August 22, 2012 Presentation by William Fraser, City Manager

1. DISTRICT HEAT PROJECT
August 22, 2012

2. Key Points
 Project is within budget
 Ongoing operation is viable
 City’s risks are addressed
 Project goals are met

3. Recommended Action
 Authorize City Manager to proceed with project
 Notify the State and DOE of this decision
 Continue signing up customers
 Issue bids in September for receipt in October
 Review bids in November, consider project adjustments.
Award contract.
 Consider options for use of available funds, possible
additional assistance for connections.
 Begin construction in spring of 2013
 Provide Thermal Energy to Customers on 10/1/13

4. Presentation
 Overall Project Description and Funding Summary
 Project Costs
 Customer Commitments
 City/School heating costs
 Financing Package
 City’s Risk
 System Management, City Goals and Master Plan,
Assumptions and Projections, City Votes
 Recommended Action

5. Project Goals
 Reduce emissions
 Replace oil with regional fuel source
 Stabilize heating costs for city/school
 Economic development opportunity for downtown
 City’s project costs within current expenses

6. Project Summary
 State Central Heating Plant – 40.2 MMBTU capacity
 City Distribution System – 9.71 MMBTU (24%) of state
plant, ability to purchase up to 16.3 MMBTU
 Both Public and Private Customers
 Primarily Wood Chips for winter fuel (Oct – April)
 Summer Hot Water through system boilers

8. Overall Funding Summary
 Federal Department of Energy $8.00 million
 State of Vermont Capital Funds $7.00 million
 State of Vermont In Kind $1.20 million
 City of Montpelier 2011 Bond $2.00 million
 CEDF Grant $1.00 million
 CEDF Loan, 1%, deferred payment $0.75 million
 Forest Service Grant (new) $0.248 million
 Village Green Grant (new) $0.10 million
 TOTAL $20.298 million

9. Funding Allocation
 State Funds for heat plant $8.200 million
 DOE Grant to state for heat plant $3.249 million
 DOE Grant to state for city capacity $2.558 million
 City/CEDF funds to state for capacity $1.077 million
 DOE Grant to city for dist. system $2.193 million
 City/CEDF funds for dist. system $2.673 million
 Other grant funds for dist. system $0.348 million
 Total for Central Heating Plant $15.047 million
 Total for Distribution System $5.214 million

10. Overall City Funding Status
TOTAL Distribution System $ $5,214,419
Spent/Committed to date $899,651
Available Balance for Project $4,314,768
Revised Project Cost Estimate $3,732,351
 Project Balance $582,417 (17.71%)
 Contingencies (included in estimate) $393,739 (11.97%)
 Combined “cushion” $976,156 (29.68%)
 May only need $1.45 M Bond instead of $2.0 M

11. Annual System Budget (2014)
 2011 Bond Payment @ $2.0 M $169,191 (highest)
Bond @ $1.45 M = $122,663
 Contract with State $68,032
 2009 Bond Payment $20,376 (highest)
 Operations $10,228
 CEDF Loan Interest $7,500
 Total “Must Pay” Obligations $275,327 (w/ $2 M Bond)
$228,799 (w/$1.45 M Bond)
 Cash Reserve (5% of rev.) $12,992
 Operating/Admin 10 customers $46,026 ($65,348 max)
 TOTAL $334,345
With $1.45 M Bond $287,817

12. Customer Commitments using 2014
Capacity Rates
 City Complex (City Hall, Fire, Police) $46,009
 Union Elementary School $77,350
 Vermont Mutual $151,830 prorated $30,366
 GSA $40,656
 County (Court House, Sheriff) $14,738
 Everett (52, 46 & 27 State St) $26,934
 Nedde (City Center) $26,257
 NECI/Nick (118 Main St) $12,949
 Jacobs (22 Elm/Jailhouse Common) $8,165
 Beard (15 E. State St) $6,776
 TOTAL $290,200

13. Customer Base
 10 Customers involve 15 Connections
 Initial System design = 34 Connections
 Commitments for 44% of connections
Additional connections create additional financial stability.

