Report Title:

Energy; Performance Contracting


Updates energy performance contracting statute by reflecting current state financing practices, increasing the contract term limits from 15 to 20 years, including water saving technology, and limiting the amount payable under the contract to the verified energy cost savings amount. (SD1)


S.B. NO.



S.D. 1






relating to energy.



SECTION 1. Performance contracting is an important mechanism for implementing energy efficiency projects in the State. The legislature finds that water saving technologies play an important role in energy conservation efforts and are often inextricably linked with energy savings technologies in resource conservation projects. The legislature further finds that including water saving technologies with energy savings projects will conform to federal practices and facilitate financing for the State's resource conservation projects.

SECTION 2. Section 36-41, Hawaii Revised Statutes, is amended as follows:

1. By amending subsection (b) to read as follows:

"(b) Any agency may enter into a multi-year energy performance contract for the purpose of undertaking or implementing energy conservation or alternate energy measures in a facility or facilities. An energy performance contract may include but shall not be limited to financing options such as leasing, lease-purchase, financing agreement, third-party joint ventures, [shared savings] guaranteed-savings plans, or energy service contracts, or any combination thereof; provided that in due course the agency may receive title to the energy system being financed. Except as otherwise provided by law, the agency that is responsible for a particular facility shall review and approve energy performance contract arrangements for the facility."

2. By amending subsection (c) to read as follows:

"(c) Notwithstanding any law to the contrary relating to the award of public contracts, any agency desiring to enter into an energy performance contract shall do so in accordance with the following provisions:

(1) The agency shall issue a public request for proposals, advertised in the same manner as provided in chapter 103D, concerning the provision of energy efficiency services or the design, installation, operation, and maintenance of energy equipment or both. The request for proposals shall contain terms and conditions relating to submission of proposals, evaluation and selection of proposals, financial terms, legal responsibilities, and other matters as may be required by law and as the agency determines appropriate;

(2) Upon receiving responses to the request for proposals, the agency may select the most qualified proposal or proposals on the basis of the experience and qualifications of the proposers, the technical approach, the financial arrangements, the overall benefits to the agency, and other factors determined by the agency to be relevant and appropriate;

(3) The agency thereafter may negotiate and enter into an energy performance contract with the person or company whose proposal is selected as the most qualified based on the criteria established by the agency;

(4) The term of any energy performance contract entered into pursuant to this section shall not exceed [fifteen] twenty years;

(5) Any contract entered into shall contain the following annual allocation dependency clause:

"The continuation of this contract is contingent upon the appropriation of funds to fulfill the requirements of the contract by the applicable funding authority. If that authority fails to appropriate sufficient funds to provide for the continuation of the contract, the contract shall terminate on the last day of the fiscal year for which allocations were made";

(6) Any energy performance contract may provide that the agency ultimately shall receive title to the energy system being financed under the contract; and

(7) Any energy performance contract shall provide that total payments shall not exceed total savings."

3. By amending subsection (e) to read as follows:

"(e) For purposes of this section:

"Agency" means any executive department, independent commission, board, bureau, office, or other establishment of the State or any county government, the judiciary, the University of Hawaii, or any quasi-public institution that is supported in whole or in part by state or county funds.

"Energy performance contract" means an agreement for the provision of energy services and equipment, including but not limited to [building] energy [conservation enhancing] and water saving technology retrofits and alternate energy technologies[,] for a building or facility, in which a private sector person or company agrees to finance, design, construct, install, maintain, operate, or manage energy systems or equipment to improve the energy efficiency of, or produce energy in connection with, a facility in exchange for a portion of the cost savings, lease payments, or specified revenues, and the level of payments is made contingent upon the verified energy savings, energy production, avoided maintenance, avoided energy equipment replacement, or any combination of the foregoing bases. Energy conservation retrofits also include energy saved off-site by water or other utility conservation enhancing retrofits.

"Facility" means a building or buildings or similar structure including the site owned or leased by, or otherwise under the jurisdiction of, the agency.

"Financing agreement" is defined in section 37D-2.

"[Shared savings] Guaranteed-savings plan" means an agreement under which the private sector person or company undertakes to design, install, operate, and maintain improvements to the agency's facility or facilities and the agency agrees to pay a contractually specified amount of verified energy cost savings. The payment obligation for each year of the contract, including the year of installation, shall be guaranteed by the private sector person or company to be less than the annual energy cost savings attributable under the contract to the energy equipment and services. Such guarantee shall be, at the option of the agency, a bond or insurance policy, or some other guarantee determined sufficient by the agency to provide a level of assurance similar to the level provided by a bond or insurance policy.

"Verified" means the technique used in the determination of baseline energy use, post-installation energy use, and energy and cost savings by the following measurement and verification techniques: engineering calculations, metering and monitoring, utility meter billing analysis, computer simulations, mathematical models, and agreed-upon stipulations by the customer and the energy service company. In the event that the actual annual verified savings are less than the annual amount guaranteed by the energy service company, the energy service company shall pay the agency, or cause the agency to be paid, the difference between the guaranteed amount and the actual verified amount within thirty days of being invoiced."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon approval.