The following table sets forth information concerning voltages, capacities and circuits for the Electric System' ssix substations.
Table 1
CITY OF BANNING ELECTRIC
SYSTEM SUBSTATIONS
Capacity Distribution
Substation Voltage ( MW) Feeders
34 — 4kV
Alola # 1 34. 5 -2. 4/. 16 3. 75 2
Alola # 2 34. 5 -2.4/. 16 3. 75 2
Alola #3 34. 5 -2.4/. 16 2. 00 1
Airport 34. 5 -2.4/. 16 3. 75 2
34 — 12kV
22nd Street 34. 5 -7. 4/ 12.7 15. 00 3
Midway #1 34. 5 -7. 4/ 12.7 7. 50 2
Midway #2 34. 5 -7.4/ 12.7 7. 50 2
San Gorgonio # 1 34. 5 -7.4/ 12.7 10. 00 2
San Gorgonio #2 34. 5 -7.4/ 12.7 10. 00 2
Sunset # 1 34. 5 - 7.4/ 12.7 25. 00 5
Sunset # 2 34. 5 - 7.4/ 12.7 25. 00 4
Source: City of Banning Electric Department.
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Power Supply Resources
Peak demand for the Electric System increased annually from 41. 9 MW in Fiscal Year 2010 to
46. 9 MW in Fiscal Year 2013. Peak demand in Fiscal Year 2014 decreased to 40. 5 MW. The decline in peak demand was due to a
very mild summer, which resulted in lower demand for air conditioning. For Fiscal Years 2010 through 2014 total retail sales increased from 135, 545 MWh to 138, 926 MWh. For Fiscal Year 2014, total energy generated equaled 145, 203 MWh and total energy purchases equaled 43, 118 MWh, for a total of 188, 321 MWh of electricity.
As discussed above under the caption " Electric System Facilities," the City has three small hydroelectric generating units which had previously operated infrequently and did not significantly contribute to the Electric System' ssupply resources. However, with the two lower units being rebuilt in 2015, they will produce approximately 4, 000 MWh per year, or three percent of the Utility' s power supply requirements. The principal supply resources for the Electric System are derived from the City' s membership in the Southern California Public Power Authority (" SCPPA"), ajoint powers agency, and the City' sparticipation through SCPPA in ( i) Unit 3 of the San Juan Generating Station (" San Juan Unit 3"), (ii) the Palo Verde Nuclear Generating Station, Units 1, 2 and 3 and associated facilities (" PVNGS"), iii) direct entitlements to the output of hydroelectric generating plants at the Hoover Dam ( the " Hoover Upratings Project"), and ( iv) certain power purchase agreements between SCPPA and two divisions of Ormat Technologies, Inc. relating to two geothermal energy facilities located in the Imperial Valley of California ( the " Onnat Geothermal Energy Projects"). In addition, the City also makes energy purchases in the wholesale market to cover its summer peaking energy and capacity requirements.
In anticipation of the shutdown of San Juan Unit 3 ( which will be discussed in more detail later), the City Council approved power sales agreements to obtain capacity and energy from two new SCPPA projects, which will provide the capacity and energy needed to replace the San Juan resource. The two agreements include a 9 MW share of the Puente Hills Landfill Gas -to -Energy Facility, and an 8 MW share of the RE Astoria 2 Solar Project. Both of these facilities are certified renewable energy through the California Energy Commission and will begin providing capacity, energy and associated renewable attributes to the City beginning in 2017. These two agreements are standard power purchase contracts, and do not have a "take or pay" provision.
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The following table sets forth certain information regarding the Electric System' s power supply resources during the Fiscal Year ended June 30, 2014.
Table 2
CITY OF BANNING
ELECTRIC SYSTEM POWER SUPPLY RESOURCES
Fiscal Year Ended June 30, 2014)
Source
Capacity
Available Actual Percent of
MW) Energy ( MWh) Total Energy
Joint Powers Agency ( SCPPA)
San Juan') 20. 0 125, 21. 3 66. 5%
PVNGS 2. 0 18, 291 9. 7
Hoover 2. 0 1, 699 0. 9
Subtotal 24. 0 145, 203 77. 1
Purchased Power
CAISO` 2l
Ormae3f
Subtotal
N/ A
3. 4
15, 344
27, 774
43, 118
8. 2
14. 7
22. 9
Total 27. 4 188, 321 100%
Thee " DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS - State Legislation - Greenhouse Gas Emissions regarding recent legislation that could adversely affect the use of coal- fired generating plants, including San Juan. 2) Consists of purchases made in the forward market to cover summer peaking energy requirements. 3) Also through SCPPA.
Source: City ofBanning Electric Department.
As noted, the City is a member of SCPPA, a
joint powers agency created for the planning,
financing, acquiring, constructing, operating and maintaining of electric generating and transmission projects for participation by some or all of its members. Through its membership in SCPPA, the City is a participant in the following projects.
San Juan Unit 3. The San Juan Generating Station consists of a four unit, coal fired steam electric generating plant located near the town of Farmington in San Juan County, New Mexico. The combined net generating capacity of the four units is 1, 800 MW. San Juan Unit 3 has a maximum gross rated capacity of 540 MW and net capacity of 497 MW. The four units were put into operation between 1976 and 1982. In 1993, SCPPA and five of its members negotiated a purchase agreement with Century Power Corporation under which SCPPA purchased a 41. 8% interest in San Juan Unit 3 and related common facilities of the San Juan Generating Station, entitling SCPPA to approximately 208 MW of power generated by San Juan Unit 3. SCPPA entered into power sales contracts with five members of SCPPA, including the City. Under these power sales contracts, SCPPA sells 100% of its entitlement to capacity and energy of San Juan Unit 3 on a " take or pay" basis. The City has a 9.8% ( 20 MW) entitlement in SCPPA' s interest in San Juan Unit 3. SCPPA financed its interest in Unit 3 by issuing revenue bonds in an aggregate principal amount of $237, 35, 000, of which approximately $ 42, 935, 000 in aggregate principal amount were outstanding as of June 1, 2015. hi Fiscal Year 2014, San Juan Unit 3 provided 125, 213 MWh of energy to the City at an average cost of delivered energy of $67.8 per MWh. 35251146. 5 21
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In June 2014, the nine owners of the San Juan Generating Station reached a non -binding agreement in principle on an ownership restructuring of the San Juan Generating Station, which if implemented, would result in the shutdown of Units 2 & 3 by December 31, 2017 as part of the overall settlement of matters regarding emissions at San Juan. Most, but not all, of the regulatory approvals and other conditions have been obtained or satisfied in order to implement this proposed ownership restructuring.
In December 2014 SCPPA successfully closed the refunding of the San Juan Power Project' s 2005 Refunding Series A Bonds, which resulted in gross savings of $63 million and an NPV of $4. 95 million, and a new final maturity of January 1, 2017. This ensures that all San Juan Unit 3 related debt will be paid off prior to the unit shutting down December 31, 2017.
In June 2015, the nine owners of San Juan Generating Station completed developing the binding agreements necessary for the final restructuring of ownership and the shutdown of Units 2 & 3 by December 31, 2017. The individual owners still need to obtain final approval through their various governing boards, which is expected to be completed by August 1, 2015.
Palo Verde Nuclear Generating Station. Through its participation in SCPPA, the City has an entitlement to the Palo Verde Nuclear Generating Station near Phoenix, Arizona. SCPPA, pursuant to the Arizona Nuclear Power Project (" ANPP") Participation Agreement, has a 5. 91% interest in PVNGS, consisting of Units 1, 2 and 3 and certain associated facilities and contractual rights, a 5.6% ownership interest in the ANPP High Voltage Switchyard and contractual rights, and a 6. 55% share of the rights to use certain portions of the ANPP Valley Transmission System in order to transmit PVNGS power to its members which are participating in the project.
SCPPA has sold the entire capability of SCPPA' sinterest pursuant to power sales contracts with certain of its members, including the City. Under the PVNGS power sales contract, the participants are entitled to SCPPA generation capability based on their respective PVNGS entitlements and are obligated to make payments on a " take or pay" basis.
Commercial operation and initial deliveries from PVNGS Units 1, 2 and 3 commenced in January 1986, September 1986 and January 1988, respectively. Transmission is accomplished through agreements with Salt River Project Agricultural Improvement and Power District, the Los Angeles Department of Water and Power (" LADWP") and Edison. SCPPA had outstanding approximately 36, 130, 000 aggregate principal amount of bonds with respect to PVNGS as of June 1, 2015. hi response to increased competition in the electric utility business, in 1997 SCPPA began taking steps designed to accelerate the payment of all fixed rate bonds relating to PVNGS by July 1, 2004 ( the PVNGS Restructuring Plan"). Such steps consisted primarily of refunding certain outstanding bonds for savings and accelerating payments by the PVNGS project participants on the bonds issued by SCPPA for PVNGS. The PVNGS Restructuring Plan accomplishes substantial savings to the PVNGS project participants from and after the time the principal of an interest on such fixed rate bonds were paid or provision for the payment thereof was made ( i.e., from and after July 1, 2004). Under the PVNGS Restructuring Plan, the delivered cost of energy produced by PVNGS decreased significantly on July 1, 2004.
The City has a 1. 00% entitlement interest ( 2 MW) in SCPPA' s ownership interest in the PVNGS,
the ANPP High Voltage Switchyard and the ANPP Valley Transmission System. In Fiscal Year 2014, PVNGS provided 18, 291 MWh of energy to the City at an average cost of delivered energy of $41. 23 per MWh.
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Hoover Uprating Project. The City participated in the Hoover Uprating Project which consisted principally of the uprating of the capacity of 17 generating units at the hydroelectric power plant of the Hoover Dam, which is located approximately 25 miles from Las Vegas, Nevada. Modem insulation technology made it possible to " uprate" the nameplate capacity of existing generators. The United States Bureau of Reclamation ( the " Bureau") owns and operates the Hoover Dam facility and the Western Area Power Association markets the power from the facility. The City and certain other members of SCPPA obtained entitlements to capacity and associated firm energy which they assigned to SCPPA by agreement dated March 1, 1986 in return for SCPPA' s
agreement to make advance payments to the Bureau on behalf of such members. The entitlements of the City and these SCPPA members currently total 94 MW of capacity and approximately 107, 000 MWh of associated energy annually from the Hoover Uprating Project. As of June 1, 2015, SCPPA has outstanding approximately $ 6, 095,00 aggregate principal amount of bonds with respect to the Hoover Uprating Project. The City has an entitlement of approximately 2 MW. In Fiscal Year 2014, the Hoover Uprating Project provided 1, 699 MWh of energy to the City at an average cost of delivered energy of $36. 56 per MWh.
Ormat Geothermal Energy Projects. In 2005, SCPPA entered into a power purchase agreement
the " Ormat Power Purchase Agreement") with OrHeber 2, Inc., which is a division of Ormat Technologies, Inc. ("Ormat"). This agreement provides for the purchase of 10 MW of electric generation from a geothermal energy facility located in the Heber area of the Imperial Valley of California. In tum, pursuant to certain power sales agreements (the " Onnat Power Sales Agreements"), SCPPA agreed to sell the energy purchased by it to four of its members, including the City. The City' scontract share of the purchased power is 1 MW or 10% of the total 10 MW output. Under the City' s Onnat Power Sales
Agreement, the City pays an initial cost for delivered energy of $57.0 per MWh, with an annual increase of 1.5%.
The Ormat Power Purchase Agreement and the Ormat Power Sales Agreements ( including the City' s
Ormat Power Sales Agreement) have terms of 25 years from January 1 immediately following the commercial operation dates for the geothermal energy facilities. The Heber facility was completed and commenced delivering energy in January 2006, and thus the agreements relating to that facility have an expiration date of January 1, 2032.
In 2008 Ormat requested, and the SCPPA participants agreed to substitute the generating facility supplying power related to the Ormat Power Purchase Agreement. The new geothermal facility which provides power per the Agreement is the " Heber South" generating facility, which has a capacity of 14 MW versus the original Heber facility' s 10 MW. The City' s share continues to be 10%, but the actual
capacity increased from 1 MW to 1. 4 MW. Additionally, the City agreed to take 2 MW of capacity from the original Heber facility, under the same terms and conditions, thereby additionally increasing its overall capacity from 1. 4 MW to 3. 4 MW. With this change in facilities and increased capacity, there was an update in the pricing of the power, the original pricing methodology applies to the first 9. 5 MW delivered each hour, but electricity in excess of 9. 5 MW delivered any hour will be charged at an initial price of $76 per MWh, with an annual increase of one and one- half percent. All other aspects of the Ormat Power Purchase Agreement remain unchanged.
The Ormat Power Purchase Agreement is subject to early termination by either party thereto in its sole discretion as of January 1 immediately following the 15th or 20th anniversary of the commercial operation date relating to the facility which is the subject of the agreement. In the event of such termination, the Ormat Power Sales Agreement relating to the facility would concurrently terminate.
Furthermore, each Ormat Power Sales Agreement is subject to early termination by either party thereto immediately following the 15th or 20th anniversary of the commercial operation date relating to the facility which is the subject of the agreement. If this termination right is exercised by any SCPPA member pursuant to its Ormat Power Sales Agreement, then SCPPA shall unilaterally terminate all of the 352511465 23
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Ormat Power Sales Agreements unless the contract shares subscribed to by the remaining SCPPA members are increased to 100%. If all of the Ormat Power Sales Agreements are terminated, SCPPA shall terminate the Ormat Power Purchase Agreement in accordance with its right of termination contained therein.
In Fiscal Year 2014, the City purchased 27, 774 MWh of energy pursuant to its Ormat Power Sales Agreement at an average cost of delivered energy of $69. 03 per MWh.
See " THE ELECTRIC SYSTEM — Indebtedness" for a description of the City' s share of SCPPA' s
obligations discussed above.
Forward Market Power Purchases
In addition to power supply resources associated with the City' sparticipation in SCPPA projects, the City has made energy purchases in the forward market to cover its summer peaking energy and capacity requirements. In this regard, the City evaluates responses to requests for proposal from various energy suppliers and selects the supplier providing the most economical cost. There is no assurance that the City will be able to engage in forward market purchases in the future. For the past several years, the City has found that it has been more cost effective to purchase needed peaking energy in the CAISO wholesale markets.
The cost of obtaining necessary energy will depend upon contract requirements and the current market price for energy. Spot market prices are dependent upon such factors as natural gas prices, the availability of generating sources in the region, fuel type, and weather conditions such as ambient temperatures and the amount of rainfall or snowfall. Generating unit outages, dry weather, hot or cold temperatures, time of year, transmission constraints, and other factors can all affect the supply and price of energy. See " DEVELOPMENTS IN THE ENERGY MARKETS."
Future Power Resources
General The Electric System' s
current resources meet its customer demand in the months of October through May (" Winter Months"). Summer peaking requirements are purchased for the months of June through September. The quantity of peaking power actually purchased fluctuates depending on load projections. Current Electric System resources are expected to cover demand during the Winter Months until San Juan Unit 3 shuts down December 31, 2017. As previously noted, the City executed power sales agreements with SCPPA for power to replace that which was being lost with the shutdown of the San Juan Unit 3 facility. Those two projects, which will begin providing capacity and power to the City in 2017, are described in more detail below.
Puente Hills Landfill Gas - to -Energy Facility. The Puente Hills Landfill Gas -to -Energy Facility is an existing facility that is currently under contract with Southern California Edison. SCPPA has negotiated to start taking the output from the facility, which has a nameplate capacity of 46 MW, as of January 1, 2017. The City' sshare of the project will be 20. 9302% or approximately 9. 6 MW of the nameplate capacity. However, because the Puente Hills Landfill has shut down and is no longer accepting waste, the actual capacity of the facility will decrease each year at an estimated rate of 4-6%, as the available " fuel" is depleted. The projected capacity of the facility for 2017 is estimated at 41. 5 MW, which will result in the . City receiving approximately 8. 7 MW of capacity and associated energy. The project has a fixed price of $80 per MWh and a term of 13 years. The facility is located in Los Angeles County ( Whittier) near the interchange of the I-605 and CA -60 freeways, and will interconnect with the CAISO' s
system at Southern Califomia Edison' sHillgen Substation. 35251146. 5 24
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RE Astoria 2 Solar Project The RE Astoria 2 Solar Project is being developed by Recurrent Energy ( which has developed other renewable energy projects for SCPPA) and the project is scheduled to begin commercial operation in 2017. The project will be 75 MW and is the second phase of a larger
project that was developed for Pacific Gas & Electric. The City' sshare of the project will be 13% or 8 MWs of capacity. The project has a fixed price of $64 per MWh and a term of 20 years. It will be sited on approximately 840 acres in California on the border between Los Angeles and Kern Counties, and will interconnect with the California Independent System Operator' s ("CAISO") system at Southern California Edison' sWhirlwind Substation.
Transmission Resources
Transmission resources are an integral component of the City' s plan to provide economical and reliable electric service to its customers. The City currently has several firm capacity transmission agreements to deliver up to 26 MW of remote generation to the City' stakeout point at the Devers 230 substation. In addition, the City has a Wholesale Distribution Access Tariff (" WDAT") Agreement with Edison that allows the City to utilize Edison' s distribution system to deliver electricity from the takeout point over the Devers 115 line to the Banning Substation to serve the City' s entire retail customer load.
Effective January 1, 2003, the City turned over operational control of its high voltage and certain low voltage transmission entitlements to the CAISO, thereby becoming a Participating Transmission Owner ( PTO) in the CAISO. In exchange for the transfer of control to the CAISO of its transmission facilities and certain contractual transmission rights, the City was entitled to receive, until December 31, 2010, firm transmission rights commensurate with the transmission facilities and transmission rights which it turned over to the CAISO. After that time, the firm transmission rights would convert to Congestion Revenue Rights, which are financial instruments used to offset congestion charges on the applicable transmission paths.
As a PTO in the CAISO, the City continues to own its transmission facilities and to be bound by its contractual arrangements. The CAISO provides to the City ( as well as other participants) access to the CAISO Controlled Grid. However, the CAISO maintains operational control for the benefit of all market participants by providing non- discriminatory transmission access, congestion management, grid security, and control area services.
The City is currently part owner of two transmission projects, and also has contractual arrangements for additional firm transmission. The following table summarizes these resources.
Table 3
CITY OF BANNING -- ELECTRIC UTILITY
FIRM TRANSMISSION SERVICE AGREEMENTS
As of June 30, 2014
City' s
Transmission Line / Path Owner/ Party Capacity Primary Use Mead —Phoenix SCPPA 3 MW PVNGS, Westwing,
Marketplace
Mead— Adelanto SCPPA 12 MW PVNGS, Marketplace
Adelanto — Victorville/ Lugo LADWP 12 MW PVNGS, Marketplace Victorville/ Lugo —Devers 230 LADWP 8 MW PVNGS, Marketplace Mead 230 — Dever 230 Edison 2 MW Hoover
Source: City of Banning Electric Department.
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Mead -Phoenix Transmission Project. This 256 -mile, 500 kV AC transmission line, which was placed into commercial operation on April 15, 1996, extends between a southern terminus at the existing Westwing Substation ( in the vicinity of Phoenix, Arizona) and a northern terminus at Marketplace Substation, a substation located approximately 17 miles southwest of Boulder City, Nevada. The line is looped through the 500 -kV switchyard constructed in the existing Mead Substation in southern Nevada with an initial transfer capability of 1, 300 MW. By connecting to Marketplace Substation, the Mead - Phoenix Transmission Project interconnects with the Mead- Adelanto Transmission Project and with the existing McCullough Substation. The Mead -Phoenix Transmission Project is comprised of three project components. SCPPA has executed an ownership agreement providing it with an 18. 3077% member - related ownership share in the Westwing- Mead project component, a 17. 7563% member - related ownership share in the Mead Substation project component, and a 22. 4082% member - related ownership share in the Mead -Marketplace project component. Other owners of the line are APS, M -S -R Public Power Agency, Salt River Project and the City of Vernon, California. Through a contract with SCPPA, the City is entitled to receive 3 MW of this line' s transmission capacity. The term of this contract extends for the life of the facility, or until all SCPPA bonds issued to finance the project are defeased. As of June 1, 2015 SCPPA had outstanding approximately $ 33, 175, 000 principal amount of its bonds issued to finance its interest in the Mead -Phoenix Transmission Project. The City has entered into a transmission service contract with SCPPA which obligates the City to pay the cost of its share of the transfer capability on a "take -or -pay" basis.
Mead- Adelanto Transmission Project. Through a contract with SCPPA, the City is entitled to 12 MW of transmission capacity from this 202 mile, 500 kV AC transmission line, which was placed into commercial operation on April 15, 1996. This arterial line extends between a southwest terminus at the existing Adelanto Substation in southern California and a northeast terminus at Marketplace Substation.
By connecting to Marketplace Substation, the line interconnects with the Mead -Phoenix Transmission Project and the existing McCullough Substation in southern Nevada. The line has an initial transfer capability of 1, 200 MW. SCPPA has executed an ownership agreement providing it with a total of a
67. 9167% member -related ownership share in the project. The other owners of the line are M -S -R Public Power Agency and the City of Vernon, California. The term of this contract extends for the life of facility, or until all SCPPA bonds issued to finance the project are defeased. As of June 1, 2015, SCPPA had outstanding approximately $108, 875, 000 principal amount of its bonds issued to finance its interest in the Mead- Adelanto Transmission Project. The City has entered into a transmission service contract with SCPPA which obligates the City to pay the cost of its share of the transfer capability on a " take -or -pay" basis.
See " THE ELECTRIC SYSTEM — Indebtedness" for a description of the City' s share of SCPPA' s obligations discussed above.
Adelanto- Vicorville/ Lugo. The City has a contract with LADWP for 12 MW of firm transmission service which extends and connects the Mead- Adelanto Transmission Project to the Victorville/ Lugotransmission path. This contract has a fixed price of $0. 27 per kW Month or $3, 240 per month, based on a 12 MW entitlement.
Victorville/ Lugo- Devers 230. The City has two contracts with Edison for a total of 8 MW of firm transmission service which provides transmission for the City' s Palo Verde entitlement, as well as import
of additional market purchases. The cost for this service is determined based on Edison' s Transmission Revenue Requirement (" TRR") and is adjusted each year. Currently the cost is $ 4. 67 per kW month or 37,60 per month for an 8 MW entitlement.
Mead 230- Devers 230. The City contracts with Edison for a total of 2 MW of firm transmission service which provides transmission for the City' s
Hoover entitlement. The cost for this service is
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determined based on Edison' s Transmission Revenue Requirement ( TRR) and is adjusted each year.
Currently the cost is $ 4. 67 per kW month or $9, 340 per month for a 2 MW entitlement.
Wholesale Transactions
Currently the City does not sell excess transmission capacity. Excess power is typically sold in the Day -Ahead Market, and quantities are based on the amount in excess of the anticipated Electric System customer load for the next trading day. Income from the sale of excess power was approximately 2, 030,00 for the Fiscal Year ended June 30, 2014. Due to the volatility of market prices, income from the sale of excess power for Fiscal Year 2015 is conservatively estimated at $ 1, 500, 000.
Historical and Projected Customers, Retail Energy Sales, Revenues and Demand The following table sets forth the average number of customers, metered MWh sales and revenues derived from retail sales, by classification of service, and peak demand during the past five Fiscal Years.
Table 4
CITY OF BANNING
ELECTRIC SYSTEM CUSTOMERS, RETAIL SALES,
REVENUES AND DEMAND - HISTORICAL
Fiscal Years Ended June 30)
2010 2011 2012 2013 2014
Number of Customers
Residential 10, 552 10, 623 10, 679 10, 693 10, 768
Commercial 989 999 1, 000 999 1, 000
Industrial 6 6 5 5 5
Other 124 131 130 130 121
Total 11, 671 11, 759 11, 814 11, 827 11, 894
Mega -Watt Hour Sales( I)
Residential 67, 821 64, 508 67, 302 68, 552 66, 352
Commercial 47, 631 46, 540 49, 370 49, 338 49,15
Industrial 9, 146 8, 933 8, 555 10,21 13, 379
Other 10, 947 10, 233 10, 749 10, 873 9, 780
Total 135, 545 130, 214 135, 976 138, 84 138, 926
Revenues from Sales( I)
Residential $ 12, 658, 211 $ 12, 002, 635 $ 12, 226, 581 $ 12, 443, 114 $ 13,51,15 Commercial 9, 014,09 9, 172, 048 9, 498, 875 9, 518, 696 10, 624, 022 Industrial 1, 650,59 1, 485,23 1, 367, 155 1, 447, 083 2, 131, 714 Other 1, 546, 040 1, 469, 870 1, 739, 672 1, 711, 292 1, 296, 415 Total $ 24, 868, 919 $ 24, 129, 976 $ 24, 832, 283 $ 25, 120,85 $ 27,03,66 Peak Demand ( MW) 41. 9 45. 0 44. 3 46. 9 40. 5
in Metered Sales.
Source: City of Banning Electric Department.
For the Fiscal Year ended June 30, 2014, approximately 48% of the City' s electric retail sales revenues were derived from sales to residential customers. Commercial and Industrial customers represented approximately 39% and 8% of retail sales revenues, respectively. The remaining 5% of retail sales revenues were attributable to sales to City municipal facilities. 35251146. 5 27
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The table below sets forth projections respecting the average number of customers, MWh sales and revenues derived from retail sales, by classification of service, and peak demand during the unaudited prior Fiscal Year and ensuing four Fiscal Years.
TABLE 5
CITY OF BANNING
ELECTRIC SYSTEM CUSTOMERS, RETAIL SALES,
REVENUES AND DEMAND - PROJECTED
Fiscal Years Ended June 30)
2015 2016 2017 2018 2019
Number of Customers
Residential 10, 822 10, 876 10, 930 10, 985 11, 040
Commercial 1, 010 1, 020 1, 025 1, 030 1, 035
Industrial 5 5 6 6 6
Other 121 121 122 122 122
Total 11, 958 12, 022 12, 083 12,43 12, 203
Mega -Watt Hour Sales( 1)
Residential 66,84 67, 017 67, 352 67,89 68, 027
Commercial 49, 662 49, 910 50, 160 50, 411 50, 663
Industrial 13, 446 13, 513 13, 581 13, 649 13, 717
Other 9, 829 9, 878 9,27 9,77 10, 027
Total 139, 621 140, 319 141, 020 141, 725 142, 434
Revenues from Salesi' 1
Residential $ 13, 216, 871 $ 13, 282, 955 $ 13, 349,70 $ 13, 416, 117 $ 13, 483, 197 Commercial 10, 677, 142 10, 730, 528 10, 784, 180 10, 838, 101 10, 892, 292 Industrial 2, 142, 373 2, 153, 084 2, 163, 850 2, 174, 669 2, 185, 542 Other 1, 302, 897 1, 309, 412 1, 315, 959 1, 322, 538 1, 329, 151 Total $ 27, 339, 282 $ 27, 475, 979 $ 27, 613, 359 $ 27, 751, 425 $ 27, 890, 183 Peak Demand ( MW) 43. 7 44. 1 44. 5 44. 9 45. 3
1) Metered Sales.
Source: City of Banning Electric Department.
Largest Customers
With one exception, no single customer of the Electric System accounted for as much as 5% of retail sales for Fiscal Year 2014, and no customer accounted for as much as 10% of those sales. Table 6 on the following page sets forth the ten largest retail customers of the Electric System, their type of business and the percentage of retail sales and consumption accounted for by each during Fiscal Year 2014.
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TABLE 6
CITY OF BANNING ELECTRIC SYSTEM
TEN LARGEST RETAIL CUSTOMERS
Fiscal Year Ended June 30, 2014)
Customer
City of Banning
EDA/ Facilities Management
San Gorgonio Memorial Hospital
Banning Unified School District
Robertson' sReady Mix
Sun Lakes Country Club HOA
Albertson' s Store # 6512
Verizon
Semain Brothers
Rio Ranch Market
Total
Source: City ofBanning Electric Department.
Capital Requirements
Type of Percent of
Business Retail Sales
Local Government
Institutional Facility
Health Care
Education
Construction Materials
Country Club
Grocery Retailer
Service Provider
Mobile Home Park
Grocery Retailer
9. 81%
4. 64
2. 45
2. 98
2. 08
1. 48
1. 25
0. 68
0. 58
0. 64
26. 61%
Consumption
kWh)
11, 283, 158
6, 517, 288
4, 982, 132
4, 041, 914
2, 304, 704
1, 992,78
1, 982, 400
960, 082
948, 324
923, 056
35, 936, 036
As shown in the following table, the City expects capital requirements for the Electric System to aggregate approximately $ 11, 726, 855. 00 for the next five Fiscal Years. Approximately $ 10, 925, 000. will be paid with Bond proceeds, with approximately $ 801,55. 00being funded from the Electric Improvement Fund.
