Energy-as-a-Service

Bernhard’s insights on the Energy-as-a-Service market.

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.

Bernhard, Midland Health Execute 15-Year Energy Asset Concession Arrangement

Bernhard and Midland Health announced today a 15-year energy asset concession arrangement which will address significant capital renewal, deferred maintenance, and energy optimization priorities at Midland Health’s main and west campuses. The transaction, which marks the continuation of a 10+-year old working relationship between Bernhard and Midland Health, will deliver substantial upfront cash and year-over-year cost savings to the health system.

“We are thrilled to continue building our partnership with Midland Health,” said Bernhard’s Vice President of Business Development Rob Guthrie. “Bernhard’s Energy-as-a-Service program will create notable cost savings for the hospital system, enabling Midland to continue to enhance its patient care and better serve the community.”

The improvements to Midland Health facilities will generate a minimum of $664,000 in annual utility cost savings guaranteed by Bernhard. Once the improvements have been made, the health care facility will join an A-rated peer group comprised of Ochsner Health, Franciscan Missionaries of Our Lady Health System, East Alabama Medical Center and several other southeastern health systems that have each executed recent agreements with Bernhard.

“Bernhard has long been a trusted partner to Midland Health,” said Midland Health Senior Vice President COO/CFO Stephen Bowerman. “Advancing our partnership through an Energy Asset Concession Arrangement just made sense.  This transaction aligned with Bernhard’s expertise will provide significant improvements to our utility plant, provide long term energy efficiency and position the hospital to continue to provide high quality care to Midland and our surrounding community for years to come.”

Bernhard’s innovative energy asset concession program transfers the risk of energy asset renewal to Bernhard over the full 15-year term, eliminating over $3 million from Midland Health’s future budgets. At the conclusion of the agreement, the energy assets are to be handed back to Midland Health in good working order and at no cost to Midland Health. The agreement represents another milestone in Bernhard’s extensive history in Texas, following more than 100 energy optimization projects across the state with nearly 40 healthcare entities.

To learn more about the project, click here.

Bernhard, East Alabama Medical Center Enter Into Partnership

Bernhard and East Alabama Medical Center (EAMC) have announced a 30-year energy asset concession agreement involving the right to use, maintain and renew EAMC’s energy infrastructure over a 30-year term. The project also provides for upfront energy optimization improvements, substantial projected annual energy savings, and a significant upfront cash payment to EAMC.

“We are eager to work with EAMC’s two hospitals to serve the east Alabama area,” said Bernhard’s Vice President of Business Development Rob Guthrie. “Our partnership will empower 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 will address a backlog of deferred maintenance at EAMC, including upgrades to chilled water, tower water, heating water, and steam systems, as well as air handling units, building controls and 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 will create efficiencies and improvements in the facility’s operation and also result in energy savings.

“We are excited to partner with Bernhard on this long-term project and appreciate their critical role in helping EAMC allocate scarce capital resources for the things we need most to take the best possible care of patients,” said Sam Price, EAMC’s Chief Financial Officer.

The transaction with EAMC marks a continuation of Bernhard’s work in Alabama, which includes decades of completed projects for clients such as The University of Alabama, Auburn University, University of Alabama at Birmingham, Providence Hospital, St. Vincent’s Health System and more.

About EAMC

East Alabama Medical Center is a 340-bed regional referral hospital located in Opelika that serves a nine-county area.  The EAMC organization includes EAMC-Lanier hospital in Valley; between the two hospitals and their collective service lines, there are about 3,500 employees in the organization.  EAMC is the second largest employer in the region, trailing only Auburn University. Among the services that EAMC provides are open-heart surgery and cancer treatment, both of which are highly acclaimed specialties at EAMC. The hospital also operates multiple physician practices and the Auburn University Medical Clinic.  EAMC is in the process of building a Freestanding Emergency Department and Ambulatory Surgery Center in neighboring Auburn. EAMC-Lanier has a nursing home, acute rehab unit, and offers occupational medicine.  For more information, visit www.eamc.org.

