Information

How to Select an ESCO Partner

July 28, 2020

Deferred maintenance in schools is common due to the difficulty in finding funding to meet all their needs. The unfortunate consequence is that this will begin to challenge the quality of the learning environment for students and staff. One way to improve school buildings without putting additional demands on capital budgets is through a guaranteed energy savings performance contract (ESPC), also called a guaranteed energy cost savings contract.

The Process to Implement an Energy Savings Performance Contract

The initial step in implementing a guaranteed energy savings performance contract is to determine whether a viable opportunity to save money exists. This may be accomplished by engaging one or more energy service companies to complete a preliminary analysis of the district to establish feasibility. If it is determined that energy efficient upgrades are financially viable, the district should get board approval to put out a request for qualifications (RFQ) or a request for proposals (RFP).

Stages of an energy conservation project — Figure 1

The process typically involves three primary stages: project development, implementation, and performance (see Figure 1).

The project development stage typically includes a preliminary analysis to confirm economic viability and the completion of a request for qualifications or proposal to select the energy service company that will best meet your needs. Once your partner is selected then the detailed audit is started to develop the detailed project scope, design, cost, savings and a mutually agreed-upon measurement and verification plan.

According to the National Association of Energy Services Companies (NAESCO), typical costs for a comprehensive energy audit range between $0.04 and $0.12 per square foot of facility, depending on the size and complexity of the buildings. Some companies may offer the audit at a reduced marketing rate or for free and then make up the costs when they implement the projects. The fee may be rolled into implementation cost (no out-of-pocket money required) or be paid outright by the district if it elects not to proceed with implementation.

It is often during this stage that the energy service company will select or negotiate with vendors and contractors to provide project pricing. The detailed audit is a detailed analysis that will result in an array of energy conservation and facility-improvement measures, with guaranteed savings and cost amounts identified. The data provided will enable you to make an informed decision regarding implementation. Once this detailed study is complete, contracts are created to implement the upgrades and a decision is made by the district on whether or not to move forward.

Project implementation begins after mutually agreeing on the energy conservation and facility improvement measures to include from the detailed audit and signing a contract. The implementation stage provides for final design, contractor and vendor contracts, construction, training and often commissioning. Conceptual and detailed engineering design is done during the detailed audit. System commissioning may or may not be optional but ensures all mechanical and electrical systems are ready for active service. Energy service companies should offer training, including technical training (on-site and hands-on) on the systems installed.

Project performance is the multi-year period encompassed by the savings guarantee and/or finance term associated with financial parameters of the project. Unlike traditional construction, energy service companies are committed to the long-term effectiveness of the measures they install. This final stage is performance management, which encompasses the services of construction closeout through the savings guarantee period. During this stage of the project, the energy service company provides measurement and verification of the savings projected and may also provide service and maintenance to ensure program effectiveness is maintained.

As your project partner, it is the energy service company’s responsibility to work with you to define your project and provide experts to fulfill the needed roles for evaluation, implementation, and long-term performance.

Selecting an ESCO Partner

Process for selecting an ESCO — Figure 2

Fundamentally, many risks can be minimized through the selection of the right partner for the project. Because of the long-term contractual relationship that is a part of guaranteed energy cost savings contracts, the selection process is even more critical. Consider establishing criteria or a list of qualities and characteristics that are important for you to have in your partner (see Figure 2). Explore areas such as a company’s ability to make unbiased product decisions, their history of successful projects, use of industry accepted methodologies for savings verification, corporate focus on performance contracting, corporate longevity, and financial stability.

Creating a Request for Qualifications or Proposals

The primary difference between using an RFQ versus an RFP is the element of cost. While an RFQ focuses solely on the energy service company’s qualifications and past experience, an RFP may require that the company’s fees be provided, or preliminary project cost information and savings estimates be provided. It is very important, however, to recognize that until the detailed audit is completed, the project costs and savings estimates are preliminary and should not be over-emphasized or valued more than the energy service company’s qualifications and capabilities. Firm and accurate project pricing and savings projections are completely dependent upon the final negotiated scope of technical measures and services provided by the company.

