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Inflation and spiraling costs have impacted us all. The price of gasoline, eggs, bacon and most other basic needs have exploded in the last few years–and the state budget deficit further compounds these inflationary pressures. In response, employees, unions and workers across industries are expecting needed salary increases just to commute to work and put food on the table. Many school districts are wondering, “What can we focus on to make positive impacts and get a WIN?”

One of the major budget line items for most school districts (often just behind salaries and pensions) are electricity and natural gas. Not a surprise to any CBO: utility increases in California have shot up dramatically in the last few years. All of the Investor Owned Utilities (IOUs), such as Southern California Edison (SCE), Pacific Gas and Electric (PG&E) and San Diego Gas & Electric (SDGE) have seen commercial electricity rates skyrocket. Over the past three years, SCE has surged by 42.3%¹, PG&E has escalated by 64.4%², and despite being one of the most expensive utility providers, SDGE has seen an increase of 23.3%³. While it is shown that SDGE's rate has decreased from 2023 to 2024, this was only due to one-time refunds. It is expected that their rates will rebound at the end of 2024. The chart below shows historical commercial rates from 2014-2024 for the main three California electric utility providers.

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Most recently, electricity rates at IOUs have risen faster than inflation. Many experts believe that with the mandated transition to renewables, plus the move to the "electrification" of vehicles and HVAC equipment, the significant upward trend in utility rate increases will continue well into the future. Even as current rates rise by five times the average growth, IOUs are slated to continue the upward trajectory on costs. Imagine your total utility bill doubling in the next three years.

PG&E has already proposed additional rate increases of up to 25% that began in 2023 for commercial, industrial and agricultural customers. Sempra Energy, the parent company of SDGE, is paying its investors the highest profits recorded, funded by ratepayers who face one of the highest per-unit electricity prices in the county. These are just the facts.

It is easy to focus on electric price increases, but current US energy policies and global market dynamics have made natural gas prices rise at an even faster pace. Over the past three years, commercial customers in California have seen natural gas prices increase by 79%⁴. Commercial customers are likely to continue to see a rise in prices, predicted by the post-2020 price increase trend observable in the chart below.

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So, if you are a superintendent, chief business official or board member, what can you do to blunt these massive utility cost increases? Doing nothing or hoping the problem will go away is not a strategy. Rowland Unified School District stands as a notable example, successfully completing six phases of a comprehensive districtwide program dedicated to enhancing infrastructure efficiency, promoting renewable clean energy generation and creating an optimal learning environment. Across these six phases, the program will yield an impressive $38 million in savings for the District's operating budget and reduce greenhouse gas emissions (GHG) by 73,036 metric tons per year. The initiative has transformed classrooms into more comfortable spaces, setting the District on a trajectory for long-term success.

This program is not isolated; numerous districts across California are adopting a holistic approach to address their infrastructure needs, some examples include:

• Corona-Norco Unified School District is tackling utility rate increases head-on with four phases of energy efficiency improvements and a solar power purchase agreement. The District will realize $114 million in savings with more to come when new solar is online.
• Konocti Unified School District will capture $20.2 million throughout the implementation of two project phases, easing the financial strain on their general fund.
• Castro Valley Unified School District coupled solar with HVAC modernizations to generate more than $16 million in savings for its general fund.

Most districts have considered energy and sustainability initiatives for years, but challenges such as required upfront capital, staff resource constraints, stakeholder and community coordination and complex analysis make it hard to get projects off the ground. While school districts may adopt various approaches, there is one method proven to be the most effective in completing projects in less time, with fewer resources and lower risk.

Compared to “piece-mealing” projects one at a time or waiting for equipment breakdowns, the design/build energy services approach offers a holistic view of energy needs over the long term. This method involves bundling all components together, addressing deferred maintenance needs, as well as resiliency and sustainability goals comprehensively. Unlike traditional construction methods that typically tackle one or two projects at a time, this approach allows for a more efficient and streamlined process. Legislative provisions enable the use of streamlined procurement options, making it easy to competitively secure a single point of accountability without the need of multiple consulting firms to help avoid incurring incremental costs and applying traditional construction methods to retrofit modernizations.

If energy efficiency, sustainability and mitigating budget-busting utility increases are on your to-do list, and you are seeking compelling reasons to prioritize energy infrastructure projects in the future, read on:

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TOP REASONS TO ACT NOW

1. PRICE & TIMELINE CERTAINTY
   According to CBRE, construction cost escalations have seen double-digit increases for the last three years and are anticipated to continue escalating at higher than pre-pandemic norms. If your district has recently undertaken any significant construction projects, you are likely familiar with firsthand challenges such as risks, delays, budget overruns, litigation and more.
   
