Att 2 - OCAR ESPC_Guideline_Final_2024.pdf

UNCLASSIFIED

Army Reserve Installation Management Directorate (ARIMD), Office of the Chief (OCAR)

Office of the Chief of Army Reserve (OCAR) Guidelines for US Army Reserve Energy Savings Performance Contracts

(ESPC)

Document Revision History

Version 1.0 Issue Date: 07/3/15 Revision Number

Date of Revision Revision Summary

1.1 3/15/2018 Minor updates

1.2 8/20/2024 Updates, additions, and corrections

Acronyms

CEHNC - U.S. Army Engineering and Support Center, Huntsville CSA - Contracting Support Agency (i.e. DLA-E, CEHNC, MICC, DOE FEMP) DFS - Detailed Feasibility Study DLA-E - Defense Logistics Agency-Energy ESCO - Energy Services Company ESPC - Energy Savings Performance Contract FS - Feasibility Study IGA - Investment Grade Audit KO – Contracting Officer MICC - US Army Mission and Installation Contracting Command PA - Preliminary Audit/Assessment PM - Project Manager TO - Task Order UESC - Utility Energy Services Contract

Overview The purpose of this document is to provide a general summary of the ESPC process and requirements for US Army Reserve Installations. It is meant to be complimentary to the policy, guidelines, and directives of the US Army. At all times, the guidelines here are based upon the Department of the Army Policy Guidance for Implementation of an Energy Savings Performance Contract. If there is any confusion or question between the two, the DA policy supersedes the OCAR guidelines.

An Energy Savings Performance Contract (ESPC) project enables an Army Reserve installation, center, or group of centers (AR Site) to fund facility energy and water conservation measures through guaranteed utility savings achieved by the ESPC project. The ESPC contractor, called an Energy Savings Company (ESCO), provides the AR Site with a turnkey project that includes all costs to develop, finance and execute the work, and receives compensation from the benefiting AR Site based on the annual verified energy savings generated.

Army Reserve ESPC projects require OCAR ARIMD approval at multiple points throughout the process.

The details of the approvals are provided within these guidelines. However, it should be noted that OCAR ARIMD approval is required at three stages in the process. They are:

1. Approval to pursue an ESPC Preliminary Audit (PA)

2. Approval to move from a PA to an Investment Grade Audit (IGA)/Detailed Feasibility Study (DFS)

3. Approval to award an ESPC Task Order (TO)

In addition to the approvals noted above, any significant change/modification to the project timeline, scope and/or cost will also be presented to OCAR ARIMD leadership for approval prior to proceeding with a requested change/modification.

ESPC projects can include evaluation, design, financing, acquisition, installation, and maintenance of energy and water efficient equipment, including renewable energy; altered operation and maintenance improvements; or technical services, as long as the net energy and/or cost savings on the bundled retrofits do not exceed the 25-year maximum contract term.

In accordance with the Department of the Army guidance, the Army uses ESPCs to “meet its Energy security, Energy resilience, Mission Readiness, and Military Installation resilience goals while implementing equipment upgrades to reduce energy consumption, lower water use, reduce energy bills, install renewable energy systems, and address other items in support of continued access to sources of energy and water." This approach to utilizing ESPC provides several strategic benefits: 1) access to significant additional funding to achieve energy and water reduction goals; 2) technical expertise and assistance to design and install retrofits, and to operate the facilities; and, 3) no requirement for upfront capital funding before an ESPC contract is signed because the funding comes from the realized annual energy savings.

Title 10, United States Code, “Armed Forces,” Section 2913, “Energy Savings Contracts and Activities” provides the authority to participate in utility programs and to use alternative financing approaches to achieve energy and water goals. Recognizing that ESPCs are a crucial tool for financing efficiency measures, the DoD and Army have directed sites to maximize the use of ESPCs through DoD Instruction

4170.11 (August 31, 2018), DoD Office of the Under Secretary Memorandum on Energy Savings Performance Contracts and Utility Energy Service Contracts (November 20, 2018), and AR 420-1.

Roles and Responsibilities

• Army Reserve Installation Management Directorate (ARIMD) ESPC Lead – Tracks the status of ESPCs and maintains ESPC records (e.g., final contract award, audits, measurement and verification (M&V) reports); reports progress to leadership; reviews energy measures identified;

coordinates with the Energy Manager responsible for the AR Site on all aspects of ESPC projects;

approves and provides concurrence (i.e., concur, concur with comments, non-concur) with AR Site on the ESPC arrangement. ARIMD ESPC Lead will coordinate with ESPC contracting support agency USACE CEHNC and/or other Agencies as required (DLA, FEMP, etc.).

