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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