HomeMy WebLinkAbout09-03-2013 b4 wrf financing proposal
FROM: Carrie Mattingly, Utilities Director
Wayne Padilla, Finance and Information Technology Director
Prepared By: Wayne Padilla, Finance and Information Technology Director
SUBJECT: WATER RECLAMATION FACILITY ENERGY EFFICIENCY PROJECT -
FINANCING
RECOMMENDATION
1. Adopt a resolution accepting the financing proposal from Green Campus Partners and
authorizing staff to proceed with development of financing documents with Green Campus
Partners in the amount of $7,479,000* for the Water Reclamation Facility Energy Efficiency
Project and return September 17, 2013 for review and consideration by the City Council and the
Capital Improvement Board.
2. Appropriate the amount of $55,000 from Sewer Fund working capital to pay for the costs
associated with the development of the loan documents and issuance of the debt.
*(the requested amount is higher than the amount shown in May due to the fact that rebates
from PG&E in the amount of $293,000 were first assumed to be available at the time the debt
would be issued. Staff has since learned that these rebates will not be made available until after
construction is complete)
DISCUSSION
Background
At the May 7, 2013 City Council Meeting, the City Council took the following actions:
• Approved the Water Reclamation Facility (WRF) Energy Efficiency Project, a
public/private partnership with PG&E, for a total project construction cost of $9,478,948
(Attachment 1). Annual savings from the project will be approximately $325,000 through
energy efficiency savings and the reduction of operations and maintenance costs with an
annual carbon offset exceeding one million pounds of carbon dioxide per year.
• Council authorized staff to pursue $7,186,258 in project financing and directed staff to
return for approval of the appropriate financing documents.
• Approved a resolution allowing the Sewer Enterprise Fund to be reimbursed from financing
proceeds for the cost of eligible expenses incurred on this project before the financing
transaction is closed.
Since that time, staff has considered two financing options for this project and is recommending one
for the Council’s consideration. The private placement financing proposal received from Green
Campus Partners has been found to be more economical over the term of the borrowing compared
to the offering provided by the I-Bank. When all costs for the financing are considered, the proposal
from Green Campus Partners generates approximately $220,000 in savings compared to the I-Bank
financing proposal, which includes that amount for cumulative loan maintenance fees.
Meeting Date
Item Number September 3, 2013
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As indicated during the May 7, 2013 City Council meeting, staff had previously submitted a
preliminary application to the I-Bank to determine whether this project would meet the I-Bank’s
eligibility criteria for financing. On May 3, 2013, the I-Bank extended an invitation to the city to
formally apply for financing based on the City’s preliminary application. After reviewing the initial
terms of that financing proposal and evaluating the timeline involved with preparing the final
application and submitting it for review by the I-Bank’s loan committee, staff believes that the
financing proposal received from Green Campus Partners represents a more economical financing
option for the same term than is currently offered by the I-Bank. The I-Bank has confirmed that the
city’s application will not be considered until October and if approved, would be subject to the
interest rate that would be determined at that time. The Green Campus Partners proposal offers a
rate lock, with the rate set at 2.63%. Currently the I-Bank is offering a 2.66% rate for 15 year
financing, but interest rates for tax-exempt debt are climbing in anticipation of the federal
government’s proposed halting of its Treasury Security purchasing program. As a result, it appears
likely that the rate offered by the I-Bank in October will be more than 2.66%. Therefore, the request
before the City Council is to adopt a resolution that will allow staff to work with bond counsel, the
city’s Financial Advisor and Green Campus Partners to finalize the documents required to secure
the financing and return on September 17, 2013 with the final form of documents for the City
Council’s review and approval.
Before reaching this conclusion, the city’s financial advisor, Fieldman, Rolapp and Associates
(FRA) contacted nine potential private placement financing providers to receive quotes to finance
this project over a 15-year term. The firms contacted are shown below:
• Bank of America Merrill Lynch
• BBVA Compass
• Capital One
• Chase
• Green Campus Partners
• Pinnacle Public Finance
• Umpqua Bank
• Western Alliance
• U.S. Bank
The lowest bid received by FRA on behalf of the City was a bid of 2.63% from Green Campus
Partners and the next lowest bid was received by Umpqua Bank at 2.85% (Attachment 2).
After receiving the bids, FRA compared the 2.65% bid received from Green Campus Partners
against the current interest rate and other terms provided by the I-Bank as shown below:
Interest Locked
Initial
On-
going
Financing Provider Rate Now? Term Costs Fees?
Green Campus
Partners 2.65% Yes 15 yrs $55,000 No
I-Bank 2.66% No 15 yrs $63,571 Yes
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The following table compares the payment streams for both financing alternatives:
Staff spoke with a representative from another city, and two other financial advisors and has
information from the city’s bond counsel indicating that Green Campus Partners has proven its
ability to complete the financing satisfactorily.
Environmental Review
Pursuant to section 15302 of the Public Resources Code, the project is exempt from the California
Environmental Quality Act (CEQA). The project involves replacing, optimizing and retrofitting
inefficient equipment and pumps; replacement of inefficient lighting; upgrading computerized
control technology; and conversion of methane gas (which is currently wasted) back into electricity
on site to off-set current electrical consumption. These improvements qualify for exemption from
CEQA under Section 15302 Class 2 because they entail replacement or reconstruction of existing
structures and facilities on the same site with the same purpose and capacity as the structures being
replaced. In addition, the project will result in beneficial environmental effects since the annual
carbon offset is estimated to exceed one million pounds of carbon dioxide per year.
