HomeMy WebLinkAboutCC AG PKT 2013-03-25 #H AGENDA STAFF REPORT
DATE: March 25, 2013
TO: Honorable Mayor and City Council
THRU: Jill R. Ingram, City Manager
FROM: Sean P. Crumby, P.E., Assistant City Manager/Public Works
SUBJECT: NON-BINDING LETTER OF INTEREST FOR OCEAN
DESALINATION PROJECT
SUMMARY OF REQUEST:
That the City Council authorize the City Manager to sign the proposed non-
binding letter of interest for a proposed ocean desalination project.
BACKGROUND AND ANALYSIS:
Poseidon Resources' proposed Huntington Beach Ocean Desalination Project
(Project) is a local water supply project. If built, the Project's maximum 50 million
gallon per day capacity would provide about 8% of Orange County's water
supply. The successful implementation of the Project could help reduce county-
wide demand on imported water and enhance local water supply reliability.
Staff has been participating in ongoing discussions about the proposed project.
A Water Reliability Agreement (WRA) Term Sheet was recently prepared by
Poseidon with input by the Project participants. The Term Sheet provides the
parameters for the negotiation of a WRA to purchase water from the Project, and
includes current cost estimates for Project water provided by Poseidon. The
Term Sheet does not limit language or terms that could be included in the WRA,
and does not imply that any particular language or terms have been excluded
from the WRA. The City may terminate negotiations at any time prior to approval
and execution of the binding WRA.
Poseidon desires to first obtain non-binding Letters of Interest (LOI) from
interested water utilities, and then move forward with negotiating a binding WRA
with agencies/cities that executed LOIs. Approval of the non-binding LOI would
authorize staff to continue holding discussions to consider the purchase offer that
Poseidon has provided to the agencies so it can better understand the cost and
reliability implications of participating in this Project. The draft WRA Term Sheet
will serve as the starting point for negotiations of the binding WRA. Also, the LOI
would indicate the City's intent (non-binding) to purchase Project water. The City
Agenda Item— H
may terminate negotiations at any time prior to approval and execution of the
final Agreement.
Poseidon recently provided current estimates of Project costs converted to
dollars per acre-foot based on total Project production of 56,000 acre-feet (AF)
per year and based on experience from Poseidon's recently-financed Carlsbad
Ocean Desalination Project. The estimated costs are included in the Term
Sheet. Total estimated Project costs would be about $1,847/AF or $1,796/AF,
depending on the potential water delivery system utilized. One potential water
delivery system would have the ability to deliver the majority of the water to
South County agencies ($1 ,847/AF), and the other would deliver the majority of
the water to north and west County agencies ($1,796/AF). If the Project is
successful in qualifying for Metropolitan Water District's Ocean Desalination
Program incentive of $250/AF, net water costs would be $1,597/AF or $1,546/AF
based on current estimated costs. Ocean Desalinated water would offset
imported water, which currently costs about $950/AF (commodity rate plus
equivalents for fixed charges). The method to integrate the ocean desalinated
water cost with imported water rates has not yet been developed, and will be
discussed during negotiation of the WRA. Approval of the LOI does not obligate
the City to any future purchase related to the Project, and the City may remove
itself from negotiations/discussions at any time prior to approval and execution of
the WRA.
ENVIRONMENTAL IMPACT:
There is no environmental impact related to this item.
LEGAL ANALYSIS:
The City Attorney has reviewed and approved as to form.
FINANCIAL IMPACT:
There is no immediate financial impact with the proposed non-binding letter of
interest.
RECOMMENDATION:
It is recommended that the City Council authorize the City Manager to sign the
proposed non-binding Letter of Interest for the Poseidon Ocean Desalination
Project.
Page 2
SUBMITTED BY: NOTED AND APPROVED:
01ALuq
Sean P. Crumby, P.E. UA. Ingram, City M"er
Assistant City Manager/ Pul Works
Prepared by: Luis Estevez, Deputy Director of Public Works, Maintenance &
Utilities
Attachments:
A. Non-Binding Letter of Interest
Page 3
March 25,2013
Mr. Scott Maloni
Vice President
Poseidon Resources(Surfside)LLC
5780 Fleet Street,Suite 140
Carlsbad,CA 92008
Re:Letter of Interest Regarding Huntington Beach Seawater Desalination Facility Water Reliability
Agreement
Dear Mr.Maloni:
The purpose of this letter(the"Letter of Interest")is to set forth certain, commitments
between the City of Seal Beach("City")and Poseidon Resources(Surfside)LLC-( Poseidon")relating to
an intent to purchase 850 acre feet per year of desalinated water from a seawater desalination plant to be
built by Poseidon at its site in the City of Huntington Beach(the"Project").
1.Water Reliability Agreement,The City of Seal Beach agrees to begin good faith negotiations
with Poseidon of a long term water reliability agreement(the"Water Reliability Agreement")with the
proposed terms and conditions described in Exhibit A hereto (the"January 2013 Term Sheet")to be used
as a starting point for negotiations.
2.No Liability. Except for the obligation to negotiate in good faith and for Section 3 below,the
provisions of this Letter of Interest are non-binding and do:not constitute and will not give rise to any
legally binding obligation on the part of the parties hereto.Nothing contained in this Letter of Interest
(including the January 2013 Term Sheet)shall be deemed or construed to be an agreement or obligation of
either party to conclude negotiations by the execution of the Water Reliability Agreement. The provisions
of this Letter of Interest(including the January 2013 Term Sheet)do not create any rights on the part of
either party.
3.Costs. Each of the parties shall be responsible for its own costs and expenses relating to the
review,negotiation and documentation and of a Water Reliability Agreement except as may otherwise be
agreed upon by the parties.
4.Permitting.Poseidon and the City of Seal Beach each currently have an interest in the timely
development of the Project. The City of Seal Beach will cooperate with Poseidon as appropriate in
Poseidon's efforts to obtain all necessary regulatory approvals and permits to enable the timely
construction of the Project.
5.Representations. Each party represents that this Letter of Interest is duly authorized. The City
of Seal Beach represents that its City Council has approved of the terms of this Letter of Interest and is
authorized to negotiate the Water Reliability Agreement with Poseidon.
6. Governing Law.This Letter of Interest shall be governed by and construed in accordance with
the laws of the State of California without reference to its conflicts of laws principles.
7.Counterparts.This Letter of Interest may be executed in one or more counterparts,each of
which,when executed and delivered, shall be an original,but all of which together shall constitute but one
and the same instrument.
