PUBLIC INVESTMENT IN COMMERCIAL/INDUSTRIAL CONSERVATION:SOME APPROACHES CONSIDERED BY SEATTLE

Edward A@ HoltSeattle City Light

ABSTRACT

Over the last four years, the City of Seattle and Seattle City Light haveconsidered several proposals for financing conservation investments in thecommercial/industrial sectors * This paper discusses each of these proposals.They are contained in two basic concepts: (1) a public corporation that wouldsell tax-exempt revenue bonds, the proceeds of whi ch waul d be loaned tobuilding owners over long terms; and (2) a public/private partnership in whichthe municipal utility would provide incentives to the private energy servicesindustry to secure higher levels of conservation investment than wouldotherwise occur9

The principal incentive contemplated under is second concept is acontract between the ut i 1i ty and an Energy Servi ces Company (ESCo) to pay arebate to the ESCo based on the value of the energy saved by the ESCo~ Tworebate options are discussed; in each case rebate is limited by the value

the energy savi ngs to ut i 1i ty, or the cost of the improvements,whichever is less~ (1) rebate;s based in part on estimated savings(50 percent paid on front end) and in part on observed performance of theretrofit ildings over five years0 (2) The rebate is 100 percent guaranteedbased on estimated savi , but paid over ve years, and the ESCo is requiredto enter shared-savings agreements wi each customer@ The basis for the cost1 ion does include ESC09S t, so ESCo is dependent on itss savi i to

are debated~ Legal issues, theinstitutional forces that have

described~ Because a commercial/yet adopted in Seattle, the

are discussed in depth@

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PUBLIC INVESTMENT IN COMMERCIAL/INDUSTRIAL CONSERVATION:SOME APPROACHES CONSIDERED BY SEATTLE

Edward A. Holt lSeattle Clty Light

The usual presentations at conferences describe stories of successoRarely do the mistakes, false starts, and ideas yet to be adopted receive muchattention. But surely there are worthwhile lessons to be learned from theseeffortse This is the story of a project still waiting to be touched bysuccesse

Seattle City Light, like many other utilities, has provided financing forresidential weatherization for several years, and has also provided free auditservices to all customer classes. -But due to greater complexity of energysystems, less understanding of -the market, and legal concerns, Seattle CityLight has not provided financing for energy-efficient capital improvements incommercial and industrial (ell) buildings and facilitiese 2 The need--and theopportunity--has not gone unnoticed, however $

Over the last four years, under a program called ENERGY, &, severalpl ans for ell financi have been developed and debatede This paper wi 11di scuss the arguments advanced both pro and con each proposal, and wi 11identi pol itical, institutional, and legal barriers encQuntered@ Specialemphas s will be given to considerations influencing public utility supportfor and private sector motivation to participate in ell financingarrangements in Seattle.

In 1981, a citizen committee appointed by the Mayor to study energyconservation opportunities in the city recommended a financing program thatwould cover the commercial ndustrial (ell) market@ The ENERGY, ltd@Citizen Committeels was to charter a public corporation (in Seattle,a Public opment Authority, or PDA) that would sell tax-exempt revenue

to se whi it would then loan to businesses forcost-effective conservati improvementse The proposal was shaped this way inan t to avoid n legal concerns, which will be explained shortly,

i a public purpose rationale for loaning money over long terms@nter t rates at t time were very high, loans of 20 or even

m duration would allow the annual loan payments to be lower than theann on the customerms energy bill@ Thus, it would meet

views expressed in this paper are the personal opinions of thedo not necessarily reflect the view of Seattle City Light or the

of Seattle.

2An exception was a short-term demonstration program that, under theguise of R&D, provided rebates of one dollar for each 40-watt fluorescentlamp replaced by a 35-watt lamp~

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one objective of providing an immediate positive cash flow@ It was alsoargued that, since generating facilities are financed through long-term debtwhich approach the lifetime of the facility, equity of treatment betweengeneration and conservation resources called for similar treatment ofconservation investments.

