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National Association of Energy Service Companies

Policy Priorities

Comments & Testimony

Comments of the NAESCO In Response to the DRAFT REQUEST FOR PROPOSALS (DRFP) NUMBER DE-RP36-06GO96031 (Draft)

The National Association of Energy Service Companies (NAESCO) appreciates the opportunity to respond to the request for comments to the issuance of the Draft Request for Proposals dated May 23, 2007.

NAESCO's current membership of about 85 organizations includes firms involved in the design, manufacture, financing and installation of energy efficiency and renewable energy equipment and the provision of energy efficiency and renewable energy services in the private and public sectors. NAESCO members deliver about $4 billion of energy efficiency projects each year. NAESCO numbers among its members some of the most prominent companies in the world in the HVAC and energy control equipment business, including Honeywell, Johnson Controls, Siemens, Trane and TAC/Tour Andover. Our members also include many of the nation's largest utilities: Pacific Gas & Electric, Southern California Edison, New York Power Authority, and TU Electric & Gas. In addition, ESCO members include affiliates of ConEdison, Pepco Energy Services, Constellation, PP&L, DMJM Harris and Direct Energy. Prominent national and regional independent members include Custom Energy, NORESCO, Onsite Energy, The EnergySolve Companies, Ameresco, UCONS, Chevron Energy Solutions, Synergy Companies, Wendel Energy Services, WESCO and Energy Systems Group. NAESCO member companies have delivered energy efficiency projects at federal facilities for over fifteen years.

NAESCO believes that it is qualified to offer comments in this proceeding by virtue of its long history of involvement in the development and implementation of the federal energy efficiency programs since 1986. NAESCO has provided comments, testimony, and guidance both to the Departments of Energy and Defense, GSA, and HUD regarding the development and implementation of Energy Savings Performance Contracts (ESPCs) as well as provided written and oral testimony before the relevant Congressional Committees. At the state level, NAESCO has been a party to the development of major energy efficiency programs in California, Colorado, Texas, Kansas, Illinois, Michigan, Maryland, New Jersey, New York, Massachusetts, Vermont and Connecticut during the last decade. In addition, NAESCO has worked with the state energy offices of Florida, Washington, North Carolina, South Carolina, Virginia, Mississippi, Louisiana, Tennessee, and Georgia to help train public sector facility managers and program managers about optimizing the effectiveness of energy efficiency program design and implementation. NAESCO representatives currently serve on the Program Advisory Groups, which were constituted by the California Public Utilities Commission to advise the California investor-owned utilities on energy efficiency program administration, and on the System Benefits Charge Advisory Group, which is constituted by the New York Public Service Commission to evaluate the New York energy efficiency programs, which are administered by the New York State Energy Research and Development Authority (NYSERDA), rather than the investor-owned utilities. NAESCO has also recently served on the Energy Efficiency Task Force of the Clean and Diversified Energy Action Council of the Western Governors Association and serves as an Observer on the National Action Plan for Energy Efficiency (NAPEE) Leadership Group.

Based on this extensive experience, NAESCO believes that it has a deep working knowledge of the various models of effective energy efficiency program design and maximizing the delivery of energy and dollar savings as well as the economics of virtually all types of energy efficiency and demand response programs that are currently in the field in the U.S. We hope that this knowledge will be useful to the Department of Energy as it considers the optimal way to “promote the use of renewable energy technologies, acquire energy and water conservation services, reduce energy and water consumption and/or associated utility costs, and reduce energy and water-related operations and maintenance costs.” Memorandum at 1

Summary of Comments

NAESCO offers the following comments in response to the Draft Proposal dated May 23, 2007.

  1. NAESCO believes that setting the master contract at a one billion dollar limit against which all task orders will be written is unrealistically low and will not result in investment sufficient to achieve the multiple resource acquisition goals set forth in the Draft Proposal.
  2. While the draft RFP states that the use of renewable technologies in future ESPCs is highly desirable, there is a general lack of guidance as to how the cost impact of renewable technologies will be assessed and evaluated when considering the price reasonableness requirement among other requirements imposed on the contractor.
  3. The procedure for awarding Task Orders (TOs) seems to add requirements not found under the current process. This appears to run counter to the goal of streamlining the process and reducing the transaction cycle time. The measurement and verification requirements, the commissioning requirements, the expansion of contractor responsibilities all add to the length of the transaction cycle as well as increase the ESPC cost thereby reducing dollar savings.
  4. Milestones should be established for expediting the agency selection and evaluation process leading to a shorter process cycle.

Discussion

NAESCO offers the following discussion on the major comments summarized above.

  1. The master contract is set at a one billion dollar limit against which all task orders will be written with a minimum task order of $5,000. While one billion dollars may sound in aggregate like a sizeable commitment to the ESPC program, it actually translates to about $500-600 million in actual work to be implemented at federal facilities during the five year base period or about $100-120 million per year in direct investment to be allocated among all awardees. This is actually less than current investment levels and dramatically less than the accelerated investment levels that policy makers have stated they want to see invested in energy efficiency and renewable technologies at federal facilities.

