HomeMy WebLinkAbout6 Broadband Issues Staff Report
To: Board of Directors
From: Alan Harry, Director of Telecommunications Services
Date: January 8, 2002
Subject: Consideration of Broadband Issues—Financial Advisor& Bond Counsel
In July of 2001 the District entered into a contract with Third Networks / FSG for the Design and
Engineering of a Hybrid Fiber/Coax Broadband system to serve businesses and residents within the
TDPUD's territory. To date the System Design is virtually complete. Our next step will be to prepare
Bid Documents for the construction of the System Infrastructure and Headend Facility, however
project financing must first be put in place.
During the past twelve months,District General Manager Peter Holzmeister and I have met with
financial advisers, investment bankers and lending institutions to discuss the availability of funds,
interest rates and cost of the financing the proposed system. In virtually every case,those we met with
did not understand the Broadband industry,or the nature of the District's proposed project. As such,
we found it necessary to focus our attention on individuals/organizations that have worked with public
agencies in the financing of Broadband systems.
To date the City of Alameda is the only public agency in California to construct a hybrid fiber/coax
Broadband infrastructure and provide competitive services. As with the TDPUD,Alameda Power
and Telecom had an interesting time locating investors and/or lending institutions who understood and
were interested in their project. As such,the Alameda team chose to use a firm that had previously
assisted the City with the financing of municipal public works and redevelopment projects. At the end
of the day they contracted with the firm of E. Wagner and Associates(financing)and Foley&
Lardner(bond counsel).
E. Wagner & Associates, Inc. is a full service investment banking firm specializing in municipal
finance, offering municipal bond services to California municipalities and public entities. The Finn's
clients include California cities, counties, school districts and special districts.
The Firm has experience as an underwriter for negotiated sale of tax-exempt and taxable municipal
bonds as well as a financial advisor for both negotiated or competitive bond issues.It's staff has
experience with structuring and marketing a full spectrum of municipal transactions,which includes a
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comprehensive marketing program to ensure that their client's issue is successfully marketed to the
investment community.
Finally, and most importantly,E. Wagner&Associates,with the support of Edsell M. (Chip)Eady Jr.,
of the law firm of Foley and Lardner as Bond Counsel, is the only firm of its type that has
successfully assisted in the financing of a municipally owned and operated Broadband system.
On December 19,2001,Peter Holzmeister,Steve Holabaugh,Mary Chapman and I engaged in a
conference call with E. Wagner's principle,Emily Wagner, and Bond Counsel Edsell"Chip"Eady of
Foley and Larder. During our discussion,it became apparent that Ms. Wagner and Mr. Eady held a
great deal of experience in the process of financing a public Broadband system. Unlike others we had
met with,their knowledge of Broadband was thorough,and their questions focused and specific. As
such the conference call was informative,providing all participants with a strong belief that financing
the District's proposed Broadband system was viable in today's market.
In order for the District to go forward in locating,and firmly establishing the financing necessary to
construct the proposed Broadband infrastructure,the services of a Financial Advisor and Bond
Counsel are required.
After reviewing the credentials of Ms. Wagner and Mr. Eady,attached,it is Staff's recommendation
that the Board authorize Peter Holzmeister to enter into contracts with E. Wagner and
Associates, and Foley and Lardner. It is estimated that the costs of these services will be as follows:
Phase I Phase II
Financial Advisor E.Wagner and Associates $25,000 $75,000
Bond Counsel Foley& Lardner Not to Exceed$200,000
Upon review of similar costs associated with previous District borrowings, staff views the above
estimates as appropriate for the work anticipated.
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FINANCIAL CONSULTING AGREEMENT
(E. Wagner & Associates, Inc. and Truckee-Donner Public utility District)
This professional services agreement for financial consulting services is made and
entered into this day of 2001, by and between the TRUCKEE
—DON_NER PUBLIC UTILITY DISTRICT, a municipal corporation of the State of California,
("District") and E. WAGNER & ASSOCIATES, INC., a California Corporation, (Taxpayer
Identification No. 94-3259728) ("Consultant").
RECITALS
WHEREAS, the Board of Dirctors of the District is desirous of hiring a financial advisor
experienced in the evaluation of public and/or private financing for the funding of the District's
HFC Telcom System; and
WHEREAS, the Consultant represents and warrants that it is licensed tc and has the
qualifications to provide the required financial consulting services for the District; and
WHEREAS, it is understood that the Consultant shall be an independent contractor of the
District in providing the professional services sought and to be provided:
NOW,THEREFORE, in consideration of their mutual covenants and conditions, the
parties hereto agree as follows:
A. DUTIES OF THE CONSULTANT
As outlined in Exhibit "A" to this Agreement.
B. DUTIES OF THE DISTRICT
1, The District shall make payment to the Consultant as provided for in Exhibit "B"
of this Agreement.
2. The District shall make available to the Consultant any document, studies or other
information in its possession reasonably required in support of the provision of
the subject financial consulting services.
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3. The District Staff shall be responsible for providing the necessary disclosure
information regarding the District.
C. TERM AND TERMINATION OF AGREEMENT
This Agreement will commence upon its execution by the parties, and will continue until
the Consultant has fully rendered the services and the District has made payment, unless sooner
terminated.
The District may for any reason terminate or suspend this Agreement at any time by
giving written notice to the Consultant of such termination or suspension and specifying the
effective date thereof, at least fifteen (15) days before the effective date of such termination or
suspension. Notice of termination shall be delivered by certified mail return receipt requested.
The Consultant shall be given an opportunity for consultation with the District prior to the
effective date of such termination.
In the event of termination, all finished and unfinished documents and other materials
prepared pursuant to this Agreement shall, at the option of the District, become its property.
Upon such termination, the Consultant shall meet with the District 's staff and provide it all
information developed by the Consultant pursuant to this Agreement. The Consultant shall be
entitled to receive its actual cost for satisfactory work performed as more fully set forth in
Section "F" herein.
D. CONFIDENTIAL INFORMATION
Any report, information, or other data, prepared or assembled by the Consultant under
this Agreement is confidential and shall not be made available to any individual or organization
by the Consultant without the prior written approval of the District.
