>>Brandi: I'd like to welcome you all to _____ webinar, "Project Facilitator Fundamentals." I'm Brandi Eng-Rohrbach, from the Department of Energy's Federal Energy Management Program. The engagement of a qualified project facilitator is required for agencies awarding task orders under the DOE IDIQ ESPC. This webinar is intended for a potential new PFs, as well as existing PF that support these task orders, and
to facilitate workforce development in this area.
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And just to quickly cover the objectives of today's training, we're gonna cover the FEMP ESPC Project Development Resource Guide, the key project facilitator roles in managing project development, how to calculate baselines and savings, just technical proposal evaluation, measurement and verification processes and reports, and ESPC tools and resources. Now I'd like to take a brief moment to introduce your instructors.
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I am Brandi Eng-Rohrbach. I'm the program lead for project facilitation and ESPC quality assurance, at the Department of Energy's Federal Energy Management Program, also known as FEMP. I have over five years of project management consulting experience in the energy field, and I previously analyzed and advised on facility energy issues and utility forecasting at the navy, as well as demand site management programs at Baltimore Gas and Electric.
Our second speaker is Doug Culbreth, of the Oak Ridge National Laboratory. He's a federal project executive for the ESPC program here at DOE FEMP. Mr. Culbreth coordinates ESPCs, including other third-party financing activities in the southeast region of the United States and Europe, such as utility energy savings contracts, power purchase agreements, and ESPC enabled projects. Mr. Culbreth has over 35 years of experience in
the development and evaluation of energy efficiency and renewable energy projects, in the local state and federal government sectors.
Our third speaker, today, is Deborah Kephart. She is a retired federal contracting officer, with 30 years of acquisition experience, including 15 years working with energy saving performance contracts. She previously worked at the Department of Energy as a contracting officer, with responsibility for DOE's ESPC master contract master contract. Prior to that, she was a contracting officer with the Department of Navy, with responsibility for award and administration of numerous energy contracts.
And our fourth speaker, today, is Terry Sharp. He is a building scientist at Oak Ridge National Laboratories' Building Technologies Research and Integration Center. He has over 20 years' experience with alternatively-financed projects, focusing on project technical development, performance assurance, and risk mitigation for federal agencies. He is a professional engineer and a certified measurement and verification professional.
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Just to briefly cover the overall agenda, today, the agenda is split into to parts with a break in-between. The first part covers three topics, first, ESPC basics and key concepts, second, PF roles and documentation requirements, and, third, the fundamentals of task order quality assurance. The second part covers two topics: key facilitation roles and ESPC tools.
With that, I'd like to turn it over to our next presenter, Doug Culbreth.
>>Doug: Thank you, Brandi. It's always important to have short refresher on ESPC basics, because everyone is not exactly at the same place. So today, we'd like to talk about some key concepts, such as the process, the federal ESPC authority, and the key features of ESPCs. And last, but not least, FEMP's ESPC best practices.
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The first thing we'd like to start with is a functional definition of an ESPC, which most of you are aware of. ESPCs are a contracting vehicle that allows agencies to procure energy savings and facility improvements with no upfront capital cost. And then we have the three key players: energy service companies, the ESCOs, the agencies, and FEMP project services involved in the development and awarding of an ESPC project. The energy
service company is a private sector contractor that develops, designs, and implements improvements at the project site, and borrows the money to pay for it. Then we have the agency who pays the ESCO over the term of the contract, from the guaranteed savings. And certainly, once again, FEMP project services, through a variety of individuals and resources, we guide the agency through the process, provide technical financing and
contracting expertise, that comes through your project facilitator, our contracting officer in Golden, Colorado, your FPEs, federal project executives, and subject matter experts. As well as tools and resources that are available, and templates that are available on the DOE FEMP website.
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This is a brief view of the process, you know, of converting energy waste to efficient and new infrastructures. We normally start out with the notification of all the IDIQ ESCOs, via FedBizOpps, with a Notice of Opportunity. We're gonna talk about the Notice of Opportunity and a tool we have, later on in the presentation today. These responses are reviewed, and then the agency selects an ESCO to perform a preliminary assessment. Then the ESCO prepares the preliminary assessment, to determine the likely liability. And after that, the agency decides whether they would like to move forward with the project, and authorizes the ESCO to complete an investment-grade audit and a proposal of energy savings measures. And from there, the agency is going to review, negotiate, and award a task order, and the ESCO is going to go forward with competitively selecting subcontractors to install the project. And included in that is going to be commissioning and post-install M&V, to ensure that the equipment, performance, then acceptance.
And then we have an annual M&V report that will be verifying that the energy savings information is correct. In the final analysis, the results of all of this good work is an efficient and new energy infrastructure upgrades for the agency, creating jobs and investments in the private sector.
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This is one of my favorite slides, because it's one of the – has been one of the most asked questions, over the years, which the simple question is: Where does the money come from? In simple terms, ESPCs are budget-neutral solutions to infrastructure backlogs. If you're looking at the bar on the far-left, before an ESPC, you had the dollars from the energy and energy-related operation and maintenance. In the second bar, here, you see the performance period of an energy savings performance contract, and the payments were coming out of the energy and O&M budget that currently exist for the agency. And keep in mind that the savings has to exceed the payment of $1.00, on an annual basis. And then, to the far-right, you will see what happens after the ESPC term is completed, and those savings accrued back to the agencies. The ESPC deal or task order that you
sign will show a firm fixed price, and a schedule of payments for the term of the contract, so, there should not be a lot of change orders. It also shows the guaranteed cost savings, which are least as much, as I indicated earlier, as the payments, and by law have to exceed the payments by $1.00, on an annual basis.
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And the key features [audio cuts out] energy savings performance contracts. I know most of you have heard this many times, but the legislated purpose of energy savings performance contracts was to achieve energy savings and ancillary benefits. And there are a number of mandatory aspects regarding energy savings performance contracts, which you see there. Certainly, the guarantees for a specified level of savings and the standard of service are mandatory, an annual M&V report is mandatory. As we discussed earlier, the savings must exceed the payments for each year, and we have a maximum contract term of 25 years. And I would just mention that that does include the construction. And last, but not least, a very important aspect of or key feature of energy savings performance contracts is that they may combine financing and appropriations. And if you would look under ESA 432, this reinforces the authorizations for agencies to combine financing and appropriations in energy projects.
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So, why do agencies use energy savings performance contracts? There are many reasons that agencies choose to initiate an ESPC [audio distortion interferes with audio], and we're gonna talk about a few of those right here. But there are many other reasons beyond these, that ESPCs are very valuable tools for agencies. And number one, and certainly most important, probably is, it is a means to pay for improvements when appropriated
dollars are not available. Secondly, [audio cuts out] provide repair and upgrades of some mission-critical infrastructure. And, thirdly, a new area here, it could help increase the reliability of sites, the capacity, the functionality, and certainly last, but not least, is resilience, something that's very important today. So these are a number of the key reasons that agencies use ESPCs, and certainly, I'll just mention lastly, there, to reduce the O&M operation and maintenance expenses, you know, that most agencies have on backlog because of the lack of funds.
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Let's talk about the authorizing legislation. It's always a question that most agencies would ask: What is the authorization factor, here? And energy savings performance contracts have been around for many years, but the ESPC law is codified at 42 USC 8287, and it provides the authorization for agencies to enter into contracts, for the purpose of achieving energy and water savings. And the DOE ruled the original legislation required the Department of Energy to establish procedures and methods to select, monitor, and terminate contracts, and these procedures are stated in the DOE final rule, at 10 CFR 436 Subpart B. As you can see, there are a number of other pieces of legislation that have dealt with authorizing certain aspects of energy savings performance contracts, and if you'd like to look at those in more depth, you should go to the FEMP ESPC webpages for more on legislation and authorization.
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ESPCs provide reliable savings, so the question is how reliable, and how do we know that ESPCs are reliable. According to the M&V reports that we receive from all the ESPC projects currently in operation is that ESPCs are achieving 103 percent of the guaranteed savings. Now, keeping in mind that most ESCOs are guaranteeing 95 to 96 percent of the estimated savings. If you'd like to know more about that, if you would go to the FEMP
website there, you can find the reported energy and cost savings on the ESPC program. And secondly, you can see what an appropriated funded project would achieve in terms of energy savings, and that's 67 percent. And you say, well, why such a large difference? That's because the appropriated projects do not generally have measurement and verification for guaranteed savings, for the monitoring, and other types of activities that
would assure an agency that they would get the guaranteed savings throughout the life of the contract.
You can refer to the Phil Coleman study of 2014, if you'd like to know more about that. _____ _____ really talking about what kind of actual annual savings do agencies get from ESPC projects? Is it just merely the 103 percent of the project and what the M&V reports show? It's not. Actually, it's estimated, and John Shonder with ORNL did a study to document this, that the actual savings, through an agency, based on certain conditions
listed below, would save approximately 174 to 197 percent of contract savings. There are some caveats, there; we talk about savings beyond term, and underestimation of utility escalation, and the guaranteed savings calculations assume baseline equipment continues to operate as is. So I think you can see there is a lot of additional potential energy savings from ESPC projects, beyond the actual ESPC guarantees.
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So, what is the essential information? Certainly, recommend that you go to the FEMP website, and look at the guidance and the ESPC tools that we have there, which will be listed under FEMP resources. We have a lot of very good tools to help with project facilitation and the development of these projects, and a lot of templates for various _____ aspects of the ESPC process. But I think I'd want to mention, very specifically,
that the first essential thing that a project facilitator should have is a copy of the third-generation DOE IDIQ ESPC contract. I would suggest that you always carry a copy of it with you, and have it marked to the various aspects of it, so that you have a good understanding of the actual IDIQ contract, which controls the DOE ESPC process.
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Also, we'd like to mention that we incorporate, into all of our training, the FEMP ESPC best practices and lessons learned for federal ESPC projects. You will find those on our website, as well. These have been documented by many of you on our training, today, you, the ESPC veterans and experts, and we have incorporated those best practices and lessons into the FEMP ESPC training. One of the first ones we'd like to mention is
continuity and documentation, that you document the critical decisions that are made, to clarify the intent of the contract over time. As time passes, as we all know, there are a lot of changes at the agency level and at the site level, regarding energy managers' contract _____, et cetera. And our second best practice is to keep the ESCO and the agency on the same page, to avoid delays. And certainly, I think one of the best practices that I see, that the project facilitators are very key to, is to schedule at least a biweekly ESCO agency call for a meeting to talk about updates, as you go through development of preliminary assessment or the proposal.
And be sure that you continue to have a dialogue with all the stakeholders, and share the information throughout the process. And I say all because I think anyone that has anything to do with these projects should be involved in those decisions and discussions, to avoid delays down the road. So, communication is really key.
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Our best practice example number two is dealing with the investment-grade audit for the proposal, and one of the things that we encourage the ESCOs to do is to identify the requirements of the site that they are going to have resources for, and it's going to cost them to participate and manage an ESPC project. But certainly, one of the good examples of that happens to be escorts. There are a number of different agencies that do have
security, in laboratories and et cetera, that do require escorts for workers. And it's a question of the availability and the cost, which the agency may have to bear in order to get the construction or the development completed in a timely fashion. Another area, there, is flexibility of the agency in terms of adjusting a contract term or project scope, so that they might acquire the project that best meets the agency needs. We have a 25-year term, and certainly everyone would like to have as short a term as possible, but it may be necessary to extend that term a little bit, in order to get the kind of scope that will have the most impact on that particular project.
And certainly, final negotiations and task order award are very critical areas, and we encourage everyone to build into the timeline for the development. The task order is to give the financiers adequate time to get their very best rate, and I think most of you are aware that FEMP requires competitive or competition for the interest for these projects. And it has been very helpful in reducing the overall interest rate for ESPC projects. And need to update the project schedule, to detail the final steps before the task order award. It's very key to stay on schedule, because delays can be costly, for a variety of reasons, if you have some timelines, some key equipment that needs replacing, or, in worse cases, if the interest rates may be going up and would have a higher interest rate for your particular project. Just a note here, in general, we recommend that the ESCO schedule include approximately two weeks to obtain multiple financing offers for these projects.
