As commercial property owners and operators reposition and retrofit properties, including upgrades to HVAC, lighting, and mechanical systems, as well as the building envelope, funding plays a pivotal role. Owners must either come up with the required capital or continue to absorb ever-increasing operating costs. For many the initial cost of becoming more energy efficient can be prohibitive.

A growing number of owners are not funding energy efficiency from their operating account (drawing down cash reserves, tapping equity, or using outside funding). Savvy business owners use a strategy that all but eliminates a lengthy payback cycle – in fact many are cash flow positive from day one.

To begin with, every taxpayer who owns, constructs, acquires, renovates or improves a commercial property stands to benefit from having a complementary asset valuation analysis performed. Lying within the tax code for more than a decade, cost segregation studies, inclusive of the recently published “Repair Regs” (The 2012 Tangible Property Regulations), have become two of the most valuable tax strategies available to commercial property owners.

Cost Segregation. Cost segregation is a viable means of increasing cash flow through the accelerated depreciation of building costs. An engineering-based cost segregation study allows owners to write off their building (new & existing) in the shortest time permissible under tax law.
There are 4 elements to property: land, land improvements, building, and personal property. The IRS directs qualifying items of land improvements and personal property to be “segregated from the building structure” for tax purposes. Useful tax lives on qualifying items can be depreciated over 5 and 7 years for personal property, 15 years for land improvements instead of the common 39-year flat line depreciation on commercial property (27.5-yr residential income property).

Front end loading depreciation produces $50,000 – $100,000 of after tax cash (refund and or tax credit) for every $1M in cash basis (minus land). Cost Seg studies increase and accelerate ROI & NOI, plus provide higher cap rates in the critical early years of ownership. ROI averages 15-20:1, reaching 50:1 or better based on property specifics. After-tax cash flow typically improves by 25 to 35%. The result of segregating many types of building improvements into shorter tax recovery periods is more depreciation expense, less taxable income, less taxes, and more cash in the taxpayer’s hands.

Cost Segregation is considered neither an elective nor aggressive practice. The IRS describes it as the “required method” for accurately measuring and classifying “lump sum” costs for depreciation purposes. In most situations if a cost segregation study is not performed, property owners are not properly classifying real property costs. It is interesting to note that the IRS does not enforce a taxpayers’ failure to use cost segregation in situations where the taxpayer may be overpaying taxes.

The 2012 Tangible Property Regulations: A Trash-To-Cash Opportunity. Engineered studies provision the classification and quantification of the effect of spending to change, improve and maintain a commercial property. This new section in the tax code affects virtually all commercial property owners. In simple terms, owners can elect to write down components removed or disposed of (i.e. roof, HVAC, electrical, plumbing) and concurrently accelerate depreciation on new materials put in service. A “use it or lose it” look back or catch-up provision is available only through tax year 2014. The combined tax considerations and consequences of the application of cost segregation and tangible property regs are significant, particularly to those seeking to capitalize energy efficiency improvements.

Real Estate Tax. Personal property taxes are lower than real property taxes by as much as 25%. Use Tax: same underlying principal as real estate taxes. Property Insurance. Personal property is assessed at a lower “per thousand” rate than real property, generally between 10% and 20%.

Lower Cost of Capital. Stronger cash flow can allow for greater ease in servicing debt. Pointing out increased cash-flow has many lenders willing to negotiate better loan terms, potentially reducing rates by as much as 100 basis points, or reducing the required down payment.

Due Diligence. A complimentary preliminary property analysis reviews and properly classifies the assets involved and provides predictive values by asset category for buy/sell transaction analysis and subsequent agreements. A full engineered study categorizes the assets acquired and provides the contributory value of each in the context of the overall purchase price for all newly acquired properties.

Value of the dollar. Why act, now? It is not just the dollar amount ‘released’ by cost seg that’s important, but the value of that dollar today. The value of the dollar diminishes over time. As the debt ceiling soars, the value of the dollar continues to drop precipitously. Cost segregation studies let owners put their money to work today for their best and highest purpose.

Compliance & Audits. Cost segregation studies provide a clear, documented audit trail. Studies performed per IRS guidelines satisfy all compliance requirements and minimize audit exposure. They are in fact, less likely to be audited then a tax professional’s component depreciation.