The legal concerns about this proposal stemmed from the Washington StateConstitution, which prohibits the lending of public credit or public money(with certain narrow exceptions). Some legal advisors argued that, since thePDA has no taxing authority and is financially independent of city government,its revenue bonds would not be backed by the full faith and credit of themunicipalitY9 That argument did not convince the City's Law Department,however@

Further, there were concerns about the investment of authority into aquasi-independent organization ( though its charter could be revoked by theCity Council) to manage investments mounting into the millions of dollars, andin a eld where the ci lacked experience, using a concept that was newand untried~ These itutional concerns about the availability ofsufficient management resources to oversee such an organization, and to keepit accountabl ele officials, were strong arguments against the

al@ Fi ly, were political concerns that P would becompeti with the munici owned electric utility~ This argument was

even in 1i ght P coul d nance oi 1 and gason whereas Ci Department could on1 nance ectricity

ion (even assumi ing of credit 1 es could beaway)~ a ive, ual SU approach whichtaken PDA an advantage~

for and against, theea of encouraging

rection given was limited:some incentives wouldi c goal s , (2) start wi a

utility~

spend its money on conservat i on ofon work within the utility had certain

sense that, if City Light were going to implementa id part of the programBs development@ Also, ascity government, City Light brought the resources of

the insti tional staying power to back a new, incentives for electricity conservation were and are

as an appropriate use of City Light revenueS0

hypothesized that working with the private sector would bringitional advantages~ Private sector firms can respond more quickly than a

large public organization, such as Seattle City Light, to changing conditions@Personnel decisions, compensation methods, contracting and purchasingf ons can generally be accomplished more efficiently@ is flexibility

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could prove to be important to the program's ability to respond to changingmarket conditions.

Responding to the private sector direction, we had in mind thestimulation of the energy services i~dustry in our service area. EnergyService Companies (ESCo's) are not active in our area because our rates arelow relative to other parts of the country, and the ESCo·s depend on a shareof the savings on the customer1s energy bills to recover their investment.With customer rates low, customers (or ESCo·s, if they were willing) willinvest suboptimally from the utility l s point of view. The utility would liketo see customers invest in all conservation that is cheaper than newgeneration, but customers see a price signal based on average or melded costs,not those marginal costs.

Low rates are a problem for conservation investments, but they providethe rationale for the incentive that we finally developed: a rebate based onthe difference between City Light 8 s marginal cost of new resources and ouraverage cost existing resources, as reflected in customer rates@ With thisamount of incentive, customers should be willing to invest in conservationimprovements that would otherwi se have 10- to 12-year paybacks--about whatwould be cost effective to the utility. .

With is idea established, we issued a request for proposals (RFP) for afirm vel a business n 'the venture and st ,

siness plan appeared sound and met our public objectives, we wouldwi that firm impl ent the pilot program@ However, the RFP made

rm offer only one thing: $75,000 to do mark research and to developiness plan. RFP di hold out e prospect of program

ion, whi provided some addi onal incentives: (1) arketing acustomers under the auspices Seattle City Light, which would add

( an exclusive t ip with Seattle City Light for theion of pil program; ( a 1983 rebate of approximately

kilowatt-hour saved in winter (0 ember-March) and 12 mills perfor "summer I; savi (4) opportunity to make a profit

es ivi

ives, we were lookinglity to develop a thorough iness

to actually carry it out. Afterworked with an advisory group to review

tor. The proposal submitted by David M.seQ met our requirements. Dornbusch is an

a1so 0 ates an energy management companYedoes not engage in shared-savings programs

commitment and interest 'were high and thei ,on seemed logical~

th just one ESCo for' the lot (or a few ESCo·s for full scaleion) would greatly s.implify Seattle City Lightl's administrat.ive

