Public owners, such as state agencies, cities and counties, and school districts, are considering the advantages of energy efficiency projects. The advantages include goodwill in the community, environmental benefits, and utility cost savings. Such projects can involve an array of legal, engineering, technical, and financial issues. This article addresses a number of considerations that, if not addressed early on, can bring unwanted surprises.
The development of energy efficiency projects involves a number of issues, including:
- Authority: Public owners typically have limited authority. Constitutional and statutory provisions should be reviewed to determine whether the public owner has authority to implement energy efficiency projects. Typically statutes impose competitive bidding rules or similar requirements on public construction projects. Where public works statutes apply, a public owner’s non-compliance can ruin a project and impose substantial liability on both the public owner and its contractor.
- Financing: One aspect of limited authority typically includes the limited ability to enter into debt or other financing transactions. Applicable law should be reviewed to determine whether the public owner has the authority and ability to finance energy efficiency projects. Consideration should also be given to bond financing and various incentives for bond investors, which may ultimately reduce financing costs for public owners. In addition, contractors — such as energy service companies — may provide some financing flexibility, including shared-savings contracts and lease-purchase agreements.
- Technical: The success of energy efficiency projects are heavily dependent on engineering and technical guidance. Public owners should consider whether they have the in-house capability to review the project with the required technical expertise, or whether an outside engineering firm should be hired. Contracts with such firms must require the highest duty and loyalty to the public owner.
- Construction: Energy efficiency projects are, at their core, construction projects. Construction and procurement laws generally apply to public owner construction projects. Some states have implemented statutes that specifically address the energy efficiency projects. Public owners should consult counsel to draft and review energy efficiency contracts to minimize construction risks, such as material and equipment price escalation, defective work, delays, and claims.
- Verification: To demonstrate and document the benefits arising from an energy efficiency project, public owners should consider measurement and verification techniques. M&V is the process by which energy savings are verified. In some instances, the M&V process can affect the compensation due to contractors or energy service companies. In any event, the public may have an interest in knowing the benefits derived from these projects.
- Power Sales: If an energy efficiency project will result in the sale of energy, state and federal law should be reviewed to determine whether such energy sales are permitted and, if so, under what types of arrangements.
- Continuing Service and Maintenance: Energy efficiency projects may involve maintenance or other continuing services. Public owners often overlook this aspect of the project, but it can be critical to the ultimate success of the project. Accordingly, public owners should structure contractual arrangements with contractors to keep them vested in the continuing success of the project. Various contract provisions can accomplish this objective.
The Department of Energy’s Energy Efficiency and Renewable Energy Division has previously provided technical assistance to public and private organizations in the development of energy efficiency projects. It recently issued a report on the strategies for financing solar projects on school property. The full report can be found here.
AHC attorney David R. Cook, along with attorney George C. Reid, recently spoke to local government attorneys about considerations in developing energy savings performance contracts. Additionally, AHC’s attorneys David R. Cook Jr. and Roland F. Hall spoke at the World Energy Engineering Congress in October 2011 on the topic of financing energy efficiency projects. They discussed the advantages of energy efficiency projects, various ways to finance them, and both financial and technical assistance available for public and private owners. They have been asked to present on a similar topic at next year’s Globalcon Energy Engineering Conference in New Jersey. David and Roland are members of the firm’s Energy Project Development practice group and are available to present in-house seminars on this subject.
For questions about the DOE report, or to inquire about other considerations involved in the development of energy efficiency projects by public owners, feel free to contact AHC’s Energy Project Development practice group at [email protected].