Kansas Leads the Way in Energy Performance Contracts

By Leo Wiegman

“Energy efficiency is, no doubt, the least costly, least risky, and quickest way to meet energy needs of the future.”

— Jim Ploger, former director of the Kansas Energy Office

Photo courtesy of Energy Solutions Professionals, LLC

Kansas is a model for implementing the energy-saving performance contract (ESPC), a partnership between a building’s owner—such as a government agency—and an energy service company (ESCO). The ESCO conducts a comprehensive energy audit for a facility to identify improvements that will save energy. In collaboration with the owner, the ESCO designs and installs a project that meets the owner’s needs, and arranges the necessary financing. The ESCO guarantees that the improvements will generate energy cost savings sufficient to pay for the project over the term of the contract. After the contract ends, all additional cost savings accrue to the owner of the facility.

The genesis of ESPCs can be traced to 1984, when an energy audit of state-owned buildings in Washington state revealed substantial retrofit opportunities, and performance contracting was proposed as a funding solution.  Performance contracting meant a third party would fund and implement energy upgrades for a building in exchange for a long-term contract to provide that building’s owner and tenant with the required heating or cooling performance.

In 1986, Massachusetts jumped into energy performance contracting when the state legislature authorized three different agencies to develop guidelines for three key sectors: state-owned facilities (including higher education), local government buildings, and public housing.

These successful experiments among the states set the stage for the federal government to adopt a similar approach to keeping future operating costs in check without large initial capital outlays.

The Energy Policy Act of 1992 (EPACT 1992) authorized federal agencies to use private-sector financing to implement energy conservation methods and energy efficiency technologies. (In the private sector, ESCOs arrange financing for projects designed to improve the energy efficiency and maintenance costs for facilities over a seven- to twenty-year period.)

After adopting enabling legislation in 1999, Kansas launched its version of energy savings performance contracting in 2000, naming it the Facility Conservation Improvement Program (FCIP).  Kansas designed its program on the “SuperESPC” model that evolved out of the Federal Energy Management Program Energy Services Coalition collaboration.

Within three years, the Kansas program had expanded from state-owned facilities to those operated by counties, local governments, and school districts. Todd Stephenson, business manager for Buhler Unified School District #313, was an early convert to the Kansas program.

“One of the questions I received—probably the second time I approached the school board—was, ‘Isn’t this fantastic? If we can come up with a way to pay for a project through our savings, shouldn’t we be doing this already?’” said Stephenson. “The energy audit was the key that provided the ability to say, contractually, ‘This is what we can do for you.’”

That’s when Jim Ploger, then the director of the state’s energy office, set several key best practices in motion. Kansas simplified the procurement and contracting processes by establishing a set of prequalified ESCOs and bringing state attorneys into this contracting process. Second, Kansas developed a self-funding program by charging a fee to universities, school districts, and others in exchange for technical assistance from the state.  In addition, Kansas launched this program with both critical political support from the governor and from staff across several key state agencies.

Kansas has had a remarkable track record since 2001, when the Energy Services Coalition began collecting energy-saving performance contracting data from the states. Kansas ranks second in the nation in dollars per capita invested in ESPC ($90.81); third in total investment in performance contracting, at just over a quarter billion ($259.1 million); third in job years created (2,816); third in energy saved (2.2 million British thermal units); and third in annual carbon emissions avoided (36,930 tons).

Colorado, Wyoming, and Montana, among others, have used the Kansas self-funding model to set up their state ESPC programs. With the recent budget challenges many states have faced, the ability for a program to finance itself is a major selling point.

“In that respect, the Kansas model of self-funding has been a great example,” said Ploger. “Besides self-funding, other key aspects of the Kansas FCIP program have been the pre-approved contractors (ESCOs) and standardized documents for investment-grade audits and the ESPC contracts.

“I anticipate interest in the ESPC program in Kansas may pick up over the next few years—as well as [in] other states—now that the ARRA funding to state energy offices has come to an end,” continued Ploger. “States are taking a real serious look at self-financing programs for energy efficiency programs, especially in all levels of the public sector.”