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Time Set # 22.
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| Board of Supervisors |
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| Subject |
| Hold a public hearing and receive a presentation on Energy Conservation Measures Financing in connection with the proposed agreement with Trane U.S., Inc.; adopt resolution approving the execution and delivery of an Equipment Lease-Purchase Agreement and authorize certain additional actions to complete the equipment financing; and adopt associated budget resolution. (No general fund impact) (4/5 vote required) (Rinde) |
| Recommended Action |
- Hold a public hearing and receive presentation from Government Financial Strategies (financial advisor) on the Energy Conservation Measures Financing;
- Make a finding that funds for repayment of the financing of the energy conservation facilities are projected to be available from funds that otherwise would have been used for purchase of electrical, thermal or other energy required by the County in the absence of the energy conservation facility;
- Adopt a resolution approving the execution and delivery of an Equipment Lease-Purchase Agreement, and authorize certain additional actions to complete the Equipment financing; and
- Adopt a budget resolution increasing the 2019-20 budget by the receipt of financing proceeds and estimated energy conservation project costs of $3,052,000 for the remainder of the fiscal year.
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| Strategic Plan Goal(s) |
Operational Excellence
Sustainable Environment |
| Reason for Recommended Action/Background |
As part of the County's capital improvement plan, staff from the General Services Department, in collaboration with the County Administrator's Office and Department of Financial Services, have looked at methods to address deferred maintenance throughout County facilities. In December 2017, the County issued a Request for Qualifications and selected Trane, Inc. to perform a Preliminary Energy Audit. Based on the results of the audit, the Board approved Trane at the June 2019 meeting to perform an Investment Grade Energy Audit (IGA). The results of the IGA, presented to County staff in October 2019, determined numerous Energy Conservation Measures that could be adopted across County facilities where the savings from the measures could be used to pay for the cost of the improvements. These improvements include Mechanical (HVAC) Replacements at 27 Buildings, Lighting and Electrical Improvements at 34 Buildings, and Plumbing Water Efficiency improvements at 21 buildings. The total cost of the Energy Conservation Measures project is $10.1 million, which was determined to require debt financing in order to implement the improvements, with the intent that energy savings would be captured and utilized to repay the costs of the project and associated financing charges.
Thus, in November 2019, the Department of Financial Services in conjunction with General Services presented to the County Debt Committee a plan to finance the equipment along with a preliminary analysis of the Cost-Benefit. The Debt Committee supported the proposed plan to complete the financing in conjunction with approval of a contract with Trane, Inc. for the Energy Conservation measures.
In the financing transaction, the County will borrow sufficient funds (resolution authorizes not to exceed $10.5 million with actual planned amount for $10.16 million) in order to allow Trane to install all of the equipment. The Equipment will be leased energy conservation equipment from the lender (Zions Bankcorporation). The County will make lease (rental) payments required for a fifteen (15) year period and will, upon completion of the lease payments, own the equipment.
The financing is scheduled to close on or about February 19, 2020. It is currently expected that the payments will be semi-annual, beginning with a first debt service payment on February 1, 2021, and ending February 1, 2035. A competitive process was used to select the lender and the interest rate is 2.42%, which reflects a favorable interest rate environment for the County to be borrowing within.
The on-going repayment source for the debt service will be internal charges through Yolo Electric and General Services water billing in order to recapture energy savings associated with the project, which will be set-aside for debt repayment. The attached pro-forma (Attachment E) demonstrates the project benefits are projected to exceed the costs over a 15 year time period which is equivalent to the time period that the debt will be outstanding. The project is envisioned to save $6.3 million over the time horizon from various sources. The project is expected to incur financing costs of approximately $12.6 million over the 15-year period but will benefit from reductions in energy costs of $11.2 million, optimization of current credits received of $1.8 million, avoided maintenance costs of $1.8 million, and avoided capital replacement costs of $4 million. Thus the energy savings will only pay for approximately 85-90% of the project and thus internal charges for energy costs will go up slightly for departments. These benefit sources are customarily included in an energy conservation project and meet the requirement for the benefits to exceed the cost.
A budget resolution is attached (Attachment D) which includes the debt financing proceeds and the expected project-related costs to be incurred during the 2019-20 fiscal year. The remaining project implementation costs will occur during the 2020-21 fiscal year.
The Department of Financial Services has reviewed the issuance of the debt in accordance with the County Policy on Borrowing, Debt, and Obligations and determined that the issuance of debt will not cause the County to exceed the safe range of any of the County adopted debt ratios, or have a significant negative impact on the County's financial sustainability. |
| Collaborations (including Board advisory groups and external partner agencies) |
The Department of Financial Services collaborated with the County Administrator's Office, General Services Department, County Counsel, Government Financial Strategies Inc. (as financial advisor), Parker & Covert (as bond counsel), and Hilltop Securities (as placement agent) in coming to the recommended action.
The County Debt Committee reviewed and supported the project and the plan of finance at their meeting on November 12, 2019. |
| Competitive Bid Process |
All stages of the debt transaction involved competitive bidding as required by the County Procurement policy:
- A Request for Proposals was conducted and closed on April 1, 2019. Of the three bidding firms, Government Financial Strategies was determined to be the best qualified Financial Advisor for the transaction.
- Government Financial Strategies assisted with a solicitation for Bond Counsel services to complete the financing. Of three bidding firms, Parker & Covert was selected as Bond Counsel.
- Government Financial Strategies assisted with a solicitation for Placement Agent services to complete the financing. Of three bidding firms, Hilltop Securities was selected as Placement Agent.
- Hilltop Securities assisted the County in soliciting lenders and investors for the financing in order to obtain the most advantageous terms for the County. Of the lenders and investors solicited, 10 submitted proposals, and the County selected the most advantageous proposal based on a consideration of a variety of factors such as the interest rate, rate lock provision, lender costs, and prepayment terms.
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| Fiscal Impact |
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| Source of Funds for this Expenditure |
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Explanation (Expenditure and/or Revenue) |
| Further explanation as needed: |
A budget resolution is attached for the financing proceeds and the estimated project amounts to be expended in the 2019-20 fiscal year, which includes $52,000 in financing (debt issuance) costs and $3,000,000 in project implementation costs. The remainder of the project is expected to be completed during the next fiscal year and will be included in the 2020-21 budget.
The on-going repayment source for the debt service will be an internal charge through Yolo Electric and General Services water billing in order to recapture energy savings associated with the project which will be set-aside for debt repayment.
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