Performance based contracting is the process by which schools, universities, towns, cities and counties enter into contracts with private companies to design, implement and monitor energy and water savings projects. As a result of HB 2830, the Energy and Water Savings Accounts Law, enacted in 2012 by Governor Jan Brewer, municipalities can now enter into agreements with Energy Services Companies or ESCOs for execution of self-funded energy efficiency projects.
ESCOs provide both design, implementation and monitoring services of energy efficiency projects while contracting with a third party financial institution to take on the performance risk of the project. Contracting out performance risk means that municipalities have a guarantee on project performance and will receive financial compensation should energy efficiency projects not deliver the promised energy savings. Savings from utility costs once these projects are complete make them a budget neutral line item, with savings realized after the project payoff resulting in direct savings to the municipality’s bottom line.
Under the Energy and Water Savings Account Law performance contacts must include the following:
A detailed list of the measures to be implemented by the ESCO
Cost savings guarantees from the ESCO
The planned cost repayment schedule
An independent, third-party validation of the cost savings calculations by a credentialed engineer, paid for by the ESCO
After implementation of the project, measurement and verification (M&V) is crucial to ensure the projected savings is consistent with actual savings. The level of complexity to the project makes the M&V process even more essential. Under the Energy and Water Savings Account Law, ESCOs must take on financial risk if projects are not meeting the performance standards outlined in the contract. According to State law, contracts with schools must guarantee savings resulting from the project will pay back the full cost of the project within 25 years. For counties, cities and towns the repayment period is shortened to 15 years.
With the safeguards put in place by the Energy and Water Savings Account Law, municipalities have significant incentives to explore performance based contracting when considering energy efficiency projects.
With the New Year roaring in with some strong headwinds, many public CEOs and leaders are faced with tough decisions on managing their organizations and budgets amid shifting policies, sustainability mandates, changing laws and unpredictable inflationary pressures. Additionally, new federal policies and state-mandated programs are evolving rapidly, directly impacting municipalities. Below are five key tips to help city managers navigate these challenges effectively.
New State Mandates
The California Energy Commission (CEC) plays a critical role in statewide energy policy, setting efficiency and environmental standards for energy-related products. Recent regulatory changes include the phase-out of specific lighting and refrigerants, requiring city managers to take immediate action.
Transition Municipal Lighting to LED
Tip 1: Assess municipal facilities to identify existing fluorescent lighting and develop a transition plan to other compliant alternatives. Upgrading lighting systems now can help mitigate supply challenges, reduce energy costs and ensure compliance with the new regulations.
Effective January 1, 2025, California will prohibit the sale and distribution of linear fluorescent tube-type lamps (LFLs) and pin-base compact fluorescent lamps (CFLs) for new or replacement lighting systems which can be found in any city facility. This follows the 2024 ban on screw or bayonet-base CFLs.
Evaluate and Upgrade HVAC Systems
Tip 2: Conduct an immediate assessment of municipal HVAC and refrigeration systems to determine current refrigerant use, potential compliance risks and future budget impacts for replacements or retrofits.
Starting January 1, 2025, California will prohibit the sale, distribution or introduction of bulk hydrofluorocarbons (HFCs) with a global warming potential of 2,200 or greater. This regulation primarily impacts cities maintaining HVAC and refrigeration systems that use refrigerants such as R-404A and R-22, which must now be serviced with reclaimed refrigerants (exempt from the ban). New cooling and refrigeration equipment must comply with the updated global warming potential limits or be manufactured and pre-charged with restricted refrigerants outside of California.
Federal Energy and Infrastructure Policy Changes
Tip 3: Stay informed about available funding opportunities and strategically plan infrastructure investments to maximize financial support for your city’s energy and sustainability initiatives.
With a shifting political landscape, there is ongoing debate regarding potential amendments to the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law. Despite political discussions, most experts agree that key funding mechanisms, particularly the investment tax credits available for the installation of clean energy systems (solar, wind and energy storage), will likely remain in place, ensuring continued support for municipal projects. If substantive changes to the IRA are brought forth by the Administration, these would require approval by Congress which will be challenging due to the popularity of the investments and jobs that have been created in both red and blue states.
