The district heat project is within budget and its ongoing operation is viable. The project meets its goals of reducing emissions, replacing oil with a regional fuel source, and stabilizing heating costs for the city and schools. The document recommends that the city authorize proceeding with the project as planned, continuing customer signups and issuing construction bids to begin in spring 2013 with the goal of providing thermal energy to customers by October 1, 2013.
2. Key Points
Project is within budget
Ongoing operation is viable
City’s risks are addressed
Project goals are met
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. 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. 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. 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.
8. 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
9. 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
10. Overall City Funding Status
TOTAL Distribution System $ $5,214,419
Spent/Committed to date $899,651
Available Balance for Project $4,314,768
Revised 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
11. 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
12. Customer Commitments using 2014
Capacity 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
13. Customer Base
10 Customers involve 15 Connections
Initial System design = 34 Connections
Commitments for 44% of connections
Additional connections create additional financial stability.
14. 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)
15. 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
16. 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
17. 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
18. 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
19. 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.
20. 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 $181,422
Net Added DH Costs for City $39,274
21. City Risk Comparison
City/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 = $212,100
2009 Bond payment = $20,376
City Costs with no DH = $201,798 to $232,476
Net Cost under Bad DH = $220,696
22. 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%
23. 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