Energy Savings Performance Contracting Webinar (Text Version)

Below is a text version of the January 14, 2010 Energy Savings Performance Contracting.

Announcer: Merrian Fuller

Hi and Welcome to our webinar on energy savings performance contracting. My name is Merrian Fuller and I'm with Lawrence Berkeley National Lab. We have good line up for you today and some really expert advice, and also some follow-up resources were going to tell you about related to the topic.

Next Slide: Welcome!

Merrian Fuller:

Just a few notes on housekeeping; everyone on the call except for the presenters are muted, you can use the chat window at the lower right hand corner to ask questions throughout the session, I'll be moderating these questions to either asking questions if it seems appropriate to that specific slide and saving some of them to the end, when we'll have an open Q & A session. If you have any technical difficulties, please just type the issue to the chat window and one of our technical experts will be responding to you to make sure you can get access to the visual and the audio for the this presentation, and slides and audio will be available a few days afterwards at the link you see there, which is the same link you go to, to register for any of our upcoming webinars.

Next Slide: Speakers

Merrian Fuller:

So we have today Dale Hahs from Energy Services Coalition, and Donald Gilligan from the National Association of Energy Service Company. Dale and Don are two of the experts in this field who have been working on energy savings performance contracting and with _____ for many years now, and have a wealth of information to share with you. They're going to go through kind of introduction to energy savings performance contracting, what it is; how it works, happy to answer any questions you have and with that I will turn it over to Dale.

Dale Hahs:

Thank You Merrian, and Welcome to our audience here and those of you that have elected to listen to recorded version of this presentation. We appreciate your attendance, we are here to help. I would like to cover just for a brief moment our agenda.

Next Slide: Agenda

Dale Hahs:

The topics presented here are those that we intend to touch on today. We've often heard that audience members have heard a lot about energy savings performance contracting; about what it is, but not much on how to get started. So this presentation is to design to help at this early stage.

We will cover the purpose of or the advantages of Energy savings performance contracting, a bit of a timetable, some estimating project size and maybe have that core team meeting comes together from a kick off perspective.

Next Slide: Purpose of the Webinar

Dale Hahs:

Together our goal will be to discover some advantages of energy savings performance contracting, provide a roadmap for you getting started with the project, many cases our discussions about energy savings performance contracting in the past, have been about programs. This may help you to actually launch into the use of American recovery and reinvestment act funds, utilizing energy savings performance contracting for a project, so it's our hope to provide clarity there. Identify potential projects barriers that you may run into and describe some available technical assistance to help you along the way.

Next Slide: Advantages of ESPC

Dale Hahs:

So, some of the advantages of energy savings performance contracting may seem very obvious, some maybe not so much. So, when we think about energy savings performance contracting its structured to really address four critical concerns. Infrastructure modernization, economic development, environmental stewardship and our national security and that were working to provide some freedom from our reliance on foreign petroleum sources from people that actually don't care for us so much.

So when you think about facility modernization, the tools and systems that are in buildings are, that maybe a traffic signal population, street lights some of those things out of building, what were after with energy savings performance contracting is find a way to modernize those facilities, replacing old energy hog type technologies with new more efficient technologies.

Our goal together is to lower maintenance cost, as that equipment gets old it becomes nagging difficult to keep it up and running appropriately, and that generally leads to all kinds of complaints, comfort complaints, perhaps lighting complaints, the kind of things that are difficult to manage in a city or in a county when there is so many things to do with so little funds. Certainly studies indicate that we can improve our productivity in working and learning spaces anytime we not only change the equipment and the systems to eliminate those comfort concerns, the brighter spaces, but in addition, one of those things that we find to be consistently true is the attitudes change; when you have the ability to utilize existing dollars and make some changes in proving where folks are learning or are working.

From an Economic development prospective, it's really very simple. The American Recovery and Reinvestment Act is a lot about getting, starting new jobs, getting people to work. What we need to do is let those local sub contractors in your area do that work and you have every right to suggest to the qualified providers that what they bring to you is local trades to do the work. We need to get checks in their hands and let them go buy bread, and milk, and the kinds of goods and services that you local community and local government can provide. The truth is we really need to use this opportunity to fuel our essential services and get our tax base back to where it belongs, and then certainly there is a considerable value from an environmental stewardship stand point, than it is in wasting greenhouse gas emissions.

One of the advantages of energy savings performance contracting is you think about utilizing the dollars that have been made available for you is the concern that comes up a lot about these things takes too long, maybe we should just go buy lamps and warehouse those until we need them. Well, the truth is energy savings performance contracting has been around for nearly 30 years now, and there's a whole host of tools that are available.

Next Slide: Advantages of ESPC

Dale Hahs:

The fast track process that we've made available today allows you to incorporate it energy savings plan but not just with one technology or another leaving at risk the interactions of those systems, a good example of that is in many facilities we see folks saying "well we know that we can just go do a lighting retrofit and it will improve our facility, brighten our space and reduce our energy consumption, still they don't take into account that that reduces their energy consumption dramatically and may in fact reduce the HEAP load in the facility, so if their looking for cooling in the summer time, those systems need to be looked at appropriately to make sure that their downsized effectively and can certainly harness those changes.

Energy Saving Performance Contracting ends up being one contract with a single point responsibility for all facets of this project including the design, the concepts that working with a ESCO- energy savings company you can embrace together and say these are the kind of things that we want to do and then count on them to provide a final design, the appropriate construction in construction management with a guarantee for performance, even along the way assisting with the financing sources to help you understand where money might come from to start it. To be sure Energy savings performance contracting is fundamentally using the dollars saved from these energy retrofits, to repay the note that was borrowed to implement the technology, so you really need no cash up front, utilizing ARRA funds as a down payment into this concept, you get a jump ahead to manage the systems.