14. 10 Cust. $3.73 M Project. $1.45 M Bond
$900,000
District Heat
$800,000
Annual Operating Budget
Projection
$700,000 Annual Revenues
Annual Expenses
$600,000
Annual Budget Balance
$500,000 Total Cash on Hand
$400,000
$300,000
$200,000
$100,000
$0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
($100,000)

15. City/School Fuel at $2.99/gallon
 City & UES use 60,600 gallons per year of oil
 Combined DH capacity fee = $123,359
 Combined DH energy fee = $58,063
 Total Combined DH cost = $181,422
 $181,422/60,600 gallons = $2.99 per gallon

16. Comparison to Oil
$6,000,000
$5,555,435
NPV COSTS & SAVINGS
of Oil and District Heat for City/School
$5,000,000
$4,384,564
$4,000,000
$3,515,833
$3,034,069
$3,000,000 20 Year NPV Cost - Oil & DH
$2,521,366
20 Yr NPV savings with DH
10 year NPV savings with DH
$2,000,000
$1,350,495
$1,000,000
$481,764 $447,936
$298,248
$120,695
$0
City/School Oil City/School Oil City/School Oil City/School DH,
@ 3% increase @ 5.25% @ 8% increase 2.5% wood
increase increase

17. Financing for Customer Connections
 Partnership with VT Economic Dev. Authority (VEDA)
 Village Green grant pays 10% of cost
 VEDA finances remaining 90% at 4% over 5-7 years
 Effective rate = 0% for 5 years, 1% for 7 years
 City will include repayment on DH bill

18. City Risk for not proceeding
 Cost of Oil in future starting at $3.00/gallon
$900,000
City/School with
$800,000 District Heat
City/School oil @
$700,000
3%/year
$600,000 City/Schoo Oil @
5.25%/year
$500,000 City/School Oil at
8%/year
$400,000
$300,000
$200,000
$100,000
$0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

19. City’s Risks for Proceeding
 Project Costs running over
 Under budget, sufficient contingency, current bid climate,
project sectioning options
 “Stuck” with Annual Operating Cost
 Full $2.0 M Bond. Minimal Customers – GSA, County,
VM, Everett.

20. Bad Case Scenario
 Must Pay Obligations $275,327
 City/School Energy Fees $58,063
 TOTAL MUST PAY $333,390
 Income (4 customers) $112,694
 Net For City to Pay $220,696
 Less City/School Capacity $123,359
 Less City/School Energy $58,063
 TOTAL – City paying $181,422
Net Added DH Costs for City $39,274

21. City Risk Comparison
City/School Oil prices
$3.00/gallon for 60,600 gallons = $181,422
$3.31/gallon for 60,600 gallons = $200,586
$3.50/gallon for 60,600 gallons = $212,100
2009 Bond payment = $20,376
City Costs with no DH = $201,798 to $232,476
Net Cost under Bad DH = $220,696

22. Other Considerations
 Operating costs and responsibilities are manageable
 Consistent with City Council 2012 Goals
 Consistent with City’s 2010 Master Plan
 City’s analysis “reasonable as to method and assumptions
and the substance of the agreements to be reasonable in
light of normal energy purchase and sale agreements”
 Public votes on this project:
 2003 Bond $250,000 1,273-875 59%
 2009 Re-use of the ’03 bond 1,024-745 57%
 2010 Charter amendments 2,826-755 78%
 2011 Bond $2,000,000 963-609 61%

23. Recommended Council Action
 Authorize City Manager to proceed with project
 Notify the State and DOE of this decision
 Continue signing up customers
 Issue bids in September for receipt in October
 Review bids in November, consider project adjustments.
Award contract.
 Consider options for use of available funds, possible
additional assistance for connections.
 Begin construction in spring of 2013
 Provide Thermal Energy to Customers on 10/1/13