The Best Economic Results. CPA/Tax Professionals and Engineers working collaboratively achieve the best economic result for owners. Source – IRS Audit Guideline

No need to amend prior tax returns. More importantly, Engineered Cost Segregation studies enable owners to optimize the time value of money and in so doing grow their net worth. More saving & cash flow generating opportunities…

Bonus Depreciation. First-year bonus depreciation provisions are extremely generous. Bonus Depreciation is a special tax depreciation deduction allowance granted to taxpayers who place certain “Qualified Property” in service in the years from 2008 through 2013, or, in some cases, in 2014. For most Qualified Property, the allowance is 50% of the adjusted basis (i.e., after adjustments under other sections of the Internal Revenue Code, e.g., Section 179). This allowance is increased from 50% to 100% for Qualified Property placed in service after September 8, 2010 and before January 1, 2012. Certain taxpayers may be eligible to write off as much as $500,000 of “qualified” property improvements for Tax Year 2012 and 2013 expenditures; slashed as of this writing, to only $25,000 in tax year 2014.

Solar Energy / Combined Heat and Power. The IRS allows a 30% tax credit related to certain investments in equipment using solar energy to generate electricity, or to heat or cool a structure. There’s also a 10% credit for select investments in geothermal property.

Historic Structures and Districts There are significant benefits associated with upgrades to pre-1936 structures or Certified Historic Structures or buildings located in a Registered Historic District that are “substantially rehabilitated.” A building is “substantially rehabilitated” when real property expenditures incurred during either a 24-month or 60-month measurement period exceed the depreciable basis at the beginning of such measurement period. For pre-1936 buildings that meet the requirements, the tax credit is 10% of “qualified rehabilitation expenditures.” The credit increases to 20% for Certified Historic Structures or buildings located in and “substantially rehabilitated” in a Registered Historic District.

Other Incentives. Owners and operators should monitor and track state and local tax incentives.

Climate Change & Environmental Services can help assess whether you qualify and help you apply, too. It’s also highly recommended that taxpayers meet with their utility companies before any project is started to determine what additional incentives and cash grants may be available.

The work presented here is the full responsibility of Mr. Jeff Darling of Cost Segregation Services, Inc. He can be contacted for more information at pdarling@costsegregationservices.com or at 888.406.4019.

Well, 2013 is quickly coming to an end. What a year it has been! I believe this is the year that climate change has finally become accepted as real and critical by the majority of Americans. I see the polls and feel the buzz speaking to business and to everyday people. We are still recovering from SuperStorm Sandy, and people have figured out that more frequent storms can impact a family or a business forever. That’s why Climate Change & Environmental Services has been studying and is up to speed on disaster preparedness and resiliency. While there is no certification in the area, we have been studying what has been done successfully by others, and offer this as a new service. Given the inherent risks of disasters, it is important for your business and buildings to be prepared to reduce those risks. This is a real existential, as well as a business decision.

I believe that we have turned the corner; a lot of people are looking at climate change and sustainability differently now. Before, all the talk about climate change was that we should address these issues for the sake of our children and our planet; to be altruistic. Well, those arguments never resonated with most Americans. In fact, I saw business leaders back away from addressing sustainability when the Great Recession hit 5 years ago. Even though the business benefits of addressing climate change have been well documented, when a company is worried about survival, this becomes less important.

But I sense this is behind us now because of a combination of a recovery (tepid as it is) and Sandy, Haiyan, and other disasters. Climate change and sustainability are being re-framed as issues. Improving the air we breathe and making efforts to reduce energy we use and greenhouse gas emissions we emit is not altruism; it is an act of self-interest. We are spending billions of dollars recovering from disasters (there are still economic impacts from Katrina). Reducing the frequency of future storms is literally in our short-term self-interest. Actions addressing climate change will directly save people’s lives and help everyone prosper; it is not only for the planet. Climate change is no longer a “tomorrow” issue; but is truly a “today” issue. We need to re-frame the understanding.

Sustainability can be framed in another way, too. Not as a tomorrow or a today issue, but part of our historical progress. I recently came across a series of interesting quotes:

“The situation is dire. The horse is absolutely essential for the functioning of our cities – for transportation, freight, mechanical power. Without horses, our cities would literally starve. However, the accumulating stench from their filth is intolerable. Horses are an economic burden, an affront to cleanliness, and a terrible tax upon human life”.

