CC SR 20181204 03 - SCE Street Light PurchaseRANCHO PALOS VERDES CITY COUNCIL MEETING DATE: 12/04/2018
AGENDA REPORT AGENDA HEADING: Regular Business
AGENDA DESCRIPTION:
Consideration and possible action regarding funding the purchase of approximately
1,799 street lights from Southern California Edison
RECOMMENDED COUNCIL ACTION:
(1) Authorize the City Manager to execute the approved purchase of 1,799 street
lights (current estimate) from Southern California Edison with existing funds from
the “1911 Improvements Act” Fund (Fund 211).
FISCAL IMPACT: $732,216.00
Amount Budgeted: N/A
Additional Appropriation: $732,216.00
Account Number(s): 211-400-841-8403
ORIGINATED BY: Christopher Browning, Senior Administrative Analyst
James O'Neill, Engineering Assistant/Project Manager
REVIEWED BY: Deborah Cullen, Director of Finance
Elias Sassoon, Director of Public Works
APPROVED BY: Doug Willmore, City Manager
EXECUTIVE SUMMARY:
In May 2015, the City Council approved initiating the purchase of eligible street lights
from Southern California Edison (SCE). In recent years, SCE altered its long-standing
corporate policy and established a mechanism that allowed local governments the
opportunity to purchase SCE-owned street lights within their jurisdictions. Obtaining
ownership of these street lights allows the City to convert the lamps to energy-efficient
light-emitting diodes (LEDs).
There are two components to this project: the purchase of the existing street lights and
poles, and the conversion of the lights to LED and on-going maintenance. The purchase
was authorized by the City Council on August 19, 2017, and the contract with Siemens
to execute the conversion and maintenance was approved by the City Council on April
17, 2018.
Once the purchase is finalized, the conversion of the lights to LEDs can begin. This will
result in the City incurring $16,000 in standard maintenance and operating costs and
$10,000 in emergency and after-hours maintenance costs for a total maximum cost of
$26,000 annually. This is offset by an estimated annual energy cost savings of
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$40,000, providing the City with a net annual savings of $14,000. City ownership also
yields greater responsiveness and timely maintenance, and allows for the use of
technological advancements including placement of automated license plate recognition
(ALPR) cameras and/or control of the placement of any wireless telecommunications
devices or the poles.
BACKGROUND AND DISCUSSION:
During the August 15, 2017, City Council meeting, the City Council authorized the
Mayor and City Clerk to execute the Purchase and Sale Agreement with SCE for the
acquisition of 1,799 LS-1 street lights for a current estimated cost of $732,216. The City
Council further authorized Staff to develop an RFP to solicit proposals from qualified
consultants to provide a “turn-key” program for converting and maintaining the City’s
street lights.
On April 17, 2018, the City Council approved a professional services agreement with
Siemens Industry, Inc. (Siemens) for acquisition support, street light conversion, and
three years of maintenance and operations for a total cost of $577,120.91, with
contingency of $62,789.09 (with a “not-to-exceed” limit of $640,000). This agreement
includes five phases:
• Phase 1: Street light audit and financial feasibility analysis for $48,637.44.
• Phase 2: SCE asset acquisition facilitation for $12,419.77.
• Phase 3: LED conversion for $438,138.34.
• Phase 4: Standard street light maintenance and operation for $47,925.36
($15,975.12 annually).
• Phase 5: Extraordinary and emergency after hour maintenance for $30,000
($10,000 annually).
On January 10, 2018, the City entered into an agreement with Southern California
Edison (SCE) to purchase 1,799 of the 2,286 (estimated) street light facilities located
within the City at a cost of $667,216 plus $65,000 for SCE severance payment.
Staff presents two purchase options open to the City Council: (1) Finance the purchase
of the street lights; or (2) Pay in full by using available funds that are restricted for only
lighting projects.
Street Light Tariff
As reported to the City Council on April 17, 2018, there are two rates that SCE charges
the City for street lights: the LS-1 monthly tariff rate ($11.28) for street lights owned by
SCE and a LS-2 monthly tariff rate ($5.18) for street lights owned by the City.
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Difference in Tariffs (LS-1 vs. LS-2 Monthly Cost Comparison)
Although the cost of energy is the same under both rates, the City will realize a savings
of $6.10 in the monthly facilities tariff per purchased street light under the LS-2 rate.
This equates to an annual savings from the tariff rate of $131,686 for the 1,799 street
lights proposed to be purchased by the City ($6.10 x 12 months x 1,799), based solely
on that facilities tariff rate difference.
Financing Options
Option #1 – Finance acquisition
The City finances the $732,216 street light acquisition at an annual interest rate of
3.9921%. The 10-year amortized annual payment of $90,240.10 will be made
December using cash from Fund 211. At the end of the 10-year loan period the City
will incur $170,185.03 in interest charges. The 10-year amortization schedule for this
option is provided in Table 1 below, reflecting a total cost (principal and interest) of
$902,401 but a net savings of $414,459 as compared to the SCE Tariffs that would
have been paid over the 10-year period if the City did not purchase the street lights.