E. PUBLIC REPRODUCTION AND USE OF INFORMATION
REPORTS AND OTHER MATERIAL
The District shall have the unrestricted authority to publish, disclose, distribute and
otherwise use, in whole or in part, any reports, data, or other material prepared under this
Agreement.
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F. PAYMENT
The District shall pay the Consultant an amount as set forth in Exhibit "B" for the
performance of services identified in Exhibit "A". Such payment shall become due and payable
upon the receipt of an invoice for services rendered during Phase I and upon receipt by the
District of the proceeds from the sale of the Bond issue for services rendered in Phase II.
No costs incurred by the Consultant other than those identified in Exhibit "B" shall be
due and owing to it. The District agrees to pay for any services solicited by the Consultant
directly to the persons providing such services, provided, however, the District General Manager
shall first approve of such fees, in writing, before such services are rendered.
G. TIME OF COMPLETION
Time is of the essence in carrying out the terms of this Agreement.
H. STANDARD OF CARE
Consultant agrees to perform all services hereunder in a manner commensurate with the
prevailing standards of like professionals and agrees that all services shall be performed by
qualified and experienced personnel who are not employed by the District nor have any
contractual relationship with the District.
I. INDEPENDENT PARTIES
District and Consultant intend that the relationship between them created by this
Agreement is that of employer-independent contractor. The manner and means of conducting
the work are under the control of Consultant, except to the extent they are limited by statute, rule
or regulation and the express terms of this Agreement. No civil service status or other right of
employment will be acquired by virtue of Consultant's services. None of the benefits provided
by District to its employees, including but not limited to, unemployment insurance, workers'
compensation plans, vacation and sick leave are available from District to consultant, its
employees or agents.
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Deductions shall not be made for any state or federal taxes, FICA payments, PERS
payments, or other purposes normally associated with an employer-employee relationship from
any fees due Consultant except at to reporting requirements for monies paid Consultant pursuant
to this Agreement. Payments of the above items, if required, are the responsibility of Consultant.
J. NON-DISCRE IINATION
Consistent with District's policy that harassment and discrimination are unacceptable
employer/employee conduct, Consultant agrees that harassment or discrimination directed
toward ajob applicant, a District employee, or a citizen by Consultant or Consultant's employee
or subcontractor on the basis of race, religious creed, color, national origin, ancestry, handicap,
disability, marital status, pregnancy, sex, age, or sexual orientation will not be tolerated.
Consultant agrees that any and all violations of this provision shall constitute a material breach
of this Agreement.
K. HOLD HARMLESS AND INSURANCE
The Consultant will indemnify the District against and hold it harmless from all and any
liability, causes of action, claims, costs, expenses (including reasonable attorney's fees) or
damages on account of injury to persons or damage to property resulting from or arising out of or
in any way connected with the negligence or willful misconduct of the Consultant or its officers,
employees, agents, or independent contractors who are directly responsible for the performance
of any part of this Agreement. The Consultant shall reimburse the District for all costs, expenses
and losses incurred by it as a result of any claims, demands or causes of action brought against
the District by any person arising out of the negligence or willful misconduct of the Consultant in
the performance of this Agreement.
The Consultant will maintain insurance during the contract period as required by the
District and specified in Exhibit "C" to this Agreement.
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L. REMEDIES
In the event either party brings action against the other to enforce any of the terms of this
Agreement, the prevailing party shall be entitled to recover its reasonable attorney's fees and
costs whether such action is prosecuted to a conclusion or not. The remedies given to the parties
in this paragraph shall be in addition and supplemental to all rights or remedies either may have
under the laws then in force.
M. PROJECT MANAGER
The Consultant designates Emily Wagner as its project manager. The District designates
the District Manager as its contact for this contract.
N. NOTICES
All notices hereunder shall be given in writing and mailed, postage prepaid, to the
following addresses:
To District: Truckee-Donner Public Utility District
P.O. Box 309
Truckee, CA 96160
Attn: General Manager
To Consultant: E. Wagner& Associates, Inc.
5990 Stoneridge Drive, Suite 103
Pleasanton, CA 94588
Attn: Emily E. Wagner
IN WITNESS WHEREOF, the parties have executed this Contract on the date first above stated
in Truckee, California.
E. WAGNER & ASSOCIATES, INC. TRUCKEE-DONNER PUBLIC UTILITY DISTRICT
Name: Emily E. Wagner
Title: President General Manager
Taxpayer I.D. No. 94-3259728
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EXHIBIT A
♦ SCOPE OF SERVICES
Phase I—Determine Feasibility of Financing and Determine Financing Structure
1. Review and analyze all necessary documents to conclude feasibility of financing
proposed Telecommunications Project with the issuance of tax-exempt and/or taxable
bonds.
2. Develop and prepare a comprehensive financing plan, including date of all major
financing activities.
3, Determine costs associated with the Telecommunications Project, financing sources and
uses, and District's financial commitment (i.e., scata operation revenues), if any.
4. Attend meetings and participate in conference calls with Staff and the various
consultants.
5. If requested, prepare a report for the District Board regarding the proposed financing
plan.
6. Make, if requested, presentations to the District Board.
7. Provide any additional financial advisory services requested by Staff, in order to
determine the feasibility of the financing of the Telecommunications Project with tax-
exempt and/or taxable bonds.
Phase II—Implement Financing
1. Prepare and submit a detailed schedule and timetable for the implementation of all
aspects of the financing.
2. Assist the District in obtaining a trustee and any additional consultants as needed to
complete the bond financing.
A-1
3. Review and assist in the preparation of the comprehensive Preliminary and Final Official
Statement on behalf of the District in concert with underwriter's Counsel and Bond
Counsel, for the issuance of bonds.
4. Review all bond documents on behalf of the District.
5. Assist tax counsel in determining tax ramifications of final financing structure.
6. Perform financial analysis and offer marketing advice regarding the financing.
7. Negotiate the bond pricing with the Underwriter on behalf of the District.
8. Review investment of bond proceeds and optimize arbitrage compliance, in compliance
with California law Section 53601 of the Government Code.
