89R3775 CMO-D

By: Hinojosa of Hidalgo S.B. No. 1050

A BILL TO BE ENTITLED

AN ACT

relating to energy savings performance contracts for local governments; creating criminal offenses; authorizing a fee.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Chapter 302, Local Government Code, is amended by designating Section 302.001 as Subchapter A and adding a subchapter heading to read as follows:

SUBCHAPTER A. GENERAL PROVISIONS

SECTION 2. Section 302.001, Local Government Code, is amended by amending Subdivisions (5) and (8) and adding Subdivisions (8-a), (11), (12), and (13) to read as follows:

(5) "Guarantee" and "written guarantee" mean [means] a written guarantee of a provider that the energy savings, increase in billable revenues, or increase in meter accuracy, as applicable, from the energy or water conservation or usage measures will at least equal the cost of the energy or water conservation or usage measures, all causally connected work, and ancillary improvements provided for in an energy savings performance contract.

(8) "Local government" means a county, municipality, school district, or other political subdivision of this state. [The term does not include a school district authorized to enter into an energy savings performance contract under Section 44.901, Education Code.]

(8-a) "Measurement and verification" means a method of confirming whether a guaranteed energy savings, an increase in billable revenues, or an increase in meter accuracy resulting from an energy or water conservation or usage measure is being met as specified under an energy savings performance contract and this chapter.

(11) "Request for qualifications" means a competitive selection process achieved by a multistep negotiated procurement process that involves sequential steps for the evaluation of submissions by prospective providers.

(12) "Subcontractor" means a person, other than an employee of a provider, who contracts with the provider to furnish labor or materials to fulfill an obligation to the provider who is acting as a general contractor or prime contractor for any of the authorized work, including installation, required by an energy savings performance contract. The term includes a subcontractor of any tier, supplier, vendor, fabricator, or manufacturer.

(13) "Third-party engineer" means a professional engineer who is selected or designated by a local government under Section 302.0031.

SECTION 3. Section 302.007, Local Government Code, is transferred to Subchapter A, Chapter 302, Local Government Code, as added by this Act, and redesignated as Section 302.0021, Local Government Code, to read as follows:

Sec. 302.0021 [302.007]. EXEMPTION FROM OTHER CONTRACTING LAW. Chapter 2269, Government Code, does not apply to this chapter.

SECTION 4. Subchapter A, Chapter 302, Local Government Code, as added by this Act, is amended by adding Section 302.0031 to read as follows:

Sec. 302.0031. THIRD-PARTY ENGINEER. (a) A local government shall select or designate a third-party engineer to:

(1) act as the local government's representative, and serve as the local government's consultant, throughout the energy savings performance contract procurement process and the duration of the measurement and verification services under Section 302.301;

(2) assist the local government in evaluating the qualifications, proposals, and change orders of, and any related presentations by, a provider;

(3) provide to the local government a written report containing both a qualitative and quantitative evaluation of a provider's qualifications submitted in response to a request for qualifications;

(4) review an investment grade audit report and supporting documentation completed by the provider and any subsequent change order, contract addendum, or other amendment to the proposed energy savings performance contract;

(5) prepare written opinions in accordance with Section 302.104 and submit written opinions to the State Energy Conservation Office if specified under Section 302.105 for the office to archive;

(6) perform the measurement and verification review of the meter guarantee under Sections 302.052 and 302.053;

(7) monitor the performance of the provider's or independent third party's measurement and verification services required under Section 302.301;

(8) review the provider's or independent third party's measurement and verification reports under Section 302.301; and

(9) review the provider's annual reconciliation statement under Section 302.302.

(b) The third-party engineer must be a professional engineer licensed under Chapter 1001, Occupations Code, and must:

(1) have a minimum of three years of specialized experience with energy savings performance contracts;

(2) have demonstrated technical competence in relation to, and working knowledge of, the procurement process of energy savings performance contracts;

(3) not be an officer or employee of:

(A) a provider for the energy savings performance contract; or

(B) a wholly owned subsidiary, majority-owned subsidiary, parent company, or affiliate of the provider for the contract; and

(4) not be otherwise associated with the energy savings performance contract.

(c) A local government:

(1) if the third-party engineer is not a full-time employee of the local government, shall procure the third-party engineer's services in accordance with the procedures prescribed for procuring the professional services of an engineer under Section 2254.004, Government Code; and

(2) shall pay a third-party engineer described by Subdivision (1) a pre-negotiated fee based on the work completed if the local government does not enter into an energy savings performance contract that was reviewed by the third-party engineer under Section 302.104.

(d) A provider selected to perform an investment grade audit and propose an energy savings performance contract is prohibited from suggesting, recommending, or arranging a third-party engineer.

(e) Before the local government selects or designates a third-party engineer, the third-party engineer shall certify in writing to the local government that the engineer meets the qualifications required under Subsection (b) and that there is no conflict of interest with regard to the local government and the proposals the third-party engineer is to evaluate that result from the request for qualifications.

(f) A third-party engineer who reviews an energy savings performance contract shall maintain the confidentiality of any proprietary information the third-party engineer acquires while reviewing the contract.