What does this refer to? This is a synthesis of quotes about life in Manhattan around 1900. What would happen if you took these quotes and substituted “fossil fuels” for “horse”? Do it; think about it. Perhaps with the exception of the word “stench”, this paragraph still fits in well in today’s world. The world still depends on fossil fuels for transportation, mechanical power, comfort, etc. Without it, our society would certainly not function nearly as well as it does. But the “filth” (in terms of the high emission rates of air toxics and of greenhouse gases) from fossil fuels means we pay a high price for comfort and functionality. The high price also includes wars, accidents, loss of life from getting access to oil or coal, and taxes and high prices we continue to pay for its use.

Therefore, the challenge is – like it was in the era of horses: can we switch to a different source of power which is just as reliable and available to the public, but is less filthy, less expensive, and has fewer adverse impacts on us? That’s really what sustainability is all about; leading our normal lives without using up or damaging our resources; using up our resources more intelligently. Therefore, I would like to redefine climate change and sustainability in another way. This is not only now challenges, but opportunities for us as a society to improve our lives and allow companies to function better for lower costs and with reduced risk. Sustainability is really a movement of historic opportunity. Just as societies grabbed on to fossil fuels as an advance from horses, these new technologies represent the next generation of opportunity to do better and cleaner. I have seen personally companies moving toward a sustainable future achieving great direct financial benefits, between cost savings, improved morale and productivity, and greater reliability. I can’t guarantee results, but I can tell you that sustainability and addressing climate change are true opportunities for your business – to grow, to move forward, and to prosper.

People and business leaders in 2013 began to realize that this is part of a historical progression of using new strategies and technologies to do better and more cleaner and efficiently. Let’s not blow the opportunity. To better ourselves as individuals and our companies for so many financial and societal benefits for us all.

So, I hope in 2014 that you will join the bandwagon to move yourselves and your companies away from old approaches and toward a sustainable future to gain a competitive edge, reduce risk, save money, raise morale, and be more efficient. Now, aren’t these things good for you and your businesses’ self-interest right now? Have a happy, healthy, prosperous New Year!

We hope that CCES can help you in the “ride” to a smarter, more prosperous and sustainable future in 2014. Moving toward sustainability will achieve greater goals if done right. We have worked with a wide variety of big and small companies to assist in making this happen. Our experts can help develop smart, organized, successful energy efficiency programs that will result in significant economic gains and business benefits at the pace you’re comfortable with. See our website for actual case studies – real companies that we have helped prosper and become more competitive. Contact us now at 914-584-6720 or at karell@CCESworld.com to see what we can do for you in 2014.
I want to take this opportunity to thank you for taking the time to read this e-newsletter this year. I hope it provided you useful information as a professional and for your job. Have a peaceful and happy Holiday Season and a successful and prosperous 2014!

We are past the first anniversary of SuperStorm Sandy, which was a real wakeup call about the fury of mother nature and the real possibility that storms of such ferocity will occur more often than previously estimated because of climate change (more energy in the atmosphere). I just learned of about half a dozen homes in my own community which are still not habitable a year later. Preparing for an emergency, minimizing human and property loss, and being able to resume operations in a relatively short time are critical issues for the very survival of your business. Studies are still being performed, but hundreds of businesses were ruined physically and financially by Sandy.

There is no procedure or magic design of a building that will guarantee safety, no injuries or fatalities, or no damage to a building struck by a disaster. All you can hope for are two things: to minimize physical damage and injury; and to be able to resume operations as fast as reasonably possible. Studies of storms and other disasters indicate that every incident is unique; when you thought you prepared for every possible problem, a new one rears its ugly head. All you can do is plan smartly to lower the risks. Here are some strategies to consider and implement:

1. Your level of emergency preparedness should be based on your needs. If yours is a small firm in a small facility in a region with historically few storms, your needs will be fewer than a large facility with many employees, storing potentially dangerous chemicals in an area often hit by storms. While all firms should prepare, your level of preparedness should be based on your specific needs.

First, invest some time and catalog the number of times your area has been hit by hurricanes, tornados, snowstorms, outages, extreme heat, even terrorism in the last few decades. Perform an elevation study to determine if your buildings are in the 100-year or 500-year flood plains. What could happen to your facility or business if a severe event occurred? What could be your losses (building, data, inventory)? Are they recoverable? Might you lose your customer base? These answers should dictate the level of detail of your disaster preparedness program.

