Home Field Disadvantage

16 11 2010

As mentioned on these pages before, stuff that doesn’t work well for me will be tolerated for maybe a couple bad experiences before I move on to something else.  When something starts to go haywire, you don’t want to be around me and you certainly don’t want your children around me.  Probably the worst thing to go haywire is a computer because I know I can’t take my frustration out on the computer since that will obviously make things worse, so the vocabulary gets a little extra spicy.

Back in about 1983, I was shopping for my first car.  Growing up in rural America farm country, 90% of vehicles on the road were made by the big three, now known as the big one and the incompetent and crappy two.  One of the vehicles I test drove among the several Detroit models was a Honda Accord.  This was back when they were the size of today’s Civic Coupe.  I remember it to this day.  It was like the first decent micro or import beer I tested, although I can’t remember what that was if you know what I mean.

The Accord was unlike anything I had driven before.  The suspension was firm and it handled crisply.  It accelerated very well for a car with a small engine.  It was a quite ride.  But it cost $2,000 more than my second choice at the time, a 1983 Ford Mustang so I bought that.  What a piece of junk.  This was a car that was transformed from the 70s muscle car to a wimpy plasticized rattlebox.  It always had some sort of natural frequency in the drive train that vibrated such that the rearview mirror gave me a blurred vision of where I had been.  I took Wrigley’s chewing gum wrappers and rolled them up to stuff behind the chincy dashboard cutout with a cheesy faux wood pattern to keep it from buzzing from the vibration.

Today I have very high expectations for any vehicle I own.  I bought the Acura RSX new seven and a half years ago and piled about 100,000 miles on thus far.  The only things I’ve replaced is oil, filters, tires, wiper blades, a battery, and windshield fluid.  There have been no mechanical or electrical problems but last week the engine light came on and I thought maybe my “luck” was up.  No problem.  I think it was gas-cap issue.

I have no allegiance to buying “American” stuff.  I’m an open-market competition advocate.  It’s my money and I’m going to buy what I think is the best value, including John Deere yard and garden equipment.  It’s expensive.  People have told me this or that brand is just as good.  Sure.  You go right ahead and buy your heap of lightweight, rattly sheet metal, belt-shredding, piece of crap.

In some distant precincts, or maybe its just certain buyers, there seems to be a strong home turf advantage for hiring EE consultants.  Alien firms are virtually locked out of the market.  In some cases we’ve been on projects where we needed to use local engineering firms because they know the market, technologies, and how to handle the vastly different conditions.  Paahleeeese!  Does the first law of thermodynamics not apply on planet Z?  Does water not freeze at 32F?  Do the customers have two heads?  If so just tell us which one to talk to.  We’ll adapt to anything.

There may also be perception that if you have to get on a plane that you can’t be responsive, and that travel time and expense may cost a fortune.  Responsiveness may be an issue on the other side of the ocean seven time zones away, but not in the continental U.S.  Travel expense is also probably an overhyped disadvantage.  It takes more time to drive within some service territories to distant end users than it does to fly some places.  It takes no more time or money to fly to the coasts than it does to fly to Ohio or Missouri.  Actually, flying to coastal destinations is typically cheaper than flying a couple states away because there is far more competition.

In some cases however, there is a need to have a Johnnie on the spot and we make it so, or make it clear in a proposal that we will make it so.  The latter doesn’t seem to work.

Programs that lock out alien firms are doing their ratepayers no favors.  They lock out innovation, new ideas and possibly more efficient and effective ways of doing things.  When we bid on local jobs, we take nothing for granted.  I feel we deserve nothing for merely being one of the closest firms.  Once hired regardless of where, it is our mission to have the client so pleased they wished they’d never have to go out for bids again.

In other cases, I think buyers may have something like Stockholm Syndrome and they become sympathetic to their consultant’s predictably unreliable and tardy work.  This is probably universal and not just for EE work but other consulting and even other businesses entirely.  But hey, the consultant is cheap and the buyer knows what they are getting: crap.  But there are no surprises or disappointments because expectations are lower than Brett Favre’s salvage value.

Tidbits

This just in: USA Today reports that $300 million spent on just over 600,000 appliances ($500 per appliance!!!) is achieving $27.5 million in annual energy savings.  Doing the math, that’s about an 11 year “payback” on program investment.  To put this in perspective, a rule of thumb for EE programs run by utilities is total program cost to savings ratio (“payback”) is 1.5.  Yes, the decimal point is in the right place.  Do we need further reason to lock the federal government out of EE?

