£'   •         Office
t Protection    and Indoor Air
             Washington  p c
EPA/40:
April 200QE

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     This handbook was prepared by Dave Biir of Synchronous Energy Solutions for the
National Association of Energy Service Companies (NAESCO). We would like to thank
NAESCO and Dave Birr for their efforts in the preparation of this document. EPA funding does
not constitute an endorsement of the views expressed in this publication. Mention of trade names,
products, or services does not convey, and should not be interpreted as conveying, official EPA
approval, endorsement, or recommendations,   i
     National Association of  Energy Service Companies
                                  All rights reserved.
                                  ©1999 NAESCO
                                 Printed in the U.S.A.

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    Many schools have temperature control systems (thermostats) that
    do not function properly.    !
    Most districts need additional funds to upgrade equipment which
    would save energy dollars and improve the learning environment.
    An Energy Service Company can arrange funding to replace, repair,
and maintain your HVAC, control, and lighting systems as part of an
energy performance contract.  Typically, an ESCO can guarantee, that a
facility will achieve 25 percent cost savings on its utility bill, which can
be used to pay for new equipment and to address deferred maintenance.
For example, if a school's annual utility bills are $600,000, a 25 percent
annual savings of $150,000. over: 10 years would result in over $1.5
million in utility bill savings.  These savings can be used to pay for all,
or most, of the costs Of new equipment and services.
    ESCOs that offer energy performance contracts provide turnkey
services by selecting, designing, ^financing,  installing, and maintaining
new energy equipment, typically over a 10 year period. ESCOs maxi-
mize cost savings by comprehensively evaluating all energy uses and
maintenance procedures.  They guarantee that the equipment they install
will result in a specific amount of dollar savings over the contract
period. Their "pay for performance" philosophy leads to rigorous
monitoring to ensure that the guaranteed energy savings are achieved.
ESCOs require appropriate maintenance levels on new equipment to
protect equipment efficiency and produce the guaranteed savings.
Utility bill savings are typically also used to pay for maintenance,
training, arid performance m.onitOring for the new equipment. ESCOs
assume the risk that once installed, the equipment will perform and
produce the guaranteed savings. ;
    Three goals that energy performance contracting can help a facility
achieve are:
$  Guaranteed cost savings used to pay for new equipment and
    maintenance.              ;
^  Greatty reduced financial ami technical risks from nonperformance
    of new energy equipment.
^  Significantly improved health, comfort, and productivity of a
    school's learning environment.

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SPEED. The availability of utility cost savings to secure financing per-
mits rapid procurement of needed equipment which might otherwise
take several years to purchase out of annual operating funds. Piecemeal
implementation increases procurement transaction costs. Moreover, a
performance contract compresses;the project time schedule, resulting in
prompt delivery of a comprehensive set of equipment upgrades.
ACCOUNTABILITY. An energy performance contract provides single
point accountability for performance, rather than the conflicting project
requirements resulting from multiple contracts with multiple vendors.
A performance contract guarantees the results in terms of both energy
savings and acceptable indoor environmental comfort parameters (light
levels, air temperature, ventilation rates, etc.).  The installation of mod-
ern energy management control systems allows ESCOs to monitor both
comfort conditions and equipment operating conditions much more
closely than aging or outdated control -systems.  This allows them to
quickly identify and fix comfort and equipment performance problems.
COMPREHENSIVENESS.  Comprehensive projects allow schools to cap-
ture optimal design opportunities that would be lost if design is done on
separate projects over a period of jseveral years. By integrating the
design of HVAC equipment, control systems, and operations and main-
tenance procedures, they can optimize the  quality of the project.
Testing, commissioning, and monitoring the performance of the
installed equipment significantly improves the quality of long term
equipment performance. Correcting temperature, humidity,  ventilation,
or other indoor air quality variables becomes a design parameter where
the ESCO is responsible for achieving the  desired result.
PRODUCTIVITY.  Providing a healthy learning environment paid for
with utility bill savings makes economic sense.  The staff productivity
benefits from improved indoor air quality,  could easily pay for the cost
of school ventilation improvements within three years.7 The health and
learning efficiency benefits  for students make this an even better
investment.                     :
GUARANTEED SAVINGS, Monitoring of project performance and con-
tractual financial guarantees provide a strong incentive to the ESCO
7 Productivity Benefits Due to Improved Air Quality, Dorgan Associates {1995), p. 7.3.

