Energy-Efficient Choices Preserve Hospital Margins
"The only reason we even looked at this program was to hedge on future energy prices because we have a great utility rate," says Garrick Stoldt, vice president and CFO for Saint Peter's. "Frankly, I was really skeptical at first of the PSE&G pitch, as I've seen a lot of utility companies say they have a great program and it turns out to be a loan. But once the utility company walked through all the pieces of this program, I realized doing it was a no-brainer."
Saint Peter's funded 30% of the project though a federal grant and another 60% of the funds came from a 15-year, 11% interest loan paid through tax credits that was part of the PSE&G solar loan program. The loan program works by covering 40%–60% of the cost of a system with the remainder being financed separately by the customer. The actual maximum loan amount is based on how much energy the recipient's system is potentially expected to produce over the term of the loan.
The loan recipient can repay the loan through cash payments or by signing its Solar Renewable Energy Certificates over to PSE&G—which is the option that Saint Peter's selected. An SREC is a unit of power and is equivalent to one megawatt-hour of solar electric generation under the state's trading system.
For the nonprofit Saint Peter's to participate in this loan program, in which it was selling power from its solar panels back to PSE&G to repay the loan, it had to create a for-profit energy entity. Fortunately, the organization had a defunct but taxable durable medical equipment company on the books, which it repurposed to pursue this path. Also, under state law, as an energy provider, Saint Peter's is required to sell its SRECs back to its main supplier, PSE&G, which is how the loan is repaid. The value of an SREC can vary according to market conditions; Saint Peter's SRECs are currently valued at $350 each as part of the contractual agreement with the loan.
"So assuming that price is never greater than $350 per SREC, that loan will be 100% paid off, including tax credits, in 15 years," explains Stoldt.
Thanks to the PSE&G loan program and the federal grant, Saint Peter's has installed 10,000 solar panels on four of its buildings and two large parking lots. The solar panel system generates 2.3 million kilowatts of electricity, enough energy to power an estimated 230 homes. More important, the panels produce enough power to provide 100% of the daytime electricity for its nursing home and 30% of the power for the hospital.
In addition to adding solar power, Saint Peter's also looked to reduce its carbon footprint in other ways. It took advantage of a public utility-sponsored, free energy audit and uncovered other projects that could reduce its cost over three to five years. The organization decided to make another $4.8 million in energy-saving upgrades. To cover these costs, it tapped a Board of Public Utilities of New Jersey hospital efficiency program that includes a grant that pays for 75% of the upgrades, as well as a 25% interest-free loan (repaid through its utility bill).
The funds allowed the organization to add light sensors to reduce electricity use, replace water chillers and piping to make the air conditioning system more efficient, and add high-efficiency burners on the boilers to reduce pollution and reliance on oil. Just replacing the boiler burners and other energy programs saved the organization more than $500,000 in energy costs in one year, and it renegotiated its commodity rate to save another $300,000, explains Mulcahy. All told, these efforts produced $1.6 million in savings in just 18 months.
- How Top-Ranked MA Plans Earn Their Stars
- Readmissions: No Quick Fix to Costly Hospital Challenge
- How Hospitals Can Become 'Upstreamists'
- 4 Ways to Lower the Cost to Collect from Self-Pay Patients
- House Calls Key to Pioneer ACO Success
- How Telehealth Pays Off for Providers, Patients
- 4 Tips for Managing Employed Physicians
- Defensive Medicine Still Prevalent Despite Tort Reform
- WellPoint Dominates Nearly Half of Markets, AMA Says
- 'Overtreatment' Debate Circles Back to Lung Cancer Screening