REPORT TO COUNCIL
SUBJECT
Title
Action on:
(1) Adoption of a Class 2 Categorical Exemption under CEQA Guidelines Section 15302;
(2) Approval of Amendment No. 1 to the Existing Deposit Agreement with Intel Corporation, and Approval of a Second Deposit Agreement with Intel, Relating to the Juliette Substation Project;
(3) Approval of Amendment No. 1 to the Deposit Agreement with West Valley Mission Community College District Related to a Battery Storage Project;
(4) Approval of a Deposit Agreement with Innovation Commons Owner, LLC Related to the Democracy Substation Project;
(5) Approval of the Form of a Model Deposit Agreement and Grant Authority to City Manager to Execute Future Deposit Agreements Conforming to the Approved Model Form, and Authority to City Attorney to Modify Terms and Conditions of the Model Deposit Agreement;
(6) Approval of Purchase Order to Eaton Corporation for Switchgear Associated with the Mission College Project, and Authorize City Manager to Issue Future Purchase Orders to Eaton Corporation Up to a Maximum of $1,500,000; and
(7) Approve Related Budget Amendments
Report
COUNCIL PILLAR
Deliver and Enhance Quality Efficient Services and Infrastructure
BACKGROUND
In order to meet unique needs of specific customers, Silicon Valley Power (SVP) the electric utility for the City of Santa Clara, performs a number of services that are charged directly to customers. These services may include performing engineering studies to support developer projects, making upgrades to dedicated customer substations, and additional equipment design and installation to meet customer needs. In order to ensure that the customer pays all required costs of work performed on the Customer’s behalf, the City enters into agreements with the customer to receive payment in advance. In some cases, this advance payment is included in a substation agreement. If services are not associated with new construction of a substation or if the parties are not able to enter into a substation agreement (such as when studies are needed before entering into a substation agreement), SVP uses a Deposit Agreement developed by the City Attorney’s Office.
These Deposit Agreements do not provide the customer with any vested right to electric service, any assurance of approval of customer’s project (such as entitlements where applicable), any budget approvals relating thereto, permit application approvals, environmental reviews or any other item relating or arising out of the customer’s project or any portion thereof.
While these Deposit Agreements were previously executed by City staff because they are cost neutral, the City Attorney’s Office recommends securing approval from Council for these agreements including ratifying agreements that were previously executed.
DISCUSSION
Intel Corporation has requested that SVP install and upgrade transformers at the Juliette Substation to operate at a higher capacity. SVP will contract with Delta Star (the manufacturer of the transformers) to perform this work. On June 14, 2022; the City executed a Deposit Agreement with Intel Corporation (Attachment 1) requiring Intel to submit a deposit of $827,000 to upgrade the transformers. In December 2022, Delta Star performed a field load study that resulted in recommended activities that increase the cost estimate from $827,000 to $2,610,180 (Attachment 2). This cost estimate includes contractor’s labor costs, SVP staff costs to manage and support the project, and additional amounts for contingencies and other related costs. Intel has agreed to deposit that amount in advance of initiating the project and the City will recover costs of equipment and services provided from that deposit. In addition to the amended Deposit Agreement for the transformer rerate project, SVP and Intel have negotiated a separate Deposit Agreement in the amount of $1,702,313 for engineering services to add a third transformer bank at the Juliette Substation (Attachment 3). The Deposit Agreements with Intel would total $4,312,493, of which $2,000,000 was assumed in the budget. A budget adjustment of $2,312,493 is recommended to address the remaining balance.
West Valley Mission Community College District (Mission College) has requested that SVP perform upgrades necessary to accommodate their Distributed Energy Resource (DER) system. Mission College has an existing 12 MW Photovoltaic (PV) system. In addition to the existing PV capacity, Mission College will interconnect and operate a new 2.5 MW PV system with 2MW/4MWH battery energy storage in parallel operation with SVP's distribution system. This requires procurement of a vacuum disconnect switch as well as installation by SVP staff, programming, testing, and commissioning. On March 28, 2022; the City executed a Deposit Agreement with Mission College (Attachment 4) requiring Mission College to submit a deposit of $372,750 to upgrade the transformers. After further study, the costs associated with the project increased from $372,750 to $504,000, primarily due to escalating equipment costs (Attachment 5). This adjusted cost includes equipment to be purchased from Eaton Corporation (Eaton), staff costs for installing, testing, and commissioning the equipment, meter upgrades, and additional amounts for contingencies and other related costs. Mission College has agreed to deposit that amount and the City will recover costs of equipment and services provided from that deposit.
