Bruce Hobby, Associate AIA Fanning Howey George Kacan, AIA, REFP, LEED AP Fanning Howey. Contributions from: Collin Sandifer

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2 Bruce Hobby, Associate AIA Fanning Howey George Kacan, AIA, REFP, LEED AP Fanning Howey Contributions from: Collin Sandifer TAC

3 Agenda 1. Definitions What do we know? - What do we need to know? 2. Case Studies Prince George s County Public Schools, MD Discussions Bishop O Connell High School, Arlington Discussions 3. Lessons Learned What did we learn? 4. Q&A

4 What do we know? Terms and Definitions Cost What will this cost my district? Savings How much will this save my district? Risk Who is at risk? and for how much? Guarantees What is Guaranteed? by whom? Measurement & Verification What are the rules?

5 What do we know? Other commonly used terms: ESCO Energy Service Company ECM Energy Conservation Measure FIM Facility Improvement Measure Others terms you are familiar with? FMS Facility Management System????

6 Definitions ESCO, or Energy Service Company, is a business that develops, installs, and finances projects designed to improve the energy efficiency and maintenance costs for facilities over a multi- year time period. ESCOs generally act as project developers for a wide range of tasks and assume the technical and performance risk associated with the project. Typically, they offer the following services: develop, design, and finance energy efficiency projects; install and maintain the energy efficient equipment involved; measure, monitor, and verify the project's energy savings; and assume the risk that the project will save the amount of energy guaranteed. These services are bundled into the project's cost and are repaid through the dollar savings generated.

7 Definitions Historically, the energy service industry is relatively young. Most U.S. ESCOs place the industry's origins in the late 1970s and early 1980s when energy prices rose dramatically following the 1973 Arab oil embargo and the Iranian Revolution in These events created the opportunity to make a business out of reducing customers' growing energy costs.

8 Definitions ECM Energy Conservation measures refers to proposed improvements to a facility, or a facility design, intended to save money through Energy (Utility) management FIM Facility Improvement measures refers to proposed improvements to a facility, or a facility design, intended to improve the operations of the reference facility 9often interchanged with ECM).

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10 What do we (want to) know? Cost How much will it cost.? Savings How much will it save.? Risk Who risks what.? Guarantees What is guaranteed.? Measurement & Verification What are the ground rules.?

11 Costs

12 Real Savings Energy Bills Special Tools Spare Parts Maintenance/Service Contracts Reduce Budget Line Items

13 Other Savings Staff Productivity Replacement Savings Equipment Wear and Tear No Reduction of Budget Line Items

14 Risk

15 Measurement & Verification Stipulated agreed up front (lighting) Measured Specific periodic measure (equipment efficiency) Main Meter utility bills (accurate usage weather normalized) Computer Simulation theoretical model (preemptive Performance contracting)

16 Case Study 1: Prince George s

17 History PGCPS assessed long range facility maintenance program of $1.5 billion combined Upgrade, replace and maintain building / energy components in schools and offices Maryland Department of General Services Indefinite Delivery Contract (IDC) for Energy Performance Contracts Pre-qualified Energy Service Contractors (ESCOs) Johnson Controls, Inc PEPCO

18 Case Study 1: Project Scope $150 Million 1 st year program Systemic Improvement Program ½ Minor Capital ½ Building Systems Capitalize $150 M into $300 M in systemic repairs Not Whole School Modernization

19 IDC Program Requirements Financial/Operating (minimums) 20% annual energy reduction (savings) 15 year payback for Energy Conservation Measures (ECM) 13 year financing term (2 years deliver + 13 savings/payback) Guarantee savings (demonstrated ability) Phase I Required Services Comprehensive Energy Audit (survey everything) Identify potential ECMs (necessary to achieve above) Phase II Proposal (detail plan)

20 Case Study 1: Process Use State Contract Selected 2 Firms Survey all 300 buildings Identify all ECMs Prepare Phase 1 (Recommendations) Prepare Phase 2 Proposal (Budget) Review & Approve Phase 2 (Contact) Begin Construction

21 Johnson Controls Inc. Phase I Phase II Phase I Proposal 66% Complete Proposal Appraisal Phase II Proposal Proposal Review Recommend to BOE BOE Approval Completion Today Phase II Implementation $40 million to $75 million

22 Case Study 1: Financial Models Risk Aversion PM Model Financing Option -separate option

23 Case Study 1

24 Case Study 2: Bishop O Connell

25 Case Study 2: Process Facility Committee Meetings ESCO Provider Engagement Facility Assessment ESCO Proposal Board Approval

26 Case Study 2: Financing Self-Funding tax exempt third party loan paid off by guaranteed savings Energy Savings Reinvestment all savings paid back to energy program Summer Work no room to spare

27 Case Study 2

28 Lessons $3,000,000 Total Cost Annual Savings Annual Repayment Project Net $200,000 ($200,000) $0

29 Performance Contract $3,000,000 Total Cost Annual Savings Annual Repayment Project Net $200,000 ($200,000) $0 BUDGET Savings?

30 Savings Breakout Productivity Savings Maint. Contract Energy Savings $25,000 $50,000 $125,000

31 Example #1: Boiler Room Bob Fixing Problems: 4 hours per week Bob s Pay: $25 per hour Boiler replacement Bob spends less time on the boiler Is the budget reduced?

32 Savings Breakout X Productivity Savings Maint. Contract Energy Savings $50,000 $25,000 $125,000

33 Example #2: Maint. Contract $90,000 yearly contract Routine HVAC/controls maintenance After a Performance Contract: Reduce $25,000 Each Year Is the budget reduced?

34 Savings Breakout X Productivity Savings Maint. Contract Energy Savings $50,000 $25,000 $125,000 Carefully Review ALL Calculations

35 Savings Breakout Productivity Savings Maint. Contract Energy Savings $0 $25,000 $125,000

36 Performance Contract $3,000,000 Total Cost Annual Savings Annual Repayment Project Net Savings $200,000 ($200,000) $0

37 Performance Contract $3,000,000 Total Cost Real Annual Savings Annual Repayment Project Net $145,000 ($200,000) ($55,000) Loss: $825,000

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39 Summary Powerful tool as long as you know what you are looking for Scaleable, tailorable, just right for you? If it is too good to be true that means that it usually is!

40 For more information: George Kacan, AIA, REFP, LEED Principal Bruce Hobby Owner in Charge Collin Sandifer