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Home My WebLink About14 - Delivery of Natural Gas- Hoag HospitalCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 14 September 11, 2007 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Utilities Department Steve Myrter, Utilities Director 949- 644 -3011 or smyrte[@city.newport-beach.ca.us SUBJECT: AGREEMENT BETWEEN THE CITY OF NEWPORT BEACH AND HOAG MEMORIAL HOSPITAL PRESBYTERIAN FOR THE DELIVERY OF NATURAL GAS RECOMMENDATION: Approve agreement with Hoag Memorial Hospital Presbyterian for delivery of excess natural gas produced from the sixteen City-owned oil wells as a by- product of oil extraction activities. Authorize the Mayor and the City Clerk to execute the agreement. BACKGROUND: The City's oil fields produce natural gas as a by- product of oil extraction activities and cannot conduct oil extraction without producing natural gas. Should there be a period when the natural gas could not he disposed; the City would have to curtail oil extraction activities. On February 11, 1985, the City of Newport Beach entered into an agreement with Hoag Hospital Memorial Presbyterian (Hoag Hospital) to take delivery and purchase this excess natural gas to ensure the long term operations of the oil fields. Last fiscal year the City sold approximately 120,000 therms of natural gas under the terms of the 1985 agreement, resulting in revenues of approximately $40,000 based on the current agreed rate of $0.33 per therm. DISCUSSION: During the process of renewing the 1985 agreement, Hoag Hospital informed the City that it would no longer be able to take delivery of the excess natural gas from the City's oil extraction activities on a long term basis. Acoording to Hoag Hospital, this is the result of them recently being informed by Southern California Gas Company that in order to guarantee natural gas deliveries to Hoag Hospital's newly constructed co- generation facility, Hoag Hospital must enter into a "Full Requirements Service Agreement with Hoag Memorial Hospital Presbyterian For the Delivery of Natural Gas September 11, 2007 Page 2 Agreement." This agreement stipulates that customers are prohibited from using alternate fuels. Hoag Hospital has stated that currently the terms of this Full Requirements Service Agreement apply only to their lower campus because the co- generation facility supplies energy only to these facilities. However, it is Hoag Hospital's intent in the future to supply both the lower and upper campus facilities with energy produced by this plant. Accordingly, Hoag has agreed to take delivery of the City s excess natural gas while the City pursues longer term options. Based on the above circumstances Staff recommends entering into a new two-year agreement to deliver excess natural gas to Hoag Hospital at no cast. This agreement helps ensure that there is no disruption of oil extraction activities over the next two years and allows the City time to develop other possible uses of this excess natural gas, including use as an alternative fuel for the City's fleet. In fiscal year 2006 -07 total gross revenues generated by City's oil extraction activities was approximately $1.73 million including revenues of $39,840 generated by the sale of excess natural gas. Environmental Review: There is no environmental impact. Funding Availabilitv: Reduction in projected Oil Division revenue of approximately $40,000 per year. Prepared by: G A ! �v W 1 Cindy Asher, inistrative Manager Submitted by: Attachments: Agreement with Hoag Hospital AGREEMENT BETWEEN THE CITY OF NEWPORT BEACH AND HOAG MEMORIAL HOSPITAL PRESBYTERIAN FOR THE DELIVERY OF NATURAL GAS THIS AGREEMENT is made and entered into as of this 1st day of August, 2007, by and between the CITY OF NEWPORT BEACH, a Municipal Corporation ( "City "), and HOAG MEMORIAL HOSPITAL PRESBYTERIAN, California non -profit public benefit corporation whose address is One Hoag Drive, P.O. Box 6100, Newport Beach, California 92658 ( "Hospital ") (City and Hospital are sometimes referred to as the "Parties" in this Agreement), and is made with reference to the following: RECITALS A. City is a municipal corporation duly organized and validly existing under the laws of the State of California with the power to carry on its business as it is now being conducted under the statutes of the State of California and the Charter of City. B. City owns and operates oil and gas producing wells with appurtenant facilities and delivery pipelines in the West Newport Area. C. City produces natural gas as a by- product of its oil extraction activities, and cannot conduct oil extraction without producing natural gas. During periods the natural gas is not used, City must curtail oil extraction activities. D. As a result of its oil and gas operations, the City produces natural gas in excess of its needs. E. Hospital operates an acute care hospital facility located in the City capable of using City gas for its hospital operations. F. The City and Hospital each own portions of the gas transmission pipeline and appurtenances as described and delineated in Exhibit "A" which is attached .hereto and incorporated herein by this reference. G. City requires the excess natural gas produced from the City's oil and gas operations to be put to use, and Hospital has agreed to use the gas, under the terms and conditions set forth in this Agreement. 