Town Council Takes A Look At Performance Contracting
November 5, 2009 by Josh Morgan
Performance based contracting has been a topic of discussion in town over the past few years, and last week the Town Council got a first hand look at how it could work.
Christopher Halpin, president of Celtic Energy, an energy-consulting firm, told the Council about projects in the state and across the country where performance-based contracting has been successful. Before talking about how it could work in Cheshire, Halpin first had to explain exactly what performance-based contracting is. In short, he explained that a project is not paid for with taxpayer dollars, rather, the project is funded through savings, usually related to energy costs. For instance, the Town and an energy service company (ESCO) would enter into a contract where the ESCO would guarantee a certain reduction in costs and pay for the project. Coupled with grants, the savings would be used to pay back the ESCO over the length of a contract, Halpin explained.
“It’s reallocating the spending, you are not adding new debt,” Halpin said. “You have all the leverage until the very end. There is nothing out there quite like this.”
Haplin explained that nearly all of the risk would be on the ESCO, because they need to make a promise and then deliver. He said the company wants to make money and that would not be achieved unless they gave the Town what it was promised.
“It is in their interest to make sure the system works, otherwise they don’t get paid,” Halpin said. “They want to be paid each year of the contract, but they won’t get a penny unless the project is done and operating as it was promised.”
While a lot of older buildings might not be energy efficient, newer buildings could also have problems, Halpin said. He shared some examples of his work out in Nevada, where lights were running outside of a building during the day. Within a matter of minutes, he identified areas where the company could save money, and the same could be said about almost any building in any town, Halpin explained.
“I could walk into a building two or three years old and find 20 percent energy savings in 20 minutes by just walking around,” Halpin said. “It’s not just old buildings that can benefit from this.”
He explained the traditional way a project comes together, where a design is created and then the project is sent to bid and is built. Under those circumstances, energy savings typically don’t factor in, Halpin acknowledged. He said these companies “don’t care what your electric bill is” and want to finish the project at budget. With a performance contract, a company needs to achieve cost saving reductions to get paid. Halpin said an ESCO would not just look at the energy bills and make a recommendation; rather they do research to determine actual savings. To determine lighting savings, Halpin said meters would be hooked up to the electric panel so a company could determine how much electricity is consumed before and after lights were changed.
“This is a very complicated and involved process,” Councilor Matt Altieri said, “but, an intriguing one, in my opinion.”
Councilor Tim White said there were three things a performance contract would accomplish, and believed it was a “great idea” for the Town to pursue.
“We can save money, conserve energy, and improve the infrastructure,” White said.
If the Town were to pursue a performance-based contract, a company like Celtic Energy could be hired as a consultant to monitor the project and help pursue grant money from different state and federal sources. At issue, however would be that, since a project would not be funded through tax dollars, it might not have to be approved by voters at referendum. Town Manager Michael Milone wanted to consult with the Town attorney and get a legal opinion before pursuing any performance-based energy contracts.
“If anything out there has to do with energy and sustainability, we can do it,” Halpin said. “There is a pool of money out there and it’s a matter of sitting down and finding it.”