CITY OF SIMI VALLEY MEMORANDUM

Transcription

1 CITY OF SIMI VALLEY MEMORANDUM AGENDA ITEM NO. Consent (7) May 16, 2016 TO: FROM: City Council Office of the City Manager SUBJECT: ADOPTION OF RESOLUTIONS OF INTENTION TO ISSUE TAX EXEMPT OBLIGATIONS IN THE APPROXIMATE AMOUNT OF $8.5 MILLION TO FUND CITY ENERGY EFFICIENCY AND CONSERVATION MEASURES AND OTHER CITY EQUIPMENT AND FACILITIES AND CLEAN RENEWABLE ENERGY BOND OBLIGATIONS IN THE APPROXIMATE AMOUNT OF $9.2 MILLION FOR SOLAR POWER SYSTEMS STAFF RECOMMENDATION It is recommended the City Council: 1. Adopt a Resolution of Intention (page 5) to issue tax exempt obligations to fund City energy efficiency and conservation measures and other City equipment and facilities. 2. Adopt a Resolution of Intention (page 22) to issue Clean Renewable Energy Bond obligations to fund solar power systems at City facilities. CITY MANAGER S RECOMMENDATION The City Manager recommends approving the Resolutions of Intention. BACKGROUND AND OVERVIEW In March 2016, the City Council approved a contract with OpTerra Energy Systems (OpTerra) for the design and installation of solar power systems at City facilities. The solar power systems are to be financed through the issuance of Clean Renewable Energy Bonds (CREBs). In order to be reimbursed for solar power system expenditures taking place prior to the issuance of CREBs obligations, a Resolution of Intention needs to be adopted by the City Council. Portions of the improvements related to the OpTerra project are not eligible to be financed via CREBs. As part of the City Council s consideration of the OpTerra contract, the City directed staff to seek proposals for the design and installation of other energy conservation measures (ECMs). These ECMs cannot be financed

2 2 through a CREBs financing and therefore will be financed through a subsequent financing. Through this subsequent financing, the City can finance the portions of the OpTerra project that are not eligible for CREBs financing. However, the need for the funds will be in advance of the financing being in place. In order for the City to be reimbursed for these costs, the City Council must adopt a Resolution of Intention for the subsequent financing. Adoption of the resolution does not commit the City to issue bonds for the subsequent financing. Staff recommends the City Council adopt the Resolution of Intention. FINDINGS AND ALTERNATIVES In March 2016, the City Council approved a contract with OpTerra for the installation of solar power systems at City facilities. As part of that contract, OpTerra will reroof a majority of the City Hall building and reconstruct the parking lot north of the Simi Valley Library building. The funding source for the OpTerra project will be via CREBs financing. Through a U.S. Internal Revenue Service program, Clean Renewal Energy Bonds (CREBs) can be used to finance solar power systems. Through the use of CREBs, a bondholder receives a federal tax credit in lieu of the traditional bond interest, which results in a lower interest rate for the City (as borrower). Using CREBs, the City can take advantage of an interest rate in the 1.5% - 2.5% range as opposed to current financial market rates in the mid 3% range. While CREBs financing provides a financial advantage, it does have limitations. The tax rules that govern CREBs severely limit the use of the funds to strictly solar energy systems. As a result and as it relates to the City s project, CREBs funds cannot be used to finance the reroofing of City Hall and the reconstruction of the parking lot north of the Library. Therefore, alternative funding must be used for these components of the OpTerra project, totaling approximately $570,000. In selecting OpTerra for the solar energy project, the City Council directed staff to seek proposals for the installation and construction of other ECMs. These ECMs, and their conservative approximate costs, include: Interior and exterior LED lighting upgrades ($550,000) Streetlight conversions for those lights owned by the City ($250,000) Acquisition and conversion to LED of non-city owned street lights from Southern California Edison ($4,000,000) HVAC system replacement and improvements ($800,000) Water conservation improvements ($100,000) Staff is currently working with vendors regarding these ECMs. Additionally, staff is reviewing the option to finance the City s telephone system replacement, (estimated to

3 3 cost $2 million) through a financing mechanism. In order to fund the above ECMs, as well as other potential City equipment purchases, staff is investigating financing options. These financing options involve either a conventional bond issue or a private placement bond. As a subsequent financing will take place to fund the additional ECMs, staff can use this financing to fund the cost of the reroofing of City Hall and the reconstruction of the parking lot north of the Library. Because it is likely that the need for the funds for the reroofing of City Hall and the reconstruction of the parking lot north of the Library may occur prior to the financing being in place, the City will advance the funds and be reimbursed once the financing is completed. To be reimbursed, and to comply with I.R.S. tax rules, the City Council must adopt a Resolution of Intention for the future financing. The Resolution of Intention must be adopted within 60 days of making expenditures for which the City seeks reimbursement. As the City is moving forward with the OpTerra project and expenditures are beginning to occur that require reimbursement, staff is recommending the adoption of a Resolution of Intention at this time. Additionally, there will be expenditures for the CREBs financed solar power systems that will occur prior to the issuance of the CREBs obligations. In order to be reimbursed for CREBs related expenditures prior to the issuance of CREBs obligations, the City Council must adopt a Resolution of Intention for the CREBs financing. Therefore, staff is recommending the adoption of a Resolution of Intention for the CREBs financing at this time. Adoption of the Resolutions of Intention does not bind the City to issuing the bonds nor does it commit the City to issue bonds in the proposed amount. The Resolutions only declares the City s intention to issue bonds and allows the City to seek reimbursement for expenditures, complying with Federal regulations, should the City pursue a subsequent bond financing. Staff will return to the City Council at a later date with a financing structure and to receive authorization to proceed with the financings. The following alternatives are available to the City Council: 1. Adopt a Resolution of Intention (page 5) to issue tax exempt obligations to fund City energy efficiency and conservation measures and other City equipment and facilities; 2. Adopt a Resolution of Intention (page 22) to issue Clean Renewable Energy Bond obligations to fund solar power systems at City facilities; 3. Elect not to pursue the additional ECMs and therefore reject the subsequent financing; 4. Elect not to adopt the Resolutions of Intention at this time.

4 4 5. Provide staff with further direction. Staff recommends Alternatives No. 1 and 2. SUGGESTED CITY COUNCIL MOTION I move the City Council adopt a Resolution of Intention to issue tax exempt obligations to fund City energy efficiency and conservation measures and other City equipment and facilities, and adopt a Resolution of Intention to issue Clean Renewable Energy Bond obligations to fund solar power systems at City facilities. SUMMARY In March 2016, the City Council approved a contract with OpTerra Energy Systems (OpTerra) for the design and installation of solar power systems at City facilities. The solar power systems are to be financed through the issuance of Clean Renewable Energy Bonds (CREBs). In order to be reimbursed for solar power system expenditures taking place prior to the issuance of CREBs obligations, a Resolution of Intention needs to be adopted by the City Council. Portions of the improvements related to the OpTerra project are not eligible to be financed via CREBs. In order for the City to be reimbursed for these costs on a subsequent financing, the City Council must adopt a Resolution of Intention for the subsequent financing. Adoption of the Resolutions does not commit the City to issue bonds for the subsequent financing. Staff recommends the City Council adopt the Resolutions of Intention. Brian Paul Gabler, Director of Economic Development/Assistant City Manager Prepared by: Brian Paul Gabler, Director of Economic Development/Assistant City Manager INDEX Page Resolution of Intention for Tax Exempt Obligations... 5 Resolution of Intention for Clean Renewable Energy Bonds... 22

5 5 RESOLUTION NO A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIMI VALLEY REGARDING ITS INTENTION TO ISSUE TAX-EXEMPT OBLIGATIONS TO FUND ENERGY EFFICIENCY AND CONSERVATION MEASURES AND OTHER CITY EQUIPMENT AND FACILITIES WHEREAS, the City of Simi Valley (the Issuer ) desires to finance the costs of acquiring certain public facilities and improvements, as provided in Exhibit A attached hereto and incorporated herein (the Projects ); and WHEREAS, the Issuer intends to finance the acquisition of the Projects or portions of the Projects with the proceeds of the sale of obligations the interest upon which is excluded from gross income for federal income tax purposes (the Obligations ); and WHEREAS, prior to the issuance of the Obligations, which may be issued in one or more series, the Issuer desires to incur certain expenditures with respect to the Projects from available monies of the Issuer which expenditures are desired to be reimbursed by the Issuer from a portion of the proceeds of the sale of the Obligations. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SIMI VALLEY DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. The Issuer hereby states its intention and reasonably expects to reimburse Projects costs incurred prior to the issuance of the Obligations with proceeds of the Obligations. Exhibit A describes either the general character, type, purpose, and function of the Projects, or the fund or account from which Projects costs are to be paid and the general functional purpose of the fund or account. SECTION 2. The reasonably expected maximum principal amount of the Obligations is $8.5 million. SECTION 3. This resolution is being adopted on or prior to the date (the Expenditures Date or Dates ) that the Issuer will expend monies for a portion of the Projects costs to be reimbursed from proceeds of the Obligations. SECTION 4. Except as described below, the expected date of issue of a series of the Obligations will be within eighteen months of the later of the Expenditure Date or Dates for a Project or the date the Project is placed in service; provided, the reimbursement may not be made more than three years after the original expenditure is paid. For Obligations subject to the small issuer exception of Section 148(f)(4)(D) of the Internal Revenue Code, the eighteen-month limit of the previous sentence is changed to three years and the limitation of the previous sentence beginning with ; provided,... is not applicable.