2. Modify physical structures to minimize risk. See my blog in August about this issue (www.CCESworld.com/blog) with specific strategies to reduce risk from severe storms. For example, make sure water from a storm has somewhere to go, to a path less destructive of the building. Always focus on preparedness and minimizing human loss. Ensure that critical, expensive equipment is raised to an elevation above potential floods. Yes, many of these strategies cost money and will have a small or non-existent payback. But reducing risk of catastrophic loss is critical. Implement and test those that make most sense for your facility. Make sure to have a Health & Safety Plan (HASP) and that it is up to date and tested.

3. Data. Because we don’t “see” data, we generally take it for granted and may not safeguard it. However, in my experience working with a variety of businesses, data may be the most important part (besides employees and customers) of a business for survival. Some businesses have suffered greatly from lost computer data from storms, outages, or accidental deletion. Data loss or destruction should be protected robustly. Many a business has not recovered from data loss.
It should be noted that while the emergency situations discussed above impact data, there are other ways to impact your data, including Internet or phone lines being down, insufficient AC in IT room, server crashes, key IT employees sick or on vacation, database corruption, power outages, and accidental data deletion.

There are three aspects of protecting data:

a. Backup. Have backup data (if main data is lost)

b. Recovery. Have a plan to get both your data and your computer infrastructure up and operating after the disaster

c. Continuity. You should be able to use backed up and/or recovered data and systems to allow you to continue your business operations as normal as fast as possible. Don’t skimp here.

It is important to develop a reliable backup system for your data. It should be independent of a disaster, and physically in another location or “cloud”. Backup data should itself be secure from potential catastrophes. It should be retrievable; a useful, current form can be recovered. Therefore, if your data system changes, your backup files must change too (i.e., tapes) for use in a modern system. Backup data should be updated regularly so it is current, based on your needs (manufacturing may need daily updating; routine paperwork: less often). Backup data, like regular data, should be appropriate historically, based on your policies. Data required to be retained for a certain time period must do so in both regular and backup files. The USEPA will not accept an excuse such as a disaster destroyed all the historical data for a Title V permit requirement to store data.

Therefore, planning is needed for data, too, not just for equipment or people. In the lingo of data, it is important to define a Recovery Time Objective (RTO). Might data loss hurt the bottom line in a matter of minutes? Weeks? A time in between? Also, determine a Recovery Point Objective (RPO). How much and which data can you tolerate losing permanently? Are there compliance issues requiring access to certain data (i.e., Sarbannes-Oxley)? Invest accordingly.

Work with an IT security specialist to write and implement your plan. Ensure that your backup and retrieval strategies are automated. Do test them periodically.

CCES has the experience and technical knowhow to help you assess your emergency preparedness needs and can bring in the right specific professionals to help you write and implement the proper plans to lower your business risks from a number of potential catastrophic problems. Contact us at karell@CCESworld.com or at 914-584-6720.

More and more cities, such as New York, Chicago, Boston and San Francisco, are requiring some level of energy audit to be performed on certain buildings. This blog has emphasized the many direct financial benefits of performing an energy audit. However, it should be understood that an audit is an investment of money for the purposes of saving many times the amount over the years. For those who must or desire to perform an energy audit, it is important to do it right. A hastily designed or poorly executed audit can cost you more money than it should and diminish benefits. Here are some tips for working with your auditors to maximize your financial benefits:

1. Data quality. In my experience, this is the number one potential problem that can drag down an energy audit. An auditor can only develop good ECMs with reasonable estimates of benefits and paybacks with reliable, quality data. Be sure to invest the time to gather the right data the auditor needs ahead of time. The auditor will need at least 12 months of energy bills (electricity, natural gas, fuel oil deliveries, etc.), an inventory of major equipment, including make, model #, size, and age, and usage information (hours that operations generally occur, thermostat settings, etc.). I can’t tell you the number of time intelligent people have provided me with incorrect data, such as misreading units (like cubic feet vs. therms); provided (wrong) assumptions, not data; did not want to go on the roof to read a nameplate or misread it! With such inaccurate data, the findings will be off and certainly not useful to you. Invest the time ahead of time to get it right and, ideally, keep automated records of your energy data (electronic is fine).

