AGENDA CAPTION:
Title
Consider approval of Resolution 2015-148R, approving a contribution in aid of construction agreement with Amazon.com.KYDC LLC to provide for the City’s financial participation in the cost of extending three phase radial feed electric service to Amazon’s fulfillment center in San Marcos, Texas in the amount of $252,115; and declaring an effective date.
Body
Meeting date: October 20, 2015
Department: Public Services
Funds Required: $252,115.00
Account Number: N/A
Funds Available: N/A
Account Name: Annual Capital System Extension
CITY COUNCIL GOAL:
Recruit employers that will provide job opportunities for knowledge and skilled manufacturing workers
COMPREHENSIVE PLAN ELEMENT(s):
Economic Development, Goal 4, Develop program to support local business to encourage job creation and capital investment
BACKGROUND:
The City of San Marcos Electric Utility Rules and Regulations contain provisions for possible participation in a new customer’s capital expenses related to extension of electric service to facilities to be served. The three pertinent sections are shown here:
B) 2. LARGE COMMERCIAL
Customer pays a non-refundable Contribution-In-Aid-of-Construction (CIAC) for all estimated line extension costs greater than $1500.00. The estimated cost is the total of all construction including labor, materials, engineering, right-of-way acquisition and clearing, and any other costs directly attributable to the extension.
Where it can be demonstrated that the expected annual revenues (derived from base rates, exclusive of fuel) to be paid by the prospective customer will generate the required margins to cover the total cost of constructing the extension, disregarding any allowance; the City may, at its option, extend service without an excess construction cost payment by the customer.
C. INDUSTRIAL SERVICE
The city will, through negotiations with a prospective Industrial customer, provide the necessary facilities to extend electric service to a new Industrial site under the provisions and terms of a developed Electric Service Agreement. The general principles reflected in extending service to commercial customers shall be incorporated into such an agreement.
Based upon an economic evaluation of a prospective industrial facility, the city reserves the right to require payment or deposit of funds in advance to defray certain costs associated with providing service to the facility
3. EXCESS CONSTRUCTION COST DETERMINATION- In a situation where a customer requires electrical facilities in excess of a single-phase, overhead line extension, the customer may be required to pay the city for the excess construction cost. The City, at its sole option, may reduce such payment when the estimated annual revenues (derived from base rates, exclusive of the fuel) anticipated from the proposed facility generate the required margins to cover the total cost of constructing the requested facilities.
Amazon has provided a detailed load estimate for their facility under construction on McCarty Road and staff has performed analysis of the annual revenues from the first five years of operation at the stated loads and consumptions. The analysis was conducted in compliance with exclusion of variable pass through /fuel adjustment factors A calculation based on the formulas shown in the excerpted sections indicates that the base rate revenues excluding the fuel costs for the initial five year period of Amazon operation would allow up to $252,115.00 of capital contribution to the Amazon costs of constructing service extensions or special facilities such as the automated transfer switch to service the facility with redundant feed from two circuits off different substations.
The estimate uses the projected ratio of average debt service of the utility to the non-fuel utility revenue. It reflects the amount of revenue that repays capital system investment by the utility. Actual amount awarded as capital construction participation would be at the sole discretion of the city council.
The projected revenue from the facility in the five year period totals in excess of $9,000,000. The agreement would include performance based contingency language for the funds extended or forgiven such that in the event the loads did not reach 90% of the projected peak demand determined by averaging the highest demand peaks for three billing cycles annually for each of the five years used in the calculation, Amazon would be required to repay 50% of the capital contribution amount awarded in the agreement.
This agenda item asks Council to set a participation amount for capital construction of electric infrastructure for Amazon up to the maximum not to exceed amount shown, concur with the performance basis outlined in the attached agreement and authorize the City Manager to execute the agreement with consideration of latitude to make minor adjustments as needed to effect the intent.