So with the single point responsibility, unlike traditional contracting, there is no finger pointing, you only have one go to organization, not only for the implementation for the design, and its effective function as intended, but certainly the longer term performance of that design in the implementation. The industry typically offers no change orders, since it's a fixed fee contract of scope of services to be provided, what generally a guarantee for the energy savings to be provided by those changes, it would be irresponsible to assume you could change the scope of the work because the guarantee for savings would change. So in most cases, these are fixed fee, fixed scope, and single point contracts managing from beginning to end a project with you as the owner's assistance. Another thing that is very important about that, thanks Merrian just a moment, is that its saving you can count on. This is not really art or magic, this is science. In most cases ESCO's work hard to make sure they understand the base line of energy consumption in a couple years past, and they measure specifically the energy consumption of pieces of technology and are capable of proving to you that those changes in new technology have produced the reduced consumption that was planned, so not only can you bank on that, but the industry was built on the concept that the industry would provide a guarantee, if the savings aren't met then services or in fact a check would be cut back to you.

So that's a bit of a _____ on the concept of why energy savings performance contracting might make since for you, Im going to turn it over to Don now who's going to share some additional insights. Donald!

Donald Gilligan:

Can you hear me now?

Merrian Fuller:

Yes Don your on!

Donald Gilligan:

OK, Great;

Next Slide: Timeline

Donald Gilligan:

I'm going to talk about how you actually get a project started, and what the steps are and the approximate timing of those steps to get from a standing start to have a project in construction. As you can see it's a process that has several steps to it, these are not terribly difficult steps in themselves, but they have to be done carefully and in order. We will break out a few of the steps that really require more discussion, but my job in this presentation is to walk you through the whole set of steps so that you can get an idea of what the whole process looks like.

Next Slide: Estimate Project Size

Donald Gilligan:

The first thing that you; that we recommend that you do is to do a quick estimate of the size of your potential project and as Dale said before a performance contracting project can include improvements in buildings, can involve improvements in water and wastewater treatment facilities; these are often huge energy consumers and there's a tremendous amount of potential energy savings in those facilities. It can also include traffic lights and street lights; again large energy consumers, very well known technology, no technical risk involved in any kinds of these kinds of measures. But it's important that you figure out what kind of project you might be looking at.

Next Slide: Quick Calculator

Donald Gilligan:

So, we've provided an example here and there is a live spreadsheet on the website of how you might go about figuring out how big a project that you're looking at, so were; there is a little bit of data required, the square footage of the building, approximate annual utility bills, the spreadsheet then calculates your cost per square footage for energy if you're looking at trying to do a performance contract you're going to probably do it with a lease, so you'll need a ball park number for what lease would cost, we've started with a 5% number, rates today are lower than that but it's a reasonable starting point. How many years are you willing to finance the project? This is a question which often is a policy decision more than a technical decision. Is your state or local government agency ready to commit for a 10 year period or are you comfortable with the longer period, some state projects go out 20 years other customers are comfortable with a shorter project, so you put that information; you enter data on how often you expect to make payments and it produces a estimate of ; excuse me; you then put in your estimated saving for a project, historically performance contracting projects are in the range of 20-30% low 20% is a good conservative average which produces then you annual saving, and estimates the size of the project that you might be looking at doing.

The reason that this project sizing is important is that if a project is too small...

Next Slide: ESPC or DIY?

Donald Gilligan:

Below a certain threshold we have found that energy savings performance contracts are really not valuable, so the reasonable cutoff is ½ million dollar project, if you're looking at a project of less than ½ million dollars, it's hard to get the large number of ESCO's interested in project, so you don't have a very competitive situation, and financing can be difficult, as everybody knows the banking industry has gone through a lot of turmoil in the last couple of years and one of the things that blocked out of the bottom of the banking industry is their interest in financing smaller energy efficiency projects, so where as a few years ago, it was fairly easy to get the banks financing or specialized ESCO financing for projects between ¼ million dollars to ½ million dollar range, it's now much more difficult, so for those reasons, if you're looking for a smaller project, performance contracting may not be the route to go.

The other thing to look at when you're considering to do a performance contract, is whether you're really interested in the kind of a partnership that a performance contract involves, so you need to be in a situation where you really want help from an ESCO and where you're willing to enter a long term relationship, where the ESCO will guarantee the savings produced by the project for 10 years maybe 15 years, that means that it's not just the construction project where the contractor builds it and once it's done and accepted, you never see the contractor ever again, this is a situation where the ESCO was going to be around for the length of the contract, verifying the saving to you hopefully has the kind of relationship with you where they can suggest ongoing improvements, ongoing changes in the way you operate the building as new technologies come along more retrofits improvements, but you have to be interested in that kind of partnership, and the final thing is that the; in order to make that kind of partnership work, the hey managers on the customer side on the facility side of the project have to really be on board with the performance contract. We sometimes talk about it as a marriage and if one of the parties in the marriage or one of the key people in the marriage is not particularly enthused or really don't understand or doesn't like performance contracting, it's hard to make that work. Dale will talk in some details about the various key managers you need to bring on board in this process in terms of the startup meeting, but the key concepts are, if you can't; if you don't have a big enough project; if you don't really want a partnership with a ESCO, and if your key managers are not on board, you're probably not looking at a performance contract, you're probably looking at a different kind of project that you'll do yourself without the help of a ESCO.

Next Slide: RFQ or RFP

Donald Gilligan:

Once you get pass the first hurdle; do I have a project, which is really eligible for performance contracting, then you look at how do I get an ESCO on board? What is the process for attracting a _____ sure that there's a competitive process so that I get the best ESCO for my project. There are really two roots to doing this.

