UESC Project ImplementationUESC Project Implementation

Construction & Installation

Issue TO for Issue TO for constructionconstruction

The pre-construction The pre-construction meetingmeeting

Review/accept final Review/accept final construction packageconstruction package

CommissioningCommissioning

Stop and $

Engineering & Design Package

CO issues TOCO issues TO Review E&D Review E&D

PackagePackage CO negotiates CO negotiates

final price final price proposal proposal

Decision Go/No go

The Payment Period

InvoicesInvoices

PaymentsPayments

Periodic Periodic Performance Performance VerificationVerification

Follow-on Follow-on projectsprojects

Engineering and Engineering and DesignDesign

CO issues TOCO issues TO Review E&D Review E&D

PackagePackage CO negotiates CO negotiates

final price final price proposal proposal Decision Go/

No go

Initiating the Engineering Initiating the Engineering and Design Packageand Design Package

Issue your task order for engineering Issue your task order for engineering and designand design– Include agency and site specific Include agency and site specific

requirementsrequirements

The utility will respond with a full set of The utility will respond with a full set of plans and detailed specificationsplans and detailed specifications

App. 4

When You Review When You Review the Packagethe Package

Look for consistency with the feasibility study Look for consistency with the feasibility study in engineering drawings and design in engineering drawings and design specificationsspecifications– This should be 100%, you shouldn’t see any new This should be 100%, you shouldn’t see any new

design in the construction phasedesign in the construction phase Use FEMP for assistanceUse FEMP for assistance

– They have specialized expertise in advanced They have specialized expertise in advanced engineering technologies and can offer cautions engineering technologies and can offer cautions and advice in areas like photovoltaics, systems and advice in areas like photovoltaics, systems controls and otherscontrols and others

Reviewing the Reviewing the E&D PackageE&D Package

The design package should include at least The design package should include at least the following for each ECM:the following for each ECM:– Installation drawings Installation drawings – 100% of plans and specs100% of plans and specs

• Commissioning, M&V, O&M (if required)Commissioning, M&V, O&M (if required)

– Final price proposalFinal price proposal– Estimated construction scheduleEstimated construction schedule

• Planned service interruptionsPlanned service interruptions• Environmental complianceEnvironmental compliance• Quality controlQuality control• ECM installation sequenceECM installation sequence

Payments & Payments & Performance BondsPerformance Bonds

Within a specified time frame after Within a specified time frame after approval of ECM installation plans, the approval of ECM installation plans, the utility shall submit utility shall submit – Acceptable payment and performance Acceptable payment and performance

bonds orbonds or– Letter of creditLetter of credit

Start Planning Start Planning for Installationfor Installation

Make sure that site inspection Make sure that site inspection personnel are availablepersonnel are available

Provide for a site individual to assist Provide for a site individual to assist project implementationproject implementation

You’ll want to have this set up so you can You’ll want to have this set up so you can move once you see the final construction schedulemove once you see the final construction schedule

You’ll want to have this set up so you can You’ll want to have this set up so you can move once you see the final construction schedulemove once you see the final construction schedule

Commissioning and Commissioning and the Design Phasethe Design Phase

Develop design and operating intentDevelop design and operating intentPerform commissioning-focused design Perform commissioning-focused design

reviewsreviewsDevelop Commissioning Plan & Develop Commissioning Plan &

Specifications for constructionSpecifications for construction– Should include specifics on commissioning Should include specifics on commissioning

during construction, acceptance and post during construction, acceptance and post acceptance acceptance

Negotiating the Negotiating the Final Price ProposalFinal Price Proposal

Price proposal includesPrice proposal includes– Construction costConstruction cost– Financing cost over the term of the loanFinancing cost over the term of the loan– Optional item cost (non-required costs)Optional item cost (non-required costs)– Project management costsProject management costs– Interest rateInterest rate

Structure the InterestStructure the Interest

Interest payments during the construction Interest payments during the construction period and the post-acceptance period:period and the post-acceptance period:– Option 1: Structure the financing so that the cost Option 1: Structure the financing so that the cost

of interest during the construction period is added of interest during the construction period is added to the total project cost resulting in one amount to to the total project cost resulting in one amount to be financed. be financed.

• This is the most common optionThis is the most common option

– Option 2: Structure the financing to include Option 2: Structure the financing to include separate interest rates during construction (short separate interest rates during construction (short term) and post-acceptance (long term).term) and post-acceptance (long term).