• Energy Manager – Designated as the ESPC point of contact for the Installation, Readiness Division (RD), or Mission Support Command (MSC) unless otherwise stated. Identifies the opportunity for third-party funding to accomplish energy and water management goals at an AR Site; coordinates with ARIMD ESPC lead to develop potential projects and ensure the project adheres to ARIMD and HQDA guidelines; communicates with commanding officer about the ESPC opportunities and benefits; works with ARIMD and the contracting support agency to provide any requested info and/or answer questions; participates in ESCO evaluation and selection; and works with the contracting agency to ensure that terms of agreement serve ARIMD and the AR Site’s energy and water reduction objectives. Recommended (or required with some contracting officers) that the Energy Manager takes Department of Energy (DOE) Federal Energy Management Program (FEMP) ESPC training before starting an ESPC.

• Commanding Officer (either at Garrison or RD/MSC level), Authorizes budget for Department of Public Works (DPW) and ensures funding is sufficient to pay contractual obligations; endorses the ESPC arrangement with the ESCO; notifies Installation Management Command (IMCOM) (for ESPCs on installations only), ARIMD, and Office of the Assistant Chief of Staff for Installation Management Command (OACSIM) of intention to Award an ESPC.

• Contracting Officer (KO)– Representative from one of the contracting support agencies: U.S.

Army Corps of Engineers – Huntsville (USACE-HNC), Department of Defense – Defense Logistics Agency – Energy (DLA-E), US Army Mission and Installation Contracting Command (MICC), or DOE Federal Energy Management Program (FEMP). Acts as the central point of contact for ARIMD and USAR with ESCOs for any activity that might lead to incurring obligations or actual costs, such as a Preliminary Energy Assessment (PA), Investment Grade Audit (IGA)/Detailed Feasibility Study (DFS), or ESPC Task Order (TO); manages the ESPC procurement process in coordination with the Energy Manager and ARIMD; and works with Energy Manager and ARIMD to develop performance metrics for the ESCO prior to award and refine the M&V process.

• ESPC Project Facilitator/Technical Expert – Independent third party representing one of the three contracting organizations identified above, responsible for leading the ESPC team through the ESPC process from inception to award to project completion. The Project Facilitator is required on all ESPCs and must be pre-approved by OACSIM. Responsibilities in the pre-award phase include ensuring the establishment of a sound baseline; the economic and technical feasibility of the project; the development of an effective M&V plan; and that all aspects of the Army ESPC Policy Guidance have been followed. The level of support from a Project Facilitator is flexible and is based upon the AR Site’s needs. For example, this individual may serve as the technical expert as well or a separate technical expert from the contracting organization or another third party may be engaged to support the ESPC.

• IMCOM ESPC Program Manager – For ESPCs on Army Reserve Installations only, tracks the status of ESPCs and maintains ESPC records; reports progress to leadership; reviews energy measures identified; coordinates with the energy manager responsible for the AR Site on all aspects of ESPC projects; and approves and provides concurrence (i.e., concur, concur with comments, non-concur) with AR Site on the ESPC arrangement.

Guidelines

The following guidelines provide Army Reserve energy managers with a starting point on ESPC requirements and considerations. While these guidelines outline key procedures, the order in which some of the early steps occur could vary depending on whether an ESCO approaches the AR Site first or vice versa. Several federal organizations provide detailed guidance and procedures for implementing ESPC projects, including the Army Policy Guidance on Implementing ESPCs, and these should be referenced before starting an ESPC. Addtionally, USAR site personnel will coordinate with OCAR ARIMD third-party financing staff to ensure leadership awareness and approval of third-party financing related activities and initiatives. Key personnel, including the Energy Manager and Project Facilitator, should also take an ESPC training course.

1. Identify Potential ESPC Scope

An ESPC can cover a wide variety of technologies and equipment, including but not limited to lighting, HVAC, building controls, building envelope retrofits, and renewable energy systems/measures. Consider past energy audits, including ARIMD-funded Comprehensive Energy and Water Evaluations (CEWE) and IEWPs, as a starting point to establish the potential scope of an ESPC.

An ESPC can also include a wide range of economic paybacks, from the very fast payback of LED lighting improvements to the longer paybacks of replacing chiller plants or building envelope improvements.

