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HomeMy WebLinkAboutWork Session A - GESP4646 Dakota Street SE Prior Lake MN 55372 , CITY COUNCIL WORK SESSION REPORT MEETING DATE: APRIL 28, 2014 AGENDA #: A PREPARED BY: KATY GEHLER, PUBLIC WORKS & NATURAL RESOURCES DIREC- TOR PRESENTED BY: KATY GEHLER AGENDA ITEM: OVERVIEW OF ENERGY SAVINGS PERFORMANCE CONTRACTING AND THE GUARANTEED ENERGY SAVINGS PROGRAM DISCUSSION: Introduction The purpose of this agenda item is to consider a resolution entering into a Work Order contract with Honeywell to complete the Investment Grade Au- dit of City of Prior Lake Facilities. History Energy Savings Performance Contracting (ESPC) is a performance-based procurement and financing mechanism that leverages energy and opera- tional savings achieved through the installation of energy efficient and re- newable energy equipment and implementation of operational best prac- tices, to finance the cost of the building retrofit and renewal project, with no net cost increase to the public entity. Energy Savings Performance Contract (ESPC) An ESPC is a contract between a public entity and a qualified Energy Ser- vices Company (ESCO). Principle to the agreement is a written “guarantee” from the ESCO providing that annual utility, operational, and maintenance cost-savings generated during the term of the guaranteed energy savings agreement, will meet or exceed the annual payments due under the fi- nance agreement. Over the term of an ESPC, the accumulated savings re- sulting from decreased energy, operational and maintenance costs are used to pay for all project and financing costs including; design, bidding, equipment procurement and installation, commissioning, measurement and verification monitoring, and related project finance costs. Projects are gen- erally structured so that the savings equal or exceed all project costs. Sav- ings in excess of the “guarantee” are immediately accrued by the public en- tity in the form of reduced utility and operational costs. In the event the “guaranteed” savings are not achieved during any year of the agreement, the ESCO is required to reimburse the public entity for the guarantee short- fall. To achieve the “guaranteed” savings, the ESCO assumes the con- struction and on-going performance risk of the project. Typical energy conservation opportunities included in an ESPC: Architectural/Structural – roofing, doors, insulation, weather-strip- ping, window treatment Electrical – lighting retrofits, emergency power, power and distribu- tion, IT/communications networks, life safety systems Mechanical – HVAC systems, plumbing and drainage, energy man- agement and building controls Property/Site – underground utilities, lighting improvements, swim- ming pools, ice arenas Renewable Energy – photovoltaic (PV) solar, thermal solar, wind, biomass, hydroelectric Water and Waste – water purification systems, water sewage facili- ties, landfill gas capturing, waste utilization Operational Best Practices – staff training and development pro- grams associated with energy conservation Advantages of an ESPC: Single point of accountability – the ESCO Transfers the “risk” of both construction and long-term savings to the ESCO through a performance “guarantee” Provides budget neutral financings, no direct impact on taxpayers Utilizes best value procurement practices Annual energy savings are monitored and verified by the ESCO Energy Services Company (ESCO) The ESCO is a commercial business that develops, installs, and provides financial assistance for projects designed to improve energy efficiency and maintenance costs for facilities using an ESPC. The ESCO serves as the single point of accountability for the public entity throughout the agree- ments: auditing, design, construction, commissioning, and performance pe- riods. ESCOs act as the project developers for a wide range of tasks and assume the technical and performance risk associated with the project. ESCOs are able to provide services to both public and private sector clients. Typical tasks performed by an ESCO: Develop, design, and arrange financing for energy efficiency pro- jects; 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. Guarantees associated with an Energy Services Performance Contract: Guaranteed Project Installation Costs Guaranteed Energy and Financial Savings Guaranteed Equipment Performance Guaranteed Energy Savings Program (GESP) The States Guaranteed Energy Savings Program (GESP) was created by Governor Dayton in April 2011 within the Department of Commerce, Divi- sion of Energy Resources. They provide technical, contractual and financial 2 assistance to state agencies, local government units, school districts, and institutions of higher learning that elect to implement energy efficiency and renewable energy improvements through Guaranteed Energy Savings Contracts. The goals of the Guaranteed Energy Savings Program (GESP) include: Promote awareness and implementation of energy efficient and renewa- ble energy measures in public facilities by state and local governments, school districts, and institutions of higher learning that result in millions of dollars in annual energy savings while creating jobs, reducing energy consumption, improving facility infrastructure and reducing carbon emis- sions. Develop and administer Master Contract for Energy Savings Perfor- mance Contracting Services for use by public entities. Pre-qualify Energy Service Companies (ESCO) for participation in GESP. Provide technical, contractual and financial assistance to