City takes only 2 bids for energy consulting business
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Pittsburgh is on the verge of awarding a lucrative consulting contract to a firm that could help cut the city's $8.4 million utility bill, but it is using a process that effectively excludes competitors and raises questions about fairness.
Though 18 firms are certified to do energy consulting work in the state, only two sought the city's contract -- Milwaukee-based multinational Johnson Controls Inc. and Carnegie-based, politically connected CLT Efficient Technologies Group.
At least one other firm, which did such work for Allegheny County in recent years, sought a deadline extension to make its case, but the city denied that request.
The emergence of just two firms competing for a complex contract that could result in millions of dollars in savings and expenses for the city isn't ideal, said Robert Strauss, a professor of economics and public policy at Carnegie Mellon University's Heinz School of Public Policy & Management.
"In such circumstances, there's merit in having as much competition as possible," he said yesterday.
City officials did not respond to requests yesterday for interviews on the process.
Under a 1998 state law, cities can hire energy services companies to work for them under what's billed as a win-win arrangement.
Most often, the firms are hired to look at a specific area of energy use, like traffic lights or heating and cooling. The firms estimate the amounts the municipalities can save by making improvements.
A municipality borrows money to pay the consultant and make the improvements, and pays off the debt using the money saved from its utility bills over as long as 15 years. The big payoff for the city comes only after the debt is paid.
The deal can be lucrative, because the consultant and subcontractors do a few months or years of work, and are paid based in part on 15 years of savings.
But there's a risk to the consultant: If the savings don't cover the debt payments, the firm has to make up the difference. As a result, the city is guaranteed to at least break even on the deal.
In mid-December, the city invited firms to submit proposals based on the amount of money it could save by replacing traffic lights at 600 intersections with new, high-efficiency models.
Changing the lights could save the city $500,000 a year, said Troy Geanopulos, president of CLT.
The winning bidder gets not only that work, but first dibs on designing an energy-savings plan for the entire city government. If the city doesn't like that firm's plan for cutting energy costs, it can start the process over and pick another company.
The ultimate savings "could go from a couple hundred thousand dollars to a couple million dollars" a year, said Chris Kaiser, an account representative for Johnson Controls. "The city of Pittsburgh, just from my analysis, their heating and cooling systems are pretty antiquated."
The city sent out its request for bids from qualified companies as Christmas was approaching, and gave firms just 15 days to respond.
David Robb, a representative of Massachusetts-based Noresco, which performed a similar function for Allegheny County several years ago, said his company got notification from the city when "everybody was going out on holiday." It requested extra time to put together a submission, but was denied.
He said it's expensive to put together proposals, and his firm felt it might not get a fair shake and "decided that our money was better off invested elsewhere."
A city document governing the process says "a minimum of three" qualified firms are to move on to the next stage, at which they submit proposals to cut traffic light costs. It does not say what happens if there are fewer than three interested companies.
At a Jan. 23 meeting with the firms, city Assistant Public Works Director Pat Hassett said there was "some consternation" about the small number of interested firms. But he explained that the city would continue with the process, because it wanted to start saving money quickly.
His department was to make its decision by March 14 and submit it to the mayor's office for final approval. That office has declined to reveal its determination for more than a week.
Johnson Controls has been doing energy consulting for 30 years, Mr. Kaiser said. It has done work for some cities comparable to Pittsburgh, including Little Rock, Ark., and Milwaukee.
Seven-year-old CLT's principal investor is Charles Zappala, who has been involved in scores of companies and properties and is the uncle of District Attorney Stephen A. Zappala Jr.
Charles Zappala contributed $10,000 to the campaign of late Mayor Bob O'Connor. Though a political committee he funds gave Luke Ravenstahl's 2003 City Council campaign $500, he did not give to his campaign fund last year. He is an investor in the group that sought a slot machine casino for Station Square and is now suing to overturn a Pennsylvania Gaming Control Board decision to allow a competitor to build it on the North Shore.
CLT has landed contracts to improve energy usage for Butler County, the city of Erie and various schools. Its Web site indicates that clients typically shave enough from their energy bills to pay for the costs of the consultant and capital improvements within seven to nine years.
"We basically have a great track record and have experienced folks on board," said Mr. Geanopulos. He said low overhead allows his firm to beat out global companies with big bureaucracies.
He said he doesn't know if Mr. Zappala's involvement helps his firm win jobs.
"I don't know about that stuff," he said. "My charge from the board is to build the best team in Pennsylvania."
CLT is now in talks with the state on improving energy use in five office buildings in Harrisburg, including the Capitol's east wing. The work is expected to cost $18 million and save the state $1.5 million a year, meaning taxpayers would start benefitting after 12 years.
CLT lost out to Siemens Building Technologies last year in a competitive process to audit energy use at the Pittsburgh Housing Authority's buildings. The authority got proposals from five firms, and picked Siemens, with the deal winning authority board approval June 22.
But it's unclear whether the contract was ever executed.
Neither Siemens nor the authority responded yesterday to requests for an update on that process.
Most cities have separate competitive processes to pick contractors to improve different parts of their energy usage, said Mr. Kaiser. They might pick one firm to improve heating and cooling, then invite another set of proposals for cutting the energy used in lighting or communications.
Pittsburgh's process of giving one firm the job of reviewing all of its energy use "is a little unique," he said.
"They want to build a partnership with the [firm] that's selected."
First Published March 28, 2007 12:00 am