(g) A local government may require a provider to include in the calculation of the cost of a proposal for an energy savings performance contract any fees payable by the local government for use of a third-party engineer who is not a full-time employee of the local government. A fee charged by a third-party engineer described by this subsection may not exceed 2.5 percent of the total value of the energy savings performance contract at the time that a contract is executed by that provider.

(h) The written report under Subsection (a)(3) must include a recommendation for selecting a provider, but the local government is not obligated to follow the recommendation.

SECTION 5. Chapter 302, Local Government Code, is amended by adding Subchapter B, and a heading is added to that subchapter to read as follows:

SUBCHAPTER B. ENERGY SAVINGS PERFORMANCE CONTRACT

SECTION 6. Sections 302.002 and 302.006, Local Government Code, are transferred to Subchapter B, Chapter 302, Local Government Code, as added by this Act, redesignated as Sections 302.051 and 302.052, Local Government Code, respectively, and amended to read as follows:

Sec. 302.051 [302.002]. ENERGY SAVINGS PERFORMANCE CONTRACTS. (a) The governing body of a local government may enter into an energy savings performance contract in accordance with this chapter if:

(1) the contract includes the provisions required under this section; and

(2) the local government receives approval for the contract from the State Energy Conservation Office under Section 302.105.

(b) Each energy or water conservation or usage measure must comply with current local, state, and federal construction, plumbing, and environmental codes and regulations. Notwithstanding Section 302.001, an energy savings performance contract may not include improvements or equipment that allow or cause water from any condensing, cooling, or industrial process or any system of nonpotable usage over which public water supply system officials do not have sanitary control to be returned to the potable water supply.

(b-1) An energy savings performance contract must contain provisions requiring the provider of the energy or water conservation or usage measures to provide a written guarantee.

(c) An energy savings performance contract must contain a provision requiring the provider to provide to the local government an annual reconciliation statement of the written guarantee as required by Section 302.302.

(d) The written guarantee must require the provider to pay the local government for any shortfall amounts based on the results of the measurement and verification review required under Section 302.301. If the energy savings, increase in billable revenues, or both, resulting from an energy savings performance contract fall short of the energy savings and increase in billable revenues projected under the contract and all required shortfall payments to the local government have not been made, the local government may terminate the contract without incurring any additional obligation to the provider.

(e) An energy savings performance contract and any other contract entered into by the local government with a provider under this chapter must contain a prohibition against contingent fees as follows: "The provider warrants that he or she has not employed or retained any company or person, other than a bona fide employee working solely for the provider, to solicit or secure this agreement and that he or she has not paid or agreed to pay any person, company, corporation, individual, or firm, other than a bona fide employee working solely for the provider, any fee, commission, percentage, gift, or other consideration contingent upon or resulting from the award or making of this agreement."

(f) An energy savings performance contract and any other contract entered into by the local government with a provider must contain the following provision: "The provider agrees that through the term of the performance contract and contract amendment thereafter the provider will maintain a compliance program and internal controls designed to detect and deter fraudulent and corrupt conduct through, among other things: policies and procedures to create redundancy in the subcontractor bid review, bid normalization, bid revision, subcontractor selection, and energy savings and cost review processes."

(g) The provisions required by Subsections (b-1)-(f) cannot be waived in a contract.

(h) The energy savings performance contract must contain a provision stating that the contract is not executory until approval is obtained under Section 302.105.

Sec. 302.052 [302.006]. METER GUARANTEES. (a) This section applies to any energy savings performance contract that:

(1) provides for any metering or related equipment, system, or process or procedure; and

(2) includes a meter guarantee by the provider, regardless of whether the meter guarantee is a part of a broader guarantee applicable to other energy or water conservation or usage measures or causally connected work.

(b) Not later than the fifth anniversary of the effective date of an energy savings performance contract, the third-party [an] engineer shall test a statistically relevant sample of the meters installed or implemented under the contract to determine or calculate the actual average accuracy and shall compare the actual average accuracy to the baseline average accuracy of those tested meters.

(c) A meter guarantee applies if the third-party engineer reports to the local government and the provider that the average accuracy of the tested meters as of the testing date is less than the baseline average accuracy of the tested meters as of the testing date.

(d) The amount payable under the meter guarantee, based on the results of the measurement and verification report under Section 302.301, must be determined for each year subject to the provider's annual reconciliation statement under Section 302.302 [engineer's report] and is equal to the difference between:

(1) the agreed increase in billable revenues based on the estimated accuracy of all of the meters for each year, according to the energy savings performance contract; and

(2) the actual revenues for the same year that would result from applying the third-party engineer's reported actual average accuracy of the tested meters to all of the meters subject to the energy savings performance contract, using the same contract components that were used to calculate the agreed increase in billable revenues for that year, assuming the annual decrease in actual average accuracy of all the meters was a pro rata percentage of the reported total decrease in actual average accuracy.

(e) Notwithstanding Subsection (d), if the meter guarantee in the contract is part of a broader guarantee applicable to other energy or water conservation or usage measures that are greater in value [or causally connected work] under the contract, the amount payable under the meter guarantee for any year during the measurement and verification period is subtracted from [reduced or offset by] the difference between:

(1) the actual sum of the energy savings and the increase in billable revenues resulting from the other energy or water conservation or usage measures or causally connected work for that year during the measurement and verification period; and

(2) the guaranteed amount of the energy savings and the increase in billable revenues from the other energy or water conservation or usage measures or causally connected work for that year during the measurement and verification period.

