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Home My WebLink About03282023 City Council Laydown - HEA Presentation by City Attorney 03282023 City Council LAYDOWN City Attorney Presentation HEA Sale Brooks Chandler City Attorney Charter 13.4. - Disposal of municipal utility plants and utility property. "The council may sell, lease or otherwise dispose of a municipal utility or of property and interest in property used or useful in the operation of a utility only after a proposition to do so is approved by three-fifths of the electors of the city voting on the proposition." z Initial Payment • Section 2.05(a) Purchase Price • Initial Payment = $ 25,250,000 • "Twenty-Five Million Two Hundred Fifty Thousand Dollars ($25,250,000), subject to adjustment" • Section 2.05(b) Initial payment will be adjusted: • "by the difference (positive or negative), if any, between the Target Amount and the Inventory Value as of the Closing Date." • "decreased by (1) Longevity Bonus Amount and (2) the Accrued Vacation Amount" • "to reflect the remaining amount of any estimated expense payment made by Seller to the RRU • "by the PPE Adjustments" • Estimated: $ 15,000,000 in added assets less $ 3,200,000 depreciation of assets, for a total of $ 11,800,000. 3 Where does the Initial go? Pa ment y "! Mbligati Closing -"nor ................................................. 2.05(d) Bond Debt $ 16,345,000 2.05(f) Holdback $ 21525,000 IBEW CBA IBEW Withdrawal Liability $ 552,078 PIERS CBA PIERS Withdrawal Liability $ 100,000 (est.) Total Obligation $ 19,522,078 Notes: 1. Holdback will be ten percent of the sale price and will be deposited to escrow with interest and held for one year after Closing 4 Annual Payments • Section 2.05 • $1,100,000 per year for ten years, $ 11,000,000 total • "Eleven Million Dollars ($11,000,000), to be paid in equal installments of One Million One Hundred Thousand Dollars ($1,100,000) on the each of the first ten (10) anniversaries of the Closing Date • Total Sale Price (Initial & Annual) _ $36,250,000 5 Additional Revenue • Exhibit K Proposed Office lease: • Lease is for current SES office space at 238 5t" Ave • Rate of $ 3,750 per month (based on appraisal of $2.25 per sq. ft) • Term : Twenty-year initial lease • Two, five-year extensions possible • $ 45,000 pe r yea r fo r twe my yea rs • $ 450,000 total for initial term 6 Revenue Summary 1. Purchase Offer: Fixed Amount per Proposal 25,250,000 Subtotal Original Offer 25,250,000 Additional Assets Purchased since proposal (Estimated) Add: New Capital Assets 15,000,000 3. General Fund Contribution:* Less: Depreciation (3,200,000) Deferred Acquisition Payments(10Years) 1,100,000 Yard Lease (15years) 100,000 Purchase Offer at Closing 1/1/2024 37,050,000 Annex Building Lease (20Years) 45,000 Earnings from Electric Trust*** 1,013,717 2. City's Net Funds to Establish Electric Trust: Purchase Offer 37,050,000 GF Contributions: First 10Years 2,258,717 Cash Balance 1/1/2024(estimated) 4,000,000 Accounts Receivable 1/1/2024(estimated) 1,590,000 GF Contributions:After 10 years 1,158,717 Less: Retire Bond Principal 1/1/2024 (16,345,000) Less:Accounts Payable (Estimated) (300,000) Less: Holdback (2,250,000) Less:Withdrawal Liability IBEW (552,078) Less:Withdrawal Liability PERS (Estimated) (100,000) Estimated Residual Electric Trust(1/1/2024) 23,092,922 Plus: Holdback Return (Estimated) 2,250,000 Estimated Residual Electric Trust(1/1/2025) 25,342,922 7 Other Important Ag Terms • Section 6.03: Rate Freeze • "As soon as reasonably practicable, but in no event more than sixty (60) days after the Certification, Seller shall engage a reputable consultant with knowledge and experience in electric utility retail ratemaking to complete a study of the Electric Rates and Charges, Rates for Electrical Power by Class of Service" section of Seller's Ta riff" • "As soon as practical after the completion of the Seller Rate Study, but in no event later than January 1, 2024, Seller shall take all steps necessary to approve and shall implement revisions to Seller's Base Rates" • "Buyer will not request an increase in Seller's Adjusted Base Rates in a filing with the RCA with an effective date that is before the earlier to occur of the date that is three (3) years after the implementation of the Seller's Adjusted Base Rates or January 1, 2027" 8 Other Important Ag Terms • Section 6.07: New Board Member Seat • "No later than thirty (30) days after Certification, Buyer shall recommend to Buyer's members that Buyer amend its bylaws (the "Buyer Bylaws Amendment") to create a fourth election district (District 4) comprised of the System's customers who will become members of Buyer as of the Closing Date and permit the appointment of a Board member from such district" • "Should the Buyer Bylaws Amendment not be approved at the initial vote, Buyer shall submit the Buyer Bylaws Amendment for approval annually for at least the following two (2) years." 9 Other Important Agreement Terms (cont . ) • Section 7.01 • "Buyer shall offer employment to all of Seller's employees" 10 Yard Lease and Right of First Refusal Parcel ( Exhibit L • Yard Lease • Portion of Lot 6A-2 Fort Raymond Subdivision • "an initial lease term of twenty (20) years, followed by two (2) five (5)-year extension • At end of any term, "Buyer shall have the option to purchase the Yard Lease Site from Seller at fair market value" • Rent • First 15 years: "eight percent (8%) of annual revenues paid to Buyer by cruise ships docked at the Port of Seward for electric service" • Each year after: "annual amount determined by an appraisal of the fair market lease value for the Yard Lease Site conducted during the fifteenth (15th) year of the initial term" 11 Yard Lease and Right of First Refusal Site ( Exhibit L ) (cont . • Right of First Refusal Property (ROFR Site) • Adjacent to Yard Lease • If Seward receives a bona fide offer to purchase, HEA will have a sixty-day period after being given notice to "purchase the entirety of the ROM Site from Seller on substantially the same terms as the ROM Third-Party Purchaser's offer" • ROM lasts "for a term of twenty (20) years and for such longer term as the Yard Release remains in effect" • If HEA does not deliver a purchase offer within the sixty-day period, Seward can sell. 12 Yard Lease and Right of First Refusal Parcel ( Exhibit L ) (cont . , as� r� If 140, y � s .M r Yard Lease ROM Parcel 13 Timeline Past Council Approval of Voter Election Joint Application Resolutions Agreement mmlo. Approval Certification to RCA (Past) (3/28/23) (5/2/23) (5/9/23) (As soon as PSA is finalized) Release of HEA Bylaw Closing RCA Approval Holdback (1 year Amendment (120 4=m (60 days after (12 — 18 months from Closing) days from Closing) RCA approval) after application) 14