Mo Qayoumi is vice chancellor for administrative services at the University of Missouri/Rolla, and the dean for the energy & utilities portion of APPA's Institute for Facilities Management. He can be reached at qayoumi@umr.edu. Qayoumi is the author of APPA's forthcoming book, The Manager's Metering Handbook, from which this article is taken. APPA gratefully acknowledges the generous contributions of the Electric Power Research Institute and the International Facility Management Association in the development of this publication.
Organizations depend on measurement and analysis of performance. Measurements are driven from an institution's strategy and provide critical insights about core processes, outputs, and results. The type of data needed for performance measurement and improvement include customer service, operational efficiency, effectiveness, staff satisfaction, etc.
Measurement is a means and not an end. Measurement facilitates extracting larger meaning from data to support evaluation and decision-making at all levels of an organization. Data analysis can help determine both trends and root causes, making it an integral part of planning, reviewing, and improving any campus operation. In short, a measurement system is an integral part of a decision support system.
Measurement in Higher Education
Public pressure for cost containment is increasing, and measurement has become an important issue as we are seeing more states beginning to migrate to outcome funding for higher education. The cost of attending college has become a major issue in the eyes of the public, lawmakers, and the press. Many policy makers are examining how the rising costs of college limit access to many sectors of the society. According to USA Today, "From 1977 to 1992 tuition rates at Harvard, the University of Chicago, Carleton, and Duke grew 4.6 percent faster than the annual rate of inflation." Although fee increases for public universities have not been as dramatic, the issue has still been the subject of scrutiny by the U.S. Congress, state legislatures, the press, and the public.
According to a Newsweek survey of parents with children under the age of 4, when asked about their greatest fear in raising their sons and daughters, 52 percent of parents cited worry about the cost of education, 35 percent cited health care, and 22 percent cited the cost of day care.
The National Commission on the Cost of Higher Education, in its final report published in 1997, stated that colleges risk "an erosion of public trust" if their charges continue to escalate. Moreover, if colleges and universities do not behave responsibly and bring costs under control, others will do it for them. Finally, Dr. C. Peter Magrath, president of the National Association of State Universities and Land-Grant Colleges, in a letter to its members indicated that one of the most troubling challenges facing higher education today is "the college cost issue." He stated that "we must continue to work on controlling costs while aggressively working to address faculty and administrative productivity."
Responding to these pressures, some universities have begun to reduce tuition or to keep tuition flat for several years. Controlling energy costs can help balance the upward cost pressures in other areas where the task of cost control is even more challenging. Universities and other research organizations are under a lot of pressure to increase their sponsored research activity. This is happening at a time when the government has significantly reduced appropriations in this area. For instance, the non-defense R&D (research and development) budget for 1995 was roughly $34 billion. However, the appropriation was dropped to around $28 billion for 1996 and has remained flat with no hope of any notable increase for the near future. The Wall Street Journal reports that during the past decade, major U.S. high-tech companies have also slashed their R&D expenditures. As universities are competing for fewer research dollars, they are being asked to forego part if not all of the research overhead costs namely the facilities energy and maintenance costs and administrative support. As illustrated by the new OMB (Office of Management and Budget) Rule 20, there has been a major move by the federal government funding agencies to move away from reimbursing all facilities costs and developing new rules and standard rates for facilities charge. This way, if a university has inefficient buildings, it will end up subsidizing a larger part of the research cost since it will not be able to receive full reimbursement for space costs.
A second potential cost pressures to universities comes form the technological breakthroughs in telecommunication. This has resulted in making distance education as a major topic of discussion for most universities. The creation of "virtual universities " in the cyberspace, the offering of college credits on the Internet, and the Western Governors' Initiative has fueled the discourse. Although distance education has been is use for a considerable number of years, its use was relatively limited. Operating and maintaining campus facilities cost roughly between 7 to 10 percent of the total university budget in addition to significant capital costs. The energy and utilities cost can be a significant amount of this. This implies that "virtual universities" would not be burdened with this cost, because they have a structural cost advantage when they are compared with traditional universities.