2. When to do your audit. A growing market for energy efficient equipment means ever-improving technology. There are those who say, “Hey, if I wait a year to do my energy audit, the options will get even better.” That might be true, but with that attitude you can be stuck using old technology year after year, wasting electricity and fuel and costing yourself money now. A rough rule of thumb: if you perform a thorough energy audit once every 5 years, you will probably find enough potential upgrades in technology to make it worthwhile.

3. Don’t be overly simplistic. Some energy auditors focus only on lighting because of its simplicity. Hey, screw in some more efficient light bulbs, save money right away. Easy to understand. But, a good energy audit should encompass not just replacing lights with more efficient ones, but also controls on the lighting (turning them off when room is not in use), improving daylighting, and other features. The entire building envelope needs to be looked at, not just, say, windows. And then comes HVAC: your boilers and AC units. These are the most complicated, but often directly relate to your total energy use. Make sure your energy audit covers all of these areas thoroughly.

4. ECM benefits are not always additive. A good energy audit will provide a variety of ECMs. It is tempting to total them up and expect certain energy and cost savings by incorporating all of them. This is not always true. Several solutions may address the same problem. For example, installing both a sky light and occupancy sensors will decrease the need for artificial lighting, but their effects are not additive. In either case, people will be detered from putting on some fixtures. Be careful to look at ECMs holistically to determine total benefits.

5. Be careful analyzing cost benefits. The highlight of an energy audit report is how much money you will save and the payback period for your investment in upgraded technology. Many audits will simply tell you that, for example, new, high-efficiency light fixtures will cost you $X and save you $Y per month in electricity; the payback is simple math. However, it can be more complicated than that. Usage and savings may change over time. There may be a need for electricians to rewire or contractors to make other changes to an area (or the whole building). These upfront costs must be included, as well. Cost savings may also be underrated. The new fixtures will probably last longer than the old ones, meaning Maintenance can spend less time changing bulbs and more time doing other things, saving you costs and reducing risk of climbing up and down those ladders (perhaps, lowering your insurance premiums?). Reducing electricity usage this way also lowers your peak usage, too, which for some can represent a big cost savings. So make sure your cost benefit analysis is comprehensive.

6. Make sure selected ECMs are properly installed. OK, you have selected a few ECMs that make sense, have good ROIs, and won’t disrupt your operations. Now it is important to work with reliable contractors and suppliers to ensure that they are properly installed. Many an energy-saving, even potential LEED-certifiable, project has been derailed by contractors who don’t understand the project goals and cut corners to maximize their profit. As a result, the goals of the ECM or design are not met. Make sure you do your homework that the supplier of the chosen technology has a track record and will install quality equipment, even if that means paying a little more. There are stories out there of LED lights not of high quality and not delivering the light promised or that break down. It makes sense to pre-qualify suppliers and contractors to ensure high quality and meeting your energy reduction goals. It is also important to test equipment after installation to demonstrate that they meet your goals. Be sure testing and standards are in the contract. Finally, invest in training, if applicable, for your staff to operate equipment or troubleshoot problems when they come up in order to maintain the good performance and energy and cost savings over time – to get your payback on time and benefits continuing for the long term.

CCES has the experience and technical knowhow to perform meaningful energy audits of a wide variety of building types to maximize your financial benefits and comply with ever growing regulations. Contact us at karell@CCESworld.com or at 914-584-6720.

In recent years when some still debated whether climate change is real or not, preparing our assets and cities for the effects of climate change was not a priority. This changed with Hurricane Sandy nearly a year ago, as there was universal agreement that its particular ferocity was contributed to by climate change and that “100-year” storms will happen more frequently and their costs are so high. Now in the US, Climate Change has been accepted as real. Adaptation – or how we change our ways and our buildings to minimize climate change impacts – is now an area of study. How can we lessen the impacts of a greater frequency of huge, short-term rain flows that would overwhelm stormwater infrastructure (not designed for such frequent occurrences), high winds, more frost/thaw cycles, and extreme hot temperatures?