~ Instead of interacting with each customer individually and paying outmany rebate checks, we would contract with an seo for whol ale loadreduction~ The ESCo would be responsible for providing complete conservation

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services to our customers, including promotion energy audits, financing,arranging for installation, and quality control 0 is one-stop shopping wouldbe, we bel i eve, an important way of overcomi ng customer investment barri ers ~

City LightBs responsibility would be to review energy savings estimates and onthat bas is offer a rebate for each project, and to conduct inspect ions afterthe ESCo is satisfied with subcontractor install ians@

Performance-Based Payments

The first proposal ng recogni that rebate was theprincipal, quantifiable i ve we offer ESCo~ Because of is,the rebate would be paid directly to the ESCo, whi would use it to pay thecosts of each project~ customer d see 1i e or no cost, and might

even be aware of City Light's role9 should be e, in this way, todetermine how effective ESCaDs can be in our ace, given iate

ice signals@

In newcarefulnd that

lor to action~

1argely di scountedhow many investmentsinvestments waul d be

rebate*it in his calculations, Dornbusch

y reasonable posture for a prudenthe was interested in performance: it

e, and the ESCo depends on achievingcustomers who caul d then be used as

Li moti vate investment as far out to theil1 iveness level as is realistically passi e~ We felt that

we 1 important leverage (probably never really had it) over theinvestment levels of the ESCo~ We needed to re-think how to structurei ives for the ESCo to behave way we wanted~

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There were other issues discussed as part of this first business planeDornbusch proposed that the cost of the improvements be defined as. thewholesale installed cost plus a fixed percentage markup for retail~ to coverthe ESCo I s expenses and return & Some peop1e were concerned that the ESCowould have no incentive to control costs, and might try to includeextraordinary profits~ One suggestion put forward was that we determine afixed percentage that would be allowed for profit. The extreme case would beto examine all ESCo costs and determine, much in the same way a utilityregulatory commission does, what return should be allowed@ These suggestionswere resisted because of offsetting concerns about City Light regulating aprivate firm, an awkward position, at best, for a monopoly enterprise, even ifit is publicly owned. But the concerns about the ESCo making excess profitswere not entirely dispelled&

The last major issue raised by this version of the business plan was thequestion of how to measure performance for the performance-based payments e

Dornbusch wanted to compare pre-improvement consumption with post-improvementconsumption, adjust for weather variations, and apply engineering judgment tofactor in changes in building use, levels of activity, or new energy-usingequipmente This is the approach typically used by shared-savings companies@Seattle City Light, however, was concerned about how to write that into acontract in a way that would leave little or no room for 1nterpretatione Wewanted to minimize the potential for disputes between us and the ESCo-­disputes over money that c.ould turn our cooperative relationship into anadversari relationship@ We proposed a statistical method relying on timeseries ysis~ This technique has been applied to measuring the effects ofjuvenile crime prevention programs~ but have not, to our knowledge, been

i measuri energy savings except on an experimental basis e

mn1lf'llnh~ft(" d convinced, and we d not feel we should insist uponwithout more experi,ence in its application@

remained unresolved~

Seattle City light proposed a1n9 of 1983@ Since we wantedity's level of cost

100 percent of the rebate amount@ ThenrU!\I'CU!::.\V"', in five equal payments over a four-year

ng made when the improvements had beenon performance, is method of payment was, in

dover from previous performance paymentamortized the cost to Seattle City Lightion programs are paid for out of rates as a

completion would have serious impacts onon customer rates ways a pol itical

ace performance-based portion of the rebate, ty Light statedirement that the ESCo enter into a shared-savings agreement with each

is rement would tie the ESCo back into performance9 Tois vation, ty Li stated that the cost limitation on

total rebate would not includebe dependent on i sharewould cover (if ustifiedcosts instal ion,(mostly s es commissions),1 ion,

plan allThe percentage

the pi 1ot1

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ESCOIS profit or fee~ Thus ESCo wouldsavi to make any money~ costs that we

