Ameresco project raises questions

Liz Travis, kindergarten teacher at Brookside Elementary, remembers looking out the school’s window with other teachers one day at a parking lot filled with new toilets.

It was 2005, and a company called Ameresco was doing a large-scale energy upgrade for the Shoreline School District. Among other projects, it put in new low-flow toilets at Brookside.

“They came and physically replaced every single toilet,” Travis said, adding there were probably 40 or 50.

The building was remodeled just 11 years before, in 1994, and had new toilets put in then.

“Everything was all brand-new at Brookside,” said Rocky Fridell, former Brookside custodian.

The project raised suspicion.

“You’ve got to think: Toilets are expensive,” Travis said. “There’s the question with things that are in perfectly good working situations they replace.”

Travis wasn’t alone.

“(There was ) a lot of suspicion at the time: ‘Where did Ameresco come from?’” said Cheryl Ricevuto, former president of the Shoreline Education Association.

Ameresco aimed to cut district energy costs by replacing lighting, water systems, trash systems, boilers, vending misers and more. Upgrades were done in 21 buildings.

Ameresco said they’d compensate the district if savings didn’t meet or exceed project costs, which are nearly $6 million with interest. The district took out a loan to pay for the project.

The company and district staff are studying the project to see if it saved money in year one, with a report due in March.

Even if it does, the unorthodox way the project was handled raises questions about former district administrators.

Among other things, officials failed to follow standard procedure in getting Shoreline School Board approval of the project, they overspent the capital fund and they broke state law with their spending.

Ameresco upgraded even new facilities at a time when the district was struggling financially, and even the company’s promise of payback has significant limitations.

In charge

Former Superintendent James Welsh was hired away from the Washoe County School District in 2001 to save Shoreline from its financial troubles. He appointed two men he knew to key finance positions.

John Scudder became executive director of finance and operations and Paul Flemming, who’d worked 32 years in the Washoe district, was comptroller.

Welsh stepped down in spring 2006 amid public accusations of mismanagement. Scudder and Flemming resigned months before.

Overkill?

Steve Fisk, the district’s sole electrician, has spent 26 years with the district.

When he learned of the Ameresco project in February 2005, he’d been pushing for energy upgrades for years, but was shocked at the project’s scope.

“They used a chainsaw where pruning shears could’ve been used,” Fisk said. “Instead of a trim job, we got scalped.”

The company proposed to retrofit the lighting system in almost 20,000 places in 21 district buildings.

While some upgrades were useful, many were a waste, Fisk said, since even relatively new lighting was replaced.

Prior to Ameresco, eight schools had new lighting put in between 1991 and the early 2000s that used three or four energy efficient T-8 fluorescent bulbs per fixture, Fisk said.

Ameresco replaced those bulbs with two brand-new T-8s. They added electronic ballasts and a reflector insert. Two-bulb fixtures were left alone.

Shorewood and Shorecrest High Schools had new T-8s installed in the early 2000s in libraries and common areas, said Paul Plumis, the district’s facilities coordinator.

In 2005, Ameresco replaced them with two new T-8 bulbs.

Jerry Pickard, custodian at Shorecrest, said the project was a waste.

“We had just gone through a lighting renovation and here we did it all over again,” he said. “I thought it was awful stupid of someone to be spending money again when we’d just done the first project and hadn’t had time to hardly figure out where we were.”

The gym at the Aldercrest Annex – now the Grace Cole Education Complex – got new lighting in 2004. In 2005, Ameresco replaced it.

Fisk wrote Welsh asking that newer lighting be left alone.

In response, David Wyllie, Ameresco’s project development engineer, sent an e-mail to district officials about gym lights at the Annex, Shoreline Center and “the Children’s Learning Center.”

“I know there is concern in retrofitting these areas due to the recent nature of the installations of the fixtures,” he wrote.

New fixtures would cut wattage by 54 percent – saving $5,400 a year – and Seattle City Light offered $9,154 in rebates on the project, he wrote.

Wyllie didn’t say, for comparison purposes, how much it cost to replace the fixtures, but he offered to remove them carefully so the district could sell them to someone else.

The company said lighting retrofits would cost about $1,868,000 total.

The estimated savings was about $181,000 a year. Looked at one way, it will take about 10 years for the lighting project to pay for itself.

The total project, with all other upgrades, could take about 20 years to break even.

The Ameresco contract was about $4 million. The project will cost the district nearly $6 million because of interest. Total savings was estimated at $300,000 a year, plus over $500,000 in one-time savings, including utility rebates.

Making the call

Ameresco decided what upgrades were needed, with no apparent oversight from independent sources.

In November 2004, the company published a “Technical Energy Audit” that proposed upgrades building by building. Welsh had authorized the study six months earlier.

