REPORT TO THE CITY COUNCIL City of Salinas, California

DATE: FROM: BY: SUBJECT: December 18,2012 Ray E. Corpuz, Jr., City Manager Jim Pia, Assistant City Manager AGREEMENT BETWEEN THE CITY OF SALINAS AND DEEPWATER DESAL LLC

Agenda Item Number

RECOMMENDATION:
It is recommended that the City Council approve a resolution authorizing the City Manager to sign the

attached Agreement between the City of Salinas and DeepWater Desai LLC (DWDS) to explore the purchase of water and wholesale power. DISCUSSION: DeepWater Desai LLC is proposing to build a desalination facility in Moss Landing in an effort to supply potable water to water agencies and water utilities operating in Monterey and Santa Cruz Counties, and wishes to plan for any potential future demand for desalinated water by the City of Salinas. The Moss Landing power plant has existing infrastructure in place which can be used by the desalination facility for the production of potable drinking water and for the generation of power which can be made available to existing and new businesses. In addition, DWDS and the City wish to work together to explore the establishment of a wholesale power purchase agreement with a wholesale power generator located in Moss Landing. This would require a review of the feasibility of the City's establishment of a municipal power utility or other entity which would allow the City to purchase power generated at the Moss Landing power facility and to sell it on a retail basis. This could allow the City to resell such power for businesses, particularly high tech, energy demanding industries, operating or proposing to operate within Salinas and Monterey County. The Agreement may require further analysis of the following considerations relating to ( 1) Water Purchase: The need for an additional potable drinking water source to serve the water consumption needs of customers within Salinas and business which are located in or which will re-locate to Salinas or Monterey County; Approvals of any Desai project by any and all appropriate Federal, State, and Local authorities including, but not limited to, the California Public Utilities Commission; The City's establishment of a utility or other entity pursuant to which it purchases water from the Desai Facility and sells such water on a retail basis;
- 1-

The feasibility of either or both of the City's two municipal water purveyors conveying water from the Desal Facility to their customers; and The current water-intensive businesses operating within the City and Monterey County and their water needs; The potential water needs of potential new water-intensive businesses which express an interest in commencing operating or in relocating to the City or to Monterey County; and Further financial feasibility analysis.

(2) Power Purchase: The feasibility of a power purchase agreement; The City's establishment of a utility or other entity pursuant to which it purchases wholesale power and sells such power on a retail basis; The need for an additional power source; The current power-intensive business operating within the City and Monterey County and their power needs; The potential power needs of new potential power-intensive businesses which express an interest in commencing operations or in relocating to the City or to Monterey County; Approvals of any power purchase agreement by any and all appropriate federal, state, and local authorities, including the California Public Utilities Commission; and Further financial feasibility analysis.

As described in the DWDS- City Agreement, the Term is for a period of five (5) years, however, it can be terminated earlier by either party for any reason or for no reason whatsoever and without further obligation to the other party. Such termination shall take effect immediately upon the date of termination. The proposed Agreement does not commit the City to either the purchase of power or the purchase of water. By entering into this Agreement, the City is committing only to continued discussions with DWDS with respect to the potential purchase of water and power. Any additional agreements between the City and DWDS or additional actions by the parties with respect to the subject matter of the proposed Agreement will be brought back to the City Council for review and consideration.
ISSUE:

Shall the City Council approve a resolution authorizing the City Manager to sign the attached Agreement between the City of Salinas and Deep Water Desal LLC (DWDS) to explore the purchase of water and wholesale power?
FISCAL IMPACT:

There is no direct fiscal impact to the City by entering into this Agreement. To the extent there becomes a potential for fiscal impact to the City, such additional actions will be brought back to the City Council for review and consideration before the expenditure of any funds.

-2-

TIME CONSIDERATION: Time is of the essence so that the City and DWDS can be positioned to engage potential new businesses on relocating to Salinas or Monterey County. Consequently, DWDS and the City would like to enter into this Agreement on December 18, 2012, so that further considerations relating to a water and/or power purchase can move forward. ALTERNATIVES/IMPLICATIONS: 1. Not adopt the resolution and provide staff direction on how to proceed. CONCLUSION: The City Council's approval of a resolution authorizing the City Manager to sign the attached Agreement between the City of Salinas and DeepWater Desai LLC will enable the City to continue its discussions with DWDS to explore the potential purchase of water and wholesale power which are needed to support and to attract new businesses to Salinas and to Monterey County.