8/28/07 10001 A l H&O: #40778 v3 NOW THEREFORE, in consideration of the foregoing, City and Hospital mutually and understand that: TERM The term of this Agreement shall commence on the above written date, and shall terminate on the 1st day of August 2009 ( "Initial Tenn "), unless the Agreement is extended or terminated as provided herein. This Agreement shall automatically be extended for five additional successive terms of five (1) year (the "Option Terms °), on the same terrns and conditions as contained in this Agreement, unless the Agreement is terminated as provided herein. 2. MAINTENANCE & REPAIR The City and Hospital shall each be responsible for repairing and maintaining their respective production facilities, gas pipelines, valves and associated and appurtenant facilities and shall make any necessary repairs in a timely manner. 3. CITY'S RESPONSIBILITIES City shall be responsible for A. Providing natural gas through City -owned transmission facilities and gas meter to the Hospital owned gas line system. B. Odorizing City - produced natural gas with an industry standard odorant chemical. C. Maintaining and operating City-owned gas transmission facilities along West Coast Highway to the point of connection to the Hospital owned gas line system. D. Maintaining a maximum pressure of twelve (12) pounds per square inch (p.s.i.) set at point of connection to Hospital owned gas line system . E. Allowing Hospital to maintain the gas pipeline within City's utility easement across Hospital's property via a City- issued encroachment permit. F. Calibrating the gas delivery meter and testing meter for accuracy at such times as reasonably requested by Hospital. The delivery meter will be operated by City at City's tank farm. G. Granting Hospital a written right -of -entry onto City property to inspect City gas transmission and metering facilities. 4. HOSPITAL'S RESPONSIBILITIES Hospital shall be responsible for. 8/28/07 10001.41 H &O: #40778 v3 A. Making use of any and all natural gas delivered by City. B. Taking delivery of City gas on a first priority basis. C. Maintaining and operating the Hospital owned gas line system. D. Operating the Hospital owned gas line system so as to draw gas through City's gas transmission facilities at a more or less continuous demand rate. E. Granting City a written right -of -entry onto Hospital property to inspect or repair City gas delivery facilities. 5. CONSIDERATION A. It is agreed between Hospital and City that Hospital shall receive the gas at no cost to Hospital. .B. During a Hospital - required shutdown, Hospital shall vent City's gas through Hospital's gas flare system. An interruption in use by acts of God, war, civil commotion, riots, strike, damage to Hospital by reason of fire or other casualty, and /or other casualty, beyond the control of Hospital will not be considered a Hospital- required shutdown. 6. ADMINISTRATION This Agreement will be administered by the Utilities Department. Steve Myrter, Utilities Director, shall be the Project Administrator and shall have the authority to act for City under this Agreement. The Project Administrator or his/her authorized representative shall represent City in all matters pertaining to the services to be rendered pursuant to this Agreement. 7. NOTICE All notices, demands, requests or approvals to be given under the terms of this Agreement shall be given in writing, and conclusively shall be deemed served when delivered personally, or on the third business day after the deposit thereof in the United States mail, postage prepaid, first -class mail, addressed as hereinafter provided. All notices, demands, requests or approvals from Hospital to City shall be addressed to City at: Attn: Steve Myrter Utilities Department City of Newport Beach 949 West 16"' Street Newport Beach, CA, 92663 Phone: 949 - 644 -3011 Fax: 949 -644 -5204 8/28/07 10001.41 H&O: #40n8 V3 3 All notices, demands, requests or approvals from City to Hospital shall be addressed to Hospital at: Attn: Doug Koehler Director Facility Operations and Maintenance Hoag Memorial Hospital Presbyterian