Lincoln City Council Should Maintain Control of ESCOs
During March, the Lincoln Independent Business Association (LIBA) spoke on an issue at the Lincoln City Council. Our concern was about a resolution to start using Energy Saving Companies (ESCOs) to make our city more sustainable. LIBA is not opposed to our current or future Mayor working toward an energy efficient city. In fact, we should consider every opportunity to be good stewards of our resources. While we encourage the exploration of new ideas, we have the following issues with this ordinance:
It allows a current or future Mayor to spend reserved funds without a vote of the people.
It appears to allow a current or future Mayor to spend funds without any further votes of the City Council.
The City Council is abdicating its authority on almost anything related to energy efficiency.
LIBA had two other concerns we would like to raise with the ESCO resolution. It appears that the city will only get paid back if the selected ESCO is in business 15 years from now. Therefore the city should seek Surety Bonding from the contractor in order to protect the taxpayer. Our research shows the contractor should be posting both a performance bond (for the amount of service) and a guaranteed savings bond. An even better option would be to have the ESCOs get their own financing and let the bank take the risk, not the taxpayers of Lincoln. The Federal Government requires ESCOs to finance the up-front costs according to a 2015 Government Accounting Office (GAO) report. (https://www.gao.gov/assets/680/670851.pdf)
LIBA also asked the city to establish a rigid ESCO “Energy Savings Performance Contract (ESPC).” The assumption that the city taxpayers will be paid back with “savings” is risky. If we use a 5,000-square-foot office space as an example, the ESCO can claim that the city changed the use of the office space during the 15-year payback period, thus negating any savings. Many changes can take place in an office space over 15 years such as adding staff or adding new heat-generating technology. Even the Federal Government has struggled to verify savings. The Federal Government has used ESPCs to finance improvements. However, a 2005 GAO report said they had uncertainties about whether savings are appropriately covering costs. And their 2015 report said that a few ESCO contractors were blaming the government for not properly maintaining equipment thus reducing the amount of measurable savings. Other departments had savings that “ranged from negligible” to around half of what was projected.
Finally, ESCOs are an easy way to exceed government spending lids and can also be used as a way to circumvent a vote of the people for projects that normally might have a public bond vote. Therefore, we believe the City Council should maintain a strong oversight position regarding the use of ESCOs.
LIBA studies and promotes these types of issues that are important to businesses and our community. If you have an interest in joining LIBA, please call me at (402) 466-3419. LIBA membership is not restricted to just businesses. We also have “individual” memberships for those who want to help influence our local government decisions.
For more information on LIBA, visit Liba.org.