Report : OPS-20-007

Operations
Telephone (905) 468-3266
Facsimile (905) 468-2959

1593 Four Mile Creek Road
P.O. Box 190
Virgil, Ontario
L0S 1T0

		Submitted on:	January 24, 2020
Report:	OPS-20-007

Report To:	Operations Advisory Committee
Subject:	RealTerm Energy LED Conversion Proposal

1. RECOMMENDATION
It is respectfully recommended that:
1.1 Council accept the co-operative purchasing process undertaken by Local Authority Services (LAS), a wholly owned subsidiary company of the Association of Municipalities of Ontario (AMO), for the selection of an LED streetlight retrofit turn-key service and engage RealTerm Energy for the design, retrofit and energy performance of LED post top streetlights.
1.2 the Lord Mayor and Town Clerk be authorized by a by-law to execute an Energy Services Agreement Binding Letter of Intent with LAS service partner RealTerm Energy for the design, upgrade, and energy performance of 593 LED post top streetlights as detailed in their proposal.
1.3 Council accept a financing arrangement with RealTerm Energy where the bulk of capital and maintenance costs are funded through energy savings and a debenture for the balance of the up-front capital costs be funded from the Operating Levy.
1.4 Council accept the recommendation for Option 1 as listed in the financial section, which is a full one-for-one replacement of each fixture at a upfront cost of $510,000.

2. PURPOSE / PROPOSAL
The purpose of this report is to recommend to Council that the Town of Niagara-on-the-Lake participate in the LAS LED Streetlight Upgrade Service and Financing Program.

RealTerm Energy and LAS have identified that AMO is eliminating the cooperative purchase program. However, the Town was approached regarding this opportunity as a last chance to benefit from the program and ultimately, provide the Town with ongoing energy and maintenance savings.

3. BACKGROUND
In March of 2013 the Association of Municipalities of Ontario (AMO) and Local Service Authority (LAS) announced that they had undertaken a procurement process to select RealTerm Energy and Cree Canada Corporation to be the exclusive supplier for Light Emitting Diode (LED) fixtures for Ontario municipalities who participate with LAS. The RealTerm Energy program would not only include the supply and installation of LED lights but, also the financing and ongoing maintenance for a ten-year period.

Staff from Public Works met with RealTerm Energy staff to discuss their program with LAS.

The LAS option would:
· Supply LED fixtures meeting the Town’s specifications
· Warrant the equipment for 10 years
· Provide maintenance for 10 years
· Reduce electricity costs
· Provide all capital funding for the project
· Transfer the risk of the LED program to RealTerm Energy

The next step would involve preparing a binding Letter of Intent and an Energy Services Agreement based on the following commercial terms:
· The starting point will be RealTerm Energy's standard contract
· The term of the agreement is 10 years
· The streetlights will remain in the ownership of the Town
· Insurance and indemnification of the Town to Town standards
· The Town may request RealTerm Energy to install additional LED light fixtures and/or maintain additional LED fixtures from newly assumed subdivisions
· A percentage of the combined energy and maintenance savings would accrue to RealTerm Energy to offset their capital, financing and maintenance costs

RealTerm Energy will:
· Provide 100% of the capital financing
· Supply, install and maintain LED streetlights that meet the Town’s standards with a rated 100,000-hour service life
· Repair and maintain the street lights for 10 years at no cost to the Town
· Guarantee the energy savings and reimburse the Town if the energy savings are not met

The Association of Municipalities of Ontario and LAS have created a program from which all municipalities in Ontario can benefit in reducing electricity costs for street lights. Participation by the Town of Niagara-on-the-Lake in this program allows the Town to achieve significant cost savings and transfer operational risks to the private sector for a ten-year period.

Supporting Documentation and Information
The following information has been provided as supporting documentation:

1) Appendix A - Decorative Fixture Selection and Evaluation Process:
A detailed examination of the methodology to complete a “one for one” LED conversion. Their procedure is described in detail and provides insight to how they can best match the current lighting configurations.

2) Appendix B - LAS and RealTerm Energy Procurement Documentation:
A summary of how RealTerm Energy handles their procurement and selection process.