Payment
Date I-Bank Loan Private
Placement
Savings
Using PP
Savings
Using I-Bank
9/30/201363,571.50 55,000.00 8,571.50 (8,571.50)
12/1/2014636,304.98 612,491.92 23,813.06 (23,813.06)
12/1/2015635,161.32 612,491.93 22,669.39 (22,669.39)
12/1/2016633,886.12 612,491.92 21,394.20 (21,394.20)
12/1/2017632,577.01 612,491.92 20,085.09 (20,085.09)
12/1/2018631,233.06 612,491.92 18,741.14 (18,741.14)
12/1/2019629,853.36 612,491.93 17,361.43 (17,361.43)
12/1/2020628,436.97 612,491.92 15,945.05 (15,945.05)
12/1/2021626,982.90 612,491.92 14,490.98 (14,490.98)
12/1/2022625,490.16 612,491.92 12,998.24 (12,998.24)
12/1/2023623,957.71 612,491.91 11,465.80 (11,465.80)
12/1/2024622,384.48 612,491.92 9,892.56 (9,892.56)
12/1/2025620,769.42 612,491.92 8,277.50 (8,277.50)
12/1/2026619,111.39 612,491.92 6,619.47 (6,619.47)
12/1/2027617,409.27 612,491.92 4,917.35 (4,917.35)
12/1/2028615,661.87 612,491.92 3,169.95 (3,169.95)
Total 9,462,791.51 9,242,378.81 220,412.70 (220,412.70)
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Project design completion should coincide with final debt financing approval. Funding to complete
project design, in the amount of $517,000, was approved by Council on July 16, 2013 (Attachment
3). The project schedule indicates that project construction will begin in late fall or early winter of
this year.
FISCAL IMPACT
The WRF Energy Efficiency project will cost $9,534,000. The majority of the funding for the
Energy Efficiency Project will come from two sources; $7,479,000 from Green Campus Partners
and $2,055,000 from the sewer fund. When the Council reviewed the financing plan in May, the
forecast reflected the assumption that $293,000 in rebates would be paid by PG&E and used to
finance a portion of the project costs. Due to the fact that the rebates will not be available until after
construction is complete, the amount to be financed has been increased by this amount to a total of
$7,479,000. Once the rebates are received, the full amount will be applied to the next scheduled
debt service payment.
There are fees associated with the financing plan that are proposed to be paid from working capital.
These fees include: Jones Hall (city bond counsel) $22,500; FRA $22,500; Green Capital Partners
bond counsel $10,000).
Project costs and their sources of payment are shown below:
Project Costs and Funding Sources
Working Capital Green Campus
Partners
Total
Design $517,000 $517,000
Construction $1,483,000 $7,479,000 $8,962,000
Loan Origination Fee $55,000 $55,000
Total $2,055,000 $7,479,000 $9,534,000
Funding for this project was included in the 2013-14 Sewer Fund budget and adequate funding for
the City’s $2,055,000 is available in working capital. Current adopted sewer rates have incorporated
this project’s costs.
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Next Steps
If staff’s recommendation is approved this evening, staff will return to the September 17, 2013 City
Council meeting with the legal documents required for the private placement financing to be
reviewed and approved by the City Council. A companion item will be placed on the agenda to
have the Capital Improvement Board also review, discuss and approve the legal documents. Once
the legal documents are approved at that meeting, the private placement is scheduled to close on
September 26, 2013. At that time, the funds will be wired to the City for use in constructing the
WRF.
ALTERNATIVES
The City Council could deny staff’s recommendation and direct that another form of financing
should be used. This is a time-sensitive transaction for two reasons: The first is that interest rates are
moving up and will likely climb higher in the near future. Having a rate locked in today is insurance
against higher financing costs. Secondly, the project is on track to have the final design completed
by December 15, 2013 and will be ready for construction by January 15, 2014 . The selection of
another financing alternative will require time for negotiation of rates and terms along with
document development and approval by the lender and the City Council/Capital Improvement
Board. The current plan keeps the financing timeline in sync with the start of construction so the
funds will be available as they are needed.
The City Council could direct staff to proceed with the financing alternative provided by the I-
Bank. The required paperwork is in order to proceed with the filing of the final application.
Economic market indicators point to interest rate increases in the near term which could affect the
final financing costs since the I-Bank does not set the interest rate it charges until its loan committee
has reviewed and approved the loan package. The earliest that this could occur would be October
22, 2013.
ATTACHMENTS
1. Attachment 1 - WRF Energy Efficiency Project.pdf
2. Atttachment 2 - Competitive Financing Quotes.PDF
3. Attachment 3 - WRF Energy Effciency Project - Completion of Design.pdf
4. Attachment 4 - City Res 9-3.docx
5. Attachment 5 - GCP - Final Proposal.pdf
1
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FROM: Carrie Mattingly, Utilities Director
Prepared By: David Hix, Wastewater Division Manager
Aaron Floyd, Environmental Programs Manager
Howard Brewen, Water Reclamation Facility Supervisor
Ron Munds, Utilities Conservation Manager
SUBJECT: WATER RECLAMATION FACILITY ENERGY EFFICIENCY PROJECT
RECOMMENDATION
1. Approve the Energy Efficiency Project at a cost of $9,478,948.
2. Authorize the City Manager to execute a Work Order, upon approval of the City Attorney as to
form, to enter into agreement with PG&E to proceed with the project, contingent on approval of
financing.
3. Authorize staff to pursue $7,186,258 in financing for the project, which includes an I-Bank loan
or issuance of bonds, and direct staff to return to Council for approval of appropriate financing
documents.
4. Adopt a resolution of intention to issue tax exempt bonds in financing the project and to
reimburse from the proceeds costs incurred prior to their issuance.
REPORT-IN-BRIEF
The Water Reclamation Facility (WRF) treats over four million gallons of wastewater per day at an
average cost of $450,000 per year for electricity. Consistent with Council’s commitment to climate
protection and its General Plan policies, Climate Action Plan, and with electricity costs
continuously on the rise, staff began exploring the potential for achieving greater energy efficiency
at the WRF back in 2010. A strong driver was the desire to create a sustainable wastewater
treatment facility aligned with the Utilities Department’s Strategic Plan goal of being effective
stewards of natural and fiscal resources.
The WRF Energy Efficiency Project involves a unique public/private partnership with PG&E’s
Sustainable Solutions Turnkey Program; an approach that allows for a streamlined solution to
implementing energy and infrastructure replacement projects. The program is divided into four
phases.
