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2. Introduction to Performance Contracting
Dave Birr
President
Synchronous Energy Solutions
3. What is Energy Performance Contracting? A contract for the acquisition of comprehensive energy efficiency improvements and services with minimal up-front costs
Provided by qualified Energy Service Companies (ESCOs)
Uses the energy and cost savings from the project to pay for the work
4. What is Energy Performance Contracting? (continued) Protects the customer by requiring a performance guarantee
Guarantees can be structured to cover all project costs, including financing, over a specified contract term
Performance contracts can be used to leverage more comprehensive modernization projects
5. Historical Performance of the ESCO Industry Results from the NAESCO Project Database
60+ participating companies
~2,174 projects
76% based on some type of performance contracting arrangement
$18 billion capital investment for all sectors These #s repsesent ONLY 15% of all total project activity in the U.S.These #s repsesent ONLY 15% of all total project activity in the U.S.
6. Historical Performance of the ESCO Industry (continued)
74% institutional projects
27% K-12 schools
16% state/local governments
14% health/hospital
10% universities/colleges
7% federal facilities
26% commercial, industrial, residential & other projects
7. Standard Services Offered by ESCOs Investment grade energy audit
Comprehensive project design & engineering
Sources of project financing
Equipment acquisition
Complete project installation and management
8. Standard Services Offered by ESCOs (continued) Project performance guarantees for the duration of the contract
Savings measurement and verification
Ongoing equipment maintenance services
Extensive resident training program services
9. Standard Services Offered by ESCOs (continued) Rate negotiation
Commissioning of new equipment
Customer education on building
load profile
Project monitoring
Extensive ongoing training for building operators and facility personnel
Access to available incentive programs
10. Multifamily Market Multifamily (5+ units): over 15 million households
Private conventional rental housing: 10 million
Private assisted rental housing: 3 million
Federal public rental housing: 1.3 million
City, state public rental housing: 2 million
11. Federal Public Housing 1.3 million households
Very low income
Family and elderly occupancy
Owned and managed by municipal nonprofits
12. Federal Public Housing (continued) PHAs generally have little or no credit history or financing expertise
HUD regulates performance contracting and other energy incentives
13. Federal Public Housing Performance Contract Opportunities HUD regulatory incentive in place since 1991
250 municipal housing authorities with $1 million utility bill or more
RFP procedure in place
Average investment: $2,000-$4,000 per unit among experienced ESCOs
PHAs qualify for tax-exempt financing
14. Energy Savings Potential in PHAs Annual potential: $2.5-$3 billion
Actual savings: $250 million (10% of potential)
Less than 200 PHAs have done EPC projects
15. Residential Market Characteristics that Matter Ownership/market segmentation (single, multi, public, private, etc.)
Building construction, size, age, and condition
Occupancy (family/elderly/handicapped)
Utility costs
16. Residential Market Characteristics that Matter (continued) Metering configuration and applicable rate structures (master/individual/building-based)
Climate, loads
Presence of utility or HUD, housing agency subsidies
Impacts of utility company deregulation
17. What is Different About PHA Performance Contracting? Water efficiency measures are key leveraging elements
Sensitivity to tenant concerns, behavior
Must sell management, tenants and HUD
Public housing success requires housing background; rules are complicated
18. PHA Barriers Difficult to work on due to 24-hour occupancy
Management and regulatory bureaucracies in public housing
Metering configuration and rate analyses are sometimes complex
High transaction costs in public and small properties
19. ESCO Challenges in PHA Market Access to and quality of available consumption and cost data
Lack of PHA in-house technical and financial expertise
Credit-worthiness of PHA PHAs are not rated entities
20. Why Use an ESCO? Expertise:
Survey, analysis, design, financing
Project management, installation, O&M, M&V
Energy procurement
Financing options in place
Minimal costs until energy savings accrue
21. Why Use an ESCO? (continued) Synergistic teamwork/total solutions
Long-term partnerships
Reduced project risk
It used to be the only game in town now theres the option of using a Third Party and self-managing
22. Advantages of PC HUD allows retention of savings generated (up to 20 years)
Guaranteed performance protects the PHA
Minimizes technical and financial risks
Improves energy efficiency and occupant comfort levels
23. Benefits of Performance Contracting
Replace aging equipment with new equipment
Access to 3rd party financing for needed capital energy improvements
Improved facility energy efficiency and reduced energy costs
24. Benefits of Performance Contracting (continued)
Reliable and persistent long-term energy saving project performance
Enhanced local economies through the ESCOs use of local subcontractors
Decreased equipment repairs and lower maintenance costs
25. Benefits of Performance Contracting (continued)
Optimized equipment performance through project commissioning
Better overall management and control of facility
26. Risk Reduction Benefits of Performance Contracting
Contractually guaranteed measured savings reduces the risk of savings erosion over time
Integrated project analysis, design, and construction reduces the risk of lost savings opportunities and schedule delays
Utility savings and performance monitoring reduces the risk of under-funding key maintenance requirements
27. Risk Reduction Benefits of Performance Contracting (continued)
Up-to-date training and knowledge for facility operating personnel reduces the risk of project non-performance
Ability to select services and materials based upon quality and value, rather than on lowest first cost
28. Savings Erosion Over Time is Typical of Conventional Energy Projects
29. Stable Savings Guaranteed Over Time is Typical for EPC
30. Performance Contracts May Deliver Double the Value of Conventional Contracts Cumulative Cumulative Benefit/
Savings Project Cumulative Cost
Costs Net Benefits Ratio
Spec & Bid
Procurement $3.2 Mil $2.9 Mil $ 0.3 Mil 1.1
(Minimize First
Cost)
Performance $6.0 Mil $3.1 Mil $ 2.9 Mil 1.9 Contract
Procurement
(Maximize Net
Benefit)
31. Comparison of Cumulative Long-Term Energy Savings Achieved Over Ten Years
32. Conventional Bid and Spec EPC Negotiated Procurement Conventional
May take several years to secure sufficient funds to implement comprehensive energy projects
High staff costs due to a piecemeal approach to bidding and managing each separate project Performance Contracts
All funds needed for a comprehensive energy project are readily available
Lower staff cost and quicker completion of a comprehensive project
33. Conventional Bid and Spec EPC Negotiated Procurement (continued) Conventional
Multiple contracts with multiple vendors can result in conflicting project requirements
Energy savings are not guaranteed Performance Contracts
One contract with single point accountability for project performance
Long-term energy savings are guaranteed by the ESCO
34. Conventional Bid and Spec EPC Negotiated Procurement (continued) Conventional
Guarantees of comfort and operating standards are not usually offered by equipment vendors
Incremental project implementation misses savings design opportunities Performance Contracts
Performance contracts typically contain explicit comfort and operating standards
Comprehensive project implementation maximizes savings design opportunities
35. Conventional Bid and Spec EPC Negotiated Procurement (continued) Conventional
Energy projects must compete for limited budget resources with other improvement projects
No direct incentive for building staff to reduce energy costs Performance Contracts
Energy projects are funded with utility bill savings
ESCO compensation is tied to providing energy savings over the term of the contract
36. Conventional Bid and Spec EPC Negotiated Procurement (continued) Conventional
Limited staff or lack of expertise may put project performance at risk
Operations and maintenance budgets are usually under-funded, resulting in wasted energy Performance Contracts
ESCO provides ongoing technical expertise to insure project performance
Utility bill savings finance operations and maintenance required to maintain project performance