Distribution: City Council City Manager City Attomey Department Directors

Back Up Pages: Resolution Agreement DeepWater Desai Project Fact Sheet

-3-

RESOLUTION NO. _ _ _ _ _ _ _ _ _ (N.C.S.)

A RESOLUTION AUTHORIZING THE CITY MANAGER TO SIGN AN AGREEMENT BETWEEN THE CITY OF SALINAS AND DEEPWATER DE SAL LLC TO EXPLORE THE PURCHASE OF WATER AND WHOLESALE POWER

WHEREAS, Deep Water Desai, LLC is proposing to build a desalination facility at Moss Landing to supply potable water to water agencies and water utilities operating in Monterey and Santa Cruz County, and wishes to plan for any potential future demand for desalinated water by the City of Salinas; and WHEREAS, the City and Deep Water Desai LLC wish to work together to explore the establishment of a wholesale power purchase agreement with a wholesale power generator located in Moss Landing, Califon1ia, to allow for the City's purchase of power and resale of such power for businesses operating with the City and Monterey County. NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF SALINAS, that the City Manager of Salinas is hereby authorized and directed for and on behalf of the City of Salinas to execute an Agreement between the City of Salinas and Deep Water Desai LLC to explore the purchase of water and wholesale power.

PASSED AND ADOPTED this 18th day of December 2012, by the following votes: AYES: NOES: ABSENT: Mayor Attest: Patricia Barajas, City Clerk

AGREEMENT BETWEEN THE CITY OF SALINAS AND DEEPWATER DESAL LLC TO EXPLORE THE PURCHASE OF WATER AND A WHOLESALE POWER PURCHASE AGREEMENT

This Agreement to Explore the Purchase of Water and a Wholesale Power Purchase Agreement (hereinafter "Agreement") is entered into this 18th day of December 2012, by and between the City of Salinas, a California charter city and municipal corporation hereinafter referred to as "the City/' and Deep Water Desai, LLC, a California limited liability company hereinafter referred to as "DWDS/' both of which may sometimes collectively be referred to herein as "the Parties" or individually as "a Party".
RECITALS

WHEREAS, the City and its residents are currently served by two municipal water purveyors, both of which are authorized by the California Public Utilities Commission to act as water utilities within the City: California Water Services Company and Alisal Water Corporation dba Alco Water; and WHEREAS, DWDS is proposing to build a desalination facility at Moss Landing to supply potable water to water agencies and water utilities operating in Monterey and Santa Cruz counties, and wishes to plan for any potential future demand for desalinated water by the City of Salinas; and WHEREAS, in the event DWDS or some other entity or organization builds a desalination facility ("Desai Facility") and is able to produce potable drinking water, or purer water of the quality needed to attract high technology industry to the City, such new source of water may become available to the City for conveyance to and use by water customers, including those residing within the City of Salinas; and WHEREAS, the Parties wish to work together to explore the establishment of a wholesale power purchase agreement with a wholesale power generator located in Moss Landing, California, to allow for the City's purchase of power and resale of such power for businesses operating within the City and Monterey County. NOW, THEREFORE, the City and DWDS agree as follows: TERMS

1. Purpose. It is the intent and the purpose of this Agreement to set forth the intention of the Parties to: (A} consider the purchase of water from the Desai Facility in order to provide an additional water supply source to the City and to diversify the water supply sources available to the City; and (B) consider the establishment of a wholesale power purchase agreement with a wholesale power generator from which the City would purchase power and would resell such
City of Salinas DeepWater Desai LLC Agreement re Purchase of Water and Wholesale Power December 18, 2012 Page 1 of 5

power on the open market in order to provide an additional source of power for powerintensive businesses operating within the City and Monterey County.
2. Further Considerations as to Water Purchase. As to the purchase of water from the

Desai Facility in order to provide an additional water supply source to the City and to diversify the water supply sources available to the City, the Parties agree that at a minimum, this determination may require further analysis of: The need for an additional potable drinking water source to serve the water consumption needs of customers within Salinas and business which are located in or which will re-locate to Salinas or Monterey County; Approvals of any Desai project by any and all appropriate Federal, State, and Local authorities including, but not limited to, the California Public Utilities Commission; The City's establishment of a utility or other entity pursuant to which it purchases water from the Desai Facility and sells such water on a retail basis; The feasibility of either or both of the City's two municipal water purveyors conveying water from the Desai Facility to their customers; and The current water-intensive businesses operating within the City and Monterey County and their water needs; The potential water needs of potential new water-intensive businesses which express an interest in commencing operating or in relocating to the City or to Monterey County; and Further financial feasibility analysis.

