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UBC Building Operations Elsaesser, Braeden; Ertürk, Alara; Farrell, Jamie; Fong, Braden; Nagata, Roberto May 29, 2017

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 UBC Social Ecological Economic Development Studies (SEEDS) Student ReportAlara Erturk, Braden Fong, Braeden Elsaesser, James Farrell, Roberto NagataUBC BUILDING OPERATIONSCOMM 486MMay 29, 2017University of British Columbia Disclaimer: “UBC SEEDS Program provides students with the opportunity to share the findings of their studies, as well as their opinions, conclusions and recommendations with the UBC community. The reader should bear in mind that this is a student project/report and is not an official document of UBC. Furthermore readers should bear in mind that these reports may not reflect the current status of activities at UBC. We urge you to contact the research persons mentioned in a report or a SEEDS team representative about the current status of the subject matter of a project/report”. UBC BUILDING OPERATIONS Team 4    By  Braeden Elsaesser,  Alara Ertürk,  Jamie Farrell,  Braden Fong,  Roberto Nagata   Executive Summary Introduction  Four Consulting was contacted by UBC Building Operations in February 2017 and asked to identify possible tactics that could help the client reduce greenhouse gas emissions from the operations of its fleet and achieve a green, cost-effective fleet.  About the Client UBC Building Operations maintains and operates the Vancouver campus. That includes operating a service of fleet maintenance. It is their responsibility to investigate new possible methods of reducing UBC’s vehicle emissions and maintenance costs. However, many UBC departments operate their own vehicles and  do not use the service provided while still contributing to vehicle emissions. Therefore, UBC Building Operations realized the need for a long-term strategy to identify and tackle key areas of improvement that will allow them to achieve their desired sustainability goals. Current Situation Initially, we analyzed UBC Building Operations’ current situation. We conducted a SWOT analysis to evaluate their strengths and weaknesses as well as identifying the opportunities and threats facing our client’s fleet management practices. UBC Building Operations has a detailed and well-constructed fleet plan and a clearly communicated policy. The client has already taken initiative in order to reduce the greenhouse gas emissions from its fleet and meet the target emission rates outlined in the Climate Action Plan 2020. However, although UBC Building Operations managed to achieve significant reductions in GHG emissions and obtain the only E3 Platinum fleet certification in Canada, there exists a need to achieve further improvements, in terms of GHG emission reductions and the creation of a more cost-effective fleet. The key weaknesses are the limited capital resources available to finance these improvements and the lack of cohesiveness within the fleet operations of different UBC departments. We have identified numerous opportunities for our client, including technological improvements as well as increases in fleet utilization and access to free capital. A significant threat was a halt in technological growth, which would make it difficult for UBC to meet emission targets. Through the utilization of an ERRC grid, we have come up with potential solutions for the problems UBC Building Operations was facing. After careful analysis and research, our team has identified the most efficient and cost-effective tactics that will assist our client in meeting their targets.  Short Term Initiatives In terms of improving today’s emissions, there are three tactics proposed. One tactic is the adoption of a software that is able to improve utilization rates of every vehicle. This software enables drivers to reserve cars using an online platform. We believe that the integration of this software in the fleet’s operations will result in a higher utilization of the existing fleet and will lower the GHG emission rate by allowing drivers to engage in car sharing. Another tactic will target elimination of idling emissions which represent one of the highest rates of unnecessary emissions of every fleet. The final tactic will focus on adoption of more sustainable electric vehicles. It will provide realistic substitutes for some of the fleet’s vehicles.   Long Term Initiatives We understand that it is UBC Building Operations’ full intention to eliminate GHG emissions from its fleet by 2050 in adherence with UBC’s overall emissions goals. We also believe that this goals is entirely reasonable and achievable in that time frame, given the advances in technology that have occurred in recent years with regards to clean energy.  However, we are not confident in these technologies as pervasive and specific solutions to UBC Building Operations vehicle fleet.  We are technology agnostic with the current alternative options available.  