Four major reports about climate change adaptation have been published recently from the cities of New York, Boston, London, and Toronto. They emphasize that cities and buildings must recognize Climate Change effects and prepare for them intelligently to save money and lives. The New York City report lists the following recommendations to be more resilient in the face of Sandy and future Climate Change impacts:

• Improve flood resiliency regulations for new buildings in the 100-year flood plain;

• Rebuild and repair housing units destroyed or substantially damaged by Sandy;

• Implement zoning changes to encourage construction of new resilient buildings in the 100-year flood plain;

• Encourage development of new housing types to replace vulnerable stock;

• Encourage home buyouts in areas that could be hit hard by future megastorms;

• Amend the Building Code to improve wind resiliency for new buildings;

• Develop requirements/incentives for buildings to adopt flood resiliency measures;

• Establish community design centers to assist developers in implementing the most effective new technologies in building design;

• Develop a sales tax abatement program for flood resiliency in industrial buildings;

• Launch a competition to increase flood resilience in building systems;

• Update regulations allowing retrofitting of vulnerable landmarked structures;

• Amend the Building Code to improve wind resiliency of existing buildings;

• Amend the Construction Codes, develop best practices for utility infrastructure.

The Boston report contains recommendations for site and building upgrades for stronger buildings, backup power, essential safety, and better planning. A list of recommended building upgrades to lessen the impacts of Climate Change is as follows:

• Evaluate vulnerability and risk. Where may flooding or wind damage take place? Use new flood and Climate Change data to plan and potentially change escape routes; create safe, sheltered areas of refuge.

• Build sites for higher rain flows. To reduce the impacts of more frequent flooding:

o Investigate and implement hard infrastructure, such as enlarged drainage pipes, levees, sandbags, floodwalls, and gates; and

o Soft infrastructure, such as wetlands and rain gardens appropriate for local climate for long life, to require less irrigation and absorb more rain.

o Use pervious pavement (such as porous asphalt, rubberized asphalt, pervious concrete) on sidewalks and parking lots.

o Implement catch basins to store water for non-potable (landscaping) use.

o Develop surface or sub-surface retention ponds, and release the water to the stormwater system after each extreme rain event.

o Build grassy swales along roadsides to enhance groundwater infiltration.

• Floodproof buildings themselves.

o Elevate building or at least key components (electrical switches, stored fuels, toxic compounds, boiler, potable water, etc.) above the design flood elevation revised for Climate Change-related increases in rainfall.

o Seal exterior walls.

o If there are still vulnerable areas, create a corridor for water to be led away from key service components and exit. Secure items (equipment, tanks) that can be moved by flood waters and physically damage a building.

o Install back-water valves and sump pumps on sewer connections to provide protection against flooding and damage from sanitary sewers.

• Stabilize slopes vulnerable to erosion.

o Use sloping or grading techniques or plant vegetation to stabilize slope.

o Plant trees or other vegetation near coast to absorb wind and floods.

o Confine water overflow into a drainpipe or through an approved discharge point such as a drainage ditch, drywell, gutter, or drainage holding pond.

• Develop “cool” areas. To address an increasing number of extreme heat days,

o Use light-colored (high albedo) paving to reflect more solar radiation.

o Plant vegetation on roofs or trees next to buildings will create shade and reduce extreme heat island effects and extreme temperatures, as well, and even reduce air conditioning costs. If possible, shade walls with vines, shrubs and AC condenser units for better performance.

• Design and install enhanced backup power. This should include enhanced lighting systems during emergencies.

• Wind damage.

o Address unsecured outdoor items that could become deadly missiles in a high wind situation, such as propane tanks and yard items.

o Prune vegetation so that sick or dead limbs do not become windblown.

o Install covers, shutters, reinforcement, or protection of doors and windows.

• Design and install resilient HVAC and water systems. Raise and insulate them.

• Enhanced building structure. Ensure roof can hold larger quantities of rainwater or snow/ice, building foundations are sound, and strengthen structural frames.

• Develop enhanced emergency plans. Coordinate with local rescue groups. Know your vulnerable populations and their needs during an emergency.

These are all matters that your company should look into to lessen the damage, both in terms of lives lost and cost, of future storms or extreme weather events which will likely be more frequent. Such smart planning will not guarantee no damage, but will save your company not only money, but enable it to continue operating and servicing customers.

CCES has the technical experts to help you prepare for potential disasters and emergencies. We can help you evaluate these items and work with specialists to properly implement the upgrades you decide. Contact us today.

For a growing number of EHS professionals, energy management has also been put on their plate. Companies now understand that energy efficiency is a great opportunity for cost savings and raising competitiveness. According to the US DOE, energy costs are one-third the average building’s total operating cost, and largest controllable cost. But many building managers or companies are reluctant to hire full-time energy experts, and put the job of reducing energy costs on professionals not trained in the area. Maybe you! Here is a guide to prudent steps used by others that have been proven to succeed to manage and maximize energy cost savings. For many of these specific steps, it is important to bring in focused, experienced energy professionals.

