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Thursday, July 03, 2008

FLASHBACK: Energy Operational Review Report

Over the next few weeks, we'll be reposting the reports from the Operational Review Teams, led by Delegate Chris Saxman, and former Chief of Staff, Bill Leighty. (In case you missed it, you can read more about the goals and formation of these Operational Reviews here.)

These reviews across state government provide us an important roadmap for how we can increase efficiency in many areas of state government. It is imperitive that we begin implementing these recommendations to realize the full cost savings.

(For the Energy Operational Review Team's Interim update, click here.)

Energy Operational Review

The Energy Operational Review is complete. The report identifies overall costs and cost drivers, past and current state government practices related to energy management, best practices that can be applied to the Commonwealth’s operations, measures current performance against best practices, and offers recommendations on how to implement best practices and how to harness Virginia’s size as an energy consumers to reduce costs. Costs Virginia state agencies and institutions spent approximately $243 million in 2006 on energy to operate their facilities. This has increased from approximately $162 million in 2002. This is an average 12% per year growth. Commonwealth agencies and institutions also spent nearly $74 million in 2006 to repair and maintain energy-using electrical and mechanical equipment. This increased from approximately $66 million in 2002, or by approximately 3% per year.

Increased costs are driven by increases in state building square footage, increased natural gas prices and repair and maintenance costs associated with state government’s aging energy infrastructure.

The Operational Review Team offered the following recommendations to increase efficiency, performance, and cost savings.

Recommendations
  • A central organization to provide state government with energy management services. This group would be named the Virginia Energy Management Program (VEMP). It would reside in the Department of Mines, Minerals, and Energy. This central group would provide support, outreach, and training to agency facility staff including agency energy managers, facility operators, maintenance and operations personnel, procurement, and administrators. This group would also provide specialized technical expertise to agencies to improve their knowledge of operation and maintenance procedures, energy conservation fundamentals, new technologies, and other skills to improve building performance. Potential savings: $20 million.
  • Aggregated procurement of natural gas. The Commonwealth should aggregate its natural gas needs and have centrally employed purchasing specialists purchase natural gas for all agencies. Specialists would develop and implement a procurement plan to meet agency budget requirements, lower risk, ensure adequate supply, and obtain the lowest price available. Potential savings: $8 to 10 million.
  • Establish a Commissioning/Recommissioning Pilot for State-Owned Buildings. The Commonwealth should implement a building commissioning/re-commissioning pilot for state facilities, with program expansion based on confirmed savings in pilot state facilities. Potential savings: $2 million over 10 years
  • Automate Utility Billing. The Commonwealth should develop an Electronic Data Interchange system to track and manage energy consumption among Commonwealth facilities. EDI would allow the Commonwealth to begin measuring energy costs and consumption and identify performance-based energy opportunities while reducing the time needed to manually enter billing data. As the database becomes populated, it would allow the Commonwealth to use the data to evaluate, analyze, and measure building performance using the ENERGY STAR Portfolio Manager tool. Potential benefit: eliminate the need for manual entry of over 10,000 paper utility bills into the state accounting system each month, eliminate entry errors, and reduce utility late payment charges.
  • Self-fund Energy Efficiency Projects with a State Revolving Fund. The Commonwealth should create a $20 million energy savings project revolving fund to finance energy projects. This fund would be administered by VEMP. Agencies would use operating budgets to pay back into the fund over an agreed-upon period from the accrued energy savings. To increase the size of the fund for future projects, a fee of 1% would be added to the amount to be repaid by the agency. An agency borrowing $2,000,000 for 5 years would repay $2,020,000 over the term of the agreement. Potential benefit: This funding mechanism would allow the Commonwealth to “borrow from itself” because agencies would use existing funds. Based on the savings generated through avoided costs, money would be generated and distributed back into the fund for future projects.
  • Establish a State Facility Demand Response Program. The Commonwealth should develop a database of emergency electric generation equipment and capacity and a communication system to coordinate agency and university participation in the PJM Demand Response Program. Upon a demand peak or emergency, each agency would decide to participate in the program. The PJM demand reduction program payments would be returned to the agencies to offset other utility costs. Potential benefit: state agencies would be better prepared to meet an energy shortage.
  • Encouragement of Telework and Use of Mass Transportation. Increase the number of employees who use telework and mass transportation opportunities. This would reduce employee commute times and remove some single passenger vehicles from the road. Potential benefit: reduces energy use, environmental impact, and traffic congestion.
  • Agency Participation in the Virginia Environmental Excellence Program. State agencies and institutions should be encouraged to participate in the Virginia Environmental Excellence Program to further demonstrate a commitment to enhanced performance in building operations. Potential benefit: Dollar benefits would vary from agency to agency.

These recommendations, coupled with best practices already implemented, including energy savings performance contracting, an Executive Order in 2003 directing state facilities to reduce energy use by 10 percent, and leveraging the buying power of the Commonwealth to negotiate cheaper electric and natural gas contracts will result in millions more in savings in the coming years. Performance contracting alone has the potential to result in over 110 million in energy savings in the coming years. Additionally, some agencies as well as many of Virginia’s colleges and universities have personnel trained to improve operation and maintenance procedures, energy conservation fundamentals, new technologies, and other skills to improve building performance. Twenty five agencies already have a dedicated staff member focusing on energy management.

Thank you to everyone who worked to make this report possible. Participants included:

External Subject Matter Experts:

James Stanway, Wal-Mart
Gina Rye, Food Lion
Irene Kowalczyk, Mead Westvaco
Laura Helmke, U.S. Environmental Protection Agency
Cyrus Nasseri, U.S. Department of Energy (FEMP Division)

Internal Subject Matter Experts:
Joe Damico, Department of General Services
Tom Young and Walid Daniel, Department of Corrections
Karen Jackson, Office of Telework Promotion and Broadband Assistance
Linwood Spindle and Paul Higgins, Department of General Services
Norma Roberts, Department of Accounts
Andrew Diefenthaler and Amy Garner, Department of General Services
Sara Wilson, Department of Human Resources Management
Cheryl Gomez, University of Virginia
Steve Matsko, Bureau of Capital Outlay Management
Corey Hill and Charles Badger, Department of Rail and Public Transportation
Shirley McNutt, Department of General Services, Division of Engineering and Buildings

Department of Mines Minerals and Energy Staff:
Thomas Thompson, Energy Manager
John Broughton, Energy Program Manager
Eileen Deane, Energy Program Manager
Charlie Barksdale, Utilities and Performance Contracting Manager

Committee Members:
The Honorable Emmett Hanger, Senate of Virginia
The Honorable Harvey Morgan, Virginia House of Delegates
Tim Bass, Deputy Secretary of Technology
Stephen Walz, Senior Advisor for Energy Policy
Philip Benton, Department of Rehabilitation Services, Director of Financial Services
Kim Briele, Virginia Tech, Senior Electrical Engineer
Bruce Brooks, Department of General Services, Director of Facilities Management
Allen Mitchell, Department of General Services, Energy Manger
Elizabeth Robison, Department of General Services, Property Disposition Specialist

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