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Introduction to Super ESPC FES West June 2, 2009 1 Introduction to Super ESPC FES West June 2, 2009 1

AGENDA FOR ESPC INTRO SHORT COURSE ESPC Basics Phase 1 – Project Planning Phase AGENDA FOR ESPC INTRO SHORT COURSE ESPC Basics Phase 1 – Project Planning Phase 2 – Preliminary Assessment Phase 3 – Investment Grade Audit Phase Cost Elements of an ESPC Phase 4 – Design, Construction, and Acceptance Phase 5 – Performance Period Intro to Measurement and Verification Q&A - Discussion 2

Objective of the Workshop: To provide agency personnel with an introduction to the Super Objective of the Workshop: To provide agency personnel with an introduction to the Super ESPC process and a springboard to obtaining the information and tools needed to ensure that their projects are of the highest possible value. 3

FEMP’s Mission To facilitate the Federal Government's implementation of sound, cost-effective energy management and FEMP’s Mission To facilitate the Federal Government's implementation of sound, cost-effective energy management and investment practices to enhance the nation's energy security and environmental stewardship. 4

Non-Financed Project Assistance www 1. eere. energy. gov/femp/services/projectassistance. html § Technical and design assistance Non-Financed Project Assistance www 1. eere. energy. gov/femp/services/projectassistance. html § Technical and design assistance § Agencies request services through “Call for Projects” § Focus on new technologies, new applications, non-standard applications 5

Alternative Finance Project Facilitation www 1. eere. energy. gov/femp/services/project_facilitation. html § Project facilitation for Alternative Finance Project Facilitation www 1. eere. energy. gov/femp/services/project_facilitation. html § Project facilitation for ESPCs and Utility Energy Service Contracts (UESCs) – – – Evaluating alternatives Project strategy Audit review and master agreement development Design development Task order implementation Require by the new IDIQ contract (More on project facilitation later) 6

Super ESPC Contacts ESPC PROGRAM LEADS § § William Raup - Team Leader – Super ESPC Contacts ESPC PROGRAM LEADS § § William Raup - Team Leader – DOE HQ (202) 586 -2214; email – william. raup@ee. doe. gov Daryl Berg - Contracting Officer – Golden Field Office (303) 275 -4920; email – daryl. berg@go. doe. gov FEDERAL FINANCE SPECIALISTS (FFSs) § § § Scott Wolf (MT, WY, UT, CO, NM, TX, LA, AL WA, OR, ID, CA, NV, AZ, HI, Pacific Islands) (360) 866 -9163; email – Scott. wolf@ee. doe. gov Doug Culbreth (KY, AR, TN, NC, SC, MS, AL, GA, FL, PR, VI) (919) 870 -0051; email – carson. culbreth@ee. doe. gov Tom Hattery (PA, NJ, WV, VA, MD, DE, DC, NY, NH, VT, ME, MA, CT, RI) (301) 829 -2061; email – thomas. hattery@ee. doe. gov § Gordon Drawer – (ND, SD, NE, KS, MN, WI, IA, MO , IL, MI, IN, OH) (630) 584 -9650; email – gordon. drawer@ee. doe. gov 7

Free Alternative Finance Workshops § § § Great way to gain confidence and get Free Alternative Finance Workshops § § § Great way to gain confidence and get started Comprehensive Super ESPC Utility Energy Services Contracts Customized agency workshops available Taught by DOE and National Lab staff Next ESPC workshops: – June 16 -18, 2009 Denver, CO – July 14 -16, 2009 Charlotte, NC – September 15 -16, 2009 Sacramento (see FEMP’s webpage for future dates) 8

Next – ESPC Basics 9 Next – ESPC Basics 9

ESPC Basics § What is ESPC? § Is it legal? /Enabling Legislation § Background ESPC Basics § What is ESPC? § Is it legal? /Enabling Legislation § Background /Drivers § DOE ESPC project development process § Primary roles in Super ESPC 10

Definition of Energy Savings Performance Contracting (ESPC) ESPC is a no-upfront-cost contracting method. The Definition of Energy Savings Performance Contracting (ESPC) ESPC is a no-upfront-cost contracting method. The contractor incurs the cost of implementing energy conservation measures (ECMs) and is paid from the energy, water, and operations savings resulting from these ECMs. 11

An ESPC is a Partnership § An energy service company (ESCO) – Incurs the An ESPC is a Partnership § An energy service company (ESCO) – Incurs the cost of developing and implementing the energy project – Guarantees a specified level of cost savings § The customer (agency/site) – Pays the ESCO over the term of the contract out of the energy and energy-related savings resulting from the project 12

ESPCs re-allocate current spending § Reduce spending on: – Wasted energy – Maintenance of ESPCs re-allocate current spending § Reduce spending on: – Wasted energy – Maintenance of old, inefficient equipment § And reallocate the same spending to: – New energy-efficient infrastructure – Project financing costs, preventative maintenance, repair and replacement 13

Where the Money Comes From ESPCs are paid from savings — guaranteed. No increase Where the Money Comes From ESPCs are paid from savings — guaranteed. No increase in government spending occurs. 14

Savings Must Exceed Payments § Two types of savings may be used to pay Savings Must Exceed Payments § Two types of savings may be used to pay the ESCO • Energy cost savings • Energy-related cost savings § Energy Cost Savings • Reduced usage and/or efficiency improvements • Decreased utility costs from reduced peak demand, fuel substitution, renegotiated utility rates, etc. • Energy related cost savings – One-time savings — Cost avoidance provided by the project – Recurring savings — Ongoing reduced expenses for O&M/R&R Page 15

Why do an ESPC? § § § § § Meet energy reduction and environmental Why do an ESPC? § § § § § Meet energy reduction and environmental goals Improve occupant comfort and facility performance Infrastructure modernization Eliminate maintenance headaches Provide facility with energy data Reduce energy, operating and maintenance costs Renewables and emerging energy technologies Fixed price contracts—no change orders Avoid cost of delay and inaction Good for community relations 16

Key points about federal ESPCs: § Savings guarantees are mandatory § Savings must exceed Key points about federal ESPCs: § Savings guarantees are mandatory § Savings must exceed payments in each year § Measurement and verification (M&V) is mandatory § Contract term cannot exceed 25 years 17

