcripts therefrom as deemed necessary, and to allow inspection of all work, data, documents, proceedings and activities related to this Agreement. 11. WAIVER A waiver by City or Hospital of any breach of any term, covenant, or condition contained herein shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant, or condition contained herein whether of the same or different character. 12. COST OF LITIGATION If any legal action is necessary to enforce any provision of this Agreement or to recover damages proximately caused by a breach of this Agreement, the prevailing Party shall be entitled to reasonable attomeys' fees and costs. 6 13. INTEGRATED CONTRACT This Agreement represents the full and complete understanding of every kind or nature whatsoever between the Parties hereto and all preliminary negotiations and agreements of whatsoever kind or nature are merged herein. No verbal agreement or implied covenant shall be held to vary the provisions hereof. Any modification of this Agreement will be effective only by written execution signed by both City and Hospital. 14. HOLD HARMLESS A. City shall indemnify and hold harmless, Hospital, its boards, officers, agents, and employees from and against any and all loss, damages, liability, claims, suits, costs and expenses, whatsoever, including reasonable costs of litigation, regardless of the merit or outcome of any such claim or suit, arising from or in any manner connected to City's errors, negligent acts, omissions, or work conducted pursuant to this Agreement or arising from or in any manner connected to persons, firms or corporations furnishing or supplying work, services, materials, equipment or supplies on City's behalf pursuant to this Agreement. B. Hospital shall indemnify and hold harmless, City, its City Council, boards and commissions, officers, agents, and employees from and against any and all loss, damages, liability, claims, suits, costs and . expenses, whatsoever, including reasonable costs of litigation, regardless of the merit or outcome of any such claim or suit, arising from or in any manner connected to Hospital's errors, negligent acts, omissions, or work conducted pursuant to this Agreement or arising from or in any manner connected to persons, firms or corporations furnishing or supplying work, services, materials, equipment or supplies on Hospital's behalf pursuant to this Agreement. 7 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the first date above written: APPROVED AS TO FORM: art Burnham Attorney ATTEST: i t City erk Addresses: City of Newport Beach 3300 Newport Boulevard P. O. Box 1768 Newport Beach, CA 92658 -8915 (714) 644 -3011 (714) 646 -5204 fax Attachment: Exhibit "A" F:de \ag \hoag.doc 6 -3 -96 8 City of Newport Beach, a municipal corporation John Hedges, Mayor "City" Hoag Memorial Hospital Presbyterian a California non - profit corporation to Peter M. Foulke, Exec. Vice President "Hospital" Hoag Memorial Hospital Presbyterian 301 Newport Boulevard Newport Beach, CA 92658 -8913 (714) 646 -8901 (714) 646 -7741 fax O > 2 O 0 75 PA12 Z) 0(:JMeN C) r 0 11 I c ve 13 C) CID c CL) < 0 .9 C) tJ E 13