Description
Sunset Grade Separation
Downtown Undergrounding
New Utility Warehouse
Rebuild Alola Substation
Rebuild Airport Substation
Upgrade Midway Substation
Extend Circuits at Sunset Sub
2016
400, 592. 00
968, 542. 00
2, 452, 847. 00
3, 427, 387. 00
2, 077, 487. 00
50, 000.
Source: City of Banning Electric Department.
Insurance
Fiscal Years Ended June 30,
2017 2018 2019 2020
500, 00.
1, 850, 000.
Total
400, 592. 00
968, 542. 00
2, 452, 847. 00
3, 427, 387. 00
2, 077, 487. 00
500, 00.
1, 900, 000.
The City maintains self- insurance programs for workers' compensation and general liability claims. For general liability claims, the City is at risk for up to $ 50, 000 per occurrence. Amounts in excess of $50, 000 up to $ 50, 000,00 are covered through the Public Entity Risk Management Authority PERMA"), a
joint powers authority consisting of 26 public entity members, including the City and 17 other California cities. PERMA covers $ 1, 000,00 of this amount and obtains the balance through participation in the California Joint Powers Risk Management Authority, a state- wide joint powers authority consisting of California cities and other joint powers insurance authorities.
For workers' compensation claims, the City is at risk for up to $ 250, 00 per occurrence. Losses exceeding $ 250, 00 and up to $ 500, 00 are covered through PERMA under its risk -sharing pool 35251146. 5 29
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program, and amounts in excess of $500, 00 are covered by the Local Agency Workers' Compensation Excess Joint Powers Authority, a state- wide joint powers authority consisting of California cities, joint powers authorities and special districts. Estimates for all liabilities, including an estimate for incurred by not reported claims, are included in the Self -Insurance Internal Service Fund.
PERMA also provides a non -risk sharing " deductible" or claims -servicing pool for general liability claims within the self -insured retention (" SIR") level of $ 50, 000. Annual contributions are deposited with PERMA from which claims are paid on behalf of the City. Any claims paid by PERMA for the City in excess of deposits at year- end are recorded as " Due to Other Agencies" within the Self - Insurance Internal Service Fund. In addition, the City makes deposits with PERMA for workers' compensation claims below the $ 250, 00 SIR from which claims are paid on behalf of the City.
Property coverage on City facilities is provided through the City' s participation in PERMA' s property insurance program. Through PERMA property insurance is purchased from Alliant Property Insurance Company. Coverage provided is $ 100, 00,00 per occurrence with a deductible of $5, 000 per occurrence.
The City does not maintain earthquake coverage insurance on the Improvements. See " RISK FACTORS — Casualty Risk." [ Confirm]
Indebtedness
As previously discussed, the City is a participant in the following SCPPA projects: PVNGS, San Juan Unit 3, Hoover Upratings Project, Mead -Phoenix Transmission Project and Mead- Adelanto Transmission Project. To the extent the City participates in projects developed by SCPPA, the City is obligated to pay for its proportionate share of the cost of the particular project. Such payments are included in Operation and Maintenance Costs and, thus, are deducted from Gross Revenues in arriving at Net Revenues available for payment of Installment Payments.
The SCPPA agreements referenced above are on a " take or pay" basis, which requires payments to be made whether projects are completed or operable, or whether output from such projects is suspended, interrupted or terminated. Such payments represent the City' s share of current and long- term
obligations. All of these agreements contain " step- up" provisions obligating the City to pay a share of the obligations of any defaulting participant, a situation which, to date, has not occurred. The City' s participation and share of the debt of SCPPA ( without giving effect to any " step- up" provisions) are shown in Table 8 on the following page. The City' s
Ormat agreement, and the recently executed Puente
Hills Landfill Gas -to -Energy Facility and RE Astoria 2 Solar Project agreements are not " take or pay".
The City' s participation and share of the debt of SCPPA ( without giving effect to any " step- up" provisions) are shown in Table 7 on the following page.
Remainder ofPage Intentionally Left Blank]
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Table 7
CITY OF BANNING ELECTRIC SYSTEM
OUTSTANDING TAKE OR PAY OBLIGATIONS
As of January 1, 2015)
Debt City Share of City
SCPPA Project Outstanding DebtOutstandingt` 1 Participation( 2) San Juan $ 42, 955, 000 $ 4, 209, 777 9. 80%
PVNGS 36, 130, 000 361,00 1. 00
Hoover 6, 090,00 129, 681 2. 13
Mead -Phoenix 32, 210, 000 331, 750 1. 03
Mead- Adelanto 108, 760, 000 1. 468, 271 1. 35
Total $ 226, 145, 000 $ 6, 500, 779
1) Excludes interest on debt.
The City' s participation obligation is subject to increase upon default in payment by another project participant.
Source: City of Banning Electric Department.
Rates and Charges; Recent Rate Increase
To ensure an adequate revenue stream to cover Electric System costs, the Electric System rate schedule includes a System Cost Adjustment Factor permitting an increase in rates beginning on the first day of the second calendar quarter following any calendar quarter during which the Electric System experiences a loss. This increase is imposed administratively ( that is, without approval by the City Council of the City), but cannot exceed $ 0.2 per kWh during any calendar quarter. Uncollected revenue in excess of the $0.2 per kWh cap is carried over as an expense in the next calendar quarter.
Electric System retail rates are otherwise subject to change with the approval of the City Council of the City. City staff or an outside consultant perform an analysis of the cost of service for each Electric System customer type ( residential, commercial, industrial or other) and prepare a report and
recommendation to the City Council respecting any proposed rate changes. The City Council reviews the report and recommendation and either approves or rejects the proposed rate changes. Electric rates in the City are not subject to regulation by the California Public Utilities Commission or any other state agency.
State Legislative Assembly Bill 1890 (" AB 1890") requires the imposition of a public benefits charge PBC") of 2. 85% of annual electric retail sales. The City collects the PBC as a 2. 85% charge applied to all electric charges.
In April 2002 a rate increase was adopted which only affected Schedule C - General and Industrial Service customers ( those with demands exceeding 20 kW). At the same time, the City also restructured the time -of -use periods for Schedule TOU customers ( those with demands exceeding 500 kW) to make them more reflective of the actual demand curve.
In March 2007, the City adopted a rate increase affecting all customer classes. These increases became effective commencing in May 2007, although increases for Schedule TOU customers were phased in over a two year period. In August 2009 the City adopted an overall twenty percent rate increase with an effective date of October 1, 2009. This increase affected all customer classes and was required due to the downturn in the economy, which had a significant impact on electric retail sales. In March 2013, the City adopted an overall twelve percent increase with an effective date of May 1, 2013. Under the new rate structure, no customer class subsidizes any other customer class. 35251146. 5 31
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The following table sets forth the average rates for the indicated customer classes for the Fiscal Years ended June 30, 2010 through June 30, 2014.
Table 8
CITY OF BANNING ELECTRIC SYSTEM
FIVE YEAR HISTORY OF RATES
Average Rate in Dollars per Kilowatt Hour
Fiscal Years Ended June 30)
Customer Class 2010 2011 2012 2013 2014
Residential $ 0. 1809 $ 0. 1861 $ 0. 1815 $ 0. 1815 $ 0. 1982 Commercial 0. 1893 0. 1971 0. 1924 0. 1929 0. 2150
Industrial 0. 1805 0. 1663 0. 1539 0. 1430 0. 1593
Other 0. 1490 0. 1436 0. 1618 0. 1574 0. 1326
Source: City of Banning Electric Department.
The following table sets forth a comparison of rates charged by certain members of SCPPA, including the City, for certain customer classes.
Table 9
CITY OF BANNING ELECTRIC SYSTEM
COMPARISON OF RATES CHARGED - SCPPA MEMBERS
As of June 2015)
Commercial General Large Commercial Demand
Residential ( 1, 000 kWh - Service ( 100 kW and 50, 000 kWh - Utility Summer Season ( 5, 000 kWh) Summer Season)
Banning $ 199. 52 $ 988. 00 $ 10, 222. 00
Anaheim 182. 60 787. 13 6, 241. 87
Azusa 172. 53 735. 66 5, 726. 15
Burbank 174. 57 752. 52 7, 118. 03
Colton 182.1 985. 33 9, 526. 88
Glendale 215.4 868. 60 7,98. 60
Imperial Irrigation
District 135.0 659. 00 6, 020.
Pasadena 214. 57 756. 11 6, 356. 27
Riverside 149. 52 726. 00 6, 905. 0
Source: City of Banning Electric Department.
Summary of Historical Operating Results
Table 10 on the next page sets forth a
summary of operating results for the City' s
Electric System
for the five Fiscal Years ended June 30, 2014. This information has been extracted from the City' s audited financial statements. It has not been reviewed by the City' s independent auditor. The City' s audited financial statements for the Fiscal Year ended June 30, 2014, which include the operation of the Electric System, are attached to this Official Statement as APPENDIX A and should be reviewed in their entirety.
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Table 10
CITY OF BANNING ELECTRIC SYSTEM
HISTORICAL OPERATING RESULTS AND COVERAGE RATIO
Fiscal Years Ended June 30) (1)
2010 2011 2012 2013 2014
Gross Operating Revenue
Sales and Service Charges $ 27, 883, 707 $ 27,40, 024 $27, 478, 319 $29, 138, 857 $ 30, 095, 489 Connection Fees 265 266 1, 060 7, 155 215, 991
Interest Revenue 854, 325 318, 044 164, 027 31, 239 110,75 Miscellaneous Income 283, 097 172, 618 505,46 81, 477 - Total Gross Revenues $ 29, 021, 394 $ 27, 730, 952 $28, 148, 952 $29,58, 728 $30, 421, 655 Operation and Maintenance Expenses $ 2, 383, 511 $ 2, 610, 270 $ 2, 615, 386 $2, 776, 698 $ 2, 873,60 Salaries and Benefits 5, 240, 668 3, 809, 767 4, 535, 860 4, 744,51 5, 082, 280 Supplies and Services( 2) 31, 051 35, 442 114, 497 16, 963 Repairs and Maintenance 174, 685 159, 486 151, 583 148, 733 147, 985 Street Lighting Costs 19,35. 587 18, 536, 737 17, 281, 603 18, 532, 961 17, 000, 644 Power Purchased for Resale $ 26, 965, 502 $25, 151, 702 $ 24, 698, 929 $26,03, 143 $ 25, 121, 732 Total Operation and Maintenance
Expenses'')
Net Operating Revenues $ 2, 055, 892 $ 2, 579, 250 $ 3, 450, 023 $ 3, 055, 585 $ 5, 299, 923 Debt Service
2007 Electric Bonds
Total Debt Service
Coverage Ratio( 4)
2, 670, 838 $ 2, 670,38 $ 2, 669, 238 $2, 671,38 $ 2, 667,38 2, 670, 838 $ 2, 670,38 $ 2, 669, 238 $ 2, 671,38 $ 2, 667,38
0. 77 0. 97 1. 29 1.4 1. 99
This table does not include revenues and expenses relating to the 2. 85% Public Benefits Charge.
Includes amounts transferred to the City' s
General Fund equal to 10% of actual metered sales for fiscal years 2009/ 10 and 2010/ 11. In fiscal year 2011/ 12 and forward, the transfer amount of 10% is based on operating revenues. These transferred amounts will be a part of Net Operating Revenues pledged to the payment of Installment Payments under the Installment Sale Agreement and will only be transferred to the extent not needed for the payment of Installment Payments. Also, includes the inter -fund allocations for administrative costs charged to the Electric System.
3) Pursuant to the Installment Sale Agreement, Operation and Maintenance Expenses do not include debt service or similar payments on Parity Obligations, depreciation or amortization of intangibles or other bookkeeping entries of similar nature, or public benefit program expenditures. 14) Debt Service coverage for fiscal years 2009/ 10, 2010/ 11 and 2012/ 13 were below the rate covenant. Rate increases were approved in April 2013 and implemented in May 2013.
Source: City of Banning.
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Projected Operating Results, Cash Flows and Coverage Ratio At the present time, significant portions of the City remain undeveloped. In addition, certain areas of the City are underdeveloped or are in need of redevelopment A number of new projects within these areas are currently underway or are expected to occur in the future. Among these are the following:
Commercial Projects
600 N. Highland Springs Ave
150 E. Ramsey Street
1450 E. Lincoln Street
Hargrave & Ramsey Street
Hathaway & Nicolet
Tracts/ Development Projects
Rancho San Gorgonio
Butterfield — Pardee Homes
Gilman Street
San Gorgonio Hospital — New Patient Tower
Village at Paseo San Gorgonio — Mixed Use
24 Unit Airport Industrial Work Lofts
La Quinta Inn & Restaurant
Business Park ( O' Donnell Group)
1, 543 Acres
831 Acres
65 Acres
4, 862 — Single Family Dwellings
3,85 — Single Family Dwellings
166 — Single Family Dwellings
The City' s projected operating cash flows and coverage ratios for the Electric System through Fiscal Year 2019 are set forth in Table 11 on the next page. These projections are based on the City' s judgment as to the occurrence of certain future events. The footnotes to the table include certain assumptions. These assumptions and the footnotes are material to the projections, and variations in the assumptions could produce substantially different financial results. Actual revenues and expenses may vary materially from these projections.
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The Electric System' s unaudited cash flows for the prior Fiscal Year and projections for the ensuing four Fiscal Years are set forth in Table 11. These projections are based on the City' sjudgment as to the occurrence of certain future events. The footnotes to the table include certain assumptions_ The assumptions and footnotes set forth beneath the table are material to the projections, and variations in the assumptions could produce substantially different financial results. Actual revenues and expenses may vary materially from these projections.
Table 11
CITY OF BANNING ELECTRIC SYSTEM
PROJECTED CASH FLOW AND COVERAGE RATIO
Fiscal Year Ended June 30)( n
2015i 1 2016 2017 2018 2019
Gross Operating Revenue
Sales and Service Charges( 4) $29, 705, 000 $29, 853, 525 $ 30, 002, 793 $30, 152, 807 $30,03, 571 Connection Fees 10, 600 10, 600 10, 600 10, 600 10, 600 Interest Revenue 53, 291 53, 791 53, 791 53, 791 53, 791 Miscellaneous Income 162, 780 162, 780 162, 780 162, 780 162, 780 Total Gross Revenues $ 29, 931, 671 $30, 080, 696 $30, 229, 964 $30,79, 978 $30, 530, 742 Operation and Maintenance Expenses $ 3, 242, 131 $ 2, 610, 270 $ 2, 615, 386 $ 2, 776, 698 $ 2, 873,60 Salaries and Benefits( 5) 4, 981, 470 3, 809, 767 4, 535, 860 4, 744,51 5, 082, 280 Supplies and Services( 6) 60, 250 35, 442 114, 497 - 16, 963 Repairs and Maintenance( 6H7) 160, 00 159, 486 151, 583 148, 733 147, 985 Street LightingCostsl6 17,59, 680 18, 536, 737 17, 281, 603 18, 532, 961 17, 000, 644 Insurance Premiums( 6) 275, 360 275, 360 275, 360 275, 360 275, 360 Power Purchased for Resalelsl $ 25, 878,91 $26, 526, 837 $26, 559,83 $24, 592, 626 $24, 626, 060 Total Operation and Maintenance
Expenses( g)
Net Operating Revenues $ 4, 052, 780 $ 3, 553, 859 $ 3, 670, 381 $ 5, 787, 322 $ 5, 904, 682 Debt Service
2007 Electric Bonds
Total Debt Service
2, 670, 038 $ 2, 667, 300 $ 2, 668, 800 $ 2, 667, 800 $ 2, 669, 300 Coverage Ratio( 4) 1. 52 1. 33 1. 38 2. 17 2.1
P1 This table does not include revenues and expenses relating to the / 85% Benefits Charge. 2) Fiscal Year 2015 based on budgeted revenues and expenditures. 3) Power purchase expenses projected to remain flat until Fiscal Year 2018. In Fiscal Year 2018 $ 2 million decrease due to divesture of the San Juan power plant.
4) Sales and Service Charges increased by 0.5% each year. 5) Salaries and Benefits projected to increase by 1% each year. 161 Other operating expenses projected to remain flat.
7) Includes amount transferred to the City' s
General Fund equal to 10% of operating revenues. These transferred amounts will be a part of Net Operating Revenues pledged to the payments of Installment Payments under the Installment Sale Agreement and will only be transferred to the extent not needed for the payment of Installment Payments. Also, includes the inter -fund allocations for administrative costs charged to the Electric System. s) Electric Operations and Maintenance Expenses do not include debt service or similar payments on Parity Debt, depreciation or amortization of intangibles or other bookkeeping entries of similar nature, or public benefit program expenditures.
Source: City ofBanning.
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RISK FACTORS
The purchase ofthe Bonds involves investment risk. The following is a listing and discussion of
certain risk factors that should be considered, in addition to the other matters discussed in this Official Statement, in evaluating the investment quality of the Bonds. Necessarily, this listing and discussion is neither comprehensive nor definitive and there can be no assurance that other risk factors will not become material in the future. The order in which the following risk factors are presented is not intended to reflect their relative importance.
The Bonds are Limited Obligations
The Bonds are limited obligations of the Authority and are not secured by a legal or equitable
pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts, except the Revenues. The full faith and credit of the Authority, the Agency and the City is not pledged for the payment of the principal of or interest on the Bonds and no tax or other source of funds, other than the Revenues, is pledged to pay the principal of or interest on the Bonds. The payment of the principal of or interest on the Bonds does not constitute a debt, liability or obligation of the Authority, the City or the Agency for which any such entity is obligated to levy or pledge any form of taxation or for which any such entity has levied or pledged any form of taxation_ The Authority has no taxing power.
Electric System Expenses And Collections
There can be no assurance that the City' s expenses for the Electric System will remain at the levels described in this Official Statement. Changes in technology, increases in energy and fuel costs, new environmental regulations or other expenses may reduce the Net Revenues and could require substantial increases in the applicable rates or charges. Such rate increases could increase the likelihood of nonpayment, and could also decrease demand. Although the City has covenanted to fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Electric System at certain levels, there can be no assurance that such amounts will be collected in the amounts and at the times necessary to make timely payments with respect to the Bonds. See " SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Rate Covenant; Collections of Rates and Charges." No Liability of the Authority to the Owners
Except as expressly provided in the Indenture, the Authority will have no obligation or liability to the Owners of the Bonds with respect to the Installment Payments when due, or with respect to the observance or performance of other agreements, conditions, covenants and terms required to be observed or performed by the City under the Installment Sale Agreement or any related documents or with respect to the performance by the Trustee of any duty required to be performed by it under the Indenture.
Limitations on Remedies
The ability of the City to comply with the covenants under the Installment Sale Agreement and to generate Net Revenues sufficient to pay all Installment Payments in a timely manner may be adversely
affected by actions and events outside of the control of the City and may be adversely affected by actions taken ( or not taken) by voters, property owners, taxpayers or payers of assessments, fees and charges.
See " RISK FACTORS — Articles XIIIC and Article XIIID of the State Constitution." Furthermore, any remedies available to the Owners of the Bonds upon the occurrence of an event of default under the Indenture are in many respects dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. 35251146. 5 36 1560
In addition to the limitations on remedies contained in the Indenture, the rights and obligations under the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. The opinion to be delivered by Bond Counsel concurrently with the execution and delivery of the Bonds, that the Bonds evidence valid and binding obligations and the Indenture constitutes a valid and binding obligation of the Authority and the City will be subject to such limitations, and the various other legal opinions to be delivered concurrently with the execution and delivery of the Bonds will be similarly qualified. See APPENDIX D — FORM OF OPINION OF BOND COUNSEL." In the event the Authority or the City fails to comply with their respective covenants under the Indenture or to cause the timely payment of all principal or interest with respect to the Bonds, there can be no assurance that available remedies will be adequate to fully protect the interest of the holders of the Bonds.
Limited Recourse on Default
If the City defaults on its obligations to make Installment Payments, the Trustee, as assignee of the Authority, has the right to accelerate the Installment Payments. However, in the event of a default and such acceleration, there can be no assurance that the Trustee will have sufficient revenues to pay the accelerated Bonds.
Loss of Tax Exemption
As discussed under the caption " TAX MATTERS" herein, interest with respect to the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the execution and delivery of the Bonds as a result of future acts or omissions of the Authority or the City in violation of their covenants contained in the Indenture or the Installment Sale Agreement. Should such an event of taxability occur, the Bonds are not subject to special redemption or any increase in interest rate and will remain outstanding until maturity or until redeemed under one of the redemption provisions contained in the Indenture.
Secondary Market
There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that the Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated.
Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price.
Forecasts and Forward -Looking Statements
Although the Authority believes that the City' s projections of future operating results of the Electric System are reasonable, there can be no assurance that actual operating results will match the projections due to changes in general economic conditions and similar factors. In addition, the Electric System and economic development within the service area of the City are subject to comprehensive federal, state and local regulations. There can be no assurance that the Electric System will not be adversely affected by future economic conditions, governmental policies or other factors beyond the control of the City.
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This Official Statement contains certain " forward -looking statements" concerning the Authority' s operations, the Electric System, and the operations, performance and financial condition of the City, the Authority, the Electric System, including their future economic performance, plans and objectives and the likelihood of success in developing and expanding. These statements are based upon a number of assumptions and estimates which are subject to significant uncertainties, many of which are beyond the control of the Authority and City. The words " may," "would," "could," "will," "expect," " anticipate," believe," " intend," " plan," " estimate" and similar expressions are meant to identify these forward - looking statements. Results may differ materially from those expressed or implied by these forward - looking statements.
Rate Regulation
The City sets rates and charges for electric service provided at retail within its boundaries. The authority of the City to impose and collect rates and charges for power service is not currently subject to the direct regulatory jurisdiction of the California Public Utilities Commission (" CPUC") or the Federal Energy Regulatory Commission (" FERC"), and presently no other regulatory authority directly limits or restricts such rates and charges. See " THE ELECTRIC SYSTEM — Rates and Charges; Recent Rate Increase." It is possible that future Constitutional, legislative or regulatory changes could subject the rates, charges and/ or service areas of the City to the direct jurisdiction of the CPUC or FERC or to other limitations or requirements under federal or State law.
Certain Factors Affecting the Electric Utility Industry The electric utility industry in general has been, and in the future may be, affected by a number of other factors which could impact the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities. The Authority is unable to predict what impact such factors will have on the business operations and financial condition of the Electric System, but the impact could be significant. This Official Statement includes a brief discussion of certain of these factors. See " DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS" and " OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY."
Articles XIIIC and XIIID of the State Constitution
Proposition 218, a State ballot initiative known as the " Right to Vote on Taxes Act," was approved by the voters of the State on November 5, 1996. Proposition 218 added Articles XIIIC and XIllD to the State Constitution. Article XIIID creates additional requirements for the imposition by most local governments (including the City) of general taxes, special taxes, assessments and " property -related" fees and charges. Article XIIID explicitly exempts fees for the provision of electric service from the provisions of such article. Nevertheless, Proposition 218 could indirectly affect some California municipally -owned electric utilities. For example, to the extent Proposition 218 reduces a city' s general fund revenues, that city could seek to increase the transfers from its electric utility to its general fund.
Article XIIIC expressly extends the people' sinitiative power to reduce or repeal previously - authorized local taxes, assessments, and fees and charges. The terms " fees and charges" are not defined in Article XIIIC, although the California Supreme Court held in Bighorn -Desert View Water Agency v.
Verjil, 39 Ca1. 4th 205 ( 2006), that the initiative power described in Article XIIIC may apply to a broader category of fees and charges than the property -related fees and charges governed by Article XIIID.
Moreover, in the case of Bock v. City Council ofLompoc, 109 Ca1. App. 3d 52 ( 1980), the Court of Appeal determined that electric rates are subject to the initiative power. Thus, even electric service charges which are expressly exempted from the provisions of Article XIIID) might be subject to the initiative provision of Article XIIIC, thereby subjecting such fees and charges imposed by the City to reduction by 35251146. 5 38 1562
the electorate. The City believes that even if the electric rates of the City are subject to the initiative power, under Article XIIIC or otherwise, the electorate of the City would be precluded from reducing electric rates and charges in a manner adversely affecting the payment of the Bonds by virtue of the impairment of contracts clause" of the United States and California Constitutions.
Proposition 26
Proposition 26 was approved by the electorate at the November 2, 2010 election and amended California Constitution Articles XIIIA and XIIIC. Proposition 26 imposes a majority voter approval requirement on local governments such as the City with respect to certain fees and charges for general purposes, and a two-hirds voter approval requirement with respect to certain fees and charges for special purposes, unless the fees and charges are expressly excluded. Proposition 26 was designed to supplement tax limitations imposed by the voters in California Constitution Articles XIIIA, XIIIC and XIIID pursuant to Proposition 13, approved in 1978, Proposition 218, approved in 1996, and other measures. Proposition 26 expressly excludes from its scope a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable cost to the local government of providing the service or product.
Proposition 26 is subject to interpretation by California courts. Proposition 26 may be interpreted to limit fees and charges for electric utility services charged by governmental entities such as the City to preclude future transfers of electric utility generated funds to a local government' sgeneral fund, if applicable, and/ or to require stricter standards for the allocation of costs among customer classes. In Citizens for Fair REU Rates v. City ofRedding ( filed on January 20, 2015 and modified on February 19, 2015), for example, the Califomia Court of Appeal considered aratepayer challenge to a " payment in lieu of taxes" (or " PILOT") imposed by the City of Redding on its electric utility without voter approval. The city' s
PILOT was designed to be equivalent to the ad valorem taxes the electric utility would have had to pay if the electric utility were privately owned. The PILOT is passed through to the city' s electric utility
customers as part of the rates and charges for electric service. The Court of Appeal determined that a charge for electric service could be an " imposed charge," and therefore subject to Proposition 26, if the purchaser has no realistic alternative power source. Therefore, the Court held that the PILOT constituted an unconstitutional " tax" under Proposition 26 unless the city proves that the amount collected is necessary to cover the reasonable costs to the city of providing various governmental services to the city' s electric utility. The Court of Appeal stated that even if the rates charged by the city are lower than those paid by others in California, they must not exceed the city' sreasonable cost of providing electric service or be approved by the voters. In addition, the Court of Appeal noted that Proposition 26 has no retrospective effect as to local taxes that existed prior to November 3, 2010, but found that since the PILOT was subject to the City Council' srecurring discretion, the PILOT did not escape the purview of Proposition 26. On April 29, 2015, the California Supreme Court granted review of the decision of the Court of Appeal. As a result of the California Supreme Court' s grant of review, the decision of the Court of Appeal in Citizens for Fair REU Rates v. City of Redding is no longer considered published and may not be cited or relied on as precedent in the courts of the State.
The City is unable to predict at this time how Proposition 26 will be ultimately be interpreted by the courts or what its future impact will be.
Future Initiatives
Articles XIIIA, XIIIB, XIIIC and XIIID, and Proposition 26 were each adopted as measures that qualified for the ballot pursuant to the State' s initiative process. From time to time, other initiatives have been, and could be, proposed, and if qualified for the ballot, could be adopted affecting the City' s revenues or the City' s ability to expend revenues. The City is unable to predict either the likelihood of 35251146. 5 39 1563
qualification for ballot or passage of these measures or the nature and impact of these measures on the finances or operations of the Electric System.
Casualty Risk; Earthquakes
Any natural disaster or other physical calamity could have the effect of reducing revenues through damage to the Electric System and/ or adversely affecting the economy of the surrounding area.
For example, the City is located in a
region of seismic activity. The principal earthquake fault in the Los Angeles and City area is the San Andreas Fault, which extends an estimated 700 miles from north of the San Francisco area to the Salton Sea in Southern California.
Announcements on January 20, 1995 by the scientists associated with the Southern California Earthquake Center indicated that the probability of a magnitude 7 or greater earthquake on the Richter Scale occurring in Southern California is between 80% and 90% in the 30 year period following the announcement. It is impossible to accurately predict the cost or effect of such an earthquake on the Electric System and on the City' s ability to provide continued uninterrupted service to all parts of its service area.
