, LOAWLCOD Mark Orme, City Manager. Prepared by: - City Council Agenda Report. Meeting Date: 10/03/17

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1 CITYICHICO I 1 *Is. j City Council Agenda Report Meeting Date: 10/03/17 TO: City Council FROM Scott Dowell, Administrative Services Director RE Interfund Loan for LED Project REPORT IN BRIEF: At the City Council meeting on May 3, 2016, Council approved an interfund loan to self-finance the retrofitting of streetlights with light emitting diode (LED) technology from Pacific Gas and Electric (PGE). The retrofit project was completed for a cost of $845,474. As such, to be jn compliance with Budget Policy D.8.4, a resolution has been prepared to document the interfund loan from the Workers Compensation Insurance Reserve Fund to the General Fund in the amount of $845,474. Recommendation - Staff recommends City Council approve the resolution creating the intefund loan from the Workers Compensation Insurance Reserve Fund to the General Fund in the amount of $845,474. FISCAL IMPACT: The interfund loan will be repaid from annual utility savings from the LED retrofit Annual savings are estimated at $250,000 per year and will be used to repay the Workers Compensation Insurance Reserve Fund from the General Fund including interest on the outstanding principal. Interest will be calculated based on the rate the City of Chico's pooled investments generate. The current estimated investment return is estimated at 0.5% annually. The loan is estimated to be fully repaid within four years with payments due on January 31 each year. DISCUSSION: As noted in the original staff report dated May 3, 2016, the original retrom project cost was estimated to be $1,314,216. The projects final cost was actually $845,474 due to cost reductions and cost rebates. As such, the amount need to be internally financed is $468,742 less than originally proposed. Prepared by: - Scott Dowell, Administrative Services Director Approved and Recommended by:, LOAWLCOD Mark Orme, City Manager DISTRIBUTION: City Clerk (3) ATTACHMENTS: Resolution Staff Report from 5/3/2016 RE: Consideration of participating in PG&E's turn-key program to retrofit City streetlights with LED's

2 1 2 3 RESOLUTION NO. RESOLUTION OF CITY COUNCIL OF THE CITY OF CHICO APPROVING AN INTERFUND LOAN FROM THE WORKERS COMPENSATION INSURANCE RESERVE FUND TO THE GENERAL FUND FOR THE LED LIGHTING PROJECT WHEREAS, the City of Chico would like to reduce energy usage and energy costs of its streetlights and WHEREAS, Pacific Gas and Electric (PG&E) has created a light emitting diode (LED) replacement program; and WHEREAS, the City Council approved at its meeting on May 3, 2016 to enter into agreement with PG&E to utilize the PG&E LED replacement program with a cost not to exceed $1,314,216: and WHEREAS. due to cost reductions and rebates, the actual cost of the completed project was $845,474; and WHEREAS, the City of Chico would like to finance the project by an interfund loan from the Workers Compensation Insurance Reserve Fund to the General Fund under budget policy D.8.4 in an amount not to exceed $845,474; and WHEREAS, the City of Chico would like to repay the interfund loan from the Workers Compensation Insurance Reserve Fund to the General Fund with estimated annual utility savings from the LED project estimated to be $250,000 over a four year period; and WHEREAS, the estimated rate of interest on the outstanding loan would be approximately 0.5% per year based on the investment returns the Workers Compensation Insurance Reserve Fund would receive based on current City of Chico return on pooled funds; and follows: NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Chico as The above recitals are true and correct and are a substantive part ofthis Resolution. The Administrative Services Director is hereby authorized and directed to record and document the interfund loan from the Workers Compensation Insurance Reserve Fund to MM\ Kne

3 1 the General Fund in the amount of $845,474 effective June 30, The General Fund will repay the interfund loan with savings from the reduction in utility costs affiliated with the PG&E LED retrofit program. Annual savings are estimated to be $250,000 per year and will be used to repay the interfund loan until it is paid off with an estimated repayment period of under four years. The annual payment will be scheduled on January 31 of each year with implied interest until the interfund loan is repaid in entirety The General Fund will repay the intefund loan with implied interest at an annual average rate that all City of Chico pooled funds receive on investments over the loan repayment period. The current rate is approximately 0.5% per year based on the current City of Chico return on pooled funds l THE FOREGOING RESOLUTION was adopted by the Council of the City of Chico at its meeting held on October 3,2017, by the following vote: 18 AYES: 19 NOES: 20 ABSENT: 21 ABSTAINED: 22 DISQUALIFIED: ATTEST: APPROVED AS TO FORM: Deborah Presson City Clerk Vincent C. Ewing, City Attorney* *Pursuant to The Charter of the City of Chico, Section 906(E) Page of 2 of 2 179*5-6000\706699fvl rinr

