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Staff Report PREPARED BY: JIM HARBIN Facilities & Environmental Programs Manager Reviewed by: Town Manager, Assistant Town Manager, Town Attorney, Finance Director, and Parks and Public Works Director 110 E. Main Street Los Gatos, CA 95030 ● 408-354-6832 www.losgatosca.gov TOWN OF LOS GATOS COUNCIL AGENDA REPORT MEETING DATE: 10/02/2018 ITEM NO: 7 DATE: SEPTEMBER 27, 2018 TO: MAYOR AND TOWN COUNCIL FROM: LAUREL PREVETTI, TOWN MANAGER SUBJECT: PPW JOB NUMBER 821-2008 ENERGY EFFICIENCY UPGRADES TOWN-WIDE A. APPROVE A RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS MAKING FINDINGS DISPENSING WITH THE FORMAL BIDDING REQUIREMENTS PER THE CALIFORNIA GOVERNMENT CODE SECTIONS 4217.10-4217.18 AND AUTHORIZING THE TOWN MANAGER TO EXECUTE AN ENERGY SERVICES AGREEMENT WITH SYSERCO, INC. FOR THE DESIGN, INSTALLATION AND COMMISSIONING OF HVAC AND LIGHTING IMPROVEMENTS AT VARIOUS TOWN FACILITIES FOR A TOTAL PROJECT COST NOT TO EXCEED $1,664,358. B. AUTHORIZE THE TOWN MANAGER TO NEGOTIATE AND EXECUTE NECESSARY AGREEMENTS TO PARTICIPATE IN PG&E ON BILL FINANCING IN THE AMOUNT OF $1,439,995. C. AUTHORIZE A BUDGET ADJUSTMENT RECOGNIZING REVENUE FROM PG&E ON BILL FINANCING IN THE AMOUNT OF $1,439,995. D. AUTHORIZE THE REALLOCATION OF FUNDS FROM VARIOUS ENERGY EFFICIENCY PROJECTS TO PPW JOB NUMBER 821-2008 IN THE AMOUNT OF $258,354. RECOMMENDATION: Staff recommends that the Town Council: 1. Approve a Resolution (Attachment 1) of the Town Council of the Town of Los Gatos making findings dispensing with the formal bidding requirements per the California Government Code Sections 4217.10-4217.18 and authorizing the Town Manager to execute an Energy Services Agreement (Exhibit A to Attachment 1) with Syserco, Inc. for the design, installation, and commissioning of HVAC and Lighting improvements at various Town facilities for a total project cost not to exceed $1,664,358. PAGE 2 OF 5 SUBJECT: PPW JOB NUMBER 821-2008 ENERGY EFFICIENCY UPGRADES TOWN-WIDE SEPTEMBER 27, 2018 S:\COUNCIL REPORTS\2018\10-02-18\Energy Services Agreement\Staff Report.docx 9/27/2018 3:31 PM RECOMMENDATION (cont’d): 2. Authorize the Town Manager to negotiate and execute necessary agreements (Attachment 2) to participate in PG&E On Bill Financing in the amount of $1,439,995. 3. Authorize a budget adjustment recognizing revenue from PG&E on bill financing in the amount of $1,439,995. 4. Authorize the reallocation of funds from various energy efficiency projects to PPW job number 821-2008 in the amount of $258,354. BACKGROUND: Most of the Town’s municipal buildings were constructed in the 1960’s and 1970’s and the lighting, heating and air conditioning (HVAC), and other building systems and controls have aged and lack today’s energy efficiency technology. The antiquated nature of these systems contributes to a backlog of facility capital replacement needs. In addition, much of the equipment requires high levels of maintenance due to its age. The Town’s five-year CIP includes six projects which address some of these deficiencies. This project would typically be subject to the California Public Contract Code and the Town public contracting policies, which generally requires competitive bidding and awarding to the lowest bidder for public works projects. However, in reviewing the delivery of these projects, staff explored the potential for taking advantage of a specific section of the California Government Code (4217.10 et seq) that allows for entering into energy services contracts. Government Code section 4217.12 allows the Town to dispense with bidding for these energy service contracts if the Town Council finds, at a public hearing, that the contract is in the best interest of the Town and upon the making of certain cost savings findings. This design-build model allows for the Town to work directly with a licensed contractor to develop and complete energy efficiency projects. This method streamlines the process by bundling related projects, providing for improved communication, and helping to reduce the typical risks of delay, change orders, and assigned