Energy Performance Contracts: Your Untapped Resource
Mitigate Budget Cuts, Improve Your Efficiency,
and Make Needed Capital Upgrades, all WITHOUT Building Aid
By Herb Chessler, Former President, ASBO NEW YORK
Educational Finance Specialist, The ECG Group
In recent months, Governor Cuomo has stated repeatedly that if New York does not receive additional federal funds, the state will be forced to make drastic reductions in all areas of funding – including state aid to school districts. This reality started to hit in August, when the Division of Budget (DOB) issued the fiscal year 2021 update. The document states that in June, DOB began withholding 20% of most local aid payments, and in July, began approving payments to public schools at 80% of the scheduled amounts. We must now recognize that these reductions in aid may become permanent, based on the size and timing of any federal funds received.
Given this dire forecast, it is important for school districts to find a way to undertake necessary upgrades and improvements without impacting the budget or the taxpayer. An EPC is an excellent way of addressing your district’s needs while improving efficiencies and reliance on energy. By using the guaranteed energy savings from reduced energy use to pay for the cost of installing more energy efficient, needed building improvements, EPCs are completely tax- and budget-neutral, and require no out-of-pocket costs.
The Process of an EPC
The first step in considering an Energy Performance Contract (EPC) is to find a Technical Owners Representative (TOR) company that specializes in developing and overseeing an EPC in the K-12 school environment to manage the project. Your selected TOR must possess the following qualities necessary for success:
– Depth of Specific Expertise: An EPC is a highly specialized engineering project that relies on savings calculations as the foundation of its financial structure. As such, your TOR must be able to demonstrate a depth of understanding of technical factors such as degree days, utility rate structures, monitoring, and verification protocols, and many other complex aspects of energy engineering in order to appropriately represent your district.
– Experience with Multiple ESCO’s: ESCO’s are professional services companies and each has its own strengths and weaknesses. Your TOR should have experience managing projects with all major ESCO’s to provide you with valuable insight on the ESCO’s work performance and which firm would best suit your district’s unique needs and preferences.
– In-House Technical Engineering Ability: EPC’s are engineering projects that primarily involve the upgrade of mechanical systems. Ensure your TOR’s team composition reflects the needed emphasis on mechanical engineers as well as Certified Energy Managers that are qualified to evaluate savings calculations and other complex aspects of energy engineering.
– Experience, Focus, and Leadership in the EPC Industry: Ensure your TOR has a proven track record of successful projects. Any firm can oversee an EPC project and claim it has experience; however, they must show you that the projects they managed are delivering guaranteed savings. When evaluating TOR firms consider those with an emphasis on engineering and energy performance contracts, those who only focus on EPC consulting and those that are experts in the energy engineering industry.
With a skilled TOR on board, the next step is to secure the services of an ESCO. This company will implement the energy project in close coordination, and under the supervision, of the TOR.
The district must then work in close consultation with your TOR and fiscal advisor. This is to select the appropriate financing terms to secure the funding, ensuring no out-of-pocket costs and no deficits throughout the term of the contract. The project is FULLY self-funded through the guaranteed energy savings that are generated on an annual basis.
Once that is all in place, and with the appropriate board of education communication, presentations, and approvals, you will be ready to begin your project.
My Experiences with EPC’s
While I was the Assistant Superintendent for Business at the Middle Country Central School District, we entered two separate Energy Performance Contracts, both utilizing the services of The ECG Group to develop, oversee and coordinate the projects.
Utilizing the EPC method allowed us to complete lighting upgrades throughout our 14 buildings, install a cogeneration plant which allows us to re-use energy, install temperature controls to increase occupant comfort and reduce waste, and many other energy efficient upgrades. We also received a rebate of over $700,000 from our utility company, which, at the time, was the largest rebate awarded to a Long Island school district.
Our most current “Phase II” EPC project will replace virtually all district lighting to LED along with the installation 3.95 megawatts of solar panels at 6 locations. Combined, this solar implementation will reduce our reliance on the utility grid to virtually zero. In addition, this Phase II project is expected to receive almost $350,000 in additional guaranteed utility rebates.
All this done was done at no out-of-pocket cost to the community and no impact on our budget, as the energy savings are guaranteed by the ESCO to cover all expenses.
In addition to picking an outstanding TOR to provide specialized expertise and guide the implementation of the project, I would recommend the following best practices:
– Employ an in-depth RFP process to allow for detailed and consistent building audit information as well as to be able to make informed decisions and implement the project quickly.
– Early and continuous involvement of district administration and school board.
– Establish key project goals, priorities, and desired scopes of work at beginning of the process.
– Target maintenance-prone energy consuming systems to get the benefits of not only energy savings, but also reduced operating costs of new equipment.
– Backfill expiring future debt schedules by investing in buildings and core infrastructure.
– Maximize project scopes to full 18-year limits to maximize energy savings and self-funding project size.
COVID-19 has put a strain on all school districts in the State. EPC projects provide a valuable and viable tool for districts to implement many types of capital projects with NO capital outlay and NO reliance on building aid. An EPC provides guaranteed energy savings while moving critical projects forward, reducing long term costs, and providing a healthy student environment. This is a fiscal positive for your district, and a clear opportunity for School Business Officials to demonstrate leadership, when your communities are relying on you most.
Herb Chessler has over 35 years of experience in school district finance, 20 of which were as the Chief School Business Official. Herb also served on the Board of Directors of ASBO NY and as the President of ASBO NY for the 2014-15 year. Herb is recently retired and is now the Educational Finance Specialist for The ECG Group. For more information contact Herb@theECGgroup.com.
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