HomeMy WebLinkAboutStaff Report 102-07TO:
FROM:
City of Palo Alto
City Manager’s Report
HONORABLE CITY COUNCIL i~
CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:
SUBJECT:
JANUARY 16, 2007 CMR: 102:07
ADOPTION OF A RESOLUTION OF INTENTION TO
REIMBURSE PHOTOVOLTAIC SOLAR PANEL PROJECT (PE-
05001) EXPENDITURES FROM CLEAN RENEWABLE ENERGY
BONDS
RECOMMENDATION
Staff recommends that Council adopt the attached resolution of intention to reimburse
photovoltaic solar panel project costs from Clean Renewable Energy Bonds.
BACKGROUND
With the passage of the Energy Tax Incentives Act of 2005 (the Act), Congress authorized "up to
$800 million of tax credit bonds to be issued by qualified issuers to finance certain renewable
energy projects .... " Known as Clean Renewable Energy Bonds (CREBs), these are interest-free
financing instruments (in lieu of receiving interest, lenders receive a tax credit against Federal
income taxes) that can be used for wind, closed and open-loop biomass, geothermal, solar
energy, small irrigation power, landfill gas, and other qualifying facilities. In late April 2006, the
City sent the Internal Revenue Service ORS) an application for the CREBs.
DISCUSSION
The City of Palo Alto recently received approval from the Internal Revenue Service on its
application for $1.50 million in (CREBs). These bonds were approved specifically for use on the
Photovoltaic Solar Panel Project (PE-05001). This project will place solar panels at the
Baylands Interpretive Center, Cubberley Community Center, and Municipal Service Center. Of
the $1.50 million, $1.43 million will be spent on the project and $0.07 million is anticipated to be
spent on bond issuance expenses.
In order to reimburse the Electric Utility for funds expended on the project, Council must
approve the attached "Resolution Declaring Intention to Reimburse Expenditures from The
Proceeds of Bonds to Be Issued by The City." Staff is in the process of determining the most
cost-effective manner in which to issue the CREBs. There may be an opportunity to issue them
through a Joint Powers Authority whereby issuance costs are spread among several CREBs
issuers and thereby reduced. Information on this option should be available in the next few
months. Another alternative is for the City to issue these bonds directly. If the City directly
issues bonds, it may be necessary to perform a negotiated settlement via a bond underwriter.
CMR:102:07 Page 1 of 2
This is a departure from the City’s practice of seeking competitive bids on its bond issues and is
a consequence of the small size of the CREBs bond issue and the lack of familiarity with them in
the investment community.
Staff will return to Council in the near future with a recommendation on how to proceed and a
request for approval to issue bonds. The CREBs must be issued on or before December 31,
2007.
RESOURCE IMPACT
The bonds or principal would be repaid with public benefit funds that are required to be set aside
at 2.85% of revenue in the Electric Fund. This interest-free loan allows the Electric Fund to earn
interest on the principal that would otherwise be used for the project (the Electric Fund typically
relies on a "pay-as-you-go" basis for similarly sized projects). Assuming the payment
requirements of the loan, a possible 20-year amortization period, and a 5% interest rate, the Fund
would earn $0.56 million in present value dollars. This value would be offset by the costs of
issuance currently estimated at $0.07 million.
POLICY IMPLICATIONS
This project is consistent with Council policies, especially with its goal to promote sustainable
energy, and with the Utilities Department’s Strategic Plan.
ENVIRONMENTAL REVIEW
Application for Clean Renewable Energy Bond authority does not constitute a project for the
purposes of the California Environmental Quality Act (CEQA).
PREPARED BY:P ACC O
ty Director, Administrative Services
KARL KNAPP
Senior Resource Planner, Utilities
/
APPROVED BY:
CARL
Director Services
CITY MANAGER APPROVAL:
HARRISON
Assistant City Manager
ATTACHMENT:
Attachment 1: Resolution
CMR: 102:07 Page 2 of 2
ATTACHMENT 1
NOT YET APPROVED
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO
ALTO DECLARING INTENTION TO REIMBURSE
PHOTOVOLTAIC SOLAR PANEL PROJECT (PE-05001)
EXPENDITURES FROM CLEAN RENEWABLE ENERGY BONDS TO
BE ISSUED BY THE CITY
WHEREAS, the City Council of the City of Palo Alto (the
"City") has applied for and received allocation under the Clean
Renewable Energy Bond ("CREB") program of the United States
Department of Energy for the project described below (the
~Project"):
WHEREAS, the City proposes to undertake the Project, to
issue revenue bonds or other obligations (the ~Bonds") to finance
the Project, and use a portion of the proceeds of the Bonds to
reimburse expenditures made for the Project prior to the issuance
of the Bonds;
WHEREAS, Internal Revenue Code section 54(d)(2) (C)
provides generally that proceeds of CREBs are not deemed to be
expended when such proceeds are used for reimbursement of
expenditures made prior to the date of issuance of such debt
unless certain procedures are followed, one of which is a
requirement that (with certain exceptions), prior to the payment
of any such expenditure, the issuer declares an intention to
reimburse such expenditure; and
WHEREAS, it is in the public interest and for the public
benefit that the City declares its official intent to reimburse
the expenditures,referenced herein.
NOW, THEREFORE, the Council of the City of Palo Alto does
resolve as follows:
SECTION i. The City intends to cause the Bonds to be
issued for the purpose of paying the costs of acquiring and
installing approximately 250 kilowatts (kW) of solar photovoltaic
(PV) panels at various City facilities, and consists of five
different kinds of solar panels at three different locations:
(i) the Lucy Evans Baylands Interpretive Center; (2) the
Cubberley Community Center; and (3) the City’s Municipal Services
Center (together, the "Project").
SECTION 2. The City hereby declares that it reasonably
expects (i) to pay certain costs of the Project prior to the date
of issuance of the Bonds and (ii) to use a portion of the
070102 jp O130036
proceeds of the Bonds for reimbursement of expenditures for the
Project that are paid before the date of issuance of the Bonds.
SECTION 3. The maximum principal amount of the Bonds is
expected to be $1,500,000.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:APPROVED:
City Clerk
APPROVED AS TO FORM:
Mayor
City Manager
Senior Asst. City Attorney Director of Administrative
Services
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