Sizing Up Energy Use

Building Operating Management, May 2005 by Audin, Lindsay

Knowing facility needs is essential to selecting an energy services provider

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): www.energy.ca.gov/reports/efficicncy_handbooks/

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.