Energy deal to aid city schools

Savings from plan will allow upgrades at 77 Baltimore sites

December 29, 2005|By SARA NEUFELD | SARA NEUFELD,SUN REPORTER

Dozens of Baltimore schools are slated to receive new heating, lighting and other energy-efficient upgrades under a deal that school officials say will pay for itself.

The system will use the money it saves in energy costs to pay for the upgrades - estimated at $25 million for an initial batch of 76 schools plus administrative headquarters on North Avenue. The savings will also cover interest on a loan and $727,874 in fees paid to energy savings companies implementing the project.

System officials are promoting the project as a creative way to make desperately needed repairs despite limited funding for school construction. Nearly every day in the weeks leading up to the holiday break, at least one city school has been closed because of lack of heat.

The system estimates its schools have $1 billion in maintenance needs. This school year, it received $18.8 million from the state for construction and renovation, plus $17 million from the city. Mayor Martin O'Malley has pledged to create a $75 million city fund for future assistance.

"We're trying to bring private-sector solutions to public-sector challenges," said Eric Letsinger, the system's chief operating officer. "We are no longer waiting for the state to fund us at appropriate levels."

State officials, meanwhile, say they are closely watching the Baltimore project, as well as similar projects under way in the schools in Carroll and Cecil counties, with an interest in expanding the concept statewide.

"It's a very sensible way to approach building efficiency," said David Lever, executive director of the state's public school construction program. "In an energy-poor building, a lot of money is simply being wasted. It's literally pouring through the windows or through the roof."

The Baltimore school board has contracted with three energy savings companies to determine where new boilers and lighting and improvements to windows and roofs would produce substantial energy savings.

The companies calculate how much savings the upgrades would produce over 15 years, using today's energy costs, then guarantee that savings and back it up with a bond.

The companies - Pepco Energy Services, Johnson Controls and NORESCO - install the equipment and maintain it over the span of the contract, 15 years, often using subcontractors.

The three companies, as well as a fourth in negotiations with the school system to survey more schools, were selected by the Maryland Department of General Services for energy-performance contracts with state agencies.

The system will take out a lease, a form of a loan, to cover the cost of the upgrades. It will use the guaranteed energy savings to pay back the money, as well as the companies' fees. It may keep any additional savings resulting from rising energy costs.

Because Baltimore has the oldest school buildings in the state, it stands to gain the most in energy savings, Letsinger said. The savings come from having more efficient equipment and is unrelated to how often the equipment is used.

Work at the 76 schools is scheduled to take place over the summer. Letsinger said the schools were selected based on geographic proximity to each other to keep costs down: Each of the three companies is working in a different area of the city.

The school board is scheduled to vote this spring to close several schools over the next three years because of declining enrollment, deteriorating building conditions and state demands to operate more efficiently. If any of the 76 schools are among those selected for closure, Letsinger said, the contracts allow the system to substitute in other buildings to receive the energy upgrades.

Of the city's 186 schools, Letsinger said he expects that all those that will remain open will receive new equipment from energy performance contracts over the next year, with the work citywide worth $50 million.

This is not the first time the city school system has turned to energy performance contracts to cover the cost of school repairs. Problems with a similar arrangement five years ago led to the resignation of the system's chief financial officer and business officer.

In that case, the school system awarded no-bid contracts to two energy consultants to finance and manage the projects. One went to a financial broker who was a friend of the business officer, a Sun investigation found at the time. His company made at least $1 million in fees, by the school district's estimate - up to eight times the industry standard at the time.

Letsinger said there are key differences in the contracts this time. Because the energy-performance contract industry has matured over the past five years, he said, there is no need for the middleman consultant.

The energy savings companies were screened and selected by the state. The lease, still to be arranged, will come from a bank.

The school board in recent weeks has approved contracts for $288,470 with Pepco for work at 30 schools, $297,904 for Johnson Controls for 34 schools, and $141,500 for NORESCO for 13 schools plus system headquarters.

sara.neufeld@baltsun.com

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