Energy Performance Contracts Address Deferred Maintenance
Faced with tight budgets, the utilities manager at an Illinois public university found these contracts would help further his goal to increase systems efficiency.
By Anne Vazquez
When Gary Reed became utilities manager at Eastern Illinois University (EIU) in 1989, he quickly realized the utility systems were not as efficient as they could be. With limited funds, Reed needed a way to upgrade, and, in 1994, found an opportunity through energy performance contracts. Under these agreements, an energy services company engineers and implements improvements at no up-front cost and guarantees that the minimum level of savings from the upgrades will pay for the project, including debt service, within the life of the agreement. Reed recently completed implementation of the second performance contract at EIU.
What is your position at EIU? How long have you been in facilities management?
I am the director of facilities planning and management.
I’ve been in facilities management for about 18 years. I’ve been at EIU for 16 years, and prior to that held a management position at a power plant, which included facilities responsibilities.
Can you give a brief description of the facilities you oversee at EIU?
EIU is a four-year Illinois public higher education institution in Charleston, IL, a city with a population of about 20,000. With an enrollment of about 10,700, our campus covers 340 acres within the Charleston city limits and includes about 90 buildings containing 3.2 million gross square feet of space.
When and how did you become interested in environmental issues?
Coming out of the power industry, I realized that taking advantage of energy conservation opportunities could make a noticeable impact to EIU operations. There were many opportunities. Environmentally, it is important to understand that relatively small energy savings at the end use mean a surprisingly large reduction in pollutants at the power plant level.
Why was the initial decision made to pursue an energy performance contract?
When I started in 1989, opportunities for energy conservation at EIU were apparent. But there were funding challenges back then. If an initiative didn’t show a drop dead payback, it would not be considered for funding.
There was a need to find alternative ways to finance energy upgrades. I found that the concept of energy performance contracting might fill that need.
I give a lot of credit to the staff under [former] Governor Jim Edgar. Back in the early 90s, the Governor’s Pilot Initiative Program for Energy Conservation was launched. The aim of the initiative was to ask a select group of state facilities to participate in an initial performance contracting program to demonstrate the viability of the concept for other institutions.
My contacts at the state level recognized my interest in energy conservation on behalf of EIU. So, in 1994 the staff charged with managing the program for the governor called to ask if I would be interested in having EIU participate as the first Illinois higher education representative in the program.
I worked with the energy group of what was then the Illinois Department of Commerce and Community Affairs (DCCA). The engineers there offered a lot of assistance in the areas of both request for qualifications (RFQs) and request for proposals (RFPs) document development. They worked tirelessly with me throughout the various stages of the process.
What was the reaction of the administration to the idea of entering an energy performance contract?
There was some initial reluctance, but once I explained the program and emphasized the state support available under the governor’s purview, they became more comfortable with the concept. I think at first the thought was, “Where’s the smoke and mirrors? You can’t get something for nothing.”
Also, because of increasing pressures on the budget, the vice president of business affairs—who was also the CFO—realized this could give us an opportunity not available before.
For this first energy performance contract, EIU chose Energy Masters as its ESCO. What was the decision making process like?
It was a very formal, disciplined approach. We created a committee to screen submittals from potential ESCOs. There were representatives from our purchasing procurement department, academic areas, housing and dining departments, the facilities group, and the student body. We also had our project manager from the Capital Development Board—a state government agency with oversight responsibility for state facility capital projects—on the team.
We sent out RFQs to ESCOs. Each qualified ESCO was then given a scheduled time to visit the campus, during which they toured the buildings, studied drawings, and collected operating data histories to be used in developing a proposal.
After the committee reviewed the RFPs, a short list of ESCOs was developed. Selection was based upon what the committee felt was the most doable project with the best savings potential and overall best fit for EIU. Next, the short listed companies were asked to present their proposals to the committee.
The committee considered the technical aspects and judged the nature of each proposal, as well as expected and guaranteed savings. Ratings were assigned to a number of common criteria through numerical scoring methods. Scores were forwarded to DCCA who tabulated and summarized results.
Energy Masters came out on top of the scoring. Among many other factors, the committee was looking for a non-vendor affiliated entity. We were also looking for a non-utility affiliated entity. We wanted an ESCO based in engineering principles that would approach the technical aspects of real units of energy savings. Energy Masters [which is no longer in existence] was very much based in engineering principles.
What elements of the campus were addressed in the energy performance contract?
We took a rather restricted approach. While we incorporated some low hanging fruit, which drove project savings, we did not allow the vendor to do the entire 3.2 million square feet. It would be easy for the vendor to go for the easy stuff. The project needed to stand on its own on a building by building basis.
We formulated a simple payback model listing all the potential energy conservation measures (ECMs) grouped within buildings covering about half of the campus square footage. We selected a desirable combination of ECMs that, when combined, presented a payback within the 10-year contractual constraint. We took a conservative approach to this new concept.
We aimed to have the low cost items leverage the more costly, longer payback items in order to address some deferred maintenance. That’s part of the advantage of performance contracts. We could replace and upgrade items in the scope of this project that we then wouldn’t have to budget in the future.
We did about 1.7 million square feet. Energy Masters guaranteed an 80% performance level—that is the contractually guaranteed energy savings were 80% of expected savings. This provided a theoretical 20% cushion for possible variations in campus space usage and performance of the ECMs over the 10 years.
The project all-in cost was about $3.4 million for improvements. Main components were lighting upgrades, building automation enhancements, variable speed drives, and conversion of air handling systems from constant to variable volume.
Expected annual savings was about $650,000 with a guarantee level of $533,000. Through measurement and verification efforts in subsequent years, we have confirmed savings exceeding the guarantee.
What prompted EIU to pursue a second performance contract?
We were about five years into the performance contract with Energy Masters before we initiated ESCO Phase II. We had savings exceeding the guarantee in Phase I, and our utilities budget remained in the black at the end of consecutive fiscal years.
We knew we hadn’t addressed energy opportunities in about half of the campus square footage. Also, we hadn’t done anything with water.
In addition, since Phase I began, the technology related to ECMs had matured. We were confident we could be more aggressive in terms of modeling savings—and even identify opportunities that may have been left on the table during the first project.