6 6 RES. NO SECTION 5. Proceeds of a series of the Obligations to be used to reimburse for Project costs are not expected to be used, within one year of reimbursement, directly or indirectly to pay debt service with respect to any obligation (other than to pay current debt service coming due within the next succeeding one year period on any tax-exempt obligation of the Issuer (other than the Obligations)) or to be held as a reasonably required reserve or replacement fund with respect to an obligation of the Issuer or any entity related in any manner to the Issuer, or to reimburse any expenditure that was originally paid with the proceeds of any obligation, or to replace funds that are or will be used in such manner. SECTION 6. This resolution is consistent with the budgetary and financial circumstances of the Issuer, as of the date hereof. No monies from sources other than the Obligation issue are, or are reasonably expected to be reserved, allocated on a long-term basis, or otherwise set aside by the Issuer (or any related party) pursuant to their budget or financial policies with respect to the Projects costs. SECTION 7. The limitations described in Section 3 and Section 4 do not apply to (a) costs of issuance of the Obligations, (b) an amount not in excess of the lesser of $100,000 or five percent (5%) of the proceeds of the Obligations, or (c) any preliminary expenditures, such as architectural, engineering, surveying, soil testing, and similar costs other than land acquisition, site preparation, and similar costs incident to commencement of construction, not in excess of twenty percent (20%) of the aggregate issue price of the Obligations that finances the Projects for which the preliminary expenditures were incurred. SECTION 8. This resolution is adopted as official action of the Issuer in order to comply with Treasury Regulation and any other regulations of the Internal Revenue Service relating to the qualification for reimbursement of Issuer expenditures incurred prior to the date of issue of the Obligations, is part of the Issuer s official proceedings, and will be available for inspection by the general public at the main administrative office of the Issuer. SECTION 9. All the recitals in this Resolution are true and correct and this City Council so finds, determines and represents. [CONTINUED ON FOLLOWING PAGE]

7 7 RES. NO SECTION 10. The City Clerk shall certify to the adoption of this resolution and shall cause a certified resolution to be filed in the Office of the City Clerk. Attest: PASSED and ADOPTED this 16 th day of May Ky Spangler, Deputy Director/City Clerk Robert O. Huber, Mayor of the City of Simi Valley, California Approved as to Form: Approved as to Content: Lonnie J. Eldridge, City Attorney Eric J. Levitt, City Manager Brian Paul Gabler, Director of Economic Development/Assistant City Manager

8 8 RES. NO EXHIBIT A DESCRIPTION OF THE PROJECT Costs associated with those certain solar energy and energy efficiency public improvements not eligible to be financed under the proposed CREBS financing, including without limitation roof replacement, car charging stations, tree removal and relocation, and parking lot re-surfacing, described in that certain reports to City Council dated March 14, 2016 (exclusive of its attachments) and May 16, 2016 (exclusive of its attachments) and attached hereto.

9 9 CITY OF SIMI VALLEY MEMORANDUM RES. NO AGENDA ITEM NO. 6A March 14, 2016 TO: FROM: City Council Office of the City Manager SUBJECT: A PUBLIC HEARING TO CONSIDER APPROVING A CONTRACT WITH OPTERRA ENERGY SERVICES, INC. FOR THE DESIGN AND CONSTRUCTION OF SOLAR POWER SYSTEMS AND OTHER RELATED IMPROVEMENTS AT CITY FACILITIES, ADOPTING NECESSARY FINDINGS IN ACCORDANCE WITH THE CALIFORNIA GOVERNMENT CODE, A DETERMINATION THAT THE PROJECT IS EXEMPT FROM THE CALIFORNIA ENVIRONMENTAL QUALITY ACT, AUTHORIZATION TO ENGAGE STRADLING YOCCA CARLSON & RAUTH FOR BOND COUNSEL SERVICES, AND ADOPTION OF A RESOLUTION STAFF RECOMMENDATION Staff recommends the City Council: 1. Adopt the attached resolution (page 12) approving and authorizing the execution of a contract with OpTerra Energy Services in accordance with California Government Code Section through for the design and construction of solar power systems and other related improvements at City facilities and making specific findings. 2. Authorize the City Attorney to enter into an agreement with Stradling Yocca Carlson and Rauth to act as bond counsel for the financing of energy efficiency projects at City facilities, and to pay for such services through the bond proceeds to the extent feasible. 3. Direct staff to solicit proposals from other energy services companies for the nonsolar energy conservation measures at City facilities. CITY MANAGER S RECOMMENDATION Staff has provided several alternatives to the City Council. The City Manager recommends the approval of a contract with OpTerra Energy Services for the design and construction of solar power systems and other related improvements at City facilities.

10 10 RES. NO The City Council could further direct the City Manager to either solicit proposals for other energy services companies for the non-solar energy conservation measures or request that the City negotiate the other improvements with OpTerra. The solar component is the most critical as of this date due to the deadline to maintain the grant assistance for the installation of solar improvements. BACKGROUND AND OVERVIEW In May 2014, the City Council considered various different energy efficiency strategies that could be implemented at City facilities. As a result of that discussion, the City Council provided direction to staff to engage Chevron Energy Solutions (now OpTerra Energy Services) (OpTerra) to develop a comprehensive energy efficiency strategy, including a financing plan and a design/build of the proposed improvements. In September 2014 and pursuant to California Government Code Section et seq., the City Council adopted a resolution authorizing the City to enter into a contract with OpTerra for an energy assessment and for the development of a scope of work for the energy efficiency improvements. On September 28, 2015, the City Council received an update from staff on the progress of the relationship with OpTerra and directed staff to continue to move in the current direction. On February 22, 2016 staff returned to the City Council with a further update of the OpTerra negotiations and discussion and outlined the many outstanding issues that need to be resolved prior to a March 16, 2016 deadline to enter into a contract with OpTerra to commence the project and engage financing. Staff has resolve most issues and is recommending the City Council enter into a contract with OpTerra for the design and construction of solar power systems at various City facilities. FINDINGS AND ALTERNATIVES The project originally proposed by OpTerra contains many different components that will offer the City energy savings and thus a reduction in energy costs. Energy conservation measures (ECMs) that were identified as part of the project include: Interior and exterior LED lighting upgrades Streetlight conversions for those lights owned by the City HVAC system replacement and improvements Electrical system improvements Water conservation improvements Retro Commissioning of City facilities Solar power systems Entering into a contract with OpTerra to design and construct all the ECMs, the City would achieve a turnkey approach to energy savings. However, embarking on such an all-encompassing project would cost approximately $15.8 million resulting in an

11 11 RES. NO annual debt service of approximately $1.1 million over a twenty year period based on a February 22, 2016 Council report. Staff has spent a considerable amount of time analyzing the OpTerra proposal to fund and construct the solar power system and the other non-solar ECMs. Among the discoveries is while the solar power system is the main source of energy savings to the City, the savings generated by the solar power system is burdened with costs from the other ECMs and thus reducing the overall net savings to the extent that it is possible to have multiple years in which there is no savings to the City. As discussed below, staff s analysis of the OpTerra proposal has led to the recommendation to pursue only the solar power systems with OpTerra at this time. With respect to the other non-solar ECMs, staff feels that there are alternatives available that could result in a cost savings to design, acquire, and construct versus the current costs proposed by OpTerra. In consultation with industry experts and other energy services companies, the energy savings market has become very competitive, especially in the area of LED lighting systems. With further analysis and seeking proposals from other energy services companies in a competitive environment, staff believes that additional cost savings can be obtained through refinement of the proposed products to be used as well as containment of soft costs (design and engineering, general conditions, profit and overhead). Additionally, as the non-solar ECMs are not burdened by the March 16, 2016 deadline of the California Solar Incentive (CSI) program (discussed below), staff can work through a competitive process and receive greater savings. While staff is not recommending proceeding with the non-solar portion with OpTerra at this time, OpTerra will be asked to provide a separate proposal for that portion of the work through the subsequent process. Further, by separating the solar power system from the non-solar components, staff will also be able to separate the funding mechanisms for each and achieve the best funding available. Working on behalf of the City, OpTerra filed for and was successful in receiving a reservation for a $1.6 million incentive from the California Solar Incentive program. These CSI funds are available to the City to offset the initial start-up costs for a solar power system and are paid directly to the City over the first 5 years of the system being operational. As part of the CSI program requirements, a deadline of March 16, 2016 was set for the City and OpTerra to submit a project Milestone Package to show that the project for which the CSI reservation was granted is moving forward. The Milestone Package is to include, among other things, a copy of the executed contract with the City. Failure to file the Milestone Package will result in the City loss of the CSI funding. As a result, it is in the City s best interest to move forward with OpTerra on the solar power system component. If the contract with OpTerra is approved this evening, OpTerra must forward an executed copy of the contract with the Milestone Package by March 16 th to preserve the City s CSI allocations. However, should the Milestone Package fail to be filed and absent the CSI funding, the City is still able to take advantage of other solar power system construction and funding methods including a Power Purchase Agreement (PPA).

