Training Workshop for North Carolina

2. Introduction to Performance Contracting Dave Birr President Synchronous Energy Solutions

3. What is Energy Performance Contracting? A contract for the acquisition of comprehensive energy efficiency improvements and services with minimal up-front costs Provided by qualified Energy Service Companies (ESCOs) Uses the energy and cost savings from the project to pay for the work

4. What is Energy Performance Contracting? (continued) Protects the customer by requiring a performance guarantee Guarantees can be structured to cover all project costs, including financing, over a specified contract term Performance contracts can be used to leverage more comprehensive modernization projects

5. Historical Performance of the ESCO Industry Results from the NAESCO Project Database 60+ participating companies ~2,174 projects 76% based on some type of performance contracting arrangement $18 billion capital investment for all sectors These #�s repsesent ONLY 15% of all total project activity in the U.S.These #�s repsesent ONLY 15% of all total project activity in the U.S.

6. Historical Performance of the ESCO Industry (continued) 74% institutional projects 27% K-12 schools 16% state/local governments 14% health/hospital 10% universities/colleges 7% federal facilities 26% commercial, industrial, residential & �other� projects

7. Standard Services Offered by ESCOs Investment grade energy audit Comprehensive project design & engineering Sources of project financing Equipment acquisition Complete project installation and management

8. Standard Services Offered by ESCOs (continued) Project performance guarantees for the duration of the contract Savings measurement and verification Ongoing equipment maintenance services Extensive resident training program services

9. Standard Services Offered by ESCOs (continued) Rate negotiation Commissioning of new equipment Customer education on building load profile Project monitoring Extensive ongoing training for building operators and facility personnel Access to available incentive programs

10. Multifamily Market Multifamily (5+ units): over 15 million households Private conventional rental housing: 10 million Private assisted rental housing: 3 million Federal public rental housing: 1.3 million City, state public rental housing: 2 million

11. Federal Public Housing 1.3 million households Very low income �Family� and �elderly� occupancy Owned and managed by municipal nonprofits

12. Federal Public Housing (continued) PHAs generally have little or no credit history or financing expertise HUD regulates performance contracting and other energy incentives

13. Federal Public Housing Performance Contract Opportunities HUD regulatory incentive in place since 1991 250 municipal housing authorities with $1 million utility bill or more RFP procedure in place Average investment: $2,000-$4,000 per unit among experienced ESCOs PHAs qualify for tax-exempt financing

14. Energy Savings Potentialin PHAs Annual potential: $2.5-$3 billion Actual savings: $250 million (10% of potential) Less than 200 PHAs have done EPC projects

15. Residential Market Characteristics that Matter Ownership/market segmentation (single, multi, public, private, etc.) Building construction, size, age, and condition Occupancy (family/elderly/handicapped) Utility costs

16. Residential Market Characteristics that Matter (continued) Metering configuration and applicable rate structures (master/individual/building-based) Climate, loads Presence of utility or HUD, housing agency subsidies Impacts of utility company deregulation

17. What is Different About PHA Performance Contracting? Water efficiency measures are key leveraging elements Sensitivity to tenant concerns, behavior Must sell management, tenants and HUD Public housing success requires housing background; rules are complicated

18. PHA Barriers Difficult to work on due to 24-hour occupancy Management and regulatory bureaucracies in public housing Metering configuration and rate analyses are sometimes complex High transaction costs in public and small properties

19. ESCO Challenges in PHA Market Access to and quality of available consumption and cost data Lack of PHA in-house technical and financial expertise Credit-worthiness of PHA � PHAs are not rated entities

20. Why Use an ESCO? Expertise: Survey, analysis, design, financing Project management, installation, O&M, M&V Energy procurement Financing options in place Minimal costs until energy savings accrue

21. Why Use an ESCO? (continued) Synergistic teamwork/total solutions Long-term partnerships Reduced project risk It used to be the only game in town � now there�s the option of using a �Third Party� and self-managing

22. Advantages of PC HUD allows retention of savings generated (up to 20 years) Guaranteed performance protects the PHA Minimizes technical and financial risks Improves energy efficiency and occupant comfort levels

23. Benefits of Performance Contracting Replace aging equipment with new equipment Access to 3rd party financing for needed capital energy improvements Improved facility energy efficiency and reduced energy costs

24. Benefits of Performance Contracting (continued) Reliable and persistent long-term energy saving project performance Enhanced local economies through the ESCO�s use of local subcontractors Decreased equipment repairs and lower maintenance costs

25. Benefits of Performance Contracting (continued) Optimized equipment performance through project commissioning Better overall management and control of facility

26. Risk Reduction Benefits of Performance Contracting 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 performance monitoring reduces the risk of under-funding key maintenance requirements

27. Risk Reduction Benefits of Performance Contracting (continued) 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

28. Savings Erosion Over Time is Typical of Conventional Energy Projects

29. Stable Savings Guaranteed Over Time is Typical for EPC

30. Performance Contracts May Deliver Double the Value of Conventional Contracts Cumulative Cumulative Benefit/ Savings Project Cumulative Cost Costs Net Benefits Ratio Spec & Bid Procurement $3.2 Mil $2.9 Mil $ 0.3 Mil 1.1 (Minimize First Cost) Performance $6.0 Mil $3.1 Mil $ 2.9 Mil 1.9 Contract Procurement (Maximize Net Benefit)

31. Comparison of Cumulative Long-Term Energy Savings Achieved Over Ten Years

32. Conventional Bid and Spec EPC Negotiated Procurement Conventional 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

33. Conventional Bid and Spec EPC Negotiated Procurement (continued) Conventional 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

34. Conventional Bid and Spec EPC Negotiated Procurement (continued) Conventional Guarantees of comfort and operating standards are not usually offered by equipment vendors Incremental project implementation misses savings design opportunities Performance Contracts Performance contracts typically contain explicit comfort and operating standards Comprehensive project implementation maximizes savings design opportunities

