With Streamlined Contract, Off-Cape Firm Dominates Local Energy Efficiency Market

By: Brian Kehrl
Published: 05/14/10

When the Cape Light Compact pitched local officials on a proposal to take over the region’s publicly funded energy efficiency programs in 2001, the sell was made in large part on keeping the contributions of local rate payers on this side of the canal. It was to be a local program to benefit local residents and businesses.

“The Cape Light Compact has chosen to focus on making sure the funds we pay for energy conservation come back to the Cape,” Maggie Downey, then-assistant county administrator and current compact administrator, told the Mashpee Board of Selectmen during a 2001 presentation on the idea.

But in recent months the compact has come under criticism from advocates and businesses involved in the energy efficiency field for not following through on that pitch, and allowing a single, off-Cape company to dominate the work under the standard residential program.

Rise Engineering, a Rhode Island-based firm with offices in Springfield and elsewhere in New England, won the contract to conduct every home energy audit offered through Cape Light Compact from 2008 through 2010. The audits involve a basic review of a home’s efficiency and recommend measures, like additional insulation, to avoid wasting energy.

But beyond the contract, Rise has secured more than 90 percent of the jobs recommended by the audits, leading to criticism that the arrangement has left local companies out of the weatherization work through the Cape Light Compact.

“I think that just using Rise and giving the power to determine who the contractors are has moved a lot of those jobs to off-Cape residents. I think that is fairly obvious,” said state Representative Matthew C. Patrick (D-Falmouth). “If they can’t get the work, they are not going to grow. They are not going to hire people. And we are talking about a lot of work.”

Christopher R. Powicki, principal at the Brewster-based Water Energy & Ecology Information Services, said, “In the areas where you have a sole source provider, you don’t create a monopoly, but you create a situation where things are really strongly geared toward one entity getting all the work.”

“The contract is not supposed to be about the implementation work. But the end result is that they have gotten almost all of the work...But that is not what they bid for. They bid for the audits,” Mr. Powicki said. “They are basically paid to develop an estimate for work they end up doing.”

Briana Kane, who oversees the residential efficiency programs at the compact, said in an interview last week that the public agency has already begun responding to the concerns expressed by local contractors and others. The public utility has held two meetings with the contractors to explain the requirements to work under the program, she said, and has begun to incorporate measures to allow companies other than Rise to keep the installation jobs if they recommend customers to get a free audit through the contract. In the past, much of that work would have been lost to Rise once the customers were recommended to the compact.

Cape Light Compact, working on recommendations from state agencies, is also in the midst of drafting the outline for the next three-year contract to begin in 2011, a contract that may define how, and whether, the energy efficiency industry develops on Cape Cod.

Energy efficiency and weatherization are widely viewed as key fields, on both economic development and environmental grounds.

The industry, often touted by local, regional, state, and federal officials, is hoped to employ contractors whose work has slowed down with the struggling economy and lack of undeveloped land left on the Cape. They are jobs that can’t be outsourced, as President Barack H. Obama often put it during his campaign for election and then for the passage of the stimulus bill. Ian A. Bowles, secretary of the state office of Energy and Environmental Affairs, told an audience at Cape Cod Community College in 2008 that if he were to recommend starting an energy-related business, it would be in efficiency.

Efficiency aids business competitiveness, by lowering operational costs, and frees up money for homeowners to spend elsewhere in the economy. The federal government estimates, for example, that the average home could save 25 percent on the typical annual $2,100 energy bill.

Improving efficiency also means using less energy, reducing greenhouse gas emissions, and spurring a host of other environmental benefits that come from lowering fossil fuel use.

The industry has been flooded with public funding, from the federal stimulus package, the Regional Greenhouse Gas Initiative, and more traditional utility-based programs. The Massachusetts Department of Public Utilities recently approved plans that call for the investment of $2.2 billion in efficiency measures over the next three years. That’s more than $300 per resident.

