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SEMP Template and Workplan - Draft 7-20-05

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SEMP Template and Workplan - Draft 7-20-05

    STRATEGIC ENERGY MANAGEMENT PLAN

    TEMPLATE

Note to Template User: The following content can be used directly in an organization’s Strategic

    Energy Management Plan.

    STRATEGIC ENERGY MANAGEMENT PLAN (SEMP)

    FOR [20XX] TO [20XX]

TABLE OF CONTENTS

    ? Introduction

    ? Energy Management Vision

    ? Guiding Principles for Energy Management

    ? Business Case for Strategic Energy Management

     1? Business Proposition

     2? Energy Management Goals and Objectives

     3? Goal: Obtain Organizational Approval of SEMP and Commitment of Resources

    ? Goal: Implement Financial Practices and Decision Making Processes; Establish 4Funding Resources 5? Goal: Implement Strategic Energy Management Practices

    ? Purchasing/Procurement Procedures and Specifications

    ? Enhanced Design & Construction Practices

    ? Enhanced Facility Operating Practices

    ? Cost-Effective Facility Upgrades

    ? Active Commodity Management 6? Goal: Monitoring, Track, & Improve Performance

    ? Timeline and Responsibilities for Plan Adoption and Implementation

     1 The business “case” lays out the broad business arguments for pursuing strategic energy management.

    The business “proposition” presents the financial results of analysis of the energy efficiency opportunities

    and their associated costs and Internal Rate of Return. 2 The sample goals and objectives in this template start with Step 4 of the SEMP process described in the

    website. This assumes that the first three steps have been completed (Step 1: Gain Initial Organizational

    Support for Strategic Approach; Step 2: Assess Current Energy-Related Business Practices and

    Benchmark Facility; Step 3: Develop Strategic Energy Management Plan). 3 Step 4 of SEMP process. 4 Step 5 of SEMP process. 5 Step 6 of SEMP process. 6 Step 7 of SEMP process.

Strategic Energy Management Practices Template Page 1 of 11

Introduction

    The purpose of Hospital X’s energy management plan and policies is to promote good stewardship of our environment and community resources. In keeping with our core

    values of Efficiency and Financial Responsibility, Hospital X’s energy management

    program will reduce operating costs and enable us to provide compassionate service to

    a greater number of persons in the community.

? Utility and energy related costs are a significant part of overall operating costs

    ? Utility costs in 20XX were $X annually. 2? The Hospital’s Energy Use Index (EUI) was XXX,XXX BTU/FT

    ? Facility related O&M costs are $X annually

    ? Facility capital project costs are projected at $X over 5 years

? With energy management an integral part of business decisions, Hospital X can expect the

    following:

    ? XX% reduction in energy use

    ? $XXX,XXX annually to the bottom line ($X.X million over X years)

    ? Energy investments will get a XX% internal rate of return (IRR)

? Recent activity associated with managing these costs include the following…[COMPLETE]

? To further strengthen and obtain full value from energy management activities, a strategic

    approach will be taken: the organization will fully integrate energy management into its

    business decision-making, policies, and operating procedures.

? Active management of energy related costs and risks in this manner will provide a significant

    economic return to the organization and will support other key organizational objectives.

Strategic Energy Management Practices Template Page 2 of 11

Energy Management Vision

Note to Template User: The following are examples that can be changed as appropriate for the

    user’s organization.

VISION EXAMPLE: “We consider our facilities a primary source of giving care, an

    integral part of the healing environment, and key to this equation is the ability to use our

    facilities efficiently and effectively.” Energy Management Vision, St. Charles Medical Center (Bend, OR)

VISION EXAMPLE: “Kaiser Permanente’s mission is to improve the health of the

    communities we serve. In recognition of the critical linkages between

    environmental health and public health, it is Kaiser Permanente’s desire to limit adverse impacts upon the environment resulting from the siting, design,

    construction and operation of our health care facilities. We will address the life

    cycle impacts of facilities through design and construction standards, selection of

    materials and equipment, and maintenance practices.”

    Strategic Energy Management Practices Template Page 3 of 11

    Guiding Principles for Strategic Energy Management

Hospital/System’s energy management will be guided by these principles:

Taking A Strategic Approach: While [Hospital/System] actively manages energy costs by

    implementing opportunities as they are identified, by acting strategically, Hospital X can

    significantly improve its energy-related performance. Internalizing energy management into our

    organization’s every-day decision-making, policies, and operating procedures will help assure

    substantial and long-lasting reductions in energy use throughout Hospital X.

