TO: Honorable City Council
FROM: Acting City Manager
SUBJECT: Public Hearing and Adopt Resolution Making Certain Findings and Approving an Energy Services Contract With Alliance Building Solutions
MEETING DATE: February 13, 2024
RECOMMENDATION:
Staff recommends that the City Council:
o Hold a noticed public hearing pursuant to Government Code section 4217.10 et seq. (“Section 4217.10”) regarding a proposed energy services contract with Alliance Building Solutions, Inc. (“ABS”); and
o Adopt a Resolution making the required findings under Section 4217.10 and approving an Installation Agreement (or “energy services contract”) with ABS in the amount of $9,059,952 for installation of certain energy conservation facilities, and authorizing the Interim City Manager to execute the Installation Agreement subject to non-monetary revisions approved by the City Manager and City Attorney, and conditioned upon and City Council’s future consideration and approval of a final lease purchase agreement or financing contract in the manner specified by Section 4217.10 to finance the project.
BACKGROUND/ANALYSIS:
The City has identified various capital improvement projects and facility needs that involve energy efficiency upgrades and improvements throughout various City facilities, as further described in Attachment 1 (“Energy Improvements”).
With the City facing future utility rates increases and the placement of additional burden on future budgets spent on energy costs, a proactive approach towards reducing City-wide energy consumption is prudent.
ABS is a licensed contractor capable of constructing the Energy Improvements. ABS completed a comprehensive City-wide audit to provide a preliminary list of energy conservation measures and energy conservation facilities that the City could install at several City sites to conserve energy and reduce the City’s energy costs, which included the following: LED lighting upgrades, street lighting retrofits, controls upgrades, HVAC upgrades, and solar photovoltaic (“PV”) installation.
CITY OF COMMERCE
AGENDA REPORT
Item No.
ABS provided an energy savings analysis attached to the Resolution as Exhibit A (“Energy Analysis”) demonstrating total program savings of $25,205,078 (and net savings of $10,786,548 after consideration of expected financing costs) the City would generate from the installation of the Energy Improvements. ABS agreed to design and construct the Energy Improvements for an amount not-to-exceed $9,059,952 and City staff worked with the City Attorney to negotiate the Energy Services Contract in the form of the Installation Agreement attached to this report.
Based on the analysis and representations provided by ABS, the Energy Improvements are expected provide significant savings to the City in the form of reduced energy costs.
For example, implementing LED lighting retrofits at various facilities offers energy savings, reduces maintenance costs, and improves visual quality. HVAC upgrades will also realize energy savings, improve facility occupancy comfort, and reduce maintenance and repair costs. PV systems serve as an effective energy solution for offsetting ongoing utility costs.
Future costs that would have been applied to lighting, HVAC, and other upgrades as part of the City’s standard capital improvement program can now be allocated to other budgetary obligations.
If the City Council desires to approve the Installation Agreement and the specified scope of work, that approval should be conditioned on the City obtaining financing for the project, which financing will be structured as an equipment lease purchase or financing contract between the City and a selected lender, the approval of which shall be considered at a future meeting of the City Council in the manner required by Section 4217.10.
DISCUSSION:
Section 4217.10 permits the City to enter into agreements to finance, design, and construct energy conservation facilities and/or energy conservation measures without any competitive solicitation or bidding process.
More specifically, Section 4217.12 permits the City to enter directly into an energy services contract to design and construct energy conservation facilities, together with any related facilities ground lease, on terms that the City Council determines are in the best interests of the City and the City Council 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 Installation Agreement will be less than the anticipated marginal cost to the City of thermal, electrical, or other energy that would have been consumed by the City in the absence of those purchases; and (2) that the difference, if any, between the fair market rental value for the real property subject to the facility found lease and the agreed upon rent, is anticipated to be offset by below market energy purchases or other benefits provided under the Installation Agreement.
