REPORT TO COUNCIL
SUBJECT
Title
Action on Authorizing the City Manager to (1) Execute Agreements With Allied Power Group, LLC and Erwin Services Corporation for a Maximum Compensation of $1,000,000 for Each Agreement and (2) to Negotiate and Execute Amendments to Agreements with TransCanada Turbines, General Electric Packaged Power LLC, Stephens Mechanical Corporation, Axis Mechanical Group, Performance Mechanical, Inc., Allied Power Group, LLC, and Erwin Services Corporation for Millwright Services for an Aggregate Maximum Compensation of $100 Million to be Funded by Silicon Valley Power
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
Silicon Valley Power (SVP) operates two power plants in Santa Clara - the Donald Von Raesfeld (DVR) Power Plant and the Gianera Generating Station (Gianera). These power plants are critical to SVP’s continued energy generation operations. DVR and Gianera are vital for maintaining the stability and reliability of the grid and supporting the increase in demand for electricity. In addition, operating these power plants within the City results in revenue exceeding $40 million annually and also help to avoid Transmission Access Charges (TAC) exceeding $20 million annually. TAC charges are costs that SVP must pay to use transmission lines to bring power to the City. Since DVR and Gianera are located within the City the TAC does not apply. During some periods, operating DVR and Gianera results in revenue exceeding $600,000 per day. SVP also operates power generation facilities outside of the City that require maintenance and repairs including the Stony Creek Hydroelectric System and the Grizzly Hydroelectric Project.
The gas and steam turbines at DVR and Gianera have been in operation for over twenty years and are critical to SVP. In 2020, staff began developing a proactive approach to overall SVP maintenance, including power plants, to increase reliability. SVP relies on contractors with specialized expertise to provide the necessary services required for maintaining the gas and steam turbine engines as well as associated equipment in power plants. Most of these services are provided by millwright contractors. A millwright is a craftsman or skilled tradesman that installs, dismantles, maintains, repairs, reassembles, and moves machinery in factories, power plants, and construction sites.
Since 2020, routine maintenance and repair work for the GE turbines has been provided by TransCanada Turbines (TCT) and can be provided by GE Packaged Power (the original equipment manufacturer) and includes the following:
• Borescope inspections.
• Package inspections and calibrations, including air filter inspections, foreign object debris inspections and accessory inspections.
• Swapping engines, such as swapping a spare engine into service for maintenance and repair of an operating engine.
• Other field repairs and modifications to the engines.
• Depot Services such as inspection, maintenance, repair, and overhaul services that are performed at the contractor’s location (depot).
• Fabrication, repair, and procurement of parts necessary to maintain engines in optimal condition.
Other millwright service contractors perform some of the above services such as borescopes, inspections, maintenance, and repair of engines for other power plant equipment. In addition, these other millwright contractors perform maintenance and repair of steam turbines, generators, pumps, motors, and balance of plant equipment.
As presented to the City Council as part of the SVP Quarterly Reports, in 2020 staff began developing and implementing a more proactive approach to SVP maintenance by pursuing and implementing master agreements for millwrights and other regular services. Prior to having master agreements, several emergency declarations were required to complete critical repairs at SVP’s power plants. As part of SVP’s proactive maintenance approach, and to minimize emergency work, the City Council authorized the following master agreements for DVR and Gianera:
• April 6, 2021 (RTC 21-228): The City Council authorized the City Manager to negotiate and execute master service agreements with General Electric Packaged Power, LLC (GE Packaged Power) and TCT to, among other things, perform gas turbine field and depot services and supply parts for a five-year term with an aggregate maximum compensation of $30 million. Note that at this time, GE Packaged Power has not agreed to terms of an agreement with the City.
• On February 21, 2023 (RTC 23-96): The City Council authorized the City Manager to (1) negotiate and execute Amendment No. 1 to an agreement with Stephen’s Mechanical for millwright services increasing maximum compensation to $1.0 million and (2) negotiate and execute agreements with Axis Mechanical Group and Performance Mechanical Inc. with an aggregate maximum compensation of $30 million over ten years.
Since 2021, all millwright services have been procured under these executed agreements. Due to the increased demand for millwright support services and the need for a larger pool of contractors to support emergency and scheduled outage needs, SVP desires to enter into additional master agreements, increase the aggregate maximum compensation over all millwright agreements, and take other actions described in this report.
DISCUSSION
Agreements with Allied Power Group, LLC and Erwin Services Corporation
Pursuant to City of Santa Clara Code Section 2.105.140(c), the City conducted a formal Request for Proposals (RFP) process with the award recommendation based on “best value.” The RFP for as-needed millwright support services, including turbine inspection, maintenance, repair, and overhaul services, was published in 2023 using the City’s e-procurement system. Two proposals were received from the following firms:
1. Allied Power Group, LLC (Allied Power)
2. Erwin Services Corporation (Erwin Services)
The proposals were independently evaluated by a panel against the criteria published in the RFP. Both firms were determined to meet the requirements of the RFP, and staff is recommending entering into master agreements with Allied Power and Erwin Services to provide as-needed millwright support services. These two agreements will add both firms to the pool of millwright service contractors, bringing the total to seven contractors (including services for the DVR turbines that can only be performed by GE Packaged Power and TCT).
