‘Smart city’ efficiency upgrades debated

MARQUETTE — A majority of city commissioners expressed support for an energy performance contract with Johnson Controls, Inc. at the close of a three-hour work session this week addressing the potential $28 million project that would fund infrastructure and energy improvements in the city.

The Marquette City Commission is expected to vote on the final contract at its regular meeting at 6 p.m. Monday at Marquette City Hall.

JCI officials promised the contract will be budget neutral, funding upgrades that will pay for themselves through energy efficiency savings.

Senior account executive Ron Stimac Wednesday presented the specific upgrades identified in the energy and engineering study, which the commission approved in a 5-2 vote in February.

Johnson Controls is headquartered in Milwaukee, Wis. and produces heating, ventilation and air conditioning equipment for buildings.

Benefits promised

“This is a self-funded project with guaranteed outcomes,” Stimac said, adding the city is already spending this money on operation and maintenance of existing facilities. “We’re taking that money back from emergency repairs, we’re taking that back from the utility companies, and spending it on yourself.”

For the $28 million investment, the contract guarantees the city will save $42.4 million over the 20-year contract, with no additional tax burden or water utility rate increase on the community, according to the executive overview.

The cost includes repairs, maintenance and upgrades of the new equipment over the life of the contract, along with training of staff to operate it, Stimac said.

He emphasized the benefits of added jobs, economic development, energy savings and environmental impacts.

Stimac said according to the U.S. Bureau of Economic Analysis, the project will have an economic impact of $62 million and create 560 new jobs. The labor hours for construction alone will equate to 37 full-time jobs over two years, he said.

“It has an immediate impact on local unions and local labor at very, very aggressive rates, not non-union wages,” Stimac said. “That gets spent here (in the local economy).”

The scope of work includes updating 22 traffic intersections; replacing 3,300 water meters with a “smart city” advanced metering infrastructure system; renovations to city hall; LED lights on 2,500 street lights and 125 bike path lights; an electrical co-generation plant at the Wastewater Treatment Plant; numerous building envelope, lighting and HVAC improvements; and completing the Lakeview Arena’s ice system replacement.

A “smart city” integrates information and communication technology in a secure fashion to manage a city’s assets, according to Wikipedia.

Financing it

Should the city on Monday approve the contract with JCI, a $28 million loan through Bank of America would fund the upgrades over two years. The loan wouldn’t register as debt due to new state laws.

Michigan last year enacted legislation to allow local governments to use tax-exempt lease purchase agreements to finance energy conservation improvements. JCI would lease the equipment to the city, and the city would assume ownership at the end of the contract. TELP agreements aren’t seen by the state as debt and allow governments to avoid bonding.

CFO Gary Simpson said Standard & Poor’s credit rating agency does register TELP agreements as debt, but that he got verbal affirmation that the city’s AA rating would be maintained.

The project was estimated at a preliminary $18 million in January, and in June, the city approved borrowing $23.5 million for the project from Bank of America, which won a competitive bid at an interest rate of 2.74 percent.

With the latest cost increase to $28.06 million, the interest rate will go up to 2.84 percent, Simpson said, which is still well below the next lowest bidder.

City Manager Mike Angeli said the earlier numbers were preliminary, before the engineering study was complete.

“Then when the final study was done, Johnson Controls and staff came to me and said, ‘Well, we’re done, it’s a lot actually better than what we thought,'” Angeli said. “Actually, it was up to like $32 million worth of improvements, but I cut a bunch of it out and the final version is what you see now.”

Angeli said staff wants to take advantage of the financing opportunity to get as many projects done as possible that will maximize future savings.

Skepticism

Commissioners Sara Cambensy and Sarah Reynolds cast the nay votes on the energy and engineering study in February, citing the need for more time and information.

Cambensy expressed strong opposition to the contract Wednesday.

“I think what makes me nervous is that we doubled our debt as a city in a year, and this is another $28 million,” Cambensy said.

The contract shouldn’t go to the commission until the city has met with the Marquette Board of Light and Power to arrange LED upgrades themselves, she said.

“I think we can do a lot better,” Cambensy said. “Because if we’re (going to) pay for these upgrades, I don’t understand why we have a third person involved.”

Angeli said the city has tried to work with the BLP, and plans to continue to work on a cooperative relationship to bring down costs.

James Teunas with JCI said the BLP’s recent rate increase was the “compelling event” that made these efficiency upgrades a priority for the city.

Support

Marquette Superintendent of Facilities Eric Stemen said the benefit of doing the upgrades this way is that the generated savings can go immediately toward other aging infrastructure needs, like Lakeview Arena, which would otherwise require bonding.

“If you were to piece this out individually, it doesn’t really work, but when you lump it all together, and you take the low-hanging fruit with some of these things that maybe don’t have all the savings attached, that’s how the whole thing kind of comes together and gels,” Stemen said.

Angeli said every year, needed projects get put off due to lack of funding.

“Things are not as clean and simple as we’d like them to be when you or anybody else says ‘why don’t we just do this on our own?'” Angeli said. “I hate to say it about the government, but government doesn’t always work with great efficiency on a steady schedule. I see us accomplishing a ton of things here.”

Angeli noted that JCI is “in it to make money.”

“I think that’s an obvious thing, they’re a company, they’re a business, they do this for profit, and quite frankly I think their … income is (going to) be around the 8 percent mark for this whole project, so we’re not concealing that. They’re making a profit on what we’re doing, but they’re doing us a great service by taking care of it, doing it, managing it, constructing it in two years,” Angeli said.

Commissioner Mike Conley said aging infrastructure needs to be addressed, “because the potential cost of not doing it is great as well.”

Commissioner Mike Plourde said the costs will only go up with time, and he wants Marquette to become a “smart city.”

Mayor Dave Campana said he likes the unique financing.

“It’s guaranteed, and the work gets done,” Campana said. “I try to find the negatives here, the only negative is the big leap, but it’s like a guaranteed leap so … I will probably be in favor of it unless something changes.”

Mary Wardell can be reached at 906-228-2500, ext. 248. Her email address is mwardell@miningjournal.net.

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