**Federal ESPC Steering Committee Meeting**

**12:00 -- 3:00 PM**

**25 October 2004**

**Washington, DC**

**Draft Minutes**

Attendees are included on a separate email attachment.

**TOPICS COVERED DURING THE MEETING**

**[1. Tatiana - Report Status of ESPC Legislation.]{.underline}**

Both houses of Congress passed the 2005 Defense Authorization Act and
have sent it to the President for signature. The legislation contains
provisions for extending ESPC authority through September 2006 for all
Agencies. The legislation expands ESPC authority to clearly include
water and wastewater, and is retroactive to include all of FY 2004.

The legislation also includes a requirement for DOE to submit a report
to Congress within 180 days outlining the barriers to more widespread
use of the ESPC vehicle. The Federal Energy Management Advisory Council
(FEMAC) and others did a great deal of work during the hiatus to explore
barriers to more widespread use of ESPCs. FEMP is very interested in
input from all Agencies for the 180-day report. One of the areas of
interest to a number of Agencies is expansion of ESPCs to non-buildings.
This is an area that is being carefully considered due to the scoring
issue. It is quite possible that inclusion of mobile systems under the
ESPC authority could have a negative impact on the buildings portion of
the program due to the costs involved with implementing the mobile
system ECMs.

The legislation was sent to the President on 21 October. Note: The
President signed the bill on 28 October.

**[2. Cmdr. Tomiak -- Update on the GAO Audits]{.underline}**

There are two GAO audits of the ESPC program currently in progress. The
first is an audit of a number of alternative financing methods used by
the Federal government. It revolves around how the programs should be
scored in the budget. The Senate Budget Committee requested this audit.
The auditors have completed their investigation and submitted a draft
report to the Agencies involved for comment. Agency comments were due
back to GAO on 25 October. DOE, DoD, GSA, and the VA have all worked
together to address areas of concern in the draft report. Support for
ESPCs appears very strong among senior leadership in the Agencies. A
final report is expected 60 days from receipt of the comments.

The second audit was requested by the House Committee for Government
Reform, and is focused on programmatic issues related to the program.
This audit is comprehensive looking into such things as the value
provided by ESPCs, how the various ESPC programs are being administered,
and whether or not ESPC is a useful tool for the government. Team 2 has
spent a great deal of time trying to understand the complex nature of
ESPCs. They have finished their data collection phase and are analyzing
the information. A draft is expected in the Spring.

**[Actions:]{.underline}**

1\. DHS commissioned an independent third party analysis of their ESPC
program. That report may be of use to the auditors or other Agencies
involved in the GAO audit. Satish has a copy of the executive summary of
the DHS report, which Paul Fennewald offered to the Steering Committee.
Satish will forward a copy to Dave for inclusion in the minutes. This
report should be treated as for Official Use Only and not distributed
beyond the Committee without permission from DHS. Copy attached.

**[3. Cmdr. Tomiak - Scoring]{.underline}**

Scoring is a very serious threat to the viability of the ESPC program.
Currently, while the official position of the Office of Management and
Budget (OMB) is that ESPCs should be scored, some members of their staff
have differing opinions on exactly how they should be scored. In the
Congressional Budget Office (CBO), a key member of their staff is
reviewing suggestions as to how the scoring guidelines might be adjusted
to more appropriately account for programs such as ESPC where savings
are used to pay back the original investment cost. Initially, both the
CBO and OMB staffs were in favor of scoring the program as a simple
commitment of Federal funds. Since learning more about how the program
actually works, they now appear to be open to other ideas and
suggestions for alternative ways to score the ESPC program more
accurately. It appears inevitable that the program will be scored, but
it is important that the savings from the program be somehow included in
the scoring. DoD and FEMP may ask various representatives from the
commercial sector to assist in identifying a more appropriate scoring
method to present to both CBO and OMB.

