Often overlooked in the drive to minimize costs are the more mundane operations involving the management of a facility (i.e., "bricks and mortar") assets. These assets are too often considered to be no more than incidental to the main business of producing energy. However, this outmoded attitude must be replaced by a new approach, which goes beyond merely reducing costs to optimizing the use of these assets. Through a program of comprehensive facilities management, utilities can save millions of dollars both directly and indirectly through improved productivity from human assets (increased morale, increased productivity, hiring better-quality employees, etc.). Instead of being a dead weight, generating nothing but overhead costs on the utility's balance sheet, properly managed facilities can actually be a useful, indirect source of profits and a means of meeting corporate goals.

In this article, we will examine the mutually beneficial arrangement between a major utility and its new partner in facility management.

The Players
Based in Raleigh, NC, Progress Energy is a Fortune 250 diversified energy company with more than 24,000 MW of generation capacity and $9 billion in annual revenue. The company's holdings include two electric utilities (Progress Energy Carolinas and Progress Energy Florida) serving more than 2.8 million customers in North Carolina, South Carolina, and Florida. Progress Energy also includes diversified operations outside of its main business of energy production.

Los Angeles–based CB Richard Ellis is the world's largest (in terms of 2003 revenue) commercial real estate services firm. The company serves a wide variety of clients (developers, owners, tenants, etc.) by offering management advice and in-house operation of properties and physical assets. CB Richard Ellis has diversified into property leasing and sales; property, facilities, and project management; corporate services; debt and equity financing; investment management; valuation and appraisal; research and investment strategy; and consulting.

The Tools
What tools are utilized to maximize the efficient use of building space? The first item in the facility manager's toolbox is the integrated building automated system. Over half of the commercial buildings over 50,000 square feet in size in the United States have some type of building automation system. Such a system makes it possible for a facility manager to optimize the day-to-day operation of the building HVAC, life-safety, lighting, and security systems. Automated systems allow facility managers to track performance metrics against cost-savings goals. Integrated automated systems (providing information on multiple buildings in real time) allow for company-wide cost savings and flexible allocation of resources.

These automated systems allow for more than just tracking performance and comparison with goal metrics. They can be used to run the building so as to automatically control building functions. Integrated automated systems are Internet-based and provide the facilities manager with the information necessary to balance building requirements in real time. They also allow the client to track the performance of its building manager. These require a relatively small upfront capital investment that is well within reach of even small companies, an investment that typically pays for itself in a few years. Automated systems allow for decision-making based on hard data, not educated guesses or hunches. The resultant cost savings translate into higher rates of return for the building assets and greater productivity from personnel.

Illustration: Tivadar Bote / Digital Imaging: Robert Ott

Once building energy usage has been minimized, other variable costs can be addressed. A primary variable cost is the price of energy itself. Since the advent of deregulation, energy utility markets have become highly variable and difficult to anticipate. Energy prices can change in real time, tracking energy consumption. Automated systems, which take into account the fluctuating market price of energy, allow building managers to control energy costs on both the supply and demand sides. By minimizing energy use during expensive peak hours, a building manager can achieve cost savings of 15%–20%. Services represent the bulk of labor-intensive facility management activities that cannot be readily automated. These include (but are not limited to) repair, environmental management, security, custodial services, health and safety, preventative maintenance, grounds maintenance, snow removal, interior landscaping, fire- and life-safety systems, waste management, elevator and escalator maintenance, food services, pest control, and the management overhead needed to ensure that these services are being provided in a timely and cost-effective manner. The primary management function is to schedule operations and maintenance functions, manage work orders, track inventory and labor, monitor purchasing, and provide accurate reporting. This reporting function is the key to the whole effort as it allows for benchmarking of activities by identifying cost savings and efficiency improvements.

The next aspect of facility management is supply and logistics. This includes material management, warehousing, and transport. Everything a building needs to function, from sophisticated computer hardware to light bulbs and toilet paper, are managed by this function. Supply and logistics require information records for price, purchase date, depreciation rate, warranty periods, and manufacturer and related information.

The last characteristic of effective facility management is the increase of ergonomic comfort to the personnel working in the facility. Reducing fatigue or discomfort, injury, and illness may never show up as line items in the company balance sheet, but they are vitally important to maximizing productivity. By paying attention to the often-neglected human factors, facility managers can create a pleasant work environment resulting in less turnover and absenteeism. Factors to consider include accessibility for the disabled, appropriate lighting levels, acoustics, and workplace safety.

The key tool used by facility managers is the plan. Perhaps it would be best to call the plan a "toolbox," a place where all the other tools are kept ready for use. Preparing a strategic plan requires a determination of the facility's functions during its operational lifetime. Once these functions have been established, financial requirements (cost savings) and operational criteria can be met. Operational criteria include workforce size; occupancy; space requirements; utility use; and energy balancing, restructuring, and real estate acquisition. Often, the strategic plan is spelled out in the employee manual, so personnel can know where they fit into the big picture. As the saying goes, "Plan the work and then work the plan." All plans require adjustment, revision, and change over time. While goals remain fixed and absolute, how they are achieved often requires flexibility.

