REPORT TO COUNCIL
SUBJECT
Title
Action on (1) Delegation of Authority to the City Manager to Negotiate and Execute a Lease Agreement for the Commercial and Warehouse Property Located at 1180 Richard Avenue, Santa Clara, for Materials Storage and Construction Support Purposes, and (2) Approve Two New Positions in the Finance Department Funded by SVP for SVP Storage and Construction Support Activities
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
The City of Santa Clara’s Electric Department, Silicon Valley Power (SVP), continues to experience significant electric load growth driven by increased demand from customers. SVP has a long-term capital improvement strategy to expand and modernize its electric infrastructure to meet this growth and will need ongoing resources to maintain the expanded system. As previously discussed with the City Council, SVP’s customer demand for electric power is expected to nearly double over the next decade.
In 2024, SVP reached a new system peak demand of 722 MW, surpassing the 2022 peak of 703. With planned system expansion projects, including the California Independent System Operator (CAISO) transmission line to be constructed by LS Power, SVP’s peak demand is expected to reach approximately 1,300 MW by 2030. To support this growth, SVP has a robust capital program that includes the following large projects with construction scheduled to begin in 2025:
• Expansion of the Northern Receiving Station (NRS), Scott Receiving Station (SRS), and Kiefer Receiving Station (KRS).
• Construction of a 115kV transmission line.
To successfully implement these projects and manage the associated materials, equipment, and contractors, SVP requires additional space for storage and logistics. The existing Central Warehouse located at 1705 Martin Avenue, Santa Clara, is insufficient to accommodate the large-scale materials and equipment required for upcoming capital projects and ongoing maintenance needs, including contractor staging areas and laydown areas. Moreover, other SVP construction projects also add to demands on warehouse operations and space availability.
DISCUSSION
To address these challenges, SVP identified a property at 1180 Richard Avenue that meets the City’s requirements for additional warehouse and laydown space. The property totals approximately 1.94 acres (84,506 square feet) with common areas, parking, and includes:
• A one-story office building (approximately 3,500 rentable square feet).
• A one-story service shop building (5,000 rentable square feet).
• Covered storage space (1,650 rentable square feet).
This property is conveniently located near SVP’s existing Corporation Yard and Central Warehouse.
Lease Terms
Staff, working with real estate brokers, have negotiated a non-binding Letter of Interest (LOI) for the property. The proposed lease is a triple-net agreement with the City responsible for paying taxes, maintenance, repairs, utilities, and insurance. Key terms include:
• Base Rent: Approximately $0.43 per square foot per month (approximately $436,000 per year in the first year).
• Initial Term: 76 months with a 50% rent reduction for the first four months.
• Annual Rent Escalation: 3%, reaching approximately $0.50 per square foot (approximately $500,000 annually).
The base rent rate may change depending on the start date of the lease and other pending negotiations. It is currently anticipated that the City will pay property taxes, insurance, utilities, and maintenance costs directly (versus paid first by the property owner and then charged to the City). Staff recommends authorization of up to $4 million in lease payments over the 76-month term in case the final negotiated structure of the lease agreement makes these non-base rent payments payable to the property owner, and to account for unanticipated costs that may arise.
Warehouse Operations and Staffing
The Central Warehouse is operated by the Finance Department under the direction of the Purchasing Division Manager. Historically, the Purchasing Division’s role in the warehouse focused on supporting utilities operations, primarily for maintenance activities. However, this new facility represents an expanded role for the Purchasing Division.
With the new warehouse, the Purchasing Division will take on significant responsibilities for procuring and managing materials and equipment to support SVP’s expansion projects and staging of contractors and materials performing maintenance and repair services. This includes integrating these materials into the City’s PeopleSoft inventory system, ensuring proper tracking, availability, and accountability. In addition, the Purchasing Division’s management will ensure conformance to the processes and standards established by the Purchasing Division Manager to align with best practices in procurement and inventory management to support SVP’s system expansion.
To meet these new demands, staff recommends the following positions for the new facility:
• Chief Storekeeper: Responsible for overseeing the operations of the warehouse, ensuring materials are properly managed.
• Materials Handler: Handles day-to-day functions, such as receiving, storing, and distributing materials.
Costs of these positions will be funded by SVP.
ENVIRONMENTAL REVIEW
The actions being considered do not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant section 15061 (b)(3) of Title 14 of the California Code of Regulations as the proposed lease will authorize City’s use of the premises in a manner consistent with current and prior uses. Therefore, it can be seen with certainty that there is no possibility that the activities in question may have a significant effect on the environment.
FISCAL IMPACT
The annual cost of the property is anticipated not to exceed $650,000 (including lease costs and additional costs such as taxes, insurance, maintenance, repair, and utilities). Sufficient funding is available in the Electric Utility Fund for FY 2024/25. The anticipated annual cost of adding 1.0 Chief Storekeeper and 1.0 Materials Handler in the Finance Department is approximately $332,000. Considering time for recruitment and hiring, the estimated cost for three months in FY 2024/25 is $83,000. A budget action can be brought forward at a later date once positions are filled to transfer funds from the Electric Utility Fund to the General Fund for the positions.
For future years, the annual cost for the lease and positions will be incorporated into the annual operating budget through the regular process.
COORDINATION
This report has been coordinated with the Finance Department, Human Resources, 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>.
RECOMMENDATION
Recommendation
1. Delegate Authority to the City Manager to Negotiate and Execute a Lease Agreement for the Commercial and Warehouse Property located at 1180 Richard Avenue, Santa Clara, for Materials Storage and Construction Support Purposes for Silicon Valley Power on the terms presented for an amount not to exceed $4 million over a 76-month term beginning on or around February 1, 2025, subject to the appropriation of funds and the review and approval as to form by City Attorney;
2. Authorize the City Manager to take any actions as necessary to implement and administer the Lease Agreement; and
3. Approve the addition of two (2) positions, including 1.0 Chief Storekeeper and 1.0 Materials Handler, in the Finance Department funded by Silicon Valley Power.
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: Jovan D. Grogan, City Manager