If this Letter of Interest properly reflects our understanding,please indicate by signing in the space
provided below and returning a copy to the undersigned.
Sincerely,
City of Seal Beach
By:
Jill R.Ingram,City Manager
AGREED AND ACCEPTED:
Poseidon Resources(Surfside)LLC
By:
Scott Maloni
Vice President
Term Sheet
Proposed Water Reliability Agreement
Huntington Beach Seawater Desalination Project
[Municipal Water District of Orange County and/or Orange
County Water District and/or Participating Retail Agencies]
and
Poseidon Resources (Surfside) LLC
January, 2013
TABLE OF CONTENTS
TERMINOLOGY............................... ....................... . .................................. l
l. Parties................................................................................. ....................... l
2. Project.................................. ...................................................................... 1
3' Delivery Point, Product Water Pump Station and Delivery System................ l
4. Water Purchase Con1roct....................—............... —.'.......................... .....2
5. Contract Date...................................... ........................ ..............................Il
6^ EPC EPC Contract ................................. ..................................2
7' Operations Agreement.—..-..--_._...---.....—.—.... ...................
8' D4WD..................................................................... ...... ..............................3
9. NPvVD Agreement.-,~.--_.^...---.....—.--_...—...—,.,-...~..^^~.^^.-3
10. SE%R......................... ................................................................................3
NEGOTIATION AND APPROVAL PROCESS ........................ ..........................zD
I. Purpose.-....-......-~....-...-.._....—.......~,-..._~........—.........—.4
2. Schedule .......................................... ..........................................................4
3. Contract Negotiations..................................................................................4
4. Due Diligence .......... ...................................... ..............................5
5. No for the Project..................................... .............5
TERMS AND CONDITIONS OF THE PROPOSED WATER PURCHASE
CONTRACT—....,,.._—.-..............—.—....._..--..-...--....—_...—..G
l. Term ........,..,............_..._...-.............._......--._.-...-._.....(3
2. Roles of the Parties......................................................................................6
3. Financing Period .......................... ................................ .............................7
4' Financing Plan ............................................................................................7
5. Design and Construction of the Plant and Delivery System....,....--.—...8
6. Scheduled Commercial Operation Date........................................................9
7. Operation and &Y8jI/tenaDCe ................................................. ......................9
8. Plant Expansions ...................................................................................... 11
9. Water Quantity...................... ............................... .......- ...................... 11
lU. Water (] ............................................................. .-........................ 12
11. Performance Liquidated Damages................ ................................. ........ l3
12. Raw Water Risks .............................._................................................... 13
13. AES.......-....—........_..,......_...-_—..—.....'.----..~—....... 13
14. Water Purchase Price.................. ........................................................... 14
15' NV Payment Obligation Before Commercial Operation Date; Exception.— }7
16, Site Access ........_ ............ . ............................ ........................... ....... 18
17. lTl8xxrance.....--.—,..--.—_..—...,........__..-........._.—....... 18
18. Uncontrollable Circumstances................... ........................... ................. l8
19. Changes in Law........................................ .............................................. 19
2{). Events 0{Default and Termination ..........................................................22
21. Record Keeping, Rem ..................... ........................... .....................22
23. Security for by Project Contractors .............................. ....... 24
24. Security for Performance by Seller......................... ................................. 24
25. General Indemnity................................................................................-24
26' Litigation Risk Indemnity................................................-.. ....................24
27. Representations and Warranties.............................................................. 24
28. Tax Risk8 —....................._...-_........_...._'---....._...,--...25
29. Liability Limitations.,...^....,......^...^^^.,`...,..^........,.................^. ....25
30. Dispute Resolution..................................................................................25
3l. Assignment}ro Seller~,~,,^.^~.,,,~.~~.,..,,____,,,,,.,,__^,.,,.,~,^_^25
32. Seller's Contractors and Subcontractors_.._.....—..—..^..—..,...,.._ .... 25
33. Governing Law .,.......^.^........^.,..........^^..^^^^.^.,........^^........^^.. 25
TERMINOLOGY
Subject Meaning
1. Parties Seller
Poseidon Resources (Surfside) LLC ("Seller"). Seller is a
special purpose project company established and controlled
by Poseidon Water, LLC.
Together, the "Parties."
2. Project A reverse osmosis seawater desalination plant, including the
seawater intake, concentrate disposal facilities, product water
pump station ("Product Water Pump Station"), and
appurtenant facilities to be located on a site adjacent to the
AES Huntington Beach Generating Station ("Plant"), capable
of delivering a baseload of 56,006 acre-feet/year of
desalinated water ("Product Water") to the boundary of the
Project site at Newland Street ("Delivery Point") consistent
with the Subsequent Environmental Impact Report (SEIR).
3. Delivery Point, The Delivery Point is defined as J_the boundary line of the
Product Water Project site at Newland Street. The on-site Product Water
Booster Pump Pump Station will be adequate to transport and deliver
Stations and Product Water at the quantity and pressure required by the
Delivery System Contract. The Delivery System shall be defined as offsite
facilities (i.e., pipeline and booster pumps) to deliver the
Product Water from the Project's Delivery Point to Buyer(s).
The Delivery System will be adequate to transport and deliver
Product Water at all times in the quantities required by the
The Delivery System as currently considered will be financed
and constructed by Seller and owned and operated by the
Buyer(s). Two different Delivery System options (i.e., pipeline
routes and supporting facilities) have been studied and are
currently being considered by the Seller and Buyer(s). The
two delivery system options are herein defined as the
"Regional South Delivery System" and the "Regional North
Delivery System".
Regional South Delivery System is defined as approximately
ten (10) miles of a new 54-inch diameter pipeline located from
the Plant to the existing OC-44 pipeline at Del Mar and Elden
Avenue in the city of Costa Mesa.
l
Subject Meaning
Figure I provides a general illustration of the Regional South
Delivery System pipeline alignment.
The Regional North Delivery System is defined as
approximately ten [10] miles of new 54, 48, 42, and 36 inch
diameter pipeline located from the Plant to the existing West
Orange County Water Board Feeder #1 (WOCBF #I/OC-9) in
the city of Huntington Beach, and from the Plant connecting
to the existing OC-44 pipeline at Harbor Boulevard and Fair
Drive in the city of Costa Mesa
Figure 2 provides a general illustration of the Regional North
Delivery System pipeline alignment.