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 to achieve and maintain predicted savings over the term of the contract.
 Studies of savings from projects where savings were not guaranteed,
 show that after five years an erosion of 50 percent of the projected
 savings is not unusual.  Energy performance contracts minimize life
 cycle costs and maximize net benefits.  Performance monitoring pro-
 vides the data to adapt equipment operations to changes in building
 conditions over time.           '•
 POSITIVE CASH FLOW.  Utility'cost savings in excess of project costs
 can be used for educational programs.
 ENVIRONMENTAL QUALITY. Improved energy efficiency leads to
 cleaner outdoor air because of reductions in demand for fossil fuel gen-
 erated energy. Depending on wrlere your facility is located, you may
 have the opportunity to bank air emissions credits or use the reduction
 of emissions in.a future state or federal trading program which creates
 additional economic value.      ;
                              i
 ECONOMIC: DEVELOPMENT. Economic development benefits from the
 use of local installation subcontractors includes the creation of jobs and
 contributes to local economic growth.
    A comprehensive energy effipiency retrofit is tailored to the particu-
lar facility and takes advantage of all economically feasible opportuni-
ties for energy savings and environmental improvements.
              Will reducing energy consumption and
        energy costs compromise comfort in schools?
    Energy use and costs can be reduced while improving comfort
through a combination of energy efficiency measures.
    Replacing existing equipment with high efficiency equipment pro-
vides better overall performance with substantially reduced energy
input. The use of high efficiency; lighting and high efficiency HVAC
units is standard in most energy efficiency retrofits.
    Where occupancy and energy use varies over time, energy manage-
ment systems can be installed to control lights, heaters, air conditioners,
or motors automatically to maintain comfort and save energy.
    Building envelope improvements like better insulation and fixing
drafts from air leaks can improve comfort levels and save energy.

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       Why is comprehensiveness important?
 Shouldn't we just do a small1 lighting project first?
    A comprehensive energy efficiency retrofit combines
 some or all of the previously discussed approaches to
 achieve the maximum economically feasible level
 of energy savings available in a building.
 A comprehensive retrofit also permits shorter pay-
 back on some technologies, such as lighting, to help
 support the cost of longer payback items, such as
 HVAC equipment.  Savings in one school can be
 used to subsidize costs of improvements in other
 district buildings. A comprehensive performance
 based retrofit provides the greatest financial lever-
 age to pay for new equipment from energy savings.
             Why is it so important to measure
                     and monitor savings?
    Annual verified energy cost savings from an energy efficiency
 retrofit provide proof of the value'of the project. In order to ensure that
 energy and cost savings persist, energy efficiency measures must be
 properly maintained. In many cases, these measurement, monitoring,
 and maintenance services may be paid for out of the energy savings
 produced by the project.
                What do ESCQs bring to the table?
    ESCOs act as project developers and perform a wide range of tasks:
 ^  Develop, design, and finance energy efficiency projects.
 $  Install and maintain the energy efficiency equipment.
 $  Measure, monitor, and verify the project's energy savings.
 f  Assume the risk that the project will save the amount of energy
    projected.
         What qualifications should a school facility
              look for when choosing an ESCO?
    An ESCO should be capable of performing all or most of the full
range of services associated with the business of energy efficiency proj-
ect development, including:      ;
 $  Assessing a facility's current energy use (performing an energy
    audit).                     :
 $  Preparing proposals describing technical improvements in energy
    use, as well as the general contract terms and how the improve-
    ments would be financed.

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   nadequate infrastructure maintenance, wasted energy, and
   poor indoor air quality (IA;Q) in schools reduce the quality of
    *'                      !
   the learning environment.  Energy performance contracting
provides an innovative solution by using utility cost savings to
pay for new efficient equipment, while also enabling schools to
save energy, generate dollar savings,
and improve indoor air quality.
   Performance contracting is
an ideal way to upgrade deterio-
rating school energy systems. \
It offers capital con-
strained facilities,
like schools, the
opportunity to
obtain the technical
expertise and financing
to replace and upgrade
their infrastructure and
to pay for these
improvements
through
energy savings. In addition,
Energy Service Companies (E|SCOs) assume the risk of perform-
ance of the technologies installed and guarantee the schools a cer-
                           I
tain level of energy cost savings which, at a minimum, will cover
the costs of equipment and financing.
   It is estimated by the National Association of Energy Service
Companies (NAESCO) that more than $2 billion in energy
improvements have already been financed and installed using
performance contracts in 4,000 schools nationwide.