    It is not clear to NAESCO why the one billion dollar limit was established when the Draft Request expands the range of goods and services being sought . The limit as currently set is unrealistic to achieve the multiple objectives set forth in the Draft Request. In order to achieve the $500 million per annum investment that has been suggested by DOE policy makers in public meetings as their objective, the base period master contract limit would need to be set at a minimum of $5 billion.

    Permitting a minimum task order of $5,000 appears to be a residual requirement from the original contract terms and no longer serves a purpose. The transaction costs for such a small task order would negate any real cost savings.
     
  2. The draft states a clear preference for contractors to integrate renewable technologies into the ESPCs to be implemented. While combining energy efficiency and renewable technologies into a single project drives down the payback of the renewable technologies by blending the paybacks of both technologies, it still does not mean that projects employing renewable technologies will price out at the same dollar investment as if there were no renewable technologies employed.

    There is no guidance about how renewable energy technologies are to be integrated into the project design given the cost factors. For example, there is a price reasonableness requirement which may in effect preclude the use of renewable technologies given the higher costs associated with these technologies. Since it is the stated objective of the RFP to accelerate the use of renewable technologies in future ESPC TOs, it would be very useful for DOE to provide guidance as to how renewable energy technologies should be evaluated from a price reasonableness perspective and whether the evaluation process by federal contracting officers will differ when renewable technologies are included in the project design.
     
  3. New contractor requirements will extend the transaction cycle and are not delineated clearly enough which will likely lengthen the transaction cycle and slow down the project tempo.
    1. The imposition on the contractor of determining the sources, value and availability of financial, tax, and incentive options under C.12 is not itself unreasonable. However, the section repeatedly uses the term “responsibility of the contractor” without any definition of the legal reach of the term “responsibility”. We suggest that the term “responsibility” be replaced with the requirement that the contractor use all best efforts to assess the range of appropriate incentives available for the project and utilize as appropriate in establishing project costs and financing options. NAESCO also believes that specific language be included in the final draft clarifying that these incentives may be utilized in the financing of the project.
    2. Discussions as to whether commissioning requirements should be included in this RFP or in a stand alone document are still underway according to the notation currently comprising Attachment J-12. We believe that any imposition of commissioning requirements should be linked to the base contract document. There can be significant costs associated with commissioning and these costs need to be identified and rolled into the cost and termination schedules so that all parties are aware of the incremental costs incurred by the imposition of the commissioning requirement.
    3. The requirement for the incorporation of an Investor Deal Summary and Standard Financing Offers in the form of a Selection Memorandum under H.7.3. states that the process may be subject to an audit by the agency. There is no indication of what types of data an audit would examine or the objectives of such an audit. If an audit is contemplated, additional information is required as to firmly circumscribe the reach of the auditors, the time frame for conducting such an audit, and the sanctions that could result. We are not sure of the intent behind this requirement and generally do not believe it is necessary. However, if the requirement remains in the final version of the RFP, additional clarifying language is necessary.
    4. In section C.4.2, there is now a requirement that the Measurement and Verification plan identify buildings or spaces not affected as well as energy or water using building systems or uses not affected by the TO be identified. We suggest that this requirement be removed as it places additional responsibility on the contractor and generates additional costs and does not provide sufficient value to the federal agency to justify the time and cost. A well crafted M&V protocol should contain all the answers to the inquiry in any case.
    5. Sections C.6.1, C.6.3, C.7.3 and C.8.3 provide the government with the unilateral ability to declare itself free from responsibility for its actions with regard to operation of the energy conservation measures (ECMs) including instances where it had oversight of direct operations, preventive maintenance and repairs. This is patently one sided assignment of risk. The relevant language must be changed so that the parties are responsible only for the damages related to actions which are directly attributable to their respective agents. This is consistent with the existing contract language.
    6. In the DOE IDIQ contract currently in effect, responsibility for O&M record keeping is assigned to the party providing O&M service. Section C.6.4 of the draft RFP states that the ESCO is responsible for record keeping regardless of whether or not it is performing the O&M service. We believe the existing provision should be retained which makes the party with access to the data responsible for record keeping.
    7. The preliminary assessment requirements under H.4.1 are too onerous and costly for the contractor. At a minimum, H.4.2.B. should be revised and requirements g-j should be deleted. There is subsequent opportunity under the IGA requirements set forth in (H.5) to address these additional concerns.
       
  4. There should be timelines established for each significant piece of the review process and an overall time limit placed on the agency review process.
    1. There should be a process established by which stalled projects which have been under consideration for more than 45 days be referred to a designated individual(s) for resolution within 10 days. Contractors should be made aware of referral of their project and given the opportunity to meet with the designated individual(s) to discuss the stalled project and assist in the resolution process.
    2. The invoicing process set forth in G.3 should be clarified so that contractors are notified within ten days of receipt of the invoice by the federal agency whether any part of the payment will be disputed, withheld, or delayed. The contractor will also be given the immediate opportunity to help cure the event which the agency has determined to be the source of the payment dispute or delay.

Conclusion

NAESCO appreciates the opportunity to offer these comments and urges the Department of Energy to adopt NAESCO's recommendations.

Respectfully submitted by,

Terry E. Singer
Executive Director
National Association of Energy Service Companies
1615 M Street, NW
Washington, DC 20036
202-822-0950
tes@dwgp.com