37. HUD Energy Incentives Dave Birr
President
Synchronous Energy Solutions
38. ALLOWABLE UTILITIES EXPENSE LEVEL (AUEL) -
CURRENT SYSTEM
I. Purpose of System
A. Why are utilities treated as a separate component of the subsidy system?
1. Volatility of Utility Rates
2. Diversity of utility delivery system among PHAs/IHAs
3. Diversity of the types of utilities used by PHAs/IHAs
4. Lack of Standards for consumption
5. Lack of uniformity in condition of utility systems and equipment
II. Utility Rates
A. PFS uses and adjusts for 100% of rate changes
B. Published rates are used, no projections are permitted except as specifically permitted in 990.107, which deals with announced increases by a rating setting commission which will take place during the requested budget year.ALLOWABLE UTILITIES EXPENSE LEVEL (AUEL) -
CURRENT SYSTEM
I. Purpose of System
A. Why are utilities treated as a separate component of the subsidy system?
1. Volatility of Utility Rates
2. Diversity of utility delivery system among PHAs/IHAs
3. Diversity of the types of utilities used by PHAs/IHAs
4. Lack of Standards for consumption
5. Lack of uniformity in condition of utility systems and equipment
II. Utility Rates
A. PFS uses and adjusts for 100% of rate changes
B. Published rates are used, no projections are permitted except as specifically permitted in 990.107, which deals with announced increases by a rating setting commission which will take place during the requested budget year.
39. ALLOWABLE UTILITIES EXPENSE LEVEL (AUEL) -
CURRENT SYSTEM
I. Purpose of System
A. Why are utilities treated as a separate component of the subsidy system?
1. Volatility of Utility Rates
2. Diversity of utility delivery system among PHAs/IHAs
3. Diversity of the types of utilities used by PHAs/IHAs
4. Lack of Standards for consumption
5. Lack of uniformity in condition of utility systems and equipment
II. Utility Rates
A. PFS uses and adjusts for 100% of rate changes
B. Published rates are used, no projections are permitted except as specifically permitted in 990.107, which deals with announced increases by a rating setting commission which will take place during the requested budget year.ALLOWABLE UTILITIES EXPENSE LEVEL (AUEL) -
CURRENT SYSTEM
I. Purpose of System
A. Why are utilities treated as a separate component of the subsidy system?
1. Volatility of Utility Rates
2. Diversity of utility delivery system among PHAs/IHAs
3. Diversity of the types of utilities used by PHAs/IHAs
4. Lack of Standards for consumption
5. Lack of uniformity in condition of utility systems and equipment
II. Utility Rates
A. PFS uses and adjusts for 100% of rate changes
B. Published rates are used, no projections are permitted except as specifically permitted in 990.107, which deals with announced increases by a rating setting commission which will take place during the requested budget year.
40. Allowable Utilities Expense Level (AUEL) Utility Rates
PFS uses and adjusts for 100% of rate changes
Published rates are used; no projections are permitted except as specifically permitted in 990.107
HUDs rate = Total dollar cost / units of consumption, e.g. $/kWh = Rate
41. Allowable Utilities Expense Level (AUEL) Utility Rates (continued)
Can lead to HUD defined savings different from the savings the PHA sees on their utility bill, e.g. demand charges, block rates
Decrease in rate can lead to decrease in dollar savings to the PHA
42. Cash Flows from Conservation Projects Using Standard PFS Funding
43. Implementing Regulations:Revised March 29,2001 Federal Register Incentive 1 - Sharing of Energy Rate Reductions 990.110(c)(1)(i)
If a PHA takes specific actions to reduce the utility rates it pays, the PHA may share in the savings on a 50/50 matching basis
50% of the decrease may be kept by the PHA (no time limitation); 50% must be returned as part of each PHAs post-year utility settlement
44. Implementing Regulations: Revised March 29,2001 Federal Register (continued)
These actions must be specific to the PHA and must represent greater action than general participation in a rate-setting proceeding
Savings must be monitored and must be documented by the PHA
45. Regulatory Framework for Improving Energy Efficiency in Public Housing Section 118 of the Housing and Community Development Act of 1987 Section 118 provides a number of incentives for housing authorities to save energy
Section 118 requires modification of the PFS through the use of non-federal funds, when undertaking certain actions designed to reduce the use of water, electricity, natural gas and oil
46. Regulatory Framework for Improving Energy Efficiency in Public Housing Section 118 of the Housing and Community Development Act of 1987 Intent of Legislation:
To provide specific financial incentives to PHAs to use energy performance contracting as a way to use non-federal funds to accomplish a meaningful government objective:
CONSERVATION OF ENERGY
47. Final Rule Final rule established two incentives for non-HUD financed energy/water conservation measures:
Payments dependent on energy consumption savings
Payments not directly dependent on energy savings
48. Implementing Regulations:Revised as a result of Rulemaking on March 29,2001 Federal Register (continued) Incentive 2 Non-HUD Financing of Energy Conservation Measures
Payments Dependent on Energy Consumption Savings Realized 990.110(c)(2)(ii)
If a PHA undertakes energy conservation measures with non-HUD financing, which are approved by HUD, the PHA may retain up to 100% of the savings from the decreased energy consumption, once payment to the energy conservation contractor or ESCO is completed and the terms of that financing agreement are satisfied
49. Implementing Regulations: Revised March 29,2001 Federal Register (continued) A contract is agreed to between the PHA and the ESCO that the energy or water efficiency improvements will perform as projected and the monetary savings will accrue (thus, energy performance contracting)
The 3-year rolling base of utility consumption is frozen at the level existing prior to installation of the energy conservation measures
50. Implementing Regulations: Revised March 29,2001 Federal Register (continued) PHA is responsible for debt amortization if the projected savings do not materialize
ESCOs must provide sufficient guarantees of savings such that a shortfall in the savings will not cause the PHA to default on the debt if the projected savings are not realized.
