DATE: DECEMBER 3, 2024
DEPARTMENT: FINANCE, PUBLIC WORKS
FROM: SELINA ANDREWS, FINANCE DIRECTOR
DAVID JACOBS, PUBLIC WORKS DIRECTOR
TITLE: ENERGY SERVICES CONTRACT WITH ENGIE FOR PHOTOVOLATIC (PV) SYSTEMS AND BACK-UP GENERATOR AT CITY FACILITIES RECOMMENDED MOTION:
A motion to approve a resolution:
Finding that the energy conservation project (the “Project”) proposed by ENGIE Services U.S. is exempt from requirements of the California Environmental Quality Act (CEQA); and Approving an energy conservation services agreement with ENGIE Services U.S.
EXECUTIVE SUMMARY:
The City worked with ENGIE Services U.S. (“ENGIE”) to assess certain City facilities, specifically the El Gabilan Library and the Police Department building, for installation and maintenance of solar photovoltaic (PV). ENGIE previously constructed and currently maintains the existing solar arrays at seven (7) sites within the City and analyzed the existing solar performance for the facilities and identified the potential for significant savings to the City, upwards of $700, 000 over a seven (7) year period in excess savings due to PG&E escalation of rates.
In addition to the solar photovoltaic (PV) systems, staff also recommends a backup generator to support City Hall be included as part of the scope. ENGIE identified a few ways to implement and maintain the solar PV systems and generator - the Tax-Exempt Equipment Leasing Program (TELP), other financing options, or the City’s existing financial resources. It is anticipated that the City would also benefit from the NEM 2.0 savings and tax credits from the Inflation Reduction Act.
The project cost is $4,774,025, with an anticipated savings of approximately $5 million over the 20-year life cycle of the project.
BACKGROUND:
The City is faced with an opportunity to invest in a cleaner future by installing solar PV systems at El Gabilan Library and the Police Department. The program goals are to reduce utility bills and return operating expenses back to the community, plan for future load and EV charging requirements by the state, and take advantage of the NEM 2.0 savings and tax credits from the Inflation Reduction Act.
According to NEM 2.0 policies, each kilowatt-hour (kWh) a solar customer produces is valued at the same market rate as kilowatt-hours the customer purchases from the utility. This means a solar customer can produce excess energy during the day, receive a credit for sending it to the grid, and then use that credit to pay for the energy they purchase at night.
Formally known as the “NEM Successor Tariff”, NEM 2.0 is a policy created by the California Public Utilities Commission which provides a framework for extending the capacity for solar PV projects connected to the grid in California.
In order for the City to complete certain energy projects, the City Council must make certain findings with respect to the contracts being entered into. Applicable findings required by Government Code Sections 4217.12 and 4217.13, under which the City Council must find that the Energy Service Contract and its related financing are as follows:
1. The proposed systems installation is in the best interest of the City,
2. The anticipated cost to the City for the thermal or electrical energy or conservation services provided by the energy conservation facility (the Equipment) under the Energy Services Contract will be less than the anticipated marginal cost to the City of thermal, electrical, or other energy that would have been consumed by City in the absence of the purchase of the Equipment,
3. Funds for the repayment of the financing or the cost of design, construction, and operation of the energy conservation facility (i.e. Equipment), or both, as required by the Energy Services Contract, are projected to be available from revenues resulting from sales of electricity or thermal energy from the facility or from funding that otherwise would have been used for purchase of electrical, thermal, or other energy required by the City in the absence of the energy conservation facility, or both.
On October 8, 2024, the Finance Committee recommended that the City continue to review this project and that an agreement be brought forward to Council for review and approval.
CEQA CONSIDERATION:
Not a Project. The City of Salinas has determined that the proposed action is categorically exempt from environmental review under the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines sections 15301 (Existing Facilities) and 15303 (New Construction or Conversion of Small Structures) and statutorily exempt pursuant to Public Resources Code section 21080.35.
CALIFORNIA GOVERNMENT CODE §84308 APPLIES:
Yes.
STRATEGIC PLAN INITIATIVE:
Taking action on this initiative meets the strategic goal of Infrastructure and Environmental Sustainability, with a focus on value of fiscal responsibility. This is setting the foundation for meeting the future electrification needs and climate resiliency.
DEPARTMENTAL COORDINATION:
This staff report was coordinated with the City Attorney’s Office, City Manager’s Office, Public Works Department, and Finance Department.
FISCAL AND SUSTAINABILITY IMPACT:
The City has solicited bids from over 20 regional and national banks for financing the improvements discussed in this staff report. Bank of America provided a bid with the lowest interest rate and the City is working with its municipal advisor, placement agent, and Bank of America to structure a tax-exempt equipment lease financing based on that low bid.
The lease financing will be structured to achieve savings net of debt service in each year. In other words, the total program savings less total program costs will be greater than the anticipated debt service in any given year. The financing is expected to have a term of 20 years (maturing in 2044) and a slightly escalating debt service (to track with slightly escalating savings each year).
Later in this agenda, staff is bringing a separate resolution and lease agreement related to that financing for consideration.
The first debt service payment will be due in December 2025. This will be included in the FY 25-26 operating budget and will be covered by the anticipated energy savings.
Fund
Appropriation
Appropriation
Name
Total Appropriation
Amount for recommendation
FY 24-25 Operating Budget Page
Last Budget Action (Date, Resolution)
1100
TBD
Debt Service
N/A
N/A
N/A
N/A
ATTACHMENTS:
Resolution
Attachment A: ENGIE Energy Services Contract
Attachment B: ENGIE Presentation
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