T R

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REM Synergy with Alternative Financing

Steve Sain, Nancy Varner & John NixonSteve Sain, Nancy Varner & John Nixon

Sain Engineering Associates, Inc.

Ph (205) 979-9966

REM Training WorkshopAtlanta, GA

February 18, 2004

OverviewT

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•• Retained Savings @ Ft. BraggRetained Savings @ Ft. Bragg–– Steve SainSteve Sain

•• Savings Verification @ Ft. PolkSavings Verification @ Ft. Polk–– Nancy Varner, REMNancy Varner, REM

•• Refinancing @ PWC JacksonvilleRefinancing @ PWC Jacksonville–– John Nixon, REMJohn Nixon, REM

PWC JacksonvillePWC Jacksonville

Ft. PolkFt. Polk

Ft. BraggFt. Bragg

Retained SavingsT

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Mitchell HardyMitchell HardyResource Efficiency ManagerResource Efficiency Manager

Fort BraggT

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•• 100 MW Electrical Load100 MW Electrical Load•• 1.5 BCF of Natural Gas1.5 BCF of Natural Gas•• City of 65,000 ResidentsCity of 65,000 Residents•• District Heating & Cooling (15 plants)District Heating & Cooling (15 plants)

Bragg ESPC ProgramT

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•• 25 Task Orders Implemented25 Task Orders Implemented–– $63M Investment$63M Investment–– $11M Annual Savings$11M Annual Savings–– SupplySupply--Side & DemandSide & Demand--Side ProjectsSide Projects–– Shared Savings & Guaranteed Savings ProjectsShared Savings & Guaranteed Savings Projects–– Incl. Modernization + O&M of 15 PlantsIncl. Modernization + O&M of 15 Plants

•• ESPC Facilitation & SustainmentESPC Facilitation & Sustainment–– REMREM’’s #1 Prioritys #1 Priority–– (4.25 to 1 Return)(4.25 to 1 Return)

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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Integrated Energy Management -IEMPeak Shaving, Load Management, Information Management

Supply-Side Management - SSMTariff changes, Competitively Purchases of Natural Gas and Electricity

Demand-Side Management - DSMEnergy Reduction Projects such as Lighting, Controls,HVAC and Motor Retrofits

Actual Savings

2002 - Central PlantsInformation System, DSM Projects

2003 - Electricity Contract, Transformers, Load Mngmt. Gas Tariff, Reimbursable Customer Billing, Energy Awareness Program, CCHP

2005 - Natural Gas Bypass

Projected Savings

Supply-SideSavings

SupplySupply--Side Shared SavingsSide Shared Savings

Retained SavingsT

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•• REM Funded w/Retained SavingsREM Funded w/Retained Savings–– 10 USC 286510 USC 2865–– ““Energy Savings at Military InstallationsEnergy Savings at Military Installations””

–– Para. (a)(2)(A) Regarding Energy SavingsPara. (a)(2)(A) Regarding Energy Savings“One-half of the amount shall be used for the implementation of additional energy conservation measures at such buildings, facilities, or installations of the Department of Defense as the head of the department, agency or instrumentality that realized the savings may designate in accordance with regulations prescribed by the Secretary of Defense.”

Savings VerificationT

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Nancy Varner, CEMResource Efficiency Manager

Fort PolkT

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•• Joint Readiness Training CenterJoint Readiness Training Center•• $14.5M Annual Energy Cost $14.5M Annual Energy Cost

(@ $0.065/kWh)(@ $0.065/kWh)

•• 4 Central Plants 4 Central Plants •• 2,463 Buildings2,463 Buildings•• 6,000 Acres6,000 Acres•• 40,000 Personnel40,000 Personnel

