The M Files

PA Secretary of Education Ron Tomalis speaking at the Tamaqua Area School District.

In my last post I shared the remarkable energy results we achieved through a unique geothermal HVAC application. This week I’ll share some perspectives on how similar results can be expected by employing performance-based contracts.

But first, some reinforcement of the energy results from the school is in order.

Measurement and verification reports at the 40-year-old Tamaqua High School confirmed that trimming energy use by more than 50% resulted in a $250,000 reduction in 2010 utility costs. Capital costs for the upgrade were partially reimbursed through a $149,354 PPL electric utility rebate. The school district secured very low-cost financing for installing the efficiency measures, which was only made possible by their lender through a Guaranteed Energy Savings contract.

In the words of school superintendent Carol Makuta, “This project gives us money that otherwise would have been spent in energy costs to use for educational programs.” The success of the program prompted a visit from PA Secretary of Education Ron Tomalis. In a prepared speech he stated, “We talk a lot about what we as public officials and as government officials feel about the tax burden. We are always looking to get that extra drop from that dollar. We will be using this initiative as an example to other school districts.”

I contend that clear, tangible financial and environmental benefits of this program were achieved because we employed a performance-based, rather than a traditional, multiple price,and prescriptive-basedcontract. The contractor (McClure Company) and owner (Tamaqua Area School District) agreed to very distinct, measurable, outcome-based objectives. Our marching orders were clear.

How did this performance-based contract differ from a traditional, low-bid prescriptive contract? In three ways:

1. Penalty for non-performance. Since predicted energy savings were guaranteed by contract, we (as the performance contractor) will have to pay the difference between the guaranteed and actual savings if real-life performance falls short of expectations. We would owe that differential in each year of our multiple-year contract. Twentyyears in this case.
2. Fixed price tied to performance. The fixed price of the contract is tied directly to energy performance, with annual lease payments from capital upgrades being offset by budgeted energy savings. Since those savings have to be guaranteed and later verified, there’s inherent downward price pressure on the proposed upgrades.*
3. Nobody to blame except ourselves.As engineer, constructor, and commissioning agent ,there was no convenient way of escaping design, construction, or performance issues. We couldn’t blame cost or operational issues on someone else. We had no latitude for issuing change orders or assessing blame for construction delays.

From a technical perspective, this project was the first of its kind. The equipment manufacturer had never attempted our energy saving operational strategy. Getting the system running properly took a lot of patience, requiring months of tweaking and countless hours communicating with the factory. It was the contractually obligated performance goal that kept us engaged. Now, after cutting our teeth and carrying those initial lessons forward, we’ve adjusted our approach and have successfully implemented the concept in four additional facilities. Performance-based contracting has revealed our biggest asset-engineering innovation with an endgame of guaranteed energy savings.

Would we have had comparable financial and environmental results if we would have divided the engineering from multiple construction contracts, and enlisted the help of a third party commissioning agent? What do you think?

*The turn-key price for the complete geothermal HVAC retrofit amounted to $28.11 per square foot.

Over the past decade, the East Lycoming School District instituted a series of energy efficiency, energy conservation, and renewable energy measures. Of these, the initial energy efficiency project has proven to be the most cost effective.

The school district realized significant annual energy cost savings while providing environmental benefits. East Lycoming was also awarded an EPA Energy Star Award in 2009 for the Ashkar Elementary School, improving their energy star label from 30 to 83 out of 100 possible points. The subsequent renewable energy projects geothermal, biomass, and solar did not have as large an impact on the site EUI (Energy Use Intensity). The renewable projects were all partially funded by grants, while the energy efficiency project created a great return on investment without additional funding.

The following chart illustrates how each of these projects impacted their district-wide Energy Use Intensity (EUI). EUI is a benchmarking number that describes a building’s energy consumed relative to its floor area. So the lower the EUI, the better the building’s energy performance.

Please click on the infograph to enlarge the image.

?é?á

Last week I had the pleasure of presenting energy performance case histories at the Green Building Association Central Pennsylvania chapter annual technical seminar.

The keynote speaker was Marcus Sheffer of Energy Opportunities. Marcus is well known in U.S. Green Building Council circles as the chair of the USGBC’s Energy & Atmosphere Technical Advisory Group.

