OSFMA Conference 2003 April 9, 2003 Are You Asking the Hard Questions about Performance Contracting? OSFMA Conference 2003

April 9, 2003 Today’s Agenda Introductions Brief Overview 10 FAQ’s YOUR QUESTIONS!

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, Frequently Asked Questions

OSFMA Conference 2003 April 9, 2003 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.

OSFMA Conference 2003 April 9, 2003 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 District’s Needs Open Book Pricing 100% of Construction Savings Returned to School District Proven, Successful Practice

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, 2003 What type of projects can be done? Salem Keizer Public School’s Projects –HVAC –Controls –Thermal Shell –Load/Demand Management

OSFMA Conference 2003 April 9, 2003 Isn’t 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

OSFMA Conference 2003 April 9, 2003 What is covered in the project cost? Construction Costs (including all subs) Construction Management ESCO’s Fees (including all engineering) Payment and Performance Bonds Turnkey project required to achieve guaranteed savings

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, 2003 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 M&V plan Industry standards (Ashrae, IPMVP) –Measure & track savings & trends

OSFMA Conference 2003 April 9, 2003 What Funding Sources Can We Use? SB1149 Funds BETC SELP Loan Guaranteed Energy Savings Hard O&M Savings Mixing of school district funds and borrowed capital is allowed Planning a bond/levy can be reduced with performance contracting

OSFMA Conference 2003 April 9, 2003 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, M&V

OSFMA Conference 2003 April 9, 2003 How do we get Started with an ESPC? Call the Oregon Office of Energy –Or Visit their web site: Different contract stages (Investment Grade Audit, Implementation and M&V –Template documents available Pending Legislation SB3476

OSFMA Conference 2003 April 9, 2003 Kennewick School District Fast Track Project (6 months from beginning to end) Focused on Controls, Lighting and Power Factor Correction in 3 facilities

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, 2003 YOUR QUESTIONS!

OSFMA Conference 2003 April 9, 2003 Other FAQ’s - 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 PC’s done before and ones done now?

OSFMA Conference 2003 April 9, 2003 Other FAQ’s - 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?

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, 2003 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 Once you select an ESCO all bidding requirements are met

OSFMA Conference 2003 April 9, 2003 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!

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, 2003 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

OSFMA Conference 2003 April 9, 2003 How do savings get established? Investment grade audit Real data measurements and logging –Historical information Accepted engineering practices Reviewed by OOE and District

OSFMA Conference 2003 April 9, 2003 What if the Guarantees are not met? Project Costs (Latent conditions) Savings Guarantee is based on saved units of energy (Therm’s and kWh) not dollars ESCO must make up the savings short fall typically on an annually basis

OSFMA Conference 2003 April 9, 2003 Thank you for your time... QUESTIONS? Cam Hamilton McKinstry / Energy Services com David Furr Salem Keizer Public Schools Betty Merrill Oregon Office of Energy