City officials say a $5.9 million contract with Johnson Controls to improve energy efficiency will save nearly $11 million in energy costs over 20 years, but a review of the agreement shows just $3.9 million of those savings are guaranteed.
The contract, which was approved by council in September, also includes language favorable to Johnson Controls that could allow the company to avoid directly paying the guaranteed savings should actual numbers fall short of the projections, and to recoup money if there's ever a surplus.
Council on Tuesday voted 4-1 to approve an ordinance to float general municipal bonds totaling $5,065,000 to pay the bulk of the project cost. That clears the way for the project to proceed.
The project calls for a wide range of infrastructure improvements ranging from the installation of energy efficient streetlight fixtures to new toilets in various buildings and the construction of an irrigation system at Hollenback golf course.
Just how much money the city will actually save remains unclear, however. The total cost of the bonds over 13 years, with interest, will be $6,384,055.
According to the contract, Johnson Controls guarantees the city will save at least $3,918,312 in energy costs over 20 years, but the achievement of an additional $7,045,534 in savings projected by the city are not guaranteed.
Johnson Controls assisted the city in estimating the additional savings, but the contract says the firm takes no responsibility for ensuring they will be attained because they are outside of the control of company. Therefore the city bears the sole responsibility for ensuring (the savings) will be realized, the contract says.
For the guaranteed savings, the contract says Johnson Controls would pay the difference between the projected and actual energy savings should projections fall short. But language in the contract raises a question as to whether the firm would ever have to write a check.
That's because of a caveat that gives Johnson Controls, at its discretion, the right to choose any of three other options to avoid paying any money directly:
• It could set off the shortfall against any unpaid balance the city owes the company;
• Increase the next year's projected savings by the amount of the shortfall;
• Or provide additional projects or services equal to the value of the shortfall.
The contract also provides an out that could preclude the city from keeping any surplus should actual energy savings exceed the projected savings.
The agreement says that Johnson Controls could opt to apply the surplus to offset any future shortfall, or apply it to offset any amount it was deemed to have owed the city if there was a year with a shortfall.
Speaking after Tuesday's council meeting, Drew McLaughlin, administrative coordinator, and Butch Frati, director of operations, said those issues were previously raised and addressed by officials with Johnson Controls, who assured the city the company would, in fact, write a check if projected savings are not met.
That assurance was verbal, however, which they acknowledged would not necessarily hold up in court should there be a dispute over whether the projections were actually met.
McLaughlin and Frati said they believe an addendum may have been added to the contract, but they could not locate it following Tuesday's council meeting.
The contract also calls for the monitoring and calculation of energy savings to be conducted by Johnson Controls, which raises a question of a conflict of interest given the company is on the hook if projections fall short.
Frati said he does not believe there is a conflict, and he's confident the company would accurately report its findings.
I'm confident a company like Johnson Controls would be honest, fair and accurate, he said. They have a reputation to uphold.