Fine print: Energy Savings Improvement Program

Tom Johnson | September 26, 2012 | Energy & Environment
Bill aims to cut costs with contracts based on best value instead of lowest bid

What it is: A much-debated bill (S-1753) aimed at overhauling a three-year-old law designed to encourage local governments and school districts to significantly reduce energy costs by undertaking projects without requiring capital-expenditure outlays at the outset. (An identical bill, A-2313, is being considered by the state Assembly.)

What’s new: Gov. Chris Christie quietly signed the bill earlier this month. The approval will signal whether changes in the program will remove impediments in procurement issues, which have prevented local governments and school districts from taking advantage of the program.

Why the bill is important: In a new energy master plan, the state projects it will meet its needs over the next decade by substantially reducing the amount of electricity businesses and consumers use each year. If local governments and school districts take advantage of the program, it could save tens of millions of dollars a year, according to state officials.

How it works: The law allows government entities to enter into performance-based contracts with energy saving companies. The projects are to be paid off over a 15-to-20-year period through resulting energy savings, which could run as much as 25 percent.

Why it has not worked: The current law requires contracts to be awarded to the lowest bidder — a provision that many energy service companies shied away from because they doubted whether some of the winning bidders would achieve the greatest energy savings. The bill changes the law to allow contracts to be awarded based on best value, which proponents say would allow the state to award deals based on bids providing the greatest energy savings.

Why the changes are important: Under the bill, energy service companies may choose among a list of prequalified vendors to do the work on energy saving projects. Without giving these companies more flexibility in deciding who actually performs the energy efficiency work, they will never invest in long-term projects that guarantee energy savings.

How the program’s ineffectiveness has boosted energy bills: Instead of investing in equipment that could help reduce energy bills, a state task force report suggested, local governments have relied on short-term fixes. These include renting boilers and chillers (used to cool facilities or equipment) rather than investing in replacement equipment. The temporary solutions continue for years, costing more than simply replacing the equipment, according to the task force report.

What are other benefits of the program: Advocates say it will help New Jersey meet aggressive greenhouse-gas emission targets and will also create well-paying jobs for contractors who engage in the energy conservation projects.