EXPAND ENERGY-SAVINGS PERFORMANCE CONTRACTING

Energy-savings performance contracts (ESPCs) have provided a tool for states, municipalities, and school districts to achieve sustainability goals, budget reductions, and efficiency of the built environment through an alternative financing mechanism since the mid 1990s.

An energy services company (ESCO) is contracted to perform a financial-grade operational audit for the project, which identifies the specific measures and ultimate savings from those measures. The ESCO guarantees these savings and the contract is “paid back” based on the actual savings incurred, essentially eliminating the need to pay for the measures from the approved capital budget.

This policy option considers utilizing ESPCs to identify opportunities for energy conservation measures, and then implementing the measures that will have the largest effect on reducing greenhouse gas (GHG) emissions. Performance contracting is well suited for State-owned buildings and what is often referred to as the “MUSH” market, an acronym for municipalities, universities, schools, and hospitals.

The U.S. Department of Energy (DOE) developed an ESPC toolkit with input from states, municipalities, and school districts as part of its ESPC Accelerator, which began in 2013 and ended in 2016. Over the three-year period, DOE partnered with 25 different state and local agencies to identify barriers around ESPCs and developed solutions for success.

Nevada participated in the DOE ESPC Accelerator and as a result designed and implemented the Performance Contracting Audit Assistance Program (PCAAP) in the Governor’s Office of Energy (GOE). Through this program, the GOE provides incentives to public facilities that wish to enter into an ESPC by covering the costs of the investment-grade audit (also known as the financial grade operational audit) up to $0.10 per square foot. Since PCAAP’s inception in 2014, GOE has awarded $1.7 million to accelerate performance contracting resulting in projects totaling $100 million, while creating an estimated 730 jobs and saving over 51 million kWh and 463,000 therms annually.

GREENHOUSE GAS IMPLICATIONS

ESPC programs have been implemented in more than 10 states. Statutes supporting performance contracting are in all 50 states, Puerto Rico, and Washington, D.C. Quantifying GHG emissions reductions from implementing ESPC policies focused on MUSH projects has been done in other states and could be modeled for Nevada specifically.

An example of this can be found by looking at how Colorado established its Energy Performance Contracting (EPC) program in the mid-1990s. Since then, 152 public jurisdictions have worked with an ESCO identifying close to $35 million in annual utility savings. As of June 2018, 206 active and completed projects have improved the performance of public school and university buildings, veterans facilities, libraries, parks, community centers, wastewater treatment plants, prisons, and other government buildings in communities across 75% of Colorado’s counties.

Through these improvements, state agencies, colleges and universities, counties, cities and towns, school districts, and special districts have saved to date:

    • Electricity: 193 million kWh 
    • Natural gas, propane, heating oil, and coal: 10.3 million therms
    • Water: 507,560,000 gallons 
    • Annual utility cost savings: $34.2 million
    • Operations & maintenance (O&M) cost savings: $3 million 
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CLIMATE JUSTICE

Because performance contracts are most suited to the MUSH market, Nevada’s public buildings, hospitals, and schools would benefit from enhanced performance contracting policies.

Housing authorities in Nevada have a unique opportunity to improve the health and safety of its residents while providing affordable housing opportunities. For example, in Rockford, Illinois, the Rockford Housing Authority (RHA) implemented a successful EPC, regaining its reputation for providing quality affordable housing, improving the economy.

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INTEGRATED ECONOMIC ASSESSMENT

In order to lower the barrier to entering into a performance contract in Nevada, the GOE, State Public Works Division (SPWD), and Purchasing maintains a list of pre-qualified ESCOs that agencies can choose to select from without having to go through the solicitation process. In addition, the use of a third party (or owner’s rep) is required in Nevada. 

GOE currently allocates ~0.20 full-time equivalent (FTE) toward the implementation of the PCAAP program and would expect to need additional staff if these policies were updated or expanded.

Out of five states that have adopted ESPC policies, the Energy Conservation and Management Division (ECMD) of New Mexico details in its Energy, Minerals & Natural Resources Department 2019 Annual Report that there are at least two FTE staff specific to performance contracting now, and that in 2014 there was a state agency study group established to promote and improve ESPC. The report finalized in December 2014 contains recommendations for improved program functioning in states. Specifically, on pages 44–48 of the report, additional staffing and other needs are identified to perform utility bill monitoring and reporting, an additional FTE within the state energy office, a third-party evaluator, and staff education and maintenance training programs.

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IMPLEMENTATION FEASIBILITY

The Nevada Legislature will likely have to amend NRS 332 and 333A to prioritize improvements that promised the largest GHG emissions reductions. It likely will also have to pass new legislation to expand ESPC to include privately-owned commercial buildings.

Nevada statutes already provide ESPC programs for eligible Nevada government entities (i.e., counties, cities, school districts, state colleges, state universities, State of Nevada agencies). NRS 332 (Purchasing: Local Governments) and 333A (Purchasing: State Performance Contracts for Operating Cost-Savings Measures). The GOE offers a number of services to support ESPC, including monetary assistance for a financial-grade operational audit. These statutes would likely need to be amended to prioritize improvements that promised the largest GHG emissions reductions.

The Nevada Legislature would likely need to adopt a new statute to extend ESPC to privately-owned commercial buildings. Nevada’s current statutes (NRS 332 and 333A) are limited to Nevada government entities.

In 2016, Hawaii published a revision to its Guide to Energy Performance Contracting (EPC) detailing the process of how to adopt and implement ESPC in the state.

At least 10 states have adopted ESPC policies through enacting legislation. For Nevada to expand its current legislation, it is important to review what has been successful in other states. The National Association of State Energy Officials (NASEO) in partnership with the National Association of Energy Service Companies (NAESCO) and the Energy Services Coalition (ESC) published NASEO-ESC-NAESCO State ESPC Program and Project Principles 2019, which provides key attributes for states on implementing these policies. This includes administrative support, guidance on the attributes of services, a process roadmap, and seven other key strategies for successful policies and programs.

Another important factor to think about when adopting statewide ESPC policies is what happens to the savings from the projects. Generally, most agencies that have general funds are not allowed to keep the realized savings and must return any funds back to the general fund. In North Carolina, there is a proposed bill (H828) that would allow all of these agencies to retain the savings and use them for additional energy and water upgrades to state facilities.

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