Supporting Mission-Critical Goals: Strategic energy management will directly support

    Hospital X’s mission-critical goals of caring for the environment and the community; optimizing

    the healing and working environment; improving the hospital’s financial bottom line by reducing

    unnecessary energy costs; optimizing the capacity of existing energy systems to meet current

    and expanding operational needs. The impacts of Hospital X’s energy management efforts on those goals will be tracked and reported wherever possible.

    Pursuing Long-Term Change to Core Business Practices: The core of a strategic approach is the consistent incorporation of energy management into our organization’s core practices and

    decision making such as the strategic planning and budgeting processes. Change in energy-

    related business practice will cover all applications of energy management new construction and major renovations, existing facility operations and upgrades, and the economic analysis and

    procurement practices underlying these practices.

    Fostering Organizational Commitment and Involvement: Executive and organizational commitment and involvement is critical to successful strategic energy management. Top

    management at Hospital X will work with facility managers and other key staff to ensure that

    adequate organizational support and resources are provided to maximize the benefits of energy

    management to Hospital X. energy management will be integrated into the strategic planning

    and capital budgeting processes.

Obtaining Solid Economic Returns: Energy management investments will yield solid

    economic returns that meet Hospital X’s standard [Internal Rate of Return][Return on Investment] requirements applied through the hospital’s capital budgeting process. Hospital X will apply consistent financial analysis methods that consider life-cycle to

    reduce total cost of facility ownership and operation.

Using Available Resources and Assistance: Use national, regional, and local sources

    of strategic, technical, and financial assistance to help achieve our energy management

    goals. These include utilities, BetterBricks, the commercial initiative of the Northwest

    Energy Efficiency Alliance, [Energy Trust of Oregon], Bonneville Power Administration,

    ENERGYSTAR, and state loan and tax credit opportunities.

    Strategic Energy Management Practices Template Page 4 of 11

     7The Business Case for Strategic Energy Management

    Below are the central business arguments for Hospital X’s pursuit of strategic energy management. Section VI then presents the business proposition the results of analysis of the energy efficiency opportunities and their associated costs and internal rate of return.

Strengthened Community Leadership and Environmental Stewardship

    Energy management is a visible, public commitment to the community and environment.

    Through aggressive energy management, the hospital can provide leadership in promoting

    sustainable communities, efficient business practices, and environmental stewardship. Faced

    with a tough market environment that has forced cut backs on hospital support for community

    activities, this is an excellent opportunity to provide leadership and reduce costs at the same

    time.

Enhanced Healing and Working Environment

    In existing facilities, efficient operating practices improve patient as well as employee comfort

    with more stable air temperature, and better indoor air quality and lighting. In new facilities more daylight and personal control of comfort contribute to a healing and patient-focused environment, 8 9and an improved working environment. Recent research has found that daylight eases 10surgical pain and contributes to substantial savings in pharmacy costs.

Improved Financial Health and Operating Cost Reduction

    Strategic energy management presents a highly leveraged opportunity to reduce operating

    costs and positively impact Hospital X’s bottom line. Dollars of operating cost savings directly improve the operating margin. With Hospital X’s current operating margin of 3% [adjust as needed for your hospital] $1 in margin contribution would take $33 in revenue. (1995 EIA

    CBECS data for healthcare converted to 2002 dollars.) Further, investments in energy projects

    typically have a lower risk of performance over time relative to other investments and savings

    from energy projects are easier to forecast reliably than savings or revenue increases expected

    from more variable investments.

     7 The business “case” lays out the broad business arguments for pursuing strategic energy management.

    The business “proposition” presents the financial results of analysis of the energy efficiency opportunities

    and their associated costs and internal rate of return. 8 Turnover among hospital nurses averages about 20 percent per year and it can cost a hospital up to

    $64,000 to replace one nurse. (Kemski, Ann, Market Forces, Cost Assumptions, and Nurse Supply:

    Considerations in Determining Appropriate Nurse to Patient Rations in General Acute Care Hospitals R-

    37-01, SEIU Nurse NEEA, December 2002 and Center for Healthcare Design Issue Brief). 9 Bronson Methodist Hospital’s new facility in Kalamazoo, which opened in 2000, has incorporated many

    of the attributes of high performance hospitals. The turnover rate among registered nurses has dropped

    from 20 percent at the old facility to 7 percent in the new and there has been a 10 percent drop in

    nosocomial infection rates. There has been a decrease in patient transfers and a reported increase in

    patient sleep quality. (Center for Healthcare Design Issue Brief.) 10 A 2004 study by the University of Pittsburgh showed that patients in rooms with abundant natural light

    took less pain medication than equally ill patients assigned to darker rooms. This resulted in a reduction in

    medication costs of 21 percent for the hospital. The patients also reported lower stress levels and less

    pain.