1. Understand your buildings’ functional, energy and cost baselines. Review old electricity and fuel bills of at least the previous 2 years to get an idea of your historic usage and costs. Are there unique energy-using activities (i.e., production)? Do your buildings have unique billings (i.e., penalty for high short-term demand)? Review your key equipment (boiler, AC units, roof, insulation, windows, lighting). How old are they? Are they functioning well? Have they been maintained per manufacturers’ suggested procedures? Put all of this in writing and you have developed a broad baseline understanding of your energy usage.

2. Rate your buildings. Assess the energy usage and costs of your buildings and activities and benchmark them against similar buildings both internally and externally. Use USEPA Portfolio Manager (it’s free, simple, and has just been updated!) and databases from a growing number of municipalities that mandate data collection/reporting. Which buildings or activities within your portfolio (i.e., high fuel usage in an otherwise-normal building) use energy more than others?

3. Perform focused energy audits. Because cost saving is so important to all companies, focus on the buildings or activities that appear to use the most energy (and have the highest cost) from above. Collect specific data about the buildings and activities (How many/what type of lights? Are there potential areas of heat loss in the building? How reliable are the boilers and AC units?). Using outside, experienced professionals to do this is ultimately cost effective.

4. Develop and prioritize Energy Conservation Measures (ECMs). Based on the information collected above, the energy professional should determine at least preliminarily the areas with the greatest opportunities for improvement energy-wise and potential strategies (ECMs) to achieve this and save money. List these ECMs and estimate their approximate upfront costs, future savings, and other indirect benefits or effects (i.e., a new piece of equipment may disrupt operations for X weeks; upgrading to LED lights will result in less maintenance, improving time allocation for Maintenance). Determine more detailed costs and savings, payback of initial investment, and long-term return on investment.

5. Identify incentive programs and funding sources. More and more utilities and government agencies offer incentives to pay for some of the upfront costs of many types of energy upgrades. Some are in the form of direct payments after completion of the upgrade; some are low interest loans; some are tax deductions (IRS 179D) or credits. An experienced energy professional can determine which incentive programs are available, which are most likely to be applicable, and the most direct ways to qualify. Reassess return on investment (ROI), payback, etc. Such incentives can move a lower priority project up to a higher one. Determine internally how ECMs can be paid for (perhaps a different department may benefit and will contribute to a certain project). Get final approval for the planned ECMs.

6. Project implementation and management. Move forward on the approved ECMs in a planned way. Often entities begin by implementing lighting projects which tend to result in faster savings, resulting in confidence that the program is working. They can use this “house” money to invest in additional, longer-term benefitting projects. Make sure that the project is well-managed and performed to technical expectations. It is tempting to “cut corners” to save more, but more often you will pay in many ways long-term for doing this. Another area you should not skimp is training. Make sure the right staff is thoroughly trained to operate new equipment properly. It is the continued maintenance and proper operation of the equipment that will save the company the most money going forward.

7. Perform measurement and verification (M&V). Make sure that all appropriate parameters are measured to determine whether the actual energy usage and savings versus the energy usage and savings that was projected. Why might some goals not have been met? Work with the supplier to ensure that all equipment works properly. Determine actual cost savings, payback, and ROI.

8. Keep track. Make sure that equipment and systems continue to be operated properly and maintained via manufacturers’ recommendations. Continue to measure performance and gains – both energy usage and cost savings, as well as those other indirect savings (i.e., Maintenance, etc.). Perform this for all your projects together to determine total cost savings of all such projects. Your company may also be interested in a greenhouse gas emissions inventory (“carbon footprint”) and Sustainability program. Determine how these energy-saving projects have contributed to a smaller carbon footprint.

Sticking to a proven, established program like this will greatly heighten your chances of success: lowering energy usage and raising cost savings and make you look good. See attached checklist.

Remember: Think And Move Forward Without Fear.

CCES has the experts to assist your building or company to proceed through these 8 steps to establish a successful energy saving program and maximize your financial benefits. We can help you in all areas and we want you to succeed. Call us today.

