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Dr. Timothy Unruh represents Energy Service Companies (ESCOs), a group of companies that take on performance risk and guarantee savings.
In this episode of Reframe, show host Jeff Nichols interviews the Executive Director of NAESCO, Dr. Timothy Unruh—a seasoned leader in the energy efficiency industry, particularly in energy savings and Performance Contracting. Tim shares insights from his decades-long career, discusses the evolution of the energy services industry, and reflects on the leadership and policy decisions that have shaped ESCO’s (Energy Service Companies) contribution to energy efficiency work across the public sector.
Tune in to hear Tim recount his early days at the US Department of Energy (DOE), where he led the Federal Energy Management Program (FEMP). At DOE, he was instrumental in driving Performance Contracting adoption within federal agencies, helping to secure financing and structure contracts that enabled energy improvements without upfront public spending. He emphasizes the importance of risk transfer and guaranteed savings and underscores the power and importance of partnerships between the government and private sector players in executing large-scale energy efficiency projects.
It’s Not About The Lights
Jeff and Tim discuss how performance contracting expands access to energy upgrades, particularly for institutions that lack capital funding. Tim explains how incentives can be aligned by having Energy Service Companies (ESCOs) guarantee savings, assume performance risk, and incentivize long-term system performance.
As Executive Director of NAESCO (National Association of Energy Service Companies), Tim advocates for standardization, transparency, and growth of the ESCO market. He shares his views on emerging trends, such as the integration of resiliency, decarbonization, and data-driven measurement and verification into performance contracts. Tim also discusses the importance of workforce development and how the industry must attract younger, mission-driven professionals to maintain momentum. He reflects on the leadership qualities needed in this space: adaptability, clarity of vision, and the ability to collaborate across sectors.
As Tim tells it, the industry is evolving to include resilience, decarbonization, and data transparency as standard goals, and leadership in this sector will require vision, adaptability, and cross-sector collaboration. What started with just a few experts has expanded to a broader base of expertise that is helping to draft the laws and policies that are driving performance contracting adoption.
In addition, workforce recruitment and development will continue to be a growing challenge and opportunity, especially with climate urgency rising. And despite the noise, Tim stresses how the federal government is critical in policy support and market development for energy efficiency. The interview wraps with Tim’s advice to future leaders.
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Connect With Us
If you have questions or feedback for the Reframe team, email reframe@pilotlight.ai. You can also follow the podcast through your preferred app to stay updated on future episodes.
Reframe is hosted by Jeff Nichols and presented by Pilotlight.ai
Creators and Guests
Host
Guest
Dr. Timothy Unruh
Dr. Unruh is the Executive Director of The National Association of Energy Service Companies. NAESCO represents an industry that performs $7 Billion in building improvements each year. Dr. Unruh is an engineer who has worked in building efficiency for most of his his career. He's a champion of building efficiency who is eager to see the country embrace buildings as infrastructure as we work to renovate and retrofit them to be more energy efficient and reduce operational costs. NAESCO member companies are able to make significant improvements in building infrastructure by capturing existing costs and redirecting them towards improvements, which results is savings in operational costs, improvement in building environment, and increased productivity.
What is Reframe?
Reframe is the podcast about building sustainability.
Commercial and public buildings are among the biggest producers of carbon emissions. It’s a problem of massive scale. But, for building owners, engineers and contractors, solving it may actually be more of an opportunity than a challenge. That’s what the “Reframe” podcast is all about. Join host Jeff Nichols on an exploration of the forces driving sustainability in our built environment. And meet the people who are leading the charge.
Reframe Ep9 Transcript
Jeff: [00:00:00] Welcome to Reframe. I'm Jeff Nichols. In today's episode, we are going to explore the world of energy service companies or ESCOs. What are ESCOs, why are they important, and how are they the key to making our schools and public buildings more energy efficient? My guest today is Dr. Timothy Unruh, and I'm thrilled to talk to Tim because not only has he been in the front lines doing this performance contracting work, he's uh, spent time at the Department of Energy and has looked kind of more broadly at the industry and how to promote more of this and looking at our federal and public sector buildings, and now as Executive Director of NAESCO is really representing contractors that are focused on trying to help our public buildings to do more of this work. So Tim, welcome to the podcast. I'm thrilled to have this conversation.
Tim: It's great to be here. I love a host who actually can say the name of our organization in the acronym format and they ask, oh, you got it right.
I was very impressed with that. Good job.
Jeff: Well, we, you know, we, we love to talk in acronyms, so if you don't practice, uh, you just butcher it. Usually it's three letter acronyms, right. So when it's five yeah, you, you really gotta put a little extra effort in.
Tim: So I, I love, I love it when we have acronyms.
Acronyms and we actually take acronyms and form new words. It just drives me nuts. Totally. Let's go ahead. We have much better things to talk about.
Jeff: Well, let's start with this acronym, which is, you know, ESCOs, right? Energy Service Contractors and Performance Contracting. I would love to hear from you, you know, what is an ESCO?
What is a performance contract like and why should people [00:02:00] care?
Tim: That's a great question because there's a lot of different things that people will call ESCOs. An ESCO to us is an energy service company, and as an energy service company, it is a, is a company that comes in and partners with a facility owner and provides a turnkey service to both analyze, develop a scope.
