# Presentation: 510648

## ENERGY STAR®

**E****NERGY**** S****TAR****®**
**Money for Your Energy Upgrades**

**Notes:**
How many people have installed energy efficiency projects over the last five years?
How many people are installing energy efficiency projects this year?
How many people have an energy plan that takes into consideration the installation of EE over the next (five) years
How have you paid for these projects?
How are you paying for future projects?
How many have a backlog of deferred maintenance?
Has it increased or decreased from last year?
Why?

## Today’s Discussion

- Paying for Energy Efficiency with Operating Budget Dollars
- Tax Exempt Lease-Purchase Agreements – the basics
- Performance Contracts – the basics
- Delaying the installation is an **expen$ive** decision

## Energy Efficiency Projects are unlike other capital projects:
Properly structured, they pay for themselves
Don’t have to compete with other Capital Projects for funding

- Properly structured, they pay for themselves
- Don’t have to compete with other Capital Projects for funding

**Today’s Discussion**

## Goals of Presentation:
Change traditional thinking about energy financing in the public sector
Accelerate the installation of energy-efficient equipment

- Change traditional thinking about energy financing in the public sector
- Accelerate the installation of energy-efficient equipment

**Public Sector Financing**

## Energy Optimization 
Focuses on decreasing energy cost while increasing productivity
Combines energy efficiency equipment with operational procedures what can transform energy bills into “cash flow opportunities”

- Focuses on decreasing energy cost while increasing productivity
- Combines energy efficiency equipment with operational procedures what can transform energy bills into “cash flow opportunities”

**Public Sector Financing**

## “We are paying for energy efficiency projects whether or not we do the projects!”

## Fifth largest school district in country
262 schools; 300 buildings; 30 million square feet
About 213,000 students
1999 energy  bill of $26 million
Year one: 10.8% savings achieved vs. 0.8% expected
Incentives shared
40% to the school
40% to district’s general budget 
20% reinvested in the fund
$150 million saved since 1984

- 262 schools; 300 buildings; 30 million square feet
- About 213,000 students
- 1999 energy  bill of $26 million
- Year one: 10.8% savings achieved vs. 0.8% expected
- Incentives shared
- 40% to the school
- 40% to district’s general budget
- 20% reinvested in the fund
- $150 million saved since 1984

**Philadelphia Public Schools**

## 1996 internal financial crisis
200 buildings needed maintenance
County cut taxes by 20%
$8.9 million in energy upgrades
10 year period
Not possible using capital budget
Savings of $1 million per year

- 200 buildings needed maintenance
- County cut taxes by 20%
- $8.9 million in energy upgrades
- 10 year period
- Not possible using capital budget
***Savings of $1 million per year***

**Allegheny County, PA**

## Energy Savings Reinvestment Plan
50% of documented savings
Revolving Loan Fund (capped at $750k)
8-year payback
Saving $4 million+ per year

- 50% of documented savings
- Revolving Loan Fund (capped at $750k)
- 8-year payback
- Saving $4 million+ per year

**City of Phoenix, AZ**

## So, where does the money come from to pay for energy efficiency projects?

**Public Sector Financing**

## Accounting 101

_**Capital Budget**_ (Debt)
- What is the approval process?
- Board/Council
- Referendum
- Ceiling on capital expenses?
- Restructure capital expense budget?

_**Operating Budget **_(Expense)
- Already in utility payments
- Easier approval process
- Energy efficiency projects may provide access to captive funds for other needs

## Categorizing Financial Instruments

- Capital Expense
- Bonds
- GO
- Revenue
- Loans
- “Performance Contract”

- Operating Expense
*Lease/Lease-Purchase*
- “Performance Contract”

- No Expense
- Grants
- Rebates/Incentives

## Categorizing Financial Instruments

- Capital Expense
- Bonds
- GO
- Revenue
- Loans
- “Performance Contract”

- Operating Expense
*Lease/Lease-Purchase*
- “Performance Contract”

- No Expense
- Grants
- Rebates/Incentives

## Performance Contracts

- .

## Performance Contracting

**Performance Contracting**

**Market segment trends over time **
**for ESCO projects**

- Source: National Association of Energy Service Companies

## What is an ESCO?

- www.naesco.org

**What is an ESCO?**

## What Services Can An ESCo Provide?

- Walk-through energy audit
- Comprehensive energy audit
- Design and specification of new equipment
- Vendor of energy efficiency equipment
- Installation/construction management
- Performance guarantees
- Ongoing maintenance
- Training of personnel
- Measurement and verification of project performance
- Financing
- Indoor Air Quality problems
- Procurement and purchase of energy commodity

## What Services Can An ESCo Provide?

- Walk-through energy audit
**Comprehensive energy audit**
**Design and specification of new equipment**
**Vendor of energy efficiency equipment**
**Installation/construction management**
**Performance guarantees**
**Ongoing maintenance**
- Training of personnel
- Measurement and verification of project performance
- Financing
- Indoor Air Quality problems
- Procurement and purchase of energy commodity

