By Peter V.K. Funk, Jr.
Mission Critical magazine
August 2014

Like it or not, the path to energy conservation and sustainability is paved in contracts, compliance and other legal considerations.

Prior issues of Mission Critical, including the January/February 2014 issue, make it clear that energy efficiency and conservation and other energy topics in data centers involving cooling are hot. From my perspective as an attorney who has been involved in hundreds of energy conservation projects, projects are primarily approached from a technical and engineering viewpoint, but it is worthwhile to keep in mind that each project involves legal considerations and tasks.

The following articles in that January/February 2014 issue provide illustrations of potential legal considerations that should be considered when implementing energy-related projects

Sustainable Opportunities with Liquid Cooled Electronics - by Terry Rodgers discusses a developing technology, liquid cooled equipment without a chiller plant. Interestingly, the article notes that the possible benefits of this new technology were illustrated during the outage of a conventional technology, a chiller plant.

New technology necessarily raises reliability and other performance risks and its implementation gives rise to certain contractual considerations. Any contract for the purchase of new technology necessarily allocates risks between the parties which have not been well established. Sellers and buyers should consider to what extent each party should bear these uncertain performance risks.

The article observes that, in light of close-coupling of cooling systems to heat sources, there is a strong possibility that a failure and a resultant heat transit event would damage IT equipment. This illustrates the type of reason that particular attention must be paid to the guarantee provisions and the remedies provided in contracts used to implement this new technology. Agreements prepared by manufacturers can include very limited (in time or scope) or highly conditioned guarantees which must be viewed in light of the real world conditions in which the equipment will operate.

A review of the contract should not be limited to checking a box titled, “Guarantee.” Guarantees (particularly for new technology equipment) should specify when the guarantee is triggered, what performance level is guaranteed, and how the guarantee works. Does it include materials and on-site labor? What actions by the guaranteed party, such as self-help or the use of an unapproved contractor, might terminate the guarantee? Legal review of guarantees and related provisions should also include a consideration of possible Uniform Commercial Code or other state law issues in order to avoid ambiguity and disputes about these and other provisions.

The article refers to ASHRAE TC9.9 “Liquid Cooling Guidelines for Datacom Equipment Centers,” which is an example of the greater specificity that should be considered for inclusion in contracts for liquid cooled equipment. Reference to accepted performance standards in contracts can provide a useful basis to both parties for evaluating equipment performance. Some contracts just include language such as “generally accepted utility standards” or “must conform to applicable ASHRAE standard or guidelines.” Contracts that contain these types of general references to standards without specifying pertinent portions of those standards can produce uncertainty in the event of a dispute as to precisely what standard was intended. For that reason, it is important to clarify what standards are applicable to identifiable provisions in the contract as illustrated in this article. In cases where multiple portions of any selected standard might become applicable, the reference might refer to the general standard and then, in addition, state “including but not limited to, the following sections thereof.”

Measuring and Improving Data Center Cooling Efficiency - by Lars Strong explains and supports the importance using cooling capacity factor (CCF) as a metric for determining and reducing data center cooling over-capacity. He points out that the commonly used formula, power usage effectiveness (PUE), fails to accurately calculate cooling effectiveness or efficiency, which makes it difficult to determine the extent of and to remedy cooling over-capacity.

It is key to select the appropriate standard of measurement whether performing energy-related engineering evaluations or when drafting contractual provisions addressing, for example, the extent to which energy savings have been achieved. Many energy projects are financed by energy performance contracts in which the contractor installs energy conservation measures (ECMs) at no cost to the owner and the cost (and debt service) is paid from the savings achieved. As applied to the projects envisioned in this article, ECMs could include replacement HVAC equipment designed to align data center cooling capacity to the requirements of the data center.

Parties to energy performance contracts and shared savings agreements should pay particularly close attention to how such clauses are drafted since these are used to calculate the compensation to be paid to the contractor and also are a factor in determining the “success” of the project. Prior to signing any performance contract, I recommend running “sensitivity” calculations based upon such provisions by inputting possible meter readings in order to see the results of calculations made based upon the wording of the provision. It is important that these provisions and formulae properly and completely measure the savings achieved.

Unfortunately, I have seen engineering formulae and contractual provisions that include kWh savings but fail to include savings that relate to important utility bill components such as delivery or demand charges. For that reason, such an incomplete provision will not result in a calculation that shows actual project savings. This not only provides misleading financial information to the parties but may diminish the contractor’s (such as an energy services company or ESCO) ability to cover any debt service that the contractor has incurred to build the project. Similarly, as Mr. Strong illustrates in the article, failure to accurately determine the cooling capacity can mislead the owner into not taking necessary steps or into taking unnecessary steps.

