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By Lynn Proctor Windle
November 2003 -
Power & Communication Article Use Policy
Energy service companies or ESCOs are rebounding from an industry shakeup, but face a cautious customer base as facility executives try to determine how likely it is that their ESCO will be around tomorrow.
What they’re finding is financially strong ESCOs with resources to improve building operations.
ESCOs develop, install and, in some cases, finance projects to improve a facility’s energy efficiency and operating costs, according to the National Association of Energy Services Companies (NAESCO).
Facility executives should be sure that any long-term relationship with an ESCO calls for maintenance of new energy-efficient equipment as well as monitoring and measuring necessary to validate the equipment’s efficiency.
The post-installation relationship is important because customers typically pay for the capital improvements through long-term cost savings. Should the project fall below guaranteed performance levels — perform less efficiently than expected — the ESCO makes up the difference.
Before entering an ESCO relationship, facility executives should understand their own needs and have in mind specific goals. If the only goal is to improve lighting, the bottom line might be better served by using a lighting contractor. However, if the goal is to improve energy efficiency and reduce costs over the long term, an ESCO could be the answer, says John Mahoney, president of NAESCO.
Facilities best served by ESCOs are those where energy costs are a large percentage of expenses, says Charles Athanasia, vice president of energy services for Con Edison Solutions.
ESCO longevity and historical performance are critical, says Bob Dixon, senior director, Siemens Energy Services Solutions of North America and a NAESCO board member.
“To pick a provider who has been in business for only a year for a 20-year relationship doesn’t make sense,” he says.
Because typical contracts call for the ESCO to make up any shortfall in guaranteed savings, customers should investigate an ESCO’s financial resources to assure that the ESCO is capable of assuming the risk, Dixon says.
Ask about any backlog of guarantees, says Gerrit Reinders, director of Johnson Control’s Advanced Solutions.
“Ask to speak with a client who received a payout check,” Reinders says. “Ask the client how long it took to get the check and what they had to go through to get it.”
If the ESCO has a parent company, look at its financial stability too, Athanasia says. Mahoney points out that if an ESCO can post a bond it is likely to be able to finish the construction portion of the project. But facility executives should consider what arrangements could be made if an ESCO pulls out of its contract.
The ESCO should be able to provide case studies similar to the project at hand, Reinders says. “They must be familiar with the vertical market and understand different standards established by states and by the industry.”
Ask the ESCO about its in-house capabilities and ask to see licenses, Mahoney says. Find out what percentage and what functions of the project the ESCO will outsource. Ask to meet with project managers, including the manager overseeing subcontractors and the manager who will oversee long-term aspects of the relationship.
Facility executives should also look at how the company provides monitoring and validation, Athanasia says.
The facility executive should provide utility bills, blueprints, repair bills, budgets and other information that will give the ESCO a complete picture of the building operation, says Darcy Immerman, vice president of business development for Alliant-Cogenex. “We can’t do a project to its full potential without help and information from facility people.”
The final question is whether the ESCO provides training for building staff, Reinders says.
The bottom line in searching for an ESCO is simple, Reinders says: What does the ESCO say it will do — and can it do what it says?
Lynn Proctor Windle, a contributing editor to Building Operating Management, is a freelance writer who frequently covers real estate.
Clauses in building codes that allow older high-rise buildings to operate without sprinkler systems are likely to come under review after a fire in a county building in Chicago killed six.
“Unfortunately, each jurisdiction has to have a major fire before realizing the benefits of automatic sprinklers,” says Robert Solomon, an assistant vice president at the National Fire Protection Authority (NFPA).
The 35-story Cook County-owned building in Chicago’s downtown caught fire last month following an apparent electrical malfunction.
Built in the early 1960s, the building was not equipped with automatic fire sprinklers because of a so-called grandfather clause that didn’t require older buildings to undergo the equipment renovation. The building only would have been required to have sprinklers installed if more than 50 percent of any given area underwent renovation.
That provision is similar to one in the International Building Code Council’s document covering existing buildings, which was published in January.
Mike Pfeiffer, vice president of codes and standards for the International Code Council, says what Chicago officials will wrestle with is no different than what other cities have — or should have — discussed.
“Regardless of what code you adopt, you have to answer questions about what is going to happen to existing building stock,” Pfeiffer says.
Big cities across the country have already answered that question, says Solomon, who works with NFPA’s building fire protection and life safety group. Los Angeles and New York require automatic sprinklers in high-rises. Boston, Philadelphia and Las Vegas have instituted that requirement after fatal high-rise fires resulted in each city.
What often prevents cities from adopting automatic sprinkler provisions is the cost burden it places on building owners and the inconvenience to occupants, Solomon says.
An automatic sprinkler system is one of the most expensive fire safety technologies to install.
Other fire safety issues facing existing buildings include the type of smoke-proof enclosures used within the structure, the communications system installed and how stairwell doors are unlocked once the fire alarm is triggered.