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Utility Deregulation and Energy Management

George R Owens PE CEM, PresidentEnergy and Engineering Solutions, Inc.

gowens@eesienergy.com 410-964-3513

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Energy Management Roadmap

• Utility Deregulation• Energy Management• Renewable/Future Energy Resources• New Construction• Energy Security

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Alternative Titles Considered

• “The Good, the Bad and the Ugly of Utility Deregulation”

• “You Need to Be Careful What You Wish For”

• “Opportunities Still Exist for Building Owners”

• “Utility Deregulation - What’s Next?”

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Utilities – a Building’s Second Greatest Expense

26.6% UTILITIES

19.9%REAL ESTATETAX

27.7% LABOR

25.9% INSURANCE,CONTRACTSERVICES, MISC.

Typical Master Metered Building Expenses

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Utility Deregulation

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The Utility Deregulation Roadmap

• Deregulation Background• State Activities – each one is different• The Process of Taking Advantage of

Deregulation• Risk Management• Utility Deregulation for Landlords• Development Issues

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Energy Management in Changing Times – The Current Energy Crisis

• Rolling blackouts in California• PGE and Enron declares bankruptcy• Rates are up over 50% in California• Deregulated power available for less in

some states• Texas and Ohio start in 2002• Energy rebates and incentives are back for

existing operations and new construction

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What is Electric Deregulation

• 1&2 Generation– Being Deregulated

• 3 Transmission– Regulated by FERC

• 4&5 Distribution– Regulated by State Public Service Comm.– Responsible for getting power to the customer,

reliability, billing (may be partial) and restoring power

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Electricity State Status

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What’s Happening in California that has Everyone Running for Cover?

• California was the first state to implement full deregulation.

• This past few years saw:– Wholesale power prices skyrocketed– Outages and rolling blackouts– Customer rates increasing by 50%– SoCalEd & PGE amassing over $11 billion in debt and

PGE declares bankruptcy• California rescinds deregulation

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What went wrong in California?

• California has a shortage of generation due to limited new sources amidst a growing demand.

• It was a dry, hot summer.• During that time period, many generators

were down for maintenance.• The utilities bought most if not all on the

spot market.

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California – Can it happen here?

• The short answer is yes, however there are some differences in the Mid Atlantic region (PJM):– We now have a wakeup call and can try to forestall the

same thing from happening.– The CA power exchange is operated differently than

most others, especially the PJM.– CA has a larger shortfall of generation than this area. – New Generation is scheduled to be built in this area

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Choosing Your Supplier

• Track Record• Knowledge of your business, priorities and

risk tolerance• Size• Financial backing• Access to cheap and reliable power• Customer service and reporting

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What Are the Risks?

• What if the supplier goes out of business?• What if the supplier cannot get power?• What happens if you sell the property?• What is the impact of your load changing?

Schedule changes, expansions, closings, etc.• What happens if you do nothing and prices go

up?

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Utility Deregulation - The Tough Questions for Landlords

• What is the impact of deregulation decisions on the Tenants?

• Is your utility lease language up-to-date?• How do you answer?

– Why haven’t you participated?– I can get power cheaper than you.– Who will benefit from cheaper rates?

• How should new buildings be built for deregulation?– To master meter or not.

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The Ten Step Program to Successful Utility Deregulation

• Step #1-Know Thyself• Step #2-Keep Informed• Step #3-Talk to Your

Utilities (all energy types)• Step #4-Talk to Your

Future Utility(s)• Step #5-Explore Energy

Services Now (Why Wait for Deregulation)

• Step #6-Understand the Risks

• Step #7-Solicit Proposals• Step #8-Evaluate Options• Step #9-Negotiate

Contracts• Step #10-Sit Back and

Reap the Rewards– See www.eesienergy.com

for the full paper

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Energy Management

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Develop an Energy Management Program

• Always need a champion• Become educated• Pay attention to the details• Enlist resources, In-house vs. Outhouse• Develop Energy Master Plan

– Goals and Objectives– Operating Procedures

• Measure and report results

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Energy Information – The Starting Point

• Before starting any energy or deregulation program:– Understand your load profile

• Annually• Monthly• Daily

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Data Examples

Typical Daily usage profiles

1000

1100

1200

1300

1400

1500

1600

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

HOUR

Typical Monthly Demand

0

1000

2000

3000

4000

5000

6000

7000

1 2 3 4 5 6 7 8 9 10 11 12

Month

KW

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Sources of Energy Information

• Internal Accounting Department• Electric Utility

– Monthly– Interval

• Energy Management Systems• New Utility Metering Hardware/Software

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Energy Reduction Measures that Work:Management Programs

• “Energy Task Force” employee awareness program

• Preventive maintenance• Operator Training• Metering• Commissioning

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Energy Reduction Measures that Work:Lighting

