Category Archives: Investments

Dude- Cheap Cookies

Energy Efficiency, Investments, Utility Stuff0 comments

Taking a suggestion from an anonymous rant reader [doesn’t want to get fired], I purchased and have been reading a book called Predictably Irrational.  Figuring out peoples’ decision-making process is my job – to win proposals, design programs that people want, and how to attract and keep the best workforce.  Process evaluation of EE programs contributes a great deal to this as well.

Now, I ask you to find a calm state of mind, such as lying in bed on Saturday morning.  Relax.  Hang with me till I explain this.  For worse and better, engineers are more rational than non-engineers.  Why?  Because they like to calculate stuff and put numbers on everything[1].  This can make a lot of sense when putting a major league baseball team together, or determining whether “icing the kicker” with a timeout works – just look at the numbers and statistics and do the math, but numbers don’t do anything for emotional or socially acceptable decisions.  There are always discrete exceptions to this.  There are always socially clueless people in every crowd.

One of many examples the book explains is selling stuff at any price, even a very low price versus giving it away.  Selling stuff involves market forces – supply and demand.  Giving stuff away involves social forces – a sense of thinking kindly about your fellow homo sapiens.

Good cookies go for roughly a dollar from a grocer’s bakery (I think – maybe?).  Prices are set by market forces, and I suppose they make decent profit selling them at this price.  If you purchase these, or make equivalent cookies, and sell them in the lobby of your workplace for some dirt cheap price, but not unbelievably low, say a quarter, some guy may have no compunction and snap them all up to take home to his ravenous kids.  “Dude, they’re a buck in the store!  What a deal!  I bought em fair and square.”

In the second scenario, the cookies are free.  Again, there are always discrete social zeros (persons) in the world, but chances are the first person to take a cookie is not going to pull out a grocery bag and swipe them all and walk away.  Presumably, he will consider his fellow office dwellers and the fact that they may want a cookie gift as well.  There is also the pressure to control oneself to not feel like a cheap stingy ____ in the case of taking them all.  Again, there are always exceptions, but people generally weigh these social issues to control their actions.  Which reminds me, people who drain the coffee decanter at 9:00 in the morning and don’t set it to brew another pot are kind of socially deficient, wouldn’t you say?

These issues intersect with energy efficiency in interesting ways.  One example is the energy audit.  Lore says end users must have some skin in the game for an energy audit or they will do nothing – implement nothing.  Anything for an investment by the customer – say “$50 is much better than nothing” is the fable.

My conclusion: the only thing $50 does is stops 90% of audits from happening.  This isn’t like shelling out a quarter for a cookie, which is easy for an individual.  Fifty dollars is a huge barrier because the money has to be approved by bean counters.  Consider this: in a big company, everything has a cost associated with it.  They know what it costs to process a payment and cut a check, and that is in the $40 range.  Really.  Suddenly spending $40 to pay a $50 fee while consuming several hundred, if not several, thousand dollars of peoples’ time starts to look ridiculous – even if the fee were $500 rather than $50.  But by god, they’ll sure as hell do something since they invested the $50. Not.

The ignorant person may think the customers’ perspective is, “Wow, what a deal.  My utility is selling audits at 90% off.  I love my utility.”  No.  The vast majority of cases would sound more like this – “I pay those guys $50,000 a year and they want ME to shell out $50 for an audit.  Drop dead.”  This is the social consequence, a customer relationship issue, ON TOP of huge time and expense to process payment for a paltry amount of money.

On the flip side, the customer, once the audit is complete, is likely to take action based on market forces and return on investment.  They are not likely to think, “My utility paid for this audit so I’d better throw them a bone and implement this thing with the return of a 10 year federal treasury note” – that would be about 1.5% nowadays.

We have found that an excellent approach to “skin in the game” goes like this:  We will provide ___ services for free if you, the customer, agree to implement identified measures meeting ___ criteria.  Here you have a serious offer; a generous offer; a partnering and low risk offer.  I believe the generous and partner aspects add a social commitment, as well as a market commitment to energy efficiency for customers; and that even in this scenario, sticking the customer with even a small portion of the service cost wipes out the social aspects of the contract that push it over the top.

I’m at the word limit but I just want to add a couple more optional takes from this.

First, some customers, huge customers, want everything for free from the utility, and I mean everything, including the entire cost of measure implementation.  These customers unfortunately are not worth approaching, other than for show.  That’s just the way it is.  Don’t shoot the messenger.

Second, if the audits aren’t worth a damn, the program won’t be successful regardless of zero cost.  Actually, in some markets for some utilities, paying the 20% has become the accepted market and social norm because of the reputation for the deliverables.

[1] This can get quite graphic when nerds go on vacation or when they need to determine the best approach for acquiring a power tool.  Symptom: spreadsheets.  Look out.

Opting to Make Money

Energy Efficiency, Investments, Uncategorized, Utility Stuff0 comments

In many states that are relatively new to energy efficiency, legislators often cave to large energy users and allow them to opt out of programs because hey, they use a ton of energy and therefore, OBVIOUSLY to any moron, they control and manage these costs as well as any dunce could.  Why should they throw money at a program that won’t help them?

Come to think of it, programs available to these large users in many places are dysfunctional, poorly conceived, and not thought through from the perspective of the customer, so I can see their point to some extent.  I already have a type of colossal program failure that has been proven to produce nothing in many jurisdictions and I’ll talk about that next week or some other time.

The only real reason for large users opting out is that they think they can better spend the relatively tiny bit of money they would contribute to the program or more likely, they’d rather not pay anything and continue with business as usual.  Both are foolish.

Let’s just use an example of a large user with $10 million in energy costs, paying 1% to the EE fund, which is $100,000.  This sounds like a lot of money.  It is not for a company of this size.

Allow me to demonstrate how foolish opting out is, using a rule of thumb that program incentives typically equal one year’s energy savings at minimum (I have seen incentives as high as FOUR year’s savings, in which case a psychiatric evaluation should be ordered up for opt-outs).  Companies that opt out generally have to meet the savings goals the utility needs to meet in return for opting out, and this too, is generally in the region of 1% of sales, or in the case of the customer, 1% of consumption.

