Hinojosa Bill Makes Contingent-Fee Energy Deals A Second-Degree Felony

The text as introduced · 8,141 words

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.