ENERGY PERFORMANCE CONTRACTING March 23, 2018 Is it the

Is it the right choice for your Municipality?ENERGY PERFORMANCE CONTRACTINGNYSGFOA Conference

March 23, 2018

© 2018 by Honeywell International Inc. All rights reserved.

Agenda1

• Introductions

• Growing Municipal Challenges / Concerns

• EPC 101 – What Makes a Successful Energy Performance Contract?

• Typical Municipal ECMs (Energy Conservation Measures)

• Recent NYS Initiatives / Programs to Help Develop and Implement EPCs

• Summary and Q&A


Introductions2

• Terence Guiry- Senior Business Consultant, Honeywell Energy Services

Group- 30+ years in the energy conservation & building automation

industry serving primarily the public sector market - BS Electrical Engineering, Rensselaer Polytechnic Institute

• David Dungate- Senior Business Consultant, Honeywell Energy Services

Group- 25+ years experience working on energy-efficiency and

renewable energy projects- M. Environmental Engineering, Hokkaido University


Honeywell Business History & Qualifications

Making your world Safer, More Comfortable and Energy Efficient

3

• A U.S. Business since 1886

• Dedicated to Energy Efficiency - 50% of products and services are energy-efficiency related

• $40.5 Billion in 2017 Sales

• 133,000 worldwide employees – 1,105 in New York State

• Delivered over 1100 ESPC projects with a total value of more than $3.5 Billion.

• Deeply committed to local job creation & the community

• World’s Most Admired Companies (Fortune)

• World’s Most Ethical Companies (Ethisphere Institute)

Renewable Energy

Building Automation and Analytics

Reduced Emissions

Green Buildings Microgrid and Smart Grid

Energy Efficiency Upgrades


Current Situation4

Provide Staff/Public Safety and Security

Enhance System Resiliencyand Efficiency

Optimize Services Delivery

Tight Budgets

Aging Infrastructure & Workforce

Rapidly Advancing Technologies

Environmental Issues

Attract New Businesses and Residents

Minimize Taxes and Leverage Resources

Meet Green/Sustainability Commitments

• Municipalities Under Increasing Pressure


Issues Facing Municipal Leadership5

• Pressures- Reduced State/Federal Funding- Increasing Energy Costs- EPA Mandates- Public Safety- Improving Local Livability- Job Creation

• Objectives- Balanced Budget- Improve Public Safety- Leverage Technology for Efficiency- Environmental Responsibility- Economic Development- Updating Technology / Infrastructure


Today's Energy Environment is Complex

The Right Solution Requires an Integration of Strategies

6

Central Plants & PPA

Advanced Controls and Building Optimization

Microgrids & On-site

Generation •

Sustainability & Behavior

Management

Renewable Energy

Supp

ly S

trat

egie

sD

emand Strategies

Operational Challenges

• Deferred Maintenance• Life Cycle Management

• Rising Energy Costs

Energy Efficiency


What If Someday . . .7

• That Someday Could Be Today!

• You had the money to make the infrastructure improvements your citizens need and expect?

• You could provide a safer, more secure city?

• You could anticipate facility and municipal infrastructure issues faster?

• You could connect your workers to municipal records….from the field?

• You had data at your fingertips to address citizens’ questions about their utility usage patterns?

• Your municipality was recognized as a leader in being “Green”?


What Is Performance Contracting?8

• All Project Components Delivered with a Single Contract.

• Proven method to achieve targeted infrastructure upgrades while minimizing project risk.

• Design Build, Performance Based Construction Method

• Comprehensive Turnkey Service - Energy Infrastructure Auditing- Engineering and Design- Financing- Construction and Commissioning- Training- Maintenance- Measurement and Verification of Results / Performance Criteria- Guaranteed Results

• Energy Service Company (ESCO) is responsible for project risks


NYS Energy Law9

• NYS Energy Law Article 9 –Energy Performance Contracts in Connection with Public Buildings and Facilities- Purpose: to achieve long-term energy and cost savings for agencies

and municipalities by leveraging private sector investments in energy-efficiency and energy production at public buildings and facilities

• Key Provisions- The law limits the duration of the contract to 35 years, or (if less) the

useful life of the equipment- EPCs must include a specific liability clause limiting the appropriation

of additional monies for the purpose of the contract (Art.9-103.3). (i.e.ensures project is self-financing)

- Mechanism for project financing using efficiency savings that reduceoperational costs rather than capital expenditure

- EPCs to be procured through a request for proposals, which allow thecustomer to select based on highest value (not necessarily lowest bid)