[(f) A test conducted under this section must be performed in accordance with the procedures established by the International Performance Measurement and Verification Protocol or succeeding standards of the United States Department of Energy.]

(g) A third-party [An] engineer conducting a test under this section shall:

(1) verify that the tested meters have been properly maintained and are operating properly; [and]

(2) comply with Sections 302.0031 and 302.104(b);

(3) conduct the test in accordance with the methodologies authorized under Section 302.053; and

(4) perform the measurement and verification review of the meter guarantee under Section 302.053 [Section 302.005(c)].

(h) A provider shall select both old and new meters to test when performing an investment grade audit and developing baseline average accuracy of existing meters to include in the investment grade audit report. In developing the baseline average accuracy, the provider may not include within its guarantee calculation meters that were inactive or out of service at the time of the investment grade audit. The meter guarantee may not include an escalation factor that assumes water will increase by a certain percentage each year.

SECTION 7. Subchapter B, Chapter 302, Local Government Code, as added by this Act, is amended by adding Sections 302.053, 302.054, and 302.055 to read as follows:

Sec. 302.053. MEASUREMENT AND VERIFICATION OF GUARANTEE. Any guaranteed energy savings, increase in billable revenues, and, if applicable, efficiency or accuracy of metering equipment must:

(1) be consistent with the investment grade audit report under Section 302.103; and

(2) be determined using one of the measurement and verification methodologies listed in:

(A) the United States Department of Energy's measurement and verification guidelines for energy savings performance contracts;

(B) the International Performance Measurement and Verification Protocol maintained by the Efficiency Valuation Organization; or

(C) Guideline 14-2023 of the American Society of Heating, Refrigerating, and Air-Conditioning Engineers.

Sec. 302.054. MAINTENANCE SERVICES. (a) The local government may not be required under the terms of an energy savings performance contract to purchase a maintenance contract or other maintenance agreement from the provider if the local government takes appropriate action to budget for its own personnel or another provider to maintain new systems installed pursuant to an existing system affected by the energy savings performance contract. The provider shall provide proper training and a sufficient number of operation and maintenance manuals for all equipment replacements or upgrades at each facility location.

(b) A provider shall provide to the local government the full capabilities to operate, maintain, repair, update, reconfigure, and engineer changes necessary to accommodate facility or operational changes or to incorporate new energy savings control strategies for any system, including a facility automation and control system, proposed under this chapter. A provider is not required under this subsection to provide the local government with access to the operating system of the provider, but the user interface software must provide for all capabilities described by this subsection.

(c) If a local government agrees to retain the same provider subject to the written guarantee to perform maintenance services for energy or water conservation or usage measures under an energy savings performance contract or a subsequent change order, contract addendum, or other amendment to the energy savings performance contract, an agreement for the maintenance services must include a provision stating that the maintenance services:

(1) are subject to budget appropriations of the local government on an annual basis; and

(2) may be discontinued at any time over the guaranteed period with no negative impact to the energy savings performance contract.

Sec. 302.055. REQUIRED PROVISION FOR CHANGE ORDER OR CONTRACT ADDENDUM. A change order or contract addendum to an energy savings performance contract must contain a provision that the change order or contract addendum, as applicable, is not executory until approval is obtained under Section 302.105. The provisions of the energy savings performance contract not subject to the change order or addendum may continue while approval of the change order or addendum is pending.

SECTION 8. Chapter 302, Local Government Code, is amended by adding Subchapter C, and a heading is added to that subchapter to read as follows:

SUBCHAPTER C. PROCUREMENT PROCEDURES FOR ENERGY SAVINGS

PERFORMANCE CONTRACTS

SECTION 9. Section 302.005, Local Government Code, is transferred to Subchapter C, Chapter 302, Local Government Code, as added by this Act, redesignated as Section 302.101, Local Government Code, and amended to read as follows:

Sec. 302.101 [302.005]. BIDDING PROCEDURES; REQUEST FOR QUALIFICATIONS [AWARD OF CONTRACT]. (a) An energy savings performance contract under this chapter may be let in accordance with the procedures established for procuring certain professional services by Section 2254.004, Government Code. Notice of the request for qualifications must [shall] be published in the manner provided for competitive bidding.

(a-1) Before issuing a request for qualifications, a local government shall select or designate a third-party engineer to act as the local government's representative and serve as its consultant in accordance with Section 302.0031.

[(b) Before entering into an energy savings performance contract, the governing body must require that the energy savings, increase in billable revenues, or increase in meter accuracy estimated or projected by a provider be reviewed by a licensed professional engineer who:

[(1) has a minimum of three years of experience in energy calculation and review;

[(2) is not an officer or employee of a provider for the contract under review; and

[(3) is not otherwise associated with the contract.]

(c) [In conducting the review, the engineer shall focus primarily on the proposed improvements from an engineering perspective, the methodology and calculations related to cost savings, increases in revenue, and, if applicable, efficiency or accuracy of metering equipment. An engineer who reviews a contract shall maintain the confidentiality of any proprietary information the engineer acquires while reviewing the contract.] Sections 1001.053 and 1001.407, Occupations Code, apply to work performed under the contract.

