HB-5727, As Passed House, September 27, 2012

SUBSTITUTE FOR

HOUSE BILL NO. 5727

A bill to provide that governmental units implement cost-

effective energy conservation improvements to minimize energy

consumption and reduce operating costs; to provide for energy

audits; to specify procedures for obtaining contracts to reduce

energy consumption; to prescribe payment methods for energy

conservation contracts; and to prescribe duties for certain state

governmental officers and entities.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 1. (1) This act shall be known and may be cited as the

"cost-effective governmental energy use act".

(2) For purposes of this act, the words and phrases defined in

sections 2 to 5 have the meanings ascribed to them in those

sections.

Sec. 2. "Cost-effective" means that the present value to a

governmental unit of the energy, utility, capital cost avoidance,

capital improvement, and operational costs and revenues reasonably

expected to be saved or produced by a facility, activity, measure,

equipment, or system over its useful life, including any

compensation received from a utility, is greater than the net

present value of the costs of implementing, maintaining, and

operating such facility, activity, measure, equipment, or system

over its useful life, if discounted at the cost of public

borrowing.

Sec. 3. (1) "Cost-savings measure" may include any facility

improvement, repair, or alteration of, or any equipment, fixture,

or furnishing to be added or used in, any facility that is designed

to reduce energy consumption, utility costs, capital avoidance

costs, capital improvement costs, maintenance costs, and operating

costs or increase revenue or the operating efficiency of the

facility for its appointed functions and that is cost-effective.

Cost-savings measure may include, but is not limited to, all of the

following:

(a) Replacement or modification of lighting components,

fixtures, or systems.

(b) Renewable energy and alternate energy systems.

energy, such as heat or electricity, for use primarily within a

building or complex of buildings.

(d) Devices that reduce water consumption or sewer charges,

including all of the following:

(i) Water-conserving fixtures, appliances, and equipment,

including water-conserving landscape irrigation equipment, or the

substitution of non-water-using fixtures, appliances, and

equipment.

(ii) Landscaping measures that reduce watering demands and

capture and hold applied water and rainfall, including landscape

contouring, such as the use of berms, swales, and terraces, the use

of soil amendments, such as compost, that increase the water-

holding capacity of the soil, rainwater harvesting equipment, and

equipment to make use of water collected as part of a storm water

system installed for water quality control.

(iii) Equipment for recycling or reuse of water originating on

the premises or from other sources, including treated municipal

effluent.

(iv) Equipment to capture water from nonconventional, alternate

sources, including air conditioning condensate or graywater, for

nonpotable uses.

(v) Metering equipment to segregate water use in order to

identify water conservation opportunities or verify water savings.

(e) Changes in operation and maintenance practices.

(f) Indoor air quality improvements that conform to applicable

building code requirements.

(g) Daylighting systems.

(h) Insulating the building structure or systems in the

building.

(i) Storm windows or doors, caulking or weather stripping,

multiglazed windows or door systems, heat-absorbing or heat

reflective glazed and coated window and door systems, additional

glazing, reductions in glass area, or other window and door system

modifications that reduce energy consumption.

(j) Automated or computerized energy control systems.

(k) Heating, ventilation, or air conditioning system

modifications or replacements.

(l) Energy recovery systems.

(m) Steam trap improvement programs that reduce operating

costs.

(n) Building operation programs that reduce utility and

operating costs including, but not limited to, computerized energy

management and consumption tracking programs, advanced metering,

metering and sub-metering, staff and occupant training, and other

similar activities.

(o) Any life safety measures that provide long-term operating

cost reductions and are in compliance with state and local codes.

(p) Any life safety measures related to compliance with the

Americans with disabilities act that provide long-term operating

cost reductions and are in compliance with state and local codes.

(q) A program to reduce energy costs through rate adjustments

and load shifting to reduce peak demand, including, but not limited

to, 1 or more of the following:

(i) Changes to more favorable rate schedules.

(ii) Auditing of energy service billing and meters.

(r) Services to reduce utility costs by identifying utility

errors and optimizing existing rate schedules under which service

is provided.

(s) Any other installation, modification of installation, or

remodeling of building infrastructure improvements that produce

utility or operational cost savings for their appointed functions

in compliance with applicable state and local building codes.

(t) Recommissioning.

(u) Retro-commissioning.

(v) Continuous commission.

(w) Behavior modification and energy policies.

(x) Measurement and verification.

(y) Reporting tools.

(z) Geothermal.

(aa) Carbon footprint monitoring.

(2) "Department" means the department of technology,

management, and budget.

