City Council Agenda Report
Meeting Date: April 2, 2024
From: Todd Dusenberry, General Manager of Public Utilities Department: Public Utilities
Submitted by: Adriana Ramos, Management Analyst
Subject
Amendment No. 1 to Services Agreement with Hill Brothers Chemical Company Recommendation
A. Approve and authorize the City Administrator to execute Amendment No. 1 to the Services Agreement with Hill Brothers Chemical Company, in substantially the same form as submitted, to increase the contract by an additional $87,300; and
B. Authorize a contingency amount of ten percent (10%) or $8,730 in the event of price volatility or other unforeseen market events and grant the City Administrator authority to amend the contract value up to the contingency amount, if necessary.
Background
Ammonia plays a crucial role in the functioning of the Malburg Generating Station (MGS) as it helps to eliminate nitrogen oxides (NOx) that are produced as a byproduct during combustion.
NOx contribute to the formation of ground-level ozone, which can impact health, global warming, and other environmental issues thus emissions are subject to State and Federal regulations.
Therefore, ammonia is critical for ensuring that MGS complies with such environmental regulations.
Following a Request for Bids (RFB) process, on July 1, 2022, the City Council approved a Services Agreement with Hill Brothers Chemical Company (Hill Brothers) for the supply of 19% aqueous ammonia in the amount of $135,800 for a term of three years. Budgeting assumptions made while issuing the RFB were based on estimated quantities of ammonia to be used.
However, current usage trends place the needed quantity at 98,015 gallons during the contract term versus the 70,000 gallons that were listed in the Schedule of Bid Prices included in the RFB.
Based on the projected costs through the end of the contract term, staff recommends the City Council approve the proposed Amendment No. 1 to increase the not-to-exceed amount by $87,300, bringing the total contract amount to $223,100. Additionally, staff recommends a contingency amount of ten percent (10%) or $8,730 in the event of price volatility or other unforeseen market events for a combined total not-to-exceed of $231,830.
Vernon Municipal Code Section 3.32.220(C), allows rate increases during the term of a contract as long as increases are tied to an appropriate index. Aqueous ammonia is a price-volatile commodity, and due to the volatility that ammonia producers and suppliers have experienced, the published RFB included a provision to allow price adjustments based on the most appropriate publicly available index. If approved, the contingency funds would be utilized to address such price adjustments.
Amendment No. 1 has been reviewed and approved as to form by the City Attorney's Office.
Fiscal Impact
The fiscal impact is not-to-exceed $96,030. Sufficient funds are available in Electric Fund, Malburg Generation Station, Chemicals Account No. 055-050-586-520235 for the current fiscal year and funds will be budgeted in subsequent years.
Attachments
1. Amendment No. 1 - Hill Brothers Chemical Company