Total
$11.28
Total
$5.18
Energy
$2.89
Facilities
$8.39 Energy
$2.89
Facilities
$2.29
LS-1 Rate LS-2 Rate
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Table 1 – 10 Year Amortization Schedule
Option #2 – Cash Purchase
Cash Outlay--Fund 211- 1911 Act Special Revenue Fund
Under the 1911 Improvement Act, the special revenue fund is restricted to City lighting
projects such as:
•The Point Vicente Interpretive Center (PVIC) Outdoor Lighting Project
•Street light acquisition
•Eastview Park Lighting Project
The current fund balance as of June 30, 2018, is $ 2.2 million
The City can choose to make an upfront cash purchase of $732,216 from Fund 211 for
all 1,799 street lights from SCE. When compared to Option #1 and financing the cost
over the full 10-year period, Option #2 would result in interest savings of over $170,000.
These savings would be offset by the loss of interest earnings caused by the immediate
Interest @
Date Funding Payment 3.9921%Principal Balance
12/1/2018 732,216.00 90,240.10 29,230.79 61,009.31 671,206.69
12/1/2019 90,240.10 26,795.24 63,444.86 607,761.83
12/1/2020 90,240.10 24,262.46 65,977.64 541,784.19
12/1/2021 90,240.10 21,628.57 68,611.54 473,172.65
12/1/2022 90,240.10 18,889.53 71,350.58 401,822.08
12/1/2023 90,240.10 16,041.14 74,198.96 327,623.11
12/1/2024 90,240.10 13,079.04 77,161.06 250,462.05
12/1/2025 90,240.10 9,998.70 80,241.41 170,220.65
12/1/2026 90,240.10 6,795.38 83,444.72 86,775.92
12/1/2027 90,240.10 3,464.18 86,775.92 (0.00)
732,216.00 902,401.03 170,185.03 732,216.00
Scheduled Principal Payments (732,216)
Loan Interest Payments (170,185)
SCE Tariff Savings (10 Years)1,316,860
Loss of Interest Earnings 0
Net Savings 414,459
Option #1 Summary
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reduction in our Local Agency Investment Fund (LAIF) account. As of October 2018,
the City was earning an annual yield of 2.14% on funds invested in LAIF.
When compared to Option #1, an upfront cash purchase will result in a loss of $153,719
in interest earnings compared to a $92,051 loss of interest earning when the acquisition
is financed and there is a slow draw down of cash. This will result in a $61,668 net loss
in interest earnings.
Table 2 – Lost Interest Earnings Over 10 Year Period with Upfront Cash Payment
Table 3 – Lost Interest Earnings Over 10 Year Period with Loan Financing
12/1/2018 732,216.00 - 732,216.00
12/1/2019 732,216.00 15,669.42 747,885.42
12/1/2020 747,885.42 16,004.75 763,890.17
12/1/2021 763,890.17 16,347.25 780,237.42
12/1/2022 780,237.42 16,697.08 796,934.50
12/1/2023 796,934.50 17,054.40 813,988.90
12/1/2024 813,988.90 17,419.36 831,408.26
12/1/2025 831,408.26 17,792.14 849,200.40
12/1/2026 849,200.40 18,172.89 867,373.29
12/1/2027 867,373.29 18,561.79 885,935.08
153,719.08
Date Balance
Interest Earned
Previous 12
Months
Balance +
Accrued Interest
12/1/2018 - - 90,240.10 90,240.10
12/1/2019 90,240.10 1,931.14 90,240.10 182,411.34
12/1/2020 182,411.34 3,903.60 90,240.10 276,555.05
12/1/2021 276,555.05 5,918.28 90,240.10 372,713.43
12/1/2022 372,713.43 7,976.07 90,240.10 470,929.60
12/1/2023 470,929.60 10,077.89 90,240.10 571,247.60
12/1/2024 571,247.60 12,224.70 90,240.10 673,712.40
12/1/2025 673,712.40 14,417.45 90,240.10 778,369.94
12/1/2026 778,369.94 16,657.12 90,240.10 885,267.16
12/1/2027 885,267.16 18,944.72 90,240.10 994,451.98
92,050.96 902,401.03
Amount Paid
YTD to SCEDate
Amount Paid
YTD to SCE +
Interest
Scheduled
Payment to SCE
Interest Lost
Over Previous
12 Months
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Fund Balance Summary
When looking at the impact on fund balance over 10 years, it would be beneficial for the
City of pay cash for the street light acquisition as it will save an estimated $110,000 over
10 years.
Tables 4 and 5 below show the impact on the balance of Fund 211 over the next 10
years. Both projections reflect a drop in expenditures of $171,000 in FY19-20 due to
the decrease in the annual SCE tariff rate of $131,000 and annual energy savings of
$40,000. A 2% CPI adjustment is then applied to all future years. $26,000 in annual
maintenance costs will cause an increase in expenditures in FY20-21. The annual
maintenance also receives a 2% CPI adjustment in future years.
