[Federal Register Volume 59, Number 69 (Monday, April 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8594]


[[Page Unknown]]

[Federal Register: April 11, 1994]


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Part XI





Department of Energy





_______________________________________________________________________



Office of Energy Efficiency and Renewable Energy



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10 CFR Part 436




Federal Energy Management and Planning Programs; Proposed Rule
DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 436

[Docket No. EE-RM-94-201]

 
Federal Energy Management and Planning Programs

AGENCY: Department of Energy.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of Energy (DOE) proposes to amend its Federal 
Energy Management and Planning Programs regulations with regard to 
energy savings performance contracts for existing Federally owned 
buildings. Such contracts typically provide for installation of energy 
conservation measures with private sector funds which are repaid out of 
the resulting energy cost savings over time. Today's proposed rule 
covers the following topics as required by section 801 of the National 
Energy Conservation Policy Act qualified contractor lists; procedures 
and methods to select, monitor, and terminate contracts; and substitute 
regulations for provisions in the Federal Acquisition Regulation which 
are inconsistent with section 801 and the relevant terms of which can 
be varied, consistent with their authorizing legislation, in order to 
carry out the intent of section 801.

DATES: Written comments (6 copies) must be received by DOE on or before 
June 10, 1994. A public hearing will be held on June 1, 1994, beginning 
at 9:30 a.m. at the address listed below. Requests to speak must be 
received on or before May 27, 1994.

ADDRESSES: All written comments (6 copies), as well as requests to 
speak at the public hearing are to be submitted to: U.S. Department of 
Energy, Office of Energy Efficiency and Renewable Energy, EE-44, Notice 
of Proposed Rulemaking for Energy Savings Performance Contracts, EE-RM-
94-201, 1000 Independence Avenue, SW., Washington, DC 20585, 202-586-
3012. FAX comments will not be accepted. The public hearing will be 
held in room 1E-245, U.S. Department of Energy, Forrestal Building, 
1000 Independence Avenue SW., Washington, DC 20585.

FOR FURTHER INFORMATION CONTACT: Joan Stone, EE-44, U.S. Department of 
Energy, 1000 Independence Avenue SW., Washington, DC 20585, 202-586-
5772.

SUPPLEMENTARY INFORMATION:

I. Introduction

Background

    Section 155 of the Energy Policy Act of 1992 (Pub. L. 102-486) 
revised the legislatively mandated policies with regard to energy 
saving performance contracts originally set forth in sections 801-804 
of National Energy Conservation Policy Act (Act). Section 801 
specifically authorizes the head of a Federal agency to enter into such 
a contract for a term not to exceed 25 years. It also provides that 
such a contract contain provisions requiring the contractor to ``* * * 
incur costs of implementing energy savings measures, including at least 
the cost (if any) incurred in making energy audits, acquiring and 
installing equipment, and training personnel, in exchange for a share 
of any energy savings directly resulting from implementation of such 
measures during the term of the contract'' (42 U.S.C. 8287(a)(1)). In 
addition, the Act specifically authorizes payment of amounts required 
by an energy savings performance contract ``* * * only from funds 
appropriated or otherwise made available to the agency * * * for the 
payment of energy expenses (and related operation and maintenance 
expenses)'' (42 U.S.C. 8287a). Periodic reporting on progress by 
Federal agencies in modifying contract practices and in achieving 
energy savings under contracts is mandated by section 803 of the Act 
(42 U.S.C. 8287b). Definitions pertinent to sections 801-803 are set 
forth in section 804 of the Act (42 U.S.C. 8287c).
    Section 155 of the Energy Policy Act revised sections 801 and 804 
of the Act by elaborating on the policies originally enacted and by 
requiring issuance of appropriate rules containing: (1) Methods and 
procedures for selecting, monitoring, and terminating energy savings 
performance contracts; and (2) ``substitute regulations'' for 
provisions of the Federal Acquisition Regulation which are inconsistent 
with the intent of section 801 as amended and which may be revised 
accordingly consistent with generally applicable procurement statutes. 
Such contracts, which may be for a term not to exceed 25 years, are 
designed to reduce the cost of energy in Federal buildings without 
capital investment by the building owner. Typically, the terms of such 
a contract provide for contractor purchase, installation, and 
maintenance of energy conservation measures with a guarantee of annual 
energy cost savings in consideration for a share of such savings. Often 
the contractor obtains third-party financing from a source which 
requires adequate assurance of repayment. ``Under these contracts, the 
contractor is expected to bear the risk of performance, make a 
significant initial capital investment, guarantee significant energy 
savings to the government agency, and from these savings, the agency, 
in effect, makes payment to the contractor.'' (1992 U.S. Code 
Congressional and Administrative News 2476). The Act requires that the 
Federal Acquisition Regulatory Council established under section 25(a) 
of the Office of Federal Procurement Policy Act (41 U.S.C. 421) concur 
in the final rule. The Federal Acquisition Regulatory Council has 
reviewed this notice and has no objection to the issuance of this 
proposed rule for the purpose of obtaining public comments.
    Concurrent with preparation of this proposed rule, DOE has 
developed model solicitations providing uniform formats and 
standardized contract provisions recommended for Federal agency use in 
energy savings performance contracts. The model or generic 
solicitations include some provisions that have been determined 
necessary to accommodate the unique nature of energy conservation 
services which often require third-party financing. Copies of the model 
solicitations will be placed in the DOE Freedom of Information Reading 
Room for public examination.
    DOE is also drafting a ``How To'' manual to provide detailed 
standardized guidance for Federal agency facility managers and 
procurement officers. The manual will cover energy savings performance 
contracting concepts, project development procedures and tools, 
acquisition planning procedures, guidelines for adapting model 
solicitations, and techniques and tools to administer contracts after 
award. The methods and procedures addressed in the model solicitations 
and the manual will be incorporated into DOE-sponsored training 
workshops.

II. Examination of Substitute Regulations

    As noted above, section 801(b) of the Act provides that the 
Secretary of Energy, with the concurrence of the Federal Acquisition 
Regulatory Council, shall determine which existing regulations are 
inconsistent with the intent of section 801 and formulate ``substitute 
regulations'' consistent with the laws governing Federal procurement.
    DOE has examined certain provisions of the Federal Acquisition 
Regulation (FAR), which are codified at title 48 of the Code of Federal 
Regulations (48 CFR), and related Federal procurement laws which have 
been cited by private sector interests as disincentives to energy 
savings performance contracts. The private sector contends that these 
provisions increase the cost and reduce the economic feasibility and 
attractiveness of entering into energy savings performance contracts 
with Federal agencies. The following is a summary of DOE's analysis of 
these provisions and of the appropriateness of formulating ``substitute 
regulations'' in light of the direction in section 801(b) of Act.

Requirement for Cost or Pricing Data

    A contractor is required to provide certified cost or pricing data 
for any negotiated contract (or contract modification) if the contract 
price is expected to exceed $100,000 (41 U.S.C. 254, implemented at 48 
CFR subpart 15.8). The requirement for the submission of such data is 
intended to ``enable the Government to perform cost or price analysis 
and ultimately enable the Government and the contractor to negotiate 
fair and reasonable prices'' (48 CFR 15.804-1(a)). The FAR sets forth 
detailed guidance and direction on the cost elements and the breakdowns 
for each element which are to be furnished and certified by a 
prospective contractor. It also prescribes the consequences for the 
contractor if it is determined that ``inaccurate, incomplete, or 
noncurrent'' data has been provided (48 CFR 15.804-7).
    Since an energy savings performance contract is likely to result in 
payments by the Federal agency to the contractor in excess of $100,000, 
the requirement for certified cost or pricing data would apply unless 
the contract qualifies for one of the exceptions set out in the 
statute. The available exceptions include ``* * * exceptional cases, 
where the agency head determines that the requirements of this 
subsection may be waived and states in writing the reasons for such 
determination'' (41 U.S.C. 254(d)(5)(B); see also section 801(b)(1)(A) 
of the Act).
    DOE has preliminarily concluded that the requirement in 41 U.S.C. 
254 for submission of certified cost or pricing data is inconsistent 
with the intent of section 801 and that energy savings performance 
contracts are an ``exceptional case'' under 41 U.S.C. 254(d)(5)(B) 
which warrants a waiver from the requirement. These contracts are 
unique in a number of ways. Under these contracts, the contractor 
assumes all of the risk by making the initial capital investment 
required to perform the contract, guaranteeing a certain level of 
energy savings and tying its compensation to a percentage of that 
guaranteed savings. Unlike traditional government contracts, payments 
to the contractor are based solely on the energy savings realized by 
the Federal agency, not on successful completion of the work or the 
costs incurred in performing the work.
    While solicitations for energy savings performance contracts may 
request information on a prospective contractor's estimated costs, this 
information will be used for limited purposes in the evaluation of 
proposals. The nature and extent of the cost data required under FAR 
Subpart 15.8 and the penalties for providing inaccurate or incomplete 
data appear to be inappropriate and unduly burdensome in the case of a 
contract under which the government incurs no real ``cost'' but merely 
agrees to pay the contractor out of the energy savings which result 
from the contractor's work. Consequently, DOE is proposing to waive the 
requirement for submission of certified cost or pricing data in the 
case of energy savings performance contracts.
    DOE's preliminary conclusion regarding the requirement for 
certified cost or pricing data is reflected in proposed Sec. 436.33. 
DOE is interested in public comment on the preliminary conclusions set 
forth above and on how the requirement for cost or pricing data impacts 
the economic attractiveness of energy savings performance contracting 
with Federal agencies.