Congress is also considering bills that would pump additional money toward efficiency, an effort that has bipartisan support and the backing of the Sierra Club and Natural Resources Defense Council, as well as the National Association of Home Builders and the US Chamber of Commerce.

The administration of the public money, however, will be key to shaping the industry, whether it supports large companies growing larger or fosters small business development.

It is a central, and in many ways quintessential, part of the “green” economy hoped by many to move the region and the country forward. The questions are, where does it stand and what is its future on Cape Cod?

“This is driving the industry,” said Rep. Patrick, who helped establish the legislation to create the compact. “[The compact] gets all the money. They design the program. They control it. There is no doubt about that.”

Formed In The Local Interest
The Cape Light Compact was formed in 1997, part of the statewide effort to deregulate the electricity market. It was adopted by each town and now serves 200,000 customers in Barnstable, Dukes, and Nantucket counties, according to information from the agency. As a public, “municipal aggregator,” using a broad customer base to help negotiate lower energy prices, it is a completely unique entity in Massachusetts. It was formed in large part in response to Cape customers paying among the highest electricity rates in New England, according to archives of the Enterprise. The compact, which is overseen by a board of appointees representing each member town, has since become the default electricity provider for Cape Cod.

In 2001 the compact took over the energy efficiency programs on Cape Cod and Martha’s Vineyard that were previously overseen by utility companies, so that the small surcharge paid by consumers would stay on Cape, to the benefit of Cape ratepayers, towns, and businesses, according to archives of the Enterprise.

From 2001 to 2008, CLC “returned” $35.5 million to ratepayers of Barnstable County through the delivery of energy efficiency services through the Cape and Islands Energy Efficiency Plan, which includes rebates for lighting and appliance upgrades, free energy audits, new construction and renovation rebates, and education and marketing programs.

The compact has been widely hailed as an innovative and successful agency.

In 2007, the compact went out to bid for a three-year contract for the basic residential program, seeking a “lead vendor” that would perform all of the audits offered free to homeowners, according to Ms. Kane, of the compact. That single company structure was required by the state Department of Public Utilities, Ms. Kane said.

“Statewide, it was built to have a soup to nuts approach,” Ms. Kane said.

Rise Engineering was the only company that met the bid requirements, so it won the right to do all of the audits between 2008 and 2010.

Rise is paid $165 for each audit, which takes two workers about two hours to complete, according to Ms. Kane and a representative from Rise.

But the arrangement has also put Rise, which is owned by the national Thielsch Engineering corporation, in the position to secure nearly all of the implementation work. Along with the audit recommendations, Rise gives a bid on how much the company would charge to perform the work. Rise can then automatically apply for rebates on the implementation work offered through the compact, so customers have to pay a lower up-front cost.

At the bottom of the paperwork from the compact, titled a “Home Energy Action Plan,” is one sentence mentioning that other contractors are eligible to perform the work as well: “Your Rise Energy Specialist will call you in a week to 10 days to talk about the plan and answer any questions. If you wish, you can arrange the installation of any or all of the recommended work with RISE. If you prefer, you can make arrangements with an independent contractor.” The compact’s plan then lists Rise’s phone number.

In order to hire another contractor, a customer would have to go through several additional steps, including having the new company bid on the job and then, after the work is performed, wait for the rebate to be processed by the compact, according to other contractors involved in the industry.

In 2008, Rise performed 1,659 audits. Of those, 939 came with “major measures” recommended. Of those 939 homes recommended for significant improvements, 428 signed contracts for installation work. Of those 428 jobs, Rise got 95 percent of the contracts.

Ms. Kane said the streamlined arrangement of working with a single company came in part in response to feedback from customers, who said they wanted an easier process to move from the audit to the implementation. She said it means that more implementation work will be performed, meeting the energy and environmental goals of the program.

Working with one company also allows more money to be spent on audits and installation, rather than on administrative costs to deal with more complicated paperwork, she said.

“There were no Cape-based companies that bid on the contract in 2007,” Ms. Kane said. “No one else was interested in taking the lead vendor services.”

