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HomeMy WebLinkAboutMinutes - City Council - unsigned - 1994-08-12 - Special Special Meeting, Redding City Council City Hall Conference Room A 760 Parkview Avenue Redding, California August 12, 1994 11:00 a.m. The meeting was called to order by Mayor Anderson with the following Council Members present: P. Anderson, Kehoe, McGeorge, Murray, and R. Anderson. Also present were Interim City Manager McMurry, City Attorney Hays, Electric Utility Director Lindley, Planning and Community Development Director Perry, Electric Utility Operations Manager Ryan, Director of General Services Masingale, Risk Manager Mlinarcik, Electric Utility Power Plant Manager Heckenberg and Assistant City Clerk Moscatello. REDDING POWER COMBUSTION TURBINE PROJECT - Builders Risk Insurance (R-100-375-550 & E-120-150) Risk Manager Mlinarcik reviewed the Report to City Council dated August 12, 1994. Mr. Mlinarcik recommended that Council authorize the purchase of a builders risk insurance policy from Zurich-American in the amount of $66,725 with the stipulation that the $10 million sublimit for earthquake perils will apply to the entire Power Plant site, not just the Combustion Turbine Project, and that we agree to purchase property insurance from them for at least one year after completion of the project. Mr. Mlinarcik stated that Zurich-American has very competitive prices. He explained that the premium is based on a $37.5 million project. However, if the project has a greater value, which he believes it does, the premium will cost more, but it will be based on the same rate. Mr. Mlinarcik stated that he asked Zurich-American to look for additional earthquake insurance and the indications are it will cost $25,000 to $30,000 for an additional $10 million coverage. In response to Council Member Kehoe's questions about other alternatives, Mr. Mlinarcik stated that there are very few. He noted that Zurich-American is buying into this late in the game and during the most hazardous time, testing. Mayor Anderson noted that $75,000 was budgeted for insurance costs, and without the additional earthquake coverage, we are on track. Council Member Murray asked if staff analyzed the impact on rates by changing the deductible. Mr. Mlinarcik said there would probably be a reduction, but it would not be great. He explained that this proposal maintains the same coverage in existence between MLP Energy and Insurance Company of North America. Council Member Murray asked if those deductibles make sense and if they are in line with other projects. Mr. Mlinarcik answered yes. Council Member Murray asked if staff has done an analysis of the facility to determine if earthquake damage would cause over $10 million in damage. Mr. Mlinarcik pointed out that this is a low earthquake zone area and that is why we are even able to buy earthquake insurance. He explained that some work was done to insure against the adverse impacts of an earthquake, but an analysis has not been done. Council Member Murray said it would make sense to prepare an analysis of the high dollar items and estimate the potential for negative impact and determine if we are overinsured or underinsured. Mayor Anderson agreed that an analysis should be prepared. Mr. Mlinarcik explained that $10 million in insurance covers $80-$90 million of value at the site, and it may not be hard to exhaust $10 million, including the $4-$5 million deductible. He conveyed that the old policy included $30 million in earthquake coverage; therefore, if Council believes it is advisable, staff will insure to a higher level. Mayor Anderson asked Mr. Mlinarcik to make a recommendation to Council assessing the need for additional earthquake coverage. Mr. Mlinarcik clarified that he is requesting approval for the insurance rate and if the value of the property goes up, the price will go up based on that rate. MOTION: Made by Council Member P. Anderson, seconded by Council Member Murray, to approve the purchase of a builders risk insurance policy from Zurich-American in the amount of $66,725.00. The Vote: Unanimous Ayes RESOLUTION - Contract with Zurn/NEPCO for Completion of Redding Power Combustion Turbine Project (E-120-150) Council Member Kehoe stated that consistent with his position taken at the City Council meeting of July 5, 1994, and at meetings thereafter, he will abstain from consideration from this matter. Electric Utility Operations Manager Ryan reviewed the Report to City Council dated August 10, 1994. Mr. Ryan stated that after considerable negotiations, staff and the firm of Zurn/NEPCO (Zurn) have arrived at what staff believes is a fair and equitable agreement for the remainder of the construction work for the Redding Power Combustion Turbine Project. The contract price is $3,916,866.00 including the cost of Performance, Payment and Maintenance Bonds. Council questioned why the contract with Zurn references the contract between MLP Energy (MLP) and Zurn but does not incorporate a copy of it into the contract. Mr. Ryan said it was staff's understanding that Council directed staff to negotiate a contract with Zurn for the completion of work as it was defined in their agreement with MLP. The agreement is referenced because it is Zurn's position that these exceptions and exclusions must be incorporated into the agreement with the City. Mr. Ryan said he does not see any problem with the exceptions and exclusions; however, he cannot tell Council there is not. If Council desires that staff go back and negotiate a different agreement that incorporates something outside of Zurn's prior arrangement with MLP, that can be done. Council Member Murray noted that MLP, in their contract with Zurn, did certain things the City was not a party to, and the City is now legitimizing whatever those agreements