A Lesson Plan in Financing K-12 Energy Efficiency
Nevada’s Douglas County School District (DCSD), the sixth largest in the state with 6,000 students, faced a limited budget, declining revenues, and rising utility costs. With limited access to taxpayer funds, DCSD decided to implement a multi-pronged funding approach over several years to address its failing and inefficient maintenance of aging buildings. These funding measures included an ESPC, grants, and bonds. This model focuses on an ESPC implemented by the district in 2008 to target facility upgrades and infrastructure repairs.
Traditionally the implementation of an ESPC can take up to three and a half years before construction even begins. However, property taxes, an allocated revenue resource, were due to expire if voters did not commit to its maintenance through a continuation, or “Roll-Over” Bond approval. Nevada statutes require voter approval for bond issuance and repayment terms. Additionally, DCSD could not wait several years to begin addressing the critical maintenance needs of the District’s facilities.
DCSD decided to fund the ESPC through the use of a $5.1 million tax-exempt IPA which did not require taxpayer approval since it is not considered a long-term debt obligation. The district presented the IPA to the school board and received unanimous approval. Due to the heightened urgency of infrastructure needs and lack of bond funding capability, district staff completed the request for proposals (RFP) process, financial grade audit (FGA), project selection and approval, and arrangements for the IPA to fund an ESPC in less than six months.
Douglas County citizens did pass a 10-year Roll-Over Bond initiative following the implementation of the ESPC. Nevada is one of 27 states which permit the use of a Construction Manager At-Risk (CMAR) bidding process that allows the building owner to select a contractor (Construction Manager) based on qualifications rather than through a competitive bidding process. DCSD leveraged the best practices detailed in the CMAR statute after the execution of its ESPC to further major reconstruction to several of the district’s school sites. As a result, the district selected the most qualified contractor for the project rather than upholding the previous practice of accepting the contractor with the least expensive bid. As a result, DCSD had a more collaborative, team-based approach to resolving construction issues as well as ensuring that the district achieved its energy efficient goals.
The ESPC resulted in $456,000 in operational savings, recognized from the implementation of energy conservation measures (ECM) which, in turn, paid the IPA’s principal and interest payments. DCSD began planning for the ESPC in 2007 and in 2008, less than 18 months after initiating the process, construction began.
As the first step of the implementation of the ESPC, DCSD selected an energy service company (ESCO) to complete the financial grade audit that identified energy and operational savings opportunities, including projects that were not part of the ESPC’s initial base package of self-funded projects. The assessment allowed DCSD to leverage additional funding, including bond and American Recovery and Reinvestment Act (ARRA) grant resources, not included in the original ESPC contract to expand the scope.
Following the ESCO selection, the District:
- Hired a third party consultant to review the ESCO documentation throughout the ESPC, including during the FGA, construction and implementation phases, and at contracted intervals for Measurement & Verification (M&V).
- Conducted the FGA.
- Ranked the ECM options and identified a financial model that best met the needs of the District, while ensuring enough savings to pay the principal and interest of the IPA.
- Initiated the IPA and began construction after receiving school board and county debt management commission approval.
- Provided public notice of IPA approval by publishing the school board meeting agenda, IPA resolution, and meeting minutes.
DCSD found that constant contact and sharing of data were important to the success of the project, particularly when schedules were compressed with little room for error. Frequent owner and contractor meetings were necessary to share data, schedules, updates, and requested information.
DCSD credits the expedited implementation timeline to the following reasons:
- School board members were educated on the state of the facilities and lack of available capital funding as well as the inability of the general fund to support on-going maintenance, much less the heavy investment in infrastructure upgrades.
- Transparency was deemed essential. All requests for information from community members and other local districts were answered promptly and accurately, regardless of any negative feedback or criticism due to the public perception of the district’s failure to maintain existing facilities.
- DCSD provided easy access to the grassroots committee “Keep Improving Douglas Schools” (KIDS) created to review district facilities and capital funding needs, and to build general public support for the 2008 bond approval by county taxpayers. The KIDS Committee initially consisted of representatives from the district, school board and community members and now operates independent of the district.
- A dedicated and motivated group of key district personnel reviewed all financing options and determined an ESPC was the best option. The findings were then presented to the board for their review and approval.
- The open process ensured the school board, executive staff, key school personnel, KIDS Committee members, and local newspaper were informed of the infrastructure needs and urgency to take immediate action. As a result, the ESCO selection process and actual implementation of the ESPC was fast and efficient.
Figure A: Standard ESPC Contracting Timeline
Figure B: DCSD Accelerated ESPC Contracting Timeline
When the entire ESPC project was complete, the total project included more than $10.7 million in ECMs. Operational savings exceeded the ESPC guarantee of $454,775 by more than $55,000, totaling $509,775 in savings in the first year alone, and have continued to grow in each subsequent year. In addition, the ESCO reports that 70 percent of the project costs (labor, supplies and services) were provided through local businesses which helped to support and sustain the local economy.