responsibility. Town staff conducted a Request for Proposals (RFP) for an energy services company in April of this year and as a result entered into an agreement with Syserco, Inc. Under this agreement, Town staff worked with Syserco to conduct an initial assessment of Town facilities. The goal of this initial assessment was to identify projects with potential energy savings and to refine that list to align with Town needs. This program allows for a scope that is far broader than the six projects in the CIP, maximizing the return on the effort involved in delivering the projects. At the June 19, 2018 Town Council meeting, the Town Council approved moving forward with the next steps in the program, including an Investment Grade Audit with the goal of utilizing a PG&E loan program called On Bill Financing. This PG&E program provides a loan for the project cost that is recovered through monthly charges on the utility bill. The loan is sized to equate to PAGE 3 OF 5 SUBJECT: PPW JOB NUMBER 821-2008 ENERGY EFFICIENCY UPGRADES TOWN-WIDE SEPTEMBER 27, 2018 S:\COUNCIL REPORTS\2018\10-02-18\Energy Services Agreement\Staff Report.docx 9/27/2018 3:31 PM BACKGROUND (cont’d): projects that create energy savings over ten years where the energy savings equal the cost of the project, resulting in no net cost to the Town. DISCUSSION: Following the initial review of the facilities and identification of potential projects, the program conducted the Investment Grade Audit (included in Exhibit A to Attachment 1). The Investment Grade Audit is the next step to confirm that the energy savings calculated by Syserco are reasonable. An Investment Grade Audit is a review of proposed energy savings projects based on established industry standards which serves to validate the projected savings associated with those projects. The cost of this audit will be rolled into the final project budget unless no project is awarded, wherein the cost of the audit will be due to Syserco. Following the Investment Grade Audit, Syserco created an Energy Services Proposal (included in Exhibit A to Attachment 1) for energy conservation and infrastructure improvements, where Syserco’s technical team analyzed the energy conservation measures (ECMs) and invited qualified contractors to competitively propose improvement measures and infrastructure upgrades at the following facilities: Town Hall, Police Operations Building, Corporation Yard, Library, Adult Recreation Center, Youth Recreation Center, and parking lot four (the two story garage). ECM priority was given to replacement of HVAC and lighting infrastructure as both provide for significant savings and are among the most inefficient and unreliable infrastructure components. The proposed ECMs and anticipated energy savings will be reviewed by a PG&E- approved, third party consultant. This review pre-validates the Town’s application to PG&E for on-bill financing and supports the validity of the energy conservation measures and their forecast savings. Once the project is complete, Syserco will verify that each ECM is performing as calculated. This verification will occur again at the end of one year. The proposed energy conservation and infrastructure improvement projects identified would provide a reduction in electrical consumption by 671,377 kilowatt hours (kWh) annually and natural gas consumption by 7,740 therms annually. This translates to an annual reduction in greenhouse gas emissions of 41 metric tons. The positive environmental impacts associated with the proposed energy conservation and infrastructure improvements align directly with the Town’s goals for positive environmental impact by reducing greenhouse gas emissions, consistent with the Town’s General Plan and Sustainability Plan. These improvements also include the ability to more accurately monitor and control the HVAC systems in Town facilities, such as the Council Chambers, and to provide renewed infrastructure where aged and outdated equipment exists. PAGE 4 OF 5 SUBJECT: PPW JOB NUMBER 821-2008 ENERGY EFFICIENCY UPGRADES TOWN-WIDE SEPTEMBER 27, 2018 S:\COUNCIL REPORTS\2018\10-02-18\Energy Services