HomeMy WebLinkAbout14 Resolution 2023-16 Approving a Qualified Use Certificate for a prepaid Gas Contract AGENDA ITEM #14
Public Utility District m
MEETING DATE: December 6, 2023
TO: Board of Directors
FROM: Jared Carpenter, Electric Utility Director
SUBJECT: Consideration Adoption of Resolution 2023-16 Approving a Qualified
Use Certificate for a Prepaid Gas Contract
APPROVED BY:
Z_
Brian C. Wright, General Manager
RECOMMENDATION:
Adopt Resolution No. 2023-16 Authorizing a Tax Certificate and Agreement for UAMP's
Payson Power Project, and Related Matters
BACKGROUND:
As a member agency of the Utah Associated Municipal Power Systems (UAMPS)the District has
been a participant in the Payson Power Project since 2009. The Payson Project represents the
Nebo Power Station, a 140 megawatt combined cycle gas-fired generating facility in Payson City,
Utah. The facility began operating in June 2004. The facility includes a General Electric Frame 7EA
gas turbine, a heat recovery steam generator, a steam turbine, condensers and a cooling tower
along with related 138 kV and 46 kV electric substations and transmission lines and gas
pipelines. One of the key drivers in the cost of energy generated from this project is the cost of
natural gas. To mitigate the financial impacts of spikes in gas prices, UAMPS has negotiated 5-year
gas purchase to fuel the Nebo Power Plant.
ANALYSIS AND BODY:
The Internal Revenue Code and US Treasury Regulations ("Tax Code and
Regulations") contain special provisions that allow tax-exempt bonds to be issued to
finance prepayments for natural gas and electricity. The prepay transactions are
structured to convert the difference between the issuer's lower (tax-exempt) cost of
funds and the prepaid energy supplier's higher (taxable) cost of funds into a discounted
price for prepaid energy. The initial discount is expected to be at least 7.5% and will be
determined before closing. The amount of the discount will be reset periodically over
the term of the prepay (every five to ten years) when the bonds are refinanced. UAMPS
will assign existing gas or electricity purchase agreements into the prepay transaction
and the discount will be applied to the contract prices under these agreements. The Tax
Code and Regulations require that the prepaid (discounted) gas or electricity (including
electricity that is generated using prepaid natural gas as fuel) be used by UAMPS
members to serve retail customers in their municipal utility service areas. This is
referred to as the "Qualifying Use" requirement. The date of closing has not yet been
determined but will likely take place in Q1 2024. The term of the transaction is thirty
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years.
As a participating member in the Payson Project, staff is recommending approval and
authorization to execute the Qualified Tax Certificate.
Authorization of the Qualified Tax Certificate and Agreement requires Board of Director
approval through resolution (Attachment 1).
GOALS AND OBJECTIVES:
District Code 1 .05.020 Objectives:
1. Responsibly serve the public.
2. Provide a healthy and safe work environment for all District employees.
3. Provide reliable and high quality water supply and distribution system to meet
current and future needs.
4. Provide reliable and high quality electric supply and distribution system to meet
current and future needs.
5. Manage the District in an environmentally sound manner.
6. Manage the District in an effective, efficient and fiscally responsible manner.
District Code 1 .05.030 Goals:
1. Manage for Financial Stability and Resiliency
2. Environmental Stewardship: Create a sustainable resilient environment for all our
communities.
3. Engage with our customers and communities in a welcoming and transparent way to
identify opportunities.
FISCAL IMPACT:
The District purchases a large share of its overall power procurement portfolio by way
of power projects available through our membership with UAMPS. The relative portion
of energy procurement from the Nebo Power Plant can vary widely from month to
month depending on the availability of other generation sources. The District's FY24
Purchased Power Cost Budget forecast for the Payson Power Project (NEBO Power
Plant) represents approximately 10% of the District's overall energy Procurements
($1.4M). While the benefits of the projected 7.5% reduction in natural gas costs will be
carried through to the participating UAMPS members, it is still early to predict the net
reduction in energy costs to the District at this time.
