Original Date: 11/17/1997
Revision Date: 01/18/2007
Best Practice : Performance Contract
Funded through the Department of Energy’s Institutional Conservation program, Elizabethtown College conducted energy audits of all campus facilities. The audits identified potential improvements that could save the College up to $300,000 annually in energy costs. However, capital investment to implement the projects was estimated at $1.3 million. Since the Department of Plant Operations successfully demonstrated credibility and cost reductions through several small-scale energy projects, Elizabethtown College was confident that the additional $300,000 in savings was attainable if sufficient resources could be allocated to the effort. As a result, Elizabethtown College negotiated an energy-saving Performance Contract which enabled the College to complete $1.8 million in energy efficiency improvements and maintenance projects, and receive a guaranteed energy cost savings of $181,000 per year.
After six months of negotiations, Elizabethtown College narrowed down its contractor choices to two companies. Plant Operations held several meetings with each company, and questioned them on how they would meet the needs of the campus. A weighted scoring system aided the College in determining the final choice of contractor. However, the final proposal for the Performance Contract required an additional six months of discussion between the two parties. Several criteria were negotiated into the contract which was unusual for standard performance contract arrangements.
The Performance Contract is not a shared savings agreement. Instead, savings are guaranteed at a level substantiated by Elizabethtown College’s energy audit reports. Financing for the project is provided through a bond issue with a 5% interest rate, and all savings are applied toward the debt. The College controls the selection of subcontractors; determines the energy management system (EMS) installed under the contract; and defines the comfort levels of all buildings managed by the system. Plant Operations can add control points and adjust set points within EMS, and informs the contractor of any actions. Ongoing consulting services and incorporated fees were also negotiated to ensure that technical support from the contractor provided a meaningful impact on the effectiveness of operations.
The simple payback period for all energy cost saving measures performed under the Performance Contract was 5.8 years. However, Elizabethtown College elected to increase the payback period and the term of the contract to ten years. This strategy enabled the College to incorporate several deferred maintenance items and install energy efficiency measures which had payback periods that exceeded 5.8 years.
Cash flows projected for the term of the Performance Contract have separate components, and are the responsibility of the contractor and Plant Operations respectively. The contractor must meet the savings guarantee of $181,000 per year. Any shortfalls in the amount must be covered by the contractor. Plant Operations must produce the savings in operational costs annual savings are projected at $41,000 in repair costs; $35,000 in labor costs; and $30,000 in natural gas costs. The overall savings totals $287,000 per year. Each year, positive cash flows are also projected for the College. The accumulated cash flows over the ten-year term of the contract will be $236,767.
Numerous projects have been completed under the Performance Contract. Plant Operations retrofitted 9,000 lighting fixtures each tagged with color-coded dots that correspond to tags on replacement lamps. This project improved lighting quality, simplified maintenance, and reduced service costs. A state-of-the-art EMS was installed to replace a ten-year old, outdated pneumatic control system. The new computerized system provides comprehensive energy management and control strategies, and the flexibility to expand with the needs of the College. Plant Operations also improved the mechanical systems in five buildings by installing a pool dehumidification system; replacing three 25- year old boilers and an outdated chiller; and changing out the fan coil units with heat pumps. These improvements reduced energy, service, and maintenance costs as well as increased the comfort and safety levels of the campus facilities.
Specific energy reduction retrofits were also completed. These projects included replacing the electric hot water heaters with energy efficient gas water heaters in two buildings; upgrading the rooftop heating, ventilating, and air conditioning units in the dining hall; using liquid line amplifications to increase the efficiency of large reciprocating refrigeration units; replacing six unit ventilators with two rooftop-mounted units that use gas heating and electric cooling; and installing variable frequency drives to control the speed of supply air fans. Plant Operations increased the comfort levels of the campus facilities; new electrical systems were added to all buildings, providing real-time power monitoring.
The Performance Contract enables Elizabethtown College to complete energy efficiency improvements and maintenance projects while reducing Plant Operations’ budget. Figure 2-1 shows a comparison of the budget before and after establishing the contract. Energy, maintenance, and labor cost savings now sufficiently cover the capital investment of improvements. Elizabethtown College achieves positive cash flows and improves overall operations and comfort of the campus.
Figure 2-1. Operating Budgets Before and After Performance Contract
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