The third-largest budget item for many U.S. companies is energy, which falls just behind labor and material costs, according to ecova.com. The cost of energy for the U.S. commercial and industrial sectors was more than $202 billion from 2009 to 2011.
As one of the largest expenditures, it is important for employers to find the right combination of energy products by using the best energy supplier for their business needs. And for many, the best energy strategy may involve using petroleum products, bundled with other energy needs.
Petroleum accounts for 3.5 to 4 percent of the total primary energy consumption for commercial business, according to the U.S. Department of Energy. In addition, in 2010, the average price for petroleum — which includes distillate fuel, LPG, kerosene, motor gasoline and residual fuel — was lower than electricity.
“When searching for a energy supplier for petroleum, employers should look for a company with an all-encompassing portfolio of energy offerings, proving reliable, readily available and cost-competitive distillate supply at various supply terminals,” says Paul Rippy, senior marketer for petroleum products at PPL EnergyPlus.
Smart Business spoke with Rippy about which energy suppliers offer petroleum products, how to choose the right energy supplier and the current petroleum short-term market outlook.
Do all energy suppliers offer petroleum products?
No. While there are many energy suppliers that offer various products and services to help you with your energy supply needs, not all suppliers offer a comprehensive choice of energy supply options to help every facet of your business. If your business operates facilities that require different types of energy, it is important to align your business with an energy supplier that can meet all of your needs, whether that is using electricity, natural gas, petroleum products or all three.
When you are looking for a supplier that can be a one-stop shop for energy needs — including electricity, natural gas, petroleum products, renewable energy, demand response and mechanical services — you want to look for an energy supplier that can provide all of these products on a consistent basis. Not all suppliers offer petroleum products consistently or in all the areas where your facilities are located.
What are the advantages of bundling petroleum products with other energy supply products?
Certainly, when you find an energy supplier that is able to bundle various energy products and services to meet your business’s needs, you benefit from the ease and convenience of a one-stop-shop type of relationship. With a single energy supplier capable of meeting all your energy needs you, as an employer, can focus more directly on your other business aspects.
In addition, you may have facilities that are in various locations and have different energy needs. Selecting a supplier that knows how your business works and has committed to understanding your unique energy supply needs is the start of a business relationship that enables your company to have the most advantageous products and services for its energy needs.
What should employers look for when shopping for a petroleum supplier?
Employers should strongly consider the petroleum supplier’s professionalism, experience and ability to provide a diverse, reliable and readily available array of energy products. For example, companies such as PPL EnergyPlus maintain strategically located and limited available terminal capacity space to store products, allowing easy access to their rack customer base. You also want to select a supplier with a strong financial background, knowledge of petroleum and energy markets, and a strong commitment to customer service. And, of course, you want a supplier that can navigate the volatility of the petroleum market and provide your business with competitive prices.
What’s the short-term prospect for petroleum product prices?
As of the middle of May, U.S. gasoline prices were at an average of $3.754, decreasing throughout the beginning of May, according to the U.S. Energy Information Administration. The average in the Mid-Atlantic region was $3.764.
Based on experience and knowledge of the petroleum products market, we believes that distillate product prices will bottom out over the summer months before rising unsteadily into the winter. Gasoline prices will continue to trend downward through the summer into the winter months before trending upward next spring.
This is based on current market and economic data. We don’t have a crystal ball to have certain knowledge of the volatile petroleum market, but we follow the markets closely every day and use that knowledge to benefit customers.
However, the situation always remains in flux; certain events could occur tomorrow that would significantly change the outlook on short-term future petroleum product market prices.
PPL EnergyPlus offers unbranded diesel fuel, gasoline, heating oil and kerosene to electric generation facilities, distributors and large commercial and industrial, and federal, state and local government customers, not only in Pennsylvania but also throughout the Mid-Atlantic region. The Petroleum Products Division continues its strong, well-established supply relationships with refiners, commodity brokers and wholesalers.
Paul Rippy is senior marketer for petroleum products at PPL EnergyPlus. Reach him at (610) 774-5630 or MPRippy@pplweb.com.
Insights Energy is brought to you by PPL EnergyPlus
World energy demand is exploding and the U.S. is no longer driving consumption and price. For instance, the U.S. could double the fuel efficiencies in all its cars and the amount of world oil consumption would continue to rise, says Michael W. Wise, co-chair of the Energy Practice Group with McDonald Hopkins LLC.
“Advocates exist for coal, gas, nuclear, wind, solar and many other sources of power, but the reality is that we will need all these energy sources,” Wise says. “Every year has brought new technology, changing economics and dynamic opportunities. For example, Northeast Ohio is in the running to build the first offshore wind project in North America.”
Smart Business spoke with Wise about how energy projects are driving the economy.
What is the biggest change in the energy landscape over the last five years?
Abundant cheap natural gas -— the source of this gas is in shale formations buried deep in the earth. Historically, this source of gas represented less than two percent of the total production in the United States. Today, the production percentage is approaching 30 percent. A few years ago, gigantic port terminals were being constructed and planned in order to import liquefied natural gas (LNG). Today, those terminals are being reconstructed to export that LNG.
