REPORT TO COUNCIL
SUBJECT
Title
Action to Authorize the City Manager to Negotiate and Execute Agreements and/or Amendments to Existing Agreements as Required to Complete Emergency Transformer Replacement at Juliette Substation and Approve Related Budget Amendment
Report
BACKGROUND
The City of Santa Clara's Electric Utility, Silicon Valley Power (SVP), owns and operates the Juliette Substation (JUL), which provides electric service and power to Intel Corporation (Intel). Intel is one of SVP’s largest customers, and the Intel campus connects to SVP’s 60KV Northwest Loop.
SVP and Intel are interconnected between SVP’s 12KV transformers and the customer’s 12KV switchgear. Intel is responsible for maintaining their own switchgear and substation. As part of the electric system, SVP owns and is responsible for maintaining the 60KV Circuit Breakers and two (2) 60KV/12KV, 56MVA distribution transformers at JUL.
Intel’s Request to Re-rate Existing Transformers
In 2022, Intel requested that SVP conduct a re-rating of the existing 56MVA transformers at JUL. Their requested rating is 62MVA, which represents a 10.7% increase.
These transformers were manufactured by the HK Porter Company in 1986. Delta Star Inc. (DSI) currently holds ownership of the design; therefore, SVP contracted with DSI to perform the re-rate study for the transformers located at JUL. Intel has or will pay for the study, the resulting inspections, and all the recommended upgrades.
In September 2022, DSI performed an initial inspection and assessment of the JUL transformers to determine whether they were in acceptable condition to be rated at a higher MVA. At that time, DSI informed SVP that the transformer inspection and field testing did not indicate any problem areas or concerns, and that the transformers could be re-rated to 62MVA. As a part of their deliverables, DSI also produced a re-rate engineering report, which outlined the new MVA rating for the existing JUL transformers, along with all of the required field upgrades.
In March 2024, prior to performing field upgrades to the JUL transformers, DSI performed an additional inspection. This time, DSI found various issues with the transformers, including:
1) Large gaps in the core steel and possible core joint overheating, as evidenced by high parts-per-million (PPM) concentration of hydrogen gas in the insulating oil.
2) Loose key spacers in the transformer’s high voltage winding. This can pose a critical challenge during a fault.
3) Low voltage winding leads and bushings that need to be replaced in order to increase the MVA rating of the transformers.
4) Other identified areas of concern are regarding the heating of oil and paper as shown by elevated gases in the insulating oil and the lack of margin in winding rises.
Due to these new findings from the latest field inspection of the JUL transformers, a re-rate is no longer feasible. DSI has recommended the following: (1) maintain the current transformers MVA rating; (2) increase monitoring, and (3) add cooling fans in an effort to extend the life of the aging transformers until their replacements are delivered. This will affect Intel’s request to meet their desired 62MVA demand as the transformers will remain at their current rating of 56MVA until replaced.
DISCUSSION
SVP, with concurrence from the Purchasing Division Manager, recommends that the City procure from DSI two (2) new 65MVA transformers for JUL without being required to engage in a formal competitive procurement process. Under Section 2.105.290 of the Santa Clara City Code, the City of Santa Clara (the City) may forgo competitive bidding when, “Due to circumstances beyond the control of the City, the time necessary to use the competitive procurement procedure would result in substantial economic loss to the City or substantial interference with a critical City operation.” These transformers require replacement to avoid a substantial interference with a critical City operation, namely, to provide electric service.
SVP conducted due diligence by directly reaching out to major transformer manufacturers, including Delta Star, Inc. (DSI), Prolec-GE Waukesha, Inc., Siemens Energy USA, and Hyundai Power Transformers USA (Hyundai), and received limited responses. Hyundai declined to bid on transformers of this size and other vendors have not yet provided bids for SVP’s consideration. In addition, the current market is facing significant supply chain issues, with many large vendors refusing to accept any new orders or unable to meet SVP’s delivery requirements.
DSI provided SVP with a quote for two (2) new 60KV/12KV, 65MVA transformers. DSI’s pricing is $9.3 million for both transformers, with the first delivery scheduled for the end of Q3/2025 and the second delivery promised for Q4/2026. This quote expires 30 days from May 1, 2024. DSI is the only local power transformer manufacturing company with a plant in San Carlos, CA, and a local transformer field services crew, and DSI is currently supporting SVP with similar projects. Staff is evaluating potential options included in the quote for additional services and recommended spare parts. This pricing does not include tax, therefore, staff recommends authorization for up to $11.5 million for these transformers including optional items, freight, and taxes.
In addition, staff requests authorization for the City Manager to negotiate and execute contracts, agreements, amendments to existing agreements, or issue purchase orders where appropriate for the purchase of all services necessary for the installation of the transformers. This includes (1) civil, foundation and overhead electrical work services, (b) design and construction of new foundation, oil containment, and electrical connections, and (c) any additional modifications and protection coordination work. Staff will authorize this work using existing agreements with engineering firms or through new agreements in alignment with the City’s purchasing policy and in the best interest of the City. Where construction services are needed, such services will be solicited and contracted pursuant to the City Charter.