4 Y;fypco.] City Council Agenda Report Meeting Date: May 3, 2016 TO: City Council FROM: Public Works Director - Operations, Erik Gustafson, RE: CONSIDERATION OF PARTICIPATING IN PG&E'S TURN-KEY PROGRAM TO RETROFIT CITY STREETLIGHTS WITH LEDS. REPORT IN BRIEF: Staff would like to partner with PG&E to take advantage of their LED Street Light Turn-Key Replacement Program, and current incentives to replace the remaining 3,873 City-owned street lights with the latest Light Emitting Diode (LED) technology. Retrofitting the street lights will save $243,183 (34%) in annual electric utility costs, while providing improved nighttime visibility and public safety. Additionally, LED fixtures last 3 to 5 times longer than the current legacy High Pressure Sodium lights, savjng significant maintenance costs and staffing resources. As an added benefit, the use of LED technology helps reduce the amount of «light pollution" released into the night sky. Recommendation: The Public Works Director - Operations recommends that the City Council: 1. Approve the project, and authorize the City Manager to enter into an agreement with PG&E for the Turn-key Street Light Replacement Program, as authorized by City of Chico Budget Policy G.6.c. 2 Authorize one of the following financing options: a Finance the project internally using Workers Compensation Funds at 0% interest, with a return on investment (ROI) of 4.27 yrs b. Finance externally with PG&E's preferred investment firm at 2.58% interest for 7.75 years. FISCAL IMPACT: Total project cost is $1,314,216, but based on the proposed scope of 3,873 fixtures, PG&E is offering $145,950 in incentives for LED retrofit projects such as this proposed project. Nel project cost to the City is ,266 producing an annual energy cost savings of $243,183 and Return on Investment (ROD of 4.8 years PG&E has also committed to replacing all remaining 2,267 LS1 PG&E owned street lights during the project, which are also billed to the City This will add an additional $30,000 in annual energy costs savings to the City. If the project is approved by Council. all street lights in the City of Chico will be LED and the City will save a total of $273,183 per year in energy costs, resulting in an overall ROI of 4.27 years. BACKGROUND: Currently, there are 6,956 street lights within the City of Chico. The City owns 4,689 of those lights and pays PG&E a flat rate for energy costs under the LS2 tariff. PG&E owns 2,267 of those lights for which the City pays a similar flat rate thal includes energy costs and a facilities charge component for maintenance under the LS 1 tariff. As street lights do not have meters (un-metered) costs under both the LS 1 and LS2 tariffs are determined by the overall quantity and wattage of the City's street light inventory that results in a flat rate. The City spends $713,793 annually to light the 6,956 street lights within City limits. Traditional street lights utilize High Intensity Discharge (HID) technology which has been the standard for 30 years. The City's street lights are made up of both cobra head and decorative fixtures equipped with HID (both High Pressure Sodium and Metal Hallie) Due to increased energy efficiency and reduced operating and maintenance costs, Light Emitting Diode (LED) have displaced HID and become mainstream - being widely deployed as the standard for street lights. In fact, staff has completed successful streettight LED retrofit projects in the past, including the ARRA-funded project that focused on main corridors such as Esplanade and East 20'h St Maintenance staff has also adopted the practice of replacing any failed or damaged street light with LEDs when possible.

