Getting it Done

Maybe it’s time to revisit a couple of well established but still innovative ways to build and improve water utility facilities.

Try to remember a time when it was harder to locate funds to improve water system facilities (or for that matter any public infrastructure).

Equipment and buildings are aging. Things are falling into disrepair. Downtime is a worry. Updates to newer and more efficient technology would improve service right away and save money in the long run, but that would require an up-front investment — and where will the money come from? Especially when the decision-makers and customers have little appetite for a rate increase in a still-troubled economy.

The answer may be simpler than it seems, and it doesn’t involve some new-fangled, exotic financial instrument. Sometimes it’s easy to overlook a proven solution that has been around for years. In fact, the one I’m about to describe is so well proven and so low risk that I’m amazed more public- and private-sector entities don’t use it.

No leap of faith

It’s called performance contracting, or in the parlance of the federal government, which uses it extensively, energy-saving performance contracts (ESPCs). Across the nation, this tool has been used to improve efficiency at military bases, upgrade schools and city halls, renovate hospitals and, yes, reinvigorate water utility operations.

Water utilities have used it to upgrade aging pumps, replace water meters, install automated meter reading (AMR) and advanced metering infrastructure (AMI) systems, install leak detection systems and more — and in the bargain improve energy efficiency in the administration building, with high-efficiency lighting, better comfort controls, new windows and thicker insulation.

Best of all, performance contracting lets a utility take on a big bundle of projects all at once (instead of nibbling away at things year by year), and do it without investing any of its own capital. So what’s the catch? Try as I might, I can’t find one.

Simple concept

The concept behind performance contracting is simple. Efficiency improvements pay for themselves over time. So why not go ahead and make the improvements and let the savings themselves make the annual payments?

In a typical performance contract, an energy service company provides the capital to finance a package of improvements that have been analyzed up front and projected — based on solid information — to deliver a specific level of savings. Those savings are then guaranteed by contract over a defined term, typically 15 to 20 years.

Ideally, the annual savings exceed the amount of the annual payment on the improvements, so the utility sees somewhat lower costs right off the bat. At the end of the contract term, the utility reaps all the annual savings.

During the contract term, the actual savings are tracked. If the amount of savings in a given year exceeds the guaranteed amount, the utility pockets the excess. If the savings fall short of the guarantee, the energy service company has to write the utility a check to make up the difference.

Time to take a look?

It’s hard to imagine any other way to make wholesale improvements with the bare minimum of risk (next to none) and without laying money on the table up front. The old adage — if it sounds too good to be true, then it is — may not apply in this case.

Any number of highly qualified and reputable energy service companies can complete performance contracts. In today’s fiscal times, this certainly looks like a financial tool worth exploring carefully.

And speaking of innovative approaches, this issue of Water System Operator profiles a water plant in Tampa, Fla., that was constructed under a design-build-operate (DBO) contract. DBO is a departure from the traditional bid-to-spec approach that offers advantages for many projects.

What do you think?

To my less-than-expert eye, it seems the best feature of DBO is that it forces the chosen contractor to think not just about holding down the cost of construction, but about holding down the total lifetime cost of ownership. That means a facility built under DBO is likely to include not the lowest-priced equipment and components but those that will be the most reliable and the least costly to operate in the long run. This, too, looks like an avenue worth investigating in times of fiscal stress.

Do you have experience with performance contracting or DBO? If you have tried them, what was the outcome? If you haven’t, why not? We would like your thoughts. Send me a note at I promise to respond, and we’ll include the comments in a future issue.


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