Total Interest RateTotal Interest Rate

Base rate (SWAP rate*) 6.00%

Adder 1.40%

Hedge + 0.36%

Total 7.76%

*Rates can be found at http://www.bloomberg.com/

Components of the Components of the Interest RateInterest Rate

Base rateBase rate– Historically based on the Treasury Note Historically based on the Treasury Note

rate for payment term of contractrate for payment term of contract– Currently based on SWAP rateCurrently based on SWAP rate

AddersAdders

Basis points added as a result of Basis points added as a result of financiers perception of project’s riskfinanciers perception of project’s risk– Basis point = 1/100% or .01%Basis point = 1/100% or .01%

Contributing elements:Contributing elements:– Utility’s credit ratingUtility’s credit rating– Loan amount Loan amount – Loan termLoan term– Project’s technical risk Project’s technical risk

Adder ExampleAdder Example

Given: a major utility company with a Given: a major utility company with a good balance sheet, a $1 million project good balance sheet, a $1 million project with a 10 year term and proven with a 10 year term and proven relatively simple technologiesrelatively simple technologies– Adder should be on the low side, 150-180 Adder should be on the low side, 150-180

basis pointsbasis points• A less appealing project would have a higher A less appealing project would have a higher

adderadder

HedgeHedge

Basis points that protect the financier’s Basis points that protect the financier’s risk of interest rate fluctuations during risk of interest rate fluctuations during project implementationproject implementation– A typical hedge is 3-5 basis points per A typical hedge is 3-5 basis points per

monthmonth• 12 months @ 3 basis points per = 36 basis 12 months @ 3 basis points per = 36 basis

points or .36%points or .36%

Sources of FinancingSources of Financing

Utility: internal financing is not usually Utility: internal financing is not usually competitive due to internal rate of return competitive due to internal rate of return requirement (>10%)requirement (>10%)

Consider some form of “competition” for Consider some form of “competition” for third part financiersthird part financiers

Project ManagementProject Management

Projects are partnerships but the utility is a Projects are partnerships but the utility is a business and must make a profit for business and must make a profit for shareholdersshareholders– Utility profit (IRR) is typically 10-14% on services Utility profit (IRR) is typically 10-14% on services

providedprovided You will be charged for project management You will be charged for project management

and overhead (OH) feesand overhead (OH) fees– OH fees are ~ 15-20% on services portionOH fees are ~ 15-20% on services portion– Project management fee is ~ 3-5% depending on Project management fee is ~ 3-5% depending on

complexitycomplexity

Go or No Go?Go or No Go?

Will you continue the process?Will you continue the process?– No? Pay for the E&DS.No? Pay for the E&DS.

– Yes. CO finalizes the contract, move to Yes. CO finalizes the contract, move to construction and installationconstruction and installation

Construction and Construction and InstallationInstallation Issue TOIssue TO

The pre-The pre-construction construction meetingmeeting

Final construction Final construction packagepackage

CommissioningCommissioning

Initiate Project Construction Initiate Project Construction and Installationand Installation

CO issues Task order for Construction CO issues Task order for Construction and Installation Phaseand Installation Phase

Arrange a pre-construction meetingArrange a pre-construction meeting

Pre-construction MeetingPre-construction Meeting

The COTR and other facilities or engineering The COTR and other facilities or engineering staff and utility reps must review and staff and utility reps must review and coordinate the project schedule and coordinate the project schedule and installation & inspectioninstallation & inspection

Approve the final construction scheduleApprove the final construction schedule– Bring in your designated inspection and Bring in your designated inspection and

implementation site personnel (identified during implementation site personnel (identified during D&E)D&E)

Check to see that appropriate permits have Check to see that appropriate permits have been acquired been acquired

ConstructionConstruction

The agency monitors the utility’s and The agency monitors the utility’s and subcontractor’s progress throughout the subcontractor’s progress throughout the installation period to assure work is installation period to assure work is proceeding as plannedproceeding as planned

Project Documents Project Documents (Deliverables)(Deliverables)

O&M manuals for installed ECMsO&M manuals for installed ECMsInventory of spare parts (lamps, Inventory of spare parts (lamps,

ballasts)ballasts)As-built drawings or revisions/updates As-built drawings or revisions/updates

to existing as-builtsto existing as-builtsTraining Training WarrantiesWarranties

Commissioning and Commissioning and AcceptanceAcceptance

Commission each ECM as you goCommission each ECM as you goThe utility must notify the agency when The utility must notify the agency when

the ECM is ready for testing and the ECM is ready for testing and performance verificationperformance verification

The government must verify that new The government must verify that new equipment was installed properly, then equipment was installed properly, then test equipment to ensure that it is test equipment to ensure that it is performing to spec.performing to spec.

