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.