(d) The scope of an energy savings performance contract may not be modified under this section by change order, contract addendum, or other method:

(1) to perform work that is not related to, connected with, or otherwise ancillary to the measures identified in the original scope of an energy savings performance contract; or

(2) in a way that increases the price of the original awarded contract by more than 25 percent of the original contract value.

(e) Subsection (d) applies only to the design or construction of a water supply project, water plant, wastewater plant, water and wastewater distribution or conveyance facility, or drainage project.

SECTION 10. Subchapter C, Chapter 302, Local Government Code, as added by this Act, is amended by adding Sections 302.102, 302.103, 302.104, 302.105, 302.106, 302.107, and 302.108 to read as follows:

Sec. 302.102. PRELIMINARY UTILITY AUDIT. (a) In response to a request for qualifications, a local government may request a provider to complete a preliminary utility audit in accordance with this section and submit a written report based on the results of the preliminary utility audit before entering into an agreement for an investment grade audit under Section 302.103. The results of the preliminary utility audit may form the basis for a provider's proposed investment grade audit under that section.

(b) The preliminary utility audit must show for each proposed energy or water conservation or usage measure, at a minimum, a comparison of the estimated costs and estimated project energy savings, increase in billable revenues, and, if applicable, efficiency or accuracy of metering equipment to support justification for each proposed energy or water conservation or usage measure.

(c) To complete a preliminary utility audit, the provider must conduct an on-site survey of the facilities identified in the published request for qualifications. The local government shall assist the provider with the collection of necessary facility technical information, including by providing to the provider:

(1) at least three years of utility bills;

(2) floor plans as needed; and

(3) maintenance records as needed.

(d) A preliminary utility audit:

(1) must be performed on a representative sample of existing facilities; or

(2) if the local government is considering constructing a new facility, must be completed using comparative existing facilities with similar floor plans and identical uses.

(e) The preliminary utility audit must be provided at no cost to the local government and with no obligation to select the provider to perform an investment grade audit.

(f) For a preliminary utility audit requested under this section and before an agreement for an investment grade audit under Section 302.103 is executed, a local government may not require a provider to submit:

(1) a full engineering evaluation of the facilities;

(2) a detailed scope of construction; or

(3) any architectural or engineering designs.

Sec. 302.103. INVESTMENT GRADE AUDIT; REPORT. (a) Following successful negotiations of an investment grade audit agreement, the selected qualified provider shall perform an investment grade audit to establish the exact scope of work to be performed under a proposed energy savings performance contract. The results of the audit will form the basis for negotiating the energy savings performance contract with the local government.

(b) Before entering into an agreement for an investment grade audit under this section, the local government shall request the selected qualified provider to submit to the local government the provider's costing methodology. The costing methodology under this subsection:

(1) must include the provider's:

(A) policy on subcontractor markup;

(B) definition of general conditions;

(C) range of costs for general conditions;

(D) policy on retainage;

(E) policy on contingencies;

(F) discount for prompt payment; and

(G) expected staffing for administrative duties; and

(2) may not include a guaranteed maximum price or bid for overall design or construction under an energy savings performance contract.

(c) The scope of work for an investment grade audit must include:

(1) collecting facility information, such as data and background information on:

(A) facilities;

(B) equipment;

(C) operations; and

(D) utility use and costs;

(2) conducting an inventory of existing systems and equipment, which requires a physical inspection of the facility and an interview with a facility manager to log information on major energy and water-using equipment;

(3) establishing the current baseline and base year consumption and reconciling those with end-use consumption projections;

(4) identifying and assessing a list of potential energy or water conservation or usage measures with a detailed projection of energy savings, increase in billable revenues, or accuracy of metering equipment to be obtained at the facilities as a result of the implementation of the recommended energy or water conservation or usage measures; and

(5) preparing a detailed investment grade audit report that includes:

(A) a proposed measurement and verification plan;

(B) a sample periodic utility savings report and annual reconciliation statement; and

(C) the items described by Subsection (d).

(d) The investment grade audit report under Subsection (c)(5) must:

(1) specify the total and itemization cost of each recommended energy or water conservation or usage measure that will be included in a proposed energy savings performance contract, including projected costs associated with:

(A) the investment grade audit;

(B) the design of the measure;

(C) any engineering services;

(D) any financing and debt services;

(E) the third-party engineer services;

(F) annual measurement and verification services;

(G) annual maintenance services;

(H) training of employees; and

(I) repairs;

(2) identify the methodologies for measurement and verification, in accordance with Section 302.053, of the energy savings or increase in billable revenues, or both, for each recommended energy or water conservation or usage measure;

(3) identify all design and compliance issues that require the professional services of an architect or engineer, and identify the architect or engineer who will provide those services;

(4) include a schedule of all costs, showing a calculation of each cost of implementing the proposed energy or water conservation or usage measures and the projected energy savings, increase in billable revenues, or increase in meter accuracy that could be realized and maximized;

(5) list the subcontractors and vendors to be used by the provider with respect to the proposed energy savings performance contract; and

(6) identify maintenance requirements necessary to ensure continued energy savings, an increase in billable revenues, or an increase in meter accuracy that could be realized and maximized and describe how those requirements will be fulfilled.