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And our last example is dealing with measurement and verification. We follow-up with projects that have been awarded and constructed and accepted, through our life of contract program. We make calls to the agencies, on a regular basis, regarding their measurement and verification report. And a lot of times, the contact for the M&V report, if the agency has moved on to another job, retired, et cetera. So it's very important to
have some continuity there, so we would encourage the agencies to keep the primary contact up-to-date, so that we can have good communications. And as always, the continuity of documentation and awareness of the ESPC, throughout the performance period, is very critical, and that's in a number of different ways. As interview managers and contracting officers, and others, change out over the years, it's extremely important, you know, to keep the files up-to-date, and review the energy reports, and also, witnessing the M&V measurements as they are taken for the annual M&V report.
I hope this has been helpful. I realize most of you are very familiar with this, but we thought that just a short review might be helpful. Our next presenter is Deb Kephart.
>>Deborah: Thank you, Doug. This section covers two areas, as shown on this slide: PF roles and the procurement process, and also an overview of the Project Development Resource Guide.
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Project facilitators have a very important role in the ESPC procurement process, so important that the Department of Energy, indefinite delivery indefinite quantity contracts require the use of a qualified DOE-approved project facilitator for each and every project. And although many task orders can modify many areas within the IDIQ, the PF requirement shall not be waived by the ordering agency. Although Department of Energy ESPCs have been in use for over 20 years, there are a few areas that are unique when compared to typical federal procurements. Individual agencies or facilities may not have experience with some of the unique aspects of alternatively financed projects and savings guarantees, so by having a qualified PF involved in the project, it increases the quality of the awarded task order. So, what do PFs do? They help to ensure that the government achieves a technically- and financially-sound contract, in a timely fashion.
And they do this in a number of ways. The PF provides expert unbiased advice. Agencies, they have a fiduciary duty to conduct business with the highest standards of care, and yet, they may or may not have the unique experience to implement a successful project. The qualified PFs have extensive experience and they're a source of good ideas and reasoned judgment. They review key project documents such as the preliminary assessment, the task order request for proposal, the proposal, and various M&V documents, and they provide the technical, engineering, and financial expertise that's critical to delivering a successful project. Agencies can count on PFs to understand and interpret, as necessary, financial schedules, to review ECM baselines and savings calculations, to understand and explain how a risk responsibility performance matrix outlines agency and ESCO risk, and analyze M&V plans to help ensure that the guaranteed savings can actually be achieved.
They help to ensure that proper project documentation is achieved. And documentation is necessary because ESPCs are multimillion-dollar contracts, they last up to 25 years, and the probability for a potential audit can be high. Documentation provides the evidence or record of the process used and the analysis performed to support agency decision-making. PFs use the templates and processes shown in the Project Development Guide, providing the agency with a written record of the analysis and decision-making. And some examples of this documentation would include agendas, proposal reviews, and comment and resolution forms. We like to say a project facilitator solves problems, and we truly appreciate an experienced project facilitator because they help to avoid them.
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This slide shows some of the required members of the agency acquisition team, as well as some of the roles and responsibilities. The contracting staff should be involved in all phases of the acquisition; they ensure compliance with ESPC laws and regulations, as well as compliance with agency procedures and requirements. They issue the Notice of Opportunity, notice of intent to award, the task order request for proposal, and any other solicitation documents. And they are authorized to bind the government and sign the ESPC task order. The technical team also plays a critical role in all phases of the acquisition. The titles can vary, but they're usually a program lead and energy manager or a facility manager or site engineer. One of these individuals is usually designated _____ core or contracting officers technical representative after award.
The agency technical team, they identify the government's need, and they define the project goals and requirements. They're responsible for witnessing the ESCO's baseline, post-install, and then annual M&V measurements. They perform a review of the technical aspects of the preliminary assessment and the final proposal. They review the risk, responsibility, and performance matrix, and they ensure that it represents risks and performance that the agency is willing to accept. After award, they monitor contractor performance, they review and approve ESCO designs, they provide the oversight during construction, and they sign off on acceptance, along with the contracting officer. After construction is complete, they review the ESCO's post-install and then the annual M&V reports.
And project facilitators, you are also a critical member of the agency acquisition team. Involvement usually starts after ESCO selection, although some agencies include PFs much earlier. And the involvement continues through the first-year measurement and verification. PFs follow the processes and procedures and the Project Development Resources Guide, and they use the tools and the templates within. PFs provide advisory services to facilitate the project; they supplement the agency expertise, and they guide or they sometimes lead agencies through the ESPC phases to successful projects. And they do this by offering expert advice, providing templates and examples, and showing how processes can be streamlined. PFs participate or they lead kickoff meetings, they stay involved throughout project development, and they evaluate the preliminary assessments and proposals.
PFs provide written documentation of their efforts to support agency decision-making, and agency and FEMP contract files. We also have the federal project executive, and those are individuals such as Doug, and also Tom and Scott, and they coordinate project assistance resources, and they're an agency advocate. We also have the Department of Energy, Golden, Colorado, field office; they're responsible for the administration of Department of Energy's master contract. Wayne Latham is the contracting officer, and he must be notified prior to task order or award, and he'll provide an authorization to award letter to that agency contracting officer, after his review is complete. There are others _____ other members of the team, that are responsible for specific areas within the ESPC, and they contribute throughout the phases, according to their expertise.
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This slide shows the PF involvement through the acquisition process. Task One shows that the PF usually becomes involved after ESCO selection, and facilitates development of the ESCO's preliminary assessment. Task Two shows the PFs help in agency reviews of the ESCO preliminary assessment. Task Three is PFs supporting the agency by providing a template or draft task order request for proposal, and assisting the agency in tailoring the RFP to meet their requirements. Task Four consists of supporting development of the investment-grade audit, including the kickoff meeting and the follow-up progress meetings. Task Five is participation in the investment-grade audit midpoint review, and after receipt of the proposal, the PF performs an evaluation and provides comments, and then they consolidate and coordinate other evaluators' comments, and they participate in the discussion and comment resolution process.
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Task Six represents PFs supporting agency review of any proposal revisions, supporting negotiations as requested, and providing documentation as required. Task Seven reflects support during Phase Four, the design construction and implementation of the project. The PF participation includes the post-award conference, the construction kickoff meeting, and various other meetings throughout this period. They also participate by
reviewing various documents, such as commissioning reports. Task Eight reflects Phase Five, which is the post-acceptance timeframe, and PFs review and provide comments on the first-year M&V report, and then they provide a closeout QC report.
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Government agencies must conduct business with integrity, fairness, openness, and the highest standards of care. And since PFs support agency acquisition teams, they must conduct themselves in a professional manner that's above reproach. PFs have access to procurement-sensitive information that must be protected from unauthorized disclosure. So, what is procurement-sensitive information? It's contractor bid or proposal information. It's information submitted to a federal agency as part of or in connection with a bid or a proposal to enter into a federal agency procurement contract. It's information that has not been previously made available to the public or publicly disclosed.
And so, this includes cost or pricing data the ESCOs submit to support their proposed prices. ESCOs, they have to submit financial schedules that include other data such as labor rates, indirect costs, and other costs to deliver the project. These are all considered procurement-sensitive information. It also includes proprietary information relating to the ESCOs' techniques, their processes, and their operations, and it includes information that is marked by the ESCO as confidential, or contractor bid or proposal information. Although frequently the ESCO or the source selection decision has already been made, some of the information submitted with the ESCO's preliminary assessment and proposal is also considered procurement-sensitive, and it must be safeguarded from disclosure. What you see, here, is not a complete list, but includes data that a PF might have access to. So it includes the proposed costs or prices that are included in the schedules and the other supporting data.
The agency's technical evaluation plans are source selection-sensitive, and this also includes the names of the evaluation team members. It also includes the results of the technical and the price evaluation. So, prior to award, only the contracting officer has the authority to determine what information, as well as when information, should be disclosed to the ESCO. So an example would be, if the agency asked the PF to share
agency comments and to assist the ESCO with resolution, that would be a time when you're authorized to do that after the CO has asked. Otherwise, PFs should not disclose source selection-sensitive information; they should purge their files after award, and not share any evaluation information with others. Source selection-sensitive information includes information identified by the government as source selection-sensitive. So, if in doubt, don't disclose or share information that's not publicly-available information about the ESPC project, with others outside of the agency team.
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The general rule is to avoid any conflict of interest, or even the appearance of a conflict of interest. There are many federal laws and regulations that place restrictions on the actions of government personnel and advisors, such as project facilitators. Their official conduct must be such that they would have no reluctance to make a full public disclosure of their actions. So an example would be seeking employment or being contacted by an ESCO regarding employment, a close family member that's employed by the contractor, ownership not just as part of a mutual fund or index fund, but substantial ownership or the ability to influence the company. And there are many others. If the project facilitator has any potential conflicts of interest, disclose them to the agency contracting officer, so that they can coordinate with counsel, to make a determination and decide on what course of action is necessary, if any. Agencies typically require team members that have access to procurement-sensitive information, to complete nondisclosure agreements and to disclose conflicts of interest. And those agreements are maintained with each contract file, so this may necessitate that a PF complete agreements for each project that they're involved in.
And now I'm going to turn this over to Terry Sharp.
>>Terry: Okay, thank you, Deb. Good afternoon, good morning, everyone. I will be speaking to you on the FEMP ESPC Project Development Resource Guide. This is a guide that I guess I like to refer to as maybe the roadmap or delivery of FEMP services, which include project facilitation services and other services. It's a document, and particularly the process that's in it, that I think should be at the fingertips of any project facilitator. The guide was originally written in 2015, first published in 2015, and was written specifically for project facilitators and federal project executives. The scope of what I'd like to discuss, number one, I'd like to touch on project development requirements. And then I'd like to dig into the guide and the process just a little bit, specifically as they relate to project facilitation.
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So let's touch on the requirements. These requirements, and there's some guidance here, come from the IDIQ; they also come from the Department of Energy project facilitation performance work statement, and also the Project Development Guide. The first of these bullets you are probably very familiar with, that for any project that's done under the DOE IDIQ, that the project facilitator has to be approved by the Department of Energy, and, of course, that intention is to keep the qualifications _____ our project facilitators very high. The second bullet you're probably familiar with, too; this is stated inside the IDIQ, that the PFs guide the agency acquisition team. And Deb talked about the fact that this is guidance associated with technical guidance, and also financial, a lot of it is engineering-related, of course. And then, the third bullet you may or may not be so familiar with, and that is that project facilitation services are to be delivered following FEMP standardized process for project development.
And that project development process is documented in this guide. And I'd like to dig into this just a little bit, and that is, is that project facilitators that are provided by DOE are required to follow this process. So what is the DOE-provided PF? That is the project facilitator that's contracted through the Department of Energy to support the agency – it's DOE-provided. Some agencies provide their own PFs, for example, Navy, they have inhouse expertise and use their own project facilitators. Some other agencies may hire their project facilitators directly. For those agency-provided facilitators, there is currently no requirement in the IDIQ to follow FEMP-standardized process, however, this guidance to follow this project development process, or equivalent process, is noted in the Project Development Guide. And I think that, in time, we will see those become
requirements in the IDIQ, so stay tuned for that.
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Lastly, on requirements, this process _____ the FEMP project development process requires the use of standardized tools and templates, and specific deliverables. These tools and templates and deliverables are outlined in the guide, and, of course, your deliverables, as a PF, are also defined in your project facilitation statement of work. Note that this guide, and the many resources that are referenced in it, are continuously updated; there's updates occurring, currently. And so, by going to the FEMP website and looking at the resources page, you can stay abreast of these updates. Let's talk a little bit about the guide. The key factors or the key things about the guide is, number one, it outlines FEMP's standardized process for project development, and that process has been standardized for many important reasons. Number one, to ensure that project facilitators are providing the same types of services across different project facilitators, that we deliver consistent services across the program, and the customers receive consistency. The customers receive the same type of services, same types of support, no matter what project facilitator is supporting them.