ESPC PioneerT

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•• ““Ground BreakingGround Breaking”” GeothermalGeothermal–– One of the First Shared Savings ProjectsOne of the First Shared Savings Projects–– 4,003 Family Housing Units Retrofitted4,003 Family Housing Units Retrofitted–– Vice Presidential Vice Presidential ““HammerHammer”” AwardAward–– Prototype for Other Geothermal Prototype for Other Geothermal ESPCsESPCs

However…T

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•• Complex Contract AdminComplex Contract Admin–– Initiated by Corps of EngineersInitiated by Corps of Engineers–– Taken Over by Ft. Polk DPWTaken Over by Ft. Polk DPW–– Over 100 Contract Over 100 Contract ModsMods–– Numerous Claims Filed by ESCONumerous Claims Filed by ESCO

•• REM Task: Untangle the MessREM Task: Untangle the Mess

ResultsT

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$2,494,594$2,494,594Savings to the GovernmentSavings to the Government$3,555,406$3,555,406

- $964,594Credits Due the Government$3,500,000Rate in Excess of Rec.$1,020,000Claims

Negotiated Settlement:Negotiated Settlement:$964,594$964,594$788,164Vacancy Credits$176,430Billing Errors

Government Claims:Government Claims:$6,050,000$6,050,000

$2,900,000Peak Load$1,700,000Escalation Clause$1,450,000“A” Rate

Contractor Claims:Contractor Claims:

RefinancingT

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John NixonResource Efficiency Manager

PWC JAXT

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•• Blended Elec. Rate = $37.50/MWhBlended Elec. Rate = $37.50/MWh–– 11 Projects Implemented11 Projects Implemented–– Most Low Hanging Fruit HarvestedMost Low Hanging Fruit Harvested–– ESPC Difficult to ImplementESPC Difficult to Implement

•• UESC w/Jacksonville Electric AuthorityUESC w/Jacksonville Electric Authority–– $40M Financing Available @ Treasury Rates$40M Financing Available @ Treasury Rates–– 1010--Year Purchase AgreementYear Purchase Agreement

UESC w/Peoples GasT

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•• Peoples Gas: Subsidiary of TECOPeoples Gas: Subsidiary of TECO•• Project FinancingProject Financing

–– Arranged by Peoples GasArranged by Peoples Gas–– Priced to TECO PrivatePriced to TECO Private

Company CreditCompany Credit

•• 7 Projects Implemented7 Projects Implemented

7.25%$843k$940k$1,043kMayport Ltng / HVAC

7.90%$932k$1,435k$1,435kHospital Windows

8.13%$315k$454k$502kLighting / HVAC

8.38%$250k$512k$708kSteam Follow On

8.86%$576k$780k$867kNADEP Lighting

7.82%$6,029k$10,118k$12,899kBase Wide Steam

Interest Rate

Current FinancedConstruction Project

UESC/BOA LanguageT

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Permits BuyPermits Buy--Down / BuyDown / Buy--Out w/o PenaltyOut w/o PenaltyBuyout. In the event the Government ceases to be a

contractor services customer of the Contractor, and the Government opts to continue with monthly payments, the Contractor will continue to submit monthly invoices to the Government for payment. However, the Government reserves the right, at any time following commencement of the Contract payment term but prior to final payment, to buy out the remaining term of a contract without penalty. Specific Buyout provisions shall be identified in each contract.

Task Order LanguageT

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Permits BuyPermits Buy--Down / BuyDown / Buy--Out w/o PenaltyOut w/o PenaltyEarly Termination and/or Partial Prepayment. The

Government may terminate this Payment Agreement, may make one or more lump sum prepayments of principal and may purchase the Contractor’s interest in this Payment Agreement on any Lease Payment due date providing: (i) no Event of Default has occurred and is continuing; (ii) the Government gives thirty (30) day prior written notice to the Contractor (or during the month of September the Government may give notice of less than thirty (30) days): and (iii) receipt by the Contractor or its assigns of the then due Buyout Amount set forth in Appendix III attached hereto, plus the Lease Payment due on such date and any other amounts then due or past doe (together, the “Termination Liability Payment”).

