Municipal leaders in Ohio want to “go green” environmentally, but have found that the expense and design limitations leave them frustrated and sighing “It’s not easy …being green.” Cities may want to reconsider their options thanks to legislation that expands the definition of energy conservation measures and provides greater flexibility in procurement procedures for energy cost-savings improvements or retrofits.
A late 2008 amendment to Ohio Revised Code Section 717.02 governing installment payment contracts for municipal energy conservation measures has broadened the types of qualifying projects, the methods for engaging professionals and contractors, and length of the financing term. The resulting statutory changes increase the energy conservation options for municipalities.
House Bill 420’s amendments of Revised Code Section 717.02 are extensive and worth review by municipalities exploring affordable options to decrease their carbon footprint. Effective December 30, 2008, qualifying energy conservation measures to reduce energy consumption are no longer statutorily restricted to the improvement or modification of existing buildings (i.e. retrofitting), but now include energy saving measures undertaken for new building construction and new and existing infrastructure. While municipalities have always had Home Rule authority to structure such contracts, the statute now clarifies that infrastructure, “includes, but is not limited to, a water, gas, or electric utility renewable energy system or technology, traffic control signal, or any other asset owned, operated, or maintained by a municipal corporation.” Green Strategies Bulletin No. 02-11 Green Strategies Bulletin
House Bill 420 also expanded the types of energy conservation methods. In addition to insulation, heating, ventilation, and lighting, the statute now permits the construction or improvement of a central utility plant, installation or replacement of a water, gas or electric metering system, and any construction deemed an energy conservation measure by the municipality’s legislative authority among its qualifying initiatives.
With so many more options for energy conservation improvements, new construction or old, building or infrastructure what should the ecoconscious municipality do first? The amended Ohio Revised Code Section 717.02 provides guidance.
Energy Conservation Report
Municipalities first must develop an Energy Conservation Report assisted by a professional engineer of their choice skilled in the design and implementation of energy conservation measures. The report can be obtained separately or as part of the services provided by the successful vendor. The report establishes the framework for the intended improvements by substantiating the need and affirming compliance with certain statutory requirements (like the financing thresholds). The report must provide detailed analysis of the energy needs of the municipality’s existing buildings, recommendations for remodeling or improvement, computation of the “average system life” of the proposed improvement and an explanation of the impact of undertaking such energy conservation measures.
The report also must contain a detailed fiscal analysis of the energy conservation measures proposed. In order to justify proceeding with an improvement, that analysis must: 1) conclude that the cost of undertaking the proposed energy conservation measure does not exceed the savings likely to result from the reduction in energy consumption over the (average system) life of the energy conservation measure; 2) detail the methods used to estimate such savings; and 3) be certified by a registered professional engineer.
House Bill 420 presents municipalities with new flexibility in the procurement process. For the construction after design, the statute provides that a municipality may “procure the energy conservation measures in any manner authorized by the municipal corporation’s charter, ordinance, or any other existing authority”. The statute further provides that such procurement may also occur by competitive bid or through requests for proposals (RFP). Municipalities using the competitive bid process must award the contract to the “lowest and best” bid or “bids most likely to result in the greatest energy savings considering the costs of the project and the legislative authority’s ability to pay for the improvements with current revenues or by financing the improvements”.
Municipalities that prefer to select vendors for installation of energy conservation measures by initiating an RFP process must request proposals from not less than three vendors following two weeks of public advertisement. A municipality is free to reject all vendor bids or proposals or to accept more than one bid or proposal under either selection method. Home Rule municipalities are free to forego competitive bidding and the RFP process entirely, and instead procure energy conservations measures as enacted by the municipal charter or ordinances.
Vendors selected to install the energy conservation measure must prepare a report akin to the energy conservation report that again demonstrates the energy savings anticipated for operation, maintenance and capital costs as a result of the proposed improvement — accounting for inflation, and the municipality’s ability to pay for the improvements.
Amended Revised Code Section 717.02 still permits a municipality to finance the purchase and installation of the selected energy conservation measures with an installment payment contract. However, the statute now provides expressly that the provisions of the installment payment contract that concern interest charges and financing terms are not subject to competitive bid, must require 1) the payment of not less than a specified percentage of contract costs within two years from the date of purchase; and 2) the payment of the remaining balance of contract costs over the lesser of the average system life of the improvement or thirty years, rather than the maximum of ten years permitted prior to House Bill 420.
Municipalities also may take advantage of the longer financing term should they choose to issue energy conservation debt obligations, or “energy conservation notes” pursuant to Ohio Revised Code Chapter 133. The principal and interest charges of energy conservation notes issued to finance the energy conservation measures may be paid with a pledge of taxes or other revenue derived for the purpose of conserving energy or defraying energy costs. Regardless of the financing method, debt incurred for such energy conservation measures remains exempt from the calculation of a municipality’s net indebtedness.
In conclusion, House Bill 420 has enhanced the targets of energy conservation measures, the types of qualifying improvements and provided municipalities more time to finance such contracts. Municipal leaders are encouraged to review the amendments made to Revised Code Section 717.02 to determine if these legal changes can allow their good green ideas to become a reality.