Lincoln will switch to LED street lights over the next 12 months under a $12.2 million contract with Schneider Electric, an international energy management firm with a manufacturing plant in Lincoln.
The company expects to switch out almost 27,000 street lights across the city, all lights that have not yet been converted to LEDs, according to Frank Uhlarik, the city's environmental compliance and sustainability manager.
That includes what are called wall packs, lights attached to bridges and underpasses. The transition will include everything that is part of the street light system, residential, business areas and arterials, he said.
The Lincoln City Council will hold a public hearing on the contract and the financing mechanism at its meeting Monday at 5:30 p.m. and is expected to vote.
The council will consider three separate resolutions: the contract with Schneider, a change in city rules allowing a company other than Lincoln Electric System to put in street lights; and a funding resolution to pay for the new street lights.
The city is borrowing the $12.2 million from its cash reserves, and the loan will be repaid over 10 to 11 years with the promised savings in energy costs, according to Uhlarik.
Under the contract, Schneider guarantees the $12.2 million cost to replace the street lights and the first year of the electric and maintenance cost savings.
The total cost may be higher than the $12.2 million contract with Schneider because of additional costs the city may have as the project moves forward, including replacing damaged or faulty poles.
Much of the planning work for the street light conversion project is already finished, including selecting the LED luminaires and lining up the companies that will handle the installation.
The conversion includes replacing the entire street light head, since LEDs are not a light bulb but a solid unit.
The contract is part of a longer-term relationship with Schneider, an energy service company, or ESCO.
Schneider did the design work and made arrangements to buy specific LEDs under a previous contract, called an investment grade audit.
The LED luminaires have five- to 10-year warranties, the best warranties available, but are expected to last 20 to 25 years, said Uhlarik.
The city is expected to repay the internal loan, with a 2.5 percent interest rate, through estimated savings in three areas: electric costs, maintenance costs since the LEDs are expected to require less maintenance because bulbs are not replaced, and avoidance of new capital costs.
The city expects to save between $871,000 to $1.4 million each year on energy and maintenance savings and another $200,000 on savings of capital costs. Total savings are expected to range from $1.2 million to $1.5 million annually over a 20-year period.
That means a $12.2 million loan will be paid off within 10 years, based on a table showing estimated savings.
The city generally has about $300 million in cash, in accounts ranging from less than $40 in annexation deposits to $29 million in occupational tax revenue being saved to pay off bonds used to build Pinnacle Bank Arena and the related street system.
The city is not going to do anything that would impact the city’s bond rating, city finance director Brandon Kauffman, said about the internal borrowing.
This is not the first time the city has borrowed internally, he said. The city purchased the street light system itself back in the early 2000s by borrowing from its cash reserve, Kauffman said.
Since then the city has used a bond mechanism called Certificates of Participation to finance ongoing street light replacement projects.
The city has debt of $17,370,000 for upgrading street lights, with about $2.6 million in annual debt payments, according to Kauffman.
The city and LES staff have been studying the LED conversion for four years. Changing out the lights all at once, rather than transitioning over several years, allows the city to get the full savings immediately and allows uniformity in street lights by using the same products.
"We want to have a uniform look in all the corridors,” Uhlarik said.