35. Conventional Bid and Spec EPC Negotiated Procurement (continued) Conventional 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 with utility bill savings ESCO compensation is tied to providing energy savings over the term of the contract

36. Conventional Bid and Spec EPC Negotiated Procurement (continued) Conventional 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

37. HUD Energy Incentives Dave Birr President Synchronous Energy Solutions

38. ALLOWABLE UTILITIES EXPENSE LEVEL (AUEL) - CURRENT SYSTEM I. Purpose of System A. Why are utilities treated as a separate component of the subsidy system? 1. Volatility of Utility Rates 2. Diversity of utility delivery system among PHAs/IHAs 3. Diversity of the types of utilities used by PHAs/IHAs 4. Lack of Standards for consumption 5. Lack of uniformity in condition of utility systems and equipment II. Utility Rates A. PFS uses and adjusts for 100% of rate changes B. Published rates are used, no projections are permitted except as specifically permitted in 990.107, which deals with announced increases by a rating setting commission which will take place during the requested budget year.ALLOWABLE UTILITIES EXPENSE LEVEL (AUEL) - CURRENT SYSTEM I. Purpose of System A. Why are utilities treated as a separate component of the subsidy system? 1. Volatility of Utility Rates 2. Diversity of utility delivery system among PHAs/IHAs 3. Diversity of the types of utilities used by PHAs/IHAs 4. Lack of Standards for consumption 5. Lack of uniformity in condition of utility systems and equipment II. Utility Rates A. PFS uses and adjusts for 100% of rate changes B. Published rates are used, no projections are permitted except as specifically permitted in 990.107, which deals with announced increases by a rating setting commission which will take place during the requested budget year.

39. ALLOWABLE UTILITIES EXPENSE LEVEL (AUEL) - CURRENT SYSTEM I. Purpose of System A. Why are utilities treated as a separate component of the subsidy system? 1. Volatility of Utility Rates 2. Diversity of utility delivery system among PHAs/IHAs 3. Diversity of the types of utilities used by PHAs/IHAs 4. Lack of Standards for consumption 5. Lack of uniformity in condition of utility systems and equipment II. Utility Rates A. PFS uses and adjusts for 100% of rate changes B. Published rates are used, no projections are permitted except as specifically permitted in 990.107, which deals with announced increases by a rating setting commission which will take place during the requested budget year.ALLOWABLE UTILITIES EXPENSE LEVEL (AUEL) - CURRENT SYSTEM I. Purpose of System A. Why are utilities treated as a separate component of the subsidy system? 1. Volatility of Utility Rates 2. Diversity of utility delivery system among PHAs/IHAs 3. Diversity of the types of utilities used by PHAs/IHAs 4. Lack of Standards for consumption 5. Lack of uniformity in condition of utility systems and equipment II. Utility Rates A. PFS uses and adjusts for 100% of rate changes B. Published rates are used, no projections are permitted except as specifically permitted in 990.107, which deals with announced increases by a rating setting commission which will take place during the requested budget year.

40. Allowable Utilities Expense Level (AUEL) Utility Rates PFS uses and adjusts for 100% of rate changes Published rates are used; no projections are permitted except as specifically permitted in 990.107 HUD�s rate = Total dollar cost / units of consumption, e.g. $/kWh = Rate

41. Allowable Utilities Expense Level (AUEL) Utility Rates (continued) Can lead to HUD defined �savings� different from the savings the PHA sees on their utility bill, e.g. demand charges, block rates Decrease in rate can lead to decrease in dollar savings to the PHA

42. Cash Flows from Conservation Projects Using Standard PFS Funding

43. Implementing Regulations:Revised March 29,2001 � Federal Register Incentive 1 - Sharing of Energy Rate Reductions 990.110(c)(1)(i) If a PHA takes specific actions to reduce the utility rates it pays, the PHA may share in the savings on a 50/50 matching basis 50% of the decrease may be kept by the PHA (no time limitation); 50% must be returned as part of each PHA�s post-year utility settlement

44. Implementing Regulations: Revised March 29,2001 � Federal Register (continued) These actions must be specific to the PHA and must represent greater action than general participation in a rate-setting proceeding Savings must be monitored and must be documented by the PHA

45. Regulatory Framework for Improving Energy Efficiency in Public Housing Section 118 of the Housing and Community Development Act of 1987 Section 118 provides a number of incentives for housing authorities to save energy Section 118 requires modification of the PFS through the use of non-federal funds, when undertaking certain actions designed to reduce the use of water, electricity, natural gas and oil

46. Regulatory Framework for Improving Energy Efficiency in Public Housing Section 118 of the Housing and Community Development Act of 1987 Intent of Legislation: To provide specific financial incentives to PHAs to use energy performance contracting as a way to use non-federal funds to accomplish a meaningful government objective: CONSERVATION OF ENERGY

47. Final Rule Final rule established two incentives for non-HUD financed energy/water conservation measures: Payments dependent on energy consumption savings Payments not directly dependent on energy savings

48. Implementing Regulations:Revised as a result of Rulemaking on March 29,2001 � Federal Register (continued) Incentive 2 � Non-HUD Financing of Energy Conservation Measures Payments Dependent on Energy Consumption Savings Realized 990.110(c)(2)(ii) If a PHA undertakes energy conservation measures with non-HUD financing, which are approved by HUD, the PHA may retain up to 100% of the savings from the decreased energy consumption, once payment to the energy conservation contractor or ESCO is completed and the terms of that financing agreement are satisfied

49. Implementing Regulations: Revised March 29,2001 � Federal Register (continued) A contract is agreed to between the PHA and the ESCO that the energy or water efficiency improvements will perform as projected and the monetary savings will accrue (thus, �energy performance contracting�) The 3-year rolling base of utility consumption is frozen at the level existing prior to installation of the energy conservation measures

50. Implementing Regulations: Revised March 29,2001 � Federal Register (continued) PHA is responsible for debt amortization if the projected savings do not materialize ESCOs must provide sufficient guarantees of savings such that a shortfall in the savings will not cause the PHA to default on the debt if the projected savings are not realized.

