Session 59 Energy Initiatives: Improving Bottom … Initiatives: Improving Bottom Lines and Communities ... Mental Accounting The categorization and ... system facilities and also

Prepared for the Foundation of the American College of Healthcare Executives

Session 59 Energy Initiatives: Improving

Bottom Lines and Communities

Presented by: Walt Vernon Cindy T. Nuesslein, FACHE

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Energy Initiatives: Improving Bottom Lines and Communities

Disclosure of RelevantFinancial RelationshipsThe following faculty of this continuing education activity has no relevant financial relationships with commercial interests to disclose:

Cindy Nuesslein

Walt Vernon

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Faculty

Cindy Nuesslein, RN, MBA, FACHE

Walt Vernon, PE, LEED AP, EDAC, FASHE, MBA

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Learning Objectives

• The learner will be able to describe the steps for creating a culture of energy sustainability and the key components to a comprehensive process.

• The learner will be able to describe at least three energy financing methods including articulating the pros and cons of each.

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Agenda• Participant Poll

• Climate Change Law

• Why Focus on Energy?

• Climate Change – Just the Facts

• Creating a Culture of Sustainability

• Energy Behavior

• Financing Methods

• Energy Procurement

• Emerging Energy Technologies

• Renewables

• Energy Resources

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Climate Change LawClimate

Change Law

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How to avoid missteps and use it to your advantage

CLIMATE CHANGE LAW 10

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Agenda


CLIMATE CHANGE LAW

We need to be VAGUELY aware of international agreements.

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Even with our new administration, be aware of national regulations…

CLIMATE CHANGE LAW

Energy Standards

Utility Law

Emissions Law

Fuel Standards

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Take advantage of regional agreements where they help.


State action is where opportunities lie…


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Cities taking the lead

CLIMATE CHANGE LAW

SOURCE: Shutterstock

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POLL: Procurement Strategy #1

Federal government bans further fracking of gas and oil wells after a major earthquake is blamed on the practice. U.S. crude oil prices run up to over $100/bbl, gas prices run up to over $8/mmbtu, and electric energy prices double to $50-$90/MWh depending on region.


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Why Focus on Energy?

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$8 BILLION

WHY ENERGY? 20

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100,000 Salaried Nurses

WHY ENERGY? 21

SOURCE: “Impact of Climate Change on Human Health”, National Center for Environmental, July 26, 2016

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WHY ENERGY? 23

Conserves fiscal resourcesWHY ENERGY? 24

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WHY ENERGY? 25

Respects natural resourcesWHY ENERGY? 26

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Resiliency

&

Adaptation

WHY ENERGY? 27

WHY ENERGY?

Improve brand image &

reputation

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Increase employee satisfaction and retention

WHY ENERGY? 29

Manage risk and regulatory compliance

WHY ENERGY? 30

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Improve facility operations and pursue performance excellence

WHY ENERGY? 31

Demonstrate corporate social

responsibility

WHY ENERGY? 32

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Climate Change – Just the Facts

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CLIMATE CHANGE

Video Credits: Scientific Visualization Studio/Goddard Space Flight Center

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Land/Ocean Surface Temp.

CLIMATE CHANGE

SOURCE: Figure SPM.1a from Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, Pachauri, R.K. and Meyer, L. (eds.)]. IPCC, Geneva, Switzerland.

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Sea Level Change

CLIMATE CHANGE

SOURCE: Figure SPM.1b from Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, Pachauri, R.K. and Meyer, L. (eds.)]. IPCC, Geneva, Switzerland.

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Greenhouse Gas Concentration

CLIMATE CHANGE

SOURCE: Figure SPM.1c from Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, Pachauri, R.K. and Meyer, L. (eds.)]. IPCC, Geneva, Switzerland.

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CO2 Emissions

CLIMATE CHANGE

SOURCE: Figure SPM.1d from Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, Pachauri, R.K. and Meyer, L. (eds.)]. IPCC, Geneva, Switzerland.

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Key Risks and Potential for Risk Reduction

CLIMATE CHANGE

SOURCE: Figure SPM.8 from Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change

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CLIMATE CHANGE

SOURCE: Figure SPM.4 from Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change

Widespread impacts attributed to climate change based on the available scientific literature since the AR4

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CLIMATE CHANGE

US Regional Effects

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CLIMATE CHANGE

US Regional Effects

NORTHEASTConditions:Heat waves + heavy downpours = sea level rise

Results: Infrastructure, agriculture, fisheries and ecosystems will be increasingly compromised.