Section 4217.13 also allows the City to enter into a facility financing contract and facility ground lease to finance the Installation Agreement if the City Council finds that funds for the repayment of the financing or cost to design, construct, and operate the energy conservation facility are projected to be available from the facility or from funds that otherwise would have been used for the purchase of electrical, thermal, or other energy required by the City in the absence of the energy conservation facility provided by the Installation Agreement.
The Energy Analysis provided by ABS demonstrates that the City will realize cost savings from implementing the Installation Agreement in an amount that exceeds the projected cost to finance the project based on market-rate financing terms described in the “Fiscal Impact” section below. This analysis allows the City Council to make the required finding under Section 4217.10 to approve the Installation Agreement, with this approval conditioned upon and subject to the City Council subsequently finalizing and obtaining market rate financing through a lease purchase agreement of financing contract.
If the City Council approves the attached Resolution, it will authorize the Interim City Manager and the City Attorney to making non-monetary changes, insertions and revisions to the Installation Agreement, and authorize the Interim City Manager to execute the Installation Agreement in its final form. However, the City Council’s approve of the Installation Agreement and authorization for the Acting City Manager to enter it is fully contingent on the City obtaining and the City Council approving financing for the project. If the City Council moves forward with the Installation Agreement, staff will work to finalize proposed financing and present it to the City Council at a future meeting.
ALTERNATIVES:
1. Not approve this item and direct Staff to conduct a Request for Qualifications/Proposals
2. (RFQ/RFP) to solicit other energy saving firms.
3. Continue the item and provide staff with direction
4. Take no action
FISCAL IMPACT:
The City’s total program savings through this project are estimated by ABS at $25,205,078 over a 30-year term. Based on staff’s review of market rates, the total estimated project cost, including any costs associated with financing the project, is estimated at $14,418,530. Financing costs assume an interest rate of 4.75% and a 20-year term, resulting in $14.4 million in total lease payments, and average annual lease payments of approximately $722,000.Net savings for the Project are estimated to be $10,786,548 over a 30-year term.
Alliance has projected that certain energy savings, O&M savings, new renewable savings, and Direct Pay Investment Tax Credit (“ITC”) for the Project will offset the lease payments and generate net savings at the end of a 30-year period. There is no guarantee that these savings will be realized in the timing and amounts as projected by Alliance, and regardless of whether any such savings come to fruition, the City would remain obligated to make payments to the selected lender. Should the City fail to make these payments, the lender would have the right to retake possession of the equipment, pursue other remedies, and the City’s credit would be negatively impacted. The specific terms and conditions of a financing arrangement will be presented to the City Council when at a future meeting for its consideration.
RELATIONSHIP TO STRATEGIC GOALS:
This report is not applicable to any specific goal; however, it is related to the following goal:
Implement city business processes and identification of cost of services and cost of recovery policies.
Prepared by: Vilko Domic, Assistant City Manager
Approved as to form: Noel Tapia, City Attorney
Respectfully submitted: Vilko Domic, Acting City Manager ATTACHMENTS:
1. Energy Improvements
2. Resolution No.
a. Exhibit A – Cost Flow / Savings Analysis
b. Exhibit B – Installation Agreement
ATTACHMENT I
ENERGY IMPROVEMENTS
Site Address Energy Improvements
Bandini Park 4725 Astor Avenue Interior LED Lighting Upgrades Exterior LED Lighting Upgrades
HVAC Unit Replacements (6)
Web-based Programmable Thermostats
City Hall 2535 Commerce Way Interior LED Lighting Upgrades HVAC Unit Replacements (28)
Web-based Programmable Thermostats
Roof Upgrades on City Hall Extension only
Solar Carports
Brenda Villa Aquatic
Center
5600 Harbor Street Interior LED Lighting Upgrades
Exterior LED Lighting Upgrades
Senior Center 2555 Commerce Way Interior LED Lighting Upgrades Exterior LED Lighting Upgrades
Teen Center 5107 Astor Avenue Interior LED Lighting Upgrades Exterior LED Lighting Upgrades