A second important factor is that this guide is used to document this process, and by doing that, we can ensure high quality in the process, and the process, as documented, can serve as a benchmark for continuing improvements. Lastly, I wanted to mention that the process, as described in this guide, is based on probably 20-plus years of experience, from a broad audience of people that's been associated with ESPC projects. This includes many project facilitators that I think are on the call today, that are project executives, many agency contracting officers and DOE contracting officers, agency champions that have spearheaded these projects from ground-zero to their performance period, operational-type folks, and both agency and private technical experts. So, just a tremendous amount of expertise has gone into developing and standardizing this process,
so, from that perspective I would ask, you know, why would you not want to follow it? There's so much of a knowledge base, here.
And at a minimum, if you don't follow it, I strongly would recommend leveraging it. There's just too much of a knowledge base, there, too much of an opportunity to learn and to improve what you're doing.
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So, let's – I'd like to outline the project development process for you, and in this guide, this process is outlined in four different process charts. This is the first of the process charts, and some of the words here are rather small, so I don't expect you to reach this. But I do want to walk you through this, because this really is the roadmap for a project facilitator, in terms of figuring out what they have to do and when they have to do it. So as I said, the FEMP project development process is outlined in five phases; you see, at the top, you see Phase One and Phase Two in this first chart, Phase One being acquisition planning, Phase Two being ESCO selection to preliminary assessment. You will notice, at the top-right, that the project facilitator typically enters right before the preliminary assessment kickoff meeting is when they enter the process. Across the top row, the top row of blocks, are agency steps as they move through the process, from acquisition, in this case on the far-left, to, on the far-right, to preliminary assessment development meetings, to develop the preliminary assessment.
In the bottom blocks are the FEMP services that are provided by FPEs, project facilitators, and other experts, as the agency moves through each of these steps. Some other things that you'll notice on this chart, so, how to read this chart in terms of what a project facilitator. Notice, down at the bottom, that these services are primarily delivered by federal project executives and PFs, and in this chart, those items _____ and deliverables that the federal project executive, the FPE, are responsible for are underlined. All others are project facilitator items or deliverables, unless they're otherwise footnoted. So, by looking at this chart, a project facilitator can rapidly tell what they're responsible for, and at what step they're responsible for doing those. Note, also, at the very bottom, it indicates that in blue are records that are to be generated and archived. In the early phases of the project, in Phase One and Phase Two, a lot of these documents that get generated and archived are done by federal project executives, in advance of the project facilitator entering the process.
Okay, also note, in the bottom-right, there are some task and deliverables, here, that are agency DOE responsibilities, and also, some noted, here, are ESCO responsibilities. So, this will help you read this chart, and help guide you through the process, and give you information on what and when that should be done.
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This is a continuation of Phase Two and Phase Three, and I won't go into this slide in detail, but I do wanna point out a couple of things. Note that, once we get into Phase Two and Phase Three, the project facilitator has picked up the ball, here, and is responsible for most of the services that you see on this page. And one comment, in terms of the documents and records that are generated and archived, you know, ultimately, upon audit, an auditor could expect to see these type of documents. So it is important to generate and also archive these documents, either at the agency or archived at DOE, or the project facilitator may archive them, as well.
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This slide is a continuation of Phase Three, and this is the IGA to proposal development to award of the project. Note, here, that you will see lots of project facilitation records that must be generated, again in blue. And then, the –
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– is the final flowchart for the phases. This carries us from Phase Three all the way to Phase Five, which is the post-acceptance for a performance period. Note, again, in this chart that the project facilitator is pretty well driving the train across the board for event services, here. Notice, also, that there are many deliverables in these phases, many of which are project facilitator responsibilities. Notice, also, in the FEMP-standardized process, that the PF exits the project, on the far-right side, exits the project at the end of year-one. And, of course, this is a very critical time for the PF, there; they do this annual M&V review in the first year, and it's very important to do a great job with that, because it sets the stage for agency success in the out-years of the project. So, I wanted to note that this process is always open to improvements, so, FEMP wants your recommendations associated with improving this process, or any of the tools and templates that's used.
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Let's take a look at the table of contents for the project facilitator, or, for the Project Development Guide.
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I wanted to share this table of contents with you, because it outlines many of the standardized tools and templates and documents that a project facilitator will either need to use or generate. And this guide is really important because it expands on the requirements of the PF's scope of work. The project facilitator's scope of work will define what the project facilitator needs to do and the deliverables that they will provide, but it doesn't necessarily tell the project facilitator all the details of what they will do and when they will do them. And so, the process, as outlined in this Project Development Guide, really gets at that, and that's why I think this guide expands upon project facilitator activities. The guide is sort, it's very unintimidating.
So, notice, in Phase Two, this is right after the project facilitator has gotten engaged, notice there are many agendas, standardized agendas, in the FEMP project development process. These agendas are required to be used; you do have the option of using your own agenda, but it is required that the topics that are in these standardized agendas, at a minimum, be covered. So, you can use these agendas, or you can take them and expand
upon them. Notice, also, there are some new tools and templates that are being added. The Preliminary Assessment Review Checklist is a new document that needs to be executed by the project facilitator. Down at the bottom are ECN lessons learned; these are lessons learned associated with specific technologies, where we've gone down the road with maybe emerging technologies, and in some cases learned a few hard lessons. And so, we've put these lessons down on paper, such that we can avoid those issues going forward, as opposed to having to react to them.
A couple other things I wanted to mention, it's important, I think, for project facilitators to stay abreast of changes in these tools and templates. I also wanted to mention that, in the Project Development Guide, these tools and templates are provided in hardcopy. Hardcopies don't change that often, so the project facilitator should always go to the website, to procure the latest versions of these documents for their use.
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Let's look at Phase Four and Phase Five, table of contents. In Phase Four, there is a new agenda that's been added, the post-award kickoff meeting agenda. In Five, there is a new checklist that's coming for reviewing the annual M&V report. And I did want to mention that, in terms of agendas, these meeting agendas, some of these agendas are very short and sweet, but as you move into phases of the project such as where you are maybe
constructing the project, these agendas can get very lengthy. Because there's a lot of activities, important things that need to be shared and planned for, at these different stages. So that some of them are very extensive and will help you ensure that you've covered all the bases of things that need to be covered in many of these important meetings.
Okay, and last slide, please.
So, to summarize, this Project Development Guide really is there to help the federal project executive _____ _____ project facilitator do their job. It helps you with the hows, the whats, and the whens; really, it's a roadmap for, you know, delivering project facilitator services. Again, it helps ensure consistency in the project facilitation work, program-wide, and ensures consistency in terms of delivered services to the agency. And very importantly, as I mentioned before, is that this documentation in this guide establishes the baseline upon which we can all make improvements to the process. And then, lastly, the guide will help audit-proof our work. The FEMP project development process has really been developed as a business process; by following it, it helps us ensure that our homework is done, that we've identified all our Is and Ts and we've got them all dotted and crossed. And in the hopefully unlikely event of an audit, that all of our books are in order.
So, again, this guide and all of the tools and templates that are in it can be found on the FEMP resources page. And again, I'd like to invite everyone associated with these projects, of course, to provide quality or process improvement suggestions, at any time.
Okay, thank you, and our next presenter is Deb Kephart. Thank you.
>>Deborah: Thank you, Terry. We're now entering Section C, and this section will cover the fundamentals of task order quality assurance. There are five topics we'll cover.
All right, now we can progress to the next slide.
First is the technical proposal evaluation.
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The purpose of the technical evaluation is to ensure that the proposed scope is consistent with the agency objectives. And those objectives are stated in the Notice of Opportunity; they're refined based on the results of the preliminary assessment, they're specified in the task order request for proposal. And sometimes, there are amendments or other additional guidance from the agency. The proposal, it has to be technically feasible. ESPCs they provide us goes with the flexibility to propose an innovative approach to problem-solving. The evaluation assesses if the proposal includes a reasonable and a realistic solution to the problem. It assesses if the proposal includes a sound approach to design and construction, and to determine if it's appropriate for long-term sustainability.
We evaluate to determine if the ESCO's team has demonstrated that it has the ability to accomplish the technical requirements, meaning, do they have the right people, do they have a good management plan, is the proposed schedule achievable. In the evaluation, it should note the strengths and the weaknesses of the ESCO's proposal, it should identify the risks associated with the technical aspects, so that they can be addressed in further discussions between the agency and the ESCO.
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This shows some of the tasks, meetings, and deliverables that the PF accomplishes during Phase Two of the ESPC process. During this phase, the PF involvement is more participation in the initial scope assessment versus the actual proposal evaluation. So, there's the preliminary assessment kickoff meeting, and the PF provides a draft agenda to the agency, and that's to ensure that the important topics are covered. The PF can also offer to lead or to facilitate the kickoff meeting. During preliminary assessment development, there are multiple teleconferences that the PA participates in, and then after the preliminary assessment is submitted by the ESCO, the PF participates in the agency review. And PFs are involved in the comment and resolution phase, to refine the project to meet the agency's needs.
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And this shows some of the tasks, the meetings, and the deliverables for the PF during Phase Three. After the agency decides to move forward and it issues the Notice of Intent to Award, the PF continues to stay involved in the project. During this phase, the scope continues to be refined, and the PF is involved, to assist the agency in ensuring that the proposal has a sound solution to its stated requirements. There's the investment-grade audit kickoff meeting; PF provides a draft agenda to the agency, again, to ensure that the important topics are covered. And the PF can lead or facilitate the kickoff meeting; they participate in project development teleconferences. And then, next comes the IGA midpoint review, to discuss the ESCO's progress to date. And this is a relatively new step in our development process: the PF assists agencies in evaluating ESCO's progress and the results to date, and they can lead or they can facilitate discussions on midpoint review comments.
After the ESCO submits the proposal – and keep in mind that representatives of the ESCO frequently make an in-person presentation summarizing what it delivers – this is the start of when a more formal technical evaluation of the proposal starts. Facilitator participates in the agency evaluation; sometimes there's a workshop to review the proposal and gather questions and comments, sometimes it's done individually. Typically,
the PF provides a standard document for all reviewers to state the questions, their concerns, their comments about the proposal. And typically, the PF combines and consolidates and provides to the agency to help them prepare for discussions with the ESCO. There can be multiple rounds of comments, ESCO provides answers or proposed solutions, agency reviews again. There may be more revised proposals that the PF is asked to review. And then, some PFs are asked to participate in negotiations, and this is because their ESPC experience and technical expertise can be of great assistance to the agency.
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This shows the required content of the technical proposal, as stated in the Department of Energy's IDIQ, and it includes the ECM descriptions, including equipment to be included, the baseline and savings, and other details. It includes ECM performance measurement, and this is where Terry will talk in more detail, a little later on. It includes the project management plan, and it consists of those items shown. I'll talk about them in a few minutes.
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PFs will consider if the ECM descriptions are adequately described in the proposal, and per the IDIQ or the master contract, it should include a narrative description of what will be installed. The energy baseline details on assumptions used to develop the baseline, such as hours of use or occupancy, weather. It also includes information on energy, the cost and the guaranteed savings, and on the assumptions used; proposed equipment identification, including manufacture model number and operational equipment proposed for each ECM; the location such as the facility, the floor, the building, the room number that will be affected; the interfaces with existing agency equipment and detailed descriptions of existing energy-consuming equipment and systems; all utility interruptions, specifying the extent of any interruptions needed for the installation, and any – it will include physical changes to existing equipment or facilities that are required to install the proposed ECMs.
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Facilitators assist the agency analysis to establish the validity of these critical engineering calculations, and this includes assessing if the rationale or basis for the calculations are reasonable, the calculations are based on sound engineering principles. The proposal should provide enough information that someone with an engineering background, or with an experienced background, is able to figure out, "Well, what are these calculations based on?" That has to be included. And it should also be tested to see if the math is correct; usually, this is a spot check of a sample it's required to verify. It includes determining the assumptions that are used throughout the proposal, determining if those assumptions are accurate, valid, if the agency agrees with them. Many times, those assumptions are sort of scattered throughout the proposal and they're hard to find, so the PF helps identify where those assumptions are, and if they're all documented or described, and if they're sound.