One Hoag Dr, PO Box 6100 Newport Beach, California 92658 -8913 Phone: 949 - 764 -8016 Fax: 949 - 764 -8019 8. TERMINATION A. Without Cause After the Initial Term, either party hereto may terminate this Agreement, without cause, by providing the other party with ninety (90) calendar day prior written notice of the party's intent to terminate this Agreement. B. With Cause City, or Hospital may terminate this Agreement on ten (10) days written notice if the City's gas source is depleted or the quality of gas deteriorates such that in an opinion of a qualified engineer, Hospital is unable to feasibly utilize the gas. C. Notice of Intent Not to Extend City or Hospital shall provide notice of intent not to automatically extend the terrns of this Agreement at least ninety (90) days in advance of the expiration of the Initial Term or any subsequent one -year extensions of this Agreement. 9. RECORDS City shall provide free access to the representative of Hospital or its designees at all proper times to such books and records, and gives Hospital the right to examine same, and to make transcripts therefrom as deemed necessary, and to allow inspection of all work, data, documents, proceedings and activities related to this Agreement. 10. WAIVER A waiver by City or Hospital of any breach of any term, covenant, or condition contained herein shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant, or condition contained herein whether of the same or different character. 8/28/07 10001.41 H &O: 00778 v3 4 11. INTEGRATED CONTRACT This Agreement represents the full and complete understanding of every kind or nature whatsoever between the Parties hereto and all preliminary negotiations and agreements of whatsoever kind or nature are merged herein. No verbal agreement or implied covenant shall be held to vary the provisions hereof. Any modification of this Agreement will be effective only by written execution signed by both City and Hospital. 12. HOLD HARMLESS City shall indemnify and hold harmless, Hospital, its boards, officers, agents, and employees from and against any and all loss, damages, liability, claims, suits, costs and expenses, whatsoever, including reasonable costs of litigation, regardless of the merit or outcome of any such claim or suit, arising from or in any manner connected to City's errors, negligent acts, omissions, or work conducted pursuant to this Agreement or arising from or in any manner connected to persons, firms or corporations furnishing or supplying work, services, materials, equipment or supplies on City's behalf pursuant to this Agreement. Hospital shall indemnify and hold harmless, City, its City Council, boards and commissions, officers, agents, and employees from and against any and all loss, damages, liability, claims, suits, costs and .expenses, whatsoever, including reasonable costs of litigation, regardless of the merit or outcome of any such claim or suit, arising from or in any manner connected to Hospital's errors, negligent acts, omissions, or work conducted pursuant to this Agreement or arising. from or in any manner connected to persons, firms or corporations furnishing or supplying work, services, materials, equipment or supplies on Hospital's behalf pursuant to this Agreement. 13. 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 the Agreement or any other rule of construction which might otherwise apply. 14. AMENDMENTS This Agreement may be modified or amended only by a written document executed by both Hospital and City and approved as to form by the City Attorney. 15. SEVERABILITY If any term or portion of this Agreement is held to be invalid, illegal, or otherwise unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and effect. 8/28/07 10001.41 H&O: #40778 v3 5 16. CONTROLLING LAW AND VENUE The laws of the State of California shall govem this Agreement and all matters relating to it and any action brought relating to this Agreement shall be adjudicated in a court of competent jurisdiction in the County of Orange. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the day and year first written above. T OVED AS TO FORM: Aaron Harp Assistant City Attorney for the City of Newport Beach ATTEST: LaVonne Harkless, City Clerk 8/28/07 10001 A 1 H &O: #40778 0 CITY OF NEWPORT BEACH, A Municipal Corporation in Steven Rosansky Mayor for the City of Newport Beach HOAG MEMORIAL HOSPITAL PRESBYTERIAN, a California non -profit public benefit corporation 13 Richard Afable, President and CEO C ® Clly Owned Gas Line E3 MOSpIIOI Owned Gas Line ® Cily Shut Off Valve 0 HOSpltal Gas Meter Ica w L 0 NWy City of Newport Beach EXHIBIT A as Transmission Main Ownership / Maintenance The onion of the as line that the "Cit " As as to sell. Not to Scale