Irvington’s Energy Contract

On November, 5, 2008, the Village of  Irvington Board unanimously voted for the approval of an "Energy Contract."  The intent was to enhance "certain energy and operational efficiencies" for certain Village buildings and the Village Water District.

The contract with Wendel Energy Services, LLC, of Amherst, NY, will be paid from the issuance of bonds in the amount of approximately $2,600,000.  Over the 15-year life of the bond, the total expenditure is estimated to be approximately $3,500,000.  The expected savings are to be realized over the 15 year term. 

The contract is broken down into two major areas.  The first area, representing $1,800,000,  is the replacement of all water meters in the village.  The second, representing about $800,000,  is for the installation of certain energy saving devices, equipment or hardware in Village-owned buildings.  Wendel Energy Services is working for an upfront fee of approximately $500,000, which works out to be 24% of the cost of the actual construction work.

 The water meter replacement recommendation was based on a "water meter testing pilot program."  The "test" concluded that the water meters in the Village were inaccurately calculating water usage and, as a result, the Village is "losing" revenue.  The "test" – ONLY 10 WATER METERS WERE TESTED – further concluded that all meters in the Village were accurate only for their first 5 years of operation, and, starting in the 6th year, the meters began to lose accuracy by 7/10ths of 1% per year.  The "10 water meter test" results then calculated that, at this assumed rate, the Water District was losing revenue from  35,900,000 gallons of "lost" water, roughly $160,000 per year.  The assumptions then begin to escalate…..and state that over 15 years (with inflation) the lost revenue would total roughly $3,050,000.  All these very large numbers were extrapolated from a test of just 10 water meters.  The report from Wendel goes on to say that there is an even larger amount of water "lost" due to pipe leakage, etc.  However, no recommendation is made for this bigger problem.

It’s critical to understand that NY State Law requires all water districts to separate the accounting and finances of the water district from the municipality it services.  As a result, a clean view of the economics of every water district is possible.  If any shortfall  happens, according to law, it must be made up by adjusting water rates.  In fact, Irvington Water District has done this in the past, albeit sporadically.  Therefore, the need to replace an entire district’s water meters, all at once, is not at all necessary because the temporary "shortfall" is picked up by the state-mandated annual accounting.  All water districts have employees who have created plans and procedures to replace old or faulty meters.  It is quite possible that Irvington needs to tighten up their Water Department accounting and systematic water meter replacement efforts.  To hire Wendel Energy and pay them hundreds of thousands of dollars to do the same work does not seem to be a justified expense.  

 The second section of the Wendel Energy contract deals with Village buildings.  There are numerous recommendations to be implemented. Of the $800,000 in approved expenditures, it is quite possible that only two large expenditures actually pay for themselves.  The recommendation for upgrading our street lights and upgrading the library’s control systems are those two.  The cost for these two is $108,000.  They are estimated to save roughly $25,000 per year for 15 years, or $375,000.  This expected savings more than covers the cost.  The balance of the Village building expenditures, roughly $700,000, is estimated to save a total of $26,000 per year — or $300,000 over the term of the contract — therefore not even covering the cost to do the work.   I can’t understand why we are replacing something that has a useful life if the replacement savings doesn’t offset the cost?  I do not believe one would make this kind of decision for their own home, so why is it being done in our Village?   It is said that the "devil is in the details."  One detail that must be explained is a term in the contract called "stipulated savings."  The contract reads that "stipulated savings will not be measured or monitored at any time…Wendel shall not be responsible for achievement of stipulated savings."  The amount of stipulated savings is roughly $675,000.  To use the homeowner analogy again — would you spend money upgrading something in your house if the contractor told you up front that there would not be a way to ever know that the recommendation could or would be verified?

In an environment where a recent school bond issue was voted down 4:1, the economy is the worst in decades, and local and county taxes are out of control, why did we jump into this $3,500,000 taxpayer commitment without contractual guarantees, sound analysis and realistic verification?  Didn’t we learn our lesson with the fire truck debacle?   This contract can be amended without any penalty to the Village.  We must consider doing this immediately.

Leave a Reply

Your email address will not be published. Required fields are marked *

Recommended For You

About the Author: Jim McCann Irvington