the savings) would be the rectcosts i project

es ~ Indirect costs (indi@) would estimated in the

direct costsimati total indirect

that waul dit

, if

After the business an,e di experience

shared-savi irementperformance motivation

untested ind

irementpaymentsThe ESCo

in

new issue@ESCo would be forced

cost improvementsis but the ESCo

ers and otherto the ESCo,

a cos t covered by theused less productively,limiting the number of

Bringi banks into theto the pil

to the biggest obstaclelight provide a promissory note that could

to for the remaining four payments~ Thethey would continue to receive payments from City

to ESCoQ They did not want have toi tors in the event the ESCo went bankrupt 0

d not want issue promissory notes for each rebate, butpayment schedul e part of our contract wi th the ESCo,

the ESCo sufficing to indicate total rebate rebateThis issue has not been resolved~ --

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Sharing Risks between the Utility and the ESCo

A final nagging concern is whether the risks of the total program and theventure are appropriately shared. The customer bears little or no risk, sincehe or she has no capital cost~ There is some risk that the improvementssomehow are poorly specified or installed and will disrupt the properfunctioning of necessary equipment. An automated energy management systemmight be an example. For City Light, the risk is that the estimated savingson which we base our rebate do not materialize~ If the building is notoperated properly or the improvements, such as control systems are notmaintained, the savings could disappear. The counter-argument is that theESCo will be concerned if the savings are not occurring and will step in tocorrect the problem--at least for the five-seven years of the shared-savingsagreement@ But perhaps the building activity occupancy changes, or thebuilding burns down, or the insulation gets wete These things are not underthe ESCOIS control $ Of course, there is also the possibil ity that savingswill be greater than predicted, but this is seldom given much weight indiscussionse

City Lightos means for controlling risk include: (1) establishing auditor information requirements or standards that the ESCo must follow;(2) establishing savings estimation methods and algorithms that are generallyacceptable and apply to the most likely measures we will encounter;(3) reviewing the audit results and savings calculation for each building, asa basis r 0 ering a rebate; (4) inspecting the installation afterESCo has signed off on it0

What then is ESCo's sk? Of course, the ESCo, too, assumes the riskthe improvements will not produce the expected savingse What this means

the ESCo is that it makes no profito To an entrepreneur, of course, thisis very important& But many in the public sector discount this as being of noconsequence, arguing that all other ESCo costs 11 be covered by the rebate@Dornbusch's counterargument is that he has to invest a substantial amount ofmoney--perhaps $2 O--for st t-up capital, staff training, workingcapi , and reserveso the ESCo does well and is able to spend CityLightSs total rebate budget for the pilot program, then he will, in fact,recover co; the wnside is that business is bad and his owni wi 11 never e by r ates ~ Perhaps the shared-savingsrequirement is a ier Sl or it takes longer to get a building through the

ire t process from initial contract to rebate payment, or City Lightharder s is than he anticipates, such that we keep rejecting ori proposals or delay payments due to inspection

are factors that he is weighing@

these concerns will never be answered, of course, unless wepilot program. So, after much discussion, and after waiting to

1 utility budget proposal for 1984 and the revenue1984-1985, the Mayor recommended to the Ci ty Counei 1 in

1983 that the Council authorize implementation of the pilot program&Counci 1 has yet to act- on thi s recommendat ion, in part for reasonsbecome apparent in the next sectiono

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legal Issues

Earlier in the summer of 1983, the Washington State Supreme Court handeddown its remarkable decision in the case of Chemical Bank v. WPPSS. The courtruled that publicly owned utilities, including municipal utilities, do nothave the authority to enter into "hell or high water u contracts that obligatethe utilities to pay for the costs of producing power (in this case theconstruction cost of two nuclear plants, WPPSS 4 and 5) regardless of whetheror not any power is ever produced. The court argued that public utilities donot have the statutory authority to undertake the risk of a "dry hole'·associated with a "hell-or-high-water n contract.

