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Energy service companies (ESCOs) can help school districts improve their buildings without putting more demands on capital budgets.

The following Navitas article was published by the Association of School Business Officials International (asbointl.org) in their December 2021 edition of “School Business Affairs”. It also appears on the Missouri Association of School Business Officials (MoASBO) website.

It’s a hot, humid August morning at Center School District in Kansas City, Missouri. Teachers and students aren’t expected to arrive for another week.

Still, the district’s energy specialist, Nicole Williams, has been on-site working around the clock to make sure the district’s heating, ventilating, and air-conditioning (HVAC) systems are tuned up and ready for the new school year.

“With the district opening back up this year, we want to make sure that we’re providing the best learning environment for our students and teachers. Classroom comfort is a large part of that,” she says.

As Williams walks the halls at the high school, she uses her phone to check the district’s new building automation system (BAS) to pinpoint trouble spots. She explains: “The BAS is a wonderful tool. It has allowed us to manage classroom comfort while also reducing our energy consumption by almost half.”

The BAS was installed as part of a larger energy savings performance contract that allowed the Center School District to install energy conservation measures and make much-needed improvements to its aging buildings.

Deferred maintenance in school districts is common because of the difficulty in finding funding to meet all their infrastructure needs. The unfortunate consequence is that the deferred maintenance will affect the quality of the learning environment for students and staff.

ESCO Basics

One way to improve school buildings without putting more demands on capital budgets is to use an energy service company, or ESCO. An ESCO is a project developer that guarantees energy savings to organizations through a comprehensive array of energy efficiency opportunities, including HVAC, weatherization, building automation systems, and lighting by retrofitting the organization’s inefficient and costly equipment.

The work is detailed in an energy savings performance contract (ESPC). The ESPC process is transparent, collaborative, and flexible and allows all stakeholders to reach a consensus. Energy savings come about through the ESCO’s exhaustive analysis of the organization’s existing facility conditions and equipment to implement energy efficiency measures sufficient to cover the project’s debt service.

Energy Savings and More

Yolanda Cargile is the superintendent of the Center School District. The partnership between her district and an ESCO, which began before her tenure, helps the district financially today and the students today and in the future.

“Prior to my arrival at Center, we needed new roofs and other facility improvements. Rather than ask the voters to include these energy savings–related projects in an upcoming $48 million bond issue, the district decided to use an ESCO to help generate internal savings to fund the improvements,” she explains. “We ended up with $55 million of improvements at no additional cost to the taxpayer. It was a worthwhile experience.”

By working with the ESCO, Center School District could complete all its building improvements. In addition, the district added energy conservation measures that will provide energy cost savings and reduce the district’s operations and maintenance costs.

The U.S. Department of Energy maintains a qualifications process for ESCOs that provide energy savings performance contracts to their clients. The department has created a rigorous annual qualification process for firms that want to be included on its list of qualified ESCOs. Those approved are allowed to compete for federal and other ESPCs. (Access the list at www.energy.gov/eere/femp/energy-service-companies)

In most instances, an investment-grade audit is required as part of the energy savings performance contract. This audit quantifies the existing deficiencies within the school district’s facilities and identifies the measures necessary to remedy those deficiencies. It is usually performed by the prospective ESCO and details the course of action the ESCO will take to deliver guar- anteed results for the school district.

What to Ask

What questions should a school district ask potential ESCO partners about their energy savings performance contract? Because ESPCs guarantee measurable savings and equipment performance over time, the district needs to know that every dollar paid to the contractor at least offsets, if not returns, additional dollars of savings measured in energy reduction and equipment life. Although risks can never be eliminated from any business venture, the school board must know that the ESPC has considered known risks and offers mitigation plans for each. The process of measurement and verification shifts consequences of underperformance to the contractor through the performance guarantee.

Another question districts should ask relates to the type and depth of training the ESCO provides for district employees. A good ESCO will offer equipment training and guidance for district staff on how to minimize energy consumption and extend equipment life.

Finally, the district should ask for a list of references of other district customers.

In the Long Run

Depending on the terms negotiated in the energy savings performance contract, the ESCO may supply ongoing annual performance reports detailing the utility cost avoidance for the district. These reports often provide granular details on each facility in the district, including greenhouse gas reductions.

Once the district’s facility and maintenance staff have been trained in the efficient operation of the HVAC equipment, staff attention turns to other pressing district tasks. Without dedicated ESCO attention, the performance of the HVAC equipment can begin to decline through unintended neglect. Often, the energy savings performance contract will call for ongoing review of the HVAC equipment by the ESCO to ensure optimal performance and notify the customer when apparent mechanical issues may hinder the equipment’s full performance.

