Modesto pulls plug on energy-efficient streetlight deal

kvaline@modbee.comJune 24, 2014 

The Modesto City Council voted Tuesday not to enter into a $10.76 million deal to have Siemens Industry replace about 9,500 streetlights with more energy efficient ones and conduct other upgrades to cut the city’s power bill because of concerns over the deal’s financing and cost.

The vote was 7-0 and came after Siemens zone manager Jesse Thompson said city staff had provided inaccurate and misleading information about the project. He implored the council to give Siemens more time to resolve its issues with city staff.

“There are a lot of inaccuracies in the staff report,” Thompson said. He added that Siemens has done more than 400 of these projects without problems, including in neighboring communities such as Merced, Atwater and Vallejo in the Bay Area.

City officials said they worked with Siemens officials in good faith and have met with them since last week to try to resolve their differences.

This was not the only issue that gave the meeting a jolt.

The council voted for the second and final time Tuesday on the city’s $340 million operating budget and reorganization plan for the 2014-15 fiscal year, which starts July 1. The previous votes were 7-0, but Tuesday’s votes were 5-2, with council members Dave Lopez and Jenny Kenoyer voting “no.”

They were concerned that the reorganization calls for several managers to receive pay increases while the 2014-15 budget reduces funding for public safety and will result in the closure of one of the city’s 11 fire stations. Fire Station No. 6 near Vintage Faire Mall is slated to close July 7.

City officials say the reorganization will save Modesto several hundred thousand dollars annually and includes pay increases totaling $39,000 for four managers who will be taking on additional duties.

Modesto hired Siemens in April 2013 to conduct an energy audit and make recommendations based on those results. The audit was completed in December. The council approved entering into a “clean energy project performance contracting agreement” with Siemens on June 10. But that agreement would not take effect unless the council approved the financing for the project Tuesday.

Replacing the streetlights with longer-lasting, more-efficient ones made up about two-thirds of the project, which included upgrading the lighting at 16 city facilities and the heating, ventilation and air conditioning at the Police Department.

Modesto was considering financing the project through a 15-year agreement with Siemens. Officials have called this a self-funded project because the city would use the money it saved on utility bills and operations cost to pay Siemens.

The agreement called for Modesto to lease the streetlights and other upgrades from Siemens; the city then would own them after 15 years of lease payments. The project was $8.4 million and the interest payments would have increased the project’s total cost to more than $10 million.

But city officials were concerned the lease agreement would violate the state’s debt-limit regulations for local governments. The regulations ensure local governments don’t take on too much debt and have provisions covering lease-to-purchase agreements such as the one Modesto was considering with Siemens.

The debt limit states that the lease payments cannot exceed the “fair rental value” for the equipment and services. But a city report states the payments appear to be higher than the market rate.

For instance, the report states that Siemens estimated its cost for the streetlights at $5.4 million, while the city estimates it could do the work for $3.7 million or contract the work out for $3.2 million. Those cost differences were a concern for city officials.

City officials had other issues with the financing agreement, including the provision that Modesto would be responsible for any claims or liabilities with the project.

Modesto will owe Siemens $225,000 for the energy audit. But Interim City Manager Jim Holgersson said the city will use the audit as it pursues other ways to reduce energy bills and usage. The city spends about $7 million annually on utilities, with most of that for electricity.

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