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HomeMy WebLinkAboutItem 4.08 Energy Upgrade Projector 19 82 /ii � 111 DATE: TO: FROM: SUBJECT STAFF REPORT CITY COUNCIL September 4, 2012 Honorable Mayor and City Councilmembers Joni Pattillo City Manager""' Financing Institution Change for Energy Upgrade Capital Project Prepared by Roger Bradley, Assistant to the City Manager EXECUTIVE SUMMARY: CITY CLERK File #600 -30 The City Council will consider authorizing the City Manager to enter into negotiations with alternative financial institutions to fund a comprehensive energy upgrade project covering the City's municipal operations. FINANCIAL IMPACT: As presented to the City Council on June 19, 2012, the Energy project will be funded through a combination of a bank lease and the City's Internal Service Fund reserves. The original proposal utilized financing from US Bank in an amount not to exceed $7,023,268 at a fixed interest rate of 2.66 %. Staff has identified an alternate financing opportunity at a lower interest rate which, based on the final project, is estimated to save over $50,000 during the fourteen year life of the lease agreement. RECOMMENDATION: Staff recommends that the City Council adopt a Resolution approving a change in financial institutions for the funding of the City's Energy Upgrade Project, CIP #930018. Submitted By Assistant to the City Manager DESCRIPTION: Reviewed By Assistant City Manager At the City Council meeting on June 19, 2012, the City Council approved a contract with Chevron Energy Solutions to conduct a comprehensive energy upgrade of the City's municipal operations (Attachment 1 without attachments). Additionally, the City Manager was given authorization to negotiate lease financing arrangements with US Bank to fund the capital project improvements. Over the past two months, the rates for lease purchase transactions have fluctuated with lower interest rates offered. Staff has been made aware of an opportunity to change financial institutions, which would save the City $50,000 over the life of the lease Page 1 of 2 ITEM NO. 4.8 agreement. In particular, the City has been offered an interest rate reduction from 2.66% under the previous lease financing conditions to 2.56 %. The current institution does have a small closing cost fee of $7,500 and all other conditions remain the same. As the change in financial institutions represents real cost savings to the City, Staff recommends that the City Council authorize the City Manager to execute a lease /finance agreement with the financial institution that presents the most favorable terms at the time of agreement execution. NOTICING REQUIREMENTS /PUBLIC OUTREACH: 1101 ATTACHMENTS: 1. Staff Report — June 19, 2012. 2. Resolution authorizing the execution and delivery of an equipment lease /purchase agreement with respect to the acquisition, purchase, financing, and leasing of certain equipment for the public benefit; authorizing the execution and delivery of documents required in connection therewith; and authorizing the taking of all other actions necessary to the consummation of the transaction contemplated by this resolution. Page 2 of 2 or 19 82 /ii � 111 DATE: TO: FROM: STAFF REPORT CITY COUNCIL June 19, 2012 Honorable Mayor and City Councilmembers Joni Pattillo City Manager""' CITY CLERK File #600 -30 SUBJECT: Energy Services Contract for Energy Related Improvements to City of Dublin Facilities Prepared by: Roger Bradley, Assistant to the City Manager EXECUTIVE SUMMARY: The City Council will receive a report on a comprehensive energy audit conducted by Chevron Energy Solutions, and will consider an Energy Services Performance Contract with Chevron Energy Solutions to implement the recommended efficiency improvements from the energy audit, which is a proposed next phase in the City's ongoing efforts to reduce energy consumption and develop long -term cost savings through increased energy efficiency. FINANCIAL IMPACT: The total project cost is $7,430,976. The project study identifies that the full cost of improvements including interest can be offset through estimated energy savings. As discussed later in this report Staff is recommending that the project be funded through a combination of Lease Financing and Internal Service Fund reserves. RECOMMENDATION: Staff recommends that the City Council adopt a Resolution that: 1) approves an Energy Service Contract with Chevron Energy Solutions Company, a division of Chevron U.S.A. Inc., and an associated financing contract, for the implementation and funding of certain energy related improvements to City facilities as authorized by California Government Code Sections 4217.10 through 4217.18; 2) finds that the cost to the City to implement the energy related improvements per this energy service contract will be less than the anticipated marginal cost to the City of thermal, electrical, or other energy that would have been consumed by the City in the absence of purchasing the energy improvements; 3) finds that it is in the City's interests to enter into a financing agreement for the energy