Contracting Method Comparison10

FACTOR BID/SPEC PERFORMANCE CONTRACTING

Financial Capital/Bond Current Budget

Contract Team Only During Installation & Warranty 1-20 Years

Upfront Fees Yes No

Technology & Contractor Selection Low bid Long-term Value and

Performance

Guarantee No Financial & Performance


Performance Contracting Value

Proven Turn-key Method to Achieve Results

11

• Achieve Priority Infrastructure Upgrades- Address deferred maintenance and allow capital budget to be

focused on other priorities- Select technologies and contractors based on long-term value not

only lowest first-cost

• Budget-Neutral, Fiscally-Responsible Funding Mechanism- Upgrades paid for with energy & operational savings- Tax increases avoided by using alternative funding- No up-front funding required

• Peace-of-Mind- Guaranteed savings and performance throughout the life of the

contract- Single point of responsibility for results- Enable proactive vs. reactive maintenance

• Community/Environmental Leadership- Showcases commitment to environmental stewardship and

energy-efficiency- Improved building comfort- Enhanced staff productivity & health

Before Improvements

Maintenance Costs

EnergyCosts

Energy Costs

After Improvements

Maintenance Costs

Building Upgrades


Funding From Existing Budget12

Performance Contracting can allow you to complete projects without any capital funding or bonded indebtedness impact.

Needed Capital Work Completed

– Funded By Energy Savings

Existing Energy

and O&MCosts

Before ProgramDo nothing

During Program(Years 1- 20)

After Program

Your Cost Avoidance/

Savings

$

Time

Positive Cash Flow

New Energyand O&M

Costs

New Energyand O&M

Costs


Performance-based Contracting Projects

All Steps Included Under A Single Contract

13

Class 1 Class 2 Class 3

Performance Based Projects• Guaranteed Savings

- Efficiency Improvements- Productivity- Managed Asset Renewal

• Option to Include- Class 1 & 2 Projects

Alternative Funding Approach• Funded through energy &

operational guaranteed savings, grants and utility rebates

• Project risk resides with Honeywell

Capital Projects• New Program

Launch• New Facility • Capital Equipment• Planned Facility

Renewal

Typically Budgeted• Compete for capital• Prioritized • Projects have similar

business risk

Must Do Projects

• Emergency Equipment Repairs/Replacement

• Building Damage• Life Safety Issues• Environmental

Compliance• Security

Often Unplanned• Must be completed

regardless of return


Typical Energy Upgrades and Payback14

Funding Needed Upgrades by Bundling Short and Long ROI Measures

Payback

Energy Conservation Measure (ECM) Examples


Project Financing15

• Options to Explore:- Grants / Incentives- Cash Flow Structuring & Modeling- Cost Effective Alternatives and Solutions- Competitive Financing Options- Closing with Financial Firms- REC’s


Financing Concerns

The Right Partner Should Help Navigate the Options

16

• General Municipal Law Vs. Energy Law

• Statutory Debt Limits

• How to Pay?

• Local Charter rules on borrowing

• Fiscal Advisor

• Bond Counsel


Other Financing Options

Other Financing and Funding Topics You May Hear About

17

• Financing Vehicles- Guaranteed Performance

Contracting- DBOOM — Design Build Own

Operate and Maintain- Public Private Partnerships- PPA

• Funding Sources- Energy and Operational

Cost Avoidance- Energy Efficiency Grants- Incentives


Roadmap to Successful EPC Projects

The Co-authored Development Process Gives Greater Control

18

GETTING STARTEDAGREEMENT TO MOVE FORWARD

SOLUTIONS DEVELOPMENT

PROJECT IMPLEMENTATION

FOLLOW UP AND VALIDATION


Stage One – Getting Started

Key for Muni: Internal Alignment and Selection of Partner

19

• Internal Commitment- Confirm Ability to Contract- Agreement By Decision Makers- Form Project Evaluation Team

• ESCO Prequalification- Financial Stability- Technical Expertise- Resource Mobilization

• Develop and Issue RFP or RFQ- Qualifications- Scope of Work- Transparent Pricing

• Ticket to Next Stage- Selection of Partner


Stage Two – Agreement to Move Forward

Get a Letter of Intent to Define Joint Expectations

20

• Letter of Intent- Rules of Sandbox Defines Understanding

forBoth Parties to Move Forward

- Provides No Risk Path to Move Forward Should Criteria be Unmet

• Form Joint Requirements Team- Define Financial Requirements- Define Technical and Operational

Requirements- Define Contractual Requirements- Agree on Administrative Process- Agree on Decision and Approval Process

• Ticket to Next Stage- Signed Letter of Intent - Requirements Defined and Approved


Stage Three – Solutions Development21

Make sure the solution is tailored to your needs . . . no cookie cutter approaches.

• Development of Project- Energy Bill Analysis- Site Audit- Scope Defined- Engineering Work - Projected Savings

• Financing- Package Developed- Incentives and Funding Sources

Defined

• Project Review

• Ticket to Next Stage - Agreement of Scope- Financing- Signed Contract


Stage Four – Project Implementation

Communication is Key Here – Get to know your Project Manager!

