Free Lease Purchase Agreement Texas

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					    Texas State Energy Conservation
             Office (SECO)


       Executive Briefing
                for
      Executive Directors
               and
     Chief Financial Officers
             August 9, 2006



1
          Texas Energy Services Coalition

           Overview of the Texas ESC
                    Chapter


       Theresa Sifuentes – Public Sector Co-chair
        Program Manager-LoanSTAR, SECO


       Kevin Vaughn – Private Sector Co-chair
        Market Manager- Government Energy Solutions, TAC
          Americas
2
          Texas Energy Services Coalition


               Introduction to
          Performance Contracting
    Presenters:
     Klip Weaver – Market Manager, Government
      Energy Solutions, TAC Energy Solutions Inc..

       Carl Hurst, P.E. - State Government Sales
        Director, Western U.S., Johnson Controls, Inc.
3
               Topics of Discussion

    A.   Performance Contracting Overview
    B.   Energy Conservation Legislation
    C.   State of Texas Performance
         Contracting Guidelines
    D.   Available/Common Financing for
         Projects
    E.   Identifying and Mitigating the risks

4
                     Before we begin…


       High interest from the legislature
       Plenty of available funding
       Good for the state’s budget
       Bond Review Board approves these
        projects
       You aren’t the first
       Long history of successful projects

5
                                Prior Projects


             Job Name               Project Price   Annual Savings   Market Financing Method

    TEXAS STATE AGENCIES
           HHSC Phase I              $13,894,980      $1,293,815     State   TPFA/LoanSTAR
          HHSC Phase II              $11,545,023      $1,075,001     State   TPFA/LoanSTAR
          HHSC Phase III             $13,129,700      $1,401,477     State   TPFA/LoanSTAR
          HHSC Phase IV              $11,445,213      $1,208,606     State   TPFA/LoanSTAR
          HHSC Phase VI               $5,153,072       $479,822      State         TPFA
      Texas Parks and Wildlife        $2,493,951       $109,077      State         TPFA
    TxDOT- Houston Traffic Signal     $3,950,000       $618,000      State   Internal Funding
                                    $61,611,939     $6,185,798




6
    Prior Projects




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                                   Prior Projects

            Job Name               Project Price   Annual Savings   Market Financing Method
         City of Carrollton          $1,686,411       $185,052       City     Municipal Lease
            City of Dallas          $25,000,000      $3,400,000      City    LoanSTAR/Lease
             City of Elgin            $960,495         $99,183       City     Municipal Lease
         City of Fort Worth          $5,500,000       $750,000       City    LoanSTAR/Lease
         City of Harlingen           $1,279,890       $121,015       City     Municipal Lease
            City of Tyler           $18,600,000      $2,200,000      City         Bonds
          Denton County               $557,746         $69,970      County    Municipal Lease
         Fort Bend County            $1,479,373       $176,602      County    Municipal Lease
        McClennan County             $6,200,000       $600,000      County    Municipal Lease
           Walker County              $382,867         $26,313      County    Municipal Lease
         City of Galveston          $10,000,000      $1,300,000      City       LoanSTAR
    Valley International Airport      $874,825         $80,549       Muni     Municipal Lease
                                   $72,521,607     $9,008,684




8
             Performance Contracting Overview




                 Carl Hurst, P.E.

    State Government Sales Director, Western U.S.,
                 Johnson Controls, Inc.




9
                  What problems do you
                   face at your facility?


      Limited budgets
      Maintenance problems
        or comfort complaints
      Limited expertise on technologies
      Too many demands on staff time
        to launch new projects
     Yet…you want to replace equipment
     and modernize your facilities
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         If you face these problems…
               you are not alone

           An Innovative Solution:


                 Energy
               Performance
               Contracting

     …a smart way to get better buildings
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           Energy Performance Contracting


     Projects pay for themselves!




              Savings stack up over time…



12
              Here’s How It Works...…


                           Money otherwise
                           owed to the gas or
                           electric utility
                           pays for
                           equipment!
     Annual
     Budget




                       Annual
                       Budget
13
                          How is the project funded?

                  Multi-Year Lease-Purchase Agreement

       Annual Budget
     AFTER Improvements
                                Financed through TPFA master lease
                                 program
                                Annual cost savings exceed annual
                                 payments
                                15-year financing term (per legislation)
                                Does not impact debt ceiling
                                Endorsed by State Legislature &
                                 Governor
                                Results guaranteed by the ESCO
     The money saved from the operating budget is
             used to make the payments!
14
                              What about risk?