Both the Regional South and Regional North Delivery System
options will also include two off-site booster pump stations.
One will be approximately located at the junction of the OC-
44 and the East Orange County Feeder #2 (EOCF#2), in the
city of Newport Beach and the second will be approximately
located at Coastal Junction, in the city of Irvine.
The financing of any Delivery System will be structured so
that (i) Seller will be obligated to repay the financing in the
event that the Delivery System and the Plant are not
completed by the deadlines set forth herein and (ii) once the
Project is in operation the Seller will make the debt service
payments on the Delivery System financing to the extent the
Plant does not produce the required amount of Product
Water.
4. Water Reliability A contract ("Contract") between the Seller and the Buyer(s)
Agreement under which the Seller shall construct the Project and the
Delivery System and operate the Project and deliver water to
the Delivery Point and the Buyer(s) shall operate the Delivery
System and purchase Product Water under terms set forth in
the Agreement.
5. Contract Date The date on which the Contract is executed and delivered by
the Parties.
6. EPC Contractor-, A proposed contract between Seller and the Project's
EPC Contract engineering, procurement and construction contractor and
with its principal process subcontractor (the "EPC
2
Subject Meaning
Contractor") for the design, construction and startup of the
Plant and the Delivery System (the "EPC Contract"). The EPC
Contractor will be selected by Seller from a pre-qualified list
approved by the Buyer(s).
7. Operations A proposed contract between Seller and the Operating
Agreement Contractor for the operation, maintenance, repair and
equipment replacement of the Plant. The Operating
Contractor will be selected by Seller from a pre-qualified list
approved by the Buyer(s).
Metropolitan Water District of Southern California.
9. MWD Agreement The MWD Seawater Desalination Program Agreement
between the Buyer(s) and MWD.
10. SEIR The Subsequent Environmental Impact Report for the Project
certified by the city of Huntington Beach in September, 2010.
3
NEGOTIATION AND APPROVAL PROCESS
Subject Understandsng
1. Purpose The purpose of this Term Sheet is to set forth the basis for
negotiations toward a possible Contract between the Parties. The
proposed terms and conditions set forth herein do not bind either
Party in any manner, and in particular do not commit the
Buyer(s) to purchase Product Water. It is a summary only and is
not comprehensive or definitive.
The Parties understand that substantive terms and detailed
provisions not noted or fully developed in this Term Sheet are
expected to be included in any final Contract.
2. Schedule A. Schedule Milestones for Project
Seller anticipates:
• that the Contract will be executed by the Parties no later i
than January 1, 2014;
• that it shall obtain full construction financing no later than
June 30, 2014 (the "Construction Finance Deadline");
• that the Commercial Operation Date will be the earlier of
(1) December 31, 2017, or (2) the date that is 40 months
following the actual date of financial close, as such date
may be extended due to Uncontrollable Circumstances (the
"Scheduled Commercial Operation Date").
B. Schedule Extensions
The Contract shall provide for extensions of such dates due to
the occurrence of Uncontrollable Circumstances or Changes-in-
Law and, in the absence of Uncontrollable Circumstances or
Changes-in-Law, as mutually agreed to by the Parties.
C. Failure to Meet Deadlines
In the event that, after extensions that may be provided for in the
Contract, Seller has not been able to meet the Construction
Finance Deadline, Buyer(s) may terminate the Contract. If the
Scheduled Commercial Operation Date is not met, and/or if
Seller has notified Buyer(s) of its intent to abandon the Project,
the Buyer(s) may terminate the Contract and shall have the right,
but not the obligation, to purchase the Project from Seller on
terms and conditions that will be set forth in the Contract.
3. Contract The Parties acknowledge that either Party may suspend,
Negotiations terminate or renew negotiations at any time and for any reason
4
Subject I Understanding
without consequence.
4. Buyer(s) Due During the negotiating periods and ending prior to the execution
Diligence of the Contract, the Buyer(s) intend to conduct a complete due
diligence examination of Seller and the Project. Seller intends to
fully cooperate with the examination, and provide all documents
and information requested by the Buyer(s) in connection
therewith. Due diligence will address, among other things,
(1) Seller's investors, ownership structure, management, financial
i condition and contingent liabilities; (2) any existing agreements,
commitments, understandings, rights and claims of any other
Party pertaining to Seller and the Project; (3) Plant design
specifications, (4) the proposed EPC Agreement and EPC
Contractor; (5) the proposed Operations Agreement and
Operating Contractor; (6) legal entitlements; (7) litigation;
(8) development equity, construction and term equity and debt
arrangements, participation and terms; (9) financial projections
for the Project; (10) all procurements, negotiations and
discussions Seller has engaged in for contractors and
subcontractors for the Project; (11) and any and all land leases
for property or appurtenant facilities including, but not limited
to, the site lease with AES and land lease with the State Lands
Commission.
5. No Buyer(s) Seller understands and acknowledges Buyer(s) do not assume
Responsibility any responsibility for the Project whatsoever. Any Contract
for the Project resulting from the negotiations will be a contract solely for the
purchase of Product Water. Seller has planned and developed
and will implement the Project completely at its own risk. Seller
will be solely responsible for the efficacy of the Project and its
permitting, financing, design, construction, commissioning and
capability of successfully passing acceptance tests producing
Product Water to the standards of the Contract. No due diligence
performed by the Buyer(s) shall constitute any transfer of liability
to the Buyer(s) for the Project or its performance.
5
TERMS AND CONDITIONS OF
THE PROPOSED WATER PURCHASE CONTRACT
Subject Proposed Term/Condition
1. Term A. Initial Term
The initial term ("Initial Term") of the Contract shall begin
upon the execution of the Contract and shall terminate 30
years from the Commercial Operation Date.
B. Renewal
The Contract may be renewed at the sole option of Buyer(s)
for two additional 15-year terms ("Renewal Terms").
Buyer(s) shall notify Seller no later than 3 years prior to
the expiration of the Initial Term (or, as the case may be, a
Renewal Term) of its intentions regarding renewal. With
the exception of Product Water Quantity, Product Water
Quality and Water Purchase Price (each of which shall be
subject to negotiation), the terms and conditions of the
Initial Term will carry forward into any Renewal Terms,
provided however that Product Water Quantity, Product
Water Quality and Water Purchase Price negotiations shall
be concluded no later than 18 months prior to the
expiration date, and, if not, the Contract shall expire at the
end of the Initial Term or Renewal Term, as applicable.