Although full electric fleets, compressed natural gas options, or hydrogen fuel cell cars have significant potential to eliminate GHG emissions in the future, there remains technological, financial, and operational risks that overpower the opportunity as it stands today.  That is not to say that these options may not be strategic investments in the future, but rather than propose a sole answer to achieve the 2050 emission-free goal, we advise that UBC Building Operations stay cognisant of all the available alternatives.   Financial Implications One of the major hurdles in developing UBC Building Operation’s fuel efficient fleet is the financial costs. We have developed a financial plan that facilitates our other initiatives in order to meet the goals as prescribed by the project.  We propose selling all owned assets either under a direction outright sale or through a sales leaseback mechanism.  We have modeled these transactions and predict a sizeable financial capacity can be achieved.  This along with the annual budget, we believe will provide sufficient capacity to maintain the currently budgeted operations, while also being able to invest and develop a new, more efficient fleet and the infrastructure required to do so.  This unique financial structure, although more common with real estate will ensure that UBC Building Operations stays cost neutral.  Conclusion We believe that the tactics we have identified will enable UBC Building Operations to meet its GHG emission targets as well as allowing our client to achieve a cost-effective and highly efficient fleet. We have identified performance metrics to evaluate the progress every step of the way in order to make sure that we are moving in the right direction by prioritizing what is important for our client. 1The key problem facing UBC today, specifically UBC Building Operations, is the need to continually reduce the Greenhouse Gases emitted but doing so using cost effective methods due to budgetary constraints. While conducting our diligence, we determined that there were four overarching issues associated with the Building Operations fleet that are currently creating the aforementioned key problem. These include:1) Limited financial resources, which constrains Building Operations from simply creating a network of zero emission vehicles with the latest and greatest technology. Clearly, this would be incredibly expensive and with an annual budget of approximately $2 million, unfeasible. 2) There is a near-term target of reducing Building Operations GHG emissions to 275 tons by 2020. This target has yet to be reached in 2017 and we have deemed it to be the primary roadblock facing Building Operations today. 3) There is also the long-term target of completely eliminating GHG emissions by 2050. Again, this is an important milestone that must be considered when making decisions. 4) The lack of cohesion amongst fleet operators (i e. various departments) has led to distractions and could potentially worsen with time if not addressed in the near-term. From these four issues, we believe that there are two main strategies that should be implemented simultaneously, as they complement one another. First, UBC Building Operations should operate an optimal cost structure that promotes flexibility both in the short and longer terms. This should be coupled with the strategy of reducing GHG emissions across all UBC fleets while being cognizant of costs and risks associated with these initiatives. This framework led us into our five tactics that we will be discussing in greater depth later in the presentation. They include:1) Selling UBC Building Operations assets outright, as well as conducting sale and  leaseback transactions 2) Improving fleet utilization and reducing idling via various initiatives3) Integrating a small fleet of electric vehicles 4) Remaining technologically agnostic to the various under-developed methods for reaching 2050 target5) Creating and hiring a Change Manager who will be tasked with increasing inter-department cohesion2We have decided to apply the ERRC grid to UBC Building Operations’ fleet plan in order to conduct a deeper analysis before making recommendations. UBC Building Operations’ goal is to eliminate GHG emissions and idling in the long-term. We have realized that by increasing utilization, we can achieve reductions in both GHG emissions and costs associated with fleet operations as well as right-sizing the fleet. Moreover, in order to realize the targets for GHG emissions and idling, our client will need access to financial resources which suggests a need to free up some of the currently tied-up capital. The creation of a sales-leaseback model is vital for this reason. We have also identified a need to increase employee awareness regarding GHG emissions and UBC’s emission targets in order to eliminate wastage due to idling. In addition to this, the creation of incentive programs are also expected to have an impact on idling. Lastly, eliminating misaligned incentives and creating new partnerships are crucial for the 100% reduction in GHG emissions and idling in the long term.4Going forward, we will be bucketing the key tactics into four discussions:1) Cost efficiency 2) Emissions Today3) Future Proofing4) HR SolutionsWe will begin with cost efficiency. 