His presentation was striking in its lack of the usual LEED marketing spin. He didn’t dance around the problems faced by the USGBC in getting their LEED-certified buildings to exhibit exceptional energy performance.

In his words:”The intent of LEED is too often circumvented”  Meaning, it tends to turn into a chase for prescriptive based points at the expense of its goals of superior design and performance.

Marcus went on to paint a vision of the future, which includes a transition of the LEED-certification system from a prescriptive based to a performance based standard.

His words were music to an energy-performance-metric lover’s ears.

The issue of LEED and performance has been a topic of debate for several years to those at the center of the green building industry. Studies have been conducted and interpreted in every conceivable way.

Some deny that performance problems actually exist. Others cynically blame the design community. I’ve heard some in the design community blame building owners for not understanding what LEED certification actually means with the argument, “LEED certifies buildings, not consumer expectations.”

In my view, that’s a shame and a mistake. Consumers are our clients, and they’re paying good money for their green buildings. Energy high performance should be an expectation, not a bonus.

My personal experience has been for every good LEED energy performance outcome, there’s an equal and opposite bad outcome.

Two recent bad apples are illustrated below. Both of these facilities were designed and constructed under the green, high performance premise of LEED. Both look great on paper; no expenses were spared in ensuring full LEED scorecards. Both could conceivably be taken right out of the pages of GreenSource magazine.

The first example is exhibiting worse energy performance than an average building of its type as data-based in the 2003 Commercial Building Energy Consumption Survey (CBECS 2003) by the EIA. In other words, this brand-new green facility is performing worse than an average facility of similar occupancy built sometime prior to 2003.

The second chart illustrates a second building’s first four months of actual energy performance compared to what was expected during the design phase. It’s not even close. If it continues to trend in this fashion, it will also have first-year energy performance worse than the CBECS 2003 average.

Before we try to fix our broken green building standards, we first need to come to an industry-wide consensus that problems like these not only exist, but pervade the green building industry. As someone who’s been at the center of the building energy conversation for 20 years, that’s certainly been my personal experience.

What’s your reaction to the issue? Do you agree that we have a perception-versus-performance gap? If so, what should we do about it? I’d love to hear what you have to say.

On January 1, 2011, electricity rate caps were eliminated for all Pennsylvania residents and businesses, completing the transition into free market power supply. When Pennsylvania’s elected officials took the first steps toward electricity deregulation over a decade ago, we were told, “When businesses compete, consumers win.?” While there’s plenty of evidence that this shift in public policy has resulted in the desirable outcomes of more efficient power generation and downward pressure on commodity pricing, power supplier marketing blitzes have created plenty of shopping anxiety among homeowners.

Joe Bird, McClure Company’s Service Manager, put together an excellent summary of the current residential electricity shopping climate for an intra-company informational session. His unbiased, cut-through-the-marketing-spin data is tailor-made M-Files content.

First and foremost, if you’re a Pennsylvania resident shopping for electricity, you should start at http://papowerswitch.com. This site was established by the Pennsylvania Public Utility Commission (PUC) for the express purpose of making the shopping process simple. So if you want unbiased truth, step number one is to ignore the telemarketing calls, put energy-supplier mailings through the shredder, and log on to this site. Once on the site, click”How to Choose”and follow the screen prompts (You’ll want to have an idea of average monthly electricity use from your current bill). Yes, it’s really that simple.

The Price to Compare (PTC) is the key indicator to measure potential savings. The price to compare is the cost-per- kilowatt hour (kWh) your electric utility will charge you for energy and transmission if you choose not to shop with a competitive supplier. The higher the PTC you pay to your utility, the better chance you have to save money; that is unless you live in UGI territory. UGI has the second highest PTC of any major PA utility, but no other suppliers are willing to negotiate this market.

Joe presented this interesting summary of current PTCs and the number of suppliers in each territory:

Joe noted that Penelec and Met-Ed are both owned by First Energy Corporation and Allegheny Power will complete a merger with First Energy later this year. You can see that the number of competitive suppliers in each utility’s territory varies from zero (UGI) to 23 suppliers for PECO. It?ó?é¼?äós not surprising that those who live in less competitive territories are wondering whether they’re benefiting from the open market.