A future earthquake could cause significant damage to the City and the facilities of the Electric System and could adversely affect the ability of the City to meet all of its financial obligations. On January 17, 1994, an earthquake of approximately 6. magnitude on the Richter Scale was centered in the northwest San Fernando Valley section of the City of Los Angeles. It caused widespread damage to commercial and residential structures and to major freeways, causing business interruptions and disrupting the normal flow of traffic. Its damaging effects were felt over a large area, and the
transmission services by the Cities of Pasadena and Burbank over the Pacific Intertie DC Transmission Line were temporarily interrupted because of damage to the Sylmar Converter Station. The Electric System was not significantly damaged by this earthquake. In the event of a severe earthquake, however, the amount of moneys available to pay debt service on the Bonds could be reduced significantly.
DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS
State Legislation
A number of bills affecting the electric utility industry have been introduced or enacted by the California Legislature in recent years. In general, these bills regulate greenhouse gas emissions and provide for greater investment in energy -efficiency and environmentally friendly generation and storage alternatives, principally through more stringent renewable resource portfolio standard requirements. The following is a brief summary of certain of these bills that have been enacted.
Greenhouse Gas Emissions — Executive Orders. On June 1, 2005, then Governor Arnold Schwarzenegger signed Executive Order S- 3- 05, which placed an emphasis on efforts to reduce greenhouse gas emissions by establishing statewide greenhouse gas reduction targets. The targets are:
i) a reduction to 2000 emissions levels by 2010; (ii) a reduction to 1990 levels by 2020; and ( iii) a reduction to 80% below 1990 levels by 2050. The Executive Order also called for the California Environmental Protection Agency to lead a multi -agency effort to examine the impacts of climate change on California and develop strategies and mitigation plans to achieve the targets. On April 25, 2006, then Governor Schwarzenegger also signed Executive Order S- 06-6, which directs the State of California to meet a 20% biomass utilization target within the renewable generation targets of 2010 and 2020 for the contribution to greenhouse gas emission reduction.
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On April 29, 2015, Governor Jerry Brown signed Executive Order B- 30- 15, which establishes a new interim statewide greenhouse gas emission reduction target to reduce greenhouse gas emissions to 40% below 1990 levels by 2030. The Executive Order indicates that the new interim target is aimed at ensuring that California meets the target established by Executive Order S- 3- 05 of reducing greenhouse gas emission to 80% below 1990 levels by 2050. The Executive Order also directs the California Natural Resources Agency to update the State' sclimate adaptation strategy every three years and to ensure that its provisions are fully implemented. Among other requirements, the Executive Order provides that the State' s
adaptation strategy must identify a lead agency or agencies that are responsible for adaptation efforts in at least the following sectors: water, energy, transportation, public health, agriculture, emergency services, forestry, biodiversity and habitat, and ocean and coastal resources. The Executive Order requires that the lead agencies for each sector must, by September 2015, outline the actions in their sector that will be taken as identified in the State' s adaptation strategy and report back to the California
Natural Resources Agency by June 2016.
Greenhouse Gas Emissions — Global Warming Solutions Act. Then Governor Schwarzenegger signed Assembly Bill 32, the Global Warming Solutions Act of 2006 ( the " GWSA"), which became effective as law on January 1, 2007. The GWSA prescribed a statewide cap on global warming pollution with a goal of returning to 1990 greenhouse gas emission levels by 2020. In addition, the GWSA established an annual mandatory reporting requirement for all IOUs, local publicly -owned electric utilities (" POUs") and other load -serving entities ( electric utilities providing energy to end - use customers) to inventory and report greenhouse gas emissions to the California Air Resources Board (" CARB"), required CARB to adopt regulations for significant greenhouse gas emission sources ( allowing CARB to design a " cap -and -trade" system) and gave CARB the authority to enforce such regulations beginning in 2012.
On December 11, 2008, CARB adopted a " scoping plan" to reduce greenhouse gas emissions.
The scoping plan set out a mixed approach of market structures, regulation, fees and voluntary measures.
The scoping plan included a
cap -and -trade program. In August 2011, CARB revised the scoping plan in response to litigation. The revised scoping plan also included acap -and -trade program. The scoping plan is required to be updated every five years. In October 2013, CARB released a draft of its 2013 scoping plan update. Public comments on the draft scoping plan update were submitted by November 1, 2013.
CARB issued the proposed first update to the scoping plan update on February 10, 2014, which was approved by CARB on May 22, 2014. The scoping plan update recommends that a plan to extend the cap -and -trade program beyond 2020 be developed by 2017. In addition, CARB approved a resolution at its October 25, 2013 board meeting that directs CARB' s executive officer to develop a plan for a post - 2020 program, including a cost containment mechanism, before 2018. 011 October 20, 2011, CARB adopted a
regulation implementing acap -and -trade program. The
California Office of Administrative Law (" OAL") approved the regulation on December 13, 2011. The cap -and -trade regulation became effective on January 1, 2012. Emission compliance obligations under the regulation began on January 1, 2013. The cap -and -trade program covers sources accounting for 85% of California' s greenhouse gas emissions, the largest program of its type in the United States.
The cap -and -trade program is being implemented in phases. The first phase of the program January 1, 2013 to December 31, 2014) introduced a hard emissions cap covering emissions from electricity generators, electricity importers and large industrial sources emitting more than 25, 000 metric tons of carbon dioxide - equivalent greenhouse gases (" CDE") per year. In 2015, the program is being expanded to cover emissions from transportation fuels, natural gas, propane and other fossil fuels. The cap will decline each year until the end of the program currently scheduled for 2020 unless otherwise extended, as expected, through an act of the State legislature. 35251146. 5 41 1565
The cap -and -trade program includes the distribution of carbon allowances equal to the annual emissions cap. Each allowance is equal to one metric ton of CDE. As part of a transition process, initially, most of the allowances were distributed for free. Additional allowances are being auctioned quarterly ( auctions began in November 2012). Utilities can acquire more allowances at these auctions or on the secondary market. IOUs are required to auction the allowances they received for free from CARB.
This requirement also applies to POUs that sell electricity into the ISO markets, other than sales of electricity from resources funded by municipal tax- exempt debt where the POU makes a matched purchase to serve its traditional retail customers. Utilities required to sell their allowances in the auctions are then required to purchase allowances to meet their compliance obligations, and use any remaining proceeds from the sale of their allocated allowances for the benefit of their ratepayers and to meet the goals of the GWSA. POUs that do not sell into the ISO markets, and those that sell into the ISO markets only electricity from resources funded by municipal tax- exempt debt, have three options ( which are not mutually exclusive) once their allocated allowances are distributed to them. They can ( i) place allowances in their compliance accounts to meet compliance obligations for plants they operate directly, ii) place allowances in the compliance account of a joint powers agency or public power utility that generates power on their behalf, and/ or (iii) auction the allowances and use the proceeds to benefit their ratepayers and meet the goals of the GWSA.
The cap -and -trade program also allows covered entities to use offset credits for compliance ( not exceeding 8% of a covered entity' scompliance obligation). Offsets can be generated by emission reduction projects in sectors that are not regulated under the cap -and -trade program. CARB has approved the following types of offset projects: urban forest projects, reforestation projects, destruction of ozone - depleting substances, livestock methane management projects and destruction of fugitive coal mine methane. CARB will consider additional and updated offset protocols, including a new compliance offset protocol for rice cultivation practices, the adoption of which is currently expected to occur in mid -2015.
On April 25, 2014, CARB adopted various changes to the cap -and -trade program, including provisions relating to the electricity sector such as " safe harbor" provisions under the " resource shuffling" prohibition. These changes became effective on July 1, 2014.
The California cap -and -trade program is linked to the equivalent program in Quebec, Canada.
The link took effect on January 1, 2014, although the first joint auction was delayed until November 25, 2014 in order to resolve certain technical issues. California' sprogram may be linked to additional Canadian provincial cap -and -trade programs, and possibly other U. S. state cap -and -trade programs, in later years as part of the Western Climate Initiative. The Western Climate Initiative is a regional effort
consisting of California and four Canadian provinces ( Quebec, British Columbia, Ontario and Manitoba), which have established a greenhouse gas reduction trading framework.
The City is unable to predict at this time the full impact of the cap -and -trade program over the long- term on the Electric System or on the electric utility industry generally or whether any additional changes to the adopted program will be made. Since the advent of the cap and trade program in 2012, regulations by the CARB have provided the electric sector, including the Electric System, with sufficient allocated greenhouse gas allowances or credits to cover existing operations in meeting retail load obligations. As a
result, there have been minimal additional costs to the Electric System in managing the need for additional allowances required for retail obligations. Wholesale transactions utilizing carbon - based generation have included greenhouse gas adders as part of the transaction price and hence, no significant additional expenses for greenhouse gas emission management have been incurred under those transactions. However, the City could be adversely affected in the future if the greenhouse gas emissions of its resource portfolio are in excess of the allowances administratively allocated to it and it is required to purchase compliance instruments on the market to cover its emissions. The City may also be adversely affected depending on how the federal Clean Power Plan affects the State' scap - and -trade program. 35251146. 5 42 1566
However, with the City' s divestiture of San Juan Unit 3, scheduled for December 31, 2017, and the execution of the power sales agreements for renewable energy to replace San Juan, the City' sresource mix will be approximately 75% renewable energy and nearly 90% emissions free ( the Palo Verde Nuclear and Hoover Large Hydro generating facilities, while not considered renewable energy, do not produce emissions). This will result in a significant reduction in the potential adverse impact of the cap -and -trade program and any other State or Federal program. See " OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY — Environmental Issues — Greenhouse Gas Regulations under the Clean Air Act" for a brief description of the federal Clean Power Plan.
Greenhouse Gas Emissions — Emissions Performance Standard. Senate Bill 1368 (" SB 1368") became effective as law on January 1, 2007. It provides for an emission performance standard (" EPS"), restricting new investments in baseload fossil fuel electric generating resources that exceed the rate of greenhouse gas emissions for existing combined -cycle natural gas baseload generation. SB 1368 allows the California Energy Commission ( the " CEC") to establish a regulatory framework to enforce the EPS
for POUs such as the City. The CPUC has a similar responsibility for the IOUs. The regulations promulgated by the CEC were approved by the Office of Administrative Law on October 16, 2007. The CEC regulations prohibit any investment in baseload generation that does not meet the EPS of 1,00 pounds of carbon dioxide (" CO2") per MWh of electricity produced, with limited exceptions for routine maintenance, requirements of pre- existing contractual commitments, or threat of significant financial harm.
In January 2012, the CEC initiated a review of the regulations for enforcement of the EPS for POUs to ensure there is adequate review of investments in facilities that do not meet the EPS. On March 19, 2014, the CEC issued its Final Conclusions in the EPS proceeding. The CEC proposed to expand the public notice requirement so that a POU would have to post a notice of a public meeting at which its governing board would consider any expenditure over $ 2. 5 million to meet environmental regulatory requirements at a non- EPS compliant baseload facility. The CEC further proposed to require each POU to file an annual notice identifying all investments over $2. 5 million that it anticipates making during the subsequent 12 months on non- EPS compliant baseload facilities to comply with environmental regulatory requirements. This requirement would be waived for any POU that has entered into a binding agreement to divest within five years of all baseload facilities exceeding the EPS. The CEC did not propose to lower the EPS. Further, by letter from the CPUC to the CEC, the CPUC expressed its view that the EPS not be lowered. A final regulatory package was unanimously adopted at the CEC' s June 18, 2014 business meeting. The adopted regulations had limited changes to the proposed POU reporting requirements.
CEC staff has also since confirmed that the $ 2. 5 million threshold applies to an individual investment by each utility — not the combined investment of all participants in a project. These changes and any future changes to the EPS regulations may impact the City.
Energy Procurement and Efficiency Reporting. Senate Bill 1037 (" SB 1037") was signed by then Governor Schwarzenegger on September 29, 2005. It requires that each POU, including the City, prior to procuring new energy generation resources, first acquire all available energy efficiency, demand reduction, and renewable resources that are cost- effective, reliable and feasible. SB 1037 also requires each POU to report annually to its customers and to the CEC its investment in energy efficiency and demand reduction programs. The City has complied with such reporting requirements.
Further, California Assembly Bill 2021 (" AB 2021"), signed by then Governor Schwarzenegger on September 29, 2006, requires that the POUs establish, report, and explain the basis of the annual energy efficiency and demand reduction targets by June 1, 2007 and every three years thereafter for a tenyear horizon. A subsequent bill has changed the time interval for establishing annual targets to every four years. The City has complied with this reporting requirement under AB 2021. Future reporting requirements under AB 2021 include: ( i) the identification of sources of funding for the investment in 35251146. 5 43 1567
energy efficiency and demand reduction programs; ( ii) the methodologies and input assumptions used to determine cost- effectiveness; and ( iii) the results of an independent evaluation to measure and verify energy efficiency savings and demand reduction program impacts. The information obtained from the POUs is being used by the CEC to present the progress made by the POUs towards the State of California' s
goal of reducing electrical consumption by 10% within ten years and the greenhouse gas targets presented in Executive Order S- 3- 05. In addition, the CEC will provide recommendations for improvement to assist each POU in achieving cost- effective, reliable, and feasible savings in conjunction with the established targets for reduction.
Renewable Portfolio Standards. Senate Bill X1 2 (" SBX1 2"), the " California Renewable Energy Resources Act," was signed into law by Governor Jerry Brown on April 12, 2011. SBX1 2 codifies the Renewable Portfolio Standard (" RPS") target for retail electricity sellers to serve 33% of their loads with eligible renewable energy resources by 2020 as provided in Executive Order S- 14- 08 (signed by Governor Jerry Brown in November 2008). As enacted, SBX1 2 makes the requirements of the RPS program applicable to POUs ( rather than just prescribing that POUs meet the intent of the legislation as under previous statutes). However, the governing boards of POUs are responsible for implementing the requirements, rather than the CPUC, as is the case for the IOUs. In addition, the CEC is given certain enforcement authority for POUs and CARB is given the authority to set penalties. CARB is expected to complete a RPS enforcement penalties rulemaking by November 2015 for POUs.
SBX1 2 requires each POU to adopt and implement a renewable energy resource procurement plan. As set out in more detail in the CEC' s RPS enforcement regulation, noted below, the plan must require the utility to procure at least the following amounts of electricity products from eligible renewable energy resources, which may include renewable energy certificates (" RECs"), as a proportion of total kilowatt hours sold to the utility' s
retail end -use customers: ( i) over the 2011-013• compliance period, an average of 20% of retail sales from January 1, 2011 to December 31, 2013, inclusive; ( ii) over the 2014- 2016 compliance period, a total equal to 20% of 2014 retail sales, 20% of 2015 retail sales, and 25% of 2016 retail sales; (iii) over the 2017-020 compliance period, a total equal to 27% of 2017 retail sales, 29% of 2018 retail sales, 31% of 2019 retail sales, and 33% of 2020 retail sales; and ( iv) for 2021 and each subsequent year, 33% ofretail sales for the applicable year.
SBX1 2 grandfathers any facility approved by the governing board of a POU prior to June 1, 2010 as satisfying renewable energy procurement obligations adopted under prior law if the facility is a " renewable electrical generation facility" as defined in the bill (subject to certain restrictions).
Renewable electrical generation facilities include certain out-f- sate renewable energy generation facilities if such facility: ( i) will not cause or contribute to any violation of a California environmental quality standard or requirement, ( ii) participates in the accounting system to verify compliance with the RPS program requirements, and ( iii) either ( a) commenced initial commercial operation after January 1, 2005 or ( b) either ( x) the electricity generated by the facility is from incremental generation resulting from expansion or repowering of the facility or (y) the electricity generated by the facility was procured by a retail seller or POU as of January 1, 2010. The percentage of a retail electricity seller' s RPS requirements that may be met with unbundled RECs from generating facilities outside California declines over time, beginning at 25% through 2013 and declining to a level of 10% in 2017 and beyond.
The CEC has developed detailed rules to implement SBX1 2. On June 12, 2013, the CEC adopted regulations for the enforcement of the RPS program requirements for POUs. In connection with the implementation of SBX1 2, the CEC is responsible for certifying electric generation facilities as eligible renewable energy resources" for purposes of the RPS program and on April 30, 2013, adopted guidelines that identify the requirements, conditions and process for certification of facilities as eligible renewable energy resources. The current guidelines identify bio- methane as an eligible renewable energy resource in certain circumstances. Under these guidelines, utilities that procure bio- methane were 35251146. 5 44 1568
required to reapply for certification of the generating facilities that use the bio- methane. The CEC proposed new amendments to the RPS regulation on March 27, 2015. The formal comment period for the proposed amendments ended on May 11, 2015. The CEC is expected to consider adoption of the proposed amendments during its June 10, 2015 business meeting. As previously noted, the City' s resource mix will be approximately 75% renewable energy on or before December 31, 2017.
See " THE ELECTRIC SYSTEM — Power Supply Resources" for additional information. regarding the City' s
renewable resources.
Solar Power. On August 21, 2006, then Governor Schwarzenegger signed into law California Senate Bill 1 ( also known as the " California Solar Initiative"). This legislation requires POUs, including the City, to establish a
program supporting the stated goal of the legislation to install 3, 000 MW of photovoltaic energy in California. POUs are also required to establish eligibility criteria in collaboration with the CEC for the funding of solar energy systems receiving ratepayer -funded incentives. The legislation gives a POU the choice of selecting an incentive based on the installed capacity or based on the energy produced by the solar energy system, measured in kilowatt- hours. Incentives would be required to decrease at a minimum average rate of7% per year. POUs also have to meet certain reporting requirements regarding the installed capacity, number of installed systems, number of applicants, amount of awarded incentives and the contribution toward the program' s goals. The City has established a program in accordance with the requirements of the California Solar Initiative.
Recently Introduced Climate Change Bills. On January 5, 2015, Governor Jerry Brown proposed three major climate goals to be completed within the next 15 years: ( 1) increase from 33% to 50% California' s electricity derived from renewables; (2) reduce current petroleum use in cars and trucks by up to 50%; and ( 3) increase by 50% the efficiency of existing buildings and make heating fuels cleaner. Recently, a number of bills were introduced in the State Legislature that, if adopted, would, among other things, implement the climate goals announced by the Governor. As expected, the proposed bills would increase the State' s RPS from 33% to 50% ( SB 350 and AB 645) and would require CARB to approve a statewide greenhouse gas emission limit that is equivalent to 80% below the 1990 level to be achieved by 2050, as contemplated by Executive Order 5-3-05, and would authorize CARB to adopt interim greenhouse gas emissions level targets to be achieved by 2030 and 2040 ( SB 32). A bill (AB 21) has also been introduced that would require a statewide greenhouse gas emissions limit for 2080 to be established by 2018. Another bill (SB 180) would require state agencies to update the EPS and expand its application to secondary generation sources. The City is analyzing the bills to assess what their full impact might be. The City is unable to predict at this time the ultimate form any of the proposed bills may take or the likelihood of their passage.
Future Regulation
The electric industry is subject to continuing legislative and administrative reform. States routinely consider changes to the way in which they regulate the electric industry. Historically, both further deregulation and forms of additional regulation have been proposed for the industry, which has been highly regulated throughout its history. While there is no current proposal to further deregulate the industry, there still are additional regulations or legislative mandates being proposed or considered for the industry such as higher reliance on renewable energy and tighter regulations for greenhouse gas emission reductions. The City is unable to predict at this time the impact any such proposals will have on the operations and finances of the City' s
Electric System or the electric utility industry generally. 35251146J 45 1569
Impact of Developments on the City
The effect of the developments in the California energy markets described above on the City' s Electric System cannot be fully ascertained at this time. Also, volatility in energy prices in California may return due to a variety of factors that affect both the supply and demand for electric energy in the western United States. These factors include, but are not limited to, the adequacy of generation resources to meet peak demands, the availability and cost of renewable energy, the impact of economy - wide greenhouse gas emission legislation and regulations, fuel costs and availability, weather effects on customer demand, transmission congestion, the strength of the economy in Califomia and surrounding states and levels of hydroelectric generation, which is affected by weather conditions such as the amount of rainfall or snowfall, within the region ( including the Pacific Northwest). See " OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY_" This price volatility may contribute to greater volatility in the revenues of the Electric System from the sale ( and purchase) of electric energy and, therefore, could materially affect the City' s financial condition. However, the City is currently approximately 85% resourced, which significantly reduces exposure to market volatility. In addition, the City undertakes resource planning and risk management activities and manages its resource portfolio to mitigate future price volatility and spot market rate exposure.
OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY
Federal Energy Legislation
Energy Policy Act of 2005. Under the federal Energy Policy Act of 2005 (" EPAct 2005"), the Federal Energy Regulatory Commission (" FERC") was given refund authority over POUs if they sell into short- tem markets, like the ISO markets, and sell eight million MWhs or more of electric energy on an annual basis. In addition, FERC was given authority over the behavior of market participants. Under FERC' s authority it can impose penalties on any seller for using a manipulative or deceptive device, including market manipulation, in connection with the purchase or sale of energy or of transmission service. The Commodity Futures Trading Commission (" CFTC") also has jurisdiction to enforce certain types of market manipulation or deception claims under the Commodity Exchange Act.
EPAct 2005 authorized FERC to issue permits to construct or modify transmission facilities located in a national interest electric transmission corridor if FERC determines that the statutory conditions are met. EPAct 2005 also required the creation of an electric reliability organization (" ERO") to establish and enforce, under FERC supervision, mandatory reliability standards (" Reliability Standards") to increase system reliability and minimize blackouts. Failure to comply with such Reliability Standards exposes a utility to significant fines and penalties by the ERO.
NERC Reliability Standards. EPAct 2005 required FERC to certify an ERO to develop mandatory and enforceable Reliability Standards, subject to FERC review and approval. The Reliability Standards apply to users, owners and operators of the Bulk -Power System, as more specifically set forth in each Reliability Standard. On February 3, 2006, FERC issued Order 672, which certified the North American Electric Reliability Corporation (" NERC") as the ERO. Many Reliability Standards have since been approved by FERC.
The ERO or the entities to which NERC has delegated enforcement authority through an agreement approved by FERC (" Regional Entities"), such as the Western Electricity Coordinating Council, may enforce the Reliability Standards, subject to FERC oversight, or FERC may independently enforce them. Potential monetary sanctions include fines of up to $ 1 million per violation per day. FERC Order 693 further provided the ERO and Regional Entities with the discretion necessary to assess 35251146. 5 46 1570
penalties for such violations, while also having discretion to calculate a penalty without collecting the penalty if circumstances warrant.
Other Legislation. Congress has considered and is considering numerous bills addressing domestic energy policies and various environmental matters, including bills relating to energy supplies and development ( such as a federal energy efficiency standard and expedited permitting for natural gas drilling projects), global warming, physical and cyber security and water quality. Many of these bills, if enacted into law, couldhave a material impact on the City' s Electric System and the electric utility
industry generally. In light of the variety of issues affecting the utility sector, federal energy legislation in other areas such as reliability, transmission planning and cost allocation, operation of markets, environmental requirements and cyber security is also possible. However, the City is unable to predict the outcome or potential impacts of any possible legislation on the City' sElectric System at this time.
Environmental Issues
General. Electric utilities are subject to continuing environmental regulation. Federal, State and local standards and procedures which regulate the environmental impact of electric utilities are subject to change. These changes may arise from continuing legislative, regulatory and judicial action regarding such standards and procedures. Consequently, there is no assurance that any City facility or project will remain subject to the laws and regulations currently in effect, will always be in compliance with future laws and regulations or will always be able to obtain all required operating permits. An inability to comply with environmental standards could result in additional capital expenditures, reduced operating levels or the shutdown of individual units not in compliance. In addition, increased environmental laws and regulations may create certain barriers to new facility development, may require modification of existing facilities and may result in additional costs for affected resources.
Greenhouse Gas Regulations Under the Clean Air Act. The United States Environmental Protection Agency ( the " EPA") has taken steps to regulate greenhouse gas emissions under existing law. hi 2009, the EPA issued a final " endangerment finding," in which it declared that the weight of scientific evidence requires a
finding that six identified greenhouse gases, namely, CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride, cause global warming, and that global warming endangers the public health and welfare. The final rule for the " endangerment finding" was published in the Federal Register on December 15, 2009. As a result of this finding, the EPA determined that it was authorized to issue regulations limiting CO2 emissions from, among other things, motor vehicles and stationary sources, such as electric generating facilities, under the federal Clean Air Act.
The EPA subsequently issued the " Tailoring Rule," published in the Federal Register on June 3, 2010, which regulates greenhouse gas emissions from large stationary sources, including electric generating facilities, if the sources emit more than the specified threshold levels of tons per year of CO2. Large sources with the potential to emit in excess of the applicable threshold will be subject to the major source permitting requirements under the Clean Air Act, including the EPA' s Prevention of Significant Deterioration (" PSD") permit program and its Title V operating permit program. Permits would be required in order to construct, modify and operate facilities exceeding the emissions threshold. Examples of such permitting requirements include, but are not limited to, the application of Best Available Control Technology ( known as BACT) for greenhouse gas emissions, and monitoring, reporting, and recordkeeping for greenhouse gases.
The endangerment finding and the Tailoring Rule have been challenged in court, but were upheld on June 26, 2012 in a decision by the U. S. Court of Appeals for the District of Columbia Circuit in Coalition for Responsible Regulation, Inc., et at. v. EPA. A petition for rehearing was denied on December 20, 2012. In October 2013, several petitions for review relating to these findings were consolidated in the United States Supreme Court case Utility Air Regulatory Group v. EPA, dealing with 352511465 47 1571
the issue of whether the EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases. A decision in the case was rendered on June 23, 2014 as described below.
Legislation has also been introduced in the United States Congress that would repeal the EPA' s endangerment finding or otherwise prevent the EPA from regulating greenhouse gases as air pollutants.
In December 2010, the EPA announced two settlements with a number of states and environmental groups. Pursuant to one settlement agreement dated December 23, 2010, the EPA on April 13, 2012 proposed establishing New Source Performance Standards limiting CO2 emissions from fossil -fuel fired electric generating units. In response to a June 25, 2013 Presidential memorandum ( the Presidential Memorandum"), the EPA proposed revised, generally more stringent standards on September 20, 2013 and simultaneously rescinded the April 13, 2012 proposal. The new proposed rule was published in the Federal Register on January 8, 2014. The EPA states that the revised standards would apply only to new facilities, not reconstructed or modified facilities. The Presidential Memorandum required the EPA to propose by June 1, 2014, and to finalize by June 1, 2015, standards, regulations, or guidelines that address carbon pollution from modified, reconstructed and existing power plants.
The proposedrule for new power plants would restrict CO2 emissions from new natural gas -fired units to 1, 000 pounds of CO2 per MWh for larger units and 1,00 pounds of CO2 per MWh for smaller units. These emission limits are based on the use of natural gas combined cycle technology. CO2 emissions from new coal- fired units would be restricted to 1,00 pounds of CO2 per MWh over 12 months, or 1, 000- 1, 050 pounds over seven years. The EPA states that this emission limit reflects the use of partial carbon capture and sequestration as the best system of emission reduction that has been adequately demonstrated for coal- fired units. The basis for this assertion is being challenged in a lawsuit filed by the State of Nebraska in January 2014 in the U. S. District Court for Nebraska. The new performance standard would be the most stringent in the country ( surpassing the emission performance standard of 1,00 pounds of CO2 per MWh of electricity produced imposed by the CEC regulations in California as described under " DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS — State Legislation — Greenhouse Gas Emissions — Emissions Performance Standard'). The rule is expected to be finalized in [ June 2015], after which it is likely to be subject to further legal challenges. [ TO BE UPDATED, IF NECESSARY]
On June 2, 2014, the EPA released its " Clean Power Plan" proposal for both existing and modified or reconstructed power plants as contemplated by the Presidential Memorandum. The proposed rule is designed to reduce CO2 emissions from the power sector by 30% on average nationwide by 2030, as compared to 2012 levels. Under the proposal, the EPA will set different interim ( 2024) and final 2030) emissions targets for each state based on overall CO2 emissions and the amount of electricity generated in the State. The emissions target for California for 2030 is proposed to be 537 pounds of CO2 per MWh, representing a reduction of approximately 23. 1% from estimated 2012 emissions levels of 698 pounds of CO2 per MWh. States will have one year after finalization of the rule ( until June 2016 under the current schedule) to design their own state implementation plans to reach the emissions target or may request an extension through 2018 for states working on multi -state plans. Interim standards would apply from 2020 to 2029, with final standards taking effect in 2030. It is proposed that state emission targets may be met in a combination of ways, including through a " Best System of Emissions Reduction," which may include coal plant efficiency upgrades, switching from coal to natural gas, and by improving energy efficiency or promoting renewable energy. In the event a state fails to develop a satisfactory implementation plan, the EPA may impose a federal implementation plan instead.