Help, uh, understand the financing, deliver a project, and then stay with you and help you manage and maintain that project and carry it forward for potentially a couple of decades. And the idea behind an energy service company is that they come in and provide a one stop shop to get this all done. Now behind an energy service company, there's a lot of coordination that happens, and that coordination brings in expertise from all across the industry to match your facility needs.
You may have a need for a combined heat and power plant, you go find and make sure that you have that expertise on board. And maybe it's in-house, maybe it's outside, maybe a combination of those two. Maybe you're a wastewater treatment facility. You go find the ability to come in and breath to fit that and understand how the best way to go forth that by bringing in people with years of experience in that.
And so the energy service company concept is a broad swath that says we can come in at any type of facility. We can understand how it operates. Make a proposal to improve it. We'll save you costs. We'll guarantee those costs. We'll install that and then we'll live with it to make sure that the savings we said we were gonna get.
You're going to get, and that's the performance contracting part, right? That is, that's kind of a mix. So the ESCO term kind of mixes with the performance contracting part in that definition. Right.
Jeff: So this is one of the things I'm looking to dive into, right? Because I think one of the, the, the myths or misperceptions is that there's this gap.
What we know is possible with buildings and how to make them efficient. In fact, that's one of the things that I've really learned is that [00:04:00] we know how to make our buildings run not just a little bit better, but much more efficiently. And then this gap between how do we pay for this? And I think one of the things that's interesting is I've learned more about this.
You know, performance contracting space is, this is such a great vehicle, especially for public buildings and institutions that are typically capital constrained or, you know, it's not like they have a ton of, you know, unallocated, you know, budget line items to, to do this upgrade work. And so. I'd love to hear you talk a little bit more about like, how long has this been around?
Like what's the history, you know, what's, what works well, what doesn't work well? What are some of the perceptions about it? So maybe start with, you know, tell me more about the history of performance contracting and how it came to be. I.
Tim: Sure, sure. So, so performance contracting is, is new to many people, but it's not new.
Uh, it's been around since the early eighties. Uh, the federal government was a leader in this, but it, it occurred across, uh, broad swath of the country. Um. It, it, uh, it was born somewhat out of some of the utility conservation programs. Hmm. Uh, uh, many utilities got into the ESCO business and started forming ESCOs, but there were also a lot of independent energy service companies.
ESCOs developed as well. Um. Utilities saw this as a way to try to come in and, and get more close to their clientele. There's always a fear in the utilities that, that they're going to lose clients because of deregulation. They're gonna find other suppliers as they're trying to integrate more and more with that.
And that was kind of behind a lot of the ESCO founding, was to try to get this service with our clients and keep them as our clients. Interesting, huh. There also were rebate programs that kind of spawned the industry as well. So that provided the, uh, a portion of the cash flow needed for projects. Uh, initially the industry was, was really about, uh, shared savings models.
Uh, [00:06:00] where, where you would, you'd do a project and each side would get some of the savings. Those could be lucrative. Because you have kind of an, you have a big upside if you can produce a lot of savings. Eventually it settled into the performance contracting model that we have today where effectively the savings is, is used to fund a building improvement project, and that format then began to be supported and then.
There were a lot of independent groups. NAESCO in its early stages helped with some of this, but there were a lot of independent consultants that were out there that saw this as a benefit as well. And they began to work with state legislatures to get more, um, more, more legislation in place that allowed this to occur in the public building space.
So in the public building space, why this is allowed is because you can come in and do a project. For a public building and not need to change the budget, so you don't need to go and get new money someplace because the money to pay for the retrofit comes from the savings. And because the energy service company will guarantee the savings that the project is considered whole and not requiring new taxpayer dollars.
Mm.
Tim: Now you still have to go get a loan. So there has to be money up front to pay for construction, but then that note is retired over time with the savings that accrues. So the industry grew from there and, um, most of the utilities have eventually gotten out of the business and moved on to something else that they feel is important.
Uh, there are still a few utilities that play in the ESCO business. Some of them are members of NAESCO today. Uh, but it's few, it's few and far between. Most of the energy service companies are, are fairly, uh, independent of the, of the, uh, utilities that they may have once been associated with. So, so the industry, uh, grew.
We saw, uh, some mechanicals try to get into the business and, um, there's a few mechanicals that are in the business and have stayed in the business and have done quite well. Uh, it, it [00:08:00] requires a different risk exposure to be in this business. So, as a mechanical, you might, you might come in and install a project, but you don't have a whole lot of responsibility after you do that installation beyond maybe a, a, a warranty period, or possibly you have a service division.
The, the savings picture, the setting up a cashflow proforma and understanding how to calculate savings, those are typically areas that they, that the traditional contractor may not have the depth in, that the energy service company is who developed an understanding of, and through that understanding, they then are able to develop a more comprehensive project that includes a myriad of savings to come in and fund the project.
And the savings can be not just energy, but it can also be from, from water. Right. Uh, sometimes there's other utilities that, that come into play, like, uh, things you used at communication systems, cybersecurity systems in your facilities. Sometimes security systems can come into play, uh, but more often not, uh, operational savings.
So you have a maintenance contract or you're doing repairs constantly. Those things can come in and offer savings as well, because usually you can find quite a bit of opportunity there. Uh, the industry really got its founding off of the lighting technology. So when we went from T 12 lamps down to T eight lamps, we started seeing efficiency gains that were, that were significant.
Those began to drive projects where there was a payback. As those began to proliferate, people saw, well, there's excess savings from that lighting project. We can do other things with that. And so then you expanded into the HVAC world and then we expanded into building an envelope and, and we expand into water systems.