No other study was done, and no one at the district analyzed the company’s work, Plumis said.

Shortly after the board approved the project in February 2005, the district began doing research to see if a bond for capital improvements should go to voters in 2006.

A citizen’s committee talked with staff at buildings to determine their priorities. The Meng analysis, an independent study published in March 2005, looked at every building in the district, including electrical, plumbing, heating, cooling and lighting systems.

Even so, the Ameresco project was separate from the bond and from that research.

“(At the time) a lot of people said: ‘Why are we doing this now? (We’re) going to have a bond,’” Ricevuto said.

Voters did approve a roughly $149 million bond a year later, in February 2006, flooding the capital projects fund with money. The fund is used to pay for building projects and renovations.

District officials could have used that money for the Ameresco project if they’d waited a year for voter approval. Instead, they borrowed money to pay for the project.

They issued a nearly $3.8 million Limited General Obligation Bond – essentially a loan – which carries 4.85 percent interest a year until it’s paid off in 2023. With interest, the total is nearly $6 million.

“The district does not have available sufficient funds to pay costs of the project,” reads the resolution the board approved to sell the bond.

It’s not unusual to take out a loan, without a public vote, to pay for a capital project, said Lou Adams, audit manager for schools programs at the state auditor’s office.

But when the district borrowed millions for the project, it wasn’t on safe financial ground.

“We were already going through some budget adjustments at the time, so it’s not like we were flush at all,” Jacobs said.

By 2005, when Ameresco did its upgrades, Pickard, the Shorecrest custodian, had been struggling for years with district budget cuts.

“It was an improvement a lot of us thought we couldn’t afford,” he said. “We haven’t had any new vacuums in ten years and they’re getting worn out. It’s been quite a job to perform our duties because we don’t have the supplies.”

It’s been hard to keep paper towels and toilet paper stocked, for example, he said.

Fridell, the former Brookside custodian, echoed Pickard.

“Huge cuts we’ve been dealing with for years – I don’t have the equipment I need,” he said.

Running on empty

In 2004-05, the district spent more than it budgeted for in the capital fund by about $4.5 million, according to a state audit. Officials didn’t ask the state for a budget extension – as law requires – before overspending, the audit says.

Capital fund spending that year was 244 percent more than the year before.

The fund was empty by February 2006. That’s partly because Welsh and his team spent capital funds inappropriately, a district committee found in April 2006. The details were made public at a Committee of the Whole meeting that month.

The general fund didn’t fare that well in 2004-05 either: The district ended the year $650,000 in the red, according to the state audit. The general fund pays salaries and other ongoing expenses.

Paying its way

In its pitch to the district, Ameresco promised to make up the difference if project savings didn’t equal costs. The company is now doing a report on Shoreline’s first year. That report is due to district officials in March.

While the project may pay for itself in year one, it’s unknown whether the project will pay for itself every year for the 18 years it takes to repay the $6 million loan.

Also, the guarantee of savings is free only for one year.

“It’s similar to (when) you buy a washing machine from Sears and they give you a one-year warranty and call you and say, ‘We can extend that warranty for another three years for X dollars,’” said Marcia Harris, deputy superintendent. “It’s the same concept.”

Harris was hired in summer 2006, after Welsh left, to manage the finance department.

The cost of guaranteeing savings goes up each year. For the second year, it’s $9,270. For the 18th year — when Shoreline makes its final loan payment — it’s $14,876.

The money buys a detailed report from Ameresco on savings as well as a guarantee of payback.

A host of variables impact potential savings over 18 years. In 2023, some buildings Ameresco worked on could be closed, and the technology of lighting and other systems will have improved.

As for Ameresco’s report, an independent expert will check the numbers closely, Harris said.

Harris said she couldn’t say how the project is supposed to pay for itself, or whether it will, until the study is done and she understands the numbers better.

On board

In addition, Welsh and his team failed to follow standard procedure in getting board approval of the project, according to a state official.

By the time Flemming introduced the project to the board at its Jan. 24, 2005 meeting, Welsh had already signed a “Letter of Intent” with the company on Dec. 22, 2004.

“This Letter of Intent expresses both parties’ intent…to enter into an Efficiency Services Agreement (ESA) pursuant to which Ameresco would invest up to $3,397,002 at Shoreline’s facilities identified below,” the letter reads.

If the district decided not to implement the project, nearly $56,000 for the “Technical Energy Audit” published in November would be due the company.

The district had signed the agreement for that “audit” — which listed projects the company thought were needed — seven months earlier.

Mike Jacobs, board president, said he did not recall seeing the Letter of Intent.

“The board had not approved the contract, so I’m not sure what legal port that letter had,” he said.