were. He said his concept of the direction Council gave staff was to complete the project, not complete the work Zurn had with MLP. Mr. Ryan conveyed that Zurn put exceptions in the contract acknowledging that the City had a different agreement with MLP than Zurn had with MLP. Therefore, Zurn will not be liable when the City does not see what it contracted for with MLP. Council Member P. Anderson asked if Zurn has any problem with the directions they received from MLP and if the City has any concerns with the direction MLP gave Zurn. In addition, is Zurn concerned about any of the exceptions and exclusions, and would staff make changes to the exclusions because we are not in agreement with MLP's direction to Zurn. Mr. Ryan stated that staff has not contemplated any changes to the exceptions. Zurn has included a statement that they believe that with completion of the scope of work defined in this contract and with work that remains to be done by others, the City will have a complete and operable facility consisting of three gas turbine generators sets and necessary ancillary equipment. City Attorney Hays noted that the plant is 95% complete, and to the extent this list is not in the contract, parts of the plant would have to be torn out and replaced. Council Member Murray stated that the City bought a turn key project without being specific about its makeup. The City is now entering into a series of contracts to complete the project and he is concerned about its makeup. He wants to clarify that the City is making a conscious choice to move forward and accept these changes. Council Member Murray asked if any of the changes that were made between MLP and Zurn that Council is contemplating ratifying will result in peak power of less than 70 megawatts or reduce system reliability or longevity over that originally contemplated by the City of Redding and the MLP contract. Mr. Ryan said he does not believe that any of the changes will result in less than a peak power of 70 megawatts. He stated that some of the conditions are different than the City's agreement with MLP; but, they are fairly minor in nature in terms of cost or scope. The only immediate concern is the busbar connections and that will be resolved in consultation with internal engineering and Black and Veatch. Council Member Murray clarified that it is the Electric Department's belief that these changes will not reduce system reliability or longevity over what was initially contemplated. Mr. Lindley replied that with the exceptions noted, that is the case. Council Member Murray asked why there are no holdbacks in the contract. Mr. Ryan explained that Zurn was extremely reluctant to accept holdbacks; however, a process is in place that approves payment over the term of the project in phases. If the City disputes any portion of the work as being completed, we have the ability to withhold that portion of the invoice. Once the work is completed and accepted, payment must be made within 20 days. Council Member Murray asked if it is a good contract. City Attorney Hays replied yes, it meets the needs of the City and it will result in the project being completed in a manner that puts it on line as expected. Mayor Anderson asked if the City is adequately protected. Mr. Hays replied yes. Council Member Murray asked if the insurance and bonding requirements in this contract are sufficient to warrant the completion of the project. Mr. Hays conveyed that the form of bond is the standard City of Redding Public Works contract bond form. Risk Manager Mlinarcik stated that the certificates of insurance submitted by Zurn are fine. Mr. Ryan suggested that Council consider setting up a contingency fund in the amount of $30,000 to $40,000, subject to the City Manager's approval, for minor change orders. Council Member P. Anderson asked if there will be any major cost increases over the nominal change orders. Mr. Ryan said it is his belief that there will not be any. Mr. Smith, representative from Zurn/NEPCO, said that is his belief also. Council Member Murray asked if that statement is limited to the relationship between the City and Zurn/NEPCO or the relationship between the City and completion of this project. Mr. Ryan said it relates to the relationship between the City and Zurn/NEPCO. Council Member Murray said he sees no provision for change orders relative to the entire project. He suggested that staff prepare a staff report requesting authority for a contingency fund for the entire project. Mr. Ryan said staff will bring a report to Council for consideration. Council Member McGeorge noted that because of this project's background, the City Attorney and Electric Department have thoroughly reviewed this contract and it is probably as close as possible to meeting the City's needs at this particular point in time. Council Member Murray pointed out that the contract contemplates Zurn using certain subcontractors, but it is Zurn's responsibility to finish the job whether or not those subcontractors participate in its completion. He said there is concern about the subcontractors in the community who contracted under the original City/MLP contract who may not have been paid what they were entitled to. City Attorney Hays clarified that this contract does not address that issue. Mayor Anderson noted that Black & Veatch are listed in the contract as the City engineer and given considerable authority to halt the job and change things. He asked what their responsibility and liability is in regard to completion of the contract. City Attorney Hays stated that if, based upon their review, something should be shut down, Black & Veatch will consult with staff to determine what to do. Mayor Anderson questioned why someone on staff did not have that authority. Mr. Hays explained that there are parts of the project that