And so it just continues to grow to where the ESCO provides a fairly comprehensive service that can do incredible things to upgrade your facility. Uh, if you think about efficiency, there's been a whole change in a perspective efficiency. Back in the seventies, I now, I was pretty young in the seventies, so I don't really remember this.
I've only read about it. Um, [00:10:00] but in the seventies, uh, energy efficiency was turning off lights, right? Energy efficiency was turning down the thermostat or turning up the thermostat, basically doing just opposite what you really wanted for comfort and enjoyment.
Jeff: Yeah, I call that dad mode. It. There you go.
Okay. Yeah. Turn off the lights, kids. Turn off the lights.
Tim: Kids. Yeah. That's dad mode. Okay.
Okay.
Tim: I, I will admit, my light in my living room sits on 24 hours a day, seven days a week. And I've tried to turn it off, but I turn it off and it turns itself on.
Jeff: Yeah. Yeah. Now smart switches. Yeah. You, you, you mess up and say something close to, Hey, SIRI, and everything turns on.
Tim: There you go. There you go.
Jeff: Okay. So, so it was about just con conservation using less, just using less.
Tim: But now we're using better. That's, it's a whole different mindset. So when we go in and do a lighting retrofit, we expect the lighting to be better than it was before, and more efficient as opposed to worse and efficient, right?
When we do an HVAC renovation, we expect the indoor air quality be better than it was before and more efficient, and we expect the temperature to be better and the conditions to be better. And more efficient and interesting with the controls and the digital systems we have now and our understanding of buildings, we can actually do that.
Jeff: Now we're talking about existing buildings, right?
Tim: It's, it's funny, a lot of the things, uh, for, for efficiency focus on new construction, but yet we have a vast array of existing buildings that have been around for decades that have had no work done to them or perhaps they've had work done. And over time it's drifted back into its inefficient state.
Yes. All of those are huge opportunities for massive savings and the people that work and visit and whatever they do in those buildings, learn in those buildings, there's a huge opportunity to improve the environment, to make whatever they're doing easier, better, faster, more efficient themselves. We don't take credit for that in our projects.
We just look at the specific building [00:12:00] savings that we go in to get.
Jeff: Totally. Yeah, it, it's interesting to me, you know, for me the sustainability piece of this is really important and, and climate change and greenhouse gas emissions. And I think sometimes there are people that say, oh, we'll just use building code.
Like, you know, we'll update the building code that'll get us there, new construction and. You know, standards is not gonna get us there. We have to deal with our existing buildings and make them more efficient and more sustainable. So I people that, that just kind of wanna go, oh, it's, it's, we'll just build them better.
It's like, no, that doesn't get you there.
Tim: Well, well, you know, something that's also important to remember in this whole process is, is yes, build them better, but there, there's a people aspect to all these buildings. So, so you put in something new and over time, whereas it's like you buy a brand new car and you're driving it down the road, eventually something's going to break, right?
Uh, you're, you're gonna hit a pothole and your alignment's going to be out, or you're gonna wear the tires or whatever's going to happen. It begins to degrade over time. It's the same with a building. Those valves that used to open and close, they might not open and close like they used to. And, and you think, well, yeah, but that's over maybe 25 years, maybe so, or it might be over 25 days.
You can see changes. People will change the control system. So you have a fantastic system. It was programmed by experts, but then over time, you know, um. Sam down in purchasing, he's too cold, and so you bump up his temperature and then Susie over in client relations is too hot. And so you bump down that temperature and then pretty soon somebody says it's too bright over here.
And so they manipulate the lights in some way, and so you eventually drift away from that. And so it's good to come back and bring it back home. Those types of things offer opportunities for newer buildings as well. So it's, it's a fascinating thing. It's an ongoing process and so it,
Jeff: you're never done.
Tim: You do you renovate. And you wait a while and you renovate again.
Jeff: [00:14:00] So, okay, let's go back to, so this is not new performance contracting, especially for public sector. This is a great way, a legal way to actually finance and, you know, do some of this work. Now, what are the obstacles? Why aren't we seeing every single, you know, public entity try and take advantage of this?
Tim: Um, I think we only have an hour, don't we?
Jeff: Yes.
Tim: Oh, okay. Well, I'm not sure I can get through everything.
Jeff: I don't understand it, Tim. This seems so, it, it really makes no sense to me.
Tim: Okay. Well, I, I'm just gonna go through some of the things that I've encountered that this happened. So, I've seen cases where the existing facility management.
Doesn't want to be shown up by an outside contractor that might offer things to improve their building, and so they resist the process from the outset. I've seen cases where facility people are concerned that the new contractor will come in and want to bring their own people in, and they fear for their jobs and therefore they resist the process moving forward.
I, I've had cases where their local mechanical contractor that may do service agreements might not necessarily want someone to come in and try to push out their superiority at the site, and so they may speak poorly about performance contracting process or ESCOs, or relate a bad story about an ESCO.
Mm-hmm.
Tim: We've had similar case with other consultants that may be working for a facility that don't want to be replaced by somebody else coming in, and so there's a lot of that that happens. Sometimes you get people within the facility, they may have their own personal opinions. They realize that this is a, a debt funded process.
When you, when you do these projects, you have to acquire debt, and then the debt is satisfied through the savings. And some people will say, I don't think the state school X, Y, Z, whatever the building may be, should be using debt to finance these. And so they'll resist the [00:16:00] process. Um, sometimes it's an attorney.