The earth tremors that were felt in the legal community (not to mentionthe bond market). shook the foundations of conservation as welle Conservationprojects, as well as generation projects, it was argued, could run the samerisk, if utilities pay for conservation that is estimated or anticipated butwhich may never occur. Some people felt it was unjust to put conservation andWPPSS in the same category; and after the dust settled, an argument wasadvanced, and now seems to be generally accepted, that the risk is reduced inthe case of conservation because the utilities exercise substantial managementcontrol over the resource via audits, technical review, inspections, andexperience. Substantial management control was cited by the court as apossible exception to the restriction~

Chemical Bank, however, a general nervousness that the State Supremeis tending towards a strict interpretation of the law in a way that

restricts municipal authority to what is explicitly granted by statuteo Thepri pal statute granting authority to municipal utilities gives utilitiessuch as Seattle City Light the authority to control the distribution and useof electricity@ While there are several state statutes that supportconservation by ilities, none explicitly grants authority to pay forconservation through rebates or through the purchase of kilowatt-hour savings@

Seattle Law Department began to question the legality of severalprospective exist; conservation subsidy programs based on these

ly, ies sed, or at least initiatedby 1510n, reopened a quiet discussion about the

ianali In the second section of thisdescr bri y the prohibition against the lending of public creditstate constitution@ The constitution also prohibits public gifts,

and i rm@ In 1979, the state1s voters approved ancanst; ion allowing public utilities to make loans for the

weatheri residential structures. In the wake of thatamendment, Seattle City light sought to provide zero-interest loans payableover 10 years, with the first payment deferred for five years $ City Light

Law Department if is would be considered an unconstitutional gift@The answer was no, because it could be shown that the utility system (i.e.,

ratepayers) benefited by the subsidy. In other words, the subsidy boughta system benefit by reducing load and thereby avoiding the cost of higher

iced new resources.

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Subsequent to this constitutional amendment, efforts were made by SeattleCity Light to obtain legislative approval to place a similar amendment beforethe voters that would allow us to make conservation loans to commercial andindustrial customers as well. We finally succeeded in the 1983 legislativesession, but the amendment failed to gain the necessary voter approval in theNovember 1983 election. Because we had tried so hard for so long to obtainthis authority, many people, including some lawyers, believed it was necessaryto any form of GIl incentive program. With the defeat of the amendment at thepolls, many confused the (in)ab11ity to make loans with the ability to offerrebates or to purchase savings. But we argued that the ability of the utilityto do the latter was not a lending of credit issue but was rather a giftissue, which could be answered as long as it met the system benefit test ofcost effectiveness@

A major result of these legal concerns was that the City Council haspostponed any action on the proposed project until the legal obstacles areremoved@ The Law Department feels these issues are sufficiently complex thatthey have recommended that the City seek a decl aratory judgment on the 1egalissues from the State's courts. At the time of this writing, that legal caseis being preparede It will undoubtedly add yet another chapter to this storYe

The Regional Context and Other Issues

On December 5, 1980, Congress passed the Paci c Northwest Electric PowerPlanning and Conservation Act@ The Regional Act as we usually call it, wasthe result of growing demands on a fixed amount of federal hydropowere In1976, The Bonneville Power Administration, the federal wholesale powermarketing authority, stated that it would no longer be able to meet the loadgrowth of its publicly owned utility customers t who have preference to thefederal power~ Of course, because of the preference to public utilities,privately owned utilities no longer had access to the cheap federal hydropower

ther@ Over a period of several years, the 11 that became the Regional Actwas forged remove some of the uncertainty about the future availability of

icity in the region@

wi legislation, a number of interests had to be accommodated, anding Regional Act i uded some provisions that carried a significance

beyond was generally foreseen the time. First, the Bonneville PowerAdministration (BPA) was given a central role in implementing the Act.Second, the Act established an independent body--the Northwest Power PlanningCouncil--consisting of two members appointed by the governors of each of thefour Northwest states~ The Northwest Power Planning Council is responsible fordeveloping updati a 20-year electricity plan for the region which BPA issupposed to low@ nally, the Act established resource priorities for. theregion. All cost-effective conservation is supposed t'o be acquired firstbefore any other resource, and to emphasize this point, Congress gave

ion an additional lO-percent advantage when comparing it to otherresources, in addition to the first priority.