The Assets
Progress Energy produces energy from a diversified facility asset base. Energy is produced from nuclear power plants, combined cycle units (small combustion units combined with waste-heat units), standalone combustion turbines, coal-fired power plants, and hydro power plants. This fleet of power plants produces in excess of 24,000 MW of generation capacity. Electrical sales contracts can provide customers with electricity for durations as short as an hour or as long as several years. The current customer base includes retail users of electricity (homes and businesses) as well as municipalities, electric cooperatives, and other utilities.

Progress Energy's nuclear power assets include a two-unit facility with a 1,772-MW capacity (the Brunswick Nuclear Plant); a single-unit facility with an 838-MW capacity (the Crystal River Nuclear Plant), which includes four co-located coal-fired generating units with a combined generating capacity of 2,302 MW; a single-unit facility with a 900-MW capacity (the Harris Nuclear Plant); and a single-unit facility with a 710-MW capacity (H.B. Robinson Nuclear Plant), which includes a single coal-fired unit with a capacity of 174 MW and an associated combustion turbine that generates 15 MW.

The company is also a leader in combined cycle units. Progress Energy's facility fleet includes six generating facilities that utilize combined cycle units. These range from an 84-MW-capacity facility (four small combustion turbines and two waste-heat units) to a massive 925-MW facility, which includes a combined cycle block (466 MW) and three simple-cycle units (459 MW). Combined cycle facilities play a key role in the distributed energy market. A typical combined cycle unit combines a steam turbine with a gas turbine. The first operates on a Rankine cycle, while the second operates on a Brayton thermodynamic cycle. The steam/Rankine turbine operates off of the Brayton/gas turbine. Pressurized high-temperature steam or gas expands through various stages of a turbine, transferring energy to the rotating turbine blades. The turbine is mechanically coupled to a generator, which produces electricity. Waste-heat recovery boilers are used to capture the energy in the gas turbine exhaust gases. This heat is used to heat the steam required by the steam turbine. The steam generated from the gas exhaust can also be used in manufacturing applications.

Progress Energy also operates a fleet of primarily combustion gas turbines, sometimes generating electricity alone or in concert with a combined cycle steam turbine. These 38 facilities are located throughout the Carolinas and Florida. Though typically sited as independent facilities, they are often co-located with other (coal or nuclear) power facilities. These range in capacity from the single-unit, 15-MW Morehead City peaking plant and the 13-MW Rio Pinar Plant, to the 14-unit, 1,041-MW Intercession City peaking plant. Conventional combustion turbines range in size from about 500 kW up to 25 MW for distributed energy applications, and up to approximately 250 MW for central power generation. They are fueled by a variety of fossil fuels, with natural gas being the most common. The combustion turbine's energy conversion typically ranges between 25% and 35% efficiency as a simple cycle. The simple-cycle efficiency can be increased by installing a waste-heat boiler onto the turbine's exhaust, which generates steam by capturing heat from the turbine exhaust. Progress Energy primarily uses these boilers to make high-pressure steam to drive steam turbines, increasing the combined cycle's overall energy cycle efficiency up to 80%.

Finally, Progress Energy operates and maintains four hydroelectric facilities: the six-unit, 22-MW Blewett Hydroelectric Plant; the two-unit, 5-MW Marshall Hydroelectric Plant; the four-unit, 86-MW Tillery Hydroelectric Plant; and the three-unit, 105-MW Walters Hydroelectric Plant. Other types of electric generating facilities are often co-located with the hydroelectric plants.

The Locations
Progress Energy is a regional energy company focusing on the high-growth southeastern region of the United States. As previously mentioned, the company has more than 24,000 MW of electric generation capacity and provides electric service to approximately 2.8 million customers in portions of North Carolina, South Carolina, and Florida.

As reported on Progress Energy's Web site, the Carolinas' service territory covers approximately 34,000 square miles and includes the majority of the eastern half of North Carolina, the northeastern quadrant of South Carolina, and the Asheville region in western North Carolina. In this area, the company maintains greater than 67,000 miles of distribution and transmission lines in providing service to 1.3 million customers and a population in excess of 4 million people. The Florida service territory covers around 20,000 square miles in central Florida. CB Richard Ellis is currently under contract to provide facility management services for the Carolinas' service territory.

The Approach
CB Richard Ellis provides a wide range of interrelated facility management services and bases its approach to providing services on process management principles. On average, it achieves an occupancy cost reduction of 20%. Services are customized for each client and emphasis is placed on enhancing customer service and worker productivity. Collaboration with the client in all aspects of facilities management is the means for achieving these cost savings. CB Richard Ellis and Progress Energy will work together to identify and implement solutions that specifically improve the value of the assets being managed. The goal of this approach is the creation of a business whose every asset is operated to meet the demands of the core business. It's these typically overlooked peripheral assets that represent most of the potential cost savings.