An attorney will look at the laws and say, you know, this law seems like it doesn't mesh with our. Fill in the blank. Our policy, our history, our executive directors will the state constitution. I don't think it messes with that, and so you'll get resistance in that way. Sometimes you'll get a skeptic that says, I'm not sure if the savings is real.
How do we know if the savings is real?
Jeff: Yeah, the too good to be true. Yeah.
Tim: Well, well, yeah. That's right. And, and you know that, that's a common one actually. And, and there's just a, a expression of if it's too good to be true, I, I can't believe that this is really going to work. Or, or, you know, they've got, they play tricks on you and, you know, they show you the savings, but it's not really there.
The reality is, is that the savings from building renovation is an old science. We're not using newfangled things. We're not using supercomputers at Amazon to compute this or data centers. It's done. Pretty much in Excel or in a building modeling system from a major manufacturer. Uh, it's pretty transparent on how you come up with this and it's pretty straightforward of what the savings will be.
And it can be explained to the layman so they understand how the savings is accomplished. And most of the time it's pretty understandable by a layman to say, okay, now I get the savings. So it's, so, I like to say it's not rocket science.
Jeff: And the savings come from just, you know, using less electricity or water or more efficient natural gas.
Natural gas. Yeah. Yeah, yeah. Got it. Interesting. Okay, so I hear a couple themes. It's so funny 'cause I'm a software guy, right? And a technology guy and I've probably implemented. 150 different solutions at different clients, and I'm not a developer, you don't want me writing code. Kind of my expertise was really on the people side.
How do we manage a project and, and implement it? [00:18:00] And it was always. The people part of the project is the hardest part of the project. So that's what I, I hear here is that, you know, it's facility managers worried about their job or that, you know, it might make 'em look bad or they'll be redundant. So I, I guess just tackling the people side, like how do you solve for that?
Tim: Well, from the ESCO side, as you develop the business with a client, it's a complex sale. There's a lot of aspects. There's a lot of people involved. It's not usually a single person's decision. I. There's one thing that the CFO wants to know. They wanna understand the financing, they wanna understand the payback.
The facility person has another thing they want to know, and so, uh, they have needs. Um, there'll be some people in the middle that may even be the occus of the building, or it could be other managers of other areas of functions. They have things that they need to know. The cleaning staff has things they need to know.
And so it's a, it's a broad effort to get everyone on board as to how this works. And so, so the business development function of an energy service company is a significant part. But it also, while, while some says, you know, that's the sales side, the reality is, is that has a significant part of the success of a project.
The ESCO business is a partnership business, and that means that. That the procurement process for selecting an energy service company is different than any other process.
Jeff: So how's it different?
Tim: We haven't talked about that, so I'm gonna diverge a little bit. Yeah, yeah. And tell you about how that works.
Yeah. So when you go out and you buy traditional services, you may use a design bid build process. You, you hire somebody to design it. They put together a bid package, you go out and bid it, and then that person builds that project and, and the person that designs it and the person that builds it are two different companies.
And they'll interact and they'll be change orders because the builder will say, the designer didn't understand this. And the designer will say, the builder [00:20:00] didn't understand this, and you're in the middle cop between those guys.
Jeff: Mm-hmm.
Tim: Then we have the design build process. It's, it's a more complex process, but now you have a team that comes in and puts together, that's a little better process and that's more like what the ESCO works on.
But even in the design build process, you still have a scope of work that that somewhat gets bid. In the ESCO process, you can't bid a scope of work because you have to audit the site to get the scope of work, but you need to hire the ESCO in order to audit the site. Generally, one ESCO will not take someone else's audit and guarantee their savings and build their project.
When an ESCO comes in and does the project, their selection is often off of a request for qualifications type of basis. There could be some minimal types of, of, of proposals that come in with some pricing, but the problem is you can't price it until you actually have a scope of work, and you can't have firm pricing until you have contractors really spend some time with the site and have a design that they can work from.
And so the escrow process of creating those documents is called a comprehensive energy analysis, a CEA. Mm-hmm.
Jeff: That,
Tim: that that comprehensive analysis that occurs, or comprehensive audit, some will call it that, that that develops a firm fixed price that the ESCO will live to, to install that project, and it will have a firm guaranteed savings.
And that's the key thing about that process is those that guaranteed savings and that firm fixed price, if there's a change that happens, it's all on the ESCO to make that work. So you really don't have change orders unless the scope is changed externally by the owner or by some external factor. And so it tends to be something where there is full accountability.
There's a partnership that develops and so that that project is developed in concert with the owner, meaning they can help select what equipment goes in, they can help select what [00:22:00] contractors happen to be the ones that install the work and their personal preferences. Play a big part because we wanna know who the client has had success with.
We don't wanna hire the contractor that always causes you problems or get the equipment that no one at your site understands. If you use a certain brand of rooftop, we probably want that rooftop to go in again. Yeah, because you have experience putting that because the people are so important in this and so the entire process is a huge relationship building.
The ESCO has to build that relationship with the client, and the client has to be comfortable with the ESCO. Because there's a lot of trust that gets involved with this.
Jeff: Do you, Tim, can you think of a really good case study, especially on the people, like somebody that came in very kind of skeptical or had a lot of those objections that, you know, somehow whether kicking and screaming got into it, or, you know, I'm looking for a real example of kind of that evolution that maybe a, a client goes through.
