Watson on common “scents”; Negative incentives that waste money, resources and energy

April 15, 2014

While the incentive of private business is to increase income and reduce expenses, the incentive of utility companies and government agencies is to spend money. Watson says, “Even a dog nose that makes no scents”.

While the incentive of private business is to increase income and reduce expenses, the incentive of utility companies and government agencies is to spend money. Watson says, “Even a dog nose that makes no scents”.

Watson: I was fascinated reading about your project at the Indiana/Purdue campus where you worked with the Chancellor to reduce the annual energy costs by 25% and the response from the University was to cut his utility budget by 25% for the next year. Sounds like a negative incentive to save energy if I ever heard one.

Also, I read your 2011 article about when you tried to work with the Colorado Governor’s Energy Office (GEO) and found out you weren’t qualified because you weren’t an Energy Service Company and didn’t sell equipment. They had so much money they had to spend, the only way they could spend it all was to contract with Energy Service Companies for expensive energy audits and millions of dollars of new equipment whether it was needed or not. Read the Article

Holmes: The utility companies are in a similar situation now, too. Many are mandated by State Utility Regulatory Commissions to spend a certain percentage of their revenue on energy conservation so they are just throwing money at energy audits and other activities that I suppose keep the regulators happy but aren’t really a good use of the money.

Watson: Just because someone works for the government or a utility company surely doesn’t mean they agree with that approach.

Holmes: Government employees are often the first ones to point out the waste. I spent some time with the Facilities Maintenance Manager for a very progressive city in Colorado and his boss, a retired Army Colonel who was responsible for operation, maintenance, energy usage and conservation for all of the municipal facilities. They were going to receive a good chunk of money from the GEO but had little say in how to use it. It had to be spent on new equipment. Neither of them was that enthused about getting new equipment. It would just present a whole new set of problems they would have to deal with.

Watson: Why didn’t they just say “No Thanks?”

Holmes: As part of the city government, they couldn’t turn it down. What government employee or office could turn down free equipment, whether they needed it or not? The press would rip them to pieces. Their hands were tied in terms of some of the choices they had. Sitting there listening to Joe, who had spent more than 20 years in the Army, I realized that this was not something new to him. It’s just a part of life when you work for the government; a huge difference between those who are spending OPM (other people’s money) and the rest of us who actually live in the real world and have to make money in order to pay our bills and survive.

Watson: Sounds like your experience with the University.

Holmes: Actually, where I first learned of this reverse logic was when I was a 23 year old Lieutenant at Tyndall AFB, in Florida. I was in a Test Squadron and we had a shop full of senior and chief master sergeants, guys who had 25 or 30 years of experience in a specific craft, machinists, welders, mold makers, etc. I was in the shop one day and they were moving all of the lathes and welders and boring machines and everything else around so I asked Sgt. Dickey what was going on. He said “we’re getting all new equipment, replacing everything we have.”

Of course I asked why and he gave me a little talk about how things worked in the Air Force. Remember, I was this Midwestern kid who was used to working to earn the money to buy something I wanted. When I wanted a drum set when I was about twelve, I saved my paper route earnings for about a year to buy my first drum. They I saved more to buy the second one and so on. I assumed that was how everybody did it.

Watson: I’m guessing that’s not how the military worked.

Holmes: Sgt. Dickey explained to me the government’s version, “The way it works is that every year you submit a budget request. You always ask you at least 30% more than you really need because you assume they will cut your request by that much. Then after you get the money, you spend every single penny of it. The absolute worst thing you can do is have any left over at the end of the year. If you don’t spend all of it, when you submit your request for the next year, they will look and see that you didn’t spend everything you got last year so they will reduce what you get the next year.

All of this new equipment we’re getting; we don’t need any of it. The old is still in great shape. In fact, it will be a pain because we will have to set it all up, adjust everything and work out all of the bugs. Plus some of the newer equipment has less metal; it is made cheaper, doesn’t have the quality of the old. But we have a bunch of money left we have to spend before the end of the year. We don’t have a choice.”

Watson: Did that make any “scents” to you?

Holmes: No but I was glad I found out how the government worked. It was not exactly the way I managed my own money at home when I was a civilian, but now that I was in the military I was going to use their system. It actually seemed to offer some advantages. From then on, when I cashed my $303 monthly pay check I was going to make damn sure that I spent it all. No more putting $25 a month in a savings account like I had been doing; somehow the government might find out and cut my next check to $278. And if I spent it all, I could just explain to the Air Force that $303 a month wasn’t enough to live on and ask for 30% or 40% more. I thought I was going to like this new system, using government logic.

Watson: But wouldn’t you have to work harder or produce more to justify the increase?

Holmes: I asked Sgt. Dickey the same question and he said, “Don’t worry about that Lieutenant. There’s the right way and then there’s the government’s way.”

Tell us about your experiences, both good and bad with energy professionals, what has worked and what hasn’t. Send us your comments, thoughts and suggestions on how to improve our profession so we can all continue to learn from each other. Thanks – Holmes & Watson.

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