1. Overview Federal Project Financing Vehicles by David McAndrew Federal Energy Management Program

2. Presentation Overview Why Project Financing ? ESPCs UESCs Utility Incentive Programs

3. FEMP’s Mission Reduce the cost and environmental impact of the US Federal government by advancing energy efficiency and water conservation, promoting the use of distributed and renewable energy, and improving utility management decisions at Federal sites

4. The Federal Energy Universe 500,000 facilities Total area of over 3.0 billion sq. ft. 1.7% of our nation’s total energy use of approximately 98 quadrillion Btu Annual energy bill $5.1 billion; 0.5% of total Government expenditures. The largest user of energy in the country >>> “Lead by example” cannot be optional, it has got to be mandatory Why Federal Efficiency?

5. CHALLENGE – BASELINE GOALS 1.Reducing Energy Intensity 2.Expand Use of Renewable Energy 3.Reduce Water Consumption Intensity 4.Federal Building Performance Standards 5.Compliance with Federal Energy Efficiency Standards Goal EPACT EO 13423 EISA 1 2% per yr 20% by 2015 3% per yr 30% by 2015 2 3% (2007-2009) 5% (2010-2012) 7.5% (2013) 1/2 RE from sources in service after 1/1/99N/A 3 16% by Sept. 30, 2015 N/A 4 New bldg. designed 30% more efficientN/A 55% by 2010: 65% by 2015: 80% by 2020 90% by 2025: 100% by 2030 5Increase by 30%N/A Direct: a. DOE to promulgate revised standards. b. Agencies to reduce fossil fuel use 100% by 2030

6. Federal Facilities: Progress Toward Energy Efficiency Goals Status: Declines in energy intensity continue

7. Federal Facilities: Agency Progress Agency progress toward 6% goal for 2007

8. Federal Facilities: Agency Investment in Energy Efficiency Project investment is now only 9.4% of energy costs Annual investment of 20% required to meet goals

9. Alternative financing is key to meeting these goals An estimated $1.2 billion is required annually to achieve the 30% reduction by 2015 Current level of federal direct funding for building energy use reductions is less than one-third that amount — and unlikely to go much higher in the future The remaining $840 million per year must come from alternative sources of financing

10. Pay a lower utility bill Pay the contractor Achieve cost savings for the government Financed projects are paid from savings No increase in government spending occurs Contract Energy Services Reallocation of Utility Bill

11. EO 13423 Instructions “ Appropriations should be requested in annual budget requests and prioritized for application in projects or measures that do not generate savings sufficient to support private sector financing or for application as cost share to ESPCs/UESCs so that larger, more comprehensive projects can be undertaken.” In other words: exhaust private financing opportunities before using scarce appropriated funds; reserve appropriated funds for things that don’t “self-fund”.

12. Super ESPC Energy Savings Performance Contracts

13. Definition of ESPC ESPC is a no-upfront-cost contracting method. The contractor incurs the cost of implementing energy conservation measures (ECM) and is paid from the energy, water, wastewater and operations savings resulting from these ECMs.

14. ESPC Background 1992 ESPC legislation enacted 1995 DOE promulgates ESPC regs 1998 DOE streamlines process: Super ESPC 2005 ESPC reauthorized thru FY 2016 20 Dec 2007 permanent authorization and amendments

15. Section 511 – Authority to Enter into Contracts and Reports Section 512 – Financing Flexibility Section 513 – Promoting Long-Term ESPC and Verifying Savings Section 514 – Permanent Reauthorization Section 515 – Definition of Energy Savings Section 516 – Retention of Savings Section 517 – Training of Contracting Officers to Negotiate Contracts Section 518 – Study of Energy and Cost Savings in Non- Buildings EISA, Title V – Subtitle C

16. High Priority for the White House “To ensure the Federal government sets a positive example, the Energy Policy Act established aggressive Federal energy savings goals and reauthorized the Energy Savings Performance Contract program… I encourage government officials to utilize ESPCs and Super ESPCs to meet their energy use reduction goals and advance the growth and prosperity of our great country while being good stewards of taxpayer dollars and our environment” — George W. Bush August 3, 2006

17. ESPC Achievements Over 400 ESPC projects through FY05 19 different Federal agencies and departments in 46 states $1.9 Billion in Investment $5.2 Billion in Savings Annual energy savings:16 trillion Btu* DOD has done 60% of the projects and 70% of the investment dollars * Equivalent to the energy consumed by 173,000 households or a city of a half million.