               Performance Contracting projects are
               significantly lower risk than traditional projects


                             Design build process gives agency
       Annual Budget          control of outcome
     AFTER Improvements      Single point of responsibility
                              eliminates finger pointing
                             Guaranteed Results
                              –   The equipment will perform as
                                  intended
                              –   The project will perform financially as
                                  intended
                              –   The ESCO is obligated contractually
                                  by a guarantee

15
                   Some Example Measures

     Lighting Improvements
       Projects:
           Replace fluorescent tubes & ballast
           Replace fixtures
       Benefits:
           Easily pays for itself within its lifetime
           Cuts energy cost of lighting system by 25% or more
           Improved lighting quality
           Better indoor environment
           Cooler rooms on hot days (less heat from lighting
            system)
           Leveraging opportunity – buy other equipment with
16          savings from lighting
      Some Example Measures (cont.)


     Heating System Improvements
      Projects:
           Replace old boilers
           Upgrade with better controls
     Benefits:
           Improved comfort
           Better internal environment
           Solve maintenance problems
           Eliminate the need to buy boiler
            replacement from capital funds

17
        Some Example Measures (cont.)


     Water Utilization Improvements
       Projects:
              Replace faucets and fixtures
              Improve irrigation systems and controls
        Benefits:
              Pays for itself through water savings
              Improved application
              Solve maintenance problems
              Modernize & optimize systems

18
                Other applications/
                  opportunities


        Biomass
        Renewables
          – Solar
          – Geo Exchange
          – Wind
        LEED certification
        Utility rebates
        Grant money
19
           A Key Differentiator of the
                  process…..


     Your Partnership with an
     Energy Service
     Company (ESCO)




20
            Your ESCO will put the pieces together



     Identify and evaluate opportunities (energy audit)
     Design systems (engineering), specify & purchase
     Manage construction
     Arrange for financing
     Provide long-term energy management services
     Guarantee performance!




21
                 5 Steps to Success

     Decide if performance contracting is right for you
       (Assess your needs & potential benefits)

     Select an Energy Service Company, ESCO (Issue an RFQ)

     ESCO identifies energy-saving opportunities
       (Execute an audit contract)

     ESCO implements projects
       (Develop and execute an Energy Performance Contract)

     Verify savings and enjoy the benefits
       (Monitor long-term performance)
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                          Performance Contracting is a
                                Better Method

                     The “ESCO” is fully accountable for project
                          performance, costs and savings!


                         Bid/Spec         Performance Contracting

     Financial           Capital/Bond     Current Budget

     Relationship        Only during      Continuous throughout
                         installation     the life of the contract (15
                         &warranty        years)
     Upfront Fees        Yes              No

     Performance         No               Operational and financial
     Guarantee                            performance is
                                          Guaranteed
     Change orders       Yes              No
23
                 Many Advantages of Performance
                          Contracting

        Better Buildings! Improved Comfort!
         Maintenance Problems Solved!

        Pay for projects with no up-front funds (your utility
         budget pays for the projects)

        One-stop shopping (single contract for multiple
         projects)


24
                   Many Advantages of Performance
                         Contracting (cont.)

        ESCO Expertise from onset to completion
         –   Energy efficiency
         –   Operation and maintenance of buildings
         –   Project cost assessment
         –   Project financing
         –   Construction management
        Comprehensive, whole-building approach

        Training for your staff

        Ongoing project monitoring and trouble-shooting to
25       ensure sustained savings
             Performance Contracting Overview




                   Klip Weaver

     Market Manager, Government Energy Solutions,
               TAC Energy Solutions Inc.




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                  Existing Statute



        State Agencies 2166.406 Texas Government Code

        City/County 302 Local Government Code

        State Higher Ed. 51.927 Texas Education Code

        School Districts 44.901 Texas Education Code


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              History of Enabling Legislation



        Senate Bill 1811 – 1997
            Allows Higher Education to utilize TPFA
        House Bill 3530 - 1997
            Allows State Agencies to utilize performance
             contracting
        House Bill 2492 - 1999
            Extends term to 15 years
        House Bill 3286 – 2001
            Allows water conservation
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                  History of Enabling Legislation


        House Bill 2277 - 2001
            Clarifies RFQ procurement options
            Clarifies bonding issues
            Allows TPFA financing for State Agencies
            Third Party Engineer review

        House Bill 2278 – 2001
            Establishes SECO in Comptrollers Office
            Requires State Agencies to implement energy
             conservation measures meeting the requirements of
             Section 2166.406 Texas Government Code
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                        2166.406 Texas Gov. Code