 

Bernhard’s Project Portfolio Positioned for New Public-Private Partnerships

The Foundations of P3 in Arkansas

By Ryan Corrigan, Director of Business Development, Bernhard

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Throughout our history, public projects like the Brooklyn Bridge or the Tennessee Valley Authority have rewarded our nation’s faith in public investment and been points of pride for our republic. Similarly, American commercial enterprises have always been called upon to meet truly national aims, such as Bath Ironworks during World War II, or IBM and Douglas Aircraft throughout the moon race. Some assets truly are public in service and scope, but that doesn’t mean private enterprise isn’t best oriented to design and build, operate, even own these public goods.

Seeing this potential, in 2017, the State of Arkansas wrote and approved Act 813, the Partnership for Public Facilities and Infrastructure Act, that provides public-private partnerships, from design-build projects to energy savings or asset agreements to sale-leaseback (and lease-leaseback) arrangements. More recently, this spring, the state Department of Transformation and Shared Services published the final PPFIA rules. Qualifying project types include state-funded colleges and universities, libraries, hospitals, even ports and water supply systems, and many others.

Many of these facilities are facing a “perfect storm” of rising needs and declining resources. Higher education, for instance, is continually budgeting for upgrades and renovations to aging structures and infrastructure even as institutions project flattening or declining state and local tax revenue, and enrollment.

What is private enterprise if not the search for a competitive market solution to a need that’s unmet? At Bernhard, we’ve been assessing the ways public institutions can address deferred maintenance and construction projects in order to move forward, and we’ve outlined a few advantages to forging public-private partnerships.

Risk transfer

By transferring energy upgrades, maintenance and other costs to a private entity, through public-private partnerships, state agencies are also transferring risks. A massive advantage in these agreements is that the private entity assumes the risk from damage and performance of these energy systems, thus removing both liability and operational forecasts from institutions’ portfolios.

Any large employer is also a large maintainer of systems, from energy to parking, that are not mission-critical and, therefore, placed as a lower priority. By transferring risk associated with these assets to a private partner, universities, hospitals and agencies can redirect resources to further their core mission and create savings along the way.

Private-sector financing

Government bonds are a major investment instrument, but when it comes to financing construction projects, they’re cumbersome. One of the major advantages of P3s for building new, large public facilities is the ability of the private sector to finance them quickly and nimbly.

P3s can help fix costs for public institutions facing austere budgets and hard decisions. Historically, bids for capital projects left institutions with lingering questions and budget unknowns around operations and maintenance costs. In P3 arrangements, costs are known and fixed over the life of the contract.

At Bernhard, we have a team deft at finding financing solutions for large capital projects, many with 20-to-50-year ROI horizons, as well as dedicated project managers who’ve saved clients millions of dollars — a vital component in today’s environment.

Meeting the backlog of deferred maintenance

P3s are uniquely suited to address deferred maintenance issues. A private sector partner is keen to perform maintenance that sustains assets for their full-service life, and any P3 contract will stipulate appropriate service levels and performance standards for the duration.

While public agencies budget on an annual cycle that often pushes maintenance off, private companies plan to implement efficiencies early and often over the life of systems. Moreover, they’ll invest in costly upgrades if it means offsetting costs later in life.

Performance-based design, operation

Simply put, P3s allow public sector decision-makers to bid projects based not on upfront costs but best-in-class systems, projecting performance out over the life of an asset. That hasn’t been a driving factor in public construction projects. Traditionally, though contractors may offer a short warranty, afterward, the building’s “performance” was the responsibility of the owner. With a P3, the building’s “performance” is now a contractual obligation of the private partner.

For higher education institutions, projects can have an educational component, or support a trend that aligns with the mission of the institution. As an example, they can offer reimagined energy systems on university campuses by way of conservation (“green”) technology. Higher education institutions can realize financial benefits from an investment that also serves as an engineering showpiece for both the university community and visiting scholars or benefactors.

Public prosperity

Some opposed to public-private partnerships ask why public administrators and elected officials would give away public assets so that private companies may profit.

Firms such as Bernhard endeavor to create P3s largely to bring such projects to market. Deferred maintenance is bad for the administrators, faculty and students of a college or university because they cannot enjoy state-of-the-art systems and technology upgrades, but they’re also bad for engineers and builders who wish to embark on such projects.

Arkansas finished its legal framework at an opportune time. As states reopen, P3s can be a way to jumpstart economies. Forging new partnerships that break ground on projects will be an essential part of our return to normal.

To learn more about Arkansas’ new P3 regulations from experienced experts, register for our upcoming webinar.