9. Oversee the bond closing on behalf of the District.
10. Work cohesively with Bond Counsel, District Staff, and other consultants to insure the
completion of a successful bond financing.
11.Throughout contract period make presentations as needed.
12. Be available to District Staff after the bond closing and for the duration of the bond issue
to answer any questions regarding the bond issue.
A-2
EXHIBIT B
♦ FEES
Phase I (Financial Advisory Fees)
Labor
President $300.00/hour
Analyst 150.00/hour
Banking Assistant 85.00/hour
Direct Reimbursements:
Computer Time &Expenses at cost plus labor(at Analyst rate)
Personal Auto Mileage $.50/mile plus labor (at President rate)
Printout (fax, emails, etc.) $1.00/page
Air Fare, Auto Rental,
Telecommunications,
Postage, etc. at cost
Phase II
E. Wagner & Associates, Inc.'s "not-to-exceed" financial advisory fee for services
rendered in Phase II would be charged based on the par amount of bonds to be issued. Fees are
contingent upon the successful completion of a bond issue and are due and payable at closing
from bond proceeds. The following table presents E. Wagner& Associates, Inc.'s "not-to-
exceed" financial advisory fee schedule.
Par Value up to $10M $20M $30M $40M $50M $50M+
Financial Advisory Fee $55,000 $65,000 $75,000 $85,000 $95,000 $100,000
Out-of-Pocket"' $10.000 $10.000 $10,000 $10,000 $10.000 $10.000
Total Fee $65,000 $75,000 $85,000 $95,000 $105,000 $110,000
°' All out-of-pocket expenses of E. Wagner & Associates, Inc. have been limited to a "not-to-exceed"
amount of $5,000 per bond issue. However, conference calls and services provided by other
contractors will be billed directly to the District.
B-1
EXHIBIT C
♦ INSURANCE
Consultant, at Consultant's sole cost and expense, shall procure and maintain for the
duration of this Agreement insurance against claims for injuries to persons or damages to
property which may arise from, or in connection with, the performance of the services hereunder
by Consultant, its agents,representatives, employees or subcontractors.
A. MINIMUM LIMITS OF INSURANCE
Consultant shall maintain limits no less than:
1. Commercial General Liability: $1,000,000 combined single limit per occurrence for
bodily injury, personal injury and property damage; and
2. Automobile Liability: $1,000,000 combined single limit per accident for bodily injury
and property damage; and
3. Workers' Compensation and Employers Liability: Workers' Compensation limits as
required by the California Labor Code and Employers Liability limits of$100,000 per
accident; and
4. Professional Liability Errors & Omissions $1,000,000 Aggregate Limit.
B. DEDUCTIBLES AND SELF-INSURED RETENTIONS
Any deductibles or self-insured retentions must be declared to, and approved by District's
Risk Manager. At the option of District, either: the insurer shall reduce or eliminate such
deductibles or self-insured retentions as respects District, its officers, employees, agents and
contractors; or Consultant shall procure a bond guaranteeing payment of losses and related
investigations, claim administration and defense expenses in an amount specified by the
District's Risk Manager.
C. OTHER INSURANCE PROVISIONS
The policies to contain, or be endorsed to contain, the following provisions:
C-1
1. Commercial General Liability and Automobile Liability Coverages
a. The Truckee-Donner Public Utility District, its officers, employees, agents and
contractors are to be covered as additional insureds as respects: Liability arising out of
activities performed by or on behalf of, Consultant; products and completed operations of
Consultant: premises owned, leased or used by Consultant; and automobiles owned,
leased, hired or borrowed by Consultant. The coverage shall contain no special
limitations on the scope of protection afforded to District, its officers, employees, agents
and contractors.
b. Consultant's insurance coverage shall be primary insurance as respects District, its
officers, employees, agents and contractors. Any insurance or self-insurance maintained
by District, its officers, employees, agents or contractors shall be excess of Consultant's
insurance and shall not contribute with it.
C. Any failure to comply with reporting provisions of the policies by Consultant shall not
affect coverage provided District, its officers, employees, agents, or contractors.
d. Coverage shall state that Consultant's insurance shall apply separately to each insured
against whom claim is made or suit is brought, except with respect to the limits of the
insurer's liability.
2. All Coverages
Each insurance policy required by this Agreement shall be endorsed to state that
coverage shall not be suspended, voided, cancelled, or reduced in limits except
after thirty (30) days' prior written notice has been given to District.
D. ACCEPTABILITY OF INSURERS
Insurance is to be placed with insurers acceptable to District's Risk Manager.
E. VERIFICATION OF COVERAGE
Consultant shall furnish District with certificates of insurance and with original
endorsements affecting coverage required by this Agreement. The certificates and endorsements
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for each insurance policy are to be signed by a person authorized by that insurer to bind coverage
on its behalf.
Proof of insurance shall be mailed to the following address or any subsequent address as
may be directed in writing by the Risk Manager:
Truckee-Donner Public Utility District
P.O. Box 309
Truckee, CA 96160
Attn: Risk Manager
F. SUBCONTRACTORS
Consultant shall include all subcontractors as insured under its policies or shall obtain
separate certificates and endorsements for each subcontractor.
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BRUSSELS F O L E Y 3 L A R ® N R
CHICAGO
DENVER A T T 0 R N E Y S A T L A W JACKSONVILLE
LOS ANGELES
MADISON
MILWAUKEE
ORLANDO
SACRAMENTO
SAN DIEGO/DEL MAR
SAN FRANCISCO
TALLAHASSEE
TAMPA
WASHINGTON,D.C.
WEST PALM BEACH
December 27, 2001
Mr. Alan Harry
Director Telecommunication Services
Truckee Donner Public Utility District
PO Box 309
Truckee, CA 96160
Re: Proposal for Bond Counsel Services
Dear Mr. Harry:
Pursuant to our conversation, attached is a proposal to the Truckee Donner Public Utility
District("TDPUD") outlining Foley& Lardner's proposed legal services and knowledge in the
area of municipal telecommunications financing.
