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HomeMy WebLinkAboutStaff Report 14342 City of Palo Alto (ID # 14342) City Council Staff Report Meeting Date: 6/20/2022 Report Type: Consent Calendar City of Palo Alto Page 1 Title: Approval and Authorization for the City Manager to Execute Purchase Orders for Electric Distribution Transformers With Prequalified Vendors in an Amount up to $2,000,000 Annually Between FY 2022 - FY 2026 in a Total Not- to-Exceed Amount of $10,000,000 From: City Manager Lead Department: Utilities Recommendation Staff recommends that Council: approve and authorize the City Manager or designee to execute purchase orders as recommended by the Utilities Department of up to $2,000,000 per fiscal year in aggregate from prequalified vendors for the purchase of electric distribution transformers for a total not-to-exceed amount of $10,000,000 over five years for FY 2022 through FY 2026. Executive Summary The Utilities Department is seeking approval for authorization to spend up to $2,000,000 in aggregate per fiscal year with any of the prequalified vendors and a total not-to-exceed amount of $10,000,000 from FY2022 – FY2026 for the purchase of electric distribution transformers. Various types of distribution transformers are used to provide electric service to customers and, when needed, orders are solicited to pre-qualified vendors for each particular type. Transformers range in price from $1,250 for a pole top transformer to $45,000 for an underground commercial transformer. For FY 2022, staff has ordered $100,000 in transformers and is seeking authorization to process pending purchase orders for 43 additional transformers totaling $1,100,000 to $1,200,000. Due to the supply chain shortage, the need to upgrade transformers, and extended lead times of up to 24 months, staff is immediately placing substantial transformer orders and recommends increasing the annual authorization amount from $1,000,000 to $2,000,000 for the purchase of transformers including FY 2022. Background The Utilities Department uses various types of electric distribution transformers (pole top, padmount, and submersible) to provide electric service to customers in Palo Alto. In order to qualify to become a City supplier, manufacturers who supply transformers to the City must City of Palo Alto Page 2 ensure that they comply with the City of Palo Alto transformer specifications and industry standards. In December 2021, staff solicited a Request for Qualifications (RFQ) for the prequalification of transformer suppliers and approved three manufacturers per City of Palo Alto’s Policies and Procedures 1 – 44/ASD, “Prequalification of Contractors.” This ordering process ensures that City of Palo Alto receives competitive pricing without compromising product quality, and the ability to continue providing reliable service to customers. In November 2015 Council approved and authorized staff request for transformer expenditures up to $1,000,000 each year for five years (Staff Report #6244). Any unspent funds are returned to the Electric Fund reserves at the end of each fiscal year. Discussion Per the requirements of City of Palo Alto’s Policies and Procedures 1 – 44/ASD, “Prequalification of Contractors,” the Utilities Department solicited a Request for Qualifications (RFQ) for the prequalification of transformer suppliers in December 2021. Staff sent the solicitation to over 400 vendors including six transformer manufacturers, and received five responses. The City’s prequalification process includes an evaluation of the following criteria: (a) ability to meet technical specifications, (b) ability to deliver materials on time, (c) equipment reliability and quality, (d) manufacturing history, and (e) references from other utilities. As part of its review process, staff identifies any exceptions to the City’s technical specifications and determines whether those are acceptable, and also determine whether the City’s other key criteria are met. If so, the supplier is deemed qualified. If not, then the supplier is deemed not qualified to supply that particular type of transformer. Suppliers can request to become qualified at a later time and will be evaluated by the same criteria. After reviewing the information each supplier provided in its responses to the City’s prequalification questionnaire and supporting documentation, staff identified three manufacturers qualified for consideration of future transformer purchase orders. Approved manufacturers are identified by transformer type in the following table: 2022 Prequalified Suppliers by Transformer Type When staff determines that transformers are needed, staff issues a Request for Quotation to the prequalified manufacturers for each particular transformer type. Staff places orders with manufacturers based on CIP requirements, new customer connections, and to replace old or failed transformers. Engineering staff reviews and evaluates all quotes, and issues a purchase order to the vendor offering the lowest price. Due to the current global supply chain shortages the lead time for transformer delivery ranges from 12 – 24 months. City of Palo Alto Page 3 CPAU will be purchasing more transformers in the upcoming years because of new initiatives, projects, and replacement of existing transformers. In addition, there has been an increase in service upgrades to 400amp services which has reduced a portion of the existing transformer stock inventory. It is not yet known how many and what types of transformers will be ordered, or the prices that suppliers will submit, so it is conceivable that the total amount expended with any one supplier could exceed $250,000 in a single purchase. Since staff will be requesting competitive quotes from the qualified suppliers for each purchase, staff requests that Council authorize expenditures in excess of $250,000 with any one of the pre-qualified suppliers, not- to-exceed more than $2,000,000 individually or in aggregate for the following 5 years, FY2022 - FY2026. Timeline The request for approval of the Pre-Qualification of Contractors and authorization to execute purchase orders is for the fiscal years beginning in FY 2022 through FY 2026. Resource Impact Depending on whether a transformer is needed for a customer connection, a maintenance replacement, or planned project upgrade, funds will be available from the appropriate electric budget. For year one, funds are available in the FY 2022 Adopted Capital budget within the Electric Fund under projects EL-89028 (Electric Customer Connections), EL-98003 (Electric System Improvements) and EL-17001 (East Meadow Circles 4/12kV Conversion). For FY 2022, staff has ordered $100,000 in transformers and is seeking authorization to process pending purchase orders for 43 additional transformers totaling $1,100,000 to $1,200,000 by June 30th, 2022. Any unspent funds annually will be returned to the Electric Fund reserves. Funding for the subsequent years is subject to City Council approval of the annual appropriation of funds through the annual budget process. Policy Implications Authorization of this purchase order limit does not represent any change to the existing policy and is consistent with existing City policies including the Council approved Utilities Strategic Plan, Strategic Objectives: Policies and Procedures 1 – 44/ASD - Prequalification of Contractors BP1 - Ensure a reliable supply of utility resources BP2 - Operate the utility system safely. Stakeholder Engagement This agreement for materials does not directly impact customers that would require community outreach. Similarly, staff requested Council approval and authorization for a similar transformer supplier prequalification in November 2015 (Staff Report #6244). Environmental Review City of Palo Alto Page 4 Council’s approval of the annual purchase limit for electric distribution transformers does not meet California Environmental Quality Act’s definition of “project” under Public Resources Code section 21065, and environmental review is not required. Replacement or reconstruction of existing transformers is categorically exempt from CEQA review under Public Resources Code 15302.