Title
Introduction of Ordinance Approving a 15-Year Lease with Three Five-Year Extension Options with Teleport Communications of America, LLC for Conduit Space for One Innerduct Containing Fiber from the Intersection of Grand Street and Fortmann Way Across the Oakland Estuary to Coast Guard Island [Requires Four Affirmative Votes] (Alameda Municipal Power)
Body
To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Introduction of Ordinance Approving a 15-Year Lease With Three Five-Year Extension Options With Teleport Communications of America, LLC for Conduit Space for One Innerduct Containing Fiber From the Intersection of Grand Street and Fortmann Way Across the Oakland Estuary to Coast Guard Island [Requires Four Votes]
BACKGROUND
Alameda Municipal Power (AMP) is responsible for providing electrical service to the City of Alameda, including Coast Guard Island (CGI). CGI was served by a single radial 12 kilovolt (kV) submarine cable traversing the Estuary between Alameda Island (near the corner of Chestnut Street and Clement Avenue) and CGI (south of Dennison Street). The age of the submarine cable, operational redundancy and desired maintenance capacity for the system had necessitated the construction of a second 12 kV feeder crossing from Grand Street in the Main Island to Spencer Road (near McCulloch Drive) on CGI.
The new electrical crossing, consisting of a bundle of three high density polyethylene (HDPE) conduits, was installed beneath the Estuary using Horizontal Directional Drilling (HDD) methods. One conduit is for a 12kV trunk feeder, a second conduit is empty for the installation of future electrical feeder lines, and a third conduit is for the installation of communication cables (e.g., fiber optics). The HDD is under the Estuary at a minimum depth of 60 feet below the proposed dredging limits.
On March 19, 2012, the Public Utilities Board (Board) authorized the award of a professional services contract to URS Corporation to prepare a feasibility study, an environmental impact initial study, secure permits, and provide engineering services for the installation of conduits and associated substructures across the Alameda-Oakland estuary. This work was designated as Phase I. On September 16, 2013, the Board adopted the Mitigated Negative Declaration for the Alameda to CGI Conduit Crossing Project. On September 23, 2013 AMP filed the Notice of Determination with the Alameda County Clerk as part of the California Environmental Quality Act process. On February 24, 2014, the Board authorized the award for a construction contract to California Trenchless Inc. for the installation of approximately 1,700 feet of 3-6 inch HDPE conduits across the Oakland Estuary to CGI via HDD including the installation of two high voltage electric vaults, two fiber pull boxes, staging, compliance with regulatory agencies’ requirements, traffic control, dewatering, shoring, and restoration of the site, designated as Phase II and completed in June 2014. The first two phases were fully paid from AMP’s Capital Infrastructure Project (CIP) funds.
On March 21, 2016, the Board authorized an agreement with The United States Coast Guard (USCG) to construct the substructure tie-in and install the necessary electrical equipment for the Second 12kV Cable Crossing Project to CGI. On June 20, 2016, the Board authorized the award for a construction contract to Ray’s Electric for the installation of substructure to tie-in for the Second 12kV Cable Crossing Project to CGI as part of Phase III. AMP’s line crew has completed the installation of the 12kV trunk feeder and fiber optic cable for supervisory control and data acquisition (SCADA) operations of electrical equipment, and electrical equipment as part of Phase III. The USCG will pay 100 percent of the substructure work for power only, and 60 percent of the labor and material associated with the 12kV electrical cable and equipment installation per AMP’s Rules and Regulations.
From the start of these activities, Teleport Communications America, LLC (TCA), an affiliate of AT&T and competitive local exchange carrier in California, has engaged in discussions both with AMP and the USCG regarding TCA’s desire to implement a diverse fiber optic cable onto CGI to better serve the USCG. After many discussions and much negotiation, AMP and TCA agree on a proposed lease agreement for a communications pathway in the conduit and substructure referred to above. (Exhibit 1) In this agreement, TCA will install smaller conduit or tubing, called innerducts, in order to subdivide the larger conduit and protect, isolate and identify the optical fiber cables in the underground conduit system, all of which is specified by AMP at TCA’s cost. On June 26, 2017 the Board approved a 15-year lease with three five-year extensions with TCA.
The City Council is required by the Charter to approve real property of all City leases for a period in excess of one year by an affirmative vote of four members of the Council. (Article III, Section 3-10)
DISCUSSION
The primary motivations to lease the innerduct are the ability to recover construction costs and to enable TCA to better serve the USCG.