C. Responsibility for Plant Upon Expiration of Term.
Buyer(s) shall have no responsibility for any costs or the
obligations with respect to decommissioning the Plant at
the end of the Initial Term or Renewal Term, as applicable.
2. Roles of the Parties A. Seller
Seller shall design, permit, construct, start-up and
acceptance test the Project and the Delivery System all in
conformity to applicable law, prudent industry practices
and the requirements of the Contract. Seller shall finance
the Project and cooperate with Buyer(s) in the financing of
the Delivery System. Upon the commencement of the
commercial operation of the Project ("Commercial
Operation Date"), Seller shall operate and maintain the
Project in accordance with prudent industry practices and
applicable laws and regulations sufficient to meet the
reliability, Product Water Quality, permitting and
regulatory requirements of the Contract.
6
Subject Proposed Term/Condition
Buyer(s) shall cooperate with Seller during the period of
Project, as necessary and appropriate, with respect to
activities such as pen-nitting, financing and public
information, but shall have no responsibility or liability
regarding such activities of Seller.
Buyer(s) shall finance and operate the Delivery System,
Upon the achievement of the Commercial Operation Date,
Buyer(s) shall purchase Product Water as provided for
under the Contract and accept delivery of the Product
Water at the Delivery Point and operate and maintain the
Delivery System.
3. Financing Period A. Construction Finance Deadline
In the event a Contract is successfully negotiated and
executed, Seller shall achieve financial close (with all
construction financing in place for the Project and the
Delivery System) by the Construction Finance Deadline.
B. Failure to Achieve Financial Close by the Construction
Finance Deadline
If Seller fails to achieve financial close for the Project by
the Construction Finance Deadline, the Buyer(s) may
terminate the Water Purchase Contract.
C, Achievement of Financial Close
If Seller succeeds in achieving financial close before the
Construction Finance Deadline Seller will proceed to
construct the Project and the Delivery System.
4. Financing Plan A. Seller Responsibilities
Seller will be solely responsible for the financing of the
Project. Seller will keep the Buyer(s) regularly informed of '
its progress in executing the plan of financing.
B. Amount of Financin
Seller may not issue additional Project debt without the
approval of the Buyer(s), except (1) debt for Project
completion, (2) refinancing debt, (3) debt necessary to pay
capital costs resulting from uninsured force majeure
events and Changes in Laws, and (4) debt for other
puMoses to be negotiated.
7
Subject Proposed Term/Condition
C. Capital Amortization Period
Unless mutually agreed by the Parties, the amortization
term of any Project debt financing or refinancing
undertaken will not exceed the terni of the Contract,
D. Buyer Responsibilities
The Delivery System will be constructed by Seller and
owned and operated by the Buyer(s). The construction of
the Delivery System will be financed by the Buyer(s). The
financing will be structured so that (i) Seller will be
obligated to repay the financing in the event that the
Delivery System and the Plant are not completed by the
deadlines set forth herein and (ii) once the Project is in
operation the Seller will make the debt service payments
on the Delivery System financing to the extent the Plant
does not produce the required amount of Product Water.
5. Design and A. Construction Period Des!gn Reviews for the Pla�-it-and
Construction of the the Delive1y System
Plant and Delivery During the Construction Period, the Buyer(s) will have the
System right, but not the obligation, to periodically review the
design of the Plant and the Delivery System for compliance
with the EPC Agreement and design specifications as set
forth in the Contract. The Buyer(s) will not have approval
authority over the design of the Plant, except as such may ::
relate to compliance with the requirements of the Contract.
Seller will agree to consider and respond to material
comments or concerns made by the Buyer(s). The Buyer(s)
will have the right to provide design specifications for the
Delivery System.
B. Construction Period Reporting and Review for the
Projec
Seller will attend monthly progress meetings with the
Buyer(s) and will provide the Buyer(s) access to
information regarding the Project and the Delivery System,
Seller will consider and respond to material comments or
concerns made by the Buyer(s). The Buyer(s) will have the
right to observe and inspect construction of the Project
and the Delivery System at any reasonable time. The
Contract will detail the Buyer(s) inspection rights and
requirements, and Seller's obligations during the
construction of the Project and the Dclivciy-§Y����
8
Subject Proposed Term/Condition
Buyer(s) shall have the right to review information
regarding the construction of the Project and the Delivery
System to the extent reasonably necessary to confirm
Seller's compliance with the requirements of the Contract.
C. Start-U1 and Acceptance Testing of the Plant and
Delivery System
The Contract will set forth acceptance test standards and
procedures designed to assure the Buyer(s) that the Plant
and the Delivery System will be capable, on a long term
basis, of meeting the requirements of the Contract. The
Buyer(s) will have the right to review and comment on the
acceptance test protocol to be developed in accordance
with the requirements of the Contract, and to observe
Plant and the Delivery System start-up and acceptance
testing.
D. Modifications Due to Changes in Law During the
Construction Period
In the event that capital improvements or modifications
are required due to a Change in Law occurring during the
Construction Period, Seller will inform the Buyer(s) of such
need and of the schedule for and an estimated cost of
addressing such need. Seller will mitigate the effects of
the Change in Law, and minimize the delay in design or
construction and minimize the cost of such capital
improvements or modifications. The Buyer(s) will be
responsible for such costs, but only if: (1) the Commercial
Operation Date is achieved; and (2) such Change in Law is
not imposed as the result of the acts or omissions of Seller.
6. Scheduled If Seller fails to achieve the Commercial Operation Date by
Commercial Operation the Scheduled Commercial Operation Date, and/or if
Date Seller has notified Buyer(s) of its intent to abandon the
Project, the Buyer(s) may terminate the Contract and shall
have the right, but not the obligation, to purchase the
Project from Seller terms and conditions that will be set
forth in the Contract.
7. Operation and A. Seller's Obligation to Operate the Plant
Maintenance Upon the achievement of the Commercial Operation Date,
Seller will operate, maintain, repair and replace the Plant
in accordance with the terms of the Contract, prudent
industg practices and applicable laws and regulations
9
Subject Proposed Term/Condition
sufficient to meet the contractual performance and
regulatory requirements.
B. Operation and Maintenance of the Delivery System
The Delivery System will be operated and maintained by
Buyer(s).
C. Operator
Seller will, prior to the Contract Date, contract for the
operation, maintenance, repair and equipment
replacement of the Plant with the Operating Contractor.
