MEETING DATE: 6/26/2018
DEPARTMENT: COUNTY ADMINISTRATION OFFICE
DEPT HEAD/DIRECTOR: Ray Espinosa
AGENDA ITEM PREPARER: Dulce Alonso
SBC DEPT FILE NUMBER: 425
SUBJECT:
COUNTY ADMINISTRATION OFFICE - R. ESPINOSA
Open public hearing, receive presentations regarding project and financing, and continue the public hearing to July 24th at 9:00 a.m. to approve Energy Services Contract with ENGIE Services U.S. (ENGIE) to provide energy services through San Benito County, contract amount is eight million thirty-one thousand nine hundred twenty-two dollars ($8,031,922). On that date, the Board will be recommended to adopt a Resolution making certain findings, and approving an energy services contract with ENGIE Services U.S.
SBC FILE NUMBER: 425
RESOLUTION NO: 2018-38
AGENDA SECTION:
PUBLIC HEARING - Top
BACKGROUND/SUMMARY:
Introduction
The Energy Conservation Measures (“ECM”) Project consists of the design, construction, installation, and monitoring of certain energy conservation measure improvements to various County facilities. The ECM Project will have substantial environmental benefits to help reduce the County’s carbon footprint. The ECM Project is projected to reduce the County’s electricity costs by approximately 80% and reduce emissions by approximately 2,100 metric tons of CO2 annually, which is equivalent to removing 450 cars off the road per year.
In December of 2016, ENGIE Services U.S. (formerly known as OpTerra Energy Services) (“ENGIE”) contacted the County staff and made a proposal to implement energy related improvements to County buildings without any cost to the County – the cost of the measures when financed will be less than the savings.
On February 21, 2017, your Board authorized ENGIE to receive PG&E data for all the facilities to evaluate potential cost savings projects. On March 14, 2017, ENGIE provided a very preliminary proposal to the Board for a solar project. In April 2017, the County Board of Supervisors reviewed a proposal to implement solar and other energy conservation measures (“ECM”) at various County facilities, i.e., a solar energy partnership between ENGIE and the County of San Benito.
At that time the Board approved a Program Development Agreement (“PDA”) with ENGIE in the amount of $39,872.00 and authorized the CAO to approve any necessary amendments to the PDA, in an amount not to exceed $3,987 (10% of the contract amount).
Over the next several months, ENGIE worked diligently with CAO and RMA staff to define the scope of work, guaranteed energy savings and firm pricing for the project. One of the main desires of the County was to replace our old infrastructure – mechanical primarily, but lighting also – without any impact on the General Fund. Staff and ENGIE worked diligently to make sure that the final scope of work included the replacement of mechanical equipment way past its useful life. An overview of the energy study findings and proposed a scope of work were presented to the Board on January 23, 2018, which includes:
Scope of Work
1. Interior and exterior LED lighting upgrades at eleven (11) County facilities
2. LED streetlights at Wild Oak Neighborhood, Rosebud Avenue, and Little River Drive Neighborhood
3. HVAC improvements at Juvenile Hall, Administration Building, Hall of Records, Library, Probation & District Attorney, and Sheriff’s Office & Resource Management Agency
4. Wireless thermostats for control of the HVAC systems at the above buildings
5. Window treatment measures for Sheriff’s Office & Resource Management Agency
6. Electric Vehicle charging station at San Benito County Office of Emergency Services
7. Solar energy projects at the following facilities:
a. Existing County Jail and Proposed Extension – 518.4 kW
b. Juvenile Hall – 44.8 kW
c. Sheriff’s Office & Resource Management Agency – 107.2 kW
d. Administration, Probation, DA, OES – 157.6 kW
e. Library and Hall of Records – 182.4 kW
f. Health & Human Services Administration & Behavioral Health Department – 338.4
g. County Yard – 50.4 kW
Contract Price
ENGIE has maintained their price since late last year. The project price is $8,031,922. This is the same price that was presented to your Board on January 23, 2018 during a study session for this project.
Net Savings
The net savings after paying for all costs over the life of the project is $11,562,983.
Financing
This contract is contingent upon receiving financing for the project. The financing aspect of the project will be brought before the Board on or about July 24, 2018.