Many states and cities are beginning to incorporate climate change into their planning.

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CLIMATE CHANGE

US Regional Effects

NORTHWESTConditions:Changes in timing of streamflow reduced water supplies.

Results: Sea level rise; increased wildfires; insect outbreaks & tree diseases

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CLIMATE CHANGE

US Regional Effects

SOUTHEASTConditions:Extreme heat

Results: Sea level rise; Negative impact to health, energy, agriculture and more.

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CLIMATE CHANGE

US Regional Effects

MIDWESTConditions:Extreme heat, heavy downpours & flooding

Results: Negative impact to infrastructure, health, agriculture, forestry, transportation, air quality.

Great Lakes @ risk.

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CLIMATE CHANGE

US Regional Effects

SOUTHWESTConditions:Increased heat & drought

Results: Insect outbreaks; increased wildfires; reduced agricultural yields.

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President Trump supports coal industry with a $.02/kWh tax subsidy, matching the existing wind-energy subsidy. Coal power is suddenly near the cheapest power on the grid, supplanting the inroads gas has made of the past few years. Gas prices tumble back to below $2.50/mmbtu and electric energy prices drop to $25/MWh - $40MWh depending on the region (Midwest, TX and Southeast at the cheapest; Mid-Atlantic, New England and West Coast stay near the top because they have less coal generation left).

CLIMATE CHANGE 47

Creating a Culture of Sustainability

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‐ Peter Drucker

CREATING A CULTURE OF SUSTAINABILITY 49

Commitment


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Comprehensive Organization Assessment


Written Plan


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Designated CapitalCREATING A CULTURE OF SUSTAINABILITY 53

Creating a Culture of Sustainability

Monitor, Measure, Verify


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Energy Champion


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Encourage Innovation


Celebrate SuccessCREATING A CULTURE OF SUSTAINABILITY 58

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Federal government approves several more LNG export terminals and provides tax subsidies to encourage more exports. No near-term impact to prices, but gas futures for 2020 delivery and beyond move up to $4/mmbtu (from $3 currently) and electric futures move to $40 - $70/MWh (from $30 -$45 currently) depending on region.


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ENERGY BEHAVIOR

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Behavior Change

“the systematic use of principles of learning to increase the frequency of desired behaviors and/or decrease the frequency of problem behaviors.”

ENERGY BEHAVIOR 62

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ENERGY BEHAVIOR 63

Behavior and Energy

Energy Consumption

Time

baseline

With capital energy project

Capital energy project with behavior change

Just behavior?

ENERGY BEHAVIOR

BOTTOMLINE: Energy programs that don’t consider behavior get sub‐optimal results.

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Cognitive Bias

Bias Description Example

Status Quo Bias Established behaviors do not change without a significant incentive

Buyer insists on purchasing usual compact fluorescent lamps when LEDs are available.

Self-serving bias People generally believe they perform better than average

80% of building occupants may believe they consume less than building average.

Anchoring and adjustment

Gravitation towards a predefined reference regardless of its evidence

A energy inefficient building is considered ok because it is performing better than its also poorly performing peer.

Hyperbolic Discounting

Smaller immediate rewards are selected over larger, delayed ones.

An energy inefficient hospital is built because the capital cost is lower.

Mental Accounting The categorization and coding of economic outcomes

A manager allocates budget equally among 3 products and will only authorize spending to the product. Economic energy savings projects are not funded due to this subjective allocation.

Professional Bias Perspective can be limited by adhering to professional conventions.

Engineers routinely specify fans to be 130% of design flow so these fan end up wasting energy.

ENERGY BEHAVIOR 65

Barriers to Adoption

Barrier to Efficiency Example/Explanation

Principal-agent relationships

Funders have incentive for low capital cost, while facility managers incentives include operating costs.

Access to capital A hospital identifies a project with a 2 year payback, but does not have capital to cover initial cost.

Values Some decision makers will support energy-saving retrofits, even when the economics are marginal, because they believe the indirect environment benefits make it worthwhile.

Culture An organizational policy of its not broke, don’t fix it can lead to forgone investments in energy efficient technologies or practices.

Inertia Continuing to do what has always been done even if better options exist.