One is called a RFQ or request for qualification the other is a RFP which is request for proposal, so you'll probably need to be familiar with these terms at least in other aspects of your work. There is a difference in the processes, RFQ's are typically faster to execute and they often yield better results for a simple reason.

A performance contract is a best value contract it's not a lowest first cost project, from a technical standpoint, you're looking for equipment that is going to give you the lowest life cycle cost, not the lowest first cost, and from a business standpoint, you're looking for a relationship where the ESCO really understands your facility and can really work with your people. So, and RFQ process in which a number of ESCO's submit to you their qualifications for this project, really enabling you to focus on some the key selection factors you would like to emphasize. So what is this ESCO background and experience? Relative to your particular kind of project, have they done a bunch of projects that really look like yours, can you get references, most ESCO's today are able to provide references to similar customer that have done similar kinds of projects and you should be able to check those without any trouble to make sure that the ESCO that your selecting is really what would match for your project and for your existing facility management team. The other thing that you want to really look at is who the ESCO is really going to put on your project. So, it's critical these days especially in the energy efficiency world ESCO's are becoming much more busy and so who the ESCO is actually going to put on you project is critical, because the people they put on your project don't get along particularly well with you facility managers, that's not a great; that's not a great match. So, the RFQ process in which you solicit qualifications from ESCO's, you review those qualifications on paper, and check references and then have a set of typically a set of interviews of ESCO's that make the first cut is typically a process that works fairly fast and enables you to really focus on what we think are the key selection factors.

Some states however; in the state law do not allow you to make an actual ESCO selection based on a RFQ. You have an RFP which means that you basically get all of the data you would get in a RFQ, all of the qualifications, and project team information. Once you submit project pricing, and the way that that project pricing is submitted can vary from the customer saying " give me a price on this building" which I say is a typical building in this project which I come up with or in some cases the RFP may require the ESCO to develop a price for the whole project. That's typically a very expensive process for the ESCO, and its one that many ESCO's are really not particularly doing because if you've got 3 or 4 ESCO's that bid on a project, all but one are guaranteed to lose and are guaranteed to have to incur all of the cost of preparing this detailed pricing proposal with one and three or one and four chance of winning. So, you may find that RFP's limit the competitive field however if you have to do it because of you state law you have to do it.

What we trend now in the business is that some states are allowing hybrids, so it's a way of getting some pricing information without imposing on a number of ESCO'S, the cost of developing a full project proposal, and the typical way of doing that is for the ESCO to provide mark-up's for different phases of the project, so the ESCO would say for the energy audits, its cost plus X % for the construction, its cost plus Y% and that gives the customer a way to compare cost without imposing this burden on ESCO's that would limit the competition, so what you really interested in doing in this process is have a really robust competitive process so that you get a look at the best selection of ESCO's that you can. When you consider this hybrid process, remember that it's not an open ended process, the standard mark-up data that you're going to get, does not mean that what you're going to get is a cost plus contract like the old pentagon toilet set project. What you're going to get at the end of the process is a fixed scope with a fixed price. This information that your soliciting in this hybrid procurement, simply sell you or give you an indication of how that price is going to be constructed and in many cases the ESCO's are quite transparent about how they are putting the cost of the elements of the project together, but what you wind up with at the end of the process is a fixed price, it's not an open ended kind of deal which would make most customers very uncomfortable.

Next Slide: Draft/Issue RFQ or RFP

Donald Gilligan:

So, once you've decided which route to go, we suggest very strongly that you use standard model documents; these are available on the energy services coalition website which the web address is listed here. These are documents which have been widely used over the last 10 years by government customers all across the country, they are designed so that they can be modified with; very easily with your local or state terms or conditions, that's starting with your standard documents you can guarantee yourself number 1, a fast process number 2, a process that doesn't involve a huge amount of work on your side and number 3, a RFP or RFQ that ESCO's are use to looking at and are comfortable with and are encouraged to respond, if you make up your own documents from scratch and put that on the street, you run the risk of ESCO's looking at it and saying gee, I've never seen anything like this, this is not what im interested in doing, I've got a lot of other opportunities, I'll just pass this one by. So, we suggest very strongly that you start with the standard document and modify them as necessary. Dale will talk about the kinds of modifications that should be considered.

Next Slide: ESCO Proposal Evaluation

Donald Gilligan:

When you get your proposals in, whether they are few responses their best practices processes, evaluating those proposals, again you'll find that on this webpage that contains the whole set, sort of _______ set of procedures and documents for walking your way through a project. We recommend that you have an evaluation team which represents the full range of people that are going to be involved in this project, so if your facility or your agency has an energy manager, you want that person involved, a project manager, if that person has been designated, that person my come from a different agency, they may come from the public works department or something, the state office of general services, that person involved in the selection, very often customers have technical advisors or consultants who are helping them through the process, so they understand all of the technical and pricing details, a project engineer; that person is going to be involved in your side, you want facility operating people in on this selection process again, because they're going to live with this project for the term of the contract, so they should have a voice and how this goes together. You need an administrative and financial managers, we would make a very strong suggestion, that you want those people involved at this step of the process you don't want to have a process in which you develop a proposal, you get an ESCO in for a long selection process, the ESCO goes all the way through preparing the project and then you go to the financial manager, who ever that might be, budget officer, the treasure, whoever you financial manager is, and her or she really doesn't understand this stuff, hasn't been involved in the development of the project, and you find that you have to start almost from scratch to acquaint this key decision maker what this is all about. So, we recommend strongly of that person being involved right up front.

