PORT OF SEATTLE
MEMORANDUM
COMMISSION AGENDA
Item No.
6e
Date of Meeting
August 25, 2009
DATE: August 18, 2009
TO: Tay Yoshitani, Chief Executive Officer
FROM: Michael Burke, Senior Manager, Container Leasing and Operations
SUBJECT: Revision to Proposed Tenth Amendment to the lease with Total Terminals, Inc.
for Terminal 46.
ACTIONS REQUESTED
1. Request for authorization for the Chief Executive Officer to execute revised Customer
Support Package/Port’s Clean Air Program lease amendment with Total Terminals, Inc.
2. Authorization for the Port to purchase energy efficient light fixtures and related
equipment for Terminal 46 for an amount not to exceed $680,000.
BACKGROUND
On April 14, 2009, the Commission authorized lease amendments with all of our container
terminal tenants to incorporate the Customer Support Package and Clean Air Program. As part
of that authorization for Terminal 46, leased to Total Terminals Inc. (TTI), the Commission
authorized the Port to contribute up to $600,000 to Seattle City Light for the lighting upgrade
program for Terminal 46, to improve the energy efficiency of that lighting system.
Unfortunately, the Port and Seattle City Light (SCL) have not been able to work out a
mechanism for the Port to make that contribution through SCL. As an alternative, staff is now
recommending that the Commission amend the authorization to allow the Port to purchase the
energy efficient lighting fixtures and related equipment, and to verify the lighting design meets
required standards and is structurally safe, for an amount not to exceed $680,000. The tenant
will be responsible for the costs and risks to install the improved lighting system. Until the
engineering is complete, there is some risk that the lighting upgrade will not be feasible. If that
were to happen, the Port and TTI would have to work out some alternative and staff would bring
any revised plan back to Commission for authorization. The Port will work with the light fixture
supplier to minimize light spillover beyond the terminal boundaries but some spillover is
inevitable in order for the lighting system to meet minimum required lighting levels on the
terminal, including the dock.
In addition, staff is also requesting the TTI amendment be modified to give TTI 30 days
additional time to pay all rent included in their box rate for one year. The original authorization
was to give the additional 30 days for land rent only, but TTI’s lease converts both land and
COMMISSION AGENDA
T. Yoshitani, Chief Executive Officer
August 18, 2009
Page 2 of 5
crane rent into a box rate. The Port’s automated billing process cannot accommodate the
segregation of the box rate at Terminal 46 into two separate components. Segregation of the T-
46 box rate into two separate billing components would require manual invoicing for the 12-
month customer support program duration, and would result in an increased risk of billing errors.
In addition, the Port’s CCCS billing system, used for the Terminal 46 lease, does not retain
information on manual billings so the integrity of the audit trail for this lease would be reduced.
TERMS OF THE LEASE AMENDMENT
On April 14, 2009, the Commission authorized the Chief Executive Officer to execute lease
amendments with Total Terminals, Inc. for Terminal 46, SSAT (Seattle) for Terminal 25/30,
SSA Terminals for Terminal 18, and Eagle Marine for Terminal 5 to incorporate the Customer
Support Package and the Ports Clean Air Program into those leases. The major elements of the
proposed lease amendment with Total Terminals, Inc. are:
1. The Port will reduce the crane hourly rate on Port owned cranes, currently at $647/hour,
by 25% and remit reduction savings for one year from the date of execution of the
amendment.
2. Once the terminal has reached the previous 12 month volumes, defined as paying the
same revenues (before the 25% rebate) as the previous 12 months for crane use, then the
Port will reduce crane hourly rate to 50% and remit reduction savings for the remainder
of the 12 month period established in item 1. This item is aimed at giving an incentive
for new cargo volumes.
3. For a one-year period, tenant terms of payment for space rent will extend by 30 days.
Due to the complication of the box rate rent which TTI pays for Terminal 46 volumes,
which includes land and crane rent as well as all applicable taxes, this request proposes
that TTI get the 30 day extension for all rent used to calculate their box rate per lift.
4. The TTI agrees to the conditions of the Environmental Attachment. The Environmental
Attachment commits the tenant to Port’s truck program, to using either upgraded yard
equipment or cleaner fuels, and to cooperate with the Port on improved environmental
standards. The Port’s truck program will require all trucks entering the terminal on Jan.
1, 2011, or later be model year 1994 or newer.
5. As part of the Environmental Attachment, the Port and the TTI agree to work on energy
saving projects. An example of this is the Seattle City Light program to upgrade terminal
lighting to save energy.
6. At Terminal 46, for the next four years, TTI will owe the Port $600,000 each year if it
does not achieve a 320,000 TEU annual throughput, per the agreement in the Ninth
Amendment to the lease. This agreement would defer this obligation, giving TTI up to
COMMISSION AGENDA
T. Yoshitani, Chief Executive Officer
August 18, 2009
Page 3 of 5
three more years to achieve that volume level. In other words, TTI would need to
achieve the 320,000 TEU annual volume level in four of the next seven years to meet the
obligation and avoid any payment.