Power An energy manager may have little organizational authority and no direct budget responsibility.

Split Incentives Landlord has little incentive to invest in efficient technology, if the renter pays the utility bill.

ENERGY BEHAVIOR 66

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Behavior Theory

Attitude

Subjective Norm

Perceived Behavioral

Control

Intention Behavior

Theory of Planned Behavior

ENERGY BEHAVIOR 67

Turning into Practice

4. Implement and

Evaluate

3. Pilot Strategy

2. Develop Strategy

1. Identify Barriers and

Benefits

TOOLS• Gaining a commitment• Prompts• Norms• Persuasion (effective coms)• Incentives• Remove external barriersSee Fostering Sustainable Behavior by Doug

McKenzie‐Mohr

ENERGY BEHAVIOR 68

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Energy Behavior Benefits

Lead to better results on energy capital projects

Significantly energy reductions with little to no capital spend

Co-benefits:– Increased collaboration and positive morale

– Increased multi-discipline cooperation

– Can provide basis for success in non-energy arenas

ENERGY BEHAVIOR 69

ENERGY BEHAVIOR 70

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Financing Methods

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Financing Methods

SOLE PARTNERSHIP

ESCO

PACE ON-BILL

GRANTS/ REBATES

Internally Owned ESCO

Externally Owned ESCO

CARBON OFFSETS

FINANCING METHODS 72

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1. Self-Financing


2. Energy Service Companies


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3. Commercial Property Assessed Clean Energy (PACE)


4. On-bill Finance and On-bill Repayment


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Carbon Off-sets



New Federal energy policy favors micro-grids to improve reliability and resiliency of the electric grid. Hospitals get targeted with grant funding to participate in community micro-grids and install on-site generation (CHP and renewables) as the heart of community micro-grids.


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Energy Procurement

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Where?

Electric USA and Canada = AB, CA*, CT, D.C., DE, IL, MA, ME, MI*, MD, NH, NJ, NV**, NY, OH, ON, OR**, PA, RI, TX, VA**

*CA and MI cap the number of customers that may participate.**OR, NV and VA allow competition for large customers only.

ENERGY PROCUREMENT 80

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Post-Deregulation: Customer Choice

Electric generation isderegulated

Bulk transmission grid is FERC‐regulated andmanaged by ISOs

Local distribution isstate regulated


Energy Purchasing

ENERGY PROCUREMENT

Wholesale energy is traded in a financial market.

• Energy contracts are a financial instrument.

• Understanding how it is traded is key to ensuring the best pricing, product and contract terms to fulfill your energy goals.

• Energy is a bottom-line cost: $1 of energy spend requires $50 of topline revenue.

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Energy Is a Financial Market

Wholesale Energy Market97% of Rate Determined Here

Retail Energy Suppliers3% Added to Rate Here

Aggregation:

Best Practices

Hospital Buyer


Market Management Best Practices: 3 A’s

Analytics, including statistical modeling of energy markets and active financial risk management, to deliver both optimal savings and budget stability.

Aggregation of energy spend to include all health system facilities and also external GPO partners to leverage best‐in‐class pricing and contract terms.

Alignment of facilities under a single strategic vision so that supply and demand management are coordinated and positive results are shared throughout the entire health system.


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Strategy AdvantagesElectricity


AnalyticsThe energy markets are North America’s most volatile financial market. The key to energy savings is financial analytics.

Zenith uses statistical modeling and risk management tools to optimize savings and to stabilize budget risk for institutional energy buyers.

Scenario 1 ‐ Existing Hedges plus Index

Best Case Expected Case Worst Case

$39.94 $43.18 $47.38

($735,748) $9,384,154 $961,667

Non‐winter pricing is near historic low

Winter pricing dropping, but still not a good buy


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AlignmentFacilities should be aligned around a single energy management strategy to:• Implement financial controls; and • Eliminate conflicting facility strategies

Align energy strategy and implementation:• Across all facilities• Manage using a cross-functional team that includes: engineering, facilities management, supply chain, and finance

“While $2.9 million in savings is important, I think the process Hospital/Zenith Energy helped create and implement is even more vital. It led to a cultural change for SSM Health in which facilities and finance aligned around a single corporate strategy”