ATTACHMENTS:
1. Attachment 1—Resolution 2023-16 Qualified Tax Certificate Payson Power Project
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â– UCKEE r
Public
Resolution No. 2023-16
Resolution of the Board of Directors of the Truckee
Donner Public Utilities District Authorizing a Tax
Certificate and Agreement for DAMPS' Payson Power
Project, and Related Matters
December 6, 2024
WHEREAS, Truckee Donner Public Utility District (the "Participant") is a member of
Utah Associated Municipal Power Systems ("UAMPS") and is a Participant in the
Payson Power Project (the "Project") under the Payson Power Project Power Sales
Contract dated as of December 1, 2009 (the "Power Sales Contract") between the
Participant and UAMPS;
WHEREAS, Truckee Donner Public Utility District (the "Participant") is a member of
Utah Associated Municipal Power Systems ("UAMPS") and is a Participant in the
Payson Power Project (the "Project") under the Payson Power Project Power Sales
Contract dated as of December 1, 2009 (the "Power Sales Contract") between the
Participant and UAMPS;*
WHEREAS, the Participant has been advised that UAMPS proposes to enter into a
Commodity Supply Contract (the "Supply Contract") with Southeast Energy Authority, a
Cooperative District ("SEA") to purchase a portion of the natural gas necessary for the
operation of the Project at price that reflects a discount from the current contract price of
natural gas for the Project being paid by UAMPS, and that the savings from such
discount will be applied by UAMPS for the benefit of the Participant and the other
Participants in the Project based on their respective Entitlement Shares;
WHEREAS, the Participant has been advised that SEA will issue bonds to finance a
prepayment for the natural gas that it sells to UAMPS under the Supply Contract (the
"Prepay Bonds") with the intention that the interest on the Prepay Bonds will qualify for
tax exemption under Section 103 of the Internal Revenue Code of 1986, as amended
(the "Code"); and
WHEREAS, the Participant acknowledges that its use of the electricity it purchases from
its Entitlement Share under the Power Sales Contract will be subject to certain
restrictions that are necessary to establish and maintain the tax-exempt status of
interest on the Prepay Bonds, and desires to adopt this resolution to authorize a Tax
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Certificate and Agreement that sets forth the Participant's agreement to comply with
such restrictions.
NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF
TRUCKEE DONNER PUBLIC UTILITY DISTRICT, AS FOLLOWS:
Section 1. Approval of Tax Certificate and Agreement. The Tax Certificate and
Agreement, in substantially the form attached hereto as Exhibit A, is hereby authorized
and approved.
Section 2. Authorized Officers; Final Changes and Dating. The Participant's
Representative and Alternate Representative to UAMPS (the "Authorized Officers") are
each hereby authorized to execute and deliver the Tax Certificate and Agreement and
to deliver the same to UAMPS on behalf of the Participant. Each of the Authorized
Officers is hereby delegated authority to approve such changes to the Tax Certificate
and Agreement as are necessary to complete the form thereof, together with any minor
or non-substantive changes, and his or her execution of the Tax Certificate and
Agreement shall be conclusive evidence of such approval. The Authorized Officers shall
deliver an executed and undated copy of the Tax Certificate and Agreement on or prior
to the date requested by UAMPS, and UAMPS is hereby be authorized to deliver the
Tax Certificate and Agreement, dated the issue date of the Prepay Bonds, to SEA on
behalf of the Participant.
Section 3. Other Actions With Respect to the Tax Certificate and Agreement. The
Authorized Officers shall take all action necessary or reasonably required to carry out
and give effect to the Tax Certificate and Agreement including adjusting the priority of
the Participant's resources within the UAMPS Power Pool to ensure the Qualified Use
of the electricity from the Participant's Entitlement Share in the Project.
Section 4. Severability. If any section, paragraph, clause, or provision of this resolution
shall for any reason be held to be invalid or unenforceable, the invalidity or
unenforceability of such section, paragraph, clause, or provision shall not affect any of
the remaining provisions of this resolution.
Section 5. Effective Date. This resolution shall be effective immediately upon its
approval and adoption.
ADOPTED AND APPROVED by the Board of Directors of Truckee Donner Public Utility
District, this day, December 6, 2023
CERTIFICATION I hereby certify that the foregoing Resolution was duly and regularly
adopted by the Board of Directors of the Truckee Donner Public Utility District.
AYES:
NOES:
ABSENT:
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TRUCKEE DONNER PUBLIC UTILITY DISTRICT
By
Jeff Bender, President
ATTEST:
Brian Wright, General Manager
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EXHIBIT A
TAX CERTIFICATE AND AGREEMENT
This Tax Certificate and Agreement is executed in connection with the Commodity Supply
Contract (the "Supply Contract") between Southeast Energy Authority, a Cooperative
District ("SEA") and Utah Associated Municipal Power Systems ("UAMPS").