WRF Energy Efficiency Project Phases Complete
1 Feasibility Discussion √
2 Preliminary Energy Assessment √
3 Investment Grade Analysis √
4 Finance and Implementation
Meeting Date
Item Number May 7, 2013
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In January of 2012, Council unanimously voted to complete Phase 3 of the project. Of the 18
Conservation Measures originally identified in the Preliminary Energy Assessment (Phase 2), nine
have met the requirements for inclusion in the final design and build project. The proposed project
will cost $9,478,948 with approximately $7,200,000 being financed over 15 years. Savings from the
WRF Energy Efficiency Project have been calculated at approximately $325,000 per year through
energy efficiency savings and a reduction of operation and maintenance costs.
The proposed project includes onsite cogeneration of energy, solids management, upgrading and
optimizing aging infrastructure, efficient lighting, and process system control. The cumulative
effects of this bundled project will have significant environmental, economic, and social benefits to
the community.
Documents and policies that support the City’s participation in the Sustainable Solutions Turnkey
Program include the City Goal on climate protection, the Climate Action Plan, the Conservation and
Open Space element of the City’s General Plan, and the Utilities Department Strategic Plan.
DISCUSSION
Background
Energy costs related to the treatment of over 1.7 billion gallons of wastewater each year are a
significant part of the operating costs at the City’s Water Reclamation Facility (WRF). Consistent
with Council’s commitment to climate protection and its General Plan policies, and with electricity
costs continuously on the rise, staff began pursuing the potential for achieving greater energy
efficiency at the WRF back in 2010. An additional underlying driver was (and continues to be) the
desire to create a sustainable wastewater treatment facility aligned with the Utilities Department’s
Strategic Plan goal of being effective stewards of natural and fiscal resources and its commitment to
the triple bottom line concept, which considers social, economic, and environmental factors.
In January 2011, Utilities staff contacted Pacific Gas & Electric Company (PG&E) to inquire about
available funds or incentives for energy efficiency projects. PG&E representatives stated there was
an opportunity to participate in its Sustainable Solutions Turnkey program which had previously
only been available to federal facilities.
PG&E Sustainable Solutions Turnkey (SST) Program
The Sustainable Solutions Turnkey (SST) Program involves a unique public/private partnership
approach that allows for a streamlined solution to implementing energy conservation projects. The
goal of the SST Program is to implement energy saving projects at facilities and use the money
saved from reduced energy consumption and operational maintenance costs to help pay the debt
service for the design and construction of the project. The SST Program has the flexibility to allow
participants to finance the entire project by this method or to pay for part of it out of existing funds
and/or finance the remainder, or pay cash.
The program is divided into four phases. After each phase, participants determine if the program
meets the organization’s objectives and a decision is made whether to continue to the next phase.
The first two phases of the program were provided at no cost to the City.
C1 - 7 B4 - 7
A Review of the City’s Participation to Date
In January of 2011, City staff initiated Phase 1 by meeting with PG&E and the project team to
discuss the feasibility of partnering on an energy project. Based on the feasibility discussion, the
City, PG&E, and its contracted engineering firm, AECOM, began Phase 2 by developing a
Preliminary Energy Assessment (PEA). The product of the PEA was the identification of 18
individual components, called Conservation Measures, that had the potential to be the most
economical and viable projects for the City to undertake.
On January 17, 2012, the City Council unanimously approved the continued participation in the
program (Phase 3) and authorized the City Manager to execute a Work Order with PG&E to
complete the Investment Grade Analysis for an amount not to exceed $400,000 (Attachment 1). For
the past year, staff has worked with PG&E and AECOM to further refine the list of Conservation
Measures identified during the Preliminary Energy Assessment and determine costs and payback
period to implement the project.
Completion of Phase 3: Investment Grade Analysis
Phase 3, the Investment Grade Analysis (IGA), is now complete and provides an in-depth study of
the implementation costs of the project, including utility rebates and incentives, and potential
energy savings. This phase of the program delivers a set of design/build plans and a final project
implementation proposal. This phase was greatly strengthened through the active participation of
City staff. Using their expertise and in-depth knowledge of the WRF’s specific operation and
processes allowed for a wider range of options to be explored.
To be considered as a viable option, a potential Conservation Measure was required to meet several
criteria: (1) the Conservation Measure must adhere to the triple bottom line concepts of being
environmentally, socially, and fiscally sustainable; (2) where feasible, the team investigated
replacing aging infrastructure identified in the WRF Master Plan with more energy efficient
options; (3) projects were evaluated in context of their impact on the entire treatment process, as
opposed to being studied individually, so that maximum efficiencies could be realized; and (4) any
Feasibility
Discussion
•City and PG&E team
discuss program
•City expresses
interest, shares
previous energy
audits
•PG&E prepares
feasibility audit
based on energy use
and metrics
•Review feasibility
Preliminary
Energy
Assessment
•PG&E prepares PEA
based on site
investigation at no
cost to City
•PEA lists potential
Conservation
Measures (CM)
•PEA identifies
potential energy
savings and cost to
implement
Investment
Grade Analysis
•PG&E and City enter
into agreement
•IGA lists CMs, energy
savings, preliminary
engineering of
measures, costs to
implement , and
payback
•IGA identifies utility
rebates and incentives
Finance &
Implementation
•Agreements put in
place
•PG&E provides
engineering and
design for CMs
•PG&E provides
assistance for 3rd
party financing if
needed
•Contractor builds
CMs
PHASE COMPLETE PHASE COMPLETE PHASE COMPLETE
C1 - 8 B4 - 8
Conservation Measure needed to be independent of any potential upcoming regulatory decisions
that would affect treatment requirements.
Of the 18 Conservation Measures originally identified in the Preliminary Energy Assessment, nine
have met the requirements for inclusion in the final design and build project.
Project Components
Using the criteria previously discussed, the project has been broken down into functional groupings
with one or more Conservation Measure(s) associated with each element. A detailed description of
each, listed by its identifier (WRF 1, WRF 2, etc.), can be found in the Investment Grade Analysis.
Cogeneration
Methane gas is a byproduct of the anaerobic process used at the WRF for the treatment of solids.
The project would include a cogeneration system (WRF 1) that would allow for the gas, which is
currently wasted, to be converted back into electricity to offset current electrical consumption.
Solids Management
The proposed project replaces inefficient headworks (WRF 2) and dewatering equipment (WRF 3),
and selected pumps used to move solids throughout the WRF (WRF 4).