   Not to mention the other delays created by supply chain disturbances for energy-related equipment. While lead times for HVAC are starting to improve, it’s still common to see certain components take up to 6-12 months to arrive. The combined impact of inflation and delays are costing billions, forcing many districts to defer decision-making, value engineering or cancel projects altogether. By the time projects are ready to be pursued, it’s common for districts to see projects costing 1.5-2 times more than was originally budgeted in years prior.
   
   Acting NOW, with a streamlined design/build approach, puts you in the driver’s seat and ensures you can lock down–and stand behind–the budgets and timelines you promise to stakeholders.
   
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2. GRANTS, INCENTIVES, REBATES
   More funding is available today from grants, incentives and rebates than ever before. Ranging from federal, state, local and private sector programs, districts have a chance to free up or stretch the impact of capital funds without taking on any debt. Finding a partner who has deep expertise in helping you secure incremental funds is imperative. The money is out there.
   
   In addition to the billions in ESSER III stimulus that must be obligated before September 30, 2024, there is an opportunity to access an additional $370 billion from the Inflation Reduction Act (IRA) direct pay incentives. These funds can be directed toward clean energy generation, efficiency measures and EV charging infrastructure. With the IRA, districts could receive reimbursements of up to 30-70% of their initial investment, enabling the implementation of renewable solutions such as solar, EV charging, electric buses and other energy and water efficiency. Lighting, HVAC, battery storage and many other types of “electrification” also qualify for potential grants.
   
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3. EFFICIENCY - STILL YIELDS MUCH LOW-HANGING FRUIT
   It’s common for school districts to think they’ve done all the low-hanging fruit there is to do if you have completed a few efficiency upgrades over the last decade. Even in relatively new facilities or buildings that meet LEED standards, run times and automation settings often get modified or overridden with time. Plus, technology improvements and Title 24 building code standards have changed drastically in just the last few years, particularly when it comes to ventilation standards or the electrification of natural gas-consuming equipment.
   
   By optimizing your current infrastructure to run more efficiently and replacing outdated equipment with technology that meets today’s standards by investing in smart building technology, you can reduce the utility consumption of your existing facilities by anywhere from 30% to 40% or more.
   
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4. PIECEMEAL & BREAKDOWN APPROACHES DON’T WORK
   When it comes to energy, adopting piecemeal approaches or waiting for issues to arise can lead to unintended consequences, resulting in various negative impacts such as staff resource strain, comfort and productivity issues and emergency repair costs. Additionally, the order in which building and renewable energy projects are pursued is crucial to avoid oversizing alternative energy systems – a common pitfall of piecemeal strategies.
   
   Opting for a single point of accountability for energy analysis, design, implementation and overall savings assurance allows projects to commence without the risks of budget overruns and delays. A comprehensive approach not only enables you to reduce the load of your facilities initially but also facilitates the precise sizing of solar energy and storage solutions to meet the needs of now more efficient facilities. While the technology for achieving Zero-Net Energy and Carbon Neutrality is available today, realizing these ambitious goals requires a well-planned, comprehensive perspective.
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Find a peer district that has had success with a comprehensive energy program and ask them about their process. Ask for a sample RFP and adopt the document for your needs to conduct a competitive selection process that meets federal and state requirements. Once you select a design/build energy services partner, you will be in a position to conduct a districtwide assessment. You will then have the tools and data to align a scope of work and funding plan options specifically tailored to your stakeholder and district needs. Before proceeding with program implementation, you’ll be equipped with a whole-picture perspective to make intelligent long-term decisions that best serve your district’s interest today, tomorrow and for the next 20 years. Whether you pursue multiple phases of work overtime or want to bite off the whole apple through one comprehensive program, acting now will help you capture a big WIN in the next year or two for your facilities and your bottom line.

Author: Thomas Jackson is Corporate Vice President for Sales & Major Projects for Climatec Energy Services.  He holds a degree in Energy Resource Management & currently serves on the Board of Advisors for Sustainability & Technology at Eastern Illinois University. Climatec is a wholly owned LLC as part of the Robert BOSCH family of companies.

