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HomeMy WebLinkAbout08.a. Long-Term Maintenance Contract with Solar Turbines for Cogen SystemCentral Contra Costa Sanitary District BOARD OF DIRECTORS 3.40 ' POSITION PAPER Board Meeting Date: May 21, 2015 subject: ADOPT A RESOLUTION MAKING FINDINGS AND AUTHORIZING THE GENERAL MANAGER TO EXECUTE A SOLE - SOURCE, LONG -TERM SERVICES CONTRACT WITH SOLAR TURBINES, INC., FOR MAINTENANCE OF THE DISTRICT'S COGENERATION GAS TURBINE SYSTEM FOR A TERM OF FIVE YEARS Submitted By: Initiating Dept /Div.: Clint Shima, Provisional Senior Engineer Operations / Plant Maintenance REVIEWED AND RECOMMENDED FOR BOARD ACTION: N. Meyer, Maintenance Division Manager A. Sasaki, Deputy General Manager 1 Jl, ) %�. K. Alm Roger S. Bailey Counsel for the District General Manage ISSUE: Board approval is requested to authorize the General Manager to enter into a sole- source, long -term services contract with Solar Turbines, Inc., the original equipment manufacturer of the District's Cogeneration Gas Turbine System ( Cogen System), for maintenance of the Cogen System for a term of five years. RECOMMENDATION: Adopt a Resolution finding that the project is exempt from the California Environmental Quality Act (CEQA) and authorizing the General Manager to execute a sole- source, long -term services contract with Solar Turbines, Inc., for maintenance of the Cogen System for a term of five years for a total estimated cost of $1,650,000. FINANCIAL IMPACTS: The total value of the contract is approximately $1,650,000. This amount includes $216,720 per year for five years of maintenance services with an additional "Existing Hours Fee" (i.e. coverage gap 2011 -2015) of $521,430 payable within 30 days. The "Existing Hours Fee" accounts for the Solar Turbines, Inc., coverage gap from 2011 to present and includes one engine overhaul anticipated to be completed in November 2015 and a second engine overhaul during the five year term. Any additional engine overhauls will be provided at no additional cost. The costs are included in the proposed FY 2015 -2016 Operations and Maintenance Budget. ALTERNATIVES /CONSIDERATIONS: Sole- source requests bypass the competitive bidding process. In 2012, after the District experienced a catastrophic failure of its Cogen System when maintenance was performed by an aftermarket service provider, staff recommended that future maintenance of the Cogen System not be competitively bid as the design of the equipment is proprietary and only the original manufacturer (Solar Turbines, Inc.) has the unique product knowledge to safely and economically maintain the re- commissioned Cogen System. C:\ Users \danderson\AppData \Local \Microsoft \Windows \Temporary Internet Files \Content.Outlook \DVCG8C5G\Solar Turbines Contract 05 -21 -15 (5).docxN- \P9SU–P\9oafd of�Diresters \Boar4— Rosit+oa-Rapers 2015 �ela��rbines- CeR"G ^45- 24-1-5 -doox Page 1 of 7 POSITION PAPER Board Meeting Date: May 21, 2015 Subject. ADOPT A RESOLUTION MAKING FINDINGS AND AUTHORIZING THE GENERAL MANAGER TO EXECUTE A SOLE - SOURCE, LONG -TERM SERVICES CONTRACT WITH SOLAR TURBINES, INC., FOR MAINTENANCE OF THE DISTRICT'S COGENERATION GAS TURBINE SYSTEM FOR A TERM OF FIVE YEARS At the May 12, 2015, Engineering and Operations Committee, questions were raised as to what other options are available. The following alternatives were reviewed by staff and are discussed in more detail in the Background Section: 1. Enter into a Beneficial Use Services Contract with Solar Turbines, Inc. 2. Continue into short-term services contracts with Solar Turbines, Inc. 3. Bid the contract and seek other vendors. 4. Use Pacific Gas and Electric power in case of failure of the Cogen System and pay for repairs of the Cogen System on an as- needed basis. 