Take an opt-out and opt-in comparison for the above $10 million customer for a $200,000 project with $100,000 savings.  ASSUMING no difference in customer time (time is money) and expense[1], the ROI is exactly the same.  The opt-in customer pays $100k to the EE pot and gets it all back as an incentive for doing the project.  However, the reporting for the opt-out customer will take at least $10k, I would guess, if they do a decent job.

Now suppose the investment is doubled to $400,000.  The opt-in customer still only pays $100k into the program but gets $200k back in incentives.  The customer starts to take other peoples’ money as he implements larger projects.  Suddenly, the ROI starts quickly rising above the opt-out scenario.

The only way the opt-out customer comes out ahead is if they plan to do nothing, in which case, rather than paying $100k into the EE pot, they pay nothing, all else equal.  So, the scenarios become:

The “opt-out do nothing” scenario cannot stand, because customers agree to meet their goals, and this too, is where the BS continues.  The typical opt-out customer includes manufacturers.  Efficiency to manufacturers many times means high output and no shutdowns – not low energy use per unit of production – aka, ENERGY efficiency.  Due to the lack of EE expertise beyond lighting, we see many doozers when evaluating projects from customers that opt out.

To use one example I used before (company name and project totally made up to protect the guilty), a baseball bat manufacturer switches from manufacturing wooden bats to aluminum bats.  Wood requires the operation of a large kiln for drying, lathes, lacquer and all this sort of stuff.  Making aluminum bats allows them to shut down the kiln, turn off the lathes, lay off half the workers, close half the facility, and increase production.  The energy consumption per bat decreases.  Problem: this is a totally different manufacturing process.  The baseline is not the manufacture of wooden bats.  The baseline is standard practice for making aluminum bats.  What is that?  At the point of evaluation, they don’t know.  No alternatives were explored when they switched.  There are no savings here.  What a mess.

Another one includes a “behavioral” change where instead of running shifts every day of the week, the customer switches to running around the clock fewer days, primarily due to long wait times to start up and shut down every day, wasting energy and labor.  Programs are not meant to incentivize avoidance of obvious absurdities.  We probably don’t have the whole story, which may include going from 24/7 operation to 24/4 operation.  No, reducing production is not energy efficiency.

Smart large users opt in and leverage the program for all it’s worth.  Even the hugest, most goal-driven companies saving dozens of megawatts (no kidding) leverage programs to the max.  Somebody has to save energy and demand and it may as well be me, large user.  I take money paid from my less intelligent competitors and other citizens; my utility loves me because I am making giant steps toward their mandated goals; my colleagues in other parts of the country are envious; my CEO loves me because I’m substantially adding to the bottom line and reducing risk; and I take a huge administrative/management burden off my plate and give it to the program/utility.

If this is not a competitive advantage, I don’t know what is.

[1] Opt-out customers must file their own plans and reports just like the larger utility program and that takes substantial time to do any sort of reasonably acceptable job.

[2] A rider is an added fee, usually per unit energy used for energy efficiency, fuel cost adjustments and other things.

Independence, Finally

Energy Efficiency, Government, Investments, Uncategorized0 comments

Here is some good news in my view.  Despite nearly 40 years of political claptrap to reduce our dependence on foreign oil, technology from the private sector, not cockamamie pie in the sky, physics-defying dumb ideas will deliver it.  That is, unless of course Washington snatches defeat from the jaws of victory, which it is 100% capable of doing.

I went looking for data on our dependence on foreign oil since the first oil shocks of the 1970s.  There is one significant dip in the import percentage chart nearby and that is due to (1) a deep recession in the early 1980s, and (2) cars shrunk in size and weight in a period of a couple years by at least 30%.  They have since ballooned back to monster tanker size.  Have you stood next to a 6000 pound Dodge Charger[1] lately?

The second chart shows consumption, production, and imports of crude, as reported by the DOE’s Energy Information Administration.  Production has only recently increased after a nearly unabated 40 year decline.

As an example of Federal Government lunacy, see the transcript from GWB’s State of the Union show excerpt from 2006.  According to that, by now, 2012, we were to have plentiful, clean, safe, nukes (none), cellulosic ethanol (none), better batteries (like ones that don’t start on fire?), and this dandy: hydrogen for emissions free transportation (you’re killing me).

The 2006 goal was to reduce petrol imports by 75% by 2025 – another “pull a number out of the air” for a round of applause.  I would boo, or possibly I’d be more civil and just laugh aloud like Dr. Evil and No. 2.

The Wall Street Journal recently reported that the explosion in domestic natural gas and oil production due to hydraulic fracturing could chop oil imports from the hostile Middle East in half by the end of the decade and end it altogether by 2035.  Whoa!  Think of living in that kind of world!

Time out for this note:  We have only been worried about running out of natural gas and crude oil for about 35 years, but as the years pass, the reserves keep growing driven by the private sector’s salacious quest for profit.  It’s just pure evil.

Aside from geological and extraction technology delivered by the private sector, another critical element of this unstoppable energy boom is that the shale formations being targeted for drilling are in the control of private land owners, free of the Washington straightjacket.

Not only will oil production increase in North America, kicking our dictatorial adversaries where it hurts most, natural gas is likely to become a significant transportation fuel.  And, like it or not, a huge benefit of coal and natural gas is that they are virtually ready for consumption as extracted from the earth.  Crude oil obviously is not.

Even with this abundance of conventional fuel sources, the pursuit of alternatives will continue.  Actually, the abundance and accompanying low cost is likely to draw the sinister profit seekers to hotly pursue alternative fuels.  I project, with high certainty, that breakthroughs in alternate fuels will come from some of the most hated sectors in business: big oil and big chemical.  This isn’t like starting a software company or social media site.  It requires massive investment in R&D, high priced technical experts, equipment, and facilities, and freedom from the ignorance of dumb ideas and red tape.

This will be a bittersweet sister smooch.

[1] Wild guess.  The point is, they are enormous hulksters.

