Template revised September 22, 2016.
AGENDA MEMORANDUM
Item No.
4e
ACTION ITEM
Date of Meeting
July 25, 2017
DATE: July 7, 2017
TO: Dave Soike, Interim Executive Director
FROM: Jeffrey Brown, Director Aviation Facilities and Capital Program
Wayne Grotheer, Director Aviation Project Management Group
Arlyn Purcell, Director Aviation Environment and Sustainability
SUBJECT: Stage 3 Mechanical Energy Conservation Project (CIP #C800658)
Amount of this request:
$6,791,000
Total estimated project cost:
$7,121,000
ACTION REQUESTED
Request Commission authorization for the Executive Director to (1) execute an Interagency
agreement (IAA) with the Washington State Department of Enterprise Services (DES) to proceed
with energy conservation measures at Seattle-Tacoma International Airport as described in the
project energy service proposal updated January 2017; (2) execute contracts for the design and
construction of the Stage 3 energy savings initiatives within the DES IAA; and (3) utilize Port
crews and small works contracts to perform work as required. The amount of this request is
$6,791,000 for a total project authorization of $7,121,000.
EXECUTIVE SUMMARY
This project is the third phase of the Airport’s mechanical energy conservation program. The
Stage 3 project directly supports the Century Agenda Goals to meet future energy needs
through conservation and reduce greenhouse gas emissions. It also advances the accelerated
goals in the Energy and Sustainability Policy (E&S Policy) recommendations by adding electrical
submetering to 35 motors that serve large mechanical system loads.
Stage 3 will reduce 605,989 KWh of electricity use per year, an approximate 0.4% reduction in
total electricity consumption. In addition, the project reduces Airport natural gas use by
156,496 Therms per year, a 6.1% reduction of natural gas required to meet Airport terminal
building heating needs.
The project has also been identified as the next big win for airport energy conservation,
reducing airport greenhouse gases by over 800 tons per year, a 4% reduction in our overall
carbon footprint. Carbon reductions from Stage 3 are more than a quarter of all carbon
reduced by airport conservation projects combined in the last 15 years.
COMMISSION AGENDA – Action Item No. ____ Page 2 of 6
Meeting Date: July 25, 2017
Template revised September 22, 2016; format updates October 19, 2016.
Lastly, Stage 3 will improve the efficiency of Airport heating and cooling systems, replace
equipment that has exceeded its useful life with energy efficient equipment, and increase
passenger comfort. The project provides an internal rate of return (IRR) ranging from negative
0.3% to negative 7.0% depending on utility rate assumptions.
JUSTIFICATION
The project will reduce use of electricity, natural gas, and reduce annual carbon emissions by
839 metric tons, equivalent to taking 178 cars off the road. By conserving electricity, the
project also reduces the Port’s reliance on our hydropower system, although those benefits
cannot be quantified at this time. Similarly, energy conservation projects increase airport
resilience against unexpected changes in energy prices and availability. The project adds
submetering that measures energy consumption on 35 large electrical loads on the systems
that deliver cooling and heating at the airport, an important keystone in our ongoing energy
conservation work, and identified in the E&S Policy recommendations.
DETAILS
Background
This project is the third mechanical energy conservation initiative developed by the Port of
Seattle. The first two projects replaced old constant volume air terminal units with more
efficient variable volume air units supplying air to the main terminal, and increased the
efficiency of operation in the central mechanical plant that delivers chilled water for cooling of
the buildings and equipment.
For Stage 3 of the effort, the Port chose to continue in Washington State’s Energy Savings
Performance Program (ESPC). This program provides partners with a pre-qualified energy
service company (ESCO) as an efficient method to:
(1) Conduct an energy audit of their facility and preliminary designs, and
(2) Implement the energy conservation measures identified in step 1.
ESCOs reduce costs and time required to complete energy conservation projects because the
design and construction are handled by the same firm. All ESCOs in the ESPC program must
calculate energy saved by the project prior to construction, and then verify those savings after
construction is complete. This provides high confidence that the energy savings will be realized
over the predicted life of the equipment.
The Port signed an Inter-Agency Agreement (IAA) on July 23, 2009 prior to the Stage 2
Mechanical Conservation Project with the State of Washington’s Department of Enterprise
Services (DES) to become a partner in the ESPC Program. The IAA allows compensation for the
services provided by DES and the ESCO to be paid directly by the Port.
COMMISSION AGENDA – Action Item No. ____ Page 3 of 6
Meeting Date: July 25, 2017
Template revised September 22, 2016; format updates October 19, 2016.
On June 24, 2014, the Port of Seattle Commission authorized $330,000 to proceed with audit
and preliminary design and to execute a contract through DES. DES then signed a contract with
the ESCO. The ESCO finished the audit and preliminary design and submitted the Energy
Services proposal on February 27, 2015 that includes the expected energy savings, project cost,
economic analysis and the measurement and verification (M&V) plan.
The Energy Services Proposal, as revised in January, 2017, becomes the basis for the
construction contracts between DES and the ESCO to be paid directly by the Port. DES has
requested that the existing IAA be allowed to expire on June 30, 2017 and to execute a new IAA
as we move forward with the Stage 3 Mechanical Conservation project.
Scope of Work
This project will improve the efficiency of the Airport’s mechanical systems, replace equipment
that has exceeded its useful life and reduce energy usage. Energy savings will be achieved for
both electricity and natural gas, with a resulting reduction in carbon emissions.
