DISTRICT HEAT PROJECT          August 22, 2012
Key Points   Project is within budget   Ongoing operation is viable   City’s risks are addressed   Project goals are met
Recommended Action   Authorize City Manager to proceed with project   Notify the State and DOE of this decision   Conti...
Presentation   Overall Project Description and Funding Summary   Project Costs   Customer Commitments   City/School he...
Project Goals   Reduce emissions   Replace oil with regional fuel source   Stabilize heating costs for city/school   E...
Project Summary   State Central Heating Plant – 40.2 MMBTU capacity   City Distribution System – 9.71 MMBTU (24%) of sta...
Overall Funding Summary   Federal Department of Energy        $8.00 million   State of Vermont Capital Funds      $7.00 ...
Funding Allocation   State Funds for heat plant              $8.200 million   DOE Grant to state for heat plant       $3...
Overall City Funding StatusTOTAL Distribution System $               $5,214,419Spent/Committed to date                    ...
Annual System Budget (2014)   2011 Bond Payment @ $2.0 M          $169,191 (highest)                 Bond @ $1.45 M = $12...
Customer Commitments using 2014Capacity Rates   City Complex (City Hall, Fire, Police)    $46,009   Union Elementary Sch...
Customer Base   10 Customers involve 15 Connections   Initial System design = 34 Connections   Commitments for 44% of c...
10 Cust. $3.73 M Project. $1.45 M Bond $900,000                                        District Heat $800,000             ...
City/School Fuel at $2.99/gallon   City & UES use 60,600 gallons per year of oil   Combined DH capacity fee = $123,359 ...
Comparison to Oil$6,000,000                                             $5,555,435                                        ...
Financing for Customer Connections   Partnership with VT Economic Dev. Authority (VEDA)   Village Green grant pays 10% o...
City Risk for not proceeding   Cost of Oil in future starting at $3.00/gallon    $900,000                                ...
City’s Risks for Proceeding   Project Costs running over   Under budget, sufficient contingency, current bid climate,   ...
Bad Case Scenario   Must Pay Obligations      $275,327   City/School Energy Fees    $58,063   TOTAL MUST PAY           ...
City Risk ComparisonCity/School Oil prices  $3.00/gallon for 60,600 gallons = $181,422  $3.31/gallon for 60,600 gallons = ...
Other Considerations   Operating costs and responsibilities are manageable   Consistent with City Council 2012 Goals   ...
Recommended Council Action   Authorize City Manager to proceed with project   Notify the State and DOE of this decision...
Montpelier District Heat Project August 2012
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Montpelier District Heat Project August 2012

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August 22, 2012 Presentation by William Fraser, City Manager

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Montpelier District Heat Project August 2012