Optimizing Existing Infrastructure
In reviewing current infrastructure it was determined that in some instances the retrofitting of
existing facilities and equipment would be preferable to building new items. Examples include
optimizing some existing pumps (WRF 5) and retrofitting the current filter tower structures (WRF
6). The modification of the aeration tank control program (WRF 7) was also identified as an energy
saving measure in the IGA. The WRF 7 Measure has already been completed using the skills of in-
house WRF operations staff. Associated energy savings are already being realized.
Environmentally,
Socially, and Fiscally
Sustainable
Aging
Infrastructure
Replacement
Synergy
with
Treatment
Process
Regulation
Independent
WRF
Energy
Project
Conservation
Measure
C1 - 9 B4 - 9
Lighting
Similar to the Street Light Energy Efficiency Project currently being implemented throughout the
City, this Conservation Measure will replace existing lighting with longer lasting, more energy
efficient, and brighter outside LED lighting (WRF 8).
Process System Control
Upgrading to modern computerized control technology (WRF 9) will result in greater integration of
treatment processes.
Project costs are shown in (Table 1) based upon the Functional Group. Detailed descriptions of the
individual Conservation Measures can be found in the Investment Grade Analysis.
Table 1. Project Components
Functional Group Conservation Measures Cost
Cogeneration WRF 1 1,695,000
Solids Management WRF 2, 3, 4 4,502,000
Optimizing WRF 5, 6, 7 1,715,000
Lighting WRF 8 270,000
SCADA WRF 9 1,297,000
Total $9,479,000
Project Benefits
The triple bottom line principles can be incorporated as a tool to view the potential benefits gained
through the implementation of this energy efficiency project. Using this concept, the project
benefits are listed below under their respective headings of Economic, Environmental, and Social.
Economic
The WRF Energy Efficiency Project has been calculated to save approximately $325,000 per year,
increasing by 2.5% assumed energy rate increases, for a total of $11.1 million total over the 25 year
equipment life through energy efficiency savings and a
reduction in operation and maintenance costs.
Additionally, with the installation of a modern control
system, treatment operators will be able to more efficiently
track and operate various treatment processes. This
provides significant energy cost savings by taking
advantage of off-peak time of use rates and to
ensure the electrical usage stays under the threshold
for higher rates whenever possible.
Environmental
This project will have an annual carbon offset
exceeding one million pounds of carbon dioxide per year.
This is an annual equivalent to removing 96 cars from the road, powering 69 homes, or the addition
of 378 acres of forestland.
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The proposed project also utilizes, to the extent possible, existing structures. Decreasing the need
for new construction materials decreases the generation of construction and demolition debris and
the associated air pollution and landfill disposal needs.
Greater efficiency in solids removal and the separation of liquids will result in lower volumes of grit
and biosolids needing to be hauled to offsite locations. This decrease in trips to haul the materials
also leads to reduced carbon dioxide emissions.
Social
This energy efficiency project significantly advances the mission of changing the traditional “yuck
factor” perception of a wastewater treatment facility to one of a water recycling center and
community asset. The facility’s Conservation Measures will be routinely displayed to the numerous
tours given annually to both students and community groups. In addition to tours, improvements
will allow for enhanced opportunities for the on-site research and testing process currently
conducted by Cal Poly University. A decrease in odor control issues is anticipated with the
proposed modifications in solids handling and storage. As a good neighbor, WRF staff is concerned
about any impacts to surrounding establishments and desires to be a good reflection of the City.
Lastly, this project has benefited immensely through the public/private partnership model that has
allowed for a high level of collaboration among the energy and wastewater engineering team and
City staff; all of whom brought their specific expertise to the table to create an outstanding project.
Financial Summary
By implementing this energy efficiency project, the City will realize annual energy cost savings of
approximately $157,000 and annual operational and maintenance savings of $168,000 (Table 2).
Table 2. Annual Energy and Operational Savings
Electric $131,000
Natural Gas $26,000
Operational $168,000
Total $325,000
An estimated $2.5 million in future capital costs planned for the City’s WRF upgrade will be
avoided. Additionally, the City is eligible to receive one-time incentives which total $293,000 from
PG&E’s Non-Residential Retrofit program and the Self Generation Incentive Program administered
by Southern California Gas Company.
Advantages of Design/Build Contracting
The City’s Charter, Article IX, Section 907 and California Government Code Section 4217 allows
the City to forgo its standard low-bid public procurement processes to implement turn-key energy
services projects when the City finds this procurement method in its best interest.. This procurement
model was approved by Council in January of 2012 and ensures that PG&E will implement the
project for a fixed price with no change orders, complete the project on-time, and ensure that the
systems are performing as specified in the design-build contract.
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The design build construction process provides the City with the following benefits:
• Fixed Price Contract (with no Change Orders) – PG&E & the City have worked together
over the past year through the Investment Grade Assessment (IGA) process to define the
project’s scope of work, develop engineering documentation and specifications, and engage
subcontractors and equipment vendors to verify project constructability and pricing.
• Collaborative Project Development Process – The IGA process enabled the City to define
project goals, participate in the project’s design process, and select the subcontractors and
equipment vendors that provide the best value solution.
• Faster Project Delivery – Since the design build procurement method integrates the project
design and pricing/bidding process, this enabled the City to significantly reduce the time it
takes to move from design to construction.
• Fewer Construction Issues & Cost Impact – Since the project team (City, PG&E, &
Subcontractors) has worked together for over a year to develop this project, they have
identified many of the probable construction issues and potential project pitfalls. This
collaborative approach would not be possible as part of a normal design, bid, and build
project.
Supporting Policies and Documents
The City has guiding policies and documents that set the course for the Utilities Department in
terms of energy efficiency and conservation. The proposed energy efficiency project is supported by
several of these guiding documents.
City Goal :
Climate Protection: Implement greenhouse gas reduction and Climate Action Plan. Conduct energy
audits of all city facilities, increase energy conservation, invest in infrastructure which will save
energy and funds in the future.
Conservation and Open Space Element:
COSE 4.3.1: The City will employ the best available practices in energy conservation, procurement,
use and production, and will encourage individuals, organizations and other agencies to do
likewise.