We have a track record of providing excellent and unique problem solving service in this
area and I hope that we will have a chance to demonstrate that to the TDPUD. Please let me
know if you have any questions or if you would like to brainstorm about anything else where we
might help. I look forward to working with you in the future.
Very truly yours,
Edsell M. Eady, Jr.
FOLEY&LARDNER WRITER'S DIRECT LINE CLIENT/MATTER NUMBER
ONE MARITIME PLAZA, SIXTH FLOOR 415.984.9891 999700-0415
SAN FRANCISCO,CALIFORNIA 94111 3409
EMAIL ADDRESS
TEL:415.434.4484 ceady@foleylaw.com 016.261442.1
FAX:415,434.4507
WWW,FOLEYLARD N E R.COM
December 26,2C01
Foley & Lardner would be proud to serve the
TRUCKEE DONNER
PUBLIC UTILITY DISTRICT
as bond counsel, disclosure counsel and
project counsel.
MIKE GREBE, Chief Executive Officer
The beginning of a
powerful relationship
Foley&Lardner offers the Truckee Donner Public Utility District (TDPUD)
an array of resources and experience. Our TDPUD team attorneys have fi-
nanced power,water and telecom projects in the public and private sectors for
more than 25 years, and they have worked on municipal telecom projects since 1994,
when a few public entities began to study the potential for citywide hybrid fi-
ber/coaxial telecom systems. Currently,we serve Alameda Power&Telecom in its
telecom project with Vectren and are working with the Eugene Water&Electric
Board to develop telecom projects.
Founded in 1842,our firm offers:
1 nearly 1000 attorneys nationwide
0 offices in 16 U.S.markets
1 more than 100 attorneys practice in public finance,project finance and
energy matters
Municipal clients engage Foley&Lardner because they expect comprehensive
service that goes far beyond the traditional role of bond counsel. They want every
possible advantage in dealing with private sector partners and competitors,with the
widest possible range of options, the creativity to make those options viable and the
staying power to see projects succeed.
FOLEY& LARDiN`ER December 26,2001
As Foley & Lardner's TDPUD team leader,
my job is to deploy our diverse resources
F1 to TDPUD's best advantage.
CHIP EADY, San Francisco
partner in charge,Public Finance Services Team
Abundant resources
supporting the TDPUD agenda
W e
have gained experience over the past three decades in every aspect of the energy,
water and telecom businesses. Here are three members of our TDPUD team who
have been part of the changes sweeping the industry:
tbip Eadr
A partner in our San Francisco office,Chip began his legal career in 1975,financing
new generating capacity and pollution control systems for major investor-owned
utilities,including Commonwealth Edison and the Central and South West com-
panies. The pollution control projects led him to emphasize municipal finance in
the 1980s and he worked as a municipal investment banker from 1987 to 1990. He
returned to law practice in 1990 and has worked on public/private joint ventures,
including telecom projects like the one Alameda Power&Telecom is building in
their city. Chip has also pioneered the use of plain English disclosure for municipal
securities and has successfully defended municipal issuers in SEC inquiries.
LeeAnn Mapolitana
A public finance associate in San Francisco,LeeAnn has
practiced in municipal finance for the past 5 years. She has
worked on over 80 transactions involving governmental issuers
including general obligation bonds,certificates of participation,
revenue bonds and qualified 501(c)(3) financings. Additionally,
she recently assisted the Eugene Water&Electric Board with a
revenue and refunding bond financing which closed in
November 2001.
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FOLEY&LARDNER December 26,2001
Mike Bailey
If anyone can be said to have "written the book" on the federal tax law of munici-
pal finance,we would nominate Mike. A tax partner in our Chicago office,he
worked at the Internal Revenue Service from 1990 to 1998,where he was the prin-
cipal author of the private activity bond regulations,the arbitrage regulations,the
output facility regulations and other current regulations. Mike is one of the tax
lawyers other tax lawyers call when new tax issues arise. Through the work of
Foley&Lardner's Arbitrage Rebate Company,Mike and four other Foley&
Lardner tax attorneys team with our financial analysts to save municipal bond issu-
ers millions of dollars in rebate.
Capitalizing on
deregulation
Foley&Lardner's attorneys and clients have studied the challenges and opportunities in
both energy and telecom that have been presented by deregulation. On the energy side,
we have completed stranded cost financings involving the Northern California Power
Agency(through the issuance of taxable auction rate electric revenue securities for Alameda
Power&Telecom), billions of dollars in asset securitization for clients like Commonwealth
Edison and revenue bond financings for the Eugene,Oregon Water&Electric Board.
Since the late 1980s,our asset securitization attorneys have been pioneers in this field
for such clients as General Motors Acceptance Corporation. Currently,we are securitizing
power purchase agreements as the vehicle for expanding gas-fired peaking power capacity for
exempt wholesale generators in Georgia and Wisconsin,and we are in the early stages of similar
projects involving public/private partnerships at municipal sites in California.
In 1994,we began working with SRI International (formerly the Stanford Research In-
stitute) and the City of Escondido,California,to develop the legal,technical and financial feasi-
bility of a municipally owned, citywide hybrid fiber/coaxial telecom system. Three years later,
we began to assist Alameda Power&Telecom as it looked to such a system to enhance its com-
petitive position, diversify its revenues and leverage its customer service operations. These ef-
forts led to an agreement with SIGCORP Communications Services(now Vectren Communi-
cations Services) and the approval of financing terms in January 2000. A private placement of
taxable securities to finance the construction phases of the project closed in April 2000.
In the years ahead,we expect that municipal telecom systems will be financed on a tax-
exempt basis if the public/private joint venture arrangement permits. In other cases,interim
taxable construction and development financings may lead to tax-exempt refundings. We also
anticipate further development of the federal tax law relating to these projects,primarily
� 3g
FOLEY& LARDNER December 26,2001
through the private letter ruling process. Foley&Lardner attorneys and clients have built an
excellent legal framework for these projects,with the support of our telecom and regulatory
lawyers who are experienced with overbuild situations in the private sector.
