Virginia Department of Mines, Minerals and Energy

Performance Contracting

Any state agency may enter into an energy performance-based contract with an energy performance contractor to significantly reduce energy costs of a state facility through one or more energy conservation or operational efficiency measures.

How Performance Contracting Works:
Phase I - RFP Process for Energy Services Companies (ESCO)
Develop a pool of several qualified firms that could provide these services and have the financial capabilities to perform. The RFP was written for all public bodies in the Commonwealth. The goal behind the pre-qualified pool is to provide for healthy competition, it also prevents one firm from being overloaded, thereby creating an environment for failure. The pool allows for a wide range of services and the ability to use a smaller ESCO for smaller projects.

Phase II - Selection Phase of the ESCO for the project
Select 3 or more ESCOs from the pool to provide an approach to the agency project. The selection should be based on the ESCO experience, ability to respond and potential for funding model. This phase does not cost the public body anything; we call this “the back of the envelope proposal”. This provides the public body an analysis to determine if the cost investment is present for the energy savings. Interview one or more ESCOs and negotiate a contract for performing the formal energy audit, developing the construction documents, performing project management, developing the financing model and developing the measurement and verification of the implemented energy savings.

Phase III - Technical Energy Audit
Establish an MOU for the ESCO to perform the energy audit that involves a complete evaluation of the energy projects being recommended and perform a modeling exercise of the projected savings and timeframe. An energy baseline is established along with the measurement standards. The public body makes a determination to go forward. If the savings are not projected to cover the expense, then the public body will pay the ESCO for the detailed technical audit. If the public body goes forward with the project, then the financing needs to be defined.

Phase IV - Financing
This area provides for several different types of financing options to consider. State agencies are required to contact the Department of Treasury prior to entering into any financial arrangements. There are other types of financing available to local public bodies, such as municipal bonds, private donations, etc.

FOR STATE AGENCIES ONLY:
State agencies ONLY, are required to seek approval as a Capitol Outlay project on any energy project whose total value is over $3,000,000. State agencies are required to have the design documents developed by the ESCO reviewed for code compliance. The Bureau of Capitol Outlay Management reviews the documents. State agencies cannot add funds from other Capitol Outlay projects into an ESCO project and will be treated as a separate project. State agencies are required to have a review of the financing model prior to final execution of a contract. State agencies are required to have a technical review by DMME.

Phase V – Construction
The ESCO now takes on the role of the construction/project manager. Based on what the energy implementations will be, the ESCO will either go through a review process with BCOM (which the agencies will reimburse the ESCO for these additional costs for review) or the project will be implemented. The deciding factor is based on the CPSM requirement when a renovation or maintenance project affects the fire egress or causes a code change in the building. There does need to be a waiver granted by DEB to allow agencies to do maintenance projects above $500,000. Currently if a construction project is over $500,000 the agency has to treat it as a Capital Outlay project. These projects are primarily equipment replacement and should be outside the Capitol Outlay process.

Phase VI – Measurement and Verification
The ESCO and the public body established a baseline for the saving when negotiating the contract after the audit. It is at this point that the ESCO sets up how the performance will be measured in conjunction with the public body. The ESCO will define specific guidelines, and may include detail on settings of the equipment that assure the savings. This M&V is monitored. There will be a contract for independent monitoring services to allow an agency to bring in a third party to verify the savings, if needed.

Synopsis Statement – Energy Performance Contracting is primarily equipment replacement to provide energy savings and installation of building control systems to control energy consumption, which are defined as maintenance projects. They are impacted by the Virginia Uniform Statewide Building Code. State agencies shall comply with the CPSM for all design and construction work under this contract. Other public bodies shall comply with their local building codes.

Click here for additional information about various performance contracts.

Additional Resources/Information:
Code of VA Section for Energy Performance Contracting (Contract Procedures and Guidelines)

Measurement and Verification Guidelines for Energy Savings Performance Contracting

List of State Agencies undergoing Performance Contracts

Best Practices

Press Release - George Mason University

Press Release - Johnson Controls
Performance contract project being done to several Department of Corrections facilities.

For more information about Energy Performance Contracting, contact Charlie Barksdale, Utilities and Performance Contracting Manager, at 804-692-3213.

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