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Home My WebLink About08129Substituted Copy December 28, 2009 ORDINANCE NO. 8129 AN ORDINANCE APPROVING A PRE - ANNEXATION AGREEMENT BETWEEN THE CITY OF PUEBLO AND BLACK HILLS /COLORADO ELECTRIC UTILITY COMPANY, LP AND BLACK HILLS ELECTRIC GENERATION, LLC RELATING TO PAYMENT IN LIEU OF SALES AND USE TAX, PROPERTY TAX INCENTIVE, AND PARTIAL PAYMENT IN LIEU OF SALES AND USE TAX, AUTHORIZING THE PRESIDENT OF THE CITY COUNCIL TO EXECUTE SAME, AND BUDGETING AND APPROPRIATING $4.6 MILLION FOR CAPITAL PROJECTS TO BE DETERMINED BE IT ORDAINED BY THE CITY COUNCIL OF PUEBLO, that: SECTION 1 The Pre - Annexation Agreement dated as of December 28, 2009 between the City of Pueblo and Black Hills /Colorado Electric Utility Company, LP and Black Hills Electric Generation, LLC, a copy of which is attached hereto and incorporated herein by reference (the "Agreement'), is hereby approved. The President of the City Council is authorized to execute and deliver the Pre - Annexation Agreement in the name of the City and the City Clerk is directed to affix the seal of the City thereto and attest same. SECTION 2 The $4.6 million Partial Payment described in the Pre - Annexation Agreement is hereby budgeted and appropriated for the purpose of capital projects to be determined, and transferred to the Capital Improvement Fund established by Section 7 -16 of the Charter of the City. SFrTin i If any provision of this Ordinance shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable, the same shall not affect any other provision or provisions hereof or render same invalid, inoperative or unenforceable to any extent whatsoever. SECTION 4 All ordinances, or parts thereof, in conflict with this Ordinance are hereby repealed to the extent of any such conflict. SECTION 5 This Ordinance shall become effective on final adoption and passage. INTRODUCED: December 14, 2009 BY: Randy Thurston /COUNCILPERSON PASSED AND APPROVED: December 28, 2009 [Dp:q� D Substituted Copy December 28, 2009 ED Background Paper for Proposed ORDINANCE AGENDA ITEM # R -12 DATE: December 14, 2009 DEPARTMENT: Law Department TITLE AN ORDINANCE APPROVING A PRE - ANNEXATION AGREEMENT BETWEEN THE CITY OF PUEBLO AND BLACK HILLS /COLORADO ELECTRIC UTILITY COMPANY, LP AND BLACK HILLS ELECTRIC GENERATION, LLC RELATING TO PAYMENT IN LIEU OF SALES AND USE TAX, PROPERTY TAX INCENTIVE AND PARTIAL PAYMENT IN LIEU OF SALES AND USE TAX, AUTHORIZING THE PRESIDENT OF THE CITY COUNCIL TO EXECUTE SAME, AND BUDGETING AND APPROPRIATING $4.6 MILLION FOR CAPITAL PROJECTS TO BE DETERMINED ISSUE Should City Council approve the Ordinance and Pre - Annexation Agreement? None. BACKGROUND Black Hills intends to annex certain property to the City and construct and install thereon natural gas electric generation facilities. The personal property portion of the facilities subject to City's sales and use tax is estimated to be $284 Million, which would generate approximately $10 Million in City's sales and use taxes. After construction, it is estimated that the City's annual property tax would be $1.5 to $2 Million. The estimates are based upon Black Hills' representations subject to review by City of documentation to be provided by Black Hills. In order to locate in the City, Black Hills has requested economic incentives from the City. The Pre - Annexation Agreement provides the following incentives: $7.5 Million payment in lieu of sales and use tax with $4.6 Million to be paid in 2009; annual property tax credit of 100 percent during the construction period (estimated two years); and annual property tax credit equal to 50 percent of City's property tax for a period of 5 years after the construction period. FINANCIAL IMPACT See Background. PRE - ANNEXATION AGREEMENT THIS PRE - ANNEXATION AGREEMENT ( "Agreement ") entered into as of December 28, 2009 by and between the City of Pueblo, a municipal corporation ( "City ") and Black Hills /Colorado Electric Utility Company, LP, a Delaware limited partnership, and Black Hills Electric Generation, LLC, a South Dakota limited liability company (each of them referred to as a "Petitioner" and collectively referred to as the "Petitioners "). WITNESSETH: RECITALS A. Petitioners intend to annex certain real property owned by Petitioners ( "Property ") to the City pursuant to a mutually acceptable Annexation Agreement between the City and Petitioners ( "Annexation Agreement "). B. Petitioners intend to construct and install upon the Property two 90- megawatt LMS 100 natural gas fired turbines, two 100 - megawatt natural gas fired combined cycle plants, a 115 -KV switchyard, and supporting facilities (collectively the "Facilities "). C. Petitioners are willing to pay to the City in advance of annexation and construction of the Facilities a partial lump sum payment in lieu of sales and use taxes related to the construction, installation and acquisition of the Facilities. AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals, the payments to be made under Section 1 of this Agreement, other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and the mutual covenants contained herein, City and Petitioners agree as follows: Payment In Lieu of Sales and Use Tax. (a) Petitioners shall pay to City as payment in lieu of sales and use tax related to the construction, installation and acquisition of the Facilities the sum of U.S. $7.5 Million ( "Payment In Lieu "). (b) The Payment In Lieu and all matters relating thereto shall be set forth in the Annexation Agreement, provided, however, that (i) Petitioners shall pay to City the sum ofU.S. S4.6 Million in cash or certified funds on or before December 31, 2009 as and for partial satisfaction of the Payment In Lieu ('Partial Payment "), and (ii) the balance of the Payment in Lieu to be paid in cash or certified funds on or before October 1, 2010. 