Heating Plant Conversion, Queen Elizabeth Theatre Additional Fuel Cost

ADMINISTRATIVE REPORT

Date: October 10, 2002

Author/Local: K. Kwok/604-873-7165/

B. Hansen/604-873-7117

CC File No. 4253

RTS No.: 02848

Council: October 22, 2002

TO:

Vancouver City Council

FROM:

Director of Facility Design & Management in consultation with the Director of Civic Theatres

SUBJECT:

Heating Plant Conversion, Queen Elizabeth Theatre Additional Fuel Cost

RECOMMENDATION

THAT Council approve conversion of the existing heating system in the Queen Elizabeth Theatre complex from a gas boiler plant to purchased steam, to be provided by Central Steam Distribution, to comply with new boiler legislation commencing January 2003. Funding for the net additional $50,000 fuel cost is to be provided from an increase in the 2003 Operating Budget.

GENERAL MANAGER'S COMMENTS

The General Manager of Corporate Services RECOMMENDS approval of the above, noting that the proposal is consistent with the City's sustainability strategy and provides a good business case with an economic return to the City.

COUNCIL POLICY

· Contracts with a value of over $300,000 are referred to Council for award.
· Contracts for the purchase of equipment, supplies and services are awarded on the basis of highest value for quality, service and price.
PURPOSE

The purpose of this report is to recommend that an alternative source of fuel be considered for heating Queen Elizabeth Theatre to conform with the Provincial Government's change in the Boiler Act.

BACKGROUND

In 2000, changes to the Boiler and Pressure Vessel Safety Act were enacted into legislation. The legislation requires that boilers of a particular size be staffed with a full-time stationary engineer with a 5th Class Power Engineers Boiler Certificate on a 24x7 basis. In 2001, the City retained TFM Consultants to examine physical plant equipment at the Queen Elizabeth Theatre and to report on compliance with the new regulations. The report concluded that the refrigeration chiller and boilers currently in operation are of such capacity that full-time staff is required to operate the plant. Compounding the problem at the QET, the refrigeration equipment is located in the same mechanical room as the boilers, in contravention of CSA code, which states: "no open flames or apparatus to produce an open flame shall be installed in a machinery room where any refrigerant other than carbon dioxide is used."

DISCUSSION

In order to comply with the new regulation for boiler operation, Building Services would be required to provide 24-hour coverage for 7 days a week for the QET boiler plant. This coverage is equivalent to 4.4 FTE (full time equivalency) with 5th Class Power Engineer Boiler Certificates at a cost of $340,000 per year.

Remedial Options

Remediation of the current deficient conditions at the QET is mandatory. With the existing mechanical room configuration, any change to the boilers would require constructing a room to separate the chillers from the boilers or installing a very sophisticated alarm system acceptable to the B.C. Boiler Branch to allow all equipment to share the same mechanical room.

Based on the above criteria, the following options from TFM Consultants, Keen Consulting and Integral Engineering were evaluated. A life-cycle cost analysis by Keen and Integral Engineering four options were evaluated based on the following parameters:

a.

Analysis terms

20 years

b.

General Inflation Rate

2 percent

c.

Discount Rate

7 percent

d.

Anticipated Natural Gas Escalation Rate

-.3 percent

e.

BC Gas Utility Rate

Rate Schedule 25

Description

Estimated Cost

NPV from life-cycle cost analysis total cost owning /operating the system

Option 1 - Construct New Boiler Room & Replace Boilers

Construct a new boiler room and replace existing boilers with lower capacity, high efficiency boilers Stationary engineers are required 24x7 in the first 18 months during construction of the boiler.

$1,200,000 capital cost, plus additional stationary engineers for 18 months at $340,000 per annum

($2,683,500)

Pros: · Improved equipment to the Mechanical Plant with the addition of a new lower-capacity, high-efficiency boiler.
· Meets the requirement of the modified Boiler Act by separating chilling and heating functions.
Cons:
· Significant capital cost and proportionately higher NPV cost
· Would require the sacrifice of existing Theatre space or the construction of a new addition specifically for a new mechanical room.

Option 2 - Replace Boilers in same Mechanical Room

Replace existing boilers with the same mechanical room configuration (based on the assumption that the boiler branch accept this arrangement), and install alarm/lockout system preventing the boilers from firing if there is a refrigeration leak. Stationary engineers are required 24x7 in the first 18 months during construction of the boiler

$550,000 capital cost plus additional stationary engineers for 18 months at $340,000 per annum

($2,076,000)

Pros:
· Less costly than Option 1.
Cons:
· This option relies on a number of sensors and interlocks with no proven history of acceptance by the Boiler Branch leaving the facility very vulnerable to arbitrary changes at the discretion of the Boiler Inspection Branch. The consensus among staff and consultants that there is a risk if we go ahead with Option two, we will need to revisit and change the entire configuration should the Boiler Branch not accept this option.

Option 3 - Install Alarm Lockout System with 24x7 Coverage

Leave system as is, install alarm lockout systems as in Option 2 and provide 24x7 coverage by stationary engineers.

$60,000 plus additional labour cost of $340,000 per annum (for 20 years).

($5,874,500)

Pros:
· Includes two means of detecting potential problems by providing an alarm/location system and 24 by 7 coverage by stationary engineers.
Cons:
· Least attractive financial option.