One of the three conduits across the Oakland Estuary to CGI was installed for communications. The cost allocation for the three conduits across the estuary is allocated by 1/3 to the conduit used for communications by AMP and TCA, and a 50%/50% split between AMP and TCA resulting in a 16.67% allocation between AMP and TCA. The costs include work performed by AMP engineering in Fiscal Years 2012 through 2015 for $148,258, URS Corporation for $195,146, and California Trenchless Inc. for $1,473,904, for installation of the three conduits across the Oakland Estuary to CGI. The resulting allocation to TCA is $302,885 for the Phase I work performed.
The communications conduit is sized to accommodate up to eight 2-cell MaxCell fabric innerducts. AMP is currently using half of one 2-cell innerduct and proposes to lease space for installation of a one cell MaxCell fabric innerduct and fiber to TCA. Cost allocation for the underground trench and substructure for both power and telecommunications is based on the Western Underground Committee Guide to define the formula to be used to proportion the appropriate share of the costs of an underground trench used by multiple utilities, resulting in a 75%/25% split for power and telecommunications, respectively. Telecommunications costs are further allocated by a 50%/50% split between AMP and TCA resulting in a 12.5% allocation between AMP and TCA. The costs include work performed by Rays Electric for $129,631.04, resulting in an allocation of $16,204 for the Phase II work performed.
Costs incurred for AMP engineering labor for Fiscal Years 2016 - 2017, AMP operations labor, and AMP materials for the design and implementation of power investments in Phase III were not included allocated to TCA. Consequently cost categories and costs to be reimbursed by the USCG have not been allocated to TCA in the analysis.
The total cost share allocated to TCA in the analysis is $319,089. The annual rent under the lease agreement starts at $24,000/year and escalates by 3% each subsequent year. The initial 15-year term results in $446,374 in rent, the first 5-year renewal would potentially add $198,515, the second 5-year renewal would potentially add $230,133, and the third 5-year renewal would potentially add $266,788, for a potential total of $1.14 million in rent over 30 years.
The attached financial analysis calculates the Internal Rate of Return (IRR) (Exhibit 2) for different term periods to help understand the value of the lease agreement for the different possible term lengths of the agreement. The IRR is that rate of return at which the Net Present Value from the sum of all cash flows for allocated investments and the rent paid under the proposed lease agreement will become zero. The IRR for the varying term lengths are provided below:
|
• 15 Year: |
Initial 15-Year Term - |
3.0% |
|
• 20 Year: |
Initial 15-Year Term plus 5-Year Renewal Term - |
5.3% |
|
• 25 Year: |
Initial 15-Year Term plus 2 5-Year Renewal Terms (25 Year Asset Amortization Period) - |
6.6% |
|
• 30 Year: |
Initial 15 Year Term plus 3 5-Year Renewal Terms - |
7.3% |
For comparison purposes, the Alameda Public Financing Authority Revenue Bonds Series 2010 A are provided below:
|
• 17 Year: |
Maturity Date of July 1, 2027 - |
4.38% |
|
• 18 Year: |
Maturity Date of July 1, 2028 - |
4.50% |
|
• 19 Year: |
Maturity Date of July 1, 2029 - |
5.25% |
|
• 20 Year: |
Maturity Date of July 1, 2030 - |
4.75% |
FINANCIAL IMPACT
The proposed lease agreement is both feasible and reasonable. The IRR represents a reasonable range of returns to AMP and is comparable to the 2010 A Bond Series. The rent payments lower the overall project costs paid from AMP’s CIP funds. The spare capacity is sufficient to: 1) provide space to TCA to better serve the USCG; 2) maintain sufficient unused space for potential additional future communication needs of AMP; and 3) in the event that another provider leases an innerduct with similar terms and conditions, there is a potential for the costs of the overall project to be absorbed by others. TCA can avoid the cost and environmental impacts of constructing another conduit across the estuary.
MUNICIPAL CODE / POLICY DOCUMENT CROSS REFERENCE
This action does not affect the Municipal Code.
ENVIRONMENTAL REVIEW
Approval of this lease is not a project under California Environmental Quality Act (CEQA) because it is a government fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment pursuant to CEQA Guidelines section 15378(b)(4).
RECOMMENDATION
Introduction of ordinance approving a 15-year lease with three five-year extension options with Teleport Communications of America, LLC for conduit space for one innerduct containing fiber from the intersection of Grand Street and Fortmann Way across the Oakland Estuary to Coast Guard Island
Respectfully submitted,
Nicolas Procos, General Manager, Alameda Municipal Power
By,
Luis Escalante, Utility Systems Analyst
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Lease Agreement
2. Internal Rate of Return Analysis