1. Delivering Efficiency with Performance Contracting
Huge Savings from Energy Performance Contracting in Government Buildings
The Pot of Gold: Why Use PC?

2. WHAT IS PERFORMANCE CONTRACTING?
Type of Design/Build Project with a Performance Guarantee
Turnkey service
Audit + engineering + construction + commissioning + O&M + long-term savings measurement
Delivers comprehensive utility savings
Serves all public market segments
Project savings are used to pay project costs
Third-party financing
Competitive market delivers low cost tax exempt financing

3. BENEFITS OF THE GUARANTEED ENERGY SAVINGS APPROACH
Replace aging equipment with new equipment
Decreased equipment repairs and lower future maintenance costs
Optimized equipment performance through performance monitoring and project commissioning

4. ECONOMIC BENEFITS
Access to 3rd party financing for needed capital energy improvements
Enhanced local economies through the ESCO’s use of local engineers and subcontractors
Freed-up budget dollars to fund other building needs

5. BENEFITS OF GUARANTEED ENERGY SAVINGS OPERATIONS
Improved facility energy efficiency and reduced energy costs
Reliable and persistent long-term energy saving project performance
Improved indoor air quality (IAQ) and building comfort conditions
Better overall management and control of facility equipment schedules

6. Guaranteed Energy Savings Delivered by ESCOs
NAESCO has about 30 member ESCOs
Many are subsidiaries of larger companies with offices and large staffs in many states
Some are smaller companies with just a few offices which focus on specific regions

7. ESCO INDUSTRY SIZE

8. ESCO Market Segments
- 16% average annual growth in performance-based contract revenues since 2000
-- Note we used broader definition of performance-based agreements compared to 2001 survey:
- includes traditional performance contracts (e.g., guaranteed savings, shared savings, etc.)
AND agreements involving performance risk for large onsite generation facilities (e.g., chauffage, build/own/operate, and contracts that guarantee an energy price and/or plant output, etc.)

9. ESCO Contracting Arrangements
- 16% average annual growth in performance-based contract revenues since 2000
-- Note we used broader definition of performance-based agreements compared to 2001 survey:
- includes traditional performance contracts (e.g., guaranteed savings, shared savings, etc.)
AND agreements involving performance risk for large onsite generation facilities (e.g., chauffage, build/own/operate, and contracts that guarantee an energy price and/or plant output, etc.)

10. Technology/Project Types
RENEWABLES -- some companies told us they included green building in this category
Other services include, O&M, water conservation, non-energy improvements)

11. Technical Assistance for Guaranteed Energy Savings Projects
Selecting an ESCO for a Project-Sample RFP and Evaluation Forms/ Review and Evaluation of Proposals
Review of the Investment Grade Audit
Sample Contract Documents
Negotiation of Technical Contract Terms
Review of Project Savings Performance
Review of Project Economics/Finance
Performance Contracting Elements 11

12. Sample of IL ESPC Projects
Began with a Single Project in
$20M in State EPC Projects Installed in 1995 (University ,Corrections, Health Care,Office)
$69M Five Phases at CHA
Higher ED (e.g.$63M UIC and $92M EIU )
$60M P1 and P2 $40M at Cook County
$30M at Chicago Public Schools
$17M City of Decatur
Performance Contracting Elements 12

13. TYPICAL PROJECTS
95% of the projects installed lighting or HVAC or both
Projects are usually financed over 15 to 20 year terms
23% median electric savings
The Pot of Gold: Why Use PC?

14. 2005 - Present (Current Era) “DEREGULATION AND EXPANDING SERVICES”
ESCO INDUSTRY TODAY
Present (Current Era)
“DEREGULATION AND EXPANDING SERVICES”
Deal Drivers:
Low interest rates
Contract terms in excess of 15 years
Emphasis on comprehensive capital improvements
Extensive use of tax-exempt lease financing
Federal market sector opens up in a big way
Major efforts by the federal government and some states to increase the number of EPC projects
The Pot of Gold: Why Use PC?

15. WHY USE GUARANTEED ENERGY SAVINGS CONTRACTS?
Lower Risk
Address deferred maintenance
Local Economic Development
More Flexible Project Process
Comprehensive efficiency projects
Faster Project Implementation
Best Value Project Design Criteria

16. Guaranteed Energy Savings Contracts = Risk Reduction
Contractually guaranteed measured savings reduces the risk of savings erosion over time
Integrated project analysis, design, and construction reduces the risk of lost savings opportunities and schedule delays
Utility savings and energy performance monitoring reduces the risk of under-funding key future maintenance requirements
The Pot of Gold: Why Use PC?

