HomeMy WebLinkAbout0015_1_Purchase Sale Agreement -SRAgenda Item No. __
REPORT TO CITY COUNCIL
TO:Honorable Mayor and Members of the City Council
FROM:Grant Yates, City Manager
PREPARED BY: Farid Dost, Senior Civil Engineer
DATE:January 24, 2017
SUBJECT:PURCHASE AND SALE AGREEMENT – ACQUISITION OF SOUTHERN
CALIFORNIA EDISON (SCE) STREET LIGHTS WITHIN CITY
BOUNDARY
RECOMMENDATION
Staff recommends that the City Council:
1. Approve the Purchase and Sale Agreement, including the No-Fee Light Pole License
Agreement in substantially the form attached hereto, with Southern California Edison to
acquire approximately 3,186 sellable streetlights and authorize the City Manager to
execute the required documents subject to City Attorney’s final approval.
2. Approve and Authorize the City Manager to execute the necessary documents with Bank
of America Public Capital Corporation (“BofA”) to provide financing for the acquisition and
retrofit of streetlights to LED technology. The BofA option provides a “direct placement
lease” which is secured by the streetlights.
3. Direct the staff to complete the following items;
a. Determine new Street Light Standards
b. Determine LED retro-fitting options to reduce energy consumption
c. Determine the Operation and Maintenance (O&M) responsibilities
BACKGROUND
In March of 2012, SCE announced a streetlight purchase program in response to a coalition of
local cities concerns over the rising cost to provide street lighting services and cities’ inability to
control cost. Three years later, SCE announced the end of the program, but agreed to honor the
program with those cities that requested a purchase price prior to August 2015 and entered into
SCE’s Purchase and Sale Agreement within 1-year of receiving the purchase price. Lake
Elsinore’s deadline to enter into a Purchase and Sale Agreement is February 28, 2017.
Purchase and Sale Agreement – Acquisition of Street Lights from SCE
January 24, 2017
Page 2 of 5
Agenda Item No. __
In December of 2014, the Western Riverside Council of Governments (WRCOG) Executive
Committee directed staff to pursue the development and administration of a Regional Streetlight
Program on behalf of its member jurisdictions. WRCOG for the last year has worked with local
Jurisdictions including the City of Lake Elsinore identify the feasibility of, and to assist the City
acquire the current SCE-owned streetlights. Currently, the streetlights are a high utility cost for
the City of Lake Elsinore and other local Jurisdictions, and the cost continues to increase. Since
2001, the SCE facilities charge component of the SCE-owned streetlight rates has increased by
nearly 55%.
Presently, SCE owns approximately 3,590 streetlights within the City; these streetlights are within
Schedule LS-1 (Lighting –Street and Highway – Unmetered Service Company-Owned System).
Under this Schedule, SCE maintains the street lighting equipment and associated facilities that
cost the City approximately $12 per month per streetlight. Retrofit of the streetlights to LED under
this scenario would cost the City approximately $4.91 per month per streetlight, resulting in an
estimated $7.09 of savings per streetlight.
Of the 3,590 streetlights, 3,186 are eligible for acquisition by the City. The remaining 404 poles
are non-sellable as these streetlights reside on SC’s electrical transmission or distribution poles..
The City currently pays nearly $476,978 annually for lighting the 3,186 streetlights Retrofit of the
streetlights to LED under this scenario would cost the City approximately $194,618 annually,
achieving an estimated $282,360 of savings annually.
Acquisition of the SCE street lights provides the City with an opportunity to control certain costs,
create revenue generation opportunities, increase public safety and assist in meeting local and
statewide energy and greenhouse gas goals (AB 32 and SB 350).
DISCUSSION
This report recommends the approval of the Purchase and Sale Agreement with SCE, which
includes the No-Fee Light Pole License Agreement (Collectively the “AGREEMENT”), in
substantially the form included as attachment 1 and 2.
AGREEMENT
SCE agrees to sell, convey, assign, transfer and deliver to the City the sellable streetlights, and
the City agrees to purchase and acquire from SCE, all of SCE’s rights, title and interest for the
sellable streetlight facilities. This Purchase and Sale Agreement allows for the City to
purchasing approximately 3,186 streetlights from SCE for a purchase price of approximately
$2,515,252, which includes taxes and transition costs. The sellable streetlights and purchasing
price is subject to adjustment as the City and SCE shall mutually agree on the final sellable
streetlights and the associated purchasing costs. The sellable streetlight facilities are “as is” sale
and SCE does not provide any warranties of any kind to the City.
The No-Fee Light Pole License Agreement allows SCE to continue to retain an easement on
certain poles that are currently equipped with SCE operation related communication devices.
These communication devices include wireless devices, which collect and relay data from meters,
Purchase and Sale Agreement – Acquisition of Street Lights from SCE
January 24, 2017
Page 3 of 5
Agenda Item No. __
and to collect, relay and communicate with SCE distribution equipment. Final approval of the
Agreement and the sale of the streetlights are subject to approval from the California Public Utility
Commission (CPUC) and approval of a financing plan by the City Manager.
Currently, streetlights installed within the City are dedicated to the utility provider (SCE). SCE will
effectively own the streetlights and becomes responsible for O&M, risk management, knockdown
replacement, and energizing the streetlights. These streetlights will become part of the LS-1
Schedule for which the City pays SCE.