Better than Doritos

Energy Efficiency, Investments, Tax Stuff, Uncategorized0 comments

Last week we looked at the financial benefits of energy efficiency as compared to the stock market.  I’m going to take this a few steps further, as forewarned last week.

In both cases we start with the $39,000 investment and the stock market simply grows at its long-term average of 7.5% (Dow Jones Industrials).  Obviously, a smooth appreciation of your investment is not the case and if you don’t have a strong stomach, you should avoid equities.  Why is it called the Dow Jones Industrial Average anyway?  It’s full of service companies, banks, and retailers.  It includes Microsoft, but not Apple, which has over twice the market capitalization.  A company like Apple, which is absolutely huge, would probably make up half the movement in the DJIA.

The EE investment on the other hand immediately starts paying dividends – actually net cash in the bank to the tune of $6,200.  This dividend shrinks as the interest payments, which are tax-deductible, go away until the lease/loan is entirely paid off.  Over this period, the stocks, on average, would catch up to be almost exactly the same after 10 years.  However, in the 10th year, the $30,800 annualized payments for the EE investment disappear and suddenly the investment starts earning 115% of the initial investment, year after year, for the next 10 years.

You may notice the dip at the end of the stock market valuation in year 20.  That is the capital gains tax whack of 15% you have to pay when you cash out, wiping out the last few years of gains.  There is no capital gains whack on the EE investment.  All tax implications have run their course as they affect the annual energy savings, interest payments, and depreciation.  Actually, in year 20 when the EE investment reaches the end of its useful life, the remaining value of the investment is fully depreciated.  Since the depreciation period is 39 years, like that of any facility, almost 50% of the depreciation occurs at the end of life, resulting in a $44,000 surge in after tax income which is almost equal to one year’s energy savings.

Aside from generating over 250% the wealth generated in a stock market investment over a 20 year period, EE offers the very attractive benefits of risk mitigation and certainty for return on investment.

Energy prices are volatile and today there is as much uncertainty in energy prices as there has ever been, which is why investors and companies are sitting on the sidelines hoarding cash.  Specifically, nobody knows how many power plants the EPA will eventually shut down.  Will they allow hydraulic fracturing that has produced the glut and current rock bottom prices for natural gas to continue?  The beauty of investing in energy efficiency is if prices go up, you save even more than you projected.  Rising prices is not a good thing, but by investing in energy efficiency you have insulated yourself against this and even improved your ROI.  Conversely, if energy prices fall, your ROI drops, but who cares?  You are paying less and your profit, or after tax income, improves.

In IPO Return, Treasury Risk, I described the low risk in energy efficiency, in most cases.  Whoever determines the savings potential must not be a dufus, hack, or cheat.

Everyone knows there is always competition for scarce capital within an organization.  Very few investments (uses of capital) have the certainty of EE.  If a manufacturer decides to add another line of production, they better hope demand for the product increases as projected.  And by the way, what is the return on that product?   10%?  What ROI does a grocery store facelift have?  Is that going to result in $363,000 capital formation over the next 20 years?

How about risk in plain old strategy against competitors or to sedate rabid mobs of protestors?  In this article, Holman Jenkins compares and contrasts McDonald’s response to heat from child obesity activism to that of Pepsi, which of course makes soda with the poisonous high fructose corn syrup and other salt/fat bomb stuff people, including me, love.  Nacho cheese Doritos – mmmm!  They were awesome in 7th grade and they are awesome in 2012.  McDonald’s strategy was to add healthy stuff to their menu.  Never mind, because nobody buys happy meals with apple slices.  It makes them feel better just knowing healthy stuff is available (not making this up).  Pepsi, on the other hand, apparently messed with its product line with poor results, no stock market gain in 5 years.  The bottom line is business is fraught with risk at every turn.  It’s very difficult to beat the low risk and high return of energy efficiency.

The only “downside” with energy efficiency is its potential for a given end user is capped.  It’s like short selling a stock.  The most you can make is the entire value of the sale.  The most energy you can save is the total you are paying now.  However, energy efficiency is far safer than shorting a stock.  The downside of shorting a stock is infinite.  There is minimal downside risk to energy efficiency.

Finally, to look at a couple factors, it is interesting that end of life value varies linearly with down payment and with corporate tax rate.  The percent down makes little difference.  Lower taxes are clearly a boon to energy efficiency.

Next week: I’ll be sure to find something to gripe about.









Facility Management, Taliban Style

Energy Efficiency, Government, Investments, Uncategorized2 comments

Possibly the greatest thing about energy efficiency is there is no limit to learning. In what other occupation can engineers work with social scientists, urban planners, economists and 16th century Mongolian art majors?  Last week I attended a presentation by Christopher Russell, energy efficiency and finance swami, or is it guru?  The higher ranking one.  Or maybe I should just call him Colonel Russell.

His presentation started with the tale of two college campus facility managers, Doug and Dave as I recall, with names changed to protect the guilty.  I’ll call them Dick and Harry for double protection.

It doesn’t happen very often, but every once in a while a person tells an energy efficiency program or project fable that I find myself violently agreeing with.  In this case, Doug, er I mean, Dick was presented as an all-too-familiar customer representative/facility manager.  His attitude is “energy is a necessary evil, a fixed cost, and not a resource to be harnessed,” and his idea of success is to keep the phone from ringing with problems and complaints.  Gee, this sounds just like many HVAC and automatic controls contractors.  Just slap it together, stop the phone from ringing, and move on to the next project.  I don’t care what the energy consumption looks like, just stop the complaints.  Who cares what the energy implications are?  But I digress.

Doug Dick is a status quo thinker.  He believes the pie is fixed and everyone must fight like a boorish thug for their budget.  Then, once his slice sequestered, hoard it, and if necessary, spend it to (god forbid) reduce the budgeting leverage for next year.  This is standard practice for government, by the way, including the Navy (at least back when I was there).

