City of Cleveland

Office of the Council  

Brian J. Cummins
Councilman, Ward 14
Committees: • Public Service – Vice Chair • Aviation & Transportation • Community & Economic
Development • Public Safety • Public Utilitie Sub-Committee: • Sustainability • Community Relations Board

July 11th, 2010

UPDATE re: Ordinance 829-10 LED Lighting

GE CEO speaks out against City’s Ordinance

Michael B. Petras Jr., President and CEO of GE Lighting was featured in today’s Plain Dealer;
LED Ordinance No. 829-10: same proposal, different packaging.

He called on Cleveland City Council to amend the ordinances and expressed concerns such as
the ordinance’s lack of technical specifications; a requirement of bundling four separate products
into the bid requirements; the length of the contract (10-years) for a technology that is rapidly
changing; requirements to include linear tube (fluorescent) light replacements which are seen as
not viable alternatives yet by the Department of Energy.

Petras also stated that the ordinance is written, “to steer a long-term contract to the
administration’s favored supplier”, alluding to the previous ordinance, number 496-10 that
would of provided a Chinese LED maker Sunpu – Opto, a contract with virtually the same
conditions as the current ordinance with exceptions it would not have had to compete for the
contract.

Industry experts and municipal officials offer insight

Other industry professionals and municipal government officials have also recently expressed
concerns and opinions about the proposed ordinance. The following are excerpts from recent
communications:

Paraphrasing from a conversation with an LED lighting expert affiliated with the
Department of Energy’s Solid State Lighting Program –

City Hall • Room 216 • 601 Lakeside Avenue • Cleveland, OH 44114 1  

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“a company may be able to provide 50 to 100 jobs as related to sales, distribution and assembly
of LED products, but 350 jobs [for which the ordinance specifically calls for by the 5th
year]…these are phantom jobs”.

Multiple persons familiar with LED technology, manufactures and the general industry concur
that the top of the supply/value chain is the most likely area where jobs can be created with the
least cost and risk exposure for a company, but with also the lowest wage jobs being created.

Insert value chain here…

A City official from a municipality that was one of the first adopters of LED lighting had
the following comments regarding our Administration’s plans and strategies –

“…Municipalities are excellent laboratories for this because of the wide diversity of lighting we
maintain and because we have a long-term vested interest in both energy and maintenance
savings since we generally own an asset for its entire lifetime once installed in one of our
facilities. When we started the partnership in late 2006, high brightness LED's had been
available less than a year…

…We often have vendors coming to us with claims regarding their products that we will
benchmark against what the technologists at Cree [LED City program] know about that product,
and they will often bench-test its performance before we make any commitments. In return we
are always trying new solid state lighting applications. We keep good data on our installations
and try to document our results, then discuss these results among our peers and at conferences.

…the landscape of products available in this market space is totally dynamic right now. There
are probably 4-8 times as many high-quality low-bay fixtures available now as this time last
year. Interior LED retrofit lighting, which was barely on the radar screen two years ago, now
shows up in Home Depot. Those manufacturers who introduced high quality fixtures in 2008
have already gone through a second generation of design and now are working on a third…
Also now many more companies, particularly the large lighting manufacturers like Kim Lighting,
GE, etc. are now jumping into the design business with both feet. That being said, making a
commitment to one company for 10 years seems highly risky. Unless that company happens to
be on the forefront of innovation in this field you might be left with inferior products for a long
period of time as the rest of the industry leaps ahead of you.

…LED is probably not a great space to do this [leverage purchasing power for jobs with a single
supplier] in because so many players are producing such innovative products, the products are
changing and evolving very fast and the standards world is struggling to keep up, and they are
not all the big boys like Philips, GE or Sylvania. Also companies tend to specialize in certain
LED applications (you may have some companies focusing on industrial lighting - high bay and
low-bay fixtures and wall-packs, while others specialize in interior decorative lighting) so it is
going to be very difficult (read: impossible) to find one company who can effectively supply the
highest quality LED products interior and exterior, big and small, industrial and decorative.

Right now I am VERY wary of Chinese fixture imports, particularly from companies that do not
have a big presence in the US. I'd rather somebody else try them out first. Our facilities people

City Hall • Room 216 • 601 Lakeside Avenue • Cleveland, OH 44114 2  

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have become rather expert in this technology now, and they know quality when they see it. If
they have questions they will ask the techies out at Cree.

As far as the job creation requirement, I am no politician, but though this will likely be good
politics, I think it is likely to result in either inferior products going into your municipal
applications or the company begging off on the deal somewhere down the road. This industry is
very likely to go the way of the rest of the semiconductor industry, with R&D happening in the
high-tech R&D centers in this country, fixture design in Europe or elsewhere in the US,
manufacturing of components in Asia, and reassembly either in Asia or the US depending on the
product. To hamstring a company into developing an assembly line in Cleveland when their
competitors are taking advantage of the global supply chain network will put them at a
disadvantage… I will simply say that we have benefited from buying things in small quantities
from a variety of manufacturers. As the landscape continues to rapidly change we will continue
to use this strategy to get the best, most innovative products installed for our needs.