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    The cost to maintain a healthy learning environ-
ment increases every year.  Shrinl^ing budgets, reluc-
tant taxpayers, rising enrollments,; and aging buildings
ensure that deferred facility maintenance becomes
ever more costly to correct.  The national estimates
of deferred maintenance and repairs in schools
quadrupled from $25 billion In 19.83 to over $100
billion in 1991.'                  ;
    Reduced equipment maintenance and repair increases
long term costs because inefficient equipment wastes ener-
gy, does not last as long, and fails| more frequently.  Poor
design, operation, and maintenance of controls con-
tributes to 75 percent of indoor air quality problems.2 It
is estimated that about 70 percent jof all school buildings
are unhealthy due to indoor air quality problems.3 Poor
control of lighting, temperature, and ventilation reduces productivity
due to increased discomfort, sickrjess, and absenteeism.4  Studies have
shown that the quality of the learning environment has  a direct effect on
the quality of education. Students; in schools in poor condition scored
11 percentage points lower on standardized tests than students in
schools in good physical condition.5
    Other consequences of poor indoor environmental quality include
increased long term health problems like asthma, rapid spread of infec-
tious  diseases, and potential school district liability risks from lawsuits
brought by parents or teachers.6 The U.S. Environmental Protection
Agency (EPA) has identified some key reasons for the prevalence of
poor indoor environmental quality in schools:
4  Schools can have four times the number of occupants per square
    foot as  offices.                ;
$  Schools often contain a wide variety of pollutant sources such
    as chemicals, dust, and molds,1
$  Many schools have multiple aging heating, ventilation, and air con-
    ditioning (HVAC) systems wijth differing maintenance requirements
    and inadequate funding to maintain them.
1  School/muse in the Red: A Guidebook for Cutting Our Losses, by Shirley Hansen, American Association of Administrators (1992), p. 11.
2  "HVAC'System Automatic Controls and Indoor Air Quality in Schools," Technical Bulletin, Maryland State Department of Education (1996), p. 2.
3  Productivity Benefits Due to Improved Air Quality, Dorgan Associates (1995), p. 3.7.
4  Ibid. p. 4.9.                           ;
5  Schoollwuse in the Red: A Guidebook for Cutting Our Losses, by Shirley Hansen, American Association of Administrators (1992), p. 6.
6  "An Air of Concern," by Terry E. Singer, Tanja Shonkwiler, and David Birr, American School & University, May 1998, pp. 40-46.

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Engineering a project and specifying the equipment to be installed.
Financing or arranging financing for the project's construction.
Procuring equipment and providing for its installation.
Providing the means to verify and monitor energy savings.
Maintaining the project equipment over the life of the performance
contract.                  ;
Preparing reports for the facility owner or manager detailing energy
cost savings generated.     \
Have the ESCO help you evaluate pollutant source management
strategies (avoid buses idling near outdoor air dampers, keep chemi-
cals out of rooms with HVAC equipment, relocate outdoor air
intakes and exhaust vents).  '
Ask the ESCO to include design options to ensure that local
exhausts for dark rooms, science labs, housekeeping storage areas,
or printing and duplicating rooms, exist.
Require that ventilation rates! meet current industry design standards
for schools and design systems to ensure adequate minimum
ventilation rates, reduce uncontrolled air leakage, and maximize
economizer cycle.          ;
Consult with the ESCO about scheduling maintenance to minimize
occupant exposures to cleaning, painting, and chemicals.
Consult with the ESCO about air cleaning using filters with high
dust spot efficiencies, HVAC equipment maintenance, and duct
system and fan coil cleaning.;
Consult with the ESCO about proper design of drain pans to control
moisture problems.         :
Have the ESCO provide proper design, operation, and maintenance
of HVAC equipment and controls required to meet indoor air
temperature and humidity standards.
Have the ESCO provide thorough testing, balancing, and commis-
sioning of HVAC systems arid controls.
Have the ESCO provide schqol staff training on proper operation
and maintenance.