Upon approval, the monthly tariff for the existing streetlights will change from the LS-1 Schedule
to the lower LS-2 Schedule (Lighting – Street and Highway Customer-owned installation –
unmetered service). The LS-2 Schedule will cover the SCE’s cost to transmit the energy to the
streetlights and the cost of energy. Any future streetlight installations will be dedicated to the City
and added to SCE’s billing under the LS-2 Schedule. Under LS-2 Schedule, the City will own the
streetlight equipment including, but not limited to, the pole, mast arm, luminaire and lamp, all
connecting cables in a streetlight system. In addition, the City will be responsible for O&M, risk
management, knockdown replacement and customer service.
It is important to note; the Council’s approval of the AGREEMENT does not necessarily obligate
the City to purchasing the streetlights. It does however obligate SCE to leave the door open for
the City to purchase the streetlights pending the City Managers approval of the financing plan and
the final approval of the AGREEMENT by the City Attorney.
Operation and Maintenance
The additional responsibilities associated with the ownership of the streetlights are part of the
WRCOG’s regional program and will be provided by a contractor selected via a competitive
procurement process. The contractor will provide routine O&M and will handle customer service
related calls on behalf of those cities participating in the regional program.
Ownership of the streetlights provides the City with greater control over O&M costs. If the City
elects to upgrade the streetlights to an energy efficient lighting system (e.g. LED), there is an
estimated 60% additional savings in the energy consumption.
Financing
WRCOG’s staff recommends selecting Bank of America Public Capital Corporation (“BofA”) to
provide financing for the acquisition and retrofit of streetlights to LED technology. The BofA option
provides a “direct placement lease” which is secured by the streetlights, no additional City
collateral is needed. The selection of BofA was identified after WRCOG conducted a transparent
and competitive bidding process, due to their competitive pricing, and experience and flexibility in
energy financing.
Litigation Risk
The Purchase and Sale Agreement specifies the street lights are sold as-is, and generally
includes the pole, light and mast arm, wiring within the pole, and the base. The indemnification
Purchase and Sale Agreement – Acquisition of Street Lights from SCE
January 24, 2017
Page 4 of 5
Agenda Item No. __
section of the Purchase and Sale Agreement requires the City to release SCE of liability for
environmental hazards associated with any poles, including hazards associated with the time
period prior to the City's acquisition and into the future. It also imposes an indemnification
obligation on the City. The indemnification section of the agreement includes claims relating to
the chemical treatment of the poles and facilities applied to protect against weatherization and
bug infestation.
SCE has been adamant that they will not allow modification of the Purchase and Sale language.
SCE was requested to disclose any claims or litigation involving its wooden poles. As of the
preparation of this report, SCE has not provided that disclosure. However, other cities
considering the purchase of wood poles have indicated that SCE is currently involved in a
lawsuit involving its wood poles, having been sued under California Proposition 65 for failure to
warn about the chemicals that it uses to treat its poles.
If the City Council approves the Purchase and Sale Agreement, the acquisition of the 134 wood
poles from SCE will pose an ongoing risk, as there could be claims similar to SCE's current
Proposition 65 litigation. The City will mitigate this potential risk by expediting the replacement of
the wood poles through the annual CIP process.
Additional Opportunities
Ownership of the streetlights also provides an opportunity to take advantage of emerging
technologies. The network of real estate the streetlights provide enables their use for additional
services that can benefit our community and can create opportunities to generate additional
revenue. Some example of uses includes electric vehicle charging stations, wireless mesh
network of radio nodes. The nodes are for smart cities applications and position a city for
developing a communication network. Examples of these applications include the ability to collect
data on traffic mobility, sense movement on the streets, and turn off streetlights when sidewalks
and road are empty, detect ground shifts and send earthquake warnings, and act as Wi-Fi
hotspots.
FISCAL IMPACT
The purchase and LED retrofit net savings are $262,000 in the first year and net savings over 20
years is approximately $2.7 million, however, new revenue opportunities includes electric vehicle
charging stations and wireless mesh network of radio nodes which would further widen the
savings to be realized from the transaction. See Exhibit 3 for further details.
Multiple options for the financing of the purchase and LED retrofit are as follows:
Option 1: Participate with WRCOG through its approved financing structure or examine our own
independent structure with BofA. If the City chooses to proceed under the WRCOG agreement,
the terms of the financing structure will be determined at that time.
Option 2: Use the City’s Financing Team to seek an independent bond financing structure. This
option would allow us to proceed independently from WRCOG under a similar structure, with
Purchase and Sale Agreement – Acquisition of Street Lights from SCE
January 24, 2017
Page 5 of 5
Agenda Item No. __
terms to be determined.
Option 3: Borrow from the General Fund, with terms to be determined.
In addition to the potential savings from the purchase of the streetlights, additional savings is
possible by converting the streetlights (SCE and City) to LED technology. The conversion cost
estimate is $1,300,590. Furthermore, the project may be eligible for energy rebates provided
through SCE for approximately $363,682, leaving an estimated conversion cost of just over
$936,909. The conversion cost is available for funding through options similar to the financing
options for the purchase of the streetlights.
SCE Streetlights to be purchased – 3,186
City owned Streetlights to be LED retro-fitted – 300
Total LED retro-fitting – 3,486
Streetlight Ownership cost - $2,580,252
Retrofit cost – $936,909
Total Ownership + Retrofit - $3,517,161
See attachment 3 (Cash Flow - Exhibit 3) generated by The PFM Group on behalf of WRCOG to
the City of Lake Elsinore for the most updated cash flow analysis.
Exhibits
1. Purchase Agreement - Exhibit 1
2. Light Pole Agreement - Exhibit 2
3. Cash Flow - Exhibit 3
4. Observatory Letter - Exhibit 4