FINANCING INFRASTRUCTURE RENEWAL WITH ENERGY SAVINGS:
A SUCCESSFUL APPROACH
Alan R. Neuner, CHFM
Associate Vice President, Facilities Operations
Geisinger Health System
ABSTRACT
This paper describes the accomplishments of a facilities
renewal program in healthcare that is totally self-funding.
Through planned replacement of aging energy consuming
equipment, this facility reduced energy consumption by
more than $2 million dollars annually. The paper also
discusses investments in a steam plant, chilled water
systems, medical compressed air, vacuum systems,
lighting, and water systems. Geisinger Health System uses
the resultant energy savings from those initiatives to fund
the program into the future, alleviating the competition for
capital funding with medical needs.
BACKROUND
The Geisinger Health System is comprised of 60 hospital
and clinic sites located in 31 counties of Pennsylvania.
The total building square footage is three million, of which
two-thirds is attributed to the main campus in Danville,
Pennsylvania. The main campus is contained on a 450acre site, which serves as the corporate offices as well as a
tertiary care teaching hospital, multi-specialty group
clinical practice, children’s hospital, level one trauma
center, rehabilitation hospital, and basic science research
center.
The management of Geisinger’s Facilities Department
established energy efficiency as an opportunity in 1988.
At that time, the main site was 1.2 million square feet.
Through well-designed infrastructure investments, the
campus utility cost and electrical demand are the same
today for a 2 million square foot campus as they were for
the 1.2 million square foot campus in 1988, resulting in
savings of $2.2 million annually.
Geisinger’s Facilities Department received numerous
awards for energy efficiency and innovation including
recently, the 2000 Business for the Bay Award for large
businesses presented by the Chesapeake Bay Foundation
and the 2002 FAME Award presented by the Association
of Facilities Engineering for its pioneering work in the
elimination of legionella in domestic water systems.
THEORY
All buildings and systems have a life cycle including the
replacement of roofs, mechanical, and electrical systems at
regular intervals to assure reliable operation. This is more
critical in a hospital than most other buildings since many
of those systems support life. A planned investment
approach to replacing these vital assets assures reliability
and reduces operational costs.
From the book Working and Thinking on the Waterfront by
Eric Hoeffer (1969), the author states, “It is the capacity
for maintenance which is the best test for the vigor and
stamina of a society. Any society can be galvanized for
awhile to build something, but the will and the skill to keep
things in good repair day-in, day-out are fairly rare.”
Organizations, like society rarely appropriately value the
significance of maintaining their vital infrastructure.
Establishment of a deliberate program to reinvest in facility
assets will pay dividends to the organization for years to
come.
For the purpose of this program, infrastructure is defined as
being all components of the building and site that make the
asset usable. For clarity, these components can be
categorized as follows: building shell and code
compliance; electrical systems; heating, air conditioning
and ventilating systems (HVAC); interior finishes; utility
systems; site; and other. This categorization becomes
helpful when estimating the useful asset life and
constructing a five-year plan for asset replacement.
Before a facilities department can develop a plan, an
estimate of necessary funding should be determined.
There are several methods available to determine the
magnitude of funding required. The first methodology is
to estimate the life expectancy of various building
components as shown below in Table 1.
TABLE 1 – EXPECTED LIFE OF BUILDING
COMPONENTS
Roofs
20 Years
Finishes
10 Years
Windows
30 Years
Mechanical Systems
30 Years
Electrical Systems
30 Years
Paving
10 Years
Structure
50 Years
most important aspect of this funding plan is how the
available dollars are invested.
A study conducted by Johnson Controls categorized the
expenses of building ownership during a 40-year period.
Surprisingly, only 11 percent of that expense is for the
construction of the building. By far, the largest expense in
this study was the operational expenses (maintenance and
utilities), which account for 50 percent of the total cost.
See Figure 2.
Examination of this data yields that the average life of a
building component is approximately 25 years. For
estimation, this means that 4 percent of the asset value
should be budgeted annually to maintain the asset without
considering inflation. Using this assumption, 4 percent of
the initial cost of the building should be budgeted annually
to maintain the infrastructure. Since buildings are typically
depreciated over 30 years, 3-1/3 of the 4 percent is already
funded for the first 30 years.
Cost of Ownership
Construction
Financing
11%
Renovations
Operating Expense
14%
50%
A somewhat easier method, for some facilities, is to link
the infrastructure renewal funding level to square footage,
since that is generally a commonly used metric in facilities
management. Because of the numerous old buildings
within Geisinger Health System, the net book asset value is
approximately $300 million for three million square feet,
or $100 per square foot (sqft). Conveniently, this works
out to $4/sqft for our system.