(e) The outcome of an investment grade audit cannot be predetermined. The provider may not make up losses or inefficiencies to make the cost of the energy savings performance contract project appear budget neutral.

(f) The cost for an investment grade audit must be based on the cost per square foot actually audited and is intended to be the market rate for an investment grade audit. The cost may then be adjusted by mutual written agreement of the parties in the event that the audited square footage is changed by either party.

(g) On completion of the investment grade audit, the provider shall submit the investment grade audit report prepared under this section to the local government.

Sec. 302.104. REVIEW BY THIRD-PARTY ENGINEER; REPORT. (a) Before obtaining approval of a proposed energy savings performance contract as required by Section 302.105, the local government shall require the third-party engineer selected or designated under Section 302.0031 to review the investment grade audit report and supporting documentation and any subsequent change order, contract addendum, or other amendment to the proposed contract. The third-party engineer must verify that the proposed energy savings performance contract, the investment grade audit report, and the measurement and verification plan present a cohesive package that fully describes the intended scope of services.

(b) In conducting the review under Subsection (a), the third-party engineer shall provide the local government with a written opinion evaluating and validating the methodology and calculations related to energy savings, increase in billable revenues, and, if applicable, efficiency or accuracy of metering equipment associated with each proposed energy or water conservation or usage measure identified in the investment grade audit report that will become part of the final energy savings performance contract or any subsequent change order, contract addendum, or other amendment to the final energy savings performance contract. The third-party engineer may recommend that the local government not enter into the contract.

(c) In identifying and developing potential energy or water conservation or usage measures, the third-party engineer shall certify that the documents described by Subsection (a) have been reviewed and are complete.

Sec. 302.105. REVIEW BY STATE AGENCY. (a) Before awarding an energy savings performance contract, a local government shall submit the proposed contract to the State Energy Conservation Office for review and approval in accordance with this section. The office shall review the documents submitted and evaluate the economic assumptions that purportedly support the implementation of each energy or water conservation or usage measure.

(b) The State Energy Conservation Office shall evaluate the technical and economic feasibility of each energy or water conservation or usage measure in the proposed contract and either approve or disapprove each of those proposed energy or water conservation or usage measures.

(c) In addition to the submission of a final proposed energy savings performance contract under Subsection (a), the local government must submit:

(1) the final investment grade audit report under Section 302.103;

(2) the proposed measurement and verification plan;

(3) a sample periodic utility savings report;

(4) the written certifications listed under Subsection (e); and

(5) any other relevant documents determined necessary by the State Energy Conservation Office to streamline the review.

(d) In conducting an evaluation under this section, the State Energy Conservation Office shall make the office's determination on the basis of a review of:

(1) the project's scope and whether it is appropriate for an energy savings performance contract;

(2) the project's compliance with applicable provisions of this chapter;

(3) the written certifications required under Subsection (e); and

(4) the methodology and calculations related to energy savings, increase in billable revenues, and, if applicable, efficiency or accuracy of metering equipment.

(e) To obtain approval for the proposed energy savings performance contract, the local government shall submit the following written certifications for review as provided by this section:

(1) each member of the governing body shall certify that in lieu of competitive bidding or competitive sealed proposals for construction services under a public work contract, the energy savings performance contract was procured under a request for qualifications process in accordance with this chapter;

(2) the provider shall certify that neither the provider nor any of the provider's affiliates or subcontractors, or employees of the provider or the provider's affiliates or subcontractors, has bribed, or attempted to bribe, an official or employee of the local government in connection with the energy savings performance contract and has not participated in the creation of the request for qualifications for the energy savings performance contract;

(3) the provider or any third-party engineer contracted to perform a measurement and verification review shall certify that the methodologies for determining energy savings, increase in billable revenues, and, if applicable, efficiency or accuracy of metering equipment will be performed in accordance with Section 302.053; and

(4) the third-party engineer shall certify that the engineer is free from financial interest in the provider of the energy savings performance contract that conflicts with the proper completion of work associated with the contract.

(f) The State Energy Conservation Office shall complete the office's review and provide its approval or disapproval not later than the 90th business day after the date of receiving a complete proposed energy savings performance contract. Submission of an incomplete contract may result in delayed review and approval.

(g) The State Energy Conservation Office may charge a reasonable fee for conducting a review under this section, and the payment of the fee may be included in the financing for the energy savings performance contract.

(h) A local government that fails to provide documentation required by the State Energy Conservation Office in accordance with this section may not engage in further energy savings performance contracts until the documentation has been provided.

(i) The local government shall hold harmless the State Energy Conservation Office and the officers, employees, and representatives of the office from all liability, actions, claims, demands, or suits associated with the execution or performance of the energy savings performance contract.

(j) The State Energy Conservation Office may adopt rules necessary to implement this section.

Sec. 302.106. AWARDING OF ENERGY SAVINGS PERFORMANCE CONTRACT. (a) Prior to the award of any energy savings performance contract, the local government shall, in accordance with Section 302.105, submit the technical documents needed and obtain approval from the State Energy Conservation Office.