The phased approach for replacing the JUL 56MVA transformers is as follows:
1. Phase 1 - Approve procurement of two (2) new transformers and issue a Purchase Order to secure delivery dates.
2. Phase 2 - Begin engineering design for civil, foundation, oil containment, overhead electrical and protective relays.
3. Phase 3 - Solicit and contract services from a general contractor to perform civil and electrical work outside of the transformer manufacturer’s scope.
4. Phase 4 - Field construction, installation, testing, commissioning, and energizing two (2) new transformers at JUL over multiple years.
Estimated Costs
SVP is anticipating additional costs related to the foundation design, civil work, overhead electrical work, and construction of the oil containment. Currently, the only known cost is that of the two (2) new 60KV/12KV, 65MVA Transformers without options. Civil and electrical work cost estimates are based on a similar scope of work at SVP’s Agnew Substation. Staff recommends approval of an additional $2,000,000 for contingency.
A preliminary estimate of the equipment and tasks that have been identified and their associated cost is as follows:
|
Equipment/Project |
Estimated Cost |
|
Procurement of two (2) transformers including selected options and sales tax |
$11,500,000 |
|
Civil, overhead electrical and foundation work for two (2) transformers |
$ 1,500,000 |
|
Contingency |
$ 2,000,000 |
|
Total Estimated Cost |
$15,000,000 |
Contract Authority
Due to the critical need to replace the transformers at JUL as soon as possible, SVP recommends an expedited process that delegates authority to the City Manager to negotiate and execute new agreements and/or amendments to existing agreements for a total authorization of up to $15,000,000 for the specific purpose of completing all procurement of materials and services related to the two (2) new transformers at JUL. SVP will coordinate closely with the Purchasing Division of the Finance Department as well as with the City Attorney’s Office to assure procurement methods are aligned with the City Charter, the City Ordinance, City policies, and will evaluate the decision to execute new agreements and/or amendments to existing agreements to best meet the needs of the City. Approval of these recommendations will permit staff to execute documents needed to secure delivery timelines for these critical transformers and accelerate other actions associated with this critical project.
ENVIRONMENTAL REVIEW
Staff recommends that the City Council determine that the proposed actions are exempt from the California Environmental Quality Act (“CEQA”) pursuant to sections 15301 and 15302 of Title 14 of the California Code of Regulations as they authorize the replacement of existing infrastructure.
FISCAL IMPACT
The recommended budget amendment below is needed to fully fund the transformer procurement costs, as well as associated engineering and construction services. Costs, totaling $15.0 million are proposed to be funded by a transfer from the Electric Utility Fund Unrestricted Fund Balance to the Juliette Substation Transformer Rerate and Installation Project (CIP 2462) in the Electric Utility Capital Fund.
Budget Amendment
FY 2023/2024
|
|
Current |
Increase/ (Decrease) |
Revised |
|
Electric Utility Fund (091) |
|
|
|
|
Transfers Out |
|
|
|
|
Transfer to the Electric Utility Capital Fund |
$23,062,234 |
$15,000,000 |
$38,062,234 |
|
|
|
|
|
|
Ending Fund Balance |
|
|
|
|
Unrestricted Fund Balance |
$87,174,994 |
($15,000,000) |
$72,174,994 |
|
|
|
|
|
|
Electric Utility Capital Fund (591) |
|
|
|
|
Transfers In |
|
|
|
|
Transfer from the Electric Utility Fund |
$23,062,234 |
$15,000,000 |
$38,062,234 |
|
|
|
|
|
|
Expenditures |
|
|
|
|
Juliette Substation Transformer Rerate and Installation Project |
$ 4,252,040 |
$15,000,000 |
$19,252,040 |
COORDINATION
This report has been coordinated with the Finance Department and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
1. Determine the proposed actions are exempt from CEQA pursuant to Sections 15301 (Class 1 -Existing Facilities) and 15302 (Class 2 - Replacement or Reconstruction) of Title 14 of the California Code of Regulations;
2. Authorize the City Manager to negotiate and execute agreements and/or amendments to existing agreements to complete the transformer replacements at Juliette Substation with a maximum compensation of $15,000,000, subject to approval as to form by the City Attorney;
3. Authorize the City Manager to take any actions as necessary to implement and administer the agreements and to negotiate and execute amendments as needed to complete the Juliette Substation transformer replacements, subject to the total maximum authorization of $15,000,000 and review and approval as to form by the City Attorney;
4. Approve the following FY 2023/24 budget amendments:
A. In the Electric Utility Fund, increase the transfer to the Electric Utility Capital Fund and decrease the Unrestricted Ending Fund Balance in the amount of $15.0 million (five affirmative Council votes required for the use of unused balances); and
B. In the Electric Utility Capital Fund, recognize a transfer from the Electric Utility Fund and increase the Juliette Substation Transformer Rerate and Installation Project in the amount of $15.0 million (five affirmative Council votes required to appropriate additional revenue).
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: Jovan D. Grogan, City Manager