OpportunityT

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•• BuyBuy--Out Existing High % FinancingOut Existing High % Financing–– Use Bonneville Power Administration (BPA) to Use Bonneville Power Administration (BPA) to

Facilitate New FinancingFacilitate New Financing–– Interest Rate Priced to Govt. CreditInterest Rate Priced to Govt. Credit–– Everyone Must Agree w/BPA ParticipationEveryone Must Agree w/BPA Participation–– BPABPA’’ss Participation Must be Consistent Participation Must be Consistent

w/Public Law 104w/Public Law 104--206 (206 (Regional Review Regional Review RecommendationsRecommendations) & Certification Requirements ) & Certification Requirements of Public Law 106of Public Law 106--60 (60 (section 314section 314))

–– BPA Must be Fully ReimbursedBPA Must be Fully Reimbursed

Annual AnnualMonthly Savings Savings

Project Savings No Down Pymt With Down Pymt

Base Wide Steam System $466,738 $350,979 $821,181

NADEP Lighting $91,062 $79,276 $124,578

Steam follow on - aka Chapel Project $21,521 $17,096 $33,847

Bldgs. 110, 111, 937, 966 $24,817 $19,255 $39,918

Hospital Windows and Lighting $24,538 $841 $84,315

Mayport $118,893 $113,005 $180,039

Totals $747,570 $580,452 $1,283,878

Savings Calculated using June 13, 2003 Treasury Rates plus 150 Basis Points and a 5% funding fee for the fin

U.S. Government Securities - Treasury Constant Maturities 113 Year - 1.39%5 Year - 2.13%7 Year - 2.70%10 Year - 3.20%

OpportunityOpportunity

Annual AnnualMonthly Savings Savings

Project Savings No Down Pymt With Down Pymt

Base Wide Steam System $232,318 $90,880 $639,102

NADEP Lighting $61,885 $47,368 $101,960

Steam follow on - aka Chapel Project $11,955 $6,607 $29,764

Bldgs. 110, 111, 937, 966 $12,954 $6,224 $34,954

Hospital Windows and Lighting $16,074 -$6,284 $75,713

Mayport $140,291 $130,901 $208,502

Totals $475,476 $275,696 $1,089,996

Savings Calculated using January 27, 2003 Treasury Rates plus 150 Basis Points and a 5% funding fee for the financier.

U.S. Government Securities - Treasury Constant Maturities 113 Year - 2.21%5 Year - 3.07%7 Year - 3.60%10 Year - 4.11%

OpportunityOpportunity

ExecutionT

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•• Contracting & Legal OpinionsContracting & Legal Opinions–– Requested to EFA Southeast to Execute an Interagency Requested to EFA Southeast to Execute an Interagency

Agreement w/BPA to RefinanceAgreement w/BPA to Refinance–– EFA Southeast Requested Legal Opinion from EFD EFA Southeast Requested Legal Opinion from EFD

SouthSouth–– EFD South Requested Legal Opinion from NAVFACEFD South Requested Legal Opinion from NAVFAC–– NAVFAC Legal Opinion that BPA Cannot be UsedNAVFAC Legal Opinion that BPA Cannot be Used–– Requested FEMP Issue an Alternative Financing Requested FEMP Issue an Alternative Financing

Guidance MemorandumGuidance Memorandum–– Provided Extensive Research to FEMP to Expedite Provided Extensive Research to FEMP to Expedite

AFGMAFGM

•• While Interest Rates May Go Back Up?While Interest Rates May Go Back Up?

ConclusionT

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•• At Least $1M Opportunity for PWC JAXAt Least $1M Opportunity for PWC JAX•• $10M+ for Navy? Much More for $10M+ for Navy? Much More for DoDDoD!!•• WeWe’’ll Be ll Be RelentlessRelentless & Harvest These & Harvest These

SavingsSavings