Cost Accounting Standards

    The requirement for contractors to comply with cost accounting 
standards arises from 41 U.S.C. 422(f)(2) and its implementing 
regulations at 48 CFR chapter 9900. The cost accounting standards 
statute and implementing regulations authorize exemptions for classes 
or categories of contractors and subcontractors from cost accounting 
standards requirements and also provide waiver authority for individual 
contracts and subcontracts. (41 U.S.C. 422(f)(4)).
    The Cost Accounting Standards Board has recently amended certain of 
its provisions, including one of the exemptions from cost accounting 
standards requirements (58 FR 58798, November 4, 1993). The amended 
provision, 48 CFR Sec. 9903.201-1(b)(15), provides an exemption from 
the cost accounting standards requirements for firm fixed-price 
contracts when the requirement for submission of certified cost or 
pricing data has been waived. In the Department's view, energy savings 
performance contracts are firm fixed-price contracts because the 
payment (or price) to the contractor is not subject to adjustment based 
solely on the contractor's cost experience in performing the contract.
    Consequently, the Department's proposal to waive the requirement 
for certified cost or pricing data (see proposed Sec. 436.33) would, if 
adopted in the final rule, result in an exemption for energy savings 
performance contracts from the requirement to comply with cost 
accounting standards. This exemption would apply in the case of a 
waiver from the requirement for certified cost or pricing data even if 
a Federal agency's solicitation requests some cost information from 
prospective contractors.

Davis-Bacon Act

    The Davis-Bacon Act (40 U.S.C. 276a-276a-7), implemented at 48 CFR 
Subpart 22.4, applies to contracts in excess of $2,000 involving 
construction, alteration, or repair of a public building. It provides 
that no laborer or mechanic employed directly on the site of the work 
receive less than the prevailing wage rates as determined by the 
Secretary of Labor. The statute does not authorize any exceptions or 
waivers to this requirement.
    By limiting DOE authority under section 801(b) of the Act to 
promulgation of ``substitute regulations * * * consistent with the laws 
governing Federal procurement,'' Congress clearly indicated that it did 
not intend to authorize DOE regulatory exceptions to FAR provisions 
based on statutes which do not provide for exceptions or which have a 
limited list of exceptions inapplicable to energy savings performance 
contracts and do not authorize the regulatory creation of other 
exceptions. The foregoing preliminary conclusions have been influenced 
by this understanding of the law. Members of the public are invited to 
comment on those preliminary conclusions and on other FAR provisions 
not discussed above in which a case can be made that the regulations 
are likely to be a disincentive to participation by a significant 
number of potential energy savings performance contractors.
    Although not specifically required by section 801 of the Act, DOE 
anticipates putting a case to the Federal Acquisition Regulatory 
Council for amending the Federal Acquisition Regulation to incorporate 
special provisions for energy savings performance contracts. It is 
preferable for all acquisition regulations to be incorporated in the 
Federal Acquisition Regulation to avoid confusion.

III. Section-by-Section Analysis

Section 436.30 Purpose and Scope

    This section consists of three paragraphs. Consistent with section 
801(c)(1) of the Act, the first paragraph provides that the subpart 
applies to energy savings performance contracts awarded within 5 years 
of the effective date of the rules. That paragraph also makes clear 
that the rules in the subpart apply notwithstanding any provisions to 
the contrary in the Federal Acquisition Regulation at title 48 of the 
CFR and any related Federal agency regulations such as the Department 
of Energy Acquisition Regulations (Provisions of the Federal 
Acquisition Regulation and agency-specific regulations dealing with 
subjects not covered by part 436 would continue to apply to energy 
savings performance contracts). A purpose of this paragraph is to 
ensure that contract specialists and contracting officers in Federal 
agencies follow a generally uniform approach which avoids confusion 
created by differing interpretations of existing procurement 
regulations.
    Paragraph (b) of proposed Sec. 436.30 is based on section 152 of 
the Energy Policy Act of 1992, which amends section 546 of the Act, 42 
U.S.C. 8256, by adding a new statutory paragraph encouraging Federal 
agencies to participate in utility incentive programs generally 
available to utility customers. Proposed Sec. 436.30(b) makes clear 
that proposed subpart B of 10 CFR part 436 does not restrict 
participation in such an incentive program.
    Paragraph (c) of proposed Sec. 436.30 encourages Federal agencies 
participating in utility incentive programs to require utilities to 
select contractors in a competitive manner to the maximum extent 
practicable and allowable by law. The promotion of competition is 
encouraged rather than required because DOE does not have statutory 
authority to issue substantive rules under section 546.

Section 436.31 Definitions

Energy Audit
    Section 801(a)(2)(A) of the Act specifically requires that an 
energy savings performance contract include requirements for an annual 
energy audit after contract award. There are many methods and measuring 
devices or instruments that may be used to assess the energy use in 
buildings. The proposed rules do not mandate specific energy audit 
requirements or standards. Rather, they allow each Federal agency to 
select or negotiate reasonable energy audit procedures consistent with 
the Act. Energy audit requirements will also depend on the energy 
savings requirements and recommended energy technologies. For example, 
facility energy consuming systems such as Heating, Ventilating, and Air 
Conditioning (HVAC) systems will require more comprehensive data 
collection and more complex data analysis during an energy audit than 
will lighting systems. The energy savings performance contracting ``How 
To'' manual will provide numerous recommended references on energy 
auditing tools and techniques for Federal agency use.
    The definition of ``energy audit'' does not specify audit 
procedures which must be followed prior to contract award or subsequent 
to contract award for the purpose of determining energy and cost 
savings which are likely to result from implementation of energy 
conservation measures. The reason for this omission is that the 
proposed rules would not impose generally applicable requirements with 
regard to the conduct of such an audit procedure. (To the extent that 
guidance in this regard is needed, Federal agencies can refer to the 
model solicitations and the ``How To'' manual.) Mandatory rules do not 
seem needed because the requirement for contractors to provide a 
performance guarantee places proposers under a strong incentive not to 
overstate claims of future energy cost savings.
    It should also be noted that Federal agencies will soon have at 
their disposal the results of the energy survey of a large, 
representative sample of Federal buildings and facilities as required 
by section 550 of the Act 42 U.S.C. 8260. The energy survey data may 
provide a basis for evaluating technical proposals.
Energy Baseline
    The energy baseline is the most critical and fundamental element of 
an energy savings performance contract. The energy baseline is used 
throughout the contract duration as a benchmark or reference to 
determine energy savings achieved as a result of the contractor's 
installed energy conservation measures. Energy baselines are 
established through energy audits conducted before facility retrofit. 
As indicated in the proposed definition of ``energy baseline'', such a 
baseline can be established using:

--Historical metered data.
--Engineering estimates based on calculation methods and formulas 
accepted and recognized by national organizations such as the American 
Society of Heating, Refrigeration, and Air Conditioning Engineers 
(ASHRAE) and the Illuminating Engineering Society (IES).
--Computerized building load simulation models to predict a facility's 
annual energy use from detailed data input on conditions of building 
construction and energy consuming systems. Personal computer based load 
simulation models such as DOE-2 and A Simplified Energy Analysis Method 
(ASEAM) are available to Federal agencies.
--Statistical regression analysis models. A regression analysis model 
depicts the statistical relationship between energy consumption and 
factors on which consumption is dependent, such as weather and facility 
occupancy. The model is in the form of a mathematical equation that 
expresses energy consumption as a function of those factors that best 
explain amounts of historical energy use. The regression model uses 
current values of energy use factors to predict facility energy use 
that would have occurred without the energy savings performance 
services.