    Strategic Energy Management Practices Template Page 5 of 11

Optimization of Capacity to Meet Current and Expanding Operational Needs

    Energy efficiency optimizes inefficient or poorly designed and operated equipment/systems so wasted energy system capacity can be reclaimed for current and expanding operational needs. This “free capacity” can eliminate the need to add major new energy capacity and be much less 11expensive.

     11SUPPORTING EXAMPLE: Suppose a hospital has 600 tons of chiller capacity and must start “borrowing from Peter to pay Paul” when the outside air temperature rises above 75?. Chilled water temperature has been reduced to a constant 40? and the chillers are running at 90% load when the

    outside air temperature reaches 87? (design day). Two operating rooms (ORs) and a records section cannot be maintained at desired temperature. Staff believes they are “out of cooling capacity”.

    In reality, they have serious air duct leaks, chilled water control valves that are too small and a boiler under two ORs that dramatically heats the OR floors. Repairing ductwork, insulating the OR floors and improving chilled water control valves will return adequate temperature control to the facility while reducing chilled water load below 450 tons on a “design day” (87?). By implementing cost effective conservation measures, they have gone from inadequate cooling capacity to having surplus capacity while reducing energy consumption.

Strategic Energy Management Practices Template Page 6 of 11

Business Proposition

Notes to Template User: A clear business proposition has several key components:

Performance targets: Performance targets typically are financial, but may include other

    performance indicators as well. Achieving a 10 percent reduction in energy-related operating

    costs in three years and a 20 percent reduction over five years is an example of a performance

    target. Alternatively, or additionally, the savings could be expressed in dollar terms. Life cycle

    cost analysis should be used to assess potential savings and associated costs. Criteria for

    acceptable investment (i.e. hurdle rate) should be established.

Targets can be based on benchmarking results, results of facility assessments, facility staff

    knowledge, etc.

Other performance targets could relate to patient comfort, staff morale, or doctor satisfaction as

    it relates to quality of the hospital’s physical environment or the responsiveness of the hospital’s

    staff.

Relationship to revenue: Relate dollar savings to the bottom line. For example, suppose you

    estimate you can save $50,000 per year through improved efficiency. If your hospitals net

    operating margin is 3%, your hospital would have to generate about $1.7 in gross revenue to

    get that same benefit to their net margin. ($1.7 million x 0.03 = $50,000 or $50,000 ? 0.03 =

    $1.7 million).

    Dollar investment and Internal Rate of Return: Dollar investment can be based on results of assessments, proposals by contractors, past project experience, staff knowledge, etc. Internal

    rate of return can be determined using the Investment Guide.

? If energy management considerations are integral to relevant business practices, policies,

    procedures, and decision-making processes, Hospital X’s energy-related costs can be 12reduced by an additional XX% over an X-year period.

? Based on 20XX utility rates, this will result in $X million/thousand in annual value to the

    bottom line based, or a total $XX million/thousand over a 5-year period. Integration of

    energy management into organizational decision making and business practices will

    continue to produce value annually for a much longer period of time.

? Given Hospital X’s current operating margin of X%, Hospital X would have to generate $X

    million of gross revenue to achieve the same amount of net dollar benefit.

? To support the achievement of these financial benefits, [Hospital/System] will invest up to

    $XX million in energy-related capital and operating improvements, meeting an Internal Rate

    of Return (IRR) of XX% or better over the X-year period (20XX-20XX).

     12 As an example, a SEMP approved in 2006 by a Northwest hospital system had the following business

    proposition: Utility costs: Approximately $3.8 million annually. Energy use reduction: An additional 18

    percent over a 5 year period. Represents $3.25 million to bottom line or the equivalent of an additional $100 million in revenue at a 3.2% net operating margin. Investment in energy efficiency: Up to

    $2,000,000 in energy-related capital and operating improvements, meeting and Internal Rate of Return

    (IRR) of 16% or better over the 5-year period (2005-2010).

Strategic Energy Management Practices Template Page 7 of 11

? [Describe relevant organizational and business practices changes that will directly support

    SEMP: use of existing and/or creation of new decision bodies and processes, creation of

    new staff positions, and provision of resources]

    Strategic Energy Management Practices Template Page 8 of 11

    13Energy Management Goals

     14? SEMP Approval, Resources to Implement

    ? Implement Financial Practices and Decision Making Processes; Establish Funding 15Resources 16? Implement Strategic Energy Management Practices

    ? Purchasing/Procurement Procedures and Specifications

    ? Enhanced Design & Construction Practices

    ? Enhanced Facility Operating Practices

    ? Cost-Effective Facility Upgrades

    ? Active Commodity Management 17? Monitoring, Track, & Improve Performance

    Goal: SEMP Approval, Resources to Implement

    ? Executive approval and resources.

