Milwaukee’s Me2 Program Bringing More Dollars To The Table

Posted on May 7th, 2012 by

The Newport, a co-op project in Milwaukee is the first to receive retrofits from The Me2 initiative. Johnson Controls removed the existing heating, ventilating and air conditioning systems and replaced them with more energy-efficient equipment.




Chuck McGinnis, U.S. Director Commercial Energy Solutions at Johnson Controls, discusses the steps the City of Milwaukee is taking to become more energy efficient.


Full Transcript:


Ben Lack Johnson Controls has recently been working with city of Milwaukee on their energy challenges. Could you set up for us the relationship between you and the city and what are some of the problems that Milwaukee is facing?
Chuck McGinnis What we’ve found is that cities throughout the country are looking for ways to rebuild their economies and drive new jobs and employments.  And so what better way to do so than to capture energy savings, monetize that into a project that can then create jobs in the local economy and therefore really turn around a lot of communities. In addition, the other side of this is that it’s done in the private sector, it’s done in commercial real estate buildings, and it’s done in hotels and condominiums. Upgraded buildings are then operating at lower cost. So, the values of the buildings go up along with the local employment and it’s a win-win for everybody. The city wins because their economy improves. The owner of the building wins because the value of the property goes up. And the local contractors win because they get to put people back to work. That’s exactly what the Me2 Program in Milwaukee is designed to do. It really is a successful financing and energy efficiency upgrade program that could become a role model for other regions to put in place the right legislation programs encouraging more property owners to implement these kinds of projects.
Ben Lack Give us the specifics on what the Me2 financing is. If someone wants to take advantage of the funds what do they have to do in order to receive that and what type of return or interest that they have to pay back?
Chuck McGinnis Sure, that’s the beauty of this program. Let me first talk about alternatives without the program and then the alternatives with the program. So without the Me2 program, if an owner of a commercial real estate building wants to consider doing an energy efficiency project, the first thing they’d have to do is hire an engineer to do an analysis on the building and come up with a potential project. Once they have those alternatives reviewed they then would have to go and seek a loan from an existing commercial bank. Now, all of the banks essentially have similar standards, they have different products but similar standards and in almost all cases they require a 20% down payment. They then allow a fixed interest rate over a term of between 3 and 5 years. Generally, not long enough for a substantial retrofit in a commercial building. In today’s market place, you can’t make a big impact on a building’s consumption with a quick payback. You can’t impact a facility’s bill by more than a couple percentage points with a three year payback. You have to get into a 10-year payback in order to reduce the consumption of a building by 10-20%.  So the terms of that cost with the design fee, the down payment and the truncated term length, all-in-all does not create a good environment. The first thing Me2 does is, it allows a company like Johnson Controls to actually provide the engineering upfront and the customer doesn’t have to pay for it. Second, the city actually utilizes some American Recovery and Reinvestment Act funds to deposit into the bank of choice and those funds are held in escrow, they’re never spent, but they are there to replace the down payment requirement that the bank has. The reason that the bank requires that is to provide greater security for the loan.
Ben Lack Risk of default.
Chuck McGinnis Yes, so the city alleviates that risk by placing a deposit of escrow in the bank and the bank then provides 100 % financing. In the event that the loan gets repaid and everything works out the, escrow returns to the city. In the event there’s a late payment or default or foreclosure the bank is actually allowed to tap those funds. But, it’s not anticipated that that will ever happen that’s why city’s is doing it. These loans are going to be repaid with energy savings. It’s a good credit risk and so the money becomes sustainable and it gets re-circulated. What we do along with this program is guarantee that the savings offset the principal interest payments and the result is the terms that the banks have been offering are longer. Let’s put it this way, they will not necessarily fix the interest rate longer but they will allow the amortization to go out longer. Or people can do larger projects, more comprehensive projects and then everybody wins because the buildings are more efficient and they go up in value, lower operating cost and we put people back to work.
Ben Lack Chuck, when people think retrofits for buildings, the first thing they think is lighting which typically gives a fairly quick payback. Give us some examples of important retrofit projects that have a return on investment of ten years or longer?
Chuck McGinnis Take San Francisco for example. Many of those buildings have systems that are aged. They don’t have a quick pay back to replace their old mechanical equipment; chillers, boilers, temperature controls, air handling systems, motors that have aged over the years. This program is designed to work for those types of buildings to allow them to have a compelling event, to say “Hey lets upgrade this building now”, “Let’s do the whole thing now”. Our kind of rule of thumb is as long as the financing amortization exceeds the useful life for the equipment, then it’s a good thing. Just like you said with lighting, it’s generally 3-5 year payback. The light bulbs don’t last much longer that, right? In case of chillers, that will last 25 years maybe 30, boilers could last 20-25 years, so financing those types of replacements over a 10 or even 15 year amortization makes a lot of good sense.
Ben Lack How did companies find out that this money is available in the city of Milwaukee? We’ve heard from other cities that they got this money and they’re having trouble distributing it?
Chuck McGinnis That’s right. It has been a problem. In fact were working with the county of San Francisco under Property Assessed Clean Energy and that has been something of a challenge, largely because many of these existing buildings have owners that are not on site. They might have a property management foreman, so the way that we’ve been trying to get this out particularly in Milwaukee is through the Building Owners and Managers Association and the International Facilities Manager Association. They’re taking out some advertisements in the local business journals. We’re actually going out and talking to our distinct clients and new clients and offering investing resources to help people identify the potential for doing a project in their building. So, folks like you are key in helping the message get out. I can’t tell you how important it is, how effective it is for the distribution of information about case studies or on availability of these programs because without the great work you’re doing we can’t get it done on our own.
Ben Lack Well I appreciate that. Are there other cities that are offering the exact or similar program as the Me2 program in Milwaukee? Did Milwaukee pull out these ideas from another city?
Chuck McGinnis That’s a great question. California has almost always led the thought leadership about what happens in our industry. The Property Assessed Clean Energy program that you have available in California are really what we think are the best programs available. In some states and in some cities there are existing laws and ordinances that need to be changed in order to allow them to do what you guys have done so effectively in California. And obviously, you all thought through those changes and made those changes on a legislative level. We’re still on the process of fine tuning that in Wisconsin; so the Me2 program is kind of a hybrid phase program. There’s actually an option on this Me2 program that allows the loan to be considered as a property assessed tax or property assessment. And that is an option, but again some of the blocking and tackling and logistics associated with actually processing that as a special charge are still being worked through on the ordinance level.
Ben Lack Chuck why are you doing what you’re doing and why does this industry interest you?
Chuck McGinnis For me personally, I’ve been doing this for 25 years and I sleep well at night. I know that the savings and the result that we offer our clients we guarantee with our check book. We back up our promises. I really like the integrity associated with contractual performance. I’m also an environmentalist at heart. I believe that our planet is a great place and a rare place and it needs to be taken care of. So, I think probably those two reasons why I do what I do.
Ben Lack Before I let you go is there anything that you’d to share with our audience?
Chuck McGinnis Just that, we are committed as a company to help develop these programs. And we will invest resources as best we can to help cities and states deploy this program. We will also work with commercial building owners to help them identify their opportunities to do these types of retrofits because we think that this is the way to get the economy back on track.



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