improvements and that the payments made under that agreement will be offset by the savings to the City arising from the improvements; 4) accepts the Lease terms presented by US Bank and authorizes Staff to negotiate the final terms and amount to be financed; and 5) authorizes the City Manager to execute the Agreements in substantially the form presented to the City Council. Page 1 of 6 ITEM NO. 6.3 Submitted By ~' Assistant to the City Manager DESCRIPTION: Submitted By Administrative Services Director Reviewed y Assistant City Manager In order to curtail the high cost of energy and to promote greater sustainability within the City, the City Council approved an agreement with Chevron Energy Solutions (Chevron ES) in May 2011 to conduct an energy audit of all City facilities. The audit examined the consumption of energy associated with the City's municipal operations and provides recommendations for projects that incorporate energy conservation measures as well as renewable energy options. Specifically, the Chevron ES evaluation covered the following types of energy efficiency and alternative energy measures: • Lighting fixtures and controls; • Building automation and controls; • Air handling systems; • Equipment modifications; • Heating, cooling, and ventilation (HVAC) replacement and /or upgrades; • Streetlighting technologies; • Alternative energy production including photovoltaic systems and fuel cells; and • Water and irrigation systems. Chevron ES completed the audit of the City's facilities and has provided the City with a proposed Energy Action Plan, which includes a detailed implementation strategy highlighting those energy efficiency upgrades and renewable energy production projects that could be effectively implemented (i.e., audit identifies those projects that generate sufficient cost savings to justify their implementation). After completing the audit and providing the City with the Energy Action Plan, Chevron ES also developed a scope of work to design and build the proposed projects and has evaluated options for funding and implementing the scope of work. Further, the analysis of the cost of the program indicates that over a 15 year period that the savings from the energy upgrades exceed the cost of the program; i.e., there would be no negative impact to the City budget. During the period of the financing, the City would pay less in energy costs; however it will also have annual lease payments. The 15 year period is used based on a reasonable allocation of the life of the improvements. In the case of the solar photovoltaic systems the Consultants advise that the actual life would be expected to extend an additional 5- 10 years. Energy Action Plan It is anticipated that the proposed Energy Action Plan (EAP) and associated improvements will result in an expected annual net savings to the City of over $3.4 million in the first five years and approximately $14.8 million dollars over 25 years. In addition, the plan would provide an important opportunity for the City of Dublin to implement measures that not only reduce energy consumption but also reduce GHG emissions within the community. Eight photovoltaic electricity production (solar) installations are proposed as part of the EAP at the following locations: Civic Center; Library; Shannon Community Center; Senior Center; all 3 Fire Stations; and Valley High School (Stager Gym). These installations will generate more than 1 MW of solar energy at all sites combined, and includes a display monitor to be placed at the Page 2 of 6 Civic Center and Valley High with a link to the City website to allow for public viewing of real time tracking of production, savings and environmental benefits. The solar arrays will be a combination of solar shade structures at the Civic Center, Library, Shannon Community Center, and Valley High with roof mounted solar installations at the remaining facilities. Attachment 1 provides an illustration of how a shade structure would look within the Civic Center parking lot. The project would require that many of the trees within the parking lot where the solar structures are proposed to be installed would be removed. Should the City Council decide to proceed with implementing the EAP, Staff would arrange to have these trees either transplanted or replaced with new trees at other locations within the City at a rate of 3 to 1 (3 new trees for every 1 removed). While it may seem counterintuitive to remove trees to install solar shade structures, ground mounted arrays, as opposed to their placement on the roof, allows for a much larger solar array to be installed. These arrays would allow the City to have a facility that generates almost enough energy to meet its consumption needs. The array proposed for the Civic Center parking lot would generate more than 400,000 kWh of clean electricity annually, which would reduce the City's carbon footprint equivalent to more than 60 acres of pine forest. The detailed project scope is included within Attachment 2. In addition to the renewable energy provided by the project, the scope also includes