BILL ANALYSIS �
Bill No: SB
118
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2011-2012 Regular Session
Bill Analysis
SB 118 Author: Yee
As Introduced: January 20, 2011
Hearing Date: April 12, 2011
Consultant: Paul Donahue
SUBJECT : Public Energy Service Contracts: Competitive
Bidding
SUMMARY : Requires public agencies to competitively bid
contracts for electrical or thermal energy, or energy
conservation services, and related facility ground leases.
Existing law :
1) Requires state and local agencies to competitively bid
and award contracts for goods, services, information
technology and public construction to the lowest bidder or
lowest responsible bidder. (e.g., Pub. Contract Code ��
10180, 20103.8, Govt. Code � 4005)
2) Specifies various exceptions to competitive bidding
rules, including an exclusion allowing public agencies<1>
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<1> "Public agency" means the state, a county, city and
county, city, district, community college district, school
district, joint powers authority or other entity designated
or created by a political subdivision relating to energy
development projects, and any other political subdivision
or public corporation in the state. (Govt. Code � 4217.11)
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to award energy service contracts<2> and related facility
ground leases<3> without a competitive bid if the agency
determines at a public hearing<4> that:
a) The anticipated cost to the agency for thermal or
electrical energy or conservation services provided
under the contract will be less than the anticipated
marginal energy costs to the public agency in the
absence of those purchases.
b) That any difference between the fair rental value
for the real property subject to the facility ground
lease and the agreed rent, is anticipated to be offset
by below-market energy purchases or other benefits
provided under the energy service contract.
This bill : Specifies that, notwithstanding any other law,
beginning on January 1, 2012, all public agencies awarding
contracts for energy services must use competitive bidding
requirements and procedures in the Public Contract Code.
COMMENTS :
1) Purpose and intent : The author states that no-bid
contracts to construct solar power are entered into by
multiple school districts, but a major disadvantage to sole
sourcing a project is the lack of competition and ability
to compare multiple proposals. The consumer is unable to
determine whether the proposed deal is the best.
Additionally, the author states that there may have been
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<2> In this context, an energy service contract means a
contract entered into by a public agency with any person
for electrical or thermal energy or conservation services
to a public agency from an energy conservation facility
that provides alternate energy equipment, cogeneration
equipment, or conservation measures located in public
buildings or on land owned by public agencies.
<3> A facility ground lease may include, in addition to the
land on which energy conservation facilities will be
located, easements, rights-of-way, licenses, and rights of
access, for the construction, use, or ownership by the
person of the facility and all related utility lines not
owned or controlled by the interconnecting utility.
<4> State agency heads may make these findings without
holding a public hearing. (Govt. Code � 4217.12)
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some lobbying of officials with major influence over the
contracting at a few sites, citing an instance in 2009 in
which the Peralta Community College District approved an $8
million contract with Chevron Energy Solutions for
installation and operation of a solar power system that a
competitor firm contends could have been obtained at lower
prices with a competitively bid contract.
2) Energy Service Performance Contracting : Energy
performance contracting has been used to provide a one-stop
procurement process that allows public entities in many
states to use future energy cost savings to pay for new
energy-efficient equipment and services.
An energy service performance contract is an agreement made
between the public entity and an energy service company, in
which the company guarantees energy savings that are
expected to result from the implementation of an energy
project. California and many other states have allowed the
use of energy performance contracts to reduce energy
consumption in state-owned buildings. The California
Department of General Services (DGS) uses these contracts
as part of its Green Building Initiative, and has, through
a request for qualifications process, developed a listing
of qualified firms. In the order of ranking, these firms
are to submit responses to a project Request for Proposal,
resulting in selection of a preferred contractor to
implement the project.
3) School Roofing Projects Legislation : Last year, the
Assembly Accountability and Administrative Review Committee
discovered evidence of consistent overcharging on school
roofing projects in amounts between 30 and 100 percent,
notwithstanding the fact that, contrary to current law
governing energy service contracts covered in this bill,
the Public Contract Code already had required competitive
bidding for these roofing projects.
This led to passage of AB 635 (De La Torre, Chap.438,
Stats. 2010), which requires active financial disclosure of
any financial relationships between any manufacturer,
contractor, architects, engineers or consultants involved
in each roofing project (replacement or repair) for state
buildings or public schools. Additionally, AB 635 requires
an independent licensed architect, engineer, or certified
roofing consultant to make decisions on whether a proposed
or equal product meets bid specifications.
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4) Supporters: Supporters note that sole source
contracting has its place - in response to emergencies or
necessary demand for a unique goods brand or service - but
its procedures spell a loss of transparency as well as
competitive opportunity. Supporters believe that the bill
serves the objectives of open and accountable government.
5) Opposition : Opponents contend that school districts
benefit from the flexibility granted under existing law
because they are able to work with experts and tap their
specialized knowledge and creativity. Requiring school
districts to follow the competitive bidding process would
force school districts to give up the savings and health
benefits from innovative, complicated systems in favor of
systems that can be "put out to bid."
Other opponents believe that this bill would turn back the
clock and make it more difficult for public agencies to
finance and achieve energy efficiency savings through
energy service performance contracts. They note that this
method for contracting for these projects has been in
effect in California for years and has been successfully
used in many public buildings. They state that in these
contracts the providers of equipment must stand by the
energy savings performance of the project, thus protecting
the public interest and eliminating the need for
competitive bidding as traditionally done for other public
works projects.
6) Technical Amendments : Although this bill requires
public agencies to follow Public Contract Code rules on
competitive bidding for energy conservation and service
contracts, it does not specifically refer to the
procurement processes set forth in other code provisions
outside of the Public Contract Code. For example, school
districts have the legal authority to utilize design-build
and lease-leaseback as procurement methods pursuant to the
Education Code.<5> The Committee may wish to consider
technical amendments specifying that public agencies could
also avail themselves of contracting processes and
provisions that are set forth in other state laws.
7) Related Legislation :
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<5> (See Ed. Code � 17406 (lease/leaseback) and Education
Code � 17250.10 et seq. (design-build).
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AB 635 (De La Torre, 2010) . Requires active financial
disclosure of any financial relationships between any
manufacturer, contractor, architects, engineers or
consultants involved in each roofing project (replacement
or repair) for state buildings or public schools.
(Chap.438, Stats. 2010)
SUPPORT:
Associated Builders and Contractors of California
Californians Aware
Community College League of California
International Brotherhood of Electrical Workers
Western Electrical Contractors Association
OPPOSE:
Association of California School Administrators
California Manufacturers and Technology Association
California School Boards Association
Coalition for Adequate School Housing (CASH)
Siemens Corporation
Small School Districts' Association
National Association of Energy Service Companies, including
the following members:
AECOM Energy
Clear Energy Contracting
Ameresco,
Comfort Systems USA Energy Services
APS Energy Services,
ConEdison Solutions
Burns & McDonnell,
Constellation Energy Projects and Services
CCI Group
Control Technologies and Solutions
CM3 Building Solutions
Eaton Corporation
Chevron Energy Solutions,
Energy Focus
Clark Energy Group,
Energy Solutions Professionals
EnergySolve Companies
Energy Systems Group
Excel Energy
FPL Energy Services
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Green Campus Partners
Hess Corporation
Honeywell, Johnson Controls
McClure Energy
Novatech Energy Services
NORESCO
NXEGEN
Onsite Energy
Pepco Energy Services
Schneider Electric
Siemens Industry
Synergy Companies
Trane
UCONS
Wendel Energy Services
FISCAL COMMITTEE: Yes