HomeMy WebLinkAbout08-20-2013 c8 funding for water reclamation facility energy eff proj
FROM: Carrie Mattingly, Utilities Director
Wayne Padilla, Finance and Information Technology Director
Prepared By: David Hix, Wastewater Division Manager
SUBJECT: WATER RECLAMATION FACILITY ENERGY EFFICIENCY PROJECT -
FINANCING
RECOMMENDATION
1. Adopt a resolution authorizing staff to submit a financing application to the California
Infrastructure and Economic Development Bank (I-Bank) in the amount of $7,479,000 for the
Water Reclamation Facility Energy Efficiency Project.
2. Authorize use of working capital to pay the $61,100 I-Bank origination fee.
DISCUSSION
Background
On May 7, 2013, Council approved the Water Reclamation Facility (WRF) Energy Efficiency
Project, a public/private partnership with PG&E, for a total project cost of $9,478,948. 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 also authorized staff to pursue $7,186,258 in project
financing and directed staff to return for approval of the appropriate financing documents.
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. The project
schedule indicates that project construction will begin in late fall or early winter of this year.
Financing
As reported during Council’s May 7, 2013 meeting, prior to obtaining Council authorization to
pursue project financing, staff submitted a preliminary application to I-Bank to ascertain whether or
not this project would meet I-Bank’s eligibility criteria for funding. On May 3, 2013, I-Bank
extended an invitation to apply for financing based on the City’s preliminary application. The
request before City Council is to adopt a resolution that will allow staff to submit a formal
application to the I-Bank for debt financing of the WRF Energy Efficiency Project.
The City has previously used the I-Bank to fund several projects, such as the Tank Farm Gravity
Sewer, Lift Station, and Force Main Project and the Marsh Street Parking Garage. Based on staff’s
research, the I-Bank offers the best interest rates and terms for financing this project. The amount of
the loan application will be $7,479,000 for a 15-year term at a projected interest rate of 2.66%.
On May 7, 2013, Council adopted a resolution of intention to issue tax exempt bonds to finance the
project in the event that an alternative form of financing proved to be more economical than the I-
Meeting Date
Item Number August 20, 2013
C8
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WRF Energy Efficiency Project – Financing Page 2
________________________________________________________________
Bank proposal. Even though staff is making the recommendation to submit the application to the I-
Bank at this time, private placement financing is still being reviewed for consideration. Once the
final terms have been negotiated between the I-Bank, private banks and the City, staff will return
with a final recommendation on the project’s financing.
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.
FISCAL IMPACT
The WRF Energy Efficiency project will cost $9,540,100. The majority of the funding for the
Energy Efficiency Project will come from two sources; $7,479,000 from the I-Bank loan and
$2,061,100 from the sewer fund. Initially the City included $293,000 as funding PG&E would
provide as one-time incentives prior to financing. Further discussion with PG&E disclosed that the
incentives could not be funded until after project completion. This has resulted in the initial and
approved request on May 7, 2013, for financing of $7,186,258 to increase to the current request of
$7,479,000. PG&E is confident that this project will qualify for the incentives. There is an
origination fee for the loan of $61,100 which will be paid from Sewer Fund working capital. The
resolution, approving submittal of the loan application to the I-Bank, includes a commitment to the
I-Bank for the City (applicant) to have available and commit an amount not to exceed $2,061,100.
Currently the City has dedicated $517,000 for the completion of the design portion of the project.
Table 1 shows the projects costs and funding sources.
Table 1.
Project Costs and Funding Sources
City I-Bank Loan Total
Design $517,000 $517,000
Construction $1,483,000 $7,479,000* $8,669,000
Loan Origination Fee $61,100 $61,100
Total $2,061,100 $7,479,000 $9,540,100
*Includes $293,000 in anticipated incentives
Funding for this project was identified in the 2013-14 Sewer Fund analysis and adequate funding
for the City’s $2,061,100 is available in working capital. Current adopted sewer rates have
incorporated this project’s costs.