Option 4 - Convert to Steam RECOMMENDED

Eliminate existing boiler plants and convert to steam provided by Central Steam Distribution

$0 Capital cost and Additional Fuel Cost of $55,000 per annum based on existing Steam Tariff less $5,000 in maintenance costs.

($1,710,400)
Recommended

Pros:
· Most attractive financial option. As well as the financial advantage this option also provides more flexibility if there is a requirement for future expansion
Cons:
· Given existing criteria & condition , None

Based on the study, the option with the highest net present value (lowest negative cash outflow) is Option 4, converting to steam provided by Central Heat Distribution. In addition there are other tangible and intangible benefits as follows:

1. Federation of Canadian Municipalities have encouraged the development and use of district energy as a means to ensure air quality improvements continue. By purchasing steam from Central Steam, the City will contribute to the CO2 reduction objective. Central Steam is actively pursuing Kyoto Protocol initiatives for reduction of greenhouse gases and has the resources for pursuing sophisticated emission control upgrades unfeasible for individual building owners.

2. By eliminating existing boiler plants and converting to steam, anticipated maintenance cost avoidance of $5,000 per annum can be achieved.

3. There are two components in central Steam Rate structure. One is fuel cost and the other is Steam Tariff. Central Heat's fuel costs are a direct pass-through to the customer. With their large volume in natural gas consumption the City can benefit from lower costs for natural gas.

4. By switching to steam, the need for additional Certified Staff are eliminated.

FINANCIAL IMPLICATION

Option 4, the conversion to purchasing steam is the least costly over its life-cycle. It will require an additional $55,000 in fuel cost annually, with annual maintenance cost avoidance of $5,000 for a net additional annual cost of $50,000. This is more than offset by avoiding anticipated labour cost of $340,000 per annum and $60,000 in alarm monitoring equipment as required to comply with the new boiler regulation.

It is recommended that the fuel budget for the QET be increased by $50,000, commencing in 2003 to cover the additional fuel cost.

CONCLUSION

Staff recommend that Council approve the conversion of the heating requirement for QET complex from existing boiler plant to steam provided by Central Steam Distribution to meet the requirements of the modified Boiler Act with a net increase in the operating budget of $50,000 for additional fuel cost.

* * * * *

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TO:	Vancouver City Council
FROM:	Director of Facility Design & Management in consultation with the Director of Civic Theatres
SUBJECT:	Heating Plant Conversion, Queen Elizabeth Theatre Additional Fuel Cost

a.	Analysis terms	20 years
b.	General Inflation Rate	2 percent
c.	Discount Rate	7 percent
d.	Anticipated Natural Gas Escalation Rate	-.3 percent
e.	BC Gas Utility Rate	Rate Schedule 25


Description	Estimated Cost	NPV from life-cycle cost analysis total cost owning /operating the system
Option 1 - Construct New Boiler Room & Replace Boilers
Construct a new boiler room and replace existing boilers with lower capacity, high efficiency boilers Stationary engineers are required 24x7 in the first 18 months during construction of the boiler.	$1,200,000 capital cost, plus additional stationary engineers for 18 months at $340,000 per annum	($2,683,500)
Pros: · Improved equipment to the Mechanical Plant with the addition of a new lower-capacity, high-efficiency boiler. · Meets the requirement of the modified Boiler Act by separating chilling and heating functions. Cons: · Significant capital cost and proportionately higher NPV cost · Would require the sacrifice of existing Theatre space or the construction of a new addition specifically for a new mechanical room.
Option 2 - Replace Boilers in same Mechanical Room
Replace existing boilers with the same mechanical room configuration (based on the assumption that the boiler branch accept this arrangement), and install alarm/lockout system preventing the boilers from firing if there is a refrigeration leak. Stationary engineers are required 24x7 in the first 18 months during construction of the boiler	$550,000 capital cost plus additional stationary engineers for 18 months at $340,000 per annum	($2,076,000)
Pros: · Less costly than Option 1. Cons: · This option relies on a number of sensors and interlocks with no proven history of acceptance by the Boiler Branch leaving the facility very vulnerable to arbitrary changes at the discretion of the Boiler Inspection Branch. The consensus among staff and consultants that there is a risk if we go ahead with Option two, we will need to revisit and change the entire configuration should the Boiler Branch not accept this option.
Option 3 - Install Alarm Lockout System with 24x7 Coverage
Leave system as is, install alarm lockout systems as in Option 2 and provide 24x7 coverage by stationary engineers.	$60,000 plus additional labour cost of $340,000 per annum (for 20 years).	($5,874,500)
Pros: · Includes two means of detecting potential problems by providing an alarm/location system and 24 by 7 coverage by stationary engineers. Cons: · Least attractive financial option.
Option 4 - Convert to Steam RECOMMENDED
Eliminate existing boiler plants and convert to steam provided by Central Steam Distribution	$0 Capital cost and Additional Fuel Cost of $55,000 per annum based on existing Steam Tariff less $5,000 in maintenance costs.	($1,710,400) Recommended
Pros: · Most attractive financial option. As well as the financial advantage this option also provides more flexibility if there is a requirement for future expansion Cons: · Given existing criteria & condition , None