51. The Frozen Base Incentive HUD will freeze the three-year rolling base at the current consumption level
As consumption goes down, the authority keeps 100% of the cost difference
52. Cash Flows from Conservation Projects Using the Frozen Base Incentive
53. Implementing Regulations: Revised March 29,2001 Federal Register (continued) Debt Payment Not Directly Dependent on Energy Savings 990.110(e)
Where the contract does not allow the PHAs payment to be dependent on the cost savings it realizes, then the PHA is eligible for an additional operating subsidy each year of the contract to amortize the cost of the energy efficiency measures, subject to a maximum annual limit equal to the annual debt service for that year
54. The Additional Add-On Subsidy Incentive The Additional Subsidy
Rolling base does not freeze, so
HUD keeps most savings, but...
HUD increases the subsidy equal to the loan payment and fees
55. Payment Not Dependent on Savings
Subject to maximum annual limit which equals cost savings for that year
Savings deficiencies to be offset against following years subsidy
Rolling base is not frozen pre-1987 energy conservation incentive applies
56. Cash Flows from Conservation Projects Using Add-On Subsidy Incentive
57. The Additional Add-On Subsidy Incentive Rules
Uses Non-HUD funding
Savings must at least equal the loan payment or next years operating subsidy is docked, so...
Savings guarantee is still a smart move
58. HUD Energy Incentives Both incentive methods deal with cash flows between a housing authority and HUD
Alters how the housing authority receives the funds to pay back the loan
59. HUD Energy Incentives (continued) Note: There are other cash flows to consider when evaluating a project
Housing Authority/Utility
Housing Authority/ESCO (Contract)
Housing Authority/Lender
60. Summary Allows PHA to leverage private capital and expand budgets
Allows implementation of capital projects that might not otherwise be affordable at the time
61. Summary (continued) Provides mechanism to bring extra non-capital funds to the PHA
excess savings from a performance contract
savings from the rate reduction incentive
Encourages PHAs to be proactive on savings energy
62. Project Financing Dave Birr
President
Synchronous Energy Solutions
63. Tax-Exempt Lease/Purchase Available for qualified tax-exempt (Governmental) obligors
IRS Section 103(a)
Section 501c3 - utilizing a conduit issuer or other public authority
64. Tax-Exempt Lease/Purchase (continued)
Does not create long-term debt
Includes non-appropriation language
No voter approval required
Fixed rate upon commencement
No issuance costs
Limited legal fees
Shortest timeframe to complete financing
65. Tax-Exempt Lease/Purchase (continued)
Terms up to 20 years consistent with federal energy legislation
May be an interest penalty for 20 year vs. 12 year terms
15- 18 years may be most advantageous balance of low rate and increased term length
Provides 100% of project funding needs
Design, installation, progress payments
Payments commence upon project completion
66. Tax-Exempt Lease/Purchase (continued)
Simplified documentation
Master contract for multiple locations or project phases
Commonly used by PHAs to finance:
Boilers, chillers, controls, lighting
Water fixtures
Refrigerators and other appliances
Flexibility
67. Typical Considerations
(Identify Project and Financing Objectives Up Front!)
Bundled solution
Budget neutral (or positive) cash-flow
Costs payable from savings
No up-front payments
No mortgage
Minimum impact on existing or future indebtedness
Integration within capital budgeting process
68. Escrow Funding Mechanism
Up Front Funding Locks in Payments
Good News/Bad News
Disbursement Process
Project Completion
69.
Determine project objectives
Determine financial objectives
Select ESCO, receive audit and negotiate ESA
Develop and issue RFQ for financial partner in parallel with ESA (ESCo may drive this, or HA may issue the RFQ itself)
HUD Guidance specifies that there must be an RFQ
Select financial partner
Obtain necessary approvals
Funding at project commencement
70. Cost Factors for Project Financing
Performance risk (i.e., % stipulated savings and quality of technical savings analysis)
Termination risk (i.e., facility closing)
Experience and credit strength of ESCO
71. Cost Factors for Project Financing (continued)
Length of term
Transaction costs
Percentage of projected
savings which are guaranteed
72. BREAK Sponsored by
73. Scope of EPC in PHAs Dave Birr
President
Synchronous Energy Solutions
74. Technical Goals for Water Efficiency Elderly sites 55 gallons/person/day
Family sites 60 gallons/person/day
Assumes accurate water metering
Family sites: Occupancy needs to be adjusted up about 10% to be accurate
75. Common Water Saving Measures Low-volume water closets (1.6 gallon)
Low-flow shower heads and faucet aerators (also DHW)
76. Common Electrical Measures Common area and outdoor lighting fixture upgrades and controls
Compact fluorescent T8 fluorescent and ballast retrofits
Bathroom and kitchen lighting fixture replacement with compact fluorescent
77. Common Electrical Measures (continued) Large/oversized motor replacements (15 HP or more) on hydronic systems and booster pumps
Refrigerator replacements (warmer climates/older models)
78. Common Central Heating and Domestic Hot Water Measures Insulation of equipment and piping
Limiting or setback thermostats and zone valves
79. Comprehensive Approach Comprehensive analysis of interactive energy factors
Look for LEVERAGING opportunities
Highly cost-effective measures can support
longer payback measures
energy-related infrastructure improvements
Increases capital investment in project
Long-term asset management approach
80. Water
81. Water Conservation Toilets
Capital-intensive
Need:
High water rates
Simple gravity toilets
No systemic existing problems (broken flange, wall-outlet, sub-floor repair, clearance issues)
Yields large cost savings for relatively small investment
82. Heating System Measures Piping insulation
Upgrade system pumps and motors
83. Heating System Measures (continued) Space heating system controls upgrade
Time cycle controller
Sequencer/stager for modular system
Outdoor high-temperature limit
Radiator zone valves nonelectric
Temp. limited, programmable thermostat
Thermostatic Radiator Valves
84. Air Conditioning Cooling