The Operating Contractor will not be replaced without the
Buyer(s) approval, which shall not be unreasonably
withheld. Seller will deliver a copy of the proposed
Operations Agreement to the Buyer(s) for review and
comment prior to execution.
D. Operations and Maintenance Manual
Two months prior to the Commercial Operation Date,
Seller will provide the Buyer(s) with a draft copy of the
Plant's operation and maintenance manual for review and
comment.
E. Life-Cycle Maintenance
The Contract will contain all necessary assurances that
the Plant will be properly maintained, repaired and
replaced over the term of the Contract. These will include
a requirement to have a CMMS system and use it to
perform ordinary and capital maintenance, and periodic
maintenance inspections.
F. Restoration of the Plant
In the event of damage to the Plant, Seller will be obligated
to repair or replace damaged components to enable the
restoration of full operations and the full performance of
its obligations under the Contract, whether through the
application of insurance proceeds or Seller's own capital.
In order to provide for the circumstance under which
Seller is not able to restore the Plant, Seller agrees that the
Project's financing documentation will enable the Buyer(s),
at the Buyer(s) sole option, to purchase the Plant for an
amount equal to Seller's outstanding indebtedness, net of
available insurance proceeds.
10
Subject Proposed Term/Condition
G. Buyers) Right to Monitor
The Buyer(s) will have the right to monitor the operation
and maintenance of the Plant in order to confirm
compliance with the requirements of the Contract. The
Buyer(s) will have the right to conduct periodic inspections
of the Plant, and will notify Seller of any operations and
maintenance deficiencies found for rectification by Seller.
The Buyer(s) will have the right to engage consultants and
advisors for inspections to review Seller performance and
performance reports and to provide recommendations to
the Seller.
8. Plant Expansions The Buyer(s) shall have the first right to propose to
purchase any additional Product Water, subject to mutual
agreement between Seller and the Buyer(s) as to terms and
conditions.
9. Water Quantity A. Water Quantity Commitments
Seller will agree to produce and deliver, and the Buyer(s)
will agree to take (on a "take-if-delivered" basis), [56,000]
acre-feet per year of Product Water (the "Committed
Amount"). The aggregate of the individual commitments of
each of the Buyer(s) shall equal the Committed Amount.
For the actual quantity of Product Water taken, the
Buyer(s) will pay a per-acre foot unit charge as set forth in
Item 14.
B. Payment for Available Water that is Not Taken
In the event that the Buyer(s) do not take the Product
Water required to be taken under Item 9A, the Buyer(s)
will nonetheless pay Seller a per-acre foot charge to be set
forth in the Contract, based on the Delivery Schedule.
C. Delivery Schedule
The schedule for periodic deliveries of Product Water
(daily, monthly, quarterly) will be mutually agreed to by
the Parties on an annual basis.
D. Operating Committee.
Seller, the Operating Contractor, and the Buyer(s) will
establish an Operating Committee to address daily flow
changes and operations and other items to be set forth in
the Contract.
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Subject Proposed Term/Condition
E. Water Ownership
the Buyer(s) will own all Product Water received and
accepted at the Delivery Point.
F. Product Water Pressure and----
Guarantee
Seller will guarantee Product Water pressure, and will
operate the Product Water Pump Station within agreed
upon protocols so to minimize hydraulic transients in the
Buyer(s) Delivery System.
G. Distribution System Emergencies
In the event of emergencies in its distribution system (a
"Distribution System Emergency'), the Buyer(s) may
demand a curtailment of Plant operation and Product
Water deliveries, excusing the impacted Buyer(s) from its
purchase obligation for the duration of the emergency.
H. Product Water Not Delivered Due to Uncontrollable
Circumstances/Distribution System Emergency
Product Water which Seller would have delivered to the
Buyer(s) but which Seller is unable to deliver due to an
Uncontrollable Circumstance or a Distribution System
Emergency shall be delivered by Seller and purchased by
the Buyer(s) from any excess Product Water on a
negotiated basis, or during an extension of the term of the
Water Purchase Contract not to exceed three years.
1. Respective Cost Obligations of the Parties
Seller will be responsible for all costs incurred in
producing and delivering Product Water to the Delivery
Point, and the Buyer(s) will be responsible for all costs
incurred in receiving and distributing Product Water after
the Delivery Point.
I.O.Product Water A. Product Water Quality Requirements Generally
Quality Product Water delivered by Seller will meet all legal potable
water quality requirements and not exceed regulatory or
maximum contaminant levels established by the state,
federal, and local agencies. A detailed set of water quality
specifications will be incorporated in the Contract per
Attachment A to this Term Sheet.
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Subject Proposed Term/Condition -7
B. Third Party Claims Regarding Product Water Quality
Seller will be solely liable for any fines, penalties or
damages that may be incurred by either Party due to
Seller's failure to meet water quality requirements. Seller
will indemnify the Buyer(s) against any fines, penalties or
damages (including third party tort claims) that may be
incurred by the Buyer(s) due to the delivery of Product
Water that does not meet the Product Water quality
requirements.
C. Limitation on the Buyer(s) Obligation to Accept Product
Water
The Buyer(s) will not be obligated to accept or pay for
Product Water that does not meet the Product Water
quality requirements.
1 1.Performance A. Product Water Quantity Failures
Liquidated Damages The Contract will specify liquidated damages for failure to
deliver 85 percent of Product Water quantities specified in
the Contract during any Contract Year (any period running
from July I to the following June 30 during the term of the
Contract) after the first full year of operation. Seller will be
afforded a reasonable opportunity to make up delivery
failures prior to the imposition of liquidated damages.
B. Product Water Quality Failures
The Contract will specify liquidated damages for Product
Water quality non-compliance.
12.Raw Water Risks The Contract will set forth the assumed raw water quality
parameters upon which Seller's performance guarantees
are based. If (1) actual raw water quality parameters are
outside those assumed, or (2) specific negotiated events
occur affecting raw water quality (such as pollution
events), Seller will be entitled to relief from its water
quantity production guarantee.
13.AES Seller shall bear all risks relating to AES and AES's
generating plant and property, except (1) the occurrence of
force majeure events damaging or destroying the raw water
intake, outfall and any other AES facilities necessary for
the conveyance of raw water to the Plant and the discharge
from the Plant or other events effecting the construction
and operations of the Project, and (2) other reasonable
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Subject Proposed Term/Condition
exceptions negotiated by the Parties in which event Seller
shall be entitled to relief from its water quantity
production guarantee. Such AES risks include AES sale,
merger or bankruptcy; AES lease breach, default and
termination; changes in law, permit modifications or
denials, or regulatory orders affecting AES.