6Developing a vehicle fleet that meets strict environmental standards is not only difficult to implement and highly time consuming, it is also capital intensive to replace, update, and collectively bring up to speed a portfolio of vehicles that range in make, model, year, and condition.  In our later two key points, we will address our approach to tackling GHG emissions concerns in order to adhere to UBC’s 2020 and 2050 goals, but before we can consider those, we must ensure that UBC Building Operations maintains at a minimum cost neutral. We have developed a layered approach to create the financial capacity to commit the necessary capital to invest in more fuel efficient and GHG-friendly assets and vehicles, while maintaining use of assets currently required to ensure no service gaps arise.  As a entity, we believe that leasing is a better option for UBC Building Operations’ vehicle fleet as it provides less risk inherent with ownership, greater optionality for rotating your asset base, and greater term negotiation. Given this, we propose the sale of all currently owned fleet vehicles, either through an outright sale for those vehicles that are deemed unfit to meet the current goals, and the use of a sale leaseback mechanism for the remaining, acceptable vehicles that are under UBC Building Operations’ ownership. A sale leaseback is a financial arrangement whereby a sale agreement of an asset between two parties occurs simultaneously with a lease arrangement for those same assets in reverse between the two parties.  Typically done to unlock the value of a companies real-estate, it is also common in all fixed-asset heavy industries, such as light-rail and airlines, and can be applied to vehicle fleets as well. There are five major benefits to the transaction for UBC Building Operations, which are as follows:1. Rather than focusing on the physical assets of the fleet, a sale leaseback transaction allows for greater focus on the core mission of meeting the 2020 and 2050 goals.  The upfront proceeds will enable upgrading and reinvestment into new vehicles to meet the time sensitive milestones.2. Under the lease agreement, UBC Building Operations will maintain exclusive use of the assets for a finite life at which point the assets will be transitioned to the new owner, eliminating any prior disposal risk.3. The transaction includes a sale element and, therefore, results in a off balance sheet transaction. The sale leaseback will improve bottom line from the upfront proceeds and improve financial rations, specifically those related to total assets (return on assets debt to equity ratios, etc.). 4. Focusing the proceeds from the transaction back into more efficient operations may show improved performance, efficiency, and increase financial capacity to stay cost neutral.5. The transaction will, lastly, maximize value for the vehicle. At the time of the sale, the vehicles will retain a higher dollar value opposed to selling at the end of their useful lives.  Additionally, the current renewal methodology for leases aims to capture the highest return for the vehicle, which will be applied to the new leases under the leaseback component of the transaction.7It was mentioned that UBC operations wanted to standardize the fleet to reduce costs and increase efficiency. The report stated that electric vehicles tested did not have the right features required by the fleet’s purposes and hybrids were not efficient due to the conditions of the campus’ roads. However, we were able to find three vehicles that fit within the report’s criteria for new vehicles to be integrated to the fleet. Might-E Truck• Proved their vehicles’ capabilities through several different projects and partnerships • Several different options that can accommodate and substitute different vehicles.• Van body, pickup box, flat deck, service body, garbage truck.• Battery life enough for two days and can go as fast as 25 mph. • Range is of only 50 miles/battery charge. • Optimal for on-campus daily operations since they are quiet and have more than enough range for needs.• 1000lb load capacity and can be charged from a regular 110V outlet.• Designed for low maintenance costs.Condor• Biggest selling point is the size range the Condor can reach with one battery charge. • On highway speed (65 mph) can reach 100 miles• At 45 mph can reach 140 miles• Can go up to 200 miles in one day with opportunity charging• Slightly smaller than Toyota Tundra but has dry storage space in the front of the vehicle. • Can carry up to 1,000lbs of load and tow up to 1,000lbs as well• Rear wheel drive with independent coil-over shocks for any type of operational need. Nissan e-NV200• Can be a complete substitute to fleet vans• Range of 106 miles per charge and can be charged of any regular charging station.