Electric Utility Deregulation Also Drives New Metering Needs
The advent of electric utility deregulation brings new challenges and opportunities for facilities managers of colleges, universities, and other educational campus environments. Any owner of multiple buildings is a sizable market commercial customer to whom utilities are beginning to pay close attention. Also, acquiring electrical service in a deregulated environment will be different and will likely be more complex. In the current structure, electrical utilities are typically single vertical monopolies. In a deregulated environment, you will be interacting with two or three distinct entities: a generation company, a transmission company, and a distribution company.
The 3,300 electric utilities in the United States are a $250 billion industry that includes investor owned electric utilities (IOEU), public power agencies, cooperatives, and municipalities. Impending deregulation is going to fundamentally change the relationship of these utilities with their customers. It is important to understand that deregulation of electricity deals primarily with generation. This means that a facility or campus will still receive electricity through the distribution network of its local utility. Your relationship with your local utility is transformed in that you must choose to purchase power from them or use them as a conduit to receive electricity from another provider. Depending on individual state regulations, your utility may also be given the right to sell many new services, including metering.
Purchasing electricity in an open market environment requires an informed customer who is able to analyze market conditions and assess the needs of the institution so as to lower the overall cost of electricity. Deregulation can be viewed as a double-edged sword. Organizations who prepare adequately for deregulation will reap dividends. Those who are not prepared could end up paying much higher prices for electricity, creating more cost pressures on educational institutions.
One of the underlying reasons the price of electricity fluctuates over time is that it cannot be economically stored in any appreciable quantities. Generation and consumption of electricity have to match at every instant in time. However, the need for electricity changes daily and seasonally. For instance, the need for electricity is much higher at noon than at midnight at most campuses and is higher in the summer overall because of air conditioning loads. Capital cost is more than one third of the cost of electricity. When a generation unit is constructed, there is a strong financial motivation to have the unit operate continually (except for periodic maintenance shutdowns). On the other hand, if a unit operates only for a small portion of the day or the year, the cost of electricity from that unit will be much higher on a per-unit basis.
In order to reflect varying costs due to varying usages, utilities have instituted tariffs where the cost of electricity is higher during peak hours and peak seasons. Some utilities have tariffs where the cost of on-peak power is two to three times higher than off-peak power. In a deregulated environment, price differences between on-peak and off-peak may be even higher. For instance, in July 1998, due to the high summer temperatures, high power demand for air conditioning, and constrained capacity, electricity traded briskly at $7.60 per kilowatt-hour to bulk power purchasers. By contrast, the typical 3.9 cents per kilowatt-hour at that time of year. Dramatic price fluctuations such as these are clearly more possible and could become a norm rather than the exception in a deregulated environment.
In order to prepare for a deregulated market, organizations with campuses or buildings need to spend more time and effort to learn how much electricity is used, at what time, and where. They must also learn whether it is possible to shift loads or change power demands without an appreciable negative impact on campus operations. Relevant and reliable consumption data is needed to determine load profiles. Consumption data is collected with metering. Unfortunately, most organizations do not have either adequate or well-maintained metering.
In many cases, there is only the main electric utility meter and no branch meters to know how much energy is used in different parts of the campus. Even if there are branch meters, these meters are often not properly sized. Moreover, lack of calibration and maintenance result in "meter drift,"which means that the reading may not be reliable. Finally, even if a campus has properly sized and well-maintained meters, these units may all be electromechanical meters where data cannot be remotely read and processed for easily developing load profiles. In reality, the lack of a good metering system is the principal barrier that will prevent many organizations from taking advantage of utility cost reduction opportunities.