18. 18 Why do an ESPC? ESCO has incentive to find all ECMs ESCO has incentive to provide high quality equipment that will perform long after installation ESCO has incentive to do all punch list items timely ESCO has incentive to commission well

19. Savings Must Exceed Payments Two types of savings may be used to pay the ESCO 1. Energy cost savings 2. Energy-related cost savings

20. Project Facilitation Technical experts Assure good deal for the government Organize process, help run meetings Experience with Super ESPC Review all proposals and contract documents Analyze deal from technologies to avoided costs

21. Super ESPC steps ► Meet with DOE ► Pick Energy Services Co. ► Initial Proposal ► Notice of Intent to Award ► Detailed Energy Survey ► Delivery Order Award ► Final Design ► Installation ► Acceptance ► 1 st Year Monitoring & Verification (M&V) ► Annual M&V ► Complete contract

22. Utility Energy Services Contracts

23. Utility Energy Service Contracts Definition: Contracts that where an agency may procure with comprehensive energy and water efficiency improvements and demand reduction services including project financing. In many cases the utilities front the capital costs, assess the opportunities, design and implement the ECMs and which are paid for out of savings.

24. Why Work With Utility Known entity with an established relationship Utility often already has knowledge of facility Flexibility in scope and size, smaller projects feasible Flexible (a la cart) contracting can be customized to the needs of customer Some utilities have very low cost financing It’s an established source (sole-source contract) “Free Services” get them hooked

25. Considerations UESCs may not be available to all facilities Utility may be new to this type of contracting –Many new utilities partner with experienced implementers Contract process is not prescriptive Agency’s relationship with utility Contract term

26. Typical UESC Offerings Audits Feasibility Studies Feasibility Studies Project Financing Project Financing Technical Services Technical Services Financial Services Financial Services Rebates Engineering & Design Engineering & Design Construction & Installation Construction & Installation Project Management Project Management Performance Guarantees Performance Guarantees Training O&M Services

27. Energy Policy Act of 1992 Section 152(f) - Utility Incentive Programs Agencies:  Are authorized and encouraged to participate in utility programs generally available to customers  May accept utility financial incentives, goods, and services generally available to customers (Codified as 42 USC 8256, P.L. 102-486)

28. 10 USC 2911(d) DOD is encouraged to participate in gas or electric utility programs for the management of energy demand or for energy conservation DOD can accept financial incentives, goods and services generally available from the utility Selection of Energy Conservation Measures Readily available Demonstrate economic return on investment Consistent with energy performance goals and energy performance plan Supported by special considerations

29. FEMP’s UESC Enabling Documents www.eere.energy.gov/femp/pdfs/28792.pdf Details: Legislative & Executive Legal opinions Agency guidance

30. Criteria for Energy Conservation Measures 1. Measure must produce measurable energy or water reductions or measurable amounts of demand reduction or; 2. Measure must be directly related to use of energy or water, or demand reduction; 3. Preponderance of work must be for 1. or 2. above; and, 4. The measure must be an improvement to real property GSA Guidance

31. The UESC Process Educate Acquisition Team Utility Audit / Initial Proposal Feasibility Study & Agency Review / Estimate Engineering & Design Package Construction, Installation, and Proof of Performance Payment, O&M, and Performance Verification Period Develop Contract / Establish Terms & Conditions Determine Contract Vehicle Planning Identification Implementation

32. More Than One Utility? If you have more than one utility serving your facility: –Give fair consideration to both utilities Capabilities, Experience, References –Select one or both Depending on which provides better value on a particular project

33. UESC Workshops Partnership Building Technical review Project Facilitation Process improvement Have a network of experienced professionals at most agencies and many utility companies FEMP is a Resource Technical & procurement assistance for energy and water projects

34. Utility Incentive Programs

35. Increases in EE Spending 2007 Utility EE/Load Mgmt spending is ~$3.1B ($2.6B for Energy Efficiency) CA utilities account for ~39% of total spending Expect significant increases as other states and regions ramp up

36. 1,006 118 255 144 149 120 112 $ Million < 1 (15) 1 - 10 (10) 11 - 50 (13) 51 - 100 (5) > 100 (7) EE Spending: Utility Sector 35 state PUCs have directed utilities and/or public benefit administrators to invest in energy efficiency U.S. Electric and Gas utility spending on energy efficiency was ~$2.6B in 2007 Source LBNL

37. Energy Efficiency Funds & Demand Response Programs Public purpose and/or utility energy efficiency programs and demand response/load management programs Demand response/load management programs Public purpose and/or utility energy efficiency programs Distributed energy resource options available Gas energy efficiency programs No energy management programs

38. The Cost of Delaying a Project Low Med High Life Cycle Cost Delayed appropriations Financing Any delay in project implementation results in loss of life cycle savings No action taken Appropriations available today

39. GovEnergy 2008 is the premier energy training and exposition workshop August 3 – 6, 2008 Phoenix Convention Center, Phoenix, AZ Visit www.govenergy.gov August 3-6, 2008 Phoenix, AZ HOT SOLUTIONS FOR PRICKLY PROBLEMS

40. For More Information UESC Projects David McAndrew DOE FEMP 202-586-7722 david.mcandrew@ee.doe.gov Or Karen Thomas NREL – Washington DC 202-488-2223 karen_thomas@nrel.gov Super ESPCs Projects Bill Raup DOE FEMP 202-586-2214 william.raup@ee.doe.gov william.raup@ee.doe.gov Or Tom Hattery TMS 202-256-5986 thomas.hattery@ee.doe.go v thomas.hattery@ee.doe.go v