Capital District Heating Project

A Partnership of the City of Montpelier and the State of Vermont

June 8, 2011

Project History

Early 1990s – Montpelier Community Energy System first conceived and discussed with City Council.

Late 1990s – Community Renewable Energy (CORE) ; a collaboration of Chittenden County Regional Planning Commission, Central Vermont Regional Planning Commission and others work to develop and advance the concept of district energy in Vermont.

2000/2001 -- CORE worked with City of Montpelier to collect energy use information on buildings located in the Montpelier downtown area.

A preliminary study of a district energy system was completed by CANMET. The report found that community scale project was feasible.

…

District Heat --

Project History, cont.

Also in 2000, the Montpelier City/State Commission completed the Capital District Master Plan – district energy was one of ten key elements identified in the plan.

2002 to 2004 – Three studies were carried out with funding from the USDA Forest Service and the Department of Energy.

- 2003 – City of Montpelier votes a $250,000 bond for district energy.

2005 to 2006 State of Vermont completes engineering studies of the existing boiler plant. The first study analyzed the available capacity; second study preliminary design and cost for modernizing and expanding.

2006 – BERC with DOE funding updates the Montpelier downtown building/energy survey of 2000.

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District Heat --

Project History, cont.

2008 – BERC updates CANMET study, considers ‘Montpelier Only’ design.

- 2010 – City of Montpelier awarded $8Million DOE Community Renewable Energy grant.

District Heat --

- 2009 – Community re-votes the District Energy Bond

• Use community-scale technology

• Replace fossil fuels with local biomass

• Use efficient, clean technology

• Harvest fuels with sustainable practices

What have been the goals of these studies?

To evaluate the feasibility of

District Heat --

What is District Energy?

District Heat --

Central Energy Plant

Current Proposed RoutingDistrict Heat --

The PipeDistrict Heat --

The PipeDistrict Heat --

Existing Fuel Oil Boilers

Montpelier High School, 1998

Union Elementary School, 1992

Heat ExchangerDistrict Heat --

~80 TonsNOx, SO2, PM, CO,

HAPs

~73 TonsNOx, SO2, PM, CO,

HAPs

4 TonsNOx, SO2, PM,

CO, HAPs

4 TonsNOx, SO2, PM,

CO, HAPs

‘Phase 1’Air

Emissions- 7 Tons

- 4 Tons

Total Emissions Reduction 11 Tons

District Heat --

PRELIMINARY

Timeline

May 6, 2011 – Governor Signs Charter Change

Summer 2011 - Preliminary Design of Plant and Distribution System

Fall 2011 -

Final Design Heat Plant and Distribution System

Permitting Central Heat Plant

Order Major Equipment

Initiate Construction

Spring 2013 – Project Comes Online

June 14, 2011 - City Bond Vote

May 19, 2011 – Draft Final EA – FONSI

2012 – Main construction period

May 20, 2011 – Governor Signs Capital Bill

Current Fuel CostsCurrently MHS & UES consume ~ 80,000 gallons of fuel oil each year

Fiscal Year Total Gallons Total CostAverage Price Per

GallonFY11 to date 31,613 93,096 2.94

FY10 42,126 98,254 2.33FY09 36,580 65,262 1.78FY08 39,467 118,165 2.99FY07 45,782 94,051 2.05FY06 45,355 93,857 2.07

Union Elementary School

Fiscal Year Total Gallons Total CostAverage Price Per

Gallon

FY11 to date 30,005 86,927 2.90FY10 40,515 94,096 2.32FY09 36,653 64,662 1.76FY08 28,709 89,760 3.13FY07 25,510 48,165 1.89FY06 41,807 84,883 2.03

Montpelier High School

FY12 Budget: UES = $108,264; MHS= $104,124

City Hall/Fire Station Police Station

Year Gallons Price Cost Gallons Price Cost

2011 (YDT) 17,866 $2.04 $41,342 2,920 $2.62 $7,6722010 18,889 $2.04 $37,699 3,839 $1.95 $7,499

2009 20,639 $3.19 $61,623 2,684 $2.28 $8,149

2008 19,214 $2.19 $42,228 4,019 $2.28 $9,052

2007 19,214 $2.19 $42,228 4,019 $2.28 $9,052

2006 19,514 $2.10 $41,057 3,895 $2.10 $8,180

Total Cost Accounting--

“BAU” vs District Heat Project

Future Cost of Fuel Oil

?

21

Crude oil is generally tracked as West Texas Intermediate (WTI) or Cushing OK

Pricing of WTI, a commonly referenced ‘benchmark’ for fuel oil pricing

Harold Garabedian Energy & Environmental Analytics

22Harold Garabedian Energy & Environmental Analytics

WTI Pricing is variable , but follows a general increasing trend

EIA Produces Annual Energy Outlook;

AEO 2011

What does this mean to the case at hand?

