A company said the state breached its contract and failed to pay it hundreds of thousands of dollars.
The energy conservation program was supposed to be the small company’s chance to carry out a statewide initiative and partner with the government.
It didn’t turn out that way, the company claimed, and the business has been paid only a fraction of what its contract with the state promised. Now the company has brought a lawsuit against dozens of state agencies.
On May 8, 2012, Gov. Mary Fallin signed Senate Bill 1096 into law and launched the Oklahoma State Facilities Energy Conservation Program, or 20%x2020. The statewide energy conservation initiative directed agencies to reduce state spending through saving energy.
Through the program, agencies were projected to save at least $150 million by 2020 by using at least 20 percent less energy as compared to fiscal year 2012.
The state hired Oklahoma City-based Engineered Systems & Energy Solutions, Inc., called ES2, through a bidding process in 2014 to design the program and help establish it.
The program is apart of Fallin’s First Energy Plan and is run by the Office of Management and Enterprise Services (OMES). The initiative is supposed to require agencies to hire full-time energy managers to implement behavior-based energy efficiency plans.
ES2’s contract with the state said the program would be funded through savings created by reduced energy costs. Agencies were to pay the company 20 percent of the energy savings achieved through the program as compared to the baseline year.
The contract was amended on March 1, 2015, to run through Feb. 28, 2016. It was amended again on Feb. 19, 2016, to be renewed for another year.
However, on April 14, 2016, ES2’s contract was canceled after the state’s purchasing director determined it was “in the state’s best interest.”
Bill Kinser, president and CEO of ES2, said the company has been paid only 24 percent of the fees invoiced for its services.
ES2 is an Oklahoma City-based company with about 50 employees.
“It’s affected our cash-flow ability significantly,” he said. “We’re still moving along, but the financial impact has been significant.”
ES2, with two branches in Oklahoma and one in Arkansas, has a combined 53 employees. When 20%x2020 was in “full swing,” about 15 staff members worked on the project, Kinser said.
“It’s what I would consider a great opportunity,” Kinser said. “For us and our company. Not only as an energy company, but also to be involved in our state and manage our energy usage.
“And being an Oklahoma company, it was an opportunity for us to be a team player with the state.”
Under the contract, the first year of the program did not charge the state for services. But when the second year began and fees started, so did the resistance from state agencies, Kinser said.
Several agencies said they didn’t have the means in their budgets to pay the fees, and some said they didn’t owe the company anything, he said.
Kinser said the company was given no reason for the contract’s cancellation other than it was in the best interest of the state.
“To be here today having to sue the state is confusing,” he said.
ES2 filed a civil lawsuit in the District Court of Oklahoma County on Nov. 20 that names more than 60 state agencies and higher education institutions for damages totalling more than $1 million.
The suit states ES2 attended a settlement conference at the state Attorney General’s Office prior to filing its complaint. The company’s contract required the company and state to attend a “good faith” settlement meeting before filing a suit.
Terri Watkins, a spokeswoman for the Attorney General’s Office, said the office could not comment on pending litigation. OMES spokeswoman Shelley Zumwalt also declined to comment citing the pending litigation.
In court filings, agencies have denied ES2’s allegations. Some said no contract existed between the parties.
More than 30 state agencies allegedly owe the contractor about $995,000, the lawsuit states. Many agencies also failed to send ES2 its energy usage data as required by the contract, according to claims made in the suit.
The suit claims OMES, acting on behalf of state agencies, told ES2 it would be paid for its services. The agency acted fraudulently when they issued purchase orders to ES2 for its services and participated in the program without the intention to pay the contractor, the lawsuit states.
Enrollment in the program was mandatory unless an agency was granted exemption.
Only state two entities, Oklahoma State University and the University Hospitals Authority and Trust, were exempt from the program, the suit states.
As a result, the suit alleges each agency breached its contract with ES2 and benefited from its services at the company’s detriment.
ES2’s lawsuit claims it performed services up until its contract was canceled and invoiced agencies for payments accordingly.
“Many of the invoices issued by plaintiff (ES2) for those services remain unpaid,” the suit states.
Claire Farr, ES2’s project manager for the program, said she saw success with the initiative.
“We’re not aware of a statewide behavioral energy program ever being done in another state,” Farr said. “It’s pretty unique. Oklahoma didn’t know how much energy it was using, how to measure it, how to reduce it or even organize that.
“We helped train the state and provide guidance and support in those areas, and I think it was going very well.”
ES2 project manager Claire Farr speaks at Gov. Mary Fallin’s press conference announcing the program in 2014. Courtesy OMES
In April 2016, 20%x2020 program director Craig Cherry said in a newsletter the program was doing well. In the first six months of 2016, participating agencies saw a 5.1 percent decrease in energy usage compared to fiscal year 2012, and a 11.5 percent decrease in costs.
Cherry said the savings were partially due to agencies using less energy, but lower utility costs also played a role.
“The low prices for oil and natural gas that are affecting our budget crisis are at the same time helping in our utility costs,” Cherry said.
Messages left at 20%x2020’s offices were not returned.
Oklahoma for several years has had a budget shortfall, and agencies have struggled with shrinking appropriations. It is unclear what that deficit will be in the 2019 fiscal year.
“Because of this unique situation, effective May 21, 2016, the state consultant contract SW125 – State Facilities Behavior-Based Energy Conservation Program will end,” Cherry said in the newsletter.
“The 20×2020 Program will continue, it is only the consultant services that are ending. The contract termination is in the best interest of the state.”
Zumwalt said agencies still report their energy usage and OMES still tracks it, although it was not immediately known how many participate and how much the state has saved (this story will be updated if that data is provided).
Kinser said OMES still uses his company’s design for the program.
“The program consisted of behavior-based recommendations to lower energy usage,” Zumwalt said. “So in that regard, yes, state employees still turn out the lights when they leave for the day.”
