The ABCs of Performance Contracting
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This document provides an overview of performance contracting through energy service companies (ESCOs) for energy efficiency projects. It defines key terms and outlines the typical steps in a performance contracting project. These include identifying an appropriate project, issuing a request for proposals, conducting an investment grade audit, negotiating and approving contracts, and long-term measurement and verification of energy savings. The document explains how performance contracting can provide capital improvements with guaranteed energy savings and notes important considerations like utilizing state resources and following statutory requirements.
The ABCs of Performance Contracting
- 1. Memphis Sustainability Summit Reid Conway, PEM Energy Manager North Carolina Energy Office Western Region
- 2. Terms and Acronyms Performance Contract Guaranteed Energy Savings Agreement Energy Savings Performance Contract ESCO – Energy Service Company RFP – Request for Proposal IGA – Investment Grade Audit M&V – Monitoring and Verification ESA – Energy Services Agreement ECM – Energy Conservation Measure LGC - Local Government Commission COS - Council of State
- 3. What is Performance Contracting? An ESCO designs and proposes a package of energy cost reduction measures, installs or implements those cost reduction measures, and guarantees the savings of the cost reductions. The issuer pays for the package over time using the stream of revenue provided by the energy reduction measures Third party monitoring and verification
- 4. Identify a Project Building energy costs greater than $1.50/sq ft Annual utility costs greater than $300,000 100,000 sq ft or greater Building use and occupancy stable No significant renovations or additions planned In NC contracts have ranged from $400,000 to $60,000,000
- 5. Performance Contracting Advantages A Design-Build process with a single point of responsibility Provides capital Provides engineering and project management expertise No reduction in utility funding over project life Guaranteed performance/savings Bids are selected on performance basis
- 6. Performance Contracting Pitfalls Failure of owner to perform due diligence Failure to understand contract Overly optimistic expectations / promises RFP IGA M&V Time must be allocated to see process through
- 7. Performance Contracting Steps 1. Project Identification/Pre-Approvals 2. RFP Creation/Release/Review 15 weeks 3. IGA/3rd Party Review M&V 31 weeks 4. ESA/Financial Contract 4 weeks 5. COS/LGC Approval 4 weeks 6. Construction Begins
- 8. Steps to a Successful Project Get SEO involved Assemble stakeholders Create data packet for project (Application) Issue RFP Evaluate responses (select ESCO) Negotiate and Perform IGA Negotiate contracts ESCO contract Financial contract Council of State approval (State contracts) Local Government Commission approval
- 9. Project Assistance From SEO and LCG List of pre-qualified ESCOs Application assistance (project identification) Standard RFP, IGA and ESA Templates available Proposal and IGA Evaluation available List of qualified engineering service / M&V providers All documents and steps must conform to General Statues and North Carolina Administrative Code Get the LGC Checklist to follow early on
- 10. How is PC Guaranteed? Construction bond The construction bond ensures the equipment is delivered as specified, properly installed and properly commissioned The construction bond will cover the cost of the project completion if for any reason the contractor is unable to complete the project Guaranteed savings bond This bond is a standing guarantee that all of the guaranteed savings specified in the contract can be paid The ESCO “shall provide security to the governmental unit in the form acceptable to the Office of the State Treasurer and in an amount equal to 100% of the total cost of the guaranteed savings contract”
- 11. How is this Project Measured & Verified? Actual savings measured are compared to guaranteed savings by third party If actual savings less than guaranteed savings, ESCO pays the difference to the governmental unit The cost of the required third party M&V is to be included in the contract
- 12. Legislative Basis for PC General Statute – Article 3B 143-64.10 through 143-64.17L General Statute – Article 8 142-60 through 142-70 North Carolina Administrative Code – 01 NCAC 41B.0101 through 41B.0901 LGC Application for Approval of Guaranteed Energy Savings Contracts
- 13. USI Contacts… Len Hoey 919 733 1891 lhoey@nccommerce.com Reid Conway 828 413 5047 rconway@nccommerce.com