Tim: Well, I, I, I don't have a specific client to tell you about, but I can remember projects where I came in and there was a lot of skepticism coming out. Okay. And, uh, they, they, they were, they were doubtful of the savings. They were doubtful that we could actually come up with savings. I. I remember working and meeting with them in multiple cases to help 'em understand it was a project, um, that I used to have to fly out to.
And I met with my salesperson, so I was the engineer and I helped build and, and design the projects. And then I had a salesperson who helped with the relationships and we would meet with them and I think. How he would always approach it is he would ask questions of where they had concerns, and then he would allow me to come in and tell how we work to have those same concerns solved ourselves.
And, and that began to build an understanding of our thinking process and our integrity. And, and that seemed to play a big part in it, that, that we've experienced problems and that [00:24:00] we've had to go through and fix those and work with the client to make sure they're satisfied. I, I personally can remember working on a project where we, as the Esco made.
Mistake. I'm gonna admit it. We, we make mistakes when we're working in existing buildings hard. We had the wrong drawings. It was partly on the client, but you know, of course we can't blame the client. We never wanna do that. We had drawings that were the design drawings, but we didn't have the as-builts.
And so we had midsized some pieces of equipment that were based on the design drawings, not on the as-builts and, um. It ended up costing us some of our margin to make that right, but we did make that right and that building is still running today, and that equipment is installed today providing the cooling that that building needs.
Um. That type of process, uh, is not anything I want to go through, but we've gone through it. Yeah. As, as you find different things, that's the ESCO process. You have to make it right to get the project working.
Jeff: So how do we supercharge this work? Like what do you think? Like what, what will it take if you could wave your magic wand, how do we see more of this work happen faster?
Tim: I, I'm sure that's the golden question. All my members want me to be able to snap my fingers and make happen because, you know, the more revenue is always on the books for them. Um, I, I personally believe it's, it's a communicative process. Um, at naco. I'm doing that by continually putting ESCOs and performance contracting at the forefront as it's a solution to problems.
Um, we work with many different groups. There's, there's a group called BASIC that I'm on the board of. Uh, it's Build America's school's infrastructure.
Jeff: Hmm.
Tim: And there's $82 billion of deferred maintenance across our nation's public schools. That is unfunded work that needs to [00:26:00] happen, that that's just facility work.
We can address a significant part of that through performance contracting. Schools may not know of this. I mean, schools are very local in the US They don't, they aren't nationally managed. Uh, I know we have a US Department of Education, but they really don't have that much involvement in the day-to-day operation of our schools.
Mm-hmm. And so. Individual facility. People at a small school district in rural, whatever state you pick, they may not know if performance contracting. They may not have ever heard of it. And so there's, there's a barrier there that we work to overcome. So getting that communication out, uh, there's a school district who might have heard of it, but maybe they heard a bad story and so they never pursued it.
And so we wanna continue to flood the airways with as many positive stories we can. That's case studies, that's present, presenting information at conferences. That's doing webcasts like we're doing with you. Mm-hmm. It's, uh, putting on our own infor informative webcasts and letting people attend. Um, it's just getting out in front of people and providing the opportunity to explain, here's how this works.
Sometimes they want to hear from an unbiased non-company that's trying to sell 'em something message. We try to provide that message. Uh, we do that through social media. We do that through newsletters. We do that through all types of formats. And so that's, that's the important piece that I see of how we grow this, uh, is through communication.
State and local governments are the same way. They just don't have the information. Um, I, I can tell you personally, I began working with different groups that initially they were really skeptical about performance contract, and they, they weren't sure what it was. They'd maybe heard a story or two. Uh, no one tells the good stories.
Everyone wants to tell a bad story. Um,
Jeff: so about like casinos, everyone loves to talk about what they won, but, uh, clearly the casinos are still around, so they're. Some, some people, yeah,
Tim: some, some, somebody's losing, right?
Jeff: Yeah. Yeah.
Tim: Well, well, you know, I think it is when, when someone has a bad [00:28:00] experience, they'll tell 10 people.
But if they have a good experience, yeah. They may only tell one.
Jeff: Very true. Um,
Tim: and so and so we, we want to, we wanna repeat those positive stories. We want to get those out there. And we think that that's how it, it helps to spread the message. And that's how we're doing it now from a energy service company.
Um, they hire a sales force, uh, they call them business development managers, and they. They scour the earth looking for clients that they can begin to talk to and form a relationship with. Build that trust, uh, until they'll be allowed in the door to begin to offer. Here's what we can do. And once somebody sees what can be done, it's pretty much, uh, a point that go forward.
Uh, when they see that this can be done and this is the finance to make it done, that's when the door begins to open and people begin to open up a little bit and begin to talk more seriously about making this happen. At,
Jeff: at surface level, it seems pretty straightforward. I, a lot of my experience is through kind of the mechanical contractor lens, so it's interesting to me to hear you talk about how, from the mechanical contractor perspective, that may be difficult for them to engage in this work, but it, it's multidisciplinary, right?
Like the symptoms that affect our buildings from water, heating, cooling, electrical, the natural gas, like these are very complex. Systems that require kind of a broad level of expertise. And I'd love to unpack the level of complexity, but also what you see, the workforce development aspect of this that I just, I'm not sure we even have enough of this skilled talent or expertise.
Even if you said 82 billion for our schools, even if all of them said tomorrow, like, okay, great, let's do this. This is important to us and couldn't do it. We'll pay for it, whatever. We couldn't possibly pull it off. So how, what role does that play in this work?