Texas has led this effort with its Barnett Shale reservoir, which may be the largest reservoir in the United States. However, the eastern U.S. (including Pennsylvania and eastern Ohio) is now developing the Marcellus Shale reservoir and Ohio has begun to see abundant activity in its Utica Shale reservoir.
Cheap natural gas benefits our economy as it drives down the price of electricity. Old coal plants are being retired and in some cases converted to natural gas. Both these conversions and new gas-fired generation utilize more efficient turbines to provide cheaper electricity. Cheap natural gas also provides a cost break to homeowners who heat with gas and a break for large industrials that rely on gas as a component of their manufacturing.
Finally, the drilling and distribution of natural gas is revitalizing the economies of a number of states. In particular, Texas, Louisiana, Pennsylvania and Ohio are already experiencing transformational wealth accumulations.
Are there other unique ways that Ohio is positioned to capitalize on this development?
Yes, in the use of natural gas as a preferred transportation fuel. Large vehicles and some fleets have used compressed natural gas (CNG) and liquefied natural gas (LNG) as a fuel source for decades — but on a limited basis because of the volatility of pricing. With supply appearing firm for the foreseeable future, efforts are full speed to develop the CNG/ LNG potential. Just recently, GE and Chesapeake Energy announced plans to develop CNG fueling infrastructure. The utilities (Dominion and Columbia), gas marketers (IGS) and auto OEMs (Ford, Honda and Chrysler) are also active. Government is also addressing the issue as Governor John Kasich is working with the Ohio General Assembly on a series of incentives and Congress is considering adding CNG provisions to the Federal Highway Bill.
Ohio is at the crossroads of the CNG play because of the Utica and Marcellus Shale along with the existing auto supply chain infrastructure. No other state may be better able to take economic advantage of this opportunity.
What is an under-discussed component for developing a project?
For an electricity generation project, the basics have always included site control and site-related issues along with an adequate offtake or power purchase agreement. Today, many projects must also undergo sophisticated financial engineering in order to achieve financial viability. New projects often do not have adequate returns to proceed. A byproduct of cheap natural gas is a decrease in the price of base load electricity, and more expensive renewables and advanced energies like waste heat recovery and cogeneration become comparably more expensive. In a nutshell, how does $.08 power from a cogeneration project at a steel mill compete with $.05 power from a utility? Couple this with the increasing complexity of government incentives and you have a need for sophisticated professionals. Good counsel and financial advisers can help bring a project to fruition by taking advantage of tax equity, retail power pricing, complex capital leases, state and federal incentives and favorable treatment from a utility.
What is another new variable for developing energy projects in 2012?
The Investment Tax Credit has been a strong tool to finance renewable energy projects. From 2009 until the end of 2011, that program was a real game changer as a developer could choose to take a 30 percent cash grant in lieu of the credit. This allowed projects to move forward without a partner with the requisite tax appetite. With the expiration of the grant opportunity, there is once again the necessity of a tax appetite partner. This will put a premium on sophisticated financial engineering of these projects.
What is ‘hot’ in 2012?
New and converted gas fired generation. The utilities are moving into this space but a less-told story is that other types of companies are pursuing both cogen and independent power production. The goals are to take advantage of low natural gas prices, provide a long-term hedge against the return of higher electricity prices, and to also (where appropriate) provide for the steam needs of a facility.
Who is developing projects in 2012?
Homeowners are pursuing small solar and geothermal, companies are exploring wind and cogen and utilities are developing new gas fired plants and smaller renewable projects to meet their obligations under Ohio’s renewable portfolio standard. In short, anyone.
Michael W. Wise is the co-chair of the Energy Practice Group with McDonald Hopkins LLC. Reach him at (216) 430-2034 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by McDonald Hopkins LLC
If your business hasn’t recently evaluated its contract with your natural gas and electricity suppliers, now is the time to do so.
With the introduction of Marcellus Shale, coupled with natural gas from other sources, prices have dropped significantly, making it the ideal time to partner with an energy supplier that can help you navigate the market, says Terry Crupi, director of Natural Gas Marketing and Trading at PPL EnergyPlus.
“Falling wholesale prices are proving a boon to businesses, and if you haven’t recently evaluated your contracts, you may be paying more than you need to,” says Crupi.
Smart Business spoke with Crupi about how partnering with an energy supplier can benefit your business.
What has been the impact of Marcellus Shale gas development on natural gas prices?
The introduction of Marcellus Shale, and natural gas from other sources, has contributed to a significant drop in natural gas prices to levels we haven’t seen in more than a decade. The increase in available natural gas supply, coupled with the economic recession, has caused prices to tumble by about $2.50 cents per million BTUs over the last 12 months.
These low prices have saved Pennsylvania businesses about $1.4 billion in natural gas costs, and created an opportunity for businesses to lock in their natural gas price and to evaluate switching to natural gas to power systems and processes.
The drop in natural gas prices has also affected wholesale electricity prices because power plants that run on natural gas often set the price for electricity in the competitive wholesale market. In the last 12 months wholesale market prices for electricity have decreased by about $1 billion in savings in electricity costs for Pennsylvania consumers.
As we see an increase in the development of Marcellus Shale, other benefits will become evident, such as the creation of jobs in existing businesses and enticing new businesses to the state. Marcellus Shale gas provides many long-term benefits to consumers and taxpayers beyond just the direct price impact for this important energy resource.