While Geisinger has not yet attained this level of funding,
Facilities Operations has been successful in at least
structuring annual funding dedicated to infrastructure
renewal. Although the analysis indicates a funding level of
$4/sqft as appropriate, it was determined that $2 was a
more realistic number for Facilities to sell to our operating
management as reasonable.
Figure 1 depicts
Infrastructure Renewal Funding Levels
6000000
25%
FIGURE 2 – 40 - YEAR COST OF OWNERSHIP
With the disproportionate share of building expenses being
energy related, Geisinger invested $8 million of the $20
million funded toward reducing these operating costs.
While it would be advantageous to get a return on
investment for every dollar spent, that is not possible for
items such as interior finishes or paving. Those items have
returns based primarily on customer satisfaction and first
impressions, which are difficult to quantify in terms of
dollars. However, the refurbishment of a unit has caused
patient satisfaction scores to increase. The food suddenly
tastes better, the nursing care improves, and the entire
patient satisfaction score for that unit increases. While not
documented, one would believe that this improved patient
satisfaction might marginally decrease length of patient
stay.
5000000
Dollar s
4000000
3000000
2000000
1000000
0
Goal
1995
1996
1997
1998
1999
2000
2001
2002
2003
Fiscal Year
infrastructure-funding levels during the past nine years.
FIGURE 1 – FUNDING LEVELS 1995 TO 2002
As seen on the graph, Geisinger has not attained the
targeted funding of $2/sqft (far left bar). However, $20
million has been funded during the past nine years. The
Once a target funding level is established, the next step is
to develop a plan for how to spend the money. When
selling this concept to executive management, it’s
important to provide some detail of where the money will
be spent. The five-year plan can be put together based on
rough estimates for categories of expenses, i.e. roofs,
paving, utility systems, building shell, code compliance,
etc. The actual detailed planning of the specific projects
does not need to be completed until after the plan is
approved and funded. The plan should be adopted long
range, but updated annually. This allows the plan to adapt
to changing conditions and priorities. Many times,
facilities managers develop detailed plans for infrastructure
replacement, and are then never able to get funding.
Unless you have time to waste, save the details until after
the dollars are in hand.
FUNDING
Obviously, the most critical piece of the entire process is
getting the organization to commit the dollars in a planned
fashion for infrastructure renewal. It is intuitive that there
needs to be some level of renewal funding, but it is
amazing how counter-intuitive some Chief Financial
Officers (CFO) can appear to be when faced with limited
capital availability and competing demands. While there is
no panacea for how to accomplish this task, the following
points may be of assistance when dealing with the CFO:
 Liken infrastructure renewal to home ownership.
Most people understand that something needs to
be replaced around the house every year.
 Find out the current annual depreciation expense
for the building assets. This is a non-cash
expense; meaning money is available for
reinvestment.
 Discuss average age of plant (an accounting
calculation) and explain how building new
facilities artificially lowers it. The older the
buildings you have, the greater this distortion will
be.
 Explain that the building and system assets
generally account for about 75 percent of total
assets.
 Discuss the effect building condition has on other
aspects of the business, i.e. the affect renovation
has on customer satisfaction.
 Emphasize the downside of a lack of investment.
What happens when the chiller fails, the roof
leaks, or someone is injured? What would be the
magnitude of the resultant business loss or law
suits?
These points are generally used to convince management
of the need to fund an infrastructure renewal program. The
argument can be made more convincingly if there is a
monetary return from an investment such as energy
savings. Identifying the following points will strengthen
this argument:
 Savings in energy go directly to profits.
 Many businesses focus on new revenue. Taking
anticipated savings and dividing it by the desired
corporate profit margin can depict the equivalent
new revenue. For example: An energy project is
expected to save $100,000 per year. If the
expected company profit is 5 percent, this yields
equivalent new revenue of $2 million per year.
 Projects that yield savings may be considered for
alternative financing, i.e. a performance contract
or an operating lease. They can be structured in
such a way as to fund the lease payment as well as

provide a positive cash flow. Projects with little
risk, such as lighting upgrades, should utilize an
operating lease, whereas projects with a higher
risk of return are best suited for a performance
contract.
Considering the vulnerability of the investment
market. The case can currently be made that
infrastructure investments that save energy offer a
higher and safer return than the stock market.
Hopefully, after following the previous steps, you have
convinced your organization to fund the renewal of its
assets in a planned and deliberate fashion. Once there is
agreement to establish the program, there are several other
points that should be considered:
 Establish a minimum funding level that would be
taken off the top of the corporate pot, and not
available for other capital needs.
 The pot is best if set up as a maintenance bank
where unspent funds from one year carryover to
the next. That way, savings incurred flow back
into the pot for funding additional projects. In the
future if the pot grows because of carry forwards,
a decision can be made to reduce the funding
level if necessary.
