Five elements to look for in a financing partner

Terry R. Schadoff,
GE Capital-Potomac Federal

Due to energy reduction mandates, federal agencies want and need energy-efficient technologies as well as infrastructure modernization solutions from utilities. But with operating and maintenance costs continually rising-and budgets and appropriated funds failing to keep pace-agencies sometimes just can’t afford the systems they need.

That means a utility’s expertise in implementing operational changes for reducing energy consumption may not be enough to close a government project anymore. A utility must provide a total solution with both the energy-efficient system needed and a way to pay for it.

Utilities can offer that total solution by enlisting a third-party financing partner. Through careful evaluation of a financing company’s resume, utilities can choose a partner that will help them efficiently close more projects. Five points to consider are:

1. Experience in financing government projects

The most common utility programs available to federal agencies today are programs in which utilities prepare a tailor-made package of options using agreements such as Area Wide Contracts (AWCs), Basic Order Agreements (BOAs), Agency Model Agreements and Site-specific Agreements. Clearly, a utility has the experience needed to propose the best energy-efficient system using these customized programs. But to provide a “total” solution, a utility also needs a financing structure tailored to the federal agency.

Only a partner that knows, understands and is committed to the federal government market for the long-term will have the ability to develop these tailored financing structures. For example, GE Capital-Potomac Federal designs financial plans to meet evaluation criteria contained in government RFPs and customizes financing structures for:

  • Competitive solicitations,
  • AWCs, BOAs and other agreements,
  • Open market and performance contracts,
  • Services contracts where revenues are volume dependent, and
  • General Services Administration Federal Supply Schedules.

Experience in financing government projects is vital to making the creation of customized financing structures as easy as possible. By capitalizing on this experience, a utility can avoid the hassle of teaching the financing company about the federal government market, and the federal agency can avoid the hassle of having to search for funding elsewhere.

2. Knowledge of the negotiation process and surrounding regulations

Contract negotiation can be a long and complicated process particularly when it involves procurement and acquisition regulations. As a utility often wants their financing partner involved in these negotiations, that partner should have considerable knowledge of the process.

A financing company lacking knowledge of the process will seem unprepared and inexperienced throughout a contract negotiation-making the utility seem unprepared and inexperienced as well. Conversely, a partner with this knowledge can be a valuable tool in negotiation because the utility does not have to act as a middleman or financing expert. The partner is present throughout the process to explain the benefits of third-party financing, answer the agency’s financing questions and work with the utility to provide both the needed energy-efficient solution and the needed funding.

3. Relationships with federal government agencies

Often, a utility has an existing and well-established relationship with a federal agency under an Area Wide Contract. This relationship allows the agency to get the energy-efficient system they need faster since there is a streamlined procurement process unlike the lengthy process and complex conditions typically associated with an Energy Savings Performance Contract (ESPC) procured through an energy services company (ESCO), a utility’s main competition.

The same theory holds true for a utility’s financing partner. If the partner has an existing relationship with an agency, that agency will feel more secure and comfortable regarding the financing aspect of the project. The financing company will already know and understand the needs of the agency and be able to quickly provide a more efficient and effective financing structure.

By leveraging a known and trusted financing partner, a utility can provide both energy-efficient systems and accompanying financing fast thereby gaining an even greater edge over the competition.

4. Industry and transaction size expertise

There are all types of financing companies. Some specialize in smaller-ticket deals, under $50,000. Some only finance medical or scientific equipment. Others work only in the United States. That’s why transaction size and industry expertise are key when choosing a financing partner.

If an electric utility is planning to implement a $7 million energy-efficient system at a Department of Defense facility overseas, their financing partner better be able to accommodate the request. That means the company needs experience financing deals for energy-efficient systems of over $5 million and experience financing overseas. Although there are a lot of financing companies in existence, not many will be able to fit that bill.

And the only way to know if a financing company fits the bill is through asking specific questions regarding both the utility’s and agency’s needs.

5. Customer service support and consulting skills

From the first sales call to the deal closing and beyond, a utility’s financing partner should be exactly that, a partner. That means a company that will provide training and support to help make financing an effective sales and closing tool. For example, GE Capital-Potomac Federal works with its partners to present the advantages of financing through a utility. Upon hearing benefits such as the ability to use energy and operational savings to satisfy payment obligations, an agency will often decide that a utility serves as a more cost-effective solution for reducing energy consumption.

In addition to support at closing, the right financing partner will also offer services throughout the life of the contract including assumption of ongoing administration such as billing and collection. This value-added service can help the utility better manage its customer base.

Schadoff is senior vice president and general manager of GE Capital-Potomac, McLean, Va. He may be contacted at 703-749-3520, ext. 208; e-mail terry.schadoff@gecapital.com.

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