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Home My WebLink About07 - Hoag Memorial Agreement for Delivery of Natural GasCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 7 April 22, 2008 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Utilities Department Steve Myrter, Utilities Director 949 -644 -3011 or smvrter(a)city.newport- beach.ca.us SUBJECT: AMENDMENT NO. 1 TO AGREEMENT BETWEEN THE CITY OF NEWPORT BEACH AND HOAG MEMORIAL HOSPITAL PRESBYTERIAN FOR THE DELIVERY OF NATURAL GAS RECOMMENDATION: Approve amendment number 1 to 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 amendment number 1 to this agreement. Discussion: 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 be disposed; the City would have to curtail oil extraction activities. On February 11, 1985, the City 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. During the process of renewing the 1985 agreement in the spring of 2007, 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. According to Hoag Hospital, this was the result of them being informed by Southern California Gas Company (SCGC) 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." This agreement stipulated that customers are prohibited from using alternate fuels. Hoag Hospital has stated that SCGC's Full Requirements Service Agreement apply only to their lower campus because the co- Amendment No. 1 to Agreement with Hoag Memorial Hospital Presbyterian For the Delivery of Natural Gas April 22, 2008 Page 2 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 and thus would no longer be able to use the City's natural gas at that time. On August 1, 2007, the City and Hoag Hospital entered into an agreement in which Hoag Hospital agreed to continue taking delivery of the natural gas produced by the City's oil extraction activities for an additional 24 months to allow the City time to develop other uses for this excess natural gas including possible use for self power generation at the oil fields. This first amendment to the agreement extends the agreement termination date and additional 3 years from August 1, 2009 to August 1, 2012. Staff recommends executing this first amendment to the agreement which helps ensure that there is no disruption of oil extraction activities while staff develops alternative uses for this excess natural gas. Environmental Review: There is no environmental impact. Funding Availability: There are no financial impacts in executing this first amendment to the agreement. Submitted by: f Steve My r, N ities Mcior Attachments: Amendment No. 1 to Agreement with Hoag Memorial Hospital Presbyterian AMENDMENT NO. 1 TO AGREEMENT BETWEEN THE CITY OF NEWPORT BEACH AND HOAG MEMORIAL HOSPITAL PRESBYTERIAN FOR THE DELIVERY OF NATURAL GAS THIS AMENDMENT NO. 1 TO AGREEMENT ( "Amendment "), is entered into this 22 day of April, 2008, by and between the CITY OF NEWPORT BEACH, a charter city and municipal corporation ( "City"), and HOAG MEMORIAL HOSPITAL PRESBYTERIAN ( "Hospital "), a California non -profit public benefit corporation, whose address is One Hoag Drive, P.O. Box 6100, Newport Beach, California, 92658 (City and Hospital are sometimes referred to as the "Parties" in this Amendment), and is made with reference to the following: RECITALS: A. City owns and operates oil and gas producing wells with appurtenant facilities and delivery pipelines in the West Newport area of the City. City produces natural gas as a by- product of these oil extraction activities, and cannot conduct oil extraction without producing natural gas. B. On August 1, 2007, City and Hospital entered into an Agreement in which the City agreed to provide the natural gas produced by its oil extraction activities to the Hospital at no cost, provided that the Hospital put the gas to use in its operations (hereinafter referred to as the "Agreement "). C. The Agreement is scheduled to expire on August 1, 2009. City and Hospital want to enter into this Amendment to extend the term of the Agreement, until August 1, 2012. D. City and Hospital mutually desire to amend the termination date of the Agreement as provided below." NOW, THEREFORE, it is mutually agreed by and between the undersigned Parties as follows: Section 1, Term, of the AGREEMENT is amended to read as follows: `The term of this AGREEMENT shall commence on the above written date, and shall terminate on the 1st day of August, 2012 ( "Initial Term'), unless the Agreement is extended or terminated as provided herein. This Agreement shall automatically be extended for five additional successive terms of one (1) year each (the "Option Term'), on the same terms and conditions as contained in the Agreement, unless the Agreement is terminated as provided herein." 4/2108 10001.1 Hato: #58057 v2 2. Except as expressly modified by this Amendment, all other provisions, terms, and covenants set forth in the Agreement shall remain unchanged and shall be in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the date first written above. APP OVED AS TO FORM: Aaron C. Harp, Assistant City Attorney for the City of Newport Beach ATTEST: LaVonne Harkless, City Clerk 4/2/08 10001.1 H&O: #58057 v2 CITY OF NEWPORT BEACH, A Municipal Corporation By: Edward D. Selich, Mayor for the City of Newport Beach HOAG MEMORIAL HOSPITAL PRESBYTERIAN, a California Non - Profit Public Benefit Corporation By: - 4-3. Richard F. Afable, D., President and CEO 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 1 st 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. 8/2/07 10001.41 H &O: W779 v1 NOW THEREFORE, in consideration of the foregoing, City and Hospital mutually and understand that: 1. TERM The term of this Agreement shall commence on the above written date, and shall terminate on the 1 st day of August 2009 ( "Initial Term "), 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 terms 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. W8107 10001.41 H&O: #40778 v3 2 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"i Street Newport Beach, CA, 92663 Phone: 949 -644 -3011 Fax: 949- 644 -5204 W8107 10001.41 H.$o: #40778 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 terms 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. 8/2817 10001.41 Hato: #40778 v3 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 govern 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. APP OVED AS TO FORM: &L-� C. Aaron Harp Assistant City Attorney for the City of Newport Beach ATTEST: t B La onne Harkless, City Clerk 8128/07 10001.41 H &O: #40778 v3 6 CITY OF NEWPORT BEACH, A Munici al C oration By: I Steven Rosansky Mayor for the City of Newport Beach HOAG MEMORIAL HOSPITAL PRESBYTERIAN, a California non -profit public benefit corporate B. d2 Richard Afable, President and CE City Owned Gas line L y Hospital Owned Gas Line ® City Shut Off Valve C� Hospital Gas Meter City of Newport Beach EXHIBIT " All Gas t'ransm'ission Main Ownership / Maintenance , O Q m' T Not to scole 0