2014-05-06 Work Session Minutes

MINUTES
HAZLETON CITY COUNCIL
WORK SESSION
TUESDAY, MAY 6, 2014

Council met for a work session on Tuesday, May 6, 2014 in Council Chambers. The work session began at 6:00 p.m.

In attendance were Council President Jack Mundie, Council Vice President Jean Mope, and Council Members Jeff Cusat, and David Sosar. Council Member Keith Bast was absent.

Joe Clifford, C Energy Group Services, said in September of 2013 City Council passed a Resolution allowing the City Administration to put out an RFP for energy services projects. The RFP was issued and nine ESSO companies made inquiries. Three companies sent in proposals, and it was narrowed down to two highly qualified companies that specialize in lighting. Clifford said one is SmartWatt Energy from New York, and Citelum Company from Washington, D.C. He said they will both give a 20-minute presentation. After this meeting, he will compare the two proposals, and make a recommendation. This will then come back to City Council for approval. Clifford said they will also be looking into potential grants for this project.

Greg Royer, Project Development Engineer, and Tony Acernese, Mid-Atlantic Regional Manager, of SmartWatt Energy came to the podium to give their presentation. Royer said that during this presentation, he is going to talk about who is SmartWatt, what is an energy performance contract, the scope of work for the street lighting, some financial aspects of the project, and why SmartWatt is the best company for this project. SmartWatt is a national company with 16 offices located throughout the nation. There are 250 employees, 10 of which are professionally licensed engineers, across the northeast. They were recently rated as one of the top 10 fastest growing energy firms in the nation. Royer said one of the things that sets them apart is that they self-perform 100% of their electrical work with a team of over 100 electricians. They do all of their own design and engineering in house. After that, it goes over to the project implementation side, and the in-house project development team takes over and builds and constructs the project. He said it then gets sent to the Engineering Department to verify and monitor the performance of the project for the term set. He stated this is a 10-year financial term. Royer showed slides regarding the turn-key process from start to finish. He stated that back in 1998, the State of Pennsylvania enacted Act 39, which is the state’s energy law. This law allows for municipalities to self-fund projects through a Performance Contract Model. He said the Model basically states that an energy savings project generates annual savings, and has to pay for itself over a certain number of years. This project was set up for 10 years, because that is what makes the most sense financially. He stated this Model does not require voter approval and it does not impact your debt limit. This offers a way for the City to fund a street lighting project through this Model. Royer said part of the law requires companies like SmartWatt to guarantee energy savings, and those savings are guaranteed for the 10-year term of the project. He said SmartWatt will be providing ongoing support for the full 10-year term, including warranty issues. A Performance Contract does not require voter approval, does not impact debt limit, the savings are guaranteed, and it allows for the installation of a high quality product and a longer warranty. As compared to a capital improvement or low-bid project, voter approval is required, taxes need to be raised, it will increase the debt limit, the savings are not guaranteed, and you are required to accept the lowest bid. Royer said through a capital low-bid project, you would have to hire a design engineer to put bid specifications together, and solicit bids for projects like this. There is a lot of administrative work involved, which you do not need to go through with a Performance Contract. This project consists of 1,464 street lighting fixtures. Royer showed some street lighting fixture samples to Council. The one he showed them was manufactured by a company call Cree. Cree is the largest LED chip manufacturer in the United States. Royer said these fixtures carry a 10-year warranty, and SmartWatt guarantees the maintenance on this system for the entire 10-year term. He showed a comparison between what we have now and what they would recommend. Royer said these fixtures have a higher color temperature, which gives a more daylight-type light and, to the eye, looks brighter. It is a clearer lighting level. Mope asked how much spread this type of light has. Royer responded that the light will spread further, and these are designed to “kick out.” He said they will evenly spread out the light throughout all of the streets. Mope was concerned that it seems awfully dark at night in town, and she believes brightening up the City as much as possible would be a deterrent to crime. Royer said the light level will be dramatically increased. Mundie asked if each fixture contains five bulbs, and Royer said the each contain five diodes on a chip board. The