The history of the Northwe~t Power Planning Council, and implementationRegional Act, is another long story by itself, but shortly af r the

1 got started developing its first regional energy plan, the region's

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need for power changed. Ratepayers were responding to the higher electricityprices brought on by WPPSS, and BPA1s forecast of regional demand was reviseddownward. Virtually overnight, the region found itself with a surplus ofpower instead of a deficit, for at least the next 5 to 10 years.

These were not the conditions the Regional Act was intended to address.Another earthquake, the magnitude of the Chemical Bank decision, was feltthroughout the region. The new forecast raised all sorts of questions andsparked widespread public discussion. Specifically, how much and what kind ofconservation could be justified as cost effective during a surplus? BPA, theNorthwest Power Planning Council, and the region 8 s utilities all have theirown answers to this question.

In 1983, the Northwest Power Planning Council adopted its first regionalenergy plan and ~stabl ished direction for conservation by SPA. During theregional surplus, the Council directed the development of regionalconservation program capability through implementation of a number ofdemonstration programs. In particular, the Regional Council encouraged SPA todevelop more program capability in the GIl sectors~ BPA funding of ourproposed pilot would be attractive, not only for the obvious economic benefitto the utility, but also because we could bypass the legal issues by usingsomeone else's money, and because we might be able to avoid involvement by thebanks, and thus, avoid their desire for promissory notes@ However, to date,we have unsuccessful in i ng BPA in cost sharing any of theseproposals@

Seattle City Light, undertake the pilot program by itself, theanswer question 'IWhat conservation during a surplus?U is neither easy,nor obvious$

slowly growing cits over the next 20by acquiri conservation, generally thewe can make up the difference by buyingmarketing agency for the region, is awash

Council, our regulatory body, has alsoto conservation when acquiring newCity Council contemplates tha City

ion in next 20 years over andion programs and beyond expected price-induced

same however, they are concerned about the costimpact new resource, whether it is a generationion program@

Our owncan fi 11

new resource, .... lTlIIlIrlll'IL.1I'IlAt'i 11 e

us power IJi

di us to giveresources~ In a 1983Li 11 re

, ~ proposal would cost approximately $6 million spread over, and City Council has kept its eye on this price tag0 But

legal concerns, the expenditure has never come to a final vote e

In because no new conservation program has come before the City Councilsince full implicati-ons of the regional surplus became understood, it is

to predict the outcome of any new, expensive ell conservation financingprogram6

ite uncertainty introduced by the regional surplus, discussionswith City Council members to date reveal an interest in testing an innovative

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program in two sectors where we have not provided the same kinds ofconservation incentives that we have for the residential sectore At the sametime, there appear to be nagging concerns about the proposed program itself:whether the sharing of risk is appropriate and whether the program is toocomplex.