Dick Doug is eventually handed a mandate from on high to reduce energy consumption in campus facilities by XX%.  Hire an energy efficiency professional to best determine maximum return on investment?  Hell no.  That would cost a lot of money, make Dick look dumb (he thinks), and the EE pros will recommend a slew of projects that upper management may get their hands on, which results in Dick having to do even more stuff!  Rather, Dick decides to be proactive for a change and implement an expensive project that will drag on a couple years to keep the greens off his back.  In this two year span, he thinks the fad will blow over… and then it hit me.  Dick, the facility manager, is like the Taliban.  He is dug in, resistant, and will never surrender.  He will weather the storm and wear down his adversaries with brutally intransigent patience.

I have a great deal of passion for energy efficiency or I wouldn’t be in this business for 16 years.  Reasons include; non-renewable resource preservation, saving money and increasing profit, risk mitigation, and all that sustainability stuff.  However, thanks to Mr. Russell’s analysis and one question I asked, something like a cold fusion miracle occurred.  He used an example, but I made up my own.  A detailed assessment for a new energy management system has been completed and the project data is shown in the table nearby.  I’m not going to puke all that information back at you in words, but I would just point out the lousy 5.8 year simple payback.  Most customers would laugh and tell you to get lost because they only do projects with a simple payback of 2.0 years or less.  A million years ago, I wrote an Energy Brief explaining why simple payback is a terrible metric to make decisions with.  One reason it is lousy, as discussed way back then, was because payback has nothing to do with wealth.  For example, what does a 2 year payback tell you about how much working capital the project will generate?  I can’t buy lunch with a payback.

The annual cash flow shown includes the 15% down payment the smart guy, Dave, er Harry represents the plunk down of $39,000 for this project.  Over the 10 years of the loan there is a positive cash flow (savings greater than payments) of about $2,000-$6,000, depending on the interest paid on debt, which is tax deductable.  That looks pretty cool but still not that hot, Jeff.

Then we have the cumulative cash flow, and wow, this is suddenly becoming impressive.  At the end of the 20 year life of the project the cumulative cash flow is $360,000 for a not-too-shabby internal rate of return of 18% on the original $39k down payment.  Or you can do nothing and destroy $585,000 in capital on wasted energy[1].  Try to get that kind of return in the stock market[2]!  Speaking of which, I have that comparison too.

Warning: Place your index and middle fingers over each eye socket before gazing at the chart – to keep your eyeballs from popping out of your skull.

I apologize for the positive message this week.  This was a pathetic rant.  Next week I will discuss other features and benefits for investing in energy efficiency.








[1] Note this is for demonstration purposes only.  The wealth created by doing the project is

[2] 7.5% compounded average gain since 1972


Green is Dead

Energy Efficiency, Government, Investments, Stimulus, Sustainability, Tax Stuff0 comments

This week in Coon Valley, where I’ve lived for 15 years, we were hit with frost that ended the growing season for unprotected plants.  I have said for years that the first killing frost is always around the first of October, depending on the timing of cold fronts, but this year was earlier than normal – earlier than its been for many years I think (I’m getting old so I’m becoming a walking almanac like your grandfather is/was).

To the point, I thought, the killing frost may be symbolic of the death of “green,” I don’t think the death of the concept just yet, but the death of the term.  “Green” may join the trash heap of burned out terms that were symbolic of failure and/or some sort of scandal:

  • “Jobs created” converted to “jobs created or saved”.
  • “Global warming” converted to “climate change”.
  • “Stimulus” converted to [I’m not sure what yet but Nancy Pelosi has declared the term “stimulus” to be off limits]

A few months ago when we were rebuilding our website and updating some content, I was pondering for a replacement for the word “sustainable”.  The word is entirely overused and I don’t think the average Joe Public has a clue what it means – maybe something hippie-like, living in communes, drinking herbal tea, wearing hemp over a Bob Marley tie-dyed tee shirt and dreadlocks, and riding a crappy looking single speed bicycle.

Green is also wearing out its welcome if you ask me.  Speeding it to its death is the raft of bad news coming from what I would call misallocated stimulus (ironically) funds.  I mentioned the Solyndra bomb a couple weeks back, but then it was merely a half billion dollars of taxpayer money that might as well have been pelleted and mixed in with coal and burned to generate electricity.  THE US GOVERNMENT BLOWS A HALF BILLION DOLLARS!  READ ALL ABOUT IT!, as the boy would yell on the street corner selling newspapers in the old days.  In 2011 however, a half billion dollars of totally wasted taxpayer money is barely worth mentioning.  Something like this would be buried on page 21 of the Arts and Leisure page, next to the movie listings.

The Solyndra episode has ballooned into a scandal of sorts.  When boiled down, it was actually a $500 million dollar television ad for the President to tout successful green jobs in a state of the art manufacturing facility, in California of all places – probably the worst place in the union to make anything.  At first it was hyperventilating right wingers on Fox News parading the successful failure of green jobs and the Obama administration.

However, now everyone including numerous news outlets, congress, and even the FBI is piling on like a school of piranha attacking a case of bratwurst.  ABC first broke the scandal part of this they claim.  The CEO was a crony donor to the President. And the best part: venture capitalists (of the private sector stripe) are first in line to get their money out during bankruptcy “restructuring”.  Taxpayers last – my anthem for all government activity.  Taxpayers are always last in line for any sort of break.  Solyndra will not emerge from bankruptcy.  It will be liquidated.  Anybody need some light fixtures, fancy cabinetry, office furniture or equipment?  Robots?  The liquidation is my prediction because any company that burns through cash this fast and manufactures a product that competes against a similar product at 1/6 the cost is unsalvageable.

In other galling cases, we have General Electric, with CEO Jeffrey total-failure Imelt on the President’s jobs task force maneuvering to pay zero income taxes thanks in large part to “green energy” tax credits.  In ten years Imelt has guided the company with a starting share price of $55, now trading at $15.  Imelt claims he’s advising the president on jobs, not tax policy.  Right.  His henchmen are lobbying the bajeebas out of Capitol Hill for these tax breaks and loopholes.  Regarding the jobs advisory, he is doing a fine job as he moves GE Healthcare manufacturing from Wisconsin to China.