Are these things legal? YES!!! § Enabling Legislation: § National Energy Conservation Policy Act Are these things legal? YES!!! § Enabling Legislation: § National Energy Conservation Policy Act (42 USC 8287), Title VIII Shared Energy Savings (1986) § Energy Policy Act (EPACT), Public Law 102 -486 (1992) § Do. D Authorization Act FY 05, Public Law 108 -375 (2004) § Energy Policy Act of 2005 § Energy Independence and Security Act of 2007 (H. R. 6 ENR) – permanent reauthorization (Sec. 514) 18

EISA (2007) – ESPC highlights § Sites may use any combination of appropriated funds EISA (2007) – ESPC highlights § Sites may use any combination of appropriated funds and private financing (Section 512) § Agencies shall not limit contract term to less than 25 years (Section 513) § Sites may sell excess energy generated on site from renewable sources or cogeneration to utilities or non-federal energy users (Section 515) 19

DOE Final Rule (10 CFR Part 436) § Implemented legal authority in regulation § DOE Final Rule (10 CFR Part 436) § Implemented legal authority in regulation § Takes precedence over Federal Acquisition Regulations (FAR) § Specifies procurement procedures and criteria for selecting ESCOs § Allows unsolicited proposals § Recommends standard terms & conditions § Defines conditions of payment § Addresses annual M&V requirements 20

EPACT-’ 05 and EO 13423 (’ 07) Goals § Reduce energy intensity by 3% EPACT-’ 05 and EO 13423 (’ 07) Goals § Reduce energy intensity by 3% per year, 2006 – 2015 (from FY 2003 baseline) § Increase use of renewable energy to – – not less than 5% of electricity use, 2010 - 2012 not less than 7. 5% from 2013 on at least half from new (1999 or later) sources double credit for on-site generation § Reduce water use by 2% per year, 2008 – 2015 (from FY 2007 baseline) 21

Approaches to an ESPC § Stand-alone or individual contracts – Business as usual – Approaches to an ESPC § Stand-alone or individual contracts – Business as usual – Synopsis, solicitation, etc. – Substantial agency effort required § Army Corps’ Indefinite Delivery/Indefinite Quantity (IDIQ) contracts § GSA Schedule – ESPCs § Super ESPC IDIQ contracts – Streamlined – requires much less time and effort – Task orders are written using template contract – Contractor- and government-initiated options 22

ESPC Achievements § Over 400 ESPC have been awarded – $2. 3 billion invested ESPC Achievements § Over 400 ESPC have been awarded – $2. 3 billion invested – $7. 1 billion saved – 18 trillion BTUs § 19 different Federal agencies and departments in 46 states and overseas § DOD has done 60% of the projects and 70% of the investment dollars

DOE ESPC § DOE ESPC is a indefinite-delivery, indefinite-quantity (IDIQ) contract awarded competitively to DOE ESPC § DOE ESPC is a indefinite-delivery, indefinite-quantity (IDIQ) contract awarded competitively to ESCOs § Agencies award task orders (TOs) for energy projects under the DOE ESPC IDIQ § Process is streamlined and flexible for ease of use by federal agencies 24

Key features of DOE ESPC § Any federally owned facility worldwide can use the Key features of DOE ESPC § Any federally owned facility worldwide can use the IDIQ contract – no leased facilities – no state- or municipally owned facilities § Standardized general terms and conditions § Site specific terms and conditions incorporated into task orders by agencies 25

General Technology Categories • • • Boiler and chiller plant improvements Building Automation and General Technology Categories • • • Boiler and chiller plant improvements Building Automation and Energy Management Control Systems Heating, Ventilation, and Air Conditioning Lighting improvements Building envelope modifications Chilled/hot water and steam distribution systems Electric motors and drives Refrigeration Distributed generation § § § § § Renewable energy systems Energy/utility distribution systems Water and sewer conservation systems Electrical peak shaving/load shifting Energy cost reduction through rate adjustments Energy related process improvements Commissioning Miscellaneous Proposal development energy surveys 26

ESCO Selection: Contractor-Initiated Method § ESCO alerts agency of desire to submit proposal § ESCO Selection: Contractor-Initiated Method § ESCO alerts agency of desire to submit proposal § If project’s estimated value > $5 M, agency must notify other Super ESCOs and identify requirements – Requirements: desired ECMs, buildings, etc. – If < $5 M, agency can proceed with ESCO as sole source § Other ESCOs can then submit proposals § Agency, using “fair consideration, ” issues statement selecting one based on best value – Post-selection de-briefing; protests allowed if > $10 M 27

ESCO Selection: Government-Initiated Option § Agency sends notice to all 16 ESCOs with requirements ESCO Selection: Government-Initiated Option § Agency sends notice to all 16 ESCOs with requirements and selection criteria § Requirements: e. g. , buildings, ECMs to include § Selection criteria: e. g. , price (required) technical approach, past performance § Agency may host site visits for interested ESCOs § One or more ESCOs submit proposals § Agency, using “fair consideration, ” issues statement selecting one based on best value § Here – not at award – is where protest could occur 28

Roles: Ordering Agency § Responsible for ensuring Super ESPC vehicle and potential project are Roles: Ordering Agency § Responsible for ensuring Super ESPC vehicle and potential project are in government’s best interest § Appoints TO acquisition team § Reviews Preliminary Assessments and IGA final proposal § Negotiates through the site/agency CO § Awards and administers TOs § Reviews/approves ESCO’s design § Provides construction oversight/acceptance 29

Costs for FEMP and PF Support § FEMP FFS and national lab services are Costs for FEMP and PF Support § FEMP FFS and national lab services are free § PF services are free through ESCO’s preliminary assessment (PA) review and IGA Kick-off meeting § But reimbursable beyond that § Customary PF cost to agency is $40 -50 K § Hired through Inter-Agency Agreement (IAA) with DOE under Skaggs Amendment (exempt from Economy Act) § FFS coordinates IAA with agency § Standard PF SOW can be tailored for site’s needs 30

Project Facilitator (PF) § Agencies using DOE ESPC are required to use a DOE-qualified Project Facilitator (PF) § Agencies using DOE ESPC are required to use a DOE-qualified PF – PF is your best insurance for a successful project – experienced, objective, and dedicated guide – expert on technical, financial, and contractual issues § Advocates for agency throughout process § Leads kick-off meetings and regular calls § Leads development of TO RFP § Reviews ESCO proposals and submittals § Services are free through ESCO’s preliminary assessment review and IGA kickoff meeting, reimbursable beyond that ~ $40 -50 K 31

Measurement & Verification (M&V) Verifies guaranteed savings: • M&V assures the government that savings Measurement & Verification (M&V) Verifies guaranteed savings: • M&V assures the government that savings have been fully achieved before full payment is made to ESCO. • Level of M&V must be appropriate for specifics of ESPC project • FEMP M&V Guidelines provide procedures for ESCOs and agencies, including outlines and templates v For a successful DO, both parties must understand agree on the M&V strategy.

