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CITY OF COLTON AGENDA REPORT FOR COUNCIL MEETING OF APRIL 18, 2006 TO: HONORABLE MAYOR AND CITY COUNCIL FROM: Jeannette Olko, Electric Utility General Manager ITEM #17 SUBJECT: Approve Additional Expenditures for Lease of Water Treatment Equipment to Ionics Ultrapure Water Corporation through June 30, 2006 DATE: April 10, 2006 BACKGROUND: On October 15, 2002, City Council approved an Operations and Maintenance Agreement with E.I. Colton, LLC, (operator) to handle operations at the Agua Mansa Power Plant. As part of that agreement, Section 4.07 Procurement gives E.I. Colton, LLC authority to negotiate contracts on behalf of the City for power plant operations. Any contracts above $50,000 require City Council approval. Under this authority, E.I. Colton, LLC requested proposals for a water treatment system to de -mineralize, or purify, water to be used in the turbines at the Agua Mansa Power Plant. On April 1, 2003, City Council approved a two-year lease agreement with Ionics Ultrapure Water Corporation for this equipment. The agreement included options to extend the term from a two year lease to either a five or ten year lease at reduced base rates. The initial contract term has expired, but the equipment is still in place and in use at the City's facility. The equipment is being used on a month-to-month basis until a new agreement can be negotiated. DISCUSSION/ANALYSIS: Prior to the expiration of the initial term, E. I. Colton, LLC began negotiations with Ionics to extend the lease. In addition to negotiating with Ionics, E.I. Colton attempted to obtain quotes from other suppliers of water treatment equipment. Two other sources were found, Ecolochem, Inc. and U.S. Filter. These same suppliers provided quotes for the original lease in 2002/2003, but were higher than that of Ionics. Ecolochem, Inc. provided the same quote they submitted in 2002. U. S. Filter declined to provide a new quote since their cost would have to include the initial installation and set-up in addition to the monthly costs. Per the terms of E.I. Colton's O & M contract, the City issued a purchase order to Ionics in July 2005 in order to pay the lease until a new contract could be negotiated. Staff had expected the new terms to be agreed upon by September, 2005, but Ionics was purchased by G. E. Water, a division of General Electric Power, causing a delay in the negotiations. On February 7, 2006, Council approved extending payment through March 30, 2006. Negotiations continue with Ionics/GE personnel regarding terms and conditions of the new contract. Negotiations are expected to be complete before the fiscal year end. Staff is recommending approval of additional expenditures not to exceed $43,962.00 to cover the month-to-month rental from April 2006 through June 2006 to allow time for a new contract to be negotiated. ALTERNATIVES: Council can approve the month-to-month rental only through March, and direct staff to have the equipment removed before March 2006. However, doing so will cause operations at the Agua Mansa Power Plant to cease as the turbines cannot operate without de -mineralized water.