We are prepared to fulfill
our role in any project.
Achieving success with
credit markets and joint ventures
0 ur TDPUD team attorneys have participated in many meetings and presentations in-
volving bond rating agencies, bond insurers,letter of credit banks,commercial surety
providers and other credit enhancers-and with underwriters,financial advisors,
placement agents and institutional lenders-all to determine the feasibility of various financing
and joint venture structures. In particular,we have developed a working knowledge of the
credit dynamics of telecom overbuild situations,the limitations on recourse against public-
sector joint venture participants and the need for recourse against private-sector joint venture
participants. We are familiar with the many trade-offs of risks and rewards which need to occur
in these types of programs.
Of course,this has involved an educational process for joint venture participants who
had no prior knowledge of municipal finance or the requirements of the credit markets. We
have done more than advise our municipal clients;we have also established trust and credibility
with their private-sector"partners" and overcome misconceptions about what works in munici-
pal finance.
How we handle each task will depend on feedback from TDPUD and other joint ven-
ture participants:
► Tax
We will explain where the tax law is clear and where it needs further analysis or
development. We will help guide the parties among their range of options,such
as those available for qualified management contracts. We will assist in preserv-
ing future tax-exempt refinancing opportunities as projects evolve. We will
closely monitor the changes in tax laws and regulation and other developments
that may effect your project. Where arbitrage rebate is an issue,we will make de-
terminations and back them with our legal opinion, achieving savings whenever
possible.
a4 ►
FOLEY&LARDNER December 26,2CC1
► Disclosure
We prepare official statements which speak not only to investors but also to con-
stituents. Our plain English work for issuers like the City of Oakland and the
Midpemnsula Regional Open Space District have won national acclaim as they
replace dense legalese with conversational clarity. We work hard with our issuer
clients to make sure they understand the disclosure they are approving and that it
will stand up to any subsequent scrutiny.
Our TDPUD team attorneys have successfully represented municipal issuers and
other clients in many noted SEC investigations,including the aftermath of the
Orange County bankruptcy,land-secured development financings in California
and`yield-burning'controversies. We have protected municipal issuer clients
from adverse SEC enforcement action.
► Documents,Structuring and Legal Issues
We draft the documents to guide the parties'behavior as they mutually intend,in
concert with credit,tax and legal requirements,while leaving options open for
future developments. The end result supports our legal opinion,and as members
of the National Association of Bond Lawyers,we adhere to a very high opinion
standard: that no court could reasonably rule otherwise.
► Indemnification
We would like to clarify that Foley&Lardner will be responsible for the quality
of its professional services to TDPUD. We cannot insure or guarantee a particu-
lar transaction result, and we would like to reserve the opportunity to negotiate
engagement language which reflects this.
Proposed
legal team
oley&Lardner's attorneys have been involved for decades in municipal and utility
financing, asset securitization and other work important to TDPUD. Over the past
three years,we have completed more than$14 billion in municipal financings and bil-
lions more in corporate utility financing, including stranded cost asset securitizations. A&-
scription of the proposed legal team is shown below.
Chip Eady,a partner in the San Francisco office, will manage the Foley&
Lardner TDPUD team and all of its services to TDPUD. He has practiced in
municipal and corporate finance for 25 years and has completed billions of dol-
lars in both categories of finance. He heads Foley&Lardner's Public Finance
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FOLEY& DSRDNER December 25,2CC1
Services Team and directs all of the firm's services to Alameda Power&Tele-
com (electric utility and telecom project financing) and Eugene Water&Elec-
tric Board(electric,water and telecom project financing). He has lectured and
published on the subject of municipal securities disclosure and is a member of
the National Association of Bond Lawyers and the American Bar Association.
J.D., 1975,The University of Michigan Law School.
Jim Tynion,a partner in the Milwaukee office,presents clients in all aspects of
limited recourse project financings in the fields of energy,other infrastructure
sectors,and in large-scale industrial financings. In the energy sector, he has
represented lenders,developers,investors,equipment suppliers,contractors,
electric utilities and other financial parties in various independent energy fi-
nancings,involving cogeneration facilities,wind-powered electric generating fa-
cilities,tire and other waste-to-energy projects and exempt wholesale genera-
tors.Jim has represented investor-owned utilities in several projects involving
the utilities'non-regulated affiliates.He is active in several other infrastructure
sectors such as telecommunications and sports arena financings. He is also a
member of the Energy Bar Association and serves on its Generation and Power
Marketing Committee. J.D., 1981,Fordham University School of Law.
Ed Hammond,a partner in the Milwaukee office,will coordinate the energy
and project finance support for electric utility issues. He has practiced in mu-
nicipal and corporate finance for 19 years and has completed many project fi-
nancings in the energy field,primarily as counsel to lenders,investors,under-
writers and leasing companies. J.D., 1982,The University of Chicago Law
School.
Mike Bailey, a partner in the Chicago office,will have primary responsibility
for all federal tax law issues and will work with Foley&Lardner's Arbitrage Re-
bate Company on rebate determinations. He is a recognized national expert in
tax-exempt financing. He focuses his practice on tax-exempt financing and
other financial products,including derivatives, and enhances Foley&Lardner's
tax controversy practice in matters concerning tax-exempt bonds and financial
products. He joined Foley&Lardner from the Internal Revenue Service,
where he was a principal author of the major federal income tax regulations
concerning tax-exempt bonds,including the arbitrage regulations,the private
activity bond regulations and the output facility regulations,and has reviewed
or written most other administrative guidance issued by the IRS on tax-exempt
bonds since 1990,including published rulings,private letter rulings, and techni-
cal advice memoranda. J.D., 1981,The University of Chicago Law School.
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FOLEY& LARDNER December 26,2001
Brad Jackson,a partner in the Madison office,will coordinate the telecom-
munications and regulatory support is co-chair of Foley&Lardner's Energy
and Telecommunications Practice Group. He counsels and represents utility
and non-utility clients on energy,telecommunications and hydroelectric issues,
and he has extensive experience in the siting,permitting and regulation of elec-
tric generation and transmission facilities and natural gas distribution facilities.