    All energy savings performance contracts should include a procedure 
for adjusting energy baselines during the contract term. Facility 
energy utilization is dynamic and over a multiyear contract (5-10 years 
or more) can be expected to change due to causes not attributed to 
contractor energy conservation measures. For example, during an energy 
savings performance contract, the contracting agency retains the right 
to use its facilities as required to meet its mission. This right may 
result in changes from initial baseline conditions due to different 
facility use or occupancy or the addition or removal of energy-
consuming equipment.
    Some baseline methods, such as statistical regression models, are 
designed to adjust baselines if changes occur in occupancy or other 
such factors on which the baseline is dependent. However, all 
contingencies cannot reasonably be anticipated. Therefore, 
solicitations should incorporate a provision that triggers negotiations 
and equitable adjustments of initial energy baselines if Government-
caused changes affect total baseline energy use by more than 
1 percent.
    Although the proposed definition of ``energy baseline'' describes 
appropriate alternative methods for establishing a baseline, the 
proposed rules do not set forth specific requirements for selecting a 
method to be used in a particular energy savings performance contract. 
The choice is left to agency discretion. Since the development of a 
baseline is dependent on available agency data, energy savings 
requirements, and recommended energy technologies, Federal agencies are 
provided discretion on selecting appropriate baseline approach and 
adjustment procedures. As with energy audit techniques, energy 
consuming systems such as HVAC systems will require more comprehensive 
data collection and complex data analysis to develop an accurate energy 
baseline or baseline adjustment method than will lighting systems. The 
energy savings performance contracting ``How To'' manual will expand on 
selection of appropriate baseline methods and adjustment procedures 
that meet agency- and project-specific requirements and will discuss 
the advantages and disadvantages of each approach. The model 
solicitations also provide agency guidance on incorporating facility 
and energy baseline data and requirements into energy savings 
performance contract documents.
Energy Conservation Measure
    This definition tracks the statutory definition in section 549 of 
the Act 42 U.S.C. 8259.
Energy Cost Savings
    The definition of this term is consistent with the definition of 
``energy savings'' in paragraph (c)(2) of section 804 of the Act. 
Adding the word ``cost'' to the statutory term helps to clarify its use 
in other sections of the proposed rule as referring to monetary savings 
as distinguished from savings in units of energy. ``Related operations 
and maintenance expenses'' is added to this definition to conform with 
section 802 of the Act, which allows payments to contractors from funds 
made available for ``energy expenses (and related operations and 
maintenance expenses).''

Section 436.32  Qualified Contractor List

    Paragraph (a) of proposed Sec. 436.32 provides for DOE requests for 
statements of qualifications on questionnaires provided by DOE. 
Consistent with section 801 of the Act, the first questionnaire would 
request from the firm information regarding prior experience, 
capabilities to perform types of energy savings services, and financial 
and project performance information. On the basis of the project 
performance information received from the firm, DOE will send a second 
questionnaire in the nature of a standard letter to at least three 
clients who received energy savings services.
    The first questionnaire is likely to ask the following questions:

1. General Information

    (a) Name and address of firm:
    (b) Telephone No.:       FAX No.:
    (c) Indicate type of firm:
        ____ Partnership
        ____ Corporation
        ____ Sole proprietor
        ____ Branch Office of ________
        ____ Joint Venture (List venture partners)________
        ____ Other (Explain) ________
    (d) This submittal applies to:
    [  ] Parent Company
    [  ] Division
    [  ] Subsidiary
    [  ] Branch Office
    List any Division or Branch Offices which are to be included in the 
Prequalification process (attach separate list if more than one is 
included).
    (e) Names and titles of two people authorized to represent the firm
    (f) Federal Employer Identification Number
    (g) Year firm was established
    (h) Name and address of parent company (if applicable)
    (i) Indicate previous names of firm: ____________
    (j) Identify associates and/or subcontractor(s) that you plan to 
utilize for Federal Energy Savings Performance Contracts projects. If 
your firm is using an associate and/or subcontractor(s), explain the 
functions of both your firm and your associate and/or subcontractors 
(such as project management, technical/engineering services), 
construction, and maintenance services and the financial 
responsibilities of each firm.
    (k) Has your firm been competitively selected by a Utility Company 
under a Demand-Side Management Bidding program to provide conservation 
services for commercial and industrial customers?

Yes ____ No ____ If yes, please designate the utility and provide 
pertinent information.

----------------------------------------------------------------------

    (l) Provide a 5-year summary of contract values for energy-related 
services your firm provided (insert appropriate index number).

----------------------------------------------------------------------------------------------------------------
                        Year                             Index      Index No.       Range of contract values    
----------------------------------------------------------------------------------------------------------------
19____..............................................                         1  Less than $100,000.             
19____..............................................                         2  $100,000-$250,000.              
19____..............................................                         3  $250,000-$500,000.              
19____..............................................                         4  $500,000-$1 Million.            
19____..............................................                         5  $1 Million-$2 Million.          
                                                                             6  $2 Million-$5 Million.          
                                                                             7  $5 Million-$10 Million.         
                                                                             8  $10 Million or greater.         
----------------------------------------------------------------------------------------------------------------

    (m) Indicate the largest dollar value of investment your firm would 
consider for a Federal Government ESPC contract.
    (n) Indicate the regions of the country your firm would consider 
providing Federal ESPC services.
    [  ] Region 1--(CT,ME,NH,VT,MA,RI)
    [  ] Region 2--(NY,NJ)
    [  ] Region 3--(MD,DE,VA,WV,DC,PA)
    [  ] Region 4--(FL,GA,KY,MS,NC,SC,TN,AL)
    [  ] Region 5--(IL,IN,MI,MN,OH,WI)
    [  ] Region 6--(AR,LA,NM,OK,TX)
    [  ] Region 7--(IA,KS,MO,NE)
    [  ] Region 8--(CO,MT,ND,SD,UT,WY)
    [  ] Region 9--(CA,AZ,NV,HI)
    [  ] Region 10--(WA,OR,AK)
    [  ] All Regions
    [  ] Territories
    [  ] Exceptions (specify) ____________

2. Experience

    (a) List and briefly describe at least three of the largest 
projects completed by your firm that have been operating and saving 
energy for at least 2 years and that best illustrate your range of 
experience relative to energy performance contracting and energy 
management expertise (i.e., type of technologies implemented). For each 
project provide information on the following items:
    (1) Project title and location.
    (2) Person to contact regarding the project, his or her position, 
address, and telephone number.
    (3) Identify if project was for public or private sector.
    (4) Briefly describe the facility including function, number of 
buildings, and size in square feet.
    (5) Total contract amount.
    (6) Type of financing arranged by your organization.
    (7) Type and term of contract.
    (8) Identify the major types of work implemented and if your firm 
or subcontractors did the work.
    (9) Starting and ending dates.
    (10) Indicate if the project was completed on schedule. If not, 
explain.
    (11) Projected 12-month energy savings for each project.
    (12) Identify performance guarantees, if performance-based energy 
service contract.
    (13) Actual annual energy savings achieved for each project.
    (14) Firm notes on project.
    (b) Indicate the number of years in business as an Energy 
Management Contractor: ______ years. Indicate all other names for your 
organization and the length of time your organization had that name.

3. Technical Capability

    List the technologies (e.g., lighting; HVAC systems, etc.) which 
your firm may propose to apply to a building or facility to implement 
energy conservation measures under an energy savings performance 
contract.

4. Available Staff

    (a) Indicate the experience in energy management and energy 
conservation services of those persons in your firm or subcontracting 
firm(s) you are intending to utilize on projects.
    (b) List all professional and skilled trades which your firm 
customarily performs with its own employees.

