Higher Energy Costs + Stimulus Dollars = Opportunities for California Hospitals
An unusual combination of federal incentives for energy and economic stimulus will result in substantial dollars for nonprofit hospitals able to fast track energy-efficiency facility upgrades to meet the tight time windows for obtaining funding. With extensive health care and energy expertise, and offices in Los Angeles, San Francisco and Washington, D.C., Davis Wright Tremaine LLP is one of the few law firms that have the full complement of skills needed to help California hospitals take advantage of this one-time opportunity.
“Cap and trade” is projected to bring higher energy costs
The Obama administration has indicated that one of its priorities is “cap and trade” legislation to reduce greenhouse gas emissions by capping carbon emissions to a preset level and requiring the purchase of carbon allowances if a facility wishes to exceed its emission level. Many predict such legislation will lead to significantly higher electricity and natural gas costs. The recently approved Obama administration fiscal-year 2010 budget includes over $78 billion in revenues from cap and trade auctions in 2012 to fund renewable-energy ventures and subsidize energy costs for low-income groups.
Stimulus dollars for energy efficiency
The recently enacted American Recovery and Reinvestment Act of 2009 (Recovery Act) includes approximately $37 billion for energy- and climate-related initiatives to help individuals and businesses reduce their energy usage before cap and trade legislation takes effect. California’s designated share is approximately $3.1 billion, an amount that will be spent over a short 18-month window. Approximately $226 million has been allocated to California as State Energy Program (SEP) Recovery Act funds.
According to its March application to obtain SEP funds, the state plans to spend the money on loans, rebates, grants or incentive programs for hospitals (among others) to purchase and install eligible energy-efficiency and renewable-energy measures. Priority for SEP funding will go to expansion of existing energy-efficiency programs, including energy-efficiency retrofits of buildings and industrial facilities and expansion of existing renewable-energy projects. Although no specific funding priority guidelines have yet been released, the state has also indicated that priority for SEP funds will go to projects that:
- Stimulate the creation or increased retention of jobs
- Save energy
- Increase energy generation from renewable resources
- Reduce greenhouse gas emissions
- Leverage funds
California will receive an additional $400 million of Recovery Act monies for energy efficiency and conservation under a block-grant program. Seventy-five percent of this money is directly allocated to large cities and counties in the state that will disburse these funds locally. The remainder is available statewide. Although no specific funding priority guidelines for the block-grant monies have been released, projects that are cost-effective, shovel-ready and create jobs will be given priority.
Opportunity for California hospitals
With cap and trade looming on the horizon, health care providers in California, like other large users of energy, need to develop strategies for dealing with the anticipated increased electricity and natural gas costs. Additionally, these strategies may enable a hospital to take advantage of SEP and block-grant funds. These strategies might include:
- Conducting an energy audit to determine whether there are energy-efficiency projects that can be undertaken and that will provide energy savings over a reasonable payback period. The payback period may be substantially reduced if the proposed project can qualify for funding through the SEP or block-grant programs.
- Determining what monies and programs are available locally and the specific eligibility criteria.
- Determining whether local utilities offer energy-efficiency and conservation incentive programs or rebates that can be simultaneously utilized to reduce costs further.
What to do now
The window of opportunity for taking advantage of these funds is relatively brief. Most of the funds must be committed to projects by Sept. 30, 2010. With both health care and energy expertise, Davis Wright Tremaine can efficiently work with hospitals interested in investing in energy efficiency now to save money later.