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DISTRICT HEAT PROJECT

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

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DISTRICT HEAT PROJECT

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  1. DISTRICT HEAT PROJECT August 22, 2012

  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. 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. 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. 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

  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. 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

  12. Customer Base • 10 Customers involve 15 Connections • Initial System design = 34 Connections • Commitments for 44% of connections Additional connections create additional financial stability.

  13. 10 Cust. $3.73 M Project. $1.45 M Bond

  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. Comparison to Oil

  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. City Risk for not proceeding • Cost of Oil in future starting at $3.00/gallon

  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. 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

  20. 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

  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. 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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