DOE is promoting Renewable Energy(RE) and Emerging Technologies(ET) in ESPC projects Renewable Energy (RE) DOE is promoting Renewable Energy(RE) and Emerging Technologies(ET) in ESPC projects Renewable Energy (RE) Screening • Agencies requested to provide site data to DOE • Site data used for screening RE Opportunities including Biomass, solar, wind , GHP, and other power technologies Emerging Technologies Emerging Technology (ET) Matrix is an Excel spreadsheet tool to help agencies and ESCOs: • Identify emerging technologies for Federal ESPC projects • Provide references for additional information, points of contact, and resources. • Save research time and provide better direction in making Energy Conservation Measure (ECM) decisions. 33

Development of DOE ESPC Task Order (TO) § § § Phase 1: Project Planning Development of DOE ESPC Task Order (TO) § § § Phase 1: Project Planning Phase 2: Preliminary Assessment Phase 3: Investment-Grade Audit Phase 4: Construction/Installation Phase 5: Performance Period 34

ESPC Process 4/7/09 r 2 Phase 1 — Project Planning Get started with FFS ESPC Process 4/7/09 r 2 Phase 1 — Project Planning Get started with FFS Engage Project Facilitator Assemble acquisition team Send Notice of Requirements to ALL ESCOs Notify DOE COR of intent to respond — Evaluate responses and choose ESCO here or in Phase 2 Submit requested info to agency Phase 2 — Preliminary Assessment Kickoff meeting Preliminary Site Survey and Assessment Review Preliminary Assessment(s) Interagency Agreement for PF services Choose ESCO here or in Phase 1 Issue Notice of Intent to Award Phase 3 — IGA to Award TO RFP IGA kickoff meeting IGA Final Proposal Review IGA and Final Proposal Final Negotiations Award Task Order Phase 4 — Construction Post-Award Conference Submit designs, equipment selections, design & construction package Review — Issue Notice to Proceed Construction Inspections and Verifications Commissioning and Post. Installation M&V Phase 5 — Performance Period Invoices and Payments Annual M&V Activities and Reports Performance-Period Services Close out Task Order Project Acceptance ESCO and Agency Actions 35 ESCO Actions 4/6/09

Phase 1: Project Planning 36 Phase 1: Project Planning 36

Phase 1 — Project Planning Get started with FFS Assemble acquisition team Engage Project Phase 1 — Project Planning Get started with FFS Assemble acquisition team Engage Project Facilitator Send Notice of Requirements to ALL ESCOs Notify DOE COR of intent to respond — Submit requested info to agency Evaluate responses and choose ESCO here or in Phase 2

Phase 1: Project Planning § The purpose of this section is to describe activities Phase 1: Project Planning § The purpose of this section is to describe activities that will set the stage for a successful project: § Identify acquisition team members § Consider project motivation – energy savings, infrastructure improvement, both? § Review issues to consider early § Learn how to get started with an ESCO 38

Getting Started § Determine what kind of project support is needed within agency – Getting Started § Determine what kind of project support is needed within agency – FEMP assistance through initial proposal review provided free to agency § Secure the services of a DOE-qualified Project Facilitator (required) – Pursue Interagency Agreement (IAA) for FEMP services with Federal Financing Specialist 39

Agency Effort Required § Level of effort varies by project – Factors include: • Agency Effort Required § Level of effort varies by project – Factors include: • ESPC experience on acquisition team • project complexity and size • agency approval process § Biggest responsibilities with energy/facility manager and contracting office – Other acquisition team members engaged as needed, when needed 40

Acquisition Team § Everyone who could help or hinder (or be affected by) project Acquisition Team § Everyone who could help or hinder (or be affected by) project should be invited – – – – – Contracting officer & site technical representative Facility manager and facility maintenance staff Energy, design, and construction engineers Procurement and legal staff Budget/comptroller representative Union reps, labor relations Agency customers and tenants Environment, health, safety Security representative 41

The Acquisition Team’s Roles § Develop Acquisition strategy § Build support for project at The Acquisition Team’s Roles § Develop Acquisition strategy § Build support for project at the site/agency § Identify agency decision makers who have authority to approve the project § Educate other staff about the project § Ensure that decision makers have all the information they need § Obtain necessary management approvals § Develop requirements and selection criteria 42

Key Issues for Team to Address § Project goals and objectives § Desired scope, Key Issues for Team to Address § Project goals and objectives § Desired scope, i. e. , which buildings/facilities § Desired and required ECMs § Future use of facilities § Needs and desires of facility occupants § Condition of existing equipment § Utility budget and budget for operations and maintenance (O&M) of energy and energy-related equipment § Technical and financial parameters 43

Government-Initiated Method Contractor-Initiated Method ESCO and Agency agree to pursue project Agency sends notice Government-Initiated Method Contractor-Initiated Method ESCO and Agency agree to pursue project Agency sends notice of requirements to request for statements of interest to all ESCOs ESCO gets agency CO authorization to submit proposal and notifies DOE COR Agency publishes notice of requirements for all ESCOs (here or after receiving first proposal Notify DOE COR of intent to respond — Submit requested info to agency ESCO submits proposal to agency Agency evaluates responses (less than PAs) and down-selects to one or more Agency and ESCO proceed to Preliminary Assessment ESCO Actions Multiple ESCOs submit PAs Agency evaluates responses (PAs) and chooses ESCO Agency and ESCO proceed to Investment-Grade Audit Agency evaluates proposals and selects ESCO Agency and ESCO proceed to Investment-Grade Audit 44