Harris said she didn’t know if the letter was normal process.

Such a letter is “unusual,” said Adams at the state auditor’s office.

“The board should have preapproved the district contracting with anyone,” she said. “That a board hadn’t even approved the project yet…”

When Flemming presented the project to the board in January 2005, he told them they’d approved a Request for Qualifications for it in December 2002.

A search of board records from May 6, 2002 to Jan. 13, 2003 shows no sign of the topic being raised with the board.

A Request for Qualifications is a district advertisement to find companies to do a project. Responses are gathered, prices compared and a company chosen.

If the board had approved a Request for Qualifications, it would have in essence approved the project, Adams said. But only if the board heard a detailed description of what the project entailed.

“Typically, you go to the board to request permission to issue a Request for Qualifications,” Harris said.

Jacobs, who’s been on the board for six years, doesn’t recall approving an energy project in 2002.

“It doesn’t mean it didn’t happen,” he said.

The first he remembers hearing of the project was in 2005, he said.

It’s very unusual to wait two years after bidding a project to move forward with it, Adams said.

Lastly, a final version of the Ameresco contract was drawn up before the board made a decision, with a Feb. 4, 2005 date at the bottom of each page.

The board approved the project Feb. 7 – three days later.

Adams at the state auditor’s office said that’s unusual.

“Typically, they wait until they have board approval to draw up a contract and the nitty gritty,” she said.

Jacobs expressed similar sentiments.

“I would not consider that to be usual operating procedures,” he said.

Out to bid

District officials appear to have followed state law for the bidding process, but failed to keep records, a state audit says.

State law says districts must do a competitive bidding process for projects like these and keep documentation.

In December 2002, the district issued a Request for Qualifications for an energy retrofit project. Four vendors responded. District records include those responses.

A panel of district staff heard presentations by two companies, Plumis said. The panel chose Ameresco and made that recommendation to Welsh, who made the final decision, Plumis said.

Because no documentation was kept on the process, the state audit said the district didn’t comply with state bid laws.

History

People had called the state auditor’s office to alert them to possible fraud by Welsh, Scudder and Flemming, according to 2004-05 audit papers.

Ameresco had done energy retrofit projects for Washoe, and though it’s legal for districts to seek out companies they’ve worked with before, it raised suspicion.

“If Washoe County School District is also using Ameresco, then this appears to be a potential violation of local bid law compliance,” the auditor noted in the working papers.

Washoe worked with Sierra Pacific Power Company, a company based in Reno, Nev. which became e.three in 1998. In 2003, Ameresco acquired e.three and did more energy projects in Washoe. Ameresco, headquartered in Framingham, Mass., has a Reno office.

Despite the changes, the company retained employees.

Wyllie, director of energy projects at the company since 1998, became project development engineer for the Shoreline project. Grieg “Tex” Barrett, a director of sales who worked on the Shoreline project, was with the company since 1988. James Reedy, who also worked on the Shoreline project, has worked for the company since 1989.

Choosing Ameresco

In its Shoreline documents, Ameresco gave reasons for the large scale of the project. The goal of replacing bulbs was to save on electric bills and reduce maintenance stock.

Some of the lighting upgrades were useful, district electrician Fisk said. His letter to Welsh in 2005 said that 10 district buildings needed new lighting. The new trash compactor at Shorecrest is saving money, Pickard said.

Before approving the project unanimously, board members conducted a video conference with Washoe district officials. Washoe was emphatic about Ameresco savings, said Dan Mann, board member. They said they saved about $863,000 a year.

When Flemming introduced the project, he said energy costs had risen by 31 percent in the previous six years.

He pointed out that Ameresco has offices across the country and in Canada and has worked with several businesses and government entities. In 2005, they’d worked with 31 other school districts.

“If we were in any way fooled, we did our best to get to the bottom and get our questions answered,” Mann said. “It seemed like a really sensible thing to do.”

“The cost of energy was going up, our budget couldn’t continue to handle that and it appeared we were inefficient,” Jacobs said. “This was presented as a way of becoming more efficient without having to pay out of pocket for those improvements.”

Recently, two law firms looked at the Ameresco contract, and they found it to be legal, Harris said.

Implications

While state audits and public statements by district officials describe mismanagement and broken state laws by previous district administration, fraud has not been established.

There are no fines, jail time or other such penalties for breaking state law, said Calvin Brodie, director of school apportionment for the state Office of the Superintendent of Public Instruction, or OSPI.

If a district misreports numbers to the state – as Shoreline did in 2005 – the state simply adjusts funding to reflect actual numbers.

Harris and other current district officials are working to balance the budget. If that doesn’t happen by August, the state could withhold funding until it does.