As part of the required upgrades to accommodate Mission College’s new PV and battery storage systems, SVP requires the purchase of switchgear which SVP proposes to purchase from Eaton. This is a sole source purchase authorized by the Purchasing Manager pursuant to section 2.105.280 (b)(2) which states: “[w]hen required to ensure operation or function to match other products with respect to the repair, expansion or completion of a system, existing structure or program currently in use by the City, including, but not limited to, utility and technology purchases required to achieve interoperability with existing systems or programs.” As part of any operational system, it is necessary to limit equipment variability in order to manage operations and repairs, especially during outages. As determined by the Purchasing Manager, sole source is justified in this case as the Eaton switchgear will ensure the viable function and operation of the SVP system as it is similar to other equipment in use. Staff requests authorization to issue a purchase order to Eaton in an amount not to exceed $400,000 for the switchgear and associated equipment for the Mission College system. Funding for this purchase order will be paid by Mission College and is included in the New Business Development Capital Project in the Electric Utility Capital Fund. Based on the same sole source justification, SVP is also seeking to increase the authorization to purchase additional switchgear from Eaton to a total amount not to exceed $1,500,000 for other customers or regular SVP operating needs subject to budget appropriations. Any future purchases made on behalf of a customer will be recovered from the customer and any additional funding needed for purchases would be brought forward to Council in a budget amendment.
Innovations Commons Owner LLC, managed by Kylli, Inc. (Kylli), is proposing a project at 4995 Patrick Henry Drive, Santa Clara, CA, to develop 46 acres of land into 3,000,000 square feet of commercial office/lab space, 100,000 square feet of neighborhood retail, and 1,800 new multi-family residential units. A general distribution substation, named the Democracy Substation with a capacity of 94.5 MVA, will be required to provide electric service to this project. In order to initiate required design services, SVP will hire an engineering contractor using existing master agreements for engineering services to prepare a Gas Insulated Substation (GIS Substation) Operations Report and preliminary design of the transmission line trench alignment in the public right-of-way. The required deposit amount of $787,500 includes costs for required contracted engineering services, costs of staff to manage and support the project, and additional funds for contingency and other associated costs (Attachment 6). Kylli has agreed to submit a deposit of $787,500 in advance of initiation of the project and the City will recover these costs from that deposit. A budget amendment is recommended in the Fiscal Impact section to recognize revenue and establish the Democracy Substation project.
Staff requests Council approval of, and authorization for, the City Manager to negotiate and execute future Deposit Agreements based on the attached model Deposit Agreement (Attachment 7). By providing authorization to the City Manager to execute future Deposit Agreements and associated amendments, SVP will be enabled to quickly respond to customer needs. Where budget actions are required, staff will request through the appropriate Council approval process.
ENVIRONMENTAL REVIEW
The approval of the Deposit Agreements, including the model, are exempt from the California Environmental Quality Act (“CEQA”) pursuant to Section 15378(b)(4), in that they involve the creation of government funding mechanisms or other government fiscal activities which do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. The environmental impacts of any work performed by City contractors in connection with these Deposit Agreements have been previously evaluated under CEQA or, in the case of future Deposit Agreements, will be evaluated with the associated service agreements.
The replacement of the switchgear is considered exempt from CEQA pursuant to CEQA Guidelines Section 15302 (Class 2 - Replacement or reconstruction of existing structures and facilities where the new structure will be located on the same site as the structure replaced and will have substantially the same purpose and capacity as the structure replaced). Replacement of switchgear will take place on the same site and the updated equipment will serve the same purpose and have the same capacity as the equipment being replaced.