staff may not be sufficiently educated about, so Black & Veatch were brought in. Mayor Anderson asked if Black & Veatch has reviewed the entire contract and feel that this will give us a complete project. Mr. Hays replied yes. Mr. Ryan stated that Black & Veatch will provide the City with a letter stating that they know of no reason why the project will not work. MOTION: Made by Council Member Murray, seconded by Council Member McGeorge, that Resolution No. 94-223 be adopted, a resolution of the City Council of the City of Redding approving the contract between the City of Redding and Zurn/NEPCO, for the completion of the Redding Power Combustion Turbine Project, and authorizing the Mayor to sign same. Voting was as follows: Voting was as follows: Ayes: Council Members - P. Anderson, McGeorge, Murray & R. Anderson Noes: Council Members - None Absent: Council Members - None Abstain: Council Members - Kehoe Resolution No. 94-223 is on file in the office of the City Clerk. DISPOSITION OF COMBUSTION TURBINE PROJECT EQUIPMENT - Stored at Pittsfield, Massachusetts (B-050-100-700 & E-120-150) Electric Utility Power Plant Manager Heckenberg reviewed the Report to City Council dated August 11, 1994. Mr. Heckenberg stated that surplus equipment not utilized in the City's combustion turbine project was stored by MLP Energy (MLP) in Pittsfield, MA, until such time as its final disposition could be determined. The warehouse owner, Robert F. Naples Associates, Inc. (RFN), has notified the City that it is abandoning the warehouse and advised the City to remove its equipment or enter into a lease agreement with the new owner. RFN has offered to purchase the surplus equipment for $10,000 and waive any storage costs incurred to date. It is the recommendation of staff to accept the offer of $10,000 from RFN for the sale of surplus equipment. Council Member Kehoe questioned what the value of the equipment is. Mr. Heckenberg stated that the value was determined by the quote offered by RFN and the Belyea Company, $10,000 plus waiver, and $8,500, respectively. He explained that there is not a great deal of interest in the equipment, and the shipping charge to Redding is $35,000. Council Member Kehoe asked what the cost of the equipment was to the City. Mr. Heckenberg explained that the cost was included in the total purchase price of the combustion turbines. He added that the equipment is leftover and essentially junk. Council Member Kehoe asked why the City was paying rent to store it. Mr. Heckenberg conveyed that MLP was storing the equipment. He explained that the City and MLP entered into a development agreement and we were not calling their shots. Staff is trying to clean up the situation. Council Member Kehoe asked if any of these items would be repurchased. Mr. Ryan said no, the City was lucky to find a buyer. MOTION: Made by Council Member P. Anderson, seconded by Council Member McGeorge, that Resolution No. 94-224 be adopted, a resolution of the City Council of the City of Redding declaring certain combustion turbine project equipment stored at Pittsfield, Massachusetts, as surplus; authorizing the sale of said equipment to Robert F. Naples Associates, Inc., for the amount of $10,000.00; and further authorizing the City Manager to execute the appropriate documentation. Voting was as follows: Ayes: Council Members - P. Anderson, Kehoe, McGeorge, Murray & R. Anderson Noes: Council Members - None Absent: Council Members - None Resolution No. 94-224 is on file in the office of the City Clerk. Council Member Murray asked for a report on equipment stored in Texas and asked if an appraisal had been prepared and if staff has a plan for the equipment. Electric Utility Director Lindley stated that it is the department's plan to move forward and sell the equipment as soon as possible. Electric Utility Operations Manager Ryan conveyed that staff received a letter yesterday from Natole Associates offering to act as a non-exclusive agent for the City to sell the equipment for 5% of the sale price. Staff will bring that item to Council for consideration and discuss the status of the equipment. Stewart Oliver asked if a process could be implemented whereby a disinterested third party, such as the City Clerk, could review all contracts. Mayor Anderson conveyed that Council is reviewing the entire contract process. Interim City Manager McMurry stated that the City Clerk is not an expert on terms and conditions of a contract, the City Clerk is the repository of contracts. Mr. Oliver stated that he would like to visit the power plant. Electric Utility Director Lindley stated that a visitor tour program has not been set up; however, if Mr. Oliver would give sufficient advance notice so staff would be available to meet with him, the request can be accommodated. Interim City Manager McMurry stated that the City is very proud of the power plant, and there is an impressive amount of work to be seen. John Hoeflich, 1984 Laurel Avenue, stated that he attended an Electric Utility Commission meeting wherein several Electric Utility Commissioners expressed concern about the age of the gas turbine generators and the availability of parts. Mr. Hoeflich questioned the reliability of the plant. City Attorney Hays explained that at the meeting Mr. Hoeflich attended, several proposals were discussed including one that proposed to use old generators. The City did not buy that proposal. Electric Utility Director Lindley stated that the gas turbines are current technology and parts are still manufactured. Two of the units are brand new and one is remanufactured. ADJOURNMENT There being no further business, at the hour of 12:30 p.m., Mayor Anderson declared the meeting adjourned. APPROVED: _______________________________ Mayor ATTEST: _____________________________________ Assistant City Clerk