How do natural gas prices affect electricity prices?
Natural gas is a leading indicator for electricity prices, so as the increase in supply of natural gas decreases its price, the prices for electricity are driven downward as well. We are also seeing that, as natural gas becomes more available with the development of Marcellus Shale, power plants that run on natural gas are becoming more competitive on a cost basis with power plants that run on coal.
Historically, coal has been the lowest-cost source of electricity generated with fossil fuels. As the cost equation changes, and coal-fired power plants are faced with managing the uncertainty of new natural gas supply and new environmental regulations, natural gas will continue to gain prominence as a power generation fuel.
In addition, plentiful amounts of natural gas — or any commodity — generally result in lower prices, which provides lower costs (savings) and helps businesses and consumers meet or improve their bottom line. Low energy prices present opportunities for businesses to expand, increase production, or, at a minimum, switch fuels. In fact, many large industrial customers are now considering or converting to natural gas supply.
In some cases, co-generation with natural gas-fired generators may help reduce costs and improve reliability. These are options smart businesses will want to explore in the current energy situation.
What is the long-term view of natural gas prices? Will they stay low?
Our experience in the natural gas market and our analysis of the trends lead us to believe that low, more stable natural gas prices will be with us for a few years. It’s important to keep in mind, however, that natural gas prices are cyclical. At some point, due to increased demand or reduced supply, natural gas prices will trend upward once again. This is why it’s so important for smart businesses to evaluate their energy usage and monitor energy markets.
Many customers do this on their own while others receive assistance from an energy partner or supplier that has the knowledge and experience to understand when conditions are changing and can advise businesses on the best ways to manage their energy costs — or more important, advise them on an energy strategy.
How can businesses take advantage of the current low energy prices?
Partnering with an energy supplier that understands the nature of energy prices, external effects from government regulations and industry trends such as Marcellus Shale will help your business take advantage of current market conditions while assisting you in navigating the market in the future. Businesses now should be evaluating their current contract with their natural gas and electricity suppliers and asking how they can benefit from today’s low energy prices.
There are also ways to optimize a business’s energy usage to gain even more savings. The retail energy market provides other products and services that help you more efficiently and effectively procure and use energy.
The key is to proactively find an energy partner that you are confident will help you successfully navigate the energy landscape.
Terry Crupi is director of Natural Gas Marketing and Trading for PPL EnergyPlus, a competitive gas supplier serving industrial and commercial customers in Pennsylvania, New Jersey, Maryland and Delaware. Reach him for wholesale and retail inquiries at PPLRetailGas@pplweb.com or (610) 774-2310.
Insights Energy is brought to you by PPL EnergyPlus
Every business needs electricity to function. But most business owners rarely give it a second thought, going to work each day and flipping a switch, taking it for granted that the lights will come on.
But businesses have more at stake than just the lights coming on. Without electricity, computers won’t work, equipment and machinery won’t run and your IT infrastructure will be unable to operate. And why would you want to leave all of that to chance, when there are reliable, affordable options to choose from?
All electricity suppliers are not equal. By taking the time to do your research and finding a supplier that not only delivers electricity but acts as a partner to your business, you can reap benefits far beyond what you could by simply choosing the lowest-cost provider, says L. Gene Alessandrini, senior vice president of marketing at PPL EnergyPlus.
“Electricity is critical to businesses, yet many fail to do their homework and find a supplier that best meets their needs,” says Alessandrini.
Smart Business spoke with Alessandrini about what businesses should look for in a competitive electricity supplier, how finding the right partner can help your business move forward and why going with the lowest-cost supplier isn’t always the best idea.
What should businesses look for in a competitive electricity supplier?
Many business leaders see price as the driving force behind the selection of a competitive electricity supplier. And while price is certainly important to a business, there are other factors to carefully consider and research before you commit to a contract on something as important to your business as electricity supply.
First and foremost, choosing an electricity supplier should be a partnership. An electricity supplier should be more than a commodity supplier. Your business runs on electricity, and it can’t run without it, so you should expect a trusted voice with an established reputation to partner with you to meet your needs.
Right now, electricity prices are as low as they have been in several years, but they won’t stay that way forever. A trusted electricity supplier that takes a partnership approach will help your business understand market trends, minimize the impact of price volatility, educate your business on best practices for smart energy usage and provide a consultative approach.
You want an electricity supplier who stays connected to your business’s current and future energy needs, not one that just takes a one-size-fits-all approach to supplying power.
Why shouldn’t a lower price be enough to make a business switch suppliers?
Wholesale electricity prices are lower than they have been in several years due to the increased availability of natural gas and reduced electricity use as a result of the slow economy. Good deals abound in the current market, so many competitive suppliers are offering prices that could reduce your electricity costs.
Keep in mind, however, that price should never be the only factor when a business is choosing a competitive electricity supplier. A conscientious electricity supplier will offer a combination of competitive pricing with customizable products and services, and an understanding of both your business needs and energy market performance that help businesses for the long run.
An electricity supplier with extensive experience will help your business navigate through volatile market trends and identify ways that it can help your business become more energy efficient or that you can potentially earn revenue from your energy use. An electricity supplier that also offers related energy services to help businesses with mechanical needs or renewable energy needs also can help make a long-term difference beyond price.
