By Jenny Stephenson
Published in the October 2011 issue of Today’s Facility Manager
If facility managers (fms) pay for the energy consumed in their facilities, reducing their consumption can directly enhance overall profitability and the bottom line. Simultaneously, energy efficiency can help lower an organization’s carbon footprint, establishing it as a steward of the environment.
Energy costs usually comprise the largest controllable operating expense in commercial buildings—about 30% of total operating costs [BOMA 2009 Experience Exchange Report]. But they also provide an enormous opportunity for fms to conserve. It has been estimated that as much as 30% of energy consumed in a building is used unnecessarily and can be reduced through low cost energy management measures.
How can fms, with so many competing priorities, get a handle on building energy performance quickly and easily and then find ways to improve it? The U.S. Environmental Protection Agency (EPA) ENERGY STAR program for commercial buildings provides tried and tested, no cost tools, resources, and training on strategic energy management measures.
Benchmarking: The First Step To Energy Management
Benchmarking is the process of evaluating how a facility is performing today, and then monitoring performance on a continual basis. Fms with multiple buildings in their portfolio often benchmark all of their buildings to understand which are energy efficient and which are “energy hogs.” This way they can target limited funds to those that will experience the greatest benefits from energy efficiency projects.
On both an individual building and portfolio-wide basis, benchmarking enables fms to capture the tangible results of their low cost management strategies, quantifying the energy consumption and cost savings. With this data in hand, fms will be better equipped to convince senior management to increase the investment dollars available for more expensive upgrades.
Energy Procurement Pitfalls to Avoid
By Joe Santo
As deregulation of the energy industry has evolved, more facility managers (fms) have been tasked with procuring the supply of natural gas and/or electricity for their site or company. These fms have quickly adopted the terminology and have moved up the learning curve in order to establish supply agreements that best meet their needs.
With any new project or initiative, valuable lessons are learned, sometimes at the company’s expense. In order to avoid these costly mistakes, fms should be aware of the most common energy procurement pitfalls.
Best Price May Not Be The Best Deal
Price is clearly an overriding consideration and is frequently the factor by which all proposals are judged. The key, however, is to make sure that all of the factors have been reviewed and an apples to apples comparison is being made.
Usage band: One important consideration when selecting a supplier is the usage over/under allowance, or usage band. One supplier may have the lowest price but may also have a tight usage band.
In general, a supplier offering an agreement with no usage restrictions usually has a higher price than a supplier with a band of +/– 10%. Fms will want to understand the amount of usage risk they are willing to take and at what cost.
Sales tax: Is sales tax included in the price? In New Jersey, a sales tax of 7% applies to the sale of natural gas and electricity. Most suppliers include the tax in their price. Others show sales tax as a separate line item on the bill. (The second scenario is, in many cases, due to billing system functionality.) This 7% tax can quickly move what was thought to be the low cost supplier into the middle of the pack.
Other line item charges: Most of the deregulated markets have been impacted by regulatory modifications. A few changes are:
All of these regulatory changes impact a supplier’s cost structure. Some suppliers will pass these charges through to a customer as a separate line item on the bill. Other suppliers will estimate regulatory charges upfront and build them into the price, thus assuming some of the risks.
It is important to know, ahead of time, if any fees are not included in the price. It is also prudent to ask if any regulatory changes are coming down the pike.
Change In Usage Not Discussed With Supplier
Many customers have undertaken projects or are installing solar energy systems in an effort to reduce their energy and expense. When requesting pricing from a supplier, the fm will want to make sure that the supplier is aware of the project and the impact it may have on usage.
Suppliers will typically calculate their price based on the last 12 months of historical usage. If a supplier is unaware of major energy related projects, pricing will be developed using an invalid usage profile. This could actually lead to a higher overall “cost” for the customer.
For example, usage for a facility falls significantly below the allowance for which was contracted. The supplier will be left with the excess supply that was already purchased. The supplier will still charge the facility the contracted rate for the actual usage, but will sell off the additional supply at the market rate. If the market rate is lower than the contracted rate, the facility will only be credited the lower rate. The facility loses in this scenario.
In extreme cases, large projects that drastically change consumption, if not disclosed to the supplier, could lead to a renegotiation of the entire contract. Again, this could result in higher facility expenses depending on current market rates.
Existing Supplier Contract Not
This is one of the more common mistakes made by customers. All too often, after the supplier agreement has been executed, it will be filed away and will not be addressed until it is about to expire.
In the early phase of energy deregulation, pricing did not change significantly from year to year. Now, pricing is much more volatile and customers can experience significant swings in pricing from one contract period to the next.
It is imperative that today’s fms keep an eye on pricing in order to take advantage of the best buying opportunities. Many customers will use the service of a consultant or broker to help them keep abreast of market conditions and pricing. It is not uncommon for a customer to extend an existing contract just months after execution if this leads to a more advantageous long-term rate.
Inadequate Energy Budgeting
In the past, customers have actually seen their annual budgets exceeded by the time they reached August or September! In order to develop a more accurate budget, the fm needs to take into account future prices and regulatory changes as well as fluctuations in utility rates.
There are many aspects to the energy procurement process. Fms should be prepared to evaluate the various options available as deregulation evolves. Knowledge of the changing energy landscape as well as understanding the pitfalls to avoid will prove beneficial and should certainly help to improve the success of the energy purchase.