5 RE: PG&E LED Streeilight Project Meeting. 5/03/16 CC Page: 2 of 3 The majority of the street lights in Chico are high pressure sodium which produces a dull orange glow falling primarily directly below the pole. The new LED technology will produce a cleaner, whiter light that will increase night time visibility and color recognition. Combined with better light distribution, the new LED technology will reduce light pollution, enhance public safety, and assist Police and Fire in night time patrol and emergency response. LEDs consume 50% less energy and last three to five times longer than traditional HIDs. Currently, the City spends in upwards of $33,000 annually for streetlight maintenance. We expect the majority of these costs to diminish freeing valuable staffing resources to be redirected to other much needed areas, such as maintaining traffic signals. Staff has spent numerous hours over the last several months performing a complete audit of our street light inventory. PG&E has reviewed and performed their own audit and both inventory lists have been reconciled. This function had not been completed in ten years and by completing this joint effort ensured that the City is only paying for the lights It owns and that the pricing matrix is correct. In addition, PG&E has completed a full assessment of the City's energy costs and analyzed the savings based on equivalent LED replacements. PG&E has confirmed the feasibility of the LED installations, and is confident the replacement fixtures will produce energy cost savings of 34% compared to the current cost. The flat rate tariff ensures that our energy cost saving projections are completely accurate versus projections based on usage. DISCUSSION: PG&E owns over 160,000 street lights in their service territory so they have an enhanced knowledge of street lights in municipal jurisdictions, Advantages of partnering with PG&E using their Turn-Key Program include leveraging PG&E's purchasing power, knowledge, project management resources, and strong warranties. The Turn-Key Program has already replaced over 100,000 street lights in their service territory, so the utility is able to purchase new LEDs at a very low cost. As the City's local energy provider, they have access to all relevant billing rate structures and pricing matrixes that will be immediately updated during the project by their staff. if this project were to be completed by another contractor, or City maintenance staff, it would require countless administrative hours to update the new LED pricing structure and PG&E service contacts. PG&E will plug in all pricing updates so part of the deliverable will be a clean and completely accurate pricing structure. PG&E will also provide GPS backed G IS shape files to upload all of the City's street light inventory to the City's GIS system, which will improve and ensure accuracy. Currently, our GIS location system is not accurate and causes problems with maintenance staff locating the correct light. All fixtures, lamps, and photocells will be installed by PG&E's qualified and licensed electrical contractors according to prevailing wage codes and standards Each replacement will be tested for correct operation at the time of installation. In addition, the old HID fixtures contain small amounts of hazardous material that PG&E will dispose of for the City under hazardous material disposal regulations. The new LED lights do not contain these materials, thereby reducing these hazardous materials from the environment. Along with the energy costs savings, the City's streettight replacement (LS22) pomion of this project will save 1,586,946 kwh of energy use each year. This is results in 831,560 pounds of carbon removed from the environment. or the equivalent carbon reduction of what 897 acres of trees can remove. LEDs last five times longer than traditional HID lights so there will be less carbon burned to maintain them along with a small landfill reduction benefit. This directly aligns with the City's Climate Action Plan (CAP) objectives of reducing greenhouse gas emissions that are directly and indirectly generated by local activities by 25% below 2005 emission levels by the end of The Turn-key Program is considered a one-stop-shop for the replacement of existing HID street lights with the latest in LED technology The Program allows for a streamlined solution to implementing cost-saving energy conservation projects. The Program will also provide updated GIS mapping layers and ensures our billing amounts and inventory are completely accurate. PG&E will develop and implement an approved traffic control plan during installation that will accept the liabjlity burden of the project. PG&E's ten year hardware and one year labor warranty are very robust and allow maintenance staff to focus on much needed maintenance in other areas.

6 RE: PG&E LED Streetlight Project Meeting: 5/03/16 CC Page: 3 of 3 These value added components, along with the cost effectiveness give PG&E's proposal a competitive advantage compared to other electrical installation programs analyzed. PG&E's Turn-Key Replacement Program is an efficient cost effective solution for LED conversion that guarantees significant energy and maintenance savings each year. Financing: PG&E is offering an external financing proposal that would finance the City owned light replacements with one of their preferred investment firms for a term of 7.75 years at 2 58% interest. Payments would be $200,000 per year and could be funded by the energy cost savings the project will yield The financing proposal is very competitive. However, it does include almost $20,000 in closing costs along with a debt service reserve fund commitment of 10%,or $153,000 The debt service reserve fund would be returned to the City upon the final payment. but those funds will need to be allocated and provided at the start of the project The City also has the option to finance the project internally using an inter-fund loan from the Workers Compensation Fund (F901) to the General Fund (F001). Financing internally would reduce cash-flow opportunity from this Fund, but will save $20,000 in closing costs, save interest costs, and produce a quick ROI of 4.27 years versus financing the project with PG&E's external financing, Prepared By C/»5 Erik Gustafson, P lic orks irector - Operations Approved By: M JO*% Mark Orme, City Manager DISTRIBUTION: City Clerk (3)