electricity come through a driver, which converts the electricity back to the diodes. Mundie asked if one goes out, do they all go out. Royer responded that typically the whole board goes out. Sosar asked if these fixtures will be installed on the existing poles with an extender, or do they require a whole new pole. Royer said there are several different mounting options for these fixtures, but, essentially they will mount to the existing poles. He showed two examples and said that one would replace an existing 400 watt fixture and the other would replace an existing 100 watt fixture. He said the existing fixtures are not going to require the same proposed fixtures. For a 70-watt, high pressure sodium fixture, you are only going to need a 25 watt LED fixture. For a 400-watt, high pressure sodium fixture, you will need a 168 watt LED fixture, which will give an equivalent light output. Sosar asked if a study was done showing how many of these we have in the City. Royer said yes. The count is listed in the handout. The system is going to be maintenance free for a minimum of 10 years, which is guaranteed by SmartWatt, and they are warrantied for 10 years. Royer said with this fixture, you can expect a life of 20 to 30 years out of these fixtures. If a chip board or a driver goes out, you just drop the housing, install a new driver, and it is completed. The entire fixtures does not have to be replaced, because they are designed for future maintenance. Mope asked how difficult the replacements are to do. Royer responded that after the 10-year term, you would just pull a pin with a key, the door drops out, and an electrician could have this changed in less than five minutes. Tony Acernese said they were designed for easy installation as well. They have adjustable brackets and levels, because LEDs have to be level to operate correctly. He said optics are put on top of the LED chips to have the light distribute correctly and spread out. Mope asked if we need more poles, and Acernese said no. Royer said the savings are guaranteed based on run hours, existing wattages, proposed wattages, and the current cost for electricity. Each year thereafter, SmartWatt does measurement and verification, where they come on sight with engineers, make sure the system is performing as guaranteed, and if there are any problems, they come back to correct the issue. If it cannot be corrected, they would cut you a check for the difference. Royer said it is zero risk on the City’s part. The incentive from PPL is about $50,000 for this project, and SmartWatt guarantees that incentive. This comes off the top of the project cost, which will reduce interest over the financial term. The incentive payment can also be given to the City directly. Royer said that although this is an energy project, it is going to significantly defer capital costs down the road. Mope said one of the City maintenance men recently retired, and it was a big job for him. She added that she wants to see the City brightened up. Royer said the material costs include the LED fixture, safety tag, and black and yellow tape. The installation costs include a flagger, a spotter, a bucket truck driver, and an electrician, which is in accordance with PennDOT’s regulations. This also includes hazardous materials recycling, any unforeseen wiring, any mast arm issues, material use tags, prevailing wage rate, and bonding on the project. He said they would like to not have any change orders on this project. Sosar asked what he means by hazardous materials. Royer responded that the old fixtures are considered hazardous. Acernese said the high pressure sodium lights are considered hazardous. Individually they are not necessarily hazardous, but when there is a group of them in one spot, they are considered hazardous. The materials get put in special boxes, sealed, palletized, shrink wrapped, and they a specific company picks them up. When they pick this up, they provide a bill of lading, and then the City would be provided with a hazardous certificate after the fact stating that they are disposed of properly. Royer said that also includes removal of the old fixtures. This project is going to generate $385,000 in positive cash after 10 years. They estimate the City will generate $91,000 in positive cash in year one. Royer said they are proposing a no cost IGA (Investment Grade Audit), where they verify fixtures wattages and counts, and then design the installed project. They self-perform 100% of the electrical installation, the engineering, the design, and everything is done in house. Royer said SmartWatt’s philosophy is more of a design build rather than a capital project. They have a very good understanding of lighting systems, and that is what they do best. They just completed a project with the Hazleton Housing Authority, and they have this exact fixture up in several spots. Acernese said these fixtures are located on Vine Street. Mundie asked how long it takes to do the whole city, and Acernese said it takes about two months.

Joe Clifford introduced Citelum. He said the team is led by J. C. Florenson, who is going to start the presentation.