12 12 RES. NO One alternative to entering into a contract with OpTerra is the option to enter into a Power Purchase Agreement (PPA) for the solar project. While the OpTerra proposal involves the City acquiring the solar power system, a PPA is structured around the City leasing the solar power system from a third party. The solar power system is designed, permitted and installed on City property at little to no cost. The third party then sells the City power at a fixed rate that is lower than the rate being charged by SCE; the City will lower the amount of power needed to be purchased from SCE and the third party will gain by selling the power to the City and taking advantage of any tax credits that may be available. The City would have no responsibility for the operations and maintenance of the solar power system and would have an option to acquire the system at the end of the lease term (typically 20 years) or at negotiated intervals. The attractiveness of the PPA is that there is little to no upfront cost involved. However, this little to no upfront cost is offset by the fact that generally the purchase model (as proposed with OpTerra) allows the City to capture more of the savings from the solar system. If this option is pursued, the City would lose the $1.6 million in CSI funds but would gain the ability to take advantage of tax credits that could offset the overall cost. Staff has negotiated with OpTerra for several months regarding the contract and the cost of the improvements. For a solar only project, staff negotiated a total contract price of not-to-exceed $9,511,523. This cost will provide the City with solar panels at City Hall (panels to the placed on the roof), the Library (panels placed in the parking lot north of the building), the Senior Center (panels to be placed in the parking lot west of the building), the Police Station (panels to be placed on the roof and in the parking lot west of the building), and at the Water Quality Control Plant (panels placed at ground level at the southwest corner of the plant). The work will also include the replacement of the roof at City Hall. Due to the age of the roof and work that will necessitate the placement of the panels, the City, with OpTerra, will replace the roof with a cool roof which will save energy costs as well as provide a solid surface to place the new panels. Additionally, the work will include the replacement of the parking lot located north of the Library. This location will have new panels placed on carports however due to the deteriorated condition of the parking lot and the work that will place the new carports with solar panels, the parking lot surface will be replaced. Lastly, the contract price will include two dual car chargers to be installed. These car chargers are included due to the parking lot being disturbed for the carports and not wanting to install the car chargers after the parking lots have been resealed. Based on the current assumptions that include a project cost of $9,511,523 and an interest rate of 1.16%, the City is projected to save in the first 20 years approximately $220,000 annually on a variable amortization of the financing or a range from $25,000 to approximately $400,000 for a straight amortization. However, it is generally believed that the savings gained from the solar project will be greater than anticipated. Once the bonds are paid in full, the annual savings are over $1 million annually. The annual debt service for the financing on a straight amortization is estimated at $533,100 and the variable amortization ranges from $360,000 to $720,000. Once the final budget and financing is in place, staff will know the final debt service amount.

13 13 RES. NO Based on the work involved, staff believes that this cost is a fair and reasonable cost for the solar power system. In addition to these costs, staff will need to budget a contingency as well as other costs (permit fees, site reconfigurations, bond issuance costs). Staff will return to the City Council with a financing plan and authorization to issue bonds to finance the proposed improvements. At that time, staff will present a final budget to the City Council for approval. Prior to the staff recommendation to move forward with the solar power system only, staff and OpTerra were working to develop a comprehensive program to address all the ECMs, the cost of which was reported to the City Council on February 22, 2016 at $15.8 million. OpTerra recently provided a revised cost schedule that would reduce the City s cost of the comprehensive project to $14.3 million. The comprehensive project will include the construction of all ECMs identified earlier in the report. Based on preliminary numbers provided by OpTerra for the revised comprehensive project, the City is projected to save in the first 20 years approximately $307,100 annually on a variable amortization of the financing or a range from $91,000 to approximately $480,000 for a straight amortization. However, it is generally believed that the savings gained will be greater than anticipated. Once the bonds are paid in full, the annual savings are over $1 million annually. The annual debt service for the financing of the comprehensive project on a straight amortization is estimated at $865,100 and the variable amortization ranges from $649,293 to $1,041,300. If this option is chosen and once the final budget and financing is in place, staff will know the final debt service amount. Because of the March 16, 2016 CSI deadline to submit a Milestone Package that includes an executed contract for the solar power system, the City needs to enter into a contract with OpTerra this evening to take advantage of the $1.6 million CSI program. If the City Council desires to move forward with OpTerra on the comprehensive project at a cost of $14.3 million, staff recommends the City Council enter into the attached solaronly contract with OpTerra this evening and direct staff to negotiate pricing terms and conditions and return to the City Council with a modification to the contract to include the remaining ECMs. This option is provided as Alternative 2a & b in the Alternative section of this staff report. Staff s analysis of the project costs proposed by OpTerra show that the projects are burden with heavy soft costs (design and engineering, general conditions, profit and overhead, etc.). By breaking the comprehensive project into two projects (solar and non-solar), the City is better able to evaluate the products proposed and control soft costs as well as move into a competitive environment to achieve the best pricing. While OpTerra has reduced their pricing for the comprehensive project by $1.5 million, it remains staff s recommendation that the City move forward with only the solar power system with OpTerra and seek proposals for the remaining ECMs. As noted above, staff expects that OpTerra would submit a proposal and compete in the subsequent non-solar process. The attached contract is the culmination of negotiation with OpTerra representatives and City staff. The contract provides for the construction of the above noted improvements, identifies the responsibilities of the parties, and the process to manage

14 14 RES. NO the project. In addition, the contract contains language that specifies the Measurement and Verification (M&V) of the power generated by the solar power system. Based on the size of the solar power system being installed, the City will generate approximately 1/3 the power necessary for the City s daily operations. As part of the M&V, the City is guaranteed a specific annual Southern California Edison cost avoidance based on the energy generated by the solar power system. For the first year of operation, OpTerra is projecting a cost avoidance of $507,124 with an escalation of 3.5% per year. If the City does not meet that cost avoidance level, OpTerra will reimburse the City for the missed cost avoidance. The City cost for the M&V guarantee is $10,000 for the first year and increases annually at 3%. Over the projected 20 year period for the M&V, the City will pay approximately $270,000. If it appears the solar power system is generating the energy anticipated, the City does have the option to terminate the M&V commitment. In addition, the contract contains language for OpTerra to annually maintain and clean the solar panels. While the City will own the solar power system, the City will not be required to perform the annual cleaning maintenance of the approximately 7,000 solar panels. The cost to the City for the maintenance services initially is $44,393 and increases annually at 3%; over the course of the 20 year maintenance period, the City cost will be approximately $2.1 million. The City does have the option during the 20 year maintenance period to discontinue the maintenance by OpTerra and either perform the work ourselves or contract out to another vendor. Both the annual M&V and maintenance costs are not being financed through the bond financing for the project. These costs will be annual recurring costs and included in the City s Annual Budget to be managed by City staff. However, these costs are factored into the annual savings calculated to the City for the solar power system. At the February 22, 2016 City Council meeting, staff was directed to analyze the financial impact if the City were to inject City funds into the financing to reduce the amount of funds borrowed and lower the debt service. At this time, staff is only seeking approval of the contract with OpTerra to construct the solar power system. Staff continues to work on the financing of the project. As noted above, staff will present to the City Council a financing plan for the project and will include in that analysis the impact of an infusion of City funds based upon the anticipated interest rate and financing terms and provide options to the City Council. With respect to the financing, staff presented the concept of applying for Clean Renewal Energy Bonds. The City has been introduced to an alternative financing mechanism that will reduce the overall debt service. Through a U.S. Internal Revenue Service program, Clean Renewal Energy Bonds (CREBs) can be used to finance the solar power system portion of the project. Through the use of CREBs, the bondholder receives a federal tax credit in lieu of the traditional bond interest, which results in a lower interest rate for the City (as borrower). Using the CREBs option, the City can take advantage of an interest rate in the low 1 to 2% range as opposed to a current rate in the mid 3% range. The City has engaged the PFM Group as financial advisor to assist the City with the CREBs application process and anticipate receiving our allocation within the next 90 days.

