Chapter 6: Cost and Financing

Funding for public higher education is always a challenge. There are always better ways to support students and faculty than there is available funding. In fact, it is often a struggle to simply fund the basic operations of the organization. A major part of the funding problems over the past ten years has been the increasing cost of fossil fuels. The university utility costs have gone from under 2% in 1995 to nearly 9% in 2009 of the organization’s general operating budget. This means that tuition rates had to increase and other areas of the institution had to contain costs in order to pay for heat and electricity. The institution would much rather spend its limited resources on direct instruction and student support services than on the cost of utilities. It is therefore important that the university make the changes called for in this report in order to avoid or at least minimize future cost increases and, if at all possible, reduce operating costs associated with the delivery of heat and electricity. Those of us who have worked on this project believe it is possible to reduce our utility costs by ensuring this report and its future revisions become an integral part of PSU’s strategic planning process.

It seems inevitable that the cost of fossil fuel will continue to increase. As you can see in the following table, the cost per gallon of our #2 and #6 fuels has more than doubled over the past 10 years. The future forecast made by the New York Mercantile Exchange and various articles in the Wall Street Journal forecast that both of these oils will continue to increase and reach $105 per barrel by 2019. If this is true, the cost of #6 and #2 fuels, assuming no increase in gross area square feet (GASF) for the university, will increase from $2.7 million in 2009 to $3.6 million in 2019.

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In addition to paying for the increase in fossil fuel prices, there is a very strong possibility that PSU will be required to pay a carbon tax in the not too distant future. At the time we are writing this report the estimates in congress are for an $11 to $15 tax per metric ton of CO2 created directly from fossil fuel. It is unclear how the calculation would actually be applied, but we can guess that if passed, it will be an additional cost in the range of $140,500 to $247,400 annually. This would be a significant increase in the cost of doing business for the university.

One of the major dilemmas for the university is that the current cogeneration facility is only fifteen years old, and the debt service will not be fully paid on the facility until 2014. The building and support facilities appear to be in excellent condition and have an additional useful life of at least thirty years before major work will be necessary. The boilers and the engine are about half way through their useful lives and are capable of providing at least fifteen more years of service. As we consider moving away from fossil fuels, it is important to consider the investments we have already made in these existing facilities.

The university is spending $2.7 million on fossil fuel annually. The majority of these funds are being sent overseas to purchase crude oil, and every year this money is being drained from our local and regional economy. We believe that finding a fuel such as biomass that is owned, produced, and delivered within New Hampshire or the New England region would help farmers, loggers, and manufacturers; it would create jobs and help the state’s overall economy.

Last is the cost of electricity we purchase from the New Hampshire Electric Cooperative. The average cost per KWh we have purchased from the NHEC has actually decreased since the mid 90’s. In part, this is a result of our purchasing more KWh from them. However, deregulation and good management on the part of NHEC have held the cost stable over the past ten years. With that said, at current oil prices, a KWh from NHEC is still more expensive than generating our own power and using the waste heat to supply steam and hot water to our campus buildings. Therefore, as long as the cost remains competitive the university will continue to generate approximately 50% of electrical energy. Finding an alternative fuel for the cogeneration of electricity in the Plymouth area will not be easy and may require a costly change in equipment, but is certainly worthy of investigation.

The costs of making the structural changes as laid-out in this plan are easy to separate into four categories:

  • Deferred maintenance
  • Demonstration projects
  • Major capital expenditures
  • The unknown future

Each of the categories has a unique list of projects and is separated because of the nature of the project and because of the differences in cost. For example the addition of a biomass plant to our current cogeneration plant is going to be a significant cost and therefore falls into the category of a major capital expenditure. It will likely require either internal or external borrowing to accomplish. On the other hand, recommissioning of existing buildings will be funded from annual operating funds or deferred maintenance. These projects and their funding are discussed in more detail as follows.

Deferred maintenance projects are funded annually from current operating funds. The total transfers of $5.4 million were made in FY2009 to support a large list of projects. This annual transfer represents about half of what is traditionally recommended to support a top quality deferred maintenance program over the long term. This is not a problem that is unique to Plymouth; the University System of New Hampshire has recognized this issue and is developing a plan to address this problem. In the meantime the PSU maintenance department has been using the available funds wisely and carefully. There is a very detailed annual planning process which identifies needed projects and prioritizes each project which is then approved by the president and the cabinet. This process has allowed for a better understanding of the opportunities and challenges that physical plant faces every day. Appendix II is a list of major energy related deferred maintenance projects funded from this annual budget from 2001 through 2009. This represents a significant amount of organization and planning and the department deserves a great deal of praise for what it has accomplished.

Going forward, specific amounts of the annual deferred maintenance funding will be set aside for annual energy conservation projects as defined in Chapter Five, Emissions Mitigation. Funding these projects annually will not only produce energy savings, but also reduce emissions and make our buildings more comfortable for the occupants and assure a longer life for the overall building and structure. We are recommending an annual investment of $1.5 million for all of our buildings be committed for these projects. If we reach that level of commitment in the next few years, we believe that it is possible to set an achievable goal for emissions reduction of 20% over the next ten years.

Demonstration projects are designed either to provide a place to experiment or gain a better understanding of how an alternative energy technology might help the university or present an educational opportunity that can be used as part of a laboratory. We have had experiments like this in the past that have been very successful. The Physical Plant offices purchased our first hybrid Prius four years ago and have since then replaced all of our current cars with the Prius. This experiment led us to a better understanding of hybrid technology and reduced our fuel consumption and emissions by 50%. We are now looking to find vehicles to replace our larger trucks and vans that will achieve this same level of reduction. This experiment in Physical Plant was funded by the department’s annual equipment replacement funds.

We believe the university needs to create an annual fund that supports applications for sustainability-type demonstrations. This process should have participation of faculty, staff, and students who make recommendations to the administration. We could see projects for solar and wind energy, additional geothermal to reduce our demand for heat, smaller biomass projects in small buildings around campus, experiments in IT for energy reduction, and so on. Some of these experiments would result in viable projects requiring further development. We recommend a goal of $75,000 by 2015 for this fund making it possible to achieve a 5% reduction in emission over the next ten years.

Major capital expenditure such as an entirely new biomass plant would require a significant investment. Our plan calls for a review of the feasibility and options available to the university for moving in this direction. Depending on the cost of the facility and the potential cost savings from switching fuels, the university will need to consider using either short term debt funded through the USNH, major long term debt through HEFA, or a performance agreement as we have had with NORESCO over the past fifteen years. If we can accomplish a conversion to biomass to replace our current heating system, we can reduce our emissions by as much as 35%.

The unknown future makes it difficult to predict either a fuel source or the eventual cost of adding or converting to a new technology. Not understanding the total cost makes it very difficult to show how it will be funded. The important action is for the university to keep this plan moving forward by researching new alternatives and ideas.

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