IN THE BOARDROOM™ with...

Mr. Mike Taylor
Vice President of Americas Marketing
Honeywell Building Solutions
www.honeywell.com/buildingsolutions
NYSE:HON

SecuritySolutionsWatch.com: It’s a pleasure to speak with you again, Mike, this time about Honeywell’s water solutions. One will read on Honeywell.com that, “As a basic life-sustaining element, water has become increasingly precious. In fact, water supply, treatment, distribution and use are at all-time highs with no signs of letting up. For these reasons and more, Honeywell assists organizations responsible for water management with effective conservation strategies that can be implemented quickly.” Please give us an overview of Honeywell’s water solutions and capabilities.

Mike Taylor: Honeywell works with a number of organizations, such as utilities and water municipalities, to manage water conservation programs on their behalf. We have more than 20 years experience in this area, primarily in regions where water availability is a major concern, such as Southern California. Our programs help consumers and businesses reduce water consumption by more than 10 billion gallons per year.

For instance, we teamed with the California Public Utilities Commission and the California Urban Water Conservation Council to replace spray valves on dishwashing units in restaurants throughout southern part of the state to save hot water and conserve water overall. We also collaborated with the Los Angeles Department of Water and Power to implement a successful low-flow toilet installation program.

But while organizations in California and other Sun Belt states have traditionally had the most need for these types of programs, they aren’t the only ones to express interest in water conservation. We worked with the New York City Department of Environmental Protection, for example, to develop a campaign that included mailing low-flow shower heads to residents and offering leak inspections to ensure plumbing systems were in working order.

These programs are all good examples of public/private efforts that help ensure water availability and improve the environment.

SecuritySolutionsWatch.com: We understand that Honeywell provides solutions to utilities, municipal customers, public housing authorities and also the residential market. Please give us an overview of your target markets and how do you reach them?

Mike Taylor: Based on our expertise and strong industry relationships, we focus most of our efforts on working with utilities and water municipalities to implement conservation programs on their behalf. We have strong marketing and direct field sales outreach programs to promote these programs and motivate customers to participate.

We also help public entities like housing authorities, school districts, etc. upgrade their water efficiency by installing new toilets, fixtures and the like. These improvements are usually part of a larger effort to reduce utility costs and improve facility infrastructure.

SecuritySolutionsWatch.com: The green movement seems to be gaining momentum. Is water conservation a part of that? What is your perspective of the market drivers for water solutions at this time?

Mike Taylor: Definitely, water conservation is a part of the green movement. But, as most people can attest, water conservation has been eclipsed in part by the intense focus on energy efficiency and conservation in this country. We’ve consistently engaged with numerous organizations in California to implement water conservation programs, but in other parts of the country, the need has been more sporadic. A drought may hit somewhere in the Midwest, and there’s a movement locally to take a closer look at how the community is using its water resources. Once the drought stops, interest tends to fade.

This phenomenon gets at the key market driver for water conservation, which is availability. Water is a finite resource, and it’s much harder to move around than electricity, which can be transported from Los Angeles to New York City with a few switches on the grid. It may be very expensive to transport electricity in this way, but it’s ultimately there when you need it. This may not be the case with water.

SecuritySolutionsWatch.com: One will also read on Honeywell.com that, “A Honeywell energy savings performance contract can help your agency reduce energy and operating expenses, and leverage those savings to pay for needed building improvements — without any increased costs to taxpayers.” It seems like a real win-win situation because rising and unpredictable costs can make it very challenging to budget, plan and pay for needed improvements. Please give us an overview of Honeywell’s energy savings performance contracting business. How does it work?

Mike Taylor: You hit on an important point, which is the volatility of the energy market. We don’t know at what rate energy prices will continue to rise. And with that kind of uncertainty, it makes it difficult for organizations to plan for the future, especially when budgets are tight today.

Energy savings performance contracts (ESPCs) are a financing tool that organizations have used for years to address deferred maintenance issues, upgrade facilities and reduce energy costs.

An ESPC is really pretty simple. Honeywell works with the customer to conduct an audit, identifying facility improvements that help reduce energy consumption and costs. This could include replacing boilers and chillers, tightening the building envelope to reduce the loss of hot or cool air, or installing renewable energy technologies like solar panels or biomass boilers. Water-efficiency upgrades are often part of the mix as well.