Many proposals include spreadsheets or they use building simulations; these can be an acceptable way to document energy savings for complex ECMs, but sometimes they become a black box; that's where data is input, but details about what happens from there is missing. So, we suggest, if something's missing and you can't complete your analysis, speak up, say something, tell your agency representatives that something's missing and
the ESCO needs to provide more before you can even make an analysis.
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So, we spend a lot of time reviewing ECMs, baselines, and savings calculations, and sometimes we overlook the importance of a good project management plan. So, even though the ESPC contract, it only pays from savings, the agency is counting on the ESCO to actually install functioning ECMs that deliver guaranteed savings. And it requires a good well-thought-out management plan that describes how the ESCO will accomplish the task, to ensure that that happens. The proposal should adequately describe a project management plan that has the ability to deliver a project or a task order, on time, and that means consistent with agreed-to schedules and milestone dates, within budget – so even though it's a fixed-price contract, there should be no surprise requests for increases – a plan that's consistent with the scope, meaning that the equipment functions, and that the cost and energy savings can be achieved.
And that would be specified within the task order request for proposal, and the ESCO's proposal. And it should provide a plan for resiliency, to sustain performance over the life of the contract. A good project management plan, it provides an agreed-to level of quality, and it reduces risk, risk to both the ESCO and the government. Plans should be reasonable and realistic; there are competing demands that may constrain a project – scope, time, cost, quality, risk – and the plan sets objectives for the project, for team members, and other participants. The plan should have a proactive approach to uncertainty, increasing performance, and satisfaction. It should include procedures to monitor and control, an evaluation methodology that makes the foundation for setting up key performance indicators and metrics for measuring success in a systematic and an
objective way.
It should include a plan to communicate. The communication plan sets the direction and provides vision effectively, to keep all stakeholders informed. And it should empower the team members within their areas of responsibility. ESPCs include design and construction, and there are always changes, some big, some small, but you can always count on change. And the plan should accommodate change and consider the impact that change will have on the other elements. For example, if a project scope increases, the project schedule will probably change, costs may change, and it may introduce risk into the project.
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The IDIQ requires the ESCO to include the topics shown as part of its project management plan, and taken at a whole – you're gonna look at each of these individual areas, but also consider it as a whole – does it describe a reasonable and realistic plan to implement the project? So, our communication plan should be evaluated, to determine if it's capable of promoting the efficient flow of information, on time, to the right people. It should include an organization chart that identifies key personnel by name, shows lines of authority within the organization; if subcontracts will be used, it should identify those functions and which elements of the ESCO's organization will manage the subcontracts; should describe the approach for performance of the proposed ECM and the ECM's specific preventative maintenance requirements and their frequency of performance. For each ECM, it should identify who will be performing, and also, any shared responsibilities or performance should be identified.
And this is where facilitators can help agencies in determining if proposed responsibilities meet the site objectives. And then, of course, training is required, and the proposals should be reviewed to determine if it's adequate for successful project implementation. And then, there's project schedule, is it well-suited for successful implementation, is it reasonable, is it realistic, is it something that everyone can live with. So, with all of these elements in mind, facilitators should review the management plan, and note any weaknesses, risks, or areas of concern, so they can be brought to the attention of the technical lead and the contracting officer, to discuss with the ESCO.
Now I'll turn this over to Terry, to cover some additional evaluation techniques.
>>Terry: Thank you, Deb. In this section, I wanna discuss energy conservation measure baselines and savings. The ESCO is responsible for establishing these baselines and quantifying how they will determine savings, and it's the project facilitator's role to evaluate these. And I think this evaluation of these is really a critical function of project facilitators. That, of course, is because the baselines that are established and the methods for calculating savings will form the foundation for evaluating savings throughout the term of this project, for 20 or 25 years. So it's very important to get this right. By reviewing these, a project facilitator can help reduce and manage the risk of the agency, long-term. And the agency really needs this kind of support, because, very often, they will not have the expertise to understand how a baseline's established, and many of the techniques that are used for quantifying savings. So this is really a critical function of project facilitators. In this section, I wanna, again, touch on requirements, and then I wanna talk about some things to watch out for, as a project facilitator, in evaluating baselines and savings.
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In terms of requirements, in the IDIQ, there are some requirements specifically for energy conservation measures, ECMs. Those requirements are that the ESCO, the contractor, must, number one, define the baseline equipment and all the systems that they are going to improve. Secondly, they're required to quantify the baseline system performance factors, and those are things that either have to be controlled for or the ESCO will be responsible for measuring a change in them. Things such as lighting levels, setpoints, operating schedules of equipment, the types of things that you manage or you measure change in. And then, the third is that the ESCO is responsible for developing methodology to establish baseline energy use, and they can do that many different ways, through historical utility data, surveys, measurements, calculations which can be either in spreadsheet form or they could do simulation modeling. And as part of establishing these baselines, there often are many assumptions that are made. So, those are all critical things that the contractor has to define, and then as the basis for savings, they have to define, very clearly, how each of those will change, and quantify those.
So, let's look a little closer, on the next slide, at system performance factors and methods for establishing these baselines.
So, some things to watch out for, in terms of system performance factors. Lighting levels – our existing lighting levels, are they below or above current standards? Will they change from pre- to post- period? If they need to be increased, will the ESCO bring them up to current standards, or maintain them as they currently exist? In terms of setpoints, are changes verified via software? Or is the ESCO actually going out into the space _____ measure temperatures? And this is very important, because just because the software says that the setpoint in a space is 72 doesn't mean that the sensor out in the space is calibrated, and that the space temperature is really 72. So, it's important to get out in the space and actually make measurements and see what is happening, as opposed
to relying on programming to tell you what is happening.
In terms of schedules, operating schedules _____ proposed setbacks, allow sufficient time for warmup. Just because the air temperature in a building, after a setback period, is at 72, the building may not be at 72, and particularly the interior furnishings are not 72. As a result, the occupant can experience discomfort, and so, what does the occupant do in that case? Well, hopefully, they will just change the operating schedule slightly, maybe start the recovery an hour early, and hopefully they don't go to the extreme of changing the setpoints. Because that affects all hours of the day, as opposed to just a simple change in the operating schedule of, say, one hour. So, it's important to look at those schedules, make sure that the contractor has allowed sufficient recovery time, _____ when the occupants come into the building, that they are comfortable.
Because, ultimately, if the occupant makes changes to those operating schedules that have been agreed upon, savings are impacted and the agency is responsible for that drop in savings that may occur, not the energy service company. In terms of establishing baselines and savings, we talked about many different ways that that could be done, historical utility data is used to establish the baseline. If that history, the historical data, isn't sufficient to establish a reliable trend in the utility consumption, typically, we wanna look at a three-year minimum, three years of gas data or three years of electric data, and that way, short-term _____, you know, those don't slip in and influence our long-term projections. In terms of water, there is some new guidance that'll be coming out from FEMP, shortly. And in water, a lot of times, water costs are driven by improvements in infrastructure, not necessarily just a gradual increase in rates from year to year.
As a result of that, this guidance is actually going to be recommending more than three years for a utility baseline, if that could be acquired for water. So, very important to do that, because if you project escalations wrong, you can definitely overpredict or underpredict long-term savings. In terms of sampling, there is some sampling guidance that's out there inside the _____ guidelines. Of course, if an ESCO was wanting to go out and make measurements on lighting, they're not gonna measure every fixture, and so, sampling has to be done, and there's guidance on that associated with reducing sampling error. So, take a look at that guidance, make sure that any sampling that's done is in accordance with it, to minimize risk to the customer. In terms of assumptions, make sure
those assumptions are fully specified; it's easy, sometimes, for an ESCO to miss one or two key assumptions associated with specific ECMs. And make sure those assumptions are accessible to the customer; sometimes, they are not. So, lots of things to pay attention to in terms of establishing baselines.
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Other things to watch: witnessing. Witnessing is now required at all stages of project development, so it's something to make sure that that is accounted for by the ESCO. In terms of energy modeling, one way that you can backstop and ensure the calculations are correct is to get the inputs and the outputs from simulation modeling. Do calibrations meet utility data, tolerances associated with calibrations? And then, lastly, watch out for, if campus energy use is allocated to individual buildings. Hospitals use far more energy than, say, office buildings, and so you have to watch out for those allocations, and a lot of times just straight allocation by square footage can get you in trouble, particularly when you use those to calibrate simulations.
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Some additional considerations associated with savings, in terms of energy and water savings, there are review checklists out there that the project facilitator can use to help you evaluate those savings; it'll help guide you. O&M savings, there's guidance out there to ensure that any claimed savings are going to actually materialize in the agency's budget. Energy-related cost savings associated with equipment, O&M, repair, you're looking for an actual reduction in spending. And then, in terms of performance period savings, you wanna make sure that any changes – it may be in building use, or maybe a building gets decommissioned – that those impacts are documented in annual M&V reports.
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And on the last slide, I just wanted to leave you some guidance associated with establishing ECM baselines and savings, at the IDIQ, and M&V guidelines that are available, O&M savings, and annual report references, for your use.
Okay? Thank you. And our next presenter will be Brandi.
>>Brandi: Thank you, Terry. The next section we're gonna be going over is understanding and calculating utility escalation rates, and using the energy escalation rate calculator, which is a tool that FEMP has.
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So, utility escalation rates are crucial to the financial structure of ESPC task orders, and thus, to a PF's role. And escalation rate, more generally speaking, is an approximation of future energy prices, in the form of a percentage. Yearly escalation of utility rates is customary in ESPC task orders. Energy prices, along with usage, determine the dollar value of energy cost savings guaranteed by the ESCO. Since neither party has control over energy prices, agencies and ESCOs generally opt for simple and practical ways to arrive at prices to use in savings calculations. It is customary for an agency to accept energy price risk in an ESPC, but there are also downsides to both over- and underestimating future energy prices. Overestimating will lead to payments which exceed savings; underestimating will reduce the scope and increase the interest cost of the project, due to a lot longer project term. And a reduced scope leaves a site more exposed to increases in energy rates. So in summary, a conservative escalation rate is one that's accurate, not one that's artificially low.
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So, what is the solution to setting escalation rates? Well, the recommended practice is to use FEMP and NIST energy escalation rate calculator, which we also call the EERC, to determine energy rates for future years. This calculator incorporates the energy forecasts of DOE's Energy Information Administration, and it calculates average escalations given the state and the term. This is also the standard for setting escalation rates for federal ESPCs, and it is recommended in DOE ESPC policy guidance. To get this tool, you can download it from the resources section of our website, and you'll see, on this slide, a picture of what the tool looks like.
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So, how do you use the EERC? Well, first, you gotta make sure you're using the most recent version. The tool itself is updated every year, so, before you begin using it, make sure you have the most recent version off the website. Another note is that it's used only for sites inside of the United States, so if you're doing a project at international sites, you can't use this tool. The next recommendation is to accept the default value for inflation. In the 2018 version, this is 2.2 percent. Another note is that the start date should be the year of aware, so, you'll know that as you're evaluating the proposal. Next, it's important to note – use the commercial and not the industrial selection, unless the site tariff identifies it as industrial, or the site has a 75 percent or greater load factor. And this is very important, because there's a large impact on the rates depending on which of these two you select, so, make sure you're selecting the correct one. Next, only use carbon pricing in places of implemented carbon pricing, so that is only currently California and the Regional Greenhouse Gas Initiative states, which are in the Northeast. And another
important note is, EERC does not include rates for water escalation, because unlike energy escalation, water escalations are primarily not a function of geography.
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So, FEMP actually just recently released water escalation rate recommendations. They haven't been finalized in the website, they're just in a draft format, currently. But the recommendations are, the first choice is to use the utility forecast, and typically speaking, utilities put out either three- or five-year forecasts, which can be used. The second choice is to use _____ historical average, with a cap, and the caps were developed by PNNL, and they are 4.1 percent for supply and 3.3 percent for wastewater. And these are based on historical averages from actual data. The third choice is to use the President's Council of Economic Advisers long-term inflation forecast, and this should only be used if you don't have either of the first two to use. And that currently is 2.2 percent. And another note, you can mix the utility forecasts with the second or third method. So, say you have three or five years of utility forecast, so, first you would use those, and then after the following year you use either the second or third choice, and then use that for the rest of the out-years.