The bottom line is that price is one factor, but it’s important to consider the benefits that result from having an industry expert on your side with additional products and services that create greater value.
Why is experience an important factor when a business is selecting a competitive electricity supplier?
An electricity supplier with extensive experience and industry knowledge, one that takes a dedicated and thoughtful approach to your business, is a valuable asset to have on your side. For example, if you are a business with multiple facilities, you should be looking for a strategic partner that understands complex transactions across multiple locations. Also, many companies today are looking to make their business greener. If that is the case, you should be looking for a strategic partner that can offer renewable energy solutions and energy efficiency services.
Many competitive electricity suppliers are able to offer a low price but not all of them have the industry experience to effectively negotiate the market with an understanding of your particular business energy needs. A knowledgeable electricity supplier forms a dedicated relationship to understand your business and how it uses energy and when its peak demands are, then applies that knowledge to help you meet your bottom line.
An electricity supplier that takes a comprehensive approach to your energy usage needs is part of the partnership that goes beyond the initial sale, resulting in a smarter use of electricity that could ultimately benefit your bottom line.
L. Gene Alessandrini is senior vice president of marketing at PPL EnergyPlus. Reach him at email@example.com or (610) 774-4483.
While many of the costs of doing business continue to rise, the price of wholesale electricity has dropped significantly.
And that offers businesses the opportunity to partner with an energy supplier to identify ways to reduce their electricity and fuel costs, says L. Gene Alessandrini, senior vice president of marketing at PPL EnergyPlus.
“Decreasing prices make now an ideal time to review their options and develop an energy procurement strategy with their supplier,” says Alessandrini.
Smart Business spoke with Alessandrini about how to develop energy procurement strategies to take advantage of long-term pricing trends and evaluate what a competitive energy supplier can offer your company to help capture savings
Why are wholesale energy prices so low right now?
We have seen a significant drop in wholesale electricity prices since the start of the current economic recession. Prices on the market today are significantly lower than they were even six months ago.
Part of the reason for this is the reduction in electricity usage caused by the slowdown in the general economy. Another major factor is the significant decline in natural gas prices. Wholesale electricity prices have a strong correlation to the price of natural gas because of the way prices are determined in the regional power market.
With the increasing availability of shale gas in the market from the Marcellus Shale formation and other shale gas deposits, natural gas prices are dropping even lower. And as long as natural gas prices remain low, electricity prices should remain low as well.
Where do you see energy prices headed in 2012?
As more and more natural gas from the Marcellus Shale and other shale gas comes into the market, we expect natural gas prices to remain depressed, which also will keep wholesale electricity prices low.
Another factor that could affect prices in 2012 is the recent federal appeals court decision that halted implementation of the Environmental Protection Agency’s sweeping Cross State Air Pollution Rule, which was supposed to take effect Jan. 1. The federal court decision delaying the rule also put downward pressure on electricity prices.
But smart businesses will not lose sight of the fact that prices in any market are cyclical, and wholesale electricity prices will rise at some point. Continued uncertainty regarding a wide range of environmental regulations proposed by EPA affects wholesale electricity prices, and as regulations become more stringent in the future, they could put upward pressure on power prices in the long term.
For the near term, however, lower electricity prices are a great financial benefit for businesses. The current depressed prices provide opportunities for businesses to reduce their electricity and fuel costs, which makes 2012 an ideal time to develop energy procurement strategies and evaluate what competitive energy suppliers can offer your business.
With electricity prices as low as they are currently, is it advantageous for businesses to lock in prices now or wait until they go even lower?
It’s a great time for businesses that are doing their homework about electricity and fuel supply. With wholesale electricity prices at such low levels, businesses can take advantage of low prices by reviewing their options and developing energy procurement strategies.
PPL EnergyPlus recommends businesses re-evaluate electricity and fuel supply options with competitive suppliers no differently than how they would assess their portfolio and weigh the opportunities.
Staying ahead of inevitable pricing fluctuations and seeking out future pricing for your organization can save you in the long run. When you are informed about market trends and how relatable factors such as Marcellus Shale and other shale gases, for instance, could affect your energy prices, you can take a proactive approach to those future pricing trends.
Although we expect prices to continue to fall in the near term, the objective should not be to try to find the lowest price but to develop a strategy to take advantage of long-term pricing trends and capture savings to allow your business to succeed.
What long-term effect will Marcellus Shale natural gas supply have on prices that businesses pay for natural gas and electricity service?
As more and more shale gas comes to market, the increased availability of natural gas keeps prices low. This not only affects natural gas supply prices but also electricity prices. Natural gas is increasingly used as a fuel to generate electricity, and based on how the market determines electricity prices, there is a strong correlation between natural gas prices and wholesale electricity prices.
Right now, natural gas and wholesale electricity prices are extremely low. Because there’s an abundance of natural gas in the Marcellus Shale region that could be brought to the market, it’s possible that natural gas prices will remain this low for an extended period of time, which would also keep electricity prices low. Natural gas development from Marcellus Shale and other shale gas play could also have a significant impact on businesses.
The smart businesses will be looking for opportunities to actively manage their electricity costs and seizing them.