Look; companies are free to make stuff where they want.  A major reason for moving offshore is high corporate taxes for the unfavorable companies (like ours) and red tape like, oh, SarbOx, Frank-Dodd, OSHA, EPA, NLRB, protesters, and an incomprehensible byzantine tax code.  I do have a problem with lobbying and manipulating tax code to one’s benefit.  I do have a problem with Imelt being in the White House all the time on a jobs and competitiveness advisory this or that with the President.  Why doesn’t the President immediately boost his image by losing this guy and holding a rose garden ceremony to do so?

In another success story, Whirlpool, which purchased Maytag about five years ago and closed the Newton, Iowa clothes washer and dryer plant, also pays no income tax thanks to green tax credits.  It also happens to be moving jobs south of the border.  Are these green jobs that are being exported?

Combine once-great American companies that move most manufacturing overseas, while paying no tax on the money they do still earn onshore with throwing taxpayer money in the incinerator for political photo ops and you get “green jobs” becoming a vulgar taboo phrase.

In still more program-formerly-known-as-stimulus news, $38 million in weatherization funds do wonders in West Virginia.  The money was filtered down from the state to local “anti-poverty agencies”.  Half the projects failed inspection.  Projects were doled out without bidding per state law.  Employees (of the weatherizers) and their relatives served themselves first, one spending $10k with new windows and doors.  I’m surprised they didn’t build a garage and call it a vestibule.  A lawyer was paid $25,000 (that’s right, twenty-five thousand dollars) to write two sentences approving the awarding of funds to the agencies.  The topper of them all, and there’s no way Jay Leno could come up with this, one person was paid $2,500 to inform Washington there was not enough money to track the money.

I get the feeling we won’t be hearing about the creation of green jobs much longer, if ever again.  Actually, the word green may even become foul.

This is bad for our industry and we are going to suffer collateral damage and take some shrapnel from this I am concerned.  As I’ve been beating on the past month, independent and in depth evaluation of program impacts and cost effectiveness are needed.  The way to do it is to have government (regulators) police the private sector – utilities and other implementers, using other private sector evaluators.


I kid you not.  After writing the above, I came across this article in the NYT.  Yes, in addition to the banning of the word “stimulus”, “green” is now verboten per the White House.

written by Jeffrey L. Ihnen, P.E., LEED AP

Fly High and Jump!

Energy Efficiency, Investments, Utility Stuff0 comments

Natural gas utilities tend to howl about making EE goals because it is much more difficult to capture savings for natural gas than it is for electricity.  With one giant exception, lighting, this isn’t really true and I do not agree.  Lighting retrofit/replacement is indeed easy for a number of reasons:

  1. Utility DSM product managers and account managers understand it.
  2. Customers understand it.
  3. Lighting upgrades improve lighting brightness and color rendering.
  4. Some level of investigative analytical study is NOT required.
  5. With the exception of early T8 electronic ballast technologies, maintenance is reduced, at minimum because the customer has new equipment after implementation.
  6. Design services are not needed.
  7. Impacts are relatively easy to quantify.
  8. Evaluation-verified savings generally result in high realization rates.
  9. Everyone else is doing it so why don’t we, from the customer perspective.

Now consider custom efficiency, where huge potential exists; potential that is far greater than lighting in commercial and industrial facilities.  Let’s apply the characteristics above to custom efficiency.

  1. No.
  2. No.
  3. If done right, which is too often not the case, custom measures can improve comfort.
  4. Yes, investigation/analysis is required.
  5. If done right, which is too often not the case.
  6. Yes, design should occur for success.
  7. Not for the typical program implementer.
  8. Not typically.
  9. No.

A few weeks ago the post was It’s Knowledge, Stupid! A GREAT deal of knowledge is required for custom efficiency projects.  This is a ginormous barrier.  Risk aversion is another huge barrier and that’s what I’ll get to in this rant.  Lack of capital is another barrier but probably not in the way you are thinking exactly.

Implementing custom efficiency is a bit like skydiving, which I’ve never done.  The risk-plus-hassle to reward ratio for that doesn’t pass my test.  But anyway, everyone agrees that jumping off a concrete block is less risky than jumping off the back of a pickup truck, right?  (yes – just work with me)  As jumping height increases, risk of injury obviously increases.  Then there is a huge range of heights that are off limits because it’s too high without parachute, but not high enough for parachute deployment and sufficient deceleration prior to getting your feet on the ground.

Customers that implement custom efficiency measures are scared of heights and typically don’t want to pay for an instructor, or a guy to jump in tandem with (which is what I would do), and they don’t want to pay for an extra few minutes and another couple gallons of fuel to fly to a safe altitude over an open field.  The result is a twisted ankle and a bad experience at best, broken bones, death, or possibly worse – completely incapacitated vegetation.  Yes.  This is the range of possibilities for how a custom EE project could turn out.  Many programs lack the airplane to even get off the ground.

Customers think they know what they want at the outset but when the rubber hits the road it’s with the brakes locked or heavily depressed.  Sometimes customers will invest in the energy assessment with their own money, wanting to cut energy costs by 15% or some other aggressive target (more than one can get by janitors being vigilant about turning lights out in unoccupied spaces at cleaning time).  They are presented with the information that gives them just what they asked for:  more than 15% savings from measures with return on investment they require.  Now they are frozen because they actually have something to act on.  They can’t decide what to do next because… I’m not sure.  Fear of the unknown?  Risk aversion?  They agree, we gave them exactly what they wanted.  These people are like taking the ground course for skydiving but can’t get on the plane.  They paid for the class but they are looking at more cost for the flight (design) and then actually doing something (jumping = implementation).  So they strand the funds invested in the energy assessments.

