HD36 - Energy Conservation in State Facilities
Executive Summary: I. INTRODUCTION House Joint Resolution 428, agreed to by the 1991 Session of the General Assembly, requested the Department of General Services (DGS) to: • investigate ways to conserve energy in state facilities; • address issues including but not limited to attracting investment by utilities and other firms through the use of split energy cost savings contracts and by increasing utilities return on equity; • examine the results of the state Corporation Commission's internal investigation of their policies on conservation and load management programs to determine their applicability to state agencies and educational institutions. STUDY APPROACH This study was assigned to the Department of General Services Energy Section. The Energy section has been the focal point for all of the Commonwealth's facilities energy conservation programs since its creation in 1984. The section's principal responsibilities include: monitoring facilities energy consumption, providing technical assistance, administering project funding and negotiating utility contracts. The study examines three specific areas: • Energy Conservation opportunities; realistic savings using proven strategies. • Attracting Investment; performance contracting, leasing, utility investment. • SCC Investigation; current policy, proposed policy changes. II. SUMMARY OF FINDINGS ENERGY CONSERVATION Numerous energy conserving opportunities exist in the Commonwealth. Each year the Commonwealth's facilities consume over 9 trillion BTU's, costing more than 100 million dollars. Independent studies and a $10 million backlog of unfunded conservation projects, amplify the fact that opportunities exist to conserve energy in state owned facilities. Previously, a lack of project funding and aggressive management involvement and support were the main obstacles to capitalizing on these opportunities. The Virginia Energy Plan, Executive Order Thirty Seven (91), provides a framework for implementing aggressive energy management programs and accomplishing a 25% reduction of the state's current energy consumption by 1998. OUTSIDE INVESTMENTS Successful soliciting of outside investments in Commonwealth projects can be accomplished in three forms. They are: Performance Contracting, Leasing and Utility Investment. Performance Contracting Performance Contracts are typically offered by energy service companies to building owners. For state agencies, such contracts would be solicited using the Request For Proposal (RFP) process. The resulting contract would entail the retrofit or installation of energy conservation equipment or materials at the expense of the contractor. The contractor would be reimbursed by monthly payments equal to a predetermined percentage of actual utility cost avoidance. Agencies having medium to large retrofit projects (e.g. building automation control system) that have a simple payback of greater than two but less than five years are good candidates for the performance contracting process. In order to ratify and formalize this process it would be necessary for the Department of Planning and Budget to evaluate the possible need for additional language in the Appropriation Act, requiring performance contracts be reviewed and approved centrally and creating a general appropriation allowing payments of a portion of an agency's utility savings to a contractor in return for services and/or equipment supplied. DGS, through the Energy Section, could provide technical assistance in preparing and evaluating proposals and in monitoring actual versus projected energy savings. Implementation of performance contracting would require prequalification of interested vendors and development of a list of approved contractors. The list would be available to soliciting agencies along with a model Request For Proposal. The RFP and the performance contract itself should be prepared by the Department of General Services' Purchases and Supply Division and reviewed by the Office of the Attorney General. Lease Financing This financing mechanism allows access to private credit markets for medium and large size equipment acquisitions. The Department of the Treasury currently maintains a master equipment lease program which could be expanded to include leasing of energy-conserving equipment and systems using a share or percentage of energy cost avoidance to satisfy the debt. To date, the Commonwealth's experience with using this mechanism has been limited to funding equipment-intensive projects such as lighting retrofits and cafeteria equipment replacements, because existing security structures will not permit payment for design and installation of these improvements. Utility Investment The DGS Energy Section has begun talks on this subject with the Commonwealth's largest supplier of energy, Virginia Power. Existing SCC rulings typically prohibit this type of investment (promotional allowances) on the part of utilities. However, the Commonwealth is a non-jurisdictional entity, i.e. does not fall under SCC jurisdiction. Therefore, the prospect exists for the creation of a program whereby a utility could supply the Commonwealth with equipment or devices which would limit consumption and reduce the demand on natural resources in return for rate base considerations. The mutual benefits which can be derived by jointly working to reduce consumption has led Virginia Power to offer to develop experimental energy consumption reduction programs aimed at the Commonwealth's special needs. SCC INVESTIGATION As of this writing, the State Corporation Commission has not announced their final rulings. However, preliminary staff recommendations and oral arguments presented by state and federal regulators, environmentalists, utility officials and consumer representatives, have urged the Commission to adopt policies which would ensure a proper balance between energy conservation and construction of power plants. In order to achieve this balance, it will be necessary for the Commission to develop regulations which establish a cost recovery and rate setting process that insures a utility's investment in energy efficiency resources is as profitable as its investment in the construction of new generating facilities. III. RECOMMENDATIONS CONSERVATION OPPORTUNITIES It is recommended that the Department of Mines, Minerals and Energy assist the appropriate committees of the General Assembly to review the Virginia Energy Plan and identify the legislative authorizations necessary to effect its full implementation. It is further recommended that state agencies and institutions be directed to identify and implement those conservation measures which can be accomplished at little or no cost. ATTRACTING INVESTMENT It is recommended that state agencies and institutions be allowed to pursue investment in conservation projects by outside sources for effecting energy performance improvements in the following areas: (1) performance contracts with private suppliers/contractors who would finance improvements to be paid back from resulting energy savings. The Department of Planning and Budget (DPB) and DGS should provide strong central oversight for this program; (2) leasing of major equipment, using guidelines developed by the Treasury Board; (3) DGS should encourage utility companies to develop programs which would provide the Commonwealth with the necessary capital to accomplish energy conservation and load management projects in return for revised rate structures that would provide the utilities an appropriate return on equity. The revised rate structures should be negotiated centrally, as is the current practice. Proposed projects should be reviewed and approved centrally by DGS and DPB. |
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