The Pennsylvania Guaranteed Energy Savings Act, like many analogous state statutes, authorizes governmental entities to enter into long-term energy service company (ESCO) contracts, often utilizing third-party financing and requiring a 15-year payback. The operating theory is that capital upgrades, equipment procurement and operational modifications are funded through recognized energy savings resulting from the implementation of facility improvement measures (FIMs). Typically, the ESCO procures financing, balancing short-term returns on investment, such as upgraded lighting and insulation, with longer-term aspects of the build-out, such as co-generation facilities. But with the ESCO performing so many integrated services, can the commonwealth be assured it has maximized its savings and in the most cost-effective manner?
To start the GESA process, the commonwealth, generally through the Department of General Services (DGS), issues an expression of interest to approximately 17 qualified ESCOs. Based on past performance and other due diligence, typically, three ESCOs are invited to respond to an RFP, with the contract awarded to the perceived best value approach, not necessarily the lowest bid. As discussed further below, the ESCO then performs an investment-grade audit (IGA) leading to a form of energy performance contract (EPC).