**[4. Tatiana -- Changes to DOE Indefinite Delivery Indefinite Quantity
(IDIQ) Update]{.underline}**

DOE has been working on modifications to improve their IDIQ during the
last year's hiatus of ESPC authority. The goals of the modifications are
to:

-   Lower financing costs

-   Lower financing procurement costs

-   Clarify the cost elements included in an ESPC

-   Improve M&V through standardization of report outlines (content,
    formats and procedures).

-   Clarify Operations and Maintenance (O&M) responsibilities

-   Transfer title to the government at acceptance instead of at close
    out of the delivery order (DO)

-   Add technical categories to include retro and continuous
    commissioning, as well as a miscellaneous ECM.

-   Provide for better archiving of project information by requiring
    electronic submission of DO deliverables to DOE by the ESCO.

DOE lawyers are now reviewing the proposed changes to the IDIQ. It is
hoped that the final changes will go to DOE stakeholders before
Thanksgiving. All current DOE projects will use the provisions of the
new changes, unless they are currently in final negotiations for award
of the DO.

**[5. Tatiana -- Changes to Administrative Procedures for Agencies Using
DOE's IDIQ]{.underline}**

DOE has been using Alternative Financing Representatives (AFR) for the
last few years to help get projects in place. The number of AFRs is
being cut back. The number and location of these AFRs is still being
determined.

DOE is also changing the procurement of Project Facilitator (PF)
services. DOE will procure PF services in the future by contracting
directly with the PFs instead of through NREL as has been done in the
past. This change is to help the Department comply with the President's
small business goals. The role of the DOE Laboratory personnel who
support FEMP will shift to more of the technical aspects of the program.
DOE is planning for a January or February award of the PF contracts.

DOE does feel that various investigations of the programs have pointed
out the value of PFs in projects. They recommend the involvement of PFs
in all ESPC projects. Besides the DOE PFs, the Navy has a cadre of PFs
that are involved in all Navy projects. Some other agencies have similar
capabilities. The knowledge of ESPCs that PFs bring to facilities
pursuing ESPCs routinely saves money, prevents costly errors in areas
like M&V, and significantly cuts the transaction time to put projects in
place.

**[6. Paul -- Resource Environmental Manager (REM)]{.underline}**

The REM's role is to augment the facility energy manager in improving
energy and water use at the installations. At most installations the
duties of energy manager are an additional duty for already overextended
staff members. The REM becomes a resource for the installation that can
focus completely on identifying and pursuing energy and water savings
measures. The Department of Homeland Security (DHS) has numerous small
installations that aren't large enough to support an REM. DHS is
experimenting with putting an REM at the Area level in the Coast Guard.
The Coast Guard has two Areas, the Atlantic and Pacific. They recently
started a pilot project in the Pacific Area. If successful they will
expand to the Atlantic Area and to other agencies within DHS that have
regional organizations.

The standard scope of work (SOW) for an REM is on the FEMP web site. DHS
used this SOW for their REM. Some of the items included in the SOW are:

-   Commissioning

-   Increasing awareness

-   Identifying retrofit projects

-   Finding funding

-   Managing projects

-   Reducing demand

-   Improving use of water and waste water

-   Assisting with ESPC projects

-   Recycling

A significant challenge with the REM program is tracking savings to be
able to pay for the REM, since they are paid out of savings they
generate. The savings must be real savings, not hypothetical savings.

The possibility of funding an REM under an ESPC was discussed. The
concept is similar to the Government procedure of requiring contractors
to hire quality control (QC) specialists as the Government's QC
representatives on their projects. ESPCs make the ESCO responsible for
performance of the equipment they install and in the new modification to
the DOE IDIQ; retro/continuous commissioning can be an energy
conservation measure (ECM) in the DO. It does not appear to be too much
of a stretch to make an REM part of a DO. There are some issues related
to this, such as identifying real savings as part of something like an
awareness program.

> **[Action:]{.underline}** Committee members should consider the
> possibilities of including REM as an ECM in ESPCs and be prepared to
> discuss it at the next Committee meeting.

**[7. Satish -- Quality Assurance and Improvement (QA&I) Web
Site]{.underline}**

Briefing handout included as a separate attachment. Some Steering
Committee minutes have been posted on the web site, but several are
missing. If those are to be posted Satish needs them.