The spokeswoman says energy savings were only one goal of the program.  Yes.  The other was a political payout followed by a glut of used appliances and a drought of new appliance sales.

written by Jeffrey L. Ihnen, P.E., LEED AP

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IPO Return, Treasury Risk

13 04 2010

If there’s one thing that most people painfully realized over the past couple years, it’s that there is risk in putting your money in anything in hopes of earning a return on investment.  Riding a company into bankruptcy is an obvious one.  I’ve done that several times by investing in fast-growing start-ups, initial public offerings (IPO) and stock options.  Invest $3,000 for 100 shares of common stock and a few years later the company emerges from bankruptcy (isn’t that a cute phrase – it sounds like a daffodil blooming in spring but it’s more like rummaging for your charred silverware after your house burned to the ground) … anyway that investment may “emerge” at 10 shares worth $6 apiece, or if they liquidate you get a check for 36 cents.

If you avoid Bernie Madoff funds, you can greatly reduce your risk by buying mutual funds, which more or less track the entire stock market.  Corporate bonds might be next.  In the case of bankruptcy, provided the government doesn’t take over the company, you are first in line to get your money back.  Next might be U.S. government bonds but I wouldn’t go near them now as their value moves in the opposite direction of interest rates.  Just take a look where interest rates are now compared to historic numbers and do the math.  You CAN lose a lot of money in bonds.  Then there are money market funds that invest in super safe short term treasuries, but right now you earn about nickel a month per $1,000 invested.  Finally, there’s cash in the bank, which earns even less or zero but at least the first $100,000 is insured by the feds (the minimum was increased to something but I don’t care).

Commercial and industrial facility owners can invest in energy efficiency.  Lighting would be the bonds of energy efficiency, with the exception that you’re virtually guaranteed a return on investment as long as you can do 5th grade math to ensure you aren’t being ripped off.  Beyond that, the vast majority of energy efficiency projects carry the full gamut of risk from guaranteed savings (which isn’t free) and just buying a new piece of expensive equipment or system that may not save you a dime or could even increase your energy costs.

The big money is in custom measures and the risk varies depending who is identifying the opportunities and who, if anyone, is calculating savings.  If you browse our website you will find we identify measures and quantify savings all the time.  For many large projects we take a two phase approach to the analysis.  Phase 1 is to identify opportunities and guesstimate cost and savings to within plus or minus 40%, which means a project guesstimated to have a 2 year payback may actually have a payback from less than a year to more than 4.5 years, with the most likely being 2 years.

Phase 2 is a detailed analysis, sometimes with quotes from contractors, and energy analysis based on specific equipment performance characteristics, construction documents, and metered data.  After Phase 2, the guesstimates are sharpened to within plus or minus 10%, perhaps.  Now that 2 year payback would range from 1.6 years to 2.4 years, with the most likely being 2 years.

So energy analysis can take your project from a completely unknown return on investment to something that is close to guaranteed, and if you want, that can be added too.  The cost of hiring a firm that knows what they’re doing, delivering both quantity and accuracy of cost and savings estimates, is considered by end-users to be anything from reasonable to outrageously expensive.  Owners with smaller facilities and especially government ones tend to be at the latter portion of that range.  Large industrials may be closer to the front.

But the kicker is, utilities that run efficiency programs often pay for a good share or all of the energy analysis, sometimes even both phases of analysis described above.  But yet, end users may baulk.  We recently completed phase 2 analyses that largely demonstrated our phase 1 estimates were pretty good and some representatives of customers were scoffing that phase 2 was a waste of money.  Well look at the “uncertainty analysis” above and tell me, would you use “free money” from the utility to shore up your investment certainty before you invest a dime to implement anything, OR NOT?

As my colleague says, “It’s a no BRAINER!  Gee willikers!”

As an investment, an energy efficiency project may pay for itself four or five times or even more over its lifetime.  Peter Lynch who ran the Fidelity Magellan fund during the 80s would call doubling your investment a one bagger; tripling, a two bagger and so on.  This makes energy efficiency a likely two bagger and in many cases a four bagger.  It’s a home run with the risk of a money market fund.

Why doesn’t everyone get on this ride?  There are many reasons; some good ones and some utterly stupid ones.

written by Jeffrey L. Ihnen, P.E., LEED AP