Town Council Regular Session


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  Item # 2.       
Meeting Date: 05/19/2016  
Requested by: Stacey Lemos Submitted By: Stacey Lemos, Finance
Department: Finance  

Information
SUBJECT:
DISCUSSION AND POSSIBLE ACTION REGARDING AN ENERGY EFFICIENCY IMPROVEMENT PROJECT AT THE ORO VALLEY COMMUNITY CENTER
RECOMMENDATION:
This item was originally presented by staff at the May 4, 2016 regular Council meeting where Council moved to have this item placed on tonight's agenda for consideration and possible action. Staff recommends moving forward with the energy efficiency project at the Oro Valley Community Center following Option B, as outlined below, to include the replacement of aged HVAC units, evaporative coolers, lighting retrofits within the buildings and on the tennis courts, hot water heater replacements, pool heater and pump replacements, an irrigation system replacement and the installation of solar photovoltaic panels in the facility parking lot.

This is a comprehensive option that continues the Town's commitment to green building and energy efficiency. With the inclusion of the solar panels in this option, the Town continues its efforts in this area from the solar project completed on the Town Hall campus back in 2010, with the added side benefit of providing shade-covered parking for patrons and members at the Community Center, while offsetting a portion of the electricity needs of the facility.
EXECUTIVE SUMMARY:
Town staff has been working with Trane Energy Services and Controls (Trane) to evaluate the possibility of implementing an energy savings and efficiency project at the Oro Valley Community Center. Given that this facility is about 30 years old and has outdated systems, there is ample opportunity to achieve significant energy savings and efficiencies to cover the cost of this project over time. This would be a budget neutral project with no need for upfront funding from the Town whereby the improvements would be financed over a set period of time, and the energy savings from the project would be used to pay the financing costs of the project. This is similar in concept to the energy efficiency and solar project completed by the Town in 2010 for the Town Hall campus facilities.

Staff has asked Trane to prepare two project options for Town Council consideration based on a preliminary assessment of the property that included onsite property surveys and review of past utility bills. The first option (Option A) consists of a project that includes the replacement of aged HVAC units, evaporative coolers, lighting retrofits within the buildings and throughout the 31 lighted tennis courts at both tennis locations, hot water heater replacements, pool heater and pump replacements and an irrigation pumping system replacement on the Conquistador golf course. This project is estimated to cost $1.6 million and generate annual savings of approximately $177,000 in water, gas, electric and maintenance costs.

The second option (Option B) consists of a project that includes all of the energy efficiency measures within Option A, plus the installation of solar photovoltaic panels over a reconfigured parking space layout in the Community Center parking lot. It is estimated that this project would cost $2.7 million and generate annual savings of approximately $211,000, including the offset of approximately 42% of the electricity needs of the Community Center with the solar panels.

Staff is asking for Council consideration and direction to move forward with either Option A or Option B this evening. Once direction is received, the Town will sign a Letter of Commitment with Trane to have them begin a more detailed energy analysis and investment grade audit in order to develop more accurate project specifications. As part of the more detailed analysis to come on this project, staff will research the merits of entering into a guaranteed performance energy contract with Trane, whereby the annual energy savings is guaranteed, otherwise Trane pays the Town the difference if the projected energy savings levels are not met. 
 
BACKGROUND OR DETAILED INFORMATION:
Town staff has been working with Trane, the Town's current vendor for HVAC systems and maintenance, to evaluate the feasibility of implementing energy efficiency measures at the Oro Valley Community Center. Given that this facility is nearly 30 years old, many of the systems under consideration are past their useful lives and in need of replacement and upgrade. One of the goals of this project is to have it be 100% self-funded from beginning to end, with no up front capital cost required by the Town. In order to finance these improvements, the Town would look at various funding options to include low-interest bond financing, tax-exempt leases, and utility rebates from Tucson Electric Power and other utility providers. The annual energy savings from this project would be allocated toward paying off the financing of these improvements over a 10-16 year timeframe. Staff would ensure that the financing term of the improvements does not exceed the useful lives of these improvements. Moving forward with this project will allow the Town to invest in new, efficient infrastructure at the Community Center within existing budget capacity.

Attached to this Council Communication as Exhibit 1 is the Preliminary Assessment prepared by Trane which outlines Option A and Option B, as described above. This Exhibit provides greater detail into the various energy efficiency measures recommended, including the HVAC unit retrofit, lighting upgrades, pool system improvements, hot water heater replacements, irrigation pumping system replacement at the Conquistador golf course and the installation of solar photovoltaic parking structures. The preliminary analysis shows the estimated annual electric, natural gas, water and maintenance savings for each measure, as well as the estimated project cost for each. This information will be refined during the investment grade energy audit process that will begin after staff receives Council direction this evening.

