DEFINITIONS

Allocation of Funds - ESPCs may be extended beyond the fiscal year in which they are awarded, subject to the allocation of funds for expenses incurred in subsequent fiscal years. The allocation of funds is guaranteed for the duration of the contract. The Office of Management and Budget (OMB) and/or the corresponding Government Unit, in those cases in which the Government Unit is not subject to OMB oversight, shall allocate funds for payment of public utilities of each Government Unit in accordance with the terms and conditions set forth in the ESPC. Conservation Measures - Refers to any Energy Conservation Measures and Water Conservations Measures, as such terms are defined herein, implemented by a Government Unit in a Public Building with the purpose of achieving meaningful reductions in energy and water consumption in compliance with this Regulation. 2 I Page Energy Savings Performance Contract Program Amended Regulation Contract Sum - Refers to the sum of all materials, labor, auditing, design, engineering, project construction management fees, overhead, profit, contingency, tax, bonds, and subcontracted services related to an ESPC Project. Contract Administrator - Refers to the Professional Engineer (PE), and Certified Measurement and Verification Professional (CMVP) designated by the Government Unit to oversee an ESPC. Energy Savings Performance Contract (ESPC) - Refers to a contract between a Government Unit and a Qualified ESCO for the evaluation, recommendation and implementation of one or more Conservation Measures. Energy Service Company (ESCO) Refers to an entity with the experience and technical, management and financial capabilities required for the discovery, engineering, procurement, installation, financing, savings guarantee, maintenance and monitoring of energy and water saving measures that will result in energy conservation and efficiency for the Government Unit. Energy Conservation Measure (ECM) Refers to any improvement, repair or alteration, equipment, fixtures, training program or strategy of any other kind implemented or used in a building, facility or on any system that consumes energy in order obtain savings related to energy consumption by reducing operational costs or increasing operational efficiency during the useful life cycle. All measures must meet or exceed applicable state building codes. ESCO's Professional Engineer - Refers to the Puerto Rico licensed professional engineer (PE) retained by the ESCO with the purpose of ensuring that all services provided pursuant to this Regulation complies with applicable laws and regulations. The Professional Engineer (PE) must also be certified as a Certified Measurement and Verification Professional (CMVP). Financing- Act 19-2012 allows the Government Unit to finance the improvements via third party, direct from the ESCO, or other financing mechanism available, in coordination and with the financial advice of the Government Development Bank (GDB). Government Unit - Any agency, instrumentality, office or department of the Executive Branch authorities or political subdivisions of the Government of Puerto Rico, or any other defined or identified by the Administration. Investment Grade Audit (IGA) Refers to the study by the Qualified ESCO selected for a particular ESPC Project which includes detailed descriptions of the improvements recommended for the project, the estimated costs of the improvements and the utility, operations and maintenance cost savings projected to result from the recommended improvements. Measurement and Verification (M&V) Refers to the report, submitted once every three months during the contract period by the ESCO and validated by SOEP and the Contract Administrator regarding the cost savings achieved as a result of the efficiency measures implemented as part of the ESPC. The M&V services provide the Government Unit with assurance that all measures implemented and equipment installed as part of the ESPC are performing as required. 3 I Page Energy Savings Performance Contract Program Amended Regulation Notice of Interest (NOI)- Refers to the notice sent by a Government Unit to all Qualified ESCOs prior to the issuance of an RFP, requesting Qualified ESCOs to confirm whether they are interested in participating in a certain RFP. The NOI has the purpose of ensuring that ESCOs electing to participate in an RFP are aware of the nature and technical requirements of the Project and possess the skills and knowledge required to provide an adequate response to the RFP. Operations and Management (O&M) - ESCOs must provide adequate justification for O&M cost savings by providing a detailed description of how savings are generated and detail cost savings calculations. Payment and Performance Bond - Refers to the guarantee provided by the ESCO in order to ensure the timely and adequate completion of all construction and installation services in accordance to the terms of the ESPC. Professional Engineer - Refers to a person duly certified to provide engineering services in Puerto Rico as a professional engineer (PE). Procurement Process - Refers to the competitive process set forth in this Regulation through which a Government Unit selects an ESCO for the provision of Conservation Measures through the execution of an ESPC. Project Site(s) - Refers to the buildings and installations owned, operated or leased by a Government Unit for which an ESCO shall provide ESPC services. Public Building - Refers to any structure, building or facility, including its electrical and/or mechanical equipment, and infrastructure, owned, operated or leased by a Government Unit. Qualified ESCO Registry - Refers to the registry kept and maintained by SOEP identifying all ESCOs which have been qualified through a qualification process as set forth in this Regulation and which are eligible for providing ESPC services to Government Units. Savings in public utility services costs - Refers to any reduction in the cost of public utility services for a prolonged period of time due to efficiency and conservation measures that have been implemented or by reason of services rendered by a Qualified ESCO. Savings in operational and maintenance costs - Refers to measurable reductions in operational and maintenance costs which directly result from the implementation of Conservation Measures. These savings will be calculated in comparison with the operational and maintenance costs established as the baseline for calculation. Savings Guarantee - Refers to the guarantee made by an ESCO that the savings resulting from the Conservation Measures implemented will meet or exceed the cost, including financing costs, associated with implemented such measures. Surety Bond - Refers to the guarantee provided by the ESCO in order to ensure Savings Guarantees set forth in the ESPC. 4 I Page Energy Savings Performance Contract Program Amended Regulation State Office of Energy Policy (SOEP) Refers to the government agency created by Act 57- 2014 with the purpose of promoting energy conservation throughout Government Units and overseeing the implementation of energy efficiency measures through the use of ESPCs. Term of the Contract- Refers to the term of the ESPC, which shall not exceed fifteen (15) years. The term allowed in the contract shall reflect the useful life of the conservation measure but shall never exceed fifteen (15) years. Water Conservation Measures - Any improvement, modification, equipment and changes in maintenance practices or training programs designed to reduce water consumption or operating costs related to its conservation. Measures should match or exceed compliance with applicable state building codes. CHAPTER TWO: ENERGY SAVINGS PERFORMANCE CONTRACTS OVERVIEW