3.

Further Considerations as to Power Purchase. As to the potential establishment of a

wholesale power purchase agreement with a wholesale power generator from which the City would purchase power and would resell such power on the open market in order to provide an additional source of power for power-intensive businesses operating within the City and Monterey County, the Parties may, at a minimum, engage in a further analysis of: The feasibility of a power purchase agreement; The City's establishment of a utility or other entity pursuant to which it purchases wholesale power and sells such power on a retail basis; The need for an additional power source; The current power-intensive business operating within the City and Monterey County and their power needs; The potential power needs of new potential power-intensive businesses which express an interest in commencing operations or in relocating to the City or to Monterey County; Approvals of any power purchase agreement by any and all appropriate federal, state, and local authorities, including the California Public Utilities Commission; and Further financial feasibility analysis.
Page 2 of 5

City of Salinas DeepWater Desai LLC Agreement re Purchase of Water and Wholesale Power December 18, 2012

4. Limitation of Effect of Agreement. This Agreement shall not obligate the City or DWDS to enter into any particular project agreement, water purchase agreement or power purchase agreement, or to enter into a project agreement, a water purchase agreement or a power purchase agreement on any particular terms or conditions. By executing this Agreement, neither the City nor DWDS are committing themselves to or agreeing to participate in any Desai Facility or to purchase or to supply any water or power produced by a Desai Facility. Execution of this Agreement by the City and by DWDS is merely an agreement to collaboratively consider in good faith the objectives described in this Agreement and to conduct a period of further review and consideration of the objectives described in this Agreement, reserving for subsequent action the final discretion and approval regarding any project agreement or approval and all proceedings and decisions in connection therewith. Any agreement or approval resulting from negotiations pursuant to this Agreement shall become effective only if and after such agreement has been considered and approved by the City and by DWDS in their sole discretion following conduct of all legally required procedures including, without limitation, all required environmental review processes and all other applicable governmental approvals, and executed by duly authorized representatives of the City and of DWDS.

It is also the intent of the Parties that this Agreement not constitute a "project" for purposes of the California Environmental Quality Act r'CEQA"L and that any future actions or agreements between the Parties as may be described herein be subject to all requirements of law, including CEQA.
5. Term. This AGREEMENT shall commence as of the date first written above and shall continue in full force and effect for a period of five (5) years unless terminated earlier by either Party or by the mutual determination of the Parties or unless extended by mutual written agreement of the Parties. Either Party may terminate this Agreement for any reason or for no reason whatsoever and without further obligation to the other Party with respect to the subject matter of this Agreement by providing written notice of such termination to the other Party. Such termination shall take effect immediately upon the date of termination set forth in such notice. This Agreement may only be renewed upon the mutual written consent of the Parties. 6. Defense and Indemnification. DWDS shall defend and indemnify the City and its officers, employees and agents from and against any and all claims, liabilities, damages or costs of any type, including attorney's fees and court costs, arising out of the execution of this Agreement or subsequent actions by the City with respect to the objectives of this Agreement, but not arising out of the independent actions of the City implementing this Agreement (such as the fees paid to consultants hired by the City to assist the City in its analysis of the objectives of this Agreement or the staff costs incurred by the City with respect to the objectives of this Agreement). 7. Amendments. This Agreement may only be amended by the mutual written agreement of the Parties.
City of Salinas DeepWater Desai LLC Agreement re Purchase of Water and Wholesale Power December 18, 2012 Page 3 of 5

8. Waivers. No waiver of any provision of this Agreement will be valid unless it is in writing and signed by the Parties. Waiver by any Party at any time of any breach of this Agreement cannot be deemed a waiver of or consent to a breach of the same or any other provision of this Agreement. If a Party's action requires the consent or approval of the other Party, the consent or the approval on any one occasion cannot be deemed a consent or approval of that action on any later occasion or consent or approval of any other action. 9. Governing Law; Jurisdiction. This Agreement will be governed by the laws of the State of California and jurisdiction of any disputes hereunder shall be had in Monterey County, or in the appropriate federal court or state or federal agency with jurisdiction over the matter. In the event of any litigation brought with respect to this Agreement, the prevailing party in such action shall be entitled to attorney fees and costs as may be awarded by the court. The City's attorney fees, if awarded, shall be calculated at the market rate. 10. Notices. Any notices or other communications to be sent by one Party to the other under this Agreement shall be in writing and shall be given by personal delivery to the persons designated below, with copies delivered as indicated, or by U.S. Mail, return receipt requested, with copies mailed as indicated:

If to City:
City Manager City of Salinas 200 Lincoln Avenue Salinas, California 93901 With a copy to: City Attorney City of Salinas 200 Lincoln Avenue Salinas, California 93901

If to DWDS:
DeepWater Desai LLC Brent R. Constanz, Managing Member 7532 Sand holt Road, Suite 6 Moss Landing, California 95039

City of Salinas DeepWater Desai LLC Agreement re Purchase of Water and Wholesale Power December 18, 2012

Page 4 of 5

IN WITNESS WHEREOF, the undersigned as authorized representatives of the City of Salinas and of DeepWater Desai LLC have entered into this Agreement as of the date first written above.

CITY OF SALINAS

Ray E. Corpuz, Jr., City Manager APPROVED AS TO FORM:

Vanessa W. Vallarta, City Attorney By Christopher A. Callihan, Assistant City Attorney ATTEST:

Patricia Barajas, City Clerk

DeepWater Desai LLC

By: Brent R. Constanz Its: Managing Member and Chief Executive Officer

City of Salinas DeepWater Desai LLC Agreement re Purchase of Water and Wholesale Power December 18, 2012

Page 5 of 5

Central Coast Regional Water Project Fact Sheet

A True Regional Project

The Central Coast Regional Water Project in Moss Landing is intended to serve the Monterey Bay Region with a new supply of potable water. A cloud service center is being co-located with the desalination plant to take advantage of energy efficient, low carbon footprint, cold water cooling, electrical power, internet connectivity, and centralized location between Silicon Valley and Southern California to address north-south internet latency needs. In addition to Santa Cruz County and portions of Monterey County not served by regulated water utilities, the planned project could serve both Salinas and the Monterey Peninsula. The planning, construction, and operations of the desalination plant and cloud services center at Moss Landing will create both immediate high paying jobs, and also permanent high quality jobs. In addition to the jobs at the Moss Landing co-location site, the project will need an assembly facility in Salinas and bring high quality data-storage hardware manufacturing jobs to the City of Salinas. Utilizing the Salinas Valley Enterprise Zone, the Salinas based manufacturing facility will supply the Moss Landing project and other domestic projects in addition to exporting components internationally. The project benefits from existing infrastructure at the Moss Landing Power Plant. Replacement of an existing pipeline into the deep Monterey Submarine Canyon for feedwater intake will provide cold low turbidity feed water. Oceanographic studies show deepwater intake from the pipeline location will minimize entrainment and impingement of larvae. Co-location of the feed water intake line with the Moss Landing Cloud Services Center will allow the cold seawater to be warmed through hardware cooling, lowering the amount of energy needed for desalination, will utilize the industrial-zoned site, use the existing discharge lines, and also allow access to power directly from the power plant. This combined operation will provide highly energy efficient data storage as well as desalination and have a relatively low carbon footprint, a key in attracting large data storage providers. The low turbidity water from the deep intake also requires little prefiltration, saving on pre-treatment capital costs, maintenance, and operating costs, further lowering the cost of the desalinated water.

What Differentiates the Central Coast Regional Water Project?

;;... Co-location of Desalination Plant and Cloud Services Center facilitates bulk power purchase clout and new high quality water supply to attract large Cloud Services companies to Salinas, providing high quality jobs in both cloud service operations and manufacturing. ;;... Source water for desalination and cooling supplied from the Monterey Submarine Canyon 1.1 miles off Moss Landing, reducing entrainment and impingement of sea life, and providing consistent proven cold low turbidity water. Oceanographic and water quality studies started in 2010. ;;... Existing Power Plant site infrastructure with intake pipeline and wet well, energy efficient data storage cooling and desalination, direct power supply, as well as outfall pipelines for brine dilution and disposal. ;;... Establishes Salinas and Monterey County as a leading technology center for expansion from Silicon Valley