5. Use portable generators in case of failure of the Cogen System and pay for repairs on the Cogen System on an as- needed basis. BACKGROUND: The District utilizes the Cogen System to produce approximately 80 percent of its current electrical energy and 30 percent of its steam demand. The District's Cogen System is a Solar Turbines, Inc., Centaur 40 System that was pre - purchased in 1993 and put into operation in 1995. The Cogen System provides significant savings over purchasing electrical power from PG &E. The Cogen System has saved the District between $500,000 and $1,000,000 in annual energy costs over the past 20 years. It is important to note that the Cogen System is on its sixth engine, which averages approximately one overhaul every three and one half years. Maintenance of the Cogen System: The Cogen System was commissioned for full -time operation in November 1995. From the initial startup to 2011, the Cogen System was maintained under a long -term services contract with Solar Turbines, Inc. The contract was all- inclusive; it covered all repairs and guaranteed availability and reliability of the Cogen System. In 2011, the District re -bid the contract and changed service providers to Wood Group. On March 29, 2012, the Cogen System suffered a catastrophic failure caused by an explosion in the exhaust system. Following the explosion, the District cancelled the maintenance contract with Wood Group and brought back Solar Turbines, Inc. The Cogen System was re- commissioned and returned to service on October 3, 2012. The six -month outage resulted in $1,641,000 in electric utility expenses, an increase of approximately $960,000. The re- commissioning of the Cogen System was hampered by the age of the fuel valves and control system. In addition, the fuel valves and control system were suspected as contributing factors to the explosion. Page 2 of 7 POSITION PAPER Board Meeting Date: May 21, 2015 subject: ADOPT A RESOLUTION MAKING FINDINGS AND AUTHORIZING THE GENERAL MANAGER TO EXECUTE A SOLE - SOURCE, LONG -TERM SERVICES CONTRACT WITH SOLAR TURBINES, INC., FOR MAINTENANCE OF THE DISTRICT'S COGENERATION GAS TURBINE SYSTEM FOR A TERM OF FIVE YEARS Short-Term Services Contracts: Since being placed back into service in 2012, the Cogen System has been maintained under a series of short-term services contracts with Solar Turbines, Inc. The short-term services contract is for routine maintenance only and does not cover any unscheduled repairs or rebuilds. It provides for labor only and does not cover any parts or provide any guarantees for availability. Controls Upgrades for the Long -Term Services Contract: At the October 4, 2012, Board meeting, staff stated they would pursue a long -term services contract with Solar Turbines, Inc. As part of any new long -term services contract, Solar Turbines, Inc., required that the District replace the fuel and control systems to be upgraded. The obsolescence of the equipment made it difficult to provide a reasonable response time for equipment repair and replacement, and the Modicon -based controls were no longer supported by Solar Turbines, Inc. On September 5, 2013, the Board adopted a resolution authorizing the General Manager to execute a sole- source contract with Solar Turbines, Inc., for the Cogen Controls Upgrade Project, District Project No. 7308. The fuel and control system upgrades were completed by April 2014, for a cost of $1,300,000. Long -Term Services Contract: The proposed sole- source, long -term services contract includes a fee of $521,430 that pays for the coverage gap from 2011 and one engine overhaul scheduled for November 2015, and a monthly fee of $18,060 that provides for routine semi - annual and annual maintenance inspections. The monthly fee also includes call -outs for advanced troubleshooting where Solar Turbines, Inc., field service labor, travel and subsistence is provided at no additional cost. Additionally, Solar Turbines, Inc., will repair or replace any malfunctioning component or part within a reasonable time using certified replacement parts. A portion of the monthly fee is applied towards future engine overhauls that are recommended every 30,000 to 40,000 operating hours. Solar Turbines, Inc., has the discretion to determine whether an overhaul is required Solar Turbines, Inc., uses condition assessment reports and checklists as a systematic process to monitor and evaluate the Cogen System's condition in determining when engine overhauls are required. The contract has a provision to ensure that at least a second overhaul is included in the pricing. If the second overhaul is not performed, the District receives an overhaul credit toward additional work performed by Solar Turbines, Inc. District staff and legal counsel have held numerous discussions with Solar Turbines, Inc., to negotiate the terms and conditions of the sole- source, long -term services contract. Ultimately, the indemnity, insurance and limit of liability terms proposed by Page 3 