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Selecting an Energy Service Provider

By Lindsay Audin - May 2005 - Equipment Rental & Tools


Contractors exist for just about anything that relates to how a facility uses energy. That includes buying it, getting billed for it, accounting for it, consuming it and controlling it. Facility staff might already be involved in some of these tasks even if others have been outsourced.

But too often, customers first consider contracting for energy services when confronted by a sales pitch or proposal from an energy services vendor. Doing so may draw attention away from what is really needed or desired. Allowing a vendor to set the agenda may limit the discussion to the services that firm provides. Instead, start by reviewing desired end results, and then look for vendors to help achieve them.

The cost of energy continues to rise and the options for handling it become more complex and varied. Having a clear idea of the contract services that can benefit an organization, and specifying those as part of an energy services agreement, helps avoid disappointment, problems and maybe even litigation.

Reasons to Consider Service Contractors
The choice to outsource energy services follows the same path as that for outsourcing other services: If it’s not necessary to have a permanent employee to address an issue, consider outsourcing the position. When energy prices escalated in the ‘70s, many facilities hired full-time energy managers to oversee projects to cut energy costs. As the most cost-effective upgrades, such as lighting, were completed, justification for keeping such people lessened and many retired or were let go. Remaining upgrades often had much longer payback periods, especially after energy costs dropped, and often were not pursued.

Energy issues and technologies have also become increasingly complex, often requiring a higher level of knowledge and expertise than commonly available among facilities management personnel. While further training is always an option, it does not provide the experience needed to avoid costly mistakes. Many have found it easier and less risky to contract with a vendor that already handles such issues.

Using One or Several Contractors
One of the toughest decisions is whether to have energy services handled by one energy service company (ESCO) or to split the tasks among several vendors. The choice depends on a range of factors, many of which are outlined in How to Hire an Energy Service Company, a free handbook from the California Energy Commission (CEC).

The CEC handbook suggests an initial self-evaluation that asks such questions as:
  • What are organizational strengths and weaknesses?

  • Is help needed getting internal buy-in to pursue an energy project?

  • Is help needed to identify and implement projects?

  • Can existing staff install and manage an energy project and maintain equipment?

  • Is project financing needed?

The CEC handbook also provides a useful matrix of choices based on how those questions are answered.

Assigning all energy-related duties to a single vendor may seem the easiest way to go, but may create other risks, such as:

  • Dependence that makes changing vendors difficult or disruptive.

  • Loss of “institutional memory” regarding the facility’s preferences and operations.

  • Possible conflicts of interest, which can occur when a vendor must prove savings claims.

  • Missing out on options and equipment not offered by the vendor.

  • Difficulty controlling the quality of the vendor’s work.

What doesn’t make sense is hiring numerous contractors, each having a small piece of the energy pie, without also having an experienced energy manager on staff to coordinate work. In one case, an HVAC contractor was hired to install a system for reducing peak electric demand, which was expensive when power was bought from the local utility. Unaware of the new system, a power procurement contractor then arranged a power contract insensitive to peak demand charges, making the new system nearly worthless.

Having a separate arrangement with an independent energy consultant who reviews the ESCO’s work and coordinates it with actions by others helps keep everyone honest. It also pays to maintain direct contact with ESCO subcontractors to preserve the option to pick the best people if it later becomes necessary to replace the ESCO with individual contractors.

Finding Vendors
Finding service contractors capable of meeting facility needs can be challenging, although not necessarily any more so than finding contractors to perform other services. Obtaining referrals from associates who have already hired contractors to provide energy services is one approach, as is performing Web searches to review posted lists of vendors used by others, particularly government agencies. Contacting vendor trade associations, such as the National Association of Energy Service Companies, might prove helpful as well.

If either time or staff resources can’t be dedicated to finding energy service contractors, it’s even possible to even outsource that task. Some energy consulting firms act as matchmakers for connecting customers with energy service providers. Prior to contracting with a consulting firm, require disclosure of any relationships it has with service providers.

