Energy-as-a-Service Transaction Provides Lifeline to East Alabama Medical Center
COVID-19 has presented a wide array of unexpected and difficult experiences for businesses to navigate. Hospital administrators feel the pressures of balancing their budgets with looming financial constraints all during a burgeoning global health crisis. Even before the pandemic erupted, East Alabama Medical Center (EAMC) in Opelika found itself with a backlog of capital renewal and deferred maintenance, including crucial steam plant renovations on hold due to a lack of cash on hand. The administration did not want to take on debt in order to maintain a healthy credit position, but the necessary upgrades and opportunities for increased energy efficiencies and occupant comfort weighed heavy. The team partnered with Bernhard to begin exploring a solution and then, COVID hit.
“When the pandemic began to escalate, we felt like we were backed into a corner,” said Sam Price, EAMC’s chief financial officer. “A lack of on-hand resources went from a back-burner issue to a critical, immediate concern.”
As COVID-19 surged, Alabama particularly felt the oncoming devastation. Early in April, Alabama was projected by models to have the fourth-highest rate of COVID-19 fatalities in the United States. High-revenue elective procedures were deferred to make room for more beds for patients. Without these high-margin lines of service, resources became tighter and the need for a lasting solution became dire. EAMC officials decided to leverage all of their resources to give their community the best possible chance against the virus.
Most facilities were hesitant to make changes in the increasingly volatile environment, but EAMC realized the energy asset concession agreement under review with Bernhard was the best choice of action. Bernhard’s unique and tailored financing, integral to its Energy-as-a-Service model, and plan for energy optimization and enhanced occupant comfort created the ideal solution at the perfect time.
“The increasing demands on our facilities led to a daunting backlog of deferred maintenance, which was exacerbated during this time. Bernhard delivered a solution that allowed us to get ahead of the virus and keep our community as safe as possible.” – Sam Price, EAMC CFO
The two entered an energy asset concession agreement giving Bernhard the right to use, maintain and renew EAMC’s energy infrastructure over a 30-year term. The project provided for crucial upfront energy optimization improvements, substantial projected annual energy savings, and a significant upfront cash payment to EAMC. The transaction is set to provide $826,000 in annual estimated energy savings and $30 million in improvements to the facility. This is in addition to the $40 million net advance lease payment EAMC received; that’s immediate cash on hand and credit positive with a competitive interest rate.
Notably, under the Energy-as-a-Service model, the acquisition of the assets by Bernhard and recurring monthly service charges to Bernhard are off-balance sheet and credit-positive for EAMC. Bernhard worked with Warren-Averett, EAMC’s auditor, and Ernst & Young to review the relevant accounting considerations and ensure an off-balance sheet outcome. The hospital’s rating agency (Standard & Poor’s) agreed with the accounting treatment and viewed the transaction largely as credit-positive.
“We were eager to partner with EAMC’s two hospitals to serve the east Alabama area,” said Bernhard’s Executive Vice President of Business Development, Rob Guthrie. Our agreement empowers EAMC to focus its energy and resources on its core mission of providing high-quality, compassionate health care. We are proud to offer our expertise to deliver and sustain a win-win outcome for the next 30 years.”
The upfront improvements to infrastructure addresses a backlog of deferred maintenance at EAMC, including upgrades to:
- Chilled water, tower water, heating water and steam systems
- Air handling units
- Building controls
- Electrical infrastructure
Bernhard will also install a heat pump chiller heater, optimize procedure rooms, install LED lighting and facilitate retro-commissioning of the building’s automation system. These upgrades create efficiencies and improvements in the facility’s operation and also result in optimized energy savings.
“We are excited to partner with Bernhard on this long-term project and appreciate its critical role in helping EAMC allocate scarce capital resources for the things we need most to take the best possible care of patients,” said Price.
This energy asset concession transaction not only provides EAMC exactly what it needs to meet patient and employee comfort needs, but also enables an immediate allocation of additional resources for fighting COVID-19 and saving lives. The community is now better armed to fight COVID-19 while the facility added energy optimization, which creates future savings. For EAMC, COVID-19 became the catalyst for a positive and long-lasting change.