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.