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SR - AGR-6445 - PURCHASE AND SALE AGREEMENT OF SCE STREET LIGHTS1. SUBJECT Purchase and Sale Agreement of Southern California Edison (SCE) owned street lights and No- Fee Light Pole License Agreement for Wireless Attachments between the City of Orange (City) and Southern California Edison on said street lights. 2. SUMMARY City staff worked with SCE to analyze the potential purchase of SCE -owned street lights. SCE provided the City a valuation for 4,359 SCE -owned street light poles for purchase. The total valuation price is $1,458,876. Staff has performed financial analysis and recommends purchasing the SCE -owned street lights. The recommended purchase would give the City more control of energy costs and produce more energy savings by converting the lights to Light Emitting Diode (LED). 3. RECOMMENDED ACTION 1) Approve the Purchase and Sale Agreement and No -Fee Light Pole License Agreement with SCE. 2) Authorize the City Manager to execute the SCE incentive application, On Bill Financing (OBF) application, OBF agreement, and other documents related to the application process with SCE for retrofitting these street lights to LED. 4. FISCAL IMPACT The cost to purchase LS -1 street lights is $1,458,876. Funding will be identified in the coming FYI CIP budget but will likely be the General Fund Capital Fund. The proposed LED Retrofit Project for the purchased street lights is estimated to be $1,480,114 with about $365,514 coming from an SCE rebate, the remaining balance, approximately $1,114,600, will be financed by SCE's OBF program. 5. STRATEGIC PLAN GOAL(S) 2d. Be fiscally healthy community — Effectively manage and develop City assets. 3e. Enhance and promote quality of life in the community — Develop and strengthen collaborative partnerships to enhance and promote quality of life programs, projects and services. 4b. Provide outstanding public service — Provide facilities and services to meet customer expectations. 6. GENERAL PLAN IMPLEMENTATION Natural Resources Element Goal 2.0 Protect air, water and energy resources from pollution and overuse. Policy 2.9 — Promote City operations as a model for energy efficiency and green building. Natural Resources Element Goal 3.0 Prepare for and adapt to the effects of climate change and promote practices that decrease the City's contribution to climate change. 7. DISCUSSION and BACKGROUND In early 2014, SCE, working with the California Public Utilities Commission (CPUC) developed a process for cities to purchase SCE owned street lights. Orange took the opportunity in June 2014 by paying $10,000 (standard fee) to SCE to complete its valuation of the street lights system within the City. On December 21, 2015, SCE provided the City a valuation of approximately $1.46 million for 4,359 SCE owned street light poles (about $335 /pole). SCE has 5,699 poles within the City of Orange, but 1,340 poles are not part of the proposed purchase because they are either located on transmission lines or have third party resources attached at this time. SCE also informed the City that it had one year to determine if it wanted to purchase the light poles. The City solicited several consultants to assist the City in determining the benefits and costs of such an acquisition. Tanko Streetlighting Inc. was selected as the firm most qualified to assist the City in this process. City Staff and Tanko worked diligently to analyze the benefit and cost of acquiring the system. The primary advantage in acquiring the 4,359 SCE owned street light poles is the lower rate for City owned and operated street lights (LS -2 rate structure versus LS -1 rate structure). The difference in rate is about 53 %. By converting the street lights to LEDs, the City will see further energy savings. Another advantage is the ownership of the street lights will afford the City the opportunity to use the street light facilities as infrastructure for future data network opportunities. The disadvantage is the City will assume responsibility for the maintenance and replacement of the poles. Below is a summary of acquisition and retrofit cost and energy savings analysis over the next 20 year program: N Acquisition and LED Retrofit Cost Estimate: Acquisition of Assets (4,359 street light poles) - $1,458,876 LED Streetlight Retrofit - $1,480,114 20 year Estimated Energy + Pole Replacement & Maint. Cost - $8,373,972 Total Cost for 20 years -$11,312,962 Enerev Savine: 20 Year Energy Savings $12,280,986 SCE Energy Rebate $ 365,514 Total Savings for 20 years $12,646,500 Net Savings (20 years) $1,333,538 