51. The Frozen Base Incentive HUD will freeze the three-year rolling base at the current consumption level As consumption goes down, the authority keeps 100% of the cost difference

52. Cash Flows from Conservation Projects Using the Frozen Base Incentive

53. Implementing Regulations: Revised March 29,2001 � Federal Register (continued) Debt Payment Not Directly Dependent on Energy Savings 990.110(e) Where the contract does not allow the PHA�s payment to be dependent on the cost savings it realizes, then the PHA is eligible for an additional operating subsidy each year of the contract to amortize the cost of the energy efficiency measures, subject to a maximum annual limit equal to the annual debt service for that year

54. The Additional �Add-On� Subsidy Incentive The Additional Subsidy Rolling base does not freeze, so� HUD keeps most savings, but... HUD increases the subsidy equal to the loan payment and fees

55. Payment Not Dependenton Savings Subject to maximum annual limit which equals cost savings for that year Savings deficiencies to be offset against following year�s subsidy Rolling base is not frozen � pre-1987 energy conservation incentive applies

56. Cash Flows from Conservation Projects Using Add-On Subsidy Incentive

57. The Additional �Add-On� Subsidy Incentive Rules Uses Non-HUD funding Savings must at least equal the loan payment or next year�s operating subsidy is docked, so... Savings guarantee is still a smart move

58. HUD Energy Incentives Both incentive methods deal with cash flows between a housing authority and HUD Alters how the housing authority receives the funds to pay back the loan

59. HUD Energy Incentives (continued) Note: There are other cash flows to consider when evaluating a project Housing Authority/Utility Housing Authority/ESCO (Contract) Housing Authority/Lender

60. Summary Allows PHA to leverage private capital and expand budgets Allows implementation of capital projects that might not otherwise be affordable at the time

61. Summary (continued) Provides mechanism to bring extra non-capital funds to the PHA excess savings from a performance contract savings from the rate reduction incentive Encourages PHAs to be proactive on savings energy

62. Project Financing Dave Birr President Synchronous Energy Solutions

63. Tax-Exempt Lease/Purchase Available for qualified tax-exempt (Governmental) obligors IRS Section 103(a) Section 501c3 - utilizing a conduit issuer or other public authority

64. Tax-Exempt Lease/Purchase (continued) Does not create long-term debt Includes non-appropriation language No voter approval required Fixed rate upon commencement No issuance costs Limited legal fees Shortest timeframe to complete financing

65. Tax-Exempt Lease/Purchase (continued) Terms up to 20 years � consistent with federal energy legislation May be an interest penalty for 20 year vs. 12 year terms 15- 18 years may be most advantageous balance of low rate and increased term length Provides 100% of project funding needs Design, installation, progress payments Payments commence upon project completion

66. Tax-Exempt Lease/Purchase (continued) Simplified documentation Master contract for multiple locations or project phases Commonly used by PHAs to finance: Boilers, chillers, controls, lighting Water fixtures Refrigerators and other appliances Flexibility

67. Typical Considerations (Identify Project and Financing Objectives Up Front!) Bundled solution Budget neutral (or positive) cash-flow Costs payable from savings No up-front payments No mortgage Minimum impact on existing or future indebtedness Integration within capital budgeting process

68. Escrow Funding Mechanism Up Front Funding Locks in Payments Good News/Bad News Disbursement Process Project Completion

69. Determine project objectives Determine financial objectives Select ESCO, receive audit and negotiate ESA Develop and issue RFQ for financial partner in parallel with ESA (ESCo may drive this, or HA may issue the RFQ itself) HUD Guidance specifies that there must be an RFQ Select financial partner Obtain necessary approvals Funding at project commencement

70. Cost Factors for Project Financing Performance risk (i.e., % stipulated savings and quality of technical savings analysis) Termination risk (i.e., facility closing) Experience and credit strength of ESCO

71. Cost Factors for Project Financing (continued) Length of term Transaction costs Percentage of projected savings which are guaranteed

72. BREAK Sponsored by

73. Scope of EPC in PHAs Dave Birr President Synchronous Energy Solutions

74. Technical Goals forWater Efficiency Elderly sites � 55 gallons/person/day Family sites � 60 gallons/person/day Assumes accurate water metering Family sites: Occupancy needs to be adjusted up about 10% to be accurate

75. Common Water Saving Measures Low-volume water closets (1.6 gallon) Low-flow shower heads and faucet aerators (also DHW)

76. Common Electrical Measures Common area and outdoor lighting fixture upgrades and controls Compact fluorescent �T8� fluorescent and ballast retrofits Bathroom and kitchen lighting fixture replacement with compact fluorescent

77. Common Electrical Measures (continued) Large/oversized motor replacements (15 HP or more) on hydronic systems and booster pumps Refrigerator replacements (warmer climates/older models)

78. Common Central Heating and Domestic Hot Water Measures Insulation of equipment and piping Limiting or setback thermostats and zone valves

79. Comprehensive Approach Comprehensive analysis of interactive energy factors Look for LEVERAGING opportunities Highly cost-effective measures can support longer payback measures energy-related infrastructure improvements Increases capital investment in project Long-term asset management approach

80. Water

81. Water Conservation Toilets Capital-intensive Need: High water rates Simple gravity toilets No systemic existing problems (broken flange, wall-outlet, sub-floor repair, clearance issues) Yields large cost savings for relatively small investment

82. Heating System Measures Piping insulation Upgrade system pumps and motors

83. Heating SystemMeasures (continued) Space heating system controls upgrade Time cycle controller Sequencer/stager for modular system Outdoor high-temperature limit Radiator zone valves � nonelectric Temp. limited, programmable thermostat Thermostatic Radiator Valves

84. Air Conditioning Cooling PHAs can install air conditioning if resident can turn off A/C unit positively Types of cooling Window or room A/C units, central A/C, split systems, heat pumps: air-to-air or ground source heat pumps

