Avoiding the Energy Crunch

July 1, 2001
Equipment upgrades that cut energy costs can pay for themselves sooner than you think.

Think “energy crisis” and you immediately think California, or maybe New York. But schools and universities in other states also need to set their energy priorities.

How will the expanding energy problems affect budgets? For those who make carefully considered energy upgrades, it may not be as bad as anticipated. Financing mechanisms such as energy-saving performance contracts (ESPCs) can help school and university administrators update aging and inefficient capital equipment without resorting to bond issues or tax increases. Instead, the long-term energy savings can cover the cost of substantial capital asset improvements.


The energy crisis is not confined to California. It is spilling over into other states on the western grid. Similar, though less drastic, symptoms of failing energy policies are appearing in many other states.

Beginning in 1992, when the federal government deregulated the wholesale electricity market, many local utilities sold their generation plants, but typically arranged low-cost wholesale supply contracts of three to 10 years that helped keep retail prices low. Low wholesale prices and strict environmental regulations provided little incentive to build new plants, or for new generators to enter the market. Without new competition, market prices rose as long-term contracts ran out.

In addition, generators could sell electricity anywhere in the nation and sought the highest prices. This further tightened supplies in low-rate states such as California. The price of fossil fuels required to run generating facilities also aggravated the problem.

The way different states carried out deregulation also was a factor. In California, unbalanced wholesale and retail regulations exacerbated problems, while in states such as Pennsylvania, deregulation seemed to work well initially.

Problems with electricity transmission added to the generation woes. Utilities have had little incentive to upgrade transmission lines. This has led to bottlenecks that prevent efficient delivery of power. The bottlenecks also affect regulated states through which transmission lines run. As electricity is sent across a fully loaded grid to a state required to import significant supplies, other states on the grid — deregulated or not — experience a diminished capacity and higher prices.


School officials responsible for conservation often have picked projects with the shortest paybacks. The aging infrastructure that required major capital investments were untouched. Now as an energy crisis looms, “making do” with inefficient equipment is not wise.

School administrators must focus on creating high-performance buildings. Reducing utility bills with quick-payback projects may help in the short term, but it makes better sense to leverage the initial savings over a longer period to pay for more comprehensive retrofits.

New high-efficiency heating or cooling systems, premium-efficiency motors, better insulation and other retrofits will improve building performance and provide significant additional savings — savings that will pay even greater dividends as energy costs increase. Creating high-performance buildings in the North Syracuse Central School District (see sidebar, page 24), was accomplished with no initial capital investment.

Even in facilities where lighting and equipment have already been retrofitted, new technologies may provide more savings. Electronic ballasts with T-8 lamps and compact fluorescents, LED exit-sign lighting, daylight-harvesting controls and premium-efficiency motors can save energy and provide higher-quality lighting and comfort.

In addition to conservation projects, administrators should have energy service experts review their energy buying. In deregulated states, schools can negotiate competitive supply contracts and ensure reliability of that supply. Energy service experts also can help evaluate utility-sponsored demand-side management (DSM) programs and other federal or state incentives.

Schools should consider on-site generation to improve energy-supply reliability. At sites with an extensive load requirement for thermal energy and power, or with critical 24-hour operations, cogeneration may be a good option. At the University of Massachusetts Medical School (see sidebar, above), the dual-fuel cogeneration system provides improved supply reliability and power quality.


Schools should leverage their operating budgets with performance contracting. Many states have legislation enabling schools to pay over time for investments in energy infrastructure. By leveraging their operating budgets in this way, schools avoid higher taxes or other financing and approval mechanisms that would be required for an increased capital budget.

Facilities managers should review their school's energy use and supply arrangements. Include a summary of annual utility bill totals for each building as well as the age, condition and type of major energy-using systems.

Review the data with an energy service company (ESCO). Then, the ESCO should perform a detailed investment-grade audit and analysis to determine which projects will generate the 20 to 30 percent energy-cost savings required to pay for the facility improvements.

The ESCO also should evaluate how the energy is being generated. Specifically, combined heat and power systems may be appropriate solutions for institutions that have adequate thermal needs and require higher energy reliability, as in the case of the University of Massachusetts Medical School.

It may help to establish a task force. Members can interview teachers and administrators using the buildings to help identify areas to save energy and improve comfort. Those using a building will be most helpful in identifying issues such as lighting quality and indoor air quality.

Select an ESCO that will operate in the school's best interests. Use a long-term master contract with an ESCO that does not have a vested interest in a particular type of equipment or a particular energy supplier. Look for an ESCO experienced with a wide range of technologies and with other education facilities. Reputable ESCOs will calculate anticipated savings and select the projects that will provide appropriate long-term returns. Companies confident of their calculations will offer a guaranteed-savings program. In some cases, schools may choose to apply some of the savings to non-energy-related retrofit projects.

Certain arrangements and procedures used by less reputable or less experienced companies have left some schools disillusioned with ESPCs. ESPCs that are not properly structured carry risks, such as projecting savings that don't cover the cost of equipment, choosing equipment that is not the most suitable, and setting arbitrary comfort parameters that save energy, but result in occupant discomfort and complaints. Contractually guaranteed savings and detailed specifications, such as lighting levels, minimum and maximum temperatures, humidity levels and air exchange rates, will go a long way toward eliminating these pitfalls.

As prices rise, those who act quickly will avoid dramatic increases in energy costs. Conservation also can help cushion the impact of the crisis. Moreover, schools that address their energy situation may be able to carry out long-planned retrofit projects.

Rowland is senior vice president for NORESCO, an energy services company in Westborough, Mass., accredited by the National Association of Energy Service Companies. NORESCO worked on the University of Massachusetts and North Syracuse Central School District projects.

Performance contract helps university pay for cogeneration

At a time of increasing energy demand and volatile prices, the University of Massachusetts Medical Center has been expanding its campus and services. Working with the Massachusetts Division of Capital Asset Management (DCAM), the medical center decided to increase energy efficiency, reduce costs and increase power reliability for its medical school and hospital.

Under the state's performance contracting program, the school hired an energy service company to conduct an energy audit. The review identified about a dozen energy-conservation and infrastructure-improvement projects that would create about $1.33 million a year in guaranteed energy-cost reductions. The 10-year savings will cover the $6.6 million cost of the projects and contribute several million dollars more to an infrastructure reliability project.

The medical center's topping-cycle cogeneration power plant was upgraded to a more energy-efficient, full cogeneration facility. The retrofitted and upgraded system is 43 percent more fuel-efficient than the old steam-turbine plant and will supply about 75 percent of the campus's electrical usage. The energy-efficiency and infrastructure projects will cost $30 million and are expected to save $36 million in utility and operating costs over the next 10 years.

Energy savings help finance $9.4 million in retrofits

Energy savings of more than $400,000 a year are helping pay for $9.4 million in facility improvements in the North Syracuse Central School District in New York. Using state building aid and the annual energy-cost savings, the district financed the retrofits without an initial capital investment and at no additional cost to taxpayers.

The district's energy service company created financing options that produced a positive cash flow and no upfront payments. The work provided extensive energy retrofits for the Cicero-North Syracuse High School, 10 other schools and three district offices.

After a comprehensive energy audit at the 275,000-square-foot high school, the district carried out several conservation measures, which included renovating window, door and curtainwalls with insulated panels and thermal glass. The building converted from electric to gas heat and replaced its electric hot-water heaters with gas-fired models. The school installed variable-frequency drives, improved the energy-management system, and upgraded the heating, ventilating and air-conditioning system.

Improvements at other schools included programmable thermostats, and new energy-efficient lighting, boilers, motors, windows and doors.

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