5. Financial Status

    (a) List all legal or administrative proceedings currently pending 
or concluded adversely against your firm within the last 5 years which 
relate to procurement or performance of any public or private 
construction contracts.
    (b) Disclose whether your firm (or its predecessors, if any) has 
been insolvent or declared to be in bankruptcy within the past 5 years.
    (c) Indicate whether your firm has been debarred by the Federal 
Government and provide explanation. The second questionnaire would 
request project-specific information from at least three of the firm's 
clients, which the firm identified on the first questionnaire. The 
questions in the second questionnaire are likely to be as follows:
    1. Was the project completed on schedule?
    2. Did contract involve energy savings performance guarantees? If 
so, describe performance guarantees (e.g., annual energy or cost 
savings).
    3. Did installed project achieve energy savings projected or 
guaranteed by contractor?
    4. Was the method(s) used by the contractor to determine annual 
energy savings acceptable for the type of energy conservation measures 
installed?
    5. Did contractor provide operations, maintenance, and repair 
services as part of contract?
    6. Did contractor arrange a utility demand-side management rebate?
    7. What was the capital investment in the energy project? ______ 
Was capital investment financed by contractor or third party?
    8. Provide an overall rating of the quality and timing of services 
provided by the contractor. If your answers to questions 1-5 were all 
affirmative, please briefly explain your reasons for giving a ``Fair'' 
or ``Poor'' rating, as applicable.

[  ] Excellent--Exceeded expectations, highly recommend contractor.
[  ] Good--Met all requirements, recommend contractor.
[  ] Fair--Achieved project objective, room for improved quality and 
performance.
[  ] Poor--Shortfall in performance and quality, would not recommend.

    Members of the public are invited to comment on the adequacy of the 
foregoing questions for inclusion in these questionnaires. DOE would be 
interested in specific suggestions for substituting or adding questions 
to elicit information to be used in distinguishing between firms 
minimally qualified to compete for contract awards and those which are 
not qualified.
    Paragraph (a) of proposed Sec. 436.32 also provides for annual 
notices in the Commerce Business Daily to invite submission of new or 
updated statements of qualification. DOE considered allowing potential 
contractors to submit a statement of qualifications at any time. DOE 
did not propose language to this effect in order to avoid undue 
administrative burden and unnecessary confusion with regard to the 
status of the list at any moment in time.
    Paragraph (b) of proposed Sec. 436.32 contains the proposed 
evaluation criteria for determining which firms are included on the 
qualified list. These proposed criteria represent minimum 
qualifications. Consistent with the competitive procedures under 
proposed section 436.33, DOE anticipates that in many cases more than 
one contractor from the qualified list will submit technical and price 
proposals which will be comparatively evaluated to determine the best 
proposal.
    The evaluation criteria are quantitative and qualitative in nature. 
An example of a quantitative criterion is a record of energy savings 
performance contract services for not less than three clients with a 
minimum of two years of energy cost savings for each contract. DOE 
would be interested in comments as to whether this criterion would 
eliminate too many potential applicants. DOE may reword this criterion 
in the final rule so that the experience would relate to installation 
of energy conservation measures. An example of a qualitative criterion 
is that the firm possesses, or may subcontract for, the personnel with 
adequate project experience consistent with the range of technologies 
it may apply. Members of the public are invited to compare the list of 
evaluation criteria with the questions asked on the questionnaire, 
which are set forth above. DOE would be especially interested in 
comments on the adequacy of the criteria to distinguish those firms 
which are minimally qualified from those which should not be invited to 
compete for contract awards or submit unsolicited proposals.
    Paragraph (c) of proposed Sec. 436.32 states the general policy, 
drawn from the statutory language in section 801 of the Act, that other 
Federal agencies may develop their own qualified lists as long as they 
use the same procedures that DOE uses for developing its list. The only 
exception to this general policy is for the Department of Defense.
    Authority to develop a qualified list of firms was previously 
provided to the Department of Defense under 10 U.S.C. 2865. The 
exception in paragraph (c) of proposed Sec. 436.32 would recognize the 
authority of the Department of Defense to award contracts to firms 
which have been competitively selected by a utility without regard to 
whether such a firm is on a qualified list.

Section 436.33  Procedures and Methods for Contractor Selection

    The first two paragraphs of proposed section 436.33 set forth the 
procedures and methods for selecting energy savings performance 
contractors from a qualified list by a Federal agency under the Act. 
Section 801(b)(2)(B) states that Federal agencies are required to use a 
qualified list if it is available. The third paragraph recognizes the 
authority of the Department of Defense under 10 U.S.C. 2865(c)(2)(B) to 
provide for direct negotiation of energy savings performance contracts 
with firms competitively selected by a utility.
    Paragraph (a) of proposed Sec. 436.33 would provide procedures for 
competitive solicitation and selection of contractors. With respect to 
a particular proposed energy savings project (which may consist of any 
number of contiguously related buildings and facilities), a Federal 
agency would be required to solicit ``intent to propose'' statements 
from firms on the qualified list who may be interested in proposing. 
Typically, a firm responding with an ``intent to propose statement'' 
will have had the opportunity for a walkthrough energy survey of 
candidate buildings and facilities.
    Paragraph (a)(1) further would provide for a Federal agency to 
request technical and price proposals from firms who respond with 
``intent to propose statements''. DOE anticipates that often 
competitive negotiations with firms in the competitive range would then 
occur.
    Proposed paragraph (a)(3) would authorize a selection based on the 
evaluation of technical and price proposals and other relevant 
information (such as data submitted when applying for inclusion on a 
qualified list). The paragraph would not require a selection if a 
Federal agency has reason to abandon a potential project. However, if a 
Federal agency is inclined to make a selection, the paragraph would 
state the exclusive basis on which a selection should be made.
    Proposed paragraph (a)(4) also provides a selection process 
designed for an energy savings project which involves a large facility 
with many contiguously related buildings and other structures at one 
site. In this case, it does not seem cost-effective or practical, from 
either the agency's or the competing firms' perspective, to require 
technical and price proposals on each building prior to selection of a 
firm. All but the largest firms would be disinclined to compete for an 
energy savings project of this magnitude if they were expected to 
prepare proposals (including conducting energy audits) for each and 
every structure on the site prior to selection. Rules promoting such a 
result would be inconsistent with section 801(b)(1)(A), which requires 
procedures to select energy service contractors that will achieve the 
intent of the Act in a cost-effective manner (42 U.S.C. 8287(b)(1)(A)).
    Therefore, DOE is proposing that when an energy savings project 
involves the type of facility described above, the Federal agency may 
request technical and price proposals for a ``representative sample'' 
of the buildings and structures at the facility site. The proposed rule 
does not define ``representative sample'' and would leave further 
definition to agency discretion on a case-by-case basis. Members of the 
public are invited to comment on this choice and to offer a definition 
which would limit agency discretion. Based on its evaluation of the 
proposals submitted, the agency may select a firm to conduct the 
project. After selection, the agency may request technical and price 
proposals from the selected firm for any or all of the remaining 
buildings and structures that constitute the facility. Based on its 
evaluation of these proposals, the agency may decide to contract with 
the selected firm to provide energy savings services for any, all, or 
none of the remaining buildings or structures. The word ``may'' is used 
in paragraph (a)(5) because the paragraph states what a Federal agency 
is authorized to do and not what it is required or mandated to do. 
There may be circumstances in which a Federal agency will decide, with 
respect to a large facility, that it is preferable to make separate 
competitive awards or acquire energy conservation services in some 
other way 10 U.S.C. 2865(b)(2)(8). For example, the proposer selected 
on the basis of the representative sample may submit an unreasonable 
price proposal for the balance of the structures. Another example would 
be a facility in which some of the energy sources are separately 
metered.
    DOE believes that this process will facilitate energy savings 
performance contracting in the case of large facilities composed of a 
number of buildings and structures which serve different purposes or 
uses (e.g., a medical complex) while preserving the benefits of 
competition. In this type of situation, competing and selecting 
contractors on a building-by-building basis seems impractical and 
potentially problematic. Even though there may be a number of distinct 
buildings or structures on a site, it may be more effective from an 
energy efficiency/conservation perspective to treat these structures as 
one unit or system in planning and designing energy savings services. 
Consequently, from the Federal agency's viewpoint, the selection of a 
single firm to provide such services for the entire facility might 
appear to be the more practical and effective approach.
    The scope of the energy savings project will be clearly defined at 
the beginning of the competitive process so that competing firms will 
be aware of the magnitude of the project. The Federal agency's interest 
will be protected because the selected firm will not be guaranteed a 
contract covering those buildings or facilities not included within the 
representative sample. Firms interested in competing for a project of 
this size, however, will not be deterred from proposing because of 
excessively prohibitive proposal preparation costs.
    DOE invites public comment on this proposed process and is 
especially interested in ideas and suggestions to facilitate energy 
savings performance contracting for those situations involving multi-
building facilities.
    Based on the provision of section 801 of the Act authorizing 
receipt of unsolicited proposals from qualified firms, DOE is proposing 
in paragraph (b) of section 436.33 the procedure to be followed in 
dealing with such proposals. If an unsolicited proposal had merit, the 
Federal agency would have to publish notice in the Commerce Business 
Daily acknowledging receipt and inviting other firms on a qualified 
list to submit competing proposals. In order for an unsolicited 
proposal to have merit, there would have to be ``adequate'' technical 
and price components. It is explicitly stated that the evaluation of 
competing proposals would be based on the same factors described in 
paragraph (a)(4) as the basis for making a competitive selection from 
among proposals that had been solicited. Paragraph (b) concludes with a 
statement precluding a Federal agency from basing an award on an 
unsolicited proposal if it is planning or acquisition through a 
solicitation from among firms on a qualified list.
    Paragraph (c) of proposed Sec. 436.33 would provide an exception to 
the foregoing policies for competitive selections and for dealing with 
unsolicited proposals. The exception would apply to the Department of 
Defense under 10 U.S.C. 2865 and recognizes that Department's authority 
to select energy savings performance contractors on the basis of 
competitive selection by a utility rather than on the basis of the 
methods described in proposed paragraphs (a) and (b).
    Paragraph (d) of proposed Sec. 436.33 deals with cost accounting 
standards applicable to energy savings performance contractors. The 
rationale for paragraph (d) is described above in the portion of this 
``Supplementary Information'' concerning ``substitute regulations.''