COSE 4.3.2: City Buildings and facilities will be operated in the most energy-efficient manner
without endangering public health and safety and without reducing public safety or service levels.
COSE 4.3.3: The City will continue to identify energy efficiency improvement measures to their
greatest extent possible, undertake all necessary steps to seek funding for their implementation and,
upon securing availability of funds, implement the measures in a timely manner.
COSE 4.6.11: The City will actively seek all available sources of funding for implementing energy
efficiency improvement and utilities infrastructure renewal projects, including federal and state
budget appropriations, federal, state and private sector grant opportunities, utilities and other
unique public/private sector financing arrangements.
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Climate Action Plan:
On July 17, 2012, the Council adopted a Climate Action Plan in response to AB 32: the Global
Warming Solutions Act. The Climate Action Plan contains a strategy directing energy efficient
improvements be made to the City’s wastewater infrastructure. In addition to this work effort, the
City is also implementing new Title 24 Energy Efficient Standards and CALGreen Building
Standard. This involves making upgrades to City facilities, such as the Water Reclamation Facility,
and participating with the Local Government Commission to develop strategies to adapt to climate
change in the future.
Utilities Department Strategic Plan – Outcome Oriented Goals:
Infrastructure
Goal: The Department will have a clear understanding of its long-range infrastructure
requirements and a plan to address them.
Objective: Increase planning efforts that identify and address infrastructure improvements
considering impacts to economic, environmental, and long term factors. (e.g. inflow &infiltration;
Capital Project planning; Master Planning for water, wastewater, water recycling; energy
efficiency).
Stewardship
Goal: The Department will be recognized by regulators, the public, and all stakeholders as an
effective steward of natural and fiscal resources.
Objective: Expand the identification and implementation of practices that increase the conservation
of all natural resources.
Image
Goal: Our customers will have a better understanding of the Utilities Department’s role, and will
value the services that we provide to the community.
Objective: Expand our community engagement and public education activities.
Next Steps
If Council approves the proposed project, the City will enter into an agreement to proceed with
PG&E to do the energy efficiency project. A CEQA determination will be completed utilizing the
finalized project description. A recommendation to comply with CEQA will be concurrent with
Council’s action to award make final decision on project financing. The associated Work Order
would be executed by the City Manager after review by the City Attorney. Staff will return to the
City Council with recommended project financing for its consideration, as discussed more fully
below. Upon approval by the Council, financing would be secured and subcontractors would be
hired on a bid for proposal basis and construction of the project would commence.
CONCURRENCES
The City’s Public Works and Community Development Departments, and PG&E concur with the
recommendations made in this report.
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FISCAL IMPACT
The majority of funding for the $9,478,948 project will be debt financed with $2,000,000 coming
from the Sewer Fund’s working capital. Financing of approximately $7.2 million, will need to be
obtained to move the project forward. Staff has been working with the California Infrastructure and
Economic Development Bank (I-Bank) and has submitted a preliminary application for a low
interest I-Bank loan. I-Bank staff has been very supportive of the City’s project; however the City
has not yet received formal I-Bank pre-approval. In the event that the I-Bank loan is pre-approved,
staff will return to the Council with the necessary documents and seek its final approval to secure
this funding.
Should the City ultimately not receive approval from the I-Bank, alternative financing will need to
be obtained. City staff has been working with the City’s financial advisor, Fieldman Rolapp and
Jones Hall, the City’s bond counsel, to discuss selling bonds for the needed financing. Staff will
return to Council with the appropriate bond documents for financing the remainder of the project,
should the I-Bank application not be approved. Adopting a resolution of intent at this time simply
preserves the City’s option of including any costs related to the project that might be incurred prior
to its issuance in the subsequent bond issue.
The final cost of borrowing will depend on which mechanism is ultimately used. Current I-Bank
interest rates are around 2% and private placements are around 3.5%. Based on borrowing $7.2
million for a 15-year term (a term shorter than the 25-year equipment life), annual repayments at
3.5% interest would be $625,000. At 2% interest, the annual payment would be $560,400. Because
this project includes both energy efficiency and infrastructure replacements, the savings generated
will help pay the annual debt service, but will not fully cover the annual debt costs.
One consideration of the Sewer Fund’s financial health is the debt coverage ratio. This provides a
measure of the fund’s ability for revenues to provide enough money to pay the debt service
expenses. It is common for the City’s bond covenants to stipulate that the City will set rates in
order to maintain a debt coverage ratio of 125%, that is, annual operating revenues are at least 125%
more than total debt service costs. Rating agencies have indicated that they prefer to see debt
coverage ratios closer to 200%. The Sewer Fund currently has very low debt service costs, with
only the debt for the Tank Farm Lift Station and the fund’s share of the Dispatch Center and Radio
Upgrade project. Currently, without the financing for this project, the Sewer Fund has a debt
coverage ratio of about 905%. With the anticipated financing of this project, the ratio will be
reduced to 513%, still well above the minimum levels that investors and rating agencies consider
acceptable. This debt coverage ratio helps this financing to achieve the highest bond rating which
in turn will help lower the cost of borrowing. This continues to position the Sewer Fund for the
financing that will be required for the major Water Reclamation Facility upgrade in the future.
The cost of this project has been incorporated into the Sewer Fund’s financial analysis and therefore
this project will not change projected sewer rates. Sewer rates are calculated based on a long-term
fund analysis and take into consideration capital and operating needs. This project is in support of,
and compliant with, the City’s incremental approach to raising rates and preparing the fund for large
future capital needs. As identified on page 75 of the Investment Grade Analysis, this project will
result in annual operating savings of approximately $325,000 and will also result in saving over
$2.5 million in capital costs that will not need to be incurred in the future. For example, based on
C1 - 14 B4 - 14
the planning amounts provided by Brown and Caldwell in the Water Reclamation Facility’s 2009
master plan, implementing this project will mean that an additional filter tower will not be built,
thus eliminating this $1,250,000 project from the future major upgrade project.
