The City of Bemidji is the first local government in Minnesota to work on a performance contract across the city’s buildings and operations through the new statewide Guaranteed Energy Savings Program (GESP) for energy efficiency improvements.
Peter Lindstrom, CERTs Local Government Outreach Coordinator, interviewed City of Bemidji Mayor Rita Albrecht, Finance Director Ron Eischens, City Manager Nate Mathews, and Honeywell Regional Sales Director Mike Taylor to learn more about their experience.
What is Performance Contracting?
Energy Savings Performance Contracting (ESPC) is a performance-based procurement and financing mechanism that leverages maintenance, operations, and utilities savings achieved through the installation of energy efficiency and renewable energy measures to finance the cost of the facility retrofit and renewal project, without bonding or raising taxes.
What is the Guaranteed Energy Savings Program?
The Guaranteed Energy Savings Program (GESP) promotes awareness and implementation of energy efficient and renewable energy measures in public facilities to provide millions of dollars in annual energy savings in Minnesota. To do this, GESP supports you every step of the way. GESP can help you:
- Solicit and award site-specific requests for proposals from pre-qualified Energy Service Companies (ESCOs) to perform Energy Savings Performance Contracting (ESPC) services
- Evaluate the technical and financial feasibility of ESCO proposals
- Negotiate and award work order contracts to pre-qualified ESCOs under the GESP Master Contract to implement energy conservation measures
- Offer project management oversight of ESPC projects
- Provide technical assistance to ensure the ESPC Measurement and Verification Plan is properly performed throughout the performance period of the contract
What motivated Bemidji to use the Guaranteed Energy Savings Program to pursue energy efficiency improvements?
Rita Albrecht (Mayor): There were two key motivations for the City. First, we’re always looking for ways to cut the bottom line, and energy savings are a great way to make a lasting impact. Second, we have a very active sustainability committee in Bemidji that helps to keep the pressure on us to move in the right direction with regards to energy use and other environmentally-friendly decisions.
Did it take any convincing for decision makers to take on GESP?
Rita Albrecht: At first the GESP program seemed a little complicated to everyone. In particular, we didn’t at first understand that there would be zero upfront costs. Once we figured out that the energy savings paid for the work it made it easier to make it happen.
What energy efficiency work is being done as part of the performance contract?
Ron Eischens (Finance Director): The performance contract includes $2.5 million in approved projects in nine different city-owned buildings: Sanford Center, Ice Arena, Library, Public Works, Waste Water Treatment Facility, City Hall, Fire Hall, and Law Enforcement Center. The annual energy cost savings from this work are estimated at $99,000, and annual operations and maintenance savings will add another $21,000. On top of that we’re getting $122,000 in one-time utility rebates.
What are the key benefits to the City of Bemidji of doing performance contracting with GESP?
Rita Albrecht: The biggest single benefit is that all of these infrastructure and capital improvements can be done at no cost. We’re making $2 million in upgrades to buildings and street lights without burdening our taxpayers.
Ron Eischens: Packaging energy efficiency upgrades in several buildings across the city allows us to do more on a quicker timeline than would have otherwise been possible. Related to this, projects with faster paybacks will make it possible for us to pay for other projects that might not have panned out on their own.
Rita Albrecht: Furthermore, we don’t have technical staff on hand who have time to be up to date on all of the most efficient technologies, so Honeywell was very helpful in that regard because they have provided all of that expertise.
Ron Eischens: On that staffing note, the bidding and selection process was fully managed by Honeywell, which saved our city staff a lot of administrative time. The performance contract has also created competition among vendors bidding on individual projects, which has meant that many of the projects have been coming in under budget. This should help us reach our savings goals even more quickly.
Rita Albrecht: All of the things we’ve mentioned are benefits of any performance contract project. But what made using GESP particularly beneficial is that we received guidance from the experts at the Minnesota Department of Commerce who provided standard contracts and added certainty to the process.
Ron Eischens: The boilerplate contracts from GESP really were a huge time saver. Our attorney would have been overwhelmed reviewing the many contracts from various ESCOs, so it was nice to know that a significant amount of due diligence had already been applied to the standard GESP contracts. Having GESP staff walk us through each step of the process was also really beneficial.
Mike Taylor (Honeywell): This program will deliver many benefits to the people who live and work in Bemidji. First and foremost is the ability to address deferred maintenance needs such as inefficient, aging light poles, outdated building controls, and a heating and air-conditioning system in the library that was past its useful life. The new technology will help provide better comfort and safety, and improve the efficiency of the city’s facilities staff. Best of all, these upgrades are expected to have no impact on taxes since the work is paid for by guaranteed energy and operational savings.
What was the process like working on the performance contract?
Ron Eischens: We started out doing an opportunity assessment to see which buildings could benefit from improvements, and then put our project goals down on paper. At this point the Minnesota Department of Commerce stepped in with the Guaranteed Energy Savings Program to help with the bidding and selection of an Energy Service Company (ESCO). We selected Honeywell as our ESCO for the project and are now moving forward with project development and implementation. After all of the projects are done, we’ll just be measuring our energy use closely to verify that we’re getting the savings that were expected from the various projects.
Did any questions or concerns arise during the process?
Rita Albrecht: Just a couple things came up. The financing mechanism is actually a lease—which is fine—but it took us a bit to figure that out. The other one was that we got a call from a local union that was concerned about the bidding process, but Honeywell was managing all of the bids instead of the City. While this was a bit confusing for the community, it was nice for us because it limited the work we had to do.
How important is it that Bemidji be a leader on the issue of sustainability?
Rita Albrecht: It’s very important for us to be seen as a leader. Erica Bailey Johnson at Bemidji State University has been a key player and has helped the City move forward in her role with the sustainability committee. We’re serious about the impact that the community has on the environment.
Nate Mathews (City Manager): When I worked as the City Administrator in Staples we had a municipal utility and it was important that we find ways for our customers to do load shedding. In Bemidji it’s equally crucial for us to partner as a public entity with Otter Tail Power Company, our utility. We have to set a good example, shed our load, and help others do the same.
Would you recommend GESP and performance contracting to others?
Ron Eischens: If local governments are trying to complete a lot of projects quickly and are interested in utilizing savings from quick payback items to make other measures possible, I think it’s a good way to go.
Rita Albrecht: We have a fully-staffed group of department heads and it was easy to make it work because we have that staff capacity. So I think that other cities with decent staff capacity could also successfully take on a performance contract project, and that the GESP program is a great partner in that endeavor.