 Expect that you will be asked to manage not only
commitments, but also cash flow. If you have a
pot of dollars available, expect some parameters
to be set on how much cash can be spent in any
given fiscal year.
MEASURING SAVINGS
Once a renewal fund and project plan has been established,
the next most important step is to document the savings
achieved from the energy related projects to demonstrate
success and secure future funding. The first rule is to
speak in terms management understands: DOLLARS! No
one cares about Btu’s, kWh, or kW/ton outside the
Facilities team. Calculated savings are fine to help plan
the project, but hopefully the project will be significant
enough that it is discernable on the utility bill. Ignore
maintenance savings when justifying or evaluating savings.
Unless staffing dollars are reduced, they do not exist.
For some projects, savings calculations are relatively easy.
In the case of lighting retrofits, or chiller replacement, it is
simply the kW savings times the run hours times the
electric rate. For other improvements, it may be beneficial
to look at a metric before and after to verify savings. For
example, in upgrading boiler efficiency, calculate the cubic
feet of gas consumed to produce a pound of steam. After
the project is successfully completed, this metric should
have decreased, and the savings can be calculated based on
the actual steam produced. In general, be conservative in
projecting savings before investment, and boastful when
they exceed the early projections.
CASH OR CREDIT
Depending on the type of organization, it may be beneficial
to utilize leases or performance contracts. The difference
in these financial instruments is that a performance
contract will carry with it a guarantee of the projected
savings. Realize however, that this guarantee does not
come without a cost. The cost is generally in the form of
an interest rate that is several points higher to cover the
risk of the guarantor. If a project has little or no risk such
as lighting upgrades, a simple operating lease would be a
more appropriate financing vehicle. Performance contracts
are best utilized on complex projects where the savings
may be dubious. Building automation control upgrades
may be a wise choice for this type of financing
arrangement. Obviously the easiest option for the facilities
manager is cash, but depending on the organization’s
philosophy or financial strength, alternative forms of
financing may provide the only viable solution for funding
energy conservation projects.
ACCOMPLISHMENTS
Utilizing these strategies, the Facilities Department at
Geisinger has been successful in achieving documented
energy savings of $2.2 million annually. These savings
can be documented in several ways.
 Utility actual dollar expenditures are the same
today as ten years ago despite campus growth
from 1.2 million sqft to 2 million sqft (66 percent)
 Electrical demand has remained at 8.7 megawatts
though this period of growth.
 Maintenance manning has not increased despite a
66 percent growth; in fact it has decreased
because of consolidated and updated systems.
 Of the $20 million invested in infrastructure
during the past nine years, $8 million was
invested in energy conserving equipment.
 Return on Investment (ROI), on energy
investments averaged 3.7 years
 ROI on entire funding of $20 million is 9 years.
 Infrastructure investment of $2 million annually is
now self-funding.
Although some of these ROIs may not seem overly
attractive, one must consider that these were replacements
that had to be completed anyway because of the age of the
equipment or other building components. By wisely
choosing the replacement systems for maximum
efficiency, the success of the program is guaranteed.
PROJECTS
Table 2 depicts all the energy
accomplished, and the respective ROI.
related
projects
TABLE 2 – PROJECT LISTING AND ROI
Project
69kv Substation
Lighting retrofit
Replace absorbers with chillers
Electrical distribution upgrade
Air handler upgrade
Medical air upgrade
Boiler Upgrade
Incinerator replacement
Condensate recovery
Tower upgrades
Tower control
Elevator Upgrades
Steam trap monitoring
Water side economizers
Vacuum system enhancements
Domestic water pumps (vfd)
Chilled water loop
Chilled water vfd pumping
Replace underground steam mains
Occupancy sensors - lighting
Well system upgrades
Waste oil heater
Building automation upgrades
Canopies, foyers, etc
Window replacement
Instrument air upgrade
Blowdown control & condensate monitoring
Heat recovery systems
Install dealkalizers
Total
Cost
Savings
ROI
$525,000
$250,000
2.10
$1,800,000
$460,000
3.91
$750,000
$360,000
2.08
$550,000
$50,000
11.00
$400,000
$30,000
13.33
$100,000
$20,000
5.00
$300,000
$300,000
1.00
$300,000
$50,000
6.00
$10,000
$25,000
0.40
$500,000
$50,000
10.00
$20,000
$40,000
0.50
$1,000,000
$45,000
22.22
$50,000
$50,000
1.00
$150,000
$50,000
3.00
$70,000
$10,000
7.00
$100,000
$25,000
4.00
$200,000
$50,000
4.00
$100,000
$50,000
2.00
$250,000
$50,000
5.00
$30,000
$15,000
2.00
$50,000
$20,000
2.50
$3,000
$2,000
1.50
$200,000
$100,000
2.00
$250,000
$10,000
25.00
$200,000
$10,000
20.00
$50,000
$20,000
2.50
$5,000
$30,000
0.17
$75,000
$15,000
5.00
$13,000
$13,000
1.00
$8,051,000 $2,200,000
3.66
Some of the more significant projects accomplished are as
follows:
69kV Substation
Upgraded service supply from 12.47kV to 69kV to achieve
a rate savings from the utility of 10 percent.