14.Water Purchase A. l3tiyerMObligation to Paylor Product Water
Price The Buyer(s) will only pay for Product Water that meets
the Product Water quality requirements and is actually
delivered or ready to be delivered to the Delivery Point.
B. Water Purchase Price
The price payable by the Buyer(s) for Product Water shall
consist of (1) the negotiated Unit Price per acre-foot,
multiplied by (2) the number of acre-feet of Product Water
purchased by the Buyer(s). Any extraordinary items (such
as costs payable by the Buyer(s) associated with Changes
in Law and amounts payable by Seller for non-compliance
with the MWD Agreement, liquidated damages or
indemnity payments) shall be paid or credited as a
separate element of the Water Purchase Price, or shall be
reflected in a revised Unit Price, as appropriate.
C. Unit Price
The negotiation of the Unit Price (to be finalized prior to
execution of the Contract) will be determined in
accordance with the following principles:
1.The Unit Price will be based on the capital and
operating costs of the Project (as opposed to the
11 avoided cost" of water).
2. Seller will provide full transparency to the Buyer(s)
with respect to capital costs, operating costs, and
financial returns to Seller.
3.The Unit Price will support the financing,
construction and operation of a high-quality
desalination facility that operates in a highly reliable
4.The Unit Price will provide financial incentive to
Seller for efficient plant operations. Operational
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Subject Proposed Term/Condition
improvements and energy consumption savings
during the Term will be for the benefit of the Seller.
The Buyer(s) will reserve the right to provide
wholesale power to the Project.
5.The Unit Pricing structure will determine how actual ,:
debt service costs, and future refinancing savings
will be reflected in the Unit Price.
6.The Unit Price will not be finalized until the
underlying capital and operational costs of the
Project have been established through binding
contracts, and these contracts and the financing
costs and draft financing documents have been
received, reviewed and accepted as reasonable by
the Buyer(s).
7. Charges:
a. Capital Charge. The Capital Charge for each
Contract Year shall be a per-Acre-Foot
amount set to cover annual debt service and
provide a return to equity.
b. Operating Charges.
i.Fixed Operating Charge. The Fixed
Operating Charge shall be a per-Acre
Foot amount index linked. It will be set
to cover operating expenses that do not
vary with water production.
ii. Variable Operating Charge. The
Variable Operating Charge shall be a
per-Acre Foot amount index linked. It
will be set to cover operating expenses
that vary with water production.
c. Electricity Charges.
L Fixed Electricity Charge. The Fixed
Electricity Charge shall be a per-Acre
Foot amount index linked. It will be set
to cover electricity costs that do not
vary with water production. It will be
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Subject Proposed Term/Condition
based on the electricity consumption
guaranteed by the Operating
Contractor.
ii. Variable Electricity Charge. The
Variable Electricity Charge shall be a
per-Acre Foot amount index linked. It
will be set to cover electricity costs that
vary with water production. It will be
based on the electricity consumption
guaranteed by the Operating
Contractor.
The Unit Price associated with the Plant and determined in
accordance with the foregoing principles is estimated to be
$1,424AF [January 2013 dollars]. This estimate is based
on a number of key assumptions including the following: a
financing structure with 82% debt and 18% equity on the
total capital budget (Plant + Delivery System); the current
estimated Plant EPC Contract costs and design,
construction and startup period costs; an interest rate of
5.15% on the Plant bonds; SoCal Edison electricity rates
applicable as of January 2013; $250 per acre foot financial
incentive under the MWD Agreement; and estimated other
costs (e.g. financing, mitigation, reserves, contingency,
operations and maintenance, etc.). Unit Price associated
with the Delivery System would vary depending on the
option selected. The Regional South Delivery System is
estimated to be $138/AF, assuming a debt rate of 4.90%
and an EPC cost of $101,200,000. The Regional North
Delivery System is estimated to be $94/AF, assuming a
debt rate of 4.90% and an EPC cost of $66,900,000.
Electricity, operations and maintenance costs related to
the Delivery System have not been included in the above
Unit Cost estimates, as the financing approach assumes
that the Delivery System will be owned and operated by
the Buyer(s). The Unit Prices above are estimates subject
to change,
D. Plant Site Conditions Risk
Seller shall bear all price risk associated with any differing
site conditions and regulated site conditions (such as
hazardous substances and cultural resources).
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Subject Proposed Term/Condition
E. Grants and Subsidies Benefit Buyers)
Any subsidy, grant or contribution received directly or
indirectly by the Buyer(s) or Seller from the MWD or any
other local, regional, state or federal governmental agency
will be for the full benefit of the Buyer(s). The Parties will
also consider alternative approaches regarding federal,
state, regional and local financial support to help reduce
the cost of the Product Water.
F. Notification of Annual Price Adjustments
For budgetary purposes, Seller will notify the Buyer(s) no
later than a date to be specified in the Contract prior to
the start of the next succeeding Contract Year of the Water
Purchase Price that will be in effect for the coming
Contract Year based on the specified index adjustments.
G. Additional Sales of Product Water
In the event that Seller sells Product Water to third parties
(excluding Buyer(s)) for a per acre foot price that is less
than the Unit Price but is otherwise on substantially the
same terms and conditions as contained in the Contract,
the Unit Price for the Buyers shall be lowered to such
lesser price during the period in which Seller makes such I
sales of Product Water to third parties. Any sales to the
City of Huntington Beach as described in the Amended
and Restated Owner's Participation Agreement dated
September 2010 are excluded from this provision on
Additional Sales of Product Water
15.No Payment A. General
Obligation Before The Buyer(s) will have no obligation to purchase Product
Commercial Operation Water or make any payment whatsoever to Seller prior to
Date; Exception the Commercial Operation Date. If that date does not
occur, the Buyer(s) will not have any payment obligations.
If Change in Law costs are incurred prior to the
Commercial Operation Date, the Buyer(s) will be obligated
to pay such costs only as an increase in the Water
Purchase Price payable after the Commercial Operation
Date, on a negotiated, amortized basis.