  1. 1. DISTRICT HEAT PROJECT August 22, 2012
  2. 2. Key Points Project is within budget Ongoing operation is viable City’s risks are addressed Project goals are met
  3. 3. Recommended Action Authorize City Manager to proceed with project Notify the State and DOE of this decision Continue signing up customers Issue bids in September for receipt in October Review bids in November, consider project adjustments. Award contract. Consider options for use of available funds, possible additional assistance for connections. Begin construction in spring of 2013 Provide Thermal Energy to Customers on 10/1/13
  4. 4. Presentation Overall Project Description and Funding Summary Project Costs Customer Commitments City/School heating costs Financing Package City’s Risk System Management, City Goals and Master Plan, Assumptions and Projections, City Votes Recommended Action
  5. 5. Project Goals Reduce emissions Replace oil with regional fuel source Stabilize heating costs for city/school Economic development opportunity for downtown City’s project costs within current expenses
  6. 6. Project Summary State Central Heating Plant – 40.2 MMBTU capacity City Distribution System – 9.71 MMBTU (24%) of state plant, ability to purchase up to 16.3 MMBTU Both Public and Private Customers Primarily Wood Chips for winter fuel (Oct – April) Summer Hot Water through system boilers
  7. 7. Overall Funding Summary Federal Department of Energy $8.00 million State of Vermont Capital Funds $7.00 million State of Vermont In Kind $1.20 million City of Montpelier 2011 Bond $2.00 million CEDF Grant $1.00 million CEDF Loan, 1%, deferred payment $0.75 million Forest Service Grant (new) $0.248 million Village Green Grant (new) $0.10 million TOTAL $20.298 million
  8. 8. Funding Allocation State Funds for heat plant $8.200 million DOE Grant to state for heat plant $3.249 million DOE Grant to state for city capacity $2.558 million City/CEDF funds to state for capacity $1.077 million DOE Grant to city for dist. system $2.193 million City/CEDF funds for dist. system $2.673 million Other grant funds for dist. system $0.348 million Total for Central Heating Plant $15.047 million Total for Distribution System $5.214 million
  9. 9. Overall City Funding StatusTOTAL Distribution System $ $5,214,419Spent/Committed to date $899,651Available Balance for Project $4,314,768Revised Project Cost Estimate $3,732,351 Project Balance $582,417 (17.71%) Contingencies (included in estimate) $393,739 (11.97%) Combined “cushion” $976,156 (29.68%) May only need $1.45 M Bond instead of $2.0 M
  10. 10. Annual System Budget (2014) 2011 Bond Payment @ $2.0 M $169,191 (highest) Bond @ $1.45 M = $122,663 Contract with State $68,032 2009 Bond Payment $20,376 (highest) Operations $10,228 CEDF Loan Interest $7,500 Total “Must Pay” Obligations $275,327 (w/ $2 M Bond) $228,799 (w/$1.45 M Bond) Cash Reserve (5% of rev.) $12,992 Operating/Admin 10 customers $46,026 ($65,348 max) TOTAL $334,345 With $1.45 M Bond $287,817
  11. 11. Customer Commitments using 2014Capacity Rates City Complex (City Hall, Fire, Police) $46,009 Union Elementary School $77,350 Vermont Mutual $151,830 prorated $30,366 GSA $40,656 County (Court House, Sheriff) $14,738 Everett (52, 46 & 27 State St) $26,934 Nedde (City Center) $26,257 NECI/Nick (118 Main St) $12,949 Jacobs (22 Elm/Jailhouse Common) $8,165 Beard (15 E. State St) $6,776 TOTAL $290,200
  12. 12. Customer Base 10 Customers involve 15 Connections Initial System design = 34 Connections Commitments for 44% of connectionsAdditional connections create additional financial stability.
  13. 13. 10 Cust. $3.73 M Project. $1.45 M Bond $900,000 District Heat $800,000 Annual Operating Budget Projection $700,000 Annual Revenues Annual Expenses $600,000 Annual Budget Balance $500,000 Total Cash on Hand $400,000 $300,000 $200,000 $100,000 $0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033($100,000)
  14. 14. City/School Fuel at $2.99/gallon City & UES use 60,600 gallons per year of oil Combined DH capacity fee = $123,359 Combined DH energy fee = $58,063 Total Combined DH cost = $181,422 $181,422/60,600 gallons = $2.99 per gallon
  15. 15. Comparison to Oil$6,000,000 $5,555,435 NPV COSTS & SAVINGS of Oil and District Heat for City/School$5,000,000 $4,384,564$4,000,000 $3,515,833 $3,034,069$3,000,000 20 Year NPV Cost - Oil & DH $2,521,366 20 Yr NPV savings with DH 10 year NPV savings with DH$2,000,000 $1,350,495$1,000,000 $481,764 $447,936 $298,248 $120,695 $0 City/School Oil City/School Oil City/School Oil City/School DH, @ 3% increase @ 5.25% @ 8% increase 2.5% wood increase increase
  16. 16. Financing for Customer Connections Partnership with VT Economic Dev. Authority (VEDA) Village Green grant pays 10% of cost VEDA finances remaining 90% at 4% over 5-7 years Effective rate = 0% for 5 years, 1% for 7 years City will include repayment on DH bill
  17. 17. City Risk for not proceeding Cost of Oil in future starting at $3.00/gallon $900,000 City/School with $800,000 District Heat City/School oil @ $700,000 3%/year $600,000 City/Schoo Oil @ 5.25%/year $500,000 City/School Oil at 8%/year $400,000 $300,000 $200,000 $100,000 $0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
  18. 18. City’s Risks for Proceeding Project Costs running over Under budget, sufficient contingency, current bid climate, project sectioning options “Stuck” with Annual Operating Cost Full $2.0 M Bond. Minimal Customers – GSA, County, VM, Everett.
  19. 19. Bad Case Scenario Must Pay Obligations $275,327 City/School Energy Fees $58,063 TOTAL MUST PAY $333,390 Income (4 customers) $112,694 Net For City to Pay $220,696 Less City/School Capacity $123,359 Less City/School Energy $58,063 TOTAL – City paying $181,422Net Added DH Costs for City $39,274
  20. 20. City Risk ComparisonCity/School Oil prices $3.00/gallon for 60,600 gallons = $181,422 $3.31/gallon for 60,600 gallons = $200,586 $3.50/gallon for 60,600 gallons = $212,1002009 Bond payment = $20,376City Costs with no DH = $201,798 to $232,476Net Cost under Bad DH = $220,696
  21. 21. Other Considerations Operating costs and responsibilities are manageable Consistent with City Council 2012 Goals Consistent with City’s 2010 Master Plan City’s analysis “reasonable as to method and assumptions and the substance of the agreements to be reasonable in light of normal energy purchase and sale agreements” Public votes on this project:  2003 Bond $250,000 1,273-875 59%  2009 Re-use of the ’03 bond 1,024-745 57%  2010 Charter amendments 2,826-755 78%  2011 Bond $2,000,000 963-609 61%
  22. 22. Recommended Council Action Authorize City Manager to proceed with project Notify the State and DOE of this decision Continue signing up customers Issue bids in September for receipt in October Review bids in November, consider project adjustments. Award contract. Consider options for use of available funds, possible additional assistance for connections. Begin construction in spring of 2013 Provide Thermal Energy to Customers on 10/1/13
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