The project work includes:
(1) Optimize chilled water production and distribution network
(2) Remove non performing heat exchanger in the chilled water system
(3) Replace direct expansion refrigeration units with chilled water units and install duct
work in the main data center to improve cooling at the server racks
(4) Optimize chilled water pumping
(5) Monitor indoor air quality in the airport Main Terminal to improve efficiency and
reduce energy consumption
(6) Install air curtains at public doors on baggage and ticketing levels to reduce the
amount of conditioned air leaving the building
(7) Replace older constant volume terminal boxes with variable volume boxes
(8) Insulate condensate tanks
(9) Add electrical submetering.
Small Business
Because the Port is continuing the project under the ESPC/ESCO model, this project will not fall
under the Port’s Small Business Generator Program. Within the DES’s ESPC program, DES is
requiring diverse business inclusion plans from all ESCO firms and has an aspirational goal of
26% for diverse business utilization across all contracts. The ESCO for this project has a diverse
business inclusion program, adopted in 2014, with implementation strategies and goals of
between 5 and 10% each for minority, women, veteran and small business enterprises.
Schedule
Activity
Design Start
Construction start
In-use date
COMMISSION AGENDA – Action Item No. ____ Page 4 of 6
Meeting Date: July 25, 2017
Template revised September 22, 2016; format updates October 19, 2016.
Cost Breakdown
This Request
Total Project
Design
$1,483,000
Construction
$5,308,000
Total
$6,791,000
ALTERNATIVES AND IMPLICATIONS CONSIDERED
Alternative 1 – Do not proceed with this project.
Cost Implications: $243,000 Expense
Pros:
(1) No capital investment
Cons:
(1) No energy conservation or environmental benefits achieved from the identified
energy conservation measures
(2) Does not improve performance of Airport infrastructure or renew and replace
equipment that has exceeded its useful life
(3) $243,000 spent to date for the energy and regulated materials surveys would be
expensed
This is not the recommended alternative.
Alternative 2 – Proceed with the energy conservation measures.
Cost Implications: $6.8 million
Pros:
(1) Reduces Airport electricity use by 605,989 KWH/year; an approximate 0.4% reduction
in total electricity use
(2) Reduces Airport natural gas use by 156,496 Therms/year; a 6.1% reduction of energy
demand required to meet Airport terminal building heating needs
(3) Airport carbon emissions will be reduced by 839 metric tons per year. This reduction
amounts to approximately 4% of the airport’s total carbon footprint
(4) Upgrade infrastructure by replacing equipment that has exceeded its useful life with
energy efficient equipment
(5) Improve passenger comfort by reducing the amount of cool air entering the terminal
Cons:
(1) Financial return on investment does not meet the standard returns the Port usually
seeks to achieve. This is an energy conservation project for which the Commission
might accept the return due to the electricity, natural gas and greenhouse gas
emissions reduction benefits
This is the recommended alternative.
COMMISSION AGENDA – Action Item No. ____ Page 5 of 6
Meeting Date: July 25, 2017
Template revised September 22, 2016; format updates October 19, 2016.
FINANCIAL IMPLICATIONS
Cost Estimate/Authorization Summary
Capital
Expense
Total
COST ESTIMATE
Original estimate
$3,500,000
$0
$3,500,000
Current change
$3,300,000
$321,000
$3,621,000
Revised estimate
$6,800,000
$321,000
$7,121,000
AUTHORIZATION
Previous authorizations
$330,000
$0
$330,000
Anticipated request for authorization
$6,470,000
$321,000
$6,791,000
Total authorizations
$6,800,000
$321,000
$7,121,000
Remaining amount to be authorized
$0
$0
$0
Annual Budget Status and Source of Funds
This project (CIP #C800658) was included in the 2017 – 2021 capital budget and plan of finance
with a budget of $3.5 million. As a result of the energy audit, it has been determined that the
cost of the project has increased and that original goal of a 10% internal rate of return (IRR)
cannot be met. The budget increase will be transferred from the Aeronautical Allowance CIP
(C800753), resulting in no net change to the airport capital budget. The projected IRR is
between negative 0.3% and negative 7.0% depending on electric power and natural gas rate
assumptions. The funding source for this project will be the Airport Development Fund (ADF)
and future revenue bonds, to be issued in 2017.
The airlines approved this project through a majority-in-interest (MII) vote in 2014, with a
budget of $3.5 million. The current cost estimate would require another MII vote; however, the
Port elected to use the management reserve allowance per the Signatory Lease and Operating
Agreement (SLOA) to cover the increase. The airlines were briefed on the project and the Port’s
plan to use management reserve at the March 2, 2017, Airport Airline Affairs Committee
meeting.
Financial Analysis and Summary
Project cost for analysis
$7,121,000
Business Unit (BU)
Terminal Building
Effect on business performance
(NOI after depreciation)
NOI after depreciation will decrease
IRR/NPV (if relevant)
IRR:-0.3% to - 7.0%; NPV: -$3.7 million to -$5.5 million
CPE Impact
$0.03 in 2019
Future Revenues and Expenses (Total cost of ownership)
Aviation Maintenance is expected to see an overall small decrease in maintenance costs.
Removing a heat exchanger, optimizing pumps and fans and replacing constant volume
COMMISSION AGENDA – Action Item No. ____ Page 6 of 6
Meeting Date: July 25, 2017
Template revised September 22, 2016; format updates October 19, 2016.
terminal boxes and direct expansion air conditioning units will result in less maintenance. The
additional air curtains may result in some additional maintenance costs, though based on
history of these units, they are not anticipated to be significant and should be able to be
absorbed with current maintenance staffing resources.
ATTACHMENTS TO THIS REQUEST
(1) Presentation slides
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
July 11, 2017 – The Commission was briefed on Stage 3 Mechanical energy Conservation
June 24, 2014 – The Commission authorized Stage 3 Mechanical Energy Conservation Audit
March 11, 2014 – The Commission was briefed on Stage 3 Mechanical Energy Conservation