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Overview of the Texas ESC Chapter

Theresa Sifuentes – Public Sector Co-chairProgram Manager-LoanSTAR, SECO

Kevin Vaughn – Private Sector Co-chairMarket Manager- Government Energy Solutions, TAC

Americas

Texas Energy Services Coalition

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Introduction toPerformance Contracting

Presenters: Carl Hurst, P.E. - State Government Solutions

Director, Western U.S., Johnson Controls, Inc. Scott Naab, Trane Comprehensive Solutions

Texas Energy Services Coalition

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A. Texas PC Projects

B. Energy Conservation Legislation

C. Performance Contracting 101

Topics of Discussion

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High interest from the legislature Plenty of available funding Good for the state’s budget Bond Review Board approves these

projects You aren’t the first Long history of successful projects

Before we begin…

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Prior Projects - State

J ob Name Project Price Annual Savings Market Financing Method

TEXAS STATE AGENCIESHHSC Phase I $13,894,980 $1,293,815 State TPFA/LoanSTAR

HHSC Phase II $11,545,023 $1,075,001 State TPFA/LoanSTARHHSC Phase III $13,129,700 $1,401,477 State TPFA/LoanSTARHHSC Phase IV $11,445,213 $1,208,606 State TPFA/LoanSTARHHSC Phase VI $5,153,072 $479,822 State TPFA

Texas Parks and Wildlife $2,493,951 $109,077 State TPFATxDOT- Houston Traffic Signal $3,950,000 $618,000 State Internal Funding

$61,611,939 $6,185,798

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Prior Projects – Higher Ed

J ob Name Project Price Annual Savings Market Financing Method

TEXAS HIGHER EDUCATIONLamar University $13,747,451 $1,319,637 Univ TPFA

Midwestern State Univ. $1,093,421 $157,047 Univ Municipal LeaseTexas A&M Commerce $2,963,930 $293,293 Univ Internal Funding

Texas State Tech College $990,755 $72,252 College TPFATexas Womans University $19,356,139 $2,158,166 Univ TPFA

Univ. of N Texas $9,045,454 $1,235,000 Univ TPFAUNT Health Science Center $3,200,000 $286,654 Univ TPFA

Weatherford College $2,400,000 $340,000 College Municipal LeaseVernon College $1,700,000 $180,000 College Municipal Lease

Temple J r. College $2,400,000 $227,000 College Municipal Lease$56,897,150 $6,269,049

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Prior Projects- Local Gov’t

J ob Name Project Price Annual Savings Market Financing Method

City of Carrollton $1,686,411 $185,052 City Municipal LeaseCity of Dallas $25,000,000 $3,400,000 City LoanSTAR/LeaseCity of Elgin $960,495 $99,183 City Municipal Lease

City of Fort Worth $5,500,000 $750,000 City LoanSTAR/LeaseCity of Harlingen $1,279,890 $121,015 City Municipal Lease

City of Tyler $18,600,000 $2,200,000 City BondsDenton County $557,746 $69,970 County Municipal Lease

Fort Bend County $1,479,373 $176,602 County Municipal LeaseMcClennan County $6,200,000 $600,000 County Municipal Lease

Walker County $382,867 $26,313 County Municipal LeaseCity of Galveston $10,000,000 $1,300,000 City LoanSTAR

Valley International Airport $874,825 $80,549 Muni Municipal Lease$72,521,607 $9,008,684

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Current State Agency PC Projects

Texas Department of Criminal Justice

Texas Youth Commission

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Existing Statute

State Agencies 2166.406 Texas Government Code

City/County 302 Local Government Code

State Higher Ed. 51.927 Texas Education Code

School Districts 44.901 Texas Education Code

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Senate Bill 1811 – 1997 Allows Higher Education to utilize TPFA

House Bill 3530 - 1997 Allows State Agencies to utilize performance

contracting House Bill 2492 - 1999

Extends term to 15 years House Bill 3286 – 2001

Allows water conservation

History of Enabling Legislation

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House Bill 2277 - 2001 Clarifies RFQ procurement options Clarifies bonding issues Allows TPFA financing for State Agencies Third Party Engineer review

House Bill 2278 – 2001 Establishes SECO in Comptrollers Office Requires State Agencies to implement energy

conservation measures meeting the requirements of Section 2166.406 Texas Government Code

History of Enabling Legislation

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2166.406 Texas Gov Code– (f)- term of ESPC contract limited to 15 years– (g)- ESPC projects may be financed with TPFA’s

Master Lease Purchase Program– (h)- contractor must guarantee savings– (I)- agency shall procure ESPC using professional

services by 2254.004 (RFQ) and independent 3rd party engineer shall review cost savings

– (j)- legislature shall base agency’s appropriation for energy and water on the sum of:

the agency’s estimated annual energy and water costs; plus

the annual energy and water cost savings resulting from the ESPC (thus finding the annual project payment)

2166.406 Texas Gov. Code

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2113.301 Texas Gov Code (appropriations)– (b)- Before a state agency may use appropriated money to

make a capital expenditure for a state facility purpose, the state agency must determine whether the expenditure could be financed with money generated by a utility cost savings contract

– (c) If it is practicable to do so, a state agency that is using

appropriated money must finance a capital expenditure for a state facility purpose with money generated by a utility cost savings contract.

