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Energy and Global Climate Change in New England

Designing RFPs and Contracts that Promote Energy Improvements at Contract-Operated Drinking Water and Wastewater Utilities

The environmental and economic impacts of energy management are becoming a high priority in the drinking water and wastewater treatment industry. Energy accounts for approximately 35% of a utility's annual expenses, and energy management can help indicate if a plant is functioning properly.

There are currently a wide variety of services available to municipalities from contract operators.  Options include:

  • Contractor fully staffs and operates treatment plant
  • Contractor staffs some operations
  • Contractor is a consulting service for specific projects

There are also a number of options used by municipalities when addressing energy in their contracts with water/wastewater treatment contractors.  Contracts can address performance, equipment, or both.
Examples include:

  • A monetary cap is set, and the contractor pays for energy costs over the cap.
  • Both municipality and contractor pay for capital improvements and split the energy savings
  • Municipality is responsible for all energy saving projects and keeps all savings
  • Contractor is responsible for all energy saving projects and keeps all savings

    Contract language between system owners and contracted operators can impede or encourage improvements in energy management. The goal of this document is to encourage communication on the issue of energy efficiency and renewable energy between municipalities and contract operators. Municipalities and contractors should strive to set up an energy management system, where energy is tracked and improvements addressed in a systematic way. Through discussions with industry professionals, EPA has identified energy management-related issues that cities, towns, and water districts should consideration when developing their next operator RFP and contract.
Areas to Consider Specific Questions to Consider Sample RFP and/or Contract Language

Contract Structure and Responsibilities

  • How are responsibilities delineated between system owners and contracted operators?
  • Is procurement controlled by the municipality or contract operator?
  • What are the expectations of contractors in regards to capital budget /energy improvements?
  • Will owners and operators collaboration on energy management planning?
  • Will system participate in demand response utility incentives?
  • The contracted operator will be responsible for running the system in an energy efficient manner.
  • Representatives of the system owner and contracted operator are expected to meet semi annually to develop and/or review energy management plan metrics and key performance indicators.

Energy Use, Tracking and Costs

  • Who pays for energy costs?
  • Is there a not-to-exceed cap for energy costs?
  • Is the not-to-exceed level set too high to promote incentive?
  • Are there incentives for operators to use less than the determined cap?
  • How will benefits be shared from energy improvements?
  • Will sub metering of major equipment be done?
  • Are there any anticipated regulatory or permitting changes that would affect energy use?
  • Who will investigate energy supply options?
  • System owner /contract operator will be 100% responsible for a maximum cap of (x) kWh/ year plus associated fees and charges.
  • Contracted operators will be financially responsible for usage above (x) kWh and the associated fees and charges.
  • Avoided costs associated with demand below the cap will be equally shared equally by system owner and contract operator.
  • Net savings from energy improvements will be equally shared between system owner and contract operator.
  • Savings from energy supply options will be shared equally between system owner and contract operator.

Energy Audits

  • Are energy audits included in the contract?
  • Are energy audits included in equipment/maintenance audits?
  • How often are audits they conducted?
  • Who will pay for process energy audits?
  • What will be done with the results?
  • ASHRAE Level III process audits will be conducted during the first two years of the contract and every five years thereafter.
  • The cost of audits will be shared 50%-50% by the system owner and contract operator utilizing all available energy utility incentives.
  • Results from the audit will be ranked using the attached energy projects ranking tool or a similar method during the bi annual energy management meeting.

Feasibility for On-site Energy Generation

  • Will on-site generation be pursued?
  • Who will pay for feasibility studies?
  • What will be done with the results?
  • Who will own the onsite generation system?
  • Does the contract operator have the capacity to conduct a feasibility study for on -site generation?
  • How will plant owners and operators structure ownership arrangements for renewable energy technologies, given their lengthy payback periods?
  • The feasibility of on-site renewable energy technologies will be pursued by the system owner. Access to the plant will not be hindered by the contract operator during feasibility studies or the implementation of renewable energy technologies.
  • The system owner will be accountable for the capital costs and the associated financial benefits of renewable energy technology development. Examples include solar, wind, hydro power, anaerobic digestion

Capital Improvements for Energy Efficiency and Renewable Sources

  • Does the project under consideration qualify as a capital project if the owning municipal is rate regulated or has other accounting considerations?
  • Who will pay for capital improvements that will result in reductions in energy use?
  • Who will oversee the process to obtain energy rebates from energy providers?
  • How will energy efficiency be incorporated into capital improvement decisions?
  • Who will retain profits from energy efficiency and renewable projects that result in positive cash flow?
  • How will performance contracts offered by energy service companies (ESCOs) be utilized in energy efficiency and renewable energy development?
  • Will energy related capital improvements result in positive cash flow?
  • Energy-related capital improvement costs will be shared by the system owner and contract operator.
  • Contract operator will pay for energy efficiency capital projects, and will retain 100% of savings related to project.
  • Either system owner or contract operator will manage energy-related capital projects. Specific project managers will be determined during joint energy management planning meetings. It is the responsibility of the project manager to obtain energy rebates from energy providers.

Other considerations:

Length of Contracts – Energy-related improvements that incur high capital costs or long payback periods are more economically feasible when contract operators and system owners engage in long-term operating contracts. When cost sharing is employed, longer contracts (>10 years) allow for capital costs to be recouped prior to the end of the contract period and provide each party with a greater period to realize the net benefits of a given project, thus making energy-related improvements more financially attractive.

Examples of incorporating energy management into contracts:

Milwaukee, WI
The existing owner/operator contract between Milwaukee Metropolitan Sewer District (MMSD) and Veolia Water Milwaukee (VWM) stipulates that the operator (VWM) contributes 25% to the system’s energy costs. This arrangement incentivizing both parties to actively seek ways to reduce energy costs. The contract also states that cost savings garnered from energy-related projects initiated by VWM and implemented by MMSD will be shared 50%-50%. While sharing savings can create further incentive to work together on energy projects, it has made financial modeling more difficult. The two parties recognize that further clarification on savings sharing is needed in future contracts.

Lynn, MA
In 2001, the Lynn Water and Sewer Commission entered into a 20 year operations contract with Veolia Water. The contract contains explicit language on how energy-related operating costs, capital costs, and net savings will be shared. It stipulates that will Lynn Water and Sewer will be financially responsible for a maximum of 13,159,000 kWh per year, where any kWh in excess of the cap will be the responsibility of Veolia. If annual usage is less than 13,159,000 kWh both parties equally share in the savings. The cost of energy improvements are shared 50%-50%, as well as the net savings incurred from the improvements.

Resources:

The following resources may assist municipalities in including energy management in their contracts for operating drinking water and wastewater treatment plants.

  1. Priority Ranking Table (PDF) (113 pp, 1.6 MB, about PDF)
    This is a tool developed for EPA's Energy Management Guidebook that is helpful in ranking projects that may be identified in an energy audit. It can be found on page 40 of the guidebook.
  2. Maine Department of Environmental Protection Model Energy Audit Request For Proposals to Conduct Wastewater Facility Energy Evaluation (PDF) (6 pp, 119 K, about PDF)
    This is a model RFP developed by the State of Maine to assist water and drinking water treatment plant operators in obtaining a process energy audit for their plants.
  3. Energy Efficiency RFP Guidance for Water-Wastewater Facilities
    The Consortium for Energy Efficiency (CEE) developed this guidance for water-wastewater utility managers and municipal officials to incorporate energy considerations in solicitations for design services. 

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