Commissioning and the Commissioning and the Construction PhaseConstruction Phase

Building systems including architectural, Building systems including architectural, structural, mechanical, electrical, and structural, mechanical, electrical, and controls are installed, undergo pre-controls are installed, undergo pre-functional performance tests, and are functional performance tests, and are placed into operation. placed into operation.

Project Completion and Project Completion and AcceptanceAcceptance

Per contract requirements, the utility notifies Per contract requirements, the utility notifies the agency of project completionthe agency of project completion

Agency deemsAgency deems– Substantial completion/beneficial occupancySubstantial completion/beneficial occupancy– Final completion and acceptanceFinal completion and acceptance– Completion of punchlistCompletion of punchlist

The agency notifies the utility of project The agency notifies the utility of project acceptanceacceptance

The Payment The Payment PeriodPeriod

InvoicesInvoices

PaymentsPayments

Periodic Periodic Performance Performance VerificationVerification

Follow-on Follow-on projectsprojects

InvoicesInvoices

Invoices are only accepted and Invoices are only accepted and processed after ECM installation and processed after ECM installation and government signature on a Certificate of government signature on a Certificate of Completion (or whatever is required by Completion (or whatever is required by the contract) the contract)

PaymentsPayments

CO must notify the utility that the CO must notify the utility that the installation has been accepted and that installation has been accepted and that it complies with the terms of the contractit complies with the terms of the contract

Utility bill paid from funding account Utility bill paid from funding account determined during acquisition planning determined during acquisition planning

Post-InstallationPost-Installation

Conduct periodic performance verificationConduct periodic performance verification– Receive M&V regular interval reports (if required)Receive M&V regular interval reports (if required)

Verify and document the performance and Verify and document the performance and actual energy savings progressing in actual energy savings progressing in sequence, from individual equipment through sequence, from individual equipment through subsystem operation to complete systems subsystem operation to complete systems and finally whole building. and finally whole building.

Include Training Include Training

Hands-on operation of the equipment including Hands-on operation of the equipment including start-up, operation in normal and emergency start-up, operation in normal and emergency modes, shutdown procedures, seasonal modes, shutdown procedures, seasonal changeover, and manual/automatic controlchangeover, and manual/automatic control

Requirements and schedules for routine Requirements and schedules for routine maintenance maintenance

Energy Management and Control System Energy Management and Control System sequencing, strategies, operation and sequencing, strategies, operation and programming programming

Health and safety issues and concernsHealth and safety issues and concerns When and how to re-commissionWhen and how to re-commission

Performance Performance Acceptance PhaseAcceptance Phase

Operations are proven under partial and Operations are proven under partial and full load, in all seasons, and under full load, in all seasons, and under abnormal or emergency conditions. abnormal or emergency conditions.

Some commissioning contracts require Some commissioning contracts require an effort to fine-tune and optimize an effort to fine-tune and optimize system operation, comfort control, system operation, comfort control, control parameters, sequences and control parameters, sequences and energy efficiency.energy efficiency.

Performance AcceptancePerformance Acceptance

Important in ensuring the effective, Important in ensuring the effective, ongoing functioning of a facility’s ongoing functioning of a facility’s architectural, structural and other architectural, structural and other systems. systems.

As use and function of facilities change, As use and function of facilities change, the building systems need to be the building systems need to be adapted to the changing requirements adapted to the changing requirements of occupancy and utilization. of occupancy and utilization.

Follow-on ProjectsFollow-on Projects

Any additional ECMs or services Any additional ECMs or services proposed must be within the contract proposed must be within the contract scopescope

If desired, CO will issue a task order If desired, CO will issue a task order and utility will submit a technical and and utility will submit a technical and price proposal.price proposal.

Wrap UpWrap UpQuestion and AnswersQuestion and Answers