He is a member of the American Bar Association (Administrative Law and
Public Utility Law Sections) and the Energy Bar Association. J.D., 1986,The
University of Michigan Law School.
Greg Moser,a partner in our San Diego office,has worked extensively with
many types of water districts on project development and financing,for such
clients as the Metropolitan Water District of Southern California,the San Di-
ego County Water Authority,the Imperial Irrigation District and the Lakeside
Water District. He has written legislation for statewide water transfers and wa-
ter marketing,as well as conservation and reclamation measures including
drought management and mandatory low-flush toilets. His practice includes
water rights matters, the Clean Water Act,NPDES permitting and many other
aspects of water law. Greg assisted a water district in the acquisition of a regu-
lated private water company,and he has taught water law courses at Cal West-
ern School of Law. J.D., cum laude, 1981,Georgetown University Law Cen-
ter.
LeeAnn Napolitana is an associate in our San Francisco office with more than
six years of public finance experience,ranging from utility revenue bonds to
qualified zone academy bonds. Her practice includes many types of short-term
and long-term financing instruments. J.D., 1994,University of California,
Hastings College of the Law.
About
the firm
Foley&Lardner is a partnership,not a limited liability entity. The firm's 450 partners
stand behind our professional services,which are insured by the Attorneys Liability As-
surance Society to$100,000,000 per occurrence and$200,000,000 in the aggregate,with-
out any exclusion for securities issues.
The firm will provide services to TDPUD through its Public Finance Services
Team,using an advanced technology network supporting Outlook 2000 and
other state-of-the-art applications.
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FOLEY& LARDNL^R December 26,2001
More information on Foley&Lardner can be found on our website,
mw.Iolevla rdner.co m.
Utility
experience
More than 25 utility and power generation clients in Alabama California,the District
of Columbia,Florida, Georgia, Illinois,Kansas Maine,Maryland,Minnesota,Ne-
braska,New York, Ohio, Oregon,Pennsylvania, Virginia and Wisconsin use Foley
&Lardner to represent them and help with their financial and operational needs.
More than 25 utility and power generation clients in Alabama, California, the
District of Columbia,Florida,Georgia,Illinois,Kansas,Maine,Maryland,
Minnesota,Nebraska,New York,Ohio,Oregon,Pennsylvania,Virginia and
Wisconsin use Foley&Lardner to represent them and help with their financial
and operational needs.
Foley&Lardner represents Alameda Power&Telecom(City of Alameda,
California),in its ongoing telecom project. In April 2000,we served as bond
counsel in completing new money,refunding and stranded cost financings for
Alameda Power&Telecom's electric utility.
In 2001,Foley&Lardner began working with the Eugene Water&Electric
Board as bond counsel to their ongoing revenue bond program. We have also
been assisting them develop financing strategies and partnerships for a potential
telecom project.
In July 2000,we completed a water revenue financing for the Village of Bed-
ford Park, Illinois, involving a public/private"partnership"in which the mu-
nicipal water system owner sold part of its capacity to an investor-owned util-
ity. We financed the governmental use portion with tax-exempt governmental
bonds and the investor-owned utility portion with tax-exempt qualified private
activity bonds.
Currently,we are representing a private-sector utility affiliate in a joint venture
with a Wisconsin municipal electric utility for the development of an 80MW
peaking plant,likely to be financed with a combination of taxable and tax-
exempt securities. We have been involved in every aspect of the joint venture
structuring and federal tax law analysis,which focuses on how an issuer of tax-
exempt bonds can pay for project development costs by assigning rights to a
portion of the output of the financed facility.
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FOLEY& LARDNER December 26,2001
The firm is currently engaged in various gas-fired plant projects for exempt
wholesale generators around the united States,including a 1,000 MW PG&E
project in southeastern Wisconsin and peaking units for two rural electric co-
operatives in southwestern Georgia. We participate extensively in the inde-
pendent energy market,representing developers, lenders,underwriters,inves-
tors,contractors and suppliers throughout the country,involving many tech-
nologies and fuel types. These include combined-cycle and cogeneration facili-
ties,wind-powered electric generating farms,tires, blast furnace gas,waste heat,
wood-chip, biomass and other waste-to-energy facilities,hydropower facilities
and the emerging market of re-powering dormant electric generating assets.
Other recent energy projects include:
Glen Park Hydroelectric. Our client,Heller Financial,Inc.,financed a$19
million acquisition and improvement of a facility in upstate New York.
We have represented regional lenders for similar projects in Illinois,North
Carolina,South Carolina and Wisconsin.
Windpower. We are national leaders in the development and financing of
windpower projects. Our clients include lenders in leveraged lease financ-
ings of three 25MW wind farms in Mojave,California. We are represent-
ing a major East Coast utility affiliate in developing a 60MW merchant
wind farm near Palm Springs,California, and another utility affiliate for a
29MW wind farm for wholesale power in Wisconsin.
Northern Maine Thermal and Hydroelectric. We represent a utility affili-
ate in the acquisition and non-recourse project financing of thermal and
hydroelectric generating assets in northern Maine and New Brunswick,
Canada.
Pennsylvania Thermal. We represent a utility affiliate in the acquisition fi-
nancing of a 436MW coal-fired generating facility in eastern Pennsylvania.
1 Landfill Gas. We have represented the project investor in a series of Sec-
tion 29 biogas landfill projects.
1 Merchant Power. We represent a utility affiliate in acquiring and re-
powering a dormant coal-fired generating plant in southwestern Wisconsin.