85. Air Conditioning (continued) New A/C not self-amortizing/stand-alone Unless facility-wide A/C runs most of the year Baseline issues must be resolved if there was no A/C before

86. A/C Sizing Is Very Important Too small � won�t cool adequately Too large � additional $, cold and clammy Ducts and blower must be sized for A/C Very high efficiencies are now available Wall units � EPA Energy Star Label

87. Ventilation Addresses moisture, odor and IAQ problems Asset management strategy Energy savings minimal Code and Health & Safety Issue

88. DHW System:Mid-High Rise High-efficiency equipment Insulation Replace storage tank Upgrade of planned replacement Reduce storage capacity Fast system recovery rates Fuel switch Controls

89. DHW System: Townhouse/Garden Apts Individual electric units usually not cost-effective to replace on an energy- savings-only basis change to central reduces maintenance and risk tank wraps fuel conversion temperature set to 120oF max Central systems upgrade: high-efficiency gas, indirect fired

90. Lighting

91. Lighting Measures Usually, there is lots of room for improvement

92. Lighting Measures (continued) New fixtures or reflectors, lenses, & lamps Common-area lighting 24 hour lighting & exit signs are risk free Reduce number of lamps using reflectors & T-8s Lighting upgrades Increase lighting levels Requires calculated increase to base consumption

93. Apartment Lighting

94. Appliances

95. Appliances

96. Financing Capital Improvements from Savings at the Corpus Christi Housing Authority By Steve Morgan October, 2006

97. Corpus Christi, TX Housing Authority 1,836 Units City of 277,000 16 Developments $1.3 M in annual master-metered utility costs

98. Corpus Christi Energy & Water Situation:2004 Moderate Utility Use: $2.5 M+, including resident paid Increasing Water & Gas Rates Much Deferred Maintenance Well managed agency

99. Total CCHA Utility Costs

100. Projected Utility Cost Savings

101. Why did CCHA undertake Energy Performance Contracting? Insufficient Modernization Funds Pro-rationing Impact on Overall Budget Selected Contractor selects, manages all installation contractors, easing burden HUD Field Office Encouragement Annual cash from savings above debt service requirements

102. Measures Selected  Thermostats Refrigerators Lighting Replacements & Lighting Controls Plug Leaks Low-flush Toilets, Aerators, Showerheads Front-Loading Washers

103. EPC Financial Summary $1.73 M Project $326,000 annual savings $40,000 annually for Energy Manager Water savings drives project: 40% 12-year contract term Excess Savings of $50 K after Debt Service Tax exempt financing rate of 4.4% Construction Period: 2006-7 (7 months)

105. July 2006 Asset Planning OptimizationCapital Renewal Strategies Title page of first call presentation. The title of your presentation should be a captivating call to action that reflects the challenges and opportunities facing your prospective client. Maximum: 3-4 words. Suggested Speaking Points Thank you for the opportunity to introduce our selves to you. I�ve prepared a short presentation and would be happy to answer your questions as I go through it. Title page of first call presentation. The title of your presentation should be a captivating call to action that reflects the challenges and opportunities facing your prospective client. Maximum: 3-4 words. Suggested Speaking Points Thank you for the opportunity to introduce our selves to you. I�ve prepared a short presentation and would be happy to answer your questions as I go through it.

106. [ .[ .

107. The Age Profile The slide further demonstrates the challenge of age, the need for renewal and the impact of deferred renewal. Suggested Speaking Points This slide shows quite graphically why a strategic plan is required to allocate capital effectively. The slide further demonstrates the challenge of age, the need for renewal and the impact of deferred renewal. Suggested Speaking Points This slide shows quite graphically why a strategic plan is required to allocate capital effectively.

108. Strategic Objectives

109. Renewal Cost Analysis

110. Unfunded Liability (Renewal Gap)

111. Bundled Approach

112. Options for Smaller Housing Authorities � Aggregation or the Third Party Approach

113. Challenges Too small to provide economically attractive transactions to most providers Too small to obtain optimal financing terms

114. Options Aggregation of several entities for one RFP and/or total performance contract Implement a Housing Authority Managed Project with a Third Party

115. Benefits of Aggregation Creates economy of scale for the project Shares risks/rewards Attracts more and higher quality providers

116. Examples of Aggregation �Kansas City Six Pack� First attempt at aggregation 6 small HAs, 2 audits, 1 completed project

117. Examples of Aggregation Rebuild Butte (Montana) Three entities, 1 was HA NCAT Headquarters Building (non-profit) City of Butte Butte Housing Authority Common RFP and selection process, shared negotiations, separate audit contracts, ESAs and financing Only City of Butte proceeded to ESA NCAT and Butte HA had usage too low

118. Examples of Aggregation New Hampshire 3 started, 2 ended up in the ground State of Rhode Island Consortium RFP Selected an ESCo, in audit phase Kentucky Started the process, never completed.

119. Obstacles Boards have to approve joint financing Option to have separate financing, possibly Different 5-year plans Different fiscal years Different utility companies Geographically dispersed

120. Solutions Aggregating entity/agency Fair distribution of project benefits and costs OR separate audit, financing and ESA contracts Verify each HA has viable projects Sign a single lease agreement with joint and several liability OR separate lease agreements Agree to select a single ESCO

121. Solutions (continued) Add on subsidy incentive (Less of a risk mitigator now) Common contract documents HUD approval process consolidated

122. Aggregation Lessons Learned Project needs a champion Do thorough utility analysis first Evaluate options to self-manage There are different paths that can reach same end of attracting ESCos and making a project viable (single versus separate financing, etc.)