J. C. Florenson came to the podium to give Citelum’s presentation. He said Citelum was created over 20 years ago, and their mother company is EDF, a Fortune Global 100 company, and one of the largest in the world, with over $98 million in revenue last year. They do street light management. They design, finance, build, operate, and maintain the lighting, and guarantee the savings of the lighting system. They have done work in Washington, D.C., Copenhagen, Denmark, Paris, France, Mexico City, Mexico, Fortaleza, Brazil, Sant Fost, Spain, Kunming, China, and Sunshine Coast, Australia. In Washington, D.C., they have a five-year contract to design, finance, upgrade, and maintain 70,000 streetlights. Citelum is currently maintaining and managing 2.5 million streetlights in 22 countries. They have 3,500 employees and $470 million in revenues. Florenson said that this puts them in the position where they purchase a large amount of LEDs, and they can provide the most competitive offer for cities all over the world. Their partner in this project is J. T. Kennedy Electric, 2022 Father Angelo Drive, Hazleton, Pennsylvania, 18202. This company has been working with the City for over 23 years, and they know everything about the [inaudible], infrastructure, and history. J. T. Kennedy Electric is one of the best companies for this type of project. Florenson turned the presentation over to his associate, Jon Briante. Briante said they do one thing and they do it well, and that is outdoor lighting and streetlights. Everything is done in-house, and there is a local maintenance man that everyone trusts to perform the maintenance and to help with the installation. Subcontractors are avoided and the extra margin for that is also avoided. They feel this way everything become more efficient in the contract. Their comprehensive methodology and approach is that they come up with a full master plan, which includes an energy audit. This involves an automobile that has a light meter and they manage the photometric assessment. They then move on to the upgrades using Mr. Kennedy and his group with Citelum managing it. He said they “stick around for the 10 years and do the L&M using Mr. Kennedy as well.” It is about energy efficiency and finding the most energy savings. Costs are already included for outside assistance, such as J. T. Kennedy Electric, as well as the contractual and financial aspects. He said many ESCO’s will come in and do an energy audit, but Citelum takes this a step further. They try to get to know the City. They have been walking around all day looking at the lights. He said they will do an inventory grid to determine what is needed and how to improve the City. There are some risks involved. He said it is not just an energy program, and it is a real opportunity to improve Hazleton. They look at public safety, such as making the playgrounds, little league fields, and softball fields safer, by using the money found from the savings to upgrade those things. He said this becomes part of their lighting master plan. He said LED’s are great, but it is not just about the product. You need expertise to think of it as a full solution. He said they did not bring specific samples today because they are “more agnostic with the lighting manufacturers.” They keep an eye out for buying American. They have a pool of Cooper, Kree and Phillips, and others, when purchasing the lighting. Mope asked if the fixtures look the same as the ones presented by SmartWatt. He replied generally yes. J. C. Florenson said relying on one manufacturer is usually not the best economical solution and they like to introduce competition. Briante said it is a solution to some of Hazleton’s problems, not just an energy project. The bill will consist of the wattage quantity times burning hours times energy price. The one thing that can be changed is the wattage, so many cities are tempted to go under wattage. If you go too low on the wattage, it will hurt the lighting performance and it is not going to look uniform. Mope said she wants a brighter city to deter crime. The associate said this is not only low cost, but also low risk. He said they have seen cities where the lighting is so low that it becomes a liability. He feels this is a guarantee and a comfortable level for everybody that meets national lighting standards. Jim Bateman when then introduced to proceed with the remainder of the presentation. Bateman said they will first do a photometric survey by driving through every street and doing light levels for each street, so that a proper design can be develop. That will take about three weeks. Then, those results go to the design team, and they will custom design a lighting schedule for the City. It will not be “an exact one-to-one replacement.” If somewhere is too dark now, then it will probably need a bigger light in order to get the proper lighting there. The system will be tailor-made to fit the City. Mope said she believes most of the City needs to be brighter. She asked if the businesses who have bright lights on their building will affect the photometric survey, and if they take that into consideration. Bateman said they take that into consideration. The photometric survey is done after hours. For example, in Washington, D.C., they do it from midnight until 4:00 a.m. He added that the design team will take that into account. Bateman said that after that, they will come back with a contract proposal, which will tell exactly what will be put in and exactly how that will be done. He said that should take about a week. After that, the materials will be ordered, and, depending on what fixtures are chosen, the procurement time will be anywhere from four to eight weeks. He said one the materials are received, they will begin the upgrade installation, which may overlap with the material procurement, because different materials have different lead times. He estimated it will take about six weeks to do the entire City. They estimate three crews and 18 to 20 fixtures per crew per day. Mope asked if they need the flaggers, bucket truck, etc., and Bateman said yes. After that, they will train the personnel who will be working on the lights, which will take about a week. Bateman said after that, they will do the completion of the reports and the commissioning, where you could go out and take a look at everything and sign off. This should take about eight weeks. Bateman said then the project would be finished. Mope asked if there is guaranteed savings. Florenson replied yes. All of their contracts all over the world are public-private partnerships of governments guaranteeing contracts. They guarantee the energy savings, as well as the operation and maintenance. He during the 10-year time frame, there is more than enough money saved to pay for the upgrade and doing it a smart way. He said it is not just about the energy savings, but also about the services they provide. He said the people of the City want to feel comfortable when they walk at night, and when they drive around the City. He said he believes Citelum is bringing a lighting performance solution to the table, as well as energy savings. Florenson said the City will have 64% energy conversation, and significant maintenance savings. There will be a positive cash flow for the City, and they would advise the City to keep an escrow account for the infrastructure over the next 10 years because “there is no such thing as maintenance free.” He said poles may be knocked down, etc. They have a comprehensive approach to street lighting. Mope asked how fast the new upgrades become obsolete. Florenson said they have over two million streetlights, and the guarantees are backed by the manufacturer. Citelum guarantees the fixtures for 10 years. Florenson stated that they will be designing, financing, installing, operating, and maintaining the whole lighting system if chosen. Florenson said after the 10-year payback, they anticipate a positive cash flow. Sosar said it would be a help to them if he would speak with Fermin in Community Development. He stated that the Community Development Block Grants are there, and this is something that could reduce the cost of this project further. He asked if either Citelum or SmartWatt worked with other community development departments before in obtaining grants and reducing costs. Florenson said they like to get different “stakeholders involved” in the process, and that is a great way to access all of the available funding sources. Sosar asked that both companies “bring this to the table as well.” He stated Hazleton has a lot of issues that need to be dealt with, and money is always an issue. He wants to save as much money as possible for the taxpayers. Sosar said he sees that both companies have savings within the energy production, but doing so in the establishment of the lighting as well would be a great benefit to the City. Clifford agreed, and said that looking at the whole City and what he knows about Block Grants, they could designate certain areas of the City for certain funding. He said they could manage that and “phase the project in.” Clifford thanked Council for allowing them to come in tonight. He said both Citelum and SmartWatt are “high quality companies.” His next step is to pose a series of questions to both companies to make sure he is “comparing apples to apples.” Then, he will get the committee back together, meet with the Administration, and then they will make a recommendation to City Council as they promised they would do. Clifford said this is part of the process that was laid out back in September of 2013, and they will continue to move forward with that process. He said he was here in August of 2013 and some presentations were made with regard to electric pricing that is going to go into effect in May of 2014. He said those prices are going into effect today, and it is below 4¢ per kilowatt hour. Comparing budget year to budget year, the budget for street lighting on the energy side of it will be reduced by over $30,000 because of that. He said the price was locked in at a great time when the energy market was very low. For the City facilities, City Hall, traffic lights, etc., the City will save another $12,000 effective this month. Clifford thanked Council and told them he is always available if anyone has questions. Council thanked everyone for coming.