The Evaluation Process

It is important to identify members of the evaluation team early in the procurement process in order to receive their input during the development of the project and scope of procurement. The evaluation team may be comprised of any number of school personnel including but not limited to the following:

Facility/operating engineers
Maintenance staff
Purchasing agent
Energy manager/ designated project manager
Administrative financial manager
Legal council

However, the team is assembled, it is important that they be involved with the daily facility operations, the challenges you are trying to overcome, or the solution implementation.

The evaluation process is usually composed of the following three steps:

Review of written proposals
Client reference checks
Oral interviews of short-listed companies (Optional)

It is also advised that the evaluation criteria be weighted to reflect its relative importance to the overall goals of the specific project. An example of some of these may include the following:

Experience

Technical qualifications and experience of personnel
Experience with implementing guaranteed energy cost savings contracts
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
Is the energy service company National Association of Energy Service Companies (NAESCO) accredited?

Project Management

Ability to effectively manage past project construction
Ability to manage challenges and emergencies effectively on past projects
Quality of energy service company’s communication skills

Technical

Comprehensiveness of technical approach to past projects
Ability to plan and complete all schedule phases of past projects
Quality of engineering and product selection on past projects
Comprehensiveness of measurement and verification services on past projects
Quality of technical energy auditing
Quality of provisions for training facility staff

Financial

Stability of energy service company
Demonstrated ability to provide or arrange financing on past projects
Ability to effectively manage budgets on past projects
Reasonableness of financial assumptions proposed on project
Quality and reasonableness of fee structure

And finally, remember that while there are many well-qualified companies in the energy services industry, the team chemistry created by the company’s representatives working with your staff is just as important, if not more so, than a company’s technical proficiency or lengthy history. The desire of the energy service company’s staff to work on your behalf, and not just theirs, can determine the success or failure of your project.

Whatever your method for narrowing down the companies you engage, be diligent about checking references. The energy services industry is built on reputations for delivering savings for the long-term, so you should be able to find out who delivers on their promises. Consider this when requesting references, since proximity to your city or town is merely one aspect of experience to evaluate. A resource to consider is the National Association of Energy Service Companies (www.naesco.org), the long-standing industry organization. They have an energy service company accreditation program that rigorously examines the core competencies and business practices of participating companies. This may also provide valuable information for your selection process.

Did You Know Window Coverings Can Save You Money?

July 15, 2020

Did you know that in the summer about 76% of the sunlight that shines through your windows becomes heat?

We all know that the sun’s rays carry heat. We can feel the heat on our skin when we stand in direct sunlight. That’s why we try to stay in the shade in when its hot outside. When we move under a tree or an awning the sun’s rays are blocked and that helps us stay cool.

This same concept applies to your home. When sunlight shines into a room, the glass in the window doesn’t block the heat that comes along with it. This extra heat means that your home’s cooling system has to work harder to maintain a comfortable temperature, which means that it’s costing you more money to cool your home.

But, when you pull down the shade, or close the curtains, or close the blinds; this blocks the sun’s rays and keeps the heat on the other side of that window covering. The sun’s rays still enter through the window, but the heat is trapped between the window and the window covering.

Depending upon the type of window covering you use, this can be an effective way to keep the heat out a room. The less heat in a room, the easier it is for your cooling system to keep the room at a comfortable temperature, AND the less energy you use. Less energy used means a smaller electric bill.

There are a many different types of window coverings available; some are more effective than others. If you would like to find out more, check out this link to the U.S. Department of Energy’s website (https://www.energy.gov/energysaver/energy-efficient-window-attachments). Remember, savings energy isn’t just good for the planet, it’s good for your pocketbook.

Avoiding Pitfalls of Energy Savings Performance Contracts

July 1, 2020

A guaranteed energy savings performance contract provides a method to finance and implement capital improvements and services that save energy and operational dollars. The energy and operational cost savings produced by the project are typically enough to cover all project costs (including financing and any ongoing services) over the contract term.