Concurrently with the release of the Clean Power Plan proposal, the EPA also released a proposal applying specifically to existing power plants subject to modification ( which includes a physical or 35251146. 5 48 1572
operational change that increases the source' s maximum achievable hourly rate of emissions) or reconstruction ( which includes the replacement of components of an existing facility to the extent that i) the fixed capital costs of the new components exceeds 50% of the fixed capital costs that would be required to construct a comparable entirely new facility, and ( ii) it is technologically and economically feasible to meet the applicable standards). Under the proposal, reconstructed coal- fired electricity generating units with a heat input of greater than 2, 000 MMBtu/ hwould be required to meet an emissions limit of 1, 900 pounds of CO2 per MWh. Smaller coal- fired units would be required to meet an emission limit of 2, 100 pounds of CO2 per MWh. These emissions limits are based on the use of the most efficient generating technology at the affected source. As contemplated in the proposal, modified coal- fired electricity generating units would be required to meet a unit -specific emission limit that is 2% lower than the unit' s best historical annual CO2 emissions rate since 2002 ( but not lower than the proposed standards for reconstructed power plants). These standards of performance are based on a combination of best operating practices and equipment upgrades. For modified and reconstructed natural gas -fired power plants, the EPA has proposed the same emissions limits as it did for new facilities. Under the EPA' s proposal, facilities with a heat input of greater than 850 MMBtu/ h would be required to meet an emissions limit of 1, 000 pounds of CO2 per MWh. Smaller facilities would be required to meet an emissions limit of 1,00 pounds of CO2 per MWh.
The proposed rules for existing, and modified or reconstructed, power plants were published in the Federal Register on June 18, 2014; comments on the proposed rules were accepted until December 1, 2014 and October 16, 2014, respectively. The EPA has indicated that it intends to finalize the " Clean Power Plan" rules in mid -summer of 2015. FERC held technical conferences throughout the nation through March 2015 to assess potential reliability impacts from the proposed rule. EPA officials have been participating in those Commissioner -led workshops.
A number of lawsuits have been filed challenging the proposed rules and seeking to prevent the EPA from moving forward to implement the proposed Clean Power Plan. Additional legal and legislative challenges are also expected.
On June 23, 2014, the United States Supreme Court issued its decision in the Utility Air Regulatory Group v. EPA case noted above. In the decision, the Court invalidated substantial portions of the Tailoring Rule, which purported to modify the emissions thresholds set forth in the Clean Air Act governing when PSD and Title V permitting would be triggered) to account for greenhouse gases, while preserving various aspects of the EPA' s
ability to regulate greenhouse gas emissions from most new major sources. The decision holds that, for facilities that are otherwise subject to PSD permitting obligations ( by virtue of their emissions of conventional pollutants), the EPA may regulate greenhouse gases from those facilities through the PSD BACT standards ( without approving the EPA' scurrent approach to BACT regulation of greenhouse gases, or any other approach that may be adopted).
The City is unable to predict the impact of the Court' sdecision in Utility Air Regulatory Group v.
EPA, the outcome of any ongoing legal or legislative challenges to other EPA rulemaking with respect to greenhouse gas emissions or the effect that any future final rules promulgated by the EPA regulating greenhouse gas emissions from electric generating units will have on the City or its Electric System.
Air Quality — National Ambient Air Quality Standards. The Clean Air Act requires that the EPA establish National Ambient Air Quality Standards (" NAAQS") for certain air pollutants. When a NAAQS has been established, each state must identify areas in its state that do not meet the EPA standard known as " non -attainment areas") and develop regulatory measures in its state implementation plan to reduce or control the emissions of that air pollutant in order to meet the applicable standard and become an " attainment area" The EPA periodically reviews the NAAQS for various air pollutants and has in recent years increased, or proposed to increase, the stringency of the NAAQS for certain air pollutants. 35251146. 5 49 1573
The EPA revised the NAAQS for particulate matter on December 14, 2012, the NAAQS for sulfur dioxide on June 22, 2010, and the NAAQS for nitrogen dioxide on February 9, 2010, and in each case made the NAAQS more stringent. It is possible that some areas will be designated as non -attainment based on the revised standards for particulate matter, nitrogen dioxide and sulfur dioxide. These developments may result in stringent permitting processes for new sources of emissions and additional state restrictions on existing sources of emissions, such as power plants. On September 2, 2011, President Obama directed the EPA to withdraw a proposal advanced by the EPA to lower the NAAQS for ozone.
As a result of this withdrawal, the EPA resumed the process of issuing non -attainment designations for the ozone NAAQS under the standard set in 2008. On April 30, 2012, the EPA issued ozone non - attainment designations for areas in California, including the Los Angeles — San Bernardino Counties and the Los Angeles — South Coast Air Basin. Additional non -attainment areas for ozone have been and may continue to be designated. On May 29, 2013; the EPA proposed a rule to implement the 2008 ozone NAAQS. Comments on the proposed rule were due to the EPA by August 5, 2013. While implementing the 2008 ozone NAAQS, the EPA is continuing its review of this standard. In January 2014, the EPA released draft risk and exposure assessment documents and a draft policy assessment document relating to this review; comments were due by March 24, 2014. In addition, the Supreme Court found in its review of EPA v. EVE Horner City Generation, LP that the EPA has authority to impose a Cross -State Air Pollution Rule ( the " Transport Rule") which curbs air pollution emitted in upwind states to facilitate downwind attainment of three NAAQS. On November 26, 2014, the EPA proposed to increase the stringency of the NAAQS for ozone by lowering the existing ozone standard of 75 parts per billion ppb") to between 65 and 70 ppb, although the EPA is also soliciting public comment on a standard as low as 60 ppb. The new proposed rule was published in the Federal Register on December 17, 2014.
Comments on the proposed rule were accepted until March 17, 2015. A final rule is expected to be issued in October 2015. On December 18, 2014, the EPA issued a final rule making initial area designations for the 2012 NAAQS for fine particulate matter (" PM2. 5"), designating 14 areas in six states as non - attainment, including the Los Angeles — San Bernardino Counties and the Los Angeles — South Coast Air Basin. These PM2. 5designations became effective on April 1.5, 2015.
Mercury and Air Toxics Standards. On December 16, 2011, the EPA signed a rule establishing new standards to reduce air pollution from coal- and oil -fired power plants under sections 111 ( new source performance standards, or "NSPS") and 112 ( toxics program) of the Clean Air Act. The final rule was published in the Federal Register on February 16, 2012. The EPA updated the Mercury and Air Toxics Standards (" MATS") emission limits on November 30, 2012 and again on March 28, 2013. The EPA is currently reconsidering certain aspects of the regulation. Under section 111 of the Clean Air Act, MATS revises the standards that new and modified facilities, including coal- and oil -fired power plants, must meet for particulate matter, sulfur dioxide, and nitrogen oxide. Under section 112, MATS sets new toxics standards limiting emissions of heavy metals, including mercury, arsenic, chromium, and nickel; and acid gases, including hydrochloric acid and hydrofluoric acid, from existing and new power plants larger than 25 MW that burn coal or oil. Power plants have up to four years to meet these standards.
While many plants already meet some or all of these new standards, some plants will be required to install new equipment to meet the standards. On November 25, 2014, the United States Supreme Court agreed to review the MATS rule following the filing of petitions for writ of certiorari from 23 states and industry groups; aruling is expected in [June 2015]. [ TO BE UPDATED, IF NECESSARY] Regulation of Coal Combustion Residuals. On June 21, 2010, the EPA proposed to regulate coal combustion residuals (" CCR") such as ash. The EPA proposed to list these residuals as a special waste and regulate them as a hazardous waste. This would require a federal or state permitting program covering the storage, treatment, transport, disposal, and other activities related to residuals. The EPA also proposed an alternative regulation that would classify residuals as nonhazardous solid waste. Under the alternative regulation, plants could dispose of residuals in surface impoundments or landfills if they comply with national minimum standards. The disposal standards would address location, liner 35251146. 5 50 1574
requirements, groundwater monitoring and other issues, but permits would not be required under the alternative regulation. The EPA solicited additional public comments on its proposed coal combustion residual regulation on October 12, 2011 and again on August 2, 2013. The EPA released its final CCR rule on December 19, 2014, adopting the industry -preferred alternative regulation classifying CCRs as nonhazardous solid waste.
Regulation of Cooling Water Intake Structures. On April 20, 2011, the EPA proposed to regulate cooling water intake structures at certain existing power plants in order to reduce the number of fish and other aquatic organisms that are trapped against intake screens or drawn into the generating unit.
The EPA proposed to require modified intake screens that would capture and safely return fish to water bodies, or require the facility' s water intake velocity to be reduced, thus allowing fish to move away from intake structures. The best technology to reduce entrainment would be determined on a site -specific basis. A final regulation was released by the EPA on May 16, 2014 and became effective on October 14, 2014.
Effluent Limitations Guidelines and Standards. On June 7, 2013, the EPA proposed to set technology -based effluent limitations guidelines and standards for metals and other pollutants in wastewater discharged from steam electric power plants. The proposal would cover wastewater associated with several types of equipment and processes, including flue gas desulfurization, fly ash, bottom ash, flue gas mercury control and gasification of fuels. The EPA is also considering best management practices for surface impoundments containing CCRs. The EPA proposed four preferred alternatives for regulating wastewater discharges. The stringency of controls, types of waste streams covered, and the costs vary between the four alternatives_ The public comment period on this proposal ended on September 20, 2013. The EPA was expected to issue a final rule in May 2014 but in December 2013 it announced that it would need additional time to finalize this rule.
The City purchases power from coal- fired power stations that may be affected by the regulations described above; compliance with such new rules could therefore result in an increase in the cost of power that the City purchases from such units.
Other Factors
The electric utility industry in general has been, or in the future may be, affected by a number of other factors which could affect the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities. In addition to the factors discussed above, such factors include, among others, ( a) effects of compliance with rapidly changing environmental, safety, licensing, regulatory and legislative requirements other than those described above including those affecting nuclear power plants or potential new energy storage requirements), b) changes resulting from conservation and demand -side management programs on the timing and use of electric energy, (c) changes resulting from a national energy policy, (d) effects of competition from other electric utilities ( including increased competition resulting from a movement to allow direct access or from mergers, acquisitions, and " strategic alliances" of competing electric and natural gas utilities and from competitors transmitting less expensive electricity from much greater distances over an interconnected system) and new methods of, and new facilities for, producing low- cost electricity, (e) the repeal of certain federal statutes that would have the effect of increasing the competitiveness of many IOUs, (f) increased competition from independent power producers and marketers, brokers and federal power marketing agencies, ( g) "self -generation" or " distributed generation" ( such as microturbines and fuel cells) by industrial and commercial customers and others, (h) issues relating to the ability to issue tax- exempt obligations, including severe restrictions on the ability to sell to nongovernmental entities electricity from generation projects and transmission service from transmission line projects financed with outstanding tax- exempt obligations, (i) effects of inflation on the operating and maintenance costs of an 35251146. 5 51 1575
electric utility and its facilities, O changes from projected future load requirements, (k) increases in costs and uncertain availability of capital, (1) shifts in the availability and relative costs of different fuels including the cost of natural gas and nuclear fuel), (m) sudden and dramatic increases in the price of energy purchased on the open market that may occur in times of high peak demand in an area of the country experiencing such high peak demand, such as has occurred in California, ( n) inadequate risk management procedures and practices with respect to, among other things, the purchase and sale of energy and transmission capacity, (o) other legislative changes, voter initiatives, referenda and statewide propositions, (p) effects of the changes in the economy, ( q) effects of possible manipulation of the electric markets, (r) natural disasters or other physical calamities, including, but not limited to, earthquakes and floods and ( s) changes to the climate. Any of these factors ( as well as other factors) could have an adverse effect on the financial condition of any given electric utility and likely will affect individual utilities in different ways.
The City is unable to predict what impact such factors will have on the business operations and financial condition of the Electric System, but the impact could be significant. This Official Statement includes a brief discussion of certain of these factors. This discussion does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof.
Extensive information on the electric utility industry is available from the legislative and regulatory bodies and other sources in the public domain, and potential purchasers of the Bonds should obtain and review such information.
THE AUTHORITY
The Authority was established pursuant to a Joint Exercise of Powers Agreement dated as of November 12, 2003, by and between the City and the Agency in accordance with the provisions of the Joint Exercise of Powers Act, consisting Articles 1 through 4 ( commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the California Government Code ( the " Joint Powers Act"). Pursuant to the Joint Powers Act, the Authority is authorized to issue revenue bonds to provide funds to acquire or construct public capital improvements, such revenue bonds to be repaid from payments for such improvements, such as the Installment Payments described herein. The members of the City Council of the City comprise the Authority' s
Commission. The Authority has no independent staff and consequently is dependent upon the City' s officers and employees to administer the day- to- day activities of the Authority on its behalf.
CONTINUING DISCLOSURE
The City will undertake all responsibilities for any continuing disclosure with respect to holders of the Bonds as described below, and the Authority shall have no liability to the holders of the Bonds or any other person with respect to such disclosure matters.
The City has covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City, including the Electric System, not later than March 31 following the end of the City' s Fiscal Year ( currently its Fiscal Year ends on June 30), commencing with the reports for Fiscal Year ended June 30, 2015 ( each, an " Annual Report"), and to provide notices of the occurrences of certain enumerated events. The Annual Report will be filed by the Dissemination Agent on behalf of the City with the Municipal Securities Rulemaking Board. The Municipal Securities Rulemaking Board has made such information available to the public without charge through its EMMA system. The specific nature of information to be contained in each Annual Report or the notice of listed events is set forth in " APPENDIX E — FORM OF CONTINUING DISCLOSURE AGREEMENT." These covenants have been made by the City in order to assist the Underwriters in complying with Rule 35251146. 5 52 1576
15e2-, as amended ( the " Rule") promulgated by the Securities and Exchange Commission.
DESCRIPTION OF PAST 5 -YEAR COMPLIANCE TO COME]
TAX MATTERS
Tax Exemption
The Code imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103( a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance of the Bonds. Each of the Authority and the City has covenanted to maintain the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes.
In the opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, under existing statutes, regulations, rulings and court decisions, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the covenants mentioned herein, interest on the Bonds is excluded pursuant to section 103( a) of the Code from the gross income of the owners thereof for federal income tax purposes. In the further opinion of Bond Counsel, under existing statutes, regulations, rulings and court decisions, the Bonds are not " specified private activity bonds" within the meaning of section 57( a)( 5) of the Code and, therefore, interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. Receipt or accrual of interest on Bonds owned by a corporation may affect the computation of the alternative minimum taxable income. A corporation' s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed.
Pursuant to the Installment Sale Agreement and the Indenture and in the Tax Certificate Pertaining toArbitrage and Other Matters under Sections 103 and 141-50 ofthe Internal Revenue Code of 1986, to be delivered by the Authority and the City in connection with the issuance of the Bonds, each of the Authority and the City will make representations relevant to the determination of, and will make certain covenants regarding or affecting, the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In reaching its opinions described in the immediately preceding paragraph, Bond Counsel will assume the accuracy of such representations and the present and future compliance by each of the Authority and the City with such covenants.
Except as stated in this section above, Bond Counsel will express no opinion as to any federal or state tax consequence of the receipt of interest on, or the ownership or disposition of, the Bonds.
Furthermore, Bond Counsel will express no opinion as to any federal, state or local tax law consequence with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or peiuiitted upon the advice or approval of other counsel. Bond Counsel has not undertaken to advise in the future whether any event after the date of issuance of the Bonds may affect the tax status of interest on the Bonds or the tax consequences of the ownership of the Bonds.
Bond Counsel' s
opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the Authority and the City described above. No ruling has been sought from the Internal Revenue Service ( the " Service") with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel' s
opinion is not binding on the Service. The Service has an ongoing program of auditing the tax- exempt status of the interest on municipal obligations. If an audit of the 35251146. 5 53 1577
Bonds is commenced, under current procedures the Service is likely to treat the Authority as the taxpayer," and the owners would have no right to participate in the audit process. In responding to or defending an audit of the tax- exempt status of the interest on the Bonds, the Authority may have different or conflicting interests from the owners. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome.
Existing law may change to reduce or eliminate the benefit to bondholders of the exemption of interest on the Bonds from personal income taxation by the State of California or of the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the value and marketability of the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors with respect to any proposed or future change in tax law.
A copy of the form of opinion of Bond Counsel relating to the Bonds is included in APPENDIX D.
Tax Accounting Treatment of Bond Premium and Original Issue Discount on Bonds To the extent that a purchaser of a Bond acquires that Bond at a price in excess of its " stated redemption price at maturity" (within the meaning of section 1273( a)( 2) of the Code), such excess will constitute " bond premium" under the Code. Section 171 of the Code, and the Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax- exempt obligation must be amortized over the remaining tenn of the obligation ( or a shorter period in the case of certain callable obligations); the amount of premium so amortized will reduce the owner' s basis in such obligation for federal income tax purposes, but such amortized premium will not be deductible for federal income tax purposes. Such reduction in basis will increase the amount of any gain ( or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of the obligation. The amount of premium that is amortizable each year by a purchaser is determined by using such purchaser' syield to maturity. The rate and timing of the amortization of the bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain when its Bond is sold or disposed of for an amount equal to or in some circumstances even less than the original cost of the Bond to the owner.
The excess, if any, of the stated redemption price at maturity of Bonds of a maturity over the initial offering price to the public of the Bonds ofthat maturity is " original issue discount." Original issue discount accruing on a Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and is exempt from California personal income tax to the same extent as would be stated interest on that Bond. Original issue discount on any Bond purchased at such initial offering price and pursuant to such initial offering will accrue on a semiannual basis over the term of the Bond on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount on such a Bond accruing during each period is added to the adjusted basis of such Bond to determine taxable gain upon disposition ( including sale, redemption or payment on maturity) of such Bond. The Code includes certain provisions relating to the accrual of original issue discount in the case of purchasers of Bonds who purchase such Bonds other than at the initial offering price and pursuant to the initial offering Persons considering the purchase of Bonds with original issue discount or initial bond premium should consult with their own tax advisors with respect to the determination of original issue discount or amortizable bond premium on such Bonds for federal income tax purposes and with respect to the state and local tax consequence of owning and disposing of such Bonds. 35251146. 5 54
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Other Tax Consequences
Although interest on the Bonds may be exempt from California personal income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an owner' sfederal, state or local tax liability may be otherwise affected by the ownership or disposition of the Bonds. The nature and extent of these other tax consequences will depend upon the owner' s other items of income or deduction.
Without limiting the generality of the foregoing, prospective purchasers of the Bonds should be aware that ( i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds and the Code contains additional limitations on interest deductions applicable to fmancial institutions that own tax- exempt obligations ( such as the Bonds), (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832( b)( 5)( B)( i reduces the deduction for loss reserves by 15% of the sum of certain items, including interest on the Bonds, iii) interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the Bonds, may be subject to federal income taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the Bonds and ( vi) under section 32( i) of the Code, receipt of investment income, including interest on the Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel will express no opinion regarding any such other tax consequences.
CERTAIN LEGAL MATTERS
Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, will render an opinion with respect to the validity and enforceability of the Bonds, the Installment Sale Agreement, and the Indenture. See " APPENDIX D — FORM OF BOND COUNSEL OPINION." Norton Rose Fulbright US LLP is also serving as Disclosure Counsel in connection with the Bonds. Certain legal matters will be passed upon for the Underwriters by Stradling Yocca Carlson & Rauth, a Professional Corporation, and for the City and the Authority by Aleshire & Wynder, LLP, in its capacity as City Attorney and Authority Counsel.
VERIFICATION OF MATHEMATICAL COMPUTATIONS
The Verification Agent, an independent certificated public accountant, upon delivery of the Bonds, will deliver a
report on the mathematical accuracy of certain computations, contained in schedules provided to them that were prepared by the Underwriters, relating to the sufficiency of monies deposited into the Escrow Fund created under the Escrow Agreement to redeem all of the outstanding 2007 Bonds on the Redemption Date.
The report of the Verification Agent, will include the statement that the scope of its engagement is limited to verifying the mathematical accuracy of the computations contained in such schedules provided to it, and that it has no obligation to update its report because of events occurring, or date or information corning to its attention, subsequent to the date of its report. 35251146. 5 55 1579
LITIGATION
There is no action, suit or proceeding pending or, to the knowledge of the Authority or the City threatened at the present time seeking to restrain or to enjoin the execution or delivery of the Bonds or the Installment Sale Agreement or the Indenture or in any way contesting or affecting the validity or enforceability of the Bonds, the Installment Sale Agreement, the Indenture or any action of the Authority or the City contemplated with respect to the foregoing.
PROFESSIONAL FEES
In connection with the issuance of the Bonds, fees payable to certain professionals, including Norton Rose Fulbright US LLP, as Bond Counsel and Disclosure Counsel, and U. S. Bank National Association, as Trustee, are contingent upon the issuance of the Bonds.
UNDERWRITING
The Underwriters have agreed to purchase the Bonds at a purchase price of $ representing the principal amount of the Bonds, plus a [ net] bond premium of $ and, less an Underwriters' discount of $
The purchase contract pursuant to which the Bonds are being sold provides that the Underwriters will purchase all of the Bonds if any are purchased, and that the obligation of the Underwriters to purchase the Bonds is subject to certain terms and conditions, including the approval of certain legal matters by counsel.
The Underwriters may offer and sell the Bonds to certain dealers and others at prices lower than the initial public offering prices stated on the inside cover page hereof. The offering prices may be changed from time to time by the Underwriters.
RATINGS
Standard & Poor' s Ratings Services, a Standard & Poor' s Financial Services LLC business S&P") has assigned the Bonds a
rating of " ", with the understanding that an insurance policy securing the payment when due of the principal and interest on the Bonds will be issued by the Bond Insurer upon the issuance of the Bonds.] S&P has also assigned an underlying rating of "" to the Bonds. Such ratings reflect only the views of the rating agency and an explanation of the significance of such ratings may be obtained only from the rating agency.
There is 110 assurance that the ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of the rating agency circumstances so warrant. Any such downward revision or withdrawal of the ratings may have an adverse effect on the market price ofthe Bonds.
FINANCIAL STATEMENTS
The audited financial statements for the City for the Fiscal Year ended June 30, 2014, included in this Official Statement as APPENDIX A, have been audited by Lance, Soll & Lunghard, LLP ( the Auditor"), as stated in the Auditor' s
report appearing in APPENDIX A. The City has not requested, nor has the Auditor given, the Auditor' sconsent to the inclusion in this Official Statement of its report on such financial statements. No review or investigation with respect to subsequent events has been undertaken in connection with such financial statements by the Auditor. 35251146. 5 56 1580
MISCELLANEOUS
There are descriptions herein of certain documents and reports which are brief summaries thereof and which do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof Any statement in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between any of the Authority, the City, and the purchasers or Owners of any of the Bonds.
The execution and delivery of this Official Statement has been duly authorized by the Autho and the City.
CITY OF BANNING FINANCING AUTHORITY
By:
President
CITY OF BANNING
By:
Interim City Manager
ty
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APPENDIX A
CITY AUDITED FINANCIAL STATEMENTS
FISCAL YEAR ENDING JUNE 30, 2014
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APPENDIX B
GENERAL INFORMATION ABOUT THE CITY OF BANNING
The following information relating to the City of Banning ( the " City') and the County of Riverside, California ( the " County') has been supplied by the City and is provided solely for purposes of information. The Bonds are payable solely from Revenues and other sources as described in this Official Statement, and the taxing power of the City, the County, the State of California ( the " State ), or any political subdivision thereof is not pledged to the payment of the Bonds. The Underwriters and their counsel make no representation with respect to any ofsuch information.
General Information
The City is located alongside Interstate 10 approximately 80 miles east of Los Angeles and 23 miles west of Palm Springs. The City covers approximately 27 square miles. The City is well known for its picturesque qualities and is nestled between the majestic San Gorgonio and San Jacinto Mountains, the two tallest peaks in Southern California. The community enjoys a rural lifestyle, nearby outdoor recreation opportunities, and invigorating healthful clear air.
Government Organization
The City was incorporated as a general law City in 1913. The City has a " city council/ city manager" form of local government. The five members of the City Council are elected at -large from the community to serve four- yearterms of office and the City Council selects one of its members to serve as mayor. The City has ( 1 full- time employees.
Governmental Services
The City maintains its own police department which consists of [ 1 sworn offices and I 1 civilian personnel. The City contracts with the California Department of Forestry in cooperation with the Riverside County Fire Depai talent for fire protection services within the City. The City provides general government services such as plan checking, building permit processing and code enforcement.
Electricity, water and wastewater services are provided by the City. Students in the City attend Banning Unified School District for K- 12 schools.
Transportation
The City is located along Interstate 10, a major traffic route. The City is also located alongside the Union Pacific Railroad. The City owns a municipal airport which also provides hangar and tie down service. Locally, the City provides both fixed route bus and dial -a -ride services.
Population
The table on the following page provides a comparison of population growth for the City, surrounding cities and the County between 2011 and 2015. 35251146. 5 B- 1
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CHANGE IN POPULATION
BANNING AND RIVERSIDE COUNTY
2011-015
BANNING RIVERSIDE COUNTY
Year Percentage Percentage
January 1) Population Change Population Change
2011 29, 721 - 2,05, 731 -
2012 29, 982 0. 9 2,29, 467 1.
2013 30, 137 0. 5 2,53, 516 1.
2014 30,06 0. 6 2,80, 191 1. 2
2015 30, 491 0. 6 2, 308, 441 1. 2
Source: State of California Department of Finance, Population Research Unit, "Population Estimates for California Cities and Counties."
Employment and Industry
The City is located in the Riverside Area Metropolitan Statistical Area (" MSA") which includes all of Riverside and San Bernardino Counties. In addition to varied manufacturing employment, the MSA has large and growing commercial and service sector employment, as reflected in the following table.
RIVERSIDE - SAN BERNARDINO- ONTARIO MSA
ANNUAL AVERAGE
2010-014
EMPLOYMENT( 1)
INDUSTRY 2010 2011 2012 2013 2014
Construction 59, 700 59, 100 62,00 70, 000 77, 000
Durable Goods 55, 400 55, 800 56, 900 57, 300 59, 800
Educational and Health Services 154,00 157, 600 167, 200 184, 500 193, 600 Farm 15, 000 14, 900 15, 000 14, 500 14, 300
Financial Activities 41, 00 39, 900 40, 900 42, 200 42, 700 Goods Producing 145, 900 145, 200 150, 50 158, 600 168, 500 Government 234, 300 227, 500 224, 600 225,00 228, 800
Information 14, 00 12, 200 11, 700 11, 500 11, 200
Leisure and Hospitality 122, 800 124, 000 129, 400 135, 900 144, 300 Manufacturing 85, 200 85, 100 86, 700 87, 300 90, 200
Nondurable Goods 29, 800 29, 300 29, 800 30, 100 30, 400 Other Services 38, 200 39, 100 40, 100 41, 100 43, 200
Professional and Business Services 123, 600 126, 000 127, 500 132, 400 137, 800 Real Estate and Rental 15, 500 14, 600 14, 900 15, 600 16, 200 Retail Trade 155, 500 158, 500 162, 400 164, 800 168, 700 Service Providing 998,00 1, 002, 800 1, 029, 800 1, 073, 300 1,16, 700 Transportation, Warehousing and
Utilities 66,00 68, 800 73, 900 79, 400 87, 300
Wholesale Trade 48, 700 49, 200 52, 200 59, 000 56, 400 Total, All Industries 1,59, 700 1,62, 900 1,95, 300 1, 246, 400 1, 299, 500 3525H46. 5146. 5 B- 2
1584
0) The employment figures by industry which are shown above are not directly comparable to the " Total, All Industries" employment figures due to rounded data.
Source: State Employment Development Department, Labor Market Information Division.
The major employers operating within the City and their respective number of employees as of June 30, 2014 are as follows:
CITY OF BANNING
TOP EMPLOYERS
Name of Company Employment Type of Business/ Product
Source: City ofBanning.
Commercial Activity
The following table summarizes the volume of retail sales and taxable transactions for the City for 2009 through 2013, the latest years available.