7. In addition, the Box Risk Premium fee, which applies to volumes between 180,000 TEUs
and 220,000 TEUs and which doubles with the removal of Crane 54 per current lease
language, will remain at the current rate. The Box Risk Premium fee is currently at $3.46
per lift.
8. In addition, the Port was to contribute up to $600,000 to Seattle City Light for the
lighting upgrade program for Terminal 46, improving the energy efficiency of that
lighting system. The Port and Seattle City Light have been unable to work out a
mechanism to do this so staff now proposes that the Port fund the purchase of light
fixtures and related equipment to accomplish this lighting upgrade, including verification
of lighting levels and structural condition of poles. The estimated cost for this purchase
and related engineering work is $680,000. TTI will be responsible for all costs to install
(which include permitting, design, construction and performance) the lighting system
upgrade.
PROJECT SCOPE OF WORK
Overall project scope is to prepare purchasing package for the energy efficient lighting
fixtures and related equipment based on approved design documents.
Review and approve tenant’s design package, which include scopes of work, design
drawings, and calculation with professional engineer stamp which demonstrate code
compliance for the tenant’s lighting replacement project.
Review manufacturer's shop drawings, demolition, and installation plans.
Ensure industry and code compliance, and Port requirements.
Final inspection and approval of completed work.
ALTERNATIVES CONSIDERED/RECOMMENDED ACTION
Alternatives considered in addition to the recommended action:
1. The Port could take on the lighting upgrade as a Port project including installation.
This would increase the delivery time for the upgraded lighting system and possibly
increase the costs. TTI’s benefits from reduced energy and maintenance costs would
be delayed and the Port would have to pay any increased costs resulting from this
approach.
COMMISSION AGENDA
T. Yoshitani, Chief Executive Officer
August 18, 2009
Page 4 of 5
2. Not changing the 30-day extension in payment terms to include the entire box rate
would mean that staff would have to generate separate manual invoices the each
month for the land and crane components of the box rate. This would be a labor-
intensive effort increasing Port costs, expose the Port to increased risk of mistakes,
and reduce the integrity of accounting records related to this lease.
3. Not making the lighting improvements would mean that TTI would not support the
amendment and the Port would not achieve the benefits of the truck program and
green lease language.
FINANCIAL ANALYSIS:
Budget/Authorization Summary
Previous Authorizations
Current Request for Authorization
Total Authorizations, Including this Request
Remaining Budget to be Authorized (estimated)
Project Cost Breakdown
Engineering Services Support
Purchase of Lighting Fixtures, Related Equipment, and Sales Tax
Total
Source of Funds
The Terminal 46 lighting program is a capital project and was not included in the 2009 Draft
Plan of Finance. The additional $80,000 in funds needed for this capital project is available due
to anticipated timing delays in other 2009 Draft Plan of Finance committed projects, such as
purchase of container support yard land. This project will be funded from the general fund.
No other funds are needed for the Terminal 46 Customer Support Plan.
Financial Analysis Summary
CIP Category
N/A
Project Type
N/A
Risk adjusted
Discount rate
N/A
Key risk factors
The risks associated with the overall Customer Support Package are
neither increased nor reduced by this requested modification to the
Terminal 46 lease amendment.
Business Unit (BU)
Container Operations
COMMISSION AGENDA
T. Yoshitani, Chief Executive Officer
August 18, 2009
Page 5 of 5
Cash Flow Impacts
An estimate of the impact to the Port’s cash flow from the one-year
customer savings program at Terminal 46 only is shown below. The
difference in cash flow impact for Terminal 46, when compared to the
prior Commission Memo dated 4/14/09, is due to the inclusion of the
entire box rate in the 30-day payment deferral terms.
Customer Savings Program - Terminal 46 only
Cash Flow (in $000's) 2009 2010 Total
Commission Memo - dated 4/14/09 (751) 751 0
Commission Memo - revised estimate (978) 978 0
Change in cash flow by year: (227) 227 0
Effect on Business
Performance
The extension of payment terms by 30 days for the entire box rate at
Terminal 46 represents a timing difference in cash flows, but does not
affect NOI.
The $100,000 increase in the cost of the Terminal 46 lighting project
will increase depreciation expense for this capital asset to $14,000
annually, from the $12,000 annually previously reported.
PREVIOUS COMMISSION ACTION
On April 14, 2009, the Commission authorized the Chief Executive Officer to execute lease
amendments with Total Terminals, Inc. for Terminal 46, SSAT (Seattle) for Terminal 25/30,
SSA Terminals for Terminal 18, and Eagle Marine for Terminal 5 to incorporate the Customer
Support Package and the Ports Clean Air Program into those leases.