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Solar Power and Energy Conservation as Solutions Chapter j 9 161

Energy Service Contract and Facility Ground Lease by Public
Agencies

To implement the public policy set forth in Public Resources Code section
25008, the California Legislature in 1986 adopted and added Chapter 3.2 of
the Government Code (sections 4217.10 through 4217.18), which authorizes
public agencies to enter into energy service contracts for the development of
energy conservation, cogeneration, and alternate energy supply sources,
without competitive bidding (referred to hereinafter as “4217 Contracts”).
School districts, community college districts, counties, cities, districts, joint
powers authorities, or other political subdivisions are included in the definition
of “public agency.” (Gov. Code Section 4217.11, subd. (j).)
The use of 4217 Contracts has been utilized more than any other con-
tracting mechanism by LEAs and community college district to implement
both energy conservation and energy generation projects because of its flexi-
bility and straight forward compliance requirements.
Although a direct energy service contract and related facility ground lease
may be entered into without competitive bidding if Proposition 39 funds are
not intended to be used, a limitation to using this contracting method is the
requirement that the contract only involve alternate energy equipment,
including but not limited to solar, maintenance, load management techniques,
or other conservation measures that result in the reduction of energy use or
makes for a more efficient use of energy. (Gov. Code, Section 4217.11, subds.
(a) and (c).) For example, an energy service contract may not include the
installation of air conditioning where no form of air conditioning existed
previously, as the addition of the air conditioning would result in an increase,
not a reduction of energy use. In this case, the air conditioning component of
the project would require competitive bidding, assuming the estimated cost
would exceed the bidding amount threshold of the particular public agency.
As a condition to entering into an energy service contract and any neces-
sarily related facility ground lease, the governing board must determine that
entering into such agreements are in the best interests of the public agency.
Except for State agency heads who can make the findings described later
without holding a public hearing, the governing boards of all other public
agencies must make the “best interests” determination at a regularly scheduled
public hearing in which public notice has been given at least 2 weeks in
advance. To support this determination, the board must find: (1) that the
anticipated cost to the agency for thermal or electrical energy or for the
“energy conservation facility” under the contract will be less than the antici-
pated marginal cost to the agency of thermal, electrical, or other energy that
would have been consumed by the district in the absence of those purchases;
and (2) that the difference, if any, 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 purchase or other benefits provided under