Modesto is looking at replacing its streetlights with longer-lasting, more efficient ones and other upgrades to reduce its electricity costs and its carbon footprint. The project could cost more than $10 million, with the city borrowing the money and paying off the loan with the savings from lower power bills and maintenance costs.
The City Council on Tuesday is expected to consider entering into a “clean energy project performance contracting agreement” with the global firm Siemens Industry’s building technologies division in Hayward. That would be the first step. The final step could take place June 24 if the council then approves a financing package with Siemens Financial Services.
The city and its financial advisers are working out the details, but a city report suggests the city could borrow $8.4 million over 15 years at 2.75 percent interest to pay for the work. The project’s total cost would be $10.39 million, which includes the interest. But the report says the city would save more than $14 million because of lower utility bills and reduced maintenance and operations costs. The city would use those savings to pay off the project’s debt and would net about $4 million.
The agreement calls for Siemens to pay Modesto for any shortfalls in expected savings or provide operational upgrades at its own expense to make up for a shortfall.
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The project calls for Siemens to replace more than 9,000 streetlights, retrofit the exterior and interior lighting at 16 city facilities – including Thurman Field, two parking garages and the King-Kennedy Memorial Center – and upgrade the heating, ventilation and air-conditioning systems at the Police Department.
Siemens would replace the city’s high-pressure sodium, metal halide and mercury vapor streetlights with light-emitting diodes, which officials say use less energy, last longer and provide better, whiter light than the city’s current streetlights, which give off an orange tint.
Modesto Purchasing Manager Mark Averell said Siemens would replace nearly all of the city’s streetlights except for those in special assessment districts, in which homeowners pay for the streetlights through their property tax bills. He said Siemens would have a little more than one year to complete the project once a financing agreement had been reached.
The City Council approved in April 2013 having Siemens conduct an energy audit of the city and provide the city with recommendations on how it could reduce its utility bill. The city spends about $7 million annually on utilities, with most of that for electricity. The audit was completed in December.
Moss-Adams LLP – the certified public accounting and business consulting firm the city has retained as its auditor – raised concerns about the project about a month ago at the City Council’s Audit Committee meeting. But Averell and Finance Director Gloriette Genereux said the city has addressed many of those concerns, such as getting a lower interest rate for the financing and reducing the amount Modesto would have to pay upfront for the project from 25 percent of its cost to 15 percent.
Still, the city report states that Moss-Adams considers the project’s risk moderate to high “based mainly on the possibility of unanticipated changes in energy rates.” The energy savings are based on assumptions, including that the cost of electricity will rise by 3 percent annually.
Scott Meinzen, a senior development manager in Siemens’ Hayward office, said he disagrees with the auditor’s conclusion. He said Siemens does about 200 to 300 of these projects annually across the United States for local governments, universities, school districts, public housing authorities and hospitals and meets or exceeds the cost savings more than 99 percent of the time.
City officials say there is some urgency in bringing the project to the City Council before July 1, when the California Energy Commission will start enforcing more stringent energy-efficiency standards. The city report states that those changes will significantly increase the project’s cost while not providing corresponding savings.
Mayor Garrad Marsh said the project is not a “slam dunk” for him, but after looking into its details and assumptions, he believes that “overall, it’s the right thing to do.” He said one benefit is that Modesto will become brighter at night if the project moves forward. “I think it would help the whole city,” he said. “People would feel more safe, and the city would look better.”
The council will meet at 5:30 p.m. in council chambers, Tenth Street Place, 1010 10th St.