With the passage of the Inflation Reduction Act (IRA) of 2022, the federal government has signed up for an unprecedented, long-term investment in the clean energy sector here in the USA. The high-level objectives of the IRA are to: cut inflation, create jobs and spur domestic manufacturing–all while investing in the much-needed renewal of public infrastructure. Investments in electrification and clean energy production–plus the funding to motivate public entities to act–are noteworthy given the political stalemate in Congress for the past few years. 

Public sector entities (cities, counties, schools, colleges, universities and water districts, to name a few) now have access to significant federal funding (30% to 60%+) to help offset the costs of eligible clean energy and electrification projects. Funding via other grants, such as Energy Efficiency Conservation Block Grants (EECBG), adds to the pool of monies available to fund these investments, and ultimately, address failing or inefficient infrastructure.

LONG-TERM, DIRECT TAX CREDITS FOR PUBLIC SECTOR

As is typical with the federal government’s grant and funding programs, the devil is in the details. In this case, the Department of Energy, the Treasury Department (yes, the IRS), the Transportation Administration and others, have a hand in creating the programs and regulations that disperse IRA funds. More importantly, as non-tax payers, local governments, schools and special districts historically have not benefited from the traditional Investment Tax Credits (ITC) of 30%. In the past, public entities had to rely on private investors with tax equity to fund these projects using complex third-party power purchase agreements (PPAs). That changes now. 

From 2024 through 2033, the IRA authorizes direct-pay, investment tax credits to public entities who build long-term clean energy assets, such as solar photovoltaic and energy storage systems; small wind systems; geothermal-powered heating and cooling systems; electric vehicle charging stations; and related infrastructure. Even though you don’t pay taxes, you now receive these tax incentives as a direct payment in the form of a rebate towards your energy project.

CASH PAYMENTS TO OFFSET 30% OR MORE OF INSTALLATION COSTS

The IRA provides tax credit funds for an unlimited number of qualifying energy projects across the U.S. over the next 10 years. 

The base tax credit under the IRA starts at 30% of eligible system costs. For typical systems under 1 Megawatt (MW) in size (per tax year), it may increase with entitlements of 10% for designated low-income areas, 10% for labor compliance requirements, 10% for community solar projects, plus up to 20% for systems located in designated Energy Communities. Systems exceeding 1 MW in size must comply with strict labor compliance and domestic content regulations to receive the tax credit subsidies. 

Keep in mind that federal tax credit will be reduced by 15% if tax-exempt funds (e.g. municipal leases, tax-exempt bonds, etc.) are combined to pay for eligible systems.

TAX FORMS AND FILINGS ARE REQUIRED TO RECEIVE PAYMENT

Since fiscal public officials will be required to review, approve and file tax forms, you’re strongly recommended to consult your municipal financial advisor or tax professional regarding your IRA application strategy.

A public entity must first pay the cost of installing the eligible system, place the system into service, file a pre-registration form with the IRS and then wait for the IRS to respond with a system registration number.  Once the public entity has the registration number, the special tax forms for your tax credit application are filed with your annual tax filing.

START NOW, OR YOU WILL LOSE OUT ON A TREMENDOUS FEDERAL SUBSIDY

As the saying goes, “Rome wasn’t built in a day.” The federal government has set aside a huge amount of funding for eligible public sector entities, and you may only capitalize on these funds if you take ACTION.  

Form a working group of stakeholders, create a realistic energy modernization plan, then issue an RFP to procure an experienced, full-service energy services firm. After the project is developed, implemented and placed in service, your municipal financial advisor will work with your energy services company to maximize the federal tax credit subsidies for your particular community. Not to mention, the program as a whole will allow you to check major boxes for your Climate Action Plan (CAP) and meet State mandates for greenhouse gas emission reductions before 2030. 

California ratepayers saw utility expenditures double in the last 5 years as public utilities posed double-digit year-over-year rate increases. These trends are expected to continue. Many public agencies are finding traditional, piecemeal approaches fall short in today’s construction economy due to staff bandwidth constraints, cost escalations, labor shortages and supply chain disturbances. As operating and capital budgets tighten across the board, it’s incumbent upon public sector leaders to get smart on streamlined project delivery methods and creative funding solutions. With more funding available than ever before, now is the time to implement your climate action initiatives if you haven’t already. 

Learn more about why public agencies should invest in energy infrastructure now.

AUTHORS

• Thomas Jackson, Corporate Vice President Major Projects, Climatec LLC a Robert BOSCH Company
• Bruce Dickinson, President, Eagle Energy Solutions, LLC