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HomeMy WebLinkAboutDTS-07-170 - Street Lighting Energy Costsdevelopment & Technical Services Report To: Chair Vrbanovic and Members of the Finance and Corporate Services Committee Date of Meeting: 2007 November 5 Submitted By: John McBride, Director Transportation Planning Prepared By: John McBride (741-2374) Ward(s) Involved: All Date of Report: 2007 October 31 Report No.: DTS 07-170 Subject: Street Lighting Energy Costs RECOMMENDATIONS: That the City opt out of the Regulated Price Plan for the purchase of electricity related to the street lighting system as defined by the Ontario Energy Board; and further, That the City purchase electricity related to the street lighting system on the spot market; and further, That the City enter into an agreement with ECNG Energy L.P. to solicit and manage energy contracts for the purchase of electricity for street lighting for a term of one year, subject to the satisfaction of the City Solicitor; and further, That electricity costs related to street lighting be reduced by $150,000 for the 2008 budget year. BACKGROUND: The City of Kitchener annually pays approximately $1.145 million in electricity costs related to street lighting. This is based on approximately 17,000 street lights, the majority of which are high pressure sodium (HPS) and a standard cobra head fixture. Metal halide decorative lights exist in the Downtown and some HPS decorative lights exist outside of the core. Of the $1.145 million cost, a certain portion is made up of the actual energy portion of the bill, while other portions allow for distribution, transmission, wholesale market services and debt retirement. The actual rate that the City pays for the electricity is determined twice a year by the Ontario Energy Board (OEB) and under a Regulated Price Plan (RPP) is applied to public sector groups which include municipalities, universities, schools and hospitals (MUSH). 2 Since energy consumption related to street lighting typically occurs at off peak times, there is an opportunity to achieve significant cost savings from opting out of the RPP and taking advantage of actual spot market rates. REPORT: A small staff team was formed to investigate the feasibility, implications and cost savings of removing the purchase of electricity related to street lighting from the RPP as part of the MUSH group. This team consisted of: Dan Chapman, Director of Financial Planning and Reporting Jim Gruenbauer, Manager of Regulatory Affairs and Supply Mario Petricevic, Manager of Projects and Energy Management Gary England, Project Manager/Energy Management John McBride, Director Transportation Planning We also met with management of KW Hydro who confirmed that the changes proposed will have no impact on KW Hydro. The cost of energy is a pass through charge and thus revenue neutral to the utility. The City of Kitchener is part of MUSH which was established a number of years ago by the Ontario Energy Board to try and minimize fluctuations in energy prices for a segment of the public sector that could not easily pass on the extra costs or savings to their customers. The OEB in May and Nov of each year sets the electricity rate for the MUSH group as part of the RPP. It was set at $.064/ kwh in Nov 06, falling to $.062 /kwh in May 07 and it has just recently been announced that the rate will fall further to $.059/kwh as of Nov 07. The City pays this rate for all electricity used regardless of location, time of day or quantity used. This blended rate protects the City from fluctuations in the energy market but also fluctuations based on time of day. Hydro usage is considerably more costly during the day and early evening hours simply based on demand. Businesses, factories and residents typically have a high demand during the day, while overnight the demand and cost for electricity decreases considerably. The City has two very distinct types of electrical energy use. The first is City buildings, i.e. City Hall, community centres, arenas, pools, etc and the second group is our street lighting program. The City, as part of the RPP within the MUSH group, pays a blended rate, currently at $.062/kwh. However, market energy prices vary by time of day and demand and can fluctuate from as low as $.032/kwh during off peak times to $.092/kwh during peak daytime use. This difference in pricing, based on time of day, allows for the separation of street lighting energy uses from the remainder of our daytime energy uses. The City currently has about 17,000 street lights, the majority of which are high pressure sodium ~HPS) cobra heads. There are some decorative lights within newer subdivisions which use the HPS light source, and Downtown, decorative metal halide lights are used. The total energy costs required for these lights amounted to $1,145,000 from Sept 06 to Aug 07. This figure represents the actual energy costs as well as charges for connections, distribution, transmission, wholesale market services and debt reduction. The actual cost of the electricity amounted to $651,000 for the same period with a RPP rate of $.064 and $.062/kwh. 3 If the energy costs for street lighting had been removed from the RPP agreement and placed on the spot market, over the last year, prices would have varied between $.035 and $.045/kwh. Based on last year's usage, this would have equated to a cost of between $356,000 and $458,000. This would represent annual savings of between $193,000 and $295,000 in energy costs related to street lighting. There is minimal risk in separating the street lighting electricity supply from the RPP since most volatility in the supply of electricity is related to the peak demand periods during the day. Surplus electricity generating capacity exists during the off peak hours, which coincides with the demand for street lighting. The remainder of the City's buildings would still be covered by the MUSH agreement at the RPP rate established by the OEB. The OEB has stated that they intend to discontinue the MUSH grouping effective Apr 1, 2008, however there has been no indication at this time as to whether the MUSH group will have to go to the spot market or whether there will be a new type of program for the MUSH group. A separate report will be brought back to Council by our Energy Management group once more information is available from the OEB. If the City chooses to opt out of the RPP for street lighting, then a rebate will be owed to the City from accumulated revenues paid out of the Variance Settlement Account. This account is regulated by the OEB to minimize cost fluctuations and is currently in a surplus position. As of this date, a rebate of $.003057Ikwh is anticipated which would equate to a lump sum payment of approximately $30,000. The ability to opt out of the RPP will require the assistance of an independent energy provider for the purchase of electricity. We have considered various purchase options, including the Association of Municipalities of Ontario who offer a Local Authority Service Electricity Procurement Program. This organization, along with many other private service providers, only periodically tender their electricity supply and do not actively manage their own supply portfolio to capitalize on emerging opportunities. We then considered ECNG Energy which is the consultant and agent in the procurement and administration of natural gas for the City. Their role with respect to street lighting energy supply would be to solicit supply offers and contracts on behalf of the City including the management of the electricity supply contracts. ECNG Energy is the only independent advisor, that we are aware of, which offers distributor consolidated billing. Their advantage is that they do not hold a financial interest either in the supply or transmission of the commodity and are able to provide more objective advice. Their interest is in providing the least expensive electrical energy source and fees are based on usage, not cost of the electricity purchased. Based on last years consumption, the annual fee for ECNG Energy's services will be approximately $15,000 which is comparable to the fees offered by the AMO. We also have the advantage of having a good working relationship with ECNG based on our experience with the supply of natural gas. 4 CONCLUSION: It is to the City's advantage to remove the electricity supply for street lighting from the Regulated Price Plan in order to take advantage of lower unit costs for electricity during non peak times of the day. There is minimal risk in this approach and substantial savings to be realized. A one year agreement with ECNG Energy L.P., to expire on Dec 31, 2008, will allow sufficient time to evaluate the effectiveness of this approach and negotiate any changes if the City wishes to continue with this arrangement. FINANCIAL IMPLICATIONS: Even with the reduced RPP rate of $.059/kwh scheduled to be implemented on Nov 1, 2007, we still expect to realize annual savings of between $150,000 and $250,000. Provided that Council endorses this approach, it is recommended that $150,000 be removed from the street lighting electricity index. The annual cost of entering into an agreement with ECNG Energy will be more than offset by the savings in electricity costs. The Variance Settlement Account is expected to generate a one time credit to the City of approximately $30,000. John McBride, Director Transportation Planning Grant Murphy, P.Eng Director of Engineering