If you live in PPL territory and like to take calculated risks, you might want to try their new Time of Use (TOU) option.First offered last month, you get a 6-month rate that looks like this:

ON-PEAK Hours = 5 PM – 7PM Weekdays

On-peak Price = 7.54 cents/kWH (-20% from PTC)

Off-peak Price = 6.11 cents/kWh (-34% from PTC)

Pricing good through 5/31/11

New pricing for next 6 months available 5/1/11 (How high will it be?!)

So electricity purchased off-peak (76% of all hours) is discounted by 34% compared to the utility’s regular rate. Two big caveats:

1.?é?á?é?á?é?á?é?á?é?á?é?á You must buy your power from PPL Electric Utilities (i.e. no shopping)

2.?é?á?é?á?é?á?é?á?é?á?é?á You won?ó?é¼?äót know the summer/fall rates until May 1.

Joe Bird is taking part in PPL?ó?é¼?äós TOU option and plans to give an update after new pricing is announced. Other electric utility companies and energy suppliers are likely to offer Time of Use rates in the future as well.

What has been your experience with electricity shopping in Pennsylvania?

I received many requests for a follow-up to my last post on The Green Performance Gap. Everyone asked the same basic question: “What were the differences between the two schools that caused such a surprising energy performance gap?”  It’s taken me a bit longer to respond than anticipated because I’ve written the follow-up post several different ways.

My first response consisted of a simple list of reasons. But as I thought more deeply about it, there was one primary difference that created the conditions to allow a few secondary reasons.

The primary difference between the two projects was the delivery method. That is, differences in how the projects were delivered from concept through commissioning.

• The high performer followed an integrated design /build delivery model under a performance-based contract.* Since cost, schedule, and energy performance were guaranteed by contract, everyone on the team (including the owner) was motivated to achieve an explicitly stated performance goal. Engineers and contractors wanted to be paid. School administrators wanted a success story for their board and tax payers. All stakeholders stayed engaged in the project until the targeted performance was measured and verified. It was a shared, collaborative effort.
• The low performer followed a traditional design-bid-build project delivery method. Their goal was to obtain LEED certification. They achieved that goal. Once the facility was constructed and the certificate obtained, the fragmented stake holders disengaged from the process. For them, LEED certification implied high performance; actual operation was left solely at the discretion of the owner.

The important project delivery distinctions between the two resulted in the following key performance gaps:

1. HVAC Concept & Design: The HVAC system in the LEED-certified facility isn’t well suited to the building’s architectural and occupancy characteristics. According to our testing and analysis, the HVAC system is gobbling up more than half of the building’s total energy use. The concept sounded good on paper but did not translate well into practicality.

In contrast the highly performing facility benefitted from extensive pre-project energy monitoring, enabling a tailored solution to the specific challenges at hand. The difference in HVAC approaches is worthy of a 5,000-word ASHRAE Journal article so I better cut it off here.

2. Thermal Envelope Integrity: Through our testing and analysis we found paths of air infiltration into the newly built facility. Though the LEED-certified buildings contain large amounts of insulation which exceed modern building code requirements, breaks in the thermal barrier are creating conditions for poor performance. The breaks were actually designed into the facility as a sort of ridge vent system, so fixing them won?ó?é¼?äót be cheap or easy.

3. Owner Training and Energy Vigilance: With the stick of a performance goal, the owner of the highly performing facility is deeply engaged in the daily operation of his facility. In addition, the facility manager feels a keen sense of ownership of the bill of goods delivered under his project. While both facility managers respond to their occupants?ó?é¼?äó desire for comfort, one of them is doing a superior job of optimizing the comfort/energy balance.

A final note in regard to contractual versus implied energy performance: When no single entity is held accountable for performance, don’t expect to achieve superior results. We have only had repeatedly reliable results with contracting methods that provide a single source of responsibility to the owner; and then, only with owners who approach their projects in a collaborative spirit.

The three essential ingredients are competence, contractually stated performance targets, and a spirit of collaboration.

*Specifically, an Energy Based Performance Contract under legal terms of the Pennsylvania Guaranteed Energy Savings Act (GESA).

A comparison of pre- and post-project electricity use on the highly performing building. By targeting expected performance, actual results can be measured against pre-project predictions. In doing so deviations from expectations can be analyzed and adjustments made (if necessary).