Michael Malewicz, Treasurer and Chief Investment Officer, SSM Health, St Louis


Results: Managed vs. Unmanaged

$4.25 / Dth

Non‐Clients’ Average 2015 rates Current Client’s 2015 rates

$3.37 / Dth

0

5,000

10,000

15,000

20,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Con

sum

ptio

n

Example Gas Hedge Strategy

Expected Burn

Floating $2.92

Hedge 3 $3.36

Hedge 2 $4.11

Hedge 1 $4.19


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Reducing Market Costs From Two Sides

Demand Reduction Impacts

Purchasing StrategyImpacts


Savings Opportunities Centralize common strategy and procurement methodology

Consolidate spend under suppliers chosen through a rigorous, competitive process

Drive hedge vs index decisions using financial probability modeling

Quarterly review of financial positions by internal multi-disciplinary team (which may include Facilities, Purchasing, and Finance) working with Hospital Energy

Coterminous agreements to aggregate spend among owned facilities

Aggregate spend with other owned facilities and Hospital Energy clients regionally to leverage best price and contract terms

Savings of 10% have been consistently documented by our members.


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President Trump slashes regulations and red-tape on new gas and oil pipelines and expansions and adds tax subsidies for their construction. The industry quickly responds with new pipelines to bring gas and oil from the new shale plays in places like North Dakota and Pennsylvania to bring the fuels to markets. Oil prices slide back toward $40 and gas prices back toward $2.50, with greater local gas price decreases in constrained areas like NY and New England. Electric energy prices have lower reactions and remain in the $30-$40/MWh range, but winter price premiums are reduced in the Northeast.


Emerging Energy Technologies

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Fuel Cells

EMERGING TECHNOLOGIES 93

Energy Information Systems


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Distributed Ventilation


Plug Loads


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EMERGING TECHNOLOGIES

EHR & BAS Linkage

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The Future


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Renewables

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The Reality

RENEWABLES 100

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RENEWABLES 101

RENEWABLES

SOURCE: “Next Generation Wind and Solar Power: From cost to value.” International Energy Agency (IEA)

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RENEWABLES

SOURCE: “IEA raises its five‐year renewable growth forecast as 2015 marks record year.” International Energy Agency (IEA)

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RENEWABLES


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RENEWABLES


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Hydropower

RENEWABLES

Source: U.S. Department of Energy

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Biofuels

RENEWABLES 107

RENEWABLES

Biomass

Source: Shutterstock

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Wind

RENEWABLES 109

Geothermal

RENEWABLES 110

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Solar

RENEWABLES 111

RENEWABLES 112

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RENEWABLES 113

RENEWABLES

Source: U.S. Department of Energy

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Economic expansion picks up with GDP growing at over a 4% rate for several years. Electric and gas demand increase. Gas pricing returns to $4/mmbtu level and power prices to a range of $40 - $75/MWh, depending on region.

RENEWABLES 115

Energy Resources

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RESOURCES 117

What is the Sustainability Roadmap?

• Energy

• Water

• Supply Chain

• Waste

• Chemicals

RESOURCES 118

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What is Energy to Care?

•Complimentary program to help healthcare monitor, reduce, and communicate energy consumption

•Awards and Success Stories (Recognition)

•Energy dashboard and system challenges (Tools)

•Energy data remains confidential !!!

RESOURCES 119

Facility Engineer

RESOURCES 120

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Energy Savings

Since 2009, hospitals and healthcare facilities

participating in ASHE's Energy to Care program have tracked more than $67 million in energy savings.

$1.34 BILLION Financial Impact!

RESOURCES 121

Energy to Care Awards

Energy to Care10% Energy Reduction

National Energy Champion

Regional Energy Champion

State Energy Champion

Challenge Winners

RESOURCES 122

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RESOURCES 123

RESOURCES 124

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RESOURCES 125

• Small energy cost savings create a large positive financial impact

• Energy to Care and Sustainability Roadmap help hospitals continually improve efficiency and sustainability

• Programs are designed to be:Low cost Easy to implement and maintain

• Patients and staff expect hospitals to be efficient and deliver cost effective patient care

Summary

RESOURCES 126

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Energy to Care Icon Video

RESOURCES 127


Severe winter weather followed by severely hot summer. Another severely cold winter like that of 2014 and 2015 deplete gas storage inventories to record low levels heading into the summer. This raises gas prices to the $5/dth range. Further, an extremely hot summer requires record amounts of gas burn for power despite the high prices. The high gas burn for power gen prevents gas storage inventories to replenish in time for the next winter. We begin winter at a record low level of storage. Gas further increases into the $7 range. Power prices move into the $65-$100/MWh range, depending on the region.