To overcome this last objection, we are having to contend withcomparisons with residential financing programs. In, Seattle, that meanscomparison with thezero-i nterest, deferred payment loan for weatherizationand cash grants for low-income, owner-occupied single-family homes. The loanprogram, in particular, has been perceived as costly to administer, and thisperception has increased the demand for detailed documentation of each minutestep in the process. We have argued that some additional complexity will beassociated with C/I programs, as compared with residential programs, forseveral reasons: (1) commercial buildings and industrial processes are lesshomogeneous than residential buildings, requiring more customized analysis;(2) commercial buildings and industrial processes present a wider variety ofenergy conservation opportunities than do residential buildings; (3) customerdecisions to participate may be more difficult to reach because of differentownership patterns; and (4) as customer investments increase in size beyondthe amounts associated with residential program installations, the cost ofimprovements cannot be financed out of cash or credit cards. Some form ofoutside financing (bank or ESCo) will be required, unless the utility financesthe improvements@

ides all this, there are no addi onal or superfluous functions addedto this program design than would be part of any other program design.Promotion, audits and analysis~ sales~ financing, installation, and qualitycontrol are all essential elements to a capital improvements program~ Thus,we argue, thi s program is no more campl ex than any other ell program thatcould be developed.

ESCo itself is an additional entity, untested as part of any existingSeattle program. the ESCo is motivated to perform as efficiently aspass; e, since ts are its goal@ The ESCO'S overriding desire will be tocomplete as many projects as possible thin the duration of the pilot. Thisis in for it to generate the. economic returns from its share

say ngs, as 1 as ensure complete allocation of all the indirectcosts projects$ Second, the ESCo's auditors/salespeople are motivated bycommissions based on a percentage of the sales price, which are paid only ifthe sales are osed$ ThUS, they will be anxious to keep- pushing for customer

sions i e Third, the ESCo--not the customer--wil1 get thebids oversee the installation. This should remove a significant

burden on customer, which may then encourage participation.

In end, we may not be able to provide a convincing answer to theon of overcomplexity, until, or unless, we are able to demonstrate the

is capability by implementing it.

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Lessons Learned

The institutional, legal, and political barriers to mounting even a pilotconservation incentive program for ell customers are significant. Some mightsay that, if we had really learned any lessons from all of this, we would havequit long ago~ Certainly one lesson is that it takes extreme patience to geta program on line0 Key players and decision makers change, and new ones haveto be educated. In many ways, we have had the basic concept in place for atleast a couple of years, and the time since then has been spent refining theprogram several times to accommodate different interests and in sel1 1n9 theideas to anyone who would listen@

A second lesson is fairly obvious@ When there are lots parties orinterests involved in program development and approval, it is difficult tosatisfy them all. The utility has certain economic parameters that must besatisfied, as well as historical experience with other programs that dictateprogram design considerations. The legal concerns clearly affect theflexi lity we have in choosing a mechanism for providing financing. Theregulatory body, the City Council, must be satisfied as to its politicalconcerns and perceptions about equity, accountability, complexity, and costand rate impacts. If banks must be involved in financing, then their concernsabout their own risks must be addressed$ Finally, as a cooperative experimentin public/private partnership~ the ESCo must able to see some limitationson ri exposure and the potential for t without undue risk0 The result

an unnecessarily program, but there are reasonsassumption or decision$

nal lesson I will mention stems from the public/privatecooperatively th the ivate sector adds difficulty toThis is not because any extraordinary or innate

i vate sector if, but r ather because of the pub1i cabout ivate sector in a joint effort $ At its base

ivate sector just might make a lot of money from the, and feeling there is something bad about high profits@ Some

cials would deny that feel this way, but I sense it at themany ons$ Utili economists would present the objection in a

more rational sing high profits, then we probably aretoo $ Dornbusch waul d' argue that thi s

'Ie , which requires a higher return on

public sector bureaucrats or politicians toonT'~Qi~~~ln03~~$ they d, they probably would not be working

ThUS, the most challenging part of the development of(perhaps aside from the patience) has been to

sector's viewpoint, and to weigh the utility's need forlity, thus control of the ESCOIS operations, against the ESCo's

to operate with few restraints in order to remain flexible in an untested$ The utility itself needs to give the ESCo sufficient freedom, since

whole idea is to see if the private sector can help achieve our publ icconservation goals and at the same time achieve its own profit objectives. We

we found the right balance--and that there will be a happy endinge