(b) On receiving notice of approval from the State Energy Conservation Office under Section 302.105, a local government shall enter into the energy savings performance contract with the qualified provider for the work, including any construction work, identified in the investment grade audit report.

(c) The local government shall provide a copy of the executed energy savings performance contract and corresponding addenda to the State Energy Conservation Office not later than the 30th day after the effective date of the contract.

Sec. 302.107. CHANGE ORDER AND CONTRACT ADDENDUM SUBJECT TO SAME REVIEW PROCESS. Each change order or contract addendum to an energy savings performance contract is subject to the same review and approval requirements of the energy savings performance contract under Sections 302.104 and 302.105.

Sec. 302.108. PROCUREMENT OF CERTAIN CONSTRUCTION-RELATED SERVICES. (a) This section applies to the purchase of a construction-related service from a provider related to an energy savings performance contract in an amount that exceeds $50,000.

(b) A local government may not use a purchasing cooperative under Chapter 791, Government Code, or a local cooperative organization under Subchapter F, Chapter 271, of this code for the purchase of a preliminary utility audit, an investment grade audit, architectural services, design services, or engineering services from a provider under an energy savings performance contract.

SECTION 11. Chapter 302, Local Government Code, is amended by adding Subchapter D, and a heading is added to that subchapter to read as follows:

SUBCHAPTER D. PAYMENTS; METHOD OF FINANCING

SECTION 12. Section 302.003, Local Government Code, is transferred to Subchapter D, Chapter 302, Local Government Code, as added by this Act, and redesignated as Section 302.151, Local Government Code, to read as follows:

Sec. 302.151 [302.003]. PAYMENT AND PERFORMANCE BOND. Notwithstanding any other law, before entering into an energy savings performance contract, the governing body of the local government shall require the provider of the energy or water conservation or usage measures to file with the governing body a payment and performance bond relating to the installation of the measures in accordance with Chapter 2253, Government Code. The governing body may also require a separate bond to cover the value of the guarantee.

SECTION 13. Subchapter D, Chapter 302, Local Government Code, as added by this Act, is amended by adding Section 302.152 to read as follows:

Sec. 302.152. PAYMENTS TO PROVIDERS. (a) Subject to Subsection (b), the governing body of a local government may pay the provider of an energy or water conservation or usage measure, including payment of debt service as defined by Section 26.012, Tax Code, solely out of the energy savings or increase in billable revenues realized by the local government under the energy savings performance contract.

(b) A payment to the provider must be based on the percentage of project completion, and not on a pre-established schedule.

(c) A local government may use excess actual guaranteed energy savings or increase in billable revenues revealed by an annual reconciliation statement under Section 302.302 throughout the term of an energy savings performance contract to reinvest in other energy or water conservation or usage measures within the scope of the contract through a change order or contract addendum as authorized under this chapter.

SECTION 14. Section 302.004, Local Government Code, is transferred to Subchapter D, Chapter 302, Local Government Code, as added by this Act, redesignated as Section 302.153, Local Government Code, and amended to read as follows:

Sec. 302.153 [302.004]. METHOD OF FINANCING; CONTRACTUAL OBLIGATIONS FOR CERTAIN CONTRACTS [TERMS OF CONTRACT]. (a) An energy savings performance contract may be financed:

(1) under a lease-purchase contract that has a term not to exceed 20 years from the final date of installation and that meets federal tax requirements for tax-free municipal leasing or long-term financing;

(2) with the proceeds of bonds; or

(3) under a contract with the provider of the energy or water conservation or usage measures that has a term not to exceed the lesser of 20 years from the final date of installation or the average useful life of the energy or water conservation or usage measures.

[(a-1) Notwithstanding other law, the governing body of a local government may use any available money to pay the provider of the energy or water conservation measures under this section, and the governing body is not required to pay for such costs solely out of the savings realized by the local government under an energy savings performance contract. The governing body may contract with the provider to perform work that is related to, connected with, or otherwise ancillary to the measures identified in the scope of an energy savings performance contract.]

(b) [An energy savings performance contract shall contain provisions requiring the provider of the energy or water conservation or usage measures to provide a guarantee.] If the term of the contract exceeds one year, the local government's contractual obligations in any one year during the term of the contract beginning after the final date of installation may not exceed the total energy and water savings, the net operating cost savings, and the stipulated or agreed upon increase in billable revenues resulting from the estimated increase in meter accuracy, divided by the number of years in the contract term.

SECTION 15. Chapter 302, Local Government Code, is amended by adding Subchapters E, F, and G to read as follows:

SUBCHAPTER E. WORK PERFORMED UNDER PERFORMANCE CONTRACT

Sec. 302.201. SUBCONTRACTORS FOR AUTHORIZED WORK UNDER PERFORMANCE CONTRACT. (a) A provider may be designated as the general contractor or prime contractor for the installation or implementation of any authorized work under an energy savings performance contract, including any improvements to be made pursuant to the contract, provided that a subcontractor contracting with the provider for that purpose:

(1) is experienced in the design, installation, or implementation of the energy or water conservation or usage measures agreed to between the provider and local government; and

(2) submits to the local government all written certifications required under this chapter.