L. Gene Alessandrini is senior vice president of marketing at PPL EnergyPlus. Reach him at firstname.lastname@example.org or (610) 774-4483.
Energy is one the biggest costs for businesses, and failing to find the right plan to meet the needs of your business can prove to be a costly mistake.
But partnering with a comprehensive energy supplier can help your company find ways to reduce its costs and manage fluctuations in usage, says Annette Durnack, director of retail energy at PPL EnergyPlus.
“Too often, businesses just use the supplier that they always have, and pay the bill each month as it comes,” says Durnack. “But energy is too big an expense for businesses for management not to take the time to find the right partner for their energy needs to help them manage their costs. Taking the time to analyze your needs and then finding the right plan to meet them can provide a huge advantage to your company.”
Smart Business spoke with Durnack about how to save money on your energy supply and find a plan that is right for your business’s needs.
How can businesses be sure they are reaping the most savings on their energy supply?
Pennsylvania’s competitive electricity market, and the ability to choose your electric generation supplier, create opportunity for businesses to save money. For many companies, electricity is a major cost of doing business, and reducing that cost can help make you both more competitive and more profitable.
The first step is to seek a solid, comprehensive energy supplier that can provide electricity to your business at a competitive price, consult with you about products and services that may meet your specific energy needs, and help you navigate market trends with expertise to leverage fluctuations in the market prices to your advantage. Understanding how market fluctuations affect what you pay for electricity, based on the products and services you’ve selected from an energy supplier, can have a significant impact on your budget.
Products and services are available from suppliers in the competitive market that, when aligned with your specific energy consumption needs, can not only save you money but also can produce revenue from your electricity use.
What types of products should businesses consider to help save electricity and money?
Each business uses electricity differently, so it stands to reason that each business has a particular product or service that is best suited for its needs. For example, some businesses use more energy at night than they do during the day. Others may use large amounts of electricity for short periods of time. For instance, ski resorts have different energy needs than industrials, and office buildings have different energy needs than bakeries.
Because all businesses use energy differently and have different needs, PPL EnergyPlus offers a core set of products and pricing structures, as well as customizable products, to help businesses achieve the most energy savings with changing market trends. One specific type of service that some energy suppliers offer is demand response, a service in which your business earns revenue based on your ability to curtail electricity use during certain times of the year when energy demand on the grid may be at its highest point. Demand response programs can turn the electricity that powers your business into a marketable commodity and a potential revenue stream.
What are the potential savings benefits of participating in a demand response service?
PPL EnergyPlus’s partnership with one of the leading demand response service providers can bring you the benefits of a demand response program. There are a variety of programs available, some of which allow for voluntary curtailment and others in which a business is required to curtail energy when called upon by the transmission grid operator. The financial benefits of each program vary based on the amount of load that a business can curtail, whether participation is voluntary or required, and the price of energy during the curtailment period. One program in particular requires customers to commit to reducing electricity use by as little as 100 kilowatts, which some businesses can accomplish by making minimal changes in their operations.
The key to finding the program that best suits your business’s needs is to talk to an energy supplier that understands the market and can explain the programs to you and help you determine which program best meets your needs.
What other services can businesses couple with demand response for greater savings?
Many energy suppliers will offer compatible services to help your business. PPL EnergyPlus offers several products and services that are carefully tailored to match your unique energy usage needs. Its dedicated team offers customers a personalized approach to understanding which energy supply products and services, coupled with demand response service from an industry expert, offer the most benefits to help your company’s bottom line.
Annette Durnack is director of retail energy at PPL EnergyPlus. Reach her at (610) 774-3182 or AMDurnack@pplweb.com.
When Cisco was looking to move its production data center facility out of San Jose, Calif., it considered more than 140 locations nationwide.
The clear winner was Allen, Texas, says Tony Fazackarley, IT project manager in charge of the Cisco data center in Allen.
“There were a number of factors that were key to selecting a site for our data center, including the availability and cost of power, the availability of high-tech staff and the availability of carriers for carrying data around the rest of world,” says Fazackarley. “There were also geological considerations, the temperature around the year and a whole host of other factors that fed into that calculation.”
Smart Business spoke with Fazackarley about how the Allen Economic Development Corporation helped Cisco settle on Allen and what the company is doing in the community.
What other things factored into the consideration to move the facility from San Jose to Allen?
San Jose posed a number of challenges, including geological challenges. The San Andreas fault is not a good environment in which to have your production center, and Texas is far more stable from a geological perspective.
The cost and availability of power was also a factor in both the move out of California and the choice of Allen. San Jose constantly has rolling brownouts, and the cost of power is very high. In addition, there were more and more regulations coming out about how you can operate your facility, and regulations generally equate to adding costs to your business. Cisco is fully behind being corporately responsible, but if you have the opportunity to save costs for your business, you owe it to yourselves to do so.
In Allen, power is more abundant and less costly.
Another factor is that we had an existing campus in Richardson with a shell building that we were able to convert into a high-tech data center. Once we selected Richardson as the first data center, we chose a greenfield site in Allen for our production data center facility, where we consult and assist customers in building data centers that are of the standard we built in Allen. The facility allows us to show best practices for building a modern data center and show how others can optimize their data centers and maximize their energy uses.