Phase 2: Preliminary Assessment Phase 45 Phase 2: Preliminary Assessment Phase 45

Phase 2: Preliminary Assessment Development § Preliminary Assessment (PA) Kickoff meeting. ESCO(s), Agency, DOE Phase 2: Preliminary Assessment Development § Preliminary Assessment (PA) Kickoff meeting. ESCO(s), Agency, DOE § Preliminary site survey/ PA Development- ESCO(s), Agency § Submit Preliminary Assessment-ESCO(s) § Review Preliminary Assessment(s)- Agency, DOE § Issue Notice of Intent to Award- Agency 46

Preliminary Assessment Kickoff Meeting § Purpose: To get all interested parties to the table Preliminary Assessment Kickoff Meeting § Purpose: To get all interested parties to the table to begin the process § FEMP services include facilitation of kickoff meeting (at no cost to agency) Remember: Super ESPC is NOT contracting as usual – it’s a long-term partnership! Open communication is mutually beneficial and helps assure a successful project. 47

The Preliminary Assessment § Must comply with IDIQ contract requirements (see section H. 4) The Preliminary Assessment § Must comply with IDIQ contract requirements (see section H. 4) and give sufficient information for a decision § Key elements: § § § A narrative summary of proposed project Description of ECMs Estimates of proposed energy and cost savings M&V approach (general) Risk, Responsibility and Performance Matrix Financial schedules 48

ESCOs’ Preliminary Site Survey(s) § Walk-through assessment to gather data for the Preliminary Assessment, ESCOs’ Preliminary Site Survey(s) § Walk-through assessment to gather data for the Preliminary Assessment, inc. : § § § Agency’s required and desired ECMs Other ECMs uncovered by ESCO Agency-furnished utility bills Current building and equipment data Staff interviews § Agency provides site access and escort (if applicable) 49

PA Review § Is the proposed scope sufficiently comprehensive § Does this meet (or PA Review § Is the proposed scope sufficiently comprehensive § Does this meet (or can it be adjusted to meet) the majority of our needs? § Is it a good deal for the government? § Can our agency and the ESCO have a good longterm partnership? 50

PA Review (cont. ) § Are ECM descriptions and projected energy savings reasonable? § PA Review (cont. ) § Are ECM descriptions and projected energy savings reasonable? § Is M&V approach appropriate? § Is estimated annual cost savings reasonable and consistent with technical approach? § Are contract term and total cost acceptable? 51

M&V Approach in PA § This is an overview, not a complete plan § M&V Approach in PA § This is an overview, not a complete plan § Describes intended approach § Should address M&V options (A, B, C, and D) § Point of departure for M&V discussion with agency § Allows agency and the contractor to develop a satisfactory M&V Plan § M&V Plan is part of final proposal, following IGA 52

Evaluating ESCOs’ Technical Approach § Things to consider: § Technical strengths, management approach, etc. Evaluating ESCOs’ Technical Approach § Things to consider: § Technical strengths, management approach, etc. § Comprehensiveness/depth of proposed scope § Responsiveness to your desired ECMs and approach § Invite ESCOs to make presentations § This may help in selecting among few finalists 53

Evaluating ESCOs’ Past Performance § Review ESCOs’ qualification statements: www 1. eere. energy. gov/femp/financing/superespcs_espcescos. Evaluating ESCOs’ Past Performance § Review ESCOs’ qualification statements: www 1. eere. energy. gov/femp/financing/superespcs_espcescos. html § Request data on ESCOs’ past performance § Available from Golden, CO Field Office § An ESPC is a long-term partnership – choose a partner you can live with 54

Evaluating the Price Estimate § § § Project development ECMs Indirect costs and profit Evaluating the Price Estimate § § § Project development ECMs Indirect costs and profit Financing costs Performance period services (More to come on pricing and TO Financial Schedules) 55

To Proceed or Not to Proceed § You can accept the proposal as is To Proceed or Not to Proceed § You can accept the proposal as is § Doesn’t happen § You can accept the proposal and provide feedback to the ESCO § Feedback to address deficiencies and desired changes § These items to be addressed in the IGA and final proposal 56

To Proceed or Not to Proceed § You can return and reject the PA To Proceed or Not to Proceed § You can return and reject the PA if it isn’t satisfactory § Scrap the project, or § Consider starting over with another ESCO (but you do not own the previous ESCO’s work) 57

Prior to Issuing Notice of Intent … § Verify ordering capacity (via DOE GFO) Prior to Issuing Notice of Intent … § Verify ordering capacity (via DOE GFO) § Confirm intent to proceed with all site and other affected personnel 58

The Notice of Intent to Award (NOI) § Signifies selection of ESCO and formalizes The Notice of Intent to Award (NOI) § Signifies selection of ESCO and formalizes decision to proceed § Specifies timeframe for completion of IGA and final proposal § Outlines pre-award requirements § Includes any other conditions of commitment 59

AFTER Issuing NOI … § ESCO’s project development costs may be claimed and recovered AFTER Issuing NOI … § ESCO’s project development costs may be claimed and recovered if NOI is issued but TO is not awarded, if government has not acted in good faith (recourse from FAR) 60

Phase 3: Investment Grade Audit Phase 61 Phase 3: Investment Grade Audit Phase 61

Phase 3: Investment Grade Audit (IGA) § § IGA Kickoff meeting-ESCO, Agency, DOE Conduct Phase 3: Investment Grade Audit (IGA) § § IGA Kickoff meeting-ESCO, Agency, DOE Conduct Investment Grade Audit- ESCO Draft and Issue TO RFP- Agency, DOE Develop IGA Report/Final Proposal- ESCO, Agency § Review IGA/Final Proposal- Agency, DOE § Negotiate and Award TO- ESCO, Agency, DOE 62