CB Richard Ellis utilizes industry-specific expert teams when managing clients' facilities. These teams are dedicated full-time to a particular contract providing management services during transition, service delivery, quality management reviews, systems development, field support, and services. Of special importance is the training received by staff personnel to ensure successful implementation. Training is site- and industry-specific.

Though each team is client- and industry-specific in its focus, CB Richard Ellis can achieve significant savings and efficiencies by leveraging its company-wide buying power. Using its Site Stuff purchasing system on behalf of its clients, CB Richard Ellis can use volume discounts and eliminate redundant suppliers to obtain property management maintenance, repair, and operations products and services. Cost savings for each transaction are estimated to be between 10% and 20%.

Customer service is provided by a centralized Service Center, allowing for quick response and accurate monitoring of client work orders through completion. CB Richard Ellis also uses Web-based "Project Sites" to provide a secure means of communicating portfolio information, facilities' operational and financial data, and global market information to clients on a real-time basis. Clients can also choose from a menu of operations, maintenance, accounting, and financial management services using the FM Select program. The list of chosen services can be expanded as the client's business grows and changes.

Related service groups provide more specialized asset management. CB Richard Ellis' Industrial Services focuses on current and emerging technologies, production processes, and global business practices. This allows the company to meet the space-utilization needs of its clients for manufacturing, assembly, research and development, distribution, and warehouse facilities. Also included are services for managing company relocations, expansions land planning, infrastructure design, marketing of speculative buildings, arranging build-to-suits for industrial facilities, valuation studies, providing site selection options, and handling land acquisitions/dispositions. These services can be provided to either tenants or landlords.

According to Nigel Poland of CB Richard Ellis, several factors won the contract from Progress Energy. First and foremost was its vast experience in facility-related services and its large portfolio of managed assets similar to those of Progress Energy. This portfolio of assets stretches across several states, well beyond the Progress Energy service area. Experience gained managing these far-flung enterprises allows for efficient route maintenance associated with the facilities and significant cost savings. According to Poland, most prospective clients turn to companies like CB Richard Ellis after they have already gathered in the "low hanging fruit" (those cost savings and efficiencies that are readily apparent and can be achieved in-house). What companies like CB Richard Ellis provide is the expertise to find cost savings that are not readily apparent or are difficult for insiders to achieve. They gather the difficult-to-reach fruit.

Poland described a synergy that exists between the client and CB Richard Ellis that is created by use of its tested savings model. Not only does the facilities management team generate cost savings internal to the client's facility, it brings with it programs and procedures specific to CB Richard Ellis that can assist the management team in further reducing costs. Of primary usefulness is its vendor management program, which allows the management team to achieve volume discounts on everything from office supplies to janitorial services. Being much larger than any single client asset under its management gives CB Richard Ellis leverage with suppliers, a leverage that a client could not achieve on its own.

CB Richard Ellis will not be operating the electrical power plants itself. Instead it will be providing auxiliary services that make the plant operations possible. Services will be provided to individual customers in each building and facility, not just to Progress Energy as a whole. These services include (but are not limited to) janitorial and waste management, landscape maintenance, dedicated building technicians responsible for building utilities, reception and clerical staff, and security. The management team will provide call center services that will conduct customer-satisfaction surveys and provide feedback to Progress Energy. Route structures, providing the logistics for the building operations, will liken the client's assets to technical warehouses and service centers.

So how will CB Richard Ellis measure success? What does it consider to be a well-run facilities management program? Success will be measured both financially and by the satisfaction of its Progress Energy customers. Each team is dedicated to a particular facility or facility group (no sharing with other facilities, companies, or industries) and will be judged by the success of its responsible accounts. Technical support is geographically concentrated to ensure that the technicians are efficiently used and productive. Each management team will be judged on its ability to manage financial and management processes. The metrics used to measure each one's performance will be based on both corporate and industry standards.

Conclusions
CB Richard Ellis will perform the vital task of facility management for Progress Energy. The company's extensive experience and equally extensive resources allow CB Richard Ellis to minimize the direct costs while maximizing indirect factors affecting productivity. Though Progress Energy could do these functions in-house, it is not its primary line of business. Its business is the production of energy from primary utilities and distributed energy facilities. Given the often-cutthroat energy business and the need to find any and every competitive advantage, Progress Energy turned to CB Richard Ellis. And outsourcing to CB Richard Ellis is a necessity if Progress Energy is to achieve the most efficient use of its building assets.

DANIEL P. DUFFY, P.E., is an environmental engineer for Rumpke Waste Inc. in Cincinnati, OH.

DE - January/February 2005