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WRF Energy Efficiency Project – Financing Page 3
________________________________________________________________
ATTACHMENTS
1. SLO I-Bank Resolution 8-20-13.doc
2. CAR-WRF Final Design Approval
3. CAR-WRF Energy Efficiency Project
T:\Council Agenda Reports\2013\2013-08-20\Funding for Water Reclamation Facility Energy Prog (Mattingly-Hix)
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Attachment 1
R ______
RESOLUTION NO. (2013 Series)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
AUTHORIZING THE SUBMISSION OF THE APPLICATION TO THE CALIFORNIA
INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK FOR
FINANCING OF WATER RECLAMATION FACILITY ENERGY EFFICIENCY
PROJECT, FINDING OF EXEMPTION FROM CEQA UNDER SECTION 15302 CLASS
2, DECLARATION OF OFFICIAL INTENT TO REIMBURSE CERTAIN
EXPENDITURES FROM PROCEEDS OF OBLIGATION, AND APPROVING
CERTAIN OTHER MATTERS IN CONNECTION THEREWITH
WHEREAS, the California Infrastructure and Economic Development Bank (“I-Bank”)
administers a financing program to assist local governments with the financing of Public
Development Facilities as described in Section 63000 et seq. of the California Government Code
(the “Act”); and
WHEREAS, the I-Bank has instituted an application process for financing under its
Infrastructure State Revolving Fund Program (“ISRF Program”); and
WHEREAS, the City of San Luis Obispo (“Applicant”) desires to submit an application
(“Financing Application”) to the I-Bank from the ISRF Program for the financing of the Water
Reclamation Energy Efficiency Project (“Project”) in an amount not to exceed $7,479,000; and
WHEREAS, the Act requires the Applicant to certify by resolution certain findings prior
to a Project being selected for financing by the I-Bank.
WHEREAS, the Applicant expects to pay certain expenditures (the “Reimbursement
Expenditures”) in connection with the Project prior to incurring indebtedness for the purpose of
financing costs associated with the Project on a long-term basis; and
WHEREAS, the Applicant reasonably expects that a financing arrangement
(“Obligation”) in an amount not expected to exceed $7,479,000 will be entered into and that
certain of the proceeds of such Obligation will be used to reimburse the Reimbursement
Expenditures; and
WHEREAS, the ISRF Program requires funding sources, other than the I-Bank
financing, be identified and approved prior to Project financing approval by the I-Bank Board;
and
WHEREAS, the project is exempt from environmental review under Section 15302,
Class 2 of CEQA because 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.
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Resolution No. _______________ (2013 Series) Attachment 1
Page 2
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. The City of San Luis Obispo hereby approves the filing of an ISRF
Program Financing Application with the I-Bank for the Project; and in connection therewith
certifies:
a. that the Project is consistent with the General Plan of both the City of San Luis
Obispo and the County of San Luis Obispo;
b. the proposed financing is appropriate for the Project;
c. the Project facilitates effective and efficient use of existing and future public
resources so as to promote both economic development and conservation of natural
resources;
d. the Project develops and enhances public infrastructure in a manner that will attract,
create, and sustain long-term employment opportunities; and
e. the Project is consistent with the I-Bank’s Criteria, Priorities and Guidelines for the
ISRF Program.
f. the Project is exempt from CEQA under Section 15302, Class 2, of the Public
Resources Code.
SECTION 2. The Applicant hereby declares its official intent to use proceeds of the
Obligation to reimburse itself for Reimbursement Expenditures. This declaration is made solely
for purposes of establishing compliance with the requirements of Section 1.150-2 of the Treasury
Regulations. This declaration does not bind the Applicant to make any expenditure, incur any
indebtedness, or proceed with the Project.
SECTION 3. All of the Reimbursement Expenditures were made no earlier than 60 days
prior to the date of this Declaration. The Applicant will allocate proceeds of the Obligation to
pay Reimbursement Expenditures within eighteen (18) months of the later of the date the original
expenditure is paid or the date the Project is placed in service or abandoned, but in no event more
than three (3) years after the original expenditure is paid.