• Similar dimensions for cargo area• 703kg maximum load• Possible to get subsidies for adopting more of these electrical vans by government since they will be replacing vehicles that are responsible for a large amount of ghg emissions. 10There is a global push to create more energy efficient operations from states, cities, companies, and all other forms of organizations, which includes many vehicle fleets.  Three case studies of recognized energy efficient vehicle fleets which are intended to provide a direct comparison to the initiative introduced by UBC and serve as a guide going forward of what is feasible are the University of California San Diego, the University of Washington, and HyFive.UC San DiegoIn 2011, UC San Diego received recognition for its efforts in establishing of the greenest fleets in the U.S. at the time, winning the “Sustainable All-Star Award” from Green Fleet magazine.  UC San Diego was able to convert approximately 40% of the campus’ 800 vehicles to zero-emission vehicles. Further, diesel fuel was phased out and was replaced by ultra-low-sulfur B-20 biodiesel. For their efforts, UC San Diego also receive recognition from the California office of the Environmental Protection Agency as a “Model Pollution Prevention Vehicle Service and Repair Facility”.Most importantly though, UC San Diego invested heavily in compressed natural gas (“CNG”) by installing a fueling station that would service their fleet.  They were able to acquire CNG vehicles at comparable costs, and therefore saved substantially from lower fuel costs and lower maintenance. UC San Diego, in 2011, was leading the way in green fleets and served as a model for other universities and institutions aiming to develop an efficient fleet.University of WashingtonAnother model university for their efforts to create an energy efficient vehicle fleet is the University of Washington.  This past year, the university ranked #17 on the 100 Best Fleets Awards, which is open to all federal, state, and local government fleets in North America. Evaluations depend on fleet composition, fuel and emissions, policy, utilization, education, employee involvement, and supporting programs.  In 2016, University of Washington was the only university to receive recognition of the award. Their fleet consists of 698 vehicles, including 254 ethanol flex-fuel vehicles, 120 hybrid vehicles, 5 diesel-electric vehicles, and 24 all-electric vehicles. Additionally, the university heavily uses biodiesels where applicable, with 58 vehicles using B-20 and 254 planned to use E-85 biofuels. University of Washington should serve an exemplary model for UBC Building Operations.HyFiveHyFive is a project under the umbrella of Fuel Cells and Hydrogen Joint Undertaking, a public-private partnership with the European Commission.  HyFive is a project to deploy 185 hydrogen fuel cell vehicles and refueling stations from the five leading global automotive companies: Daimler, Hyundai, Honda, BMW, and Toyota. A total of 15 partners comprises the HyFive team, giving it the scale to avoid scale issues that currently prevent wide-scale roll-out. The project has almost 18 million euros in funding and is set to end on September 30, 2017. This project’s success could be leveraged to develop successful and sustainable hydrogen fuel cell infrastructure.12Kotter’s 8 steps for leading change – Adapted for UBC Building Op’s Department Integration PlanThis framework was designed to help facilitate change. Using it as a guide, we have created customized steps to outline how you persuade the 50 UBC departments to utilize your services and best practices. 1. Create a sense of urgency: By establishing early on why this change is important to your stakeholders and why they should adopt the change, they will embrace the change as opposed to fighting it. We suggest you can establish this urgency by reminding the departments of UBC’s emission goals, and how little time they have to reduce over 50% of their total emissions. 2. Build a guiding coalition: This step establishes your credibility. By having influential members of UBC’s leadership team voice their support for your change, you will be less likely to experience resistance from the departments. 3. Form a strategic vision and initiatives: During this step, you will communicate the vision of UBC’s lowered emissions. Emphasis will be placed on listening to the needs of UBC’s departments, and tailoring your services according to their needs to help them reach their objectives. 