GUSTINE - The City Council is taking a second look at a nearly $3.2 million energy program which it initially approved in early November.
Cash flow concerns, changes in the terms of a $2.2 million low-interest loan through the state, and hesitation to borrow an additional $928,000 from the city’s sewer reserves needed to fund the remainder of the project have local leaders revisiting the energy program.
While the energy program holds the promise of significant benefit over the next 30 years, City Manager Doug Dunford said, concerns have emerged that it will cost the city out-of-pocket through the initial years before overall savings kick in.
City staff, at the direction of the council at its Dec. 17 meeting, will break the project down into individual components and present a more detailed financial analysis later this month.
The overall program involves installation of city-owned solar panels at a number of municipal locations, installation of lighting along a planned Schmidt Park pathway and energy efficiency upgrades in city facilities.
According to projections presented by energy firm ENGIE, the full program holds the potential for net savings of $4.3 million to $5.7 million over the course of 30 years, depending on the escalation of Pacific Gas & Electric Co. rates.
Council members Nov. 5 authorized staff to enter into an agreement with ENGIE for the project. But since that time, City Manager Doug Dunford reported, the term of a California Energy Commission loan which is part of changed from 20 years to 18 years, increasing the annual loan payment by $13,000 to nearly $138,000.
No contract was signed, Dunford told Mattos Newspapers, and with the change in loan terms the matter came back to the council for further consideration.
While the program promises substantial long-term savings, Dunford said, projections indicate that the yearly net energy savings - after city makes its annual CEC loan repayment and covers maintenance costs - would not begin to cover the city’s estimated $70,000 internal repayment obligation to its own sewer fund for up to 10 years.
That length of time could be shortened if the council chooses to drop the $570,000 Schmidt Park solar pathway lights - which represent an expense built into the project but produce no energy savings. The pathway lights would be funded from the city’s internal loan, so eliminating that component drops the required loan amount to $356,000.
The CEC and internal loans would each have an 18-year term under the scenario outlined for the City Council, which focused on the full project which was initially approved.
Dunford said that ongoing PG&E expenses are still another factor which must be considered in the overall equation.
The city currently spends about $287,000 a year for electricity, according to staff. Dunford said the energy program is expected to offset at least half of that expense.
The city’s initial annual expense of the full energy program (including the CEC loan, $928,000 internal loan and maintenance) would be about $220,000, he explained. If $287,000 is the energy budget to work with, Dunford said, the city would have about $67,000 remaining. That would not cover its remaining PG&E bill, he said, resulting in a negative budget impact.
The project does hold significant potential for long-term savings, Dunford reiterated, but the shorter-term ramifications are a growing concern.
“We’re looking at whether we can actually afford this project,” he commented. “We have the loan from the CEC, our own loan and we still have to pay PG&E. I don’t think that it will pencil out to do the whole project.
“In the long run we will be saving money, but not for the first 11 years,” Dunford told Mattos Newspapers.
ENGIE Program Development Manager Carolyn Kiesner told the council that the company removed about $20,000 in costs from the project when the CEC loan term came in shorter than anticipated to help it pencil out for the city.
Not moving forward with a project will ultimately result in the city paying millions more to PG&E, Kiesner cautioned the council.
Kiesner said that ENGIE could scale back or eliminate the park lighting component of the project. The base project without the path lighting still offers solid benefits, she emphasized.
Council members weighed in on the situation.
“As much as I would love to see that lighted path out there, I can’t see this working,” said council member Rich Ford. “I think we need to look a lot deeper.”
Mayor Pat Nagy voiced concern about tying up money from sewer plant reserves which may be needed for upgrades to that facility.
He agreed that more detailed financial information is needed for the council to make a final decision.
“We have to be able to afford it,” Mayor Pro Tem Joe Oliveira commented.
Ford suggested that his enthusiasm for the project has waned.
“When all this started, it sounded too good to be true,” he commented. “Maybe it is not as good as I thought it was.
“For the first 10 years we are going to have to take money out of pocket,” Ford added.
Dunford said staff will develop more detailed cost estimates and break down alternatives to present to the council at its Jan. 21 meeting.
Dunford told Mattos Newspapers he will recommend against moving forward with the full project.
The city manager said he will recommend that the pathway lighting be dropped from the project. The council will be able to consider each component of the remaining base project individually and determine which if any to approve, he added.
The council could also choose to seek energy-saving proposals from other companies, Dunford told Mattos Newspapers.