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Metro Pursues the Best Economic and Technically Feasible Future for the Metro DES

1/29/2019
District Energy System

The Metropolitan Government of Nashville and Davidson County (“Metro”) is soliciting proposals from highly qualified respondents that are interested in becoming an Operations Partner and/or Buyer who can deliver a cost effective and efficient district energy system (DES) service in a manner that ensures the best value for the Metro.

Metro Pursues the Best Economical and Technically Feasible Future for the Metro DES

1. Why is Metro doing this?

The delivery of heating and cooling energy services is an essential service to support safe, healthy, and productive environments; accordingly, after the approval of the “Clean, Green, Lean” Waste Management Plan, Metro DES became operational in mid-December 2003 with the capability to provide reliable, cost-effective, and environmentally sound energy services. In response to a 2017 Request for Proposal (RFP), FVB Energy Inc. (FVB) prepared a report for Metro to summarize the assessment of the economic viability of the Metro DES and provide options pertaining to different scenarios for the future of the system*.  Metro wishes to explore these options and, as such, is issuing this RFP to solicit qualifications from entities for the management or sale of the Metro DES.

2. How many customers does the Metro DES currently have?

Metro DES is responsible for the delivery of essential heating and/or cooling services to over forty buildings in Nashville, TN, including buildings owned by the State of Tennessee, Metro, and private customers.

3. What does Metro expect to achieve as a result of soliciting proposals from an Operations Partner and/or Buyer?

Metro’s goals for this initiative include, but are not limited to, the following:
Be significantly less expensive to operate (at least 15% less than current fixed operations and maintenance (O&M)) and achieve industry standards for costs and efficiencies;

  • Offer substantial gains in thermal efficiencies, both in the production and distribution of building heating and cooling;
  • Be scalable and adapt to changes, including potential expansion and integration of new technologies to achieve overall benefits of economies of scale;
  • Contribute to making Nashville a showcase of innovative energy solutions within a district energy system;
  • Design for future potential expansion to other building owners so that the community can benefit from economies of scale for greater technical, environmental, and economic outcomes; and
  • Implement iterative solutions that foster improvements in technology deployment, and environmental performance, and overall efficiency as the system grows.

4. Is Metro selling its district energy system?

Offerors can bid to become an Operations Partner, a Buyer, or they can bid for both roles.

5. What services will the partner be responsible for?

Metro has issued an RFP that asks respondents to identify and propose how best-in-class DES services can be provided in Nashville. The RFP explains how Metro will decide about entering into an agreement with a partner, but, generally, that decision will take into account what is best for all users of the system to include employees, the environment, and the budget. The scope of services in an agreement will require operation of the entire system as provided in the proposed agreement issued with the RFP. The final scope of services will be identified and negotiated through the procurement and contracting processes, subject to approval from the Department of Finance and Metro Council.

6. Why is Metro unable to do this on its own?

Metro no longer wishes to provide the financial resources necessary to maintain or grow the DES nor does Metro wish to continue providing the financial subsidies (Metro Funding Amount (MFA)) currently required for the operation of the DES. Additionally, Metro does not have the subject matter expertise to operate a best-in-class DES, where technology and best practices will continue to rapidly evolve. Entering into an operations agreement or selling the DES presents Metro with the best opportunity to achieve its goals.

7. How many private partners will be interested in this work?

Due diligence conducted by Metro’s consultant confirmed that this will be an attractive and highly competitive opportunity, given its size and Nashville’s reputation as a vibrant and growing community.

8. Will current energy services contracts be altered?

In the event of a contract being awarded to an Operations Partner, current contracts will not be altered. In the event of a contract being awarded for sale of the DES, due diligence conducted by Metro’s consultant suggests that it is unlikely that a new owner would seek to alter contracts without entering negotiations with customers that would result in advantageous results for all parties involved. Additionally, Initial System Customers (ISCs) must approve of any sale of the DES and all Customer Contracts, by assignment, will be transferred to any Buyer of the DES.

9. How much money could Metro earn from its DES?

There are too many variables to accurately predict the value of the Metro DES at this point. First and foremost, the decision to purse contract negotiations with either an Operations Partner or a Buyer will influence the value. Variables include, but are not limited to, the contract term, inflation, Nashville’s future growth, and the expansion of the DES. That said, Metro is not willing to agree to a sale of the DES without recovering all outstanding net debt tied to the system.

10. Who is on the RFP review committee?

The Evaluation Committee includes senior leaders from various Metro departments, including Finance, Water Services, the District Energy System Advisory Board, as well as representatives of the State of Tennessee and other customers of the Metro DES.

*The report can be found at: Determining the best economic and technically feasible future for the Metro DES