As with most opportunities to succeed, there are also some potential risks, but in guaranteed energy savings performance contracts they can be mitigated with a little common sense. The potential pitfalls of implementing guaranteed energy savings performance contracts are well documented. When selecting a partner, you should make sure they have an approach that will alleviate these concerns.

Although the concept and process are proven, some energy service companies have taken advantage of schools by failing to explain or inform them of the key technical and financial decisions that need to be made by the administration and board of education. Instead, in such cases, the energy service company made the decisions without administrations involvement and simply crafted the contract to favor the energy service company and not the district. A summary of major pitfalls is listed below:

Utility Bill Guarantee

Some companies have elected to provide a guarantee based on your utility bills, which allows for an energy baseline adjustment. If not done properly, this can create a significant problem for schools in the long term. This provides the potential for arguments and often does not provide the data to make you feel comfortable that you are really achieving savings. The concept of this method is that your bills are entered for three years and that “baseline” is used to compare future energy usage.

But schools are always changing equipment or operating times, so no year is exactly the same as the last year. Therefore a “baseline adjustment” must be made to increase the baseline when more energy is used. For example, if you added more students, there may be a formula designed to consider the heat load that student added to your facility (especially if it negatively impacts the savings guarantee). There will likely be adjustments for things such as weather, attendance, activities, hours of operation, construction, computers, copiers, coffee machines, refrigerators, fans, etc. Are you going to check all the calculations? For each of your buildings?

Are you going to make sure the energy service company considers all the factors that positively affect your savings, so they do not take credit for it? If so, it may end up being a full-time job by itself. But if you do not, you may never be sure you are achieving the savings. Companies that use this method often charge you for all their time to come up with the adjustments. This method of verifying savings tries to track your savings by measuring the effect of everything that consumes energy in the building except for the efficiency measures themselves.

Energy Baseline Adjustment

It is crucial that the district administration participate in establishing the energy baseline, instead of the energy service company establishing the baseline on its own. It is also important that the district administration agree on the definitions and methodology for making any future adjustments to the energy baseline.

The reality is that there are an unlimited number of things in your facilities and how you operate them that can change energy use (weather, attendance, activities, hours of operation, construction, computers, copiers, coffee machines, refrigerators, fans, etc.). There is no way to identify every possible scenario in an up-front contract of how you might have to adjust a baseline for these things.

The district can include a provision that requires or allows third party opinions on adjustments, but unless energy service companies can provide you with all the possible adjustment calculations in the contract, the third party that the district might hire will not have a basis to work from. The utility bill “guarantee” should probably just be avoided.

Maintenance and Operational Savings

These savings include items that are not energy. They can be labor or material savings that result from the implementation of a particular energy conservation measure. For instance, if a school has new lights installed in all classrooms, no labor or materials will be necessary in these areas for changing out lamps or ballasts for a well-defined time period. Temperature control systems will save you time in theory, but you may not actually eliminate any staff.

Any claimed operational savings should be carefully examined and verified by the district before agreements are signed. In some cases (such as the case with labor savings) the savings may never actually be realized and will not show up in the budget (i.e., you do not save labor unless a position is eliminated).

Capital Cost Avoidance Savings

This term applies to implementing measures that will allow districts to avoid future costs but does not always save hard dollars in budgets. For instance, if a school knows that it needs to replace a boiler within the next ten years, it will need to appropriate capital dollars to do so. However, if the school installs a boiler under the guaranteed energy cost savings contract today, it will avoid spending the future capital outlay on the boiler.

Districts need to be careful! When energy service companies propose the inclusion of cost avoidance in calculating savings, districts must make sure they budget for the payments. Districts should not include these so-called savings in their calculations unless they have a stream of future capital dollars that can be earmarked toward the project.

Excessive Finance Charges

There have been instances where energy service companies inflated the interest rate on the funds borrowed to generate additional profits. Districts should check the rates against local banks or other national institutions to make sure they are competitive. Districts may be able to arrange their own financing at lower rates.