multiple energy efficiency measures at various sites. The energy efficiency scope includes: HVAC upgrades at the Civic Center and Library to install variable drive motors so that air flows into the facilities as needed instead of at a constant rate; replacement of the pool pump and upgrade of the pool filtration system at the Swim Center. The project will also address interior and exterior lighting upgrades at City facilities, including occupancy sensors where appropriate; installation of irrigation control devices to prevent overwatering and water loss at City parks; water fixture replacements. The plan will upgrade all City streetlights by replacing the City's high pressure sodium cobra head lighting fixtures with a light emitting diode (LED) lighting technology. Decorative street lights are in use in Assessment District 1999 -1 (Eastern Dublin and Clifden Court) as well as lighting on Village Parkway. There are currently limited options to retro -fit these fixtures. As new options become available in the market there may be opportunities to examine in the future decorative light LED fixtures. T streetlighing that will be replaced by LED's include 3,157 pole mounted cobra head fixtures. Chevron ES projects that EAP implementation would provide immediate and long term benefits to the City of Dublin including: • Providing 1 MW of clean renewable energy; • Reducing energy consumption of 2,723,849 kWh per year; • Utility /maintenance expense reductions of over $560,000 per year; • Over $14.8 million in savings to the City over 25 years; • Capturing $277,795 in one -time rebates; • Capturing $446,599 in California Solar Initiative incentives; • Savings of over $67,000 in water costs annually without estimating increases; and • Reduction of 1,920 metric tons of greenhouse gas emissions within the City annually. The EAP, which has been developed and refined over the last year, delivers an outstanding opportunity for Dublin to realize water and energy savings, general fund savings, and a reduction in GHG emissions within the community. Page 3 of 6 Energy Services Contracting Chevron ES has presented a contracting /financing option for the City to pay for the proposed EAP known as an Energy Services Contract (ESC). Under an ESC, the City would have a guaranteed cost agreement whereby the City is protected from any cost overruns from the construction /installation of the improvements, and if the City elects to make annual payments, the energy savings included within the EAP would also be guaranteed. An ESC allows a city to contract with an Energy Service Company (ESCO), in this case Chevron ES, for energy conservation projects if the ESCO can guarantee that the City will receive the economic benefits associated with the recommended conservation measures. Performance contracting is recognized by many state and local governments as a method of saving money for government entities. This method of contracting uses the private sector contracting community to retrofit existing buildings and facilities to replace energy consuming devices such as lights, heating & air conditioning systems, etc. with more efficient devices and thereby reduce the costs of energy. Locally, Staff is aware that the cities of Concord, Benicia, and Antioch have executed similar contracts, and the City of Pleasanton is at a similar stage as the City of Dublin in exploring an ESC. Under the ESCO arrangement, the City would not be required to initially contribute funding for the capital cost of any of the projects implemented. Chevron ES and a financing company would pay for all capital costs as well as the cost to design the project. Specifically, the construction costs for the project and the value added service of administration, design, and profit of Chevron ES are built into the total project costs which would then be repaid with interest over time. The most common form of financing for public entity performance contracting is the tax - exempt municipal lease which provides for the performance contract to be treated as an operating expense instead of debt. Additionally, Chevron ES can provide a performance guarantee, in exchange for an annual payment from the City, that would guarantee that the improvements will generate the estimated utility savings to pay for the improvements as forecast. After project implementation, and if the City elects to utilize the performance guarantee, Chevron ES would annually measure and verify the actual savings against the guaranteed savings. If the energy savings do not occur, then Chevron ES would reimburse the City for the amount of the shortfall. The design of the project is intended to result in annual improvement costs that are offset by the projected savings garnered from the energy- efficiency and renewable energy improvements. After pay off of the lease obligation, the City would then realize the full energy savings through reduced utility costs. It is worth noting that the agreement with Chevron ES for design and construction of the projects contains an important difference from the City's standard public project