City of Duluth says Johnson Controls slow to deliver

Duluth Mayor Don Ness didn't mince words Tuesday afternoon when assessing the performance of Johnson Controls Inc.

"I'm frustrated and irritated with Johnson Controls. This is simply unacceptable," he said of what he considers the company's recent lackluster effort to resolve a dispute with the city over improvements made to the Duluth Steam Cooperative.

Those improvements were expected to yield

$6.2 million in savings during a 15-year-period, but the mayor said during a news conference they're on pace to deliver only 30 percent of the return promised by Johnson Controls.

Likewise, emissions from Duluth's steam operations have been improved by a similar 30 percent of what Johnson Controls had guaranteed, said Jerry Pelofske, manager of the Duluth Steam Cooperative.

"The city would have never entered into an agreement if the expectation was to save only 30 percent of the cost and to reduce emissions by the same amount," Ness said.

Arif Quraishi, JCI's director of local government solutions, said he could not confirm those percentages but agreed that the steam plant improvements had not produced hoped-for savings.

Quraishi also said his company intends to honor its commitments under a performance contract.

"It's important that people understand that at no time did we ever say we would not pay for the shortfall," he said.

In April, it looked like Johnson Controls and the city were close to resolving their differences when they hashed out a tentative agreement.

But Dave Montgomery, chief administrative officer for the city of Duluth, said that during subsequent meetings in June and July, it became clear that agreement was unraveling, as JCI began to quibble over definitions in the agreement.

"The city made fair and reasonable offers and showed its willingness to resolve the matter for less than it was fully due," Montgomery said. "But JCI continued to sit on its hands."

Quraishi had a different take, saying: "We feel we have done everything required to help move the process forward."

Montgomery said the city administration did not wish to completely release Johnson from its badly missed performance objectives in return for a payoff.

"The city is not interested in JCI acting as a bank for the steam co-op and city, where we give them $3.2 million and ask them to repay it over

15 years," he said. "The city and steam co-op wanted actual energy savings and emission reductions at levels that justified spending $3.2 million and did not get it."

Duluth issued $3.2 million in bonds to pay for upgrades at the steam cooperative after the agreement between the city and JCI was finalized in 2006, when Herb Bergson was mayor, and the Oregon Climate Trust chipped in another $1.1 million to make the project happen.

The disagreement now is poised to go to arbitration in April 2011.

"We won't give up the fight for a fair settlement that protects the interests of steam cooperative members and the taxpayers of Duluth," Ness said.

Meanwhile, members of the steam cooperative already are paying the price for improvements that failed to deliver anticipated savings, steam co-op board president Tony Mancuso said.

Efficiencies were expected to be large enough to offset all bond payments for the steam plant improvements. But Mancuso said the steam plant has fallen more than $200,000 shy of the savings mark for each of the past three years, forcing the co-op to increase member rates by about 5 percent.