of 7 POSITION PAPER Board Meeting Date: May 21, 2015 Subject. ADOPT A RESOLUTION MAKING FINDINGS AND AUTHORIZING THE GENERAL MANAGER TO EXECUTE A SOLE - SOURCE, LONG -TERM SERVICES CONTRACT WITH SOLAR TURBINES, INC., FOR MAINTENANCE OF THE DISTRICT'S COGENERATION GAS TURBINE SYSTEM FOR A TERM OF FIVE YEARS Solar Turbines, Inc., do not satisfy District requirements for service contracts and place a larger portion of risk on the District. Solar Turbine's total liability, including liability for its own negligence, is limited to the annual fee of $216,720. This limit is cumulative and also applies to any insurance provided. However, Solar Turbines, Inc., has taken the position that the proposed contract shares risk appropriately, in part due to the fact that the District's insurance carrier has filed a lawsuit against Solar Turbines, Inc., and Wood Group in an attempt to recover the amount paid to the District from the 2012 incident. Alternatives: Given the less than favorable terms and conditions in the proposed long -term services contract, the Engineering and Operations Committee asked staff to review other alternatives. The following alternatives were reviewed: Enter into a Beneficial Use Services Contract with Solar Turbines, Inc. Under this alternative, the District would contract with Solar Turbines, Inc., for maintenance only with no engine overhauls. The monthly fee would be $12,100 per month or $145,200 per year. All required engine overhauls would be paid by the District as needed. Recognizing the need for an engine overhaul in November 2015, the District would pay the "Existing Hours Fee" of $521,443 as proposed under the long -term services contract to cover the coverage gap and one engine overhaul. This alternative would reduce costs by $327,000 by avoid paying for a second overhaul upfront. However, if a second overhaul is needed during the five year term of the contract, the beneficial use services contract will cost approximately $134,000 more than the proposed long -term services contract and would not cover any additional overhauls due to unanticipated breakdowns. The Cogen System is on its sixth engine, which averages to one overhaul required every three and one half years. Therefore, it is anticipated that the November overhaul and at least one additional overhaul will be required during the five year term of the maintenance contract. The terms and conditions would remain the same. Therefore, the total estimated cost of this alternative would be $1,784,000 (includes cost of second engine overhaul). 2. Enter into Short-Term Services Contracts with Solar Turbines, Inc. The District could continue using short-term services contracts. However, the disadvantage is that these contracts do not provide the remote monitoring and diagnostics services provided with the long -term services contracts, which could Page 4 of 7 POSITION PAPER Board Meeting Date: May 21, 2015 Subject ADOPT A RESOLUTION MAKING FINDINGS AND AUTHORIZING THE GENERAL MANAGER TO EXECUTE A SOLE - SOURCE, LONG -TERM SERVICES CONTRACT WITH SOLAR TURBINES, INC., FOR MAINTENANCE OF THE DISTRICT'S COGENERATION GAS TURBINE SYSTEM FOR A TERM OF FIVE YEARS increase the risk for more frequent and prolonged outages. If a prolonged outage were to occur, the District would need to shift to electrical power from PG &E and would incur significant demand charges. Also, repair costs could range widely in magnitude and would be difficult to budget. The terms and conditions would remain the same. 3. Bid the Contract and Seek Another Vendor. The District could seek an alternate vendor. This approach was taken in 2011, and the District entered into a long -term services contract with Wood Group for $208,800. This alternative is not recommended as it is not anticipated that the pricing will be lower than the proposed contract. The bid received in 2011 is comparable to the cost of the proposed contract when escalated to today dollars. It is uncertain as to whether the terms and conditions would be significantly better given the age of the Cogen System and its past history with the explosion. This alternative is not recommended 4. Use PG &E Power Shutting down the Cogen System when it needs repairs (and these repairs are limited on an as- needed basis) and using PG &E as the main power source removes a layer of redundancy for the District's power system, and increases steam and electricity costs. The Standby Power Facility (existing 2 -2 MW diesel generator) will become the only backup to PG &E and reduces resiliency at the Treatment Plant. The auxiliary boilers will need to generate the makeup steam. The six -month outage in 2012 resulted in an increase in utility expenses of approximately $960,000. Due to the risk associated with this option (higher cost and loss of reliability /redundancy), this alternative is not recommended. 