# Presentation: 082777

## Breakout Session I:Find Solutions to Financing Issues

- Can rebates be used in Net Present Value (NPV) analysis?
- Can government end of year or other monies be used for energy efficiency projects?

- Deb Beattie, National Renewable Energy Laboratory
- Jim Snook, Air Force Civil Engineering Support Agency

## What is NPV?

*NPV compares the value of a dollar today versus the value of that same dollar in the future, after taking inflation and return into account. **If the NPV of a prospective project is positive, then it should be accepted. However, if it is negative, then the project probably should be rejected because *_[cash flows](http://www4.law.cornell.edu/uscode/html/uscode10/usc_sec_10_00002866----000-.html)_* are negative. *

- - Investopedia.com

- NPV Calculator

## DOD and NPV

- DEPPM 94-1, "It remains Defense policy that all DOD installations actively investigate and participate in EC/DSM programs offered by their utility companies, when determined to be economically advantageous based on the life-cycle costs and benefits of the proposed measures."
- DoD I 4170.11, "Installation Energy Management“, October 13, 2004, section 5.2.2.1.1.1 emphasizes that life cycle cost analysis will be used by the Services to make "decisions about their investment in products, services, construction, and other projects to lower the Federal Government's costs and energy and water consumption."

- - Millard Carr

## Can rebates be used in Net (NPV) analysis?

- How are rebates used by agencies?
- Some are lost for agencies that still can not accept a rebate
- Some are subtracted off the top, before financing
- Some show up as a credit on the utility bill
- Some rebates are signed over to the contractor
- How does your Agency/Utility handle rebates?

**Notes:**
Ok to use rebate funds in NPV, the concern is how sure you are the funds will be received
Confidence level – if you’re very confident, like you may be for the energy savings 85 – 90% sure, then you may want to include some % of the rebate that reflects
If the rebate is 50-50, may use a lesser % in the calculations

## Can rebates be used in Net Present Value (NPV) analysis?

- By the book, should rebates be used in the calculations?
- Include all “significant economic factors in the calculations” - BLCC
- On the other hand, it’s not in the bank yet – you do not have to include it

- “We don’t include rebates in our economic calculations. From a big picture perspective, we ask ourselves if the taxpayers should pay for the project based on its own merit.”							- NW Utility

**Notes:**
Show in the proposal as an “incentive”
Note – incentive funds will be recovered by the utility through such and such rebate program at their own risk
Ed T. can use his names

## Rebates – US Code 2865

**(3)** Financial incentives received from gas or electric utilities under subsection (d)(2), and from utilities for management of water demand or water conservation under section _[2866](http://www4.law.cornell.edu/uscode/html/uscode10/usc_sec_10_00002866----000-.html#a_2)__ (a)(2) of this title, shall be credited to an appropriation designated by the Secretary of Defense. _*Amounts so credited shall be merged with the appropriation to which credited and shall be available for the same purposes and the same period as the appropriation with which merged.*

## Examples

- Best Case
- The utility had control over the funds and was willing to reduce the contract cost by the rebate amount.
- Contract noted that the rebate amount was deducted at the risk of the utility*

- Worst Case
- The rebate was calculated into the project costs
- The rebate fell through
- The agency is now concerned about being anti-deficient

- * Contract language noted – “incentive funds will be recovered by the utility through x-rebate program at their own risk.”

## Can rebates be used in Net Present Value (NPV) analysis?

- What happens when / if a rebate falls through?
- Contract language - it’s not in the bank yet – do what you can to ensure you get it
- Use a % of the rebate relative to your confidence that it will be received
- “Get it in writing”
- Define an “out” if it falls through

## Rebate Discussion Points

- Can rebates be used?
- How do you use rebates?
- How would you like to use rebates?

## List of 5

## Can government end of year and other funding sources be used for energy efficiency projects?

- Enabling Documents, pp. 88-89, Alternative Financing Guidance Memorandum #004
-  *Federal Fund Sources to be Used to Pay for Multi-Year Contracts Under the Utility Incentive Program*
- Guidance Statement - ..., there is no statutory restriction on the type of funds to be used to pay for utility incentive programs or that the amount be equal to or less than the annual savings. Agencies can use any fund sources that the agency determines it can use to pay for utility services. These funds can include those that are used to pay for the elements of associated cost savings generated from the contract, such as personnel and capital cost savings.

## Can government end of year and other funding sources be used for energy efficiency projects?

- Model Agreement, Enabling Documents, p 121 FP.4
- Buydown – The Government reserves the right, at any time..., to buydown the outstanding T.O. payments without penalty ... the term of ECM financing will be shortened to reflect the amount of the buydown payments.

## Can government end of year and other funding sources be used for energy efficiency projects? 

- 10 USC 2865
- If a project is financed, repayment "shall be made from funds available to a military department for the purchase of utility services."
- AFCESA interpretation: O&M funds used to pay for utilities.

## Buydown Discussion Points

- How are buydowns being used?
- What impacts have you been dealt due to buydowns?

## Breakout Results

- Model Agreement is only 80% - Insert language in the contract to cover things like rebates and end of year money
- Do the Math
- What’s the impact
- Is it a project worth doing if you need the rebate or end of year funds to pull it off – consider tax payers
- Look at the big picture – is it meeting a goal, moving a technology or helping reduce grid load, etc.
- Evaluate case by case

## Next Steps

- Based on our discussions, are there any products that might be useful?
- Do we have any volunteers?