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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Utilities
Meeting Date: February 3, 2025
Staff Report #:2411-3777
TITLE
Authorize the City Manager or their Designee to Execute an Assistance Agreement with the United States Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) in the amount of $16,519,879 through January 31, 2030; CEQA Status – Not a project.
RECOMMENDATION
Staff recommends that the City Council authorize the City Manager or their designee to:
1. Execute an Assistance Agreement with the United States Department of Transportation (DOT) Pipeline and Hazardous Materials Safety Administration (PHMSA) accepting $16,519,879 in federal grant funding for the replacement of PVC and steel natural gas pipelines, including the purchase of new greenhouse gas reducing equipment through January 31, 2030, subject to the PHMSA Grant Terms and Conditions; and
2. Complete all other documents required to comply with the Grant Terms and Conditions through Project completion, including assurances, audits, reports, and any needed changes to the Project scope, schedule or budget.
BACKGROUND
On November 15, 2021 President Biden signed the Bipartisan Infrastructure Law (Public Law 117-58-Nov. 15, 2021), which includes PHMSA’s first ever Natural Gas Distribution Infrastructure Safety and Modernization (NGDISM) grant program. The legislation designated $200 million a year in grant funding with a total of $1 billion in grant funding over the subsequent five years. The grant funding is to be made available to municipality- or community- owned utilities (excluding for-profit entities) to repair, rehabilitate, or replace its natural gas distribution pipeline systems or portions thereof or to acquire equipment to reduce incidents and fatalities and avoid economic losses.
In August 2023, Staff submitted an application for three projects, the replacement of 2.5 miles of polyvinyl chloride (PVC) main in the Midtown and Palo Verde neighborhoods, the
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replacement of 2.3 miles of leak-prone steel main in the Community Center and Leland Manor neighborhoods, and the purchase of new leak detection equipment to assist Staff in detecting leaks and reducing greenhouse gas emissions. In May 2024, the City received notice from PHMSA that all three projects were selected for grant funding. The total grant funding for the three projects is $16,519,879, awarded on a cost-reimbursement basis. The construction sections of the projects will be completed under the Gas Main Replacement Project 25 (GS- 15000 project). The grant structure requires the City to pay for all project costs and submit for reimbursement for eligible grant expenses. The City will have 5 years to complete all three projects before the funding expires. Any costs deemed not eligible for reimbursement by PHMSA or that exceed the total grant amount will be the City’s financial responsibility.
Staff attends monthly Operations & Safety meetings with the American Public Gas Association (APGA) and municipalities throughout the United States. As of the January 2025 meeting, PHMSA is planning to continue issuing grant funding to awardees. Staff is in ongoing communication with PHMSA and watchful for any indication of program changes under the new Administration.
ANALYSIS
The City of Palo Alto natural gas distribution utility is regulated by PHMSA under the federal Department of Transportation in accordance with Title 49 Code of Federal Regulations (CFR) Part 192. The City’s Municipal Code Section 2.08.200 authorizes the City of Palo Alto’s Department of Utilities to provide operations, maintenance, and construction necessary to ensure the safe, efficient, and reliable delivery of natural gas service to all customers, among other responsibilities. This includes authority to perform all duties related to the repair, replacement, or rehabilitation of gas pipeline infrastructure within City limits. The City’s Municipal Code Section 2.30 regulates the City’s purchase of goods (equipment) and services; however, the assistance agreement may require stricter procurement standards for these projects.
The City’s current Gas Distribution Integrity Management Plan (DIMP), required by the Department of Transportation, was developed based on design, construction, operation, and maintenance records, including incident and leak history, corrosion control records, continuing surveillance records, patrolling records, maintenance history, and excavation damage experience, as well as the judgment and knowledge of City employees. The DIMP data shows the two major risks in the City’s gas system are related to the corrosion of coated-steel pipelines and damages to untraceable PVC pipe through excavations and earth movements.
This information was used to determine the City projects that were selected for its NGDISM funding application.