After the initial ESPC was implemented, DCSD was able to add additional ECMs already identified by the FGA, but not included in the original ESPC contract due to substantial payback periods longer than the length of the IPA (>15 years). Likewise, based on the lessons learned from the ESPC and following the voter-approve bond measure, DCSD used the CMAR methodology of construction when renovating existing buildings or when constructing additions or new buildings
- Replacement of windows/roofs
- Kitchen equipment replacement
- Water conservation measures
- Reduction of infiltration
- Replacement of green space with Xeric landscaping
- Irrigation system upgrades
- Installation of domestic hot water boilers
- Replacement of roof-top HVAC units with higher SEER rating
- Replacement of fan-coil units
- Additional lighting replacement with LED
- Continued upgrading of Energy Management System (EMS); Established off-schedule shut-down of outside air and set back temperatures
- Replacement of existing forced-air units with higher efficiency units
- Replacement of outdoor condensing units with higher SEER rating units
- Replacement of hot water heaters with higher efficiency units
- Installation of variable frequency drives (VDFs) on motors as applicable
- Tied in circulating pumps to EMS as well as adding timers to existing pumps
In new buildings or expansions, the following measures were also implemented:
- Installation of energy efficient window treatments
- Motion detector light sensors
- Energy efficient skylights
- Building-mounted external sunscreens
- Strategic orientation of new buildings to capture natural sunlight and passive thermal solar gain
By utilizing the ESPC and the CMAR bidding approach, DCSD became an effective information resource for other school districts and was able to share the resultant best practices. The District has also formed relationships with other public agencies and provided example formats of RFPs and CMAR documents as well as participated in detailed discussions.
The district also developed a memorandum of understanding (MOU) with Douglas County which allows the two local public agencies to legally formalize the agreement to share staff. The local sharing of staff reduces the district’s overhead costs, and is a cost-effective strategy to ensure protection of the district’s interests during the course of construction. The MOU sets forth the guidelines and expectations of the agreement, namely the role of the district’s construction project manager. Project management is crucial to any construction project to ensure the following: schedules are met, interests of the owner are protected and promoted, interaction between permitting agencies, architects, and contractor, and daily progress monitored.
DCSD utilizes the US EPA’s ENERGY STAR® Portfolio Manager tool which enables the district to trend utility costs. Standardized reports provide insight into a building’s energy performance along with documentation of improvements or efficiencies.
Tools & Resources
The district’s ESCO prepared an M&V report annually for the first three years, and will continue to report at five, ten and fifteen year intervals at which time the contract is concluded. The M&V report demonstrates energy avoidance of each ECM of the ESPC utilizing industry standards.
The district has benefitted from various financing options to support the ESPC. The IPA, exercised as a non-taxpayer funded alternative, was originated in 2008 at an interest rate of 4.12 percent. The district refinanced the IPA in June 2012 at an improved interest rate of 2.25 percent providing additional fiscal benefit.
Leveraging the IPA financing mechanism enabled the district to proceed without requiring taxpayer approval for project implementation. With taxpayer approval, multiple bond financing opportunities were exercised to expand the ESPC. These options included Build America Bonds (ARRA), QSCB bonds (ARRA), and general obligation tax-exempt bonds.
An additional opportunity, authorized by Nevada Revised Statutes, allows for a State Permanent School Fund Guarantee Agreement which guarantees payment of debt service if a school district fails to make a timely payment. This guarantee provides an opportunity to secure a lower interest rate and is being employed by multiple states across the country.
The district also received a $441,176 ARRA funded grant under the direction of the Nevada Governor’s Office of Energy. These funds were utilized to broaden the ESPC to encompass additional ECMs at two school sites.
The demonstrated success of the ESPC proved the value of making ECM improvements, boosting public confidence throughout the District. As a result, in 2008, voters approved $35-40 million of general obligation bonds for energy-related improvements and other needs over a 10-year period. After the approval of the 10-year Roll-Over Bond measure, DCSD developed and published a 10-Year facilities master plan (FMP) to guide renovations and expansion prioritized through an in-depth scoring system for each school site utilizing the a proprietary data tracking system-- a systematic methodology of scoring each site annually in relation to the FMP.
Likewise, material standards specifications were formally established and adopted to guide renovations and new construction. The specifications align expectations for efficiency standards specifically in the areas of HVAC. Through the ESCO and staff experience, specifications were narrowed to target the types of products and equipment to be installed in future renovations or new buildings. The approach ensures, as a supplemental condition of the construction contract, the selection of products and equipment are specific to the district needs and energy efficiency expectations. It also narrows the necessary inventory for future repairs and replacement, and doesn’t require extensive training of maintenance personnel on an excessive number of platforms or product specific solutions.
These specifications were accumulated through best practices learned throughout the ESPC and from the buildings’ maintenance personnel. They facilitate standardization of parts and training of personnel, creating effective and on-going efficiencies. DCSD held meetings by department or subject area to solicit input in the development of the various specifications.
Staff knowledge was also incorporated into the standards as best practices along with measures that ensure uniformity and parity during the realization of the FMP. Staff knowledge is key from an operations and maintenance perspective. The people on the ground are essential in planning renovations or new construction. They lend a critical eye to past performance issues whether with particular products or types of systems. They point out the hands-on, common sense approach that is sometimes lost at the planning and engineering levels where planning expectations do not meet realistic conditions or outcomes.
DCSD was selected as a finalist for the 2011 Cashman Good Government Award in the school district category. The award which was sponsored by the Nevada Taxpayer’s Association recognized DCSD as a finalist for the fiscal and operational savings and efficiencies generated by the ESPC. The Nevada Governor’s Office of Energy published a whitepaper on the success of the district’s ESPC to showcase the benefits of the model.
Douglas County School District implemented a multi-pronged funding approach to address its failing and inefficient maintenance of aging buildings, including an ESPC, grants, and bonds.
K-12 School District
District Student Population: 6,000
Implement innovative financing mechanisms to accelerate energy efficiency and achieve cost savings across the district’s portfolio of public school facilities
Limited access to taxpayer funds to address failing and inefficient infrastructure and aging buildings
In 2008, DCSD implemented an energy savings performance contract (ESPC) to create operational efficiencies and cost-saving measures funded by a tax exempt installment-purchase agreement (IPA)
The $5.1 million ESPC project is paying for itself through $456,000 in guaranteed annual energy cost savings