The age of the SCE street lights system ranges from the 1950's to the present. The majority of the poles were constructed in the 1960's (43 %). In spite of the age of the system, our investigation determined that the poles are still in good condition. Therefore, a large pole replacement program is not necessary. A 0.5% pole annual replacement program was determined to be appropriate for replacement and 10 knockdowns for the additional system and utilized within our analysis. Ultimately, the City should save approximately $1.33 million dollars over a 20 -year period inclusive the purchase, maintenance, and retrofit costs. If the City chooses to proceed with the purchase, and retrofit, staff proposes to utilize SCE 0% on- bill financing to cover the retrofit cost. Therefore, the upfront cost to purchase would be only $1.46 million, which will likely be funded by general fund (Capital Fund). As such, the LED net retrofit cost of $1.11 million ($1.48 million — $0.37 million) OBF will be paid off in 3 years. During this 3 years, there is no net change to our SCE bill. After 3 years, a net cash flow of about $142,000 /yr will be received through energy savings for next 20 years. SCE issued an update last year to all Cities that effective August 15 2015 any city that has not submitted the $10,000 and appropriate paperwork will lose the option to acquire their street lights from SCE. SCE is not planning to open the acquisition program again, so if Orange does not want to proceed with the acquisition, there will likely not be another opportunity in the future for the City to purchase SCE owned street lights. To date, the City of Lancaster has completed the purchase and the City of Huntington Beach is pending CPUC approval. Over 60 other cities that have submitted the $10,000 to SCE are in the process of doing financial evaluation/analyses. Should the City Council approves the purchase agreement, staff from Public Works will work with SCE to begin the purchase process. The sale of the SCE owned street lights will need to be approved by CPUC which will take about 6 -9 months. After that, it will take another 6 months for SCE to complete the transfer of the street lights. Following transfer, the LED retrofit and OBF will take another 6 -9 months. In conclusion, this program is an investment in our financial and operational future. The advantage of city - ownership is we are able to convert the lights to LED, thereby significantly reducing our energy costs. While the City will now be responsible to maintain the street lights, the anticipated energy savings exceeds the maintenance and LED retrofit costs. Although the amount of net saving is not large ($1.33 M over a 20 year period), staff believe the calculation is very conservative and having control of the street lights could have other value down the road. 9] 8. ATTACHMENTS • Purchase and Sale Agreement • No -Fee Light Pole License Agreement for Wireless Attachments Between The City of Orange and Southern California Edison • SCE On -Bill Financing Application • SCE Incentive Application JD;ta;ly NAPublic Works \ADMIN \LYoung \Council Items \COUNCIL\Jan - 2017 \1- 10 \LS -1 SCE Street Light Purchase Staff Report.docx 11 CITY COUNCIL MINUTES JANUARY 10, 2017 4. REPORTS FROM MAYOR SMITH 4.1 Appointment to the City of Orange Design Review Committee. Mayor Smith announced that Megan Penn withdrew her application for the Design Review Committee. No action was taken. 5. REPORTS FROM COUNCILMEMBERS 6. REPORTS FROM BOARDS, COMMITTEES, AND COMMISSIONS 7. ADMINISTRATIVE REPORTS 7.1 Purchase and Sale Agreement of Southern California Edison (SCE) owned street lights, and No -Fee Light Pole License Agreement for Wireless Attachments between the City of Orange (City) and Southern California Edison on said street lights. (S4000.S.3.10) City Engineer Frank Sun presented the staff report and answered Council's questions. A map indicating the lights being acquired was distributed to Council. MOTION — Nichols SECOND — Whitaker AYES — Alvarez, Whitaker, Smith, Murphy, Nichols Moved to: Approve the Purchase and Sale Agreement, and No -Fee Light Pole License Agreement with SCE; and authorize the City Manager to execute the SCE incentive application, On Bill Financing (OBF) application, OBF agreement, and other documents related to the application process with SCE for retrofitting these street lights to LED. 8. REPORTS FROM CITY MANAGER City Manager Otto announced that the City's new website will be going live by the end of January. Staff will provide Council with a presentation at a future meeting. PAGE 8