Mundie asked that those in attendance with regard to the audit, please come forward and give a brief summary of their qualifications.

Greg Wisloski, Klacik & Associates, Shamokin, Pennsylvania said they currently have eight employees. Some of their clients include the Harrisburg Downtown Association, Leader Data Processing, the State of Maryland, and several colleges and universities. They have been in business for 54 years. Mundie asked Wisloski who is there longest client, and Wisloski replied they have been working with the City of Shamokin for 10 to 15 years. Mundie said they will not be making a decision on the audit tonight. He thanked Wisloski for coming.

Chris Lehman, S&B Company, said their firm is the primary auditor for the State of Maryland and some of its counties. Some of their clients include the Harrisburg Housing Authority, the City of Annapolis, and the City of Hagertown. They have been in business for 10 years, and they have an office located in Harrisburg, Pennsylvania. Mundie thanked him for coming.

Robert Moore, Dennis Moore & Associates, Hazleton, said they have been the City’s auditor since 2010. They are also the auditor for the Hazleton City Water Authority for 15 years. Some of their clients include Hazleton Public Transit, Conyngham Borough, and Black Creek Township. Moore said they have extensive experience in government audits. He said they would like to continue to work with the City. Mundie thanked Moore for coming.

Mundie motioned to adjourn the work session, and Mope seconded the motion. The work session ended at 6:55 p.m.