OSFMA Conference 2003

1
Are You Asking the Hard Questions about
Performance Contracting?
OSFMA Conference 2003
2
Todays Agenda

• Introductions
• Brief Overview
• 10 FAQs
• YOUR QUESTIONS!

3
ESPC Overview

• ESPC is an innovative method to purchase energy
  efficiency improvements in buildings
• A single procurement is used to purchase a
  complete package of services
• Project financing of the entire projects so there
  are no up front costs

4
ESPC Overview

• Projects are paid for from savings, and funds are
  provided by the District, Utility Rebates (PPF),
  BETC and/or SELP Loan Program.
• How does it work?
• ESCO guarantees that savings will meet or exceed
  annual payment to cover project costs

5
Benefits of ESPC

• It allows energy project completion with little
  or no funding or experience
• Streamlines the procurement process
• Provides continuity
• Projects are commissioned
• Guaranteed savings
• Shifts the risk from the owner to the ESCO

6
Basics of Performance Contracting

• Energy Service Company (ESCO)
• Identify and evaluate energy savings
  opportunities
• Develop engineering design and specifications
• Manage the project from design to installation
• Arrange for financing
• Train staff
• Guarantee project cost, performance savings

7
10 Frequently Asked Questions
8
Why use the ESPC Program?

• Most difficult question to answer
• Reasons typically given for not using ESPC
• We have all the funding we need.
• We have done or are doing everything.
• ESPC must be more expensive.
• We do not need an ESCO.
• We do not want to borrow any funds.

9
What makes an ESPC Attractive to a School
District?

• Guarantees for Performance. Savings, Costs, etc.
• Multiple Financing Options Treat Projects as
  Investments
• Everything is Negotiable Custom Fit for each
  Districts Needs
• Open Book Pricing
• 100 of Construction Savings Returned to School
  District
• Proven, Successful Practice

10
How do I know if I am a Good Candidate?

• High Energy Use Index or Cost per Square Ft.
• Aged Equipment and Systems
• Energy using equipment ready for replacement
• Deferred maintenance problems or high maintenance
  costs
• IAQ issues
• Comfort problems
• No funds to implement needed upgrades
• No remodels for 5-10 years

11
What type of projects can be done?

• Have an energy or efficiency component
• Holistic approach that aggregates projects
• Impact to energy use and/or client comfort
• Projects include

• Lighting
• HVAC
• Water Conservation

• Controls
• Windows
• Building Envelope

12
What type of projects can be done?

• Salem Keizer Public Schools Projects
• HVAC
• Controls
• Thermal Shell
• Load/Demand Management

13
Isnt Design/Bid/Build Cheaper?

• Yes, sometimes D/B/B is cheaper!
• Get what you pay for.
• ESPC allows you to select based on value and life
  cycle, and not low bid!
• Must compare apples to apples!
• ESPC costs are turnkey
• Direct comparisons demonstrate that ESPC is very
  competitive

14
What is covered in the project cost?

• Construction Costs (including all subs)
• Construction Management
• ESCOs Fees (including all engineering)
• Payment and Performance Bonds
• Turnkey project required to achieve guaranteed
  savings

15
What Services are offered by the ESCO?

• Engineering, Design, Estimating, Construction
  Management, Commissioning, Verification
• Single Point of Accountability
• Guaranteed Maximum Cost Savings
• Long-term Partnership

16
Why do Measurement Verification?

• To determine the effectiveness of measures
• Assures savings attributed to the project
• What to do
• Must establish a baseline for comparison
• Establish a MV plan
• Industry standards (Ashrae, IPMVP)
• Measure track savings trends

17
What Funding Sources Can We Use?

• SB1149 Funds
• BETC
• SELP Loan
• Guaranteed Energy Savings
• Hard OM Savings
• Mixing of school district funds and borrowed
  capital is allowed
• Planning a bond/levy can be reduced with
  performance contracting

18
Salem-Keizer Public Schools Process

• Meet with Purchasing Department
• Homework Workshops, Talk to Contractors, Other
  Customers
• RFP/RFQ Know What You Want
• Interview Finalists
• Negotiate Contract with Selected ESCO
• Begin the Contract IGA, Implementation, MV