When comparing the projections in Tables 4 and 5, the fund balance is estimated to be
roughly $110,000 higher with the Cash option (Option #2), as shown in Table 5.
Despite the large fund balance decrease shown in the first few years with the cash
purchase option, over the span of 10 years the interest earnings lost by making the
purchase in cash upfront are significantly less than the interest expense incurred by
financing the full amount over the same period of time.
Table 4 – 10-year Fund Balance – Financing Option (Option #1)
Cash Payment (732,216)
Loan Interest Payments 0
SCE Tariff Savings (10 Years)1,316,860
Loss of Interest Earnings (61,668)
Net Savings 522,976
Option #2 Summary
FY 17-18 FY 18-19 FY 19-20 FY 20-21 FY 22-23
Beginning Fund Balance 2,168,302.00 2,238,171.00 1,455,667.55 1,486,494.10 1,517,805.39
Expenditures 614,585.00 700,171.00 543,174.42 554,037.91 565,118.67
Revenues 684,454.00 680,534.00 694,144.68 708,027.57 722,188.13
Ending Fund balance 2,238,171.00 2,218,534.00 1,606,637.81 1,640,483.77 1,674,874.85
PVIC lighting project (145,500.00)
Siemens Acquisition Costs (61,057.21)
Annual Maintenance (26,000.00) (26,000.00) (26,520.00) (27,050.40)
Interest Earnings lost (1,931.14) (3,903.60) (5,918.28) (7,976.07)
LED Conversion (438,138.00)
Financing payments (90,240.10) (90,240.10) (90,240.10) (90,240.10)
Revised Ending Fund Balance 1,455,667.55 1,486,494.10 1,517,805.39 1,549,608.28
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Table 5 – 10-year Fund Balance – Cash Option (Option #2)
CONCLUSION:
Based on the foregoing analysis, the City would incur more costs by financing the
acquisition of the street lights. Additionally, the City has restricted funds in excess of $2
million that can only be used for lighting and landscaping projects, and this is the only
large project currently identified for these funds. Therefore, based on the financial
FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28
Beginning Fund Balance 1,549,608.28 1,581,909.72 1,614,716.75 1,648,036.46 1,681,876.06
Expenditures 576,421.04 587,949.46 599,708.45 611,702.62 623,936.67
Revenues 736,631.89 751,364.53 766,391.82 781,719.65 797,354.05
Ending Fund balance 1,709,819.12 1,745,324.78 1,781,400.11 1,818,053.50 1,855,293.43
PVIC lighting project
Siemens Acquisition Costs
Annual Maintenance (27,591.41) (28,143.24) (28,706.10) (29,280.22) (29,865.83)
Interest Earnings lost (10,077.89) (12,224.70) (14,417.45) (16,657.12) (18,944.72)
Siemens Acquisition Costs
Financing payments (90,240.10) (90,240.10) (90,240.10) (90,240.10) (90,240.10)
Revised Ending Fund Balance 1,581,909.72 1,614,716.75 1,648,036.46 1,681,876.06 1,716,242.78
FY 17-18 FY 18-19 FY 19-20 FY 20-21 FY 22-23
Beginning Fund Balance 2,168,302.00 2,238,171.00 753,954.67 878,924.93 1,006,394.60
Expenditures 614,585.00 700,171.00 543,174.42 554,037.91 565,118.67
Revenues 684,454.00 680,534.00 694,144.68 708,027.57 722,188.13
Ending Fund balance 2,238,171.00 2,218,534.00 904,924.93 1,032,914.60 1,163,464.06
PVIC lighting project (145,500.00)
Siemens Acquisition Costs (61,057.21)
Annual Maintenance (26,000.00) (26,000.00) (26,520.00) (27,050.40)
Interest Earnings lost (61,668.12)
LED Conversion (438,138.00)
Street Lights acquisition (732,216.00)
Revised Ending Fund Balance 753,954.67 878,924.93 1,006,394.60 1,136,413.66
FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28
Beginning Fund Balance 1,136,413.66 1,269,033.10 1,404,304.92 1,542,282.19 1,683,019.00
Expenditures 576,421.04 587,949.46 599,708.45 611,702.62 623,936.67
Revenues 736,631.89 751,364.53 766,391.82 781,719.65 797,354.05
Ending Fund balance 1,296,624.50 1,432,448.16 1,570,988.29 1,712,299.22 1,856,436.37
PVIC lighting project
Siemens Acquisition Costs
Annual Maintenance (27,591.41) (28,143.24) (28,706.10) (29,280.22) (29,865.83)
Interest Earnings lost
Siemens Acquisition Costs
Street Lights acquisition
Revised Ending Fund Balance 1,269,033.10 1,404,304.92 1,542,282.19 1,683,019.00 1,826,570.55
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analysis, Staff recommends a cash outlay of funds from Fund 211 to purchase the
1,799 street lights from SCE.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative action is available for
the City Council’s consideration:
1. Finance the purchase of the street lights from SCE, as outlined in the
proposal from Siemens Financial Services, Inc., dated June 21, 2018.
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