Section 436.34  Standard Terms and Conditions

    Proposed Sec. 436.34 sets forth requirements for standard terms and 
conditions which are unique to energy savings performance contracts. 
Paragraph (a) deals with contractors who are financing the acquisition 
of energy conservation measures through a secured loan or a lease-
acquisition. It is designed to protect the interests of the Federal 
agency and the financing source in the event of default by the 
contractor on the energy savings performance contract or of failure by 
the contractor to make timely payments pursuant to a secured loan or 
lease-acquisition agreement. It would require a Federal agency to 
ensure that an energy savings performance contract contains a clause 
authorizing a contracting officer to require a contractor to assign 
both the rights and responsibilities of the contract to a willing and 
able financing source. The clause would allow the contracting officer 
the discretion not to require such an assignment in appropriate 
circumstances such as an unwilling or unable financing source. The 
paragraph presumes that a Federal agency would notify a financing 
source in the event of default on the contract and that the financing 
source would notify the Federal agency in the event of contractor 
failure to cure lack of timely payments.
    Proposed paragraph (b) would require a clause authorizing 
modification, replacement, or change in equipment at no cost to the 
Federal agency and with prior notification and approval by the 
contracting officer.
    Proposed paragraph (c) would require a contract clause specifying 
the final disposition of title to systems and equipment.
    Proposed paragraph (d) would require prior approval by the 
contracting officer of any financing agreements including amendments to 
applicable pre-existing agreements.
    The previously described provisions in proposed Sec. 436.34 are 
based on clauses currently in use by the Army. Specific clauses are 
included in the model solicitations. DOE is not proposing rules 
requiring that Federal agencies use standard clauses because it is 
desirable to maintain some flexibility to take into account unique 
facts and circumstances.

Section 436.35  Funding

    Paragraph (a) of proposed Sec. 436.35 restates the statutory 
requirement, established by section 802 of the Act, that payments under 
energy savings performance contracts may be made only from funds 
available for the payment of energy costs and related operations and 
maintenance expenses.
    Paragraph (b) implements section 801(a)(2)(B) of the Act. It 
requires that the total cost for energy savings performance contract 
services and utilities, after the contract is in place, may not exceed 
the cost estimated by the Federal agency for all energy and related 
operations and maintenance expenses without the energy savings 
performance contract in place. The energy baseline, adjusted for 
changes in initial baseline conditions (if any), indicates the energy 
the agency would have consumed without an energy savings performance 
contract.
    To determine the agency cost of energy without an energy savings 
performance contract under paragraph (b), the Federal agency would have 
to multiply the current unit energy rates by the current annual energy 
baseline and add the operations and maintenance cost avoidance for 
related utility or energy consuming systems which the contractor 
assumes (if any). The current annual energy baseline is derived using 
the baseline method and adjustment procedure established in the energy 
savings performance contract.
    Federal agencies should use the above procedure to prepare annual 
utility budgets, since the budget should, at minimum, include annual 
estimates of: purchased utilities; all costs to generate and distribute 
energy from Federal power production facilities; related operations and 
maintenance expenses; and scheduled annual payments for energy savings 
performance services.
    Paragraph (c) tracks the wording of paragraph (a)(2)(C) of section 
801, which authorizes a Federal agency to incur multiyear obligations 
to pay a contractor for guaranteed savings pursuant to an energy 
savings performance contract as long as those savings ``exceed debt 
service requirements.''
    All versions of the model solicitations include a provision which 
provides that payments for contracted energy savings services commence 
only upon inspection and acceptance of the contractor's energy 
conservation measures and accrual of energy and related operations and 
maintenance savings. Therefore, a Federal agency would not provide 
advance payments for the contractor's recovery of its capital costs. 
Such an advance payment is precluded by the statutory language. Given 
coverage in the model solicitations, there is no need to restate the 
proposition in regulatory language.
    Paragraph (d) implements paragraph (a)(2)(B) of section 801, which 
requires that energy savings performance contracts provide for a 
guarantee of savings to the agency and establish payment schedules to 
reflect that guarantee. Included in such payment schedules are 
financing charges incurred by the contractor. Ordinarily, ``interest 
and other financial costs'' are unallowable costs under the Federal 
Acquisition Regulation (48 CFR 31.205-20). However, that regulatory 
provision is inapplicable to energy savings performance contracts 
because paragraph (a)(2)(C) of section 801 provides for obligations to 
pay for ``debt service requirements'' and thus clearly contemplates the 
role third-party financing may play in energy savings performance 
contracts. Since financing charges are normally an essential aspect of 
financing, it is only reasonable for payment schedules to reflect such 
charges.
    Paragraph (e) tracks the language of subsection (a)(2)(D) of 
section 801 of the Act, which sets forth specific conditions upon which 
Federal agencies are authorized to enter into multiyear energy savings 
performance contracts, without funding total contract costs or 
cancellation charges inherent in multiyear contracts. Specific 
conditions of the multiyear contracting authority for energy savings 
performance are:
    (1) The contract was awarded competitively using procedures 
established in this proposed rule;
    (2) Funds are available and adequate to cover contractor payments 
(if any) for energy savings estimated and scheduled to occur during the 
first fiscal year of the contract period;
    (3) Thirty (30) days prior to awarding an energy savings 
performance contract, the agency head notifies appropriate 
authorization and appropriations committees, if the contract includes a 
clause establishing a proposed cancellation ceiling in excess of 
$750,000. Cancellation charges represent the maximum liability the 
Government assumes in the event the energy savings performance contract 
is terminated for the convenience of the Government, or the utility 
funds are not made available to the agency in a future fiscal year, 
which would result in cancellation of all remaining years of the 
contract; and
    (4) The contract is governed by and contains applicable multiyear 
contract provisions found in 48 CFR subpart 17.1. Subpart 17.1 provides 
policy and guidance on applicability of multiyear contracting 
provisions for a variety of contract types.
    The model solicitations provide guidance on using multiyear 
provisions in 48 CFR Subpart 17.1 and establishing the cancellation 
ceiling for the energy savings performance contract.

Section 436.36  Procedures and Methods to Monitor Contracts

    Section 801(a)(2)(A) of the Act provides that energy savings 
performance contracts shall require an annual energy audit. Post-
installation and annual energy audits are intended to verify contractor 
compliance with annual energy savings performance guarantees. As 
pointed out earlier when discussing the definition of the term ``energy 
audit,'' such audits and energy baselines are techniques used to 
measure and determine energy savings performance attributable to energy 
conservation measures installed under energy savings performance 
contracts. The energy audits should not involve qualitative judgments 
by the auditors; moreover, the proposed rule would promote objectivity 
by providing for the agency to perform audits, or to approve an 
independent consultant selected and paid by the contractor. It does not 
appear appropriate to require agency audits only because section 
801(a)(1) of the Act indicates auditing may be an allowable cost. 
Public comments are invited on the wisdom of allowing the contractor to 
select and pay the consultant to conduct its audit.
    The specific audit and baseline methods selected for an energy 
savings performance contract are based on project specific 
characteristics. The ``How To'' manual and model solicitations provide 
guidance for agencies to adapt energy audit and energy baseline 
contract requirements to meet the project-specific needs.

