Justices of the peace acknowledged this week that debt incurred for facility upgrades could be serviced by the utility savings the improvements would generate, but they were wary of committing the county to a long-term obligation with uncertain requirements.
The energy services division of Wisconsin-based conglomerate Johnson Controls first pitched performance contracting to the Garland County Quorum Court's Public Health, Welfare and Safety Committee in April. This week, Johnson Controls released its preliminary analysis of potential energy savings in the county courthouse complex, county library and county health department, showing lighting upgrades and an energy management system can generate $1.5 million in utility savings over the life of a 15-year performance contract.
That money would service debt to pay for the improvements and possibly other upgrades, Johnson Controls said, allowing the county to hold utility line items at current levels and use cash flow from the lower utility costs to pay down the loan. It projects the county's $457,000 in utility costs last year at its suite of buildings, excluding the detention center that opened last June, could be reduced by 25 percent.
Johnson Controls guarantees the savings through a measurement verification fee that's rolled into the loan, with savings in excess of the debt service requirement being returned to the county. The Legislature amended the law last year to allow local governments to use the financing plan, a nod to what Alex Ray, building solutions executive in the company's Little Rock office, said in April was a backlog of "tens of millions of dollars" of deferred maintenance burdening local governments.
The law requires that utility and operational savings proceeding from the capital upgrades outpace the debt incurred to implement them. The budget neutral appeal of performance contracting notwithstanding, several JPs questioned if lighting upgrades and a control system regulating thermostats merited the long-term commitment when the county's heating, ventilation and air conditioning needs are more immediate.
"Even though it's no new funds, we're making a long-term engagement with you," District 12 JP Darryl Mahoney, committee chairman, told the company's representatives. "We won't be here to see it through. I have a problem engaging the people that follow me into something like that."
Estimates for a new HVAC system at the health department are between $48,500 and $60,921. Earlier this year, the quorum court appropriated $35,000 for a new roof at the health department, highlighting a laundry list of maintenance challenges facing county buildings made worse by years of deferred maintenance and capital expenditures.
Ray told JPs the contract could be adjusted to focus on HVAC needs, but said lighting upgrades and a control system have the biggest potential for utility and operational savings.
A $40,000 investment grade audit of the county's energy savings potential is required for it to move forward with the plan. The cost would be folded into the loan, with the county still obligated to pay for the audit if it chose not to proceed with the improvements. The cost would be avoided if the audit didn't identify savings sufficient to finance the upgrades.
County Judge Rick Davis said Friday that he was skeptical of the savings potential at the courthouse in light of its recent lighting upgrade. He was also uncertain of the savings a new HVAC system would generate at the courthouse, considering the draftiness of the building.
"If we can't fix the envelope of the building, I don't think they can make it work with that amount of savings," he said. "The windows are so old, it's next to impossible to keep wind from coming through without a major overall."
Johnson's savings guarantee is conditioned on the county following agreed-upon maintenance and usage practices, such as keeping thermostats at certain set points, that Davis said could be difficult to honor.
"If we don't do everything strictly by the book, it kind of nulls and voids everything we're talking about," he said. "That's a concern. It's something the quorum court has to think about. There's pluses and minuses."
Ray told JPs forgoing the assurances of performance contracting imposes a risk that could be avoided.
"This is a risk transfer mechanism," he said. "If you go out and spend $1.5 million of your own capital reserve and do improvements, and it doesn't work, it's on you to figure it out. To litigate it. To chase it down and figure out why it didn't work.
"You spend $1.5 million with an energy services company, and it doesn't work. It's on them, not on you."
Local on 06/26/2016