Energy Series Part 1: Electricity

In the coming months we will inter splice our normal market observations with our ongoing Energy Series. These articles will illustrate what we have done in our own space to reduce our energy. We will analyze the supply side, consumption side, cash flow side and of course the capitalized value of the asset. We hope you will enjoy and learn as we did.

Remember back in the day when there were ads on TV that were not political? Like a couple of months ago?  You may recall having seen ads for your home energy to get away from the public utility and go to the open market. We employed that same model of thinking but for our commercial space. Spoiler alert: we ended up converting all of our owned and occupied space over. However in this article we will analysis one property an 11,903sf office building in Bedford.

The property is leased out to various tenants whom all pay a protonate share of their electricity. While the bills are not separately metered there is still an incentive for the landlord to reduce the energy supply costs; the lower the cost for the tenants, the more likely they are to remain within the space long term. It should also be noted that this building is heated with electric heat pumps so the numbers are probably larger than if you had a separate heating plant.  In 2011 and 2012 the average annual electricity bill was $2.24 per square foot and $1.84 per square foot.  

We decided to explore the open market for electricity. For those of you not familiar, each part of your electric bill has a supply side and a usage side. The public utility controls the supply side of your bill but for the usage you are free to use anyone you want. It also provides the ability to lock in longer term rates and select where your service comes from.

Back to the subject property, in 2013 we were paying $0.0923 /   kilo watt hour with our host utility and through the suggestions of our consultant, Freedom Energy Logistics, we selected NextERA at $0.0851 / KWH. Additionally we stipulated that we wanted a portion of the electricity to come from renewable energy wind credits. By purchasing our electricity supply on the open market, we not only reduced our costs, but we also greatly reduced our carbon footprint. One thing to consider is that the electric usage is not just a factor of the supply but also the demand. Over this three year period the building has had varying tenancies so it is hard to determine exactly the direct effect of the switching to the open market.

In the end for us and this case study we found that switching to the open market allowed us to lock in our rates for a full year for budgeting; hedge against an inflationary rate environment; and select renewables for ourselves and our tenants. By purchasing our natural gas and power supply at times that the market is below the upward trendline, we are able to manage costs, and directly impact the bottom line for our tenants.

For more information on how we converted please contact Sean Devine at Freedom Energy Logistics. 816 Elm St. suite 364, Manchester, NH 03101. Sean.Devine@FELpower.com (603) 625 2244. 

Written by: Chris Norwood, NAI Norwood Group, cnorwood@nainorwoodgroup.com.