Can someone help me with the math?

I read today about the City's new co-generation facility at the sewage treatment plant. According to the Tribune, we're paying about $2,450,000.00 for this plant. We hope to "save as much as $200,000 per year in power costs."

According to the paper, "[g]iven rising energy prices, the project might even pay for itself in a decade or so." Hmmm.

I ran the numbers. In order to amortize $2,450,000.00 at 7% with payments of $200,000.00 per year, you're looking at 29 years. With monthly payments of $16,666.00 ($200,000.00 / 12 = $16,666.00), you're looking at almost 28 years.

At 5% the number is 19 years (annual and monthly payments). At 6% the numbers are 23 years (annual payments) and 22 years, 2 months (monthly payments). At 8% the numbers are 51 years (annual payments) and 49 years, 1 month (monthly payments).

All of that ignores any potential maintenance costs associated with operating the co-generation facility.

I'm not saying that the plant is a good idea or a bad idea. But I sure cannot figure out how it pencils in 10 years.

I know, maybe our ownership share will decrease!


Anonymous said...

Do I smell another Wave Rider here? The City is great for making claims that do not pan out and/or poor decisions that waste the taxpayers money!

-City Worker

Anonymous said...

Well 2,450,000 divided by 200,000 with no interest still leaves us with 12.25 years so my guess is the city must have a defective calculator.

On another note the Tribune reported on the Coal plant on Malmstrom but failed to mention that it also runs on natural gas. They run the plant on gas more than coal.

GeeGuy said...

The Tribune's calculator must work as well as the City's does.

Retired Architect said...

There is only one more problem with their conclusions on project return. That is the probability that their project cost is in error and understated. The engineering firm will want to be paid most of their 411,666.00 fee before completion of construction. The city also labors under the misconception that city staff is not paid with money. Staffing costs and overhead are not applied to any public cost estimate. Could be that the savings have been overstated by 10 to 20 percent. Assumptions on saving need to be covered in project costs with the inclusion of contingency funds. An then there are change-order costs. Oh well, they are not at risk like private enterprise. Love and Kisses, Bill Z.

GeeGuy said...

No love and kisses, Bill, I'm a guy!