During discussion about the web site, it was determined that the
graphics on the page need to be updated to reflect the current working
groups. It was also determined that there is no longer a QA&I team.
Instead, the Federal ESPC Steering Committee has taken the place of the
previous QA&I team. It was decided to do away with reference to QA&I and
replace it with Federal ESPC Steering Committee. The Federal ESPC
Steering Committee Mission and Goals should be included on the web page.

The web site should document what has been accomplished and make it
clear that working groups aren't perpetual groups, but are formed to
address specific questions and then disbanded. The web site should
clearly show how the working groups have improved the ESPC process.

> **[Actions:]{.underline}** It was determined that the DHS ESPC audit,
> which had been posted on the web site will be removed immediately and
> only provided to Committee Members. (Document was removed during the
> meeting break). Document is attached.

**[8. Cmdr. Tomiak -- Possible Addition of Working Groups]{.underline}**

Tatiana and Commander Tomiak determined that convening additional
working groups would not be considered until some of the current working
groups finish their work and are disbanded. They have concerns that the
working groups cost time and resources, and many individuals are key
members of multiple current efforts. This puts serious strains on those
people trying to meet their many other obligations. Continual addition
of working groups, without closing out other working groups leads to a
perception that these are never ending organizations, rather than
temporary teams put together to address current issues.

It was decide the working groups charters should all include information
describing how the process will be used in the market. When the working
group is closed out they should document how the accomplishment of their
task improved the ESPC program. It was also suggested that some type of
tracking be implemented to see how the working groups product is
incorporated into ESPCs.

Each working group should submit a report at each Steering Committee
meeting. The report does not have to be done in person, but should
include how their planned improvements will be implemented, how
implementation will be tracked and documented, and when the working
group will complete its work.

9.  **[Satish -- M&V Pand and Reporting Working Group Update
    &]{.underline}**

# Doug -- Vote on M&V Plans to be Incorporated into the DOE IDIQ

Incorporation of the M&V report outlines in the modified IDIQ contract
was one of the objectives that the Working Group chose to take upon
themselves during their tenure. Satish mentioned that this group was the
most active group in the last year and they not only achieved their
initial objective of achieving consistency across M&V Plan Outline,
Annual Report Outline, and Post-installation Report outline but
addressed many complex issues that would improve the ESPC programs in
multiple ways. Especially acknowledged the contribution of Lia Webster,
ESCO representatives, Doug Dahle, and Bob Baugh for their hard work and
contributions.

Working group update attached.

Drafts of the M&V plans being incorporated into the DOE IDIQ had been
distributed to members before the meeting, and hardcopies were
distributed at the meeting. Plans are attached.

The plan for tracking use of the formats after incorporation into the
contract is to pull a sample of plans from DOs issued in the future.

It was emphasized that the plans are those that will be incorporated
into the DOE contract. Voting for the plans reflects an Agency's
agreement that their own plans will meet or exceed the requirements
outlined in the DOE formats. David Williams noted that the Army is
already encouraging facilities to adopt these plans as the minimum
standard.

Doug moved for acceptance. Jose seconded. The formats were accepted by
unanimous voice vote.

**[10. Satish -- Energy Savings Discrepancy Resolution]{.underline}**

Many times at the facility level savings claimed from ESPCs don't seem
to agree with the amounts being paid for utilities. The working group
was formed to try and correlate the two and in so doing show that the
savings are in fact real or not.

The working group update is attached. It was suggested that the Coast
Guard audit might be useful in showing utility costs to installations
versus the savings.

> **[Action:]{.underline}** The next step is for a small group to
> discuss future actions on a conference call. Satish will coordinate
> with Tatiana and Cmdr. Tomiak for time and participants.