The importance of metering in a deregulated environment is illustrated well by recent events in Europe. In 1990, the United Kingdom began opening electric markets to retail competition. By the end of 1998, 23 million small commercial and residential consumers were able to chose their power supplier. Currently, the Electricity Pool of England and Wales prices electricity by the half-hour. This provides opportunities for power marketers to offer a variety of different on-peak and off-peak rates. Customers may "bundle" loads together to take advantage of special rates. However, customers must know their individual load profiles and the quantities of power needed each hour of the day. This information is communicated to energy suppliers daily for the following day. Determining load profiles, identifying major energy users, and defining consumption patterns are the first steps in bringing energy costs under control. This is the prerequisite to uncover opportunities for savings. Submetering is the means to obtain data for trend analysis and determining consumption profiles of major load centers. The main reasons for having submetering are as follows:
With reliable profiles for a campus' major loads, there are many opportunities for a campus of buildings to reduce the cost of electricity well in advance of deregulation. This may include modifying load shapes by changing the schedules of certain loads, equipment duty cycling, or installing thermal energy storage to reduce peak demand. One of the more innovative techniques available in some regions of the United States is Real Time Pricing (RTP). Real Time Pricing tariffs have been offered by power providers in Australia, Canada, New Zealand, Norway, and United Kingdom for commercial and industrial customers for a number of years. More than 30 U.S. utilities including Pacific Gas & Electric, Southern California Edison, Long Island Lighting, Duke Power, Georgia Power, and Baltimore Gas & Electric have made RTP available to their customers. If campus or building energy use remains at status quo, neither the utility nor the customer realizes a benefit. However, if customers reduce energy consumption during high-energy use or peak periods, they may realize significant dollar savings.
State utility commissions are watching RTP offerings with great interest. Many commissioners believe this approach can have a positive affect on the successful implementation of retail wheeling. According to an article published in EPRI Journal (March/April 1997), the Marriott Marquis at the World Financial Center in New York City has been saving more than $100,000 annually using RTP techniques without any negative impact on its operations.
Therefore, it is fair to say that metering and energy measurement will play a far more central role in operating facilities than they have done in the past. Before we begin to discuss various types of metering, their capabilities, and the technologies behind them, it is important to define the role of facility managers in the metering process and identify the purpose for installing meters at your specific campus.
Once the purpose of metering is agreed upon, a measurement plan can then be developed. The measurement plan should identify data to be collected, all locations for data monitoring, and frequency of data collection. Finally, a detailed data acquisition and analysis plan is needed.
Before proceeding to these more detailed plans, however, it might be of use to briefly discuss the role of the facility manager and some basic concepts that can be used for measuring energy. This will help you develop the conceptual framework needed to articulate the need for metering and how this can be done in alignment with your organizational goals and objectives.
Management Aspects of Measurement
Lord Kalvin over a century ago had commented: "When you can measure what you are speaking about and express it in numbers, you know something about it; and when you cannot measure it, you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind. It may be the beginning of knowledge, but you are scarcely in your thought advanced to the stage of a science."
Measurement serves as a self-assessment tool to determine where an organization is, where it wants to go, and how far along they are in attaining their goals. It is a continuous improvement vehicle to reduce process variation, to identify problems and trends, to determine process efficiency and effectiveness, or to assess opportunities for process improvement. In other words, measurement is an integral part of a decision support system. Measurement provides insights that are not obvious and provides the infrastructure for fact-based decisions.
Although there is a general agreement that measurement is an important factor for continuous organizational improvement, it is equally critical to underline the motivation for it. Measurement can be viewed both as a language of progress and as a means to determine steady advancement toward goals and objectives. Moreover, it can serve as an effective communication tool within an organization. Finally, measurement influences performance and can be a strong behavioral tool. In the words of Eli Goldratt, "Tell me how I am going to be measured, and I will tell you how I am going to behave."
Therefore, as we begin to measure certain parameters, it is essential to know what subtle messages are communicated as well as possible unintended consequences of the measuring. Individuals might concentrate on measures to maximize perceived performance in one direction even at the cost of suboptimizing the overall system. The challenge is to develop a set of measures that will truly reflect the current conditions, safeguards against suboptimization, and yet serve as an incentive for continuous improvement.