123. Third Party Consultant Housing Authorities may self-manage a project, provided they use a �Third Party� to help them with the project. Based on legislative language More details in the HUD Guidance

124. Third Party Consultant In the past, HUD allowed some HAs to do projects without an ESCo, but had to use the Add-On Subsidy Many of these were small housing authorities, with small projects of low risk. E.g. Wayne Metropolitan Housing Authority (OH) - $150,000 furnaces

125. Third Party Consultant Now HUD requires a third party consultant. RFP available at: http://www.nysphada.org/HUD%20WEB/Energy/Energy.html

126. Summary It is possible for smaller HAs to take advantage of the HUD Energy Incentives and leverage more capital dollars Consider Aggregating if multiple HAs or other tax-exempt entities in your area are interested

127. Summary Investigate �Third Party� to self manage a project and access leveraged Capital Funds Find out about state and utility programs for technical assistance and funding

128. LUNCH

129. Overview of the EPC Procurement Process Dave Birr President Synchronous Energy Solutions

130. Evaluation Process and Methodology ASSEMBLE A DIVERSE EVALUATION TEAM Facilities operating personnel Administrative/financial managers Designated project manager Technical advisor/consultants Modernization Coordinator

131. Evaluation Process and Methodology (continued) CONDUCT A THREE-PHASE REVIEW Phase I: Written Submissions Phase II: Client References Phase III: Oral Interviews

132. Evaluation Process and Methodology (continued) Follow Criteria Outlined in RFP Use these criteria for each of the three phases of review Use forms so you have a paper trail � FOIA considerations

133. Evaluation Process and Methodology (continued) SELECT HIGHEST RANKED ESCO or Based on cumulative rankings of all three phases Consensus of evaluation team

134. Evaluation Process and Methodology (continued) EVALUATION DESIGN FEATURES Use a comparative process Weight criteria rankings (A=x3, B=x2) Conduct client references by phone Have client references conduct actual rankings Make criteria assignments or include an �Unable to Rank� scoring category (which has no value) Charting or graphing of overall phase rankings can be a useful comparative aid

135. Evaluation Process and Methodology (continued)

136. Sample Ranking Forms in Reference Guide Ranking Form for Evaluating Written Responses to the RFP Evaluator�s Name: Contractor: Evaluator�s Dept.: Date: Experience 1. Level of past experience with similar projects: $$ Level: _____ #: Superior__ Very Acceptable__ Acceptable__ Not Acceptable__ Unable to Rank Discussion: _________________________ 2. Quality of key personnel qualifications as listed on resumes: Superior__ Very Acceptable__ Acceptable__ Not Acceptable__ Unable to Rank Discussion: _________________________ 3. Ability to achieve energy savings on past projects: Superior__ Very Acceptable__ Acceptable__ Not Acceptable__ Unable to Rank Discussion: _________________________

137. Sample Ranking Forms in Reference Guide Client Reference Interview Prompts Open ended Questions: 1. Are you satisfied with the energy savings achieved so far? 2. Did the contractor provide acceptable financing for the project in a timely manner? Evaluation Sheet: EXPERIENCE 1. ��� Achieved energy savings to date? Superior__ Very Acceptable__ Acceptable__ Not Acceptable__ Unable to Rank Discussion: _________________________

138. Sample Ranking Forms in Reference Guide ESCo Proposal Ranking Score Sheet Tallies up answers from each reviewer in an Excel Spreadsheet Allows customized weighting of scoring factors Automatically excludes �Unable to Rank� from scores Provides final ranking score

139. Which Qualifications are Worth the Most? A corporate culture that emphasizes high quality project performance and customer service Demonstrated technical expertise Ability and willingness to guarantee and measure project performance Experience with negotiating HUD approvals and requirements Significant experience with PHA projects

140. Why Qualifications Should Be Your Procurement Focus Having the necessary range of capabilities is more important than the preliminary technical and cost proposal Project scope and price can and will be negotiated; not so for qualifications

141. Why Qualifications Should Be Your Procurement Focus (continued) Better qualified ESCOs will generally, but not always, present the better preliminary technical proposals Performance contracts are long-term partnerships, so pick a reliable partner with staying power

142. Evaluation Philosophy Overview If you cannot significantly impact project performance via negotiation of this criteria, it becomes a key criteria. There are no perfect ESCOs, but some have far greater capability, experience, and consistent quality performance than others.

143. Evaluation Philosophy Overview (continued) You are comparing the ESCOs to each other on specific criteria primarily and secondarily to a set of standards. How does this ESCO compare to the best ESCO for that criteria?

144. Evaluation Philosophy Overview (continued) The goal of the evaluation process is to pick the best ESCO to provide services for your specific project. Evaluation should focus on differences that distinguishes them in their technical capability to perform.

145. Evaluation Philosophy Overview (continued) There are a lot of specific points of comparison, so be sure to keep written records of your notes on each ESCO. Don�t let a glossy format distract you from the technical content of their qualifications.

146. Evaluation Philosophy Overview (continued) Client references are critical; they are your only independent consumer report type of data on ESCO performance. Learning by doing is the best evaluation training approach.

147. ESCO Evaluation:Non-Negotiable Criteria Experience Technical qualifications and experience of ESCO�s personnel Experience with implementing performance contracting projects 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

148. ESCO Evaluation:Non-Negotiable Criteria (continued) Project Management Ability to effectively manage past project construction Ability to manage equipment repairs, regular service, and emergencies effectively on past projects Quality of ESCO�s communication skills

149. ESCO Evaluation:Non-Negotiable Criteria (continued) Technical Comprehensiveness of technical approach to past projects Ability to plan and complete all phases of past projects on schedule Quality of operations and maintenance services on past projects

150. ESCO Evaluation: Non-Negotiable Criteria (continued) Financial Financial soundness and stability of the ESCO Demonstrated ability to provide or arrange project financing on past projects

151. ESCO Evaluation:Negotiable Criteria Project Management Comprehensiveness of maintenance, monitoring, and measurement and verification services Proposed O&M strategies

152. ESCO Evaluation:Negotiable Criteria (continued) Technical Quality of investment grade technical energy auditing Quality of approach to project commissioning Quality of approach to calculating baseline energy consumption Quality of approach to savings measurement and verification Quality of provisions for training facility staff Quality of customer savings reporting

153. ESCO Evaluation:Negotiable Criteria (continued) Financial Reasonableness of financial assumptions for the proposed project Details of proposed financing arrangement

154. What Data Will Help You Evaluate ESCOs Request detailed project performance data on their past projects and client references Request detailed information on the project management and technical experience of key staff Request a sample detailed energy audit for a similar project they completed

155. What Data Will Help You Evaluate ESCOs (continued) Request a sample customer savings report and a sample bid specification for a specific energy efficiency measure likely to be part of your project Request audited financial statements and the firm�s financial ratings Are they accredited by NAESCO?

