Pepco Energy Services’ evolution from a multi-pronged business into one that provides primarily energy efficiency solutions to government and institutional customers has been a fascinating process.

When CEO and President John Huffman arrived in 2003, Pepco Energy Services’ retail energy supply arm served the commercial/industrial and residential/small business sectors. The company also ran several HVAC service businesses, had a high-voltage equipment testing and maintenance operation (W.A. Chester), and owned and operated two power plants.

Based in Arlington, VA, Pepco Energy Services is now primarily a general contractor and project manager of energy-saving projects. It employs approximately 300 professionals and its earnings for 2010 were $36 million – a three-fold increase from 2004.  Maryland-based W.A. Chester is a standalone niche business.

The transformation began in 2005 when Pepco Energy Services left the residential/small business energy supply market. It sold its HVAC assets a year later and in 2007 began the process of retiring its power plants, which will cease operations this May.

“We made the decision to focus on growing businesses where we have real strengths,” says Huffman. “We focused on growing the two businesses where we excelled, commercial/industrial energy supply and energy efficiency.”

Even then, the makeover wasn’t complete. Although the commercial/industrial energy supply business grew to become the fourth largest energy retailer in the U.S., the company decided at the end of 2009 to focus solely on efficient energy solutions.

“The commercial/industrial energy supply business was so successful and grew to a size where the working capital requirements to support it, didn’t align with our parent company’s (Pepco Holdings, Inc.) growth plan. It’s also a business that carries a certain amount of commodity risk,” Huffman explains. “So we decided to wind down that business and are allowing our existing contracts to expire.”

Energy efficiency, with its low exposure to risk and low capital expenditure, was more in line with PHI’s vision.

Operations

“Our strategy is pretty clear and focused. We work mostly with government (federal, state and local) and institutional customers such as military bases, university campuses and large office complexes,” Huffman says.

The company prefers organic growth to acquisitions, avoiding culture clashes. “When we decide to enter a new market or grow an existing vertical market, we seek out and attract high quality professionals. We have a tremendous team. I think it comes across to our customers, vendors and subcontractors that Pepco Energy Services is an easy company to do business with,” Huffman says.

Since it is not a manufacturer, Pepco Energy Services is brand neutral, which represents a plus for our customers. “We have no agendas. We don’t want to sell our own equipment. We have relationships with major manufacturers, but we really are brand neutral when our engineers decide what equipment to use on a specific project. We want to optimize the best solutions for our customers. We can source the best equipment for each project, which is unique,” Huffman notes.

 “The fact that we are a wholly owned subsidiary of an S&P 500 company that happens to be an electric utility gives us both financial strength and the ability to leverage that knowledge to bring a project to market,” he adds.

The company has secured work in the public housing market through Housing and Urban Development (HUD) and is expanding all of its energy services offerings geographically with offices in North Carolina, New Jersey and projects in Georgia and Texas.

Top Projects

The recently completed Prince George’s County (MD) public schools project started in 2007 and was developed in four phases. It included installation of almost $80 million of new equipment in more than 100 school and administration buildings – approximately half of the school system.

“The improvements we made will equate to $6.4 million in energy savings per year and represents a reduction of 22 percent in energy consumption. The real value-add we provide is developing a comprehensive project and guaranteeing savings that will more than cover the initial capital cost over a period of 10 to 15 years,” Huffman explains.

The Prince George’s County project involved water conservation measures, upgraded lighting, energy efficient windows, an improved steam system, HVAC improvements, new building controls – even “miser controls” on vending machines. Every BTU or kilowatt hour saved corresponds directly to less power drawn from the grid and fewer tons of carbon being emitted into the atmosphere. The Prince George’s County Schools project will reduce CO2 emissions by more than 20 million metric tons a year.

The company is also in the final stages of a $21 million project for the Maryland Aviation Administration spanning 30 buildings, including more than nine million square feet in the main terminal at the Baltimore Washington International Thurgood Marshall Airport (BWI). As part of the contract, a 500 kW solar facility was installed on top of a parking garage. The solar array will help the project exceed the 15 percent energy reduction goal set by the state’s EmPOWER Maryland program. Overall the project will reduce electricity use by more than 16 million kWh annually, reduce energy and water consumption by 18 percent and reduce carbon emissions by 12,400 metric tons per year.

The BWI solar facility is just one of many photovoltaic projects completed by Pepco Energy Services. The company developed and manages installation of a 2.4 MW solar project covering 266,000sf on the roof of the Atlantic City (NJ) Convention Center in 2009. The solar cells provide more than 26 percent of the Convention Center’s electrical demand and were the largest single-roof system in the U.S. at the time of installation.

Pepco Energy Services has designed, built and now operates a 24 MW co-generation project fueled by natural gas to produce both electricity and steam for the National Institutes of Health in Bethesda, MD. It has also designed and built a 250 kW tri-generation system powered by two internal combustion engines for the British Embassy in Washington, D.C. that achieved LEED certification. In addition, it is using tidal water in a geo-thermal system that will cool one of Maryland’s largest Port Authority buildings on Baltimore’s Inner Harbor.

“We see combined heat and power systems like those at NIH and the British Embassy as an area of potential growth for us. It is an area where we have great experience and it ties in well with another discipline that we have been utilizing for years – central plant operations,” Huffman elaborated. “Projects like NIH, where we provide electricity, heat and laboratory steam to large numbers of buildings through a single combustion process saves energy on a large scale.”

In addition to multiple combined heat and power projects, the company has also built, and in many cases, continues to operate and maintain heating, cooling and power systems from a central plant which services multiple buildings. In Raleigh, North Carolina, PES provides heating and cooling to 22 state government buildings through a single system that guarantees the state government more than $25 million in energy savings over the contract term. The company’s Mid-town Thermal Plant in Atlantic City, New Jersey, provides chilled water for air conditioning and steam for heat to more than a half-dozen hotels and casinos.

“In many cases, we provide operation and maintenance (O&M) services for our completed projects. At the very minimum, we measure and verify savings year-to-year to ensure they actually occur, because we’re on the hook if they don’t,” says Huffman.

The company maintains a core network of subcontractors and, when working in new regions, strives to hire local contractors. Pepco Energy Services also tries to achieve a minimum 25 percent goal for hiring minority and women-owned businesses on every job. The company’s dedicated supply chain team ensures the logistics of delivering materials to every job site on time.

People and Challenges

Attracting engineers with project -specific skills is a challenge throughout the industry. “When we visit a customer for the first time, we go through their facility, and look for opportunities to save energy. It takes a unique engineer to develop and optimize a program that works for the customer,” Huffman notes.

The company hires talented individuals coming out of engineering schools, and then puts them through a rigorous training program. “That’s really rewarding for me personally. I’ve seen some of our engineers come in without experience and now they’re seasoned and leading their own teams,” Huffman says.

While Pepco Energy Services continues to take on work, Huffman says “some projects didn’t happen as quickly as we thought they would or were scaled back” due to the soft economy during the last few years.

Down the Road

Having defined and refined its mission, Pepco Energy Services will continue to meet and solve energy efficiency challenges issues aimed at protecting the environment.

“We’re focused on energy efficiency and a key part of that growth will be our co-generation projects and our work with solar and other renewables. We will continue to focus on the government sector and continue to grow geographically,” Huffman concludes.