City of Fort Bragg
2024 Energy Equipment Lease with Bank of America, National Association July 22, 2024
Financing Team Overview
Background on Energy Project
On 6/10/24, City Council approved Agreement with Syserco Energy Solutions, Inc. (“SES”) to install solar photovoltaic (“PV”) improvements at (1) City Hall, (2) Corp Yard / Water Treatment Plant, (3) CV Starr Center, (4) Fire Department, (5) Police Station (roof will be replaced as well), and (6) Wastewater Treatment Plant; Total cost: $7.5M; however, $2.41M of grants anticipated Anticipated savings of $10.6M+ in net energy costs (nets O&M costs) over the next 20 years Financing costs: $8.8M, assuming grants
Net Benefit: $1.8M
100% of savings accrue to City after year 20
Inflation Reduction Act Incentives
Two project incentives under the 2022 Inflation Reduction Act (“IRA”) IRA “Direct-Pay” Project Incentive:
Valued at 25.5% of solar project costs – approximately $1,811,389 Cash tax credit paid at the conclusion of the project
All eligible projects nationwide can receive this incentive, without regard to volume cap limitations Low-Income Communities Bonus Credit Incentive:
Valued at 8.5% of solar project costs – approximately $603,796 Subject to nationwide competition – requires an application and has a volume cap limitation. City applied before June 27th deadline; SES advises that multiple application “windows” will be available 2024 Lease amount will be reduced as IRA incentives are received
Energy Equipment Lease
Placement Agent requested proposals from 12 banks for a 20-year tax-exempt equipment lease Received 5 proposals – BANA’s rate/terms were the most advantageous BANA Proposal: fixed, 20-year interest rate, “locked” until closing 2024 Energy Equipment Lease – Key Terms
Principal Amount
$7,955,000
Final Maturity
8/1/2044
Interest Rate
4.46%
Annual Debt Service Escalation*
5.3%
*Debt service escalates in line with the projected energy savings provided by SES
Projected Net Energy Savings & Lease Net Debt Service
No payment in 2025 due to construction & prefunded interest* Average Annual Savings (2026 – 2044)
IRA Direct-Pay: $46,000
IRA Direct-Pay + Low-Income: $99,000
Dip in net energy savings in 2040 is due to a relatively large O&M cost * Assumes interest due in 2025 (on 2/1/2025 and 8/1/2025) is covered by capitalized interest
Overview of Legal Documents
Resolution
Authorizes City staff to execute documents and perform other actions as needed to finalize the 2024 Lease Not-to-exceed amount of $7,975,000 and not-to-exceed interest rate of 4.71% Both are slightly higher than the amounts expected, to be conservative Equipment Lease/Purchase Agreement
Describes the terms of the 2024 Lease
Identifies location of the improvements and that the security for the 2024 Lease is a lien on the equipment – NO REAL PROPERTY ASSETS are pledged as security Contains payment details (Exhibit B), prepayment provisions, and other covenants Escrow and Account Control Agreement
Outlines Wilmington Trust’s role as escrow agent
Identifies process for City/SES drawing down the 2024 Lease funds for project costs
Process and Anticipated Timing
ONGOING: Revised analyses over the past 18 months
Appendix: Savings Detail
Net Energy Savings vs. Net Debt Service
Year
Net Energy Savings (Before Debt Service)
2024 Lease Debt Service
2024 Lease Debt Service (IRA Direct-Pay)
2024 Lease Debt Service(IRA Direct-Pay + Low-Income)
2024 Lease Debt Service (IRA Direct-Pay) Savings
2024 Lease Debt Service(IRA Direct-Pay + Low-Income) Savings 2025*
$0
$0
$0
$0
$0
$0
2026
$333,447
$407,793
$310,722
$278,758
$22,725
$54,689
2027
$351,985
$428,429
$326,938
$293,152
$25,047
$58,833
2028
$371,524
$451,040
$344,351
$308,833
$27,173
$62,691
2029
$392,117
$475,490
$362,872
$324,711
$29,244
$67,406
2030
$413,820
$499,648
$381,412
$342,742
$32,407
$71,078
2031
$436,691
$526,467
$401,927
$359,791
$34,765
$76,900
2032
$460,794
$554,770
$423,281
$378,859
$37,513
$81,935
2033
$486,193
$583,423
$445,387
$399,812
$40,806
$86,380
2034
$512,956
$614,336
$469,155
$420,517
$43,801
$92,439
2035
$541,157
$647,332
$493,451
$442,928
$47,706
$98,229
2036
$570,871
$681,231
$519,186
$465,912
$51,685
$104,959
2037
$602,178
$716,901
$547,226
$490,379
$54,952
$111,799
2038
$635,164
$755,162
$576,393
$517,196
$58,771
$117,967
2039
$669,915
$794,791
$606,553
$544,185
$63,362
$125,730
2040
$623,176
$837,611
$638,572
$573,256
-$15,396
$49,920
2041
$745,095
$881,354
$672,272
$603,230
$72,823
$141,865
2042
$785,725
$927,840
$708,475
$634,975
$77,250
$150,750
2043
$828,525
$977,803
$745,956
$668,311
$82,569
$160,214
2044
$873,610
$1,028,931
$785,539
$704,060
$88,070
$169,549
* Assumes interest due in 2025 (on 2/1/2025 and 8/1/2025) is covered by capitalized interest
SES Projected Net Energy Savings
Year
Projected Energy Savings
Estimated
O&M Cost
Net Energy Savings (Before Debt Service)
2025
$0
$0
$0
2026
$356,856
$23,409
$333,447
2027
$375,628
$23,643
$351,985
2028
$395,404
$23,880
$371,524
2029
$416,235
$24,119
$392,117
2030
$438,179
$24,360
$413,820
2031
$461,295
$24,603
$436,691
2032
$485,643
$24,849
$460,794
2033
$511,291
$25,098
$486,193
2034
$538,305
$25,349
$512,956
2035
$566,759
$25,602
$541,157
2036
$596,729
$25,858
$570,871
2037
$628,295
$26,117
$602,178
2038
$661,542
$26,378
$635,164
2039
$696,557
$26,642
$669,915
2040
$733,434
$110,258
$623,176
2041
$772,272
$27,177
$745,095
2042
$813,174
$27,449
$785,725
2043
$856,249
$27,724
$828,525
2044
$901,611
$28,001
$873,610
Source: Syserco