156. Client Reference Questions Important to check past jobs Look for patterns, good or bad Phone-based interviews are recommended vs. mailed or faxed questionnaires Use prepared interview questions that are asked of all references Have client references actually provide ranking based on their experience and satisfaction

157. Key Questions to Explore With Client References How well did the ESCO provide post-construction ongoing services? Commissioning Training Operations and Maintenance Measurement and Verification How well did the ESCO manage communication, contract negotiation, and HUD regulatory requirements?

158. How well did the ESCO manage utility bill data collection and analysis? Was the ESCO able to provide timely and effective resolution of project performance problems? Did the ESCO complete a project that met your needs? achieved predicted savings modernized infrastructure solved maintenance problems Key Questions to Explore with Client References (continued)

159. What Else Can Client References Tell You About ESCO Qualifications? Did the specific measures provide reliable savings without creating significant new maintenance problems? Did better performing new equipment significantly reduce maintenance problems? What was tenant reaction to the modernization of property in this project?

160. Clues to High-quality Customer Service in ESCO Client References Did they provide you with user-friendly operations and maintenance procedures manuals? How well did the ESCO manage their subcontractors? Did they complete the project elements under their control on schedule?

161. Clues to High-quality Customer Service in ESCO Client References (continued) How well did they manage any equipment warranty issues? Did the ESCO provide adequate design and specification documentation for the project?

162. Evaluating Project Feasibility Dave Birr President Synchronous Energy Solutions

163. Are the HUD Incentives My Best Option? Function of many factors REMEMBER - You must be able to re-pay a loan from savings! Investigating the following factors can save you from going down dead end path

164. Site Evaluation Factors for Performance Contracts High annual utility consumption and cost Obvious energy-related capital improvement needs Significant cost reduction opportunities Need for comprehensive improvements

165. Site Evaluation Factors for Performance Contracts (continued) Low efficiency and high age of existing equipment Availability of energy bills, maintenance cost records and organized data on energy use patterns Need to reduce high maintenance and/or equipment repair costs

166. Site Evaluation Factors for Performance Contracts (continued) Stable pattern of use of the buildings for foreseeable future Ability to finance improvements off balance sheet and access to sources of tax-exempt financing Problems with maintaining a comfortable indoor environment

167. Site Evaluation Factors for Performance Contracts (continued) Need for guaranteed savings to reduce project performance risks Need for reliable equipment performance

168. Site Selection for RFP Identify your desires and needs Look at the realities of: level of consumption utility rates cost of capital occupancy rate long-range plans for the site other available funds BE FLEXIBLE - Be open to the ESCO�s suggestions during the bidding and audit processes

169. Key Economic Factors that Determine Project Size Properly adjusted base year Savings guaranteed as a percentage of projected savings Cost of capital Term of contract Utility DSM subsidies

170. Key Economic Factors that Determine Project Size (continued) Persistence of savings � strong maintenance staff, management commitment Amount of annual utility savings Fuel prices and escalation rates

171. Utility Analysis Do this before issuing RFP! Tracking consumption makes this easier Software to help Reports to help with HUD reporting requirements Graphics to visualize information Units of consumption, not just dollars By apartment, building, meter ESCO will want this data Aids in management and maintenance as well

172. Utility Analysis (continued) Use your currently available data Work with your utility to fill in gaps Need tenant releases to get data on actual bills that are tenant paid PUT THIS IN YOUR LEASE! Provides means of ensuring allowances; makes tenant whole and ensures that conservation program costs aren�t borne by the residents. Identifies measures and sites for consideration

173. Benchmarking Tells you how your sites compare to others Rough estimate Weather Normalize Heating Degree Days - takes out climate as a factor Normalize for Unit Size

174. Benchmarking (continued) HUD reimburses HAs for resident-paid utilities in a different way than HA-paid utilities Must include resident-paid in benchmark to get meaningful numbers Utility allowance as proxy, since HUD doesn�t collect actual resident usage

175. Benchmarking (continued) Can help you ID best candidates within your portfolio Don�t waste your or the ESCO�s time by pursuing sites that won�t yield a cost-effective, self-funding conservation program

176. Benchmarking (continued) Common Measures $/square foot Gallons/day/resident Btu/s.f./HDD normalizes for weather and for size of building Still need to account for rates 6 cents/kWh vs. 12 cents/kWh -> two times the pot of savings for a given amount of consumption

177. Measure Selection Process Developments are identified by the PHA in the RFP May be phased, with option to expand Based on utility analysis, building use and capital needs Measures are screened and proposed by ESCOs in the audit Two-phase audit report

178. Where to Look for Savings In the cooling climates, typical PHA candidate developments for energy performance contracts have high historic utility consumption or cost patterns for: Domestic hot water production Common area lighting & electric loads Domestic water use

179. Where to Look for Savings (continued) Cooling Savings Normalizing for Cooling Degree Days not allowed by HUD Issue - who pays the bill? Can HA recover cooling savings? 24 CFR 965.506(e)

180. Information to Provide in an RFP Include, by building, meter or complex: Utility monthly use and cost over three years Name of facility Number of dwelling units Occupancy levels Family or elderly residence Rough description of construction and systems

181. Best Candidate Types Master metered for all utilities, multiple buildings Can do tenant paid end-uses, but Adds complications to savings calculations Has not received modernization in over 10 years

182. Audit Phase Monthly utility use histories and account numbers; actual copies of bills important Previously implemented energy-related modernization plans and dates of implementation Previously completed energy audits and surveys Capital needs assessment reports

183. Audit Phase (continued) Require ESCO to: Develop baseline for each utility, per HUD requirements Perform end use disaggregation of utilities Normalize data Establish savings projections in relation to base years Evaluate �in-pocket� savings vs. HUD savings

184. Before Any Measures May be Formally Screened by the ESCO, the ESCO Must: Evaluate the quality of the data �Clean� it Analyze it by �End Use� �End Use Disaggregation� must be performed by an energy engineer or conservation professional.

