Johnson Controls, U.S. Army Establish First Contract Following Obama’s Energy Efficiency Charge

Posted on February 2nd, 2012 by
   

Mark Wagner, Vice President of Government Relations at Johnson Controls, gives us an inside view into Johnson Controls working with the Army on the Fort Bliss project.

Full Transcript:

Ben Lack: Why is it so important for Johnson Controls to be the first to announce a contract with the Military after President Obama’s call for the Department of Defense to be more responsible about their energy use?
Mark Wagner:   The timing is everything.  In this case, we already had a relationship with Fort Bliss. We partnered on four other projects in the past at the site. We are also one of several contractors that the Army Corps has under a kind of an umbrella contract to perform work for the Army and other agencies. So, you can get selected by a base, like we have at Fort Bliss, to do work in an existing contractual relationship with the Army Corps.
Ben Lack: The project is expected to save about $39 Million in energy costs over the next 24 years. What improvements you guys are making to the base in order to get to that number.
Mark Wagner:   In addition to the solar energy installation, the project is going to include new utility monitoring control systems to manage energy at 120 buildings as well as the programs to reduce electricity during peak demand periods at Fort Bliss. There are many other energy conservation measures that we are installing to make the base more energy efficient.
Ben Lack: How are you managing the performance contracting for this project?
Mark Wagner: The way it works is we will design, install and finance energy conservation measures upfront for the customer – in this case for Fort Bliss. We will design the building control systems for the 120 buildings, the solar panels and any other energy conservation measures that are part of this performance contract. Then we will finance the cost of the equipment, as well as the design and the installation. Then we guarantee the energy savings over a period of years. We provide a performance guarantee that says, “We guarantee that this equipment will save a certain amount of energy and we periodically come in to measure and verify that the equipment is doing what we said it would.” We will also maintain that equipment during the performance period of the contract. The energy savings that Fort Bliss receives from all of those new energy conservation measures will result in lower utility bills. A portion of those payments gets paid to us over time for the investment that we have made. So it is a Win-Win situation for Fort Bliss because they get all this new equipment upfront, making the base more energy efficient, making life better for everyone on base and they are not paying any more for utilities than they were already paying. Now they are basically paying us what they were paying for utility costs and we guarantee the savings. The project is paid for out of those savings. We are always staying below the utility cost that they had previously paid.
Ben Lack: Does Johnson Controls hold the contract for the term of the contract, or there are ever instances where you take the contract and so as well as the market so they can get up cash upfront?
Mark Wagner: Generally, we hold it for the term because it is also a performance contract. We have to make sure that the equipment is performing and maintained. We will often do the maintenance on the contract as well as come in to measure and verify periodically that the equipment is continuing to provide those savings.
Ben Lack: The guarantee is the big kicker. Customers want to hear that you can guarantee savings. I assume that the calculations are somewhat conservative on the saving side so that you make sure that guarantee is being hit through the life of the contract.
Mark Wagner: Well, that really is absolutely the key to making this work and making it an attractive way to get the energy savings. You know, there are lot of smart engineers who figure out how to do this, but it is also not rocket science. We have done thousands of these projects whether they be at military bases, schools, hospitals and other installations of the federal government, as well as for state and local governments. We are pretty experienced at this. First thing we do is to build a baseline for the buildings to see how much energy is currently being used. Then you model and predict how much it would save you if you put this new equipment in. Our engineers are very smart in figuring that out. They will generally make an estimate in terms of expected savings and certainly the guarantee is somewhat lower than the estimate. The estimate is the prediction of what you might save. A lot of times what will happen is the actual savings will be more than the guarantee. But then we will be responsible for any shortfalls there. It does not happen often and that is why the program is quite popular.
Ben Lack: We are a few days into 2012 and I am curious to get your thoughts on what we can expect to see from the company on a government relations side as we head into the New Year.
Mark Wagner: Well, we are looking at seeing how we can make sure that the federal government is successful in meeting the goal that the President set out in December. He called on federal agencies to do $2 billion worth of ESPCs over the next two years. We are looking to help make that goal a success.
Ben Lack: Mark, why are running this business and why does this industry interest you?
Mark Wagner: It is a great business to be in, particularly in area of saving energy. I think there is a WIN-WIN in it for us and the customers that we serve. I think it provides an environmental benefit as well. If you can conserve energy that is a good thing from an environmental standpoint. What I guess always intrigued me is it’s easier; it’s smarter and more cost-effective to save a unit of energy than it is to create a new one.
Ben Lack: Your specialty is working with the different levels of government to make sure that you help the government be responsible about energy use. Give us your thoughts about the role of the government should play in helping the country become more responsible about energy use.
Mark Wagner: One of the things that they can do is what they are doing right now and that is to continue to set an example of making their facilities energy efficient. They are doing it in a cost-effective manner using performance contracting. That has been a very successful program at the government level whether it is federal, state or local. I think the private sector can learn a lot from the process government buildings have taken to become more energy efficient. The Fort Bliss project was interesting also for the standpoint that we were able to do the design and complete the approval process in seven months, which was pretty remarkable.I’ve seen projects like this that take 24 – 26 months for design and approval. We were able to do this in a rapid turnaround and that is going to be important moving forward to meeting $2 billion over that two-year goal. If we are going to that, we are going to have turn projects faster and we are going to do bigger projects. We can learn from this one at Fort Bliss and repeat it at other government facilities.

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