Section 436.37  Procedures and Methods to Terminate Contracts

    Proposed Sec. 436.37 addresses procedures related to terminating 
energy savings performance contracts, which generally occurs under two 
conditions: (1) when the Government exercises its right to terminate 
for convenience; or (2) when the Government terminates for default 
(i.e., contractor nonperformance).
Termination for Convenience
    Energy savings performance contracts are multiyear contracts and, 
as discussed previously, incorporate cancellation ceilings for each 
year of the contract which reflect the contractor's incurred costs 
prior to receiving payments for energy cost savings. In the event of a 
termination for convenience, the Government must cancel any remaining 
years of the contract. The maximum termination liability is established 
by the cancellation ceilings, for each contract year, set forth in the 
contract pursuant to multiyear contract provisions of 48 CFR subpart 
17.1.
Termination for Default
    An energy savings performance contract includes energy savings 
performance guarantees to be provided by the contractor. In the event 
the contractor is unable to meet the contract performance guarantees, 
the Government may exercise its right to terminate for default due to 
nonperformance of the contractor. Such action to terminate for default 
shall be pursuant to Federal Acquisition Regulation Part 49. The 
Government, however, may elect to take title to, and acquire from, the 
contractor any equipment or energy conservation measures which may be 
in the Government's best interest. For equipment the Government elects 
to acquire, the Government shall provide compensation based on incurred 
costs less payments made prior to termination pursuant to termination 
provisions in 48 CFR Part 49.
    The model solicitations include provisions which address title to 
installed equipment, cancellation ceilings, and contract termination. 
DOE does not believe that there is a need for detailed regulations with 
regard to termination procedures, and the proposed rules would allow 
Federal agency discretion in applying termination procedures based on 
model solicitation guidance.

IV. Procedural Requirements

(a) Review Under Executive Order 12866

    Today's regulatory action has been determined to be a ``significant 
regulatory action'' under Executive Order 12866, ``Regulatory Planning 
and Review,'' 58 FR 51735 (October 4, 1993). Accordingly, it was 
subject to review by the Office of Information and Regulatory Affairs 
(OIRA). OIRA completed its review without requesting any substantive 
changes.

(b) Review Under the Regulatory Flexibility Act

    The proposed rules were reviewed under the Regulatory Flexibility 
Act of 1980, Pub. L. 96-354, which requires preparation of a regulatory 
analysis for any rule which is likely to have significant economic 
impact on a substantial number of small entities. DOE certifies that 
these rules will not have a significant economic impact on a 
substantial number of small entities and, therefore, no regulatory 
flexibility analysis has been prepared.

(c) Review Under the Paperwork Reduction Act

    New information collection requirements subject to the Paperwork 
Reduction Act, 44 U.S.C. 3501, et seq., or recordkeeping requirements 
are proposed by this rulemaking. Accordingly, this notice has been 
submitted to the Office of Management and Budget for review and 
approval of the paperwork requirements. Earlier in this notice, DOE 
described two questionnaires proposed for use under the rule. The first 
involved a contractor's qualifications for inclusion on the qualified 
contractors list. The second would be directed at clients of a 
contractor applicant for inclusion on the list in order to obtain 
project specific information with regard to the client's experience 
with the contractor.
    The information DOE proposes to collect on the above-described 
questionnaires is necessary to determine whether a contractor is 
adequate, experienced and reliable to be placed on the qualified 
contractors list. DOE believes that in the typical case the frequency 
of response will be once every 12 months.
    After the initial application is filed, a successful contractor 
would only have to update information which might have changed during 
the interim. The public reporting burden is estimated to average less 
than two hours per response, including the time for reviewing 
instructions, searching existing data sources, gathering and 
maintaining the data, needed, and completing and retrieving the 
collection of information.

(d) Review Under the National Environmental Policy Act

    Pursuant to the Council on Environmental Quality Regulations (40 
CFR part 1500-1508), the Department of Energy has established 
guidelines for its compliance with the provisions of the National 
Environmental Policy Act (NEPA) of 1969 (42 U.S.C. 4321, et seq.). 
Pursuant to appendix A of subpart D of 10 CFR part 1021, National 
Environmental Policy Act Implementing Procedures (57 FR 15122, 15152, 
April 24, 1992) (Categorical Exclusion A6), the Department of Energy 
has determined that these proposed rules are categorically excluded 
from the need to prepare an environmental impact statement or 
environmental assessment.

(e) Review Under Executive Order 12612

    Executive Order 12612, 52 FR 41685 (October 30, 1987), requires 
that regulations, rules, legislation, and any other policy actions be 
reviewed for any substantial direct effects on States, on the 
relationship between the National Government and the States, or in the 
distribution of power and responsibilities among various levels of 
Government. If there are sufficient substantial direct effects, then 
the Executive Order requires preparation of a federalism assessment to 
be used in all decisions involved in promulgating and implementing a 
policy action. These proposed rules will revise certain policy and 
procedural requirements applicable only to Federal contracts. 
Therefore, the Department of Energy has determined that these proposed 
rules will not have a substantial direct effect on the institutional 
interests or traditional functions of States.

(f) Review Under Executive Order 12778

    Section 2 of Executive Order 12778 instructs each agency to adhere 
to certain requirements in promulgating new regulations and reviewing 
existing regulations. These requirements, set forth in section 2(a) and 
(b)(2), include eliminating drafting errors and needless ambiguity, 
drafting the regulations to minimize litigation, providing clear and 
certain legal standards for affected legal conduct, and promoting 
simplification and burden reduction. Agencies are also instructed to 
make every reasonable effort to ensure that the regulation: Specifies 
clearly any preemptive effect, effect on existing Federal law or 
regulation, and retroactive effect; describes any administrative 
proceeding to be available prior to judicial review and any provisions 
for the exhaustion of such administrative proceedings; and defines key 
terms. DOE certifies that these proposed rules meet the requirements of 
section 2(a) and (b) of Executive Order 12778.

V. Opportunities for Public Comment

Written Comments

    Interested persons are invited to participate in this rulemaking by 
submitting data, views, or comments with respect to the proposed 
rulemaking.
    Six copies of written comments should be submitted to the address 
indicated in the ADDRESSES section of this notice. Comments should be 
identified on the outside of the envelope and on the documents 
themselves with the designation ``Energy Savings Performance Contracts; 
Notice of Proposed Rulemaking, Docket No. EE-RM-94-201''. In the event 
any person wishing to provide written comments cannot provide six 
copies, alternative arrangements can be made in advance with DOE.
    All comments received will be available for public inspection as 
part of the administrative record on file for this rulemaking in the 
Department of Energy Freedom of Information Office Reading Room, 1E-
090, Forrestal Building, 1000 Independence Avenue, SW., Washington, DC 
20585, 202-586-6020, between 9 a.m. and 4 p.m., Monday through Friday, 
except Federal holidays.
    Any person submitting information which that person believes to be 
confidential and which may be exempt by law from public disclosure, 
should submit one complete copy, as well as two copies from which the 
information claimed to be confidential has been deleted. DOE reserves 
the right to determine the confidential status of the information and 
to treat it accordingly under 10 CFR 1004.11.