185. Energy and/or Water Baseline Consumption The �baseline� is the ESCO�s assessment of the pre-retrofit utility consumption and cost Must be approved by HUD Based on Rolling Base, and/or Reviewed Utility Allowances Provides the basis for: ESCO savings projections and measure screening Calculation and payment for actual savings achieved

186. Energy and/or Water Baseline Consumption (continued) Baseline usage, as calculated by HUD, is critically important to know - base your contract on this. Actual utility costs may differ from HUD-calculated savings (e.g., block rates) Remember, you may be freezing your baseline for up to 20 years

187. Energy and/or Water Baseline Consumption (continued) Anything that may impact your usage upward, such as increases in occupancy, will impact the amount of savings you may retain from HUD Iron out baseline issues before signing a contract Make sure the baseline period matches what HUD will want to see

188. Financing Capital Improvements from Savings at the Dover Housing Authority By Steve Morgan October, 2006

189. Dover, NH Housing Authority 465 Units Town of 20,000 in SE corner of state 8 Developments $860,000 in annual utility costs An 84-unit high rise elderly building experiencing high costs, resident complaints (Waldron Towers)

190. Dover Energy & Water Situation: l998 High Utility Use: $860 K annually Rapidly Increasing Electric Rates Much Deferred Maintenance Obsolete, Inefficient Heating Equipment All Electric High Rise uncomfortable for seniors

191. Why did DHA undertake Energy Performance Contracting? Insufficient Modernization Funds High maintenance costs on Central Heating Plants at some developments Selected Contractor selects, manages all installation contractors, easing burden HUD Field Office Interest in Electric conversion High electric costs, resident discomfort threatened higher vacancy rates at high-rise Annual cash from savings above debt service requirements

192. Measures Selected for Phase I: Waldron Towers Electric to Gas Heating Conversion DHW Upgrade Lighting Replacements & Lighting Controls Storm Sliding Glass Doors Replacement Low-flush Toilets, Aerators, Showerheads Front-Loading Washers Conversion of Electric Dryers to Gas

193. EPC Financial Summary $687,000 M Project 84 Apartments Treated $48,000 annual savings Electric savings 90+% of total 12-year contract term Excess Savings of $10 K after Debt Service Tax exempt financing rate of 6.5% Construction Period: l999-2000 (8 months)

194. ESCO Fee Structure: Differs from A&E Contracts Performance Risk, Long-Term Services major differences between EPC & Standard A&E Contract Fees have 3 components: 1. Audit Fee 2. Design and Project Management Fee 3. Post-Construction Annual Services Fee

195. Waldron Towers, Dover NH � 84 Units YEAR 3 (FYE 2002) Total Electric & Gas Bills6,605 Base DD (65 Degrees)

196. Phase II Project 2005: 381 Units in 4 Developments Baseline Cost: $710,000 Projected Savings: $220,000 $1.7 M cost

197. Phase II Measures Water Conservation, Featuring Toilets Common Area and Apartment Lighting Attic Insulation Thermostats and Timers Decentralize Heating and DHW Replace Heating & DHW Dryer Conversions Electric to Gas Restore Solar Heating Assist

198. WHO IS A GOOD CANDIDATE FOR EPCin Texas? Master-metered bill portfolio wide above $100,000 DHW, Furnaces equipment needs replacement AC needing replacement or install central AC High maintenance costs on energy systems Refrigerators more than 5 years old High water costs 2005 Legislation permits treatment of tenant-paid utilities without waiver

200. Measuring Project Performance Dave Birr President Synchronous Energy Solutions

201. What is Measurement and Verification (M&V)? M&V is a measurement procedure involving on-site data collection on the performance of building energy consuming equipment according to an approved measurement plan

202. Benefits of M&V Gives the end user greater confidence in their investment Determines if Guarantee was met Gives lessor confidence in lease payment Gives ESCOs a feedback mechanism on their quality of engineering Maximizes persistence of utility consumption and cost savings

203. Benefits of M&V (continued) Improves equipment reliability and optimizes system performance (e.g., load management) Provides valuable management information for building cost accounting and budget forecasting Provides timely project performance feedback and accountability Provides the data required for savings or baseline adjustments

204. IPMVP M&V Options Option A - Measured capacity, stipulated consumption Option B - Measured capacity, measured consumption by end use Option C - Whole facility analysis or main meter measurement Option D - Calibrated simulation

205. M&V Needs toAddress 3 Things: How baseline of energy use or costs will be established How energy savings after project installation will be determined How the baseline will be adjusted if large changes in the operation of the building occur after project installation

206. Three Keys toSuccessful M&V Keep it as simple as possible: 1. It does need to provide a reasonable basis for determining the savings from your particular project 2. It does need to provide a reasonable basis for verifying guarantees or determining payments 3. It does not need to do more than (1) and (2)

207. Factors Affecting Cost and Appropriate Level of M&V Effort Value of projected ECM savings Complexity of ECM Total number of ECMs Number of interactive ECMs Uncertainty of savings Risk allocation for achieving savings Other value produced by M&V data HUD requirements

208. M&V Plan Outline What will be measured, calculated, simulated, or estimated and by whom Time intervals for measurements or calculations Annual costs for M&V Description of any measurement devices, equations, computer models, assumptions, and data requirements