15 15 RES. NO Further, as part of the CREBs process, the City will rely upon special legal counsel to assist with the bond documents and City protections. To this end, the City Attorney is recommending the City engage the services of Stradling Yocca Carlson & Rauth (Stradling) to act as bond counsel. The City has utilized the services of Kurt Yeager with the firm for many years and his service has been exemplary. The City Attorney is recommending the City Council approve the City Attorney entering into an agreement with Stradling for the financing of the CREBs financing and any subsequent financing related to the energy efficiency projects, and payments under such agreement to be funded through the bond offerings to the extent feasible. Environmental Review and CEQA Requirements Under the provisions of Section of the California Environmental Quality Act (CEQA), the proposed solar power systems to be installed on the City Hall roof and the existing parking lots at the Civic Center have been determined to be exempt from CEQA. Section states that CEQA does not apply to the installation of a solar energy system on the roof of an existing building or at an existing parking lot. The solar power systems to be installed on the roofs and new carport roofs in parking lots at City Hall meet the criteria specified in this section. Under the provisions of Section of the California Environmental Quality Act (CEQA) Guidelines, the proposed solar power systems to be installed at the Simi Valley Water Quality Control Plant have been determined to be exempt from CEQA. Section of the state CEQA Guidelines, titled Accessory Structures, exempts the construction or placement of minor structures accessory to existing commercial, industrial, or institutional facilities. The solar panels at the Water Quality Control Plant would be minor structures accessory to the facility. Therefore the project meets the standards set forth in Sections and 15311, and is exempt from further review under CEQA. Based upon this determination and pursuant to Section 15062, a Notice of Exemption has been prepared. The following alternatives are available to the City Council: 1. (a) Adopt the attached resolution approving and authorizing the execution a contract with OpTerra Energy Services in accordance with California Government Code Section through for the design and construction of solar power systems and other related improvements at City facilities and making specific findings, and; (b) (c) Authorize the City Attorney to enter into an agreement with Stradling Yocca Carlson and Rauth to act as bond counsel for the financing of energy efficiency projects at City facilities, and to pay for such services out of the bond proceeds to the extent feasible, and; Direct staff to solicit proposals from other energy services companies for the non-solar energy conservation measures at City facilities.

16 16 RES. NO (a) Adopt the attached resolution approving and authorizing the execution a contract with OpTerra Energy Services in accordance with California Government Code Section through for the design and construction of solar power systems and other related improvements at City facilities and making specific findings and direct staff to negotiate pricing terms and conditions with OpTerra and return to the City Council with a modification to the contract to include the remaining non-solar energy conservation measures at City facilities, and; (b) Authorize the City Attorney to enter into an agreement with Stradling Yocca Carlson and Rauth to act as bond counsel for the financing of energy efficiency projects at City facilities, and to pay for such services out of the bond proceeds to the extent feasible. 3. Elect not to move forward with a contract with OpTerra Energy Services at this time and direct staff to move forward with a power purchase agreement for the solar power system. 4. Provide staff with further direction. Staff recommends Alternative Nos. 1(a) through 1(c). SUGGESTED CITY COUNCIL MOTION I move to: 1. (a) Adopt Resolution approving and authorizing the execution a contract with OpTerra Energy Services in accordance with California Government Code Section through for the design and construction of solar power systems and other related improvements at City facilities and making specific findings. (b) (c) Authorize the City Attorney to enter into an agreement with Stradling Yocca Carlson and Rauth to act as bond counsel for the financing of energy efficiency projects at City facilities, and to pay for such services out of the bond proceeds to the extent feasible. Direct staff to solicit proposals from other energy services companies for the non-solar energy conservation measures at City facilities. SUMMARY In May 2014, the City Council considered various different energy efficiency strategies that could be implemented at City facilities. As a result of that discussion, the City Council provided direction to staff to engage Chevron Energy Solutions (now OpTerra Energy Services) to develop a comprehensive energy efficiency strategy, including a financing plan and a design/build of the proposed improvements. On February 22, 2016

17 17 RES. NO staff returned to the City Council with a further update of the OpTerra negotiations and discussion and outlined the many outstanding issues that need to be resolved prior to a March 16, 2016 deadline to enter into a contract with OpTerra to commence the project and engage financing. Staff has resolve most issues and is recommending the City Council enter into a contract with OpTerra for the design and construction of solar power systems at various City facilities. Alternatively, OpTerra has submitted a revised proposal for the comprehensive project and has requested the City Council to consider this option. Brian P. Gabler, Director of Economic Development/Assistant City Manager Prepared by: Brian P. Gabler, Director of Economic Development/Assistant City Manager INDEX Page Public Hearing Procedure Resolution Approving Contract Exhibit A OpTerra Contract Notice of Exemption... 66

18 18 CITY OF SIMI VALLEY MEMORANDUM RES. NO AGENDA ITEM NO. Consent (7) May 16, 2016 TO: FROM: SUBJECT: City Council Office of the City Manager ADOPTION OF RESOLUTIONS OF INTENTION TO ISSUE TAX EXEMPT OBLIGATIONS IN THE APPROXIMATE AMOUNT OF $8.5 MILLION TO FUND CITY ENERGY EFFICIENCY AND CONSERVATION MEASURES AND OTHER CITY EQUIPMENT AND FACILITIES AND CLEAN RENEWABLE ENERGY BOND OBLIGATIONS IN THE APPROXIMATE AMOUNT OF $9.2 MILLION FOR SOLAR POWER SYSTEMS STAFF RECOMMENDATION It is recommended the City Council: 1. Adopt a Resolution of Intention to issue tax exempt obligations to fund City energy efficiency and conservation measures and other City equipment and facilities. 2. Adopt a Resolution of Intention to issue Clean Renewable Energy Bond obligations to fund solar power systems at City facilities. CITY MANAGER S RECOMMENDATION The City Manager recommends approving the Resolutions of Intention. BACKGROUND AND OVERVIEW In March 2016, the City Council approved a contract with OpTerra Energy Systems (OpTerra) for the design and installation of solar power systems at City facilities. The solar power systems are to be financed through the issuance of Clean Renewable Energy Bonds (CREBs). In order to be reimbursed for solar power system expenditures taking place prior to the issuance of CREBs obligations, a Resolution of Intention needs to be adopted by the City Council. Portions of the improvements related to the OpTerra project are not eligible to be financed via CREBs. As part of the City Council s consideration of the OpTerra contract, the City directed staff to seek proposals for the design and installation of other energy conservation measures (ECMs). These ECMs cannot be financed

19 19 RES. NO through a CREBs financing and therefore will be financed through a subsequent financing. Through this subsequent financing, the City can finance the portions of the OpTerra project that are not eligible for CREBs financing. However, the need for the funds will be in advance of the financing being in place. In order for the City to be reimbursed for these costs, the City Council must adopt a Resolution of Intention for the subsequent financing. Adoption of the resolution does not commit the City to issue bonds for the subsequent financing. Staff recommends the City Council adopt the Resolution of Intention. FINDINGS AND ALTERNATIVES In March 2016, the City Council approved a contract with OpTerra for the installation of solar power systems at City facilities. As part of that contract, OpTerra will reroof a majority of the City Hall building and reconstruct the parking lot north of the Simi Valley Library building. The funding source for the OpTerra project will be via CREBs financing. Through a U.S. Internal Revenue Service program, Clean Renewal Energy Bonds (CREBs) can be used to finance solar power systems. Through the use of CREBs, a bondholder receives a federal tax credit in lieu of the traditional bond interest, which results in a lower interest rate for the City (as borrower). Using CREBs, the City can take advantage of an interest rate in the 1.5% - 2.5% range as opposed to current financial market rates in the mid 3% range. While CREBs financing provides a financial advantage, it does have limitations. The tax rules that govern CREBs severely limit the use of the funds to strictly solar energy systems. As a result and as it relates to the City s project, CREBs funds cannot be used to finance the reroofing of City Hall and the reconstruction of the parking lot north of the Library. Therefore, alternative funding must be used for these components of the OpTerra project, totaling approximately $570,000. In selecting OpTerra for the solar energy project, the City Council directed staff to seek proposals for the installation and construction of other ECMs. These ECMs, and their conservative approximate costs, include: Interior and exterior LED lighting upgrades ($550,000) Streetlight conversions for those lights owned by the City ($250,000) Acquisition and conversion to LED of non-city owned street lights from Southern California Edison ($4,000,000) HVAC system replacement and improvements ($800,000) Water conservation improvements ($100,000) Staff is currently working with vendors regarding these ECMs. Additionally, staff is reviewing the option to finance the City s telephone system replacement, (estimated to

20 20 RES. NO cost $2 million) through a financing mechanism. In order to fund the above ECMs, as well as other potential City equipment purchases, staff is investigating financing options. These financing options involve either a conventional bond issue or a private placement bond. As a subsequent financing will take place to fund the additional ECMs, staff can use this financing to fund the cost of the reroofing of City Hall and the reconstruction of the parking lot north of the Library. Because it is likely that the need for the funds for the reroofing of City Hall and the reconstruction of the parking lot north of the Library may occur prior to the financing being in place, the City will advance the funds and be reimbursed once the financing is completed. To be reimbursed, and to comply with I.R.S. tax rules, the City Council must adopt a Resolution of Intention for the future financing. The Resolution of Intention must be adopted within 60 days of making expenditures for which the City seeks reimbursement. As the City is moving forward with the OpTerra project and expenditures are beginning to occur that require reimbursement, staff is recommending the adoption of a Resolution of Intention at this time. Additionally, there will be expenditures for the CREBs financed solar power systems that will occur prior to the issuance of the CREBs obligations. In order to be reimbursed for CREBs related expenditures prior to the issuance of CREBs obligations, the City Council must adopt a Resolution of Intention for the CREBs financing. Therefore, staff is recommending the adoption of a Resolution of Intention for the CREBs financing at this time. Adoption of the Resolutions of Intention does not bind the City to issuing the bonds nor does it commit the City to issue bonds in the proposed amount. The Resolutions only declares the City s intention to issue bonds and allows the City to seek reimbursement for expenditures, complying with Federal regulations, should the City pursue a subsequent bond financing. Staff will return to the City Council at a later date with a financing structure and to receive authorization to proceed with the financings. The following alternatives are available to the City Council: 1. Adopt a Resolution of Intention to issue tax exempt obligations to fund City energy efficiency and conservation measures and other City equipment and facilities; 2. Adopt a Resolution of Intention to issue Clean Renewable Energy Bond obligations to fund solar power systems at City facilities; 3. Elect not to pursue the additional ECMs and therefore reject the subsequent financing; 4. Elect not to adopt the Resolutions of Intention at this time.