PHAs can install air conditioning if resident can turn off A/C unit positively
Types of cooling
Window or room A/C units, central A/C, split systems, heat pumps: air-to-air or ground source heat pumps
85. Air Conditioning (continued) New A/C not self-amortizing/stand-alone
Unless facility-wide A/C runs most of the year
Baseline issues must be resolved if there was no A/C before
86. A/C Sizing Is Very Important Too small wont cool adequately
Too large additional $, cold and clammy
Ducts and blower must be sized for A/C
Very high efficiencies are now available
Wall units EPA Energy Star Label
87. Ventilation Addresses moisture, odor and IAQ problems
Asset management strategy
Energy savings minimal
Code and Health & Safety Issue
88. DHW System: Mid-High Rise High-efficiency equipment
Insulation
Replace storage tank
Upgrade of planned replacement
Reduce storage capacity
Fast system recovery rates
Fuel switch
Controls
89. DHW System: Townhouse/Garden Apts Individual electric units
usually not cost-effective to replace on an energy- savings-only basis
change to central reduces maintenance and risk
tank wraps
fuel conversion
temperature set to 120oF max
Central systems
upgrade: high-efficiency gas, indirect fired
90. Lighting
91. Lighting Measures Usually, there is lots of room for improvement
92. Lighting Measures (continued) New fixtures or reflectors, lenses, & lamps
Common-area lighting
24 hour lighting & exit signs are risk free
Reduce number of lamps using reflectors & T-8s
Lighting upgrades
Increase lighting levels
Requires calculated increase to base consumption
93. Apartment Lighting
94. Appliances
95. Appliances
96. Financing Capital Improvements from Savings at the Corpus Christi Housing Authority By Steve Morgan
October, 2006
97. Corpus Christi, TX Housing Authority 1,836 Units
City of 277,000
16 Developments
$1.3 M in annual master-metered utility costs
98. Corpus Christi Energy & Water Situation:2004 Moderate Utility Use: $2.5 M+, including resident paid
Increasing Water & Gas Rates
Much Deferred Maintenance
Well managed agency
99. Total CCHA Utility Costs
100. Projected Utility Cost Savings
101. Why did CCHA undertake Energy Performance Contracting? Insufficient Modernization Funds
Pro-rationing Impact on Overall Budget
Selected Contractor selects, manages all installation contractors, easing burden
HUD Field Office Encouragement
Annual cash from savings above debt service requirements
102. Measures Selected Thermostats
Refrigerators
Lighting Replacements & Lighting Controls
Plug Leaks
Low-flush Toilets, Aerators, Showerheads
Front-Loading Washers
103. EPC Financial Summary $1.73 M Project
$326,000 annual savings
$40,000 annually for Energy Manager
Water savings drives project: 40%
12-year contract term
Excess Savings of $50 K after Debt Service
Tax exempt financing rate of 4.4% Construction Period: 2006-7 (7 months)
105. July 2006 Asset Planning Optimization Capital Renewal Strategies Title page of first call presentation.
The title of your presentation should be a captivating call to action that reflects the challenges and opportunities facing your prospective client. Maximum: 3-4 words.
Suggested Speaking Points
Thank you for the opportunity to introduce our selves to you.
Ive prepared a short presentation and would be happy to answer your questions as I go through it.
Title page of first call presentation.
The title of your presentation should be a captivating call to action that reflects the challenges and opportunities facing your prospective client. Maximum: 3-4 words.
Suggested Speaking Points
Thank you for the opportunity to introduce our selves to you.
Ive prepared a short presentation and would be happy to answer your questions as I go through it.
106. [
.[
.
107. The Age Profile The slide further demonstrates the challenge of age, the need for renewal and the impact of deferred renewal.
Suggested Speaking Points
This slide shows quite graphically why a strategic plan is required to allocate capital effectively.
The slide further demonstrates the challenge of age, the need for renewal and the impact of deferred renewal.
Suggested Speaking Points
This slide shows quite graphically why a strategic plan is required to allocate capital effectively.
108. Strategic Objectives
109. Renewal Cost Analysis
110. Unfunded Liability (Renewal Gap)
111. Bundled Approach
112. Options for Smaller Housing Authorities Aggregation or the Third Party Approach
113. Challenges Too small to provide economically attractive transactions to most providers
Too small to obtain optimal financing terms
114. Options Aggregation of several entities for one RFP and/or total performance contract
Implement a Housing Authority Managed Project with a Third Party
115. Benefits of Aggregation Creates economy of scale for the project
Shares risks/rewards
Attracts more and higher quality providers
116. Examples of Aggregation Kansas City Six Pack
First attempt at aggregation
6 small HAs, 2 audits, 1 completed project
117. Examples of Aggregation Rebuild Butte (Montana)
Three entities, 1 was HA
NCAT Headquarters Building (non-profit)
City of Butte
Butte Housing Authority
Common RFP and selection process, shared negotiations, separate audit contracts, ESAs and financing
Only City of Butte proceeded to ESA
NCAT and Butte HA had usage too low
118. Examples of Aggregation New Hampshire
3 started, 2 ended up in the ground
State of Rhode Island Consortium RFP
Selected an ESCo, in audit phase
Kentucky
Started the process, never completed.
119. Obstacles Boards have to approve joint financing
Option to have separate financing, possibly
Different 5-year plans
Different fiscal years
Different utility companies
Geographically dispersed
120. Solutions Aggregating entity/agency
Fair distribution of project benefits and costs OR separate audit, financing and ESA contracts
Verify each HA has viable projects
Sign a single lease agreement with joint and several liability OR separate lease agreements
Agree to select a single ESCO
121. Solutions (continued) Add on subsidy incentive
(Less of a risk mitigator now)
Common contract documents
HUD approval process consolidated
122. Aggregation Lessons Learned Project needs a champion
Do thorough utility analysis first
Evaluate options to self-manage
There are different paths that can reach same end of attracting ESCos and making a project viable (single versus separate financing, etc.)