SECTION 4. The total estimated project cost is $9,540,100 and the Applicant commits
to funding the remaining $2,061,100 in project costs with other funds.
SECTION 5. David C. Hix, Deputy Director of Utilities-Wastewater is hereby
authorized and directed to act on behalf of the City of San Luis Obispo in all matters pertaining
to this application.
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Resolution No. _______________ (2013 Series) Attachment 1
Page 3
SECTION 6. If the application is approved, Carrie Mattingly, Utilities Director is
authorized to enter into and sign the financing documents and any amendments thereto with the
I-Bank for the purposes of this financing.
SECTION 7. This resolution shall become effective immediately upon adoption.
Upon motion of _______________________, seconded by _______________________,
and on the following vote:
AYES:
NOES:
ABSENT:
The foregoing resolution was adopted this _____ day of _____________________ 2013.
____________________________________
Mayor Jan Marx
ATTEST:
____________________________________
Sheryll Schroeder
Interim City Clerk
APPROVED AS TO FORM:
_____________________________________
J. Christine Dietrick
City Attorney
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Attachment 2
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
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Attachment 2
Water Reclamation Facility Energy Efficiency Project - Completion of Design Page 2
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
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Attachment 3
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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Attachment 3
Water Reclamation Facility Energy Efficiency Project Page 2
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.
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Attachment 3
Water Reclamation Facility Energy Efficiency Project Page 3
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
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
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Attachment 3
Water Reclamation Facility Energy Efficiency Project Page 4
opposed to being studied individually, so that maximum efficiencies could be realized; and (4) any
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
Environmentally,
Socially, and Fiscally
Sustainable
Aging
Infrastructure
Replacement
Synergy
with
Treatment
Process
Regulation
Independent
WRF
Energy
Project
Conservation
Measure
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Attachment 3
Water Reclamation Facility Energy Efficiency Project Page 5
Social
(People)
Economic
(Prosperity)
Environment
(Planet)
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.
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.
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Attachment 3
Water Reclamation Facility Energy Efficiency Project Page 6
This is an annual equivalent to removing 96 cars from the road, powering 69 homes, or the addition
of 378 acres of forestland.
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
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Attachment 3
Water Reclamation Facility Energy Efficiency Project Page 7
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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Attachment 3
Water Reclamation Facility Energy Efficiency Project Page 8
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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Attachment 3
Water Reclamation Facility Energy Efficiency Project Page 9
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Attachment 3
Water Reclamation Facility Energy Efficiency Project Page 10
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.
C8 - 18
Attachment 3
Water Reclamation Facility Energy Efficiency Project Page 11
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
C8 - 19
Attachment 3
Water Reclamation Facility Energy Efficiency Project Page 12
$2.5 million in capital costs that will not need to be incurred in the future. For example, based on
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)
C8 - 20
'OWAI council mEmoaandum
August 20, 2013
AGENDA
CORRESPONDENCE
Datee-2D -13 Item#
TO: Mayor and City Council RECEIVED
AUG 2 0 2013
VIA: Katie Lichtig, City Manager } �'�
SLO_ CITY ,, ARK
FROM: Carrie Mattingly, Utilities Director
Wayne Padilla, Finance and Information Technology Director
SUBJECT: Continuation of Item C8. — Water Reclamation Facility Energy Efficiency Project
Financing
Staff is requesting Council continue agenda item C8. — Water Reclamation Facility Energy
Efficiency Project Financing due to new information we have received from our financial
advisor regarding another financing opportunity. Based on preliminary analysis of the data
provided by the financial advisor it appears this alternative financing may be a better way for the
City to go, but further analysis is required to be sure.
Staff will bring the Water Reclamation Facility Energy Efficiency Project Financing
recommendation back to Council as soon as possible to maintain project financing and
construction timelines. Thank you for your understanding.
1.30020 Wawv Reclamation Facility E 3ic� � 1 1fi rnc} f'Yr' ct Fillancilig.docx