Next Slide: IGA Process

Donald Gilligan:

Once you have made the selection, you then go in a process where you develop an investment grade audit. An Investment Grade Audit is really the blue print for the rest of the project, and this is a very quick summary of the IGA process. What you're looking for the ESCO to do is to get you can complete inventory of the energy used equipment in your facility or facilities, you're looking for the ESCO to pull together all of the relevant energy bills, build a model of the consumption of the utilities in this building so that your sure that, for example if you have a large electric bill for a facility, the ESCO has to be able to model that facility so that their able to very carefully identify how much cost is attributable to lighting, how much is attributable to running you chiller plant, how much is attributable to the ventilation and other uses in the building, and finally you get a facility base line, so you get a picture of what this facility is doing, and it's not just a picture, it's a quantifiable set of equations which represents how this facility is operating before the project starts.

The deliverables you can expect from an ESCO are the purposed project fees, the environmental benefits and the cost associated with those or the avoided cost, and a whole set of supporting documents and schedules.

Next Slide: Financing Options

Donald Gilligan:

The ESCO is also responsible while their doing this investment grade audit, which is the development of the technical part of the project, for helping you put together the financing package from; for this project, and that financing project should be assembled from every available source and there is more and more sources of financing available today. There's a list, I don't have to run through the list, but there are particularly important are the funds that are available under ARRA bond funds, as well as grant funds that may be available from the SEP or Energy Efficiency block grant program as well as utility rebate programs. More and more utilities across the country are fielding very aggressive energy efficiency programs, so what the ESCO's does is pulls together all of these different financing packages into the best you can get, and it's not just the matter of choosing one or the other; very often a project would involve financing from three or four different sources which are stitched together into a single package that really fits your need.

We would urge very strongly that the financing procurement operates in parallel with the IGA, but you don't do the technical development of the project and then say now we got this nice technical package, how are we going to pay for it. You're much better trying to operate those procurements in parallel with the development of the IGA, so that you minimize the project delays, you make all of the technical options very realistic in terms of what can be financed and what the financing cost are so that by the time you get finished with the IGA, your financing package is in place and you're ready to go forward to the next step and not doing these things in sequence which really stretches out the development time.

Next Slide: Fast Track Measures

Donald Gilligan:

What some customers are doing now is they are fast tracking some measures, and this is particularly applicable in situations where you know that your project is going to have some large complex measures, a boil and chiller replacement in a major facility, a small power plant with co-generation replacement or renewable element to the project. The time frame required to develop those may be 6, 8, 9 months, whereas the quick, short payback measures are very easy to scope, you can get those in the fields begin to realize savings from those parts of the projects while the other stuff is under development. Doing a project this way obviously requires a lot of coordination with your finance and legal staff because you're doing a project that is as simple a project all at once, taking it step by step at a time, but many customer find that it is useful to do it this way because they can get the savings from the short payback measures right away.

Next Slide: IGA Deliverables

Donald Gilligan:

The IGA deliverables, you get a contract schedule; so all of the information that we will plug into the energy services agreement, which is a long term contract, and you get a detailed scope of work in terms of the energy conservation measures. Remember as your going through this process that vagueness doesn't help anybody, if something is not right with this process, if this point of the process you want to stop it, it's much easier to solve the problems on paper in this IGA, then trying to correct them in the field.

Next Slide: Energy Services Agreement

Donald Gilligan:

The energy services agreement is your long term contract, it contains all of the standard terms and conditions as well as the key contract schedules, and we recommend again that you start with a model document; which is available at the same website. This is a model contract which has been used across the country, so you're not starting from scratch and I think you'll find it convenient and very accurate and you can modify it with your local terms and conditions without a lot of trouble.

Next Slide: Core Team Meeting

Donald Gilligan:

So, that's a quick run through of the process and now I'm going to hand it back to Dale, who's going to talk about, once you kind of sized your project, and talk about the first step; this core team meeting in which your really pulling together all of the people that need to be part of your project team. Dale!

Dale Hahs:

Thanks Donald! So, here we are, and stay back on that slide for a moment Merrian. We decided that this makes some since for us, we think, and we got a since of how big the project might be and how much work we can get accomplish and the benefits that it might provide for the county or our city, and we scratch our heads and say well if this is such good stuff, why don't we do the work ourselves, which I think is a really common question and it makes since to bring up here.

We've often said, if you have the money, the time, and the expertise you likely should; if you don't have the time, you don't have the money and maybe suffer from how you would allocate those resources for that expertise, maybe just maybe, energy savings performance contracting is a good idea, but you can't do it all alone, so you need to look at this concept at a standpoint, our users always tell us of have a core team meeting and what your really after here is as stated on the slide, to identify the hurdles, the barriers that might keep this process from making since for you, but the truth is, when all of the attendee's listed on that list come together and say we want to do this and we understand the benefit, energy saving performance contracting is not really complex, it's very easy and it moves very well. However, if you take that list of attendee's and you find somebody that says no, I am not going to do this, I am going to fight this process, well then everything sort of gets difficult. Seeing commitment to the project from this attendee's is critically important, the champion might me somebody that is assigned to spearhead this, and then we listed executive and I want to speak to that for just a moment because for some of you that might be the mayor, might be the head of the city council, might be a county commissioner; but those positions are a little bit more difficult to define. Financial, legal, procurement, _______ within almost all local government entities, and you know who the go to person is that you like to have engaged. The landlord agency, somebody got to be taking care of the stuff that you have already, so that level of supervision.