21 21 RES. NO Provide staff with further direction. Staff recommends Alternatives No. 1 and 2. SUGGESTED CITY COUNCIL MOTION I move the City Council adopt a Resolution of Intention to issue tax exempt obligations to fund City energy efficiency and conservation measures and other City equipment and facilities and adopt a Resolution of Intention to issue Clean Renewable Energy Bond obligations to fund solar power systems at City facilities. SUMMARY In March 2016, the City Council approved a contract with OpTerra Energy Systems (OpTerra) for the design and installation of solar power systems at City facilities. The solar power systems are to be financed through the issuance of Clean Renewable Energy Bonds (CREBs). In order to be reimbursed for solar power system expenditures taking place prior to the issuance of CREBs obligations, a Resolution of Intention needs to be adopted by the City Council. Portions of the improvements related to the OpTerra project are not eligible to be financed via CREBs. In order for the City to be reimbursed for these costs on a subsequent financing, the City Council must adopt a Resolution of Intention for the subsequent financing. Adoption of the Resolutions does not commit the City to issue bonds for the subsequent financing. Staff recommends the City Council adopt the Resolutions of Intention. Brian Paul Gabler, Director of Economic Development/Assistant City Manager Prepared by: Brian Paul Gabler, Director of Economic Development/Assistant City Manager INDEX Page Resolution of Intention for Tax Exempt Bonds... 5 Resolution of Intention for Clean Renewable Energy Bonds... 22

22 22 RESOLUTION NO A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIMI VALLEY REGARDING ITS INTENTION TO ISSUE NEW CLEAN RENEWABLE ENERGY BONDS WHEREAS, the City of Simi Valley (the City ) expects to finance the costs of acquiring, constructing, reconstruction and/or equipping of City property constituting a qualified renewable energy facility, within the meaning of Section 54C(d)(1) of the Internal Revenue Code of 1986, as amended (the Code ) and that is described in the City s application for the New CREBs Allocation (as defined below), from proceeds of a financing lease to be entered into by the City (the Obligations ) (the New CREBs Project ); and WHEREAS, the City expects to designate the Obligations as new clean renewable energy bonds for purposes of Section 54C of the Code; and WHEREAS, the City expects to make an irrevocable election to apply Section 6431(f)(3)(B) of the Code to the Obligations; and WHEREAS, the City has received an allocation of new clean renewable energy bond volume cap under Section 54C of the Code (the New CREBs Allocation ); and WHEREAS, prior to the delivery of the Obligations the City desires to incur certain capital expenditures (the Expenditures ) with respect to the New CREBs Project from available moneys of the City, which Expenditures were and will be paid after the date on which the City received the New CREBs Allocation; and WHEREAS, the Council has determined that those moneys to be advanced on and after the date hereof to pay the Expenditures are available only for a temporary period and it is necessary to reimburse the City for the Expenditures from the proceeds of the Obligations. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SIMI VALLEY DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. The City hereby states its intention and reasonably expects to reimburse New CREBs Project costs incurred prior to the delivery of the Obligations with proceeds of the Obligations. Exhibit A hereto describes the general character, type, purpose, and function of the New CREBs Project. SECTION 2. The reasonably expected maximum principal amount of the Obligations is $9.3 million.

23 23 RES. NO SECTION 3. This resolution is being adopted not later than 60 days after the payment of the earliest original Expenditures (the Expenditures Dates or Dates ). SECTION 4. The City will make a reimbursement allocation, which is a written allocation that evidences the City s use of proceeds of the Obligations to reimburse an Expenditure, no later than 18 months after the later of the date on which the Expenditure is paid. SECTION 5. Each Expenditure will be of a type properly chargeable to a capital account under general federal income tax principles (determined in each case as of the date of the Expenditure), and incurred solely for the New CREBs Project. SECTION 6. This resolution is consistent with the budgetary and financial circumstances of the City, as of the date hereof. No moneys from sources other than the Obligations are, or are reasonably expected to be reserved, allocated on a longterm basis, or otherwise set aside by the City (or any related party) pursuant to their budget or financial policies with respect to the New CREBs Project costs. SECTION 7. This resolution is adopted as an official action of the City in order to comply with Section 54A(d)(2)(D) of the Code and Treasury Regulation and any other regulations of the Internal Revenue Service relating to the qualification for reimbursement of City expenditures incurred prior to the date of issue of the Obligations. SECTION 8. All the recitals in this resolution are true and correct and this Council so finds, determines and represents. SECTION 9. The City Clerk shall certify to the adoption of this resolution and shall cause a certified resolution to be filed in the Office of the City Clerk. Attest: PASSED and ADOPTED this 16 th day of May Ky Spangler, Deputy Director/City Clerk Approved as to Form: Robert O. Huber, Mayor of the City of Simi Valley, California Approved as to Content: Lonnie J. Eldridge, City Attorney Eric J. Levitt, City Manager Brian Paul Gabler, Director of Economic Development/Assistant City Manager

24 24 RES. NO EXHIBIT A DESCRIPTION OF THE NEW CREBS PROJECT Costs associated with those certain solar energy and energy efficiency public improvements described in the City s application for the New CREBs Allocation, described in that certain report to City Council dated March 14, 2016 and Attachment B of the OpTerra Energy Services contract (portion of Resolution No ) and attached hereto.

25 25 CITY OF SIMI VALLEY MEMORANDUM RES. NO AGENDA ITEM NO. 6A March 14, 2016 TO: FROM: City Council Office of the City Manager SUBJECT: A PUBLIC HEARING TO CONSIDER APPROVING A CONTRACT WITH OPTERRA ENERGY SERVICES, INC. FOR THE DESIGN AND CONSTRUCTION OF SOLAR POWER SYSTEMS AND OTHER RELATED IMPROVEMENTS AT CITY FACILITIES, ADOPTING NECESSARY FINDINGS IN ACCORDANCE WITH THE CALIFORNIA GOVERNMENT CODE, A DETERMINATION THAT THE PROJECT IS EXEMPT FROM THE CALIFORNIA ENVIRONMENTAL QUALITY ACT, AUTHORIZATION TO ENGAGE STRADLING YOCCA CARLSON & RAUTH FOR BOND COUNSEL SERVICES, AND ADOPTION OF A RESOLUTION STAFF RECOMMENDATION Staff recommends the City Council: 1. Adopt the attached resolution (page 12) approving and authorizing the execution of a contract with OpTerra Energy Services in accordance with California Government Code Section through for the design and construction of solar power systems and other related improvements at City facilities and making specific findings. 2. Authorize the City Attorney to enter into an agreement with Stradling Yocca Carlson and Rauth to act as bond counsel for the financing of energy efficiency projects at City facilities, and to pay for such services through the bond proceeds to the extent feasible. 3. Direct staff to solicit proposals from other energy services companies for the nonsolar energy conservation measures at City facilities. CITY MANAGER S RECOMMENDATION Staff has provided several alternatives to the City Council. The City Manager recommends the approval of a contract with OpTerra Energy Services for the design and construction of solar power systems and other related improvements at City facilities.