19
How do we get Started with an ESPC?

• Call the Oregon Office of Energy
• Or Visit their web site
• www.energy.state.or.us
• Different contract stages (Investment Grade
  Audit, Implementation and MV
• Template documents available
• Pending Legislation SB3476

20
Kennewick School District

• Fast Track Project (6 months from beginning to
  end)
• Focused on Controls, Lighting and Power Factor
  Correction in 3 facilities

21
Kennewick School District

• The Results
• Under budget (5 lower)
• Installed before the end of estimated
  construction period
• Higher Utility Rebate than Originally Estimated
• KSD where able to select the contractors and
  equipment

22
Kennewick School District

• The savings
• 679,877 kWh/yr.
• 24,823 therms/yr.
• 158 kW/month
• Totaling over 63,000 annually
• Project is on track to exceed these savings

23
YOUR QUESTIONS!
24
Other FAQs - 1

• What Should I Consider When Selecting an ESCO?
• How does the District and ESCO work together?
• What savings are used to determine
  cost-effectiveness?
• When does a District pay for the Project?
• How do savings get established?
• What is an Investment Grade Audit?
• How do I select and ESCO?
• What are the differences between PCs done before
  and ones done now?

25
Other FAQs - 2

• What if the Guarantees are not met?
• Can a School District use their own Funds?
• What can we do under the ESPC Program?
• How long does it take to develop a project?
• Does the ESCO select the Vendors/Contractors?
• How long are the savings monitored and
  guaranteed?
• Why are the typical bid laws not applicable?
• Is competitive pricing used?
• When does a District pay for engineering fees and
  construction costs?

26
What is Guaranteed?

• Project Cost are at 100
• Utility Costs are up to 100
• Operations and Maintenance Savings are not
  typically guaranteed
• Equipment Performance
• Warranty Issue Resolution

27
How does a District Select an ESCO?

• Ability to choose your own partners
• Select from List or Interview firms based on
  their qualifications
• The State Process meets the Competitive Selection
  required in 39.35
• Once you select an ESCO all bidding requirements
  are met

28
What Should I Consider When Selecting an ESCO?

• Is the company capable of being a Single-point
  of Accountability for the Long-Term?
• In-house engineering/design depth
• Experience of key individuals assigned to your
  project
• In-house construction/project management depth
• In-house construction estimating group
• Ability/experience to provide innovative
  solutions
• Ability to provide ongoing support services, when
  required
• Dedication to supporting and providing staff
  training
• Open-Book Pricing, and ESCO fee flexibility!

29
What savings are used to determine
cost-effectiveness?

• Utility Cost Savings
• Electrical, Water/Sewer, Gas, Waste
• Hard Cost Operations and Maintenance Savings
  (direction of District)
• No staff labor savings
• Seasonal, Contract, or Overtime Labor can be
  considered
• Avoided hard cost dollars are allowed

30
When does a District pay for the Project?

• During the investment grade audit no invoices are
  submitted by ESCO.
• Prior to project implementation payment terms are
  discussed.
• District is not obligated to pay until project is
  complete and energy savings commence
• ESCO may add construction period financing

31
How do savings get established?

• Investment grade audit
• Real data measurements and logging
• Historical information
• Accepted engineering practices
• Reviewed by OOE and District

32
What if the Guarantees are not met?

• Project Costs (Latent conditions)
• Savings Guarantee is based on saved units of
  energy (Therms and kWh) not dollars
• ESCO must make up the savings short fall
  typically on an annually basis

33
Thank you for your time...

• QUESTIONS?

Betty Merrill Oregon Office of Energy 503.
378.6510 betty.merrill_at_state.or.us www.energy.sta
te.or.us
Cam Hamilton McKinstry / Energy
Services 206.832.8146 800.669.6223 cameronh_at_mckins
try.com www.mckinstry.com
David Furr Salem Keizer Public Schools 206.
399-3362 furr_david_at_salkeiz.k12.or.us www.salemke
izer.org