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 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

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

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

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

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

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

Overall City Funding StatusTOTAL 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

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

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

Customer Base 10 Customers involve 15 Connections

Initial System design = 34 Connections

Commitments for 44% of connections

Additional connections create additional financial stability.

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

($100,000)

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000 District Heat Annual Operating Budget

ProjectionAnnual RevenuesAnnual ExpensesAnnual Budget BalanceTotal Cash on Hand

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

Comparison to Oil

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$3,515,833 $4,384,564

$5,555,435

$3,034,069

$481,764 $1,350,495

$2,521,366

$120,695 $298,248 $447,936

NPV COSTS & SAVINGS of Oil and District Heat for City/School

20 Year NPV Cost - Oil & DH20 Yr NPV savings with DH10 year NPV savings with DH

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

City Risk for not proceeding Cost of Oil in future starting at

$3.00/gallon

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

City/School with District Heat

City/School oil @ 3%/year

City/Schoo Oil @ 5.25%/year

City/School Oil at 8%/year

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.

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

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 = $212,100

2009 Bond payment = $20,376

City Costs with no DH = $201,798 to $232,476

Net Cost under Bad DH = $220,696

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%

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