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ARTICLE OF THE WEEK

How Your Tax Dollars Secretly Bailed Out A Private
Agency In Delaware
by David T. Stevenson Of Center for Energy
Competitiveness

There was no debate
on $11 million added to last year’s Bond Bill even though it was the
second line item on the budget. If it is for something as worthwhile as
energy efficiency how could it be a bad thing? In reality the money was
used to cover up an embarrassing situation for the Markell
Administration and a powerful state senator.

By Executive Order
in 2008, Governor Markell established a goal of reducing energy usage by
state agencies by 30% by 2013. Just the year before, legislation created
a target of reducing statewide electric power demand by 15% by 2015
using efficiency programs to be run by the Sustainable Energy Utility
(SEU). The SEU was set up as a private non-profit with its $3.5 million
a year operations budget funded by the state. The SEU was also given the
authority to issue tax free bonds to pay for energy
efficiency projects so no general revenue tax money would be
used. The lead proponent, Joint Finance Committee Co-Chair Senator
Harris McDowell, became the Co-Chair of the SEU Oversight Board. A
powerful bias to maximize energy efficiency gains, regardless of cost,
was created.

Four years later $75
million in projects were finally ready for signature. In the desire to
maximize energy savings, projects with very slow investment payback were
included which boosted the average simple payback time to almost fifteen
years. This is about twice the average used in federal
contracts according to John Shonder, a senior analyst at the Oak
Ridge National Laboratory and the go to guy for federal energy
efficiency projects. The projects wound up with a $14 million cash flow
short fall in the first seven years. The SEU considered a second bond
series to cover the shortfall but that would have reduced the net energy
savings by $7 million.

The obvious solution
would have been to remove the marginal efficiency measures to lower the
average payback time and to re-negotiate the contracts. However, this
would have meant yet another delay and would have reduced the total
energy savings significantly. Both these issues would have been
embarrassing to the SEU and the administration. Instead, a decision was
reached to kick in $11.3 million from the General Fund. Thus, the
promise to use no tax revenue was broken.

To compound matters,
the contracts used a number of questionable practices:

- Limiting the projects to energy saving
measures with shorter payback times would have allowed financing terms
to be reduced from 20 years to perhaps 15 years saving $9 million and
would have lowered contract prices. Best practice guides are available
from several states and the federal government. These best practice
guidelines reflect the use of a judicious balance of short and long
payback measures. Initial energy savings for each completed
project should be 20% or higher with simple payback averages of less
than ten years.

- All project financing options should have
been considered not just SEU bond sales. By law, only financing through
the SEU could be considered. Alternative financing, such as financing
arranged by energy efficiency contractors which is used by the federal
government and other states, could have been less expensive especially
if the SEU operating budget was included in the finance cost.

-The Guaranteed Energy Saving Contracts
included escalators for the future cost of energy which inflate the
perceived savings on utility bills compared to assuming no growth in
future utility bills. Contractors charge more in the initial price to
cover the risk of the escalators. Using a zero escalator in the
contracts may have reduced the initial contract price by about 10% or $8
million. Rather than pay for higher guaranteed savings, projects should
simply use estimates of future energy cost from the latest U.S. Energy
Information Agency Market Outlook to evaluate the project.

- Negative cash flow during the
construction period should have been included in the financing package
so no general fund tax revenue would have been used.

An Energy Efficiency
Task Force met for two years and proposed new regulations in Senate Bill
264 to fix many of these problems. The bill has widespread support but
has been delayed by Senator McDowell because of concerns it weakens the
SEU by moving responsibility for meeting energy efficiency goals to
electric distributors as is done in other states. That would allow
industry experts, rather than politicians and bureaucrats, to determine
the most effective way to meet energy efficiency goals. This bill, with
the changes suggested above, needs to be passed.

http://caesarrodney.org/index.cfm?ref=30200&ref2=321

Sustainable Energy Utility - SEU

Delaware Energy Office, SEU, Request For Proposal
Click
Here To Read

Sustainable Energy Utility, Delaware First
Click Here To
Read

SEU Inc, Energy
Efficiency Revenue Bonds, Page 12
Click
Here To Read

SEU Is Awash In Funds But Not Results

"Powerful supporters of the Sustainable Energy Utility
(SEU) are fighting legislation to repeal the Regional Greenhouse Gas
Initiative (RGGI) because 65% of the revenue generated from
CO2 auction permits would continue to enrich the
SEU for eight more years..."

http://caesarrodney.org/index.cfm?ref=30200&ref2=187

OTHER NEWS

'Green' Plans To Cut
Energy Costs And Reduce Green House Gasses In Delaware
http://www.udel.edu/PR/UDaily/2007/jun/green060707.html

Delaware Panel Recommends SEU Role In Energy
Credit
http://finance.yahoo.com/news/del-panel-recommends-seu-role-172311611.html

Energize Delaware
http://www.energizedelaware.org/Our-Mascot/%20

RGGI? Really? Cap And Trade Hurting Job
Growth
http://www.sher2012.com/index.cfm?ref=20200&ref2=15

The Regional Green House Gas Emissions By
John Nichols
http://foundersvalues.com/rggi%202.pdf%20

To Be Added To The Newsletter contact
[email-masked]

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