ESCO Joint Effort Agency Phase 3: Negotiation and Award of Task Order Start TO ESCO Joint Effort Agency Phase 3: Negotiation and Award of Task Order Start TO RFP, share draft for comments, issue TO RFP IGA kickoff meeting Final proposal evaluation Preliminary negotiations IGA Prepare and submit IGA/final proposal IGA — Investment-Grade Audit TO RFP — Task Order Request for Proposal Issue TO Confirm that ESCO meets pre-award requirements Prepare IDS, solicit financing Final negotiations, revisions to TO RFP and final proposal Prepare financing selection memo IDS — Investor’s Deal Summary 63

Kickoff Meeting for IGA § Held on site; facilitated by PF § Introductions — Kickoff Meeting for IGA § Held on site; facilitated by PF § Introductions — New staff, ESCO project developers, agency escorts § Establish milestones and TO award schedule § Review requirements for submission of final proposal (i. e. , content, level of detail) § Review access and security procedures § Clarify agency/site-specific requirements § Establish communications protocols 64

The Investment Grade Audit (IGA) § Augments, refines and updates the preliminary site survey The Investment Grade Audit (IGA) § Augments, refines and updates the preliminary site survey data; establishes M&V baselines § Verifies information in initial proposal § Accuracy § Estimated annual cost savings § Agency should share any new or changed information with ESCO § Scope revisions § Problems and opportunities § Agency facilitates site access § IGA will generally require multiple visits from ESCO, subs 65

Developing the TO RFP 66 Developing the TO RFP 66

Relationship Between IDIQ Contract and Delivery Order § IDIQ contract specifies general agreement on Relationship Between IDIQ Contract and Delivery Order § IDIQ contract specifies general agreement on scope, terms and conditions between government and ESCO § TO and TO RFP: Addendum that adds to or replaces IDIQ requirements with specific agency/site requirements for specific project § TO overrides IDIQ requirements 67

Purpose of TO RFP § TO RFP provides the means to tailor the IDIQ Purpose of TO RFP § TO RFP provides the means to tailor the IDIQ contract to meet the requirements and needs of the ordering installation § Provides ESCO with: § Site and agency specifications and functional requirements § All changes/additions/deletions to IDIQ contract terms and conditions 68

TO RFP Prescriptive Template § Minimizes time and effort required for TO RFP development TO RFP Prescriptive Template § Minimizes time and effort required for TO RFP development § Shows IDIQ clauses that usually require additions or amendments to specify agency-, site-, or project-specific requirements § Typically completed with help of PF 69

The Final Proposal § Integration of IDIQ, TO RFP, IGA, and financing § Technical The Final Proposal § Integration of IDIQ, TO RFP, IGA, and financing § Technical portion § ECMs: feasibility, energy savings calculations, implementation costs, annual cost savings § M&V methodology and energy/O&M baselines § Project intent document and Cx plan outline § Management plan, inc. RR&P matrix § Pricing portion § TO schedules § Level of supporting detail as per TO RFP § Financing Summary 70

Review of Final Proposal § Reconvene the acquisition team and assign parts of proposal Review of Final Proposal § Reconvene the acquisition team and assign parts of proposal to appropriate personnel § Develop a plan and set aside sufficient time for review § (More on review of final proposal in later modules) 71

A Team Approach § Agency acquisition team § Overall approach and strategy § Ultimate A Team Approach § Agency acquisition team § Overall approach and strategy § Ultimate responsibility for reasonableness and acceptability of final proposal § Attention to all elements § Supported by § Project Facilitator § Nat’l. Lab representative § FFS 72

Negotiation of Final TO § Includes agreement on TO schedules and payment terms § Negotiation of Final TO § Includes agreement on TO schedules and payment terms § Needs to factor in information from IGA findings § Some findings may differ from agency expectations and also from assumptions in PA § Agency must revise TO RFP to capture all negotiated items 73

Award of Task Order § TO is signed and awarded by the agency CO Award of Task Order § TO is signed and awarded by the agency CO § The Task Order consists of: § § § Face page TO price schedules TO RFP, revised per negotiations ESCO’s final proposal, revised per negotiations Subcontracting plan 74

Cost Elements of ESPCs and Task Order Financial Schedules 75 Cost Elements of ESPCs and Task Order Financial Schedules 75

Cost Elements of ESPCs § Project development § Design, installation, and M&V of ECMs Cost Elements of ESPCs § Project development § Design, installation, and M&V of ECMs § Indirect costs and profit § Financing costs § Performance period services 76

% of Agency Payments Over Contract Term “Cost Stack” for DOE Super ESPCs 110% % of Agency Payments Over Contract Term “Cost Stack” for DOE Super ESPCs 110% 100% 90% 28% Performance Period Services 3% M&V Services 80% 70% 60% 50% 40% 30% 28% Interest 69% Debt Service 42% Amount Financed (Principal) 20% 31% Finance-related costs 4% Financing Procurement Price (FPP) 41% Project investment 10% 0% 3% Up-front payments Data from Super ESPC projects awarded from 2005 to May 2008. Figures may not add to exactly 100% due to rounding. 77

Task Order Financial Schedules § TO-1 ― Guaranteed Annual Cost Savings & Annual Contractor Task Order Financial Schedules § TO-1 ― Guaranteed Annual Cost Savings & Annual Contractor Payments § TO-2 ― Implementation Price for ECMs § TO-3 ― Performance-Period Cash Flow § Financing info, annual cash flows § TO-4 ― First-Year Energy & Cost Savings by ECM and Technology Category § Savings breakout by ECM § TO-5 ― Annual cancellation ceilings 78

TO-1 Lists Total Savings (Estimated and Guaranteed) and Payments for Each Year If selected, TO-1 Lists Total Savings (Estimated and Guaranteed) and Payments for Each Year If selected, the contractor shall complete the installation of all proposed ECMs not later than 12 months after delivery order award. SCHEDULE TO-1 (FINAL) PROPOSED GUARANTEED ANNUAL COST SAVINGS AND ANNUAL CONTRACTOR PAYMENTS (a) (b) (c) DES Proposed Guaranteed Annual Performance Annual Cost Contractor Period Year Savings ($) Payments ($) Zero 117, 095 117, 000 One 285, 640 276, 384 276, 383 Two 294, 095 284, 572 284, 571 Three 294, 596 285, 225 ~ Totals 4, 022, 293 3, 741, 531 3, 741, 519 79