Why is energy use such a concern?
At some point, there is going to be regulation around data centers. We’re already seeing it in areas of California. If you build a data center in San Jose, you have to have the ability to generate your own power on site. We know those regulations will roll out as the energy squeeze becomes more constrictive. What we’re trying to do is anticipate what those regulations are going to be and put into place best practices to not only meet those regulations but also to be as corporately responsible as we can. As a result, most of the new technology we’re showcasing in the Allen data center is around energy savings.
How did the Allen Economic Development Corporation facilitate Cisco’s move?
It was very key to our decision to move to Allen. They were very helpful not only on the economic side of things but also in giving us assurance on how the land around us would be used. When you have a facility that is running your top applications that run your business, there are some businesses, such as a munitions factory, that you don’t want going up around you. Getting those assurances out of the city was vital.
You need support from the local area, and that was a big part of what went into the short list for selecting a site. And having an ongoing relationship with them, speaking with them regularly and keeping abreast of what is going on is vital to us, as well. They work to keep businesses happy
How do you work with the community?
One of the things we do in Allen is have a lot of customers come into the facility, where we showcase Cisco’s data center products. Most of the Fortune 100 companies have come through that facility, as have companies from around the world. And when they come through, they stay in local hotels, eat at local restaurants and use local facilities. My project manager deals with scheduling those resources and works with local businesses, restaurants, hotels and catering to support our needs.
We also do tours with local school districts. Most of those who come through are never going to build a data center like ours, but if they can take away even one best practice, we’ve done our job.
How does the data center impact the environment?
The Allen data center is a LEED (Leadership in Energy and Environmental Design) gold-certified building, one of very few in North America. At the moment, the LEED program is a general building program; if you build an office, garage or stadium, you build to the same categories for certification. But LEED is working on data center-specific specifications and we believe we can improve on the gold standard that we have for the building. Once data center specific LEED criteria become available, we hope to be able to meet the platinum standards.
Also, we hope to be part of the EPA Energy Star program, but you need to have 12 months of continuous operations data, and we only went into full production in March. But we are collecting that data to that end.
Tony Fazackarley is IT project manager in charge of the Cisco data center in Allen, Texas. Reach him at (408) 894-4149 or email@example.com.
Insights Economic Development is brought to you by the Allen Economic Development Corporation, strategically positioned in the Dallas/Fort Worth metro.
When CBRE decided to “green” its worldwide operations in 2008, the benefits were clear: reduced utility costs and water usage, happier employees, a major boost to company reputation. It experienced an added bonus just three years later when it was named by Newsweek as the 128th greenest U.S. company — the only real estate services firm to make the top 500.
“Our chairman got behind the sustainability practice group and set the goal that we were going to be carbon neutral by the end of 2010, and we met that goal,” says Tim Gascoigne, associate with the CBRE Sustainability Practice Group. “CBRE is now an experienced sustainability and LEED consultant with all the tools and resources to guide building owners and tenants through a successful ‘greening’ process of their full building or suite.”
Smart Business spoke to Gascoigne about what it takes to have a “green” building and why the advantages it creates are too great to ignore.
Why is it beneficial for companies to make efforts to be green?
The main drivers of the sustainable movement are large public corporations and the government. Both groups view ‘green’ as a way to reduce their costs, reduce their environmental impact and gain a heightened impression of social responsibility. More and more companies are putting out a corporate social responsibility reports. If you look at all the public corporations out there, many of them are starting to publish this to show how green and responsible their corporation is, which is becoming a wonderful marketing tool. As for the government’s commitment, they are looking to achieve LEED (Leadership in Energy and Environmental Design) certification in all the buildings they build, and will only lease certain buildings that have these characteristics.
Although tenants are definitely driving this movement more so than the building owners right now, a building owner will look at LEED as a competitive advantage to capture these quality tenants that want these LEED-certified spaces. They do get overall savings with energy reductions, but they also have to spend the money to get the tenants. It’s been shown that LEED-certified buildings far exceeded all the other buildings in terms of rent per square foot.
I think the ‘green’ trend will start moving to smaller companies who will also use a sustainable reputation as a marketing advantage.
What are the cost implications?
With larger multi-tenant office buildings in the 500,000-square-foot range, it’s running about 25-50 cents per square foot to make the building LEED certified. So there’s a cost, but then there’s a payback in how much you are able to reduce energy consumption and how much more you are able to increase rental rates. In the most recent CBRE Green Building Survey, the average utility spend for the subjects’ multi-tenant office buildings was around $2.50 per square foot per year. It quickly adds up, as some building owners have been able to achieve a 50 percent reduction in this cost. Furthermore, this study found that the LEED-certified building were able to capture $4 to $7 per square foot more in rents. This is a great achievement that adds significant value to these buildings.
Oftentimes, there is intervention that improves the payback, whether it is a utility company offering a rebate or a state program that provides financial incentives to encourage lighting retrofit. That’s a pre-tax benefit; there are also after-tax benefits that come through cost segregation studies, which break properties down into component parts to accelerate depreciation.
Where should a business begin?