How Much Good Will Does 5 Million Gallons Buy? - by Chris Crosby discusses the use of wastewater for data center cooling. This use raises a host of environmental and other issues that need to be addressed and resolved. The heated wastewater must be transported from the utility to the data center where its thermal energy will be used to produce cooling — which will require permitting and possibly an environmental impact statement. Even if the data center is co-located with the utility plant, permitting of the pipeline to transport the wastewater will require an approval and permitting process. The water, once used, then must be disposed of, presumably in the Little Patuxent River.

Unless the wastewater is returned to the utility after expending its thermal energy, it appears that the data center, for all intents and purposes, will have assumed the utility’s waste disposal role and all of its burdens in return for heated water. What are the contents of the wastewater? Ongoing testing will be required. This may be a good bargain for the data center in the long run but will bring with it significant additional legal burdens, although these will presumably be less in light of the fact that the data center will be owned and operated by the federal governmental. The bottom line is that a legal analysis of the compliance requirements, together with a projection of the cost of legal compliance, is essential in order to determine whether this kind of approach to cooling is financially worthwhile in each instance.

Lifting the Fog of Evaporative Cooling - by Tom Boyson discusses the advantages of evaporative cooling in certain regions of the continental United States and notes that even within such regions these systems can only be operated in specific climatic (heat and humidity) conditions. It is clear from the article that evaporative cooling is not for every data center and that specific requirements apply to those which use this form of cooling. Mr. Boyson notes in the summary the importance of managing client expectations regarding the conditions and potential for evaporative cooling.

So as to avoid disputes, any contact for the installation of such a system should set forth in detail all of the climatic and location prerequisites for proper operation and state that any warranties provided are contingent upon the data center operating in conformance to such requirements. Further, in order to ensure a “neutral” record of such conditions, it would make sense to install a device for the purpose of keeping an hourly record of temperature\humidity conditions. To depend upon operating personal to manually record such conditions during operation of the evaporative system may result in an incomplete record or even challenges to entries in the event of a dispute based upon a malfunction. For that reason, an automatic system should help to avoid disputes as to whether the system was operated in appropriate climatic conditions. Temperature and humidity records from an airport in the region would likely be insufficient to provide an accurate record.

A Legal Checklist for Energy Conservation Contracts

Contractual disputes have been brought to me which stem from contractual documents which evidenced that great care had been devoted to the specifications, less care devoted to the body of the contract (“boilerplate” was added to a written proposal), and scant if any time spent on checking for legal consistency between the body of the contract, the proposal, and the specifications.

The genesis of such a situation can be that engineers and technical\business personnel assemble and prepare the specifications but are not responsible for handling the business portions, which may be a sales function. These attachments are not regarded as “legal” documents and therefore are not given legal review but, in fact, can contain many contractual obligations of the parties such as specific and implicit guarantees of performance, timing, and cost that may be at odds with the legal “boilerplate.”

As a lawyer, after a dispute has arisen, I have sometimes been sent a pile of documents and told that these constitute the contract and that “everyone understood the contract.” Worse, sometimes the “contract” includes legal boilerplate from both the seller (in the proposal) and buyer (the sale\purchase agreement) without a “hierarchy” provision to help sort out which of the inevitably conflicting provisions apply. There are dangers inherent in allocating responsibility for portions of the contract and the attachments without including in the process a careful review, both technical and legal, of the entire contract prior to signing.

As a general conclusion, it is important to consider the legal tasks (sooner rather than later) relating to a project. The following checklist includes certain legal tasks that should be considered depending upon the nature of the project:

• Identifying the contracts that will be necessary
• Preparing or reviewing contracts and negotiating the terms
• Identifying applicable regulatory or permitting requirements and compliance
• Reviewing and complying with any lease, real property, or zoning requirements
• Reviewing the terms of any agreements with incentive providers (such as the NYSERDA in New York State)
• Confirming the availability of tax benefits, such as Federal Business Energy Investment Tax Credit or Modified Accelerated Cost-Recovery System (MACRS) or local property tax abatements for ECMs, and also making sure that any existing tax benefits will not be adversely affected
• Considering the interface between the project contracts and other vendor contracts and/or agreements with companies serviced by the data center
• Reviewing changes (reductions/increases) in electric, gas, thermal, and other energy requirements and considering these in light of utility tariffs and contracts with energy providers (such as ESCOs)
• Reviewing any existing contracts with contractors that have provided energy reduction services or equipment (such as energy performance contracts) for which contract terms may still be in force
• Checking to make sure the completed work will not negate any existing equipment guarantees.