Savings: How long do you pay? § Contract term is based on estimated time Savings: How long do you pay? § Contract term is based on estimated time required for ESCO to construct the project and pay off its investment § Investment is detailed in TO-2 § Financing, debt repayment, and service-phase expenses are detailed in TO-3 spreadsheet 80

TO-2 Shows Total Direct Cost and Markup by ECM SCHEDULE TO-2 IMPLEMENTATION PRICE BY TO-2 Shows Total Direct Cost and Markup by ECM SCHEDULE TO-2 IMPLEMENTATION PRICE BY ECM Tech ECM Equipment Cate. No. description— title gory C. 2. 17 17 C. 2. 1. 4 4. 1 C. 2. 1. 5 5. 1 C. 2. 1. 7 7. 1 ECM size Proposal development energy surveys HVAC system modifications Install lighting upgrades Replace mechanical steam traps with orifice traps (a) (b) M&V Total imple. Markup Expense expense (%) (c) Imple. price (c) = (a) x (b) $ 169, 296 29. 0% $ 218, 392 $ 343, 620 29. 0% $ 443, 270 Lighting 705 k. W per month baseline treated $ 404, 653 29. 0% $ 522, 002 83 Traps $ 45, 568 29. 0% $ 58, 783 81

TO-3 ─ Performance-Period Cash Flow Shows all payments: financing information, performance-period expenses, etc. Project TO-3 ─ Performance-Period Cash Flow Shows all payments: financing information, performance-period expenses, etc. Project Capitalization Total Implementation Price (TO-2 Total): 2, 036, 037 Financing Procurement Price ($): 187, 702 Pre-Performance Period Payments: 117, 095 Total Amount Financed: 2, 106, 644 Applicable Financial Index: Swap Issue Date: 3/15/2003 Term (Years) : 13 Source: Treasury Web Index Rate: 5. 10% Effective Through: Added Premium: 1. 90% Interest rate effective Project Interest Rate: 7. 00% through COB 4/1/03 Annual Cash Flow (Performance Period) Term 0 Debt Service Interest ($) Principal Repayment ($) 2 3 4 5 $ 146, 793 $ 140, 399 $ 132, 629 $ 123, 412 $ 112, 976 $ 84, 805 $ 98, 021 $ 123, 453 $ 140, 205 $ 158, 400 Total Debt Service (a) Performance-Period Expenses Management/Administration 1 $ 231, 598 $ 238, 420 $ 256, 082 $ 263, 617 $ 271, 376 1. 00 1. 0305 1. 0619 1. 0943 1. 1277 $ 4, 080 $ 4, 204 $ 4, 333 $ 4, 465 $ 4, 601 Operation Maintenance Repair and Replacement $ 1, 600 1, 649 1, 699 1, 751 1, 804 5000 5, 153 5, 310 5, 472 5, 638 82

TO-4 Breaks out estimated savings (current year $) SCHEDULE TO-4 Delivery Order Proposed First TO-4 Breaks out estimated savings (current year $) SCHEDULE TO-4 Delivery Order Proposed First Year Annual Cost Savings a. b 2. b 1. c 2. d 1. d 2. e 1. e 2. ECM Electric Natural ECM energy demand gas Other No. baseline savings savings MBtu/yr 4. 1 5. 1 $/yr k. Wh/yr k. W/yr $/yr MBtu/yr 10, 528 581, 520 34, 874 8, 6221, 303, 440 $/yr Other savings MBtu/yr 5, 966 52, 269 i. j. $/yr 78, 167 f. g. (b 1+d 1+e (b 2+c 2+d 2 1) +e 2 h. L Total energy savings Total energy cost savings Other energyrelated & O&M savings MBtu/yr $/yr 7, 950 87, 143 4, 449 78, 167 K (g+h+-j) Water savings kgal/yr $/yr Estimated annual Implementa Simple cost savings -tion price Payback $/yr 12, 674 M (l/k) 87, 143 90, 841 $ years 443, 270 5. 1 522, 002 5. 7 83

One More Schedule: TO-5 § Annual Cancellation Ceiling Schedule § Required by ESPC legislation One More Schedule: TO-5 § Annual Cancellation Ceiling Schedule § Required by ESPC legislation § Mutually agreed upon by agency and ESCO § Shows outstanding liability and capital investment portion of liability for each year of term 84

SCHEDULE TO-5 ANNUAL CANCELLATION CEILING SCHEDULE Project Site: exercise FP Delivery Order No: 123456 SCHEDULE TO-5 ANNUAL CANCELLATION CEILING SCHEDULE Project Site: exercise FP Delivery Order No: 123456 Contractor Name: 0 Outstanding Capital Investment Total Cancellation Ceiling Installation Acceptance $ 2, 154, 690 $ 2, 262, 425 End of Year One $ 2, 069, 886 $ 2, 173, 380 End of Year Two $ 1, 971, 864 $ 2, 070, 458 End of Year Three $ 1, 848, 411 $ 1, 940, 832 End of Year Four $ 1, 708, 206 $ 1, 793, 616 End of Year Five $ 1, 549, 806 $ 1, 627, 296 End of Year Six $ 1, 377, 651 $ 1, 446, 533 End of Year Seven $ 1, 184, 692 $ 1, 243, 927 See handouts page 10 85

TO-5 § Annual cancellation ceiling listing § In final proposal only § Should be TO-5 § Annual cancellation ceiling listing § In final proposal only § Should be ~ 105% of outstanding debt for year § should not include lost profit or service costs § Exact principal balance of loan (by month) is often attached to expedite loan payoff in the event of termination for convenience (T for C) § Per Federal Acquisition Regulations (FAR), T for C would be negotiated 86

T for C Variants § Partial Termination for Convenience § Terminated by ECM or T for C Variants § Partial Termination for Convenience § Terminated by ECM or facility § Recommend terminating longer-payback ECMs § Otherwise, partial termination may extend TO term § Complete Termination for Convenience § Negotiated settlement not to exceed Annual Cancellation Ceiling in Schedule TO-5 87

Summary § ESPCs are paid from savings § Schedules define costs and savings § Summary § ESPCs are paid from savings § Schedules define costs and savings § TO-1: Guaranteed Annual Cost Savings & Annual Contractor Payments § TO-2: Direct Cost and Markups § TO-3: Performance-Period Cash Flow § TO-4: First-Year Energy & Cost Savings by ECM, Technology Category § TO-5: Cancellation ceiling for negotiations of termination § Term set by investment payback duration 88

