Hartford Steam may lose another major customer

HBJ Photo | Brad Kane Hartford office complex State House Square, above, may soon switch to an in-house natural gas system to save on energy costs. State House currently gets its heat from Hartford Steam Co., whose main Columbus Boulevard plant, below, produces steam and chilled water for dozens of downtown Hartford buildings.

Photo | HBJ File

David Jakubowski, general manager, State-Market LLC

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The Hartford Steam Co. loop system that provides heat and cool air to the majority of downtown buildings could lose another prominent customer by the end of this month.

State House Square's contract with Hartford Steam expires Feb. 1, and the manager of the downtown high rise is considering switching to an in-house natural gas system, just like nearby office tower Connecticut River Plaza did before the state bought that complex last August.

“I'm 99.9 percent sure we will make the switch,” said David Jakubowski, general manager of State-Market LLC, which manages State House Square. “It is really from a cost perspective.”

Jakubowski estimates the 17-story facility would spend $6.8 million upgrading to a natural gas system. After receiving a $500,000 state energy efficiency grant and saving $1.5 million annually in energy costs, the complex would get payback on its investment in about four years, he estimates.

Unless Hartford Steam comes back with extremely competitive pricing, State House Square will make the switch when its contract expires, Jakubowski said.

This would be the fourth customer Hartford Steam has lost in its 52 year history. Connecticut River Plaza switched to natural gas in 2011. One State Street, which houses the Hartford Steam Boiler insurance company, switched to natural gas in 2003. Constitution Plaza switched in the late 1980s when the complex was in bankruptcy.

“We are holding our own in downtown Hartford,” said Jeff Lindberg, marketing and sales manager for Hartford Steam, noting the company still heats 85 percent of downtown. “The overwhelming majority of the customers stay on the steam system.”

The low cost of natural gas heating has made it more economical for businesses to provide their own heat through facilities on their properties, rather than rely on Hartford Steam's central facilities to pipe in steam heat, said David Cadden, professor of entrepreneurship and strategy at Quinnipiac University in Hamden.

The Wadsworth Atheneum has done a feasibility study on the savings of switching away from the steam loop. The Hartford Club is seeking $1 million from its members to buy out a bank loan in order to free up money to make building upgrades, including installing a natural gas furnace.

“Ideally, that is something we can do in the near future,” said Larry Brown, president of The Hartford Club's board of governors. “It is something we are contemplating.”

One Financial Plaza, better known as the Gold Building, also switched to natural gas heating, although the facility already had in-house electric heat facilities before converting to natural gas. The iconic Hartford tower was never on the Hartford Steam loop.

Natural gas's current lower price makes switching extremely attractive, Cadden said. With the commodity cost so low, the payback for buying the necessary equipment and ancillary costs to covert to natural gas is much quicker, he said.

Connecticut is in the midst of its own natural gas conversion, as the three utilities — Yankee Gas, Connecticut Natural Gas, Southern Connecticut Gas — are switching 280,000 commercial and residential customers over the next 10 years. Nearly all of those customers currently use heating oil.

For those downtown Hartford buildings either switching or considering a move, Hartford Steam's Lindberg says they aren't thinking about all the costs involved. More than just paying for the natural gas, building owners must install the new furnaces, maintain them, pay interest on the upfront costs, incur higher insurance costs because of the increased risk of piping natural gas into a building, replace the equipment when needed, and possibly hire more facilities management staff.

“If customers think they can get a better deal installing their own plant, we don't think they can,” Lindberg said.

Hartford Steam uses natural gas to fuel its central plant facilities, so customers already get the savings of the energy source without having to deal with the expense of operating natural gas equipment, Lindberg said.

Jakubowski, though, says the savings are there. He also managed Connecticut River Plaza, before the facility was bought by the state, and directed that complex's switch to natural gas heating.

Connecticut River Plaza paid $3.2 million for the equipment necessary to switch out of the Hartford Steam loop. Its annual costs to heat the building will be $336,000, instead of the $1.3 million the plaza was paying to Hartford Steam.

With those energy savings, the payback on the initial investment will be about three years, Jakubowski said.

That $336,000 in annual costs factor in expenses that Hartford Steam said customers should be concerned about, like maintenance, interest, and insurance, Jakubowski said. Most major downtown office buildings already have their own maintenance staff, so it is just a matter of training them on the new system rather than hiring somebody new.

“You definitely need staff to run a central plant,” Jakubowski said. “It is not a refrigerator that you plug in.”

Although Hartford Steam provided quality service, Jakubowski said the company and its union don't seem as interested in lowering energy costs for downtown customers.

“The efficient equipment we are installing at our facilities is much more efficient than the clunky equipment they use at Hartford Steam Co.,” Jakubowski said.

Despite the current low cost of natural gas, however, customers wanting to make a switch might want to consider the future costs of the commodity, said Cadden.

The price of natural gas rose in 2013, even though production of the fuel increased. That trend will continue as more consumers convert to natural gas, Cadden said.

“You will have a global demand increase, and with increased demand, you will have increased prices,” Cadden said.

Jakubowski said facilities the size of Connecticut River Plaza and State House Square don't have to worry as much about price increases. Since they will use a substantial amount of natural gas, they have the buying power to lock in favorable terms over a long-term contract, making them immune to price increases when demand rises, like what happened during the extreme cold spell earlier this month.