123. Third Party Consultant Housing Authorities may self-manage a project, provided they use a Third Party to help them with the project.
Based on legislative language
More details in the HUD Guidance
124. Third Party Consultant In the past, HUD allowed some HAs to do projects without an ESCo, but had to use the Add-On Subsidy
Many of these were small housing authorities, with small projects of low risk.
E.g. Wayne Metropolitan Housing Authority (OH) - $150,000 furnaces
125. Third Party Consultant
Now HUD requires a third party consultant.
RFP available at:
http://www.nysphada.org/HUD%20WEB/Energy/Energy.html
126. Summary
It is possible for smaller HAs to take advantage of the HUD Energy Incentives and leverage more capital dollars
Consider Aggregating if multiple HAs or other tax-exempt entities in your area are interested
127. Summary
Investigate Third Party to self manage a project and access leveraged Capital Funds
Find out about state and utility programs for technical assistance and funding
128. LUNCH
129. Overview of the EPC Procurement Process
Dave Birr
President
Synchronous Energy Solutions
130. Evaluation Process and Methodology ASSEMBLE A DIVERSE EVALUATION TEAM
Facilities operating personnel
Administrative/financial managers
Designated project manager
Technical advisor/consultants
Modernization Coordinator
131. Evaluation Process and Methodology (continued) CONDUCT A THREE-PHASE REVIEW
Phase I: Written Submissions
Phase II: Client References
Phase III: Oral Interviews
132. Evaluation Process and Methodology (continued)
Follow Criteria Outlined in RFP
Use these criteria for each of the three phases of review
Use forms so you have a paper trail FOIA considerations
133. Evaluation Process and Methodology (continued) SELECT HIGHEST RANKED ESCO or
Based on cumulative rankings of all three phases
Consensus of evaluation team
134. Evaluation Process and Methodology (continued) EVALUATION DESIGN FEATURES
Use a comparative process
Weight criteria rankings (A=x3, B=x2)
Conduct client references by phone
Have client references conduct actual rankings
Make criteria assignments or include an Unable to Rank scoring category (which has no value)
Charting or graphing of overall phase rankings can be a useful comparative aid
135. Evaluation Process and Methodology (continued)
136. Sample Ranking Forms in Reference Guide Ranking Form for Evaluating Written Responses to the RFP
Evaluators Name: Contractor:
Evaluators Dept.: Date:
Experience
1. Level of past experience with similar projects: $$ Level: _____ #:
Superior__ Very Acceptable__ Acceptable__ Not Acceptable__ Unable to Rank
Discussion: _________________________
2. Quality of key personnel qualifications as listed on resumes:
Superior__ Very Acceptable__ Acceptable__ Not Acceptable__ Unable to Rank
Discussion: _________________________
3. Ability to achieve energy savings on past projects:
Superior__ Very Acceptable__ Acceptable__ Not Acceptable__ Unable to Rank
Discussion: _________________________
137. Sample Ranking Forms in Reference Guide Client Reference Interview Prompts
Open ended Questions:
1. Are you satisfied with the energy savings achieved so far?
2. Did the contractor provide acceptable financing for the project in a timely manner?
Evaluation Sheet:
EXPERIENCE
1. Achieved energy savings to date?
Superior__ Very Acceptable__ Acceptable__ Not Acceptable__ Unable to Rank
Discussion: _________________________
138. Sample Ranking Forms in Reference Guide ESCo Proposal Ranking Score Sheet
Tallies up answers from each reviewer in an Excel Spreadsheet
Allows customized weighting of scoring factors
Automatically excludes Unable to Rank from scores
Provides final ranking score
139. Which Qualifications are Worth the Most? A corporate culture that emphasizes high quality project performance and customer service
Demonstrated technical expertise
Ability and willingness to guarantee and measure project performance
Experience with negotiating HUD approvals and requirements
Significant experience with PHA projects
140. Why Qualifications Should Be Your Procurement Focus Having the necessary range of capabilities is more important than the preliminary technical and cost proposal
Project scope and price can and will be negotiated; not so for qualifications
141. Why Qualifications Should Be Your Procurement Focus (continued) Better qualified ESCOs will generally, but not always, present the better preliminary technical proposals
Performance contracts are long-term partnerships, so pick a reliable partner with staying power
142. Evaluation Philosophy Overview
If you cannot significantly impact project performance via negotiation of this criteria, it becomes a key criteria.
There are no perfect ESCOs, but some have far greater capability, experience, and consistent quality performance than others.
143. Evaluation Philosophy Overview (continued) You are comparing the ESCOs to each other on specific criteria primarily and secondarily to a set of standards. How does this ESCO compare to the best ESCO for that criteria?
144. Evaluation Philosophy Overview (continued)
The goal of the evaluation process is to pick the best ESCO to provide services for your specific project.
Evaluation should focus on differences that distinguishes them in their technical capability to perform.
145. Evaluation Philosophy Overview (continued)
There are a lot of specific points of comparison, so be sure to keep written records of your notes on each ESCO.
Dont let a glossy format distract you from the technical content of their qualifications.
146. Evaluation Philosophy Overview (continued)
Client references are critical; they are your only independent consumer report type of data on ESCO performance.
Learning by doing is the best evaluation training approach.
147. ESCO Evaluation: Non-Negotiable Criteria Experience
Technical qualifications and experience of ESCOs personnel
Experience with implementing performance contracting projects
Quality of project history and documented savings performance of past projects
Quality of customer service on past projects
Reliability of equipment performance on past projects
Quality of technical skills on past projects
148. ESCO Evaluation: Non-Negotiable Criteria (continued) Project Management
Ability to effectively manage past project construction
Ability to manage equipment repairs, regular service, and emergencies effectively on past projects
Quality of ESCOs communication skills
149. ESCO Evaluation: Non-Negotiable Criteria (continued) Technical
Comprehensiveness of technical approach to past projects
Ability to plan and complete all phases of past projects on schedule
Quality of operations and maintenance services on past projects
150. ESCO Evaluation: Non-Negotiable Criteria (continued) Financial
Financial soundness and stability of the ESCO
Demonstrated ability to provide or arrange project financing on past projects
151. ESCO Evaluation: Negotiable Criteria Project Management
Comprehensiveness of maintenance, monitoring, and measurement and verification services
Proposed O&M strategies
152. ESCO Evaluation: Negotiable Criteria (continued) Technical
Quality of investment grade technical energy auditing
Quality of approach to project commissioning
Quality of approach to calculating baseline energy consumption
Quality of approach to savings measurement and verification
Quality of provisions for training facility staff
Quality of customer savings reporting
153. ESCO Evaluation: Negotiable Criteria (continued) Financial
Reasonableness of financial assumptions for the proposed project
Details of proposed financing arrangement
154. What Data Will Help You Evaluate ESCOs Request detailed project performance data on their past projects and client references
Request detailed information on the project management and technical experience of key staff
Request a sample detailed energy
audit for a similar project they
completed
155. What Data Will Help You Evaluate ESCOs (continued) Request a sample customer savings report and a sample bid specification for a specific energy efficiency measure likely to be part of your project
Request audited financial statements and the firms financial ratings
Are they accredited by NAESCO?