        2166.406 Texas Gov Code
         –   (f)- term of ESPC contract limited to 15 years
         –   (g)- ESPC projects may be financed with TPFA’s
             Master Lease Purchase Program
         –   (h)- contractor must guarantee savings
         –   (I)- agency shall procure ESPC using professional
             services by 2254.004 (RFQ) and independent 3rd party
             engineer shall review cost savings
         –   (j)- legislature shall base agency’s appropriation for
             energy and water on the sum of:
                  the agency’s estimated annual energy and water costs;
                  and
                 If ESPC is in effect, the annual energy and water savings
                  resulting from the ESPC
30
                       2113.301 Texas Gov. Code


        2113.301 Texas Gov Code
         –   (b)- Before a state agency may use appropriated money to
             make a capital expenditure for a state facility purpose, the
             state agency must determine whether the expenditure
             could be financed with money generated by a utility
             cost savings contract

         –   (c) If it is practicable to do so, a state agency that is using
             appropriated money must finance a capital expenditure
             for a state facility purpose with money generated by a
             utility cost savings contract.

         –   (d) If it is not practicable for a state agency that is using
             appropriated money to finance a capital expenditure for a
             state facility purpose with money generated by a utility cost
             savings contract, the state agency must provide
             justification to the comptroller for the capital
             expenditure.
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                         Other Initiatives


        RP 49
        SB 5 Efficiency Mandates
        Utility Standard Offer Programs
        Other Utility Incentives




32
                                   State of Texas
                              Performance Contracting
                                     Guidelines


        Comptroller’s Energy Efficiency Task Force
        Collaboration of State Agencies, Higher Ed.,
         ESCO’s, SECO, A&E firms, THECB
        Developed the State Review and Approval Process
        Established:
         –   Sample Contract Documents,
         –   Request for Qualifications,
         –   Audit procedures, Report Guidelines,
         –   M&V requirements,
         –   Third Party Engineering Review requirements



33
                 Measurement and Verification
                   of Project Performance


        Established Protocols for Measurement and
         Verification (M&V)
        IPMVP - International Protocol for Measurement and
         Verification Procedures
        M&V Plan is required to be reviewed by third party
         engineer
        It is possible to measure actual performance !


34
                             Financing Options



        Texas Public Finance Authority
          –   Master Equipment Lease Purchase Program
        Tax-Free Municipal Lease Purchase
        SECO LoanSTAR funds
        Proceeds of bonds
        Contract with the provider of the Energy Conservation
         Measures
        Utility Rebates
        Grants




35
                               Project Financing


              Job Name               Project Price   Annual Savings   Market Financing Method

     TEXAS STATE AGENCIES
            HHSC Phase I              $13,894,980      $1,293,815     State   TPFA/LoanSTAR
           HHSC Phase II              $11,545,023      $1,075,001     State   TPFA/LoanSTAR
           HHSC Phase III             $13,129,700      $1,401,477     State   TPFA/LoanSTAR
           HHSC Phase IV              $11,445,213      $1,208,606     State   TPFA/LoanSTAR
           HHSC Phase VI               $5,153,072       $479,822      State         TPFA
       Texas Parks and Wildlife        $2,493,951       $109,077      State         TPFA
     TxDOT- Houston Traffic Signal     $3,950,000       $618,000      State   Internal Funding
                                     $61,611,939     $6,185,798




36
     Project Financing




37
                              Project Financing

             Job Name               Project Price   Annual Savings   Market Financing Method
          City of Carrollton         $1,686,411        $185,052       City     Municipal Lease
            City of Dallas           $25,000,000      $3,400,000      City    LoanSTAR/Lease
             City of Elgin            $960,495         $99,183        City     Municipal Lease
          City of Fort Worth         $5,500,000        $750,000       City    LoanSTAR/Lease
          City of Harlingen          $1,279,890        $121,015       City     Municipal Lease
             City of Tyler           $18,600,000      $2,200,000      City         Bonds
           Denton County              $557,746         $69,970       County    Municipal Lease
          Fort Bend County           $1,479,373        $176,602      County    Municipal Lease
         McClennan County            $6,200,000        $600,000      County    Municipal Lease
           Walker County              $382,867         $26,313       County    Municipal Lease
          City of Galveston          $10,000,000      $1,300,000      City       LoanSTAR
     Valley International Airport     $874,825         $80,549        Muni     Municipal Lease
                                    $72,521,607     $9,008,684




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                        Identifying Risk



     Sources of Risk:




39
                       Identifying Risk



     Mitigation Strategies:




40
                    How to get Started



     Contact SECO

     Theresa Sifuentes,
     State Energy Conservation Office
     Program Manager
     (512) 463-1896


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       Visit Our Web Sites



     Web address here




42
        Insert Tracy’s slides




43
        Insert HHSC Case Study




44
        Insert Fred’s slides




45
     Questions




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