• t8 lamps• Electronic ballasts• LED exit signs• Reflectors• Occupancy sensors• Daylighting control

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Energy Reduction Measures that Work:HVAC

• Economizers• HVAC controls• start/stop• optimum start• temperature reset• night setback• HVAC unit changeouts

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Energy Reduction Measures that Work:Controls

• Energy Management Systems• Time clocks• Direct digital controls• Demand controls• Electric deregulation monitoring and control• HVAC and lighting controls• Management information tool

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Energy Deregulation and Energy Efficiency - A Winning Team

• Expected savings due to electric deregulation - 10% to +5-8%

• Achievable savings due to energy efficiency projects - 10% to over 50%

• The best results are when you do both

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Should Utility Purchasing be Combined with Energy Services?

• First of all, you should do both• However, unless they are separated, you

never know the value of either• Could be by the same supplier but with

separate descriptions and prices for the two components

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Outsourcing Vs. In-house

• When do the economics make sense• Core competencies and concerns• Consultants• Gas brokers and marketers• Energy service contracts

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Renewable/Future Energy Resources

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Electricity Generation

• By Source

• Renewables– Hydro– Solar– Wind– Biomass

• Fuel Cells

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Distributed Generation

• Peak Shaving – Get Paid By the Utility to Run Your Generator/Reduce Load

• Technologies– Emergency Generators– Microturbines– Fuel Cells– Solar

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Solar Photovoltaic

• Stand alone utility connected• Supplemental building systems• Integrated building technologies

– roofs• Very expensive• Prices expected to come down

with more production• Incentives are available• Can be attractive if far from the

utility grid

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Wind Energy

• Large Scale Wind Energy Projects

• Small Scale Projects– Similar constraints as

solar

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Renewable Incentive Programs

• Financial Incentives –   Corporate Tax Credit

– Clean Energy Incentive Act • Income Tax Credit for Green Buildings

•   Personal Tax Credit • Clean Energy Incentive Act • Income Tax Credit for Green Buildings

–   Property Tax Exemption • Local Option Property Tax Exclusion for Renewable

–   Sales Tax Exemption • Clean Energy Incentive Act - EV and Hybrid Exemption • Clean Energy Incentive Act - Fuel Cell Exemption • Wood Heating Fuel Exemption •   State Loan Program • Community Energy Loan Assistance Program • State Energy Loan Program

• http://www.ies.ncsu.edu/dsire/library/includes/map2.cfm?CurrentPageID=1&State=MD

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New Construction

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Development Taking Advantage of Deregulation

• Utilities are more interested in negotiating to keep the new load.

• On the other hand, utilities are more interested in laying off costs to developers to be able to report a cheaper rate.

• Innovative rates are available from both deregulated and regulated utilities

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Innovative Rate Options –

• Long term contracts at a discount• Economic development rates• Interruptible rates• Financial hedges against rising prices• Primary vs. Secondary• Master metered vs. Individual tenant bills

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The Development ProcessEnergy Management Review

• Charge the design team with developing properties with high energy efficiency as a goal

• Use life cycle costing for determining options• Make energy decisions early in the project• Commission energy systems prior to opening• Consider energy plan review

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Energy Security

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Ten Items You Can Do to Improve Energy Security

• Recognize that Energy Security is an issue and develop a plan

• Identify a command center and insure that critical components have emergency power

• Identify all sources of energy and the location of shut off devices

• Develop communications plans for customers, tenants and employees

• Identify the source of off-site energy sources and a list of utility contacts

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Ten Items You Can Do to Improve Energy Security

• Identify who will be responsible for turning off energy sources during an emergency

• Maintain and routinely test any onsite emergency generator(s).

• Identify a source of temporary emergency generators in case the power will be out for an extended amount of time

• Identify all sources of outside air and develop protection measures

• For cold weather centers, develop contingency plans for an extended loss of heating.

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Conclusion

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Energy Management Conclusions

• Utilities are a controllable expense• Energy management pays off• Develop a program and take care of the details first• Deregulation is here, now• Understand and manage risks• Landlords have unique issues• Get involved in the process or get left behind

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The Best Energy Management Program Will Have:

– An Energy Master Plan– Well trained and motivated owners, staff and

contractors– A dedication to preventive maintenance– An energy procurement strategy– Optimized equipment based upon life cycle

costing. I.e. Lighting, HVAC and Building – Up-to-date, functional Controls and Information

Systems

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Internet Resources for Utility Deregulation

• 10 Step paper - www.eesienergy.com• State activities -

http://www.eia.doe.gov/cneaf/electricity/page/restructure.html

• State regulatory commissions www.naruc.org• Utilities - www.utilityconnection.com/• Maillist - AESP‑NET@AESP.org• Energy Futures Pricing -

http://quotes.ino.com/exchanges/?e=NYMEX