In addition to working with ENGIE, County staff has been working closely with the County’s Financial Advisor, KNN Public Finance, LLC (“KNN”) to develop a financing package for the completion of this approximately $8.03 million project. KNN arranged the financing for this project. Out of seven (7) proposals that were received, KNN recommends moving forward with Bank of America because of their competitive interest rate and offer of using the project equipment as collateral instead of real property.
Upon execution of the contract, the County would have 45-days in which to finalize a financing package for the project. As mentioned in the above paragraph County staff and Bank of America are planning to present a completed finance funding package to the Board at its July 24, 2018 regular meeting.
If the County is unable to obtain financing that shows a financially viable project with positive cash flow for each year of the project the contract would be cancelled without any additional cost to the County.
If approved and the County successfully obtains financing, construction of solar facilities and completion of energy upgrades could begin this year.
AMBAG is also providing a 10-year interest free loan, called On-Bill Financing, which makes the cash flow more attractive.
Project Cash Flow
Preliminary financial figures show the project to be cash flow positive to County for each of the 25-30 years. A complete financing package will be completed in the next month and will be presented to Board at its July 24, 2018 regular meeting.
The cash flow for this project is as follows:
Benefits of the Project
1. Create $11 million in net savings after paying for all costs
2. Reduce County electricity spend by over 80%
3. Hedge against rising energy costs
4. Utilize savings to replace old mechanical equipment
5. Save maintenance staff’s time with long-life LED lighting and new HVAC equipment
6. Save administrative time by accomplishing multiple projects simultaneously
7. Stimulate local economy and provide local jobs
8. Substantial environmental benefits – equivalent to removing 450 cars off the highways annually
Energy Savings Guarantee
Engie provides an energy savings guarantee for a portion of the project. This guarantee states that the County will produce or save at least a set amount of energy measured in kWhs each year. Overall, Engie guarantees about 85% of the energy savings. All their guarantees are based on kWh and kW reduction, which is applied to the electricity rates to the shortfall. If there is any shortfall, Engie would pay the County at the escalated rates in the contract and not the actual rates, based on a five year calculation period, discounted by net present value. On the other hand, if the County produces more electricity from the solar & energy storage projects, then the additional savings belong to the County. However, the County will have to refund any money that Engie has paid in a prior year to the County, in case the savings are more than expected in later years.
Government Code Requirements to Enter into an Energy Services Contract
California Government Code Section 4217.12(a) for Energy Conservation Contracts states that:
(a)[…] a public agency may enter into an energy service contract and any necessarily related facility ground lease on terms that its governing body determines are in the best interests of the public agency if the determination is made at a regularly scheduled public hearing, public notice of which is given at least two weeks in advance, and if the governing body finds:
(1) That the anticipated cost to the public agency for thermal or electrical energy or conservation services provided by the energy conservation facility under the contract will be less than the anticipated marginal cost to the public agency of thermal, electrical, or other energy that would have been consumed by the public agency in the absence of those purchases.
(2) That the difference, if any, between the fair rental value for the real property subject to the facility ground lease and the agreed rent, is anticipated to be offset by below market energy purchases or other benefits provided under the energy service contract.
The County provided public notice on June 8, 2018, more than two (2) weeks in advance of the June 26, 2018 public hearing. The cost to the County for thermal, electrical energy, or conservation services provided by the energy conservation project in the proposed Energy Services Contract with ENGIE is projected to be less than the County’s cost for thermal, electrical energy, or other energy that would have been consumed by the County in the absence of the proposed project.
The difference between the estimated costs, including debt service payments, of the proposed project is anticipated to be offset by energy cost savings over the project life. As such, County staff believes that these conditions have been met and that the Board can make the required findings in order for the County to enter into an Energy Services Contract with ENGIE.
Recommendation
Staff recommends that Board adopt a Resolution making certain findings in accordance with California Government Code Sections 4217.10 et seq. and approve an Energy Services Contract with ENGIE to implement and complete the project, i.e., the proposed energy-related improvements to County facilities. Staff also recommends that Board direct staff to move forward with financing the solar and energy project with Bank of America, subject to final Board approval.
FISCAL IMPACT
As mentioned above, using conservative assumptions, the project is forecasted to generate a savings of over $11 million over the life of the project.
If the County does not elect to proceed with the project, the County will owe ENGIE $39,872.00 for work performed as part of the completed PDA.
BUDGETED: