Middle Tennessee State University

Murfreesboro, TN

Volume 4 Issue 1       January 2002       Editor: Linda Hardymon

    The Tennessee Board of Regents has granted an energy savings performance contract for MTSU. The performance contract, approved by the State Building Commission in October 2001, took effect in December 2001.

    After a series of RFP evaluation phases, the energy service company selected for the work is Siemens Building Technologies, Nashville. The performance contract is approved for three years for up to $5 million dollars in improvements, with options for up to two additional years and another $5 million dollars.

    The awarding of the MTSU energy savings performance contract culminates many years of development and hard work. Thanks to the commitment of MTSU administration and Tennessee Board of Regents, and the contributions of several individuals and groups partnered with MTSU, the difficult procurement task is over.

    MTSU and the Center for Energy Efficiency are excited about getting to this point and look forward to making improvements to facilities on campus and to reaping the deferred maintenance benefits of the performance contract.

A 5-Day Comprehensive Certified Energy Manager training program and exam is scheduled at MTSU for March 25-29, 2002. Joining us again are Association of Energy Engineers instructors Kenny Spain, P.E., CEM, CLEP, and Steve Sain, P.E., CEM, CLEP. Registration deadline is March 8, 2002. Call 615-904-8096 or check online at www.mtsu.edu/~cee/cem.htm for more information. Register today!

    There are many compelling reasons for colleges and universities to implement an energy management program. Administrators often cite energy and environmental stewardship, economic stewardship, and an increasing number of academic mission support opportunities as being important to them. Well-designed and implemented energy management projects and initiatives can, of course, meet many of these desires.

    Why then is comprehensive energy management so rare given these motivations and the significant opportunities that exist? For many physical plant managers, the issue rests with the "real-world" problems stemming from the physical condition of the aging facilities coupled with the lack of adequate funding to address their needs. When the ability to provide the basics - a clean, safe, functional, environmentally controlled facility - is diminished, altruistic motives of stewardship become secondary or fade away all together. Simply put, it is the battle of facilities’ physical needs and the fiscal constraints. In recent years, this condition of deteriorating facilities brought on by inadequate funding has frequently been referred to as "deferred maintenance." This article will examine the basic problem of deferred maintenance and consider its impact on facilities and energy management planning.

    To understand deferred maintenance we must first consider capital maintenance. For Middle Tennessee State University, capital maintenance projects are classified as major, non-routine, repairs and replacements of facility systems unrelated to new construction with a minimum value of $100,000. Project scopes include:

· Repair to restore a facility to its former or a better state without a change in use

· Replacement of exhausted or damaged utility systems, lighting, and building shell (roofs, etc.)

· Removal of hazards; i.e. asbestos encapsulation or abatement

· Alteration of safety or accessibility features to rectify code deficiencies

· Modernization of obsolete building systems, for continuation of educational program.

In estimating the general need for annual capital maintenance, we often apply the formula:

where BRC is the building replacement cost, BA is the building age in years, and 1275 is the sum of the years digits for a building with a 50-year expectant life.

    Deferred maintenance can be defined in terms of the accumulating capital maintenance that is not being accomplished and is therefore deferred. For aging campuses, deferred maintenance is typically estimated in tens of millions of dollars (i.e. $50 million to $120 million).

    While the deferred maintenance estimates can be impressive (or scary), they are not always easily understood. When using the capital maintenance formula above to estimate deferred maintenance, we like to consider 5-year intervals. By using these intervals, the estimate can be scaled applying any capital maintenance investment history. Table 1.0 demonstrates a deferred maintenance estimate for the most recent 5-year interval for a 30-year old facility with an initial building replacement cost of $10 million.

A capital maintenance history review and/or a more detailed needs-assessment of this sample building would indicate if additional deferred maintenance intervals should be considered.

    The importance of deferred maintenance is not its estimated value but the liability it represents. Major equipment breakdowns, system failures and plant shutdowns, typically at the most inopportune times, become more common. Not only are the building systems at risk for damage, building contents and people may be at increased risk as well. The real challenge of deferred maintenance is in assessing the areas of greatest risk and probability of an event occurrence or system failure.

    This difficulty in predicting and preventing an occurrence/failure is superceded only by the difficulty in dealing with the occurrence/failure both physically and financially once it has occurred. Assuming there are no emergency funds available, the financial impact of an occurrence/failure that must be fixed is typically borne by the Operations and Maintenance (O&M) budget. O&M budgets are designed to provide for the ongoing routine service and minor maintenance needs of the facilities, not major, corrective maintenance projects.

    Consider the same 30 year-old sample building above. If that building has 125,000 square feet, and O&M is budgeted at $3.00/sf, then the total annual O&M budget for this building would be $375,000. Applying 75% of the budget ($281,250) to operations and service-type activities (custodial, grounds, non-maintenance services, preventative maintenance, etc.) leaves only 25% of the budget ($93,750) for the minor, routine repair and replacement activities. Table 2.0 compares the deferred maintenance liabilities with the elements of the O&M budget for the sample building.

    In this example, occurrences/failures resulting from deferred maintenance are putting tremendous financial pressure on the repair/replacement portion of the O&M budget. A single occurrence/failure of $15,000 represents only 1.4% of the deferred maintenance estimate but has an impact of 16% on the repair/ replacement portion of the O&M budget. This typically leads to reductions in the service-type activities that are provided in this budget. Grass is mowed less, custodial services are reduced, or preventative maintenance activities are eliminated to make financial room for a non-scheduled, unfunded , corrective maintenance project that just developed. Clearly, O&M budgets are not adequate funding sources for the realized liabilities of deferred maintenance.

    In addition, these O&M impacts, particularly reduced preventative maintenance, sustained over time, produce a snowball effect that is the acceleration of the deterioration of the facility and increase in the capital maintenance need and subsequent increase in deferred maintenance. The impact of a deteriorating, poor performing facility will also usually result in higher energy consumption and utility costs. In short, capital maintenance, O&M, and utility costs are interdependent and should be considered collectively.      

    Energy professionals understand well that an energy management program can help the deferred maintenance problem. Retrofit projects can provide needed mechanical and electrical equipment replacements (major or minor) and improved facility functionality leaving a better performing, more efficient building. Capital financing options and operational savings makes these projects a seemingly perfect fit.

    In order for this to happen, however, a direct connection must be made between the benefits of the energy project and basic needs of the facility. Identifying deferred maintenance is typically easy. Treating it as a liability and understanding its affects on capital building and maintenance efforts, O&M efforts, and utilities is not as easy. Both the owner and energy service provider/ consultant should spend more time on the issues and effects of deferred maintenance and less time on the estimate. This should lead to an energy management program that delivers more than just energy savings. Energy management programs that meet the basic needs of a facility will deliver on many of the higher motivations of stewardship as the by-product. Once that is accomplished, other program elements can be included to address additional needs and motivations.