B. Exception
Following approval by the State Department of Public
Health of the introduction of Product Water into the
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Subject Proposed Term/Condition
Buyer(s) distribution system and prior to the Commercial
Operation Date, the Buyer(s) will purchase Product Water
meeting quality standards. The price of the water will be
equal to the Unit Price minus the debt service portion of
the Capital Charge described in Section 14.C.7.a and the
duration of this commitment will be negotiated.
16.Site Access A. Plant Fours
Seller will make the Plant available for Buyer(s) tours after
start of commercial operations, subject to reasonable
notice by the Buyer(s).
B. Site Access
Buyer(s) staff, consultants and contractors will be provided
access to the site and all facilities owned or leased by
Seller during the construction period and after the start of
commercial operations, subject to reasonable notice by the
Buyer(s).
17.Insurance A. Seller Insurance Obligations
Seller will obtain and maintain, in amounts to be agreed
upon with the Buyer(s), insurance as follows: commercial
general liability insurance; builder's risk (including
earthquake coverage with an agreed sublimit) and property
and casualty insurance that will provide for the full
replacement value of the Project; motor vehicle insurance;
workers compensation: business interruption insurance in
an amount sufficient to cover a minimum of one year of
fixed operating and financing costs and, as appropriate,
pollution liability insurance.
B. Insurance Costs and Risks
Seller will bear all costs associated with any insurance
deductibles, and replacement cost exceedences associated
with builders' risk and property insurance coverage. Seller
will also bear the risk of any insurance unavailability.
C. The Buyer(s) Right to Obtain Insurance
The Buyer(s) may purchase such insurance on behalf of
Seller, if Seller fails to do so, and will be reimbursed by
Seller for any costs so incurred.
18.Uncontrollable A. Defined
Circumstances/ Uncontrollable Circumstances are force inaleure and other
18
Subject Proposed Term/Condition
Performance Relief events beyond Seller's reasonable control (after exercising
diligence to prevent the occurrence and to mitigate the
effect of the occurrence) that materially and adversely
affects Seller. Inclusions and exclusions will be
negotiated. Changes in Law are handled separately from
Uncontrollable Circumstances.
B. Seller Performance Relief
An Uncontrollable Circumstance will entitle Seller to
schedule and water quantity guarantee relief, to the extent
that they are adversely affected by Uncontrollable
Circumstances.
C. No Seller Price or Water Quality Relief
Unless otherwise stated in the Contract, an Uncontrollable
Circumstance will not entitle Seller to any price relief or
any water quality guarantee relief.
D. Mitigation and Restoration
In the event of an Uncontrollable Circumstance, Seller will
use commercially reasonable efforts to respond to the
event and to mitigate its effects and, as soon as is
practicable, to restore conditions to the level at which it
can fully perform its obligations under the Contract.
E. Buyer(s) Performance Relief
The Buyer(s) will be entitled to relief from its obligation to
take and purchase Product Water to the extent its ability
to receive delivery of Product Water is adversely affected by
a Distribution System Emergency. The Buyer(s) will
purchase "make-up" Product Water following any such
occurrence as described in Item 9H.
19.Changes in Law A. Defined
A Change in Law is the enactment of a new law, or an
amendment to an existing law, after the Contract date that
materially delays completion of the Project or increases the
cost of producing Product Water, because of new or
different equipment, construction, or processes required to
comply with the new or amended law. "Law" includes any
federal, state or local laws, statutes, codes and
regulations; and all governmental approvals, such as
licenses, permits, consents and entitlements.
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Subject Proposed Term/Condition
B. General Exclusions
Changes in Law do not include: (1) any law enacted or
adopted on or before the Contract date to take effect after
the Contract date; (2) any change in tax law (other than
changes which have a discriminatory effect on Seller);
(3) any increases in fines or penalties for violation of
applicable law; (4) any increase in the severity of
enforcement actions typically taken by a regulatory
agency; (5) any change in law that does not require greater
stringency than the Contract itself requires; and (6)
changes in permits (except as a result of a change in law
after the Contract Date), approval, entitlements in
consequence of enforcement, lapse, or invalidation of an
existing permit.
C. Changes in Law Affecting?AES's Facility
If a Change in Law occurs that requires the Plant's raw
water intake system, wastewater discharge system and
related pumping facilities to be modified and operated on a
"stand-alone" basis, separate from AES facility operations,
the Water Purchase Price will be increased to reflect the
capital and operating costs necessary to respond to the
change in law up to maximum amounts to be set forth in
the Contract.
D. Changes in Law Affecting AES's Seawater Intake
Structure
Other than that provided in paragraph C above, a Change
in Law will not include any change in law pertaining to the
operation by AES of its existing seawater intake structure,
including any requirement under Section 316(b) of the
federal Clean Water Act or similar regulation.
E. Changes in Law Affecting; AES Discharge Facility
Operations
Other than that provided in paragraph C above, a Change
in Law also will not include any change in law pertaining
to the operation by AES of its discharge facilities under its
NPDES permit, similar permit or any provision of the
federal Clean Water Act or California Porter- Cologne Act.
F. Compliance With Environmental Mitigation Measures
Seller will bear the risk of com l 'n s with all
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Subject Proposed Term/Condition
environmental mitigation measures required by or in
connection with the SEIR and governmental approvals for
the Project, excluding measures required due to a Change
in Law.
G. Construction Government,A))royal Risk
Seller will be responsible for obtaining and maintaining all
governmental approvals required for the Project during
construction and acceptance testing (including the
California Department of Public Health's drinking water ;�
permit) through the Commercial Operation Date. Other
than schedule relief, Seller will bear the risk of the denial,
delay in issuance of, or imposition of any term or condition
in connection with any such governmental approval and of
compliance with all such governmental approvals. The
occurrence of any such risk will not be Change in Law
unless it is caused by the enactment of a statute or the
promulgation of regulations of general applicability.
H. Operating Governmental Approvals
Seller will also be responsible for obtaining and
maintaining all governmental approvals required during
the operating period, through the end of the Contract
term. Other than schedule relief, Seller will bear the risk
of the denial, delay in issuance of or imposition of any
term or condition in connection with any such
governmental approval.
1. Relief
Seller will be entitled to both performance relief (excluding,
however, water quality guarantee relief) and price relief
(including increases in the Water Purchase Price to reflect
mitigated cost increases) associated with responses to
Changes in Law. Seller will be responsible for an initial
amount (index linked and to be negotiated and included in
the Contract) of such costs in each Contract Year. Seller
will use all commercially reasonable efforts to implement
responses to Changes in Law at the lowest cost
practicable.