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FOLEY& LARDNER December 26,20001
Client
references
� Alameda Power&Telecom. There are two sets of people familiar with
Foley&Lardner's electric, tax and telecom work:
at Alameda Power&Telecom 2000 Grand Street Alameda CA 94501:
Tom Evans, General Manager 510.748.3905
Juelle-Ann Boyer,Manager,Competitive Strategies and
Administration 510.748.3910
at the City of Alameda 2263 Santa Clara Street,Alameda,CA 94501:
Carol Korade,Esq.,City Attorney 510.748.4544
David Brandt,Esq.,Deputy City Attorney 510.748.4639
P Eugene Water&Electric Board(EWEB). EWEB is currently studying
the feasibility of a citywide hybrid fiber/coaxial telecommunications sys-
tem. In addition to bond counsel services to EWEB's revenue bond pro-
grain,our attorneys are assisting EWEB develop and implement a compre-
hensive telecom strategy. Our principal contact is the Treasurer,Jim Ori-
gliosso,who can be reached at EWEB, 500 East 4`h Avenue,Eugene,OR
97401,phone 541.484.2411.
o City of Downey,California. As special counsel to the City of Downey
and seven other southern California cities,we provided tax and intergov-
ernmental legal analysis in a controversy involving proposed bonds for wa-
ter treatment and aquifer replenishment facilities. Our principal contact
was the City Attorney,Ed Lee, and he can be reached at Oliver,Vose,
Sandifer,Murphy&Lee,281 South Figueroa Street,Los Angeles,CA
90012,phone 213.621.2000.
o City of Oakland,California. We prepared cover-to-cover plain English
disclosure for two offerings(general obligation and tax allocation). Our
principal contact was the Treasury Manager,Joseph Yew,and he can be
reached at One Frank H.Ogawa Plaza, Suite 5330, Oakland,CA 94612,
phone 510.238.6735.
Foley&Lardner is pleased to grant permission to TDPUD to contact and in-
vestigate all references. We can provide additional references as needed.
® 10 �
FOLEY& LARDNER December 26,2CC 7
Public power
joint ventures
oley&Lardner currently represents an affiliate of an investor-owned utility in a joint
venture with a municipal electric utility, for the development of a new 80MW peaking
plant. In determining how much of the project cost can be financed on a tax-exempt ba-
sis,we have been considering how the municipal utility can trade a portion of the project capac-
ity toward the project cost. Because the output facility regulations are expected to be finalized
soon,we are staying in close touch with those responsible for the drafting. In this regard,Mike
Bailey has been an indispensable resource to our clients and to the regulation writers,given his
prior authorship of the temporary regulations.
Telecommunication
and public/private experience
P
erhaps our most relevant experience is with telecommunications overbuild financing.
Due to confidentiality constraints,we cannot attribute our experience to any specific
project,so the following discussion is a synthesis of our collective experience with
Alameda Power&Telecom,Eugene Water&Electric Board,the City of Escondido and other
municipalities and private-sector participants who have approached us about similar situations.
What we've learned about
telecom joint ventures
can save TDPUD time and
expense.
It may be most useful to frame this discussion as a series of"lessons learned"
over the past six years, because many of these issues are likely to be relevant to
TDPUD's plans:
0 Incumbent service providers may appear interested in public/private joint
ventures,but sometimes this is really an information gathering process as
prelude to a political strategy opposing the project. It is very easy for them
to suggest that any project they do not own and control will pose great
danger to the public fisc. This is a situation in which independent,third-
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FOLEY& LARDNER December 26,2CO1
party studies of the market,the engineering and the financial model can
serve two mutually supportive purposes: (1) they provide useful disclosure
to investors and potential credit enhancers,and(2) they lend credibility to
the decision-makers.
Competitive local exchange carriers (CLECs) may also show interest,but
their core business plan is"cherrypicking"-attracting the most lucrative
customers in the market with the least amount of capital investment.
Their strategy can frustrate the goals of universal service and cross-market
subsidies,but they can serve as good short-term dark fiber customers.
0 Lenders who have exposure to the incumbents are unlikely to participate
in an overbuild financing, because they view that as diluting their existing
security interest.
It is unlikely that an overbuild system will ever support an investment-
grade rating on a limited recourse basis (that is,no recourse to electric,wa-
ter or other revenues extraneous to the system), no matter how well the
system performs. In addition to the inherent risks of overbuild situations,
rating agencies focus on obsolescence risk and emerging technologies.
Nevertheless,analysts at S&P and Fitch remain interested in following the
progress of new systems, and their rating criteria may change.
Municipal utilities and private-sector joint venture participants may under-
estimate the cultural and information gaps which separate them. Each
needs to keep in mind that the other is not a monolithic organization,and
that the"finance people"at decision-making levels on both sides of the ta-
ble need to be actively involved. It is especially important for the munici-
pal utility to recognize that because it must operate more transparently and
politically than its private-sector counterpart,there will always be some
risk of"decision-shopping"-where the private-sector participant looks for
favorable decisions wherever it thinks it can find them.
k Credit enhancement can be prohibitively expensive without financeable
corporate guarantees. Care must be taken in structuring such guarantees so
that they do not constitute"separate securities"which would cause the en-
tire financing to become subject to the registration requirements of federal
and state securities laws. If any type of corporate guaranty is available,it
will probably come at a high price as well, and its terms will need to con-
form to well-developed legal concepts in jurisdictions which have a large
jurisprudence on the issues. In this regard,the guaranty will probably need
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FOLEY& D RDNER December 26,2001
to be governed by the laws of a major financial center rather than local
law.
It is very important that a lender be sophisticated about the business. For a
telecom system, the value is not in the equipment or the real estate,but in
the customers. A strong track record of good customer service and cus-
tomer relations can help,but even sophisticated lenders may follow old
checklists which include project "appraisals" and security agreements.
The federal tax analysis of
bandwidth allocations is not
well developed.
Joint venture structures which defer compensation to a turnkey builder
through long-term management contracts emphasizing percentage-of-
revenues compensation are generally outside the menu of safe-harbor quali-
fied management contracts established under federal tax regulations. While
such arrangements may reduce risk to the municipal utility and create in-
centives for the private-sector participant,the irony is that they preclude
the use of tax-exempt financing and can increase overall project risk by in-
creasing the cost of capital. We have not given up on the idea of coaxing
new safe harbors out of federal regulators, but this is unlikely to be a
timely solution to the issue.