We don't expect, and I think lots of people out there don't expect, the IRA to completely be blown up and be obliterated. —Marlene Motyka, Deloitte's U.S. renewable energy leader
Based on a plain reading, as well as the subsequent clarification from the OMB, it would appear tax credits under the IRA fall outside the order’s scope as currently drafted.
Tip 4: Invest in energy-efficient infrastructure and explore renewable energy options to reduce dependency on volatile utility rates. Implementing energy efficiency and clean energy programs, leveraging low cost funding options and securing state/federal grants and tax credits will help improve City General Funds and mitigate utility rate increases and other budgetary pressures.
The California Public Utilities Commission (CPUC) oversees statewide utility rates, which have seen significant increases over the past decade due to rising generation costs, increased system maintenance costs, wildfire mitigation efforts and the addition of new renewable energy sources to meet electricity demand. Given that utility expenses represent a significant portion of municipal budgets, energy efficiency upgrades, onsite renewable generation and energy storage can offer long-term budget predictability and cost savings.
The rate of electricity price escalation has increased over the past 5-10 years in California. Depending on where you are located in the state, in the past five (5) years electricity prices have increased by 41.6% in San Diego Gas & Electric’s (SDGE) territory, by 73.1% in Southern California Edison’s region and by 71.3% in Pacific Gas and Electric Company’s (PG&E) territory. (See Table and Chart below). Electrical Rates in CA have been running at 2-3X the rate of core inflation and may well continue into the foreseeable future.
Construction Inflation
Tip 5: Expedite planning and execution of city infrastructure projects to avoid rising costs. Conducting an RFP process & securing agreements early can help lock in lower prices and prevent delays caused by high demand for construction resources.
Due to recent wildfires and supply chain constraints, construction inflation in California is expected to rise. The increased demand for materials and labor to rebuild affected areas will likely drive up costs for municipal infrastructure projects. See below for trends in construction costs since 2010.
Cities in California like San Leandro, Ontario, Clayton, Santa Clarita, Fountain Valley and many others have shown leadership by investing smartly in their Energy Infrastructure which significantly blunted the negative budgetary effects of spiraling utility cost Inflation. Take the opportunity to discuss these topics with your city manager colleagues and find out how they have addressed these difficult challenges and achieved a big win for their city, the environment and citizens.
By proactively addressing these issues, city managers can ensure their municipalities remain compliant, financially stable and well-prepared for the evolving regulatory landscape.
AUTHORS
Thomas Jackson, Corporate Vice President Sales & Major Projects, Climatec LLC a Robert BOSCH Company
Bruce Dickinson, President, Eagle Energy Solutions, LLC
JIG-SAW and Climatec, LLC. have partnered to transform Petco Park, home of the San Diego Padres, into a connected and intelligent venue using JIG-SAW IoT technology. Through this collaboration, JIG-SAW and Climatec will enable complete visibility and control of the stadium to make Petco Park the definitive sports experience for fans and the Padres. The first phase of the project will be complete in mid-August as the Padres unveil interactive signage providing wayfinding directions and showcasing promotions for fans.
Earlier this year, JIG-SAW announced a partnership agreement with the San Diego Padres, an American professional baseball team competing in Major League Baseball (MLB), to provide JIG-SAW IoT technology for creating and managing networks of smart equipment. This technology will help the Padres by reducing operational and maintenance costs, extending the life cycle of equipment, and creating improved amenities for their fans.
To integrate the unique applications enabled by JIG-SAW software, JIG-SAW partnered with Climatec, an industry leader for advanced building and energy solutions. This partnership is set to revolutionize the landscape by seamlessly integrating JIG-SAW's groundbreaking IoT communication software technology into a centralized command center, expertly supported by Climatec in design, deployment, and service.
JIG-SAW’s IoT communication software technology provides an open and scalable foundation to connect and manage any device with any platform. The interactive signage and upcoming solutions will aggregate and analyze data by taking advantage of JIG-SAW IoT integration driver on Tridium’s Niagara, the connected product management platform for stadium operations.
Climatec seeks to leverage the new capabilities that JIG-SAW software offers, integrating ready-to-deploy packages that reduce installation costs, simplify maintenance, and unleash invaluable data insights for data-driven decision making, supercharging operating revenue.
JIG-SAW and Climatec will collaborate to solve the digital transformation challenges of the Padres stadium and promote the solutions as case studies for other residential, commercial, industrial, and institutional facility operators across the nation and beyond.