The energy efficiency measures being discussed with this project specifically relate to the Oro Valley Community Center. These would be funded entirely with energy savings budgeted within the Community Center Fund, and do not include any other Town locations or sites. It is the intent that this project would have no impact on the Town's General Fund. To consider improvements at other locations around Town would commingle project costs and savings from other Town funds, such as the General Fund. With the energy efficiency project that was completed in 2010, significant facility, lighting, solar and HVAC system upgrades were completed at that time, which have significantly reduced annual energy costs town-wide since then, leaving limited opportunities to achieve a return on investment sufficient enough to pay for additional improvements in these other areas.

It is important to note that if Council decides to move forward with either Option A or B, this would cause the Town to enter into a debt financing (either through the issuance of bonds, a tax-exempt lease or a combination of both) to pay for the proposed measures at the Community Center. This assumes that the Town will continue to own this facility at least throughout the financing term of either option. Should the Town decide to sell or cede ownership of all or a portion of this property before the debt financing is paid off, the Town may be obligated to pay off the debt early, which could negatively impact other funds of the Town.

In terms of next steps, if Council provides direction to move forward with this project, Trane will perform a detailed investment grade energy audit that could take up to a month to complete, staff will research in greater detail the financing options for this project, and a more complete project assessment will be prepared by Trane. This information, along with recommended financing options, will be presented to Council this summer with the goal of the project commencing shortly thereafter during the summer months. It is likely that the project construction phasing will begin with HVAC and evaporative cooler replacements, the irrigation pumping system replacement and the lighting retrofits, followed by the smaller measures, and will conclude with the installation of the solar panel parking structures to be installed on a reconfigured parking lot layout at the facility. It is anticipated that a more definitive project timeline will be developed over the next few months and will be presented to Council with the above-mentioned information.
FISCAL IMPACT:
In the two options provided by Trane, both options are cash flow positive in the first year as detailed in the last two pages of the attachment, Pro Forma - Option A and Pro Forma - Option B. That is, the estimated annual energy savings exceeds the estimated annual cost of financing the project. Option A illustrates the $1.6 million project cost being repaid within 10 years, with estimated annual energy and O&M savings of $177,000 in year 1 growing to over $229,000 in year 10 (see Total Annual Savings column in Pro Forma - Option A).

Option B illustrates the $2.7 million project being repaid within 16 years, with estimated annual energy and O&M savings of $211,000 in year 1 growing to over $342,000 in year 16 (see Total Annual Savings column in Pro Forma - Option B). This longer payback term for Option B is consistent with the payback terms of the Town's existing Clean Renewal Energy Bonds that were issued in 2010 to finance the costs of the solar panel structures on the Town Hall campus. This payback term is expected due to the higher cost of the solar panel infrastructure; however, the useful life of the solar panel system is approximately 30 years, and the estimated annual net cash flow with Option B is higher than Option A.

It is anticipated that this project will not impact the Town's General Fund, will be 100% self-funded by the energy savings achieved within the Community Center Fund and will provide much-needed infrastructure improvements within the existing budget capacity of the Community Center Fund. It is important to note that these project expenses will be paid whether the project is approved or not by maintaining the current utility expenses. By replacing the aged equipment now through this self-funded structure, the Town will be able to avoid non-budgeted future capital costs to replace these items in the future.

Should Council direct staff to proceed with Option B, the FY 2016/17 Tentative Budget amount (also presented for Council approval on tonight's agenda) would need to be increased by $3 million to add budget capacity to spend the financing sources (e.g. bond funds or loan proceeds) secured by the Town for completion of these project improvements during FY 2016/17. A new fund within the FY 2016/17 budget would be created (e.g. Energy Efficiency Project Fund) to account for the funding sources and expenditures related to this project. Although the preliminary assessment report from Trane estimates Option B costing $2.7 million, staff recommends increasing the budget cap by $3 million to allow for any project contingencies or adjustments in final project pricing when the investment grade audit is completed.
 
SUGGESTED MOTION:
I MOVE to direct staff to proceed with an energy efficiency project at the Oro Valley Community Center following (Option A or Option B).

or

I MOVE to...


 
Attachments
Exhibit 1 - Preliminary Assessment


    

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