We can translate the AEO forecasts of Crude oil to refined product, and present it as the three cases

Can overlay the fuel price forecast using in analysis of District Heat Project

And add in actual past price information

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High Oil Case

Reference Case

“Moody’s”

Low Oil Case

City Hall Actual

EIA Actual

Harold Garabedian Energy & Environmental Analytics

The actual price being paid for fuel oil is running ahead of EIA’s high forecast

Comparison of actual oil prices paid to forecasts

Paul Frederick , 2009 VT School Wood Chip Users Conference, February, 2008

Financial Impact:

• Among the 5 City and School Buildings an estimated $300,000 is budgeted in FY12 to purchase Fuel Oil

• The cost of Fuel Oil can only be expected to go up in future years; the question is by how much?

• The Capital District Heating Project presents an opportunity to stabilize costs, invest locally, improve environmental quality and convert an operating expense into a community investment

• Based on price projections from EIA, the annual cost to heat these 5 buildings in 2020 could range from $372,000 to $632,000

FUNDING SOURCES:

Federal Dept. of Energy $8.00 MillionState of Vermont Capital Bill $7.00 MillionMontpelier Bond/CEDF Loan $2.75 MillionCEDF Grant $1.00 Million

Total Cash $18.75 Million

State of Vermont “in kind” $1.20 Million

TOTAL project $19.95 Million

MUNICIPAL BOND/LOAN

Vermont Municipal Bond Bank $2.00 Million

Clean Energy Development Fund Loan $0.75 Million(1% interest, repayment deferred until project is cash positive)

TOTAL $2.75 Million

TWO PROJECTS IN ONE

STATE – Heating Plant Improvements and Expansion$13.85 Million Cash$1.20 Million In Kind

CITY – Distribution System $4.90 Million Cash

Total $18.75 Million Cash$19.95 Million overall

KEY FINANCIAL PARAMETERS

• City/School costs will consist of bond payment and wholesale cost of biomass generated heat from the State.

• Annual expenses will fall within current annual City/School expenses for oil heat. Will not require additional tax dollars

• Financial Projections do not include or rely upon potential revenue from private customers. No speculation with regard to future users.

• Revenues from future users will be set in reserve for future capacity needs and/or distribution system expansion. Such future costs should not come from tax dollars.

OPERATIONS

• Master Contract with state for rates, capacity and whole sale purchase of thermal units

• City will resell heat to private customers using meters and retail rates established to cover costs and future expansion.

• City already maintains subservice distribution systems with metering and billing.

• City will engage firm with specific district heat expertise to assist with system operation.

• Future option might include creation of separate utility or independent non-profit to manage the system.

CONCERNS & CHALLENGES

• $18.75 Million in cash available for project, $1.2 million “in kind”.

• Current combined estimates run as high as $19.7 to $20.5 with high contingencies and unknowns.

• MOU is complete but master contract is not.

• Impact of project overruns on scope and quality

• One project meets budget and the other doesn’t.

• Additional bonding for the city.

• Schools are key players but also high cost.

• Construction disruption.

ADDRESSING CONCERNS• City and State engineers working cooperatively to develop

project within available funding.

• MOU discussions laid ground work for master contract. Many topics have already been introduced and framed.

• Multiple opportunities to review estimates, internal funding allocations and bid results. Will not proceed if it costs too much.

• Cost of debt service on bond covered by current fuel costs, should not preclude future bonding if desired. Council has created committee to look at debt levels and policies. Annual GF debt service to drop $88,000 (13%) over next five years.

• Potential alternatives for schools if necessary.

• All projects create disruption. Will be managed as tightly as possible.

BIG DECISION!

Voting is on Tuesday, June 14th from 7:00 AM to 7:00 PM at City Hall

Absentee ballots available now

END

Short-Term Energy OutlookJune 7, 2011 Release

(Next update July 12, 2011)

EIA --

World benchmark crude oil prices reached their highest level of this year at the end of April, fell by about 10 percent by May 9 and have changed very little since then.  EIA still expects oil markets to tighten through 2012 given projected world oil demand growth and slowing growth in supply from countries that are not members of the Organization of the Petroleum Exporting Countries (OPEC).  The projected U.S. refiner crude oil average acquisition cost rises from $104 per barrel in 2011 to $108 per barrel in 2012, about the same as last month's Outlook.

Historical Price Paid for Fuel Oil; City Hall

Crude oil is generally tracked as West Texas Intermediate (WTI)

Historical Pricing of WTI