26 26 RES. NO The City Council could further direct the City Manager to either solicit proposals for other energy services companies for the non-solar energy conservation measures or request that the City negotiate the other improvements with OpTerra. The solar component is the most critical as of this date due to the deadline to maintain the grant assistance for the installation of solar improvements. BACKGROUND AND OVERVIEW In May 2014, the City Council considered various different energy efficiency strategies that could be implemented at City facilities. As a result of that discussion, the City Council provided direction to staff to engage Chevron Energy Solutions (now OpTerra Energy Services) (OpTerra) to develop a comprehensive energy efficiency strategy, including a financing plan and a design/build of the proposed improvements. In September 2014 and pursuant to California Government Code Section et seq., the City Council adopted a resolution authorizing the City to enter into a contract with OpTerra for an energy assessment and for the development of a scope of work for the energy efficiency improvements. On September 28, 2015, the City Council received an update from staff on the progress of the relationship with OpTerra and directed staff to continue to move in the current direction. On February 22, 2016 staff returned to the City Council with a further update of the OpTerra negotiations and discussion and outlined the many outstanding issues that need to be resolved prior to a March 16, 2016 deadline to enter into a contract with OpTerra to commence the project and engage financing. Staff has resolve most issues and is recommending the City Council enter into a contract with OpTerra for the design and construction of solar power systems at various City facilities. FINDINGS AND ALTERNATIVES The project originally proposed by OpTerra contains many different components that will offer the City energy savings and thus a reduction in energy costs. Energy conservation measures (ECMs) that were identified as part of the project include: Interior and exterior LED lighting upgrades Streetlight conversions for those lights owned by the City HVAC system replacement and improvements Electrical system improvements Water conservation improvements Retro Commissioning of City facilities Solar power systems Entering into a contract with OpTerra to design and construct all the ECMs, the City would achieve a turnkey approach to energy savings. However, embarking on such an all-encompassing project would cost approximately $15.8 million resulting in an

27 27 RES. NO annual debt service of approximately $1.1 million over a twenty year period based on a February 22, 2016 Council report. Staff has spent a considerable amount of time analyzing the OpTerra proposal to fund and construct the solar power system and the other non-solar ECMs. Among the discoveries is while the solar power system is the main source of energy savings to the City, the savings generated by the solar power system is burdened with costs from the other ECMs and thus reducing the overall net savings to the extent that it is possible to have multiple years in which there is no savings to the City. As discussed below, staff s analysis of the OpTerra proposal has led to the recommendation to pursue only the solar power systems with OpTerra at this time. With respect to the other non-solar ECMs, staff feels that there are alternatives available that could result in a cost savings to design, acquire, and construct versus the current costs proposed by OpTerra. In consultation with industry experts and other energy services companies, the energy savings market has become very competitive, especially in the area of LED lighting systems. With further analysis and seeking proposals from other energy services companies in a competitive environment, staff believes that additional cost savings can be obtained through refinement of the proposed products to be used as well as containment of soft costs (design and engineering, general conditions, profit and overhead). Additionally, as the non-solar ECMs are not burdened by the March 16, 2016 deadline of the California Solar Incentive (CSI) program (discussed below), staff can work through a competitive process and receive greater savings. While staff is not recommending proceeding with the non-solar portion with OpTerra at this time, OpTerra will be asked to provide a separate proposal for that portion of the work through the subsequent process. Further, by separating the solar power system from the non-solar components, staff will also be able to separate the funding mechanisms for each and achieve the best funding available. Working on behalf of the City, OpTerra filed for and was successful in receiving a reservation for a $1.6 million incentive from the California Solar Incentive program. These CSI funds are available to the City to offset the initial start-up costs for a solar power system and are paid directly to the City over the first 5 years of the system being operational. As part of the CSI program requirements, a deadline of March 16, 2016 was set for the City and OpTerra to submit a project Milestone Package to show that the project for which the CSI reservation was granted is moving forward. The Milestone Package is to include, among other things, a copy of the executed contract with the City. Failure to file the Milestone Package will result in the City loss of the CSI funding. As a result, it is in the City s best interest to move forward with OpTerra on the solar power system component. If the contract with OpTerra is approved this evening, OpTerra must forward an executed copy of the contract with the Milestone Package by March 16 th to preserve the City s CSI allocations. However, should the Milestone Package fail to be filed and absent the CSI funding, the City is still able to take advantage of other solar power system construction and funding methods including a Power Purchase Agreement (PPA).

28 28 RES. NO One alternative to entering into a contract with OpTerra is the option to enter into a Power Purchase Agreement (PPA) for the solar project. While the OpTerra proposal involves the City acquiring the solar power system, a PPA is structured around the City leasing the solar power system from a third party. The solar power system is designed, permitted and installed on City property at little to no cost. The third party then sells the City power at a fixed rate that is lower than the rate being charged by SCE; the City will lower the amount of power needed to be purchased from SCE and the third party will gain by selling the power to the City and taking advantage of any tax credits that may be available. The City would have no responsibility for the operations and maintenance of the solar power system and would have an option to acquire the system at the end of the lease term (typically 20 years) or at negotiated intervals. The attractiveness of the PPA is that there is little to no upfront cost involved. However, this little to no upfront cost is offset by the fact that generally the purchase model (as proposed with OpTerra) allows the City to capture more of the savings from the solar system. If this option is pursued, the City would lose the $1.6 million in CSI funds but would gain the ability to take advantage of tax credits that could offset the overall cost. Staff has negotiated with OpTerra for several months regarding the contract and the cost of the improvements. For a solar only project, staff negotiated a total contract price of not-to-exceed $9,511,523. This cost will provide the City with solar panels at City Hall (panels to the placed on the roof), the Library (panels placed in the parking lot north of the building), the Senior Center (panels to be placed in the parking lot west of the building), the Police Station (panels to be placed on the roof and in the parking lot west of the building), and at the Water Quality Control Plant (panels placed at ground level at the southwest corner of the plant). The work will also include the replacement of the roof at City Hall. Due to the age of the roof and work that will necessitate the placement of the panels, the City, with OpTerra, will replace the roof with a cool roof which will save energy costs as well as provide a solid surface to place the new panels. Additionally, the work will include the replacement of the parking lot located north of the Library. This location will have new panels placed on carports however due to the deteriorated condition of the parking lot and the work that will place the new carports with solar panels, the parking lot surface will be replaced. Lastly, the contract price will include two dual car chargers to be installed. These car chargers are included due to the parking lot being disturbed for the carports and not wanting to install the car chargers after the parking lots have been resealed. Based on the current assumptions that include a project cost of $9,511,523 and an interest rate of 1.16%, the City is projected to save in the first 20 years approximately $220,000 annually on a variable amortization of the financing or a range from $25,000 to approximately $400,000 for a straight amortization. However, it is generally believed that the savings gained from the solar project will be greater than anticipated. Once the bonds are paid in full, the annual savings are over $1 million annually. The annual debt service for the financing on a straight amortization is estimated at $533,100 and the variable amortization ranges from $360,000 to $720,000. Once the final budget and financing is in place, staff will know the final debt service amount.

29 29 RES. NO Based on the work involved, staff believes that this cost is a fair and reasonable cost for the solar power system. In addition to these costs, staff will need to budget a contingency as well as other costs (permit fees, site reconfigurations, bond issuance costs). Staff will return to the City Council with a financing plan and authorization to issue bonds to finance the proposed improvements. At that time, staff will present a final budget to the City Council for approval. Prior to the staff recommendation to move forward with the solar power system only, staff and OpTerra were working to develop a comprehensive program to address all the ECMs, the cost of which was reported to the City Council on February 22, 2016 at $15.8 million. OpTerra recently provided a revised cost schedule that would reduce the City s cost of the comprehensive project to $14.3 million. The comprehensive project will include the construction of all ECMs identified earlier in the report. Based on preliminary numbers provided by OpTerra for the revised comprehensive project, the City is projected to save in the first 20 years approximately $307,100 annually on a variable amortization of the financing or a range from $91,000 to approximately $480,000 for a straight amortization. However, it is generally believed that the savings gained will be greater than anticipated. Once the bonds are paid in full, the annual savings are over $1 million annually. The annual debt service for the financing of the comprehensive project on a straight amortization is estimated at $865,100 and the variable amortization ranges from $649,293 to $1,041,300. If this option is chosen and once the final budget and financing is in place, staff will know the final debt service amount. Because of the March 16, 2016 CSI deadline to submit a Milestone Package that includes an executed contract for the solar power system, the City needs to enter into a contract with OpTerra this evening to take advantage of the $1.6 million CSI program. If the City Council desires to move forward with OpTerra on the comprehensive project at a cost of $14.3 million, staff recommends the City Council enter into the attached solaronly contract with OpTerra this evening and direct staff to negotiate pricing terms and conditions and return to the City Council with a modification to the contract to include the remaining ECMs. This option is provided as Alternative 2a & b in the Alternative section of this staff report. Staff s analysis of the project costs proposed by OpTerra show that the projects are burden with heavy soft costs (design and engineering, general conditions, profit and overhead, etc.). By breaking the comprehensive project into two projects (solar and non-solar), the City is better able to evaluate the products proposed and control soft costs as well as move into a competitive environment to achieve the best pricing. While OpTerra has reduced their pricing for the comprehensive project by $1.5 million, it remains staff s recommendation that the City move forward with only the solar power system with OpTerra and seek proposals for the remaining ECMs. As noted above, staff expects that OpTerra would submit a proposal and compete in the subsequent non-solar process. The attached contract is the culmination of negotiation with OpTerra representatives and City staff. The contract provides for the construction of the above noted improvements, identifies the responsibilities of the parties, and the process to manage

