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HomeMy WebLinkAbout2000-11-13 City Council (30)City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL ATTENTION: FINANCE COMMITTEE 2 FROM: ’CITY MANAGER DEPARTMENT: UTILITIES DATE: SUBJECT: NOVEMBER 13, 2000 CMR:422:00 PROPOSED REVISED FIBER TO THE HOME PROJECT RECOMMENDATION Staff recommends that Council: Reject the proposals received on September 19, 2000 for the design and construction of the Fiber to the Home (FTTH) Project. . Direct staff to return with a Budget Amendment Ordinance for $300,000, to allow the VI’TH trial to move forward, in a revised format. BACKGROUND On April 5, 1999 the City Council authorized staff to proceed with a FrTH trial, delivering Internet access services to approximately 69 customers in the Community Center Neighborhood. The proposed service would have data rates of 10 or 100 Mbps and be delivered over an Ethernet local area network (LAN). Construction costs were estimated at $380,000 (with contingency funding) and were to be fully recovered in 5 years through a contract arrangement with customers. On May 10, 1999, Council adopted a Budget Amendment Ordinance (CMR:228-99) for $380,000 and created the FTTH Capital Improvement Program (CIP #9916) Staff returned to the City Council on August 2, 1999 with a staff report requesting Council direction regarding pricing, payback period and commitment period for the FTI’H trial. At this meeting the Council approved the options below: CMR:422:00 Page 1 of 5 Service Speed 10 Mpbs 100 Mpbs # of Customers 85 15, Sign-up Fee $500 Service Connection Fee $700 Monthly Service Fee $45 Commitment Period 2.5 Years $5OO $1900 $100 2.5 Years At the end of the trial signup period (March 3, 1999), 107 customers had signed up, 87 for 10 Mpbs and 20 for 100 Mpbs. Since this time staff has sent out two construction Request for Proposals (RFP). The first RFP had one response. Council rejected this proposal on June 22, 2000(CMR:317:00) due to the bids exceeding the engineers estimate by $1,050,570. Subsequent to the proposal rejection, staff revised the bid package and the RFP for design and installation of the FTTH trial was re-circulated to 48 firms on August 9, 2000. The proposal period was 40 days. A non-mandatory pre-proposal meeting was held on August 22, 2000 and 3 firms attended the meeting. Three firms submitted a proposal on September 19, 2000. One proposal was for a non-fiber solution and requested a portion of the network revenues as compensation for the use of its copper technology. This proposal was considered not responsive in the evaluation because it did not propose fiber optic connections to the home. The lowest responsive proposal quoted a not-to-exceed cost of $1,022,157: Those firms not responding indicated that they did not submit a proposal because they were either too busy to submit proposals, had insufficient time to respond to the bid, or were unwilling to perform a turnkey project. Staff attempted to negotiate the scope of work and price with the contractors. Only one contractor was able to meet with staff, and he indicated that he would submit a revised proposal but to date has not done so. Staff is recommending that the proposals be rejected because the proposals exceed the approved budget of $380,000 by $642,157 and $747,402. In addition, the contractors have not been responsive to negotiating changes in the scope and cost of the work. CMR:422:00 Page 2 of 5 DISCUSSION The FTTH trial, as originally proposed, did not answer many of the questions that were needed to develop a business case for a fiber utility and created issues that made the trial difficult to pursue. The first issue was the expectation that the FTTH trial would pay for itself during the trial period. To reach this goal it was imperative to keep construction and equipment costs as low as possible. This cost constraint led to the trial proposing to use technology (i.e. multimode fiber and 10/100 ethernet technology) that was reaching obsolescence before it was even installed. Data transfer speeds an order of magnitude greater than the older products are coming to market at nearly the same price point as the older technology was 2 years ago. This price reduction in components has made single mode fiber the more logical choice for long-term deployment because it has a much higher data transfer limit which will enable the delivery of a wide variety of data services. The second issue was that the service was originally planned as Internet-only. Due to the future convergence of media into digital format., video, telephony and other data services will be handled as a digital data stream. As this occurs, the provider that can deliver J these as a bundled service will be able to take advantage of the revenue from all the data sources on the network, making the provisioning of services more economically viable. The data streams from the converged