One of the benefits of using an ESPC is that the fast and slow payback energy conservation measures (ECMs) can be combined into a cost-effective, comprehensive project. If an AR Site is considering an ESPC, it is important that all relevant and potential ECMs are considered across the entire AR installation in order to avoid selecting a few options aimed at achieving a quick payback. All third-party financing projects should take a holistic garrison or “fence to fence” approach to identify all possible ECMs in order to make the project financially feasible since there must be enough savings to pay for the cost.

This means that your quicker payback measures will help pay for the cost of the longer payback measures. The maximum contract term for an ESPC is 25 years therefore the bundled set of energy conservation measures (ECMs) should be lifecycle cost-effective within that period.

ESCOs typically look for ESPC projects that have a large enough scope to make the project financially viable. It is possible that a single Installation may have enough potential retrofits to support the scale of the project that is typically preferred, but in many cases, Army Reserve Readiness Divisions will need to include multiple sites in a proposed scope.

Once the potential ECMs and locations have been identified, draft an informal statement of work to summarize the potential ESPC scope. This brief synopsis should include the square footage, quantity, and age of buildings, the site locations, and the potential types of retrofits, utility costs, and potential project costs and savings. This can be used to support the initial dialogue with ARIMD, the contracting support office, and the ESCOs.

2. Notify ARIMD of Interest in Pursuing an ESPC

The Energy Manager must share the draft scope of work with the ARIMD ESPC lead and convey the AR Site’s interest in engaging in a dialogue around ESPC opportunities. In the event an ESCO contacts the Energy Manager and/or other AR Site personnel, ARIMD must be notified immediately. ESPCs have unique reporting requirements up the chain of command, and keeping the ARIMD ESPC Lead informed from the beginning and throughout the process will avoid unintended consequences. The ARIMD ESPC Lead can also bring resources and lessons learned from other sites to support the Energy Manager’s dialogue with ESCOs.

ARIMD approval is required before committing the Army Reserve to a long-term commitment like that of an ESPC contract/award, including authorizing the intent to pursue PA, an IGA, and approval to award an ESPC TO.

3. Secure Contracting and Project Facilitation Support

After consulting with ARIMD, a decision regarding which contracting support agency to utilize will be made. ARIMD will reach out to the desired contracting support agency to verify the agency’s capacity, willingness to support, and if there are any funding requirements, as well as the contracting agency's interest and availability to provide a contracting officer who is trained and experienced with ESPCs. An agreement document between the contracting entity and the AR Site may be required.

The PM and KO will work with the AR ESPC project team (i.e., Energy Manager, ARIMD, Project Facilitator) to prepare a competitive Request for Proposal (RFP), which identifies the interest to pursue a potential ESPC project and the source selection criteria.

4. Engage ESCOs

The Energy Manager and ARIMD should work with the contracting agency Project Manager (PM), KO, PF and OCAR ARIMD on how to approach ESCOs. It is recommended that at least three ESCOs are contacted from a federal, pre-qualified pool of ESCOs about their interest and availability in doing an ESPC and, in particular, doing a Preliminary Assessment (PA) (see next section). Even if an ESCO initiates contact with the AR Site, the installation must follow the contracting agency’s procurement requirements and processes.

Typically the AR Site would select one ESCO to proceed with a PA however it is possible that more than one would be invited and would agree to the assessment.

5. Conduct Preliminary Assessment (PA)

The selected ESCO(s) will conduct a Preliminary Assessment/audit of the designated sites. Prior to the audit, the contracting agency should schedule a PA kickoff meeting with the ESCO and ARIMD Action Officer to discuss the interests, goals, objectives, and priorities of the AR Site and the ESCOs interest in the project, the audit process, and timeline, and communication protocols.

The PA is used to establish the range of potential ECM opportunities with costs and savings for each and to determine which opportunities warrant further study as part of an IGA. The PA involves a walk-through of the buildings and can typically be completed in one day depending on the project size, although additional site visits and discussions may be required to properly develop the PA. This assessment is typically conducted by the ESCO at no cost to the AR Site, even if the site decides not to pursue an ESPC with the ESCO. The Energy Manager should provide a copy of any recent energy audits to the ESCO prior to the Preliminary Assessment to help focus on areas where it is needed most.

Findings from the PA report will be delivered to the Energy Manager and ARIMD lead for evaluation. The PA results will also include an estimate of what the IGA will cost and what the ESCOs overhead and profit margins/rates are.