30 30 RES. NO the project. In addition, the contract contains language that specifies the Measurement and Verification (M&V) of the power generated by the solar power system. Based on the size of the solar power system being installed, the City will generate approximately 1/3 the power necessary for the City s daily operations. As part of the M&V, the City is guaranteed a specific annual Southern California Edison cost avoidance based on the energy generated by the solar power system. For the first year of operation, OpTerra is projecting a cost avoidance of $507,124 with an escalation of 3.5% per year. If the City does not meet that cost avoidance level, OpTerra will reimburse the City for the missed cost avoidance. The City cost for the M&V guarantee is $10,000 for the first year and increases annually at 3%. Over the projected 20 year period for the M&V, the City will pay approximately $270,000. If it appears the solar power system is generating the energy anticipated, the City does have the option to terminate the M&V commitment. In addition, the contract contains language for OpTerra to annually maintain and clean the solar panels. While the City will own the solar power system, the City will not be required to perform the annual cleaning maintenance of the approximately 7,000 solar panels. The cost to the City for the maintenance services initially is $44,393 and increases annually at 3%; over the course of the 20 year maintenance period, the City cost will be approximately $2.1 million. The City does have the option during the 20 year maintenance period to discontinue the maintenance by OpTerra and either perform the work ourselves or contract out to another vendor. Both the annual M&V and maintenance costs are not being financed through the bond financing for the project. These costs will be annual recurring costs and included in the City s Annual Budget to be managed by City staff. However, these costs are factored into the annual savings calculated to the City for the solar power system. At the February 22, 2016 City Council meeting, staff was directed to analyze the financial impact if the City were to inject City funds into the financing to reduce the amount of funds borrowed and lower the debt service. At this time, staff is only seeking approval of the contract with OpTerra to construct the solar power system. Staff continues to work on the financing of the project. As noted above, staff will present to the City Council a financing plan for the project and will include in that analysis the impact of an infusion of City funds based upon the anticipated interest rate and financing terms and provide options to the City Council. With respect to the financing, staff presented the concept of applying for Clean Renewal Energy Bonds. The City has been introduced to an alternative financing mechanism that will reduce the overall debt service. Through a U.S. Internal Revenue Service program, Clean Renewal Energy Bonds (CREBs) can be used to finance the solar power system portion of the project. Through the use of CREBs, the bondholder receives a federal tax credit in lieu of the traditional bond interest, which results in a lower interest rate for the City (as borrower). Using the CREBs option, the City can take advantage of an interest rate in the low 1 to 2% range as opposed to a current rate in the mid 3% range. The City has engaged the PFM Group as financial advisor to assist the City with the CREBs application process and anticipate receiving our allocation within the next 90 days.

31 31 RES. NO Further, as part of the CREBs process, the City will rely upon special legal counsel to assist with the bond documents and City protections. To this end, the City Attorney is recommending the City engage the services of Stradling Yocca Carlson & Rauth (Stradling) to act as bond counsel. The City has utilized the services of Kurt Yeager with the firm for many years and his service has been exemplary. The City Attorney is recommending the City Council approve the City Attorney entering into an agreement with Stradling for the financing of the CREBs financing and any subsequent financing related to the energy efficiency projects, and payments under such agreement to be funded through the bond offerings to the extent feasible. Environmental Review and CEQA Requirements Under the provisions of Section of the California Environmental Quality Act (CEQA), the proposed solar power systems to be installed on the City Hall roof and the existing parking lots at the Civic Center have been determined to be exempt from CEQA. Section states that CEQA does not apply to the installation of a solar energy system on the roof of an existing building or at an existing parking lot. The solar power systems to be installed on the roofs and new carport roofs in parking lots at City Hall meet the criteria specified in this section. Under the provisions of Section of the California Environmental Quality Act (CEQA) Guidelines, the proposed solar power systems to be installed at the Simi Valley Water Quality Control Plant have been determined to be exempt from CEQA. Section of the state CEQA Guidelines, titled Accessory Structures, exempts the construction or placement of minor structures accessory to existing commercial, industrial, or institutional facilities. The solar panels at the Water Quality Control Plant would be minor structures accessory to the facility. Therefore the project meets the standards set forth in Sections and 15311, and is exempt from further review under CEQA. Based upon this determination and pursuant to Section 15062, a Notice of Exemption has been prepared. The following alternatives are available to the City Council: 1. (a) Adopt the attached resolution approving and authorizing the execution a contract with OpTerra Energy Services in accordance with California Government Code Section through for the design and construction of solar power systems and other related improvements at City facilities and making specific findings, and; (b) (c) Authorize the City Attorney to enter into an agreement with Stradling Yocca Carlson and Rauth to act as bond counsel for the financing of energy efficiency projects at City facilities, and to pay for such services out of the bond proceeds to the extent feasible, and; Direct staff to solicit proposals from other energy services companies for the non-solar energy conservation measures at City facilities.

32 32 RES. NO (a) Adopt the attached resolution approving and authorizing the execution a contract with OpTerra Energy Services in accordance with California Government Code Section through for the design and construction of solar power systems and other related improvements at City facilities and making specific findings and direct staff to negotiate pricing terms and conditions with OpTerra and return to the City Council with a modification to the contract to include the remaining non-solar energy conservation measures at City facilities, and; (b) Authorize the City Attorney to enter into an agreement with Stradling Yocca Carlson and Rauth to act as bond counsel for the financing of energy efficiency projects at City facilities, and to pay for such services out of the bond proceeds to the extent feasible. 3. Elect not to move forward with a contract with OpTerra Energy Services at this time and direct staff to move forward with a power purchase agreement for the solar power system. 4. Provide staff with further direction. Staff recommends Alternative Nos. 1(a) through 1(c). SUGGESTED CITY COUNCIL MOTION I move to: 1. (a) Adopt Resolution approving and authorizing the execution a contract with OpTerra Energy Services in accordance with California Government Code Section through for the design and construction of solar power systems and other related improvements at City facilities and making specific findings. (b) (c) Authorize the City Attorney to enter into an agreement with Stradling Yocca Carlson and Rauth to act as bond counsel for the financing of energy efficiency projects at City facilities, and to pay for such services out of the bond proceeds to the extent feasible. Direct staff to solicit proposals from other energy services companies for the non-solar energy conservation measures at City facilities. SUMMARY In May 2014, the City Council considered various different energy efficiency strategies that could be implemented at City facilities. As a result of that discussion, the City Council provided direction to staff to engage Chevron Energy Solutions (now OpTerra Energy Services) to develop a comprehensive energy efficiency strategy, including a financing plan and a design/build of the proposed improvements. On February 22, 2016

33 33 RES. NO staff returned to the City Council with a further update of the OpTerra negotiations and discussion and outlined the many outstanding issues that need to be resolved prior to a March 16, 2016 deadline to enter into a contract with OpTerra to commence the project and engage financing. Staff has resolve most issues and is recommending the City Council enter into a contract with OpTerra for the design and construction of solar power systems at various City facilities. Alternatively, OpTerra has submitted a revised proposal for the comprehensive project and has requested the City Council to consider this option. Brian P. Gabler, Director of Economic Development/Assistant City Manager Prepared by: Brian P. Gabler, Director of Economic Development/Assistant City Manager INDEX Page Public Hearing Procedure Resolution Approving Contract Exhibit A OpTerra Contract Notice of Exemption... 66

34 34 RES. NO RES. NO Energy Services Contract Simi Valley and OpTerra Energy Services ATTACHMENT B SCOPE OF WORK California State Contractor s License Number ECM Projects to Be Implemented ECM # PV1 Solar Photovoltaics Description I. GENERAL CONDITIONS SCOPE OF WORK PROVIDED BY OPTERRA ENERGY SERVICES: General Conditions Scope of Work provided by OpTerra Energy Services applicable to all ECM Projects: Project management and engineering. Construction management and supervision. An OpTerra Energy Services construction manager will be assigned to this Project and will be responsible for monitoring the on-site construction. Provide security as needed to protect materials, equipment, and construction work in progress. Provide onsite storage containers for project materials and equipment. Provide trash dumpsters as needed as well as cleanup and disposal of refuse generated by the Project. Provide portable toilets. Provide temporary fencing as required for access control in the areas of and for the duration of Work. Provide cranes, lifts and rigging necessary for Scope of Work. Provide startup, acceptance testing, training and Operation & Maintenance manuals as needed on systems provided. Record (as-builts) plans and equipment data sheets will be provided. Two (2) sets of printed record and equipment data sheets will be provided as well as one copy in electronic format. General Engineering Scope of Work provided by OpTerra Energy Services applicable to all ECM Projects: II. Prepare engineered plans to be submitted for City plan check as required per scope. Provide equipment submittals for City acceptance per ECM Project. Provide shop drawings, as appropriate for the Work per ECM Project. SCOPE OF EACH ECM PROJECT ECM PV1-5: Solar Photovoltaics OpTerra Energy Services will design, engineer, and install photovoltaic power generating systems at five (5) locations throughout City, and will coordinate the Interconnection Facilities Work with the Utility. Subject to Section 3.02 and Section 3.03 of the Contract, any Interconnection Facilities Work that may be required will be paid for by OpTerra Energy Services and performed by the Utility under the Interconnection Agreement, and any other Work that may be required to complete the Interconnection Facilities will be performed and paid for OpTerra Energy Services. The systems will be a combination of rooftop, parking shade structures or ground-mounted as described herein at each location. The precise design and arrangement of the solar systems will be determined during final engineering and will be subject to plan check approval. OpTerra Energy Services to provide engineered structural and electrical design drawing plan sets and calculation packages for the rooftop solar installation as necessary for building permit Project Locations (Specific to PV ONLY) ECM Project #1: City Hall Solar (NEM, Option R) ECM Project #2: Police Department Solar (NEM, Option R) ECM Project #3: Library Solar (NEM) ECM Project #4: Senior Center Solar (NEM) ECM Project #5: WWTP Ground mount Solar (NEM-A) Rev. Date: Page 25 of 52 ESC CA Public V 9/1/14

