The following article is featured in the June 2014 Newsletter of MASBO – the Minnesota Association of School Business Officials. Click here to link to the newsletter. 


By Gary Sabart, TSP

What’s in your wallet? Some hard earned cash, or maybe a thick clump of receipts? Whichever condition your wallet may favor, you likely have heard this question posed by actor Samuel L. Jackson in Capital One commercials promoting its new cash-back rewards credit card. From the onslaught of these commercials to making purchases at grocery stores, gas stations, restaurants, and department stores, it’s evident how popular reward programs have become. School districts are not exempt from this saving and reward trend. Districts can cash in on being green, while at the same time saving green.

Good Habit-forming Behavior

Businesses set up reward programs to attract more of your business through incentive-laden programs creating “buy-in” for the their products or services. The more you purchase, the more you save, or the more rewards you earn. Reward programs can also create “buy-in” and be an incentive to changing behaviors for important energy conservation or recycling initiatives in schools. Districts can organize energy conservation challenges between schools with the building that saves the most energy being rewarded with a pizza or ice cream party. Of course, not all efforts need to entice participants with pizza or a reward to make a positive impact. Oftentimes, educating people to do the right thing by conserving energy and consequently saving money is reward enough.

Several companies offer programs to encourage behavior change to conserve energy. These programs provide resources to educate and engage all stakeholders, and tools to measure and track savings. One local program has been implemented in more than 800 schools in seven states including Minnesota, helping districts reduce energy usage and collectively avoid more than $34 million in energy costs.

Energy Savings Performance Contracts

Energy savings performance contracts (ESPC) are a method for school districts to implement large energy conservation measures (ECMs) through a third-party Energy Service Company (ESCO). ESPCs are typically executed for larger school buildings or a set of buildings with a project cost greater than $500,000. The table summarizes some of the advantages and disadvantages of energy savings performance contracting.


Advantages of Performance Contracting

Disadvantages of Performance Contracting

Accountability. The performance contractor is the single point of financial and technical accountability for all project measures.

Long contract term. Performance contractors typically seek arrangements that last from 5 to 10 years, a duration that can be problematic for some local governments.

Risk reduction. By guaranteeing a minimum level of performance, the contractor takes away much of the risk for non-performance of the project from the building or facility owner.

Higher project costs. Costs associated with the performance guarantee and other services will typically increase the overall cost of a project by 10 percent or more over an in-house approach.

No capital outlay. A performance contract eliminates the need for the owner to make capital investments. All contractor outlays are considered off-balance-sheet costs to the building owner.

Comparative evaluations. Because services, features, and guarantees may vary significantly among performance contractors, comparing their offerings may be difficult.

Levelized cash flow. Generally, payments are structured to maintain a constant fee schedule funded fully or in part from the savings the owner realizes.


 Source: Guide to Financing EnergySmart Schools, U.S. Department of Energy, Page 25.