BOARD MEETING DATE: October 6, 2006
AGENDA NO. 5

Execute Contracts and Purchase Equipment for Installation of Three 60-Kilowatt Microturbines with Heat Exchanger at AQMD Headquarters

SYNOPSIS:

AQMD headquarters currently has four 60-kW microturbine generators with heat exchanger. This action will allow the installation of an additional three 60-kW microturbine generators with heat exchanger at AQMD headquarters using previously authorized AES Settlement funds. The estimated total project cost of $261,270 will be offset by $144,000 of incentive money. The additional microturbines should save $18,750 per year in energy costs.

COMMITTEE:

Technology, September 22, 2006, Recommended for Approval

RECOMMENDED ACTION:

Authorize the Chairman to:

1. Execute a contract with Hebb Engineering for the installation of three 60 kilowatt (kW) microturbines with heat exchanger at AQMD headquarters in an amount not to exceed $224,750 from the AES Settlement Fund;
2. Execute a contract with Capstone Turbine Corporation to provide necessary maintenance on the microturbine system, to address Southern California Gas Company (SoCalGas) Self-Generation Incentive Program requirements in an amount not to exceed $35,000 for a three-year period from the AES Settlement Fund;
3. Execute a Self-Generation Incentive Program Contract with SoCalGas at a cost of $720 for application fees from the AES Settlement Fund and apply for the $144,000 incentive; and
4. Execute an agreement with Southern California Edison (SCE) to interconnect and operate three 60-kW microturbines in parallel with SCE’s electrical distribution system at a cost of $800 for application fees from the AES Settlement Fund.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

In 2001, the Board authorized the use of portions of the AES Settlement Fund, LADWP Settlement Fund, and Rule 1309.1 Priority Reserve Mitigation Fees to install about 200 low-emission microturbines for distributed power generation throughout AQMD, in order to assist with the energy crisis and help prevent the need to use emergency backup generators with diesel engines. These microturbines consist of 30-kW and 60-kW units burning natural gas with reported NOx emissions below 9 ppm (at 15% O2), which represents very low emissions for this type of equipment.

Using funds from these settlements and mitigation fees, the Board also authorized the Executive Officer to contract with installers for the installation and start-up of microturbines in all four counties of AQMD. Four microturbines from the LADWP Settlement Fund were installed in 2001 at AQMD headquarters. The proposed additional three microturbines are from the AES Settlement fund.

In 2003, AQMD had a list of pre-qualified contractors for the installation and start-up of microturbines. As a result of strict new contractor certification requirements by the microturbine manufacturer and the previously pre-qualified contractors leaving the business, Hebb Engineering is now the only contractor in Southern California certified by the microturbine manufacturer as an installer.

The Southern California Gas Company (SoCalGas) has an ongoing Self Generation Incentive Program to encourage installation of energy-efficient electrical generating equipment at its customers’ facilities. SoCalGas will pay $800 per kW of project cost for new microturbines installed with heat recovery equipment to utilize waste heat from the microturbines. AQMD qualified and received the incentive funding from this program when the first set of four microturbines with heat recovery were installed in 2001. AQMD can once again qualify for an estimated $144,000 incentive if heat recovery equipment is included with the proposed microturbines. The additional cost to purchase the heat exchanger equipment is less than $50,000. Although Southern California Edison (SCE) also offers the same Self Generation Incentive Program, in the best interest of expediting the application process and to avoid delays we propose to apply for the incentive through SoCalGas since we have established a previous working relationship with our first set of microturbines. The application fee is the same for both incentive programs.

Another requirement of SoCalGas’s incentive program is that the equipment have a warranty or maintenance contract for at least three years. The microturbine vendor, Capstone Turbine Corporation, is currently the only authorized company that provides this three year maintenance contract. In addition, since SCE is our regional electric utility, an agreement will need to be executed with SCE to interconnect and operate the proposed three 60-kW microturbines in parallel with SCE’s electrical distribution system.

Proposal

Staff proposes to install at AQMD headquarters an additional three microturbines previously purchased with funds from the AES Settlement Fund. Similar to the first set of four 60-kW microturbines, these three additional units will provide 180 kilowatts of electric power to AQMD headquarters and by recovering the waste heat they will also provide hot water to the building, which reduces gas use by the building’s hot water boilers. This is expected to result in an overall net electricity and gas cost savings of more than $18,750 per year.

Staff recommends the Board to authorize the Chairman to use the AES Settlement Fund revenue to:

1. Execute a sole-source contract with Hebb Engineering for the installation of three 60-kW microturbines with heat exchanger at AQMD headquarters in an amount not to exceed $224,750,
2. Contract with Capstone Turbine Corporation to provide necessary maintenance on the microturbine system, to address SoCalGas’s Self-Generation Incentive Program requirements in an amount not to exceed $35,000 for a three-year period,
3. Execute a Self-Generation Incentive Program Contract with SoCalGas at a cost of $720 for application fees, and
4. Execute an agreement with Southern California Edison (SCE) to interconnect and operate four 60-kW microturbines in parallel with SCE’s electrical distribution system at a cost of $800 for application fees.

These actions will enable AQMD to qualify for up to $144,000 self-generation incentive from SoCalGas. The incentive should pay for the additional cost of heat exchanger equipment, the maintenance contract and part of the installation cost.

Sole Source Justification

Section VI(A)(4) of the Procurement Policy and Procedure identifies six major provisions under which the preparation of detailed specifications or obtaining of bids may be waived. The request for sole source award to Hebb Engineering is made under provision (A)(4)(a) The items are available from only one source. Hebb Engineering is the only Capstone certified microturbine installer in Southern California.

The request for sole source award to Capstone Turbine Corporation is made under provision (A)(4)(a). The items are available from only one source. Capstone Turbine Corporation, is currently the only authorized company that provides the three year maintenance contract.

The request for sole source award to SoCalGas is made under provision (A)(4)(f) Other circumstances exist which, in the determination of the Executive Officer, require waiver in the best interests of the AQMD. In the best interest of expediting the application process and to avoid delays, staff proposes to apply for the incentive through SoCalGas since there is a previous working relationionship established for the fist set of microturbines. The application fee is the same for both incentive programs.

The request for sole source award to Southern California Edison is made under provision (A)(4)(a) The items are available from only one source. SCE is our regional electric utility.

Resource Impacts

The $261,270 total project cost will be funded by the AES Settlement Fund. These costs will be offset by $144,000 of incentive money from the Self-Generation Incentive Program administered by SoCalGas. These costs will not result in increased funding since AES Settlement Funds were previously authorized by the Board. In addition, staff estimates that after all maintenance costs, fuel costs and electricity savings are considered, the microturbines with heat recovery will save AQMD over $18,750 per year based on current energy costs.