The next type of customer doesn’t want to pay for anything; ANYTHING.  They think since they pay the utility gobs of money, the utility should just invest their own capital to erode the return on the utility’s capital and give them everything, including the cost of implementation.  They agree to have an investigative analysis of their facility to identify and evaluate measures available in their facility.  The study includes the cost to do everything right – design, budget cost estimates from a contractor, and post-implementation functional testing the measures to ensure measure integrity.  Once the study is completed and it’s time for decision making they start recoiling because it isn’t lighting replacement they are used to.  Even though ALL the costs to do it right are rolled into the cost-effective measures, they want to start carving stuff out and chopping the measure list down and neutering the ones they sheepishly move forward with.  We identify 20% energy cost savings with a 2 year payback and they end up retrofitting some lighting and adding a few points to their energy management system for savings of 4% – because they don’t want to pay for a damn thing, even though all the costs to do it right are in the measures that meet their criteria.  These guys get their skydiving ground course paid for by the utility then they ride the plane to the end of the runway takeoff and jump out there and stub their toe – go through the motions and do as little as possible.

These guys who jump out at the end of the runway are the most frustrating.  They have enormous opportunity but don’t want to pay for anything.  They don’t pay for independent design firms to design their systems either.  They have contractors do everything each in their own bubble.  The HVAC vendor is told to provide a rooftop unit for 60,000 square feet of sales floor but this a grocery store.  The vendor looks up 60,000 square feet in their table for, say Syracuse, NY and it says they need 150 tons of cooling and 1.2 million Btu/hour.  Ok.  Give me one of those.  Wait a minute!  You have 80 tons of cold in the store in the form of refrigeration.  What about that?  There is no integration whatsoever in the facility design and as a result this customer type pays way too much initially, they have a system that performs like crap because it’s way oversized, and it’s an energy hog.  Penny “wise” and brick of gold bullion foolish.

Then there is the miracle customer that does things right.  They pay for the study almost entirely out of their pocket because their utility has minimal EE funding.  The report indicates 30% saving potential from measures meeting their financial criteria.  The board, lead by the district administrator discusses how to free up capital to do the project.  They don’t have cash lying around or a huge endowment to tap.  Creatively on one month’s time they carve out the capital they need to do the project and they are ready to go.  The board approves moving forward with the measures, including paying for decent design documents.  Measures are implemented and then tested per the initial study scope and cost.  Wouldn’t you know it – they end up with 40% savings and a 2.7 year payback rather than the study-predicted 3.7 year payback.  Serious, decisive, creative, bold, confident, and fully committed result in huge savings that exceed huge expectations, all in a timeframe of barely 7 months from start of study to final implementation test.  These guys take their skydiving class, fly to 4,000 feet, jump in tandem and have a blast.  Next step: Everest.


A couple weeks ago in It’s Knowledge, Stupid!, I was ripping the EPA a new one for paving over a farm field 20 miles from Kansas City for their new facility, leaving their old one which was in the urban center where they tell us to live and work.  Do as I say but don’t expect us to follow.  I mentioned some ridiculous costly regulations they are in the process of rolling out.  Well Touché.  Such regs would cause Nebraska Public Power District with a million people served a billion dollars, a thousand dollars per head served.  Yeow!  I’ll have to study risk mitigation by the reduced emissions versus cost for a future rant.

Lastly, don’t look now but the goofy right wingers may have a point about the price of CFLs soaring after incandescent lamps are taken off the market.  Wow.  That would cause a massive backlash which would be very damaging to the EE industry.  Be careful what you wish for.

written by Jeffrey L. Ihnen, P.E., LEED AP

CFL Mud Wrasslin

Energy Efficiency, Government, Investments, Tax Stuff0 comments

As you must know, last week congress failed to pass a repeal of the incandescent light bulb with their “Better Use of Light Bulbs” (BULB) act.  There you go right there – God awful marketing.  Who comes up with this junk?  Why does every bill have to be called an “act”?  It’s like every scandal has “gate” attached to it.  Do the Millennials even know where gate comes from?  Climategate.  Memogate.  Blagogate.  Filegate.  Macacagate.  Monicagate.  Nannygate (2 each).  Travelgate.  Troopergate.  Guess who has the most gates.  I don’t know but I’ll bet Bill and Hillary have to be in the best and finals round.  “I am not a crook”.

I was tipped off to a Wisconsin Public Radio joust between a liberal from the National Resources Defense Council (NRDC – Left) and a conservative from the “Center for Energy and the Environment” a wing of the Competitive Enterprise Institute (CEI – Right).  I like the masquerading name of CEE, which is also the name of a non-profit, not to be confused with non-competitive, from Minnesota.  The radio show was entertaining to behold and I thought I would share some of the arguments of both sides.

Left – This is not a ban on incandescent light bulbs.  In the words of Dr. Evil, Riiiight. C’mon.  That is exactly like saying beer shall be limited to 3.2% alcohol and it must also weigh in at less than 90 calories per 12 oz serving.  No ban on beer here!

Right – Big business is teaming with the environmentalists to lobby congress for this – to make gobs of money. LOL!  Light bulbs aren’t made in the US, nor are they made by US companies.  Philips – Dutch.  Sylvania – German.  The CFL market is dominated by TCP, a Chinese company.  If you look hard you’ll find GE CFLs, made in China.  But the CFL isn’t why Imelt spends all his time in Washington.  He’s after bigger fish.

Left – This regulation is good for consumers.  Sorry but this is another knee slapper.  Let’s ban pizza.  Clearly that would be a victory for consumers – salt, fat, and enough preservatives to keep your dog around, odor free, for months after he passes on.

Right – Expensive halogen incandescent lights will soar in price once the incandescent ban goes into effect.  I doubt it.  This is like the merger of Sirius and XM satellite radio.  There will still be plenty of competition for light bulbs.   Competition has already made CFLs practically free to purchase.  Good luck against that.

Left – People don’t have time to determine life cycle cost and what is the best deal for them – therefore, take away the “bad” choice.  This clearly smacks that you are too stupid to live on your own – aka, the nanny state.

Right – CFL light quality is horrible. This is a bogus argument.  The only drawback indoors to CFLs is they take a minute to come up to brightness.  Otherwise you can’t tell the difference using a warm white CFL against an incandescent bulb.

Left – Halogen technology has been around for a long time but it has been too expensive for the market.  This mandate will drive down their cost.  Probably.