Lastly, but perhaps most important, the ESCO should foster a culture of energy conservation in the district among staff and students through formal and informal news reports on changes within the organization’s energy consumption.
In response to the changing climate, everyone must be educated on their responsibility in school and at home to reduce fossil fuel consumption for the benefit of future generations.

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About the author – Paul Harrell is a business development manager with Navitas. His background as a Certified Public Accountant and 33 years of experience in the education sector help him bring a practical approach to developing strategies for school districts wanting guidance in how to manage their overall budget and utility costs. He can be reached at pharrell@navitas.us.com or 913-344-0049

School administrators are always challenged with balancing building needs and capital project funds. In the age of COVID this may have created even more challenges for school districts. One strategy school business officials have at their disposal is the Performance Contracting mechanism. Enabled by RSMO 8.231, this allows school districts to fund building projects out of energy savings, and often provides flexibility to address building needs outside of a bond issue. Alternatively, we have seen schools combine bond issues with an energy project through a Performance Contract to effectively extend the amount of work that can be accomplished through the bond issue. In this article we discuss how schools can potentially address lingering facility concerns that may have been delayed the last 6-12 months while we have adjusted to life and education with COVID.

In Missouri, our schools consume $240,000,000 annually on energy to power our buildings. This equates to between $200-300 per student. Outside of salaries and benefits, energy costs are typically the second most costly item for a school district. We often see schools that are able to save between 20-35% on their energy bills through more efficient operation. These potential savings provide a huge potential for budget reductions or could be used to fund other needs throughout the district.

One school district that has effectively used this mechanism to help address building needs is the Oak Grove School District. As is often the case with schools, Oak Grove recognized they had far more needs than funds available. So, the District considered the implementation of a performance contract along with their bond issue. Through the performance contract, the district will save over $3,000,000 in utilities over 15 years. This project focused on old and inefficient HVAC equipment and building automation systems throughout the district and was completely funded with energy and operational savings. This allowed the other part of the design team – the architect and construction manager to focus on new square footage and other renovations to existing space. Ultimately, this process allowed the Oak Grove School District to effectively extend their bond dollars by 25% through financing part of their project through energy savings!

Early returns on energy savings look favorable for Oak Grove. Below is a graph and table depicting pre- and post-project utility consumption. So far in the last 3 months of 2020, the district seen a 47% drop in their electric consumption! The Middle School has seen over a 50% drop! If these results continue, the district will far exceed savings projections.

The example above with Oak Grove School District is one success story of many we see across the state. Effectively redirecting utility funds back into education is something we have found is a great success story for school boards and communities! While this mechanism is somewhat different than a typical design and construction process, it may have utility to you as you evaluate your building needs. An Energy Services Company (ESCO) can help you through the process of evaluation of utility bills and a preliminary evaluation of your buildings to help determine if this mechanism could be of value to your school district. If you are not familiar with an ESCO, you may start with NAESCO – the National Association of Energy Services Companies, where you can find active companies that might be able to help you in this effort to improve your buildings.

About the author – Ryan Terry is a business development manager with Navitas. His
background as a professional engineer and 15 years of experience in the energy industry
help him bring a practical approach to developing strategies for public sector clients who
want guidance in how to initiate an energy conservation program in their facilities. He
can be reached at rterry@navitas.us.com.

Energy service companies (ESCOs) often operate in an open book fashion as compared to a more traditional process that has many of the costs hidden in the contractors bid. Both construction processes have similar costs, whether or not they are broken out in as much detail depends on the transparency of their cost and bidding structure.

Construction and implementation costs are based on the specific project scope and services provided for in the design and specifications and will typically include the categories shown in Figure 1 below.

Figure 1: Cost Structure Comparison between Energy Service Companies and Traditional Construction

Value of Approach Compared to Traditional Construction Processes

There are many benefits that energy service companies can provide because of the way they are able to structure the project team and engage strategies specific to providing value to clients. Many of these strategies reduce costs, improve solution decisions, and enhance the implementation of energy efficiency projects when comparing to traditional construction. Some of these differences are shown in Figure 2 below.

Figure 2: Comparison of Approach between Energy Service Companies and Traditional Construction

A traditional construction process is what many clients are used to but often this approach has inherent problems with collaboration and teamwork between project organizations. The flexibility of guaranteed energy cost savings contracts allows energy service companies to develop and approach solutions and implementation plans that will best meet client needs.