Next – Phase 4: Design, Construction, and Acceptance 89 Next – Phase 4: Design, Construction, and Acceptance 89

Phase 4: Construction/Installation § Post Award conference/Kickoff meeting- ESCO, Agency, DOE § Design & Phase 4: Construction/Installation § Post Award conference/Kickoff meeting- ESCO, Agency, DOE § Design & Construction submittals- ESCO § Construction/Installation- ESCO § Inspection, Commissioning, and Testing. ESCO, Agency, DOE § Acceptance- Agency 90

Agency Phase 4, Part I: Review of Design and Construction Package Joint Effort Provide Agency Phase 4, Part I: Review of Design and Construction Package Joint Effort Provide proof of insurance Notice to proceed with construction/ installation Post-award conference ESCO Reviews/approvals (before construction may begin) Payment & performance bonds Complete/submit designs & equipment selections and design & construction package, including commissioning plan 2/09

Submittals and Approvals § Designs, plans, and schedules per TO RFP requirements § Design Submittals and Approvals § Designs, plans, and schedules per TO RFP requirements § Design and construction package allows agency COR to verify that installation complies with contract requirements § ESCO’s submittals constitute requirements of the contract after acceptance by agency § Acceptance does not relieve ESCO of design liability and standard-of-service requirements 92

Inspections and verifications of ESCO’s installation, documentation, training Day-to-day monitoring ESCO Joint Effort Agency Inspections and verifications of ESCO’s installation, documentation, training Day-to-day monitoring ESCO Joint Effort Agency Phase 4, Part II: Construction and Project Acceptance of installed ECMs Punch lists, resolution efforts, reinspections, clarifications, etc. Construction/ installation Resolves punch list items, submits required documentation, provides required training M&V — Measurement & Verification Commissioning and postinstallation M&V 2/09

Commissioning § Verify and document proper installation and performance of new equipment § Always Commissioning § Verify and document proper installation and performance of new equipment § Always at system level § Augmented with building energy use data if wholebuilding M&V used § Mostly completed before acceptance § Some checks after acceptance are required, such as summer performance of chillers, steam trap performance in winter 94

Inspection and Acceptance of Installed ECMs § Inspections and verifications § Specified equipment was Inspection and Acceptance of Installed ECMs § Inspections and verifications § Specified equipment was installed properly (Cx report) § M&V data confirms potential of ECMs to generate the guaranteed savings (post-installation report) § Other documentation (O&M manuals) § Required training is provided § ESCO resolves outstanding issues and provides required documentation and training 95

Phase 5: Performance Period § Invoicing/Payments -ESCO/Agency § Performance period services- Maintenance & Operations Phase 5: Performance Period § Invoicing/Payments -ESCO/Agency § Performance period services- Maintenance & Operations Repair & Replacement Measurement & Verification § Annual M&V Reports- ESCO, Agency § Delivery Order close out (end of contract term) 96

Phase 5: Post-Acceptance Performance Period 97 Phase 5: Post-Acceptance Performance Period 97

Invoices and Payments § Invoicing begins after CO has formally accepted the installed project Invoices and Payments § Invoicing begins after CO has formally accepted the installed project § Invoices and payments are generally monthly (can be other) § Agency is responsible for verifying that invoices contain any required documentation of services provided before issuing payment 98

Typical Performance Period Services from ESCO § M&V services – required annually § Periodic Typical Performance Period Services from ESCO § M&V services – required annually § Periodic retraining of agency O&M staff § O&M services – sometimes § Repair and replacement services § Other? 99

Measurement and Verification § 13 months after installation, ESCO submits first annual M&V report. Measurement and Verification § 13 months after installation, ESCO submits first annual M&V report. The site-specific M&V plan established: § Intervals for measurement (at least annual) § How ECM performance will be verified and savings will be calculated § Documentation contractor must provide during verification § Government must review and approve M&V report documentation 100

Review and Approval of M&V Reports § Agency is responsible for review and approval Review and Approval of M&V Reports § Agency is responsible for review and approval of periodic M&V reports § Agency witnessing and spot checks are recommended to independently gather information for evaluating M&V reports § Agency should confirm O&M is being done per the TO requirements to assure expected performance and savings 101

Annual Reconciliation of Energy Savings Performance § If actual savings fall short of guaranteed Annual Reconciliation of Energy Savings Performance § If actual savings fall short of guaranteed savings, ESCO must reimburse government § Government must review and inspect performance of ECMs § If ECMs do not meet or exceed guaranteed savings, contractor must correct deficiencies or payments will be adjusted § Shortfalls are reconciled in 13 th month and annually thereafter 102

Evaluation of ESCO’s Performance § DOE/GO requests agency evaluation of ESCOs periodically § Evaluations Evaluation of ESCO’s Performance § DOE/GO requests agency evaluation of ESCOs periodically § Evaluations contribute to DOE’s database on ESCO past performance § Agency sites can access this database and use it as one criterion for ESCO selection 103

Closeout of Task Order § Agency notifies ESCO by letter that the performance period Closeout of Task Order § Agency notifies ESCO by letter that the performance period is over and payments will cease § ESCO transfers title and agency assumes ownership of equipment and systems (or title transfer occurs earlier) § Agency may negotiate for continuing services from ESCO 104

Introduction to Measurement & Verification in Super ESPCs 105 Introduction to Measurement & Verification in Super ESPCs 105

Why do you need M&V? § Savings guarantees are contractually and legally required § Why do you need M&V? § Savings guarantees are contractually and legally required § But guarantees are only as good as the M&V behind them § M&V verifies guarantees are being met § M&V helps to allocate risk and identify problems “What you don’t measure, you can’t manage. ” ―Jack Welch, former GE CEO 106

Why does M&V get so much focus? § Savings can only be measured indirectly Why does M&V get so much focus? § Savings can only be measured indirectly § Since the goal is to measure the absence of something § And lots of other factors affect energy use besides the ECMs from the ESPC § Weather, occupancy, hours of operation, space usage, plug loads… § All this can make assessing savings over long periods tricky 107