We are looking at some wholesale streetlight changes but our strategy will probably involve a
multi-year rollout and may not involve the same fixture from beginning to end. If you have GE
headquarters in your market it is probably a lot better to leverage them to bring their R&D
operation to Cleveland for LED products as a way of being a good corporate citizen, since this
end of the business is not likely to be outsourced, and I would not think that trying to leverage
this with a sole source contract for all your LED fixture needs would be a wise way to try to
achieve this, since GE is not the industry leader in all these sectors (yet!?!)…

The DOE on the performance testing of LED linear tube

(fluorescent) replacement lighting
“DOE’s CALiPER program has tested 12 different LED T8 replacement lamps to date, and finds
that their performance falls short of fluorescent benchmarks…

Average initial bare lamp light output of the LED T8 replacements tested was about one-third
the average for fluorescent T8s. On initial two-lamp system efficacy, two-lamp fixture output,
luminaire efficacy, and CRI, the LED T8 replacement performance was significantly below that
of the fluorescent T8s. Average fixture efficiency was higher with LED T8s because LEDs are
directional, so less light is lost inside the fixture. This was not enough to compensate for the
much lower light output…

To provide equivalent light output to fluorescent T8s and also save energy, LED T8s will need to
become two to three times more efficacious than they are today.”

See the DOE’s June 11th, 2010 warning regarding these products.

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Technical Standards for LED lighting
DOE sited current general LED industry and specific Energy Star technical standards –

Energy Star criteria for LED traffic light signals:

http://www.energystar.gov/ia/partners/product_specs/eligibility/traffic_elig.pdf

Energy Star criteria for incandescent light bulb LED replacements:

http://www.energystar.gov/ia/partners/manuf_res/downloads/IntegralLampsFINAL.pdf
Lighting Facts label from DOE: http://www.lightingfacts.com/

Fluorescent T8 linear tube LED replacement lighting:

http://apps1.eere.energy.gov/buildings/publications/pdfs/ssl/t8_replacement-lamps.pdf

Outdoor LED street lights:

http://www.designlights.org/solidstate.manufacturer.requirements.php
www.drintl.com/temp/ENERGYSTAR_SSLCriteria_V1_1.pdf

City Hall • Room 216 • 601 Lakeside Avenue • Cleveland, OH 44114 4  

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Economic development strategies and procurement practices that
can limit competition and risk poor quality of product
The economic development and jobs creation strategy the Administration is utilizing seeks to
leverage the City’s buying power, as pertains to lighting needs, in order to create jobs - 350
within 5-years. JOBS NOTE: there is only a limited 20% (70 jobs) requirement for residents of
Cleveland of the total 350 jobs to be provided.

The strategies and conditions of the ordinance, although they are claimed as being beneficial to
the City, could have an impact at limiting competition and result in higher risks to the City in
terms of ensuring for the 10-year term, the quality of each individual product and their efficiency
and costs saving value.

Some of the procurement strategies being proposed to achieve this and alternatives are:

1. extraordinarily long-term contract (up to 10 years); [alternative: break the terms down
to one 3-year contract with two 3-year renewals.]
2. award to a single source supplier; [alternative: award contracts to lowest and best bid
per product and seek jobs creation from each.]
3. bundling or tying together products to be bid on and awarded for purchase;
[alternative: allow companies to bid on one or multiple products.]
4. inclusion of a product sited by the US DOE as not viable for full commercialization;
[alternative: eliminate the T-12, T8, fluorescent LED linear tube replacement lights until
such time their technology is more developed and proven in the maketplace.]
5. oversimplified and restrictive job creation requirements – 350 within 5-years;
[alternative: by allowing multiple vendors to compete for single or multiple products, and
requesting job creation proposals for each, the competitive nature of the contract would
be greater and the jobs creation component more likely to succeed.]
6. lack of specific technical standards requirements: [alternative: clearly stated minimum
technical standards and requirements and requirement of US DOE Energy Star rating for
products when available (Energy Star certification standards are established for two of
the four products; incandescent bulb and street light LED replacements).]