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So, next, I'd like to speak about understanding risks and assigning responsibilities, using the risk, responsibility, and performance matrix. This is a required element of the contract, and it's attachment J-7 in the contract.
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So, in the context of this discussion of the risks, responsibility, and performance matrix, risk is defined in terms of financial consequences. To the ESCO, the risk is that the guarantee will not be met, and the agency will withhold a portion of the payment, which may require the ESCO payment to the financier if the withheld amount exceeds the ESCO performance period payment. To the agency, the risk is that the savings it pays for will not be delivered, which violates federal ESPC statute and regulation. So this is another part where the agency depends on the PF to help the agency understand, minimize, and manage risk.
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So, the allocation of responsibilities between the agency and the ESCO defines who does what and who pays for what during the term of the contract. A few common-sense principles can be applied to the allocation of responsibilities. First, logic and cost-effectiveness drive responsibility allocation. Second, the responsible party then predicts its likely tasks and associated costs to fulfill its responsibility, and makes sure they're covered in the ESPC or the agency's budget. Unforeseen costs, the third point, unforeseen costs are paid by the party who caused the cost, or by the party who is responsible for the risk are. The RRPM is an attachment to the ESPC master contract, that discusses 14 areas of risk and responsibility and task orders. So, it is an attachment to the preliminary assessment and the IGA, or proposal, and the ESCO will propose an approach for this, and then it's up to the PF to evaluate the approach with the agency. And the RRPM that is included in the final task order summarizes the negotiated agreements between the agency and the ESCO, for each subject.
So, it then details how each area will be handled in the task order, and in particular, in the M&V plan. So, the RRPM lists the risk factors in three categories, these are: financial, operational, and performance. The RRPM addresses these variables, and assigns the risks and responsibilities to the appropriate parties. And you can see in the table, here, who most commonly accepts the risks in the different categories.
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So, gonna discuss some of the common factors in performance risk. Responsibilities for O&M and equipment repair and replacement are negotiable, and may be assumed by the ESCO, agency staff, or a subcontractor. It is crucial to spot how proper performance of these functions will be ensured. While the ESCO is responsible for assuring the guaranteed performance of ECMs, day-to-day contact of O&M and R&R tasks is negotiable. If the ESCO does the work, it assumes all the risk, and the agency will pay for that. If the agency does the work, it assumes the expense and possibly some of the performance risk. Typically, the agency operates the equipment with ESCO oversight. Maintenance, on the other hand, can go either way, but the ESCO is always responsible for the defining the maintenance program, providing training, and verifying execution. Often, the ESCO is responsible for repair and replacement, however, the agency should negotiate whatever agreement best addresses their needs. Some choose to keep all of the functions inhouse, to minimize the costs of the project, while others lack the inhouse capability or prefer to pay more for the insurance of having one responsible party for all of these functions. The PF needs to make the agency aware of the risks and potential consequences of risk allocation. Remember, if the agency does not meet its O&M or R&R obligations, the savings guarantee may be compromised.
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The task order will specify who will carry out the O&M and R&R tasks for each ECM. If the government performs O&M and R&R, the task order will specify the following: performance requirements, requirements for agency recordkeeping, provisions for the ESCO to monitor and document agency performance and report that to the agency CO, and remedies for deficiencies in the agency O&M performance if they compromise equipment performance. If the ESCO is still responsible for O&M and R&R, the task order will specify that the ESCO provide manuals defining O&M procedures, provide O&M training of the agency, and notify the site of any deficiencies in O&M and R&R, and a way to remedy these deficiencies.
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So, what were some lessons learned on the risk, responsibility, and performance matrix? First, the RRPM ensures that important risks are addressed and responsibilities assigned; it also fosters dialogue and mutual understanding of the deal. So, what are some key takeaways for PFs? Use the RRPM to guide IGA proposal and reviews. The RRPM is very important in analyzing the M&V plan, and should not conflict with the RRPM. It's also an item to look for to review, in the preliminary assessment.
With that, I'd like to turn the presentation back to Terry Sharp.
>>Terry: Okay, thank you, Brandi. And I wanna talk a little about, in this section, on evaluating the measurement and verification plan. Again, I wanna touch on requirements at the onset, and then I wanna talk a little bit about how to focus your review when you're evaluating a measurement and verification plan.
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In terms of requirements, if you look inside the IDIQ, there are multiple requirements, there, associated with the M&V plan. Number one, there should be a schedule indicating M&V activities; it's important to have this upfront, because the agency needs to know the timing on these activities, the agency needs to ensure that when M&V activities are gonna be done, that their personnel are available to perform witnessing. So it's important for them to know upfront, early on, when M&V activities are going to occur. M&V plans, per the 2017 IDIQ, this is a new addition to the 2017 IDIQ, and that is witnessing. So, the ESCO should denote, in the M&V plan, a recommended level of government witnessing for each ECM. It's the ESCO's responsibility to recommend this. And particularly, that's done, I think, because the ESCO will understand these ECMs, they'll understand the measurement, and understand the kind of witnessing that you should use to validate those measurements. The agency may or may not have a good understanding of those, and so, in this case, we're relying on the ESCO to recommend witnessing to the agency.
Thirdly, the M&V plan should specify post-award M&V reporting milestones for each ECM, and typically, of course, this is the annual M&V report. But sometimes you will find agencies may want an early pulse on how a project is performing, maybe a quarter or within the first six months of the performance period, to make sure that that project is performing such that, when they get that first-year annual report, there are no surprises. Next requirement is that an M&V strategy in this plan is proposed for each ECM that is consistent with the latest revision of FEMP's measurement and verification guidelines. You, of course, will find those on FEMP's resources webpage. And then, lastly, that the ESCO makes an allowance for witnessing associated with the different phases in this project, during the baseline establishment, during pre- and post-installation, and also, during the performance period. And in some cases, it's also important to note that sometimes an ESCO, when establishing the baseline, may make some measurements during the preliminary assessment. Typically, measurements are made during the investment-grade audit, but there are cases where measurements show up in the preliminary assessment. If an ESCO does that, then witnessing is required in the preliminary assessment period, as well, by the government.
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Also associated with M&V plan requirements also inside the IDIQ, there is a requirement that the M&V plan be documented to the point and complete to the point that it's essentially a severable portion of the technical proposal. And I think what has driven that requirement is the fact that, in the past, some of these M&V plans would come in, and the M&V plan had holes in it. And you would actually have to dig through other parts of the proposal, to get a good picture on a complete M&V plan, and that was very problematic for M&V plan reviews. So, I think this requirement is pushing the ESCOs to make sure that, when they deliver an M&V plan, that it is complete and includes all parts necessary to do a standalone thorough evaluation of that M&V plan. Secondly, there's a requirement that the M&V plan be completed using the template and the outline that's provided in the IDIQ. And again, I think that is associated with making sure that, when the ESCO delivers an M&V plan, that it's got all the pieces and the parts there in that plan, such that it can be easily reviewed as a standalone document.
And then, lastly, there is a requirement to include electronic versions of methods for calculating the ECM energy savings, and as an agency – the agency definitely wants to get that – the project facilitator definitely wants to get that. And you'll get that, often, in terms of spreadsheets, or you may get it in terms of input-output files associated with model. And when you get an electronic version, you don't want a PDF. If it's an Excel spreadsheet, you want it in Excel form, that way it will ease your evaluation and keep you from having to duplicate work by the ESCO. So you really wanna get those electronic versions in formats that you can work with them and rapidly complete your analysis.
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Also, in terms of M&V plan requirements, there's a requirement associated with operations and maintenance type savings. And here, it says that the contractor shall include a thorough description of methods for determining and verifying O&M savings. And there are some agencies that have actually recently pointed out that, sometimes, that explanation of how O&M savings will materialize has not been that thorough in the preliminary assessment. And the agency would find, when they get over into the investment-grade audit portion, that the O&M savings that had been outlined in the preliminary assessment don't materialize to the agency, and then they find out that the scope of the project sometimes gets compromised. So you wanna make sure that – so it's important to make sure that the ESCO does a thorough evaluation of the O&M savings, and ensures that any savings that they're expecting will, in fact, materialize in the budget of the agency. And then, lastly, O&M savings must comply with this O&M savings guidance document that FEMP has available, and this guidance document really gets at the core of this, ensuring that savings materialize in the customer's budget.
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So, let's talk a little bit about reviewing the M&V plan. Number one, there's checklists that are out there in the guidance, and if you use those checklists, it will help you ensure that your review of the M&V plan is thorough. And it'll also help ensure that your evaluation of the M&V plan is very consistent from project to project. This review guidance will also help you, what I call, follow the money, if you will. In other words, how many dollars are coming from each of the utility streams, for example, electric, gas, water, O&M. And it will help you – you can benchmark those savings for each of those individual utilities against the M&V strategies proposed. In other words, if there's large savings for a particular utility, is the M&V strategy robust enough to provide assurance to the customer that those large savings are actually gonna accrue to them. You know, where there's large savings, there can be large risk.
The figure at the bottom is a figure that – it's actually pulled from the TO schedules, from the task order schedules, and I think is one of the first things to look at in terms of helping you follow the money and figuring out where your M&V plan should really focus. You'll see the electric energy savings are very large, electric demand savings in column number four are very large, and then O&M savings are very large, water is very small, natural gas is very small, so the M&V plan should focus on those three saving streams. And notice, also, that your M&V plan should really focus in on ECMs one and two; that's where the money is, and most likely where most of the risk lies. So this mapping will really help you hone in on your M&V reviews.
And next slide, last slide, please.
So, be sure and use this M&V plan review guidance that's out there, and it's available on the resources page. It'll help you follow the money, map the savings, and help you identify where the biggest risks to the customer lie in terms of measurement verification. It'll help you ensure that each M&V strategy proposed by the ESCO represents a good balance between M&V cost and the savings risk for that particular ECM. And then, lastly, following this review guidance will help you and guide you in documenting your evaluation and findings.
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I think we're up for a break, I believe. Thank you.
>>Deborah: Welcome back. Part Two of our webinar will cover key facilitation roles, and ESPC tools.
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This section will cover key facilitation rules, as shown.
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Department of Energy's IDIQ requires the ESCO to submit financial schedules as part of its preliminary assessment package, and as a component of its price proposal. We're going to discuss the project facilitator role in evaluating price reasonableness, and also, the ESPC price benchmarking tool that FEMP makes available to assist agencies in their price evaluations.
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Federal agencies are required to acquire goods and services from responsible sources, at fair and reasonable prices. This is according to Federal Acquisition Regulations Part 15.4. What this means is not just a great deal for one side, but that it must be fair and reasonable price for both the agency and the ESCO. The financial schedules include summary pricing information on Schedule 2a, which shows implementation price by ECM, Schedule 2b project implement pricing worksheet, which provides more details on the base costs of goods and services, as well as the composition of the project implementation delivery charge. Schedule 3, Performance Period Cashflow, provides detail on expenses during the post-acceptance phase, and look to the summary page for information on financing rates. The agency may also specify, in its task order request for proposal, a requirement for the ESCO to provide more detailed information to support its proposed prices, or even to share more detail by building or location. There is nothing in ESPC regulations that would exempt the ESCO from submitting information required by a federal agency to ensure the impartial and comprehensive evaluation of proposals.
The FAR states that the contracting officer must evaluate the reasonableness of the offered prices, in order to ensure that the agreed-to price is fair and reasonable. The complexity and circumstances of each acquisition should determine the level of detail of the analysis required. Project facilitators provide necessary assistance to the agency in their required analysis. Remember that cost and pricing information is procurement-sensitive, and that recommendations or conclusions regarding the government analysis of the ESCO's proposal shall not be disclosed to the ESCO or others, without the concurrence of the agency contracting officer.