Tim: Well, uh, labor to do the work is always a challenge for the energy service companies.
Generally, when they do work on a [00:30:00] project, they like to use local labor when they can. So if you're working in, in some city, you wanna hire contractors that have a base in that city. That's not always possible. And there are some national contractors who developed a really. Strong expertise in working in this industry.
And so it's often more economical to hire those national contractors for certain things like, like a lighting retrofit for example. It's, it's a little bit of a hybrid. Electrician's work. An electrician can do the job, but they may not have the process and procedure and tools to do it rapidly. And a lighting contractor that just renovates lighting.
That's what they focus on. And they have efficiencies that maybe you just don't have from, from a local person. Yeah. But if you're going to come in and put new panels in, install equipment, need wiring done, local contractor is the perfect way to do that. HVAC contractors of mechanical are almost always local.
Control vendors are off to the local contractor that provides that. So, so they're using local labor, uh, to try to help that local market move forward. But at the same time, you know, it is challenging to find enough labor to do the projects. Uh, if there's a lot of work that's happening, you know, you'll get high bids.
Mm. Because people will start to raise their bidding price and when they see the demand go up, and then if you're working on a savings based project, that can really hurt your project if you, if you're getting higher bids. The, the labor side is always challenging, but the labor inside the ESCO is challenging.
Also, the engineers and project managers to develop these projects, I. It's challenging. Even the salespeople, the salespeople are often a very technical, uh, resource. Many of them have come from the engineering background. Um, and I will tell you, as an engineer, I wanted to really dislike the sales process when I worked for an escrow.
You know, it's just I didn't want to. But working with the salespeople, I have grown to have a massive respect for their capability and the depth of knowledge that they bring. And how they [00:32:00] work with the client to build that relationship and then drive the process. The best advocate for a client has always been that salesperson.
I can't mention how many times as the engineering team on the project, we were told by the salesperson, I need you to get this project to this point. I. You know, because he knew that's what his client needed and that was what drove him. And so getting those people is, is a rare breed. They're, they're very talented special group people.
And so all those are people that we need to have within the ESCO industry that we are challenged to find. Um. A new graduate is a great person to drag into your industry and get them accustomed to it. But I'll tell you, it's hard to trust a new graduate to develop a project. And so you really need to experience people to have time to work with a new graduate and help them develop those engineering skills.
Perhaps those, those relationship skills. Uh, it's the same thing on the, uh, on the labor side. Uh, you know, I, I did see, you know, when we had these new laws that, that came out providing all the money and the Infrastructure Act and the Inflation Reduction Act, they did require some apprenticeship pieces in those that I think should help to grow the labor force.
Some, but it's all, it's all challenging and it's all something we all are cognizant of.
Jeff: So, Tim, tell me a little bit, you know, on this thread of how the industry has evolved from, you know, kind of before to today. What changes have you seen?
Tim: Well, there's actually been a lot of changes. Um, you know, when the industry first started, I.
Nobody fully understood it. There, there weren't a lot of, well, there weren't any rules of how it should happen. And, uh, people were just kind of putting together projects and, and kind of making it work. And so you had an industry that was based off of, you know, the expertise of a few people here and there.
And, uh, they knew how to put the projects in, they understood them, and so they became a valuable commodity. Fortunately, they began to work with the industry and started putting some of these laws in place. And the laws then drove policy and procedure and structure [00:34:00] that started to formulate kind of more, a more, uh, professional, consistent result in the industry.
But we still had challenges where, uh, we would have, uh, new players drop in, and those new players may not necessarily play by the rules. Those new players may not necessarily. Follow the rules, uh, and may kind of stretch the savings or, or not necessarily support the projects like we were trying to envision the industry doing.
Mm-hmm. And so, um, NAESCO created an accreditation program to try to handle that. And the accreditation program means that we have a group of ESCOs that, that we have done a significant amount of vetting with. Our accreditation program means that an ESCO has submitted. A series of their projects that we go in and have conversations with their clients, and these are conversations where you call 'em and say, Hey, did you like that project?
They'll, eh, it was fine. Thanks. That's not, that's not the type of problems. You, these are things where, where you, our consultants, we have an independent group of consultants that do the accreditation that are not working for any ESCO and not working for NAESCO. They are just an independent group that does this.
They'll call and have an hour long conversation with each client. And in an hour long conversation, you get past all the little niceties that happen in a call like that, and you really get into, well, you know, Sam, the project manager. Did a real good job and we had a couple of problems on the site, and here's how they handled it.
That's what we look for, to understand how well are they managing these projects. They have to show us all their measurement and verification data for five years. They have to show us all the work that they did, so we know that they're actually fulfilling that. We have to look at their finances so we understand, does the company's finances look solid?
Because if you're entered into an agreement that's going to be 20 years long, you wanna know that the company has some ability to be there for that period of time.
Jeff: Right. Right. You know,
Tim: is there a huge judgment out there that as soon as my project closes, this place is gonna go outta business? We wanna [00:36:00] know all those types of things.
Sure. Also, we wanna know if there's lawsuits against you. And so we ask for any lawsuits related to any ESCO project that you've done to bring forth as well. So the accreditation process is a pretty long grueling process. My members don't like to have to go through it because it's a lot of work for them to put everything together to make sure their clients know these calls are coming, and for this all happen, but.