The program, however, has grown significantly over the life of the contract. The Barnstable County Commission has added to the contract five times since it was approved. And there are plans for the efficiency program to grow more still.

The program’s budget more than doubled between 2008 and 2009, from about $1 million to $2.2 million.

With additional funding flowing in from the Regional Greenhouse Gas Initiative, an emissions cap-and-trade deal by 10 northeastern and mid-Atlantic states under which pollution permits are sold on a market, the compact’s efficiency program is expected to grow enormously between 2010 and 2012, according to a three-year plan approved earlier this year by the state public utilities department. There is $8.7 million budgeted for the low-income program alone.

The appearance of a cozy relationship between the compact and Rise is furthered by some promotional efforts, like a Rise engineering being featured on the Cape Light Compact radio show last November, highlighting all the work the company has done for the compact and how they work together as a team.

But in response to concerns about the fairness of the work distribution, Ms. Kane said compact officials have been met with more than a dozen local contractors on two occasions to hear their complaints and inform them about the requirements to participate in the program. “We started the process of how we can open up this installation market to other contractors,” she said.

Vin Graziano, president of Rise, said every employee who is involved in the delivery of services related to the Cape Light Compact, about 18 workers from the auditors to electricians, lives on Cape Cod. Four are involved in residential auditing, five or six do weatherization work, and three or four are electricians.

He said the company recently hired four new employees to join the Cape crew and they are looking for more.

“Our objective is not to become as big as Rise can possibly become,” he said. “We think it is in our best interests, if we are going to deliver services in that area, that we have a local presence.”

He said they only use off-Cape residents if a backlog develops or during peak times.

The annual earnings for the employees ranges between $35,000 and $75,000, depending on the position and work experience, plus full benefits.

The Local Perspective
Mr. Powicki said students interested in efficiency coming out of Cape Cod Community College’s energy resources training program have few options other than Rise. “The challenge they face is, when they are looking for jobs in the industry, all we can say is, ‘Rise is hiring,’ ” said Mr. Powicki, who has taught a renewable energy sources course through the program. “When there is only one company that is hiring, Rise, and other companies in the sector are laying off workers, you know you’ve got a problem.”

Prescott Wright, of Resolution Energy in Buzzards Bay, said the recent meetings with the compact have been productive in opening up dialogue. But they have not indicated significant changes moving forward.

“What I don’t think they are acknowledging is why we are having the meetings,” he said. “I would describe 90 percent of the work as a monopoly. I feel comfortable using that term.”

He said compact officials have suggested that local contractors get together and bid on the “lead vendor” job for the next contract. “We will discuss that. But it is difficult. We are install companies. We are not the admin people,” he said.

“All we are saying is there should be a separation between those that make the measures, those that do the work, and those that do the quality control. And the contract right now does not allow for that.”

“They went the easy way, which was to get one contractor to do all the work. And in doing so, they have excluded the local economy and they have created a no-bid situation for the work,” he said.

He said it would be in the compact’s and their customers’ best interest to have more companies bidding on each job, to create more competition for the work and lower the prices. He said he has heard from customers that compact officials told them that Rise is more competitive than other firms.

“I know, they are probably going to have to add a couple of staff members. It is not going to be an easy process to include the local economy, but it is the right thing to do,” Mr. Wright said, arguing that the savings due to competitive bidding on each job would help provide more services.

Mr. Wright said the compact has not reached out to electricians and other specialized contractors to get them involved in the work.

Bruce Torrey, of Building Diagnostics in Sandwich, said there have been rumblings about the issue for several years or more. “The system is just not designed to allow smaller entrepreneurs to get their foot in the door,” he said.

He said the whole mechanism behind the program, of establishing a public trust from ratepayers’ bills to fund efficiency improvements, has created a challenging environment for private businesses involved in the industry.

“What has happened with this whole thing is some of these well-intentioned concepts have actually sucked some of the air out of the marketplace for private companies. So there is no place for these guys to get a foothold in offering their services, because people think they can get a free audit,” he said. “You can see how it is tough when your competition is giving it away for free.”