Questioning assumptions of jobs creation requirement and goals

Most industry experts agree that the claims and assumptions of being able to create 350 new jobs
in the way this ordinance is framed are doubtful. The 350 jobs are not required until the end of
year 5. This is assumed to take into account that the first requirements of setting up an assembly
facility (by the 18th-month) will likely generate between 50 and 100 low wage jobs. The next
phase, of initiating manufacturing is required to take place by month 36 (end of 3rd year).
Ultimately, by the end of the 5th year the 350 jobs are required to be created and with them, a
research and development (R&D) operations established. But, there are no total payroll
requirements, nor any requirements to delineate the specific types of jobs or their estimated
wages. And, while 350 jobs are required, only 70, or 20% need to go to actual Cleveland
residents.

City Hall • Room 216 • 601 Lakeside Avenue • Cleveland, OH 44114 5  

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Many critics of the plan state that the assembly, and affiliated sales and distribution and
administrative jobs are could likely be created. But, most agree that the actual manufacturing,
engineering and R&D jobs would be difficult to create due to the industry’s norm of using
cheaper labor off-shore in Asia and Mexico.

The plan does not allow for jobs to be created outside of Cleveland proper, i.e., within the region.
Nor, does it permit other potential related jobs that are created be counted, i.e., GE ostensibly
could hire positions related to other technology they are or would be involved in and the
company, Green Mill Global, based in Akron, who has been developing a relationship with
South Korean LED maker Fawoo, through Fawoo North Tech America, could establish the jobs
within the region as well as establish additional jobs for their affiliated wall-systems
manufacturing.

See the image below that describes the general value and supply chain for LED products. Note
that per industry experts the materials, components and finished product process (manufacturing)
involve the highest level of expertise and highest costs associated with the product. Whereas, the
end-line assembly, warehousing, sales and distribution are the lowest valued, costs and wages
associated with the operations.

City Hall • Room 216 • 601 Lakeside Avenue • Cleveland, OH 44114 6  

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City of Cleveland Administrative Code requirements
The following citations are provided to draw attention to the various requirements by the City
Administrative Code to ensure a fair and competitive process as pertaining to procurement and
performance bonds.

181.20 Specifications for Purchases

Specifications for the purchase of supplies, materials or equipment shall be prepared by the
Commissioner of Purchases and Supplies… In conformity with the requirements of Charter
Section 102 he shall see that such specifications do not unduly restrict competition and are so
prepared as to secure the supplies, materials or equipment required for the operation of the
department requesting the same at the best available price. (Ord. No. 1119-61. Passed 6-12-61, eff. 6-14-61)

181.32 Bonds to Secure Performance of Purchase Contracts

Except for a purchase contract awarded in the amount of fifty thousand dollars ($50,000) or less,
or where by reason of the nature of the purchase the Commissioner of Purchases and Supplies,
with the approval of the Director of Finance, has determined that it is impracticable or
unnecessary to require a bond, or for contracts anticipated to be under $500,000…based on
standards promulgated by the directors to protect the City's interests, has determined that to
reduce or waive a bond requirement will enhance contract competition by making City contract
awards equitably available to all qualified contractors and will benefit the City's interests, the
performance of contracts for the purchase of articles, commodities, supplies, materials or
equipment, or services shall be secured by a bond with good and sufficient sureties, approved by
the Director of Law, and in an amount equal to at least twenty-five percent (25%) of the
contract price. Said bond shall be substantially in the following form:… (Ord. No. 793-03. Passed 6-10-03,
eff. 7-20-03)

181.04 Standard Specifications

The Commissioner of Purchases and Supplies shall prepare or cause to be prepared and shall
adopt and may alter, change and amend standard specifications for each class, grade or
description of the various articles, commodities, supplies, equipment and materials
ordinarily required by the City, in every case where it is practicable to do so. Standard
specifications shall be such as will procure for the City articles, commodities, supplies, materials
and equipment of the best quality and character and design of the goods required for the purposes
to be served, and shall be so drawn as to facilitate the making of bids therefrom, and as to
encourage bidding from as many persons, corporations and concerns as may be prepared
to furnish the articles, commodities, supplies, materials or equipment, as the same may be
needed by the City. (Ord. No. 1119-61. Passed 6-12-61, eff. 6-14-61)

185.14 Performance Bond

Except for contracts awarded under the Small Business Rotation Program established under
Section 187.032, or for contracts anticipated to be under $500,000… based on standards
promulgated by the directors to protect the City's interests, has determined that to reduce or
waive a bond requirement will enhance contract competition by making City contract awards
equitably available to all qualified contractors and will benefit the City's interests, the
contractor shall be required to furnish a bond with good and sufficient sureties approved
by the Director of Law, in an amount equal to at least fifty percent of the contract price,
which bond shall be substantially in the following form:…(Ord. No. 793-03. Passed 6-10-03, eff. 7-20-03)
City Hall • Room 216 • 601 Lakeside Avenue • Cleveland, OH 44114 7  
• (216) 664-4238 • Fax (216) 664- 3837 • bcummins@clevelandcitycouncil.org