(b) During the negotiation of an energy savings performance contract, the provider shall submit to the local government a list of subcontractors the provider intends to use and disclose whether a subcontractor on the list is a subsidiary or wholly owned or partially owned affiliate of the provider. The provider shall update the disclosure during the term of the contract.

(c) A subsidiary or wholly owned or partially owned affiliate of a provider may not be an eligible contractor or subcontractor under an energy savings performance contract unless:

(1) an analysis provided to the local government demonstrates that there is an economic advantage to the local government in having the contractor or subcontractor perform work as part of the contract; and

(2) the local government determines that having the contractor or subcontractor perform work as part of the contract provides the best value for the local government.

Sec. 302.202. WORK RELATED OR ANCILLARY TO MEASURES. The governing body of a local government may contract with a provider of energy or water conservation or usage measures to perform work that is related to, connected with, or otherwise ancillary to the measures identified in the scope of an energy savings performance contract.

SUBCHAPTER F. FRAUD DETERRENCE PROGRAM

Sec. 302.251. COMPLIANCE PROGRAM AND INTERNAL CONTROL TO DETECT AND DETER FRAUD. (a) A provider that enters into an energy savings performance contract under this chapter shall maintain a compliance program and internal controls designed to detect and deter fraudulent and corrupt conduct, including:

(1) policies and procedures to create redundancy in the subcontractor bid review, bid normalization, bid revision, and selection process; and

(2) energy savings, increase in billable revenues, and cost review processes.

(b) The policies and procedures described by Subsection (a)(1) must specifically correct or prevent the circumstances that would allow a single employee to control the subcontractor selection process and obtain kickbacks or bribes either directly from subcontractors and vendors or indirectly through intermediaries in connection with the energy savings performance contract.

(c) If necessary and appropriate, a provider shall modify an existing compliance contract to ensure that the provider maintains a rigorous compliance program that incorporates relevant internal controls, policies, and procedures designed to effectively detect and deter violation of fraud, anti-corruption, procurement integrity, and anti-kickback laws.

SUBCHAPTER G. ANNUAL REPORTS AND STATEMENTS

Sec. 302.301. ANNUAL MEASUREMENT AND VERIFICATION REVIEW; REPORT. (a) During the term of an energy savings performance contract and at the discretion of the local government, a local government shall retain the provider or an independent third party, other than the third-party engineer, to perform an annual measurement and verification review of, and prepare a report on, energy savings, increase in billable revenues, and, if applicable, efficiency or accuracy of metering equipment resulting from the energy or water conservation or usage measures when compared with the established baseline set forth in the energy savings performance contract.

(b) The measurement and verification review and report must comply with the measurement and verification methodologies described by Section 302.053 that were published or listed on the date the energy savings performance contract was entered into between the local government and provider. An independent third party retained under this section must:

(1) have the qualifications of a third-party engineer as described by Section 302.0031(b); and

(2) be retained under a separate contract from the third-party engineer selected under Section 302.0031.

Sec. 302.302. ANNUAL RECONCILIATION STATEMENT. (a) Pursuant to Section 302.051(c), the provider shall provide an annual reconciliation statement of the guaranteed energy savings or increase in billable revenues based on the results of the measurement and verification review under Section 302.301. The statement must disclose any shortfall or surplus between guaranteed energy savings or increase in billable revenues specified in the energy savings performance contract and actual, not stipulated, energy savings incurred during a given guarantee year as described by Subsection (b). If the annual reconciliation statement reveals an excess actual guaranteed energy savings or excess increase in billable revenues in a given year, the surplus may not be used to cover any shortfalls in subsequent contract years.

(b) A guarantee year consists of a 12-month term beginning on the date all the energy or water conservation or usage measures become fully operational.

(c) A provider shall pay the local government any shortfall amount not later than the 30th day after the date the total year energy savings have been determined.

SECTION 16. Chapter 302, Local Government Code, is amended by adding Subchapter H, and a heading is added to that subchapter to read as follows:

SUBCHAPTER H. ENFORCEMENT

SECTION 17. Section 302.008, Local Government Code, is transferred to Subchapter H, Chapter 302, Local Government Code, as added by this Act, redesignated as Sections 302.351 and 302.352, Local Government Code, and amended to read as follows:

Sec. 302.351 [302.008]. CONTRACTS VOIDABLE [ENFORCEMENT]. [(a)] A contract entered into or an arrangement made in violation of this chapter is voidable as against public policy.

Sec. 302.352. DECLARATORY OR INJUNCTIVE RELIEF. [(b)] This chapter may be enforced through an action for declaratory or injunctive relief filed not later than the 10th day after the date the contract is awarded.

SECTION 18. Subchapter H, Chapter 302, Local Government Code, as added by this Act, is amended by adding Sections 302.353, 302.354, and 302.355 to read as follows:

Sec. 302.353. VIOLATION OF PERFORMANCE CONTRACT PROVISION CONTAINING PROHIBITION AGAINST CONTINGENCY FEES. If a provider violates the provision of an energy savings performance contract described by Section 302.051(e), the local government may:

(1) terminate the contract without liability; and

(2) at the local government's discretion, deduct from the contract price, including any finance charges subject to the contract, or otherwise recover, the full amount of the fee, commission, percentage, gift, or consideration.

