Colorado EPC: Designed for Success

by Jeanna M. Paluzzi, EPC Program Manager, Colorado Energy Office

Since the mid-1990s, state agencies, institutions of higher education, and local governments have leveraged the Colorado Energy Office’s Energy Performance Contracting (EPC) program to finance energy and water efficiency and other public facility improvements with guaranteed energy savings. These cost-effective business decisions free up taxes, tuition, and fees for valued programs and services.

In June 2014 Colorado’s EPC project investments total $447.4 million, or $88.96 per Coloradan. These results rank Colorado #3 in total investments and #5 per capita investments, according to the Energy Services Coalition’s national Race to the Top. Perhaps even more significantly for Coloradans, EPC projects can be found in communities across 75% of Colorado’s counties, guaranteeing them $28.8 million in annual utility cost savings.

Several best practices are incorporated into Colorado’s robust program, encouraging projects within the state and prompting interest from other states about program design. While continuously improving its core program, Colorado is extending the benefits of performance contracting into two market frontiers this year: small and rural jurisdictions, and the private sector.

Best Practices

Colorado infuses its program with high standards, accessibility, continuous improvement, and collaboration. Colorado standards for success are articulated in its program documents, its contracts with program consultants and energy service companies (ESCOs), and its transparent partnerships with public facility owners and their ESCOs. Public clients, ESCOs, project financiers, and others attribute Colorado’s success to several key features, all designed to foster satisfying experiences.

Standardized, State-Approved Contracts

One key feature of Colorado’s program is the ongoing partnership between the Colorado Energy Office (CEO), Office of the State Architect, Office of the Attorney General, Colorado Chapter of the Energy Services Coalition (ESC) and CEO’s program consultant that produces and updates standardized, state-approved contracts and processes. These include ESCO selection guidance (when a bid process is required), the technical energy audit contract, the energy performance contract, the financing bid package, and the measurement and verification protocol. Each document incorporates statutory and regulatory requirements, industry standards, and program standards for success. The Colorado EPC program is authorized by state statutes and complies with other requirements, such as Colorado’s Taxpayer Bill of Rights and federal Dodd-Frank and U.S. Securities and Exchange Commission regulations.

Colorado regularly shares its program documents and lessons learned with other states. Last year the U.S. Department of Energy’s Performance Contracting Accelerator used Colorado contracts as the basis for model documents. This year Colorado will release its own updated contract templates, moving toward simpler, user-friendly, fill-in-the-blank Word templates for project-specific information, and to PDFs for all standard language requirements.

A Talent Pool of Prequalified Energy Service Companies

CEO and the Office of the State Architect solicit proposals from and preselect ESCOs to meet the varied needs of clients across Colorado. Today, facility owners can confidently select one of 14 prequalified ESCOs. Colorado’s ESCO base contract incorporates statutory and regulatory requirements, industry standards, and CEO’s standards for success. Contracts are executed for 5 one-year terms that are subject to annual renewal. Minimum requirements for annual renewal consideration include at least one active contract, or bid responses to at least half the Requests for Proposals issued, or business development activity with at least four potential clients.


Source: Colorado Energy Office

A Free-Market Approach to Financing

Rather than competing for finite loan funds annually through an application process, Colorado projects attract support from private financial markets. With increasing interest in energy efficiency, there is no limit to investment capital in Colorado. Several project investors actively engage in both Colorado Chapter and national ESC activity.

The Colorado Department of the Treasury oversees and expedites a bid process for state agencies. Colorado offers a standardized financing bid package to local facility owners, and the package includes a finance contract template. Any facility owner can enter into a project on its own timetable. Financing is project-dependent.

ESCOs assist state and local clients with identifying available rebates and incentives.

Free Third-Party Coaching and Technical Assistance

Upon signing a nonbinding Memorandum of Understanding with CEO, a facility owner is supported through the technical, legal, and financial aspects of EPC. The Memorandum of Understanding ensures the facility owner will benefit from advice and technical assistance available from CEO free of charge, throughout the life cycle of an EPC project.

CEO’s EPC program team consists of a program manager, an energy engineer, and a program consultant. A total of four energy engineers are available as needed for project consulting work. A CEO project consultant is assigned at each project’s inception.

