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F I S C A L I M P A C T R E P O R T

SPONSOR Lujan

DATE TYPED 2/19/05

HB 720/aHENRC

SHORT TITLE Natural Resource Conservation Bids

SB

ANALYST Wilson

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

See Narrative

Relates to SB 32

SOURCES OF INFORMATION

LFC Files

Responses Received From

Corrections Department (CD)

Energy, Minerals & Natural Resources (EMNRD)

Public School Facilities Authority (PSFA)

General Services Department (GSD)

SUMMARY

Synopsis of HENRC Amendment

The House Energy & Natural Resources Committee amendment to HB 720 changes the require-

ment that a qualified provider shall provide a corporate guarantee to require a letter of credit is-

sued by a bank with a Moody’s or standard and Poor’s rating of “A” or better or any other surety,

including insurance.

Synopsis of Original Bill

House Bill 720

amends the Public Facility Energy Efficiency and Water Conservation Act to al-

low cash bond, corporate guarantees and any other surety to cover guaranteed utility savings

contracts. This bill also provides for allowing competitive sealed proposals for design-build pro-

curement of projects whose primary purpose is to conserve natural resources. Guaranteed utility

savings contracts will also be subject to competitive sealed proposals.

House Bill 720/aHENRC -- Page 2

Significant Issues

The PSFA notes

o

n average, half of school maintenance budgets are for energy use, and two

thirds of this energy use is for interior lighting. Geothermal systems, like the one recently in-

stalled in Alamogordo, uses ambient ground temperature to provide heating and cooling. The

energy savings will fund the cost of the system. In addition to energy savings, it is expected to

save over 4 million gallons of water a year. The technology is robust, and systems are reportedly

easier and less expensive to maintain than swamp coolers, air conditioners and conventional

heating units.

This bill should make it easier for state agencies, municipalities, counties, school districts and

institutions of higher education to enter into guaranteed utility savings contracts by expanding

the types of guarantees that may be providing and reducing the amount of the guarantees. These

contracts allow public entities to upgrade the efficiency of their facilities with no upfront, out-of-

pocket expenditures. A qualified provider, a private-sector energy service company arranges all

financing and recovers its costs and fees through the savings resulting from the building effi-

ciency improvements.

FISCAL IMPLICATIONS

EMNRD believes over the long term, substantial savings accrue to the State and local govern-

ments from reduced utility costs. New Mexico taxpayers are thus the ultimate beneficiaries of

this bill since their tax dollars cover the operating expenses of all public facilities. The occu-

pants of upgraded public buildings—government workers, teachers, and students—will also reap

the benefits through more comfortable, better lit offices and classrooms that have been shown to

increase learning and productivity.

ADMINISTRATIVE IMPLICATIONS

EMNRD’s review of the additional guaranteed utility savings contracts anticipated as a result of

this bill’s enactment can be accomplished with existing staff resources.

GSD can manage a change to the procurement code with existing staff.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

HB 720 relates to HB 32 which creates the Energy Efficiency and Renewable Energy Bonding

Act to fund energy efficiency measures in state and public school buildings with the proceeds of

bonds issued for that purpose.

TECHNICAL ISSUES

Section 3 adds new material to the Procurement Code allowing for competitive sealed proposals

for design and installation of measures to conserve natural resources. This appears unnecessary

in light of the Section 2 change to Section 13-1-22D requiring competitive sealed proposals in

procuring these measures.

House Bill 720/aHENRC -- Page 3

OTHER SUBSTANTIVE ISSUES

EMNRD suggests removing the language in page 2, lines 3 and 4 and substituting the following

language: “in the form of a performance bond, a cash bond or any other surety, including insur-

ance, satisfactory to the governmental”. This amendment is proposed to eliminate a “corporate

guarantee” as an authorized performance guarantee because a corporate guarantee does not pro-

vide the same level of protection for public entities as a performance bond or cash bond. The

GSD concurs in this proposed amendment for the same stated reason. The amendment also in-

cludes “insurance” as an authorized performance guarantee because it would provide a level of

protection commensurate with that of a performance or cash bond.

DW/lg:sb