Construction services; let's face it in today's economy there not a lot of construction going on for a lot of you, the opportunity to use American recovery and reinvestment act funds, to leverage the concept of energy savings performance contracting really maximizes an opportunity and may allow you to use some of the well skilled construction services resources to have oversight of this project. Public works, why those folks? Well, in today's world, this is not buildings anymore, Donald mentioned traffic signals, street lights, and many cases city across the land are beginning to capture methane from where that can be captured from; landfills and utilize those resources, there are a number of power purchase agreements coming to fruition in energy saving performance contracts, capturing some part of wind or solar; so there's a lot of verity. I've even read and heard stories about public transportation being converted through energy saving performance contract mechanisms. Then certainly departments and agencies are head that will be touched by this, no point in surprising people about the process that your putting together, and then they have so insights that you want to deal with right up front, and finally on this list, the public relations or media folks and well talk about what their role can be, but it is very clear that having patrons on board with a great effort like this can do you a world of good from a stand point of how your trying to effect the city or county goals with not a lot of revenue to support.

Next Slide: Meeting Agenda

Dale Hahs:

So, here's a little sample agenda, folks has told us that this is the way that these meetings come together, most of you would have a planned set agenda that you would put together with any topic. So, here's some ideas, simple welcome and introductions, define the purpose; well dig a little deeper into these and move us all the way to next meeting. So, with that...

Next Slide: Managing Your Meeting

Dale Hahs:

Guiding a little deeper, let's talk about the purposes in meetings. Well, simply stated, what we're trying to do is maximize the incentive dollars that have been provided through the American recovery and reinvestment act into a process like energy saving performance contracting recognizing that it really covers all the things that you might need. You may need; have some falling systems or equipment that need to be modified or fixed and just nagging you, you have the long deferred maintenance list; these are things that can be resolved here. So the purpose of the meeting here is to bring the thoughts about how these systems can be modernized with the little incentive money that you have combining it with utility incentive and utilizing energy savings to fund the effort. So that really leads us to the need for description and we pin one here very briefly; financing improvements with the dollar deductions and utility cost that result in the work competed. So, sometimes we fly over this concept a little bit fast, but if you have a light bulb today, that cost you a $1.00 today to operate, and you replace it with something that cost $0.50 a day to operate using the same hours and days clearly you have a new $0.50 a day that would have otherwise before you entered into this contract gone to the utility company to pay the bill. The concept here is simple; make the modifications with borrowed funds on the guarantee that those funds will become available from the surplus difference from the utility bill payment.

Lots of models explaining that, and certainly look forward to one on one exchange on how it might effectively work for you, but having a description is critically important. Huge hurdle out of the gate, most people will say; I really would like to do that, we understand the benefits, but we don't have the money. But the truth is you do have the money because most cities and counties haven't gotten to the point where they won't pay the utility bill and utility companies don't typically offer __________ energy consumption, that's a budget line item that has to be fulfilled. So, anyway that you can reduce it and use the benefit of the reduction really works well for you.

Anticipated results, well this is not just about changing out the roof top unit on the city hall, this is about putting people to work, paying them a check, letting them buy goods and services and reinvigorating our economic model that's mentioned before. It's about stewardship, using more efficient and effective technologies and how we protect the damage that we continually plague the earth with. Modernizing our systems so that we don't have to reach out to that tax base and ask them to fund those changes, when in fact the utility dollars can fund them on their own, and eliminate these deferred lists that does all these complaints, and so on and so forth. Those anticipated results generally make since and overcome the hurdle of the stake holders listed about what's in it for me, and so if you cover those at the beginning of the meeting, that brings you really to a set of required task to move forward.

Next Slide: Assignments

Dale Hahs:

So let's talk about some of the folks that would be engaged in this, you invite your legal folks to come to the meeting and they sit down and say well out of the gate, look we have a lot on our plate already, I have to create these new instruments, I never heard of this before, I've got to go find whether it's even legal for us to do or not, and where in the world will I get this pattern. A couple of this can happen they can attempt to create one on their own, looking at a contract or audit agreement, and both of those have their own hurdles when you try to create them and as Donald mentioned, you might present something to the working industry that says "gee this is entirely new, we don't want to do this." A lot of time can be wasted in that when the energy saving performance contracting industry today is completing about $5 billion a year in work. So, if that sort of work load has been falling under these standard contracts, then what you really need your legal team to do is review these models, let them look and make sure that any parochial differences that you may have based on your legislative hurdles are incorporated with minor modification.

One of the key issues to these tools when we created them and had them placed on the energy services coalition website is that there are not only these PDF versions, these adobe versions, but there are word texts, so that you can grab them, modify them, make the changes and suggestions and bring them back, potentially this next meeting the team can look at them and say these were the minor incorporation that we need to do in the model documents to make them work for us.

So if that's legal, we have the same issues with our purchasing folks. Heads of procurement everywhere have their own RFP, RFQ templates and typically a host of terms and conditions that your city or county maybe most comfortable with. We urge you on how to incorporate those simply as a _________ document to this patterned instrument, and that's simply so that you can move forward faster, so that an industry see's something their familiar with in responds with something that you know that is not a runoff for your city or county but have been used over and over and over again. It's imperative that we ask our finance folks to outline how money will be moved, once you understand the principle of once budgeted utility dollars being used to pay this note or investment, you need to make sure that the transfers are in place, and worst thing you can do is get to the end of this work process and then scratch your head and try to figure out how you move money from column A to line 47 so that payment can be made (hypothetical line 47 of course). So along with that your finance folks you may want to have them involved in how you go about selecting a financer or a provider of funds, there are solicitation out on the energy services coalition website, just another model just for you to look at and figure out what minor modifications you need to make so that it fits your particular need.