WHEREAS, TRUCKEE DONNER PUBLIC UTILITY DISTRICT (the "Participant") is a
member of UAMPS and has entered into the Payson Power Project Power Sales Contract
dated as of December 1, 2009 1 (the "Power Sales Contract") with UAMPS;
WHEREAS, the Participant understands that UAMPS has entered into the Supply Contract
to obtain a supply of natural gas for use as fuel in the operation of the Payson Power
Project, and that UAMPS will sell a portion of the electricity generated with such natural
gas to the Participant in accordance with its Entitlement Share under(and as such term is
defined in) the Power Sales Contract;
WHEREAS, the Participant further understands that SEA will issue bonds to finance a
prepayment for the natural gas that it sells to UAMPS under the Supply Contract (the
"Prepay Bonds")with the intention that the interest on the Prepay Bonds will qualify for tax
exemption under Section 103 of the Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, the Participant acknowledges that its use of the electricity it purchases from its
Entitlement Share under the Power Sales Contract is subject to certain restrictions that are
necessary to establish and maintain the tax-exempt status of interest on the Prepay
Bonds;
ACCORDINGLY, AND IN FURTHERANCE OF THE FOREGOING, THE PARTICIPANT
HEREBY CERTIFIES AND AGREES AS FOLLOWS:
1. The Participant is a political subdivision of the State of California,2 and owns and
operates a municipal utility system that provides electricity service to retail customers
located in an established service area (the "System").
2. The Participant will (a) use all of the electricity it acquires from its Entitlement Share
under the Power Sales Contract in a Qualified Use (as defined below), (b) not take any
action (or make any allocation) that is inconsistent with the Qualified Use of such
electricity, (c) not take or omit to take any action which could adversely affect the tax-
exempt or tax-advantaged status of interest on the Prepay Bonds or any refunding bonds
issued by SEA, (d)take, and pay the costs of, such remedial actions as may be necessary
to maintain the tax-exempt or tax-advantaged status
1 (a)"June 1, 2002"for Fairview, Monroe, Mt. Pleasant, Payson and Springville, (b)"June 1, 2002, as
supplemented" for Ephraim, Hurricane, Hyrum, Kaysville, Lehi, Logan, Santa Clara, Spring City,
SESD and Washington, and (c) "December 1, 2009"for TDPUD.
2 Utah for all Participants, except California for TDPUD.
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of interest on the Prepay Bonds or any refunding bonds in the event of its failure to use
such electricity in a Qualified Use, and (e) act in accordance with such reasonable written
instructions as may be provided by SEA (through UAMPS) from time to time in order to
maintain the tax exempt or tax-advantaged status of the Prepay Bonds.
3. "Qualified Use" means the sale of electricity to retail customers located within the
"electricity service area" of a municipal utility pursuant to generally applicable and uniformly
applied rate schedules or tariffs; provided that: (a) "Qualified Use" shall not include any
sale of electricity that gives rise to "private business use" or a "private loan" within the
meaning of Section 141 of the Code; and (b) "Qualified Use" shall include such additional
uses of electricity as may be approved by SEA(through UAMPS)with a favorable opinion
of bond counsel. For purposes of this definition: (i) "electricity service area" has the
meaning assigned to such term in U.S. Treasury Regulation Section 1.148-1(e)(2)(iii); and
(ii) a "municipal utility" is a state or local government unit that owns and operates an
electric distribution utility.
4. In each of the five calendar years preceding 2024, the amount of electricity sold to retail
customers in the Participant's electricity service area has equaled or exceeded the amount
of electricity attributable to its Entitlement Share under the Power Sales Contract
(excluding the amount of electricity that the Participant was obligated to take under a long
term agreement that was either (i) purchased pursuant to a long term prepaid agreement
using the proceeds of tax exempt or tax-advantaged obligations, or (ii) generated from
gas that a person is obligated to take under a long term agreement that was purchased
pursuant to a long term prepaid agreement using the proceeds of tax-exempt or tax-
advantaged obligations), and it anticipates this to be the case in 2024.
5. References to the "Bonds" in Section 17(c) [Sale or Assignment of Electric System or
Power Sales Contract] and Section 17(f) [Tax Status] of the Power Sales Contract shall be
deemed to include the Prepay Bonds at all times while the Supply Contract is in effect.
6. The Participant expects to make the required payments under the Power Sales Contract
solely from the current revenues of the System.
Dated:
By:
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