Based on the conservation measures identified, Honeywell is able to guarantee a specific level of savings over time, usually between 10 to 20 years. Those guaranteed savings fund the improvements so the work does not impact operating budgets.

Since the early 90s, Honeywell performance contracts have delivered more than $3 billion in energy and operational cost savings to educational, municipal and federal facilities, and ESPCs continue to be an attractive way for our customers to address their infrastructure needs.

SecuritySolutionsWatch.com: Congratulations on the recent “win” with Quincy, Massachusetts. What is the solution Honeywell provided here?

Mike Taylor: The City of Quincy energy conservation project is an excellent example of an ESPC that is allowing the municipality to reduce energy costs, improve its buildings and cut greenhouse gas emissions.

The 20-year contract, which is the first of its kind for a Massachusetts city since the state passed legislation that allows municipalities to enter into long-term energy saving projects, includes upgrades to 40 of the community’s buildings and public schools. In addition to traditional upgrades such as heating and air conditioning improvements, we also will install a solar panel at an elementary school that will use renewable energy to heat the school’s pool. We also will help the city increase its annual revenue by $1.25 million with an improved water metering system.

Quincy will save $1 million per year as a result of the energy-efficient improvements, reducing the city’s electricity use by an estimated 25 percent and natural gas and heating oil use by 27 percent. The decrease in energy consumption is expected to curb more than 5.2 million pounds of annual carbon dioxide emissions, which is equivalent to removing more than 500 cars from the road.

SecuritySolutionsWatch.com: Are there other success stories you’d like to talk about?

Mike Taylor: You may have recently heard that Honeywell was selected by the U.S. Department of Energy (DOE) to help it meet stringent federal requirements for reducing energy consumption and greenhouse gas emissions. This is a very exciting engagement for us, as the initiative is expected to make the DOE the first agency to meet all environmental, energy and transportation goals set forth in President Bush’s Executive Order 13423.

By using ESPCs, Honeywell will help various DOE sites hit the targets in the executive order, which requires agencies to reduce energy intensity by 3 percent per year, or 30 percent by the end of fiscal year 2015. It also calls for a 16 percent reduction in water consumption, through the use of state-of-the-art sustainable building components and advanced meters that can monitor electric, thermal and water consumption. We look forward to working with the DOE to achieve these environmental goals.

SecuritySolutionsWatch.com: Honeywell water solutions are part of a broader set of solutions to make buildings safer and more secure. I know we are focusing here primarily on water solutions but please give us an overview of Honeywell’s Safety & Security solutions?

Mike Taylor: Part of Honeywell’s brand promise is to build a world that’s “safer and more secure,” and we’re always looking for new ways to ensure that our customers’ people, facilities and assets are adequately protected.

Honeywell has a full portfolio of safety and security offerings, including access control, digital video, security management, smoke and fire detection, and emergency notification. We also offer integrated building management platforms that allow facility managers to view and control all building functions — including security and life safety — from a single workstation. This helps boost efficiency and reduce operating costs.

In addition, we often leverage technologies that are developed elsewhere in Honeywell and incorporate them into our security solutions. For instance, video analysis software developed by Honeywell Labs, advanced sensors from the Sensing and Control business and GPS systems from Honeywell Aerospace have all been used to meet our customers’ security requirements.

SecuritySolutionsWatch.com: With regard to Homeland Security, our utility infrastructure is known to be vulnerable. What are Honeywell’s solutions for water treatment facilities?

Mike Taylor: You’re right. The U.S. Department of Homeland Security has identified “drinking water and water treatment systems” as one of the 17 critical infrastructure and key resource sectors that require protective action to guard against a terrorist attack or other incident.

Generally, issues of concern at these utilities include lack of adequate guard facilities at the front and rear entrances, porous perimeters with inconsistent barrier protection, regular trespassing from public recreation and nearby residential neighborhoods, and lack of remote monitoring for critical sites, such as pump stations and barge areas.

Honeywell helps customers across the globe address these concerns. Careful security planning, rigorous risk assessment, detailed countermeasure design, robust program management, sophisticated technologies, skilled manpower with security application expertise, and diligent lifecycle management are all part of what we offer in this area.