Bill to reform ‘energy savings’ contracts stalls in Texas Senate committee
A bill designed to stop unscrupulous “energy savings” contractors from bamboozling local governments stalled in the Texas Senate last week.
State Sen. Juan “Chuy” Hinojosa drafted Senate Bill 1828 after the city of Mission, the La Joya Independent School District and the Agua Special Utility District borrowed millions to pay for energy savings projects. Texas law allowed them to borrow the money without requesting permission from voters or soliciting proposals.
After conducting an investigation, the FBI concluded all three projects were tainted by bribes and kickbacks. Several subcontractors and public officials pleaded guilty to corruption charges.
“This is not just a problem that exists in the Valley. It’s a statewide problem,” Hinojosa said on April 18, when the Senate Committee on Business & Commerce held a hearing on the bill. “There are lawsuits being filed. And other companies are being investigated by the Department of Justice.”
To address the problem, Hinojosa proposed new regulations for energy savings performance contracts.
“Energy savings performance contracting (ESPC) is a method of finance that allows a facility to complete energy-saving improvements within an existing budget by paying for them with money saved through reduced utility expenditures,” according to information published by the Texas Comptroller of Public Accounts. “Facilities make no up-front investments and instead finance projects through guaranteed annual energy savings.”
For example, a city might borrow money to replace all lights in government buildings with energy-efficient LEDs. The city would pay less for electricity — and use the savings to make payments on the debt.
Hinojosa, however, became concerned that local governments lack the expertise to properly evaluate the energy savings contracts. They frequently depend on engineers who, while independent, work closely with energy savings contractors.
To protect taxpayers, Senate Bill 1828 would require local governments to submit proposed energy savings contracts to the Texas Water Development Board and the State Energy Conservation Office for evaluation. They could reject any project that didn’t make economic sense.
An analysis by the Legislative Budget Board estimated the new evaluation process would cost the state nearly $2.8 million per year.
Executives from Schneider Electric and Johnson Controls, which offer energy savings performance contracts, lined up to testify against the bill. They said the bill would increase costs and reduce savings for local governments.
Caldwell County Judge Hoppy Haden and Yoakum Independent School District Superintendent Tom Kelley also testified against the bill. They said the contracts had saved Caldwell County and Yoakum ISD significant amounts of money.
“With all due respect to the senator, our industry delivers thousands of projects a year,” said Donald Gilligan, the president of the National Association of Energy Service Companies, who testified against the bill. “If the kinds of shortcomings and abuses that he’s talking about were commonplace, there would be national uproar about these contracts.”
Hinojosa suggested that Gilligan hadn’t been paying attention.
“There is a national uproar,” Hinojosa said. “There have been lawsuits filed all over the nation. There are indictments.”
Just two people testified in favor of the bill.
Matt Beatty, an attorney who represents Agua SUD, said bad actors can take advantage of the current law, which needs to be fixed. He said the Agua SUD project “saved” about $500,000 a year but left the utility district with $1.1 million in annual debt payments.
Agua SUD sued Performance Services Inc., the contractor that handled the project, for breach of contract and fraud. Performance Services Inc. denied the allegations.
Jeff Mashburn, a former project development engineer for Performance Services Inc., also testified in favor of the bill.
“I don’t even know where to start because it’s such a complicated process,” Mashburn said. “But there are problems. There are major problems.”
Sen. Jose Menendez of San Antonio, though, appeared skeptical the bill could actually prevent corruption.
“For corrupt people, you can’t legislate morality or legislate ethics,” Menendez said.
The bill was left pending in committee.