CITY OF COMMERCEAGENDA REPORTCITY OF COMMERCEAGENDA REPORT
CITY OF COMMERCE
AGENDA REPORT
CITY OF COMMERCE
AGENDA REPORT
Item No. Item No.
Item No.
Item No.
TO: Honorable City Council
FROM: Assistant City Manager
SUBJECT: Making Certain Findings and Adopt Resolutions Approving an Energy Services Contract and Facility Financing Contract for an Energy Efficiency Project Required Under California Government Code Section 4217.10 ET SEQ, Authorizing an Energy Services Contract, and Authorizing the Execution and Delivery of a Lease Purchase Agreement, and Escrow Agreement and Equipment Schedule Meeting Date: December 12, 2023
RECOMMENDATION:
Staff recommends that the City Council approve the following:
Hold a Public Hearing regarding the proposed energy conservation facilities, energy services contract, and facility financing contract; Adopt the Resolution (“Findings & Energy Contract Resolution”) that will make the required findings under Government Code section 4217.10, et seq. enabling the City to enter into an Installation Agreement (which constitutes an “Energy Services Contract” under Government Code Section 4217.12) with Alliance Building Solutions, Inc. (“ABS”) and the Lease Purchase Agreement (which constitutes a “Facility Financing Contract” under Government Code Section 4217.13) with Alliance Funding Solutions, Inc. to finance the acquisition and installation of the energy conservation facilities described in the Installation Agreement; and Authorize the Assistant City Manager to execute the Installation Agreement with ABS substantially in the form of the Installation Agreement attached as Exhibit B to the Findings & Energy Contract Resolution in the amount of $9,713,379 for the City-wide design and construction of certain energy conservation facilities and measures, subject to non-monetary changes to the Installation Agreement approved by the Assistant City Manager and City Attorney, and contingent on finalizing and obtaining financing for the project; and Adopt the Resolution (“Lease Purchase Agreement Resolution”) authorizing the execution and delivery of a Lease Purchase Agreement, an Escrow Agreement and Equipment Schedule for the purposes of financing the energy conservation facilities described in the Installation Agreement (the “Equipment”).
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 was needed.
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.
ABS provided an energy savings analysis attached to the Findings & Energy Contract Resolution as Exhibit B (“Energy Analysis”) demonstrating the energy savings of $26,212,312 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 $9,738,379 and City staff worked with the City Attorney to negotiate the Energy Services Contract The Energy Improvements will provide significant savings to the City from reduced energy costs. Implementing LED lighting retrofits offers energy savings, and improved visual quality, while reducing maintenance costs. HVAC upgrades will realize energy savings, improve facility occupancy comfort, and reduce maintenance and repair costs. PV systems serve as an effective energy solution for offsetting utility costs. Future costs that would have been applied to upgrades in this project, can now be allocated to other budgetary obligations.
City staff worked with the City Attorney’s office to prepare the Installation Agreement with ABS for the City Council’s consideration. If the City Council desires to approve the 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 agreement between the City and Alliance (described further below).
DISCUSSION:
Government Code section 4217.10, et seq. 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.
Government Code section 4217.12 (“Section 4217.12”) permits the City to enter directly into an energy services contract to design and construct energy conservation facilities, if the City Council finds at a regularly scheduled public hearing noticed at least two weeks in advance 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.” ABS provided the Energy Analysis that reasonably demonstrates that the City will achieve savings in an amount sufficient to satisfy the required finding under Section 4217.12 through the construction of the Energy Improvements under the Energy Services Contract. That analysis is set forth in Exhibit A to the Findings & Contract Resolution and is based on the financing parameters being presented to and considered by the City Council in the Lease Purchase Agreement.
If the City Council desires to proceed with the project, the City Council must first make the required findings under Section 4217.12 enabling the City to enter into the Energy Services Contract and Lease Purchase Agreement (accomplished by approving the Financing & Contract Resolution), and authorize the Assistant City Manager to enter into the Installation Agreement with ABS.
In addition, if the City Council approves the Resolution, it will authorize city staff (Assistant City Manager and the City Attorney) to negotiate any further changes, insertions and omissions to the Installation Agreement. The City Council’s authorization to enter into the aforementioned contract/agreement is fully contingent on the City obtaining financing for the Project and the City Attorney’s approval.
The Lease Purchase Agreement Resolution approves, among other actions, the terms of an Equipment Lease Purchase Agreement, Equipment Schedule, and Escrow Agreement between Alliance Funding Solutions, Inc. (AFS) and the City, whereby the City will make lease payments in order to lease, with the option to purchase, the Equipment that will be installed as part of the project. Alliance proposes to assign its rights to receive the lease payments to Capital One Public Funding, Inc. (the “Lender”) who will provide the initial loan amount. Pursuant to the Resolution, the Equipment Lease Purchase Agreement and Equipment Schedule are approved with a maximum principal amount to be financed not to exceed $9,713,379 (along with the City’s costs incurred for the financing), an interest rate not to exceed 5.15%, and a term not to exceed 20 years. The Lease Purchase Agreement Resolution also approves the terms of an Escrow Agreement under which an escrow holder will hold the loan proceeds and disburse such proceeds to the City or ABS for the cost of work performed under the Installation Agreement, subject to certain conditions set forth in the Escrow Agreement. The Equipment Lease Purchase Agreement, Equipment Schedule, and Escrow Agreement collectively constitute a Facility Financing Contract within the meaning of Government Code Section 4217.13.
The Lease Purchase Agreement Resolution also approves the engagement of the financing team, including Stradling Yocca Carlson & Rauth as special counsel and Urban Futures, Inc., as Municipal Advisors.
ALTERNATIVES:
Not approve this item and direct Staff to conduct a Request for Qualifications/Proposals (RFQ/RFP) to solicit other energy saving firms.
Continue the item and provide staff with direction
Take no action
FISCAL IMPACT:
The total estimated project cost is $9,713,379, plus any costs associated with financing the project. The City’s total cumulative gross savings through this project are estimated at $26,212,312.
Projected Financing Summary*
The Equipment Lease Purchase Agreement has a 20-year term with an interest rate currently estimated at 5.15%, and lease payments totaling approximately $16 million. As depicted in the cash flow, annual lease payments are estimated to range from approximately $500,000 (Year 1) to $900,000 (Year 20).
As required by Government Code Section 5852.1, City staff has obtained the following good faith estimates of the financing terms:
Principal Amount $9,833,379
True Interest Cost 5.15%
Issuance Costs $120,000
Net Proceeds Amount $9,713,379
Total Payments $15,982,449
*These Good Faith Estimates are preliminary and subject to change, but many changes will be within the cost-saving parameters noted above and which support the necessary findings under Government Code Sections 4217.12 and 4217.13.
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 remains obligated to make payments to the Lender in the amounts and on the dates described in the Equipment Lease Purchase Agreement. Should the City fail to make these payments, the Lender has the right to retake possession of the Equipment, pursue other remedies, and the City’s credit would be negatively impacted.
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, Assistant City Manager ATTACHMENTS:
Energy Improvements
Findings & Energy Contract Resolution
Exhibit A – Cost Flow / Savings Analysis
Exhibit B – Installation Agreement
Resolution for Lease Purchase Agreement (including Equipment Lease Purchase Agreement and Escrow Agreement as attachments)
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
HVAC Unit Replacements (3)
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