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HomeMy WebLinkAboutAGENDA REPORT 2017 0503 CCSA REG ITEM 09A ITEM 9.A. CITY OF MOORPARK,CALIFORNIA City Council Meeting MOORPARK CITY COUNC� .20// AGENDA REPORT SY: 177-1 TO: The Honorable City Council FROM: Jessica Sandifer, Program Manage DATE: April 26, 2017 (CC Meeting of 05/03/ ) SUBJECT: Consider Authorization to Negotiate Purchase of Streetlights Owned by Southern California Edison BACKGROUND In 2013, Southern California Edison (SCE) changed their policy to allow for sales of their streetlight systems to local governments and developed a standardized procedure and valuation methodology (replacement costs, less depreciation) to facilitate the purchasing process. In October 2013, Governor Brown signed AB 719 into law, which required Investor Owned Utilities (IOU's), such as SCE, to create and submit to the California Public Utilities Commission (CPUC) a tariff rate for municipalities that want their streetlights converted to Light Emitting Diode (LED). The tariff rate sets up a mechanism by which municipalities can pay SCE to make the upgrades and finance the upgrades through the tariff on their electrical bills. The tariff, Option E, that SCE submitted to the CPUC, and the CPUC approved, assumes a 20 year amortization of the costs. As there is no rule or regulation that requires IOU's to allow government entities to purchase their streetlight systems, in July 2015, SCE decided to halt the streetlight acquisition program effective in August 2015. Cities that were interested in purchasing their streetlight systems were given until August 15, 2015, to pay the $10,000 fee to get into the queue for a system valuation. The City made the payment and was put into the queue. In June of 2016, SCE presented the valuation of the streetlight system to City staff. The City has one year from the date of the presentation of the valuation to make a decision about moving forward with the purchase of the system. The following is a presentation of the system valuation and an analysis of the costs of purchasing and retrofitting the City's streetlight system from SCE or retrofitting the system pursuant to the Option E Tariff sheet. 32 Honorable City Council May 3, 2017 Page 2 DISCUSSION To understand the analysis of costs, a discussion of the rate structure is warranted. LS- 1 rates are charged for SCE owned and maintained lamps and poles. LS-2 rates are charged for unmetered City-owned street lighting equipment, which includes the pole, mast arm, luminaire and lamp. Various components make up each rate. For both LS-1 and LS-2, which are unmetered rates, Edison has calculated an average kilowatt hour (kWh) usage for each type of fixture based on wattage and expected usage for that lamp wattage. The lamp wattage is than multiplied by the number of hours of use (All- Night rate at 4,140 hours of usage and a Midnight rate at 2,170 hours of usage) into a kWh per lamp per month formula. This formula is multiplied by the number of fixtures deployed to determine the kWh usage for streetlights for the billing period, usually 30 to 31 days. The primary difference between the LS-1 and LS-2 rates, when comparing like fixtures (i.e. High Pressure Sodium Vapor - HPSV) is the service charge per lamp. The LS-1 rate service charge ranges from $8.81 to $9.75 for HPSV lamps based on wattage. The _ LS-2 rate service charge drops to $2.47 per lamp, regardless of the type of lamp or wattage. However, under the LS-2 rate, the City would be responsible for maintenance of the pole, lamp, and associated wiring above the hand hole. The hand hole is located at the base of the streetlight pole and provides access to the wiring inside the pole. SCE would be responsible for the maintenance of the wiring and electrical service below the hand hole. Maintenance As mentioned, once the City owns the light poles, the maintenance of the poles, fixtures and associated wiring above the handhole becomes the responsibility of the City. For concrete poles the general consensus is that there is very little maintenance required on a year-to-year basis. In a climate like ours, the streetlight poles themselves should last 50-75 years or more. Properly installed electrical wiring can also have a long shelf-life in the 20-30 year range, so the maintenance that is required of the poles would be limited to complete pole replacement after an accident or natural disaster, replacement of the wiring and pole as they begin to age, and LED fixture maintenance. Current estimates of pole replacement range from $3,000 to $4,000. Advances in LED technology have created LED fixtures with 10 year warranty periods, with fixtures exceeding these life spans. FISCAL IMPACT The system valuation provided to the City by SCE identified 2,229 of the 2,367 SCE- owned streetlight poles as available for purchase by the City. Streetlight poles that contain distribution wiring or other utilities are not available for sale. The cost to purchase the 2,229 poles from SCE was valued at $1,301,403 using their valuation methodology. 33 Honorable City Council May 3, 2017 Page 3 The current annual electricity cost per pole is approximately $136/pole at the LS-1 rate, an approximate annual cost of $303,000 for the 2,229 poles the City would be purchasing from SCE. Initially, the purchase of the system would drop the electricity cost of the poles, due to a reduction in the service charge per pole, down to $63/pole per year, however, it is estimated that maintenance on the HPS lights would cost an additional $57/pole per year, making the total cost $120/pole per year. The initial savings, before conversion, would be $16/pole per year or a total of$35,664 annually. Once the system is converted to LED the annual cost of the poles would drop to $39/pole due to the reduction in energy costs. Staff reached out to the City of Simi Valley for estimated maintenance costs per pole. They are planning on using contract services to maintain the streetlight system once they acquire it. Their projected costs for maintenance are around $15/pole per year. To obtain maintenance costs for the City of Moorpark and account for a higher number of knockdowns in our community, staff