The Business of Utilities APPA Facilities Institute February 2014 Steve Kraal Senior Associate Vice President Campus Planning and Facilities Management The University of Texas at Austin 1 Purpose The business of utilities is primarily an issue of risk management: Balancing investment/cost with the need for reliable/affordable natural resources. Leadership Decision Making - Communication 2 A businessman is a hybrid of a dancer and a calculator. Paul Valery 3 1
Topics A review of the business of utilities in four broad areas: Natural Resources Infrastructure Budget/Finance Emerging Issues 4 One Big Question What is the cost to your campus, of a power (or water) outage for a single building, multiple buildings, and the entire campus? 5 A Smaller Question I m not in the utility business, why should I care about the answer? 6 2
Why Care Improve our understanding of higher education: -financial and budgeting issues -organizational and cultural context Proactive engagement with campus -help define the risk Establish ourselves as problem solvers 7 Higher Education Context Energy intensity higher than most other industries Reliability essential to support institutional mission Natural resource management one of most complex issues on a campus Majority of resource needs driven by existing building inventory Energy market increasingly complex and volatile 8 How is Risk Changing? Funding/Budgeting Deregulation Consumer expectations Role of utility organization(s) Role of governing boards Market forces Compliance Environmental considerations Outsourcing Information technology Types of campus facilities 9 3
Challenges? Traditional institutional role Connection to campus stakeholders Connection to institutional mission Marketing, what s that? 10 Natural Resources Fuel Water 11 Potential Risk Factors External Environment -regulated/deregulated -multiple or single source(s) Internal Environment -consumer or producer -definition/scope of utility operation -institutional approach to financial risk 12 4
External Utility Issues National Energy Reliability Council 13 14 External Utility Issues Electrical Generation 15 5
Water The Demand For Water Will Increase Five Times By 2050 Forbes, 7/23/2011 16 Water stress refers to the ratio of water demand to renewable water resources Source: Hitachi, CSR 2012 17 Examples of Water Use 187 gpd/fte - Accommodations and Food Service (USGS) 20 gpd/fte Construction (USGS) 42 gpd/fte Commercial Use (USGS) 665 gpd/fte Industrial Use (USGS) Source: West Virginia Water Resource Training Workshops 18 6
19 Finance and Budget 20 Higher Education Price Index professional salaries and benefits of faculty, administrators and other professional service personnel; non-professional wages, salaries and fringe benefits for clerical, technical, service and other non-professional personnel; contracted services such as data processing, communication, transportation, supplies and materials, and equipment; library acquisitions; and UTILITIES 21 7
Finance and Budget HEPI Utility Cost Change Year Change from Prior Year 2002-30.5% 2003 33.5% 2004 11.9% 2005 13.5% 2006 27.7% 2007-13.7% 2008 14.2% 2009-15.1% Questions: What is the significance of this table? What has been your change in utility costs? Utilities are what percentage of your total institutional expenditures? 22 Institutional Funding Sources of income: Tuition and fees State appropriation Endowment income Research grants What direction is each of these going on your campus? 23 Competitors for Revenue Enhancement of teaching and research Expanding/renewing IT infrastructure Increasing health care costs Compliance requirements Salary increases for existing staff What else? 24 8
Competing For Funding Be a problem solver, not a problem Use their language; ROI, reliability, risk management... Quantify benefits and costs, long and short term Identify funding source(s) 25 Utility Business Budget Plan Cost of Operation Infrastructure 26 Cost of Operation Consumer or Producer? Cost of Utility/Fuel-rate structure Labor M&O 27 9
Infrastructure Central Plants cooling and power Power Transmission Distribution Systems cooling, power, water/waste water Break between utilities and physical plant 28 Risk Management Price Variability Ability of key stakeholders to absorb cost increases Budget planning time frame Service Delivery Institutional capacity to endure outages 29 Competing for Funds Basic Financial Model For Energy Management Budget Stays the Same $$ Current Cost of Energy Savings Converted to Debt Service or Cost Avoidance Cost of Energy After Energy Conservation or Fuel Cost Savings 30 10
Emerging Issues Renewable Energy and Renewable Energy Credits Carbon Costs Greenhouse Gas Inventories And? The trouble with our times is that the future is not what it used to be. Paul Valery 31 The Business of Utilities Questions, Comments, Observations Sign-in Sheet & Evaluations 32 33 11