Sec. 302.354. CRIMINAL OFFENSES. (a) In this section, "person" means an individual, corporation, association, partnership, firm, or company.

(b) A person, including an employee working for a provider, commits an offense if the person offers, agrees, or contracts to solicit or secure an energy savings performance contract or subcontract related to the contract for any other person and the person is paid or to be paid any fee, commission, percentage, gift, or other consideration contingent on, or resulting from, the awarding or making of an energy savings performance contract.

(c) A person commits an offense if the person offers to pay, or pays, any fee, commission, percentage, gift, or other consideration contingent on, or resulting from, the awarding or making of an energy savings performance contract.

(d) A local government official commits an offense if the official offers to solicit or secure, or solicits or secures, an energy savings performance contract between the local government and a person and the official is to be paid, or is paid, any fee, commission, percentage, gift, or other consideration contingent on the awarding or making of the energy savings performance contract.

(e) A person who is a local government employee or contractor with any influence on the awarding or making of an energy savings performance contract commits an offense if the person offers to solicit or secure, or solicits or secures, an energy savings performance contract and the person is to be paid, or is paid, any fee, commission, percentage, gift, or other consideration contingent on the awarding or making of an energy savings performance contract between the local government and another person.

(f) An offense under this section is a felony of the second degree.

(g) If conduct that constitutes an offense under this section also constitutes an offense under another law, including money laundering under Chapter 34, Penal Code, the actor may be prosecuted under this section, the other law, or both.

Sec. 302.355. ENFORCEMENT BY ATTORNEY GENERAL AND LOCAL PROSECUTOR. With the consent of the appropriate local county or district attorney, the attorney general has concurrent jurisdiction with that consenting local prosecutor to prosecute an offense under Section 302.354.

SECTION 19. Article 59.01(2), Code of Criminal Procedure, is amended to read as follows:

(2) "Contraband" means property of any nature, including real, personal, tangible, or intangible, that is:

(A) used in the commission of:

(i) any first or second degree felony under the Penal Code;

(ii) any felony under Section 15.031(b), 21.11, or 38.04 or Chapter 29, 30, 31, 32, 33, 33A, or 35, Penal Code;

(iii) any felony under Chapter 43, Penal Code, except as provided by Paragraph (B);

(iv) any felony under The Securities Act (Title 12, Government Code); or

(v) any offense under Chapter 49, Penal Code, that is punishable as a felony of the third degree or state jail felony, if the defendant has been previously convicted three times of an offense under that chapter;

(B) used or intended to be used in the commission of:

(i) any felony under Chapter 481, Health and Safety Code (Texas Controlled Substances Act);

(ii) any felony under Chapter 483, Health and Safety Code;

(iii) a felony under Chapter 152, Finance Code;

(iv) any felony under Chapter 20A or 34, Penal Code;

(v) a Class A misdemeanor under Subchapter B, Chapter 365, Health and Safety Code, if the defendant has been previously convicted twice of an offense under that subchapter;

(vi) any felony under Chapter 32, Human Resources Code, or Chapter 31, 32, 35A, or 37, Penal Code, that involves a health care program, as defined by Section 35A.01, Penal Code;

(vii) a Class B misdemeanor under Chapter 522, Business & Commerce Code;

(viii) a Class A misdemeanor under Section 306.051, Business & Commerce Code;

(ix) any offense under Section 42.10, Penal Code;

(x) any offense under Section 46.06(a)(1) or 46.14, Penal Code;

(xi) any offense under Chapter 71, Penal Code;

(xii) any offense under Section 20.05, 20.06, 20.07, 43.04, or 43.05, Penal Code;

(xiii) an offense under Section 326.002, Business & Commerce Code;

(xiv) any offense under Section 545.420, Transportation Code; or

(xv) any offense punishable under Section 42.03(d) or (e), Penal Code;

(C) the proceeds gained from the commission of a felony listed in Paragraph (A) or (B) of this subdivision, a misdemeanor listed in Paragraph (B)(vii), (ix), (x), (xi), (xii), (xiv), or (xv) of this subdivision, or a crime of violence;

(D) acquired with proceeds gained from the commission of a felony listed in Paragraph (A) or (B) of this subdivision, a misdemeanor listed in Paragraph (B)(vii), (ix), (x), (xi), (xii), (xiv), or (xv) of this subdivision, or a crime of violence;

(E) used to facilitate or intended to be used to facilitate the commission of a felony under Section 15.031 or Chapter 43, Penal Code; [or]

(F) used to facilitate or intended to be used to facilitate the commission of an offense under Section 20.05, 20.06, or 20.07 or Chapter 20A, Penal Code; or

(G) the proceeds gained from the commission of an offense under Section 302.354(b), (c), (d), or (e), Local Government Code.

SECTION 20. Section 44.901, Education Code, is repealed.

SECTION 21. The changes in law made by this Act apply to a contract entered into or amended or modified on or after the effective date of this Act. A contract entered into or amended or modified before the effective date of this Act is governed by the law in effect on the date the contract was entered into or amended or modified, and the former law is continued in effect for that purpose.

SECTION 22. This Act takes effect September 1, 2025.