Now landlord agencies everywhere have been interesting as the energy savings performance contracting concept has evolved and become considerably more popular; we're the folk that generally pushes back as the folk that has been responsible for these facilities all along. Truth is they've done the best job that they likely can with the money that has been available, so that may mean they rely on bandage that's holding the systems together, and now there's this upstart concept that somebody else can come in and fix it, that's not the point, the point is not to take the facility away from the city or the county, the point is to embrace these folks that tried and true history of how to keep systems working and what they need in long term maintenance considerations engaged in to the decision making concepts of what equipment, and where it goes and where the most complaints are coming from. So, having these folks play a key role is imperative to the success of the project, additional assignments might include the construction services folks so where are individuals that have managed construction project and they may not be fully engaged today, why not look at interagency transfers that would allow them to come to bear to managing an energy services project for you, your using the right talent, they have the mission at heart and they can come along side the energy services company to see that you have effective the appropriate goals.

Public works, what do we need from them? Well, we need lists; we need the list of stuff in its consumption that consumes energy. Just as consideration for how these might role into the project, frankly if this money; if these incentive dollars can be used to assist our public works folks in modernizing their systems and eliminating maintenance concerns, once again so we don't have to go to the patrons and ask for additional taxes, it has to be a win-win.

From the administration side, well somebody is going have to go get the basis of information that Donald mentioned. Base lines are incredibly important to understand the consumption patterns of the city or the county, and gathering generally 25 months of the data is incredibly important. Now, in today's world, we're trying to apply these fund together at greatest pace, as quickly as possible to make sure that we don't lose track of the fact that on April the 30th or somewhere around that period of time in 2012, we're going to lose these dollars if we haven't used them effectively. So, one of the things I encourage you to do to go fast is to leech out to the utility company and ask them if they have at their disposal the ability to provide for you; consumption data and what you paid through your county or through your city. _______ has been a good partner and this is a way they might be able to assist you and it could keep Betty and Bob out of the warehouse trying to find those boxes of bills that you have collected over time.

Certainly from the departmental or agency directors, what we're after here is a wish list. How you go faster is you identify the things that have caused them concerned, things that they wish could be accomplished, and frankly in this meeting you want to identify that not all of these things will fit, but they generally know where the bonds are buried, we say. They know where there are problems that need to be remedied and things that they have asked for over and over again, and hey if this is a opportunity for those things to be resolved they should come to the table at the next meeting as a set of work efforts that should be considered.

From our public relations folks mentioned that we talked about this a little more broadly; it's incredibly important that those folks can convey the environmental stewardship and economic development that can come from this. So, you might gather the ideas that are listed here; project kick off, an original committee or council meetings for authorization to move forwards, you may assemble some text regarding mid-project perspective from those receiving assistance, so maybe it's a department head that has seen this lighting modification come in a fast track way, they got a brighter space, they've noticed the attitude has changed from the folks that they work with everyday, and they reduced their energy consumption. What a great sound bite to make sure the patrons understand how you, as authorities, are moving forward and using their money in the best effective method that you can. At project completion of course, and then certainly that proof of energy savings in the economic outfall; knowing where people went back to work or maintained their jobs is incredibly important, for those people should be in the loop and come to the table at this core meeting so that you can sit down and outline "here's where we're headed" and see if anybody has any particular objections outside of those I mentioned that might pop up.

Next Slide: Agenda (continued)

Dale Hahs:

So now that you have had that core meeting, where does that put you; you handed out some assignments, you've talked about what the benefits might be; at this point you might identify an anticipated time line of activities. When could those elements of assignment be brought back, is that a couple of weeks, a couple months, or a month away; what you need to do is began to assign that if you move forward in that fashion and that information comes back and no additional hurdles or conditions have popped-up that you can't manage, then you may be in a position where you need to take those to the city council for approval or you may need to go to the county commission and have final approval to move forward. Building a timeline of the activities that must be in place as a well made plan prior to engaging the energy services industry makes all the sense in the world. I've often repeated this and I hope it's of benefit to you "great cakes come from spending a lot of time making sure you understand the recipe." If you throw everything in the bowl, shove it into the oven and then look at how it cooks, might not be so good. So, this planning and activities makes all the sense in the world to ensure that you have a great project that you can count on the benefits for years to come. At the end of this meeting certainly one of the things you want to do is always identify whether there are concerns that clearly are conditions; I've had folks tell me before energy saving performance contracting is illegal, now the truth is in most cases that's a hurdle of interpretations not actually a condition not moving forward, but without have the insight that those individuals thought that was a concern, their just doing the same great job that you are trying to protect the patrons from the high quality value that each of you as public servants provide. So, if they believe that's an issue, it's an issue; you just need to work your way through what is an absolute reason not to move forward or one of those things that need to be explained and defined.

Finally, the decision on when to have the next meeting means that these two have come back together; folks have had an opportunity to think about the process then put you in a position to say "this is going to be good for us or we still have questions," and any time we think about still having questions, frankly we owe it to you to collectively thank you for the opportunity to provide assistance in any way we can and to that end, Merrian, I'll hand it back to you.

Merrian Fuller:

Great, Thank you so much. Im going to go through some resources that are available to everyone and then I'll answer a bunch of the questions that we asked during the call. If you have other questions please write them in at the lower right hand corner, that Q&A box, you can write in some questions, we have another 15 min we will do resources and questions. First some resources;

Next Slide: Technical Assistance Resources

Merrian Fuller:

We have a financial technical assistance team, a group of people that includes Don and Dale and myself and a few others who are available to; cities and states using stimulus funds in particular to set up financing programs, energy savings performance contracting program etc. We encourage you to email financingrapidresponse@ee.doe.gov, we will be able to talk to you on phone or send you resources depending on what your needs are, so I encourage you to use that.

