Cotati City
CA

Staff Report

Water Meter Upgrade Interfund Loan

Information

Department:City ManagerSponsors:
Category:Infrastructure (Vision for Cotati)

Attachments

  1. Printout

Background Field

Background

California Government Code Sections 4217.10-4217.18 implement energy policy set forth in Section 25008 of the Public Resources Code, and extend that policy to facilities of local governments.  In essence, this policy encourages public agencies to develop energy conservation, cogeneration, and alternate energy supply sources at the facilities of public agencies.

On June 24, 2014, the City Council held a public hearing to consider entering into a Clean Energy Performance Contract with Siemens Industry, Inc., contingent on returning to Council with final project financing and terms.

On October 14, 2014, the City split out the lighting retrofit portion of the project from the meter upgrades with the goal of improving the available financing options.  In addition, the City Council authorized an inter-fund loan of $303,750 for the lighting retrofit project.

After going to the private market, it was determined that the best financing mechanism available was an internal interfund loan.  This resulted in a lower interest costs for the project, as well as a higher rate of return for the City fund that is loaning the funds.

Analysis/Discussion

The intent of the water meter upgrade is to accomplish the following goals:

1.              Minimize “unaccounted” water.  Unaccounted for water can be both actual lost water and water that is just not measured due to inaccuracies in metering or the timing of the meter reads.  For example, it is common in any water system to have unaccounted for water through actual loses from things such as leaks in the distribution system, theft, fire flows, and damage to fire hydrants that result in water loss.  Any of these factors can result in significant outflows that are not metered and appear to be “unaccounted” for.  In addition, over time, older metering technologies can start to read slow, meaning that the meter is not registering all of the actual water passing through it.  Finally, the meter reads currently occur over a week, and timing results in apparent, but not actual, unaccounted for water.  The proposed system will eliminate the accounting issues, ensure the most efficient delivery of water, and will provide the City with better tools to estimate actual losses.

2.              Provide Customers With Better Information.  Currently, the City only reads every two months, providing little information to customers during times of water restrictions or drought.  The proposed system will be able to provide customers with information on use at any time, and provide leak or usage alerts if they are interested.

3.              Proactive Management of Distribution System.  Currently, if there is a leak in the water system, the City will not typically be aware of it until there is evidence on the ground, just as running water, etc.  The proposed system will immediately notify the City of any real or potential leaks anywhere in the distribution system, allowing the City to fix it immediately and minimize water loss.  In the future, it can also allow for balancing the water in the system to determine if there is water theft.

With the limited water supplies, and the high cost of developing new water supplies, the proposed system will ensure that we are utilizing our existing water supplies to their fullest extent.

The Sewer Capital Fund currently has un-programmed funds which could be used to finance the water meter upgrade project at rates that would be advantageous to both.  The Local Agency Investment Fund (LAIF) rates is currently set near 0.28%, so the proposed rate of 1.5% will benefit the Sewer Capital Fund with a higher rate of return, and will benefit the Water Enterprise Fund with a lower than market rate.  In accordance with the City’s investment policy, the City Council can invest funds up to 5 years at a time, so the loan structure allows for renewals every 5 years.  In the event that the LAIF rate rises above 1.5% in any 6 month period, the loan would adjust to match the current LAIF rate.  In addition, the Water Enterprise Fund can prepay the loan down partially or completely at any quarterly due date to avoid interest.

Performance Guarantee

The project Performance Contracting Agreement with Siemens includes a guarantee that the meters will be at least as accurate as is shown in the Investment Grade Audit (IGA).  Like all Energy Services Companies (ESCOs), Siemens is in the business of conservatively projecting performance so that they nearly always achieve the guaranteed accuracies.  The financing model assumes that Siemens will provide measurement and verification of the meter project after 1 and 2 years of operation.  If the City desires to extend the guarantee to additional years, these can be purchased at any time prior to the expiration of the original guarantee.  In the unlikely event that the accuracy improvements do not occur, Siemens has the option of either paying for the amount of the shortfall directly or can correct the accuracy through an operational improvement at no expense to the City.

Proposed Action 

The attached resolution authorizes an inter-fund loan of $1,400,916 from the Sewer Capital Fund (Fund 19) to the Water Operations Enterprise Fund (Fund 12) to finance the meter portion of the project, and describes the related change in appropriation to reflect the final funding mix but not changing the total project amount.

Financial Considerations

This phase of the project consists of water meter upgrades, which will be primarily funded by the Water Operations Enterprise Fund (Fund 12) through a $1,400,916 inter-fund loan by the Sewer Capital Fund (Fund 19).  Additional funding of $337,500 will come from the Sewer Operations Fund (Fund 18), for the sewer portion of the meter upgrade.  The total project cost is $1,738,416. 

The total project costs are as described in the adopted FY 15-16 budget, however, the final mix of funds was unknown until after budget adoption.  Therefore, it is requested to lower the appropriation from the Sewer Enterprise from the adopted $579,472 to $337,500, increase the appropriation in the Water Enterprise from the adopted $1,158,944 to $1,400,916, which will be funded by the proposed inter-fund loan from Sewer Capital of $1,400,916.  The net affect is lower expenditures in Sewer Operations, and an increase in the inter-fund loan amount of $241,972 from the Sewer Capital Fund.

If the financing is not acceptable and the City elects to not move forward, the water meter portion of the performance contract will no longer be binding on the City, and the City will pay Siemens the cost of the IGA ($36,500), as previously agreed upon per the terms of the Investment Grade Audit Agreement.

Environmental Issues

The proposed project is exempt from the California Environmental Quality Act as a maintenance activity.

 

Recommendation

It is recommended that the City Council adopt a resolution 1) Authorizing an Interfund Loan of $1,400,916 from the Sewer Capital Fund to the Water Operations Enterprise Fund; 2) Authorizing a direct expenditure of $337,500 from the Sewer Operations Fund for the Meter Upgrade Project; and 3) Authorizing the described change in appropriations to reflect the final funding mix.

 

Meeting History

Jul 28, 2015 6:30 PM Audio/Video Cotati City Council Regular Meeting

City Manager Damien O'Bid presented the staff report and responded to questions regarding uses for the Sewer Capital funds, and the re-payment term of the proposed interfund loan.

Public comment:

George Barich of Cotati (opposed)

Neil Hancock of Cotati (supported)

Discussion ensued relative to water conservation and how the water meter upgrade may help reveal leaks that have previously gone undetected.

City Manager O'Bid responded to questions regarding bank financing versus the proposed interfund loan.

Discussion