WHO: Covington, Ky., Department of Public Improvements

CHALLENGE: Reduce annual $200,000 expenditure on gas and electricity

SOLUTION: 20-year guaranteed-savings energy performance contract

COST: $2.25 million

$95,789 (utility bills)
+ $60,000 (maintenance)

$141,028 (utility bills)
+ $90,000 (maintenance)

THE LATEST: In performance contracting, a consulting firm promises to pay the difference if recommended equipment and process upgrades throughout the life of the contract don't meet or exceed the client's consulting fee. The concept grabbed the attention of Tom Logan, director of public improvements and city engineer for Covington, Ky. In 2008 he took the opportunity to ssek savings across eight city facilities: four fire stations, police headquarters, city hall, the fleet garage, and a park maintenance facility.

The city council approved a measure to borrow $2.25 million at 4% through the Kentucky League of Cities and signed a 20-year contract in which Energy Systems Group (ESG) of Evansville, Ind., promised to save $95,000 annually on gas and electricity.

After the company conducted an energy audit, Logan contracted boiler and HVAC replacements as well as complete street and traffic light fixture retrofits. His team did the rest, from changing light bulbs to installing programmable thermostats. “I'd recommend using available staff whenever a project warrants,” he says.

In January Duke Energy's independent verification specialist reported that actual first-year results were 25% better than guaranteed. “Of all the improvements, the LED traffic lights had the most savings from both a utility standpoint and an operational standpoint,” Logan says.

Overtime is down by about one-third. Having received training from ESG on start-up, commissioning, and maintenance related to HVAC systems, technicians are learning new skills.

The four technicians in the department's right of way division are now upgrading signs to meet Federal Highway Administration retroreflectivity requirements. “Instead of changing light bulbs they're changing road signs,” Logan says. “Those hours they'd spend maintaining lights and old HVAC systems are redirected to infrastructure.”

If efficiencies continue at the current rate, the city could pay off the performance contract loan well before the contract loan well before the contract expires.

Reductions in energy consumption are compared to the consumption level before recommendations were implemented and adjusted for changes in the conditions that cause consumption, such as installing new equipment. “If the new equipment continues to operate near its design standards, and the consumption is adjusted for energy-related changes in equipment and weather, then that level of savings should persist,” says Shirley Hansen, author of Performance Contracting: Expanding Horizons.

Duke Energy raised electricity rates 28% in January 2007 and natural gas rates 10% in January 2010. The Covington contract assumes a 2% annual increase in rates, but Sally Thelen, spokesperson for Duke Energy Kentucky, declined to project when the company would seek another rate increase. She adds that the company is “watching the variety of environmental regulations [including climate change legislation and proposed changes to the Clean Air Act that would affect coal plants] and how that's going to play out, because they will affect how we approach future rate increases.”

According to the U.S. Energy Information Administration, average annual electricity prices will increase 19% over the next 24 years as fuel prices rise and construction of new power plants grows.

Meanwhile, Logan's next step is retrofitting about 100 metal halide fixtures in the 2-square-mile historic district with LED lamps. Preliminary data from a three-month photometric analysis show the higher-efficiency lights provide similar color with better output.

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For a list of Covington, Ky.'s line-item savings, click here.