The ultimate key to tax-exempt financing of the bulk of an open-access
telecom system is just that-open access. One good analogy may be the
tax-exempt financing of a toll road: although many commercial vehicles
may use it,this is not considered"private use". On the other hand, re-
served allocations of bandwidth may constitute private business use,but
this concept is not well developed in the tax law. That is why we believe
that the better analogy may be the airport runway example in the private
activity bond regulations,which states that if any portion of airport run-
way use is for general aviation,then the entire runway cost may be fi-
nanced on a tax-exempt basis. In order to support the tax opinion stan-
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FOLEY& L4RDNER December 26,2001
dards that "no court could reasonably rule otherwise" and that "if brought
to the attention of the IRS it would not be likely to dispute the analysis",
we believe that further guidance will be needed through the private letter
ruling process. Because of the time it may take to obtain a ruling, and the
uncertainty about the result of the process,the needs of the project may
dictate some short-term or interim taxable
financing.
Combining the risk allocation,compensation and tax issues into one equa-
tion,we can easily envision cases where the parties will agree that the sav-
ings of tax-exempt financing are not worth the sacrifices. But the discus-
sion of these issues will be driven by the unique and sometimes conflicting
agendas of each party.
We believe that our years of experience in this arena can save TDPUD consid-
erable time and money,helping to avoid some of the blind alleys and helping
the project move forward competitively.
Fees and
expenses
e propose to bill monthly at standard hourly rates. The following table shows ex-
pected assignments and their standard hourly rates.
ATTORNEY RESPONSIBILITY HOURLY RATE
Chip Eady partner in charge $425
LeeAnn Napolitana primary associate support 250
Mike Bailey tax partner 415
I
Ed Hammond partner,electric power 350 i
Brad Jackson partner,electric power 355
Jim Tynion partner,all utilities 400
Greg Moser partner,water and environmental 400
In addition to billing for hourly fees,we will charge for our out-of-pocket costs,including long
distance phone calls,document processing and reproduction,shipping and travel expenses. We
® 14 ®
FOLEY&LARDNER December 26,2001
will provide TDPUD with monthly itemized statements describing the work performed and
any expenses incur,ed.
For more
information
For more information about Foley&Lardner and how it can assist the TDPUD with its
upcoming projects,please contact:
Foley&Lardner
One Maritime Plaza,6th Floor
San Francisco,California 94111
Attention: Chip Eady
Phone 415.984.9891
Email: ceady@foleylaw.com
a 15 .
DRAFT ORGANIZATION CHART
Board of Directors
General anag er
Peter Holzmeister
Executive Assistant GM
Secretary --tSteve Hollabaugh
Support Services Water Utility Electric Utility Admin Services Telecom
Manager Manager Manager Manager [7Manager
TKathy Neus Ed Taylor Steve Hollabaugh May Chapman Alan Harry
Superintendent Engineer Superintendent Engineer
Mark Thomas Neil Kau an Jim Wilson Joe Horvath
Management Compensation Review
General manager - 98,000
Squaw Valley Community Services District - 115,000
TTSA 120,000
TSD 120,000
STPUD 113,000
Plumas Sierra REA-GM 154,000
Incline Village GID 113,000
Assistant General Manager - 88,700
Administrative services Manager-76,700
Town of Truckee-Admin Sery Director 94,000
STPUD - Controller/Treasurer 92,000
Tahoe City PUD-Controller/Treasurer 87,000
Water Utility Manager- 76,700
Electric Utility Manager - NA
Telecommunications Manager -76,700
STPUD - Director of Public Works 99,000
Town of Truckee -Town Engineer 96,000
Tahoe City PUD - Public Works Dir 92,000
Water System Engineer - 72,300
Electric System Engineer- 72,300
Town of Truckee-Town Engineer 96,000
NRECA- Director of Engineering 85,000
Water Superintendent -76,700
Electric Superintendent - 76,700
GIS Coordinator - 59,200
Support Services Manager - 62,000
Planning Director - 72,400
Senior Accountant - 60,000
Executive Secretary - 50,500
STPUD - District Clerk/Executive Sec. 67,000
Tahoe City PUD 59,000
Squaw Valley PSD 53,000
TTSA 51,000
Truckee Donner Park & Rec. 48,500
Management and Exempt Employee Salary Scale
Guidelines for Moving Among the Steps
1. The basic practice is that employees are employed initially at the Entry Step
2. In some cases an employee can be employed initially at a higher step
a) The employee has significant prior experience with the District
b) The employee brings unique talents, background, or qualifications
3. An employee advances to higher steps based on performance
a) Annual review in January each year
b) An employee can be reduced in Step based on review of performance
�a
Management and Exempt Employee Salary Scale
Steps General Assistant Admin Services Water Utility Electric Utility Telecom
Manager GM Manager Manager Manager Manager
Step 5 120,000 110,000 90,000 90,000 90,000 90,000
Step 4 116,000 106,000 87,000 87,000 87,000 87,000
Step 3 112,000 102,000 84,000 84,000 84,000 84,000
Step 2 108,000 98,000 81,000 81,000 81,000 81,000
Step 1 104,000 94,000 78,000 78,000 78,000 78,000
Entry 100,000 90,000 75,000 75,000 75,000 75,000
Electric System Water System Electric Water Support Services GIS Planing
Engineer Engineer Superintendent Superintendent Manager Coordinator Director
85,000 85,000 80,000 80,000 75,000 78,000 72,000
82,400 82,400 78,000 78,000 72,600 74,800 69,600
79,800 79,800 76,000 76,000 70,200 71,600 67,200
77,200 77,200 74,000 74,000 67,800 68,400 64,800
74,600 74,600 72,000 72,000 65,400 65,200 62,400
72,000 72,000 70,000 70,000 63,000 62,000 60,000
e ,
Senior Executive
Accountant Secretary
72,000 50,000
69,600 48,000
67,200 46,000
64,800 44,000
62,400 42,000
60,000 40,000
Management and Exempt Salaries as a Percent of Budget
1997 Budget 2002 Budget
Total budget 13,479,518 34,604,592
Less Power Cost 4,971,235 12,113,352
Net Budget 8,508,283 22,491,240
Exempt Salaries 495,664 1,132,800
As percent of Budget 5.8% 5.0%
No. of District employees 43 56