2. Property Taxes. Subject to the provisions of the Annexation Agreement, City will provide to each Petitioner an annual property tax credit as follows: (1) from the effective date of the Annexation Agreement through the property tax year in which the Facilities become commercially operational or through the 2012 property tax year ( "property tax year" meaning the year in which taxes are payable for the prior assessment year), whichever occurs first ( "Construction Period "), City will provide a property tax credit equal to 100 percent of the Property Tax, and (b) commencing with the property tax year following the Construction Period, City will provide a property tax credit equal to 50 percent of the Property Taxes for a period of 5 years. For purposes hereof, "Property Taxes" for each Petitioner shall equal the City's mill levy multiplied by the assessed valuation for the real and personal property of the Facilities owned by that Petitioner. 3. Exclusion from Sales and Use Tax. The City hereby acknowledges and agrees that the purchase and sale of natural gas, steam and water for use in electric power generation at or from the Facilities are and will be considered exempt from City sales and use taxes; except that natural gas, steam or water used for lighting or space heating in such Facilities shall not be exempt. 4. Access Road. Petitioner Black Hills /Colorado Electric Utility Company, LP shall construct, at its expense, a road from William White Boulevard to the site for the Facilities. The Road shall be constructed to meet the City's reasonable requirements for a "Pioneer Road ", and shall comply with other requirements as set forth in the Annexation Agreement. 5. Refund. If the City Council of the City does not adopt an ordinance approving the Annexation Agreement and annexing the Property to the City on or before June 1, 2010, or such later date as the Parties may mutually agree, City will refund the Partial Payment to the Petitioners in full, without interest, on or before July I, 2010 or thirty (3 0) days after such later date established by the Parties for adoption of the ordinance approving the Annexation Agreement ( "Refund "). The City will take all lawful action reasonably required and necessary to effect such Refund. If the City fails to take any lawful action reasonably required and necessary to effect such Refund, Petitioners may pursue a remedy for specific performance, injunction or declaratoryjudgment to effect such Refund, but not for recovery of damages of any type or nature, with each party to pay its own costs and attorney fees. 6. Annexation. Neither the Partial Payment nor any other provision of this Agreement shall be or be construed to be a commitment or agreement, contractual or otherwise, of the City or the City Council of the City to annex the Property to the City, or to waive or relinquish any of the legislative powers of the City. The City Council may, in its sole and absolute discretion, approve the annexation of the Property to the City or not approve such annexation, for any reason, or no reason. 7. No Recourse Against Officers, Employees, Agents or Attorneys. No recourse shall be had for the payment of the Refund or for any claim based thereon or upon any obligation, covenant or agreement contained in this Agreement against any past, present or future officer, employee, agent or attorney of the City as such, either directly or through the City, under any rule of law or equity, statute, or constitution or by the enforcement of any assessment or penalty or otherwise, and all such liability of any such officers, employees, agents or attorneys as such is hereby expressly waived and released as a condition and consideration for the execution of this Agreement by City. 2 8. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado, without regard to conflict of law principal. 9. No Third Party Beneficiary. Nothing in this Agreement, express or implied, is intended, nor shall it be construed, to confer upon, or to give to, any person other than the City and the Petitioners any right, remedy or claim under or by reason of this Agreement or any covenant, condition or stipulation hereof, and all of the covenants, agreements and stipulations in the Agreement are for the exclusive benefit of the City and Petitioners. 10. Entire Agreement. All prior discussions, representations, understandings and agreements, whether oral or written, between the parties with respect to the subject matter of this Agreement are merged into this Agreement, which constitutes the entire Agreement between the parties with respect to the subject matter of this Agreement. 11. Assignment. Neither the City nor the Petitioners may assign this Agreement or any of their respective rights and obligations hereunder, provided that, upon consent of City in writing, each Petitioner may assign its rights and obligations under this Agreement to a wholly owned subsidiary or a wholly owned affiliate of a parent corporation of such Petitioner. In order to obtain such consent, the assigning Petitioner shall provide to City with the request for consent sufficient information showing that the proposed assignee has the technical and financial ability to perform the obligations of that Petitioner under this Agreement. Consent may be denied by City if, based upon the information provided, it reasonably determines that the assignee appears either not technically or financially qualified or able to perform the obligations of that Petitioner under this Agreement. 12. Notices. All notices or other communications hereunder shall be sufficiently given and shall be deemed given when personally delivered, or mailed by registered or certified mail, postage prepaid, addressed as follows: (a) if to the City, City Manager, City of Pueblo, I City Hall Place, Pueblo, Colorado, 81003, with a copy to the City Attorney, 503 N. Main Street, Suite 203, Pueblo, Colorado, 81003. (b) if to Petitioner Black Hills /Colorado Electric Utility Company, LP, 1515 Wynkoop Street, Suite 500, Denver, Colorado, 80202, (c) if to Petitioner Black Hills Electric Generation, LLC, 1515 Wynkoop Street, Suite 500, Denver, Colorado, 80202 or to such other address as either party by written notice given hereunder may designate. Executed as of the day and year first above written. [ S.E A L ] CITY OF PUEBLO Attest: ` �� fi By !/!� City -' Jerk President of the City Council BLACK HILLS /COLORADO ELECTRIC Attest: � UTILITY COMPANY, L.P. w v` "'r! Q A , By Name: &, RL64 Name: L �y Title: Ca U'ts t Title: y p Attest: BLACK HILLS ELECTRIC GENERATION, LLC By Name: CCe St& / , e q Name: Title: 4r,za. cej, - sr ( Title: UP 4