It provides an accreditation program that can give the people who come into our industry to buy the services. Some assurance that there's repeatability and that there's a company here that, that's been around and someone outside has looked at this and said they do their job and they do it well.
Jeff: It really is not a traditional vendor or transactional relationship.
It's that long-term partnership. It really is. So if you, if you, if you don't have that, it, it, it's. Hard as a buyer to have that confidence. So that, that's pretty cool that you guys play that role to kind of act as that, you know, that independent verification, if you will, to give, you know, people that next level of confidence before they, they tackle it.
Tim: Well, well I'll tell you, you know, there's, the structure of the industry has even grown beyond that. So, uh, the US Department of Energy. Has, um, a program that does ESCO work as well for federal buildings. Hmm. And so they have two lists. Uh, one is the, a qualify list. So in order to do any ESCO work for the federal government, you have to be on this qualify list and there's like a hundred and something companies on that.
And so it's bar of admission is pretty low. Uh, you can get in just showing you have some projects and you stay with the projects and you can get on that list. Then there's a higher bar of what's called the IDIQ, which the other good acronym stands for indefinite delivery, indefinite Quantity. And the reason it's that is because, remember, the ESCO work is scope less until you make a selection.
And so the indefinite delivery, indefinite quantity, IDIQ contract is a [00:38:00] broad selection of companies that have been vetted beyond accreditation that says these companies, we allow now to do this contract work for federal government. I think there's 22 on that list. And that is a pretty grueling process that takes about a year to a year and a half for dwe to process and put together and last them for several years.
Jeff: You, you've devoted really your whole life and career to this. I'm clearly your passionate about this, and so my kind of question is what is, what's that vision? What is it that you want to see?
Tim: You're gonna laugh at my story. Okay? You're gonna laugh at my story because it's a simpleton story. So I used to tell people, my goal is that when a facility owner sits down at Thanksgiving dinner and across the table is his grandma, and his grandma says, Hey Sonny, have you done one of those performance contracts?
I hear they're great.
That's your mission. That would be a goal. You wanna get Mike Brown? Uh, I think everyone to know about performance, crime facts and challenge her son, why aren't you doing this? I hear they're great because, because the idea is, is I want everyone to know about it. I feel like if everyone knows about it and hears all the positive stories about it.
They'll say, why aren't we doing this? Why aren't we doing this? And so I wanna continue to get that information out in front of people. So they'll say, why aren't we doing this? Challenge. The challenge. The people who work in these buildings say, I heard about this. Why aren't you doing this? I heard about this.
Why aren't you doing this? I read a story in the paper about this. I saw a LinkedIn post about this. Why aren't you doing this?
Jeff: Right, right.
Tim: I believe that that is the way that we find our market grows and succeeds and has sustainability for the future.
Jeff: And I, I think you're right on the challenges.
There are technical challenges, there are contracting challenges, legal aspects of this, but it really is the people part and the people change for the facility management. [00:40:00] And that's where I am kind of in search of this. Finding a facility manager that, you know, kind of, I've heard the story over and over.
I even with building automation, right? Like one of the main obstacles, all of these devices are iot connected, right? And we can manage them remotely and we can, there's just so many cool, smart things we can do. But a lot of facility managers are very skeptical because they're worried that they might be replaced.
And from my perspective, I actually think we can make you look good. We're still gonna need somebody to manage this facility. It just, it takes your level of sophistication and kind of the insights that you know, you can offer, uh, you know, somebody about this particular asset that you just didn't have before.
So, I am, I am. Very curious about kind of this mindset that's out there. How do we help with that? Because I think we can actually just make 'em look better, you know, and help them be more professional, add more value, versus, it's not about replacing people from my perspective, but I.
Tim: Yeah, it, it's not, it's not about replacing people.
Seldom, if ever, does a contract replace people.
Jeff: I would doubt it. They're too complex and you need people on the front lines to still kind of manage that and work with tenants and all that kind of stuff. I. Last question. I do want to kind of bring it to kind of the, the current environment. It's interesting, you know, reading some of the headlines about GSA cutting office space, especially as you look at kind of the, the public sector, whether it's federal, state, you know, schools.
What's kind of your outlook or what are you seeing or what are members talking about in terms of kind of the, the current economy and environment? You know, when it comes to existing buildings.
Tim: Well, well there's certainly been a lot of things in the paper about what's happening with the federal government and changes happening and so forth, and, and, and I think we probably need to let the dust settle a little bit to figure out where we are in a [00:42:00] long-term picture as far as building rent fits and projects.
I. Um, it, it seems that a lot of times maybe we talk about a lot of things, but maybe we need to find out what actually happens in the end. Mm-hmm. And, um, uh, I don't know where our building stock will be in the federal government. Uh, they could have a significant reduction. Uh, I do believe that, uh, from my history working for the federal government, I knew that in our space, two thirds of our buildings were Department of Defense.
And I think that those will probably still be around. I don't think we're gonna sell to the Department of Defense anytime soon.
Jeff: Yeah.
Tim: Uh, nor do I see us selling their buildings. I think they'll, they will have take issue with that. So they're still going to be around and I think there still will be a core set of buildings that we will need, uh, to function as a nation and a government that, that oversees food, transportation, and so forth.
Maybe they'll be outsourced. It's hard to say. Yeah. But I, but I believe, um, I believe when, when we see changes, uh, there's, uh, you know, the initial reaction of shock and then there's the despair of what am I going to do? And then you'll see those phoenix rise up outta those ashes. And I think they'll see opportunity and they'll grasp that opportunity and they'll sort a new heights.