We also have a resources portal for financing programs, there's some information up their already, on energy savings performance contracting including some links to key organizations, and this third link here for the documents and presentations referred to this webinar are all available on the energy services coalition website.

Next Slide: Upcoming Webinars

Merrian Fuller:

Just so you know we have upcoming webinars. Tomorrow we have a webinar on structuring credit enhancement for financing programs, next week on the 21st we have Don and Dale back to go into some more details on how to implement ESPC programs, and then you can see the few other programs there, so use of secondary markets on the 22nd, and then highlighting one program that we think is a good model for mostly for unsecured loans to home owners in Pennsylvania, and you can register for all of our upcoming webinars on that sight.

So now for a few questions, really quick, Don, What does IGA mean? That got lost for a few people, so just remind us what that means.

Donald Gilligan:

IGA is the acronym for Investment Grade Audit.

Merrian Fuller:

Ok, Investment Grade Audit Great, and then we had a question about the timeline, Mark asked or just pointed out that in that timeline you forgot the time to convince decision makers that performance contracting is a good idea, he said that he spent a year trying to get people at his county board of supervisors to get on board with this. Do you have recommendations or kind of ideas for approaching this topic with the decision makers that many folks on the call will have to convince to move forward with this?

Donald Gilligan:

Well, I think out principle suggestion is the start up meeting which Dale described. I mean we have in our timeline 60-90 days for planning, now that's shorter time than the gentlemen that asked the question experienced but we think the best way to shorten that time frame is to get everybody together in one room right at the beginning of the process, and get them acquainted with the concept and get the objections on the table so that you're not dealing with the objections one at a time. Dale you want to add to that?

Dale Hahs:

The only thing I'll add to that is that it only makes sense to identify the list, and the list of case studies. Many folks are comforted by the fact that they may find out that their neighbor, a neighboring county, neighboring community has actually been through this process and felt really good about the results they are achieving, so I'd always look at that as well, but certainly get some people together and having the conversation with key decision makers does it makes sense, does it not to move forward; usually identifies a path much quicker than a year.

Merrian Fuller:

Great, Yeah and one other question on smaller projects, we were asked whether projects that were under $500 million target, are those; sorry $500 thousand yes, are those ones that you shouldn't approach an ESCO about they're just to small?

Donald Gilligan:

No, I think you could approach the ESCO but I think what we're saying is that if you are in that small range then you may not get the kind of enthusiastic response that you would like. Don't be surprised if you get an unenthused response. It certainly worth talking to some people, but sometimes it's very hard to get ESCO's interested in projects like that.

Merrian Fuller:

We have a question on new buildings, are energy savings performance contracting only for existing buildings, what about new buildings that wouldn't have had a bunch of efficiency measures and technologies in them without an additional source of funds and some guarantee there?

Donald Gilligan:

Well, there are some performance contracts for new building, as you suggest for more efficient equipment in the building, or additional measures that would not have been included in a base building contract, they; it's a little bit trickier to establish what the savings are and the owner of the building has to be comfortable with a base line which is not the historical operation of the building as it would be in a project for an existing building, but the base line is established with a energy use model, so you're comparing one energy use model to another energy use model and that's the base of the savings so you have to be comfortable with that kind of methodology in order to enter into a performance contract for a new building.

Dale Hahs:

Yeah, I'd add that, I think the risk that we heard from public and private folks over the course of time is that the concept that you design to compare, so the original construct of this new facility would likely not be something that would have been constructed 60 years ago, you need to look at real working technologies that were designed, we prepared to go into a facility and then see what the difference between value and life cycle cost assessment is for those projects as opposed to the traditional bid specification, perhaps lower first cost selections, there in there wise values and people are beginning to apply that. But there's a little bit of question should be there based on the fact that you don't have as Donald mentioned a track record of utility consumption to hold in your hand.

Donald Gilligan:

Now the other thing to mention is that in many places across; in a growing number of places across the country, there are utility companies that are specifically designed to subsidize the cost deferential between; a standard piece of equipment if you will, a standard boiler for example, and a high efficiency boiler, a high efficiency chiller. So that's another thing for people that are building new buildings to consider, is that you may be able to get the utility company to pay generally not the entire cost differential but a major portion of the cost differential between standard equipment and super efficient equipment.

Merrian Fuller:

Great and then I'll just; we have a number of questions kind of lining up so I think I'll just go through these now. Joe is asking about how much of a cost increase do you think there is for a performance contracting due to the additional engineering and guarantees that are involved?

Donald Gilligan:

The Oak ridge national laboratory did a study about 6 years ago, it was requested by a federal agency which looked at a set of projects and compared the cost of doing those projects with a performance contract or with a straight budgeted procurement. Their conclusion was that there was no meaningful difference between the 2 methods. I'd be happy to send people copies of the study if their interested in that, but it's a misunderstanding that a performance contracting is more expensive, the trade off is that a standard bid construction contract has a lot of cost which are not apparent sometime, so it cost a lot of money to prepare the biddable specifications to do the bid administration to do the contracting work to do the change order all of the change order which are typically involved in a public structure contract, as Dale mentioned energy performance contracts typically don't have those kinds of change orders, so a really rigorous analysis show that there wasn't really any cost difference.

Merrian Fuller:

Great and then another question, Maybe; I'm not really sure what this means but I assume you guys will. It says: does a coalition have example agreement based on the construction manager or program manager at risk contracting delivery model; Construction manager or program manager at risk?