Santo is principal and director of business development at Premier Energy Group, LLC, an energy consultant firm serving commercial and industrial customers in the Mid-Atlantic region. Santo has over 20 years of experience in the energy industry.
EPA’s ENERGY STAR program has developed a free, online benchmarking tool called Portfolio Manager, which allows fms to measure and track building energy and water consumption and costs. The tool has become a widely tested and trusted resource; since its inception, more than 200,000 buildings representing more than 20 billion square feet have been benchmarked in the EPA’s tool.
Using Portfolio Manager is simple for fms. It requires only the most basic information about a facility: its address and year built; space use and occupancy; and monthly energy consumption. After this initial set up, just a few minutes are required of the user each month to add the newest energy bills.
The EPA provides online training, a brief step-by-step benchmarking guide, and other resources. There’s no need for fms to worry about data privacy—all information in Portfolio Manager is kept confidential, and accounts are password protected.
For many types of facilities (including offices, banks, courthouses, and data centers), Portfolio Manager generates an energy performance score on a scale of one to 100, which has become the industry standard for measuring energy performance in the real estate industry. It is computed by comparing building data to an unbiased data set [The Commercial Buildings Energy Consumption Survey (CBECS), administered by the U.S. Department of Energy’s Energy Information Administration (EIA)] and normalizing for external factors such as weather and building operations. The resulting one to 100 score is a simple, comparable, easy to interpret metric of building energy performance, analogous to the fuel efficiency rating of a car.
Regardless of whether a facility is eligible to receive the 1 to 100 score, fms can still use the tool to track and manage performance through a variety of other metrics, including total annual energy and water usage and costs, usage and cost per square foot, weather normalized energy intensity, consumption reductions, financial savings, and greenhouse gas emissions.
Ultimately, documenting actual savings reaped from energy efficiency initiatives is the most important piece of the process. Portfolio Manager can produce reports and charts portraying energy, financial, and greenhouse gas emissions savings, which can be used for communicating with senior executives and preparing annual reports.
Local And State Benchmarking Mandates
Aiming to increase transparency and accountability for energy efficiency, benchmarking and disclosure of energy performance has become mandatory in many jurisdictions and is expanding to all areas of the country. Fms can get ahead of potential requirements by benchmarking building energy performance now.
Major markets with private sector benchmarking and disclosure requirements include Washington DC, New York City, California, and the state of Washington, all of which use Portfolio Manager as a platform to standardize the process. (To see if a local jurisdiction has implemented mandatory benchmarking policies, fms can check this link or The Institute for Market Transformation website.)
The government itself is not exempt from benchmarking policies. In an effort to reduce energy expenditures and the environmental impact of federal facilities, Executive Order (EO) 13514 requires at least 15% of an agency’s existing building stock to meet the Guiding Principles for Federal Leadership in High Performance and Sustainable Buildings by 2015.
One component of the Guiding Principles involves benchmarking eligible buildings in Portfolio Manager and achieving an ENERGY STAR score of 75 or higher. ENERGY STAR, in partnership with the U.S. Department of Energy’s Federal Energy Management Program (FEMP) and the General Services Administration, has incorporated the Federal High Performance Sustainable Buildings Checklist (known as the “Guiding Principles Checklist”) into Portfolio Manager.
Voluntary Campaigns Leveraging ENERGY STAR
In addition to benchmarking mandates, there are other incentives to help fms start benchmarking now. National, regional, and local associations and governments sponsor energy efficiency campaigns that use Portfolio Manager as the basis of friendly, voluntary competitions. Through these campaigns, fms can gain access to training, resources, and recognition opportunities.
For example, the International Facility Management Association (IFMA) launched the IFMA Energy Challenge for facilities to reduce energy use by 15% or more. Fms are encouraged to share their performance data with IFMA’s master Portfolio Manager account as they work toward their goals. Participants can take advantage of a library of related resources such as webinars, articles, and publications, including a “Sustainability How-To Guide” series.
Another national campaign, the Building Owners and Managers Association (BOMA) STARS program, urges members of the real estate industry to benchmark building energy performance using Portfolio Manager and share the results with the BOMA International Portfolio Manager account. The data collected through BOMA STARS will help BOMA highlight the real estate industry’s dedication to lower energy consumption and greenhouse gas emissions on a voluntary basis.
On local and regional levels, too, voluntary campaigns are challenging organizations to evaluate and reduce their buildings’ energy consumption. These campaigns are popping up nationwide in areas including Seattle; Louisville; Denver; Chicago; Portland, OR; Arlington, VA; Central Florida; San Francisco; and Minneapolis/St. Paul. A current list is available here.
With the publicity in the marketplace about benchmarking competitions, fms might be interested in developing their own. They can learn how to build their own benchmarking competition and how other organizations are leveraging the ENERGY STAR Challenge.
You’ve Benchmarked—Now What?
Based on the experiences of leading ENERGY STAR partner organizations, EPA developed the Guidelines for Energy Management—a proven strategy for superior energy management—with tools and resources to help fms each step of the way. In the current economic situation, successful companies look to their facilities’ energy consumption as a strategic opportunity, capitalizing on efficiency as both a cost reduction measure and a way of enhancing environmental sustainability. Proving that a facility is proactively reducing its environmental footprint may also help to attract a new generation of customers and employees who demand information on an fm’s approach to reducing resource consumption and fighting climate change.
Stephenson is the ENERGY STAR National Program Manager for Commercial Properties with the EPA.