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Making Energy Efficiency the Law at State Facilities

Retrofitting outdated energy systems could mean green jobs, green savings.

If you listen to some energy experts, New Jersey could be easily saving tens of millions of dollars a year by investing in energy efficiency projects to retrofit antiquated systems at dozens of state-run facilities.

But it hasn't happened. At least not yet, even with a three-year-old law that one energy lawyer calls on paper probably "one of the best energy bills passed by the legislature" in recent times.

Today, the Senate Economic Growth Committee aims to help the legislation live up to its promise, by overhauling the law and removing impediments advocates say are in the energy savings improvement program (ESIP), a bill passed into law in 2009 and signed by former Gov. Jon Corzine.

But the bill is strongly opposed by the Mechanical Contractors Association of New Jersey, Inc., which asserts that the measure is a "renewed assault on the public bidding laws," emasculating legislation that has been in place for more than a hundred years.

The group, which currently subcontracts for some of the energy retrofitting, worries that the changes will squeeze them out from participating in the program, particularly at the local level, because they won't be able to compete with certain other specialized contractors. They also fear long-term maintenance contracts awarded bigger energy service companies will turn out to be a way to skirt public-bidding laws.

"We have public bidding laws to prevent games, to prevent corruption," said Alan O'Shea, executive director of the association, which is based in Springfield.

Few argue that the program offers huge opportunities to significantly reduce energy costs for government entities without laying out any capital, but neither the state nor local governments are taking advantage of the benefits it offers, according to an advisory group that helped draft the new Energy Master Plan.

"This stuff pays for itself," said Steve Goldenberg, an energy lawyer who chaired the advisory group and has been pushing for changes in the three-year-old law. "To have something that is budget-neutral in these fiscal times, it is a win-win situation," he said.

The law allows governmental entities to enter into performance-based contracts with energy service companies, enabling them to pursue energy efficiency projects without any capital expenditures. The agencies pay off the projects over a 15- to 20-year period through the energy savings they can capture, which advocates say can exceed 25 percent. The energy savings must exceed the cost of the energy savings improvement project over the cost of the project, according to the program.

As is the case with the rest of the efforts to foster a green economy in New Jersey, the battle over the bill brings together various interest groups -- including big energy service companies and mechanical contractors – who are vying to win a bigger share of what could be a growth engine for New Jersey: helping governments and businesses reduce energy consumption in a state with some of the highest energy costs in the nation.

In a time when the state government has been raiding a clean energy fund to pay its energy bills -- last year it amounted to $40 million -- it would seem the program would be too good to pass up.

Nevertheless, that is largely what has happened since the law was passed. One of the chief impediments is a previous state law that requires state contracts be awarded to the lowest bidder, according to proponents of the new bill.

"While the opportunities and potential benefits presented by ESIP are considerable, the actual savings achieved to date have been modest at best," according to an advisory group report submitted to the state Board of Public Utilities. Even though numerous projects have been identified, the report noted they have become involved in unresolved procurement-related issues.

"These impediments must be overcome or those projects will continue to represent a significant lost opportunity for the state to reduce its energy costs, enhance its energy infrastructure, reduce greenhouse gas emissions, and most importantly, create a significant number of well-paying jobs," the report warned.

The low-bid requirement, according to proponents of the new bill (S-1753), discourages energy service companies from bidding on state contracts, primarily because the deals are very complex and reflect more service agreements than purchase of goods -- so they do not reflect the true cost savings achieved.

"The idea with energy efficiency is not how much it costs but how much it ends up in energy savings," said Jeff Tittel, director of the New Jersey Sierra Club. "I look at this bill and I see a lot of positives. Not only do you save money, you also cut pollution."

"That is a specious argument," O'Shea said. "This goes to one key thing: [these energy service companies] would like a higher cost in relation to their own profitability."

That view was endorsed by Edward Frisch, an attorney who represents the association. "In our opinion, one of the primary reasons the ESCOs [energy service companies] want to eliminate public bidding is that profits from the energy savings contract scheme would be less exposed and more hidden from public view," he wrote in a letter to the association on the issue.

Ameresco, an energy services company with offices in Red Bank argued in a letter to legislators that hundreds of millions of dollars at the state level have stalled due to procurement limitations in the original state law.

"Such potential projects include energy retrofits at NJ Department of Transportation Headquarters, the new State Prison, State Police Headquarters, the Katzenback School, the Woodbridge Developmental Center, and East Jersey Prison," according to Ameresco.

The federal government is already taking advantage of such programs. At the McGuire Air Force Base in South Jersey, the U.S. Air Force is projecting it will cut its energy consumption by 40 percent once the project is completed, according to Goldenberg. "It won't cost the taxpayers anything," he said.

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