The first and simplest step toward being green is to look at the energy and the commodities that you consume — water and energy — and come up with a plan to reduce your consumption. Next, focus on recycling. Simply recycling traditional items like cans and paper make a difference, or, if you want to get more advanced, you can look into commercial composting.
The No. 1 place to start if you’re a building owner is with regard to your lights. And it’s usually one of the easier places to achieve savings with how fast technology is moving in that category. You can put motion sensors in certain parts of the building so that lights automatically go off when no one is in the room. It’s tough to calculate the exact savings on sensors, but upgrading a lighting system has direct savings that are easily calculable. Typically, in older office buildings that have 4-lamp T-12 fixtures, you can upgrade to 2-lamp T-8 fixtures and achieve a 70 percent reduction in cost. If you look at the fixture wattage, you’re going from 188 watts in the older lamps down to 56 watts with the new lamps.
HVAC is also a great category to focus on for tenants. With improved indoor air quality your employees take less sick days, which improves your productivity. Most HVAC systems just need small adjustments to achieve significant increases in comfort levels and cost savings. We had a client in an office building that we managed that had a large central air conditioning system and, when the fan turned on, it would spike the utility usage. We were able to come in and put variable drive motors on that air conditioning system, which reduced the spike of electrical usage and made it run more efficiently.
So you’ve got to look at all of those components as a way to control and reduce. There are new systems that are much more energy efficient and there are ways that current systems can be modified to improve them.
What other things can businesses consider?
Everyone is trying to reduce the amount of storm water runoff — rain water that picks up waste and pollutes nearby water supplies. Parking lots are being developed with porous surfaces so the water runs through the pavement and reduces runoff. The new approach to landscape architecture involves more green space, which not only makes a property look better, but also reduces the storm water runoff.
Tim Gascoigne is an associate with CBRE’s Sustainability Practice Group. Reach him at (216) 658-6115 or firstname.lastname@example.org.
If your business is looking to hedge against increasing electricity rates and do something good for the environment at the same time, you might want to consider solar.
Businesses can invest in their own systems to generate power, or agree to buy power from a third party.
A bank with an experienced team in solar energy finance can help, says Dan Pistone, senior vice president and manager of Bridge Bank’s Technology Banking Group.
“Several options exist to take advantage of the benefits of installing solar energy systems, and each option has its merit, depending on what your short- and long-terms goals are, and what type of business you own or manage,” says Pistone. “The right financial partner can help you make informed decisions about ownership versus leasing, and can provide insight into the implications of both options.”
Smart Business spoke with Pistone about how a solar energy system can help you lock in utility rates for years to come and how a bank can assist you in your efforts.
What does a business need to think about when considering solar?
Solar power is a growing industry and as new technology and improved manufacturing efficiencies continue to advance, solar energy systems are becoming increasingly accessible to business owners. If your company wants to install a solar energy system, you have two choices. You can buy the system and have the benefits of ownership, or you can secure a lease of a system, in which a third party owns the system as an asset and you agree to purchase all of the electricity it produces.
Over the last two years, the growth in renewable energy financing has come as a result of tax equity financing, corporate taxpayers who are looking to leverage the available state and federal tax benefits and large banks that are doing large-scale utility-grade projects. However, those banks tend to focus solely on big projects, in the 20 to 50 megawatt range. But, for smaller businesses looking at installing smaller rooftop or ground mounted systems ranging in cost from $500,000 to $15 million, very few financing options exist, quite simply because few banks have the expertise to effectively manage these complex financing structures.
So it becomes challenging for businesses to find a bank that has the infrastructure in place and the knowledge base to manage the complex nature of this type of financing.
If a business wants to use solar energy, how does it get started?
The first step for a business is to determine whether it wants to purchase and own the solar energy system, or if it wants to lease the system and make utility payments to the owner of the asset.
That decision starts with knowing your tax status. Entities such as nonprofits, schools and churches don’t pay taxes, so they wouldn’t receive the benefits of the subsidies that are available. So if you are a school district, for example, and you want to install a solar system in your schools, you wouldn’t get the benefit of the tax credit, or the benefit of depreciating the system as an asset, in which case it would make more sense to instead find a developer that can bring that tax investor in.
Then there are negotiations between the developer and the off-taker of the energy to determine what the utility rate is going to be over the term of the agreement and the escalation rate on an annual basis. Power purchase agreements are generally 15 to 20 years in length, which is favorable to business owners because it allows them to control the cost of electricity over the term of the agreement. Plus, banks and equity investors prefer the longer term because it provides a long-term asset in the agreement.
What will the bank look at when determining financing?
The bank will take a holistic view of the entire project, including an examination of the creditworthiness of the off-taker, and look at the developer, its history, and its ability to construct projects and its track record, as well as other agreements such as operations and maintenance. It will also look at the actual components of the solar energy systems themselves, such as the panel inverters, to get an overall comfort level for the project.
Then it will size that project by looking at the long-term cash flows that will be generated from the electricity sales, and the short-term cash flows, such as local and state incentives. It will look at all those different sources of cash flow that come into a project and decide which of those it feels comfortable lending against.
What should a developer look for when choosing a financing partner?