35 RES. NO Rev. Date: Page 26 of 52 RES. NO Energy Services Contract Simi Valley and OpTerra Energy Services ESC CA Public V 9/1/14

36 36 RES. NO RES. NO Energy Services Contract Simi Valley and OpTerra Energy Services PAGE INTENTIONALLY LEFT BLANK Rev. Date: Page 27 of 52 ESC CA Public V 9/1/14

37 37 RES. NO RES. NO Energy Services Contract Simi Valley and OpTerra Energy Services ECM Project #1: City Hall Solar 194kWdc.Facility Address kw dc City Hall - Rooftop 2929 Tapo Canyon Rd., Simi Valley CA, OpTerra Energy Services will perform the following work: Provide and install all materials and equipment (string inverters, racking system, PV modules) necessary to install a 194 kwdc rooftop PV system Provide structural and mechanical assembly of the provided racking system at a 5 degree tilt. Provide any required roof repairs at the points of penetration with the existing roof for new racking system Furnish and install all module mounting hardware, consisting of clips, washers, and fasteners. All items fabricated from G-90 galvanized steel coil, or mechanically galvanized components. Provide module installation. Provide rigging as necessary for all equipment onto the roof. Design and install roof racking flashing to maintain watertight integrity of the roof system in accordance with National Roofing Contractors specifications and good roofing practice utilizing commodity roofing materials. Solar installation will be detailed in compliance with the existing Johns Manville roof manufacturer s warranty and the existing warranty will be maintained Provide new electrical switchgear for PV system located outside of main electrical room on a new concrete housekeeping pad Perform horizontal boring and/or trenching of existing concrete, hardscape or asphalt areas as required to route conduits. Repair any damaged concrete, hardscape or asphalt as required Provide and install a new net generation output meter (NGOM) in the new electrical switchgear to monitor PV production Provide and install electrical conduits and power wiring from the string inverters to the new electrical switchgear Tie in new electrical switchgear into the existing main electrical switchgear panel at the electrical room. Provide and install new weather station (this weather station will be used to collect data for all Civic Center PV Systems) Provide and install electrical conduits for communication wiring from the string inverters to the new Data Acquisition System (DAS) Tie in DAS to nearest City provided dedicated IP address Provide and install new flat screen television to display graphics of PV systems located inside City Hall at location determined by City City to provide dedicated IP address for the television installed Re-Roof at City Hall as required for Solar Scope (see picture): Main roof within highlighted area (area within red curving line): Remove all foliage, and debris from the rooftop; prepare existing surface for new roofing. Clean roof as necessary to properly prepare surface for overlay. Furnish and mechanically fasten 60 mil White TPO roof system with fire rated separator sheet. Furnish and install roof flashings at all pipe penetrations and vents Furnish and install roof base flashings at existing mechanical unit curbs and existing skylight Furnish and install roofing at all drains and overflows Furnish 20 year manufacturer s warranty Pitched roof within highlighting area Removal and disposal of 3 layers of existing roofing Furnish and install thirty (30) pound felt and 30 year dimensional shingles. Rev. Date: Page 28 of 52 ESC CA Public V 9/1/14

38 38 RES. NO RES. NO Energy Services Contract Simi Valley and OpTerra Energy Services ECM Project #2: Police Department Solar 600kWdc Facility Address kw dc Police Department Rooftop 3901 Alamo St. Simi Valley CA, Police Department Parking Lots() 3901 Alamo St. Simi Valley CA, OpTerra Energy Services will perform the following work: Provide all materials and equipment (string inverters, racking system, PV modules) necessary to install a 188 kwdc rooftop PV system o Provide structural and mechanical assembly of the provided racking system at a 5 degree tilt. o Provide any required roof repairs at the points of penetration with the existing roof for new racking system o Furnish and install all module mounting hardware, consisting of clips, washers, and fasteners. All items fabricated from G-90 galvanized steel coil, or mechanically galvanized components. o Provide module installation. o Provide rigging and load all components for the rooftop structure system onto the roof. o Design and install roof racking flashing to maintain watertight integrity of the roof system in accordance with National Roofing Contractors specifications and good roofing practice utilizing commodity roofing materials. o Provide and install string inverters at rooftop level Provide all materials and equipment (string inverters, support structure, PV modules) necessary to install a 422 kwdc shade structure solar PV system o String inverters will be column-mounted o PV Modules to be mounted on galvanized steel purlins per approved drawings o Parking lot areas, where solar is installed, will be resealed, and restriped, new wheel stops will be installed at column locations as required o Provide and install LED lighting fixtures on the underside of the array and drive aisles. o Tie new LED canopy lighting fixtures into existing City parking lot lighting power circuit. o Steel structure installed will be primed and painted with one coat of paint. galvanized purlins will not be painted conduit will not be painted o Steel canopy structure will be designed with a five degree tilt angle o Trees located in the general area of the array, which may affect PV output, will be trimmed back or removed by OpTerra Energy Services if less than 9 in diameter, as coordinated with City. Removal of trees affecting PV output, if over 9 in diameter, is excluded and will be the responsibility of City. Replanting of any removed trees, regardless of size, is excluded and will be the responsibility of City. o Any damaged irrigation systems will be repaired as required Provide new electrical switchgear for PV system located outside of main building on a new concrete housekeeping pad Perform horizontal boring and/or trenching of existing concrete, hardscape or asphalt areas as required to route conduits from array structure to new electrical switchgear. Repair any damaged concrete, hardscape or asphalt as required Perform underground utility survey to locate any existing unknown utilities that are in the path of horizontal boring, vertical boring or trenching. City to provide as built drawings of all known underground utilities Provide and install a new net generation output meter (NGOM) in the new electrical switchgear to monitor PV production Provide and install electrical conduits and power wiring from the string inverters to the new electrical switchgear Tie in new electrical switchgear into the existing main electrical switchgear panel in the main electrical room. Conduits will be routed in the rafter area in the underground parking lot Provide and install new dual car charging station in parking lot at location to be determined by City. Provide power to new charging stations Set new charging stations on new concrete housekeeping pads Provide start-up, energize, test and training with charging station vendor and City Provide and install electrical conduits for communication wiring from the string inverters to the new Data Acquisition System (DAS) Tie in DAS to nearest City provided dedicated IP address Rev. Date: Page 29 of 52 ESC CA Public V 9/1/14

39 39 RES. NO RES. NO Energy Services Contract Simi Valley and OpTerra Energy Services ECM Project #3: Library Solar 127kW Facility Address kw dc Library Parking Lot 2969 Tapo Canyon Rd. Simi Valley CA, OpTerra Energy Services will perform the following work: Provide all materials and equipment (string inverters, support structure, PV modules) necessary to install a 127 kwdc shade structure solar PV system String inverters will be column mounted Provide and install LED lighting fixtures on the underside of the array and drive aisles. Tie new LED canopy lighting fixtures into existing City parking lot lighting power circuit. PV Modules to be mounted on galvanized steel purlins per approved drawings Steel structure installed will be primed and painted with one coat of paint. o galvanized purlins will not be painted o conduit will not be painted Steel canopy structure will be designed with a five degree tilt angle Trees located in the general area of the array, which may affect PV output, will be trimmed back or removed by OpTerra Energy Services if less than 9 in diameter, as coordinated with City. Removal of trees affecting PV output, if over 9 in diameter, is excluded and will be the responsibility of City. Replanting of any removed trees, regardless of size, is excluded and will be the responsibility of City. Any damaged irrigation systems will be repaired as required Provide new electrical switchgear for PV system located outside in the south east corner of the building adjacent to the exterior wall of the main electrical room on a new concrete housekeeping pad Perform horizontal boring and/or trenching of existing concrete, hardscape or asphalt areas as required to route conduits from array structure to new electrical switchgear. Repair any damaged concrete, hardscape or asphalt as required Perform underground utility survey to locate any existing unknown utilities that are in the path of horizontal boring, vertical boring or trenching. City to provide as built drawings of all known underground utilities Provide and install a new net generation output meter (NGOM) in the new electrical switchgear to monitor PV production Provide and install electrical conduits and power wiring from the string inverters to the new electrical switchgear Tie in new electrical switchgear into the existing main electrical switchgear panel in the main electrical room. Provide and install electrical conduits for communication wiring from the string inverters to the new Data Acquisition System (DAS) Tie in DAS to nearest City provided dedicated IP address Parking Lot Repair at Library (per highlighted area in picture) Remove and dispose of existing asphalt Provide base as required Compact base and soils as required for new asphalt installation Slurry coat, seal and stripe parking lot area (shown below in hatched area) New wheel stops will be installed at column locations as required and existing wheel stops will be re-installed Rev. Date: Page 30 of 52 ESC CA Public V 9/1/14