Attributes of Good Metrics and Measurement Systems
A good set of measurements must reflect both customers' needs and organizational strategies or objectives. One commonly deployed framework for a good measurement system is the "balanced scorecard" developed by Robert S. Kaplan and David P. Norton. The balanced scorecard consists of the following four perspectives:
Each perspective should be understandable, interpreted uniformly across the organization, and provide an agreed-upon basis for decisions. Measurement should demonstrate organizational effectiveness in addressing each perspective. For instance, determining what parameters need to be measured, i.e., energy consumption, cost, reliability, power quality, etc., should be driven by the organization's strategy and priorities in the way it meets customers' needs. Moreover, the organization's rewards and recognition structure must be aligned to these outcomes. Measurements need to provide information across time to show trends, not merely present snapshots. Finally, and most importantly, measurement should develop collaboration in order to facilitate acceptance and buy-in across the organization.
Measurement Process
Measurement process is the act of comparing an unknown quantity against a predefined standard. This implies that every measurement is an approximation. Normally a measurement will contain both a magnitude and a unit (e.g., 3 kWh). A measurement can be direct or indirect. Simple measurements are done directly, like weighing an object to determine pounds or kilograms. More complicated parameters, such as energy, are measured indirectly. The accuracy of a measurement relates to how often a measure can consistently be reproduced. In other words, if the dispersion among repeated measures is small, measurement precision is high regardless of how close the readings are to the actual value.
There is no single best process for developing a measurement system. However, it is important to measure outputs and outcomes rather than processes To illustrate this point, let's assume that you are interested in the reliability of an electrical system. First, you would agree that preventive maintenance will improve system reliability. In this example, collecting the number of hours of preventive maintenance is measuring the process, while collecting the number and length of failure for a particular time frame is measuring the outcome. In measuring reliability, the outcome measure is the relevant one, while the process measure can only prove useful if you are trying to find the correlation between the two.
A general framework for developing a measurement process should include the following major steps.
Conclusion
Today most universities possess limited metering to adequately measure the overall performance of their facilities. Many facilities commonly have procurement metering for purchased utilities such as natural gas, water, and electricity. In addition, there may be primary meters for steam, hot water, and chilled generation and possibly a number of meters to determine the consumption of the auxiliary facilities. These meters are usually read manually once a month for billing purposes, and many use the data for budget request and not part of any decision support system.
In the current situation and except for only a few institutions, many do not have adequate metering to successfully face the complexities of a deregulated environment or take advantages of the opportunities to significantly reduce energy costs. Moreover, if organizations do not invest in adequate metering to get prepared for deregulation, they may experience significant cost increases.
Although the prospects of funding such projects vary significantly from one institution to another, overall prospect to receive funding for these projects are bleak. A number of institutions have successfully combined campus-wide metering with utility or energy conservation projects. Others have worked with ESCOs to fund such projects and used energy savings as an incentive. A third approach may be working with the local utilities since some of them offer such services to their large customers to assure customer loyalty.
It is fair to say that deregulation is fundamentally changing the relationship between electric utilities and their customers. However, it should be kept in mind that only generation has be deregulated. No matter where you purchase the power from, it is still delivered through the distribution system of the local utility. This creates a different dynamic and opportunities for cooperation and partnership between the local utility and large customers in a more even playing field. One of the potential areas that the two could work may be in the metering area because of the expertise that utilities have in this area.
Even states and municipalities that will not be directly affected by deregulation in the next few years may not be immune from the impacts of deregulation from neighboring states. This means that in a relatively short period of time, every consumer of electricity will be affected. In order to maintain their customer base, many utilities are beginning to work with large customers on mutually beneficial projects such as providing technical assistance, seeking new tariffs that will be advantageous to both parties, or guaranteeing a certain level of power quality.
Despite the challenges for facilities and energy officers, there are a number of new opportunities for acquiring adequate metering. In the current, ever-changing environment, a "wait and see" attitude could easily result in "wait and lose." Therefore, the need for metering cannot be overemphasized.