Public Hearing

Request to Speak Procedures
    A public hearing on the proposed rule will be held at 9:30 a.m. on 
May 17, 1994 in room 1E-245 of the Forrestal Building, 1000 
Independence Avenue, SW., Washington, DC 20585.
    Any person who has an interest in the proposed rule or who is a 
representative of a group or class of persons who has an interest in 
the proposed rule may request an opportunity to make an oral 
presentation. A request to speak at the public hearing should be 
addressed to the address or phone number indicated at the beginning of 
this notice. The person making the request should briefly describe his 
or her interest in the proceedings and, if appropriate, state why the 
person is a proper representative of a group. The person should also 
provide a phone number where he or she may be reached during the day. 
Six copies of the speaker's statement should be brought to the hearing. 
In the event any person wishing to testify cannot meet this 
requirement, alternative arrangements can be made in advance.
Conduct of the Hearing
    DOE reserves the right to select persons to be heard at the 
hearing, to schedule their respective presentations, and to establish 
procedures governing the conduct of the hearing. The length of each 
presentation will be limited to 10 minutes or based on the number of 
persons requesting an opportunity to speak.
    A DOE official will preside at the hearing. This will not be a 
judicial or evidentiary-type hearing. It will be conducted in 
accordance with 5 U.S.C. 553 and section 501 of the Department of 
Energy Organization Act, 42 U.S.C. 7191.
    Questions may be asked only by those conducting the hearing. At the 
conclusion of all initial oral statements, each person who has made an 
oral statement will be given the opportunity to make a rebuttal or 
clarifying statement. The statements will be given in the order in 
which the initial statements were made and will be subject to time 
limitations.
    Any further procedural rules needed for the proper conduct of the 
hearing will be announced by the presiding officer.
    A transcript of the hearing will be made by DOE and made available 
as part of the administrative record for this rulemaking. It will be on 
file for inspection at the DOE Freedom of Information Reading Room, 
Forrestal Building, 1000 Independence Ave, SW., Washington, DC 20585, 
between the hours of 9 a.m. and 4 p.m., Monday through Friday, except 
Federal holidays. Any person may purchase a copy of the transcript from 
the hearing reporter.
    If DOE must cancel the public hearing, DOE will make every effort 
to publish an advance notice of such cancellation in the Federal 
Register. Actual notice of cancellation will also be given to all 
persons scheduled to speak. The hearing date may be canceled in the 
event no member of the public requests the opportunity to make an oral 
presentation.

List of Subjects in 10 CFR Part 436

    Energy conservation; Federal buildings and facilities; Reporting 
and recordkeeping requirements; and Solar energy.

    Issued in Washington, DC on this 5th day of April 1994.
Christine A. Ervin,
Assistant Secretary, Energy Efficiency and Renewable Energy.

    For the reasons set forth in the preamble, part 436 of title 10, 
Subchapter D of the Code of Federal Regulations is proposed to be 
amended as set forth below:

PART 436--FEDERAL ENERGY MANAGEMENT AND PLANNING PROGRAMS

    1. The authority citation for part 436 is revised to read as 
follows:

    Authority: 42 U.S.C. 6361, et seq.; 42 U.S.C. 8251, et seq.; 42 
U.S.C. 8287, et seq.

    2. Section 436.2 is amended by removing the word ``and'' after the 
semicolon at the end of paragraph (b), redesignating paragraph (c) as 
paragraph (d), and adding a new paragraph (c) as follows:


Sec. 436.2   General objectives.

* * * * *
    (c) To promote the use of energy savings performance contracts by 
Federal agencies for implementation of privately financed investment in 
building and facility energy conservation measures for existing 
Federally owned buildings; and
* * * * *
    3. New subpart B, consisting of Secs. 436.30 through 436.37 is 
added to read as follows:
Subpart B--Methods and Procedures for Energy Savings Performance 
Contracting

Sec.

436.30  Purpose and scope.
436.31  Definitions.
436.32  Qualified contractors lists.
436.33  Procedures and methods for contractor selection.
436.34  Standard terms and conditions.
436.35  Funding.
436.36  Procedures and methods to monitor contracts.
436.37  Procedures and methods to terminate contracts.

Subpart B--Methods and Procedures for Energy Savings Performance 
Contracting


Sec. 436.30   Purpose and scope.

    (a) General. This subpart provides procedures and methods which 
apply to Federal agencies with regard to the award and administration 
of energy savings performance contracts awarded within 5 years of the 
effective date of these rules unless the period of effectiveness is 
extended by law. This subpart applies in addition to the Federal 
Acquisition Regulation at Title 48 of the CFR and related Federal 
agency regulations. The provisions of this subpart are controlling with 
regard to energy savings performance contracts notwithstanding any 
conflicting provisions of the Federal Acquisition Regulation and 
related Federal agency regulations.
    (b) Utility incentive programs. Nothing in this subpart shall 
preclude a Federal agency from--
    (1) participating in programs to increase energy efficiency and for 
water conservation or the management of electricity demand conducted by 
gas, water, or electric utilities and generally available to customers 
of such utilities;
    (2) accepting financial incentives, goods, or services generally 
available from any such utility, to increase energy efficiency or to 
conserve water or manage electricity demand;
    (3) entering into negotiations with electric, water, and gas 
utilities to design cost-effective demand management and conservation 
incentive programs to address the unique needs of each Federal agency.
    (c) Promoting competition. Under paragraph (b) of this section and 
to the extent allowed by law, Federal agencies are encouraged to 
require utilities to select contractors in a competitive manner to the 
maximum extent practicable.


Sec. 436.31   Definitions.

    As used in this subpart--
    Building means any closed structure primarily intended for human 
occupancy in which energy is consumed, produced, or distributed.
    DOE means Department of Energy.
    Energy audit means a procedure conducted to determine the energy 
and cost savings which are likely to result or which have resulted from 
implementation of energy conservation measures.
    Energy Baseline means the amount of energy that would be consumed 
annually without implementation of energy conservation measures based 
on historical metered data, engineering calculations, building load 
simulation models, statistical regression analysis, or some combination 
of these methods.
    Energy conservation measures means measures that are applied to an 
existing Federally owned building or facility that improve energy 
efficiency, are life-cycle cost-effective under Subpart A of this part, 
and that involve energy conservation, cogeneration facilities, 
renewable energy sources, improvements in operations and maintenance 
efficiencies, or retrofit activities.
    Energy cost savings means a reduction in the cost of energy and 
related operations and maintenance expenses, from a base cost 
established through a methodology set forth in an energy savings 
performance contract, utilized in an existing federally owned building 
or facility as a result of--
    (1) The lease or purchase of operating equipment, improvements, 
altered operation and maintenance, or technical services; or
    (2) The increased efficient use of existing energy sources by 
cogeneration or heat recovery excluding any cogeneration process for 
other than an existing Federally owned building or facilities.
    Energy savings means the determination, in electrical or thermal 
units (e.g., kilowatt hour (kwh), kilowatt (kw), or British thermal 
unit (Btu)), of the reduction in energy use or demand by comparing 
consumption or demand, after completion of contractor-installed energy 
conservation measures, to an energy baseline established in the 
contract.
    Energy savings performance contract means a contract which provides 
for the performance of services for the design, acquisition, 
installation, testing, operation, and where appropriate, maintenance 
and repair of an identified energy conservation measure or series of 
measures at one or more locations.
    Facility means any structure not primarily intended for human 
occupancy or any contiguous group of structures and related systems 
either of which produces, distributes, or consumes energy.
    Federal agency has the meaning given such term in section 551(1) of 
title 5, United States Code.
    Secretary means the Secretary of Energy.


Sec. 436.32  Qualified contractors lists.

    (a) DOE may prepare a list, to be updated annually, of firms 
qualified to provide energy savings performance services. The list 
shall be prepared from statements of qualifications by or about firms 
engaged in providing energy savings performance contract services on 
questionnaires obtained from DOE. Such statements shall, at a minimum, 
include prior experience and capabilities of firms to perform the 
proposed types of energy savings services and financial and performance 
information. DOE shall issue a notice annually, for publication in the 
Commerce Business Daily, inviting new or updated statements of 
qualifications.
    (b) On the basis of statements of qualifications received under 
paragraph (a) of this section and any other relevant information, DOE 
shall select a firm for inclusion on the qualified list if--
    (1) It has provided energy savings performance contract services 
for not less than three clients with a minimum two years of energy 
savings for each contract;
    (2) All previous project clients contacted provide ratings which 
exceed ``poor'';
    (3) The firm and proposed associates and subcontractors identified 
in the questionnaire possess the project experience, qualifications, 
and breadth of skills appropriate to successfully implement the 
technologies which the firm may propose to provide;
    (4) The firm or any principal of the firm has not declared 
bankruptcy within the last 5 years;
    (5) The firm or principal of the firm is not on the list of parties 
excluded from procurement programs under 48 CFR subpart 9.4; and
    (6) There is no other adverse information which warrants the 
conclusion that the firm is not minimally qualified.
    (c) Except as provided by 10 U.S.C. 2865(c)(2)(A), a Federal agency 
shall use DOE's list unless it elects to develop its own list of firms 
qualified to provide energy savings performance services consistent 
with the procedures in paragraphs (a) and (b) of this section.
    (d) A firm not designated by DOE or a Federal agency pursuant to 
the procedures in paragraph (a) and (b) of this section as qualified to 
provide energy savings performance services shall receive a written 
decision and may request a debriefing from a DOE official. Review of 
such a decision shall be conducted in accordance with procedures 
developed by the Board of Contract Appeals of the General Services 
Administration.
    (e) Notwithstanding the procedures in this section with regard to 
annual updating, if the Board of Contract Appeals of the General 
Services Administration reverses or remands a Federal agency decision 
determining that a firm is not qualified, the Federal agency shall add 
the firm to its qualified list as appropriate either upon receipt of 
the Board's decision or, if the Federal agency decides to appeal, after 
the decision is upheld finally upon judicial review.
    (f) The filing of an appeal with the Board of Contract Appeals 
shall not stay the decision of a Federal agency to issue a new or 
updated list of qualified contractors or to use that list in accordance 
with this subpart.