17. Guaranteed Energy Savings Contracts = Risk Reduction
Up-to-date training and knowledge for facility operating personnel reduces the risk of project non-performance
Ability to select services and materials based upon quality and value, rather than on lowest first cost, reduces the risk of poor equipment performance
The Pot of Gold: Why Use PC?

18. CONVENTIONAL LOW BID PROJECT PERFORMANCE = HIGH SAVINGS EROSION RISK OVER TIME
The Pot of Gold: Why Use PC?

19. GUARANTEED PERFORMANCE OFFERS STABLE ENERGY SAVINGS
The Pot of Gold: Why Use PC?

20. CUMULATIVE ENERGY SAVINGS OVER TEN YEARS
The Pot of Gold: Why Use PC?

21. SAMPLE PROJECT: SUMMARY OF ANNUAL SAVINGS
Eastern IL Univ. Phase 2 $10,800,000
Energy cost savings $ 1,888,911
Operational cost savings $ ,398
Electricity savings 4,934,513 kWh
Gas savings ,540 therms
Coal savings ,467 mmBTU
Water savings 66,221,444 gallons
Avoided Emissions
CO2 41,506,257 lbs.
SO ,950 lbs.
NOx ,407 lbs.
The Pot of Gold: Why Use PC?

22. Agency Project Distribution
Contract Value
Annual Savings
  PUBLIC HOUSING AUTHORITIES
$ 86 M
$ 6.4 M
 SCHOOLS
$ 59 M
$ 4.6 M
  CITY/COUNTY
$ 102 M
$ 6.9 M
UNIVERSITY/COLLEGE
$ 221 M
$ 10.7 M
PENDING CMS PROJECT
$ 19 M
$ 1 M
The Pot of Gold: Why Use PC? 22

23. Guaranteed Energy Savings Contracts = Better Value
Bid & Spec
May take several years to secure sufficient funds to implement comprehensive energy projects
High staff costs due to a piecemeal approach to bidding and managing each separate project
Performance Contracts
All funds needed for a comprehensive energy project are readily available
Lower staff cost and quicker completion of a comprehensive project
The Pot of Gold: Why Use PC?

24. Guaranteed Energy Savings Contracts = Better ValuE
Bid & Spec
Multiple contracts with multiple vendors can result in conflicting project requirements
Energy savings are not guaranteed
Performance Contracts
One contract with single point accountability for project performance
Long-term energy savings are guaranteed by the ESCO
The Pot of Gold: Why Use PC?

25. Guaranteed Energy Savings Contracts = Better Value
Performance Contracts
Performance contracts typically contain explicit comfort and operating standards
Comprehensive project implementation maximizes savings design opportunities
Bid & Spec
Guarantees of comfort and operating standards are not usually offered by equipment vendors
Incremental project implementation misses savings design opportunities
The Pot of Gold: Why Use PC?

26. Guaranteed Energy Savings Contracts = Better Value
Bid & Spec
Energy projects must compete for limited budget resources with other improvement projects
No direct incentive for building staff to reduce energy costs
Performance Contracts
Energy projects are funded by third parties and repaid with energy and maintenance savings
ESCO compensation is tied to providing energy savings over the term of the contract
The Pot of Gold: Why Use PC?

27. Guaranteed Energy Savings Contracts = Better Value
Bid & Spec
Limited staff or lack of expertise may put project performance at risk
Operations and maintenance budgets are usually under-funded, resulting in wasted energy
Performance Contracts
ESCO provides ongoing technical expertise to insure project performance
Utility bill savings finance operations and maintenance required to maintain project performance
The Pot of Gold: Why Use PC?

28. Guaranteed Energy Savings Contracts = Better Value
Bid & Spec
Equipment specific
Lowest first cost equipment selection
Slower implementation resulting
Plan and spec requires a more rigid design
Performance Contracts
Comprehensive scope
Best value LCC equipment selection
Faster project delivery
Design build produces flexible and innovative design solutions
The Pot of Gold: Why Use PC?

29. Elements of a Guaranteed Energy Savings Project
Selecting an ESCO for a Project
The Investment Grade Audit
Project Financing Structures
The Energy Services Agreement
“Green” Requirements in PC Projects
Project Management
Commissioning
Monitoring and Verification (M&V)
Performance Contracting Elements