In addition, staff has identified other long-term capital costs that will not be avoided, but will likely
cost less or will be incurred now instead of in the future. For example, upgrades to the facility’s
Supervisory Control and Data Acquisition (SCADA) system are needed and have been incorporated
into the Sewer Fund’s long term capital needs. Upgrading the SCADA system now provides many
benefits to the facility and although the cost will not be avoided, it will be incurred now with the
energy efficiency project rather than incurring it in the future. While this action results in changes in
the capital project expenses planned for any individual fiscal year, the overall picture isn’t changed.
The cost of this, and future anticipated capital projects, is included in the long-term fund analysis
and therefore the rates approved by the Council, and those currently projected, support this project.
Section 6 of the IGA estimates the return on investment for this project at 14%. While this is a
useful and important analysis for valuing investments in energy projects, it is important to note that
this project also includes significant replacement of aging infrastructure. Typically, cities do not
calculate return on investment of infrastructure projects because it is either difficult to quantify,
such as the return on investment of paving streets, or there is no expectation of return on
investment, such as investing in infrastructure that supports public safety. In this case, while the
overall project will result in a positive return on the City’s investment, the other important
considerations outlined in the report make this project important to complete.
ALTERNATIVE
Do not authorize the final Finance and Implementation Phase of the Sustainable Solutions
Turnkey Program.
Council should only select this alternative if, after reviewing the Investment Grade Analysis, it feels
this public/private partnership is not in the best interest of the community. Should this be Council
direction, the project components would be brought back to Council as individual capital
improvement projects or as part of the larger future WRF upgrade project.
ATTACHMENT
Attachment Reimbursement Resolution.doc
AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE
Investment Grade Analysis
docT:\Council Agenda Reports\2013\2013-05-07\WRF Energy Efficiency Project (Mattingly-Hix)
C1 - 15 B4 - 15
SAN LUIS OBISPO WATER RECLAMATION FACILITY
PRIVATE PLACEMENT PROVIDERS
RFP DISTRIBUTION LIST
Page 1 of 2
00080864
PROVIDER CONTACT INFORMATION:RESPONSE:
Bank of America Merrill Lynch
AZ3-588-02-02
14648 N. Scottsdale Road, Suite 250
Scottsdale AZ 85254
Verbal bid of
3.10%
Jill Forsyth, Senior Vice President,
Government Finance
: (480) 624-0369
Email: jill.m.forsyth@baml.com
BBVA Compass
2850 East Camelback Road, Ste. 140
Phoenix, AZ 85016
Email bid of
2.95 – 3.15%
James Manning, Vice President : (602) 778-0795
Email: James.Manning@bbvacompass.com
Capital One-Public Funding LLC
275 Broadhollow Road
Melville, NY 11747
Jeffrey Sharp
: (877) 698-2018
Email: jeffrey.sharp@capitalone.com
Verbal bid of
North of 3%
Chase
6130 Stoneridge Mall Road, Suite 300
Pleasanton, CA 94588
No response
Rebecca A. Lowe, Public Finance
- Private Placements
: (415) 315-3967
Email: rebecca.a.lowe@chase.com
Green Campus Partners
215 Lincoln Avenue
Santa Fe, NM 87501
Email Bid of
2.65%
Neal Skiver, Senior Vice President : (732) 917-2311
Email: neal.skiver@greencampuspartners.com
Pinnacle Public Finance
8377 E. Hartford Ave., Suite 115
Scottsdale, AZ 85255
No response
Blair Swain : (480) 419-3934
Email: bswain@ppf-inc.com
Umpqua Bank
1545 River Park Dr., Suite 100
Sacramento, CA 95815
Email bid of
2.85%
George Diesch : (916) 677-1136
Email: georgediesch@umpquabank.com
Attachment 2
C1 - 16 B4 - 16
SAN LUIS OBISPO WATER RECLAMATION FACILITY
PRIVATE PLACEMENT PROVIDERS
RFP DISTRIBUTION LIST
Page 2 of 2
00080864
Western Alliance Bancorporation
One East Washington St., Suite 1400
Phoenix, AZ 85004
North of 3%
James B. Sult, Senior Vice
Presiden
: (602) 797-3634
Email: jsult@westernalliancebancorp.com
U.S. Bank National Association
633 W. Fifth Street, 24th Floor
Los Angeles, CA 90071
No response
John W. Axt, Vice President : (213) 615-6005
Email: john.axt@usbank.com
Email list:
jill.m.forsyth@baml.com;
James.Manning@bbvacompass.com;
jeffrey.sharp@capitalone.com;
rebecca.a.lowe@chase.com;
neal.skiver@greencampuspartners.com;
bswain@ppf-inc.com;
georgediesch@umpquabank.com;
jsult@westernalliancebancorp.com;
john.axt@usbank.com;
Attachment 2
C1 - 17 B4 - 17
FROM: Carrie Mattingly, Utilities Director
Prepared By: David Hix, Wastewater Division Manager
SUBJECT: WATER RECLAMATION FACILITY ENERGY EFFICIENCY PROJECT -
COMPLETION OF DESIGN
RECOMMENDATION
1. Approve the completion of the design for the Water Reclamation Facility Energy Efficiency
Project at a cost of $517,000;
2. Authorize the City Manager to execute a Work Order to complete the project design, subject
to contract review and approval as to form by the City Attorney; and
3. Approve the transfer of $517,000.000 into the design phase of the Water Reclamation
Facility energy efficiency project account from the sewer fund working capital.
DISCUSSION
On May 7, 2013, Council approved the Water Reclamation Facility (WRF) energy efficiency
project, a public/private partnership with PG&E. Total project cost is $9,478,948. $7,478,948 will
be debt financed and the remainder ($2 million) will come from sewer fund working capital.
Staff is requesting authorization to use $517,000 of the $2 million from sewer fund working capital
to complete project design. The design is currently at 50 percent. Approving staff’s
recommendation will allow for the project design to proceed concurrently with the pursuit of project
financing.
Approval of this request does not obligate the City to move forward with project construction.
Construction requires Council’s approval of the debt financing. It is anticipated staff will return to
Council for approval of the appropriate project financing documents in August 2013. Should
Council choose to not approve the project debt financing at that time, having a completed design is
a valuable asset to the City as it can be utilized when appropriate debt financing is obtained.
FISCAL IMPACT
Completion of the design phase of the WRF Energy Efficiency Project the will cost $517,000.