6. Make Decision to Proceed with Audit

The AR ESPC project team, including the Energy Manager, ARIMD ESPC Lead, KO, and contracting support agency, will review the PA results provided by the ESCO(s) using the established evaluation criteria. The AR ESPC team and the ESCO should complete a risk/responsibility matrix (see Army Policy Guidance) to help in the decision process to proceed with an IGA. Decision factors may include the degree to which the ECM package meets the AR Site’s needs, the balance of risk and responsibility between the ESCO and the Army, price, and the appropriateness of the M&V approach. The Government has 60 days to review the proposal but should attempt to complete it as soon as possible.

Prior to deciding whether to proceed with the IGA, the Energy Manager must work with personnel from Real Property, Master Planning, and Facility Operations to ensure that the facilities where the proposed work would be carried out are not scheduled for demolition or major renovation.

Concurrence from the Commanding Officer and the ARIMD leadership must be obtained to move forward with the IGA as it involves the AR Site to obligate Federal Government funds.

The Utilities Account is the primary source of funds to cover the cost of the IGA. If the IGA results and ESPC plan are accepted and approved, the cost of the IGA is normally included in the total cost of the loan for the project. If a decision is made not to proceed with an ESPC project after the IGA, the AR Site may be required to pay for the IGA.

7. Conduct an Investment Grade Audit

The IGA – also referred to as a detailed feasibility study (DFS) and proposal – is typically completed within 120 to 180 days of delivering the Notice to ESCO of Intent to Award a Task Order. Prior to this audit, the contracting agency should organize another kickoff meeting with ESCO, OCAR ARIMD, and installation EM to discuss expectations from the IGA process and feedback on the initial proposal.

Feedback on the IGA should be solicited from all key stakeholders in the organization, including but not limited to OCAR ARIMD, the other Department of Public Works (DPW) Divisions (i.e., Environmental, Facility Operations, Master Planning, Real Property), and other affected directorates such as the Readiness Division or the Directorate of Logistics, as appropriate.

Conducting the IGA may require significant support from the Energy Manager, including hosting the ESCO as each targeted site and providing as-built, utility and metering information.

8. Make the Decision to Proceed with ESPC

Once the IGA results are received, the AR ESPC project team, including the Energy Manager, ARIMD ESPC Lead, and contracting agency, will review the ESCOs final proposal to confirm that the proposed ECMs included and associated costs meet the pre-award requirements that have been established. A recommendation should be made by the project team but the final decision to proceed must be approved by ARIMD leadership and the Commanding Officer.

Note: Before finalizing the agreement, it is important that the AR installation, ARIMD, and contracting entity have discussed and identified the required environmental analyses (e.g., an environmental assessment for National Environmental Policy Act compliance), permits, and agreements (e.g., easements for land use) that will apply to the ESPC project. It is the responsibility of the AR Site and the contracting entity to include these analyses in the scope of work for the IGA. This is particularly important for projects that will affect previously undisturbed areas, such as a ground-mounted PV array in an open field.

9. Finalize Agreement

After the AR ESPC team and ESCO agree on the ESPC project scope and pricing, the ESPC contracting agency requests a firm-fixed price offer, including financing terms for the completion of the design and installation of the project. The ESCO finalizes its financing, including interest rates and fees, which the ESCO pays for upfront. The Army Reserve leadership and support organizations review and approve the final scope and pricing.

After review and concurrence have occurred between the ESCO and the AR ESPC team, and a decision has been made to award an ESPC Task Order, a “Request for Approval to Award an ESPC Task Order” must be submitted to the OCAR (for projects less than $10 million) or to OACSIM (for projects greater than $10 million) for final review and approval. This must be done before final negotiations. The Energy Manager prepares the request for approval, referencing the documentation requirements in the Army ESPC Policy Guidance, and submits it to the ARIMD ESPC Lead for delivery to the higher headquarters.

Upon approval from OCAR or OACSIM, the contracting agency issues a Task Order to the ESCO.

Completing this part of the contracting process can last up to several months regardless of whether the KO is under the Army Reserve or an ESPC support organization.

Note: AR Sites are responsible for funding and submitting project payments in adherence to the project repayment schedule. At the time the agreement is finalized, AR Sites that enter into ESPCs must submit a repayment plan that identifies the funding source and payment schedules and will be used to track payments submitted and the running balance. ARIMD Spend Plan Guidance will include instructions on ESPC Payments.

10. Submit Notifications of Award

Once the award has been issued, the Energy Manager must:

• Within 60 days of award, the Energy Manager must input ESPC award data into AEWRS.