Basic M&V Concepts § Goal in designing project M&V is to balance savings assurance Basic M&V Concepts § Goal in designing project M&V is to balance savings assurance against added cost § Good M&V plans generally require ESCOs to measure key performance parameters of ECMs § If M&V plan is weak, guarantee will be met only on paper § The degree of M&V should be proportional to: 1) the ECM’s savings; and 2) the ECM’s performance risk 108

FEMP M&V Guidelines (v. 3. 0) § For federal energy projects specifically § Application FEMP M&V Guidelines (v. 3. 0) § For federal energy projects specifically § Application of International Performance Measurement and Verification Protocol (IPMVP) § Detailed explanations of main M&V options (A, B, C & D) § Addresses M&V methods by ECM type The FEMP M&V Guidelines are posted at www 1. eere. energy. gov/femp/financing/superespcs_contracttools. html 109

Options A, B, C, and D § Options address risk allocation § Measurements differ Options A, B, C, and D § Options address risk allocation § Measurements differ by: § § Level – individual system vs. whole building Duration – spot, short-term, periodic, continual Degree of stipulation Cost – can range from 1 -15% of project cost § Each ECM in an ESPC is assigned an M&V option 110

FEMP M&V Compliance § Adhering to the FEMP (and IPMVP) guidelines requires: § Developing FEMP M&V Compliance § Adhering to the FEMP (and IPMVP) guidelines requires: § Developing an M&V plan using the defined methods § Following the M&V plan § The important consideration is what is in the plan 111

How is the guarantee met? § Savings must exceed payments § Savings that may How is the guarantee met? § Savings must exceed payments § Savings that may be used to pay the ESCO are categorized as: § § Energy and water cost savings Energy- (and water-) related cost savings 112

Energy Cost Savings § Reductions in system use § Efficiency improvements § Reductions in Energy Cost Savings § Reductions in system use § Efficiency improvements § Reductions in peak demand § Reductions in energy rates § Shifting time-of-use to lower-cost periods § Switching to less expensive fuels § Self-generation (inc. cogeneration/CHP) § Reduced water and sewer use/cost 113

Energy-Related Cost Savings § Usually recurring savings, primarily reduced O&M expenses: § Parts & Energy-Related Cost Savings § Usually recurring savings, primarily reduced O&M expenses: § Parts & labor costs § Emergency repair costs § Equipment replacement costs § Cost savings must come from existing budgets! 114

One-Time Energy-Related Cost Savings § Cost avoidance provided by the project: § EX: Including One-Time Energy-Related Cost Savings § Cost avoidance provided by the project: § EX: Including chiller replacement funds in the project where funds were planned to be paid out of operations & maintenance or repair & replacement (O&M/R&R) budgets § Implementation period energy savings § These are savings accrued from ECMs that are installed and performing in advance of project acceptance 115

Definition of Savings Energy Savings = Use. Baseline – Use. Post-Retrofit Energy Savings = Definition of Savings Energy Savings = Use. Baseline – Use. Post-Retrofit Energy Savings = (Use. Baseline Adjustment) – Use Post-Retrofit Savings ($) = Unit Cost * Energy Savings Baseline ECMs installed here Baseline or adjusted baseline Savings Measured or calculated performance Time 116

Calculating Savings § There are two components to energy use: § Performance (rate of Calculating Savings § There are two components to energy use: § Performance (rate of energy use) § Usage (hours of use) § Energy use is the product of the two § Example: k. W (rate) * hours = k. Wh (total energy) § Reducing the rate of energy use and/or the number of hours reduces the total energy use 117

Performance and Usage: Ideal Post-retrofit Energy Use Baseline Energy Use Rate (k. W) Improved Performance and Usage: Ideal Post-retrofit Energy Use Baseline Energy Use Rate (k. W) Improved Efficiency Reduced Operating Hours per year 118

Performance and Usage: Real Post-retrofit Energy Use Baseline Energy Use Rate ( k. W) Performance and Usage: Real Post-retrofit Energy Use Baseline Energy Use Rate ( k. W) Improved Efficiency Reduced Operating Hours per year

Summary/Next Steps § DOE ESPC provides a mechanism for Federal Agencies to help meet Summary/Next Steps § DOE ESPC provides a mechanism for Federal Agencies to help meet energy and infrastructure improvement goals with no upfront capital expense and no net increase in operation cost § Work with Scott Wolf or your Federal Finance Specialist to initiate the process and get a Project Facilitator assigned. § Begin to assemble acquisition team and develop acquisition strategy § Educate acquisition team on ESPC 120

DOE ESPC Workshops for 2009 June 16 -18, 2009 Denver, CO July 14 -16, DOE ESPC Workshops for 2009 June 16 -18, 2009 Denver, CO July 14 -16, 2009 Charlotte, NC August 13, 2009 Providence, Rhode Island September 15 -17, 2009 Sacramento, CA January 12 -14, 2009 Orlando, FL http: //fempcentral. com/workshops/registration. ws *For more information contact: Robyn Hulvey at rhulvey@sentech. org 3 Hour Webcasts: every 2 nd Wed. 11: 00 a. m. ET *For more information contact: Aly Dean at adean@energetics. com Gov. Energy 2009 August 9 -12, 2009 Providence, Rhode Island Info & Registration: www. govenergy. com ESPC info on the Web: http: //www 1. eere. energy. gov/femp/financing/superespcs. html 121

Super ESPC Contacts PROGRAM LEADS § § William Raup - Team Leader – DOE Super ESPC Contacts PROGRAM LEADS § § William Raup - Team Leader – DOE HQ (202) 586 -2214; email – william. raup@ee. doe. gov Daryl Berg - Contracting Officer – Golden Field Office (303) 275 -4920; email – daryl. berg@go. doe. gov FEDERAL FINANCE SPECIALIST § Scott Wolf (MT, WY, UT, CO, NM, TX, LA, AL WA, OR, ID, CA, NV, AZ, HI, Pacific Islands) (360) 866 -9163; email – Scott. wolf@ee. doe. gov § Mike Holda- DOE Project Facilitator (209) 835 -8150; e-mail – holda@mindspring. com Page 122

Questions? 123 Questions? 123