RESOURCES 128

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Cindy Nuesslein, R.N., MBA, FACHE Mazzetti Principal

With over 35 years of healthcare experience, Cindy Nuesslein has serve in a wide variety of roles from humble beginnings as a nursing assistant to the CEO of a complex academic medical center with a Level 1 Trauma Center serving two schools of medicine. While in these various roles she has acquired significant experience and expertise in performance improvement including accreditations and certifications, facilities management, master planning through programming and design to construction management, emergency management, market research and healthcare program development, and clinical and non-clinical departmental operations.

• Company: Mazzetti

• [email protected]

• 504.495.3747

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Walt Vernon, PE, LEED AP, EDAC, FASHE, MBA Mazzetti CEO

Walt has been working with—partnering, consulting, advising---healthcare clients for more than 30 years. Walt serves on and is the former chair for the NFPA99 Electrical Systems Technical Committee. He is the former Electrical Engineer for the California Hospital Building Safety Board. He also served as one of the three co-coordinators for the Green Guide for Healthcare, the nation's first Green Healthcare rating system. Walt co-authored the IEEE/ANSI White Book, the international standard for Electrical Systems in Healthcare Facilities. He co-chairs the ASHRAE 189.3 committee, which is currently writing a model national green building code for healthcare facilities. Walt chairs the Research and Development Committee for the Facilities Guideline Institute (FGI), the body that writes the Guidelines for Healthcare Construction, which is the model licensing code for most states in the US. He represents the US to the International Federation of Healthcare Engineering.

• Company: Mazzetti

• [email protected]

• 415.364.7222

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Bibliography/References1. “The Global Environment; Institutions, Law, and Policy,” Regina S. Axelrod, Stacy D. Vendeveer, and David Leonard

Downie, ed. 2011

2. Hospital Energy

3. “Climate Change and the Law,” Chris Wold, David Hunter, Melissa Powers, 2009.

4. “The Law of Adaptation to Climate Change, U.S. and International Aspects,” Michael B. Gerrard, Katrina Fischer Kuh, ed. 2012.

5. “Global Climate Change and U.S. Law,” Michael B. Gerrard, Ed., 2008.

6. “Climate Change Synthesis Report Summary for Policymakers”, ed. 2014

7. “Energy Efficiency Financing for Hospitals” ACEEE, Healthcare Without Harm, Practice Greenhealth, March 2016

8. “Environmental Sustainability in Hospitals: The Value of Efficiency”, American Hospital Association, ASHE, HRET, May 2014

9. “Guide to Energy Management”, 8th Edition by Capehart, Turner & Kennedy.

10. Ajzen, I. (1991). The theory of planned behavior. Organizational Behavior and Human Decision Processes, 50, 179-211.

11. “Lazard’s Levelized Cost of Energy Analysis” – Version 8.0, September 2014

12. U.S. Energy Information Administration, Monthly Energy Review, April 2016

13. http://www.iea.org/publications/freepublications/publication/Next_Generation_Windand_Solar_PowerFrom_Cost_to_ValueFull_Report.pdf

14. http://www.eia.gov/energyexplained/?page=renewable_home

15. Next-Generation Wind and Solar Power: From Cost to Value © OECD/IEA 2016

16. IEA: Renewables – Medium-Term Market Forecast 2016

17. California Energy Commission, http://www.energy.ca.gov/

18. NASA & NOAA - https://www.nasa.gov/press-release/nasa-noaa-analyses-reveal-record-shattering-global-warm-temperatures-in-2015Scientific Visualization Studio/Goddard Space Flight Center

19. U.S. Department of Energy - https://energy.gov/oe/services/technology-development/smart-grid/role-microgrids-helping-advance-nation-s-energy-system

20. U.S. Department of Energy - https://energy.gov/eere/water/how-hydropower-works

21. ”U.S. Building Benchmarking and Transparency Policies” Decembmer 2016, Institute for Market Transformation

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Session 59 Energy Initiatives: Improving Bottom … Initiatives: Improving Bottom Lines and Communities ... Mental Accounting The categorization and ... system facilities and also