Trane Energy Solutions Presentation to: Simplification and Operations Committee Meeting

1. Trane Energy Solutions Presentation to:Simplification and Operations Committee Meeting August 4, 2010

2. Who is Trane? • Largest ESCO in Virginia with 700+ Virginia-based employees • 40+ Engineers in the Virginia District • 14 LEED Accredited Professionals • 11 Certified Energy Managers / Auditors • The world’s largest HVAC equipment and controls manufacturer • First in Performance Contracting among HVAC manufacturers (over $500MM)

3. In Virginia, our energy conservation work saves … • Over $3,040,000 every year for state institutions and agencies (guaranteed) • Over $8,600,000 every year for public sector clients in Virginia (guaranteed) • Emissions equivalent to planting 1,345 acres of forest or taking 820 vehicles off the road Much of this work has been accomplished through Energy Savings Performance Contracting

4. Impact • Our work supports the Commonwealth’s Energy plan and : • EO-21 “Qualified Energy Conservation Bonds” • EO-48 “Energy Efficiency in State Government” • EO-82 “Greening of State Government” • EO-54 “Energy Conservation by State Agencies” • EO-33 “Enhancing Opportunities for Small, Women and Minority Owned Businesses” • We believe there is more opportunity

5. PC in a nutshell • Work with customer to identify energy and other waste, deferred maintenance, and repair/service needs. • Quantify costs to implement and the energy and operational savings that result from implementation • Use those savings to pay for the financing of the implementation • Guarantee the savings to ensure cash flow stream for meeting agency financial obligation. • No impact on Agency’s (thus Commonwealth’s) budget; PC must be budget neutral • PC is a great investment !! It uses operating expenses to fund capital improvements that are guaranteed to perform.

6. Dept. of Behavioral Health and Developmental Services:Southside Virginia Training Center Substantial customer need: • Aged infrastructure • Large deferred maintenance backlog • Overdue capital improvements Project Size: $14,369,070 Guaranteed Annual Utility Savings: $1,377,478

7. Lighting Retrofits Chiller & Boiler Replacements Building Management Systems Chiller Plant Optimization Water Treatment HVAC Renovation and Refurbishment Waste Heat Recovery Demand Control/Response Building Envelope Improvements Distributed & Renewable Energy Energy Star, LEED, and other benchmarking and certification Typical Energy Conservation Measures

8. How PC Funding Solution Works • Reduce the operating budget • Fund capital improvements from these savings • Guarantee the savings to facilitate financing Savings UtilitySavings Project Payment $ Project Implementation OperationalCosts OperationalCosts OperationalCosts

9. PC and PPEA Options

10. Good intentions, but . . . • Legislative intent:“It is the policy of the Commonwealth to encouragepublic bodies to invest in energy conservation measures and facility technology infrastructure upgrades…” • Good opportunities remain to leverage utility expenses to upgrade state agencies and institutions, especially higher education. ~ $500,000,000 • These projects create local and state revenues via green jobs, state income taxes, use taxes, sales taxes, permit fees, and other means. • January 2nd, US EPA will begin regulating GHG emissions. Impact is unquantifiable, however, there is general consensus that energy prices are likely to rise • Barriers remain to the optimal use of the Commonwealth’s energy programs. We suggest the following …

11. Recommendations for Improvement • Adopt recommendations included in the “Commonwealth of Virginia Energy Operational Committee Final Report” dated 15 September 2007, specifically best practice #1, “the creation of a central organization with the mission to reduce energy consumption and costs associated with energy”. • Differentiate debt for PC and energy conservation based PPEA projects from other capital projects. These programs are self-financed via operational savings and are budget neutral. The savings are guaranteed (and bondable). • Unleash the full potential of the 20 year financing term permitted by §11-34.3. Only 12 and 15 year terms have been offered by Treasury. Structure deals such that the first payment by the agency customer is due twelve months after the completion of the project, not twelve months after initiation of the financing (just like a home construction loan).

12. Recommendations continued . . . • Encourage the use of alternative financing. Build America Bonds currently offer a substantial price advantage vs. VELP, as an example. • Monetize tax and other credits and get creative on the financing options for improvements to state real estate assets. Example: federal energy tax credits, renewable energy credits, historical building tax credits, energy efficient building property tax classification, etc.

13. Recommendations continued…. • Leverage the investment in FICAS to identify the worst-performing facilities. Benchmark those facilities and require any in the bottom quartile to make improvements. • Allow limited new construction in PC projects (boiler houses, mechanical rooms, pump houses, water towers, etc.). We have abandoned what were fundamentally good deals for the Commonwealth due to this limitation (§11-34.4) Performance Benchmarking

14. Recommendations continued…. • New state projects are currently designed to a LEED Silver or equivalent standard, meaning that building energy modeling is performed. Require that new central plants (chillers/boilers/etc.) for the project be evaluated on a ten year life cycle cost rather than first cost. Consider requiring guarantees on this performance for large projects. • For state institutions and agencies: Mandate that electrical utilities purchase power generated by renewable energy at 90% or more of the twelve month average electrical purchase price paid by the customer – currently, for some utilities and customers, it’s about half that rate. • Align the incentives of building owners and occupants. Require energy conservation efforts by state landlords and benchmark leased real estate.