Funding for this project was identified in the 2012-13 Sewer Fund analysis and adequate funding
for the design phase has been identified and is available in the sewer fund’s working capital. Staff
recommends transferring funding from sewer fund working capital to the design phase of the
project account.
Meeting Date
Item Number July 16, 2013
C1 - 18 B4 - 18
ALTERNATIVE
Do not authorize the completion of design for the WRF energy efficiency project at this time.
Council should only take this action if it desires project design to commence after its approval of
debt financing (linear as opposed to concurrent action). This action would delay implementation of
the project and the associated triple-bottom line benefits to the community.
ATTACHMENTS
1. Budget Amendment Request
2. WRF Energy Efficiency Project
C1 - 19 B4 - 19
NUMBER
Fund No.
520
Amendment
Amount
TOTAL
Amendment
Project Phase Amount
WRF Energy Efficiency 91150520 91150952 519,000.00
Sewer Working Capital (519,000.00)
TOTAL -$
Date
Date
Efficiency Project
Page_____of_____
Requesting Department Fund Name
Utilities Sewer
REVENUES AND OTHER FINANCING SOURCES
Per CAR dated 7/2/13, transferring funds from working capital to complete design phase of the WRF Energy
City Administrative Officer
PURPOSE
Department Head
Account Description
General Ledger No,
Account
91150952
City of San Luis Obispo
BUDGET AMENDMENT REQUEST
Program
52055300
EXPENDITURES AND OTHER FINANCING USES
Account Description Revenue Account No.
Capital Project No.
Director of Finance
Entered ByDate
Date
C1 - 20 B4 - 20
RESOLUTION NO.
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN
LUIS OBISPO APPROVING THE FINANCING PROPOSAL FOR
THE FINANCING OF IMPROVEMENTS TO THE WATER
RECLAMATION FACILITY, AND DIRECTING THE
PREPARATION OF FINANCING DOCUMENTS
WHEREAS, the City of San Luis Obispo (the “City”) owns and operates facilities
and property for the collection, treatment and disposal of wastewater within the service
area of the City (the “Wastewater Enterprise”), and is proceeding to finance the
acquisition and installation of improvements to its water reclamation facility, consisting
generally of onsite cogeneration of facilities for the onsite cogeneration of energy, solids
management, upgrading and optimizing aging infrastructure, efficient lighting, and
process system controls (the “Project”); and
WHEREAS, in order to provide funds to finance the Project, the City has
proposed to enter into an Installment Sale Agreement with the City of San Luis Obispo
Capital Improvement Board (the “Board”) under which the Board agrees to provide
financing for the Project and to sell the completed Project to the City in consideration of
the agreement by the City to pay periodic Installment Payments as the purchase price of
the Project; and
WHEREAS, the Installment Payments will be secured by a pledge of and lien on
the net revenues of the Wastewater Enterprise on a parity with the pledge, lien and
security interest which secure certain outstanding obligations of the City; and
WHEREAS, the Board proposes to raise funds for the Project by assigning its
rights under the Installment Sale Agreement, including the right to receive Installment
Payments, to Green Campus Partners LLC or its designee (the “Lender”), which has
submitted a proposal to the City, dated August 21, 2013 (the “Financing Proposal”); and
WHEREAS, the City Council wishes at this time to approve the Financing
Proposal and authorize the institution of proceedings to provide financing for the Project
in accordance with the Financing Proposal;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of San
Luis Obispo as follows:
SECTION 1. Approval of Financing Proposal. The City Council hereby approves
the financing plan for the Project as described in the recitals of this Resolution and as
set forth in the Financing Proposal. The City Manager or the Director of Finance and
Information Technology are each hereby authorized and directed for and in the name
and on behalf of the City to execute the Financing Proposal in the name and on behalf of
the City.
SECTION 2. Institution of Financing Proceedings. The City Council hereby
authorizes and directs the City Manager, the Director of Finance and Information
Technology and other responsible officials of the City, in conjunction with the firm of
C1 - 21 B4 - 21
Jones Hall, A Professional Law Corporation, as bond counsel to the City, and the firm of
Fieldman Rolapp & Associates, as financial advisor to the City, to cause to be prepared
all financing documents which are required to implement the financing plan for the
Project pursuant to the Financing Proposal. Such documentation shall be presented to
the City Council for its consideration at a subsequent meeting of the City Council.
SECTION 3. Effective Date. This Resolution shall take effect immediately upon
its passage and adoption.
On motion of ____________________, seconded by ___________________,
and on the following roll call vote:
AYES:
NOES:
ABSENT:
the foregoing Resolution was passed and adopted this 3rd day of September, 2013.
Mayor
ATTEST:
City Clerk
City Attorney
C1 - 22 B4 - 22
August 23, 2013
Anna Sarabian
Vice President
Fieldman Rolapp & Associates, Inc.
19900 MacArthur Boulevard
Suite 1000
Irvine, CA 92612
Dear Anna:
Green Campus Partners, LLC is pleased to present the following Summary of Terms and Conditions dated
August 23, 2013 (collectively, the “Financing Proposal”), to the City of San Luis Obispo.
SUMMARY OF TERMS AND CONDITIONS
DATE: August 23, 2013
CITY: San Luis Obispo
BOARD: City of San Luis Obispo Capital Improvement Board
FINANCIAL ADVISOR: Fieldman Rolapp & Associates, Inc.
BOND COUNSEL: Jones Hall, A Professional Law Corporation
ASSIGNEE: Green Campus Partners, LLC, and/or its designee or assignee
ASSIGNEE’S COUNSEL: To Be Determined
CONTRACTOR: Pacific Gas & Electric
PURPOSE: The purpose of this transaction is to provide tax-exempt financing for the
acquisition and installation of a water reclamation facility energy efficiency
project (the “Project”) to be installed by the Contractor. The Project consists of
various components, including: cogeneration, solids management, optimization
of existing infrastructure, lighting improvements and process system controls.