The gas system’s safety can be improved by replacing leaking steel pipelines and PVC pipelines with new polyethylene (PE) pipelines. The PE pipelines will be easier to detect using standard equipment to avoid excavation damage, and the material will be more resistant to corrosion 5 9
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over time and during earth movements. The City of Palo Alto applied for NGDISM federal grant funding to carry out three priority projects as described in the table below.
Table #1: Natural Gas Distribution Infrastructure Safety Modernization Grant (NGDISM) Award Details Project # Project Title Project Description Funds
Requested
Total # of
Miles
Priority
Ranking
1. Replacement of
steel pipe
This project is to replace 2.3 miles of leak-
prone 2” and 3” diameter coated steel main
and services, installed in 1939 and 1950, in
the Leland Manor and Community Center
neighborhoods of Palo Alto.
$7,844,084 2.3 Highest
2. Replacement of
PVC pipe
This project is to replace 2.5 miles of 2” and
4” diameter PVC gas mains, installed in 1971,
in the Midtown and Palo Verde
neighborhoods of Palo Alto.
$8,630,331 2.5 Second
Highest
3. Equipment
Purchase
This project is to purchase new leak survey
equipment to be used by municipal staff
when inspecting and surveying lines.
$45,463 N/A Lowest
The work for Project #1 and Project #2, in the above chart, will be completed under the GS- 15000, which is anticipated to begin construction in FY2026. Staff anticipates returning to Council for award of the construction contracts for these projects at the end of FY2025. The equipment purchase requested through NGDISM funding is the purchase of leak detection equipment to be used by City of Palo Alto Utilities (CPAU) employees when surveying pipelines for leaks throughout the City. Specifically, CPAU is seeking to purchase RMLD-CS and Detecto Pak leak detection equipment. The equipment currently being used is more than 30 years old and frequently in need of service for repairs. Equipment rental is not an option with any of the equipment providers in our area and the manufacturer of the requested equipment has confirmed they do not lease or rent the equipment. Equipment purchased with federal grant funding has specific disposition procedures required to comply with the Assistance Agreement when it is no longer needed for the Project.
Acceptance of these grant funds requires the City to comply with all PHMSA reporting requirements, including quarterly progress reports, quarterly federal financial reports, and final performance and financial reports. The City is also required to comply with applicable auditing, monitoring, and close-out requirements. Oversight of these requirements will be managed by both the project manager and utilities business operations in partnership with Administrative Services Department, especially to ensure compliance with federal audit accounting reporting standards.
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FISCAL/RESOURCE IMPACT
The total authorized grant funding is $16,519,879 for the completion of the two pipeline replacement projects and the purchase of new leak detection equipment over a five year period, through the end of January 2030. Grant funding for the NGDISM grant will require the City to submit for reimbursements as it incurs eligible project costs. Staff intends to submit for reimbursements at least quarterly each year and there are sufficient funds in the City’s gas capital improvement budget to manage the cash flow associated with the grant reimbursement funding structure. Any remaining grant funding after the completion of the two pipeline replacement projects and purchase of leak detection equipment will be used for the purchase of methane reducing equipment approved by the NGDISM grant.
STAKEHOLDER ENGAGEMENT
Both City Council and the Utilities Advisory Commission were notified of the NGDISM grant preliminary award. Utilities infrastructure work will continue to be coordinated with the public and other stakeholders as appropriate for the nature of work.
ENVIRONMENTAL REVIEW
Council acceptance of funding and approval of the assistance agreement does not constitute a “project” under the California Environmental Protection Act (CEQA). The grant award incorporates National Environmental Policy Act (NEPA) review conducted by PHMSA for the grant-funded construction projects (GMR 25), resulting in an approved Categorical Exclusion (CE).
ATTACHMENTS
Attachment A: Notice of Award
Attachment B: PHMSA FY2023 NGDISM Assistance Agreement and Grant Terms and Conditions Attachment C: NEPA CE for PHMSA FY2023 NGDISM Grant
APPROVED BY:
Kiely Nose, Assistant City Manager/Interim Utilities Director