The proposed initial maximum compensation for the agreements with Allied Power and Erwin Services is $1,000,000. Each agreement is proposed to have an initial term ending on January 31, 2028, to align with the existing millwright agreements.
Aggregate Authorization for All Millwright Agreements
After adding the agreements referenced above, the seven contractors providing as-needed millwright support services are:
1. Allied Power Group, LLC (proposed agreement)
2. Axis Mechanical Group, Inc. (existing agreement)
3. Erwin Services Corporation (proposed agreement)
4. General Electric Packaged Power, LLC (The City Council has authorized staff to negotiate and execute an agreement, however the City and GE Packaged Power have not agreed upon terms of a final agreement.)
5. Performance Mechanical, Inc. (existing agreement)
6. Stephens Mechanical Corporation (existing agreement)
7. TransCanada Turbines (existing agreement)
All existing and proposed agreements include a high-level scope of services. For the GE engines at DVR, quotes will be requested exclusively from TCT and GE Packaged Power (if a contract is executed with GE Packaged Power).
For other millwright services, projects will be assigned to the contractors pursuant to a secondary bid process using the work authorization process outlined in the agreements. This process involves obtaining quotes from the contractors and awarding based on factors such as their availability of their schedule, relevant experience with specific turbines, engines, and associated equipment, and cost.
Rates for labor and equipment are established in the agreements and are subject to reasonable increases. Any rate increases are subject to approval by the City and must be substantiated by the contractors to the satisfaction of the City.
The previous authorization for the GE Packaged Power and TCT agreements is a shared authorization not to exceed $30 million over a five-year term. Due to several large required and unanticipated repairs, additional funding is needed for future services. The previous authorization for the agreements with Stephen’s Mechanical, Axis Mechanical Group, and Performance Mechanical Inc. is a shared authorization not to exceed $30 million over a ten-year term. To simplify management of these contracts and address future needs, staff recommends that the City Council authorize increasing the aggregate maximum compensation by an additional $40 million to be shared across all seven millwright agreements for a new aggregate maximum compensation not to exceed $100 million for the period ending January 31, 2033.
By authorizing an aggregate maximum compensation, staff is able to direct funding based on award of specific projects as pricing may vary significantly based on the services needed. Based on the longest term of 12 years, these authorizations represent and average authorization of approximately $8 million annually for assets that (1) generate over $40 million annually in revenue, (2) avoid over $20 million in Transmission Access Charges, and (3) are critical to grid stability.
Staff further recommends that the City Council authorize the City Manager to negotiate and execute amendments to the TCT agreement to extend the term through January 31, 2033, to align with the authorized term of the other millwright agreements. For the executed GE Packaged Power agreement, staff is seeking authorization for a term ending January 31, 2033. The previous authorization for millwright agreements was a five-year term with five one-year renewals. Staff recommends the City Council authorize the City Manager to execute extensions for up to five years after the initial term ends on January 31, 2028, in such increments as determined by the City Manager. This modifies the previous authorization for five one-year renewals and reduces administrative time that would be required to execute amendments to extend the term each year.
ENVIRONMENTAL REVIEW
Staff recommends that the City Council determine that the proposed actions are exempt from the California Environmental Quality Act (“CEQA”) pursuant to section 15301 of Title 14 of the California Code of Regulations as the activities to be authorized consists of maintenance and repair of existing facilities involving negligible or no expansion of existing uses.
FISCAL IMPACT
The total proposed authorization of the Master Agreements is $100 million over a ten-year period (twelve-year period for TCT). The costs associated with these proposed agreements are budgeted as part of SVP’s operating or capital budget based on the specific service required. Sufficient funding is available in SVP’s operating and capital budget for FY 2024/25.
Funds required for these agreements in future years will be included in the proposed budgets for corresponding years.
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 public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
1. Determine the proposed actions are exempt from CEQA pursuant to Section 15301 of Title 14 of the California Code of Regulations;
2. Authorize the City Manager or designee to execute an agreement with Allied Power Group, LLC for as-needed millwright services starting on or around December 1, 2024, and ending on January 31, 2028, with a maximum compensation not to exceed $1,000,000, subject to the appropriation of funds and approval as to form by the City Attorney;
3. Authorize the City Manager to execute an agreement with Erwin Services Corporation for as-needed millwright services starting on or around December 1, 2024, and ending on January 31, 2028, with a maximum compensation not to exceed $1,000,000 subject to the appropriation of funds and approval as to form by the City Attorney;
4. Authorize the City Manager to negotiate and execute amendments to Agreements for millwright services with an additional aggregate maximum compensation of $40 million for a new aggregate maximum compensation of $100 million shared among TransCanada Turbines, General Electric Packaged Power LLC, Stephens Mechanical Corporation, Axis Mechanical Group, Performance Mechanical, Inc., Allied Power Group, LLC, and Erwin Services Corporation all funded by the Electric Utility Capital Fund or Electric Utility Operating Fund and allocated as SVP may require, subject to the appropriation of funds and approval as to form by City Attorney; and
5. Authorize the City Manager to take any actions as necessary to implement and administer the above agreements and to negotiate and execute amendments to (a) add or delete services consistent with their scope of services; (b) adjust future rates to account for reasonable market changes in labor and equipment rates; and (c) exercise options to extend the terms of the agreements through January 31, 2033.
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Proposed Agreement with Allied Power Group, LLC
2. Proposed Agreement with Erwin Services Corporation