A Simple Example to Introduce the Basic Financial Arrangements 89Pre-qualify the customer. Prequalification criteria should be es-
tablished; the customer’s organizational, technical and financial data
should be carefully collected, validated, and evaluated.
Conduct an investment-grade audit. The typical energy audit as-
sumes that conditions observed in the audit will stay the same for the
life of the equipment and/or the project. An investment-grade audit
assesses administrative risks, operation and maintenance risks and the
impact these risks will have on the project’s savings over time. An in-
vestment-grade audit also considers the time value of money. Projected
payback calculations, for example, discount the value of the dollars
saved each year for the life of the project. A typical four-year payback,
for example, can easily become 5+ years in the real value of dollars
saved, thus changing the dynamics of the cost effectiveness calcula-
tions. Further, the investment-grade audit incorporates the cost of risk
mitigation in payback calculations. It also recognizes that facilities and
processes are critical portions of an organization’s investment portfolio.
The investment grade audit, therefore, offers the owner a guide in ways
to enhance the work environment and the value of the portfolio. A list
of measures that save energy but do not address the workplace condi-
tions is no longer sufficient.
Establish sound baseyear data. Baseyear data are more than the
average energy consumption over the last two or three years. They also
consider existing conditions and what was happening in the facility or
industrial process during that period. Hours of occupancy, level of oc-
cupancy, run times, etc., all become critical issues that must be verified
prior to project implementation and signed off on by both parties. How
these variables are adjusted to establish an annually adjusted baseline
for reconciliation purposes is critical.
Secure a solid contract fair to all parties. Sometimes ESCOs get a
little too zealous in managing their risks. For example, the following
paragraph, nearly a deal stopper, was put into a draft contract in caps:
IN NO EVENT SHALL [THE ESCO] BE LIABLE FOR ANY SPECIAL, INCI-
DENTAL, INDIRECT, SPECULATIVE, REMOTE OR CONSEQUENTIAL DAM-
AGES ARISING FROM, RELATING TO, OR CONNECTED WITH THE WORK,
THE SUPPORT SERVICES, EQUIPMENT, MATERIALS, OR ANY GOODS OR
SERVICES PROVIDED HEREUNDER.
After months of discussion, the paragraph was finally dropped
and the project moved ahead.