22

• Project Manager Assigned

• Kick Off Meeting - Introduction of Key Players- Project Schedule Reviewed

• Review of Communication Strategy

• Review of Expectations


Stage Five – Follow-Up, Validate Savings

Understand the Validation Process – Not all Guarantees are the Same!

23

• Annual Meetings- Report Presented- Review of Annual Savings and

Performance


Collaborative Project Management Approach24

• Mayor/CEO• CFO• Director of Engineering

• Shift Supervisor

• Maint. Tech

Coordination with Planned

and Concurrent Projects

Leveraging Procurement

Across Multiple Projects

Open Bookand Open Bid

Ongoing Client

Collaboration

Client Participation, Input, and Planning

AssessmentGoal Setting

and Prioritization

Site SurveyIGA

Development

Engineeringand Design Submittal

Development

ProcureInstall

ContinuingServices


Measurement & Verification25

SAVINGS DETERMINATION METHODOLOGY The Federal Energy Management Program (FEMP) M&VGuidelines, ASHRAE, and International Performance Measurementand Verification Protocol (“IPMVP”) are voluntary consensusdocuments written by and for technical, procurement and financialpersonnel in government, commerce, and industry.

The FEMP M&V Guidelines and IPMVP provide an overview ofcurrent measurement & verification (M&V) techniques and set theframework for verifying third-party-financed energy projects forpublic (including Federal) and private-sector projects. They dictatethat energy (or water) savings are determined by comparing theenergy (or water) use associated with a facility or certain systemswithin a facility before and after the installation of an energyconservation measure (ECM) or other measure.


Primary M&V Objective = Guarantee Results26

1. Employ the least time and cost intensive approach that will effectively validate the cost avoidance / savings results of applied energy conservation measures (ECMs) to the satisfaction of all involved parties.

2. Balance the costs of completing M&V activities with the value of the data returned from the effort. That is, the costs to do the M&V work should always be a reasonable percent of the savings value.

3. Maintain an easy to follow reporting & audit trail for Energy Performance Contract (the “EPC”) participants (customer & others, e.g. 3rd party funding sources, that may desire status reports on project effectiveness).

4. Meet State & Rebate Statutes - Compliance with State and rebate requirements.

5. Maintenance and improvements - Continuous monitoring of equipment to verify maintenance and suggest improvements.



Four M&V protocols – Commonly referred to as:

• Option A – Retrofit Isolation, none or one time measurement

• Option B – Retrofit Isolation with On-going Measurements

• Option C – Whole Building Utility Tracking

• Option D – Computer Simulation

Amount of effort & cost for you and ESCO generally increases as you move from “A” “D”

Regardless of protocols used, you have financial protection, also known as “Savings Guarantee”



• M&V is about shared risk and the cost to mitigate it

• Higher M&V Cost = Less Productive Work

• Guarantee Co-Authored with Municipality

- Guarantee Terms

- Payouts on Guarantee

Baseline 2-3 yrs

Savings Calculation

Methodology

O&M Performance Requirements

Performance Training

MonitoringReporting

M&V Guarantee Development Timeline


Measurement & Verification – Option A29

• “Retrofit Isolation” technique - Used when easy to isolate individual ECM performance from other energy consuming equipment/systems, and all/most operating parameters are known and stable- Avoids “masking” effects of other “non-involved” energy use- Improves accuracy

• Requires Post-Install “spot” or short-term measurements during ECM “commissioning” (end of ECM construction phase), for comparison to Pre-Install baseline values.

• Documents ability of ECMs to perform as specified over the Energy Performance Contract (the “EPC”) term.

• Interactive affects between ECMs or with other facility equipment can be easily measured or assumed to be insignificant.

Generally, least expensive of M&V Options


Measurement & Verification – Option A30

Option A Best Applied Where:• Performance of only the systems affected by the ECM is of

concern

• Isolation of ECM from rest of facility and stipulation of key factors avoids possibly difficult non-routine Baseline Adjustment for future facility changes

• Independent variables that affect energy use are not complex

• Stipulation of some parameters is less costly than measurement using Option B or simulation using Option D

• Uncertainty created by stipulations are acceptable

• Continued effectiveness of ECM can be assessed by routine visual inspection and review of stipulated parameters

• Sub-meters already exist to isolate energy use of systems


Measurement & Verification – Option B31

Option B – Similar to Option A• “Retrofit Isolation” technique - Used when easy to isolate

individual ECM performance from other energy consuming equipment/systems- Avoids “masking” effects of other “non-involved” energy use

• Requires Post-Install “continuous” or long-term measurements during each annual performance period (over EPC term), for comparison to similar Pre-Install baseline values

• Uses Building Automation System/Energy Management & Control System (“BAS” or “EMCS”) to monitor key operating parameters, and/or specific annually reoccurring tests


Measurement & Verification – Option B32

Option B Best Applied Where:• Savings determination techniques of Option B identical to those

of Option A, except stipulations not allowed, and on-going measurements are required

• On-going metering (short-term or continuous) increases certainty in reported savings, and provides more data about equipment operation (where appropriate, real-time monitoring actually improves the benefit of the retrofit itself)

• Assessing continued effectiveness of ECM requires more than routine visual inspection

• Sub-meters already exist to isolate energy use of systems


Measurement & Verification – Option C33

Option C – Whole Building Utility Tracking• “Whole Building” technique (Used when ECMs applied are

many, and have dynamic “interactive” affects).

