Promises Promises

An email being sent through LDV circles. Anyone expecting the save anything green – money or energy – with the Red Plan will be in for a big surprise.

Sent by one of our members.

Sent: Saturday, January 23, 2010 1:25 PM

Subject: Fw: Johnson Controls fails to deliver on cost savings to the city as promised

piece on JCI forwarded to me. Maybe you have already seen it but sending in case you have not.

At this busy time of year it seems the issues relating to Johnson Control’s ability to do what they say they can do at Duluth Steam has flown under the radar. I am very concerned that the company seems to have placed a great burden on our city. Have others seen their press release?

Update 10-15-09

Arbitration Scheduled between the City, Steam Co-op and Johnson Controls

· The arbitration between the City, Steam Co-op, and Johnson Controls is scheduled to begin on March 1, 2010 in Minneapolis before arbitrator, Lewis J. Remele, Jr. a Minneapolis attorney.

· A major item of contention between the parties is the methodology for determining the shortfall in the savings guaranteed to the City and Steam Co-op in the contract.

The City and Steam Co-op contend the contract requires measurement of the shortfall according to international standards.

Johnson Controls on the other hand has generally insisted that the savings be calculated, instead of measured by the meters at the Steam Plant, some of which they installed as part of the improvements.

· The measured shortfall for the first year is between $227,000 and $257,000 according to independent engineers retained by the City and the Steam Co-op. The shortfall for the second year, which ended August 31, 2009, is currently being analyzed.

At this rate, the shortfall in guaranteed savings would be approximately $3.75 million over the 15 year term of the contract.

Steam Plant Background Information : City seeks arbitration

In September 2006, the City of Duluth and the Duluth Steam co-op entered into a Performance Contract under which Johnson Controls Inc. guaranteed $6.2 million dollars in savings over the 15 year term of a contract for improvements to the Steam Plant and it’s distribution piping system. Johnson Controls, Inc received $4.25 million upon completion of the project in 2007: $3.2 million from a municipal bond sale and the remaining $1.05 million from the Oregon Climate Trust.

The City and Steam Co-op entered into the contract in reliance on Johnson Control’s assurances and guarantee the savings produced by the improvements would more than pay the bond payments for the project.

One purpose of the Performance Contract was to have a “green” project that would reduce the carbon footprint of the plant. The other purpose was to install identifiable improvements at the steam plant that would produce the guaranteed savings. The improvements included

1. Insulation of the pipes that deliver heat to the businesses, non-profits, governmental units, and health care providers;

2. A water softening system to reduce water usage; and

3. An upgrade of boiler controls and pulverizer modifications.

To date, only 24% to 32% of guaranteed savings have been achieved. A counterclaim has been made in arbitration to recover the shortfall and to reform the contract.

Johnson Controls agreed to produce guaranteed savings of $336,000 in the firest year; but, according to the Co-op and outside sales consultants, the actual savings achieved was only $79,000 to $109,000, well below the guaranteed amount. This resulted in a shortfall of $227,000 to $257,000 in the first year. The second year shortfall is similar, or slightly higher, according to the consultants. At this rate, the total shortfall would be about $3.75 million over 15 years.

The City and Co-op had been working with Johnson Controls Incorporated to resolve this matter without litigation or arbitration. They believe the contractor is using methods that are not contained in the contract and not consistent with International Performance measurement and Verification Protocols that govern the contract. Instead of measuring savings with meters that isolate the effect of the improvements made, Johnson Controls, is attempting to calculate savings.

The shortfall, if not recovered from Johnson Controls, ultimately means that the 225 downtown businesses, government units, non-profits, and healthcare providers will be affected. This would be a financial detriment to the entire City and its residents and could affect employment at the 225 affected businesses, to non-profits, governmental units, and healthcare facilities that will have to make up the shortfall.

Despite its own calculations reflecting a shortfall, Johnson Controls Incorporated has not paid the City or Steam Plant even the amount of its admitted calculated shortfall.

Its too bad all the major players in Duluth, other than City Councilor Jim Stauber, are scared witless by JCI.

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