Agreement\Staff Report.docx 9/27/2018 3:31 PM DISCUSSION (cont’d): It should be noted that in the event projected savings do not materialize at the calculated level, the Town will still be obligated to pay the cost of the construction loan on the utility bill on a monthly basis. In order to mitigate that risk staff performed an extensive review of the initial list of potential projects and provided significant input and review of savings attributed to those projects. A further layer of review and increased scrutiny comes from the Investment Grade Audit and then a final layer of review by PG&E. Additionally, the verification that occurs as the project comes online and the follow up verification which occurs one year later will provide further validation that the projects are performing as anticipated . Finally, the ten-year return on investment is reasonably short with some equipment on a 15 year or longer life cycle. CONCLUSION: The end result from this project is renewed and enhanced infrastructure paid for through projected energy savings over ten years. The Town will benefit from the short-term upgrade of aging and ineffective infrastructure and will receive the residual energy savings after ten years by way of reduced utility bills. The outcomes are additional capacity to deliver a broad array of capital projects over a short period of time, demonstration of sustainability leadership through the Town’s investments in energy conservation for its own facilities, and increased benefits to the facility users. COORDINATION: This report was coordinated with the Town Manager’s Office, Town Attorney, and Finance Department FISCAL IMPACT: Through the June 19, 2018 Council action, the Town has committed to the cost of the facility audit of $34,750. If the Town proceeds with the construction of energy savings projects, the cost of the audit will be rolled into the total project cost. If the Town chooses not to proceed, this amount will be due to Syserco and Town staff will use the results to prioritize future capital projects. The cost of the proposed project bundle of ECMs totals $1,664,358. The bundle includes priority projects for the Town, such as independently monitoring energy use at New Museum of Los Gatos (NUMU) and replacement of equipment that has reached the end of its serviceable life and must be replaced regardless. To allow for the inclusion of these projects while keeping the overall payback period at ten years, staff recommends utilizing the funds already appropriated to energy saving capital projects. This results in a total on bill financing cost of $1,439,995. PAGE 5 OF 5 SUBJECT: PPW JOB NUMBER 821-2008 ENERGY EFFICIENCY UPGRADES TOWN-WIDE SEPTEMBER 27, 2018 S:\COUNCIL REPORTS\2018\10-02-18\Energy Services Agreement\Staff Report.docx 9/27/2018 3:31 PM FISCAL IMPACT (cont’d): The PG&E On Bill Financing program provides reimbursement for project costs after the project is complete and energy savings are confirmed. The Town will need to carry the cost of the projects until receipt of the PG&E reimbursement, which may be several months. Sufficient funds reside within the capital program to carry these expenses. ENVIRONMENTAL ASSESSMENT: This is a project as defined under CEQA but is Categorically Exempt [Section 15301(a)]. A Notice of Exemption will not be filed. Attachments: 1. Resolution, includes Exhibit A - Energy Services Agreement with Investment Grade Audit 2. PGE On Bill Financing Template Agreement Project #Source Budget Costs On Bill Financing 1,439,995$ 821-2008 Energy Efficiency Upgrade - Townwide 75,000$ 821-2110 Civic Center Building Energy Efficiency Measures*25,000$ 821-2307 Mechanic Bay Heater*25,000$ 821-2112 Exterior Lighting Replacement - Civic Center*17,234$ 821-2115 HVAC- Chiller Repair*93,520$ 821-2113 Youth Recreation Center HVAC*22,600$ Total Available Funding 1,698,349$ Total Project Cost 1,664,358$ Remaining Balance 33,991$ Energy Efficiency Upgrades - Townwide * The funding for these projects will shift to the Energy Efficiency Upgrades - Townwide project and be completed within that scope. The individual projects will be closed out.