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Well, this is a page from Department of Energy's IDIQ, and it shows attachment J-6, and this describes the required task order financial schedules; there are eight of them. The ESCO prepares the schedules in eProject Builder, which will be discussed later, and then the ESCO submits a hardcopy with its preliminary assessment and with its proposal. You can find a copy of the schedules by going to the FEMP ESPC resources page, and looking for the IDIQ contract. So we're not gonna discuss the schedules in detail in this webinar, but I wanted to provide an overview of what the ESCO's required to submit. So, first of all, there's the summary schedule, it provides basic project information. If you wanna see a brief overview of the financial details or the financial deal, well, this is the place to go. It shows project capitalization, financing terms, project savings, both dollars and energy, total payments, and project term. The annual escalation schedule provides the energy escalation rates for each year of the project, Schedule 1 that shows the estimated and guaranteed cost savings for each year of the contract and in total, and it also shows the annual payments for each contract year and in total.
And this is critical information, because ESPC's are required to have guaranteed savings that meet or exceed the agency payment. Schedule 2a has changed over the last couple years; under the 2017 or the third-generation IDIQ, it shows the implementation price for each ECM and in total, and it also shows the project development costs associated with things like the IGA and other development costs. There's Schedule 2b, and this is also new with the third-generation IDIQ; it shows project implementation pricing. And what this consists of is showing the base ECM direct costs for subcontracting, self-performed work, and other direct purchases. Then it shows the pool or the implementation period delivery charge associated with the cost to design, manage, commission, measure, and verify. And it also includes the company overhead and profit. The pool costs are expressed as a percentage and applied to the base cost, and the IDIQs, they actually have maximums that are negotiated for each ESCO, that are allows under the task orders.
Schedule 3 provides details on performance period cashflow for each year of the contract, shows depth service costs, as well as the cost to administer M&V and perform other tasks to sustain the equipment over the life of the contract. Schedule 4, that summarizes all of the technical data, it provides baseline energy consumption and costs, as well as estimated savings and costs for each proposed ECM. And then it provides a simple payback for each ECM. Schedule 5, it's only required for the proposal and not the preliminary assessment. The information is required for all government multiyear contracts, and it provides the cancelation ceiling for each contract year.
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So, these are the cost elements for ESPC task orders. There's the project development costs, including the costs for all work activities that occur after issuance of the Notice of Intent to Award. It includes all costs associated with the investment-grade audit for site inspections, for meetings, calculations, project costing, baseline development, and M&V development, but it does not include design. There's the cost of goods and services, and those are the direct costs to implement ECMs, including direct labor and materials associated with construction, both for the ESCO and its subcontractors. There's the project implementation delivery charge; it consists of the cost for the design, project management, commissioning, M&V, implementation, overhead, and profit. And a percentage is calculated and applied to the ECM costs of goods and services. Financing is primarily the interest costs over the term of the contract, and that includes financing during the construction phase. Then there's performance period service costs, those are post-acceptance; management of the task order, including operations and maintenance, repair and replacement, annual measurement verification; and there's a markup.
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ESPCs do not require agencies to have upfront appropriated funds. Instead, the ESCOs obtain financing or debt, and they use the money to install the project ECMs. Then the ESCO repays debt and interest over the life of the task order, and these costs are included in the financing deal. PFs review the proposal to see if all the required supporting documentation has been included in the proposal, so let's talk about what the IDIQ requires an ESCO to include. First of all, keep in mind, competition is required. The ESCO must solicit offers from at least three reputable finance companies, and they do this using the investor deal summary, or IDF. The finance company's responses must be in the form of the standard finance offer or SFO. Once SFOs are received, ESCO is required to perform an analysis that, at a minimum, compares rates offered and total estimated finance cost. And then, they must determine the most advantageous offer based on their analysis, and this will establish the reasonableness of the interest and the other financing costs included in the proposal.
Then the ESCO prepares a certified selection memorandum, describing the selection process, and the reasons why the selection is the best value to the government. And if the financier with the lowest total interest is not selected, the memorandum must describe the reason for selection, and how price reasonableness was established if it wasn't using lowest total cost. The investor deal summary, the standard finance offer, and also, that certified selection memorandum shall be included in its price proposal. Also, the ESCO cannot add any markup or profit to the finance or the interest costs; they're pass-through only. And keep in mind that there are IDIQ negotiated maximums for the amount of spread above the US Treasury rate that ESCOs are allowed to include in their proposals and resulting task orders. Oak Ridge National Lab, they keep a database of historical interest rates, and they'll analysis of the finance rates for all of the task orders.
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The analytical techniques and procedures may be used singularly or in combination with others, to ensure that the final price is fair and reasonable. And this is a pretty substantial chart, and it lays out the FAR techniques to conduct price analysis. Price analysis is preferred under the FAR over cost analysis, and price competition and comparison to previously paid competitive prices are the preferred methods. But sometimes there's insufficient historical data, or the ESCO conducted adequate subcontract competition to evaluate proposed prices for individual ECMs. If those first two techniques cannot be used, there's a variety of other techniques that the agency can use to evaluate proposed prices. These include the parametric estimates, and those are similar to benchmarks, but they tend to have a little bit more precision. There is public price lists such as GSA schedules or other catalogue pricing; the government's expected to receive any discounts or rebates to reflect the lowest price offered.
There's independent government cost estimates that can be very helpful. With ESPCs, they might include the use of benchmarks and estimates for the preliminary assessment, and then once the scope of work is established, these IGEs can be refined to reflect a good estimate of the expected proposed price. Market research that could identify customary practices and other sources, but typically, it isn't used for ESPCs. Then there are a variety of other price analysis techniques that can be helpful. And then, if price analysis is not sufficient to establish a fair and reasonable price, [audio cuts out] bottoms-up cost analysis can be performed.
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Price benchmarks can be used to establish price reasonableness for many ECMs. They're not the end-all be-all of price reasonableness, but they can save time. And ORNL has gathered a tremendous amount of historical pricing data, and created a database that can be used by federal agencies. And FEMP then created a benchmark tool for some of the ECMs that are common in the program. These include lighting, chillers, VFDs, ground-source heat pumps, and water. For common ECMs, use FEMP's benchmarking tool to ensure that prices are within a competitive range. This will help identify significant inconsistencies that warrant additional pricing inquiries. Even if a price is benchmarked
low, more information may be necessary, because it may mean there's a difference in perspective about the project scope. Benchmarks may be able to provide a level of comfort to accept proposed pricing for the ECM. For the less common ECMs, the FEMP locator tool can be used to identify prices paid for similar ECMs, for comparison purposes.
And the database, it's not as extensive for these ECMs, but it may provide some relevant historical pricing. And this would include ECMs such as biomass and other renewables, distributed generation, and many others. If they're high or if they're low, flag this to talk with the agencies, so they can have discussions with the ESCO.
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What this is, is an example, and it's a fictitious example, but it is an example of the type of output that can be expected from the benchmark tool. So, in that graph to the right, every one of these dots represents a prior project, so the historical data in this little example we're using is pretty significant. And there to the left, with the red box, agencies would input the proposed savings and the price information from the task order schedules, as well as the facility location. The benchmark tool adjusts for inflation and for regional differences, and then it provides comparative data. So, if we look at the lower-right-hand side of this screen, it shows that the offered price is 18 percent above the expected price. And for something like this, PFs should bring this to the attention of the agency contracting officer, because a variance of 18 percent typically means that discussions or more research is required.
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This shows an example of some of the techniques that a PF might use to provide assistance to the agency CO, and I think we've briefly talked about each one of these. You can perform one of these, you can perform them in combination with one another, but the law does require that some sort of an analysis be determined or be performed, to make a determination. And then, the ESPC law requires that ESPCs be lifecycle cost-effective, and performing this lifecycle cost analysis, which is really a method for assessing the total cost of ECM or facility ownership over the life of the contract, that can assist in evaluating cost. PFs assist in determining price reasonableness and preparing for negotiations, and it can provide validation for assessing the reasonableness of individual ECMs.
And now I'll turn this over to Doug.
>>Doug: Thank you, Deb. In the previous presentations, you have heard how valuable and critical a role that the PFs play in successfully developing task order awards, instruction, and acceptance of an ESPC project. In this particular section, we'd like to talk about how the PF handles proposal review comments, and resolves differences.
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Alrighty, we'd like to talk about the review process and the best practices, but before we do that, let me point out that, as part of the FEMP support for ESPC projects, you will ensure that the ESCOs submit the IGA proposal in advance of a review workshop. We also have an IGA review checklist that should be used, and a standard review comment template. And also, as always, we have experts, as needed, for specialized technologies, pricing, subject matter experts, et cetera. So, if we're talking about the best practices, here, you would think there are no real surprises, at this point in time in the development of an ESPC project. But it is not unusual to have a lot of comments, 100 or 200 comments, at the IGA proposal level, so, it's important that we handle these in a very concise way. Obviously, you'd like to develop all the agency comments into one document, and that when you have an agreement or you make changes that you agreed to, that these changes show up in a revised proposal and/or task order. So you have to check these very diligently.
And we would recommend that you require the ESCO to show/track changes in successive revisions of proposals. And this last one that we recommend is, I think, very important and has proven to be very critical if there is a difference of opinion, say, in later years in the life of contract: include documentation of comments, responses, and resolutions as an attachment, through the task order. I think that's extremely crucial for documentation in the long-term.
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All right, we have PF comment resolution tasks. Certainly, and foremost, we would recommend that there is a schedule development for resolution of the comments on the proposal. If you don't develop a schedule, this is where things could bog down. You need to manage the timeline, so that you can move through this aspect of the project in a timely fashion, towards task order award. And as we discussed earlier, you wanna provide the template that we have to everyone that's participating in the project, all the agency personnel, and the subject matter experts, as well. And Terry talked about this earlier, but you need to be sure and submit the record documents for the archives that are in our project development resource guide. And generally, we refer to this as Round One, where the agency develops all of their comments into one template; it's clear, it's understandable, you've reduced the duplicate comments across your professional staff, and be sure and keep your contracting officer in the loop. And at that point in time, you will submit it to the ESCO for their comment. And before we go there –
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Here is the ESPC project review comment template. This is what we would suggest that you use for the development of the comments and consolidation from all the agency personnel and subject matter experts. And it might even help if you were to consider color coding, to facilitate the tracking tasks that you have with large number of comments. This particular version, right here, is a draft _____ May 2018, and we should have that document finalized very shortly in final form, which should look like the one we have right here, in the next couple of weeks.
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All right, this is Round Two: the ESCO's going to provide the comments or the responses to your comments, and then the agency's going to review the ESCO comments, and hopefully you'll be able to resolve a large number of the comments from the ESCO and from the agency. And this is where the color coding comes in, very handy, on the ESPC project review comment template. And be sure, in any case, that you have the individual who has made the comment to review the response [audio cuts out] in general, what we're saying is that each individual should handle their own area of expertise. And, of course, the role of the PF, once again, is to summarize the agency's recommendations, using the form that we talked about.
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We've really had some lessons learned in how we resolve the resolution of differences for the final proposal or the IGA. Many times, historically, this trading back and forth of comments between the agency and the ESCO went on for a long period of time, and it caused delays, timely delays, to the development of the project. So, generally, we'd recommend a couple of rounds of trading of comments back and forth, and then if you're not able to resolve all the comments or responses, one option would be to include those issues in the final negotiations. Or in most cases, what we recommend is an in-person meeting to directly resolve those issues that have not been resolved. I like to refer to that as the locked-room bread-and-water strategy, but it is very helpful to get all of the players in the same room, and in most cases, that results in a very timely resolution of those differences.
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And finally, keep the agency's final goals in mind, and be sure that you have resolved all these concerns and comments, prior to award. This is critical, in order that you would have a successful task order. _____ come to resolution, but do not sacrifice the agency needs or requirements just to solve those and to move forward for a task order, 'cause you want to be sure that the agency gets the very best possible project for their facilities.
Our next presenter is Deb Kephart. Deb?
>>Deborah: Well, thank you, Doug. This section will discuss managing the post-award design, construction, other implementation, and the acceptance period.
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This is Phase Four of our ESPC process, and after the task order is awarded, the agency will conduct a post-award orientation conference. This is to ensure that all parties have a mutual understanding of the contract requirements, and to identify and resolve potential problems. Next, the ESCO completes the final designs, and the agency reviews and approves – or, agency reviews, discusses, approves. Remember that at the time of contract award, project design is not complete, so the ESCO needs to finish up the design. Next is the construction kickoff meeting, where roles, responsibilities, expectations, timelines, and communication protocols are established. After that, ESCO installs the ECMs and performs the QC, as the agency monitors and approves the ESCO's work. After installation is complete, equipment is commissioned and the post-install M&V takes place, to ensure that the equipment performance is satisfactory and that ECMs have the potential to meet or exceed the guaranteed annual cost savings. And then next comes project acceptance.