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4  Install electronic fluorescent lighting ballasts to
   eliminate flicker and reduce eyestrain, thereby
   improving the visual environment.
   Repair HVAC motors, ductwprk, and controls to
   reduce noise levels which improve the acoustical
   environment.
   Provide new temperature controls and improved ventilation systems
   to eliminate hot and cold spots and avoid temperature swings which
   significantly improves the comfort of the thermal environment
   £ro7vif Pr°Per combustion air to furnaces and boilers and eliminate
   back drafting of carbon monoxide to improve air quality.
   Design HVAC systems so that convenient access to moving parts
   and filters permits effective maintenance and repairs which helps
   maintain indoor air quality.   !
   Design HVAC systems to control moisture in conditioned air and to
   have good drainage to prevent!moisture problems that contribute to
   bacteria and mold growth.    ;
  Provide a preventative maintenance program to maintain the HVAC
  equipment efficiency which improves indoor air quality, increases
  energy savings, and extends the life of the equipment.
  Assure effective filtration of air to help control microbes and dust
  This improves the efficiency of HVAC equipment and indoor air '
  quality in a very cost  effective way.
  Request an energy management and control system which allows
  centralization of the control of multiple buildings and monitoring
  equipment operation from remqte monitoring locations.  This feed-
 back on HVAC systems performance  allows prompt corrective
 adjustments and cost effective targeting of maintenance resources.
 Properly design and maintain variable air volume systems to main-
 tain adequate ventilation rates. '
 Standardize and modernize controls and eliminate inaccessible or
 malfunctioning controls. This improves control of temperature
 humidity, and ventilation.

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     The Indoor Air Quality Tools for Schools Kit, developed by the U.S.
 Environmental Protection Agency, provides clear and easy guidance
 designed to prevent and solve many IAQ problems with minimal cost.
 It describes practical actions that jean be carried out by the school staff.
 Many of the ideas can also be applied by engineers and architects
 during school energy projects or when planning new schools.
        Duxbury Public Schools, Duxbury, Massachusetts8
    The four buildings in the Duxbury Public School system project
were built between 1940 and 1970 and include a total of 480,000 square
feet.  Due to tax caps, Duxbury Public Schools had a very limited budg-
et for maintenance and capital improvements.  The capital equipment in
the buildings, particularly  the high school, had deteriorated to a point
beyond repair.                  ,
    In recent years, indoor air quality in the school buildings became a
significant public  issue for the School District. Insufficient outdoor air
supply was due to many nonfunctioning outside air dampers and nonop-
erating exhaust and return air fans. The lack of adequate ventilation
resulted in high carbon dioxide levels in excess of 1,000 parts per mil-
lion (ppm), excessive humidity, and the growth of molds and fungi.  A
leaking roof resulted in moisture damage to ceiling tiles which con-
tributed to mold and fungi contamination of the indoor air.
    When Duxbury solicited proposals to address its air quality prob-
lems, NORESCO  (an ESCO headquartered in Framingham,
Massachusetts) proposed a projecj; that addressed both energy use and
indoor air quality.  After selection and contract negotiation, NORESCO
conducted a comprehensive energy audit and undertook project design

8  Duxbury Public Schools, 130 St. George Street, Duxbury, Massachusetts 02332; NORESCO, Point West Place, 111 Speen Street,
Framingham, Massachusetts 01701. Edited from The Energy Services Industry: Revolutionizing Energy Use in the United States, by
Jessica S. Lefevre, NAESCO (1996), p. 27. Phone interview with John Rizzo', Vice President of Performance Contracting,
NORESCO conducted April 1999, provided additional details:

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and installation, which met the School District's need to address its
indoor air quality problems.
    The measures implemented by NORESCO included an energy
efficient lighting retrofit, installation of energy efficient motors and
variable speed pumping systems, installation of a centralized energy
management system, conversion of two of the school buildings
from electric to oil heat, and upgrades to ventilation systems in
various buildings.
    NORESCO repaired or replaced air dampers, exhaust, and return air
fans and all the controls on air handlers and unit heaters. These renova-
tions of the HVAC system resulted in a contractually guaranteed mini-
mum ventilation rate of 20 cubic feet per minute (cfm) per student.
Providing the proper amount of outside air, repairing the roof leaks, and
replacing moisture damaged ceiling tiles addressed the problem of
excess humidity and mold growth1. The NORESCO full service mainte-
nance contract provides assurance of timely repairs and effective
operation of the HVAC system.
    To monitor the long term effectiveness of their indoor air quality
improvements, NORESCO monitors every classroom once each quarter
with a calibrated carbon dioxide monitor to verify that levels are below
1,000 ppm. If any room is found to exceed that level, adjustments to
the HVAC system are made to increase outside air ventilation.
    The conversion to oil heat in the two buildings with the most acute
indoor air quality problems enabled NORESCO to bypass the seriously
degraded ventilation systems, the principal source of the air quality
problem, while reducing Duxbury;'s energy bill. The longer payback for
the new heating systems is cross-subsidized by the short payback on the
lighting retrofit.  Savings in one  building were used to help pay for the
improvements in other buildings. : In addition to the improved indoor
air quality, the project produced  energy savings of 2.4 million kWh
per year.    '                  !
    The resulting $2.7 million project, financed through a third party
brought in by NORESCO, is being paid by the School District under a
10 year shared savings contract.  Duxbury bought new equipment and
improved  indoor air quality  with no up front capital cost. During the 10
year contract period, NORESCO guarantees Duxbury energy cost sav-
ings of $271,900 per year will pay for the project. They also provide
ongoing maintenance, as well as measurement and verification  of
Duxbury's energy savings.
    Other examples of similar successful projects undertaken at school
facilities can be found in The Energy Services Industry: Revolutionizing

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 Energy Use in the United States and Reducing Operating Costs and
 Improving the Student Learning Environment.
    NAESCO and EPA Radiation and Indoor Environments National
 Laboratory (Las Vegas) have conducted a pilot program examining how
 energy efficiency retrofits can best include indoor air quality improve-
 ments. ONSITE SYCOM Energy Corporation, Honeywell Inc., and
 Energy Masters International are jthe participating ESCOs.
    The ESCOs listened and responded to school concerns in designing
 their IAQ solutions and developed effective projects. The pilot program
 identified microbial contamination, noise, control, sensor calibration,
 and exhaust air system problems,:which were addressed by the HVAC
 retrofits installed by the participating ESCOs.
 Commissioning the complete HVAC system,
 testing the EMS system, auditing jthe air
 balance and assessing noise levels were part of
 the performance testing provided |to the schools.
 Training of school maintenance staff was
 crucial to completing projects that performed
 well over time.
    A list of NAESCO accredited: energy
 service companies can be found on            >
 http://www.naesco.org or by contacting
 NAESCO at (202) 822-0950.   j
    Energy performance contracts;
provide an innovative financial solution to
the challenge of maintaining a healthy
learning environment.  By using utility bill
savings to pay for new high efficiency
equipment and ensure proper maintenance,
the project pays for itself. Improvements in the comfort, health, and
productivity of the school environtnent provide additional benefits for
students, teachers, adminstrators, and taxpayers.

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               1.  Schoolhousein the Red: A Guidebook for Cutting
                   Our Losses, by Shirley Hansen, American
                   Association of School Administrators (1992).
                   2.  Productivity Benefits Due to Improved Indoor
                       Air Quality, Dorgan Associates (1995).
                           3.  The Energy Services Industry:
                             Revolutionizing Energy Use in the
                           United States, by Jessica S. Lefevre,
                    NAESCO (1996).
            HVAC System Automatic Controls and Indoor Air Quality
            in Schools Technical '^Bulletin, Maryland State Department
            of Education (1996).
5.  The Energy Efficiency Project-Manual: The Customer's Handbook
    to Energy Efficiency Retrofits :\ Upgrading Equipment While
    Reducing Energy Consumption and Facility Operations and
    Maintenance Costs, by Jessica S. Lefevre, NAESCO (1997).
6,  Indoor Air Quality Tools for Schools Kit, EPA (1998).
7.  A Review of the Energy Service Company Industry in the United
    States, by Richard D. Cuclahy and Thomas K. Dreessen, NAESCO
    (1996).
8.  "An Air of Concern," by Terry E. Singer, Tanja Shonkwiler, and
    David Birr, American School &.  University, May 1998.
9.  Reducing Operating Costs and Improving the Student Learning
    Environment, by Jessica S. Lefevre, NAESCO (1999).

4  For information on NAESCO publications, call (202) 822-0950.
4  For information on EPA's Indoor Air Quality Tools for Schools Kit,
    call the Indoor Air Quality Information Clearinghouse at
    1-800-438-4318 or (202) 512-1800.
4  Visit NAESCO's web site at http://-mvw.naesco.org for a list of
    ESCOs and other helpful information.
4  Visit EPA's web site at http://www.epa.gov/iaq.

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