Sec. 436.33  Procedures and methods for contractor selection.

    (a) Competitive selection. Competitive selections based on 
solicitation of firms on a qualified list are subject to the following 
procedures--
    (1) With respect to a particular proposed energy savings 
performance project, Federal agencies shall request the submission of 
``intent to propose'' statements from all firms on the list who may be 
interested in proposing.
    (2) From those firms submitting ``intent to propose'' statements, 
Federal agencies shall request technical and price proposals and the 
text of any third-party financing agreement from each firm.
    (3) Based on its evaluation of the technical and price proposals 
submitted, any applicable financing agreement (including lease-
acquisitions, if any), statements of qualifications submitted under 
Sec. 436.32 of the subpart, and any other information determined to be 
relevant, the Federal agency may select a firm to conduct the project.
    (4) If a proposed energy savings project involves a large facility 
with too many contiguously related buildings and other structures at 
one site for proposing firms to assume the costs of a walkthrough 
energy audit of all such structures, the Federal agency may request 
technical and price proposals for a representative sample of buildings 
and other structures and may select a firm to conduct the proposed 
project under paragraph (a)(4) of this section. After selection of a 
firm, but prior to award of an energy savings performance contract, the 
Federal agency may request the selected firm to submit technical and 
price proposals for all or some of the remaining buildings and other 
structures at the site and may include in the award or make a separate 
award for all or some of the remaining buildings and other structures.
    (b) Unsolicited proposals. Federal agencies may consider 
unsolicited energy savings performance contract proposals from firms on 
a qualified list under this subpart which include technical and price 
proposals and the text of any financing agreement (including a lease-
acquisition). Consistent with the authority provided by 10 U.S.C. 
2304(c)(5) or 41 U.S.C. 253(c)(5), and after determining that technical 
and price provisions are adequate, Federal agencies may award a 
contract to a firm on a qualified list under this subpart on the basis 
of an unsolicited proposal, provided that the Federal agency complies 
with the following procedures--
    (1) An award may not be made to the firm submitting the unsolicited 
proposal, unless the Federal agency publishes a notice in the Commerce 
Business Daily, acknowledging receipt of the proposal and inviting 
other firms on the qualified list to submit competing proposals.
    (2) No award based on such an unsolicited proposal may be made in 
instances in which the Federal agency is planning the acquisition of an 
energy conservation measure through an energy savings performance 
contract or if there are other energy conservation measures which 
reasonably could be implemented in the existing Federally owned 
building or facility.
    (c) Defense contracts. Consistent with 10 U.S.C. 2865(c)(2)(B), and 
notwithstanding the selection procedures under Sec. 436.32 and of this 
section, the Department of Defense may provide for the direct 
negotiation by departments, agencies, and instrumentalities of the 
Department of Defense, of contracts with energy savings performance 
contractors that have been competitively selected and approved by any 
gas or electric utility serving the department, agency, or 
instrumentality concerned.
    (d) Certified cost or pricing data. Solicitations and contracts 
under this Part shall not require the submission of certified cost or 
pricing data pursuant to the authority provided under 41 U.S.C. 
254(d)(5)(B) and 48 CFR 15.804-3(i).


Sec. 436.34  Standard terms and conditions.

    Any energy savings performance contract shall contain clauses--
    (a) Protecting the interests of a Federal agency and a secured 
lender or lessor of a lease-acquisition agreement by authorizing a 
contracting officer in appropriate circumstances to require a 
contractor who defaults on an energy savings performance contract or 
who does not cure the failure to make timely payments on a secured loan 
or a lease-acquisition, to assign to the lender or lessor, if willing 
and able, the contractor's rights and responsibilities under an energy 
savings performance contract;
    (b) Authorizing modification, replacement, or changes of equipment 
provided there is no cost to the Federal agency and there is prior 
notification and approval by the contracting officer;
    (c) Providing for the final disposition of title to systems and 
equipment; and
    (d) Requiring prior approval by the contracting officer of any 
financing agreements (including lease-acquisitions) and amendments to 
such an agreement entered into after contract award for the purpose of 
financing the acquisition of energy conservation measures.


Sec. 436.35  Funding.

    (a) Any amount paid by a Federal agency pursuant to any energy 
savings performance contract entered into under this subpart may be 
paid only from funds appropriated or otherwise made available to the 
agency for the payment of energy expenses and related operation and 
maintenance expenses.
    (b) Aggregate annual payments by a Federal agency to utilities and 
energy savings performance contractors, under an energy savings 
performance contract, may not exceed the amount that the Federal agency 
would have paid for energy and related operations and maintenance 
expenses without an energy savings performance contract. The amount the 
agency would have paid is equal to:
    (1) The energy baseline under the energy savings performance 
contract (adjusted if appropriate under section 436.36), multiplied by 
the unit energy cost; and
    (2) Any related operations and maintenance cost prior to 
implementation of energy conservation measures, adjusted for increases 
in labor and material price indices.
    (c) Federal agencies may incur obligations pursuant to energy 
savings performance contracts to finance energy conservation measures 
provided guaranteed energy cost savings exceed the contractor's debt 
service requirements.
    (d) An energy savings performance contract shall provide for a 
guarantee of savings to the Federal agency, and shall establish payment 
schedules reflecting such guarantee, considering the capital, financial 
charges, maintenance or repair costs incurred by the contractor to 
provide performance guarantees under the contract.
    (e) Federal agencies may enter into a multiyear energy savings 
performance contract for a period not to exceed 25 years without 
funding of cancellation charges before cancellation, if:
    (1) The multiyear energy savings performance contract was awarded 
in a competitive manner using the procedures and methods established by 
this subpart;
    (2) Funds are available and adequate for payment of the costs of 
the multiyear energy savings performance contract for the first fiscal 
year;
    (3) Thirty (30) days before the award of any multiyear energy 
savings performance contract that contains a clause setting forth a 
cancellation ceiling in excess of $750,000, the head of the awarding 
Federal agency gives written notification of the proposed contract and 
the proposed cancellation ceiling for the contract to the appropriate 
authorizing and appropriating committees of the Congress; and
    (4) The multiyear energy savings performance contract is subject to 
48 CFR subpart 17.1.


Sec. 436.36  Procedures and methods to monitor contracts.

    (a) After contractor implementation of energy conservation measures 
and annually thereafter during the contract term, an energy audit shall 
be conducted by the Federal agency or an independent consultant hired 
by the contractor and approved by the Federal agency. The energy audit 
shall verify the achievement of annual energy savings guarantees 
provided by the contractor.
    (b) The energy baseline is subject to adjustment due to changes 
beyond the contractor's control, such as--
    (1) Physical changes to building;
    (2) Hours of use or occupancy;
    (3) Area of conditioned space;
    (4) Addition or removal of energy consuming equipment or systems;
    (5) Energy consuming equipment operating conditions; and
    (6) Weather (i.e., cooling and heating degree days).
    (c) Federal agencies shall specify requirements for annual energy 
audits that are consistent with this subpart and the energy baseline 
and baseline adjustment procedures used in the energy savings 
performance contract.


Sec. 436.37  Procedures and methods to terminate contracts.

    (a) In the event an energy savings performance contract is 
terminated for the convenience of the Government, the termination 
liability of a Federal agency shall not exceed the cancellation ceiling 
set forth in the contract, for the year in which the contract is 
terminated.
    (b) In the event an energy savings performance contract is 
terminated for default, the Federal agency may take title to 
contractor-installed equipment, if the Federal agency provides 
compensation to the contractor pursuant to termination for default 
provisions in 48 CFR part 49.

[FR Doc. 94-8594 Filed 4-8-94; 8:45 am]
BILLING CODE 6450-01-P