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FEMP has learned that transitions from pre-award period to the post-award period can be difficult, and it established a working group to develop best practices to improve the transition. So, working group recommendations are available at the FEMP ESPC resources page, but in summary, they recommend the topics shown. And there should be a formal handoff of project knowledge, responsibilities, and authorities; you need some continuity between Phase Three and Phase Four. The PF is a key member of the project team, and should be an active participant in this critical transition period. And this is to assist in ensuring that the project proceeds without confusion and without delays. The agency team should be prepared; they should've read the contract, know what to expect, know what's required of them, and be ready to start. And although not always possible, personnel turnover should be mitigated. Any time there's a change in key personnel, and that's either agency or ESCO, extra steps should be taken to avoid delays and setbacks.
Keep the project moving forward and don't allow staff vacancies to cause delays; need to stay in sync, and avoids the snafus which also cause delays. Hold regular meetings between the ESCO and the agency; these help to identify issues and concerns in a timely manner, and they facilitate resolution of problems as they arise. Be aware of possible disconnects between the development teams and the construction teams. What you don't wanna see is an entirely new group of people show up for the post-award conference from those who were working during the project development phase. And this is true for both the agency team and also the ESCO team.
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The Project Development Guide details the tasks that the PF participates in during this phase, as well as the key meetings and the deliverables. Current guidance is that the project facilitator will attend the post-award conference, the construction kickoff meeting, and at least one meeting per month. Some of the key deliverables are shown; they include review of the commissioning plan, the commissioning report, and the post-install M&V report. The PF may also be asked to review the acceptance documents, and note anything that would prevent agency acceptance.
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There's a lot going on during this period, and I'm only going to discuss some of the key topics related to project facilitators. The first would be the post-award conference, and the PF should attend this post-award conference – a sample agenda document is under development. And usually, this meeting is to cover the topics listed; this is usually led by the contracting officer, but they appreciate project facilitator input to some of the topics that are not routine to a regular non-ESPC contract. Really, the purpose of the meeting is to make sure all parties understand the contract terms and conditions. You wanna identify and resolve potential problems, and then achieve continuity and effective transitions between the pre-award and the post-award. Another critical meeting is the construction kickoff meeting; this occurs after the design is complete and accepted by the agency. The project development guide includes a sample agenda document, so that PFs can facilitate the meeting and help to ensure that all the required topics are discussed. And some of those topics are shown, certainly not a complete list, but some of the important ones. And then, throughout this process, there should be regularly-scheduled progress meetings, usually weekly or biweekly, and PFs should participate as necessary, or agree to stay involved in the project implementation phase, and to be aware of some of the topics and the issues that occur throughout this period.
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Facilitators are now required to be involved in reviewing the commissioning report. So, the purpose of commissioning is to verify that ECMs are properly installed, and they have the ability to perform. Commissioning is required for each ECM included in the task order contract, and each ECM will be addressed with specific steps. There are three phases addressed in the IDIQ, related to commissioning. The first is the commissioning approach; it'll be proposed by the ESCO, and agreed to in the task order contract. There's the commissioning plan that will be developed after the agency reviews and accepts the design and construction package. And this plan, it should refine and finalize the commissioning approach that was stated in the contract, without significant changes. And then, the commissioning report that's submitted by the ESCO to document the ECM's effect upon facility performance requirements, in accordance with the commissioning plan. Commissioning, it must be complete prior to project acceptance, but sometimes there is seasonal equipment, such as a boiler or a chiller, that could cause a delay, so the project will have conditional acceptance pending completion of the commissioning report on this seasonal equipment.
Next up, Terry.
>>Terry: So, my final topic is on reviewing the annual M&V report. And again, this is another critical function of project facilitators, for a couple of reasons. Number one, the agency is likely to have very limited experience in this area, and so, they're going to have to rely, I think, in large part, on the project facilitator. Number two, this is very important, these reviews are very important, because they set the stage for future reviews in year two
and three and ten, and so on. And thus, they set the agency up for future success, if they're done very well. So, it's very important, I think, to get these reviews done right. There's a couple of guidance documents available to project facilitators out there; I'll give you those references at the end of the presentation.
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So, I wanna touch on, in this talk, I wanna touch on agency roles, I wanna talk a little about best practices, and then I wanna touch on what to look for in doing these reviews of annual M&V reports. In terms of the agency role, the agency has two important roles. One of those is witnessing, that we've talked about, and note that the agency may or may not be aware that they're required to do this. Again, this is a new requirement in the 2017 IDIQ – the contracting, agency contracting officer, should be aware of this, but there are cases where they may not be. The second function is that, in terms of witnessing, the ESCO will guide and will help out the agency to an extent. Remember, it's the agency is required to recommend witnessing, the level of witnessing, to the agency _____ so they will guide them, to an extent. The second role of the agency is to review the annual M&V report, to ensure compliance with the M&V plan, and this is where the agency is really gonna need your help. A lot of times, they just don't have the expertise to do this.
In doing these annual report reviews, you'll have to refer back to the M&V plan, you may have to look back at methods used for calculating savings, look at escalation rates, definitely things beyond probably the expertise of definitely smaller sites and agencies, and maybe even larger agency sites.
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So, the agencies are responsible for doing the witnessing, but I think it's important that PFs are aware of why witnessing is important. So, witnessing involves the agency observation and understanding of M&V procedures, measurements, tests, and various calculations. And so, why is the agency charged with witnessing? Well, number one, it's all about independent verification, verifying that the ECMs are performing and that they're ready to produce the savings. Second reason for witnessing, of course, is to audit-proof the project. Third, it is an agency administrative responsibility to do this witnessing, and so, _____ the CO is aware that they're gonna drive the train on seeing that this witnessing is done. And then, lastly, this witnessing really helps promote a mutual understanding and ownership within the agency and ESCO partnership, okay? Then, lastly, at the bottom, I did want to note that the IDIQ does require that the ESCO documents agency witnessing activities within M&V report, so you should see that in every annual M&V report that you review.
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We have a number of best practices associated, out there, with M&V review. The first of those is to ensure that the parties involved have met all of their obligations in terms of measurement and verification. And to ensure that the energy and the dollar savings have, in fact, been delivered, in compliance with the task order requirements. And have those savings actually materialized inside the agency's budget. Secondly is to ensure that the annual report complies with the M&V plan, in other words, has the ESCO done what they said they're going to do, and are those activities well-documented? Thirdly, best practice is to put procedures in place to ensure a prompt review. Remember, Doug talked about this back during the comment resolution, and how extensive that can be, large number of comments, a lot to review, and so it's important to put a schedule and procedures in place to make sure that that happens promptly. And then, lastly, this is a recommendation, and that is to hold a meeting where the ESCO delivers the annual report.
In other words, the ESCO comes onsite, delivers the report, presents the results, talks about any, perhaps, ESCO or agency impacts to the savings, and there's a Q&A period with the customer. Again, there's not a requirement for this, this is the best practice, but if the agency wants it, they can include it in their requirements that they impose on the energy services company.
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In terms of reviewing annual M&V reports, there are many things that should be looked at, and I'll cover some of these, not all of them. But the first couple involve, you know, just making sure that all the required information is in the report, the M&V plan was followed. Thirdly is to make sure that all the field-measured values are carried over into the report, so that when the annual M&V report is reviewed, there's not a lot of hunting that has to be done. In other words, kind of, this document is almost standalone to the extent that it can be, _____ _____ it could be easily reviewed without having to dig up a lot of ancillary information. Fourthly is factors – remember I talked about, during the ECM baselining and the savings sessions, about these factors that they need to be controlled for, like lighting levels, setpoints, operating schedules, those kinds of things. And make sure that those factors are held constant for calculations per the task order. A couple others I'd like to highlight are down toward the bottom, and one of those is O&M, is that being carried out properly. We often find, during the performance period, that issues associated with O&M do arise, and so it's definitely an area to pay a lot of attention to, to make sure that that's being carried out as defined in the project. And then, lastly, agency impacts on savings, making sure that those are quantified and documented in the report. That is a new requirement in the 2017 IDIQ, and the annual report format that's out there is very explicit in making sure that these impacts are described and
quantified.
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So, some questions that the project facilitators should be looking for in terms of reviewing annual M&V reports. We did talk about making sure that the content of the report was complete. A very fundamental requirement is to ensure that the savings guarantee is met; that's what this is all about. There's an annual requirement that savings must exceed payments, and so it's very important to make sure that that is met. Thirdly were the correct utility and escalation rates used. This is really important, because escalation rates, particularly once you carry them out 10-15 years into the project, they can have a huge effect on savings, either overestimating savings or underestimating. So, you wanna make sure that those rates that were defined in building the project were, in fact, carried over and used in the annual report. And then, lastly, were all activities required by the M&V plans followed. Good questions to check.
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Some additional questions to look at. One of those is that, if there are variations between estimated and reported savings, make sure that that is very detailed. If there's a discrepancy, document that discrepancy – you should see that in the annual report. If there is a discrepancy, what corrective actions are planned, is a plan of action put in place, and who's responsible for those actions. Secondly, does the report provide useful feedback about the performance of each measure? In other words, does it give you, as a reviewer or as the agency, did it give you confidence that these ECMs are performing as planned, and that the savings are materializing? Thirdly, did the report verify the potential of ECMs to save in the future? And we talked about how important this really is, particularly at the year-one annual M&V report, to ensure that the agency is set up for success in year-two and beyond. And then, lastly, the last item is associated with witnessing – is this witnessing documented? Again, it is a requirement and you should see that in every annual report.
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In the case of savings shortfalls, if shortfalls occur, they should be documented very detailed in this annual M&V report. And the ESCO is responsible for resolving any ECM performance issues, and proposing remediation options. In the event that there is an issue and it's not resolved, you know, quickly, the agency has the option of withholding part of the payment associated with those shortfalls. And then, the last bullet, of course, is if the agency is found contractually responsible, then the agency, of course, continues payments associated with the task order schedules. So in terms of shortfalls, this is something that you really want to ensure that this is tracked well, particularly if it goes across years, and hopefully that a very sound plan of action is put in place to correct those. We don't see them often, but they do happen; sometimes they're very significant and very important to be taken care of.
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So, in summary, reviewing this annual report is an agency and a project facilitator requirement. The PFs bring expertise to this review that the agency is unlikely to have, so it's very critical for them to support. The agencies are gonna rely on you heavily in this area. There's best practices and guidance out there for you, that'll help you provide the roadmap for assuring success in your annual review. And I can't iterate enough that doing this review in the first year, and getting it right, is just really, really critical for setting the agency up for long-term success. Okay, and I mentioned, earlier, that I'd give you a couple of resources associated with reviewing annual reports, and here they're listed at the bottom. And, of course, as always, you can find those on the FEMP resources page.
And, Brandi, I'll turn it over to you as the next speaker. Thank you.
>>Brandi: Thank you, Terry.
Next slide.
So, for the last section, gonna be going over some ESPC tools which are available for you to leverage. Now, this is just a small sampling of all the tools we have available on the FEMP website, but these are some of the more important ones. So, today we're gonna cover eProject Builder, the ESCO selector tool, and energy sales agreements, and tools that are available regarding those and other renewable generation assets.
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So, first, we'd like to talk to you about eProject Builder.
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So, what is eProject Builder? eProject Builder, or ePB, as we call it, is a secure Web-based cloud system for entering and tracking ESPC project data for the life of the project. It features a standardized format for project data, and can be used for federal, state, local, and private sector projects. The task order schedules, which Deb discussed earlier, are the main information which is stored in this system, and the system itself hosts the calculations. This creates transparency and trust between the agency and ESCO. eProject Builder also ensures the fidelity of project data; it does this by restricting the access to one ESCO and one customer account. These accounts can grant read-only access to the viewers. In an ESPC project, the PF would typically be a viewer in ePB, after being granted access by the agency, and whoever the individual is, the agency who has that account. So, as PF, you don't have responsibility to enter information in the system, but in your role, you will actively be reviewing information as it is generated by the system. The information in ePB is secure and is protected by an encrypted protocol, two-step
login, and other advanced cybersecurity measures. And lastly, it is important to note that the use of ePB is required in the third-generation DOE IDIQ contract.