media will require gigabit per second transfer rates, which is most easily delivered over single-mode fiber. The third issue was that the trial did not include the possible benefits that the other utilities (water, gas, and electric) might gain by being able to monitor commodity usage and adjust demand on the system as well as providing other energy services. Lastly, making customers pay for a service from a trial project constrained the project because of the service expectations associated with paying for service. Customer’s expectations would limit the amount of risk the City would take in deploying new experimental services. Because of these issues, staff is recommending that the trial format be revised as follows: Locate the trial in the Community Center Neighborhood and reduce its size to the highest density area of approximately 70 homes. (See attached map) Deploy updated technology, using single mode fiber, and higher capacity ethernet connections. , Have the Electric Utility fund the capital installation of the project and customers pay a monthly service fee of $40, plus the ISP service fee, and any fees or costs associated with new services that the customer subscribes to. Have the City’s electric engineering staff and utility crews engineer and.construct the project to allow the City to gain construction knowledge and to reduce the cost of the initial deployment. CMR:422:00 Page 3 of 5 Actively look for partners to deliver new services and provide ways for third parties to demonstrate their technologies. The commitment of City resources to this project is being recommended because of the high cost of construction received through the bidding process. Construction bids for the trial have been nearly $10,000 per home. staff believes that the high cost is a reflection of the current demand for construction crews and the uncertainty of constructing a new type of project. Costs could be significantly reduced by directing the work with existing City staff. Staff estimates that the trial for 70 homes would cost approximately $8570 per home or $600,000 for the project. The goals of the FISH trial will be as follows: Evaluate the construction techniques and determine the feasibility and cost of a system-wide rollout. ¯Determine if the system can be operated reliably ¯Determine customer expectations and measure satisfaction with service. ¯Test new services that could be provided over the fiber network. ¯Develop service pricing methodology, cost model, and business plan for system-wide rollout. Determine financial feasibility and possible funding sources. RESOURCE IMPACT The FTTH trial being proposed will impact the budget and manpower resources. To complete the project as proposed, an additional $300,000 will need to be transferred from the Electric Rate Stabilization Reserve and added to the Capital Improvement Program (CIP) project (9916). If Council approved the staff recommendation, staff will return with a Budget Amendment Ordinance. In addition, the construction of the trial by City personnel will divert manpower from the other Electric CIP work for 3 to 6 months. This sacrifice is imperative to get sufficient resources available to manage and design this project in a cost effective manner. The major areas affected by the shift in priorities would be: the pole replacement program because the dock crews will be shifted to the FI’TH trial; supervision of the dock crews; and engineering resources that will be diverted from the Maybell 4 to 12 kV conversion work and RTU and relay replacements. CMR:422:00 Page 4 of 5 POLICY IMPLICATIONS The staff recommendation does not represent any change from existing City policies. TIMELINE Construction Start Construction Completion ’ Start of Trial Operation Evaluate Network Performance Preparation of Trial Results Trial Results to UAC and Council Business Plan Development Finalize Business Plan End of Trial Dec 2000 May 2001 May 2001 Dec 2001 Jan 2002 Feb 2002 Dec 2001 Apr 2002 May 2002 ENVIRONMENTAL REVIEW A mitigated negative declaration for the City’s fiber optic infrastructure project was approved by the Director of Planning and Community Environment on November 25, 1996. Any project that may be undertaken as a result of the RFP or FTTH trial will be required to adopt the mitigation measures identified in the negative declaration. ATTACHMENTS Attachment A: Attachment B: Bid Summary Revised FTTH Trial Service Plan Map PREPARED BY: Tomm Marshall DEPARTMENT HEAD APPROVAL: :tor of Utilities CITY MANAGER APPROVAL: E HARRISON Assistant City Man.ager CMR:422:00 Page 5 of 5 < © N 0 0o ~n 0 o (11 o ¯ ~-H 0.4 o o 4-.},--t 000 0 ,-H 00 ,-I O ~ o .H ~-n~~O~C 0 ~o ~ b ..q ,-q oo4-1 ~ o~ m ¯o @ ~ 0 0 ~~0~ 0 ~-~ "H ~ 0 o-H4.2 4j t~ t~. r.." ~ ’ . ~~ ~(D O O M -H ~O~ OO or-~ 0 ~c o o ~ o..~ ~ o ~ o ~o o ~o o ~~ o ~ o o o ~ o Z ~ .o oo (~ C .. O ~ O O~ ,---I O -H -H .,-Io,~ 00 E~ o .H 0 o o o o [] ~mOOOO~