    ? Support from key staff (financial management, purchasing/procurement,

    construction, building operations, etc.).

    ? Creation of mechanisms/processes to make resources available.

    ? Clarification and communication of staff roles and responsibilities,

    performance goals, and energy management reporting.

Goal: Implement Financial Practices and Decision Making Processes

    ? Money spent to achieve energy efficiency is viewed as an investment, not a cost.

    ? Financial decision makers consistently use life cycle cost analysis (LCCA) on all new

    construction, major renovations, and equipment replacements over $X.

    ? Internal rate of return (IRR) of XX% qualifies for “pre-approval.”

    ? Train staff on [name of LCCA tool] and financial requirements and decision

    making process.

    ? Decisions about energy management investments will be part of [Hospital X’s] high-

    level, long range process of budgeting for capital and operations.

Goal: Establish Purchasing Specifications for Energy Efficient Equipment and

    Services

    ? Establish and consistently use purchasing specifications that minimize life-cycle

    costs for energy efficient equipment and services.

    ? Establish efficiency specifications for standard equipment routinely replaced (e.g.

    lights, motors, and unitary HVAC equipment).

     13 The sample goals and objectives in the SEMP template start with Step 4 of the SEMP process

    described in the website. This assumes that the first three goals have been achieved (Step 1: Gain Initial

    Organizational Support for Strategic Approach; Step 2: Assess Current Energy-Related Business

    Practices and Benchmark Facility; Step 3: Develop Strategic Energy Management Plan). 14 Step 4 of SEMP process. 15 Step 5 of SEMP process. 16 Step 6 of SEMP process. 17 Step 7 of SEMP process.

    Strategic Energy Management Practices Template Page 9 of 11

    ? Establish efficiency guidelines that apply LCCA for custom equipment purchases

    (e.g. chillers).

    ? Establish efficiency standards for design and construction, and for building

    operations and maintenance services.

Goal: Implement Enhanced Design & Construction (D&C) Practices

    ? Implement improved new construction practices in all projects over $X million that

    specify early team collaboration and “integrated design” (ID). 18? Integrated design required for funding.

    ? RFPs, contract terms & conditions, & fee structures will support ID.

    ? Apply LCCA and financial hurdle rates described above to design decisions.

    ? Apply established purchasing procedures and specifications.

    ? Include incentives and tax credits wherever available.

    ? Educate all owner’s project managers or construction managers and contractors

    on integrated design and their respective roles in master planning pre-design,

    design, construction, testing, commissioning, and monitoring.

    ? Set and meet clear energy performance targets for new buildings; measure and

    improve over time.

    ? Establish baseline for measuring performance goals (e.g. code, or national

    reference standards like ASHRAE 90.1).

    ? Set target for each building at XX% [at least 25%] less than IECC 2003 code).

    ? Measure performance and improve over time.

    ? Specify commissioning as a standard procedure.

    ? Retain the services of an independent third-party commissioning agent.

    ? 100 percent of fundamental building systems and elements will be designed,

    installed, and calibrated to operate as designed.

    ? Design team, commissioning agent, and building operators will work closely

    throughout the design process and occupancy to ensure good transition.

Goal: Improve Building Operating Performance

    ? Equipment tune-up and improved operations and maintenance (O&M) will achieve

    the following results while supporting patient care, and facility comfort and safety.

    ? Achieve reductions in operating costs for existing facilities by an average of X%

    over X years and continue to improve by X% per year for X years thereafter. 22? Reduce the system-wide EUI from XXX,XXX Btu/ft to XXX,XXX Btu/ft by 20XX.

    The EUI will be adjusted for variances in patient days and IT intensity.

    ? Reduce energy consumption by XX kWh per year equivalent to yearly savings of

    $X at 200X rates.

    ? Improve ENERGYSTAR rating from XX to XX over X years

     18 Early collaboration of construction team is key to ID (hospital construction manager and/or contracted

    construction managers, architects, engineers, contractors, commissioning agent) and stakeholders (could include

    facility operations and maintenance personnel, clinical staff, etc.). See Guide to the Design and Construction of

    High Performance Hospitals.

    Strategic Energy Management Practices Template Page 10 of 11

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