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So, you may recognize this slide from earlier, and this comes from the SCC Project Development Resource Guide, but we've added parts, here, to indicate the role that eProject Builder plays, and where it plays that role. So, like we said before, it is the ESCO's responsibility to enter detailed data into ePB, however, before the ESCO can begin, the agency is required to initiate the project. And it's a user-friendly system, and there's also training available to the agency to understand how to use it. So, to begin initiating a project, the agency actually only needs five pieces of data. Then after the project is initiated by the agency, the ESCO can begin entering the necessary data to build the schedules. During this time, the agency has no access to the ESCO's input; the ESCO will submit hardcopies of the schedules with the PA, as well as during the proposal development. Additionally, they will submit a hardcopy of the final proposal and awarded task order.
After negotiations are complete and agreement is reached, the ESCO will lock in the data and submit it for approval, to the agency. The agency then verifies that the schedules in ePB are consistent with the final negotiations, and approves the schedules. This locks them in and provides visibility going forward.
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And then, after the task order is awarded to the ESCO, the ESCO will then enter post-installation and annual M&V information into ePB. And through a similar process, the agencies review and improve the M&V information, annually. Also, any contract modifications that require task order schedule changes also need to go through ePB. And once again, the ESCO will enter the new data, and then the agency verifies the changes and approves them in eProject Builder. You know, once again, this is – the PF does not have a responsibility to enter information, but they should be, you know, aware of where this information is coming, and just that the system exists.
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So, what kind of outputs can be generated by the agency or ESCO from eProject Builder? The TO schedules, annual M&V and cumulative M&V reports, various tables and graphs that the agency can make that can analyze their whole portfolio of projects; can also generate spreadsheets in the CSV file format, for all the projects that the agency has in ePB. And lastly, it actually also has – ePB has benchmarking statistics from the database of past projects, so these can also be used in, you know, assessing proposals. And actually, the benchmarking feature is accessible to all members of the public, so you don't even need to create an account to go check out this benchmarking information. And, of course, the specific project names are redacted, so you just get the actual benchmarks.
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So, just some information and be aware, eProject Builder training and technical assistance is available to agencies, as well as PFs. There's training documents and short videos on the eProject Builder website, which is listed at the bottom of this slide. There's also a help and documentation page. And then, in addition to that, every month, there is a 90-minute introductory training webinar, and every quarter, there is an advanced training webinar. And the advanced training webinar also covers not just the schedules but the M&V and reporting features. It's important to note that you can find when these are occurring either by visiting the website or by checking out the FEMP digest. And if you have any questions, the product is actually managed by Lawrence Berkeley Labs, so, you can also reach out to them with questions.
Next, gonna have Doug present.
>>Doug: Thank you, Brandi. Now we'd like to look at the ESCO selector tool. And actually, this tool was created in 2015; we have updated some aspects of it, most recently on our website.
And so, could we go to slide number two, please?
Exactly what is this tool? It is a Web-based tool that generates drafts and that's editable Notice of Opportunities, NOOs, based on the user's input and FEMP's best practice template and guide. And who's going to use this tool? And it is the responsibility of the federal project executives to work with the customers and the agencies to assist them in using the ESCO's selector tool. And also, the PDFs will use the NOO to understand what the facility requirements are, the people involved, the agency requirements, as well. Now, currently, under the FEMP ESPC Project Development Guide, PFs do not start until the PA kickoff meeting. However, there are some agencies that may start earlier, so, it would be important for the project facilitator to be aware of this tool, and if the agency would like to use it. What is the value of the tool? It streamlines the ESCO selection process, makes it easier and quicker.
I can tell that on a project that I was involved in, we had to keep people from the agency, contracting officers and others, in one room, and in one hour, we were able to develop a draft NOO, which is very, very quick based on historical knowledge, okay? And another thing, it assures that all the statutory and regulatory requirements are met, and it also makes it easier to evaluate ESCO responses. For instance, this tool includes ESCO evaluation forms, team consensus evaluation forms, and even a team summary form. And certainly, it includes the NOO FEMP's best practices that we've learned in regard to Notice of Opportunities. And no data is actually stored on the FEMP or the ORNL server, so you don't have to worry about your information.
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Okay, so, we'd like to go over some best practices with a Notice of Opportunity, and these practices would apply whether you're using the ESCO selector tool, which you see right here, that we recommend, or if you're using any other process to develop a Notice of Opportunity. We encourage keeping the NOOs as broad as possible, which would give the ESCO to propose comprehensive and innovative solutions such as renewable energies, resiliency including microgrids, datacenters, and those types of things. And also, we would encourage you to identify two or three site-specific needs, such as renewable energy and others, which would then allow the agency to match the ESCO's
capabilities with the site's needs. And certainly, once again, it's last but it is very important about the evaluation factors and the selection criteria should be kept to a minimum necessary. And by all means, the evaluation factors should be weighted to reflect the agency's priorities, rather than all the factors being equal – let's just say they were 33.3, 33.3, 33.3.
I recently heard a contracting officer say that the ESCOs are very experienced, these days, and proposals all look very much alike. So, this weighting factor is extremely important in making a good selection of the right ESCO. And where do you find the ESCO selector tool? As in a lot of other documents, you can find it at the FEMP ESPC resources webpage, there. And a reminder that we have recently updated the ESCO selector tool to include resiliency options. I've found that it's very helpful, very easy to work with, and produces a quality document in a very quick time.
Next presenter will be Brandi.
>>Brandi: Thank you, Doug. For our last section, today, I'll be presenting on energy sales agreements inside of ESPCs, and also, leveraging FEMP assistance and resources in regards to renewable generation assets and resilience.
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So, what is an ESPC energy sales agreement? It's a project structure where you use the ESPC authority for renewable energy conservation measure on federal buildings or land, where the ECM is initially privately owned and the agency purchases the electricity.
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So, some quick ESPC ESA basics. What is an ESPC ESA? An ESPC ESA is similar to a power purchase agreement, but uses the ESPC authority as outlined in FAR Part 41. As a result, it must meet all of the ESPC authority requirements. However, it can differ from typical ESPC EACM in that the payment can be made on the actual KWH generated. Additionally, the renewable generation asset is initially privately owned, which allows to the private developer to take advantage of the tax incentives, sell renewable energy certificates, or RECs, if valuable, and to reduce the ESPC ESA price. There are some unique considerations to note. First, the federal agency must retain equipment titled to the asset by the end of the contract, for annual scoring, as outlined in a 2012 OMB memo. And there's a link to that on this slide. Second, the tax incentive credit is a safe harbor provided by the IRS and revenue procedure that was issued in 2017. There's also a link to that, there.
It is important to note that the procedure limits the ESPC ESA to a 20-year term, which differs from the 25-year authority of an ESPC authorization. And it has been interpreted that this 20 years does not include the construction period, so that's 20 years of performance for the ESPC ESA.
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I wanna use this slide to highlight some of the differences between an ESPC ESA project and a government-owned renewable generation asset inside an ESPC and the power purchase agreement. In a traditional ESPC, the government owns the generation asset from the point of project acceptance. Like a PPA and an ESPC ESA, the developer owns the generation asset, which allows them to take the associated federal and state tax incentives, as well as other tax credits. However, at the end of an ESPC ESA, the government then assumes ownership of the asset. In the payment structure of a typical ESPC, the agency pays six payments to the developer, regardless of generation. To the contrary, an ESPC ESA, the government purchases the electricity which is produced at a determined cent-per-kilowatt cost. Lastly, in the PPA, the project will only contain the renewable generation asset and no other ECMs. Like in a traditional ESPC, the ESPC ESA ECM can be bundled with other ECMs, though often it is just done as a standalone.
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So, last year, FEMP released an ESPC ESA toolkit, and what is this toolkit? It's a resource for ESPC ESA projects, though some of the information contained in it is useful to other projects. So, it contains things such as editable templates, technical specifications, project validation considerations, different process diagrams, process checklists, team member responsibility charts. It also has the authorizing legislation and other applicable regulations. And it also highlights FEMP procurement and technical assistance that is available throughout the development process. Just wanna let you folks know, too, that the – we're actually in the process of making ESPC ESA toolkits that are specifically for contracting vehicles. We're making one for the DOE IDIQ that'll, you know, reference parts of the contract, as well as ESPC Enable and that contracting vehicle. And just to note, the toolkit and the tech specs are currently on the FEMP website, and you can go and access those at your leisure.
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So, next, wanna talk about leveraging some of the other FEMP assistance in regards to doing renewable energy and resilience projects.
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So, FEMP has many different resources that enable agencies to achieve renewable energy and resilience projects, but in particular, FEMP offers three site-level decision support reports, through the National Renewable Energy Laboratory. While the PF would not directly request these reports, they would most likely have been completed prior to their engagement. But it's important to note that a PF should know that these resources may be available to assist with their review of the PA and the proposal. FEMP actually offers three levels of site-level analysis, which you'll see on this slide. The first is called RE screening, and that is performed on a no-cost basis for all DOE ESPC IDIQ projects. And this analysis seeks to determine what cost-effective renewable energy deployment options are available to the site, and it takes into account solar and wind resources at the site, the cost of electricity, federal and state incentives, and many other factors. And those are all based on the actual location of the site.
It then gives guidance on which technologies to prioritize, to meet the site's goals. Then there's the second level of analysis, which combines this RE screening with a battery storage analysis, to determine the optimal size for a battery storage asset and a cost optimal operation strategy for that asset. That's the second level. The third level is the resilience analysis, and this actually combines the RE screening with the battery storage analysis and a microgrid, to determine energy security and resiliency analysis. And it provides things such as outage survivability scenarios, and multiple deployment scenarios, as well as the life cycle cost of each deployment scenario. Those are just three different levels of assistance that are available to FEMP and NREL.
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So, what is the process for going and getting, you know, these screenings? So, the site requests these screenings, actually, through the FPE, and they're actually best completed before the NOO, but can be done any time before the IGA, you know, drafts start to be delivered. So then, then after that request is made, data is then collected from the site, to inform them of the screening. And then, NREL, you know, performs the screening and does the prioritization of the technologies based on the results, for further consideration. And then, lastly, there's actually a call with FEMP, the FPEs, and NREL, to go over the results and give next-steps.
So, next slide?
So, this is actually a sample of what kind of data comes out of a screening, from an actual site. So, you know, the screening report, it's providing financial results from multiple project structures for each technology. The four technologies that are being analyzed are photovoltaics, solar vent preheating, solar water heating, and wind power. And then, for each technology, it analyzes, you know, a proposed optimal size and initial cost, the annual cost savings of that, the annual operating cost savings of that, and the net present value. In the end, it provides conclusions and recommendations, so, in this sample, it's recommending that a further investigation of photovoltaic and wind technologies.
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So, another resource that is in the same vein but is different is actually called REopt Lite. So, this is actually a Web-based tool that anyone can use – you could go access it right now. It evaluates the economics of only PV and battery storage at a site, and then it optimizes the size of those technologies, as well as providing a dispatch strategy for a battery system, to minimize the lifecycle costs. You know, it's optimizing and providing information on grid outages, and there's actually only, like, three categories of data you need to do one of these REopt Lites; that's the location, a load profile for the site, and electricity rate. So, before you went and use it, you need to go capture those, at least, three datapoints, to use it. So, that's available for any site, and you can use that at your convenience.
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So, lastly, just wanna highlight some of the various resources that are available regarding renewable energy and onsite generation. I'm not gonna go through these, but later you can click on the links and check out some of the different resources we have available on our website. So, that concludes today's regular training. So, there is CEUs available for this webinar, and in order to get those CEUs, you must log into the WBDG link, below. And then, there will be a quiz posted there, and you must complete that quiz with a score of 80 percent or higher. And then you also must complete the training evaluation, which follows the quiz.
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