CITY OF BANNING
TOTAL TAXABLE TRANSACTIONS
2009-13
Total Taxable
Retail Sales % Retail Sales Transactions % Issued Sales Year ($ 000' s) Change Permits ($ 000' s) Change Permits 2009 130,73 - 315 156, 232 - 451
2010 133, 218 2.3% 340 146, 742 ( 6.1)% 471
2011 143, 20 7. 5 323 157, 01 7. 0 448
2012 146, 600 2. 3 340 165, 579 5. 4 466
2013 154, 595 5. 332 175, 386 5. 9 460
Source: State Board of Equalization, " Taxable Sales in California (Sales & Use Tax)." 2014 data not available. 35251146. 5 B- 3
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APPENDIX C
SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS The following definitions and summaries ofthe Indenture and the Installment Sale Agreement are summaries only and are not to be considered full descriptions thereof Reference is made to further provisions of the documents described in the body of this Official Statement, and to the documents themselves.
TO COME]
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APPENDIX D
FORM OF OPINION OF BOND COUNSEL
2015
City of Banning Financing Authority
99 E. Ramsey Street
Banning, California 92220
City ofBanning
99 E. Ramsey Street
Banning, California 92220
City of Banning Financing Authority
Refunding Revenue Bonds ( Electric System Project) Series 2015 Ladies and Gentlemen:
In our role as Bond Counsel to the City of Banning Financing Authority ( the " Authority"), we have examined certified copies of the proceedings taken in connection with the issuance by the Authority of its Refunding Revenue Bonds ( Electric System Project) Series 2015 ( the " Bonds") in the aggregate principal amount of $ . We have also examined supplemental documents furnished to us and have obtained such certificates and documents from public officials as we have deemed necessary for the purposes of this opinion. The Bonds are issued under Article 4 of Chapter 5 of Division 7 of Title 1 of the California Government Code ( the " Bond Law"), pursuant to an Indenture of Trust, dated as of August 1, 2015 ( the " Indenture"), by and among the Authority, the City of Banning ( the " City") and U. S. Bank National Association, as trustee ( the " Trustee"), and pursuant to the authorizing resolution of the Commission of the Authority adopted on , 2015. The proceeds of the sale of the Bonds will be used to refund the Authority' s $45, 790, 000 Revenue Bonds ( Electric System Project) Series 2007 and finance certain improvements ( the " Facilities") to the City' sElectric System. The Authority and the City will enter into an Installment Sale Agreement, dated as of August 1, 2015 ( the " Installment Sale Agreement"), pursuant to which the Authority will sell the Improvements to the City in consideration for Installment Payments. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Indenture and the Installment Sale Agreement, as applicable.
As Bond Counsel, we have examined copies certified to us as being true and complete copies of the proceedings of the Authority and the City in connection with the issuance of the Bonds. We have also examined such certificates of officers of the Authority and the City and others as we have considered necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Indenture has been duly and validly authorized, executed and delivered by the Authority and the City and, assuming such Indenture constitutes the legally valid and binding obligation of the Trustee, constitutes the legally valid and binding obligation of the Authority and the City, enforceable against the Authority and the City in accordance with its terms, and the Bonds are entitled to the benefits of the Indenture.
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2. The Installment Sale Agreement has been duly and validly authorized, executed and delivered by the Authority and the City, and constitutes the legally valid and binding obligation of the Authority and the City, enforceable against the Authority and the City in accordance with its terms.
3. The proceedings for the issuance of the Bonds have been taken in accordance with the laws and Constitution of the State of California, and the Bonds, having been issued in duly authorized form and executed by the proper officials and delivered to and paid for by the purchasers, constitute legal and binding special obligations of the Authority enforceable in accordance with their terms.
4. The Bonds constitute valid and binding limited obligations of the Authority as provided in the Indenture, and are entitled to the benefits of the Indenture. The Bonds are payable from the Revenues, subject to the application thereof on the terms and conditions as set forth in the Indenture.
5. Under existing statutes, regulations, rulings and court decisions, and assuming compliance with the covenants mentioned below, interest on the Bonds is excluded pursuant to section 103( a) of the Internal Revenue Code of 1986 ( the " Code") from the gross income of the owners thereof for federal income tax purposes. We are further of the opinion that under existing statutes, regulations, rulings and court decisions, the Bonds are not " specified private activity bonds" within the meaning of section 57( a)( 5) of the Code and, therefore, that interest on the Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. Receipt or accrual of interest on Bonds owned by a corporation may affect the computation of the alternative minimum taxable income of that corporation. A corporation' s
alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed. We are further of the opinion that interest on the Bonds is exempt from personal income taxes of the State of California under present state law.
The Code imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103( a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to fail to be excluded from the gross income of the owners thereof retroactive to the date of issuance of the Bonds.
Pursuant to the Indenture and the Installment Sale Agreement, and in the Tax Certificate Pertaining to Arbitrage and Other Matters under Sections 103 and 141-50 of the Internal Revenue Code of 1986 being delivered by the Authority and the City in connection with the issuance of the Bonds, each of the Authority and the City is making representations relevant to the determination of, and is undertaking certain covenants regarding or affecting, the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In reaching our opinions described in the immediately preceding paragraph, we have assumed the accuracy of such representations and the present and future compliance by each of the Authority and the City with such covenants. Further, except as stated in the preceding paragraph, we express no opinion as to any federal or state tax consequence of the receipt of interest on, or the ownership or disposition of, the Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequence with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other counsel. 35251146. 5 D- 2
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The opinions expressed in paragraphs 1 through 4 above are qualified to the extent the enforceability of the Bonds, the Indenture and the Installment Sale Agreement may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally or as to the availability of any particular remedy. The enforceability of the Bonds, the Indenture and the Installment Sale Agreement is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California.
No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds.
Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any fact or circumstance that may hereafter come to our attention or to reflect any change in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.
Respectfully submitted,
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APPENDIX E
FORM OF CONTINUING DISCLOSURE AGREEMENT
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APPENDIX F
SPECIMEN MUNICIPAL BOND INSURANCE POLICY]
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APPENDIX G
BOOK -ENTRY ONLY SYSTEM
The information in this Appendix G under the caption " General" concerning The Depository Trust Company, New York, New York (" DTC'), and DTC' s book -entry system has been obtained from DTC and the Authority and the City take no responsibility for the completeness or accuracy thereof. The Authority and the City cannot and do not give any assurances that DTC, Direct Participants ( as defined below) or Indirect Participants ( as defined below) will distribute to the Beneficial Owners ( a) payments of interest, principal or premium, if any, with respect to the Bonds, ( b) certificates representing ownership interest in or other confirmation ofownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner ofthe Bonds, or that they will do so on a
timely basis, or that DTC, Direct Participants or Indirect Participants will act in the manner described in this Appendix a The Authority and the City are not responsible or liable for the failure of DTC or any DTC Direct or Indirect Participant to make any payment or give any notice to a Beneficial Owner with respect to the Bonds or an error or delay relating thereto. The current " Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current " Procedures" of DTC to be followed in dealing with DTC' s Direct and Indirect Participants are on file with DTC.
General
DTC will act as securities depository for the Bonds. The Bonds will be issued as fully -registered securities registered in the name of Cede & Co. (DTC' spartnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered Bond certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world' s
largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a " banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a " clearing corporation" within the meaning of the New York Uniform Commercial Code, and a " clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over
3. 5 million issues of U. S. and non- U. S. equity issues, corporate and municipal debt issues, and money market instruments ( from over 100 countries) that DTC' sparticipants (` Direct Participants") deposit with DTC. DTC_ also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U. S. and non- U. S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation (" DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U. S. and non- U. S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (` Indirect Participants"). DTC has a Standard & Poor' srating of AA+. The DTC Rules applicable to DTC' sParticipants are on file with the Securities and Exchange Commission. More information about DTC can be found at www. dtcc. com. The information on such web site is not incorporated herein by reference.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC' srecords. The ownership interest of each actual 35251146. 5 G- 1
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purchaser of each Bond (" Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC' s
partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership.
DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC' srecords reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provideddirectly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC' s
practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC' sMMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date.
The Omnibus Proxy assigns Cede & Co.' s
consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date ( identified in a listing attached to the Omnibus
Proxy).
Payments of principal of, premium, if any, and interest on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC' s practice is to
credit Direct Participants' accounts upon DTC' s
receipt of funds and corresponding detail information
from the Authority or the Trustee; on payable date in accordance with their respective holdings shown on DTC' srecords. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in " street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of such principal, premium, if any, and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or Trustee, disbursement of such payments to Direct Participants will be the responsibility of 35251146. 5 G- 2
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DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered as described in the Indenture.
The Authority may decide to discontinue use of the system of book -entry transfers through DTC or a successor securities depository). In that event, certificates will be printed and delivered.
Discontinuance of DTC Services
In the event that that DTC shall discontinue providing its services as depository with respect to the Bonds or the Authority shall discontinue the use of a book -entry system of transfers through DTC ( or a successor securities depository), the following provisions would apply: ( i) the principal of the Bonds will payable upon presentation of such Bonds by the registered owners thereof at the Office of the Trustee; ( ii) interest on the Bonds will be payable on each Interest Payment Date by check mailed by the Trustee on the date on which interest is due to the registered owners of the Bonds at the close of business on the Record Date at the addresses of the registered owners as they appear on the Registration Books maintained by the Trustee, except that for registered owners of more than $ 1, 000,00 in principal amount of Bonds who, prior to the Record Date preceding any Interest Payment Date, have provided the Trustee with wire transfer instructions, interest payable on such Bonds will be paid in accordance with the wire transfer instructions provided by such registered owners; (iii) Bonds may be exchanged for an equal aggregate principal amount of Bonds of other Authorized Denominations and of the same tenor and maturity upon surrender thereof at the Office of the Trustee upon payment by the registered owner of any charges the Trustee may make; and ( iv) any Bond may, in accordance with its terms, be transferred, upon the Registration Books under the Indenture, by the person in whose name it is registered, in person or by his attorney duly authorized in writing, upon surrender of such Bond for cancellation at the Office of the Trustee, accompanied by delivery of a written instrument of transfer in a form approved by the Trustee, duly executed by the registered owner or his duly authorized attorney and upon payment by the registered owner of any charges the Trustee may make under the Indenture; provided, that the Trustee will not be required to transfer any Bonds during the period established by the Trustee for the selection of such Bonds for redemption or any Bonds that have been selected for redemption pursuant to the Indenture. 35251146. 5 G- 3
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One California Street, 31st Floor
San Francisco, CA 94111-5432
tel 415 371-5000
reference no.: 40448002
March 20, 2024
City of Banning
99 E Ramsey St.
Banning, CA 92220
Attention: Laurie Sampson, Assistant City Manager
Re: Banning Financing Authority (Banning) (Electric System Project), California
Dear Laurie Sampson
S&P Global Ratings has reviewed the rating on the above-listed obligations. Based on our review, we have lowered the underlying rating (SPUR) from "A-" to "BBB". The rating is placed on CreditWatch with negative implications.
A copy of the rationale supporting the rating and CreditWatch is enclosed.
This letter constitutes S&P Global Ratings' permission for you to disseminate the above-assigned ratings to interested parties in accordance with applicable laws and regulations. However, permission for such dissemination (other than to professional advisors bound by appropriate confidentiality arrangements or to allow the Issuer to comply with its regulatory obligations) will become effective only after we have released the ratings on standardandpoors.com. Any dissemination on any Website by you or your agents shall include the full analysis for the rating, including any updates, where applicable. Any such dissemination shall not be done in a manner that would serve as a substitute for any products and services containing S&P Global Ratings' intellectual property for which a fee is charged.
To maintain the rating, S&P Global Ratings must receive all relevant financial and other information, including notice of material changes to financial and other information provided to us and in relevant documents, as soon as such information is available. Relevant financial and other information includes, but is not limited to, information about direct bank loans and debt and debt-like instruments issued to, or entered into with, financial institutions, insurance companies and/or other entities, whether or not disclosure of such information would be required under S.E.C. Rule 15c2-12. You understand that S&P Global Ratings relies on you and your agents and advisors for the accuracy, timeliness and completeness of the information submitted in connection with the rating and the continued flow of material information as part of the surveillance process. Please send all information via electronic delivery to [email protected]. If SEC rule 17g-5 is applicable, you may post such information on the appropriate website. For any information not available in electronic format or posted on the applicable website, Please send hard copies to:
S&P Global Ratings
Public Finance Department
55 Water Street
New York, NY 10041-0003
The rating is subject to the Terms and Conditions, if any, attached to the Engagement Letter applicable to the rating.
In the absence of such Engagement Letter and Terms and Conditions, the rating is subject to the attached Terms and Conditions. The applicable Terms and Conditions are incorporated herein by reference.
S&P Global Ratings is pleased to have the opportunity to provide its rating opinion. For more information please visit our website at www.standardandpoors.com. If you have any questions, please contact us. Thank you for choosing S&P Global Ratings.
Sincerely yours,
S&P Global Ratings
a division of Standard & Poor's Financial Services LLC
ma
enclosure
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S&P Global Ratings
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Summary:
Banning Financing Authority,
California
Banning, California; Retail Electric
Primary Credit Analyst:
Stephanie Linnet, Englewood + 303-721-4393; [email protected] Secondary Contact:
Doug Snider, Englewood + 1 (303) 721 4709; [email protected] Table Of Contents
Credit Highlights
CreditWatch
Related Research
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 20, 2024 1 1598
Summary:
Banning Financing Authority, California
Banning, California; Retail Electric
Credit Profile
Banning Financing Authority, California
Banning, California
Banning Fincg Auth (Banning) (Electric Sys Proj) (AGM)
Unenhanced Rating BBB(SPUR)/Watch Neg Downgraded, On
CreditWatch Negative
Many issues are enhanced by bond insurance.
Credit Highlights
• S&P Global Ratings lowered its underlying rating (SPUR) two notches to 'BBB' from 'A-' on Banning Financing Authority, Calif.'s outstanding electric system revenue bonds, issued on behalf of the City of Banning. • At the same time, we placed the rating on CreditWatch with negative implications. • The two-notch downgrade reflects our view of the recent deterioration of the authority's unrestricted cash that has decreased significantly from fiscal 2021 to fiscal 2023 due to poor financial controls as demonstrated by its negative cash balance of $8.6 million at fiscal year-end 2023.
• The CreditWatch placement reflects our view of the uncertainty related to the authority's capacity to restore liquidity to sound levels either through interfund borrowings or rate adjustments, the timing and sustainability of those actions, and capital market access.
Security
The bonds are secured by installment payments made to the authority by the city from net revenue of its electric system. The authority had approximately $22.3 million in electric revenue debt at fiscal year-end 2023.
Credit overview
We anticipate resolving the CreditWatch placement once we receive more detailed information from management regarding the catalyst and the extent of the utility's deficit, and the steps the authority plans to take to rectify and maintain structural balance going forward.
We expect to receive the utility's draft financial results for fiscal 2023 soon, and we believe that there are number of financial and operational challenges the authority is facing that could put further downward pressure on the rating.
According to utility officials, its unrestricted cash balances were depleted due to its spending on capital projects without commensurate external financing combined with a lack of rate increases and reduced revenue. We understand the authority is putting together a plan to rebuild its cash reserves, such as hiring a financial consultant to help execute a bridge loan until it can issue bonds. However, we believe the authority' access to external liquidity is uncertain, given WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 20, 2024 2 1599
its financial condition and credit quality. In the interim, the authority is also utilizing several methods to increase its operating cash flow, such as increasing and adding impact fees, utilizing the power cost adjustment (PCA) mechanism on a monthly basis, and selling some of its renewable energy credits. The city is also considering placing the electric utility under the utility authority, which would give the electric utility access to more liquidity. We will continue to monitor how successful these measures are in restoring finances to levels in line with historical performance. We believe future rate adjustments could prove difficult especially given ongoing delinquency challenges and low incomes that, in our view, constrain revenue-raising flexibility.
The ability of rate increases and sufficient cost control measures to provide sufficient liquidity, given prior history, is critical to our view of the rating going forward. There has not been a base rate increase since 2013; however, management has indicated that a rate increase will be implemented this year. We do not know the magnitude of a possible rate increase at this time, and a rate increase is currently not included in the 2024 budget.
Banning is located along Interstate 10, about 80 miles east of Los Angeles in Riverside County, Calif. The distribution utility serves around 12,000 residential customers and a population of more than 31,000 residents.
Environmental, social, and governance
We believe the utility's governance risks, specifically related to risk management and oversight, are weak due to its recent financial metrics and reactionary rate-setting practices. We believe financial management is lacking, particularly in long-term financial planning and cash flow monitoring. Although management has initiated several credit-supportive strategies to enhance revenue collections and near-term financial metrics, we believe sustained financial improvement hinges on its ongoing commitment to review, implement, and update these strategies. Based on our forward-looking view, we expect management will implement rate increases and use its PCA mechanism on a more regular basis to restore its financial position. We note that management does not produce long-term financial forecasts, and we believe that long-range plans promote cash flow stability and help identify potential future problems.
We recognize that the population's median household effective buying income (MHHEBI) as a percent of the U.S. average is depressed at 76%. As management plans to raise base rates and use its PCA mechanism monthly to address its liquidity challenges, we believe social capital risk factors could worsen as we expect rate competitiveness will deteriorate somewhat especially as delinquencies are currently high. However, based on information provided by management alongside data from the Energy Information Administration, the system's weighted average rate is 18% below the state average, which we view as competitive.
The authority's delinquencies are currently elevated (by $4 million-$5 million). According to management, this is primarily due to some metering issues that should be resolved in a month, but also in part due to a temporary suspension of turn-offs of delinquent accounts during the pandemic. Once the metering issues are resolved, turn-offs will be resumed, and management anticipates that the delinquency figures will drop significantly.
We will monitor the strength and stability of the electric utilities' revenue streams for evidence of delinquent payments or other revenue erosion. Inflation, as measured by the Consumer Price Index (CPI), has remained above 3% in recent months, and S&P Global Economics forecasts elevated interest rates persisting through the first half of 2024, with moderate softening through the remainder of the year. (See "U.S. Economic Forecast Update: A Sturdy Job Market Keeps Growth Going," published Feb. 21, 2024, on RatingsDirect.) WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 20, 2024 3 Summary: Banning Financing Authority, California Banning, California; Retail Electric 1600
In addition, Bureau of Labor Statistics data show that electricity price inflation continues to outpace the overall CPI.
The amalgam of material increases in delinquent consumer debt, credit card, and auto loans, along with October's resumption of student loan payments and drawdowns of household savings garnered during the pandemic, will likely compound the financial pressures facing electricity consumers. Following stronger-than-expected U.S. economic growth through the fourth quarter of 2023, S&P Global Economics revised its 2024 real gross domestic product (GDP) growth forecast to 2.4% from its November 2023 projection of 1.5%. S&P Global Economics believes that recent business and consumer activity are not sustainable and projects slowing economic activity with growth of 1.5% in 2025.
The utility is compliant with all of California's stringent environmental regulations, including Senate Bill 350, which mandates utilities to be 50% renewable by 2030. Currently, the utility's power supply is 80% renewable, almost entirely emissions free, which is well ahead of the first emissions benchmark. We expect that the utility will continue to purchase renewable resources as its current purchased power agreements expire. We view its wildfire risk as lower than that of its many California peers, given its generally urban setting, minimal number of customers in high-risk areas, and only 3 miles of electric lines within tier 3 wildfire-threat zones. Given the preponderance of these factors, we view utility's environmental position as credit neutral.
CreditWatch
The placement of the rating on CreditWatch with negative implications reflects a one-in-two chance a further rating action is taken during the next 90 days, depending on the information we receive regarding the utility's audited fiscal 2023 financial performance, prospects for achieving a sufficient cash position, management and governance practices, fiscal 2024 projections, and other information. We could further lower the rating, potentially by multiple notches, if we believe the utility's current financial metrics and projections for fiscal 2024 are inconsistent with the lowered rating.
Related Research
• Through The ESG Lens 3.0: The Intersection Of ESG Credit Factors And U.S. Public Finance Credit Factors, March 2, 2022
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WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 20, 2024 4 Summary: Banning Financing Authority, California Banning, California; Retail Electric 1601
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Re: Banning Financing Authority (Banning) (Electric System Project) (Agm), California
Dear Lincoln Bogard
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Banning Financing Authority,
California
Banning; Retail Electric
Primary Credit Analyst:
Stephanie Linnet, Englewood + 303-721-4393; [email protected] Secondary Contact:
Doug Snider, Englewood + 1 (303) 721 4709; [email protected] Table Of Contents
Credit Highlights
Outlook
Credit Opinion
Enterprise Profile
Financial Profile
Related Research
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 2, 2024 1
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Banning Financing Authority, California
Banning; Retail Electric
Credit Profile
Banning Financing Authority, California
Banning, California
Banning Fincg Auth (Banning) (Electric Sys Proj) (AGM)
Unenhanced Rating BB(SPUR)/Negative Downgraded, Removed from CreditWatch
Many issues are enhanced by bond insurance.
Credit Highlights
• S&P Global Ratings lowered its underlying rating (SPUR) three notches to 'BB' from 'BBB' on Banning Financing Authority, Calif.'s outstanding electric system revenue bonds, issued on behalf of the city of Banning, and removed it from CreditWatch with negative implications, where it was placed on March 20, 2024. • The outlook is negative.
• The three-notch downgrade reflects our view of the utility's lack of effective risk management and oversight as well as its failure to implement proper financial controls.
• The negative outlook reflects our view that rates are not anticipated to be raised before fiscal-year end 2025.
Security
The bonds are secured by installment payments made to the authority by the city from net revenue of its electric system. The Banning Electric Utility's (BEU or the utility) net revenue pledge secured approximately $22.3 million in electric revenue debt at fiscal year-end 2023.
Credit overview
We believe the utility is facing a number of financial and operational challenges that have pressured the rating downward, including the use of interfund borrowings to meet financial obligations and lack of proactive rate-setting practices. If the utility is not able to rebuild and maintain a sustained track level of positive reserves and improve its structural balance, the rating could be pressured further.
We believe there is uncertainty related to the utility's poor internal controls evidenced by the ongoing lack of the 2023 audit. Furthermore, rates are not anticipated to be raised before fiscal-year end 2025 and there is additional uncertainty related to the utility's capacity to restore liquidity to sound levels either through interfund borrowings or rate adjustments, the timing and sustainability of those actions, and capital market access.
According to electric utility officials, its unrestricted cash balance was depleted due to spending on capital projects without commensurate external financing combined with a lack of rate increases and reduced revenue. Funds for capital projects have been taken out of the citywide pooled cash fund for at least the past two years. Management WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 2, 2024 2
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estimates that the utility's reserves will be negative $4.5 million as of fiscal-year end June 30, 2024, which we note is an improvement from a balance of negative $8.6 million as of fiscal 2023. Both bond payments for June 1, 2024, and Dec. 1, 2024, totaling approximately $2.4 million, will be paid from citywide pooled cash and a loan due to be established as of June 30, 2024, for any remaining cash shortfall at that time. Management indicates the citywide pool cash fund has $48.3 million available as of April 2024.
We understand the utility has created a plan to rebuild its cash reserves and maintain structural balance going forward, such as hiring a financial consultant to help execute a bridge loan until it can issue bonds. In the interim, the utility is also utilizing several methods to increase its operating cash flow, such as increasing and adding impact fees, utilizing a power cost adjustment factor (PCAF) on a monthly basis, and selling some of its renewable energy credits. The city is also considering placing the electric utility under the utility authority, which would give the electric utility access to more liquidity. While necessary, we believe future rate adjustments could prove difficult especially given the area's ongoing delinquency challenges and low incomes that, in our view, constrain revenue-raising flexibility.
The ability of rate increases and sufficient cost control measures to provide sufficient liquidity, given prior history, is critical to our view of the rating going forward. There has not been a base rate increase since 2013; however, management has indicated that a rate increase will be implemented for fiscal 2025. We do not know the magnitude or frequency of future rate increases at this time, but we view the utility's willingness to raise rates as positive. We will monitor management's efforts to recover outstanding balances and their influence on the utility's cash-flow performance.
Capital projects have been halted for all but essential and/or near complete projects, as most infrastructure upgrades have been addressed during the last five years and management indicates the distribution system is in favorable shape.
An updated five-year capital improvement plan will be presented to the city council in June 2024, and the utility expects the electric capital projects to be significantly cut for at least a few years. The utility has other projects on the horizon but has indicated they can wait until the utility's cash position improves.
The rating further reflects our assessment of the following credit weaknesses:
• Continued delay in producing the 2023 audit, which presents transparency risk. • Weak controls and procedures that we believe have led to degraded financial performance. The utility has a $12 million reserves target that it has not met since fiscal 2021.
Partially offsetting the above risks, in our view, are the utility's:
• Implementation of a PCAF in June 2023, which management estimates will bring in an estimated $2.6 million per year if used consistently. If the PCAF exceeds $0.005/KWh (kilowatt hour) over a rolling 12-month average, then the director has the authority to temporarily suspend the PCAF and seek direction from city council. The utility is now using the PCAF every month to recover costs, which we view as a credit positive, and will do so for the foreseeable future.
• Proactive steps in recovering past receivables or delinquent accounts, which have been trending upward in recent years. As of May 1, 2024, management indicates the past-due balance for delinquencies of more than 90 days is $1.9 million. Disconnections resumed in late April for delinquent ratepayers and metering issues have recently been WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 2, 2024 3
Banning Financing Authority, California Banning; Retail Electric 1608
resolved. Management anticipates that the delinquency figures will drop significantly during the next year. • Fixed-cost coverage (FCC) metrics averaged 1.3x and debt service (DSC) averaged 1.7x for 2020-2022, levels we consider healthy. FCC is an S&P Global Ratings-calculated metric that treats a portion of the electric system's purchased power expenses as debt-like instead of as an operating expense. Our calculation is different than the indenture-based DSC calculation.
• Competitive rates as highlighted by the weighted average system rate that is 18% below the state average based on the most recent data from the U.S. Energy Information Administration. However, we believe this advantage will become eroded with necessary rate increases going forward. • Manageable debt position as of fiscal-year end 2023; however, the utility may issue debt in the medium term, which could increase the debt-to-capitalization ratio, but an approximate par amount is unknown at this time.
Environmental, social, and governance
Our rating action reflects the utility's weak risk management and oversight practices related to its reactionary rate-setting practices leading to poor recent financial metrics. Furthermore, the utility's protracted transparency and reporting obscure its financial position and increase credit risks, in our view. We believe financial management is lacking, particularly in long-term financial planning and cash flow monitoring, and in our opinion, this has led to continued degradation of the utility's financial metrics since fiscal 2022. Management does not produce regular long-term financial forecasts, and we believe that long-range plans promote cash flow stability and help identify potential future problems. However, management indicates that the utility is currently in the process of developing long-range financial plans, and these will be presented to city council in June.
Although management has initiated several credit-supportive strategies to enhance revenue collections and improve financial metrics, we believe sustained financial improvement hinges on its ongoing commitment to review, implement, and update these strategies. For example, management reports that it will implement rate increases and use its PCAF on a monthly basis to restore its financial position.
We recognize that the population's median household effective buying income (MHHEBI) as a percent of the U.S. average is depressed at 76% and an elevated poverty rate is present. As management plans to raise base rates in the near-term and use its PCAF monthly to address liquidity challenges, we believe social capital risk factors could worsen as we expect rate competitiveness will deteriorate somewhat especially as delinquencies are currently high. However, based on information provided by management alongside data from the Energy Information Administration, the system's weighted average rate is 18% below the state average, which we view as competitive.
We will monitor the strength and stability of the electric utilities' revenue streams for evidence of delinquent payments or other revenue erosion. Inflation, as measured by the Consumer Price Index (CPI), has remained above 3% in recent months, and S&P Global Economics forecasts elevated interest rates persisting through the first half of 2024, with moderate softening through the remainder of the year. (See "U.S. Economic Forecast Update: A Sturdy Job Market Keeps Growth Going," published Feb. 21, 2024, on RatingsDirect.) In addition, Bureau of Labor Statistics data show that electricity price inflation continues to outpace the overall CPI.
The amalgam of material increases in delinquent consumer debt, credit card, and auto loans, along with October's resumption of student loan payments and drawdowns of household savings garnered during the pandemic, will likely WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 2, 2024 4
Banning Financing Authority, California Banning; Retail Electric 1609
compound the financial pressures facing electricity consumers. Following stronger-than-expected U.S. economic growth through the fourth quarter of 2023, S&P Global Economics revised its 2024 real gross domestic product (GDP) growth forecast to 2.4% from its November 2023 projection of 1.5%. S&P Global Economics believes that recent business and consumer activity are not sustainable and projects slowing economic activity with growth of 1.5% in 2025.