STRUCTURE: This transaction will be structured as a tax-exempt Installment Sale Agreement
(the “Agreement”) between the City and the Board. Under a separate and
concurrent Assignment Agreement (the “Assignment”), the Board will assign to
Neal Skiver
Senior Vice President
Green Campus Partners, LLC
215 Lincoln Avenue
Santa Fe, NM 87501
(732) 917-2311 office
(505) 690-3335 mobile
neal.skiver@greencampuspartners.com
C1 - 23 B4 - 23
the Assignee all of the Board’s right to receive the Installment Payments due
under the Agreement.
The transaction will be a direct private placement to a single institutional
investor (arranged by the Assignee), which will be clearly identified to the City.
The initial investor and any subsequent investors will be required to provide
certifications that it is not investing with the intention to resell its interest in the
Agreement, as well as other sophisticated investor certifications typical of private
placements. No official statement or other disclosure document will be
prepared. There will be no initial rating, no debt service reserve, no DTC
registration and no CUSIPs.
At closing, proceeds from the transaction will be deposited into a project fund
and a cost of issuance fund established and maintained by the City. The City will
invest the proceeds in investments authorized by California law and the City’s
investment policy. Any unexpended proceeds upon completion of the Project
will be applied by the City to pay a portion of the interest components of the
Installment Payments next coming due and payable.
SECURITY: The City’s obligation to make Installment Payments under the Agreement will be
secured by a pledge of net sewer system revenues (consisting primarily of net
income and receipts derived by the City from the ownership and operation of the
sewer system or otherwise arising from the sewer system), at parity to existing
sewer system revenue obligations and any future parity obligations authorized to
be issued under the Agreement.
The City will not be required to advance any moneys derived from any source of
income other than the net sewer system revenues for the payments of the
Agreement or performance of any other agreements or covenants required to be
performed. The City may, however, advance moneys for any such purpose so
long as such moneys are derived from a source legally available for such purpose
and may be legally used by the City for such purpose.
RATE COVENANT: The City will covenant to fix, prescribe, revise and collect rates, fees and charges
for the services and facilities furnished by the sewer system during each fiscal
year which, taking into account allowances for contingencies and including
existing unreserved, unrestricted working capital balances in the sewer fund, are
sufficient to yield estimated net sewer system revenues at least equal to 110% of
the aggregate amount of principal and interest on the Agreement and any parity
obligations coming due and payable during such fiscal year.
ADDITIONAL PARITY
OBLIGATIONS: In addition to the existing parity obligations and the Agreement, the City will be
allowed to issue additional parity obligations provided that no Event of Default
has occurred and is continuing and the amount of net sewer system revenues are
at least equal to 110% of the amount of maximum annual debt service coming
due and payable in the current or any future fiscal year.
C1 - 24 B4 - 24
CITY
RESPONSIBILITIES: All responsibilities imposed by the ownership or possession of the sewer system
including, but not limited to, taxes, insurance and maintenance, shall be borne by
the City.
CLOSING DATE: September 30, 2013 (estimated)
BANK QUALIFIED: The City will designate the Agreement as a Qualified Tax Exempt Obligation
pursuant to Section 265(b)(3) of the IRS Code.
TERM: 15.17 years
FINANCED AMOUNT: $7,479,000 (estimated)
INTEREST RATE: 2.63%
Interest Rate Adjustment: The interest rate above is based upon the 10-Year U.S.
Treasury Swap Interest Rate (the “Index”) as reported on the August 12, 2013
Federal Reserve H.15 Daily Update of 2.73% and is locked through September 30,
2013. Thereafter, the interest rate will subject to adjustment until approximately
10 business days prior to the Closing Date (the “Interest Rate Set Date”), based
on the following formula:
Interest Rate = (the Index on the Interest Rate Set Date) * .65 + 0.86%
PAYMENTS: The City will make semi-annual interest payments on June 1st and December 1st,
beginning June 1, 2014 through December 1, 2028 and annual principal
payments on December 1st, beginning December 1, 2014 through December 1,
2028. Please see the attached Sample Payment Schedule.
PREPAYMENT: The City will have the option to prepay the Agreement, in whole, on any interest
payment date, by paying a prepayment price in an amount equal to 103% of the
principal amount to be prepaid, plus accrued interest to the date of prepayment.
DOCUMENTATION: Documentation will be provided by Bond Counsel and will include all documents,
certificates and opinions as are reasonably necessary to evidence and carry out
the transaction. All documents must be acceptable to all parties.
CLOSING COSTS: The City will be responsible for paying the financing costs of issuance, including
costs related for Financial Advisor, Bond Counsel, Assignee’s Counsel (in an
amount not to exceed $10,000) and other direct transaction costs or fees.
TRANSFERS: The Assignee will agree that the Agreement will not be re-offered publicly. The
Assignee reserves the right to assign, sell or otherwise transfer the Agreement
only to an institution that the Assignee reasonably believes is either a “Qualified
Institutional Buyer” or an “Institutional Accredited Investor” and is purchasing
the Agreement for its own account.
CREDIT APPROVAL: The transaction is subject to final credit approval by the Assignee, subject to
additional due diligence and the negotiation of mutually acceptable documentation.
C1 - 25 B4 - 25
FUTURE RATING: The Assignee reserves the right (at its sole expense), after closing, to obtain a
credit rating on the transaction. Such rating shall be for the use of the Assignee
and not for the purpose of undertaking a public offering of the Agreement. The
City agrees to cooperate with the Assignee in connection with its application for
such a rating, if any.
FINANCING PROPOSAL
EXPIRATION: Unless accepted by the City or extended in writing by the Assignee (at its sole
discretion), this Financing Proposal will expire on September 6, 2013. Once
accepted, this Financing Proposal will expire if the transaction has not funded by
October 31, 2013.
Capitalized terms used but not defined herein will have the meaning given such terms in the transaction
documents (i.e. Agreement, Escrow, etc.). Upon receipt of the signed Financing Proposal, the Assignee
will endeavor to provide you with a timely commitment, and will use good faith efforts to negotiate and
finance the Agreement based on the terms and conditions provided herein. It is a pleasure to offer this
Financing Proposal to the City of San Luis Obispo and we look forward to your review and response.
Very truly yours,
Neal E. Skiver
Senior Vice President
Agreed to and Accepted by:
City of San Luis Obispo
(Name)
(Title)
(Date)
C1 - 26 B4 - 26