How to Choose
To choose an energy service provider, it’s wise to issue a request for qualifications document. A sample of the document can be found in the appendix of the California Energy Commission handbook. In addition to issuing the document, facility executives should review projects completed by vendors, visit the sites and talk with those served about their experience. Be sure to ask how they would do things differently in the future. In addition, review and spot check the credentials, certifications and resumes of the manager and major players that would be serving the facility, especially for relevance. A boiler certification, for instance, is of little use when performing lighting upgrades.

Another good check is to see if the vendors are listed as preferred or licensed contractors with any state or federal agencies. Also, review the specifications and deliverable descriptions to be used by potential providers. Where appropriate, compare them to the present maintenance and design specs. Ask if specs may be added to the service contract to control the quality of the vendor’s work.

Lastly, don’t be afraid to check the credit history of the vendors or to check with state and local licensing agencies or the Better Business Bureau. Another good practice is to perform an Internet search on the name of the vendor. Include the word “suit” in the search to look for lawsuits filed by or against it. Do the same for the vendor president and the manager that would be handling the facility contract.

Once a list of acceptable vendors has been developed, ask for bids through a request for proposals. Click here for a sample document (pdf) for an energy performance contract.

Have an attorney with experience in service agreements review proposed contracts, especially with regard to vendor performance and restrictions on damages. On technical issues, have an independent energy consultant with experience in both managing energy projects and energy data analysis review proposals and proposed contracts.

UNTANGLING Service Options
For help locating energy service providers, try these online resources:

In addition, the U.S. General Services Administration provides information on energy services contractors in its Schedules eLibrary.

Likewise, the Federal Energy Management Program division of the Department of Energy maintains its list of “Super Energy Savings Performance Contracts ESCOs” by region.

Where retail electricity metering has been deregulated, state public utility commissions post contact information for firms licensed to handle utility metering. Links to utility commissions. Those same firms can handle customer submetering.


Talking the TALK
Energy service providers can help organizations determine whether energy is being wasted, identify ways to reduce costs, and establish billing and accounting procedures.

Here’s an overview of some of the energy services available and description of what each can accomplish.

Benchmarking energy use and costs
This service will help establish whether an organization is paying the right amount for energy. It can help shed light on why bills are as high or low as they are, and compare a facility’s energy use to that of comparable buildings.

Utility accounting and review
Organizations with multisite facilities or tenants may need help paying energy bills, correcting billing errors or sub-billing others. This service can help determine whether an organization has been overcharged for energy use and help allocate costs among tenants.

Metering services
Where a facility has internal submetering for power, gas, steam or other utilities, this service could analyze usage. The service is often referred to as an energy information service. Some electrical contractors offer such support, but where metering has been deregulated a relatively new group of vendors that focus on meter data has sprung up. Also called meter data service providers, metering agents or meter data managers, some provide automated Web access to meter data.

Energy and power procurement
If options exist for buying energy because retail markets for natural gas and power have been deregulated, a facility executive may want help finding better pricing and contract terms. Contractors offering this service provide facility executives with a combination of technical and contract expertise.

Energy audits and feasibility studies
Audits and feasibility studies describe, quantify and evaluate how energy is used while offering an economic analysis of ways to cut both usage and cost.

Energy management consulting
Where financial incentives are available for energy-related upgrades, some specialized vendors help customers obtain such benefits via services that may also handle other data-based tasks, including energy audits and power procurement.

Energy efficiency upgrades
In nonindustrial facilities, facility systems that use the most energy are heating, cooling and lighting. Plant operations and maintenance services are available to operate boilers and chillers using trained and, if required, licensed personnel. Similarly, plant engineering services can be contracted to alter the design of HVAC systems. Lighting service providers are also available to relamp and clean fixtures, as well as to alter or replace fixtures, add controls and redesign systems.

Keep in mind that many energy-related improvements can be paid for with performance contract arrangements. Such arrangements call for the vendor supplying the services to front the costs of the project and for the customer to share the savings that result from the efficiency upgrade.

Lindsay Audin is president of EnergyWiz, an energy consulting firm based in Croton, N.Y.

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