Projects initiate in one of two ways: through ESCO business development activities, or a facility owner’s direct contact with CEO. ESCOs may vet an EPC project’s potential themselves. ESCOs are required to introduce the CEO advisory role and technical assistance as part of their presentation and involve CEO in early conversations. Should a facility owner contact CEO directly, a CEO project consultant will meet with decision makers to assess the potential usefulness of EPC as the tool to meet the facility owner’s needs, secure the decision to proceed, and support the ESCO selection process. CEO provides support to, but is not a member of, the selection committee process, if locally required.

Once an ESCO is on board, the CEO project consultant provides the technical energy audit (TEA) contract template, supports the negotiation of the scope of work, and reviews the draft TEA contract before it is executed. After the TEA is conducted, CEO reviews the calculations, conclusions, and recommendations in the draft TEA report and EPC project proposal and provides feedback to both client and ESCO. When the client is ready to proceed with an EPC project, CEO provides the EPC contract template, confirms that the project scope meets the facility owner’s goals, checks construction and energy savings calculations, advises on contract terms, and validates that the proper measurement and verification options are proposed. CEO checks in on progress during construction, and reviews and comments on measurement and verification reports.


Source: Colorado Energy Office

Innovation

While managing its core EPC program elements, CEO is ramping up initiatives in two markets this fiscal year: small and rural communities, and the private sector.

Small and Rural Communities

Though active and completed EPC projects benefit local communities in 75% of Colorado’s counties, only a third of government units in Colorado have benefited from energy performance contracting to date. Several forces are bearing on Colorado’s public-sector market this next year:

  • Senate Bill 14-186 was passed and signed into law during the last legislative session, calling for a mechanism to improve access to EPC for small and rural communities and school districts.
  • The U.S. Department of Energy’s Performance Contracting Accelerator coordinates a network of partners that will help identify what has been tried and either worked or failed elsewhere.
  • U.S. Department of Agriculture Rural Utilities Services and the National Rural Water Association awarded Colorado and six other states funding to conduct energy audits of small water and wastewater systems.
  • Western Resource Advocates is interested in energy and water efficiency in the seven states within the Colorado River basin through accelerated EPC market development.
  • CEO is currently conducting deep data and geographical analyses of its EPC portfolio and identifying other Colorado-based partnerships to extend the benefits of EPC to small and rural communities.

Private Sector

Traditionally EPC has been a powerful financing tool in the public sector. In 2011 the U.S. Department of Energy awarded Colorado a competitive grant for the nation’s first statewide pilot EPC program in the private sector. In this leading-edge initiative, CEO provided incentives to private facility owners, paying 75% (up to $25,000) of audit costs. Originally seeking participation from 10 companies, CEO actively engaged 16 private companies from a variety of industries (ski resorts, multitenant office and residential buildings, retail, manufacturing, television). The subsequent energy audits and EPC project proposals identified potential annual energy and water savings of more than 12.8 million kilowatt-hours of electricity, 450,000 therms of natural gas, and 3.4 million gallons of water, totaling $1.45 million. Colorado is supporting each company’s consideration of individual EPC project proposals and contract development.

CEO is currently conducting due diligence in designing a permanent program. Part of that due diligence is a presentation and request for input from other states and ESCOs at ESC’s Third Annual Market Transformation Conference in July 2014.

One striking contrast with public-sector performance contracting is the term of the property hold in the private sector. Although a public facility is unlikely to change ownership, a private property may be held for a period shorter than the usual EPC financing term. As such, CEO’s launch in the near future of a statewide Commercial Property Assessed Clean Energy (CPACE) program is perceived as a boon to a private-sector EPC program.

Energy Services Coalition

Colorado co-founded ESC in 2000 and became its first state chapter. Today ESC has 30 state members.
Linda Smith is the early Colorado EPC program manager who established the Colorado Chapter; she is now a consultant to the U.S. Department of Energy’s Performance Contracting Accelerator and other state energy offices. According to Smith, Colorado’s bestpractices and innovation have a common denominator: program longevity, supported by strong internal champions at CEO.

“CEO is very proactive in giving the program the attention it really needs and putting in the necessary resources to serve all of Colorado’s markets,” Smith said. In addition to longevity, she credits CEO’s strong partnership with the Office of the State Architect; an ability to offer high-quality, cost-effective technical assistance; an ability to serve both state and local governments; and legislative support.

These differentiators, she says, form the basis of CEO’s leadership in energy performance contracting: “Colorado has a lot to share with other states, and always steps up to do that.”