Facilities Management (Managing Assets)

Another Thought on Energy Costs

Energy conservation is good, right? We should all be doing what we can to reduce our consumption of electricity, especially the type that is carbon-fuel generated. By some indications, we are. Where years ago, almost all electricity was generated by either petroleum, coal or gas, in 2016 that level of consumption is down to around 65 percent. The rest is generated by nuclear (20 percent) and various types of renewables (15 percent). Total end-use of electricity has declined ever so slightly since 2010: less than one percent, according to the DOE. We can thus proudly boast that the industry is relying less on carbon-based fuels. With our dependence on electricity for various devices, including electric cars, all those electronic devices, etc., we can barely claim that we have reduced our overall consumption of electricity in the most recent six years—thus making us a little less bad.

We should still realize that since 1975 our consumption has increased by 120 percent, according to Statista—a website that publishes such data. In the same period of time, the U.S. population increased by only 51 percent, from 216 million to 326 million in 2017. Thus, our rate of electric energy consumption has increased more than twice as fast as has our population.

Friendly Reminders

This might explain why my local power company sends me monthly reminders that my household uses 25 percent or more electrical energy than does the “average” neighbor. This has the potential of being a blow to my “green” conscience. That is, until I talk to my neighbors and learn that they get essentially the same guilt-inducing message. Is our power company trying to convince us all that we need to conserve even more?

Of course they are! But, I tell myself, we have replaced almost all of our appliances with highly rated energy-efficient ones. I have replaced every lightbulb within reach with LEDs—you know, the ones that use up to 80 percent less juice than the traditional incandescents. We’ve installed timers, motion sensors and become nearly compulsive about turning off lights when we vacate a room. That’s in my personal life.

When I examine my work environment, I see many of the same efforts aimed at minimizing energy consumption. There are too many of us who bring fans and/or space heaters to regulate the temps in our own spaces, because commissioning hasn’t quite achieved the much-anticipated results. And we must admit that over-enthusiastic value engineering (can you say “cost reduction?”) on a new project has reduced the number of individually controlled spaces, tying three or four otherwise independent spaces to one thermostat, which is also tied to an occupancy sensor. There are times, I hate to admit, that I yearn for the days of a dedicated two-pipe, thermostat-controlled steam radiator in my office and in classrooms.

A Look at Shifting the Costs

Now, let’s discuss energy costs. Here’s the kicker. If every one of us is highly successful in reducing our levels of consumption of electrical energy, how will that impact the numerous power generators and transmission companies that currently happily reward their stockholders with dividends enabled by our “bad” habits? Almost all of them have huge investments in stranded costs that they plan to recover through future energy billing rates. It is not hard to appreciate that any power company that “owns” a nuclear power plant is committed to a stranded cost of over $10 billion dollars for that single plant. Power generating plants, distribution systems including cabling, transformers and switchgear, etc., together represent stranded costs that are not staggering. Let’s just concede that it is a very big number.

It stands to reason that if we reduce the number of kilowatts per hour that we consume, our electric company will have less billing units to tack this stranded overhead onto. It only makes sense that the electric company will increase the fixed costs margin embedded in the billing rate in order to recoup their investments. Thus, where historically the energy cost of an electrical rate might have represented around half of the total cost, we must accept that aggressive energy conservation will likely not reduce our total cost. The cost of energy might end up being only a smaller portion of our costs. Our total utility cost, we can reasonably anticipate, will ultimately not decrease merely as a result of successful implementation of energy conservation measures—at least over the long haul. If we plan to invest in energy conservation projects and repay the “debt” (however it is constructed) from reduced billing rates, we may have to think twice. The best funding stream might be derived from relying on the increasing costs of purchased energy, thereby increasing any cost avoidances.

Given the scenario described, is even that likely to happen? I think not…

This article originally appeared in the December 2017 issue of College Planning & Management.

About the Author

Pete van der Have is a retired facilities management professional and is currently teaching university-level FM classes as well as doing independent consulting. He can be reached at petevanderhave@msn.com.

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