THE FINANCING OF THE FINANCING OF ENERGY CONSERVATION ENERGY CONSERVATION

MEASURESMEASURESBY ARKANSAS SCHOOL BY ARKANSAS SCHOOL

DISTRICTSDISTRICTS

Presented by:Presented by:

Heartsill Ragon IIIHeartsill Ragon III

► Acts 2156 and 2177 of 2005 grant School Acts 2156 and 2177 of 2005 grant School Districts greater flexibility in financing their Districts greater flexibility in financing their acquisition of energy conservation acquisition of energy conservation measures.measures.

► Energy conservation measures may now be Energy conservation measures may now be financed up to 20 years and possibly up to financed up to 20 years and possibly up to 30 years, subject to certain conditions.30 years, subject to certain conditions.

► School districts may enter into "Short Term School districts may enter into "Short Term Lease-Purchase Agreements" or "Long Term Lease-Purchase Agreements" or "Long Term Lease-Purchase Agreements" in acquiring Lease-Purchase Agreements" in acquiring their energy conservation measures.their energy conservation measures.

► Short Term Lease-Purchase Agreement: Can Short Term Lease-Purchase Agreement: Can finance purchase of energy conservation finance purchase of energy conservation measures over a 20-year period of time. measures over a 20-year period of time. Financing cannot exceed the useful life of the Financing cannot exceed the useful life of the equipment and must be coupled with an equipment and must be coupled with an "Energy Savings Contract" with a "Qualified "Energy Savings Contract" with a "Qualified Provider."Provider."

► Long Term Lease-Purchase Agreement: Can Long Term Lease-Purchase Agreement: Can finance buildings and related facilities finance buildings and related facilities (includes HVAC systems) over a 30-year (includes HVAC systems) over a 30-year period of time. If coupled with a "Termination period of time. If coupled with a "Termination Clause," then financial obligation will not be Clause," then financial obligation will not be considered in calculating school district debt considered in calculating school district debt ratio.ratio.

► "Energy Savings Contract" is defined as: "Energy Savings Contract" is defined as: (a) a contract for the installation of (a) a contract for the installation of energy conservation measures and pre-energy conservation measures and pre-installation energy audit and analysis installation energy audit and analysis costs; and (b) wherein the energy costs; and (b) wherein the energy savings are guaranteed to the extent savings are guaranteed to the extent necessary to pay for the costs of the necessary to pay for the costs of the energy conservation measures. If these energy conservation measures. If these tests are met, then the financial tests are met, then the financial obligation is not considered in calculating obligation is not considered in calculating school district debt ratio.school district debt ratio.

► "Qualified Provider" is defined as a business "Qualified Provider" is defined as a business that (a) holds an Arkansas contractor license; that (a) holds an Arkansas contractor license; (b) has at least 5 years experience; (c) has (b) has at least 5 years experience; (c) has technical capability; and (d) is pre-approved technical capability; and (d) is pre-approved by Division of Public School Academic by Division of Public School Academic Facilities and Transportation.Facilities and Transportation.

► If awarded a bid, a Qualified Provider must: If awarded a bid, a Qualified Provider must: (a) post payment and performance bond to (a) post payment and performance bond to assure proper installation; and (b) may be assure proper installation; and (b) may be required to post letter of credit, bond or required to post letter of credit, bond or investment grade corporate guarantee of investment grade corporate guarantee of performance.performance.

► A school district may enter into a Guaranteed A school district may enter into a Guaranteed Energy Savings Contract with a Qualified Energy Savings Contract with a Qualified Provider if the amount spent on the Provider if the amount spent on the equipment does not exceed the energy and equipment does not exceed the energy and operational cost savings within a 20-year operational cost savings within a 20-year period, assuming all operational period, assuming all operational recommendations are followed.recommendations are followed.

► Routine RFP process is required. Proposals Routine RFP process is required. Proposals must include: (a) estimate of costs; (b) must include: (a) estimate of costs; (b) qualifications of provider; (c) certification of qualifications of provider; (c) certification of equipment by Refrigeration Institute; (d) equipment by Refrigeration Institute; (d) state-licensed engineer certificate as to state-licensed engineer certificate as to energy savings; and (e) anticipated useful life energy savings; and (e) anticipated useful life of the equipment.of the equipment.

Other unique financing alternatives: (a) Other unique financing alternatives: (a) ability to sublease school district facilities ability to sublease school district facilities to day-care, civic clubs, other to day-care, civic clubs, other entrepreneurial third parties; (b) ability to entrepreneurial third parties; (b) ability to sell and lease back school district facilities; sell and lease back school district facilities; (c) ability to outsource school building (c) ability to outsource school building development and construction and lease-development and construction and lease-purchase from entrepreneurial developer; purchase from entrepreneurial developer; issuance of QZAB bonds.issuance of QZAB bonds.

Heartsill Ragon IIIHeartsill Ragon III

Gill Elrod Ragon Owen & Sherman, P.A.Gill Elrod Ragon Owen & Sherman, P.A.

Little Rock, Bentonville, ArkansasLittle Rock, Bentonville, Arkansas

201-376-3800201-376-3800

Email: Email: ragon@gill-law.comragon@gill-law.com