BOARD MEETING DATE: September 8, 2006
AGENDA NO. 4

Extend Term of Current Interagency Agreement with State of California Department of General Services to Purchase Natural Gas for Operation of Microturbines at AQMD Headquarters

SYNOPSIS:

At its July 2002 meeting, the Board authorized the Chairman to execute an Interagency Agreement with the State of California Department of General Services (DGS) to purchase natural gas for the operation of microturbines at AQMD Headquarters for a one year period with the option to renew annually for four additional years. Since then DGS has provided AQMD with competitively priced natural gas service and is now offering AQMD the option to renew for a five year contract. This action is to continue to utilize the State of California DGS Natural Gas Services Program to provide this natural gas service. The estimated annual gas cost is $88,000, but should result in an overall net electricity and gas cost savings of more than $42,000 per year, based on current energy costs.

COMMITTEE:

Technology, July 28, 2006, Recommended for Approval

RECOMMENDED ACTION:

Authorize the Chairman to extend the term of the current Interagency Agreement with the State of California Department of General Services to purchase natural gas for the operation of microturbines at AQMD Headquarters for a period of five years with the option to renew for additional years.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

At its November 2001 meeting, the Board approved the installation of four 60-kW, natural gas-fired, microturbines for electric generation at AQMD Headquarters.  By recovering waste heat from the microturbines, they also provide hot water to the building, which reduces gas use by the building’s hot water boilers. 

As a result of the deregulated natural gas market, AQMD was required to purchase natural gas for the microturbines from one of several natural gas marketers approved by the Public Utilities Commission, rather than from Southern California Gas Company (SoCalGas). 

Subsequently, at its July 2002 meeting, the Board authorized the Chairman to execute an Interagency Agreement with the State of California Department of General Services (DGS) to purchase natural gas for the operation of microturbines at AQMD Headquarters for a one-year period with the option to renew annually for four additional years.  Since then DGS has provided AQMD with competitively priced natural gas service and has now offered AQMD the option to renew for a five year contract.  Although the current contract does not expire until June 30, 2008, DGS has asked AQMD and other long term customers to renew their contracts so that DGS can have the maximum flexibility in how they purchase gas.  This in turn will help keep prices more stable and allow customers, like AQMD, to receive the benefit of the purchases being made at this time for the five year pool.

Proposal

Staff is recommending that AQMD enter into a five-year contract with the State of California DGS Natural Gas Services Program to continue this non-core gas service, with the option to renew for additional years.  The DGS Program has about 175 customers in the state, all of whom are state or local government agencies.  By pooling together the gas demands of many users, DGS can purchase gas at competitive rates.  Over the past year the cost of gas supplied by DGS, which changes monthly, has been more than 8% less than gas AQMD purchases from SoCalGas for non-microturbine use.  The DGS fee is less than 1.1% of the current cost of gas.  The risk of this contract is low because AQMD is not obligated to purchase any natural gas if the microturbines do not operate.

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.  This request for sole source award is made under provisions (A)(4)(a) and (f): (a) The items are available from only one source, and (f) Other circumstances exist which in the determination of the Executive Officer require such waiver in the best interest of the AQMD.  These circumstances are as follows:

1. After a survey of PUC-approved gas marketers, staff recommends DGS for procurement of natural gas due to their competitive rates and because they were the only marketer we found willing to provide service for our relatively small natural gas requirement.
2. DGS provides this service exclusively to public entities.

Resource Impacts

The estimated annual cost of this five-year contract is $88,000 based on the microturbine operating schedule and the current cost of gas.  However, this will be more than compensated for by electricity savings and boiler fuel savings.  Staff estimates that after all maintenance costs, fuel costs and electricity savings are considered, the microturbines will save AQMD over $42,000 per year based on current energy costs.