added an additional $12/per pole annually to Simi Valley's projected maintenance costs. Using this assumption LED and Pole maintenance costs are expected to add approximately $27/per pole annually. The new total cost per pole annually, including energy and maintenance costs is $66/per pole. This equates to a 51% annual savings over the current HPSV fixtures at the LS-1 rate and annual savings over the HPSV fixtures at the LS-2 rate of 45%. Expenses for knockdowns were figured to have a 65% rate of re-payment through the insurance claims process. The full savings would take approximately 12 to 18 months after purchase to be fully realized, however, as illustrated there are still annual savings of $34,000 while the conversion process is taking place. Based on staffs preliminary analysis the change in rate structure from LS-1 to LS-2, and conversion to LED results in approximately $156,000 per year in savings after accounting for expenses for maintenance and knockdown replacements, approximately $70/per pole annually. Total savings over the first 20 years, once the LED conversion is completed, would result in $3.12 million in savings to the General Fund. The preliminary cost to retrofit the poles to LED is approximately $1,200,000 or $538/pole. As mentioned above, the cost to purchase the system from SCE is $1,301,403. The total cost to purchase and retrofit the system is estimated to be $2,501,403. With the annual savings in energy charges the Return on Investment (ROI) of the retrofit and purchase is approximately 16 years. The annual savings allow the City to pay itself back for the purchase, retrofit and on-going maintenance of the streetlight system, while reducing the City's greenhouse gas emissions. There is another option for LED conversion offered by SCE called the LS-1 Option E tariff. Under the Option E Tariff, cities elect to have SCE do the LED conversion. When utilizing Option E, under the LS-1 rate schedule the service charge increases to between $9.64 and $11.40 per lamp based on wattage but there would also be a drop in energy costs due to the lower kWh usage of the LED fixtures. With the Option E rate, there is no upfront cost to the city, but during the first 20 years, there is an Energy 34 Honorable City Council May 3, 2017 Page 4 Efficiency Premium (EEP) charge which is added to recover costs associated with the LED installation. During this time, the city can expect to receive an annual savings of approximately $11,510. At the end of twenty years, the EEP charge will end, at which point, the approximate savings to the City would increase to $53,052 annually. With this option, over the first 20 years, the City would save approximately $230,000. There are concerns with moving forward with SCE to do the conversion. First, they are not offering cities and counties that elect this option any kind of schedule for conversion of the lights; and second, since SCE is selecting the LED fixture, there is no control over the type of fixture and color of light that would work best for the community. There is also no real incentive for SCE to do conversions in a timely manner because the LED conversion means lower streetlight energy bills to SCE. Staffs preliminary fiscal impact analysis illustrates that there appear to be benefits to the City owning their own streetlights in the form of the ability to retrofit the fixtures, reduce energy costs and provide better lighting conditions in the community. Another potential benefit of the ownership of the streetlight system is the ability to lease space on the light poles to third parties for Wi-Fi, cellular providers, or other Smart Technology, creating an avenue for revenue generation and expansion of internet and broadband services. These options would be explored by staff and discussed in more detail at a later date. In summary: • The costs to acquire the streetlight system are $1,301,403. • The estimated costs to convert the system to LED are $1,200,000. • Annual savings after initial purchase will be $35,664, and increase to $156,000, after LED conversion. This savings includes maintenance costs for the system. This savings would be lower if the City were to elect to finance the purchase and conversion, as discussed below. • The City would also need to set aside funds for reasonable replacement costs of the poles, wiring and fixtures as they age, which could add an additional $40/pole annually. The analysis by the financial consultant would assist with setting up a reasonable replacement reserve to be set aside on an annual basis to ensure that the City has the future funds to maintain the system. Staff is recommending that the City Council authorize the City Manager to negotiate the purchase agreement of the streetlight system with SCE. While the purchase agreement is being negotiated with SCE, staff will be reaching out to a financial consultant to provide a more robust analysis of the streetlight purchase costs and benefits, as well as exploring financing options for the purchase and conversion. Dependent upon interest rates and fees, financing the acquisition and conversion versus paying cash from the General Fund reserve would allow the City to keep earning interest on funds, while paying back the financing with the cost savings. Simi Valley has elected to finance the purchase and conversion of the system, as opposed to paying cash. Their financing scenario indicated that the savings would still be significant even with associated 35 Honorable City Council May 3, 2017 Page 5 financing costs. Staff will return at a future date with a contract for the financial consultant. The negotiations with SCE are expected to take 8 to 9 months. If, after hiring the financial consultant, staff finds that the consultant's analysis does not indicate a benefit from the purchase of the streetlights, then the City could elect to cancel the negotiations. If we continue with the negotiations, staff would return for final City Council approval of the Agreement and request for appropriation of required funds. STAFF RECOMMENDATION Authorize the City Manager to negotiate a purchase agreement with Southern California Edison for the streetlight system in the City of Moorpark. 36