 Project cost $560,000
 Savings $250,000 annually
 Outages reduced 97.5 percent
Electrical Distribution Upgrade
Replaced entire 12.47kV electrical distribution network
and switchgear on a 100-acre campus. Discovered 40
amps of leakage during cable replacement.
 Project cost $500,000
 Savings $50,000 annually
 Reduced outages 99 percent
Lighting Upgrade
Upgraded all lighting fixtures (24,000) utilizing T-8 lamps
and electronic ballasts utilizing an operating lease as the
financial vehicle.
 Project cost $1.8 million
 Savings $460,000 annually
 Reduced electrical demand on substation one
megawatt
 Positive cash flow of $160,000 annually after
lease payment (7 years)
Replace Absorbers with Electric Chillers
The facility was almost exclusively cooled with lowpressure absorbers. The cost to operate the absorbers was
$.09/ton. Based on the electrical rate structure and new
chiller efficiencies the cost to operate electric chillers is
$.03/ton.
 Investment $750,000
 Savings $360,000 annually
Cooling Tower Replacement
The existing towers were all cross-flow, and designed with
a 10 approach to wet bulb. By replacing the towers with
5 approach to wet bulb counter flow towers, fan
horsepower and chiller savings were realized. Reducing
the condenser water temperature reduces the head on the
chiller compressor yielding savings of 2 percent/degree.
Counter flow towers also utilize less fan horsepower for
the same approach compared to cross-flow towers.
Additionally, the towers were converted to an approach to
wet bulb control which significantly reduces fan
horsepower compared to a single set point.
 Project cost $500,000
 Savings $90,000 annually
Waterside Economizers
Plate frame exchangers were installed on all chilled water
systems to utilize condenser water to cool the chilled water
directly when outdoor temperatures are favorable.
 Investment $150,000
 Savings $50,000 annually
 Reduces 1,400 chiller run hours per year
Condensate Recovery
Capture the condensate from the majority of air handlers
and utilize it as cooling tower make-up. Since this water is
pure, significant savings are also realized in the chemical
treatment of the condenser water. A spill control pallet is
used as a basin to capture the condensate and a small sump
pump to pump it into the condenser pump suction. No
controls are necessary since the evaporative load of the
towers generally coincides with the condensate generated.
 Cost $500 per air handler
 Savings $25,000 annually (make-up water and
chemical treatment)
Compressed Air Upgrade
Replaced 25 water ring, reciprocating and screw
compressors and associated dryers with two variable
frequency drive oil free screw compressors with heat of
compression dryers. These dryers are desiccant type and
utilize the waste heat from the compressor for
regeneration. Additionally, the purge air is recycled,
negating the normal 15 percent loss. Eliminating the need
for cooling water to the water seal compressors increased
system reliability.


Investment $100,000
$20,000 annually
Vacuum Pumps
Replaced water seal vacuum pumps with dry running hook
and claw system for improved efficiency and reliability.
 Investment $70,000
 Electrical savings $5,000 annually
 Water savings $5,000 annually
Boiler Upgrade
Replaced burners and controls on 34-year-old water tube
boilers with gun type burners having direct digital controls
and oxygen trim.
 Investment $300,000
 First year savings $300,000
Steam Trap Monitoring
Installed a system to monitor the majority of steam traps
for flooding and blow-by.
 Investment $50,000
 Savings $50,000 annually
CONCLUSION
A planned approach to facility infrastructure renewal
increases the safety, reliability and appearance of the
facility. Judicious investments in energy efficient systems
create sufficient cash flow to make the plan self-funding.
The key is to understand where the opportunities exist and
maximize the return on investment for energy related
systems.
REFERENCES
1. Financial Planning Guidelines for Facility Renewal
and Adaptation, SCUP, 1989
2. Biedenweg, F., Weisburg-Swanson, L., and Gardner,
C., Planning for Capital Reinvestment: Alternatives for
Facilities Renewal Budgeting, Pacific Partners Consulting
Group, 1998.
3.
Analysis of Capital Funding for School Facilities,
Ontario Ministry of Education and Training, 1996.
Alan R. Neuner, CHFM, is Associate Vice President,
Facilities Operations for the Geisinger Health System
located in central Pennsylvania. He has more than 30
years of facilities management experience in iron and steel
production, cryogenics and healthcare. For questions
regarding this paper, he can be contacted at (570) 2715515 or e-mail:aneuner@geisinger.edu