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Ryan Corrigan, PE, CEM, CxA

Ryan is a Director of Business Development for Bernhard with 12 years of experience in the industry. He is a registered Professional Engineer, Certified Energy Manager and Certified Commissioning Authority. Ryan has expertise in the analysis and retrofit of existing facilities with an emphasis on energy infrastructure. He has worked with clients to increase system reliability on healthcare, higher education, industrial, local and municipal campuses.

Offload Energy Operations, Costs for Patient Care

During a national health crisis, hospitals and medical centers must focus on their core mission of patient care— Energy-as-a-Service can help

By Ed Tinsley, Bernhard CEO

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When we measure hospital capacity, we count beds. Operating budgets and square footage are sweeping measures of hospital size, but bed counts stand in for patient care, and patients are the purpose. As city and state leaders work with operators to maximize bed counts in anticipation of peak COVID-19 admittances in 30-60 days, hospital administrators are throwing out last year’s balance sheets.

For instance, hospitals and medical centers have reduced higher-margin elective procedures and outpatient surgeries. This loss, coupled with static or rising operating costs, and lower non-operating revenue from investments, will impede the pandemic response. Operating cash flow, net position, days cash-on-hand, even credit worthiness is at risk.

How do we optimize medicine when resources are thinnest?

At Bernhard, we have been implementing a way for hospitals and medical centers to offload a critical piece of operations that has little to do with direct patient care, and nothing at all to do with doctors and administrators — energy.

Energy-as-a Service (EaaS) is a partnership between energy systems experts and professionals in entirely different business verticals who are saddled with facility operations. Our systems engineers evaluate water, electrical, heating and air conditioning systems in order to optimize performance, conserve energy and generate cost savings. EaaS providers like Bernhard create custom improvements so that clients may shift capital back to their core. For hospitals, that’s patient care.

EaaS was created in response to the prolonged “perfect storm” that has confronted the healthcare industry for years. Consider its value, beginning on Day 1:

  • Asset Monetization U.S. hospitals need critical liquidity to meet the daily challenges of operation, and EaaS shifts energy systems from the maintenance-expense column to one that monetizes the asset. EaaS providers buy the right to use the hospital’s energy infrastructure, offering an immediate injection of cash at a cost of capital less than the hospital’s current incremental borrowing rate. For many, the arrangement equates to 50-100 days cash-on-hand.
  • Risk Transfer EaaS transfers the risks associated with plant maintenance, operation, and most of all, scheduled upgrade and capital improvement plans so health providers can be laser-focused on their core mission during this national health emergency.
  • Infrastructure Renewal EaaS immediately offloads critical systems repairs and renewal while cutting energy expenses. EaaS providers are there to serve facilities in the event of a surge in inpatient census.
  • Balance Sheet Flexibility EaaS is structured to be off-balance-sheet for hospital auditors, preserving key credit metrics and satisfying administrators’ aversion to long-term debt.

Further, Bernhard is positioned to provide qualified, trained technicians to run HVAC and plumbing systems when employees are unavailable to work. For Trauma Center-level hospitals around the nation, we help them functionally reallocate critical manpower and budgeting back into care.

These clients are facing a capacity shortage, and we’ve seen EaaS play a critical role:

  • Jumpstarting energy systems in previously unused structures, wings or floor space that create additional emergency response locations.
  • Managing energy and utility operations of any health care provider, from midsize clinics to campuses.

Bernhard has served healthcare, educational, government, commercial and industrial clients nationally for more than 100 years, and today, we are working with those clients and partners to plan and execute a response to the COVID-19 pandemic.

Contact us today to learn more about Bernhard and how we can step in and build capacity while improving conditions at this critical moment, or to speak with a Bernhard expert about ways we elevate operations.

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Ed Tinsley, PE, CEM, LEED AP, HFDP, CHFM, CHC

As CEO of Bernhard, Ed leads a multi-disciplinary team through development and execution of large-scale, turnkey energy conservation projects. He is a dedicated leader in the industry for his innovative energy conservation solutions and has more than 38 years of experience in facilities engineering.

 

 

 

DISCLAIMER:  The information provided in this article was prepared solely for informational purposes and should not be construed as an offer or solicitation to buy or sell to participate in any transaction. The information provided is not intended to be a source of advice or credit analysis with respect to the material presented, and the information contained herein does not constitute investment advice.