COVER STORY, MARCH 2007

POWER UP YOUR ENERGY KNOWLEDGE
What you need to know to maximize utility savings.
Jeff Hart

Owners and managers of multiple commercial real estate properties have myriad challenges to navigate. When managing a large number of real estate sites — whether dealing with maintenance issues, the collection of rent or any number of other issues — it can be hard to focus on what may seem to be less pressing matters. With so much on the front burner, it’s no wonder that important issues sometimes fall to the back burner. One important issue is the management of energy costs.

Many organizations do not have the foresight or budget to hire an in-house energy manager. Rather, they choose to leave the management of utility expenditures to the company’s accounts payable department.

It is no surprise that many overburdened businesses operate this way, but that doesn’t mean that it is a good idea. An organization that allows front-burner pressures to create a laissez-fare attitude toward energy cost management end up getting zapped, often paying thousands more annually in utility costs than it should.

The good news: By partnering with an energy management consultant, commercial real estate companies can control utility rates, avoid the shock of higher utility charges and dramatically reduce their monthly bills.

Plan for the Next Budget

While many organizations plan their fiscal year in the summer or fall, it is always a good idea to monitor usage and know what is being spent. However, commercial real estate companies should take it a step further and research ways to effectively reduce costs for the next fiscal year.

One step is knowing whether the managed sites are in regulated or deregulated markets. While companies can save in either regulated or deregulated markets, the approach to savings is different in each. In a regulated market, real estate sites are tied into the utility provider that is designated to that market. One way for a company to save is to examine monthly invoices and determine if the current rate best suits its needs. For example, if the site is a 24-hour operation, an off-peak hourly rate might be available from the utility. Or, if there is higher foot traffic on certain days, a rate that fits that need can be found. Owner or managers of properties in regulated markets can also generally save from 1 to 2 percent by auditing their monthly utility bills.

The owner or manager of a site in a deregulated market, however, has an advantage. It can leverage third-party electricity suppliers and often negotiate a better rate, with the ability to reap savings of up to a 25 percent.

A good rule of thumb: Before entering any energy procurement agreement, a company should determine how much risk it can tolerate. Shopping for an energy contract is like shopping for a mortgage on a home: One could take the conservative route and lock into a 30-year fixed rate or take out an adjustable rate mortgage when rates are low.

Likewise, if a real estate company can handle more risk, it could consider an index rate when energy prices are high and avoid locking in when prices are at their peak. Or the company could decide to enter into a longer contract, and not worry about market fluctuations.

Keep Costs Down

Clearly, keeping track of energy costs and understanding the options is a tall order. By being proactive, property managers can implement cost-saving strategies to control electricity costs, and these strategies can yield immediate results.

Here are three simple steps commercial real estate professionals can use to accomplish this:

1. Pay attention to the building operations guide. By following the building’s operations guide, site managers and employees can roll back electricity use. These guides explain how the building’s lighting and HVAC systems operate during the start and end of business hours.

For example, while security lights are always on, there is a process for starting the main lighting system and maintaining the HVAC system at a constant level.

These guides also include a section that highlights the consequences of adjusting the thermostat by as little as 2 degrees. For a single site, the increase might not be much, but it can spiral when multiplied across multiple storefronts and locations.

2. Controlling energy management systems. A site’s energy management system (EMS), which is used to control the building’s lighting and HVAC systems, has varying degrees of sophistication. The EMS system controls when the HVAC and lighting systems start at the beginning and end of the day.

For example, the HVAC system might be programmed to start at 6 a.m., phase I lighting to start at 9 a.m. and full lighting to start at 10 a.m. However, optimal operation of these systems is only as good as the people that run them. If the site manager or an employee overrides a set point without reestablishing it, the system will continue to run at this rate and drive up monthly costs.

3. Consult with an energy manager. Researching energy options is often difficult while running an organization. To ensure a company isn’t overpaying, it can outsource its energy management needs and continue to focus on the management of the business. Energy managers have the tools, years of experience and the contacts. They can quickly develop a game plan to analyze electricity data and ensure the operation is operating with the best rate.

An initial consult normally includes an examination of the client’s usage history, which the consultant uses to conduct an energy audit. Further evaluation will reveal what sites in the network use more electricity than the others. The consultant then drills into the specifics of those sites, including the hours of operation, whether it uses energy efficient equipment and whether any control systems are used.

The goal is to constantly monitor electricity use. Energy management is an ongoing process, and as the energy market is becoming more refined —and the professionals around it more educated — there is more knowledge and information concerning how energy is used.

While more energy is used every year, there has never been a better or more important time for overburdened real estate professionals to move energy management to the forefront — and an energy management consultant can help make that process painless.

Jeff Hart is president and CEO of Cadence Network, a Cincinnati-based utility, lease, and expense management firm.


©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.