Heat generated over energy savings proposal

kvaline@modbee.comJune 13, 2014 

Modesto’s effort to use less electricity generated some heat at this week’s City Council meeting.

The council voted 6-1 to enter into an $8.4 million agreement with Siemens Industry to have the global corporation’s building-technology division in Hayward replace about 9,500 streetlights and upgrade the exterior and interior lighting at 16 city facilities and the heating, ventilation and air conditioning at the Police Department.

The city says this is a self-funded clean-energy project because it would use the money it saves on its utility bills and operations costs to pay for the project. The deal is not final until the council approves the project’s financing at its June 24 meeting.

But before council members voted Tuesday, one of Siemens’ competitors told them his firm could do the streetlight work – which makes up the majority of the project – at significantly less cost and urged them to put that work out to bid. Jason Tanko of San Francisco-based Tanko Lighting said his firm specializes in streetlights and could do the job for about $3.2 million compared with the $5.2 million Siemens would charge.

Councilman Bill Zoslocki voted against giving Siemens the contract. He said even before Tanko spoke, he had concerns about the cost and had not been provided enough information to make an informed decision. City officials will report back at the June 24 meeting on the issues raised Tuesday.

Siemens and the city have been working on this project since April 2013, when the council approved having Siemens conduct an energy audit and propose recommendations based on the results. The city selected Siemens from among eight firms that competed for the work. (Modesto will owe Siemens $225,000 for the audit if it decides not to move forward on the project.)

Mayor Garrad Marsh said the city has held several public meetings on the project and Tanko did not raise objections until Tuesday. “It really concerns me when someone comes in not at the eleventh hour but at the eleventh hour and fifty-ninth minute and says, ‘I have a better idea.’ 

Tanko said Friday he did not speak up sooner because Siemens’ pricing information was not released until last week.

Siemens zone manager Jesse Thompson dismissed Tanko. He told the council this was the third time Tanko had made claims against Siemens. Thompson said he knows Tanko and his company well and they did good work because Siemens hired them to do the labor on some of its projects.

But Thompson said it was not accurate to compare Tanko’s proposal with Siemens’. He said Siemens was offering a bundled approach and the streetlight savings were subsidizing other project components.

Marsh added that Modesto did not have the money for the project, but Siemens was proposing to finance the work. The city is looking at borrowing $8.4 million from Siemens Financial Services over 15 years. The interest costs would raise the project’s cost to $10.4 million.

But the city expects it would save $14.4 million through lower energy and operations costs over the 15 years. Officials say that is enough to pay off the $10.4 million and leave the city with $4 million in its pocket.

Siemens is guaranteeing the project will generate enough savings for Modesto to do that. The agreement calls for Siemens to pay Modesto for any savings shortfalls or provide operational upgrades at its own expense to make up for any shortfall. The agreement states the guarantee is for 10 years, though Modesto is looking at financing the project over 15 years. The streetlights are expected to last more than 24 years but are guaranteed for 10.

Tanko said Friday that the city could get similar financing for the streetlights, and he questioned whether it makes sense to do the other work if it required subsidies.

The city also has the option of replacing the streetlights itself. That would cost less but take more time, which Marsh said would cause the city to lose energy bill savings. Siemens has a little more than a year to complete the project once the financing has been approved.

Interim City Manager Jim Holgersson said staff will have answers to the questions raised Tuesday when this item comes back to the council June 24. He said the city will do an “apples to apples” comparison by evaluating alternatives against the entire package being offered by Siemens, including all of the project’s work, the financing, long-term energy savings and the guaranteed savings.

Officials say it’s imperative to complete the deal before July 1, when California will start enforcing more stringent energy-efficiency standards. A city report says those changes will significantly increase the project’s cost while not providing corresponding savings. Those changes do not apply to the streetlights, according to Siemens official Scott Meinzen.

Modesto spends about $7 million on utilities, with most of that for electricity.

The project calls for Siemens to replace the city’s high-pressure sodium, metal halide and mercury vapor streetlights with light-emitting diodes, which use less energy, last longer and provide whiter light than the city’s current streetlights. The work does not include replacing the city’s more than 700 high-voltage streetlights.

Bee staff writer Kevin Valine can be reached at kvaline@modbee.com or (209) 578-2316.

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