Schedule

An ESPC project operates independently of Army Reserve funding and reporting processes except that funding for a unit’s support of an ESPC needs to work within the Army Reserve funding cycles. Army ESPC Policy Guidance suggests that EPSC Task Orders are typically awarded within 24-30 months from the date of request, as illustrated in the figure below. However, schedules can vary greatly depending on the availability of contracting and project facilitation staff to support the scoping efforts, and the number and type of ECMs included. Figure 1. Overview of the process and timeline for an Energy Savings Performance Contract

Figure 2. Overview of the process and timeline for an Energy Savings Performance Contract

Waivers and Exceptions

In some instances, RDs, MSCs and/or installations with ESPC projects in development, regardless of the contracting support agency facilitating the project, may decide that submitting a waiver is applicable. HQDA allows the submission of waivers that pertain to specific aspects of ESPC projects. This should be discussed amongst the total ESPC team involved in the project (ESCO, Contracting Support Agency, RD/MSC/Installation energy and DPW team, RFOS/AFOS, and ARIMD). This may require additional research and analysis to be performed to evaluate all potential courses of action (COA) and to determine if a COA should be pursued, and/or which COA is most beneficial to the project.

The project team may feel that a waiver is beneficial and is in the best interest of, not only the RD/MSC/Installation, but the Army Reserve. For example, a project that has an LED lighting ECM, may decide that paying the Operations, Maintenance, Repair, and Replacement (OMRR) cost for that specific LED ECM is not cost-beneficial and that the on-site staff can adequately handle the OMRR for this ECM. In that case, if all stakeholders agree, an OMRR waiver may be submitted to HQDA G9 so that the OMRR cost for LED lighting only is not included in the total project cost. Both HQDA and DOE-FEMP have noted that waivers for fairly straightforward ECMs (i.e. lighting) will be considered. However, waivers for more complex ECMs (i.e. solar PV, microgrid, etc.) are less likely to be approved. Waivers which may be submitted can include, but are not necessarily limited to:

• Operations and Maintenance, Repair and Replacement (OMRR)

• Measurement and Verification (M&V)

• Utility escalation rates (compared to the NIST EERC Calculator values)

ARIMD will provide a waiver template, if necessary, for the RD/MSC/Installation to use when drafting the waiver memo. The ARIMD process for submitting waivers is:

1. RD/MSC/Installation notifies ARIMD ESPC Program manager that they would like to submit a waiver and identify which ECM(s) the waiver will apply to.

2. RD/MSC/Installation briefs ARIMD on the background and justification for the waiver request.

3. RD/MSC/Installation provides ARIMD final waiver memo, and any documentation or justification for review.

4. ARIMD provides approval/non-approval to submit the waiver.

5. RD/MSC/Installation provides ARIMD with a signed memo (at the O-6 DPW level) and final documentation.

6. ARIMD submits the waiver memo and documentation to HQDA G9 for consideration on behalf of the RD/MSC/Installation.

Resources

• Department of the Army Policy Guidance for Implementation of an Energy Savings Performance Contract, dtd. 19 July 2022.

• USACE Engineering and Support Center – Energy Savings Performance Contracting (ESPC) Program (https://www.hnc.usace.army.mil/Media/Fact-Sheets/Fact-Sheet- Article-View/Article/484226/energy-division-energy-savings-performance-contracting-espc-program/#:~:text=ESPC%20is%20a%20tool%20used,maximum%2025%2Dyear%20con tract%20term.)

• DOE Federal Energy Management Program (FEMP) - Energy Savings Performance Contracts (http://energy.gov/eere/femp/energy-savings-performance-contracts)

• Defense Logistics Agency (DLA) – Energy Savings Performance Contracts Program (https://www.dla.mil/Energy/Products/Installation-Energy/) http://www.hnc.usace.army.mil/Media/FactSheets/FactSheetArticleView/tabid/10784/Article/484226/energy-division-energy-savings-performance-contracting-espc-program.aspx http://www.hnc.usace.army.mil/Media/FactSheets/FactSheetArticleView/tabid/10784/Article/484226/energy-division-energy-savings-performance-contracting-espc-program.aspx

OCAR ARIMD Points-of-Contact

Mr. Tim Harper Truman Hall (Bldg. 1908, Ste 103) 6075 Goethals Road Fort Belvoir, VA 22060-5231 Phone: 703-806-6715 timothy.d.harper10.civ@army.mil mailto:timothy.d.harper10.civ@army.mil