156. Client Reference Questions Important to check past jobs
Look for patterns, good or bad
Phone-based interviews are recommended vs. mailed or faxed questionnaires
Use prepared interview questions that are asked of all references
Have client references actually provide ranking based on their experience and satisfaction
157. Key Questions to Explore With Client References How well did the ESCO provide post-construction ongoing services?
Commissioning
Training
Operations and Maintenance
Measurement and Verification
How well did the ESCO manage communication, contract negotiation, and HUD regulatory requirements?
158. How well did the ESCO manage utility bill data collection and analysis?
Was the ESCO able to provide timely and effective resolution of project performance problems?
Did the ESCO complete a project that met your needs?
achieved predicted savings
modernized infrastructure
solved maintenance problems Key Questions to Explore with Client References (continued)
159. What Else Can Client References Tell You About ESCO Qualifications? Did the specific measures provide reliable savings without creating significant new maintenance problems?
Did better performing new equipment significantly reduce maintenance problems?
What was tenant reaction to the modernization of property in this project?
160. Clues to High-quality Customer Service in ESCO Client References Did they provide you with user-friendly operations and maintenance procedures manuals?
How well did the ESCO manage their subcontractors?
Did they complete the project elements under their control on schedule?
161. Clues to High-quality Customer Service in ESCO Client References (continued) How well did they manage any equipment warranty issues?
Did the ESCO provide adequate design and specification documentation for the project?
162. Evaluating Project Feasibility
Dave Birr
President
Synchronous Energy Solutions
163. Are the HUD Incentives My Best Option? Function of many factors
REMEMBER - You must be able to re-pay a loan from savings!
Investigating the following factors can save you from going down dead end path
164. Site Evaluation Factors for Performance Contracts
High annual utility consumption and cost
Obvious energy-related capital improvement needs
Significant cost reduction opportunities
Need for comprehensive improvements
165. Site Evaluation Factors for Performance Contracts (continued)
Low efficiency and high age of existing equipment
Availability of energy bills, maintenance cost records and organized data on energy use patterns
Need to reduce high maintenance and/or equipment repair costs
166. Site Evaluation Factors for Performance Contracts (continued)
Stable pattern of use of the buildings for foreseeable future
Ability to finance improvements
off balance sheet and access
to sources of tax-exempt financing
Problems with maintaining a comfortable indoor environment
167. Site Evaluation Factors for Performance Contracts (continued)
Need for guaranteed savings to reduce project performance risks
Need for reliable equipment performance
168. Site Selection for RFP Identify your desires and needs
Look at the realities of:
level of consumption
utility rates
cost of capital
occupancy rate
long-range plans for the site
other available funds
BE FLEXIBLE - Be open to the ESCOs suggestions during the bidding and audit processes
169. Key Economic Factors that Determine Project Size Properly adjusted base year
Savings guaranteed as a percentage of projected savings
Cost of capital
Term of contract
Utility DSM subsidies
170. Key Economic Factors that Determine Project Size (continued) Persistence of savings strong maintenance staff, management commitment
Amount of annual utility savings
Fuel prices and escalation rates
171. Utility Analysis Do this before issuing RFP!
Tracking consumption makes this easier
Software to help
Reports to help with HUD reporting requirements
Graphics to visualize information
Units of consumption, not just dollars
By apartment, building, meter
ESCO will want this data
Aids in management and maintenance as well
172. Utility Analysis (continued) Use your currently available data
Work with your utility to fill in gaps
Need tenant releases to get data on actual bills that are tenant paid
PUT THIS IN YOUR LEASE!
Provides means of ensuring allowances; makes tenant whole and ensures that conservation program costs arent borne by the residents.
Identifies measures and sites for consideration
173. Benchmarking Tells you how your sites compare to others
Rough estimate
Weather Normalize
Heating Degree Days - takes out climate as a factor
Normalize for Unit Size
174. Benchmarking (continued) HUD reimburses HAs for resident-paid utilities in a different way than HA-paid utilities
Must include resident-paid in benchmark to get meaningful numbers
Utility allowance as proxy, since HUD doesnt collect actual resident usage
175. Benchmarking (continued) Can help you ID best candidates within your portfolio
Dont waste your or the ESCOs time by pursuing sites that wont yield a cost-effective, self-funding conservation program
176. Benchmarking (continued) Common Measures
$/square foot
Gallons/day/resident
Btu/s.f./HDD normalizes for weather and for size of building
Still need to account for rates
6 cents/kWh vs. 12 cents/kWh -> two times the pot of savings for a given amount of consumption
177. Measure Selection Process Developments are identified by the PHA in the RFP
May be phased, with option to expand
Based on utility analysis, building use and capital needs
Measures are screened and proposed by ESCOs in the audit
Two-phase audit report
178. Where to Look for Savings In the cooling climates, typical PHA candidate developments for energy performance contracts have high historic utility consumption or cost patterns for:
Domestic hot water production
Common area lighting & electric loads
Domestic water use
179. Where to Look for Savings (continued) Cooling Savings
Normalizing for Cooling Degree Days not allowed by HUD
Issue - who pays the bill? Can HA recover cooling savings?