Dale Hahs:

There just simply different methodologies for performing work Merrian and you know it's a great question. The energy services coalition has it primary mission to support energy saving performance contracting which doesn't really embrace this, likely could with a piece of modification here and there, if that construction manager were the folk that you want to particularly involve, but I think if you look at the instruments themselves, you'll find that there's hosts of similarities to the models mentioned there, but certainly not anything specifically designed around those concepts.

Merrian Fuller:

Ok, and the next question is: Have energy savings performance contracts been used for the development of energy management system upgrades that allows end users to drivers kind of a continuous commissioning in their buildings?

Donald Gilligan:

Yes.

Merrian Fuller:

Ok, Great. We like the easy ones, we have a question about the buy American products, is there a requirement to buy American products in a ESCO?

Donald Gilligan:

Not; to buy American is a provision of federal law that applies to projects that use federal funds like, ARRA, stimulus funds, it's not a requirement of a performance contract per say but there are federal funds involved yes by American ________.

Dale Hahs:

Also, all the other stipulations that role down from federal funds being enjoined into these projects.

Merrian Fuller:

Ok, great, ok we have another question, One of the audience members is asking about support on hiring a consultant who will prepare a bid proposal for one of their projects, can they get the DOE involved in the selection of the consultant?

Donald Gilligan:

DOE?

Merrian Fuller?

I think they mean our team, and I think my answer would be that yes we are available to do kind of a call with you to discuss some of the details, the final selection would have to be up to you and we would not be actively involved in selecting that consultant.

Donald Gilligan:

Yes, and depending on what state the questioner is located in, the state energy office often has lists of consultants who work for building owners because the participation of consultants on the building owner side makes the project build much faster and makes for a much smoother and better functioning project. So, my advice would be for the questioner to check with his or her energy office first to see if there's other list or they can make some recommendations.

Merrian Fuller:

Then, a question about reporting for block grant funds; Penny is asking about how to report for energy saving performance contracting programs, and just so everyone knows our team is less involved in the reporting side of all the stimulus funds, we're more involved in the advice and support for getting started and developing the program that's appropriate. But, she asking and maybe this is not something you two know but, in case you do, should they be reporting on the entire project or just the amount of funding from the grant and then there's this issue of a lot of these contract being much longer termed than block grant funds are given out. Have you guys worked with that at all in the communities?

Donald Gilligan:

No, I haven't worked with the issues particularly to this program, what I would observe is that the saving reporting that the building owner gets is part of a performance contracting project is much more raw material if you will than your going to deed for the DOE reporting, there's much more detail, there's much more; but I haven't actually studied the reporting forms and tried to make it fit between the typical ESCO savings report within those forms. Dale have you looked at that?

Dale Hahs:

I have some familiarity with that, but I believe our best response here should be to touch base with the program officer for direct guidance, and when you have that direct guidance of what to report I think we encourage you as an industry to make sure you go to your ESCO partner and say," While your providing this standard measurement and verification and savings reports that you would have been providing me, make sure that you cover these issues and you find that that person becomes an ally assisting you to gather the information.

Donald Gilligan:

Yes, I would agree with that, I mean there's no reason why the ESCO couldn't _______ example a schedule which DOE is requiring; have the ESCO to produce that schedule and just hand it to you.

Merrian Fuller:

Yup, and we have a question about, we have one participant looking for a list of contractors that might be available to help the county get started on a new project? Don would they go to NASCO?

Donald Gilligan:

Well, there is a list on the NASCO website; there is a list on the companies that are active in different states on the energy services coalition website, there are list that are maintained by state energy offices in a number of states, in fact in some states there are lists; a short list of qualified ESCO's who are preselected to do projects, so there's lots of resources available, I think again the place to start is the state energy offices because it maybe a requirement in your state that you use somebody from this list or highly recommended that you use someone from the pre-qualified list.

Merrian Fuller:

Great, and then we have a question about power purchase agreements and how they work within the context of using an ESCO. I assume that this is for the renewable you might integrate into a complete project with renewable and efficiency.

Donald Gilligan:

Yes, a power purchase agreement is typically used for a portion of the project which is generating energy that could be a cogen plant or a renewable energy facility of some sort, and most often those are broken out as separate agreements, so for example if you did a comprehensive retrofit of a college campus (Lets just take that as an example), so you might do a bunch of measures: lighting, and motors and control systems and the individual buildings, but when it came to the power plants you would break that off as a separate power purchase agreement, where you weren't; the measure wasn't energy savings you were actually measuring, power or steam or chilled water delivered to the campus. Dale do you have ...

Dale Hahs:

I think your spite on the concept of power purchase agreements are relatively new; in the industry the federal energy program has adopted effectively the use of that generation into some energy savings performance contracting programs on their own. They talk a little about the guidelines of concern regarding the very ability of production of fuel so a little caution, but as Donald said they just simply become a tuck in portion to a different job from time to time, and allow you to move forward with some renewable that you might not have had the ability to before.

Donald Gilligan:

Yes, and its particularly important for public facilities to consider that a power purchase; long term power purchase agreement may make sense because the private owner; if you have a power purchase agreement you have a private sector owner who is selling kilowatt hours or chilled water to the government facility, that private sector owner can get tax credit and or actual grant for that facility as long as its privately owned. If it is a publicly owned facility then the tax credits go out the window because the public entity doesn't take taxes and the tax credits, for that kind of project are not transferrable.

Merrian Fuller:

Great well were right at our end time, I want to encourage that anyone who's questions that did not get answered to email Bret and he will communicate questions to the rest of the financial technical assistance team, I want to thank Don and Dale for being on the call today and sharing their expertise, we will be again having them present next week so, you can get more information and details about how you actually go about setting up a program, kind of a more advance session than this one, so we look forward to seeing hopefully many of you back again next week. Thanks you so much for being on the call.