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HomeMy WebLinkAbout05-07-2013 b1 wrf energy efficiency projectcouncrL âqenòa pepopt Meet¡ng Date I|¡{av 7 )O1? ItemNuhber B1 FROM: Prepared By: CITY OF SAN LUIS OBISPO Canie Mattingly, Utilities Director 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 Attomey 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 l-Bank loan or issuance of bonds, and direct staff to retum 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 Enerqy Efficiency Proiect Phases Complete 1 Feasibility Discussion ^/ 2 Preliminary Energy Assessment ./ 3 Investment Grade Analysis ./ 4 Finance and Implementation B1-1 Water Reclamation Facility Energy Efficiency Project Page 2 In January of 20t2, 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 59,478,948 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 Tumkey 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 signihcant 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. 81-2 Water Reclamation Facility Energy Efficiency Project Page 3 Feasibility Discussion Finance & lmplementation Preliminary Energy Assessment lnvestment Grade Analysis .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 PHASE COMPLETE .PG&E prepares PEA based on site investigation at no cost to City .PEA lists potential Conservation Measures (CM) . PEA identifies potentialenergy savings and cost to implement .PG&E and City enter into agreement .lGA lists CMs, energy savings, preliminary engineering of measures, costs to implement, and payback . IGA identifies utility rebates and incentives .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 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 f,rnal 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 V/RF 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 B1-3 Water Reclamation Facility Energy Efficiency Project Paqe 4 Conservation Measure needed to be independent of any potential upcoming regulatory decisions that would affect treatment requirements. o Regulation lndependent WRF Energy Project Environmentally, Socially, and Fiscally Sustain a b le Conservat¡on Measure 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 l, WKF 2, etc.), can be found in the Investment Grade Analysis. Cogenerøtion 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 Mønøgement The proposed project replaces inefficient headworks (WRF 2) and dewatering equipment (WRF 3), and selected pumps used to move solids throughout the V/RF (WRF 4). Optimizing Exßting Infrastructure ln 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 fl. The modification of the aeration tank control program (WRF 7) was also identified as an energy saving measure in the IGA. The WkF 7 Measure has already been completed using the skills of in- house WRF operations staff. Associated energy savings are already being realized. 81-4 Water Reclamation Facility Energy Efficiency Project Page 5 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 modem 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 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 $ I 1 .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. Environmentøl 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. Functional Group Conservation Measures Cost Cogeneration V/RF 1 1,695,000 Solids Management wRr 2,3,4 4,502,000 Optimizing WRF 5,6,J 1,715,000 Lighting WRF 8 270,000 SCADA V/RF 9 I,297,000 Total $9,479,000 B1-5 Water Reclamation Facility Energy Efficiency Project Page 6 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 faetor" 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. ln 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 modif,rcations 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 publiclprivate 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 effrciency project, the City will realize annual energy cost savings of approximately $157,000 and annual operational and maintenance savings of $168,000 (Table 2). Tøble 2. Annuøl and Søvíngs An estimated $2.5 million in future capital costs planned for the City's V/RF 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 Govemment 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. Electric $131,000 Natural Gas $26,000 Operational $ 168,000 Total $325,000 81-6 Water Reclamation Facility Energy Efficiency Project Page 7 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 lnvestment 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 pricingibidding 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. Cit)¡ Goal: Climate Protection: Implement greenhouse gas reduction and Climate Action Plan. Conduct energt audits of all city facilities, increase energy conservation, invest in infrastructure which will save energy andfunds in thefuture. Conservation and Open Space Element: COSE 4.3.1: The City will employ the best available practices in energlt conservation, procurement, use and production, and will encourage individuals, organizations and other agencies to do likewise. COSE 4.3.2: Cily Buildings and facilities will be operated in the most energt-fficient 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 fficiency improvement measures to their greatest extent possible, undertake all necessqry steps to seekfundingfor their implementation and, upon securing availability offunds, implement the measures in a timely mqnner. COSE 4.6.11: The City will actively seek all available sources of fundingfor implementing energy fficiency 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 s ector financing arrangements. o a a 81-7 Water Reclamation Facility Energy Efficiency Project Page 8 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. ln 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 Govemment Commission to develop strategies to adapt to climate change in the future. Utilities Department Strategic Plan - Outcome Oriented Goals: Infraslructure Goal: The Department will have q clear understanding of its long-range infrastructure requirements and a plan to address them. Objective: Increase planning effirts 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, wostewater, water recycling; energy fficiency). Stewardship Goal; The Department will be recognized by regulators, the public, and all stakeholders as an ffictive steward of natural andfiscal resources. Objective: Expand the identification and implementation of practices that increase the conservation of all natural resources. Imøge 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 complywith 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. 