3) Appendix C - LAS Selection and Procurement Process:
A detailed explanation of how LAS conducted their procurement process and why RealTerm Energy was selected.

4) Appendix D - World Bank Recognition:
A description of the World Bank Group and their affiliation with LAS and RealTerm Energy.

5) Appendix E - RealTerm Energy Post Top Fixture Proposal:
A summary of the remaining post top fixtures and their plan to complete the conversion. Three options are presented, with consideration given to use an equivalent fixture in some areas of Town in order to save on the upfront capital investment.

6) Appendix F – LED Conversion Spreadsheet and Current Forecast
A summary of the current LED forecast, if the Town were to continue as planned.

4. DISCUSSION / ANALYSIS
The Town of Niagara-on-the-Lake presently owns and operates 2,113 streetlights, of which 1,077 are cobra head type fixtures and 1,036 are either post-top or decorative type fixtures. Each year the Town is able to convert approximately forty (40) High Pressure Sodium (HPS) and Metal Halide (MH) post top street light fixtures under the annually approved LED Conversion Upgrade Project. However, 593 post top fixtures remain to be upgraded. If the Town were to continue at the same conversion rate, the entire LED upgrade would be completed by the year 2033.

Additionally, the Town has been experiencing an increase in the number of outages, particularly pertaining to the older style HPS and MH fixtures. This is especially true during seasonal changes, where the Town has on average experienced over 50 outages per month. In contrast, in the summer months the Town on average has reported around 10 outages each month. Throughout the year, on average less than 5 % of the outages are LED fixtures, with the remaining outages comprising of HPS or MH fixtures.

The Town requested that RealTerm Energy submit three proposals. The first proposal is for the replacement of existing fixture exactly as displayed throughout the Town and the second proposal is for the replacement of an equivalent decorative post-top fixture, but at a lower cost. The third option is to include the use of the existing fixtures, but with a LED conversion kit. Overall, RealTerm Energy has provided the Town with an option to join an Energy Performance Contract, where RealTerm Energy finances 100% of the installation, operation and maintenance of a new LED streetlight network, and shares the energy and maintenance savings with the Town over a ten-year period.

Each option presented will benefit the Town from upgrading its existing streetlight network to LED technology, both in terms of significant energy savings and lower maintenance cost. Additionally, Appendix A – Decorative Fixture Selection Evaluation Process describes in detail how RealTerm Energy and their Engineers will work with the Town’s current pole configuration to ensure that the LED replacement fixtures are designed appropriately to minimize light pollution and trespass.

5. STRATEGIC PLAN
N/A

6. OPTIONS
N/A

7. FINANCIAL IMPLICATIONS
As the rated life of the lights is 100,000 hours (equivalent to 22 years of service), 100% of the savings will accrue to the Municipality after year ten (the end of the contract with RealTerm Energy), significantly increasing the overall project benefits.

7.1 Option 1 (Replacement of Current Fixtures)
This option will require an up-front material cost of $510,000 paid upon signing of contract. If the Town were to complete the installations according to the current plan, using a budget of $27,000 per year, it would take until 2033 to complete the entire conversion and would cost an estimated $589,941 for material costs with and additional $74,816 in installation costs (Appendix F - LED Conversion Spreadsheet and Current Forecast). However, it should be noted that based on the $27,000 per year budget, with a total of $378,000 at the end of the 14-year conversion, there would not be enough funds to cover the entire conversion. Mostly, because 311 of the fixtures are more expensive due to availability, material costs and manufacturing costs. Consequently, the Town would still have to come up with an additional $211,941 in order to complete the LED conversion. Therefore, a total of $664,758 would be required to complete this conversion at the end of the 14-year term, granted that the estimate provided has accurately accounted for product inflation, material costs and manufacturing costs.

Furthermore, if Option 1 is selected, RealTerm Energy would cover 100% of the installation costs, along with 100% of the maintenance costs for 10 years, which based on the five (5) year average is $74,816 and $246,820 respectively. Based on the projections, this would be a total of $321,636 savings that the Town would normally be expected to pay over the duration of the 14-year conversion process if the RealTerm Energy proposal was not selected.