The utility is compliant with all of California's stringent environmental regulations, including Senate Bill 350, which mandates utilities to be 50% renewable by 2030. Currently, the utility's power supply is 80% renewable, almost entirely emissions free, which is well ahead of the first emissions benchmark. We expect that the utility will continue to purchase renewable resources as its current purchased power agreements (PPA) expire. We view its wildfire risk as lower than that of its many California peers, given its generally urban setting, minimal number of customers in high-risk areas, and only three miles of electric lines within tier 3 wildfire-threat zones. Given the preponderance of these factors, we view utility's environmental position as credit neutral.
Outlook
The negative outlook reflects our view that rates are not anticipated to be raised before fiscal-year end 2025. There is further uncertainty regarding whether rate increases and cost controls will adequately and sustainably improve the utility's unrestricted cash level and produce credit-supportive coverage and as well as whether future financial audits will be produced on a timely basis.
Downside scenario
We could lower the rating if liquidity does not materially improve on a sustained basis while maintaining coverage at current levels and spending commensurate with resources. We could also lower the rating if there is a delayed ability to raise rates or if there is an inability to maintain structural balance on a sustained basis that takes into account revenue, expenses, debt service, and capital spending.
Upside scenario
Due to recent weak financial performance and the anticipation at the utility will only break even by fiscal-year end June 30, 2025, we do not anticipate raising the rating in the near-term. We could return the outlook to stable if we see a sustained track record of improved liquidity and reserves supported by sufficient rate increases and proper cost control while maintaining coverage at current levels.
Credit Opinion
Enterprise Profile
Continued residential growth in a growing service territory Banning is located along Interstate 10, about 80 miles east of Los Angeles in Riverside County, Calif. BEU serves around 12,000 residential customers and a population of more than 31,000 residents. The utility derives energy largely through partial ownership of Palo Verde Nuclear Generating Station and four PPAs in solar, geothermal, hydroelectric, WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 2, 2024 5
Banning Financing Authority, California Banning; Retail Electric 1610
and landfill.
The city has seen continued residential growth in the area, as evidenced by a plan underway to build 4,300 homes in the city, of which a significant portion have already been constructed and sold. The utility is currently in the process of electrifying these homes at the expense of the developer. Banning has four other residential projects in the planning stage, which would add another 4,000 homes. It should be noted that with California Title 24, all new residential construction must have solar panels installed. Therefore, the load growth from these homes is less than traditionally experienced.
Diverse power supply that yields operational stability
With the closing of the San Juan Generation Station in 2017, the utility no longer relies on any coal-fired generation. In addition, it has no residual debt associated with San Juan. Instead, the utility's power resources consist of a diverse set of owned and purchased assets, including partial ownership in Palo Verde Nuclear Generating Station through Southern California Public Power Authority (SCPPA), which accounted for 12% of energy use in fiscal year 2022.
Banning also has four PPAs: Astoria 2 Solar (16%), Puente Hills Landfill (29%), and COSO Geothermal (9%). There is also a contract for 2 megawatts (MW) for Hoover Dam through 2067. The remaining 33% is purchased on the spot market through California Independent System Operator (CAISO). All the PPAs, as mentioned previously, are fixed-price firm contracts, meaning that in cases of energy disruption, the counterparty, i.e., the generator, must procure the replacement energy for the utility. This mitigates the risk of price volatility or disruptions to the utility's service area. All contracts are active until 2030 at the earliest, tempering re-contracting risk. In the case of Puente Hills Landfill, we are aware that plans to turn the landfill into a park are underway. The change is not set to occur until 2030, when the PPA is set to expire. The utility is aware that the landfill loses approximately 8% to 10% of capacity annually as the trapped methane gas is depleted. It plans to replace the capacity loss by entering into contracts or ownership opportunities with SCPPA as they become available. We do not view this as a risk currently.
The next PPA that the utility will enter will likely be battery storage as the utility has excess midday solar that could be shifted to the evening peak with battery storage. Due to supply chain issues and CAISO interconnection cluster congestion, prices for battery storage are currently quite elevated. Management indicates the utility is waiting for the markets to normalize before moving forward with battery storage.
Financial Profile
Ongoing wildfire risk, no history of damage liability
There is an inherent risk to the utility under California law, which mandates that courts can apply the principle of inverse condemnation to both investor-owned and municipal electric utilities. This principle provides that if a state actor or a company providing services to the public, such as an electric utility, is the substantial cause of property destruction, whether through negligence or not, it can be held liable for damages to affected property owners.
Consequently, any fires that Banning is found to have caused could expose it to liability for damage to properties and materially affect its financial standing. To date, Banning has no history of damage liability in relation to wildfires in its service area despite California's history of substantial wildfires. The utility's wildfire risk is also limited by it having only three miles of transmission lines and no direct customers in high-wildfire-risk zones as determined by the California WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 2, 2024 6
Banning Financing Authority, California Banning; Retail Electric 1611
Public Utilities Commission (CPUC). We note that the utility does face some risk given its proximity to high-wildfire-risk zones, which could lead to wildfires carrying over to the utility's customer base. The utility does take additional preventative measures by running its lines underground where the terrain allows it and by hardening its lines against ignition. The utility also maintains a regularly updated wildfire mitigation plan, and distribution lines are 60% underground and 40% overhead for distribution. All new distribution is undergrounded, including the distribution for all new developments.
Banning Financing Authority, California--key credit metrics --Fiscal year ended June 30--
2022 2021 2020
Operational metrics
Electric customer accounts 12,903 12,528 12,339
% of electric retail revenues from residential customers 48 47 43 Top 10 electric customers' revenues as % of total electric operating revenue 23 21 21 Service area median household effective buying income as % of U.S. 76 74 74 Weighted average retail electric rate as % of state 82 96 102 Financial metrics
Gross revenues ($000s) 31,512 32,444 30,933
Total operating expenses less depreciation and amortization ($000s) 27,211 27,493 28,069 Debt service ($000s) 2,393 2,386 2,384
Debt service coverage (x) 1.8 2.1 1.2
Fixed-charge coverage (x) 1.3 1.5 1.1
Total available liquidity ($000s)* 4,274 14,382 18,427
Days' liquidity 57 191 240
Total on-balance-sheet debt ($000s) 26,073 27,335 28,698 Debt-to-capitalization (%) 34 35 37
*Total available liquidity includes available committed credit line balances, where applicable. Debt service coverage--Revenues minus expenses divided by debt service. Fixed-charge coverage--Sum of revenues minus expenses minus total net transfers out plus capacity payments (or their proxy), divided by the sum of debt service plus capacity payments (or their proxy). N.A.--Not available.
Related Research
• Through The ESG Lens 3.0: The Intersection Of ESG Credit Factors And U.S. Public Finance Credit Factors, March 2, 2022
• Banning, California, March 20, 2024
• U.S. Economic Forecast Update: A Sturdy Job Market Keeps Growth Going, Feb. 21, 2024 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 2, 2024 7
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WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 2, 2024 8
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Copyright © 2024 by Standard & Poor’s Financial Services LLC. All rights reserved. 1613
The ABCs of Rating Scales
S&P Global Ratings credit rating symbols provide a simple, efficient way to communicate creditworthiness and credit quality.
Our global rating scale provides a benchmark for evaluating the relative credit risk of issuers and issues worldwide.
Investment Grade
AAA Extremely strong capacity to meet financial commitments.
Highest rating.
AA Very strong capacity to meet financial commitments.
A Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.
BBB Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.
BBB- Considered lowest investment-grade by market participants.
General Summary of the Opinions Reflected by Our Ratings Speculative Grade
BB+ Considered highest speculative-grade by market participants.
BB Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.
B More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.
CCC Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.
CC Highly vulnerable; default has not yet occurred, but is expected to be a virtual certainty.
C Currently highly vulnerable to non-payment, and ultimate recovery is expected to be lower than that of higher rated obligations.
D Payment default on a financial commitment or breach of an imputed promise; also used when a bankruptcy petition has been filed or similar action taken.
Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
For a complete list of our Ratings Definitions, including issuer credit ratings as well as a related article on
Understanding our Ratings Definitions, please go to
spglobal.com/UnderstandingRatings
Investment- And Speculative-grade Debt
The term “investment-grade” historically referred to bonds and other debt securities that bank regulators and market participants viewed as suitable investments for financial institutions. Now the term is broadly used to describe
issuers and issues with relatively high levels of
creditworthiness and credit quality. In contrast, the term “non-investment-grade,” or “speculative-grade,” generally refers to debt securities where the issuer currently has the ability to repay but faces significant uncertainties, such as adverse business or financial circumstances that could affect credit risk.
In S&P Global Ratings long-term rating scale, issuers and debt issues that receive a rating of ‘BBB-’ or above are generally considered by regulators and market participants to be “investment-grade,” while those that receive a
rating lower than ‘BBB-’ are generally considered to be “speculative-grade.”
9 1614
1615
AMENDMENT NO. 3 TO A PROFESSIONAL SERVICES AGREEMENT (C00608) WITH WILLDAN ENGINEERING, INC. FOR (A) BUILDING AND SAFETY PLAN
CHECK AND PLANS EXAMINATION SERVICES (B) LANDSCAPE DESIGN PLAN
CHECK AND PLANS EXAMINATION SERVICES, AND (C) BUILDING PERMIT AND
LANDSCAPE INSTALLATION INSPECTION SERVICES
THIS AMENDMENT NO. 3 TO THE AGREEMENT FOR PROFESSIONAL
SERVICES (“Amendment No.3”) by and between the CITY OF BANNING (“City”) and Willdan Engineering, a California corporation (“Consultant”) is effective as of this day:
__________________.
RECITALS
A. City and Consultant entered into that certain Agreement for Professional Services dated September 24, 2019 (“Agreement”) whereby Consultant agreed to provide Building and Safety Plan Check, Building Inspection, and Landscape Design Review Services following Request for Proposals or Invitation for Bids No. 19-045.
B. On September 24, 2019, the City of Banning, on Resolution 2019-122, approved an agreement with Willdan Engineering, Inc., for a total amount of $1,470,960.On January 25, 2022, the City Council adopted Resolution 2022-09, amending the Agreement to increase the Contract Sum by $714,902.50 for a total Contract Sum of $2,185,862.50 (“Amendment No. 1”).
D. On January 24, 2023, the City Council adopted Resolution 2023-20, which was intended to implement staff’s recommendation to amend the Agreement to extend the term of the Agreement through October 31, 2023, and increase the not-to-exceed total compensation by $612,000 to $2,797,862.50 (Amendment No. 2). Resolution 2023-20, however, incorrectly stated the amended not-to-exceed total compensation as $2,185,862.50, and did not address staff’s recommendation to extend the Agreement term to October 31, 2023.
E. On February 28, 2023, the City Council adopted Resolution 2023-44, re-approved Amendment No. 2 approving an increase in the not-to-exceed total compensation by $612,000 to $2,797,862.50, and an extension of the term of the Agreement through June 30, 2024. It was staff’s intent that the City Council’s adoption of Resolution 2023-44 would update and replace the Council’s actions taken via Resolution 2023-20, in their entirety.
F. City and Consultant now desire to amend the Agreement (Amendment No. 3) in accordance with Resolution No. 2024-37 to include additional compensation not-to-exceed Contract Sum by $470,000 to $3,267,862.50, and to extend the term of the Agreement through September 23, 2024.
TERMS
1. Contract Changes. The Agreement is amended as provided herein. (a) Section 2.1 – “Contract Sum” of the Agreement is amended to provide that Consultant’s total compensation shall not exceed Four Hundred Seventy Thousand Dollars ($470,000.00), for a new contract total amount not to exceed Three Million DocuSign Envelope ID: ED470C10-945D-4925-92B8-D65D6DD8C9F3 February 27, 2024
1616 774
Two Hundred Sixty-Seven Thousand Eight Hundred Sixty-Two Dollars and Fifty Cents ($3,267,862.50).
(b) Section 3.4 – “Term” of the Agreement is hereby amended to extend the Agreement term to September 23, 2024, unless amended by provisions referenced herein.
2. Continuing Effect of Agreement. Except as amended by this Amendment No. 3, all provisions of the Agreement shall remain unchanged and in full force and effect. From and after the date of this Amendment No.3, whenever the term “Agreement” appears in the Agreement, it shall mean the Agreement and Amendment Nos. 1, and 2, as amended by this Amendment No.3 to the Professional Services Agreement.
3. Affirmation of Agreement; Warranty Re Absence of Defaults. City and Consultant each ratify and reaffirm each and every one of the respective rights and obligations arising under the Agreement. Each party represents and warrants to the other that there have been no written or oral modifications to the Agreement other than as provided herein. Each party represents and warrants to the other that the Agreement is currently an effective, valid and binding obligation.
Consultant represents and warrants to City that, as of the date of this Amendment No.3, City is not in default of any material term of the Agreement and that there have been no events that, with the passing of time or the giving of notice, or both, would constitute a material default under the Agreement.
City represents and warrants to Consultant that as of the date of this Amendment No.3, Consultant is not in default of any material term of the Agreement and that there have been no events that, with the passing of time or the giving of notice, or both, would constitute a material default under the Agreement.
4. Adequate Consideration. The parties hereto irrevocably stipulate and agree that they have each received adequate and independent consideration for the performance of the obligations they have undertaken pursuant to this Amendment No. 3.
5. Authority. The persons executing this Amendment No. 3 on behalf of the parties hereto warrant that (i) such party is duly organized and existing, (ii) they are duly authorized to execute and deliver this Amendment No. 3 on behalf of said party, (iii) by so executing this Amendment No. 3, such party is formally bound to the provisions of this Agreement, and (iv) the entering into this Amendment No. 3 does not violate any provision of any other Agreement to which said party is bound.
6. Electronic Signatures. Each Party may adopt as its signature an electronic identification consisting of a symbol or code that is affixed to or contained in each document transmitted by such Party (“electronic signature”). The Parties hereto herby agree that electronic signatures are acceptable, shall have the same force and effect under the law as original wet signatures, and shall be sufficient to verify that the Parties have executed this Agreement and such other documents transmitted by the Parties.
DocuSign Envelope ID: ED470C10-945D-4925-92B8-D65D6DD8C9F3 1617 775
[SIGNATURES ON FOLLOWING PAGE]
DocuSign Envelope ID: ED470C10-945D-4925-92B8-D65D6DD8C9F3 1618 776
IN WITNESS WHEREOF the Parties hereto have executed this Amendment No.3 to the Agreement the day and year first hereinabove written.
CITY OF BANNING CONSULTANT
Douglas Schulze, Date
City Manager
NAME: Patrick Johnson Date
TITLE: Director – Building & Safety
NAME: Date
TITLE:
ATTEST:
95-2295858
Tax ID No.
Caroline Patton Date
Administrative City Clerk
Address:
2401 E. Katella Ave., Suite 300
Anaheim, CA 92806
APPROVED AS TO FORM:
Richards, Watson & Gershon
City Council Approval:_____________
Serita R. Young Date
City Attorney
NOTE: PROOF OF AUTHORITY TO BIND CONTRACTING PARTY REQUIRED.
APPROPRIATE ATTESTATIONS SHALL BE INCLUDED AS MAY BE REQUIRED BY THE BYLAWS,
ARTICLES OF INCORPORATION, OR OTHER RULES OR REGULATIONS APPLICABLE TO CONSULTANT’S BUSINESS ENTITY.
DocuSign Envelope ID: ED470C10-945D-4925-92B8-D65D6DD8C9F3 3/1/2024
3/1/2024
Director - Building & Safety
Patrick Johnson
3/1/2024 Willdan Engineering
3/1/2024
Reso 2024-37
1619 777
2344655v8
AGREEMENT FOR CITY WIDE TRAFFIC SIGNAL MAINTENANCE
SERVICES (C00857)
THIS AGREEMENT FOR TRAFFIC SIGNAL MAINTENANCE SERVICES (herein “Agreement”) is entered into this day: ___________________, (“Effective Date”) by and between the CITY OF BANNING, a California municipal corporation (“City”) and, YUNEX, LLC., a Delaware Limited Liability Company, (“Consultant”). City and Consultant are sometimes hereinafter individually referred to as “Party” and hereinafter collectively referred to as the “Parties.”
RECITALS
A. Following submission of a proposal or bid for the performance of traffic signal maintenance services, as particularly defined and described in Article 1 of this Agreement, the Consultant was selected by City to perform those services.
B. The Parties desire to enter this Agreement in order to set forth terms and conditions under which Consultant will perform the traffic signal maintenance services referenced in Recital “A”. above.
NOW, THEREFORE, in consideration of the mutual promises and covenants made by the Parties and contained herein and other consideration, the value and adequacy of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1. SERVICES OF CONSULTANT
1.1 Scope of Services.
In compliance with all terms and conditions of this Agreement, Consultant shall provide those services specified in the “Scope of Services” attached hereto as Exhibit “A” and incorporated herein by this reference, in accordance with all terms and conditions of this Agreement, and to City’s reasonable satisfaction (“Services.”) As a material inducement to City entering into this Agreement, Consultant represents and warrants that it has the qualifications, experience, and facilities necessary to properly perform the Services in a thorough, competent, and professional manner, and is experienced in performing the Services contemplated herein.
Consultant shall at all times faithfully, competently and to the best of its ability, experience and talent, perform all Services described herein. Consultant covenants that it shall follow the highest professional standards in performing the Services required hereunder and that all materials will be of good quality, and fit for the purpose intended. For purposes of this Agreement, the phrase “highest professional standards” shall mean those standards of practice recognized by one or more first-class firms performing similar work under similar circumstances. This Agreement calls for services that, in whole or in part, constitute “public works” as defined in the California Labor Code. Therefore, as to those services that are “public works,” Consultant shall comply in all DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 8/17/2023
1620 393
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respects with all applicable provisions of the California Labor Code, including those set forth in Exhibit “B” hereto.
1.2 Contract Documents and Exhibits.
This Agreement includes this document, Exhibit A (Scope of Services), Exhibit B (Special Requirements), and Exhibit C (Schedule of Compensation) . In the event of any conflict between this document and any Exhibit hereto, the provisions of this document shall govern.
1.3 Compliance with Law.
Consultant shall keep itself informed concerning all ordinances, resolutions, statutes, rules, and regulations of City and any Federal, State or local governmental entity having jurisdiction in effect at the time service is rendered, and shall render all Services hereunder in accordance therewith.
1.4 Licenses, Permits, Fees and Assessments.
Consultant shall obtain and maintain during the term of this Agreement, at its sole cost and expense, all necessary licenses, permits, certificates and approvals required by law for the performance of Services under this Agreement, including a City business license. Consultant shall have the sole obligation to pay for all fees, assessments and taxes, plus applicable penalties and interest, which may be imposed by law and which arise from or are necessary for Consultant’s performance of the Services required by this Agreement. Consultant shall indemnify, defend and hold harmless City, its officers, employees or agents, against all such fees, assessments, taxes, penalties or interest levied, assessed or imposed against City hereunder.
1.5 Familiarity with Services.
By executing this Agreement, Consultant warrants that Consultant: (i) has thoroughly investigated and considered the Scope of Services to be performed, (ii) has carefully considered how the Services should be performed, and (iii) fully understands the facilities and any difficulties and restrictions attending performance of the Services under this Agreement. If the Services involve work upon any site, Consultant warrants that Consultant has or will investigate the site and is or will be fully acquainted with the conditions existing therein, prior to commencement of Services hereunder. Should Consultant discover any latent or unknown conditions, which will materially affect the performance of the Services hereunder, Consultant shall immediately inform City of such fact and shall not proceed except at Consultant’s risk until written instructions are received from the Contract Officer (defined in Section 1.12. A).
1.6 Prevention of Loss and Damages.
Consultant shall adopt reasonable methods during the Term (defined in Section 3.4) to furnish continuous protection to the work product, and the equipment, materials, papers, documents, plans, studies and/or other components thereof to prevent losses or damages, and shall be responsible for all such damages, to persons or property, until acceptance of the Services by City, except such losses or damages as may be caused by City’s own negligence.
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1621 394
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1.7 Further Responsibilities of Parties.
Both Parties agree to use reasonable care and diligence to perform their respective obligations under this Agreement. Both Parties agree to act in good faith to execute all instruments, prepare all documents and take all actions as may be reasonable necessary to carry out the purposes of this Agreement. Unless hereafter specified, neither Party shall be responsible to perform the Services of the other.
1.8 Additional Services.
City shall have the right at any time during the performance of the Services, without invalidating this Agreement, to order extra services beyond that specified in the Scope of Services or to make changes by altering, adding to or deducting from the Services. No such extra services may be undertaken unless a written order is first given by the Contract Officer to Consultant, which written order incorporates therein an adjustment in (i) the Contract Sum (as defined in Section
2.1), and/or (ii) the maintenance schedule set forth in the Scope of Services, and which written order is approved in writing by Consultant. Any increase in compensation of up to ten percent (10%) of the Contract Sum, or $25,000, whichever is less, may be approved by the Contract Officer. Any greater increases, taken either separately or cumulatively, must be approved by City Council. It is expressly understood by Consultant that the provisions of this Section shall not apply to Services which are specifically set forth in the Scope of Services or which are reasonably contemplated therein. Consultant hereby acknowledges that it accepts the risk that the Services to be provided pursuant to the Scope of Services may be more costly or time consuming than Consultant anticipates and that Consultant shall not be entitled to additional compensation therefor.
1.9 Facilities and Equipment.
Except as otherwise provided, Consultant shall, at its own cost and expense, provide all facilities and equipment necessary to perform the Services required by this Agreement. City shall make available to Consultant only physical facilities such as desks, filing cabinets, and conference space (“City Facilities”), as City deems, in its sole discretion, to be reasonably necessary for Consultant’s use while consulting with City employees and reviewing records and the information in possession of City. The location, quality, and time of furnishing City Facilities shall be in the sole discretion of City. In no event shall City be required to furnish any facilities that may involve incurring any direct expense, including but not limited to a computer, long distance telephone, network data, internet or other communication charges, vehicles and reproduction facilities.
1.10 Special Requirements.
Additional terms and conditions of this Agreement, if any, which are made a part hereof are set forth in the “Special Requirements” attached hereto as Exhibit B and incorporated herein by this reference.
1.11 Corrections.
In addition to the indemnification obligations set forth in Article 4, and Sections 1.4, 1.13,
5.3, 5.4, and 6.3, Consultant shall correct, at its expense, all errors in the Services which may be disclosed during City’s review of Consultant’s report or plans. Should Consultant fail to make DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1622 395
-4-
such correction(s) in a reasonably timely manner, such correction(s) may be made by City, and the cost thereof shall be charged to Consultant. In addition to all other available remedies, City may deduct the cost of such correction(s) from any retention amount held by City, or may withhold payment otherwise owed Consultant under this Agreement up to the amount of the cost of correction(s), as provided in Section 6.3.
1.12 Party Representatives.
A. Contract Officer: For the purposes of this Agreement, the Contract Officer shall be the City Manager, or such other person designated in writing by the City Manager (“Contract Officer”). Unless otherwise specified herein, any approval of City required hereunder shall mean the approval of the Contract Officer. The Contract Officer shall have authority, if specified in writing by the City Manager, to sign all documents on behalf of City required hereunder to carry out the terms of this Agreement.
B. Principals and Personnel of Consultant.
1) Consultant Representative: The following principal of Consultant is hereby designated as being the Consultant Representative authorized to act on Consultant’s behalf regarding the Services specified herein and make all decisions in connection therewith:
Name Title
David P. Heermance President
It is expressly understood that the experience, knowledge, capability and reputation of the foregoing Consultant Representative were a substantial inducement for City to enter into this Agreement. Therefore, the foregoing Consultant Representative shall be responsible during the term of this Agreement for directing all activities of Consultant and devoting sufficient time to personally supervise the Services hereunder. All personnel of Consultant, and any authorized agents, shall at all times be under the exclusive direction and control of the Consultant Representative. For purposes of this Agreement, the foregoing Consultant Representative may not be replaced nor may their responsibilities be substantially reduced or reassigned by Consultant without the express written approval of City. It shall be Consultant’s responsibility to assure that the Contract Officer is kept informed of the progress of the performance of the Services, and Consultant shall refer any decisions which must be made by City to the Contract Officer. 2) Consultant’s Personnel: Consultant has, or will secure at its own expense, all personnel required to perform the Services required under this Agreement. All of the Services required under this Agreement shall be performed by Consultant or under its supervision, and all personnel engaged in the Services shall be qualified to perform such Services. Consultant shall make every reasonable effort to maintain the stability and continuity of Consultant’s staff and sub-contractors, if any, assigned to perform the Services required under this Agreement.
Consultant shall notify City of all changes in Consultant’s staff and sub-contractors, if any, assigned to perform the Services required under this Agreement, prior to and during any such performance. In the event that City, in its sole discretion, at any time during the term of this Agreement, desires to reassign any staff or sub-contractor of Consultant, City shall give notice as DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1623 396
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set forth in Section 8.1. Consultant shall, immediately upon the receipt of the notice to re-assign staff from City, reassign such person or persons.
1.13 Independent Contractor.
A. Consultant is an independent contractor and not an employee of City.
Consultant shall have no power to incur any debt, obligation, or liability on behalf of City. All Services provided pursuant to this Agreement shall be performed by Consultant or under its supervision. Consultant will determine the means, methods, and details of performing the Services. Any additional personnel performing Services under this Agreement on behalf of Consultant shall also not be employees of City and shall at all times be under Consultant’s exclusive direction and control. Consultant shall pay all wages, salaries, and other amounts due such personnel in connection with their performance of Services under this Agreement and as required by law. Consultant shall be responsible for all reports and obligations respecting such additional personnel, including, but not limited to: social security taxes, income tax withholding, unemployment insurance, disability insurance, and workers’ compensation insurance.
B. Consultant shall indemnify and hold harmless City and its elected officials, officers, employees, servants, designated volunteers, and agents serving as independent contractors in the role of City officials, from any and all liability, damages, claims, costs and expenses of any nature to the extent arising from Consultant’s personnel practices. City shall have the right to offset against the amount of any fees due to Consultant under this Agreement any amount due to City from Consultant as a result of Consultant’s failure to promptly pay to City any reimbursement or indemnification arising under this Section.
1.14 Prohibition Against Subcontracting or Assignment.
The experience, knowledge, capability and reputation of Consultant, the Consultant Representative and employees were a substantial inducement for City to enter into this Agreement.
Therefore, Consultant shall not contract with any other entity to perform in whole or in part the Services required hereunder without the express written approval of City. In addition, neither this Agreement nor any interest herein may be transferred, assigned, conveyed, hypothecated or encumbered voluntarily or by operation of law, whether for the benefit of creditors or otherwise, without the prior written approval of City. Transfers restricted hereunder shall include the transfer to any person or group of persons acting in concert of more than twenty-five percent (25%) of the present ownership and/or control of Consultant, taking all transfers into account on a cumulative basis. In the event of any such unapproved transfer, including any bankruptcy proceeding, this Agreement shall be void. No approved transfer shall release Consultant or any surety of Consultant of any liability hereunder without the express consent of City.
ARTICLE 2. COMPENSATION AND METHOD OF PAYMENT.
2.1 Contract Sum.
Subject to any limitations set forth in this Agreement, as full compensation for Services satisfactorily rendered, City shall pay Consultant at the hourly rates set forth in Exhibit C-1 and the not-to-exceed sub-budget rates set forth in the “Schedule of Compensation” attached hereto as Exhibit C and incorporated herein by this reference. In no event shall Consultant be paid more DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1624 397
-6-
than Twenty-Five Thousand Dollars ($25,000.00) (the “Contract Sum”). The Contract Sum shall include the attendance of Consultant at all project meetings reasonably deemed necessary by City.
Coordination of the performance of the Services with City is a critical component of the Services.
If Consultant is required to attend additional meetings to facilitate such coordination, Consultant shall not be entitled to any additional compensation for attending those meetings.
2.2 Method of Compensation.
The method of compensation may include: (i) a lump sum payment upon completion of the Services, (ii) payment in accordance with specified tasks or the percentage of completion of the Services, (iii) payment for time and materials based upon Consultant’s rates as specified in the Schedule of Compensation, provided that time estimates are provided for the performance of sub tasks, but not exceeding the Contract Sum or (iv) such other methods as may be specified in the Schedule of Compensation.