Sec. 4. (1) "Energy performance contract" means a contract

between a governmental unit and a qualified energy service provider

for evaluation, recommendation, and implementation of 1 or more

cost-savings measures. An energy performance contract may be

structured as either a guaranteed energy savings contract or an

energy savings performance contract.

(2) "Energy savings performance contract" means a contract

under which the rate of payments is based upon energy and

operational cost savings and a stipulated maximum energy

consumption level over the life of the contract.

(3) "Governmental unit" means a department, state agency, or

state authority.

(4) "Guaranteed energy savings contract" means a contract that

includes all of the following:

(a) The design and installation of equipment.

(b) If applicable, operation and maintenance of any of the

measures implemented.

and operating costs or increased operating efficiency that meet or

exceed the total annual contract payments made by the governmental

unit for the contract, including financing charges to be incurred

by the governmental unit over the life of the contract.

(5) "Investment grade audit" means a study by the qualified

energy service provider selected for a particular energy

performance contract project that includes detailed descriptions of

the improvements recommended for the project, the estimated costs

of the improvements, and the operations and maintenance cost

savings and utility cost savings projected to result from the

recommended improvements.

(6) "Operation and maintenance cost savings" means a

quantifiable and governmental unit approved decrease in operation

and maintenance costs or future replacement expenditures that is a

direct result of the implementation of 1 or more utility cost-

savings measures. Operation and maintenance cost savings shall be

calculated in comparison with an established baseline of operation

and maintenance costs.

Sec. 5. (1) "Person" means an individual, partnership,

corporation, association, governmental entity, or other legal

entity.

(2) "Public building" means any structure, building, or

facility, including its equipment, furnishings, or appliances, that

is owned or operated by a governmental unit.

(3) "Qualified energy service provider" means a person with a

record of successful energy performance contract projects or a

person who is experienced in the design, implementation, and

installation of energy efficiency and facility improvement

measures, the technical capabilities to ensure such measures

generate energy and operational cost savings, and accredited by the

national association of energy service companies (NAESCO),

prequalified for work through the United States department of

energy for federal facilities or the United States department of

defense.

(4) "Utility cost savings" means any utility expenses that are

eliminated or avoided on a long-term basis as a result of equipment

installed or modified, or services performed by a qualified energy

service provider. Utility cost savings do not include merely

shifting personnel costs or similar short-term cost savings.

Sec. 6. Any governmental unit may enter into an energy

performance contract with a qualified energy service provider to

produce utility cost savings or operation and maintenance cost

savings, except as otherwise provided in section 237 of the

management and budget act, 1984 PA 431, MCL 18.1237. Cost-savings

measures implemented under an energy performance contract shall

comply with state or local building codes. Any governmental unit

may implement other capital improvements in conjunction with an

energy performance contract if the measures that are being

implemented to achieve energy and operation and maintenance cost

savings are a significant portion of an overall project. A

governmental unit shall not enter into an energy savings

performance contract for a period of more than 1 year unless the

governmental unit finds that the amount the governmental unit would

spend on the cost-savings measures will not exceed the amount to be

saved in energy, water, wastewater, and operating costs over 15

years or the average useful life of the measures from the date of

installation.

Sec. 7. (1) The department is the lead agency for the

development and promotion of a program of energy performance

contracts in governmental units. The department shall do all of the

following with respect to this program:

(a) Assemble a list of qualified energy service providers

through a request for qualifications process and a list of

standardized tools and contract templates.

(b) Develop a standardized energy performance contract process

and standard energy performance contract documents, including all

of the following:

(i) A request for qualifications.

(ii) An investment grade audit and energy services contract.

(iii) Guidelines and an approval process for awarding energy

performance contracts that allow the governmental unit to contract

with a qualified energy service provider for an investment grade

audit to be performed at any building, structure, or facility.

Under the contract, the energy service company shall prepare a

report containing a description of the physical modifications to be

performed to the building, structure, or facility that are required

to effect specific future energy savings within a specified period

and a determination of the minimum savings in energy usage that

will be realized by the governmental unit from making these

modifications within that period. After review of the investment

grade audit report and subject to approval, the governmental unit

may contract with the qualified energy service provider for

construction work to be performed at the building, structure, or

facility for the purpose of realizing potential savings of future

energy costs identified in the audit if the department determines

that the anticipated savings to the governmental unit after

completion of the work will enable recovery of the costs of the

work within a maximum of 15 years or the average useful life of the

measures.

governmental units.

(d) The department shall make the qualified list of qualified

energy service providers, standardized tools, and contract

templates available to local units of government and public

entities.