Right – People really hate CFLs.   Sure.  That’s why my mother has a house full of them (even the hideous cool white ones) and my brothers use them exclusively on the farm because they last a loooong time, and happen to save energy.

Left – He can’t imagine a better policy that actually results in more choices.  This may have been the stupidest argument of the interview.  Let’s ban cable TV and see if we get more choices for TV.  Good grief.

Right – Energy use will increase because the money that people used to send to the utility will now be used to buy more stuff (made in China from coal-fired power – my comment).  There is some truth to this I believe.  I discussed this in upside down consequence of EE last fall.

Left – A caller fears corporations more than government.  Criminally corrupt and crappy corporations eventually go out of business.  I wish I could say the same about corrupt crappy government.

Right – Why do we need to ban a harmless incandescent light bulb?  We didn’t ban horses and buggies or typewriters. There is some truth to that.  I had an electronic typewriter with memory and a tiny little LCD screen when I was a freshman in college.  Anybody need a cool toy for a toddler?

Right – People may resort to candles.  Candles are dangerous.  They start fires.  Ok.  This was the stupidest argument of the interview.

Right – A caller from Oshkosh tells us, he will show them.  He has stocked a lifetime supply of incandescent light bulbs for himself.  Congratulations.  Stay off that guy’s lawn or prepare for the consequences.  I wonder if he was smart enough to accurately estimate how many he needs??

Right – We already suffered through the low-volume toilets.  Good grief.  I’ve seen low volume toilets that outperform 5 gpf models.  Have you experienced the old lazy toilets, like in an old hotel where the water goes around and around and around for about 15 minutes, ending with a wimpy flush?  They don’t very well handle things with a specific gravity less than 1.0, if you know what that means.

Left – Extra cost for CFL is paid off in seven months at 10 cents per kWh.  This is not an unreasonable estimate.  Per the estimated hours of use to achieve this, hardly any of the lamps useful life is used up.

Right – But it will take a lot longer to return investment where energy markets are freer and cheaper.  Weak.

Right – This is a broad overreach of the nanny state.  See, this is my problem with this.  It’s a total waste of time and political capital and meanwhile, Rome burns.

Speaking of the nanny state, how about focusing on setting the current corrupt and incomprehensible heinous tax code ablaze?  Corrupt?  Exhibit A: General Electric – $5 billion in ONSHORE profits, $0.00 US income taxes last year.  CEO Imelt has overseen the company’s fall from $55 when he took over in 2001 to about $19 today.  Congratulations.  Why he isn’t among the unemployed is beyond me.  Moreover, Art Laffer, a very in-tune economist and his colleagues estimate America spends a staggering $430 billion on tax code compliance.  To put this in perspective we consume – consume, not import – roughly $730 billion in oil per year.  And people whine about high gas prices!

Perhaps the only thing more insane is borrowing 40 cents on the dollar spent by the feds.  How about putting full resources and muscle of the CEI behind this atrocity?  Who cares about light bulbs?

In the end the CEI guy had no leg to stand on.  However, the NRDC guy should have pointed out that if they skipped the ban, the guy in Oshkosh would have eventually seen the light (pun intended) and started to use CFLs.  Like the horse and buggy days, I think incandescent bulbs would have gone away by market forces, maybe in a few years??  We will never know.

written by Jeffrey L. Ihnen, P.E., LEED AP


Energy Efficiency, Government, Investments, Tax Stuff, Utility Stuff1 comment

Warning: I am not a CPA or tax attorney, and I do not have 63 years available to determine for myself that all contents of this rant are correct.

A couple years ago I wrote an Energy Brief about the need for life cycle cost analysis to make the right decisions for selecting the best option for an energy project.  Since that time, we haven’t exactly been living up to this ideal, in large part because we’ve been doing a lot of work for profit-driven enterprises.

Life cycle cost analysis for non-profits is pretty easy.  It includes first cost, borrowing cost, if any, maintenance, effective useful life of the measure(s), and energy cost.  It gets much more complicated for profit seekers because of tax laws.  In general, profits that are taxed equal revenue minus expenses.  Energy is an expense and therefore, a dollar of energy savings is not (even close to) a dollar added to the bottom line.  Another perverse element of taxes is that when a customer invests in equipment they have the pleasure of paying property tax on that equipment.  I learned this as we bought a bunch of office furnishings and invested several hundred thousand dollars for our new office space downtown.  Then over time the stuff can be depreciated and subtracted from earnings.

Corporate bean counters roll all this junk together and spit out something around a two-year payback requirement.  But there is likely some subjective risk-aversion quotient in there also.  The payback requirement isn’t an arbitrary qualification for an investment in EE.  Rather it is a simplified way to boil all these factors into one easy-to-understand metric.

I would guess most readers do not know that the US has the second highest corporate tax rate in the industrialized world, behind Japan, but just barely.  Coincidentally, these two countries among the most debt ridden countries in the world, including misers like Greece and Italy.  Surprise!  Pile on state taxes and companies can be staring at close to 50% marginal tax rates, the tax on the next dollar of earnings.  Iowa of all places has a top rate of 12%.  Texas on the other hand has no personal income tax OR corporate tax on profits.

Since the end of the recent meltdown that began in 2008, Texans have generated as many jobs as 47 states plus the District of Columbia, combined.  Our most populous and once golden state California has since contracted.  Without Silicon Valley – Apple, Google, and Facebook alone – the once golden state would be a burned out smoldering carcass.

Texas: 733,000 new jobs in past 10 years (no other state topped 100,000)
California: minus (negative) 624,000 in past 10 years (dead last)

You do the math.  Probably the most hilarious non-comic event I read about was Gavin Newsome, California’s lieutenant governor and a band of dimwits, er I mean congress persons from Sacramento recently traveled to Texas, on California taxpayer money, to see why Texas was stealing all of California’s jobs.  These people should be fired for that alone.  As a friend of Californians, I would have asked the pilot to drop them off in Havana and quickly get the hell out of there.