He said the system has in effect stunted the growth of an industry to perform the work.

He said his business relies on customers who want work that exceeds what the compact will give them, including larger projects that do not fit neatly into one of the compact’s programs.

Mr. Torrey also raised issues with the level of detail that the audits require.

Until recently, Ms. Kane said, they did not include the standard blower-door test to develop a baseline figure for the
home’s efficiency.

Mr. Torrey said checking the air sealing with a blower-door test is the equivalent of a patient getting his or her blood pressure tested at the doctor—a basic tool that should be used regularly.

Mr. Prescott, too, questioned whether the quality assurance program checks the number of hours billed against the amount of work to be done. Since some of the work is 100 percent reimbursable, like air sealing, the customer has no reason to be diligent about comparing the hours billed to the work performed. “There is some real potential there for overcharging,” he said.

Ms. Kane said a third-party firm performs quality assurance audits to make sure the jobs are done correctly. The firm, the Northborough-based Northern Energy Services, visits about 10 percent of the sites, she said. Ms. Kane said she could not provide a number of how many jobs did not pass the test, but that it was “very few.”

Both Mr. Wright and Mr. Torrey, as well as Mr. Powicki, were quick to note that the arrangement is driven by regulations from the state, not just by the compact.

Penn Loh, a professor at the Tufts University Department of Urban and Environmental Policy and Planning and a representative on the state Energy Efficiency Advisory Council, said he was not familiar with the specifics of the contract between the compact and Rise, but the issue is one being dealt with across the state.

“There is a big transition we are undergoing at the state level right now,” he said. “I can’t say there is any blame to go around, because we are entering a whole new system where more money is going to go through, but we also have increased demands on quality assurance and that the work is being done correctly.”

Mr. Loh said there is a wide array of public interests involved that must be weighed against each other, including the desires for efficiency program officials to keep administrative costs down and the contractors for more widely available access to the funding. “It is not simply a jobs issue. It is not simply trying to get the energy saved. We are trying to address all those things at the same time,” he said, adding that he is unclear how the state will balance those interests with the contracts moving forward.

Another Model
Locally, however, Mr. Powicki said there is already another example of a program that seems to be working well for the compact and the contractors: the compact’s own low-income efficiency program, run by the Hyannis-based nonprofit Housing Assistance Corporation.

HAC performs the audits and the quality assurance checks, but local contractors get the implementation jobs on a rotating basis, he said.

He said that program could serve as a model for the next contract, due to be put out to be later this year, though it would likely require companies to bid on the implementation work rather than assigning it to a rotating list of firms.

“Going forward, what happens will all depend on what sort of [request for proposals] the compact writes,” Mr. Powicki said. “If they use the same template they used last time, Rise would be a lead contender for the contract, and so unless things change, they will continue to dominate the market going forward.”

Mr. Wright said the various stages of the process—audit, implementation work, and quality assurance—should be performed by separate firms to avoid a conflict of interest.

Rep. Patrick said he would like to see the compact, if the “lead vendor” arrangement is to continue, require that the main company subcontract some of the work to local officials. “I understand why it is easier to go through one contractor. But there could be more stipulations in the contract that they hire local people. Cape Light Compact could require that,” he said.

Green Jobs
In Mr. Torrey’s eyes, the much vaunted green jobs revolution has been more public relations than reality.

“This whole thing about green jobs? It’s a myth. It is one of the biggest myths that has been pulled on us,” he said. “We hear so much about green jobs, but in reality there are very few that are being created.”

He said there are a few companies that are doing solar energy work that were not in business a few years ago, and some of the larger companies like Rise are growing, but he said the market has not created the job growth that politicians have promised.

“Weatherization is not quite as sexy as bamboo floors and other products that make a good photograph. But if you really want to save energy, if that is what your goal is, then the stuff like the flooring should be a second thought after you get your house weatherized. I don’t think there is any real debate about that, if you talk to the experts,” he said.