**[11. John -- Price Reasonableness]{.underline}**

Update will be provided when received from John. Tatiana agreed to fund
a more in depth comparison of prices. Tatiana also agreed to fund the
database. It was brought up that Means and other estimating guides have
a much larger database of projects to base a comparison on than the ESPC
projects done by the Federal government. It is also questionable whether
basing acceptance of future costs on past ESPC costs is a good idea,
since a number of audits have suggested that ESPC costs are too high. It
was countered that though contracting officers currently use generic
cost estimation tools to derive cost reasonableness for regular
construction projects, it would be too difficult for them to do so for
ESPCs.

> **[Actions:]{.underline}**

1.  John will provide Dave with an electronic version of the update and
    recommendations.

2.  Working group will continue to work on how to implement
    recommendations.

3.  Committee members will review the recommendations and provide
    comments to the WG by Thanksgiving.

4.  The WG will incorporate the recommendations, finalize the document
    and send to Dave before New Years, to be forwarded to the Committee

5.  The Committee will vote on the final recommendations at the next
    meeting.

**[12. Doug Dahle -- 10 CFR 436 Revisions]{.underline}**

Handouts attached. The rule has to be updated whenever the legislation
changes. In anticipation of extension of the sunset, a number of long
over due changes have been drafted. These changes are a result of 10
years of ESPC experience since the rule was initially drafted. It is
expected that the working group will finish its work in the next few
weeks with the completion of the draft to be sent out for comment by
various Agencies. There will be some need for the committee to come back
together when the comments from the Agencies are received.

The original legislation, establishing the rule, required concurrence
from the FAR council. That was a very long process. It is not know
whether or not that is required for modification of the Rule.

The draft changes to the Rule include language that provides an
exception to the DFARs requirement for cost being part of the selection
process when providing "fair consideration" in selecting contractors
from IDIQ contracts. There was some exception taken to this approach
feeling that it would result in opposition within the DoD. Sharon
suggested considering the streamlined approach for considering cost that
is used by Huntsville and the Navy.

> **[Actions:]{.underline}**
>
> 1\. Tatiana will find out if FAR Council concurrence is required for
> the changes. (Note: Per Tatiana, Doug has e-mail DOD bill language
> reauthorizing ESPC to DOE HQ procurement and legal staff for opinion
> on requirement for FAR Council concurrence.)

2.  Sharon will send the Huntsville cost consideration policy to Doug.

3.  Committee members should provide feedback to Doug next week. Look
    especially for best practices that face barriers in your Agency.

**[13. Satish -- Advanced Metering]{.underline}**

Working group update attached.

> **[Actions:]{.underline}**

1.  Satish will check with Ab and Dave Hunt to ensure the WG's
    recommendations are incorporated into the FEMP's O&M Working Group
    activities, which are also addressing the topic of advanced
    metering.

2.  Satish will forward the WG's recommendations to Dave Howard to
    circulate to the Steering Committee.

3.  The Committee members will provide comments to Satish by the first
    of December.

4.  The WG will finalize the recommendations and forward to Dave Howard
    to circulate to the Committee.

5.  The Committee will be prepared to vote on the recommendations by the
    next meeting.

**[14. Satish -- Operation and Maintenance (O&M)]{.underline}**

Update is attached. The group is using checklists developed by FEMP's
O&M Team. The WG product is expected to be ready for review at the next
Committee meeting.

**[15. Doug Dahle -- Commissioning]{.underline}**

Draft is attached for review. Planned Implementation of Draft
Commissioning Guidance Document for DOE Super ESPCs is to provide
electronic copies to DOE AFRs, PFs, ESCOs and Lab ESPC staff. PFs to
review and share Commissioning Guidance at Initial Kickoff meetings with
agency and ESCOs using DOE Super ESPC IDIQ for Delivery Orders.
Commissioning process in Guidance document incorporates the ESCO actions
and deliverables during development and implementation of ESPC DOs
consistent with the planned DOE Super ESPC IDIQ modifications.

**Actions:**

1.  Committee members are asked to review the draft and send comments to
    Doug.

**Next Meeting:**

11:00 AM - 3:00 PM 25 January 2005, Washington, DC, 901 D Street SW,
Suite 930