construction agreements. During negotiations with Chevron ES, it became clear that Chevron ES would require that the City agree to either: 1) mandatory and binding arbitration of any disputes arising out of the Agreement, or 2) to mandatory, but non - binding mediation of disputes and a waiver of its right to a jury trial in any litigation that might occur after such non - binding mediation. Chevron ES representatives indicated that if the City did not agree to one of these two options, then Chevron ES would be unable to enter into an agreement with the City. In consultation with the City Attorney, Staff concluded that while neither alternative was ideal, the mediation and waiver of jury trial was the better of the two options. Financing As authorized by the City Council on May 15, 2012, Chevron Energy Solutions coordinated a request for lease purchase financing for the projects. Thirteen banks and leasing companies were sent materials requesting that they submit a proposal. A total of four financing entities provided responses to the request (US Bank, Bank of America, Green Campus Partners, and Page 4 of 6 Municipal Finance Corp.). The fixed rates offered ranged from 2.66% to 3.09 %. The lease term varied from 15 years to 15 years and 9 months. The lowest interest rate and lowest total financing cost was provided by US Bank. In accordance with the authorization given by the City Council on May 15, 2012, the City Manager accepted the proposal subject to formal approval by the City Council. The City Council, as part of the approval of this item, will also approve the Lease Financing with US Bank. Staff is recommending that certain portions of the project be funded from reserves in the Internal Service Fund for Building System Replacements. This includes $382,528 in building lighting and $25,179 in Building water fixture replacements. Based on the type of improvements it makes greater sense to fund these from reserves and not carry debt service on them for a period of 15 years. Staff also expects that the project will require additional construction management services in order to implement the multiple projects. Staff will return with a proposed agreement at a future meeting. It is proposed that the construction management costs will also be paid from the Internal Service Fund reserves. The total amount to be financed through the proposed US Bank Lease is approximately $7,023,268. The interest rate is fixed at 2.66 %. A summary of the major component costs and financing is included in Attachment 3. The City will not make payments during the construction period which is estimated to take up to 12 months. Therefore, the payments will be made over a fourteen year period. The amount of annual lease payments is intended to produce consistent savings each year. Therefore, for payments in the initial years, when certain rebates and incentives are received, there is a higher lease payment. The average annual lease payment over the 14 year repayment period is estimated to be approximately $614,093 per year. As previously noted, energy savings and incentives are projected to fully offset these costs. The financing is a lease arrangement with US Bank holding title to the improvements being installed. Once all lease payments are made, improvements are fully owned by the City. Staff investigated options to guarantee that the savings will materialize. The arrangement would be similar to the purchase of insurance. The City would be required to pay an annual "premium" which would start at $17,700 and escalate at a rate of 3% per year. The program offered then examines periodic energy savings with the original projection. The cost for this level of assurance has not been included in the overall project, however, this issue can be evaluated at a later date. The City may elect this option up to 30 days after the final improvements are installed. It should be noted that in preparing the estimated savings Chevron did provide Staff with their assumptions which included allowances for less than optimal recovery (i.e. the amount of solar generation; the fact that the amount generated may reduce over time due to degradation of the unit; historical assumptions related to energy rates.). The use of reasonable assumptions helps to give a greater assurance that the savings can be achieved. Proposed Next Steps Attachment 4 is a proposed agreement and scope of work for Chevron ES to implement the EAP. The agreement with Chevron ES is based on a model allowed for by Government Code sections 4217.10- 4217.18, and is consistent with agreements utilized by other public agencies and accounts for the significant commitment by both partners to this comprehensive energy strategy. In particular, the legislation allows the City to contract directly with Chevron ES to complete the project, with Chevron ES conducting the design, engineering, bidding, procurement, construction, and commissioning of the energy efficiency measures on behalf of Page 5 of 6 the City, in order to allow the City to take more immediate advantage of the increased energy efficiency, reduced