2.3 Reimbursable Expenses.
City shall only reimburse Consultant for those actual and necessary expenses expressly set forth in Exhibit C. Reimbursable expenses may include reimbursement for actual and necessary expenditures for reproduction costs, telephone expenses, and travel expenses approved by the Contract Officer in advance, or actual sub-contractor expenses of an approved sub-contractor pursuant to Section 1.14, and only if specified in the Schedule of Compensation.
2.4 Unauthorized Services and Expenses.
City will not pay for any Services or reimburse for any expenses incurred which are not specified in the Scope of Services, unless authorized in writing as set forth in Section 1.8 of this Agreement. City shall make payment for such authorized additional Services and expenses in accordance with Article 2 of this Agreement.
2.5 Invoices.
Each month Consultant shall furnish to City an original invoice for all Services performed and expenses incurred during the preceding month. Each such invoice shall contain all of the information set forth in Section III of Exhibit C to this Agreement. By submitting an invoice for payment under this Agreement, Consultant is certifying compliance with all provisions of the Agreement. Consultant shall not invoice City for any duplicate Services performed by more than one person.
City shall independently review each invoice submitted by Consultant to determine whether the Services performed and expenses incurred are in compliance with the provisions of this Agreement. City will use its best efforts to cause Consultant to be paid within thirty (30) days of receipt of Consultant’s correct and undisputed invoice, except as to any charges for Services performed or expenses incurred by Consultant which are disputed by City, or as provided in Section 6.3. In the event any charges or expenses are disputed by City, the original invoice shall be returned by City to Consultant for correction and resubmission. Review and payment by City of any invoice provided by Consultant shall not constitute waiver of any rights or remedies provided herein or any applicable law.
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1625 398
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2.6 Waiver.
Payment to Consultant for Services performed pursuant to this Agreement shall not be deemed to waive any defects in Services performed by Consultant.
ARTICLE 3. PERFORMANCE SCHEDULE
3.1 Time of Essence.
Time is of the essence in the performance of this Agreement; provided, however, that the foregoing shall not be construed to limit or deprive a Party of the benefits of any grace or use period allowed in this Agreement.
3.2 Schedule of Performance.
Consultant shall commence the Services pursuant to this Agreement upon receipt of a written notice to proceed and shall perform monthly and call-out Services as set forth in the Scope of Services, Exhibit “A”, hereto..
3.3 Force Majeure.
The maintenance schedule specified in the Scope of Services may be adjusted because of any delays due to unforeseeable causes beyond the control and without the fault or negligence of Consultant. Such unforeseeable consequences include, but are not restricted to, acts of God or public enemy, unusually severe weather, fires, earthquakes, floods, epidemics, quarantine restrictions, riots, strikes, freight embargoes, wars, litigation, and/or acts of any governmental agency, including City, if Consultant shall within ten (10) days of the commencement of such delay notify the Contract Officer in writing of the causes of the delay. The Contract Officer shall ascertain the facts and the extent of delay, and adjust the maintenance schedule when and if in the judgment of the Contract Officer such delay is justified, subject to the provisions of Section 1.8.
The Contract Officer’s determination (or the City Council’s determination, in the event the period of enforced delay exceeds the period specified in Section 1.8) shall be final and conclusive upon the Parties to this Agreement. In no event shall Consultant be entitled to recover damages against City for any delay in the performance of this Agreement, however caused; Consultant’s sole remedy shall be the extension of the Agreement and/or adjustment of the maintenance schedule, pursuant to this Section.
3.4 Term.
The Term of this Agreement shall be from the Effective Date through August 31, 2024, unless sooner terminated as provided in Article 6 of this Agreement or extended by written agreement of the Parties or as provided in Sections 1.8 and 3.3 of this Agreement. This Agreement may be extended for four (4) succeeding terms of one (1) year each by the written agreement of the Parties. The maximum term and any subsequent amendment or modification to the term shall not exceed five (5) years.
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1626 399
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ARTICLE 4. INSURANCE AND INDEMNIFICATION
4.1 Minimum Scope and Limits of Insurance.
Consultant shall procure and at all times during the term of this Agreement carry, maintain, and keep in full force and effect, insurance as follows:
A. Commercial General Liability Insurance with a minimum limit of $1,000,000.00 per occurrence for bodily injury, personal injury and property damage and a general aggregate limit of $2,000,000.00 per project or location. If Consultant is a limited liability company, the commercial general liability coverage shall be amended so that Consultant and its managers, members, affiliates, employees, agents and other persons necessary or incidental to its operation are insureds.
B. Automobile Liability Insurance for any owned, non-owned or hired vehicle used in connection with the performance of this Agreement with a combined single limit of $1,000,000.00 per accident for bodily injury and property damage. If Consultant does not use any owned, non-owned or hired vehicles in the performance of Services under this Agreement, Consultant shall obtain a non-owned auto endorsement to the Commercial General Liability policy.
C. Workers’ Compensation Insurance as required by the State of California and Employer’s Liability Insurance with a minimum limit of $1,000,000.00 per accident for bodily injury or disease. If Consultant has no employees while performing Services under this Agreement, workers’ compensation policy is not required; however, Consultant shall execute a declaration that it has no employees.
D. Professional Liability/Errors and Omissions Insurance with minimum limits of $1,000,000.00 per claim and in the aggregate. If a claims-made policy is provided, it shall be endorsed with an extended reporting period of not less than three (3) years, or shall be maintained in full force and effect for three (3) years, following final payment to Consultant hereunder.
4.2 Acceptability of Insurers.
The insurance policies required under this Article shall be issued by an insurer admitted to write insurance in the State of California with a rating of A:VII or better in the latest edition of the A.M. Best Insurance Rating Guide. Self-insurance shall not be considered to comply with the insurance requirements under this Article.
4.3 Additional Insured.
The commercial general and automobile liability policies shall contain an endorsement naming City, its officers, employees, agents and volunteers as additional insureds.
4.4 Primary and Non-Contributing.
The insurance policies required under this Article shall apply on a primary noncontributing basis in relation to any other insurance or self-insurance available to City. Any DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1627 400
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insurance or self-insurance maintained by City, its officers, employees, agents or volunteers, shall be in excess of Consultant’s insurance and shall not contribute with it.
4.5 Consultant’s Waiver of Subrogation.
The insurance policies required under this Article, excepting the professional liability policy, shall not prohibit Consultant and Consultant’s employees, agents or subcontractors from waiving the right of subrogation prior to a loss. Consultant hereby waives all rights of subrogation against City.
4.6 Deductibles and Self-Insured Retentions.
Any deductibles or self-insured retentions must be declared to and approved by City. At City’s option, Consultant shall either reduce or eliminate the deductibles or self-insured retentions with respect to City; or Consultant shall procure a bond guaranteeing payment of losses and expenses.
4.7 Cancellations or Modifications to Coverage.
Consultant shall not cancel, reduce or otherwise modify the insurance policies required by this Article during the term of this Agreement. The commercial general and automobile liability policies required under this Agreement shall be endorsed to state that should the issuing insurer cancel the policy before the expiration date, the issuing insurer will endeavor to mail 30 days’ prior written notice to City. If any insurance policy required under this Article is canceled or reduced in coverage or limits, Consultant shall, within two (2) Business Days (as defined in Section 8.12) of notice from the insurer, phone, fax or notify City via certified mail, return receipt requested, of the cancellation of or changes to the policy.
4.8 City Remedy for Noncompliance.
If Consultant does not maintain the policies of insurance required under this Article in full force and effect during the term of this Agreement, or in the event any of Consultant’s policies do not comply with the requirements under this Article, City may either immediately terminate this Agreement or, if insurance is available at a reasonable cost, City may, but has no duty to, take out the necessary insurance and pay, at Consultant’s expense, the premium thereon.
Consultant shall promptly reimburse City for any premium paid by City, or City may withhold amounts sufficient to pay the premiums from payments due to Consultant.
4.9 Evidence of Insurance.
Prior to the performance of Services under this Agreement, Consultant shall furnish the City Clerk with a certificate or certificates of insurance and all original endorsements evidencing and effecting the coverages required under this Article. The endorsements are subject to City’s approval. Consultant may provide complete, certified copies of all required insurance policies to City. Consultant shall maintain current endorsements on file with the City Clerk.
Consultant shall provide proof to the City Clerk that insurance policies expiring during the term of this Agreement have been renewed or replaced with other policies providing at least the same coverage. Consultant shall furnish such proof at least two (2) weeks prior to the expiration of the DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1628 401
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coverages.
4.10 Indemnity Requirements not Limiting.
Procurement of insurance by Consultant shall not be construed as a limitation of Consultant’s liability or as full performance of Consultant’s duty to indemnify City under this Agreement.
4.11 Sub-contractor Insurance Requirements.
Consultant shall require each of its sub-contractors that perform Services under this Agreement to maintain insurance coverage that meets all of the requirements of this Article.
4.12 Indemnification, Hold Harmless, and Duty to Defend.
A. Indemnification of City.
1) Indemnity for Professional Services. To the fullest extent permitted by law, Consultant shall, at its sole cost and expense, protect, indemnify, defend, and hold harmless City and its elected officials, officers, attorneys, agents, employees, designated volunteers, successors, assigns and those City agents serving as independent contractors in the role of City officials (collectively “Indemnitees”), from and against any and all damages, costs, expenses, liabilities, claims, demands, causes of action, proceedings, judgments, penalties, stop notices, liens, and losses of any nature whatsoever, including fees of accountants, attorneys, or other professionals and all costs associated therewith, and reimbursement of attorney’s fees and costs of defense (collectively “Liabilities”), whether actual, alleged or threatened, which arise out of, are claimed to arise out of, pertain to, or relate to, in whole or in part, the negligence, recklessness or willful misconduct of Consultant, its officers, agents, servants, employees, subcontractors, materialmen, contractors or their officers, agents, servants or employees (or any entity or individual that Consultant shall bear the legal liability thereof) in the performance of professional services under this Agreement.
2) Other Indemnities. Other than in the performance of professional services, and to the fullest extent permitted by law, Consultant shall, at its sole cost and expense, defend, hold harmless and indemnify Indemnitees from and against any and all damages, costs, expenses, liabilities, claims, demands, causes of action, proceedings, expenses, judgments, penalties, stop notices, liens, and losses of any nature whatsoever, including fees of accountants, attorneys, or other professionals and all costs associated therewith and the payment of all consequential damages (collectively “Claims”), at law or in equity, whether actual, alleged or threatened, which arise out of, are claimed to arise out of, pertain to, or relate to the acts or omissions of Consultant, its officers, agents, servants, employees, sub-contractors, materialmen, consultants or their officers, agents, servants or employees (or any entity or individual that Consultant shall bear the legal liability thereof) in the performance of this Agreement, including the Indemnitees’ active or passive negligence, except for Claims arising from the sole negligence or willful misconduct of the Indemnitees as determined by court decision or by the agreement of the Parties. Consultant shall defend the Indemnitees in any action or actions filed in connection with any Claims with counsel of the Indemnitees’ choice, and shall pay all costs and expenses, including all attorneys’ fees and experts’ costs actually incurred in connection with such defense. Consultant shall DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1629 402
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reimburse the Indemnitees for any and all legal expenses and costs incurred by Indemnitees in connection therewith.
3) Consultant shall pay all required taxes on amounts paid to Consultant under this Agreement, and indemnify and hold City harmless from any and all taxes, assessments, penalties, and interest asserted against City by reason of the independent contractor relationship created by this Agreement. Consultant shall fully comply with the workers’ compensation law regarding Consultant and Consultant’s employees. Consultant shall indemnify and hold City harmless from any failure of Consultant to comply with applicable workers’ compensation laws.
City may offset against the amount of any fees due to Consultant under this Agreement any amount due to City from Consultant as a result of Consultant’s failure to promptly pay to City any reimbursement or indemnification arising under this subparagraph A.3. 4) Consultant shall obtain executed indemnity agreements with provisions identical to those in this Article from each and every sub-contractor or any other person or entity involved by, for, with or on behalf of Consultant in the performance of this Agreement. If Consultant fails to obtain such indemnities, Consultant shall be fully responsible and indemnify, hold harmless and defend the Indemnitees from and against any and all Liabilities and Claims, in law or in equity, whether actual, alleged or threatened, which arise out of, are claimed to arise out of, pertain to, or relate to the acts or omissions of Consultant’s sub-contractor, its officers, agents, servants, employees, sub-contractors, materialmen, contractors or their officers, agents, servants or employees (or any entity or individual that Consultant’s sub-contractor shall bear the legal liability thereof) in the performance of this Agreement, including the Indemnitees’ active or passive negligence, except for Liabilities and Claims arising from the sole negligence or willful misconduct of the Indemnitees, as determined by court decision or by the agreement of the Parties.
B. Workers’ Compensation Acts not Limiting. Consultant’s indemnifications and obligations under this Article, or any other provision of this Agreement, shall not be limited by the provisions of any workers’ compensation act or similar act. Consultant expressly waives its statutory immunity under such statutes or laws as to City, its officers, agents, employees and volunteers.
C. Insurance Requirements not Limiting. City does not, and shall not, waive any rights that it may possess against Consultant because of the acceptance by City, or the deposit with City, of any insurance policy or certificate required pursuant to this Agreement. The indemnities in this Article shall apply regardless of whether or not any insurance policies are determined to be applicable to the Liabilities, Claims, tax, assessment, penalty or interest asserted against City.
D. Survival of Terms. Consultant’s indemnifications and obligations under this Article shall survive the expiration or termination of this Agreement.
ARTICLE 5. RECORDS, REPORTS, AND RELEASE OF INFORMATION
5.1 Service Records.
Consultant shall keep, and require sub-contractors to keep, such ledgers, books of accounts, invoices, vouchers, canceled checks, reports, studies or other documents relating to the disbursements charged to City and Services performed hereunder (the “Service Records”), as shall DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1630 403
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be necessary to perform the Services required by this Agreement and enable the Contract Officer to evaluate the performance of such Services. Any and all such Service Records shall be maintained in accordance with generally accepted accounting principles and shall be complete and detailed. The Contract Officer shall have full and free access to such Service Records at all times during normal business hours of City, including the right to inspect, copy, audit and make copies and transcripts from such Service Records. Such Service Records shall be maintained for a period of three (3) years following completion of the Services hereunder, and City shall have access to such Service Records in the event any audit is required. In the event of dissolution of Consultant’s business, custody of the Service Records may be given to City, and access shall be provided by Consultant’s successor in interest (“Consultant’s Successor”). If custody of the Service Records is given to Consultant’s Successor, Consultant shall give written notice to City of the transfer of the Service Records to Consultant’s Successor. The notice shall include contact information (address and telephone number) for Consultant’s Successor, and access shall be provided to City by Consultant’s Successor.
5.2 Reports.
Consultant shall periodically prepare and submit to the Contract Officer such reports concerning the performance of the Services required by this Agreement as the Contract Officer shall require. Consultant hereby acknowledges that City is greatly concerned about the cost of Services to be performed pursuant to this Agreement. For this reason, Consultant agrees that if Consultant becomes aware of any facts, circumstances, techniques, or events that may or will materially increase or decrease the cost of the Services contemplated herein, Consultant shall promptly notify the Contract Officer of that fact, circumstance, technique or event and the estimated increased or decreased cost related thereto.
5.3 Ownership of Documents.
All drawings, specifications, maps, designs, photographs, studies, surveys, data, notes, computer files, reports, records, documents and other materials (the “Consultant Documents”) prepared by Consultant, its employees, sub-contractors and agents in the performance of this Agreement shall be the property of City and shall be delivered to City upon request of the Contract Officer or upon the termination of this Agreement. Consultant shall have no claim for further employment or additional compensation as a result of the exercise by City of its full rights of ownership use, reuse, or assignment of the Consultant Documents hereunder. Any use, reuse or assignment of such completed Consultant Documents for other projects and/or use of uncompleted Consultant Documents without specific written authorization by Consultant will be at City’s sole risk and without liability to Consultant, and Consultant’s guarantee and warranties shall not extend to such use or assignment. Consultant may retain copies of such Consultant Documents for its own use. Consultant shall have an unrestricted right to use the concepts embodied therein. All sub-contractors shall provide for assignment to City of all Consultant Documents prepared by them; and in the event Consultant fails to secure such assignment, Consultant shall indemnify City for all damages resulting therefrom.
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5.4 Confidentiality and Release of Information.
A. All information gained or work product produced by Consultant in performance of this Agreement shall be considered confidential, unless such information is in the public domain or already known to Consultant. Consultant shall not release or disclose any such information or work product to persons or entities other than City without prior written authorization from the Contract Officer.
B. Consultant, its officers, employees, agents or sub-contractors, shall not, without prior written authorization from the Contract Officer or unless requested by the City Attorney, voluntarily provide documents, declarations, letters of support, testimony at depositions, response to interrogatories or other information concerning the Services performed under this Agreement. Response to a subpoena or court order shall not be considered “voluntary” provided Consultant gives City notice of such court order or subpoena.
C. If Consultant, or any officer, employee, agent or sub-contractor of Consultant, provides any information or work product in violation of this Agreement, then City shall have the right to reimbursement and indemnity from Consultant for any damages, costs and fees, including attorneys’ fees, caused by or incurred as a result of Consultant’s conduct.
D. Consultant shall promptly notify City should Consultant, its officers, employees, agents or sub-contractors be served with any summons, complaint, subpoena, notice of deposition, request for documents, interrogatories, request for admissions or other discovery request, court order or subpoena from any Party regarding this Agreement and the Services performed thereunder. City retains the right, but has no obligation, to represent Consultant or be present at any deposition, hearing or similar proceeding. Consultant agrees to cooperate fully with City and to provide City with the opportunity to review any response to discovery requests provided by Consultant. However, this right to review any such response does not imply or mean the right by City to control, direct, or rewrite the response.
ARTICLE 6. ENFORCEMENT OF AGREEMENT AND TERMINATION
6.1 California Law.
This Agreement, and any dispute arising from the relationship between the Parties to this Agreement, shall be interpreted, construed and governed both as to validity and to performance of the Parties in accordance with the laws of the State of California. Legal actions concerning any dispute, claim or matter arising out of or in relation to this Agreement shall be instituted in the Superior Court of the County of Riverside, State of California, or any other appropriate court in such county, and Consultant covenants and agrees to submit to the personal jurisdiction of such court in the event of such action. In the event of litigation in a U.S. District Court, venue shall lie exclusively in the Central District of California, in Riverside.
6.2 Disputes; Default.
A. In the event that City determines Consultant is in default under the terms of this Agreement, City shall have no obligation or duty to continue compensating Consultant for any Services performed after the date of default. In addition to the provisions of Section 4.8, and the DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1632 405
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right to terminate pursuant to Section 6.7, if the City Manager determines that Consultant is in default in the performance of any of the terms or conditions of this Agreement, City may serve Consultant with written notice of the default. Consultant shall have ten (10) calendar days after service upon it of the notice in which to cure the default by rendering a satisfactory performance.
In the event that Consultant fails to cure its default within such period of time, City may, notwithstanding any other provision of this Agreement, terminate this Agreement without further notice and without prejudice to any other remedy to which it may be entitled at law, in equity or under this Agreement.
B. In the event of termination pursuant to this Section, City may take over the Services and prosecute the same to completion by contract or otherwise, and Consultant shall be liable to the extent that the total cost for completion of the Services required hereunder exceeds the compensation herein stipulated (provided that City shall use reasonable efforts to mitigate such damages), and City may withhold any payments to Consultant for the purpose of set-off or partial payment of the amounts owed City as provided in Section 6.3.
6.3 Retention of Funds.
Consultant hereby authorizes City to deduct from any amount payable to Consultant (whether or not arising out of this Agreement): (i) any payment amount of which may be in dispute hereunder or which is necessary to compensate City for any losses, costs, liabilities, or damages suffered by City, (ii) all amounts retained pursuant to the provisions of Section 4.8, (iii) all amounts for which City may be liable to third parties, by reason of Consultant’s acts or omissions in performing or failing to perform Consultant’s obligation under this Agreement, and (iv) all payments due or that become due to Consultant during the period that Consultant or any of its sub-contractors fail to maintain any required insurance in full force and effect, until notice is received by City that the required insurance has been restored to full force and effect and that the premiums therefore have been paid for a period satisfactory to City, as provided in Section 4.9, above. In the event that any claim is made by a third party, the amount or validity of which is disputed by Consultant, or any indebtedness shall exist which shall appear to be the basis for a claim of lien, City may withhold from any payment due, without liability for interest because of such withholding, an amount sufficient to cover such claim. The failure of City to exercise such right to deduct or to withhold shall not, however, affect the obligations of Consultant to insure, indemnify, and protect City as elsewhere provided herein.
6.4 Waiver.
Waiver by any Party to this Agreement of any term, condition, or covenant of this Agreement shall not constitute a waiver of any other term, condition, or covenant. Waiver by any Party of any breach of the provisions of this Agreement shall not constitute a waiver of any other provision or a waiver of any subsequent breach or violation of any provision of this Agreement.
Acceptance by City of any Services by Consultant shall not constitute a waiver of any of the provisions of this Agreement. No delay or omission in the exercise of any right or remedy by a non-defaulting Party on any default shall impair such right or remedy or be construed as a waiver.
Any waiver by either Party of any default must be in writing, and shall not be a waiver of any other default concerning the same or any other provision of this Agreement.
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6.5 Rights and Remedies are Cumulative.
Except with respect to rights and remedies expressly declared to be exclusive in this Agreement, the rights and remedies of the Parties are cumulative and the exercise by either Party of one or more of such rights or remedies shall not preclude the exercise by it, at the same or different times, of any other rights or remedies for the same default or any other default by the other Party.
6.6 Legal Action.
In addition to any other rights or remedies, either Party may take legal action, in law or in equity, to cure, correct or remedy any default, to recover damages for any default, to compel specific performance of this Agreement, to obtain declaratory or injunctive relief, or to obtain any other remedy consistent with the purposes of this Agreement. Notwithstanding any contrary provision herein, Consultant must file a statutory claim pursuant to Government Code Sections 905 et seq. and 910 et seq., in order to pursue a legal action against City under this Agreement.
6.7 Termination Prior to Expiration of Term.
This Article 6 shall govern any termination of this Agreement except as specifically provided in Section 6.2 for termination for default of Consultant. City reserves the right to terminate this Agreement at any time, with or without cause, upon thirty (30) days’ written notice to Consultant, except that where termination is due to the fault of Consultant, the period of notice may be a shorter time as may be determined by the Contract Officer. In addition, Consultant reserves the right to terminate this Agreement at any time, with or without cause, upon sixty (60) days’ written notice to City, except that where termination is due to the fault of City, the period of notice may be a shorter time as Consultant may determine. Upon receipt of any notice of termination, Consultant shall immediately cease all Services hereunder except such as may be specifically approved by the Contract Officer. Except where Consultant has initiated termination, Consultant shall be entitled to compensation for all Services rendered prior to the effective date of the notice of termination and for any Services authorized by the Contract Officer thereafter in accordance with the Schedule of Compensation or such as may be approved by the Contract Officer, except as provided in Section 6.3. In the event Consultant has initiated termination, Consultant shall be entitled to compensation only for the reasonable value of the Services actually provided hereunder. In the event of termination without cause pursuant to this Section, the terminating Party need not provide the non-terminating Party with the opportunity to cure pursuant to Section 6.2.
6.8 Attorneys’ Fees.
In any litigation or other proceeding by which a Party seeks to enforce its rights under this Agreement (whether in contract, tort or both) or seeks a declaration of any rights or obligations under this Agreement, the prevailing Party in such action or proceeding, in addition to any other relief which may be granted, whether legal or equitable, shall be entitled to reasonable attorneys’ fees. Attorneys’ fees shall include attorney’s fees on any appeal, and in addition the Party entitled to attorneys’ fees shall be entitled to all other reasonable costs for investigating such action, taking depositions and discovery and all other necessary costs the court allows which are incurred in such DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1634 407
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litigation. All such fees shall be deemed to have accrued on commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment.
ARTICLE 7. CITY OFFICERS AND EMPLOYEES: NON-DISCRIMINATION
7.1 Non-liability of City Officers and Employees.
No officer or employee of City shall be personally liable to Consultant, or Consultant’s Successor, in the event of any default or breach by City or for any amount which may become due to Consultant or Consultant’s Successor, or for breach of any obligation of the terms of this Agreement.
7.2 Conflict of Interest.
Consultant covenants that neither it, nor any officer or principal of its firm, has or shall acquire any interest, directly or indirectly, which would conflict in any manner with the interests of City or which would in any way hinder Consultant’s performance of Services under this Agreement. Consultant further covenants that in the performance of this Agreement, no person having any such interest shall be employed by it as an officer, employee, agent or sub-contractor without the express written consent of the Contract Officer. Consultant agrees to at all times avoid conflicts of interest or the appearance of any conflicts of interest with the interests of City in the performance of this Agreement.
No officer or employee of City shall have any direct or indirect financial interest in this Agreement within the scope of Government Code section 1090, nor shall any such officer or employee make, participate in making, or use his or her official position to influence, any City decision relating to the Agreement which has a material financial effect on his or her financial interests or the financial interests of any corporation, partnership or association in which he or she is, directly or indirectly, interested, in violation of any State statute or regulation. Consultant warrants that it has not paid or given, and will not pay or give any third party any money or other consideration for obtaining this Agreement.
Consultant and its officers, employees, associates and sub-contractors, if any, shall comply with all conflict of interest statutes of the State of California applicable to Consultant’s Services under this Agreement, including the Political Reform Act (Gov. Code § 81000, et seq.) and Government Code Section 1090. During the term of this Agreement, Consultant may perform similar services for other clients; but Consultant and its officers, employees, associates and subcontractors shall not, without the Contract Officer’s prior written approval, perform services for another person or entity for whom Consultant is not currently performing services that would require Consultant or one of its officers, employees, associates or sub-contractors to abstain from a decision under this Agreement pursuant to a conflict of interest statute. Consultant shall incorporate a clause substantially similar to this Section into any subcontract that Consultant executes in connection with the performance of this Agreement.
7.3 Covenant Against Discrimination.
Consultant covenants that, by and for itself, its heirs, executors, assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of, DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1635 408
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any person or group of persons on account of race, color, creed, religion, sex, gender, sexual orientation, marital status, national origin, or ancestry in the performance of this Agreement.
Consultant shall take affirmative action to insure that applicants are employed, and that employees are treated during employment, without regard to their race, color, creed, religion, sex, marital status, national origin, or ancestry, or other protected class.
7.4 Unauthorized Aliens.
Consultant hereby promises and agrees to comply with all of the provisions of the Federal Immigration and Nationality Act, 8 U.S.C.A. §§ 1101, et seq., as amended, and in connection therewith, shall not employ unauthorized aliens as defined therein. Should Consultant so employ such unauthorized aliens for the performance of Services covered by this Agreement, and should the any liability or sanctions be imposed against City for such use of unauthorized aliens, Consultant hereby agrees to and shall reimburse City for the cost of all such liabilities or sanctions imposed, together with any and all costs, including attorneys’ fees, incurred by City.
ARTICLE 8. MISCELLANEOUS PROVISIONS
8.1 Notices.
Any notice, demand, request, document, consent, approval, bill, invoice, report or other communication required or permitted under this Agreement shall be in writing and conclusively deemed effective: (a) on confirmed delivery by courier service or overnight delivery service during Consultant’s and City’s regular business hours; or (b) three (3) Business Days after deposit in the United States mail, by certified or registered mail, and addressed to the Party to be notified as set forth below:
If to City Attn: Art Vela
Public Works Director
City of Banning
99 East Ramsey Street
Banning, California 92220
Email: [email protected]
With a courtesy copy to: Kevin G. Ennis, City Attorney
Richards, Watson & Gershon
350 South Grand Avenue, 37th Floor
Los Angeles, California 90071
Email: [email protected]
If to Consultant: Attn: David P. Heermance, President
Crosstown Electrical & Data, Inc.
5454 Diaz Street
Irwindale, CA 91706
Email: [email protected]
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8.2 Interpretation.
The terms of this Agreement shall be construed in accordance with the meaning of the language used and shall not be construed for or against either Party by reason of the authorship of this Agreement or any other rule of construction which might otherwise apply.
8.3 Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and such counterparts shall constitute one and the same instrument.