## Common Performance Contracts

- Shared Savings Agreement
- Fixed payment
- One-time verification
- Taxable or tax-exempt
- Variable payment
- Requires measuring and monitoring
- More expensive

## Guaranteed Savings Agreement
Can separate financing from technical performance
Most commonly used for Public Sector
Own-Operate
ESCo owns facility and sells back “output”
“Chauffage”
Buy end-result, i.e., lumens or ambient temperature

- Can separate financing from technical performance
**Most commonly used for Public Sector**
- Own-Operate
- ESCo owns facility and sells back “output”
- “Chauffage”
- Buy end-result, i.e., lumens or ambient temperature

**Common Performance Contracts**

## Related but Independent Documents
Project Development Agreement
Energy Services Agreement

- Project Development Agreement
- Energy Services Agreement

- Finance Agreement

- Finance Agreement

**Common Performance Contracts**

## Tax Exempt Lease-Purchase Agreements(AKA Municipal Leases)

## Benefits of Tax-Exempt Lease-Purchase Agreements

***Title*** to the Equipment Rests with Lessee
- Access to Low Cost,* ****Tax-Exempt Funds***
- Payments may be Subject to *Annual Appropriation of  Funds*** **by Lessee
- Accommodates Construction Financing
- Payments in arrears
- You may already be leasing something!

- Fast and Easy!!!

## Tax-Exempt Lease-Purchase

- Three Considerations
- Legal
- Authority
- Voter Approval Issues
- Financial Reporting
- GAAP/GASB
- Internal Accounting
- “Materiality”

## When Is 5% Not 5%?

- Plus Fees

- Fees Included

**Notes:**
Advance or Arrears
	60 months @ 8.75% increases 32 basis points
	36 months @ 8.75% increases 53 basis points
$1m loan over 8 years 4.04% vs 4.25% monthly payment difference is $97

Up Front Fees 
	1 pt (8.75%) = 69 Basis Pts on 36 mos; 53BP on 48, 43BP on 60

Balloons 10% after 36 months = 478 basis pts, 48 = 337 BP; 60 = 2.54 BP
	Cap Cost increase : 36=7.7%, 48 = 7.1%, 60 = 6.5%

Interest = 60 month deal quoted at 10%(related to Simple Interest)
	Simple = 10%, 60 payments of 2.125 
	Compounded annually = 10.1%
	Add-on = 17.3% (should be 127.5% of orig amount)
	Implicit (2 adv + 10% PO) = 13.3%	 

## Tax-Exempt Lease-Purchase Financing by State

***An Incomplete Listing***
***(for illustrative purposes only)***

**Notes:**
Alaska		Schools are not tax exempt. 
Arkansas	Cities are problems
California 	Abatement leases
Nevada	Schools may require approval of State Dept of Taxation
Colorado	Requires Voter Approval 
Idaho
Indiana		Abatement Leases
Florida		Non Substitution clauses, special obligation concepts
New Mexico	bad case law re: appropriation
Louisiana	May require State Bond Commission approval
Missouri	Schools: must be paid from Capital Projects Fund
Washington	Requires voter approval if over a certain % of tax base
West Virginia – Must give option to terminate agreement...without any further obligation" and an "option to continue to the agreement for an additional rental period not to exceed one year in length... during each fiscal year of the agreement." 

Green
OK, FL, MI, IN, OH, 

## Quantifying the cost of Delay

**Quantifying the cost of Delay**

## Energy Efficiency: 

**A *****Cash Flow Opportunity***

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## Disclaimer

- An investment grade audit done by a qualified engineering company will be required to determine the actual size of your opportunity.

## How ENERGY STAR Can Help

- Peer Information
- Similar situations that met with success
- Impact of sharing the benefits
- Expert support with your financing process
- Assist with presentations to decisionmakers

## ENERGY STAR Internet Presentations

- Distance Learning Opportunities
-  ENERGY STAR -- An Overview
-  Money for Your Energy Upgrades
-  The Five-Stage Approach to Building Upgrades
-  Achieve Energy Performance Goals for New Building Design
- Benchmarking Tool/Portfolio Manager
- Cost Savings through ENERGY STAR Purchasing
- PC Power Management
- http://es.imeet.com/regeval/calendar.asp

## Summary

- Significant cost savings are possible from energy efficiency projects
- Many projects are delayed or prevented due to financial concerns
- Third-party financing can provide funds for these projects
- Delaying projects is expensive
- Energy Star can help identify third party financing that works for you

## Next Steps...

- ________________________
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- ________________________
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## For More Information...

**Neil Zobler**		(203) 790-4177
- (Catalyst Financial Group, Inc.)
- Catalyst Financial Group, Inc. is an EPA contractor working for ENERGY STAR
- E-mail _[nzobler@catalyst-financial.com](mailto:nzobler@catalyst-financial.com)_
- Call the ENERGY STAR Hotline at 1-888-STAR-YES (1-888-782-7937)
- Visit www.energystar.gov