Make energy efficiency upgrades or energy production without providing any up-front capital!

Performance contracts can be used to fund energy projects without affecting debt. Thus, without up-front capital, a municipality can get a project up and running quickly and the ESCO is responsible for financial and operational outcomes.

There are two forms generally in use that focus on the type of financial arrangement used to share savings:

• Under a Guaranteed Savings Agreement payments are fixed for the term of the agreement based on the agreed-to estimate of energy savings. If measured savings are less than the guarantee, the ESCO makes up for the shortfall.
• Under a Shared Savings Agreement the ESCO puts up the money for the project and generally owns the equipment. Payments are a specified percentage of measured energy savings, and if there are no savings, the municipality makes no payment.

Design and specification of new equipment: Your municipality may have need energy efficiency upgrades or energy production - or perhaps both. Working with you, the ESCO will provide a detailed plan of projects and associated equipment and technology designed to satisfy all of your goals, leading to significant energy savings. The plan will have a detailed description of each building involved and accurate energy consumption data for the most recent two year period, stated objectives for the program, a list of building improvements to be considered or required, and a statement as to whether the proposed improvements will generate sufficient energy savings to fund the full cost of the program. A range of government incentives and other programs will also be taken into account in the planning stages. More details >

Financial and Operational Responsibility: The performance, and therefore savings, is guaranteed by the ESCO. That guarantee can take many forms, and is spelled out clearly. The municipality and the contractor negotiate one of a number of payment options:

• Shared savings, in which the contractor takes a percentage of the savings over a period of time
• A fast-payout, in which the contractor receives all of the savings over a specified period of time, or the cost of the project is paid off
• A 'chauffage' agreement, in which the building manager is guaranteed a fixed energy cost savings over the period of the contract
• An energy savings agreement, in which the manager pays a flat fee for each month of the energy needs over the contract.
• If the building(s) use less energy than predicted, the contractor keeps the difference. If it uses more, then the contractor pays the difference

On-going maintenance of the equipment: For all new energy projects, maintenance will be addressed in the contract as it is key to reaching your energy efficiency goals. Training of personnel is identified and completed. Even if your municipal project is already installed, sometimes an energy performance contract will help you manage it effectively. It might also be an effective tool for securing maintenance or performance over the long term. The best programs combine the expertise of the ESCO with any and all subsidies and rebates, creating a comprehensive solution for the municipality.

Municipal services and infrastructure improvements: Tight budgets shouldn't stop your district from improving it's energy infrastructure. MLC lease financing can help you modernize your power network, plants, and distribution system; gas pipelines, storage and distribution terminals; steam or hot water production; and distribution networks for district heating systems. MLC can even help you finance fueling stations for your green car and bus fleet and heavy duty vehicles, including clean natural gas (CNG), biodiesel, E85 ethanol, and electric vehicle charging stations.  More details >

Monitoring of performance: In the preliminary stages of the process, the ESCO will conduct an Energy Audit to confirm the estimates in the proposal, including project cost, energy savings , and cash flow. These targets are closely monitored throughout the life of the project.

The Performance Contract Process can be Quick and Straightforward!

The process for constructing a performance contract varies slightly from state to state. In making a performance contract, local officials...

• Obtain and review qualification
• Choose a firm
• Negotiate an agreement
• Complete the customized enhancements to meet infrastructure and budgetary needs
• The process is efficient and easy to administer
• RFQ templates are available as guides

Performance contracts are generally exempt from competitive bidding requirements, though there are often approval requirements when the contract involves capital construction. Since it is not a capital improvement, no referendums are required.

And since the payments are short term obligations, they are not considered debt. Of course, a community must confirm all debt and accounting considerations locally.

Usually there are two phases in the process, the detailed study phase and the implementation phase. In the study phase, the ESCO develops a detailed scope of improvements. The plan is based on all relevant data, such as current energy use, future planned growth, and measurements taken. After approval, the ESCO delivers a contract, including scope and guarantees. Compared to the RFP process, the performance contract saves time and money for everyone. The final Contract Review and Approval authorizes construction.

Be sure to read this great article on the Performance Contract Process >

MLC can help you develop a performance contract that will offer your municipality tremendous benefits and advantages! Working with an ESCO under a performance contract, counties can replace aging and inefficient equipment, reduce energy consumption and associated costs, and improve comfort and productivity levels, usually within their existing capital and operating budgets.

Continue Sound Financial Management:The municipality shares both the cost, risk, and the savings of the project with the Energy Services Company (ESCO).

• Efficient management of operations and budget
• Make facility improvements outside of capital budgeting process
• Minimize energy and operational costs
• Reduce technological and financial risk
• Increase expertise without adding staff
• Performance contract payments are not considered debt. Non-appropriation language written in to the contract allows for payments to be considered as a series of annually renewable short-term obligations that are funded from the operations budget.

Faster than the RFP Process! In a performance contract, the ESCO works with your municipality to develop a detailed scope of improvements first. The plan is based on all relevant data, such as current energy use, future planned growth, and measurements taken. After approval, the ESCO delivers a contract, including scope and guarantees. Compared to the RFP process, the performance contract saves time and money for everyone.

Protect existing borrowing capacity.Non-appropriation language in the standard municipal lease agreement allows for payments to the ESCO to be considered as a series of annually renewable short-term obligations that are funded from the operating budget. As such, leases are frequently used to fund energy performance projects without affecting debt, and the performance contract does not contribute to your debt ceiling.

Meet your energy efficiency goals quickly. Performance contracts are generally exempt from competitive bidding requirements, though there are often approval requirements when the contract involves capital construction. Since it is not a capital improvement, no referendums are required.

• Reduced energy and operational costs using a holistic approach where all of the energy projects are designed and implemented together
• Improved facility comfort and safety
• Guarantee performance of energy efficiency related enhancements
• Real, verifiable cast savings where risk and reward are managed
• Single point of responsibility
• Speeds up the entire project timeline

Share the Risk! The ESCO guarantees the costs and the savings of the energy efficiency projects, so even though you may not get all of the savings you might have, you will have none of the risk! This might be an excellent way to get started in making your municipal projects come to life or to develop expertise in your administrative staff. Performance contracts help manage both the technical and the financial risk.

Performance Contracts can be Made to Fit! Since the process can be standardized, not an entire municipality need participate. Many school districts, for example, enter into performance contracts for just their energy efficiency needs alone.

Performance Contracts can be Cancelled: While service and maintenance are obvious prerequisites to achieving optimal systems performance and energy savings, owners can cancel ongoing services at any time. Owners should simply structure the service and maintenance agreements as annually renewable, with provisions for cancellation. Certain guarantee provisions, however, are necessarily tied to ongoing involvement by the ESCO.

Turnkey packages are friendly. For all municipalities, and especially those with no capital or administrative staff to spare, performance contracts are one of the simplest ways to finance energy efficiency retrofits. The ESCO can provide a solution to your financial and technical challenges with an energy solution that addresses "everything at once" in a holistic way.

Manage Growth-Related Pressures Growing towns can put pressures on its infrastructure:

• Improve facility infrastructure to support increasing loads
• Expand, refurbish, and modernize existing facilities
• Making improvements without sacrificing services

Contact our municipal leasing solutions team today to discuss your upcoming project.

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