24 CFR 965.506(e)
180. Information to Provide in an RFP Include, by building, meter or complex:
Utility monthly use and cost over three years
Name of facility
Number of dwelling units
Occupancy levels
Family or elderly residence
Rough description of construction and systems
181. Best Candidate Types Master metered for all utilities, multiple buildings
Can do tenant paid end-uses, but
Adds complications to savings calculations
Has not received modernization in over 10 years
182. Audit Phase Monthly utility use histories and account numbers; actual copies of bills important
Previously implemented energy-related modernization plans and dates of implementation
Previously completed energy audits and surveys
Capital needs assessment reports
183. Audit Phase (continued) Require ESCO to:
Develop baseline for each utility, per HUD requirements
Perform end use disaggregation of utilities
Normalize data
Establish savings projections in relation to base years
Evaluate in-pocket savings vs. HUD savings
184. Before Any Measures May be Formally Screened by the ESCO, the ESCO Must: Evaluate the quality of the data
Clean it
Analyze it by End Use
End Use Disaggregation must be performed by an energy engineer or conservation professional.
185. Energy and/or Water Baseline Consumption The baseline is the ESCOs assessment of the pre-retrofit utility consumption and cost
Must be approved by HUD
Based on Rolling Base, and/or
Reviewed Utility Allowances
Provides the basis for:
ESCO savings projections and measure screening
Calculation and payment for actual savings achieved
186. Energy and/or Water Baseline Consumption (continued) Baseline usage, as calculated by HUD, is critically important to know - base your contract on this.
Actual utility costs may differ from HUD-calculated savings (e.g., block rates)
Remember, you may be freezing your baseline for up to 20 years
187. Energy and/or Water Baseline Consumption (continued) Anything that may impact your usage upward, such as increases in occupancy, will impact the amount of savings you may retain from HUD
Iron out baseline issues before signing a contract
Make sure the baseline period matches what HUD will want to see
188. Financing Capital Improvements from Savings at the Dover Housing Authority By Steve Morgan
October, 2006
189. Dover, NH Housing Authority 465 Units
Town of 20,000 in SE corner of state
8 Developments
$860,000 in annual utility costs
An 84-unit high rise elderly building experiencing high costs, resident complaints (Waldron Towers)
190. Dover Energy & Water Situation: l998 High Utility Use: $860 K annually
Rapidly Increasing Electric Rates
Much Deferred Maintenance
Obsolete, Inefficient Heating Equipment
All Electric High Rise uncomfortable for seniors
191. Why did DHA undertake Energy Performance Contracting? Insufficient Modernization Funds
High maintenance costs on Central Heating Plants at some developments
Selected Contractor selects, manages all installation contractors, easing burden
HUD Field Office Interest in Electric conversion
High electric costs, resident discomfort threatened higher vacancy rates at high-rise
Annual cash from savings above debt service requirements
192. Measures Selected for Phase I: Waldron Towers Electric to Gas Heating Conversion
DHW Upgrade
Lighting Replacements & Lighting Controls
Storm Sliding Glass Doors Replacement
Low-flush Toilets, Aerators, Showerheads
Front-Loading Washers
Conversion of Electric Dryers to Gas
193. EPC Financial Summary $687,000 M Project
84 Apartments Treated
$48,000 annual savings
Electric savings 90+% of total
12-year contract term
Excess Savings of $10 K after Debt Service
Tax exempt financing rate of 6.5% Construction Period: l999-2000 (8 months)
194. ESCO Fee Structure: Differs from A&E Contracts Performance Risk, Long-Term Services major differences between EPC & Standard A&E Contract
Fees have 3 components:
1. Audit Fee
2. Design and Project Management Fee
3. Post-Construction Annual Services Fee
195. Waldron Towers, Dover NH 84 Units YEAR 3 (FYE 2002) Total Electric & Gas Bills 6,605 Base DD (65 Degrees)
196. Phase II Project 2005: 381 Units in 4 Developments
Baseline Cost: $710,000
Projected Savings: $220,000
$1.7 M cost
197. Phase II Measures Water Conservation, Featuring Toilets
Common Area and Apartment Lighting
Attic Insulation
Thermostats and Timers
Decentralize Heating and DHW
Replace Heating & DHW
Dryer Conversions Electric to Gas
Restore Solar Heating Assist
198. WHO IS A GOOD CANDIDATE FOR EPC in Texas? Master-metered bill portfolio wide above $100,000
DHW, Furnaces equipment needs replacement
AC needing replacement or install central AC
High maintenance costs on energy systems
Refrigerators more than 5 years old
High water costs
2005 Legislation permits treatment of tenant-paid utilities without waiver
200. Measuring Project Performance Dave Birr
President
Synchronous Energy Solutions
201. What is Measurement and Verification (M&V)?
M&V is a measurement procedure involving on-site data collection on the performance of building energy consuming equipment according to an approved measurement plan
202. Benefits of M&V Gives the end user greater confidence in their investment
Determines if Guarantee was met
Gives lessor confidence in lease payment
Gives ESCOs a feedback mechanism on their quality of engineering
Maximizes persistence of utility consumption and cost savings
203. Benefits of M&V (continued) Improves equipment reliability and optimizes system performance (e.g., load management)
Provides valuable management information for building cost accounting and budget forecasting
Provides timely project performance feedback and accountability
Provides the data required for savings or baseline adjustments
204. IPMVP M&V Options Option A - Measured capacity, stipulated consumption
Option B - Measured capacity, measured consumption by end use
Option C - Whole facility analysis or main meter measurement
Option D - Calibrated simulation
205. M&V Needs to Address 3 Things: How baseline of energy use or costs will be established
How energy savings after project installation will be determined
How the baseline will be adjusted if large changes in the operation of the building occur after project installation
206. Three Keys to Successful M&V Keep it as simple as possible:
1. It does need to provide a reasonable basis for determining the savings from your particular project
2. It does need to provide a reasonable basis for verifying guarantees or determining payments
3. It does not need to do more than (1) and (2)
207. Factors Affecting Cost and Appropriate Level of M&V Effort Value of projected ECM savings
Complexity of ECM
Total number of ECMs
Number of interactive ECMs
Uncertainty of savings
Risk allocation for achieving savings
Other value produced by M&V data
HUD requirements
208. M&V Plan Outline What will be measured, calculated, simulated, or estimated and by whom
Time intervals for measurements or calculations
Annual costs for M&V
Description of any measurement devices, equations, computer models, assumptions, and data requirements
209. M&V Plan Outline (continued) How measurement devices or computer models will be calibrated and the frequency of calibration
How measurement or calculated data will be used to verify savings and sample calculations
Sample periodic savings report showing all data, calculations and summary results
210. Uses of Stipulations Appropriate:
Project size is small
Project is low-risk
Based on defensible assumptions
Energy savings not primary motivator
Sophisticated customer understands risks
Greater M&V cost not economically feasible
211. HUD Guidance re: M&V http://www.nysphada.org/HUD%20WEB/Energy/EPC/Guidance_M&V.doc
Check for the latest version
Provides HUD Guidance on what is acceptable format for M&V for the different incentives
212. HUD Guidance re: M&V
213. Challenges to Calculating an Accurate Base Year
Data analysis fails to account for periods during which equipment was broken or malfunctioning
Consumption data are inaccurate or missing due to utility metering, billing, or data entry errors
Run hours of equipment ? operating hours of building
214. Measurement and Verification Steps (continued) Post-ECM Installation
Verify installation and correct operation
Verify ongoing potential to generate savings
Adjust baseline energy use for material and weather changes, if necessary
Quantify post-installation energy use
Quantify energy and cost savings
Report savings to HA on monthly or quarterly basis (annually to HUD)
215. M&V Reporting Requirements Submitted monthly or quarterly (reports should clearly indicate performance period)
Data from reports will be used for annual reconciliation with HUD (ensure that all necessary data is available)
216. M&V Reporting Requirements (continued) ESCOs should review reports quarterly with appropriate HA representative and request written acknowledgement/ acceptance of report from HA
Reports should have a summary page of savings followed by details on approach used, assumptions, data sources, and calculations
217. M&V Reporting Requirements (continued) Monitoring data should be provided in easy to understand graphic formats
A standard monitoring report format which emphasizes comparisons with performance targets is a good approach
218. M&V Reporting Requirements (continued) Adjustments to baseline include changes in items beyond ESCOs control:
Occupancy or building usage
Set point temperatures or scheduling
Physical changes to building envelope or structure
Weather conditions
Equipment loading and/or operating efficiency
Recent maintenance work that affects equipment operation or performance
Utility rate adjustment
219. M&V Reporting Requirements (continued) ESCOs should provide contact information for M&V inquiries by HAs
Both cost and energy savings should be provided for each measure, where appropriate
Details on changes in utility costs should be provided
220. Managing Project Performance
Dave Birr
President
Synchronous Energy Solutions
221. Quality of project audit and design
Quality of contractors and equipment
Quality of project installation and commissioning
Quality of project operation and maintenance
222. Quality of performance measurement and verification
Quality of customer commitment to project performance
Quality of ESCO training and communications
Quality of indoor environment
223. Strategies for Keeping Projects on Schedule Shorten the internal decision-making chain to enable more rapid review and approvals
Design quality control feedback systems to spot field installation problems quickly and correct them
Give your PHA project manager adequate time and authority to move the project forward
224. Strategies for Keeping Projects on Schedule (continued) Get a good handle on managing utility data and property status data
Use high-quality subcontractors
Clerk of the Works
Clearly defined responsibilities and timelines
225. Strategies for Effective Project Management Defined Submittals process
Monitor and review project progress on a regular basis
Use spot checks of field installation work to catch any quality issues early
Maintain a good data management system for tracking utility data and other building system data
226. Strategies for Effective Project Management (continued) Keep written records of changes and revisions to the scope of the technical schedules
Quality control at every step is what delivers superior results
Comprehensive training on operation and maintenance of new equipment is critical
227. Strategies for Effective Project Management (continued) Coordinate early with other construction projects to avoid confusion and delays
Require adequate project documentation and commissioning
Allocate maintenance tasks based on cost and capability
Take opportunity to simplify equipment and materials inventory requirements by standardizing design choices
228. Strategies for Effective Project Management (continued) Base part of the ESCO design fee on measured savings
Design the measurement and verification system to provide rapid feedback on project equipment performance
Make it clear that minimizing life cycle cost is the design criteria
229. How to Manage Performance Over the Long Term Hold PHA staff accountable for their performance
Provide training and project orientation for new PHA staff
Continue resident education throughout project and after
Require adequate documentation to minimize confusion and delay as well as help orient new staff
230. Management of Utility Consumption and Cost Data Develop an effective electronic accounting and error detection process
Allow the ESCO to collect data directly from your utility providers
Develop internal capability to properly manage your utility data process
Contractually specify data handling responsibilities
231. Issues Schedule
Construction Coordination
Acceptance of Completed Work
Payment Schedule
Maintenance
M&V Requirements
232. Schedule Expectations captured in documents?
Adjustments for delays in contract execution
Method for adjustments
Who has authority to make decisions?
Penalties and bonuses
233. Construction Coordination Who is the owners representative?
Scope of his/her authority
Change order procedure
Access Issues
Need guides or escorts? Costs?
Security considerations
Safety considerations
234. Payment Schedule Who approves payments?
Invoicing procedure clear?
Schedule of values
Percentage completion
Draw downs on leases
Interest during construction
Retainage or other holdbacks
235. Maintenance Who is responsible party?
Item-by-item listing
Does responsible party have required resources?
Money in the Project Budget
Third Party Contracts
Default provisions
236. M&V Requirements Who is the owners representative?
Sophisticated enough for the job?
Is the methodology clear?
Is it real enough for you?
Does it account for facility changes?
Dispute Resolution
237. HUD Requirements Budget request and other forms will be altered
HUD 52723
HUD 52722
PILOT
Annual submittals specific to the HUD Incentives
238. David Birr, Consultant Illinois Department of Commerce and Economic Opportunity
Business: 847-842-9106
Email: DaveBirr@aol.com
239. COMING SOON ENERGY PERFORMANCE CONTRACTING FOR PUBLIC HOUSING AUTHORITIES
DELUX ADDITION
240. SECO Address:
Comptroller of Public Accounts,
State Energy Conservation Office
111 East 17th Street, Room 1114
LBJ State Office Building
Austin, Texas 78701
Main Phone: 512-463-1931
Web site: www.seco.cpa.state.tx.us
SECO is Another resource you can turn to for the success of you r energy projects.SECO is Another resource you can turn to for the success of you r energy projects.
