May 19, 2015 The Community Energy Funding Strategy was presented to Priorities Committee for information.

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1 Council Meeting_Jul21_2015 Community Energy Funding Strategy Report Purpose To seek Council s direction to Administration on proposed funding options for the Community Energy System as part of the annual Business Plan and Budget process. Recommendation That Council direct Administration to provide funding for the Community Energy System through municipal property taxes as part of the annual Business Plan and Budget process. Council History March 29, 2005 Council supported the Business Plan for a Community Energy System consisting of a heat only energy plant and associated distribution piping systems. December 2, Council directed Administration to move the Community Energy Centre budget line item from the municipal property taxes back to the Utility Asset Reserve. May 19, 2015 The Community Energy Funding Strategy was presented to Priorities Committee for information. Strategic Plan Priority Areas Economy: Maximizing the customer base for the Centre in the Park (CITP) system will help to ensure that the project s economic goals are met and will reduce funding required for annual funding shortfalls. This report explores tax versus utility based funding for the shortfall in the program. Governance: n/a Social: n/a Culture: n/a Environment: The Community Energy System serves to reduce greenhouse gas emissions which represent an environmental benefit to the community. Other Impacts Policy: n/a Legislative/Legal: n/a Interdepartmental: Facility Services, Financial Services, Planning & Development Services, Utilities. Alternative Options That Council direct Administration to provide funding for the Community Energy System through utility reserve as part of the 2016 Business Plan and Budget process. Summary The Community Energy System was originally built on the desire that Strathcona County wished to develop a sustainable neighbourhood in its downtown core. Centre in the Park (CITP) was an ideal location for community energy as it had a combination of existing/aging infrastructure and new development that would create diverse loads for the system. The benefits of the system include: a more efficient use of energy, reduction in greenhouse gases, safer buildings and opportunity for alternative technologies that will create system resiliency. Author: Bobby Kuruvilla, Utilities Page 1 of 2 Director: Jeff Hutton, Utilities Associate Commissioner: Kevin Glebe, Infrastructure and Planning Services Lead Department: Utilities

2 Under the Strategic Plan of the day, community energy was built on the premise that it would strike a balance between economic prosperity, social responsibility and environmental stewardship. This service also has ties to the Environmental & Economic Sustainability Frameworks. Strathcona County s Environmental Sustainability Framework targets air emissions and energy efficiency by setting a goal for the County to use leading edge technology and sound management practices. Community energy reduces greenhouse gas emissions associated with building heat. (Environmental Sustainability Framework) Strathcona County enables and promotes the diversification of its economy through the development of green jobs and investment with the goal to be a model for sustainable development. Through the use of alternative fuel sources, community energy will develop local fuel source infrastructure that will help to keep energy dollars within the community. (Economic Sustainability Framework) Under the new Strategic Plan, Community Energy System can be connected with the following strategic goals. Economy: Promote Strathcona County locally, nationally and internationally as a place that is open for business and investment. Economy: Strategically manage, invest and plan for sustainable municipal infrastructure. Environment: Improve the efficiency of resource usage; minimize the volume of waste and its impact on the community. There are two options for Council to address the current operating shortfall: 1. Remain status quo and continue to draw from Utility Reserve for annual shortfalls. 2. Fund annual shortfalls through municipal taxes to protect the Utility Reserve from further impacts. On May 19, 2015 Council inquired about the implications of decommissioning the system. This option is not viable from both a financial and a service obligation perspective. From a financial perspective, revenues currently cover all variable costs and make a contribution towards fixed costs (debt). In addition, the contribution towards debt will marginally improve as new connections come on line. From a service obligation perspective, it would be necessary to replace the community energy connection in each building with stand-alone heating systems. A high level engineering assessment was done and it is estimated that this would require a new investment of $6 million or greater. Enclosure 1 Community Energy Funding Strategy PowerPoint Presentation (Document: ) Author: Bobby Kuruvilla, Utilities Page 2 of 2 Director: Jeff Hutton, Utilities Associate Commissioner: Kevin Glebe, Infrastructure and Planning Services Lead Department: Utilities

3 Enclosure 1 Community Energy Funding Strategy Utilities Council Meeting Date: July 21, 2015 Presented by: Utilities Document:

4 Agenda History Current State Funding Options Recommendation 7/15/2015 2

5 History 7/15/2015 3

6 Why Community Energy? Specific attributes of Centre in the Park (CITP) made district heating an attractive solution: Lifecycle of boilers in municipal buildings improves building energy efficiency Guaranteed customer base from municipal buildings Load smoothing varied building uses increases system efficiency High profile area that demonstrated leadership aligned well with the County s Strategic Plan and sustainability platforms Adaptability provides a platform for future opportunities such as alternative fuels Pilot presented an opportunity for the County to put into practice its sustainability goals 7/15/2015 4

7 Benefits at time of inception Environmental Efficient production and distribution = reduction of 1,100 T of GHG per year at full build-out 18% reduction in GHGs Healthier buildings Possible further reductions from fuel switching Social & Economic Fuel switching could protect from volatile energy prices Energy dollars stay in the community Resilience Demonstrate leadership Political and economic context in /15/2015 5

8 CITP & Community Energy System timeline Council approves CITP Area Redevelopment Plan Concept Plan approved Strathcona County purchased all land in CITP Construction complete Sale of Thermal Energy begins to CITP customers Strategic Program & Resourcing Review Construction begins CES Strategy developed Feasibility Study & Business Case for CES Number of buildings serviced grows to 9 Expansion study performed to identify additional nodes CITP Regulatory Bylaws approved 7/15/2015 6

9 Current State Review 7/15/2015 7

10 Original Business Case vs Current State A lack of development has negatively impacted the program Item Planned (`04 Feasibility Study 1 ) Actual (As of 2014) Actual Vs. Planned (% diff) Number of Buildings (57%) Annual Volumes (MWH) 19,990 10,700 (46%) Capital Investment $5,509,000 $8,991, % Annual Revenues $1,333,600 $673,498 (49%) Annual Total Expenses $1,293,250 $1,301,458 (1%) (including amortization) 1) Source: Feasibility Study for Strathcona County Community Energy System, May ) Source: Community Energy Asset Amortization Detail for the year ending Dec. 31, /15/2015 8

11 Planned Source: Development Guidelines /15/2015 9

12 Actual Source: Aerial photo /15/

13 Buildings Not Connected to System St. Theresa Catholic School, formerly Archbishop Jordan Catholic High School, and Salisbury Composite High School These two buildings alone represent 20% of the customer load that was expected for the system that will not be connected over the life of the system Centre in the Park was originally planned for completion in 2008 but delays in development due to the economic downturn has lead to at least 8 years of delayed customer connections to the system 7/15/

14 Financial Impact CES is not self-supporting and draws upon contributions from Utility Reserve in order to cover annual net income losses and capital investments ( $640,295) With the planned connections in the next five years, CES will require financial contributions annually until This equates to approximately $4.4M from on top of the $5.8M contribution that has been made to date from the Utility Reserve, for a total of $10.2M 7/15/

15 Business Plan and Budget Submitted as a Business Plan Initiative as part the 2015 Budget (2015 INIT 65) Investigate funding options for Community Energy System 13

16 Funding Options 7/15/

17 Financial Impact Given that CES is not financially sustainable and it consistently relies on funding from the Utility Reserve, it is desired to both: Improve on its operational scale and asset utilization; and Review funding mechanisms to ensure its financial sustainability Each new connection does provide a positive, yet small, cash contribution to the CITP system Long term perspective turns cash flow positive once all the capital financing obligations are completed (Year 26) 7/15/

18 Funding Options 1. Remain status quo and continue to draw from the Utility Reserve for annual shortfalls 2. Fund annual shortfalls through municipal taxes to protect Utility Reserves from further impacts 7/15/

19 Option 1 : Utility Reserve Funding Pros Relatively new infrastructure in County Reserve balance is sufficient to offset current capital financial obligations No impact on tax rate for residents Cons Utility rate payers are only a portion of the community at large Less financial capacity to deal with utility infrastructure needs Utility reserves have been generated by water, wastewater and storm rates 7/15/

20 Option 2 : Municipal Tax Support Pros Entire community contributes to a program that has community benefits (lower GHG emissions, supports County infrastructure) Utility reserves were intended to be an interim financing solution until the project was self sustaining Cons Impact on tax rate for residents (0.35% increase for 2015) Less financial capacity to deal with other priorities in the County 7/15/

21 Recommendation That Council direct Administration to provide funding for the Community Energy System through municipal property taxes as part of the 2016 Business Planning and Budget process. OR That Council direct Administration to provide funding for the Community Energy System through utility reserve as part of the 2016 Business Planning and Budget process. 7/15/