Georgia State Capital at Night

photo by Robert S. Donovan

This November when Georgia voters go to the polls to cast their ballots for mid-term elections, they will also have the opportunity to vote on an amendment to the Georgia Constitution to allow public entities to enter into Energy Savings Performance Contracts (ESPCs).

Most people have never heard of ESPCs or “performance contracting” and may not be able to fully understand the implications of this amendment simply by reading the proposed language on the ballot.  However, this amendment (designated as Amendment #4 on the November 2, 2010 ballot) is an important one because it is a step forward for Georgia in embracing legislation that promotes progressive energy policies and green building initiatives.

Under an ESPC, a state agency enters into a contract with an energy services company (ESCO) to perform a detailed energy and water use audit of a particular facility or campus to identify energy and/or water-saving improvements that can be made to reduce the agency’s operation costs going forward.  The ESCO then designs a retrofit project and builds or installs the energy/water saving measures identified in its audit.

Here’s how ESPCs differ from other contracts:

The Performance Guarantee

  • The ESCO “guarantees” that the state agency will incur a specified amount of savings in energy and/or water consumption for a period of years (usually 10 years). “Savings” are generally tracked by ongoing various measurement and verification protocols that are written into the contract.
  • If the savings do not meet the amount of guaranteed savings specified in the contract, the ESCO pays the agency the difference between the guaranteed savings and the actual savings.

Payment for the Project Costs

  • Unlike traditional retrofit projects that are paid for from capital improvement budgets, with ESPCs the ESCO pays for or arranges financing for the project upfront so that the state agency does not have to come up with a substantial lump-sum payment at the time the project is performed.
  • Instead, the project is paid for over the “guarantee” period from the “savings” that are generated by the improvements.  During that period, the ESCO is usually under contract with the state agency to operate and maintain the equipment and improvements for a separate fee.

Many states and the federal government have been using ESPCs for over a decade as a means to obtain badly-needed infrastructure improvements when shrinking budgets have not otherwise allowed for capital improvements.

The reason that ESPCs have not historically been used in Georgia is because Georgia’s Constitution prohibits the state or any of its agencies from entering into multi-year contracts.  This year, the Georgia legislature passed a constitutional amendment which would allow state agencies to pay over multiple years for “energy efficiency or conservation improvement projects.”  In order to take effect, the amendment must be approved by a majority of the voters casting ballots on the amendment.

If the amendment passes, it will be a significant victory for green building and energy-efficiency companies and advocates.  This change could potentially open the door to hundreds of millions of dollars of state projects, and could substantially reduce overall the energy and/or water consumption of the State of Georgia and its agencies.

So, I encourage everyone to check out these websites for more information about energy savings performance contracts and the proposed Amendment #4:

Energy Services Coalition

Georgia Environmental Finance Authority

Taxpayers for Energy Efficiency

U.S. Department of Energy, Federal Energy Management Program

I will also be posting more discussion points about energy saving performance contracts in the next few weeks in order to aid voters in their research about this important constitutional amendment.

In the meantime, do you think voters should vote “yes” to the amendment and bring energy savings performance contracts to Georgia?