5. Use Portable Generators As an added layer of redundancy, if the Cogen System were shutdown, the District could lease two 2 MW diesel generators at an estimated cost of $50,000 per month for the generators plus additional costs for fuel and maintenance. This alternative could be used while repairs on an as- needed basis are being implemented. Due to the risk associated with this option (higher cost and loss of reliability /redundancy), this alternative is not recommended. Page 5 of 7 POSITION PAPER Board Meeting Date: May 21, 2015 subject. ADOPT A RESOLUTION MAKING FINDINGS AND AUTHORIZING THE GENERAL MANAGER TO EXECUTE A SOLE - SOURCE, LONG -TERM SERVICES CONTRACT WITH SOLAR TURBINES, INC., FOR MAINTENANCE OF THE DISTRICT'S COGENERATION GAS TURBINE SYSTEM FOR A TERM OF FIVE YEARS Other Considerations: The Cogen System has been operating for 20 years. The age of the equipment, as well as related risk factors, warrants an evaluation for replacement. However, until the Comprehensive Wastewater Master Plan and subsequent design work is finalized, it is anticipated that the existing Cogen System will need to be relied upon for at least the next five years. After a review of the alternatives, staff recommends that it is in the best interest of the District to enter into a sole- source, long -term contract with Solar Turbines, Inc. The Cogen System is critical to the operation of the Treatment Plant. Solar Turbines, Inc., has the knowledge of the operation of the Cogen System; and they have proven that they understand what is takes to keep the Cogen System maintained and operational. Under the long -term services contract, their customers are granted several priority advantages. The District will be assigned a designated Fleet Manager for coordination /planning and technical assistance; will be provided preferred status for scheduling; and experience better emergency service response times. The long -term services contract, along with the upgraded control system, will allow Solar Turbines, Inc.'s, engineers to view operating screens in real -time that allows for efficient machinery management to mitigate unplanned downtime while extending the turbine package lifecycle. Their Insight° System provides remote monitoring and diagnostics capability that collects, stores and analyzes operational data. Solar Turbines, Inc., has the proprietary engineering skill, product information, knowledge, and parts to safely perform the long -term services contract. Although Staff is recommending entering into the long term service contract, it is understood that the Board is faced with the unfortunate reality that none of the options are fully satisfactory. The Board may wish to fully discuss other options and staff will be present to provide additional information as needed. Ultimately, staff's recommendation is based on the reality that it will likely take at least 5 years to address any replacement strategy and the cost saving in the meantime justifies the risks when viewed against the known options. Staff has concluded that this action is exempt from the CEQA under the CEQA Guidelines Section 15301 since it involves maintenance to an existing public facility involving no expansion of use. Approval of this action will establish the Board's independent finding that this project is exempt from the CEQA. COMMITTEE RECOMMENDATION: This matter was reviewed by the Engineering and Operations Committee on May 12, 2015. The Committee recommended moving the item to the full Board for discussion and review of the alternatives. Page 6 of 7 POSITION PAPER Board Meeting Date: May 21, 2015 subject. ADOPT A RESOLUTION MAKING FINDINGS AND AUTHORIZING THE GENERAL MANAGER TO EXECUTE A SOLE - SOURCE, LONG -TERM SERVICES CONTRACT WITH SOLAR TURBINES, INC., FOR MAINTENANCE OF THE DISTRICT'S COGENERATION GAS TURBINE SYSTEM FOR A TERM OF FIVE YEARS RECOMMENDED BOARD ACTION: Adopt a Resolution that: Authorizes the General Manager to enter into a sole- source, long -term services contract for a term of five years at an estimated amount of $1,650,000 with Solar Turbines, Inc., for the long -term maintenance of the District's Cogeneration Gas Turbine System, pursuant to Public Contract Code Section 3400(c)(3) and District Purchasing Procedures Manual Section 5.3.15; and 2. Finds that: A. The long -term services contract is exempt from CEQA; B. The public interest is best served by utilizing the unique technology and proprietary knowledge that Solar Turbines, Inc., the original equipment manufacturer, has developed to maintain the Cogeneration Gas Turbine System; and C. Under the circumstances, Solar Turbines, Inc., is the only qualified supplier to maintain the rebuilt Cogeneration Gas Turbine System equipment and that it is in the best interest of the District to proceed with a sole- source contract with Solar Turbines, Inc. Attached Supporting Document. 1. Proposed Resolution Page 7 of 7 6-4t, RESOLUTION NO. 2015 -0/3 A RESOLUTION OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT APPROVING A SOLE - SOURCE CONTRACT WITH SOLAR TURBINES, INC., FOR LONG -TERM MAINTENANCE SERVICES OF THE COGENERATION SYSTEM WHEREAS, Section 3400(c) of the California Public Contract Code sets forth certain conditions under which a particular material or product or service may be purchased without the necessity of competitive bidding; and WHEREAS, the Central Contra Costa Sanitary District's (District) Purchasing Procedures Manual Section 5.3.15 provides that, in those cases involving a unique or novel product application required to be used in the best public interest, the District may specify such unique or novel product as an appropriate sole source; and WHEREAS, the District upgraded its Cogeneration Solar Centaur 40 Gas Turbine System and is in need of long -term maintenance services; and WHEREAS, Solar Turbines, Inc.'s, proprietary technology is utilized and incorporated in the District's upgraded Cogeneration Gas Turbine System, thereby extending the service life of the turbine and increasing reliability and maintainability; and WHEREAS, District staff has evaluated alternative long -term maintenance service providers in the past and concluded no other service providers offer the same knowledge, experience, and resources. NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Central Contra Costa Sanitary District (the Board) as follows: 1. THAT the Board hereby adopts the recitals set forth above as the basis of its findings. 2. THAT that the contract is exempt from the California Environmental Quality Act (CEQA) under the CEQA Guidelines Section 15301 since it involves maintenance to an existing public facility involving no expansion of use. 3. THAT the Board finds the public interest is best served by utilizing the unique technology and proprietary knowledge that Solar Turbines, Inc., has developed to maintain the upgraded Cogeneration Gas Turbine System. 4. THAT, in accordance with Section 3400(c) of the California Public Contract Code, the Board finds that the proprietary technology offered by Solar Turbines, Inc., shall be utilized in the District's treatment plant to maintain the Cogeneration Solar Central Contra Costa Sanitary District Resolution 2015 -P LS Sole- Source Contract — Solar Turbines, Inc. Page 2 of 2 Centaur 40 Gas Turbine System, and that a sole- source contract with Solar Turbines, Inc., meets the criteria set forth in that section. 5. THAT the Board authorizes the General Manager to enter into a sole- source, long- term services contract for a term of five years with Solar Turbines, Inc., at an estimated amount of $1,650,000 for the maintenance of the upgraded Cogeneration Gas turbine System. PASSED AND ADOPTED this 21St day of May, 2015, by the Board of Directors of the Central Contra Costa Sanitary District by the following vote: AYES: Members: NOES: Members: ABSENT: Members: Michael R. McGill, P.E. President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California COUNTERSIGNED: Elaine R. Boehme, CIVIC Secretary of the District Central Contra Costa Sanitary District County of Contra Costa, State of California Approved as to form: Kenton L. Alm, Esq. Counsel for the District N:\HDMINSUP\ADMIN \DIST- SEC \RESOLUTIONS \DRAFTS (until approved at Board Meeting)\2015 -013 Solar Turbines Contract 05- 21- 15.docx