81-8 Water Reclamation Facility Energy Efficiency Project Page 9 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 $7.2 million, will need to be obtained to move the project forward. Staff has been working with the Califomia Infrastructure and Economic Development Bank (I-Bank) and has submitted a preliminary application for a low interest I-Bank loan. I-Bank staff has been very supportive of the City's project; however the City has not yet received formal I-Bank pre-approval. In the event that the I-Bank loan is pre-approved, staff will return to the Council with the necessary documents and seek its final approval to secure this funding. Should the City ultimately not receive approval from the I-Bank, alternative financing will need to be obtained. City staff has been working with the City's financial advisor, Fieldman Rolapp and Jones Hall, the City's bond counsel, to discuss selling bonds for the needed financing. Staff will return to Council with the appropriate bond documents for financing the remainder of the project, should the I-Bank application not be approved. Adopting a resolution of intent at this time simply preserves the City's option of including arLy costs related to the project that might be incurred prior to its issuance in the subsequent bond issue. The final cost of borrowing will depend on which mechanism is ultimately used. Current I-Bank interest rates are around 2o/o and private placements are around 3.5%. Based on borrowing$.7.2 million for a l5-year term (a term shorter than the 25-year equipment life), annual repayments at 3.5o/o interest would be $625,000. At2% 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 |25yo, that is, annual operating revenues are atleast I25o/o more than total debt service costs. Rating agencies have indicated that they prefer to see debt coverage ratios closer to 200Yo. 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 5I3o/o, 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 tum will help lower the cost of borrowing. This continues to position the Sewer Fund for the financing that will be required for the major rùy'ater 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 B1-9 Water Reclamation Facility Energy Efficiency Project Page 10 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 andData 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. V/hile 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 L4Yo. V/hile 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 ftnøl Fínance and Implementøtion Phøse of the Sustøìnable Solutions Turnkey Progrøm. 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 V/RF upgrade project. ATTACHMENT Attachment Reimbursement Resolution.doc AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE Investment Grade Analysis 81-10 Attachment I RESOLUTION NO (200X Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO DECLARING INTENTION TO REIMBURSE EXPENDITURES RELATING TO WATER RECLAMATION PROJECTS FROM THE PROCEEDS OF TAX-EXEMPT OBLIGATIONS WHEREAS, the City of San Luis Obispo (the "City") is proceeding to construct improvements to its water reclamation facility, consisting generally of facilities for the onsite cogeneration of energy, solids management, upgrading and optimizing aging infrastructure, efficient lighting, and process system control (the "Project"); and \ryHEREAS, in order to provide funds to finance the Project, the City Council intends to either (i) issue and sell its tax-exempt bonds or certificates of participation in the aggregate principal amount of approximately 57,200,000 (the "Bonds") or (ii) apply to the Califomia lnfrastructure and Economic Development Bank for a financing through its Infrastructure State Revolving Fund Program (the "I-Bank Financing"), each of would be payable from wastewater revenues of the City (the "Bonds"); and WHEREAS, in order to use the proceeds of the Bonds or the I-Bank Financing to reimburse advances made by the City for the Project before the date of issuance of the Bonds or the I-Bank Financing, but not more than 60 days before the date of adoption of this Resolution, Section 1.150-2 of the United States lncome Tax Regulations requires that City Council declare its intention to reimburse such advances from the proceeds of the Bonds or the I-Bank Financing; and WHEREAS, it is in the public interest and for the public benefit that the City declare its official intent to reimburse the expenditures referenced herein; NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of San Luis Obispo as follows: Section 1. Declaration of Intent. The City Council hereby declares that it reasonably expects to issue the Bonds or enter into the I-Bank Financing and to use a portion of the proceeds thereof to reimburse expenditures made by the City for the Proj ect before the date of issuance of the Bonds or the l-Bank Financing, and not more than 60 days before the date of adoption of this Resolution. If issued, the Bonds would be issued in an aggregate principal amount which is sufficient to raise funds for the Project in the approximate amount of $7,200,000. If used, the amount of the I-Bank Financing would be approximately $ Section 2. Effective Date. This Resolution shall take effect from and after the date of its passage and adoption. Upon motion of and on the following vote: AYES: NOES: seconded by R B1-11 Resolution No Page2 (200x Series) ABSENT: The foregoing resolution was adopted this 7 day of May 2013 Mayor Jan Marx ATTEST: Maeve Kennedy Grimes City Clerk APPROVED AS TO FORM J. Christine Dietrick City Attorney 81-12