costs, and long -term environmental benefits. Generally speaking, this type of comprehensive energy project is not well suited for the typical public bidding process. Many public agencies have undertaken similar projects utilizing the type of agreement proposed by Chevron ES for this project. If the City Council were to direct staff to initiate implementation of the EAP utilizing the typical design- bid -build process, Staff would expect that a number of years would be required to complete all the projects within the EAP at a much higher cumulative cost to the City then guaranteed by Chevron ES. The total project cost is $7,430,975 for the complete implementation of the EAP, with Chevron projecting that the City Council would accept all of the improvement within Fiscal Year 2012 -2013. The most favorable financing proposal came in at a rate of 2.66 %. The net impact of financing the total improvements coupled with the projected savings over the 15 year finance period is more than $88,000 a year in savings (Attachment 5). Implementing the EAP through the proposed contract with Chevron ES, would yield both environmental and well as economic benefits to the City. The proposed Energy Services Contract has been negotiated in compliance with California Government Code sections 4217.10- 4217.18 and has been reviewed and approved by the City Attorney. In accordance with section 4217.12, a public hearing is required to enter into an Energy Service Performance Contract. NOTICING REQUIREMENTS /PUBLIC OUTREACH: A public notice was placed in the Valley Times pursuant to California Government Code 4217 to consider approval of an Energy Services Contract. This item was continued from the June 5, 2012 City Council meeting. ENVIRONMENTAL REVIEW: The California Environmental Quality Act (CEQA), together with the State guidelines and City environmental regulations require that certain projects be reviewed for environmental impacts and when applicable, environmental documents prepared. Staff is recommending that the Project be found Categorically Exempt from the California Environmental Quality Act (CEQA), pursuant to CEQA Guidelines Section 15303 (New Construction or Conversion of Small Structures). The only construction that will occur as part of the project is the construction of carports and shade structures with solar panels on top of them. ATTACHMENTS: 1. Civic Center Solar Array Illustration 2. Energy Action Plan Scope of Work 3. Summary of Major Component Costs and Financing 4. Energy Service Contract 5. Summary of Projected Savings 6. Resolution approving an Energy Service Contract and an associated financing contract with Chevron Energy Solutions Company, for the implementation and funding of certain energy related improvements to City of Dublin facilities Page 6 of 6 RESOLUTION NO. XX - 12 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN * * * * * * * * * ** AUTHORIZING THE EXECUTION AND DELIVERY OF AN EQUIPMENT LEASE /PURCHASE AGREEMENT WITH RESPECT TO THE ACQUISITION, PURCHASE, FINANCING AND LEASING OF CERTAIN EQUIPMENT FOR THE PUBLIC BENEFIT; AUTHORIZING THE EXECUTION AND DELIVERY OF DOCUMENTS REQUIRED IN CONNECTION THEREWITH; AND AUTHORIZING THE TAKING OF ALL OTHER ACTIONS NECESSARY TO THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS RESOLUTION WHEREAS, the City of Dublin (the "Lessee'), desires to purchase, acquire and lease certain equipment constituting personal property necessary for the Lessee to perform essential governmental functions (the "Equipment'); and WHEREAS, the City Council has approved an Energy Services Contract with Chevron Energy Solutions to procure and install the Equipment, the scope of work of which has been approved and authorized by the City Council; and WHEREAS, in order to acquire such equipment, the City Council has authorized the City Manager to enter into an Equipment Lease /Purchase Agreement (the 'Agreement') and select financing institution to act as Lessor (the "Lessor') to fund the acquisition of the Equipment; WHEREAS, the City Council has reviewed and approved lease terms and conditions to fund the acquisition of the Equipment; and WHEREAS, the City desires to maintain flexibility in choosing its financing partner, Lessor, to acquire the Equipment; and NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Dublin hereby authorizes the City Manager to execute an Agreement and all other related documentation for that financial institution, which presents the most favorable terms and conditions, as determined by the City Manager, then extant at contract selection; and BE IT FURTHER RESOLVED that the City Council hereby approves the form, terms and provisions of the Agreement as long as they are in substantially the same form of equipment lease purchase agreement as previously presented to the City Council, with such insertions, omissions and changes as shall be approved by the City Manager and /or the City Attorney. ATTACHMENT 1 PASSED, APPROVED AND ADOPTED this 4th day of September, 2012, by the following vote- AYES- NOES- ABSENT- ABSTAIN: ATTEST: City Clerk Mayor