And that's what I believe is going to happen here.
Jeff: Hmm.
Tim: Just because it's, it's changed and it looks grim on the surface, doesn't mean there's not going to be opportunity at the other end.
Jeff: I, we'd love to ask our guests this question. Uh, Tim, you know, if you break out your crystal ball and look out over the next five years for the industry, what do you see?
What do you think is likely?
Tim: I believe that our, our grid and energy system are poised for a change. Uh, I know, I know that we have, you know, political issues happening that either oppose or support renewable energy, but it seems as though that the, um. Moving forward and we're gonna see that happen. Mm-hmm.
Uh, we're gonna see renewable power probably grow in prominence across, if not our nation. The world will see it grow and I think the [00:44:00] will continue to. Um, because of that, I think we're going to see more need for efficiency and, and accurate control of our buildings. We all know that the type of power produced by renewable system is different than the power produced by a conventional fossil fuel system.
Mm-hmm. And that. And, and that I don't believe that we're gonna see wholesale changes. I think we're gonna have a coexisting system over time. But, but I think the opportunity is, is that, is that the, the industry will begin to see how buildings can play a part in supporting the grid. I. There's already a lot of movement in that area.
There are some companies that actually have started in focus on that particular type of function. Yeah, I believe ESCOs can provide the renovations and updates and equipment and even some of the overall management to provide that service through buildings. I think, uh, another area we're going to see happen is facilities seem to be getting more of the understanding that they can move and outsource entire functions to an outside contract, much like we described happening in the federal government.
And as that move occurs. I think the ESCOs are poised to be that company that they move to, to provide ownership, maintenance, operation, repair, and replacement as needed, depending upon the scope that the client wants to have. And what that does is it provides. Stability to the owner of the building for the cost.
So right now, if you have a building, energy prices go up, go down. Equipment may fail arbitrarily. You may have maintenance needs, you may have lot lose a maintenance person and lose the ability to maintain equipment. All those things are management problems that you have to overcome as you manage facility.
If you outsource that to a third party, all of that becomes this one contract with a third party, and they have the responsibility of finding a replacement. Replacing the equipment, operating it, maintaining it. And so I think you're gonna see more of that, where it's called energy as a service, where that service is provided turnkey by an outside contractor.
And I believe the ESCO industry is well poised to be that entity that provides that.
Jeff: Hmm.
Tim: Um, I, I [00:46:00] think that we'll continue to see buildings be renovated by our industry, and I think that owners are beginning to see the value of a partnership versus just hiring a contractor. And by that partnership, it means that, that you begin to develop a relationship where you do recurring business with that client.
You see an opportunity to do a phase one. Then they say, okay, we're ready to move over to this other building. Let's do a phase two. Let's move over here and do a phase three. And that evolves into a more comprehensive project that may turn into energy as a service or may have just multiple stages going forward.
That's where I see the industry moving now for private buildings.
Jeff: Well, Tim, it is been an absolute pleasure to have this conversation. I've learned a ton from you. I'm so glad we have you leading, uh, the charge and it's clear that you're passionate about the topic, and I share your vision of getting every grandma out there to ask, you know, the, the entire, uh, Thanksgiving table about why we're not doing more performance contracting, because it's, I'm, I'm right there.
I'm like, this makes so much sense. Uh, I would love to see more of this work done. Me too. Can't wait for it. That was such a fun conversation with Tim and there are a couple takeaways that I had from our conversation. The first is that performance contracting is a no brainer, especially for the public sector.
ESCOs provide a unique risk managed way to fund infrastructure improvements using the very savings that the upgrades generate. Our public schools are always hurting for money. I. This is one of the few ways that schools don't have to go do a bake sale. We don't have to go back to parents. We don't have to raise a bond or do any of this other stuff.
This is a very unique scenario where we can pay for the improvements we want based on the utility savings. So much better than another bake sale. The second is that the people side. This is always the hardest part. While the technology has proven the real challenge [00:48:00] lies in change management facility, staff consultants, local contractors, they often resist performance contracts due to fears about their own job security, territoriality or perceived loss of control.
And so successful projects really prioritize alignment between all those stakeholders and trust building. The final takeaway is that accreditation is a trust bridge. The key to success with performance contracts is partnership between the energy service contractor and the client. Accreditation ensures that ESCOs have a proven track record, real saving successes, client references, and long-term financial stability.
And that leads me to the Reframe. The old view is that energy efficiency means doing less, sacrificing comfort, productivity, and convenience. But the Reframe is actually that modern energy efficiency is about doing better, enhancing performance, comfort, and sustainability while reducing costs. Performance contracting isn't just about saving energy.
It's about upgrading how our buildings work and how people experience our buildings. That's the mindset shift from efficiency equals sacrifice to efficiency equals improvement. Thanks for listening to Reframe. Until next time,
Announcer: you've been listening to Reframe the show about building sustainability presented by Pilotlight. Opinions shared by the Reframe guests aren't necessarily the views of their companies.
If you'd like to learn more about the podcast, the show's host, guest for topics, check out this episode's show notes, or visit pilotlight.ai/podcast. Got a question for the Reframe team. Drop us a note at Reframe@pilotlight.ai. The Reframe podcast features original music by Dyaphonic. The show's produced by Robert Haskitt with Eric Opel and the [00:50:00] show's host Jeff Nichols.
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