J. Water Purchase Price Increase Limitation
There will be a maximum Water Purchase Price increase
limitation that will cap the Buyer(s) exposure to Change in
Law costs to 10 % of the Unit Price in any Contract Year
21
Subject Proposed Term/Condition
and 30 % of the Unit Price in the aggregate over the Initial
Tenn.
K. Seller Actions
No relief of any kind will be permitted for Changes in Law ::
which are imposed as the result of the acts or omissions of
Seller.
20. Events of Default and A. Events of Default
Termination The Contract will include negotiated events of default,
B. Remedies
Upon the occurrence of an event of default, the non--
; defaulting Party may pursue any remedies available at law
or in equity.
C. Buyer(s) Step-in Rights
The Buyer(s) will have the right to step in and cure
defaults that are not cured by Seller or Seller's debt
holders.
21. Record Keeping, A. Seller Maintenance and Retention of Records
Reporting Seller will maintain records pertaining to its performance
under the Contract. The Buyer(s) will have the right to
inspect such records during regular business hours
(including audit rights for up to five years after each year
of the Contract, or as provided for under applicable law,
whichever is longer), to verify performance, quantity,
quality, delivery of Product Water to the Delivery Point and
price. Seller will establish and maintain accounting
records of all costs in conformance with the MWD
Agreement between the Buyer(s) and MVVD. MVVD and the
Buyer(s) will have the right to audit in accordance with the
MVVD Agreement.
B. Seller Reporting Requirements
Seller will provide monthly and annual reports to the
Buyer(s) regarding Plant performance, including: Product
Water quantities produced; Product Water quality (subject
to additional water quality reporting requirements);
maintenance and capital repairs and replacements
performed; any _2pSrating problems encountered and
22
Subject Proposed Term/Condition
corrective measures taken; regulatory and Contract
compliance.
C. Measurement Devices Inspection
The Buyer(s) will have the right to inspect Seller's
measurement devices periodically during regular business
hours to verify that calibration is accurate. The Buyer(s)
will also have the right to conduct independent verification
of calibration. If Seller's measurement devices are found
to be in need of recalibration, Seller will pay for and
undertake such recalibration, and will also reimburse the
Buyer(s) for all costs associated with the Buyer(s)
inspection and testing.
22, Buyer(s) Plant A. The Buyer(s) Purchase Option Upon Seller Event of
Purchase Options Default
Upon a material uncured Seller default ("Seller Event of
Default"), the Buyer(s) may terminate the Contract and
may, but will not be obligated to, purchase the Plant for a
negotiated purchase. Seller's Plant financing, lease and
other agreements and arrangements will accommodate
this purchase option.
B. Fair Market Plant Purchase Option During the Term
The Buyer(s) will have the right to purchase the Plant at
five year intervals commencing on the tenth anniversary of
the Commercial Operation Date. The purchase price will
be for the fair market value of the project at the time of the
exercise of the option. If there are multiple Buyers this
purchase option may only be exercised collectively by all
the Buyers acting together.
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Subject Proposed Term/Condition
23. Security for A. Construction Bond
Performance by Seller will obtain and maintain or will cause the EPC
Project Contractors contractor to obtain and maintain performance and
payment bonds in an amount sufficient to obtain non-
recourse financing (or as otherwise agreed to by the
Parties) for the construction of the Project.
B. Operations Bond
Seller will obtain and maintain or will cause the
Operations Contractor to obtain and maintain an
operations performance bond in an amount sufficient to
obtain non-recourse financing (or as otherwise agreed to
by the Parties) for the operation and maintenance of the
24. Security for At a date no later than the Construction Financing
Performance by Seller Deadline, and for the Initial Term and any Renewal
Term(s), Seller shall provide to Buyer(s) an annually
renewable letter of credit in the amount of $5 million,
which amount shall escalate annually with the CPI up to a
maximum of$8.5 million or as the Parties negotiate in the
Contract, as security for its obligations to Buyer(s) under
the Contract.
25. General Indemnity The Parties will indemnify the other Party for claims
arising from misrepresentation, negligence or breach of the
26. Litigation Risk Seller will also indemnify the Buyer(s) against third party
Indemnity litigation of the kind typically initiated by opponents of
projects similar to the Project seeking to prevent project
construction and operation (such as litigation) involving
environmental reviews, permits, and legal entitlements,
other than third party lawsuits challenging the Buyer(s)
power or authorization to enter into the Contract, or
resulting from a Buyer(s) breach of the Contract.
27. Representations and The Contract will include customary representations and
Warranties warranties regarding: legal standing in California; legal
authority to enter into the Contract; absence of material
adverse litigation or legal conditions; no conflict with other
agreements or commitments; proper approvals of Contract,
Seller will make representations and warranties as to ,
24
Subject Proposed Term/Condition
CEQA compliance.
28. Tax Risks Except as described elsewhere in this Term Sheet, Seller
will bear all tax risks. This includes all existing taxes
payable with respect to construction, operation,
maintenance, management, services on water purchases;
income, sales, possessory interest, excise and value added
taxes; tax law changes; new taxes; and adverse tax law
determinations pertaining to tax accounting treatment, tax
credit depreciation, amortization or otherwise. A tax is a
governmental imposition of any kind, and includes fees
and charges.
29. Liability Limitations The Contract will contain no stated dollar limitation on
damages for non-performance. Special, consequential and
punitive damages will be mutually waived.
30. Dispute Resolution The Parties will agree to attempt to resolve disputes, first,
through negotiation and non-binding mediation arid, if
negotiations and mediation are unsuccessful, then to
pursue other remedies available in law or in equity.
31. Assignment Neither Party will assign the Contract without the prior
written approval of the other Party, which approval may
not be unreasonably withheld. Notwithstanding the
foregoing, Seller will have the right to collaterally assign
the Contract to its lenders, and the Buyer(s) will
reasonably consent to such assignment.
32. Seller's Contractors The Contract will specify minimum financial, technical and
and Subcontractors experience qualifications, standards and requirements for
any Seller contractors and material subcontractors, and
for any party it may engage to replace or substitute for
such contractor or subcontractors. Seller will provide
adequate information to the Buyer(s) regarding the
qualifications of any proposed initial or substitute
contractor or contractor. Notwithstanding the above, Seller
may not replace or substitute the EPC Contractor or the
Operations Contractor without the Buyer(s) approval,
which will not be unreasonably withheld.
33, Governing Law California
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