Green Solutions: Energy Performance Contracts & Deferred Maintenance

By Anne Cosgrove
Published in the November 2005 issue of Today’s Facility Manager

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.

Did you do anything different in the selection process for Phase II?

We conducted a similar routine to the one used for Phase I, but we basically managed it all in-house. This was possible, because we had all the parameters and templates created during Phase I.

A major difference was that, based on the general success of the pilot initiative, the General Assembly passed legislation that made performance contracting part of procurement law for our state universities.

Energy Masters was vying for this second contract. They had done a great job in Phase I, but Honeywell had a more aggressive proposal and was selected by the committee.

What were some components of this second performance contract?

Of particular interest was water conservation. Charleston’s water rates are relatively high. At the time we were paying almost $6 per thousand gallons. And regular increases were scheduled in the future.

When Honeywell came on board, we mentioned the potential for savings on water. So this was a core ECM in the proposal. The performance contract called for changing out all the toilets, installing faucet aerators, and replacing all washing machines with water- and energy-efficient models. Honeywell also replaced the showerheads with even lower flow models than those we had previously installed.

Another major area of Phase II was to go further with lighting. We installed about 18,000 energy efficient lighting upgrades, including T8s with electronic ballasts and compact fluorescent lamps. We also retrofit exit signs with LEDs.

A significant scope of the project was replacement of several 30-year-old single-effect steam absorption chillers. Honeywell replaced these inefficient units with five electric centrifugal chillers. It also installed a major section of chilled water loop in the south part of the campus allowing chilled water to be distributed between several buildings for optimal use of available capacity. The loop addition allowed us to retire three steam absorbers after installing one large electric driven centrifugal unit. This loop does a tremendous job of distributing cooling capacity.

The base Phase II guaranteed performance project all-in cost was about $10.8 million with guaranteed annual savings of nearly $1.2 million over 10 years. The base scope of improvements was installed over a two-year period from 2001 to 2003.

In 2003, EIU entered into another performance contract with Honeywell. What initiatives are contained?

This latest contract work is just an enhancement of Phase II. We had discussed some of the elements when planning Phase II but did not fully develop the concepts.

We replaced an additional steam absorption unit with an electric centrifugal. This not only saves energy, but will allow us to defer the replacement of a chiller in a neighboring building. We also completed additional lighting upgrades.

At the same time we began Phase II, EIU had upgraded the campus data network. This gave us the opportunity to consider automatic control of our entire chiller capacity that was now linked via the chilled water loops. Until then, we were manually controlling the distributed chiller plants based solely upon loop temperature and human judgement.

Another ECM considered was optimized make up air control as a function of the carbon dioxide level of the exhaust air from the building to minimize the ventilation air requirements. Previously, a fixed minimum position was held on the outside air damper. This introduced an excessive amount of untreated air that we didn’t need for ventilation.

The total all-in cost of these Phase II enhancements to the base 10-year contract is an additional $2.6 million with annual guaranteed savings of $295,142. We completed the last enhancement in June 2005.

What advice would you give to facility managers considering energy performance contracts?

Number one, an organization needs a champion for this effort who can interface with the administration. You also need a receptive and supportive administration.

Gather a team. Access good technical support, and be very mindful when developing the RFQs. Take time to select the right vendor. Make sure to detail your expectations. Make allowances within the project scope for a construction manager paid from project savings and selected by you.

Be mindful of measurement and verification. Get technical help on how to demonstrate the installed performance level of the ECMs. Some ECMs require modeling of performance, because there may not be a way to measure before and after energy differences directly. This requires a close watch and rerunning of the model periodically.

Further, the facility needs to do its part on the maintenance side to sustain the ECMs, since performance can be lost very quickly without proper care. I suggest that those involved ensure the maintenance staff has the resources to handle sustaining the ECMs.

Facility managers have to know the limitations of their staff. One of the things we did was embed in the contract an annual training allowance for the maintenance staff. This is provided from the ECM savings through the life of the contract.

What has been the reaction to these projects inside the campus?

I think the success is highly appreciated. I believe in these tough economic times in Illinois, accomplishing $16.8 million in improvements by leveraging resources that would otherwise be flowing to utility providers is noteworthy.

The students appreciate this too. One of the things I did with the training allowance was to hire a student to look for small pockets of opportunity to save energy dollars. The students are aware of what they’re going to be inheriting, and I believe they’re happy to see we’re diligent stewards of resources at Eastern.

How has the community responded?

In general, I think Charleston feels part of the success. When the university saves dollars, ratepayers and taxpayers benefit in the long run. With the recent devastation along the Gulf Coast and the instability of world energy markets, I’m happy to say we’re in pretty good shape.

Questions about this project can be sent to Gary Reed at