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 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

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

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

District Heat

Annual Operating Budget

Projection

Annual Revenues

Annual Expenses

Annual Budget Balance

Total 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

$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

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

City/School Oil

@ 3% increase

City/School Oil

@ 5.25%

increase

City/School Oil

@ 8% increase

City/School DH,

2.5% wood

increase

NPV COSTS & SAVINGS

of Oil and District Heat for City/School

20 Year NPV Cost - Oil & DH

20 Yr NPV savings with DH

10 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

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

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 $181,422

Net Added DH Costs for City $39,274

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

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