209. M&V Plan Outline (continued) How measurement devices or computer models will be calibrated and the frequency of calibration How measurement or calculated data will be used to verify savings and sample calculations Sample periodic savings report showing all data, calculations and summary results

210. Uses of Stipulations Appropriate: Project size is small Project is low-risk Based on defensible assumptions Energy savings not primary motivator Sophisticated customer understands risks Greater M&V cost not economically feasible

211. HUD Guidance re: M&V http://www.nysphada.org/HUD%20WEB/Energy/EPC/Guidance_M&V.doc Check for the latest version Provides HUD Guidance on what is acceptable format for M&V for the different incentives

212. HUD Guidance re: M&V

213. Challenges to Calculating an Accurate Base Year Data analysis fails to account for periods during which equipment was broken or malfunctioning Consumption data are inaccurate or missing due to utility metering, billing, or data entry errors Run hours of equipment ? operating hours of building

214. Measurement and Verification Steps (continued) Post-ECM Installation Verify installation and correct operation Verify ongoing potential to generate savings Adjust baseline energy use for material and weather changes, if necessary Quantify post-installation energy use Quantify energy and cost savings Report savings to HA on monthly or quarterly basis (annually to HUD)

215. M&V Reporting Requirements Submitted monthly or quarterly (reports should clearly indicate performance period) Data from reports will be used for annual reconciliation with HUD (ensure that all necessary data is available)

216. M&V Reporting Requirements (continued) ESCOs should review reports quarterly with appropriate HA representative and request written acknowledgement/ acceptance of report from HA Reports should have a summary page of savings followed by details on approach used, assumptions, data sources, and calculations

217. M&V Reporting Requirements (continued) Monitoring data should be provided in easy to understand graphic formats A standard monitoring report format which emphasizes comparisons with performance targets is a good approach

218. M&V Reporting Requirements (continued) Adjustments to baseline include changes in items beyond ESCO�s control: Occupancy or building usage Set point temperatures or scheduling Physical changes to building envelope or structure Weather conditions Equipment loading and/or operating efficiency Recent maintenance work that affects equipment operation or performance Utility rate adjustment

219. M&V Reporting Requirements (continued) ESCOs should provide contact information for M&V inquiries by HAs Both cost and energy savings should be provided for each measure, where appropriate Details on changes in utility costs should be provided

220. Managing Project Performance Dave Birr President Synchronous Energy Solutions

221. Quality of project audit and design Quality of contractors and equipment Quality of project installation and commissioning Quality of project operation and maintenance

222. Quality of performance measurement and verification Quality of customer commitment to project performance Quality of ESCO training and communications Quality of indoor environment

223. Strategies for Keeping Projects on Schedule Shorten the internal decision-making chain to enable more rapid review and approvals Design quality control feedback systems to spot field installation problems quickly and correct them Give your PHA project manager adequate time and authority to move the project forward

224. Strategies for Keeping Projects on Schedule (continued) Get a good handle on managing utility data and property status data Use high-quality subcontractors �Clerk of the Works� Clearly defined responsibilities and timelines

225. Strategies for Effective Project Management Defined Submittals process Monitor and review project progress on a regular basis Use spot checks of field installation work to catch any quality issues early Maintain a good data management system for tracking utility data and other building system data

226. Strategies for Effective Project Management (continued) Keep written records of changes and revisions to the scope of the technical schedules Quality control at every step is what delivers superior results Comprehensive training on operation and maintenance of new equipment is critical

227. Strategies for Effective Project Management (continued) Coordinate early with other construction projects to avoid confusion and delays Require adequate project documentation and commissioning Allocate maintenance tasks based on cost and capability Take opportunity to simplify equipment and materials inventory requirements by standardizing design choices

228. Strategies for Effective Project Management (continued) Base part of the ESCO design fee on measured savings Design the measurement and verification system to provide rapid feedback on project equipment performance Make it clear that minimizing life cycle cost is the design criteria

229. How to Manage Performance Over the Long Term Hold PHA staff accountable for their performance Provide training and project orientation for new PHA staff Continue resident education throughout project and after Require adequate documentation to minimize confusion and delay as well as help orient new staff

230. Management of Utility Consumption and Cost Data Develop an effective electronic accounting and error detection process Allow the ESCO to collect data directly from your utility providers Develop internal capability to properly manage your utility data process Contractually specify data handling responsibilities

231. Issues Schedule Construction Coordination Acceptance of Completed Work Payment Schedule Maintenance M&V Requirements

232. Schedule Expectations captured in documents? Adjustments for delays in contract execution Method for adjustments Who has authority to make decisions? Penalties and bonuses

233. Construction Coordination Who is the owner�s representative? Scope of his/her authority Change order procedure Access Issues Need guides or escorts? Costs? Security considerations Safety considerations

234. Payment Schedule Who approves payments? Invoicing procedure clear? Schedule of values Percentage completion Draw downs on leases Interest during construction Retainage or other holdbacks

235. Maintenance Who is responsible party? Item-by-item listing Does responsible party have required resources? Money in the Project Budget Third Party Contracts Default provisions

236. M&V Requirements Who is the owner�s representative? Sophisticated enough for the job? Is the methodology clear? Is it real enough for you? Does it account for facility changes? Dispute Resolution

237. HUD Requirements Budget request and other forms � will be altered HUD 52723 HUD 52722 PILOT Annual submittals specific to the HUD Incentives

238. David Birr, Consultant Illinois Department of Commerce and Economic Opportunity Business: 847-842-9106 Email: DaveBirr@aol.com

239. COMING SOON ENERGY PERFORMANCE CONTRACTING FOR PUBLIC HOUSING AUTHORITIES DELUX ADDITION

240. SECO Address: Comptroller of Public Accounts, State Energy Conservation Office 111 East 17th Street, Room 1114 LBJ State Office Building Austin, Texas 78701 Main Phone: 512-463-1931 Web site: www.seco.cpa.state.tx.us SECO is Another resource you can turn to for the success of you r energy projects.SECO is Another resource you can turn to for the success of you r energy projects.