– (d) If it is not practicable for a state agency that is using appropriated money to finance a capital expenditure for a state facility purpose with money generated by a utility cost savings contract, the state agency must provide justification to the comptroller for the capital expenditure.

2113.301 Texas Gov. Code

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RP 49 Executive Order SB 5 Efficiency Mandates for buildings Utility Standard Offer Programs Other Utility Incentives State Council on Competitive Gov’t (CCG)

Other Initiatives

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Scott Naab

Trane Comprehensive Solutions

Performance Contracting Overview

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Limited budgets Maintenance problems

or comfort complaints Limited expertise on technologies Too many demands on staff time

to launch new projects

Yet…you want to replace equipment

and modernize your facilities

What problems do you face at your facility?

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An Innovative Solution:

Energy

Performance

Contracting

…a smart way to get better buildings

If you face these problems…you are not alone

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Energy Performance Contracting

Projects pay for themselves!

Savings stack up over time…

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Money otherwise owed to the gas or electric utility pays for equipment!

Here’s How It Works...…

Annual Budget

Annual Budget

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Financed through TPFA master lease program

Annual cost savings exceed annual payments

15-year financing term (per legislation) Does not impact debt ceiling Endorsed by State Legislature &

Governor Results guaranteed by the ESCO

Annual Budget

AFTER Improvements

How is the project funded?

Multi-Year Lease-Purchase Agreement

The money saved from the operating budget is used to make the payments!

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Tax-Free Municipal Lease Purchase SECO LoanSTAR funds Proceeds of bonds Contract with the provider of the Energy

Conservation Measures Utility Rebates Grants

Other Financing Options

Annual BudgetAFTER Improvements

The money saved from the operating budget is used to make the payments!

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Design build process gives agency control of outcome

Single point of responsibility eliminates finger pointing

Guaranteed Results– The equipment will perform as

intended– The project will perform financially as

intended– The ESCO is obligated contractually

by a guarantee

Annual Budget

AFTER Improvements

What about risk?

Performance Contracting projects are significantly lower risk than traditional projects

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Performance Contracting is a Performance Contracting is a Better MethodBetter Method

The “ESCO” is fully accountable for project The “ESCO” is fully accountable for project performance, costs and savings!performance, costs and savings!

Bid/Spec Performance Contracting

Financial Capital/Bond Current Budget

Relationship Only during installation &warranty

Continuous throughout the life of the contract (15 years)

Upfront Fees Yes No

Performance Guarantee

No Operational and financial performance is Guaranteed

Change orders Yes No

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Established Protocols for Measurement and Verification (M&V)

IPMVP - International Protocol for Measurement and Verification Procedures

M&V Plan is required to be reviewed by third party engineer

It is possible to measure actual performance !

Measurement and Verification Measurement and Verification of Project Performanceof Project Performance

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Some Example Measures

Lighting ImprovementsProjects:

Replace fluorescent tubes & ballast Replace fixtures

Benefits: Easily pays for itself within its lifetime Cuts energy cost of lighting system by 25% or more Improved lighting quality Better indoor environment Cooler rooms on hot days (less heat from lighting system) Leveraging opportunity – buy other equipment with savings from

lighting

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Some Example Measures (cont.)

Heating System Improvements

Projects: Replace old boilers Upgrade with better controls

Benefits: Improved comfort Better internal environment Solve maintenance problems Eliminate the need to buy boiler

replacement from capital funds

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Some Example Measures (cont.)

Water Utilization Improvements

Projects: Replace faucets and fixtures Improve irrigation systems and controls

Benefits: Pays for itself through water savings Improved application Solve maintenance problems Modernize & optimize systems

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Biomass Renewables

– Solar– Geo Exchange– Wind

LEED certification Utility rebates Grant money

Other applications/opportunities

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A Key Differentiator of the process…..

Your Partnership with an Energy Service Company (ESCO)

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Identify and evaluate opportunities (energy audit)

Design systems (engineering), specify & purchase

Manage construction

Arrange for financing

Provide long-term energy management services

Guarantee performance!

Your ESCO will put the pieces together

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5 Steps to Success

Decide if performance contracting is right for you(Assess your needs & potential benefits)

Issue an RFQ(Select Energy Services Company (ESCO)

ESCO identifies energy-saving opportunities (Execute an audit contract)

Savings verified by an Engineer (Approved by State Energy Conservation Office)

ESCO implements projects(Develop and execute an Energy Performance Contract)

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Better Buildings! Improved Comfort! Maintenance Problems Solved!

Pay for projects with no up-front funds (your utility budget pays for the projects)

One-stop shopping (single contract for multiple projects)

Many Advantages of Performance Contracting

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ESCO Expertise from onset to completion – Energy efficiency– Operation and maintenance of buildings– Project cost assessment– Project financing– Construction management

Comprehensive, whole-building approach

Training for your staff

Ongoing project monitoring and trouble-shooting to ensure sustained savings

Many Advantages of Performance Contracting (cont.)

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Contact SECO

http://www.seco.cpa.state.tx.us/sa_pc.htm

Theresa Sifuentes,

State Energy Conservation Office

Program Manager

(512) 463-1896

How to get Started

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Questions