SB 1050

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,
(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
(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 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
SECTION 4.  Subchapter A, Chapter 302, Local Government
Code, as added by this Act, is amended by adding Section 302.0031 to
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
(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
(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
(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
(B)  a wholly owned subsidiary, majority-owned
subsidiary, parent company, or affiliate of the provider for the
(4)  not be otherwise associated with the energy
(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
(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
(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
(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
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
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
(1)  the contract includes the provisions required
(2)  the local government receives approval for the
contract from the State Energy Conservation Office under Section
(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
(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
(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
(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
(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
(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
(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
(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
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
(B)  the International Performance Measurement
and Verification Protocol maintained by the Efficiency Valuation
(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
(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
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
SECTION 8.  Chapter 302, Local Government Code, is amended
by adding Subchapter C, and a heading is added to that subchapter to
SUBCHAPTER C.  PROCUREMENT PROCEDURES FOR ENERGY SAVINGS
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
[(1)  has a minimum of three years of experience in
[(2)  is not an officer or employee of a provider for
[(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
(d)  The scope of an energy savings performance contract may
not be modified under this section by change order, contract
(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
(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
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
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
(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
(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
(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
(1)  must include the provider's:
(A)  policy on subcontractor markup;
(B)  definition of general conditions;
(C)  range of costs for general conditions;
(F)  discount for prompt payment; and
(G)  expected staffing for administrative duties;
(2)  may not include a guaranteed maximum price or bid
for overall design or construction under an energy savings
(c)  The scope of work for an investment grade audit must
(1)  collecting facility information, such as data and
(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
(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
(A)  a proposed measurement and verification
(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
(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;
(D)  any financing and debt services;
(E)  the third-party engineer services;
(F)  annual measurement and verification
(G)  annual maintenance services;
(H)  training of employees; and
(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
(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
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
(1)  the final investment grade audit report under
(2)  the proposed measurement and verification plan;
(3)  a sample periodic utility savings report;
(4)  the written certifications listed under
(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
(3)  the written certifications required under
(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
(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
(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
(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
(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
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
SECTION 13.  Subchapter D, Chapter 302, Local Government
Code, as added by this Act, is amended by adding Section 302.152 to
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
(b)  A payment to the provider must be based on the
percentage of project completion, and not on a pre-established
(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
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
(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
[(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
(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
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
(2)  energy savings, increase in billable revenues, and
(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
(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
(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
(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
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,
(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
(f)  An offense under this section is a felony of the second
(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
SECTION 19.  Article 59.01(2), Code of Criminal Procedure,
(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
(ii)  any felony under Section 15.031(b),
21.11, or 38.04 or Chapter 29, 30, 31, 32, 33, 33A, or 35, Penal
(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
(i)  any felony under Chapter 481, Health
and Safety Code (Texas Controlled Substances Act);
(ii)  any felony under Chapter 483, Health
(iii)  a felony under Chapter 152, Finance
(iv)  any felony under Chapter 20A or 34,
(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
(vii)  a Class B misdemeanor under Chapter
(viii)  a Class A misdemeanor under Section
306.051, Business & Commerce Code;
(ix)  any offense under Section 42.10, Penal
(x)  any offense under Section 46.06(a)(1)
(xi)  any offense under Chapter 71, Penal
(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,
(xiv)  any offense under Section 545.420,
(xv)  any offense punishable under Section
(C)  the proceeds gained from the commission of a
felony listed in Paragraph (A) or (B) of this s