• Energy use determined by tracking and analyzing monthly utility bills for all energy types and meters that are impacted by the ECMs installed.

• Requires tracking and analyzing all other involved variables to avoid “masking effects” of new energy use (“Load Creep”) not included in Pre-Install “Base Year” beginning the day of the first ECM installation, and ending on the last day of the ESPC agreement term.

• Baseline Adjustments to account for variations. Annual comparison of consumption and costs that would have occurred without EPC vs. Actual.


Measurement & Verification – Option C34

Option C Best Applied Where:• Energy performance of the whole facility is to be assessed, not

just the ECM performance

• ECMs involve diverse activities which cannot be easily isolated from the rest of the facility

• Major future changes to the facility are not expected over the life of the EPC term

• A system of tracking key “energy impacting” variable factors can be implemented, and customer “Responsible Personnel” tasked and scheduled for records keeping and timely transmittal of data to Honeywell Measurement & Verification Specialist (the “MVS”) for Baseline Adjustment assessment along with utility bill tracking and assessment

• Reasonable correlations can be found between energy use and other independent variables


Measurement & Verification – Option D35

Option D – On-Going Computer Simulation• “Calibrated Computer Simulation Model” technique used to

predict facility energy use and assess the performance of all ECMs involved

• Simulation model calibrated to predict energy use and demand pattern that reasonably matches actual energy use and demand data for either the Base Year or Post-Retrofit Year

• Multiple simulation runs can be made to estimate cost avoidance/savings attributed to each ECM in project


Measurement & Verification – Option D36

Option D Best Applied Where:• New Construction

• Energy data unavailable or unreliable

• One meter serves many buildings

• The impact of each ECM on its own is to be estimated within a multiple ECM project, and the costs of Options A or Option B are excessive.

• Interactive effects between ECMs or with other facility equipment is complex making Option A or Option B isolation techniques impractical.

• Major future changes to the facility are expected over the EPC term, and no realistic means can be found to track or account for their energy impact.


Comprehensive EPC Solutions37

• Building and Facility Optimization• Wireless Broadband Networks (Wi-Fi)• Automated Meter Reading

- Water, Electric, and Gas

• Utility Billing System• Geographic Information System/GPS• Demand Response/Smart Grid• Renewable Energy • Municipal Lighting

- Street/Security and Traffic Signals

• Water and Wastewater - Energy Reduction- Waste Heat Recovery- Waste to Energy

• Communication and Awareness• Grants


Reference Sites38


NY State Reforming the Energy Vision (REV)39

2015 NY State Energy Plan (coordinating document)

REV GOALS (by 2030)• GHGs reduced by 40% • Electricity from renewables 50% • Energy consumption in buildings reduced by 23%

REV – Key Agencies1. PSC – REV regulatory reform (new business model for

utilities)2. NYSERDA – Clean Energy Fund (Clean Energy

Communities, renewable energy / energy storage / microgrid incentives)

3. NYPA (Lead by Example) investments


Other NYS Energy Initiatives40

Investor-Owned Utilities (e.g. Nat.Grid/ConEd/ NYSEG)• New business models due to REV • Focus on efficiency and non-wires alternatives (Demand

Management / Demand Response / Distributed Generation)

• New pricing models (enhanced efficiency incentives / customized rebates)

• Demonstration projects/pilots of new technology

NY Department of State• New State Building Energy Codes (2016)


Summary – Is an EPC right for my Municipality?41

Why an EPC? • Budget-neutral and fiscally-responsible funding mechanism

to upgrade energy infrastructure

• Proven procurement mechanism to leverage in-house resources to deliver expanded project results

• Performance guarantee provides “peace-of-mind”

• Demonstrate community/environmental leadership with comprehensive and innovative solutions

Why Now?• Current market conditions and new NY State initiatives

support municipalities to achieve enhanced EPC project results.


Questions / Discussion42

David DungateBusiness Consultant Honeywell Energy Services GroupTel: 518-791-7713Email: [email protected]

Terence GuiryBusiness Consultant Honeywell Energy Services GroupTel: 516-302-9480Email: [email protected]
