Item 6-K

Council Meeting: 2/25/97                Santa Monica, CA

TO:       Mayor and City Council

FROM:     City Staff
       
SUBJECT:  Recommendation to Authorize the City Manager to
          Negotiate and Execute an Agreement with the Southern
          California Edison Company (ENVEST) for Implementation
          of Phase Two of an Energy Efficiency Demonstration
          Project for City Facilities

INTRODUCTION
This report requests that City Council authorize the City Manager
to negotiate and execute an agreement with Southern California
Edison (ENVEST) for implementation of Phase Two of an energy
efficiency demonstration project for City facilities.

BACKGROUND
In April 1995, the City and ENVEST entered into an agreement for
the energy efficiency upgrade and infrastructure improvement of
City facilities which would yield significant energy savings and
reduce overall energy costs.  The City facilities included in
Phase One of the ENVEST project were the City Hall/Police
building, Civic Auditorium, Main Library, Fairview and Ocean Park
branch libraries, all downtown parking structures, and the
municipal pool at Santa Monica College.  It was envisioned at the
time that the remaining City facilities that could benefit from
energy retrofits would be covered by a second phase project.  

Under the California Public Utility Commission-approved ENVEST
structure, Edison shareholders provided $1.6 million in energy
efficiency services for the project through a lease-purchase
agreement with the City.  The City is using most of the project's
cost savings to pay back this capital investment by Edison over
the term of the agreement.  After the payback period is complete,
the City will accrue all savings for its own use. 

Energy consumption data from the Phase One retrofitted sites has
been collected over the last six months and the reduced use of
electricity at those sites has saved the City $84,308.  With the
addition of the estimated savings from the Main Library
retrofits, annual energy savings from Phase 1 will total
$193,463.  The original ENVEST proposal estimated annual savings
of $234,000 per year.  The annual savings are now projected to be
lower as a result of the City's request to delete a City Hall
central HVAC (heating/ventilating/air conditioning) system and
additional HVAC upgrades made at the Civic Auditorium which are
designed to improve system performance, but not deliver energy
savings.  After the annual lease payment of $183,961 is made to
ENVEST, the City will retain $9,502 each year.

DISCUSSION
When Phase Two of the ENVEST project is complete, staff estimates
that the City will have reduced its electricity consumption by
about 2.5 million kilowatt hours annually.  This will result in a
total energy reduction of over 40 million kilowatt hours during
the effective life of the installed energy efficiency measures
(16 years).  The reduction in emissions avoided through the year
2005 (10 years) are as follows:  23,500 tons of carbon dioxide,
21.5 tons of nitrous oxide (NOx), 14.5 tons of sulfur dioxide
(SOx), and over 2300 pounds of particulates.   A 1996 National
Resource Defense Council analysis of major urban areas estimates
that particulate pollution is causing more than 64,000 people to
die one to two years prematurely from cardiopulmonary diseases. 
Excessive concentrations of particulates have also been linked to
a 44 percent increase in asthma diagnoses between 1982 and 1990. 
The South Coast Air Quality Management District estimates that
for every ton of NOx and/or SOx not emitted into the Los Angeles
basin, $7,000 in costs is avoided for healthcare, welfare, and
property damage caused by pollutants.  The kilowatts saved under
Phase 1 of the ENVEST project through the year 2005 will result
in avoided costs to the Los Angeles basin of $67,814 from reduced
NOx and SOx emissions.   No cost impacts are available due to CO2
emissions, however, the Intergovernmental Panel on Climate
Change, a review board for global warming, estimates that the
average American household produces about 45,000 pounds of CO2
every year from heating and electricity, automobile travel, and
airplane travel.  Electricity accounts for about 8,000 pounds of
CO2 annually from the average Southern California household.  The
ENVEST project will represent a reduction in electricity
consumption equal to 5875 households and the total carbon dioxide
produced by 1044 households.

In December 1996, ENVEST staff approached the City to propose
completing the retrofit of the remaining City facilities under
the same terms stipulated in the Phase One agreement.  An energy
survey of the potential remaining sites was completed and energy
efficiency measures valued at over $784,156 were deemed to be of
a high enough level of cost-effectiveness to be eligible for a
Phase Two ENVEST project.  Phase Two sites include:  City Yards;
Fire Stations 1, 3, 4, and 5; the animal shelter; Montana branch
library; Ken Edwards Center; the Bus Yard garage and
administration buildings; the airport maintenance hangar and
administration building; Virginia Park Community Center; Memorial
Park gym and arts building; the senior center at Palisades Park;
Joslyn Park Community and Senior Center; Douglas Park Clubhouse;
the Park Division's airport facility; 612 Colorado; Woodlawn
Cemetery buildings; and miscellaneous park restrooms.  Each of
the potential Phase Two sites is currently being examined to
determine if the facility meets federal criteria to qualify for
tax -exempt financing.  As in Phase One, the Phase Two proposed
energy efficiency measures include lighting retrofits (all new
lighting equipment will be hazardous chemical-free), upgrades or
replacement of existing HVAC systems (all new HVAC equipment will
be CFC-free), and direct digital control systems which maximize
savings by modifying equipment operation schedules based on the
actual hours of building operation.  

In addition to providing financing for the total cost of the
project, ENVEST will be responsible for the purchase and
installation of equipment and supervision of all sub-contractors
involved in the project.  All of the equipment to be installed
will have a useful life beyond the length of the 12 year project
payback period.   As in the Phase One agreement, the Phase Two
ENVEST agreement will stipulate the project schedule, the scope
of the project, the City's payback schedule and payback amounts,
liability insurance requirements, equipment warranties, and other
pertinent elements of the proposed project.

BUDGET/FISCAL IMPACT
Under the ENVEST framework, $156,831 of the total $784,156
project cost will be paid by Edison ratepayers.  The City will
have to repay the balance of $627,324.  Staff estimates that the
City will realize an annual energy cost savings of $87,127 from
the proposed energy efficiency upgrades and infrastructure
improvements.  The bulk of these estimated savings ($78,220) will
be used to pay back the initial capital investment by the ENVEST
program.  The remaining portion of the estimated savings ($8,907
per year) will be retained by the City.  As in Phase One, the
full payback term to ENVEST will be 12 years.  The California
Public Utilities Commission authorized rate of return which
Edison is able to receive from this project is 9.17 percent after
tax.  After the end of the payback period, all future savings
will accrue directly to the City.   The payback of ENVEST's
project costs will be reconciled through the City's regular
monthly Edison bills.

RECOMMENDATIONS
Staff recommends that the City Council authorize the City Manager
to negotiate and execute an agreement with Southern California
Edison (ENVEST) for Phase Two of an energy efficiency
demonstration project for City facilities.