Energy Performance Contracting

Energy Performance Contracting

It’s a powerful way to cut energy costs.

John Long, superintendent of the Warren County R-III School District in Missouri, knew that one of the school campuses was badly in need of an upgrade.

Built in 1952, added onto sporadically over the years and served by an old boiler system, the campus—hosting an elementary and a middle school—was due for some major renovations that would modernize the facility and lower energy and maintenance costs. But at a time of tight budgets, and with strict state limits on school districts’ bonding capacities, the 3,000-student district, located about 60 miles west of St. Louis, had to weigh any capital project carefully.

Long had an answer: energy performance contracting. “I would strongly consider performance contracting if you are in a facility that has aging climate control equipment, insulation and windows, because most districts can’t afford to just replace a building that is outdated,” he said. “And this extends the life of the building.”

In the case of the Warren County district campus, the nearly $7 million project entailed window replacement, asbestos removal, new fire alarms and equipment, new lighting, revamped electrical systems, and new heating and cooling systems, allowing the campus to get rid of its inefficient, expensive-to-maintain boiler system, Long says.

The Warren County district financed the project through what’s known as a tax-exempt lease-purchase agreement—essentially an installment plan. It’s similar to a car lease except that it’s presumed that the asset—in this case, the equipment and building improvements, not a car—is owned by the district after the lease term expires, according to an analysis published by the U.S. Environmental Protection Agency.

Here’s how the concept works: Investors finance the efficiency project, leading to reduced energy and maintenance costs. But instead of pocketing those savings, the district uses them to make installment payments on the lease-purchase agreement, which in Warren County’s case has a 15-year term. After the lease term ends, the district can start keeping the savings.

The Warren County district contracted with energy services company Control Technology and Solutions to estimate the energy savings that would be achieved by the project. CTS and the district signed a guaranteed savings contract in which the company pledged to pay any excess costs should the actual savings be lower than what CTS projected.

For Long, the arrangement was a no-brainer. A big advantage: The lease-purchase agreement—including any interest to investors—is paid for out of the district’s regular operating budget used for utilities and maintenance. As a result, he says, the district avoided having to issue any bond debt to cover the project—an important achievement given Missouri’s limits on how much bond debt a school district can carry at any one time.

In Warren County the move has paid off, Long says. “The savings are actually better than projected,” he says. To give one example of the savings: Before the energy efficiency project, the campus had no cooling system, making it quite hot for part of the year. After the installation of an energy efficient climate control system, the district now can both heat and cool the campus for less money than it took to heat it prior to the project.

Each state has its own set of rules governing the practice, requiring districts to consult state authorities when considering that financing option, according to the EPA. Long recommends that districts considering energy performance contracting be careful in seeking out an energy services company. Look at the firm’s track record in other districts, not only in achieving the predicted savings but also in finishing the project on time, he advises.

Kevin Butler is a contributing writer for District Administration.


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