Legislation aims to streamline complex energy-savings contracts

The first time Mike Walsh, East Hartford’s director of finance, heard the words “performance contract,” his response was, “What’s that?”

He certainly found out.

“They are a pain in the butt,” he said. And he loves them.

“Simply put,” Walsh said “you take money otherwise put into energy use and put it into upgrading.” But “simply put” is not a phrase that comes to mind in the world of performance contracts.

That’s why the issue is on the General Assembly’s agenda this session in the form of legislation to streamline and standardize this municipal-based means to achieve energy efficiency. It’s been around for decades in many states, but largely unused in Connecticut.

The idea is to approach energy efficiency through cities and towns rather than individual small-scale projects–a rebate here, an Energy Star appliance there–and without a top-down state policy. Performance contracts carry the promise of job creation and in turn economic stimulus.

Performance contracts allow communities to finance energy efficiency projects with the money they will save on energy. The savings are contractually guaranteed or the contractor makes up the difference. The catch? You need an ironclad contract.

“Ours was in excess of 105 pages and 30 or 40 of the pages looked like calculus,” said Walsh of East Hartford’s $5 million 12-year contract for 18 buildings. “It was structured so it did not increase the operating budget of the town by one cent.”

Most communities have neither the expertise nor the resources to slog through the legalese or monitor details – a process Walsh called unnerving. So East Hartford hired an independent auditor to verify the contractor’s work.

Four years into the project, East Hartford has seen a more than 30 percent energy savings through upgrades including new windows, lights, a pool cover, electronic controls for facilities that can be run by remote control and even time-out settings for vending machines to reduce energy usage overnight. They’re so happy they’re just wrapping up a second contract for $7.3 million.

The legislation creates a standardized the contract for the state building upgrades that cities and towns can use. It prequalifies contractors, cutting legal and document costs as well as time.

“It streamlines the process in a logical order with standardized steps so you don’t have to reinvent the wheel and create new documents each step of the way,” said Roger Smith of Clean Water Action, who became aware of performance contracts and their complexities while working with the energy task force in his own town – West Hartford. “You’re not obligated to take any of these services,” Smith said. “If want to do it yourself, be my guest.”

Smith’s concern is that because the measure is outside the session’s main energy bill-Senate Bill 1–it might get lost in the end-of-session frenzy.

The Connecticut Conference of Municipalities has expressed concern that communities could face extra costs for state oversight.

In Windham, among the state’s poorest communities, Mike McGlew, director of buildings and grounds, said he could have used some guidance on his town’s $5.5 million performance contract. “Pulling my hair out?” he asked. “I can’t tell you the hours I spent on this thing.”

But two years into a 13-year contract, Windham is seeing savings from many of the same changes East Harford made, as well as from gas boilers and generators that put energy back into the grid. The improvements  include new windows at the high school. “Those kids don’t have to wear jackets anymore,” he said.

In Farmington, in the early stages of figuring out whether to do a performance contract, Town Manager Kathleen Eagen has learned the standard lesson. “It’s sort of overwhelming,” she said.

As for state help, she said, “in theory it seems like a good idea. As long as it doesn’t track back and cost the towns money.”

Jim Cotton the New England sales manager for Johnson Controls, East Hartford’s contractor, said similar legislation in Massachusetts in 2006 resulted in a work spike there. “Any time a state has enabling legislation, it gives towns a path to get it done,” he said adding that means more jobs.

Christopher Halpin of Celtic Energy, the independent firm Windham hired to monitor the work of their performance contractor, was blunt. “This is going to actually give me a lot more business,” he said, noting that it saves money and time by not having to walk each town through the process.

Rep. Matthew Lesser, D-Middletown, a member of the energy and technology committee, said simplifying performance contracting can provide a major benefit to cities and towns.

“At a time when we are in the middle of a budget fight, with questions of whether to make cuts in services or raise taxes,” he said, “here’s an opportunity to cut cost without doing either.”