8.4 Integration; Amendment.
This Agreement, and all exhibits referred to in this Agreement, constitute the final, complete and exclusive statement of the terms of the agreement between the Parties pertaining to the subject matter of this Agreement and supersede all other and cancels any and all previous negotiations, arrangements, agreements and understandings, if any, between the Parties, and none shall be used to interpret this Agreement. No Party has been induced to enter into this Agreement by, nor is any Party relying on, any representation or warranty except those expressly set forth in this Agreement. No amendment to or modification of this Agreement, nor any provision or breach hereof waived, shall be valid unless made in writing and approved by Consultant and by City Council. The Parties agree that this requirement for written modifications cannot be waived and that any attempted waiver shall be void.
8.5 Severability.
In the event that any one or more of the phrases, sentences, clauses, paragraphs, or sections contained in this Agreement shall be declared invalid or unenforceable by a valid judgment or decree of a court of competent jurisdiction, such invalidity or unenforceability shall not affect any of the remaining phrases, sentences, clauses, paragraphs, or sections of this Agreement which are hereby declared as severable and shall be interpreted to carry out the intent of the Parties hereunder unless the invalid provision is so material that its invalidity deprives either Party of the basic benefit of their bargain or renders this Agreement meaningless.
8.6 Mutual Cooperation.
A. City’s Cooperation. City shall provide Consultant with all pertinent data, documents and other requested information as is reasonably available for Consultant’s proper performance of the Services required under this Agreement.
B. Consultant’s Cooperation. In the event any claim or action is brought against City relating to Consultant’s performance of Services rendered under this Agreement, Consultant shall render any reasonable assistance that City requires.
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8.7 No Third Party Beneficiaries Intended.
This Agreement is made solely for the benefit of the Parties to this Agreement and their respective successors and assigns, and no other person or entity may have or acquire a right by virtue of this Agreement.
8.8 Final Payment Acceptance Constitutes Release.
The acceptance by Consultant of the final payment made under this Agreement shall operate as and be a release of City from all claims and liabilities for compensation to Consultant for anything done, furnished or relating to Consultant’s Services. Acceptance of payment shall be any negotiation of City’s check or the failure to make a written extra compensation claim within ten (10) calendar days of the receipt of that check. However, approval or payment by City shall not constitute, nor be deemed, a release of the responsibility and liability of Consultant, its employees, sub-contractors and agents for the accuracy and competency of the information provided and/or Services performed; nor shall such approval or payment be deemed to be an assumption of such responsibility or liability by City for any defect or error in the Services prepared by Consultant, its employees, sub-contractors and agents.
8.9 Non-Appropriation of Funds.
Payments to be made to Consultant by City for Services performed within the current fiscal year which are within the current fiscal budget and within an available, unexhausted fund. In the event that City does not appropriate sufficient funds for payment of Consultant’s Services beyond the current fiscal year, this Agreement shall cover payment for Consultant’s Services only to the conclusion of the last fiscal year in which City appropriates sufficient funds and shall automatically terminate at the conclusion of such fiscal year.
8.10 Headings.
The headings in this Agreement are included solely for convenience of reference and shall not affect the interpretation of any provision of this Agreement or any of the rights or obligations of the Parties to this Agreement.
8.11 Word Usage.
Unless the context clearly requires otherwise, (a) the words “shall,” “will” and “agrees” are mandatory and “may” is permissive; (b) “or” is not exclusive; and (c) “includes” or “including” are not limiting.
8.12 Business Days.
“Business Days” refers to days that the Banning City Hall is open for business.
8.13 Corporate Authority.
The persons executing this Agreement on behalf of the Parties hereto warrant that (i): such Party is duly organized and existing, (ii) they are duly authorized to execute and deliver DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1638 411
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this Agreement on behalf of that Party, (iii) by so executing this Agreement, such Party is formally bound to the provisions of this Agreement, and (iv) the entering into this Agreement does not violate any provision of any other Agreement to which that Party is bound. This Agreement shall be binding upon the heirs, executors, administrators, successors and assigns of the Parties.
8.14 Signatures.
Electronic Signatures: Each Party may adopt as its signature an electronic identification consisting of a symbol or code that is affixed to or contained in each document transmitted by such Party (“electronic signature”). The Parties hereto herby agree that electronic signatures are acceptable, shall have the same force and effect under the law as original wet signatures, and shall be sufficient to verify that the Parties have executed this Agreement and such other documents transmitted by the Parties.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF the Parties hereto have executed this Agreement the day and year first hereinabove written.
CITY OF BANNING CONSULTANT
Douglas Schulze, Date
City Manager
NAME: Date
TITLE:
NAME: Date
TITLE:
ATTEST:
Tax ID No.
Caroline Patton Date
Deputy City Clerk
Address:
City Council Approval:
NOTE: PROOF OF AUTHORITY TO BIND CONTRACTING PARTY REQUIRED. APPROPRIATE
ATTESTATIONS SHALL BE INCLUDED AS MAY BE REQUIRED BY THE BYLAWS, ARTICLES OF INCORPORATION, OR OTHER RULES OR REGULATIONS APPLICABLE TO CONSULTANT’S BUSINESS ENTITY.
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 86-2136678
8/16/2023
Michael Hutchens
Western Operations Manager
Riverside, CA 92501
2250 Business Way
USA
8/17/2023
8/17/2023
n/a
1640 413
Exhibit “A”-1
11303-0011\2688202v3.doc
EXHIBIT “A”
SCOPE OF SERVICES
I. Consultant will perform the following Services in connection with providing City Wide Traffic Signal Maintenance prepared in connection therewith:
II. As part of the Services, Consultant will prepare and deliver the following tangible work products and services to City:
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1641 414
June 13th
, 2023
Ms. Barbara Mason
Purchasing Manager
City of Banning
99 E. Ramsey Street
Banning, CA 92220
\{UN X
TRAFFIC
RE: Proposal for: Traffic Signals Maintenance & Repair Services (RFP-23-030) Ms. Mason,
Yunex LLC would like to express our sincere appreciation for the opportunity to participate in the proposal process for providing Traffic Signals Maintenance & Repair Services for the City's traffic signal system. The prices and terms stated in our proposal package will remain in effect for 90- days from the date of submission, June 13th
, 2023.
Yunex LLC is a corporation, incorporated in the State of Delaware on February 17th , 2021. Our
federal tax employer I.D. number is 86-2136678 and our corporate address is 9225 Bee Cave Road, Building B, Austin, TX 78733.
Yunex LLC is an electrical contracting firm who is a California licensed A & C-10 contractor (CA License #1080007) and is also a registered Public Works Contractor (DIR No. 1000815000), who provides leading edge technology for the fast-paced Intelligent Transportation Systems world.
Whether providing maintenance services, controllers, controller firmware, central systems, system analysis, design, or integration, Yunex LLC brings innovative and reliable solutions to customers.
Yunex LLC has reviewed the Scope of Work in the RFP and Sample Professional Services Agreement and will list our Legal Exceptions and Assumptions within our Proposal for the City's review/consideration.
During the evaluation, if there are any questions regarding this proposal, please feel free to contact either of us using the contact information listed below. We look forward to serving the needs of the City of Banning and would like to thank you in advance for your consideration.
Respectfu I ly,
Yunex LLC
Director of Service
2250 Business Way
Riverside, CA 92501
(951) 784-6600 Office
(951) 784-6700 Fax
[email protected]
L
Yunex LLC
Michael J. Hutchens
West Operations Manager
2250 Business Way
Riverside, CA 92501
(951) 784-6600 Office
(951) 784-6700 Fax
[email protected]
EXHIBIT "A" "A" - 2
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1642 415
Understanding
It is our understanding that the City Banning is seeking a qualified traffic signal maintenance firm to provide Traffic Signals Maintenance and Repair Services. The selected
service company will be responsible for providing a
continuing, comprehensive, routine, and extraordinary
maintenance program for the City’s equipment. The City’s expectation is that the maintenance program will reduce the incidence of malfunctions, reduce complaints,
promote safety, and proactively extend the longevity of the equipment, thus reducing the overall operating cost for the City’s traffic signal system.
Our goal is always to exceed our customer’s expectations. We have a broad range of experienced personnel including IMSA and NEC certified Traffic Signal Maintenance personnel.
The technician assigned to this contract has over 20 years of experience managing and maintaining traffic signal systems and related ITS equipment.
Our local traffic signal laboratories (Riverside, CA) provide a full range of technical services including complete controller/cabinet testing, repair, and conflict monitor testing/certification.
Services for this contract include the provision of appropriately trained personnel and equipment necessary to perform maintenance activities as outlined in your RFP.
We understand that the general Scope of Work to be done consists of routine preventative maintenance and repair of your traffic control systems as well as general and emergency repairs of the same. These services will provide your city with safe and efficient operations. Yunex Traffic will have available and readily accessible, qualified personnel, tools, equipment, facilities, and material required to perform all work necessary for the maintenance of the City’s traffic signal systems, as outlined in the Scope of Work and in compliance with current City and State standards.
Our Approach / Emergency Response Times
To be able to respond immediately to emergency calls, Yunex Traffic’s field technicians are authorized to take their work vehicles home daily. All work vehicles are stocked with proper field equipment so he/she may sufficiently address most problems they encounter while responding.
Emergency response call outs and unscheduled repairs are initiated by calling our toll-free emergency phone number, 1-800-229-6090. A live dispatcher will be available 24 hours a day, 7 days per week, 365 days per year. Our dispatcher will create a work order in our visual planning board and once the work order is released, it will immediately transfer to our technician’s queue on their mobile device. As part of our quality control practice, our dispatcher will follow up with a phone call to our technician to confirm that he/she is in receipt of the call out/work order. For emergency calls, the technician will arrive at the site within two (2) hours to assess and correct the reported problem. Once the problem is corrected, the technician will inform the city of the repair actions.
A. Statement of Understanding and Approach
EXHIBIT "A" "A" - 3
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Scope of Work
It is always the goal of Yunex Traffic to tailor our services around our customer’s needs. We understand that throughout the term of a contract, those needs may change. We approach all our contracts with the same vision; build a partnership with the City’s staff and work towards achieving common goals set forth through that partnership. We realize that this is an everevolving process and that is why we believe that the only successful route is through establishing common goals. This methodology and a commitment to service will be applied to every aspect of our services for the City of Banning.
Routine Maintenance
We will execute a comprehensive monthly routine maintenance program as outlined in the City’s Scope of Work, as recommended by the manufacturer, and as listed below. Yunex Traffic will also maintain, at the same unit price, additional traffic signals and appurtenant devices as they are installed or become a part of the maintenance requirements of the city.
Yunex Traffic technicians will, at a minimum, perform the following tasks on the City’s traffic signal system monthly:
Routine maintenance is typically scheduled by the technician as they are more aware of the geography of the area. He will take into consideration contract requirements and your preference when scheduling routine preventive maintenance. Once our technician arrives at the location, he will complete a job hazard analysis (JHA) determining any potential hazards at the location. Following the JHA, he/she will secure the area with proper traffic control as referenced in the most recent edition of the W.A.T.C.H. Handbook and in accordance with the city’s traffic control requirements. Our technician will clean and vacuum the controller and battery backup cabinets (if equipped) and ensure the cabinet vents are un-obstructed, the air filter is clean, properly inserted, and secure (air filters will be replaced semi-annually). During this process, your Yunex Traffic technician will perform the following checks inside the controller cabinet:
o Confirm the controller cabinet is securely
mounted to the foundation and inspect the
seal for deterioration. Excessive dampness
and plant/animal intrusion inside the
controller cabinet will be reported to the city
and repaired immediately.
o Verify fan operation and ensure the
thermostat is set to 96 degrees Fahrenheit
and that there is sufficient airflow through the
cabinet.
o Inspect cabinet hardware (i.e., door gaskets,
hinges, locks, etc.) for proper operation. All
deficiencies will be repaired and reported to
the city.
o Inspect electrical components (i.e., relays, load switches, equipment displays and indications, flasher(s), rack-mount detectors, harness/connectors, service connections, system telemetry, communications system, cabinet grounding, GFCI receptacles, terminal connections cabinet lights and switches, CMU (interlock) door switch, the police panel switches, etc.) for proper operation and adjust, as necessary. We will also verify proper operation of all equipment displays and EXHIBIT "A" "A" - 4
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1644 417
cabinet/controller indicator lamps. Deficiencies that pose a safety concern will be corrected immediately.
o Verify that controller software/firmware is up to date. Following the visual inspection, your Yunex Traffic technician will examine the functionality of the controller in relation to traffic at the intersection and confirm all phase and coordination timing is programmed correctly and is current based on the timing sheet located in the controller cabinet.
In addition to monitoring phase actuation from vehicle/traffic, they will also confirm proper intersection cycling by manually placing vehicle/pedestrian calls on each phase through the cabinet test switches/controller keypad to verify controller servicing of each phase. Yunex Traffic technicians will ensure your controller’s date and time is correct and we will adjust all controller clocks within 48 hours of time changes related to Daylight Savings Time. This also includes confirming the correct date and time in all Conflict Monitor Units and Malfunction Management Units (CMU/MMU) during each visit. Your Yunex Traffic technician will check the controller log buffers and investigate any faults that may have surfaced since the last maintenance visit. CMU’s/MMU’s can be tested annually with an MT-180 or equivalent conflict monitor tester.
Individual test results will meet the city’s documentation requirements and be available in each controller cabinet and an electronic file (USB) will be delivered to the city within 30 days after completing the testing. This test will also be documented on the routine maintenance log located in the controller cabinet. If requested, the cost for annual CMU/MMU testing will be billed as noted on the Price Proposal. The technician will confirm all detector loop cables are correctly identified, connected to the correct vehicle detector field terminals, and that a call is placed on the correct detector input, and that the input places a call on the correct controller phase. We will adjust or retune detector amplifiers and correct substandard splices, as necessary. Loops requiring re-seal or replacement will be documented and reported to the city immediately. Loop replacement cost will be billed as noted on the Price Proposal. If the intersection is equipped with video/radar detection our technician will verify that detection zones are properly structured. They will also verify proper camera operation by monitoring the vehicle call on the video processor unit and confirm that the calls are registering in the controller and actuating the correct phase in the controller. The technician will verify that detection system software has been properly updated. Video Detection lens cleaning can be done, if requested, on a time/material basis. If equipped, your Yunex Traffic technician will confirm operation of all preemption devices (i.e., railroad, emergency vehicle preemption (EVP), fire station preemption, etc.). Annual Optical detector lens cleaning can be done, if requested, on a time/material basis. Inspect CCTV cameras for correct operation and for
damage to wiring or housing. Inspection and lens cleaning can be done, if requested, on a time/material basis.
If equipped, your Yunex Traffic technician will also test your interconnect systems to maintain existing operation and will notify you of any deficiencies.
If equipped, your Yunex Traffic technician will check the battery back-up systems / uninterruptible power supplies Our technicians are
extremely knowledgeable
with the installation,
handling, and testing of
interconnect and fiber
optic systems.
EXHIBIT "A" "A" - 5
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(UPS) including checking / logging the battery and load levels. In addition, we will confirm all battery connections to ensure they are clean and secure. If requested, we can perform testing by electrical bypass for proper operation, which will be billed on a time/material basis. We will report any batteries that require replacement immediately. All events and run time will be documented inside each controller cabinet. If requested, Yunex Traffic can perform a night check of all safety lights and illuminated street name signs (IISNS). Our findings will be submitted to the city and required repairs will be made according to the time & material rates. Monthly night checks can be done, if requested, on a time/material basis.
Our technician will walk the intersection (clockwise and counterclockwise) and visually inspect all poles, signal heads, pedestrian signals, associated framework, and signal mounted signs for proper operation, alignment, and broken or missing parts. During this process, your Yunex Traffic technician will perform the following checks outside of the controller cabinet:
o Depress all pedestrian push buttons and observe
proper timing and display.
o Visually inspect the loops for sufficient sealant or
exposed loop wires.
o Inspect pull boxes, pull box lids and hand-hole covers.
Missing covers/lids will be replaced immediately.
o Visually inspect all signal doors, back plates, and visors and confirm they are secure.
o Remove unauthorized signs, stickers, and posters that can be easily removed from traffic signal poles and the controller cabinet. Graffiti will also be removed within twenty-four (24) hours of notification.
o Prepare a list of locations where painting may be
necessary, which will be submitted to the City for
approval. Painting rates can be provided upon request.
The technician will lubricate cabinet door locks and padlocks quarterly, unless required sooner.
Maintain an inventory list of all equipment in the controller cabinet at each location. This list will also be updated electronically and provided to the city yearly in a Microsoft Excel spreadsheet, or as requested.
Your Yunex Traffic technician will document all maintenance activities on the city approved Preventative Maintenance checklist, on the cabinet log, and in their mobile device which is wirelessly communicating to our maintenance server enabling our customers to view all progress in virtually real-time.
EXHIBIT "A" "A" - 6
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Extraordinary Services
In addition to the Preventative Maintenance program, we will provide other Extraordinary Services such as scheduled repairs, emergency response and technical support services to the City’s traffic signal systems in accordance with City requirements and as listed below.
Our Extraordinary and Emergency Response Services include, but not limited to, the following services:
Downed signal heads, poles, signal on flash, signal
blackout, burned out lamps, damaged controllers and
cabinets, damaged illuminated street name signs, damaged inductive loops, sensing elements, pedestrian push
buttons, electroliers, pedestrian signal heads, wiring, and other operational equipment related issues.
Assisting the City for special events or for City construction projects, as necessary to implement revised traffic signal timing and phasing for changed traffic conditions. If
requested, prepare punch list items, and follow through with city representative to ensure a successful completion.
Perform overhead maintenance on traffic signals, safety lighting, street name and regulatory signs, video detection cameras and Opticom systems.
Provide support for underground maintenance including conduit repair or replacement, wire inspection and
installation, and interconnect installation.
Repair, replace or otherwise render in good working order all defective parts of the traffic signal equipment with like make and model parts. Whenever equipment is removed,
the city representative will be notified within twenty-four (24) hours.
USA Dig Alert – Locating services using in-house locators. o Yunex Traffic will respond to all Underground Service Alert (USA) requests/notices or at the request of city staff for the marking and protection of traffic signal underground facilities such as traffic signal and electrical conduits, interconnect facilities, loops, safety light conduits, and other appurtenant equipment which might conflict with other right-of-way construction or repairs. Our technicians are equipped and certified with the proper locating devices provided by Metrotech.
EXHIBIT "A" "A" - 7
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Fiber Optic related maintenance services such as: Installation, splicing, terminations, troubleshooting, on-reel testing, and integration.
Signal Loop Replacement. Yunex Traffic is the only maintenance provider who performs Loop replacements in-house.
Yunex Traffic will notify the City prior to any traffic signal deactivations that may be necessary to provide the required services. Traffic signal shutdowns will not be scheduled without the approval of an authorized representative of the City. Also, Yunex Traffic will not proceed with any extraordinary repairs without authorization from the city, unless it is a matter of public safety.
Spare Equipment
Yunex Traffic has over $1,500,000 in spare inventory and available to the City of Banning:
25 – NEMA controllers (such as Econolite ASC/2S-2100, ASC/3-2100, Cobalt, McCain, and many others)
25 – 24VDC Power Supply
25+ – MMU/CMU from various manufacturers
150 – Load Switches
6 – Type P controller cabinets
3 – 332 controller cabinets
250+ – Replacement LED Lamps (Red/Yellow/Green) and LED pedestrian signals 50 – ADA compliant pedestrian activation buttons
25+ - Battery Backup Batteries (sizes/manufacturers vary) 20+ – Streetlight luminaires of various manufactures and wattages 25+ - Several types/sizes of Marbelite concrete streetlight poles EXHIBIT "A" "A" - 8
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1648 421
On-Line Portal (Service Business Platform @ITS)
Yunex Traffic has rolled out a new service tool called SBP (Service Business Platform), which is a proprietary management system designed to effectively manage all service order progress, remotely update our ERP system (SAP) and as work is performed. SBP allows us to monitor many key performance items such as time arrived onsite, time of completion, materials used, and vehicle/equipment used. SBP keeps historical records for every location which allows the technicians an additional resource when troubleshooting.
When creating a new service request, the SBP will query the location history and will flag the order if it appears to be a repeated call out or duplicate order. Technicians transmit response and routine maintenance items in real-time using IOS or Android devices.
The contractual Scope of Work and all maintenance activities are also available for technicians to review to ensure all tasks are completed within the specified timeframe. Customer specific checklists for routine preventative maintenance will be available to the technicians so all required tasks are completed, per your Scope of Work.
EXHIBIT "A" "A" - 9
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1649 422
Customer Portal
The SBP Customer Portal gives our customers access to:
Monitor real-time status of routine maintenance and service calls Location history (sort/filter by date, location, call type, etc.) Overall historical maintenance and repair data
Real-time equipment inventories, maps, and event reporting Asset management (including digital photographs, GIS data, etc.) EXHIBIT "A" "A" - 10
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1650 423
Tracking as Related to Invoicing
In addition to our Customer Portal, you will receive a monthly detailed billing report with each invoice that lists labor and equipment hours billed for each service order.
EXHIBIT "A" "A" - 11
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1651 424
Exhibit “A”-12
11303-0011\2688202v3.doc
III. In addition to the requirements of Parts I and II of this Scope of Services, during the performance of the Services, Consultant will keep City appraised through periodic status reports regarding the performance of the Services under this Agreement as set forth below and in Section 5.2, by the following means:
a. In-person meetings and/or teleconferences.
b. Email updates/questions to applicant team and City while reviews are underway.
c. Conference calls.
IV. All work product is subject to review and acceptance by City, and must be revised by Consultant without additional charge to City until found satisfactory and accepted by City.
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1652 425
Exhibit “B”-1
11303-0011\2688202v3.doc
EXHIBIT “B”
SPECIAL REQUIREMENTS
TERMS FOR COMPLIANCE WITH CALIFORNIA LABOR LAW REQUIREMENTS
1. This Agreement calls for servicesthat, in whole or in part, constitute “public works” as defined in Division 2, Part 7, Chapter 1 (commencing with Section 1720) of the California Labor Code (“Chapter 1”). Further, Consultant acknowledges that this Agreement is subject to (a) Chapter 1 and (b) the rules and regulations established by the Department of Industrial Relations (“DIR”) implementing such statutes. Therefore, as to those Services that are “public works,” Consultant shall comply with and be bound by all the terms, rules and regulations described in 1(a) and 1(b) as though set forth in full herein.
2. California law requires the inclusion of specific Labor Code provisions in certain contracts. The inclusion of such specific provisions below, whether or not required by California law, does not alter the meaning or scope of Section 1 above.
3. Consultant shall be registered with the Department of Industrial Relations in accordance with California Labor Code Section 1725.5, and has provided proof of registration to City prior to the Effective Date of this Agreement. Consultant shall not perform work with any subcontractor that is not registered with DIR pursuant to Section 1725.5. Consultant and subcontractors shall maintain their registration with the DIR in effect throughout the duration of this Agreement. If the Consultant or any subcontractor ceases to be registered with DIR at any time during the duration of the project, Consultant shall immediately notify City.
4. Pursuant to Labor Code Section 1771.4, Consultant’s Services are subject to compliance monitoring and enforcement by DIR. Consultant shall post job site notices, as prescribed by DIR regulations.
5. Pursuant to Labor Code Section 1773.2, copies of the prevailing rate of per diem wages for each craft, classification, or type of worker needed to perform the Agreement are on file at City Hall and will be made available to any interested party on request. Consultant acknowledges receipt of a copy of the DIR determination of such prevailing rate of per diem wages, and Consultant shall post such rates at each job site covered by this Agreement.
6. Consultant shall comply with and be bound by the provisions of Labor Code Sections 1774 and 1775 concerning the payment of prevailing rates of wages to workers and the penalties for failure to pay prevailing wages. The Consultant shall, as a penalty to City, forfeit $200.00 for each calendar day, or portion thereof, for each worker paid less than the prevailing rates as determined by the DIR for the work or craft in which the worker is employed for any public work done pursuant to this Agreement by Consultant or by any subcontractor.
7. Consultant shall comply with and be bound by the provisions of Labor Code Section 1776, which requires Consultant and each subcontractor to: keep accurate payroll records and verify such records in writing under penalty of perjury, as specified in Section 1776; certify and make such payroll records available for inspection as provided by Section 1776; and inform City of the location of the records.
DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1653 426
Exhibit “B”-2
11303-0011\2688202v3.doc
8. Consultant shall comply with and be bound by the provisions of Labor Code Sections 1777.5, 1777.6 and 1777.7 and California Administrative Code Title 8, Section 200 et seq. concerning the employment of apprentices on public works projects. Consultant shall be responsible for compliance with these aforementioned Sections for all apprenticeable occupations.
Prior to commencing work under this Agreement, Consultant shall provide City with a copy of the information submitted to any applicable apprenticeship program. Within 60 days after concluding work pursuant to this Agreement, Consultant and each of its subcontractors shall submit to City a verified statement of the journeyman and apprentice hours performed under this Agreement.
9. The Consultant shall not perform Work with any Subcontractor that has been debarred or suspended pursuant to California Labor Code Section 1777.1 or any other federal or state law providing for the debarment of contractors from public works. The Consultant and Subcontractors shall not be debarred or suspended throughout the duration of this Agreement pursuant to Labor Code Section 1777.1 or any other federal or state law providing for the debarment of contractors from public works. If the Consultant or any subcontractor becomes debarred or suspended during the duration of the project, the Consultant shall immediately notify City.
10. Consultant acknowledges that eight hours labor constitutes a legal day’s work.
Consultant shall comply with and be bound by Labor Code Section 1810. Consultant shall comply with and be bound by the provisions of Labor Code Section 1813 concerning penalties for workers who work excess hours. The Consultant shall, as a penalty to City, forfeit $25.00 for each worker employed in the performance of this Agreement by the Consultant or by any subcontractor for each calendar day during which such worker is required or permitted to work more than eight hours in any one calendar day and 40 hours in any one calendar week in violation of the provisions of Division 2, Part 7, Chapter 1, Article 3 of the Labor Code. Pursuant to Labor Code section 1815, work performed by employees of Consultant in excess of eight hours per day, and 40 hours during any one week shall be permitted upon public work upon compensation for all hours worked in excess of eight hours per day at not less than one and one-half times the basic rate of pay.
11. California Labor Code Sections 1860 and 3700 provide that every employer will be required to secure the payment of compensation to its employees. In accordance with the provisions of California Labor Code Section 1861, Consultant hereby certifies as follows:
“I am aware of the provisions of Section 3700 of the Labor Code which require every employer to be insured against liability for workers’ compensation or to undertake self-insurance in accordance with the provisions of that code, and I will comply with such provisions before commencing the performance of the work of this contract.”
Date______________ Signature___________________________ DocuSign Envelope ID: 2A39FCC7-80F3-45D9-8B98-1ED7ADF1981A 1654 427
Exhibit “B”-3
11303-0011\2688202v3.doc
12. For every subcontractor who will perform work on the project, Consultant shall be responsible for such subcontractor’s compliance with Chapter 1 and Labor Code Sections 1860 and 3700, and Consultant shall include in the written contract between it and each subcontractor a copy of those statutory provisions and a requirement that each subcontractor shall comply with those statutory provisions. Consultant shall be required to take all actions necessary to enforce such contractual provisions and ensure subcontractor’s compliance, including, without limitation, conducting a periodic review of the certified payroll records of the subcontractor and upon becoming aware of the failure of the subcontractor to pay his or her workers the specified prevailing rate of wages. Consultant shall diligently take corrective action to halt or rectify any failure.
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Exhibit “C”-1
11303-0011\2688202v3.doc
EXHIBIT “C”
SCHEDULE OF COMPENSATION
I. Consultant shall perform the tasks (“Tasks”) not to exceed the rates in Exhibit “C1-1”
II. Within the budgeted amounts for each Task, and with the approval of the Contract Officer, funds may be shifted from one Task sub-budget to another so long as the Contract Sum is not exceeded per Section 2.1, unless Additional Services are approved per Section 1.8.
III. City will compensate Consultant for the Services performed upon submission of a valid invoice. Each invoice is to include:
A. Line items for all personnel describing the Services performed, the number of hours worked, and the hourly rate.
B. Line items for all materials and equipment properly charged to the Services.
C. Line items for all other approved reimbursable expenses claimed, with supporting documentation.
D. Line items for all approved sub-contractor labor, supplies, equipment, materials, and travel properly charged to the Services.
IV. Consultant’s billing rates for all personnel are attached as Exhibit C-1.
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Exhibit “C-1”-1
EXHIBIT “C-1”
CONSULTANT’S BILLING RATE AND TASK SCHEDULE
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Exhibit “C-1”-2
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Exhibit “C-1”-3
Project Schedule:
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