To summarize, the Town will be required to provide the material costs upon initiation of the project to the sum of $510,000. In return, RealTerm Energy will provide the Town with free installation of the fixtures and a 10-year maintenance period on all LED fixtures. As part of the agreement, RTE will be warranted the yearly energy cost savings over the 10-year period. The energy costs for year 1 have been estimated at $37,517 with an increase of 2% over each year, totalling $430,090.36 over the 10-year contract. After the 10-year contract, the Town will assume the energy savings as normal.

7.2 Option 2 (Equivalent Replacement of Fixtures)
This option is identical to Option 1 in terms of the structure of the financing. However, RTE was able to source fixtures through an alternate company that are similar, if not the same, as the current fixtures in Town. By sourcing an alternate fixture for some of the specialty brands (i.e. King Luminaire 56 Series – Found in St. David’s), RTE is able to reduce the up-front capital requirement to $360,000. With the exception of the King Luminaire 56 equivalent fixture, the alternate fixtures are virtually identical to the existing fixtures. However, 101 fixtures in St. David’s would be replaced with a light standard that is similar, but not exactly the same by Acuity Brands Version CM019T4A, as shown on page 4 of the RealTerm Energy Proposal – Appendix A.

7.3 Option 3 (LED Retrofit Conversion Option)
The third option is a proposing to retrofit the existing fixtures with an LED retrofit kit that is manufactured by a reputable street lighting manufacturer company by the name of Vega Light Control Systems out of Holland, Michigan. This option offers a significant cost savings with an initial investment of $250,000. However, this option also allows for the most risk due to the use of the current fixture enclosures. The retrofit will only include the interior LED electrical components and will continue to use the existing fixtures enclosure in its current condition. The fixtures range in age between 5 to 40 years with many showing visible signs of deterioration. Some fixtures may not have the ability to accept the retrofit due to interior wiring damage and may need to be fully replaced. Therefore, an allowance for new fixtures should be accounted for in the event that the retrofit option is unavailable.

Due to existing pressures on the Town’s current Capital Program, Town staff is recommending a debenture to fund the cost of the proposal. The Town currently budgets $27,000 annually from the Operating Budget for the Streetlighting Capital Program. Depending on the option and term selected the cost of the debenture may be managed through the existing funding. In the event that the option selected is higher than the current funding available, the additional costs will be added to the Operating Levy in the year following the projects completion.

Interest rates below are subject to change when the debenture is secured. Interest rates quoted below are indicative rates from infrastructure Ontario as of February 2, 2020.

Option 1 - $510,000
Term (Years)	Interest Rate	Interest	Grand Total	Annual Payments
10	2.23%	$61,804	$571,803	$57,180
15	2.36%	$98,557	$608,557	$40,570
20	2.48%	$139,985	$649,985	$32,500

Option 2 - $360,000
Term (Years)	Interest Rate	Interest	Grand Total	Annual Payments
10	2.23%	$43,626	$403,626	$40,362
15	2.36%	$69,570	$429,570	$28,638
20	2.48%	$98,813	$458,813	$22,940

Option 3 - $250,000
Term (Years)	Interest Rate	Interest	Grand Total	Annual Payments
10	2.23%	$30,295	$280,296	$28,028
15	2.36%	$48,312	$298,312	$19,888
20	2.48%	$68,620	$318,620	$15,932

After 10 years the energy savings revert to the Town and there would be an opportunity to reduce any amounts levied to service the debenture or reallocated to other streetlighting needs.

7.4 Option 4 (Continue LED Conversion as Planned)
The fourth option is essentially to continue with the LED Conversion Capital Program at $27,000 a year for the remaining 14 years until the entire Town’s post-top fixtures are converted. However, as noted in Option 1 from above, there is not enough funding to cover this option even at the end of the 14 year term due to manufacturing and material cost increases.
8. COMMUNICATIONS
Council's decision will be communicated to RealTerm Energy.

9. CONCLUSION
Staff of the Corporate Services and Public Works Departments have reviewed the proposals submitted by LAS's service provider and are satisfied that this is in keeping with the Town's purchasing by-law and that the substantial savings that will accrue to the Town's tax-supported street accounts are real and, in the Town’s, best interests.

Respectfully submitted