Smaller Districts Warming to New Energy-Saving Idea

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School districts attempting to cope with rising energy costs are being courted by energy-management companies that offer to reduce energy expenses at no cost to the district.

Interest in controlling elementary and secondary schools' energy costs--currently estimated at $5 billion a year nationally--is growing, especially in light of a 1984 report from the U.S. Department of Energy warning that those costs could increase fivefold by the end of the century. (See Education Week, June 6, 1984.)

Only a small fraction of districts nationwide are now working with energy-management consultants who offer "alternative financing" arrangements--fewer than 10 percent, according to one estimate.

The major companies like Honeywell and Johnson Controls target their energy-management programs to larger, well-financed districts, according to Shirley J. Hansen, whose management-consulting firm, Hansen Associates, prepared the doe study.

Many of the nation's smaller districts have been unable to do business with these firms because their energy needs are considered not great enough, according to Marlene Michaelson, a financial analyst and spokesman for the National Association of Energy Service Companies.

But new alternative financing plans being offered by smaller energy-management firms are designed to appeal to small and medium-sized districts with limited resources to spend on energy conservation, company officials say.

One fast-growing firm in the field is Commercial Energy Systems, a three-year-old Houston, Tex., company that went public in November 1983. Of the five or so national firms in the institutional-management field that offer school-energy programs, ces is the only one specializing in serving school districts, according to Ms. Hansen, who is a management adviser to the firm.

ces has benefited from an unusual "cooperative agreement" reached in June with the American Association of School Administrators, which has informed its members of ces's services.

This year, ces expects to have contracts with 1,700 school facilities, and to more than double its 1984 revenues to approximately $4.5 million, according to Darryl Tramonte, the company's executive vice president of sales and marketing. By 1986, revenues are expected to reach $12 million, Mr. Tramonte said.

The company attributes its success to its alternative financing plan, under which it makes necessary capital repairs and installs energy-monitoring equipment in buildings at no charge to the school district, taking as payment a percentage of the savings realized. A typical contract may involve a 50-50 savings split over a seven-year period.

ces has found that its "shared savings" plan often initially trou8bles school officials, who doubt such a system could both save their district money and be profitable for ces. "Our big problem is that the program is too good to be true," said Mr. Tramonte. "People say: 'No way can it work."'

Other companies are offering similar financial deals to school districts. Last month, InfoTech Management Inc., of Long Island City, N.Y., announced a 10-year shared-savings agreement to provide energy-monitoring equipment and services to the Woodbridge, N.J., school district, which has 25 buildings. The contract calls for the company to receive a higher proportion of savings for the first three years of the contract, leveling off to a 50-50 split after that.

One distinction between InfoTech and ces is that InfoTech prefers not to make capital improvements, and charges separately when it does so, according to Debra Kabacinski, InfoTech vice president. "We prefer that they handle [equipment repairs] themselves," she said.

InfoTech currently has shared-energy-savings agreements with the Perth Amboy, Edison, and Orange County districts in New Jersey, Ms. Kabacinski said.

The company, which also has contracts with private institutions, apartment buildings, and municipalities in the New York area, is entering the school-district market because school officials have a "great sensitivity to controlling costs," Ms. Kabacinski said. In addition, she said, they also are well aware of the fact that "energy costs are going to continue to escalate."

Industry watchers suggest that other firms are likely to begin competing for school contracts.

"For a lot of reasons, school districts are attractive to energy-management companies," said naesco's Ms. Michaelson. Of all municipal entities, she explained, school districts represent "the greatest potential for savings" for these firms, because their buildings have similar characteristics and are managed by a single group of people.

A.A.S.A.'s Involvement

The aasa's interest in energy- management companies increased, officials say, after a 1983 survey of members showed that energy costs were their greatest financial problem. Through its agreement with ces, the association hopes to help districts realize "alternatives" available to them in reducing energy costs, according to Walter Turner, the group's associate executive director.

The agreement is "not an endorsement," he stressed, noting that the organization receives no remuneration for its backing.

"All we're saying is: 'This company seems to provide what you're looking for,"' he said. aasa officials chose the Texas firm, he said, because it was "the only company" they knew of that confined its business to schools. Currently, the association is evaluating another energy-management firm.

For ces, the aasa's backing "has brought credibility to a private-sector company working in the institutional marketplace," Mr. Tramonte said. Since the June announcement of the agreement, ces's "marketing productivity" has increased between 30 and 40 percent, he estimated, and it now has contracts under way in 26 states.

The Galveston, Tex., independent school district was one of the first to sign a shared-savings agreement with ces, and since then has become something of a model for the success of the system.

Because Galveston's 12 district buildings required limited capital improvements, ces concentrated on installing electronic monitoring equipment to control and track energy output. The district now has a central monitoring station in its physical-plant offices; ces also monitors the district's buildings from its Houston headquarters.

In its first full year of operation, 1983-84, the system reduced total

electric costs in the district by $309,000--down from a total cost of $1.2 million in 1982-83, according to Joseph Parker, the school district's director of plant maintenance and operations.

Total electric costs dropped another $300,000 in the 1984-85 school year, Mr. Parker said.

No Financial Risk

Districts that make their own capital improvements, of course, can realize 100 percent of the savings.

The New York City Board of Education, for example, has been approached by several energy-management firms but has not signed contracts with any of them, according to Abraham D. Gordon, chief of energy conservation for the city's board of education.

Instead, the board has developed several in-house programs to address energy conservation in its 1,000 school buildings, making use of $15 million it received in federal and local energy grants in the past five years.

Shared savings might be more attractive to a smaller district, Mr. Gordon suggested, because "many of these small districts cannot raise the necessary funds to directly fund these things."

Other school officials agree that many districts are unlikely to approve the necessary capital funds, because to do so might require taking a bond issue to voters. In addition, a district would face the risk that repairs might not lead to substantial energy savings.

The advantage of a plan like ces's, Mr. Parker noted, is that a district takes no financial risk. In addition, whatever savings it realizes amount to an unexpected benefit.

"If you can save a buck, and you give people 50 cents of it, you've still saved 50 cents," he noted.

Vol. 05, Issue 05

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