Energy finance for small-scale projects is a new and fairly complicated practice and, for many business owners or developers, there’s definitely a learning curve at the beginning of a project or system purchase. Look for a bank that is able to provide not only a flexible suite of loan products, but also one that is willing to advise you on how to appropriately capitalize the project and how to properly structure an agreement between parties in a lease. The bank should provide an advisory service, not just debt financing.
Many of the banks that are engaged in energy finance are really only focused on large-scale projects, so it’s often difficult to find the right partner. But if you can find that partner, they should have the ability to advise you on how to aggregate projects to achieve economies of scale. If your goal is to finance these projects, your bank should be a resource to educate and advise you on how to proceed every step of the way.
Dan Pistone is senior vice president, manager, Bridge Technology Group. Reach him at (650) 462-8502 or email@example.com.
The state’s open energy market continues to provide businesses significant savings.
Retail choice has been a tremendous benefit to Pennsylvania businesses, and new products and services continuously provide greater benefit. However, businesses — with assistance from their energy supplier — need to monitor legislative and regulatory policies to ensure they maintain the benefits of energy savings and the promising developments in today’s energy markets.
“This is another critical time in our industry and for Pennsylvania businesses,” says Bob Barkanic, senior director of energy policy at PPL EnergyPlus. “Executives need to be monitoring pending policies and develop energy supply strategies to lock in these low energy prices.”
Smart Business spoke with Barkanic about new federal and state regulations and new energy policy opportunities.
What will happen to electricity prices as a result of new federal and state environmental regulations?
Protecting the environment is important to all of us. The challenge is balancing this objective with today’s current economic climate.
Our goal is to educate policymakers and customers to ensure the best decision possible is being made. For our customers, our objective is to explain the potential impacts and risks so they can procure their energy correctly. The proposed environmental regulations are expected to boost energy generation (production) costs, and these higher costs will eventually be passed along to businesses and households.
Environmental policies that potentially will have an impact on electricity prices are:
- The Cross-State Air Pollution Rule. This EPA regulation takes effect Jan. 1, 2012, and requires 27 states, including Pennsylvania, to improve air quality by reducing power-plant emissions that contribute to ozone and particle pollution in other states.
- Section 316(b) of the Clean Water Act. The EPA is developing regulations that require that the location, design, construction and capacity of cooling water intake structures at power plants reflect the best technology available for minimizing adverse environmental impact.
- The regulation of coal combustion residuals. The EPA has proposed federal regulations to govern the disposal of coal ash and other wastes generated by electric utilities and independent power producers, which would potentially make handling more expensive.
These environmental policies are important to Pennsylvania and to our nation. The goal is to implement them correctly — with transparency and with an effective market structure — and to inform businesses of how to prepare for the changes that will result from the policies.
What effect will renewable energy requirements have on electricity prices?
Renewable energy, like environmental policy, is an important component of an effective long-term energy policy. PPL Corp. believes a balanced approach toward energy policy is vital to the economic health of our state and country. A balanced approach would be a prudent mix of nuclear, clean coal, natural gas and renewable energy resources. In addition to these physical assets, demand response, energy efficiency and energy conservation should be included in the mix.
However, a balanced approach is needed for renewable resources, as currently these resources may cost up to four to five times the cost of conventional generation. Most states, including Pennsylvania, have a Renewable Portfolio Standard (RPS) which requires that a certain portion of electricity production come from renewable resources.
As government has provided grants and tax incentives for these resources, more resources have been added than needed by RPS. Therefore, states are looking to increase renewable energy requirements, thus potentially increasing the costs of electricity for businesses.
What effect will the development of natural gas from Marcellus Shale have on Pennsylvania businesses?
The abundance of natural gas in the Marcellus Shale has the ability to keep Pennsylvania’s energy prices low for a very long time. These low energy prices will benefit everyone, by either lowering costs or by offsetting other cost increases in electricity and natural gas bills. In addition, drilling is boosting the local economy by attracting new companies, creating direct and indirect jobs, and generating lease and royalty checks for property owners.
The benefit of Marcellus Shale is meaningful. To ensure these benefits, policymakers, industry and the people of Pennsylvania must develop a well-defined and a properly regulated market structure. We all benefit from Marcellus Shale if done correctly — safely, continuously improving technologies and regulations, and with open communications.
What can policymakers in Harrisburg do to provide greater benefits from retail markets?
Pennsylvania’s open energy market has created a competitive business advantage, but more can be done. Executives and consumers still need to be educated on why they should shop for energy and how to navigate the retail energy markets. The Public Utility Commission is currently holding hearings on improving retail markets. There are many opportunities to improve the current market — modifying utility default service plans to better align with current market conditions, enhancing technologies to improve and increase product and service offerings, improving utilization of smart meters and continuing the education process. Fortunately, business leaders don’t have to wait; they can shop the market and enjoy lower rates today.
PPL EnergyPlus, LLC is an unregulated subsidiary of PPL Corporation. PPL EnergyPlus is not the same company as PPL Electric Utilities. The prices of PPL EnergyPlus are not regulated by the Pennsylvania Public Utility Commission. You do not have to buy PPL EnergyPlus electricity or other products in order to receive the same quality regulated services from PPL Electric Utilities.
Bob Barkanic is senior director of energy policy at PPL EnergyPlus. Reach him at (610) 774-6722 or RJBarkanic@pplweb.com.