Pre-established Escrow Payments

Some companies have decided to set their payments on a pre-established schedule, instead of having you pay based the percent of project completion. This allows the company to obtain better cash flow and additional earnings through interest by collecting your money before they have completed the work. This not only costs you extra money, but also puts you at risk if the project is not completed and you have already paid.

Product Bias

Some companies in this industry are also product providers. They will often utilize their products to attempt to meet your needs regardless of whether they are the right solution, cost, or value for the client. They may even say they will use other vendors product instead of their own but may skew the design to benefit their solutions.

Subcontracting Parts of the Construction to Themselves

A request for proposals (RFP) may require fees and markups to be negotiated and pre-established. This option is impossible to manage when these fees can be circumvented by an energy service company that is a direct provider of products or construction labor. If they provide these services, they will provide them as a subcontract to themselves. It is difficult for these types of energy service companies to get competitive prices on the products and labor they provide because they are asking their everyday competitors for a price and there is significant opportunity for funny business. It is not likely you will get a fair price and these types of companies might not be the best partner. Your interests may become secondary to theirs in not disclosing additional or exaggerated profits in their product or construction pricing.

Required Maintenance Agreements

Some energy service companies have required that the preventive maintenance on facilities also be outsourced to that energy service company. As such, they tie the maintenance agreement to the guarantee agreement. Districts need to be careful! Typically, these maintenance agreements are very expensive in relation to the value provided. Often, the argument for the maintenance agreements by the energy service companies is that if the maintenance is not performed by their staff, they cannot assure that the guaranteed savings will occur. Not all energy service companies agree with this position. In many cases, there are energy service companies willing to guarantee savings while providing training for district maintenance staff so they can handle maintenance requirements.

Lack of Local Facilities Control

There have been abuses in the guaranteed energy saving performance contract business where energy service companies have restricted after-hours building usage. The objective of the performance contract should be to increase comfort and control, and not restrict a valid facility use.

How Energy Savings Performance Contracts Help Schools

June 8, 2020

A guaranteed energy savings performance contract provides a method to finance and implement capital improvements and services that save energy and operational dollars. The energy and operational cost savings produced by the project are typically sufficient to cover all project costs (including financing and any ongoing services) over the contract term. Contract terms are usually 15 years.

The guaranteed energy savings performance contract is a simple concept (see at left). An energy service company conducts a comprehensive audit of selected facilities to determine the potential for saving energy and operational costs through high-efficiency equipment replacement or upgrades. Based on the results, the energy service company makes recommendations that, when implemented, will generate enough energy and cost savings to pay for the cost of the project over the term of the contract—providing budget neutral facility upgrades. This is accomplished by redirecting existing utility and operational expenditures toward the funding of new systems and equipment.

Many states have enacted laws that govern how public sector entities may use energy savings performance contracts. Most of these laws require the energy service company to provide a savings guarantee, which reduces the potential risk to the school district. If the guaranteed energy reductions do not materialize, the energy service company is contractually liable to pay for any shortfall. This reconciliation is traditionally conducted annually. These laws also provide for the procurement process and a financial mechanism for the transfer of operational savings in the General Fund to make project payments out of the Capital Project Fund.

How Schools Benefit

Many schools are facing some difficult choices. High community expectations, new educational standards, increasing expenditures, aging facilities and limited school funding are some of the issues forcing tough decisions. Changing times often require new and more complex community interaction, instructional programs, financial solutions, and long-term facility plans for schools.

All too often schools are in the news for the wrong reasons. If done correctly, this type of program can help you generate a positive image and publicity by educating the community on your commitment to being fiscally responsible by promoting the savings that improved facilities generate. In fact, many schools completing these programs are being nationally recognized by organizations like ENERGY STAR® and the U.S. Green Buildings Council’s LEED program, while being applauded by local news organizations and their own communities. There are many reasons to utilize a guaranteed energy cost savings contract. Some of the reasons are as follows:

Life Cycle Cost Decision Process. Decisions for school facilities are often made on initial up-front construction costs. This has often put districts in situations where they are paying large sums of money year after year that far outweigh those costs saved up front. This program evaluates decisions on a life cycle cost basis. This takes into consideration the on-going operating costs of the systems as well as the up-front costs. This is how real value is determined.
Negotiate for Contractors and Products vs. Low Bid. Through this program you can negotiate or conduct a select-bid process with contractors and vendors for services without using the low bid process. The low bid process may sometimes allow unqualified providers into your process. This approach allows maintenance staff to have options for consistency in products and obtain the expertise needed for exceptional results
Design Build Construction. This method of construction allows select contractors to be involved in the design process. It has been shown that contractors and vendors can provide designers insight that will improve solutions and reduce costs in the implementation of facility improvements.
Specialized Energy and Renovation Partners. Energy service companies are a specialized type of organization. The expertise of understanding client’s needs, building problems, energy efficiency, conducting construction in existing buildings and monitoring results are their focus. Because of this there is an inherent knowledge feedback look to identify the types of improvements and strategies that perform and those that do not. This level of expertise is not found in the traditional design or construction industry.
Better Facilities. By updating or replacing equipment that is old and obsolete with newer, more efficient technologies, you will have lower energy use, higher-quality systems, fewer breakdowns, and reduced maintenance. When building occupants experience improved lighting, better air quality and more comfortable room temperatures, they are likely to be happier and more productive.
Accountability. This program provides the simplicity of having a single source provider. It provides single point accountability for performance, rather than the conflicting project requirements resulting from multiple contracts with multiple vendors. The program guarantees the results in terms of both savings and acceptable indoor environmental comfort parameters (light levels, air temperature, ventilation rates, etc.).
Productivity of Learning Environment. Providing a healthy learning environment paid for with operational cost savings makes economic sense. The financial benefits will easily justify the investment in this program. The health and learning benefits for students make this an even better investment.
Be A Good Steward of Public Funds Using A Valuable Financial Tool. This program allows schools to divert funds that would be spent on energy bills and operational costs into investments in school facilities or educational programs. This means limited budgets can stretch further, putting taxpayers’ money where it really counts. More modern, efficient energy systems can show your commitment to your taxpayers that you have their best interests in mind and are being good stewards of their money. Often patrons are willing to give more money to administrations they believe are good financial stewards of their district funds.
Positive Cash Flow. Operational cost savings in excess of project costs can be used for educational programs or additional capital projects. Financial solutions can be structured for annual positive cash flow in operating budgets or capital budgets.
Guaranteed Savings. Monitoring of project performance and contractual financial guarantees provide a strong incentive to the energy service company to achieve and maintain predicted savings over the term of the contract. Program goals are to minimize life cycle costs and maximize net benefits. Proper measurement and verification of savings provides the data to verify savings are achieved and adapt equipment operations to best meet occupant’s needs.
Supplement Bond Issue Funds. By using this program to fund efficient equipment that will save you money in budgets long term, you may be able to eliminate short bond issue budgets and the “value engineering” process altogether. This could help you keep those things you value in your project or increase your available funding.
Improvements Without Financial Sacrifice. This program allows you to tackle energy efficiency projects now even if no funds are available. This means you can still afford improvements when faced with budget cuts or competing priorities. And, you can take a comprehensive approach that will optimize your benefits for budgets and facilities.

Unoccupied Buildings Can Help You Save Money

March 31, 2020

Life has become crazy lately and it feels like the world has turned upside down.

Office buildings, classrooms, and public places have been shut down. People are working from home in greater numbers than ever before, and students of all ages are being taught via the internet instead of in traditional classrooms.

This means that there are a lot of unoccupied buildings in this country, many of which are still being heated or cooled as if they were full of people.

If you have been forced to shut down your facilities, take advantage of it to reduce your operational costs.

First, use the building’s energy management system (EMS) or building automation system (BAS) to set back the temperature in all your unoccupied spaces. This can often reduce your utility costs by 50% – 70%.

Second, you may be able to consolidate office space by relocating your remaining workers or staff into the same building. This will allow you to take one or multiple buildings ‘offline’ and add them to the unoccupied building list.