The challenge to do EE with for-profits is when companies are making good money, they don’t so much care about reducing cost as they are with increasing output, expanding and making more money.  This is compounded with the nearly 50% tax hit against EE impacts.  When companies are operating in the red, they of course tend to reduce cost but without spending money to do so.  Eliminating jobs or furloughing is an easy, very effective way to reduce cost with virtually no immediate cost.  Energy efficiency costs money now and returns savings later and furthermore, it is difficult to save energy on a production line that is sitting idle in the dark.

When companies are losing money, they want an extremely quick payback as they are risk averse and they want to see investment paying off as quickly as possible.  When companies are making money competition for capital is brutal as they have a lot of demand for it for expansion.

These all remind me why utility-sponsored performance contracting eliminates these barriers for most profit-seeking enterprises.  For the growing company with shortage of capital, such a program provides capital with virtually no carrying (borrowing) cost because the program uses the would-be cash incentive to buy down the finance rate.  For the customer running in the red, the project provides an immediate positive cash flow, guaranteed.  Of course the money losing enterprise needs to be financially sound and not an immanent risk of insolvency.

Depending on the corporate bean counter and tax attorney, a performance contract may be declared a lease, or an operating expense to avoid the property tax and depreciation hassle.  I believe this also helps it fly under the Sarbanes Oxley radar and associated red tape if they want to play with that fire.  Sarbox is a toxic residue from the remains of Enron scum mixed with brilliant Washington opportunists who always attempt to avoid the last collapse with a suffocating mélange of hellish regulation.  The most recent straightjackets and matching millstones are rolling out at banks, credit card companies, and brokerage houses near you via the Dodd-Fwank bill.

Maybe if rather than beating on companies that move and expand business overseas, Washington would provide us with a competitive business climate and knock off the myriad of carve-outs for politically connected money-grubbing schmoozer-losers…  We could revive manufacturing, move demand for energy from overseas to this country where we can do something about it, and increase return on EE investment by creating more after-tax income.

written by Jeffrey L. Ihnen, P.E., LEED AP

IPO Return, Treasury Risk

Energy Efficiency, Government, Investments2 comments

If there’s one thing that most people painfully realized over the past couple years, it’s that there is risk in putting your money in anything in hopes of earning a return on investment.  Riding a company into bankruptcy is an obvious one.  I’ve done that several times by investing in fast-growing start-ups, initial public offerings (IPO) and stock options.  Invest $3,000 for 100 shares of common stock and a few years later the company emerges from bankruptcy (isn’t that a cute phrase – it sounds like a daffodil blooming in spring but it’s more like rummaging for your charred silverware after your house burned to the ground) … anyway that investment may “emerge” at 10 shares worth $6 apiece, or if they liquidate you get a check for 36 cents.

If you avoid Bernie Madoff funds, you can greatly reduce your risk by buying mutual funds, which more or less track the entire stock market.  Corporate bonds might be next.  In the case of bankruptcy, provided the government doesn’t take over the company, you are first in line to get your money back.  Next might be U.S. government bonds but I wouldn’t go near them now as their value moves in the opposite direction of interest rates.  Just take a look where interest rates are now compared to historic numbers and do the math.  You CAN lose a lot of money in bonds.  Then there are money market funds that invest in super safe short term treasuries, but right now you earn about nickel a month per $1,000 invested.  Finally, there’s cash in the bank, which earns even less or zero but at least the first $100,000 is insured by the feds (the minimum was increased to something but I don’t care).

Commercial and industrial facility owners can invest in energy efficiency.  Lighting would be the bonds of energy efficiency, with the exception that you’re virtually guaranteed a return on investment as long as you can do 5th grade math to ensure you aren’t being ripped off.  Beyond that, the vast majority of energy efficiency projects carry the full gamut of risk from guaranteed savings (which isn’t free) and just buying a new piece of expensive equipment or system that may not save you a dime or could even increase your energy costs.

The big money is in custom measures and the risk varies depending who is identifying the opportunities and who, if anyone, is calculating savings.  If you browse our website you will find we identify measures and quantify savings all the time.  For many large projects we take a two phase approach to the analysis.  Phase 1 is to identify opportunities and guesstimate cost and savings to within plus or minus 40%, which means a project guesstimated to have a 2 year payback may actually have a payback from less than a year to more than 4.5 years, with the most likely being 2 years.

Phase 2 is a detailed analysis, sometimes with quotes from contractors, and energy analysis based on specific equipment performance characteristics, construction documents, and metered data.  After Phase 2, the guesstimates are sharpened to within plus or minus 10%, perhaps.  Now that 2 year payback would range from 1.6 years to 2.4 years, with the most likely being 2 years.

So energy analysis can take your project from a completely unknown return on investment to something that is close to guaranteed, and if you want, that can be added too.  The cost of hiring a firm that knows what they’re doing, delivering both quantity and accuracy of cost and savings estimates, is considered by end-users to be anything from reasonable to outrageously expensive.  Owners with smaller facilities and especially government ones tend to be at the latter portion of that range.  Large industrials may be closer to the front.

But the kicker is, utilities that run efficiency programs often pay for a good share or all of the energy analysis, sometimes even both phases of analysis described above.  But yet, end users may baulk.  We recently completed phase 2 analyses that largely demonstrated our phase 1 estimates were pretty good and some representatives of customers were scoffing that phase 2 was a waste of money.  Well look at the “uncertainty analysis” above and tell me, would you use “free money” from the utility to shore up your investment certainty before you invest a dime to implement anything, OR NOT?

As my colleague says, “It’s a no BRAINER!  Gee willikers!”

As an investment, an energy efficiency project may pay for itself four or five times or even more over its lifetime.  Peter Lynch who ran the Fidelity Magellan fund during the 80s would call doubling your investment a one bagger; tripling, a two bagger and so on.  This makes energy efficiency a likely two bagger and in many cases a four bagger.  It’s a home run with the risk of a money market fund.

Why doesn’t everyone get on this ride?  There are many reasons; some good ones and some utterly stupid ones.

written by Jeffrey L. Ihnen, P.E., LEED AP