(2) The criteria used by the department for the evaluation of

qualified energy service providers may include, but not be limited

to, all of the following substantive factors to assess the

capability of the qualified energy service provider in the areas of

design, engineering, installation, maintenance, and repairs

associated with energy performance contracts:

(a) Experience in conversions to a different energy or fuel

source associated with a comprehensive energy efficiency retrofit.

(b) Experience and capabilities in post-installation project

monitoring, data collection, and reporting of savings.

(d) Management capability.

(e) Experience with projects of similar size and scope.

(f) The financial ability to cover energy guarantees, the

procurement of bonds or insurance, and the financial ability to

cover energy guarantees as demonstrated by audited financial

statements.

(g) Other factors proposed by a governmental unit and

determined by the department to be relevant, appropriate, and

related to the ability to perform the project.

Sec. 8. The department shall develop an annual report of total

facility capital liability and total dollar amount of completed and

substantially completed energy performance contract work. Prior to

December 31 of each calendar year, the department shall present

this report to the members of the house appropriations committee

and the senate appropriations committee.

Sec. 9. The department shall assist governmental units in

identifying, evaluating, and implementing cost-savings measures at

their facilities. The assistance may include 1 or more of the

following:

(a) Apprising governmental units of opportunities to develop

and finance energy performance contract projects.

(b) Providing technical and analytical support, including

procuring energy performance contract services.

(d) Assisting in the structuring and arranging of financing

for energy performance contract projects.

Sec. 10. The department may charge reasonable fees, not to

exceed the lesser of $300,000.00 or 2% of the total cost of the

energy performance contract project, for any administrative support

and resources or other services provided by the department under

this section from the governmental units that use its technical

support services. A governmental unit may add the costs of these

fees to the total cost of an energy performance contract.

Sec. 11. The qualified energy service provider chosen as a

result of the process set forth in this section shall prepare an

investment grade energy audit, which, upon acceptance, shall be

part of the final energy performance contract. The investment grade

energy audit shall include estimates of the amounts by which

utility cost savings and operation and maintenance cost savings

would increase and itemized estimates of all costs of such utility

cost-savings measures or energy-savings measures, including, but

not limited to, all of the following:

(a) Design.

(b) Engineering

(d) Materials.

(e) Installation.

(f) Maintenance.

(g) Repairs.

(h) Debt service.

Sec. 12. (1) A governmental unit may use designated funds,

bonds, or master lease for any energy performance contract,

including purchases using installment payment contracts or lease

purchase agreements, if that use is consistent with the purpose of

the appropriation.

(2) Unless otherwise provided by law or ordinance, a

governmental unit may use funds designated for operating and

capital expenditures or utilities for any energy performance

contract.

(3) A guaranteed energy savings contract may provide for

financing, including tax-exempt financing, by a third party. The

contract for third-party financing may be separate from the

guaranteed energy savings contract.

Sec. 13. (1) Each energy performance contract shall provide

both of the following:

(a) All payments between the parties, except obligations on

termination of the contract before its expiration, shall be made

over time.

(b) The objective of the energy performance contract is

implementation of cost-savings measures and achievement of both

utility cost savings and operation and maintenance cost savings.

(2) An energy performance contract and payments under that

contract may extend beyond the fiscal year in which the energy

performance contract becomes effective, subject to appropriation of

money, if required by law, for costs incurred in future fiscal

years.

(3) The term of an energy performance contract shall not

exceed 15 years or the average useful life of the measures. The

term of an energy performance contract may also reflect the useful

life of the cost-savings measures.

(4) An energy performance contract may provide for payments

over a period of time not to exceed deadlines specified in the

energy performance contract from the date of the final installation

of the cost-savings measures.

Sec. 14. (1) An energy performance contract shall require the

qualified energy service provider to provide to the governmental

unit an annual reconciliation of the guaranteed energy savings

based on industry standards. The contract shall provide that the

qualified provider is liable for any shortfall if the

reconciliation reveals a shortfall in annual energy cost savings.

(2) During the term of each energy performance contract, at

the discretion of the governmental unit, either the governmental

unit, the qualified energy service provider, or an independent

third party shall monitor the reductions in energy consumption and

the cost savings attributable to the cost-savings measures

installed pursuant to the performance contract, and shall, at least

annually, provide a report to the governmental unit documenting the

performance of the cost-savings measures to the governmental unit.

The report shall comply with adopted industry standards as

published at the date of the contract.

Sec. 15. Nothing in this act mandates or shall be construed to

mandate any of the following:

(a) That government units join or pay membership dues to

organizations involved in energy efficiency, sustainable

development, or similar practices.