public entities seeking to leverage the State’s GESP Master Contract to implement en- ergy efficiency and renewable energy projects. Assist public entities with: Evaluating their facilities for potential energy efficiency and renewa- o ble energy investment opportunities. Analyzing the available financing options. o Soliciting and awarding site-specific Request for Proposals from pre- o qualified ESCOs to perform Energy Savings Performance Contract- ing Services. Evaluating the technical and financial feasibility of ESCO proposals. o Negotiating and awarding of contracts to pre-qualified ESCO to im- o plement Energy Conservation Measures (ECM). Project management over-site of ESPC project’s construction pro- o cess. Providing technical assistance to ensure the ESPC Measurement o and Verification (M&V) Plan is properly performed throughout the performance period of the contract. The master contract between state agencies and pre-qualified ESCOs has been finalized and can be used by other public entities by entering into a Joint Powers Agreement with the State of Minnesota. Eleven ESCOs have been pre-qualified through an RFP process and have signed the Master Contract. Administrators of the GESP program are available for assistance through the ESPC process. Application Process for Other Public Entities The Guaranteed Energy Savings Program (GESP) project development process for public entities can be described as a four-step process that in- cludes: 3 Preliminary Screening During this phase, the public entity works with the Department of En- ergy Resources (DER) to review their facility needs, issues and goals; utility data and building profiles; prior efficiency studies and efforts to qualify them for the GESP. Public entities, working with DER, develop a general project scope including potential energy-savings and renewable energy improvement opportunities along with needs and issues they would like to address through implementation of an Energy Savings Performance Contract (ESPC). State agencies may access the State’s GESP Master Contract directly. Local units of government and school districts will first need to enter into a Joint Powers Agreement with the Department of Commerce. Investigation Phase During this phase, using State provided templates; a public entity ad- vertises a Site-specific Request for Proposal (RFP) to pre-qualified ES- COs to provide energy savings performance contracting services. Next, the public entity, using the GESP Master Contract, issues a Work Order to the selected ESCO to perform an Investment Grade Audit (IGA) and develop a Project Proposal based on their detailed analysis of facilities included in the RFP. The IGA Report and Project Proposal establish the basis for the ESPC, including a guaranteed maximum price and annual guaranteed savings associated with the Energy Conservation Measures (ECM) to be implemented. Implementation Phase During this phase, the ESCO will obtain quotes for project financing and the public entity will amend the Work Order to include the agreed upon ECMs and associated guaranteed maximum price and annual guaran- teed savings. Once the Lease Purchase Agreement and Work Order Amendment have been approved, the ESCO completes the engineer- ing and design specifications, bids the work to be performed and over- sees the construction and commissioning work. Performance Phase During this phase, the ESCO follows the Savings Measurement & Veri- ficaiton (M&V) Plan to quantify the energy savings achieved, and annu- ally presents the findings in a report to the public entity and DER. In the event that the annual guaranteed savings are not achieved, the ESCO is obligated to make payment to the public entity for the guarantee shortfall. The City owns eight building facilities with four of them starting to require more significant maintenance and replacements. In 2011 the City com- pleted the Facilities Management Plan which documented the impending projects to allow City officials to be systematic in scheduling and funding these improvements. Many of these projects will impact electricity usage and will produce energy savings. In light of this staff reviewed the GESP program as an option for 4 completing the projects in a timelier manner without additional financial im- pact to the tax levy. Table 1 shows the Municipal Project Process under the State’s GESP program. TABLE 1 – Municipal Project Process Process Step ActivityMilestone 1 – Interest Meetings with DOC to review Request to proceed w GESP qualifying 2 – Opportunity Review B3 data, facility Joint Powers Agreeme Assessment needs, issues and goals. Quantify EO 11-12 compli- ance gap. 3 – DefineDefine EO 11-12 compliance Issue Site Specific RF Project Goals goals, facility and organiza- tional goals, Identify funds for IGA 4 – ESCO RFP evaluation and ESCO Issue Work Order Selection selection Contract 5 – Project Develop project scope, cost, Issue Work Development savings and funding Order Contract Amend ment 6 – Project Installation of measures Certification of Final Implementation Completion and Ac- ceptance 7 – Performance Review M&V Report Annual M&V Report Period Current Circumstances The City enter into the Joint Powers Agreement with the State and pre- pared a Site-Specific RFP as noted in the Application Process. Staff will be asking the City Council to Approve the Work Order Contract (Step 4) at the April 28, 2014 Council Meeting. Staff will generally review Energy Perfor- mance Contracting as the Work Session as well as the Guaranteed Energy Savings Program. 5