FISCAL IMPACT
Under the terms of Amendment No. 1 to the Deposit Agreement with Intel, Intel will submit a deposit in the amount of $2,610,180. Under the terms of the Deposit Agreement with Intel for engineering services associated with adding a third transformer, Intel will deposit $1,702,313. Of the total amount of $4,312,493, $2,000,000 is already included in the Juliette Substation Transformer Rerate and Installation Project for FY 2022/2023. Staff recommends increasing the Developer Contributions revenue and the project appropriation in the amount of $2,312,493 to authorizing funding for the remaining amount.
Under the terms of Amendment No. 1 to the Deposit Agreement with Mission College, Mission College will submit a deposit in the amount of $504,000. Of that amount $372,500 was budgeted and already received in the New Business Development Project for FY 2022/23. Sufficient revenue and expenses are already budgeted in the New Business Development project for the additional costs associated with the Mission College Deposit Agreement and currently no budget amendment is necessary.
To fund the services and associated costs included in the Deposit Agreement with Innovation Commons Owner LLC, staff recommends establishing a new project for the Democracy Substation including an increase in Developer Contributions revenue in the amount of $787,500. Future budget adjustments required for this project will be requested through the budget process.
Budget Amendment
FY 2022/23
|
|
Current |
Increase/ (Decrease) |
Revised |
|
Electric Utility Capital Fund |
|
|
|
|
Revenues |
|
|
|
|
Other Revenue (Developer Contributions) |
$52,405,338 |
$3,099,993 |
$55,505,331 |
|
|
|
|
|
|
Expenditures |
|
|
|
|
Juliette Substation Transformer Rerate and Installation Project (CIP 2462) |
$2,000,000 |
$2,312,493 |
$4,312,493 |
|
Democracy Substation (New Project) |
$0 |
$787,500 |
$787,500 |
COORDINATION
This report has been coordinated with the Finance Department and the 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. Adopt a Class 2 Categorical Exemption under CEQA Guidelines Section 15302;
2. Authorize the City Manager to execute Amendment No. 1 to the Deposit Agreement with Intel Corporation increasing the deposit amount by $1,783,180 from $827,000 to $2,610,180 and ratify the underlying agreement executed on June 14, 2022;
3. Authorize the City Manager to execute a second Deposit Agreement with Intel Corporation for engineering services associated with adding a third transformer at the Juliette Substation in the amount of $1,702,313;
4. Authorize the City Manager to execute Amendment No. 1 to the Deposit Agreement with West Valley Mission Community College District increasing the deposit amount by $131,250 from $372,750 to $504,000 and ratify the underlying agreement executed on March 28, 2022;
5. Authorize the City Manager to execute a Deposit Agreement with Innovation Commons Owner, LLC in the amount of $787,500;
6. Approve a model Deposit Agreement in the form attached hereto and authorize the City Manager to negotiate, approve, and execute Deposit Agreements and any amendments thereto which are in substantial conformance with these terms and conditions and to take any actions as necessary to implement and administer the agreement and authorize the City Attorney to make modifications to the terms of the model Deposit Agreement;
7. Authorize a Purchase Order to Eaton Corporation in an amount not to exceed $400,000 for switchgear associated with the Mission College project and authorize future Purchase Orders to Eaton Corporation for future SVP projects up to a maximum of $1,500,000 subject to the following (1) available appropriations, (2) conformance with Purchasing Ordinance and Purchasing guidelines, (3) environmental review where required; and
8. Approve the FY 2022/23 budget amendments in the Electric Utility Capital Fund to increase the estimate for Other Revenue by $3,099,993, increase the Juliette Substation Transformer Rerate and Installation Project by $2,312,493, and establish the Democracy Substation project in the amount of $787,500 (five affirmative Council votes required to appropriate additional revenue).
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: Office of the City Manager
ATTACHMENTS
1. Deposit Agreement with Intel Corporation
2. Proposed Amendment No. 1 to Deposit Agreement with Intel Corporation
3. Proposed Deposit Agreement with Intel Corporation for Engineering Services Associated with Third Transformer
4. Deposit Agreement with Mission College
5. Proposed Amendment No. 1 to Deposit Agreement with Mission College
6. Proposed Deposit Agreement with Innovation Commons Owner LLC
7. Model Deposit Agreement