134. Enlist a volunteer army: A volunteer army will begin to form when partnerships between UBC Building Ops and UBC departments are created. These partnerships can be used as example of UBC Ops listening to the specific needs of departments and coming back to them with tailored solutions. Having the support of different departments extends your credibility when trying to establish more partnerships. In order to establish the first few department partnerships, preliminary analysis will be conducted to identify which departments will be more open to a partnership with UBC Building Ops.5. Enable action by removing barriers: As mentioned in our Q & A session, there are three key barriers to establishing department partnerships: limited time to build relationships, frequent turnover of department staff, and misaligned incentives between Building Ops and various departments. By hiring a contractor with experience in project management, change management, and management of vehicle fleets, we will no longer be held back by these constraints as we will have a dedicated resource devoted to this endeavour. 6. Generate short term wins: Short term wins are critical for motivating stakeholders involved in the change. By introducing monthly metrics onto departments’ invoices they will be able to see clear results from partnership. 7. Sustain acceleration: This step ensures that change does not lose momentum after the initial push has been made. Leveraging existing partnerships and consistently delivering quality results will aid in the acquisition of new department partnerships. 8. Institute change: Reinforcing the change by attributing success to the desired behaviours will motivate stakeholders to follow through until the end of implementation. Behaviours that are key to establishing partnerships with UBC departments are: the willingness to listen, understanding the fundamental needs of each department, and selecting services that will best fit those needs. 14As previously mentioned, the sale leaseback model uses a sale mechanism of an asset(s) between two parties with a simultaneous lease agreement between the same parties, in opposite direction.  We have performed a highly indicative financial model representing this transaction as a representation of the possible capital inflow provided.  With further discussion and involvement from UBC Building Operations, the assumptions could be greatly refined to create a more succinct idea of the potential value associated with the transaction, but at its current state the assumption that influence the model are as follows:1. The interest rate applied to the whole of the fleet in the transaction was 10%.2. 10-year life as an average of the whole fleet in the transaction, as the lifecycle of the specific vehicles vary.3. Using broad-based market values, we had an indicative market value of the whole fleet of assets in the transaction of $205,267.4. We used a residual value of the assets in the transaction of $0, indicating that the assets will fully depreciate with the new owners.5. Using an annuity style payment in advance, we determined that the annual payment to be $29,590 over 10 years6. We assumed that transaction costs (bankers, lawyers, etc.) would cost 5% of the total deal value.With these assumptions, we determined that the free cash flow available at financial close to be $190,000.  This can be directly reinvested into fleet upgrades and acquisitions in order to meet the predefined goals.15Our analysis of UBC Building Operations’ currently owned fleet led to the creation of two distinct groups: vehicles for direct outright sale and those available to be included in the sale leaseback transaction.  Collectively these two transactions will provide a significant capital influx above the annual budget for the UBC Building Operations in an amount of $560,500. In our sources column, we have also allocated revenues from electric charging stations, as it is possible for the charging stations to be available for general public use when not being used by Building Operations. All in, we have defined our sources of capital at $2,575,500. On the uses side, we have broken out our forecast by group: current budget, financial scope, short term initiatives, long term initiatives, and our HR aspect. We have made the assumption that 95% of the annual budget is currently allocated.  Additionally, the short term initiatives are by far the most pressing items with capital requirements and therefore have distributed the majority of remaining capital to this bucket.  We have grouped new leases of electric and non electric vehicles together for simplicity sake as it is highly indicative and would require further due diligence to determine the specific vehicle requirements for replacement. In this group we have allocated a spend of $400,000.  We have also placed $80,000 to develop further electric infrastructure through charging stations.  At $10,000 per station, we have estimated that 8 stations should be sufficient in the short term.  The final major piece of the uses category is the future proof long term initiatives.  Although we have not provided a specific recommendation for alternative option, we have outlined numerous potential options and we have allocated some of the capital to being able to partner and build on these new technologies for when they become suitable alternatives.1617202122232425262728293031323334353637383940

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