Checklist for Sound Energy Management

□ Understand your buildings’ functional, energy and cost baselines. Review old electricity and fuel bills and equipment, and develop a broad baseline understanding of your energy usage.

□ Rate your buildings. Compare energy usage and costs against similar buildings, and determine which buildings or activities use energy more than others?

□ Perform focused energy audits. Use experienced professionals to collect specific energy data about buildings and activities.

□ Develop and prioritize ECMs. Based audit, the energy professional should determine areas with the greatest opportunities for improvement energy-wise and potential strategies to achieve this and save money.

□ Identify incentive programs. An experienced energy professional can determine which incentive programs are most likely to be applicable. Reassess cost savings.

□ Project implementation, management. Move forward on the approved ECMs in an organized way. Make sure each project is well-managed and performed to technical expectations. Make sure proper staff is trained.

□ Perform measurement and verification (M&V). Ensure all parameters are measured to determine actual energy usage and cost savings. Work with suppliers to ensure that all equipment works properly.

□ Keep track. Make sure that equipment and systems continue to operate properly and maintained via manufacturers’ recommendations. Continue to measure performance.

The US has gone through a major change in its fuel supplies in a short time. A decade ago, the US was looking to support infrastructure to import large quantities of liquified natural gas. Now, the US is producing so much natural gas that we are a net exporter.

Advantages of Switching to Natural Gas

Significant advantages of switching your combustion equipment to natural gas include:

• Currently, natural gas is less half the price of oil and even coal on a Btu basis. The return on investment (ROI) of your upfront costs should be great given the long life of combustion equipment and expected long-term price of natural gas.

• Switching to natural gas results in significant decreases in most air pollutants (one notable exception: carbon monoxide) and greenhouse gases, perhaps enough to allow your facility to leave a major air permitting program or to exempt you from certain environmental regulations, saving you time and money.

• Reduction in risk. With natural gas piped into your facility instead of oil being trucked in, you are reducing (perhaps eliminating) the risk of messy, expensive-to-clean oil spills on/off site and of heavy truck traffic in the neighborhood. This should reduce your insurance premiums and labor and training costs and needs.

However one feels about it, hydraulic fracturing or “fracking” has led to a dramatic increase in natural gas production in the US, increasing supply much faster than demand, causing natural gas prices to drop. Meanwhile, the price of fuel oil and coal has risen because of Mideast worries and increasing costs of treating coal exhaust. We all know that fuel prices tend to cycle. There is concern that natural gas prices may rebound because prices are higher abroad and US natural gas producers want to tap that demand. Will the price differential continue for many years or only for the short-term? While the DOE recently issued its second permit to allow a US firm to export LNG unconditionally, pressure from US manufacturers may make this the last one for awhile.
The DOE stated that its studies project abundant domestic natural gas supplies to meet anticipated domestic, modest export demand with only minor price hikes through 2035.

So with all of these benefits, is it worth it in the short and long term for you to switch your combustion equipment to natural gas or just stay the course with oil?

The Effort to Switch to Natural Gas

There are some issues that must be addressed to allow you to switch to natural gas and realize these benefits.

• Availability. Natural gas is not available throughout the whole country and, in fact, is not necessarily available even in certain local areas. In New York City, for example, certain areas have natural gas service while just a block away there may be none. What to do? Negotiate with your utility (gas transmitter). What would be the cost to them to extend a line into your building or facility? Perhaps it is six figures, but you could negotiate a deal to pay that cost off in time. And with the proposed long-term price differential, this additional cost may still be absorbed profitably. I had a client whose facility was in a relatively isolated area. Their utility presented a multimillion dollar proposal to bring a line a few miles to their facility. I advised them to negotiate the price down based on the utility’s ability to supply gas at the same time to many other buildings along the way.

• Equipment compatibility. Does your combustion equipment have the capability of burning natural gas in place of oil? Some are manufactured as “dual fuel.” What to do? Work with the manufacturer for some likely minor adjustments. If the equipment is not capable of burning natural gas, then more major adjustments are necessary, such as a new burner or boiler altogether. While this may add high tens to hundreds of thousands to the cost, again, given the longevity of a new burner (several decades) and the long-term price differential, this will still likely be financially beneficial to you.

• Have a backup fuel. One can never predict the long-term future. Natural gas could become expensive again years from now. Many utilities provide financial incentives to turn off natural gas during the coldest days (“interruptible service”). What to do? Consider a backup fuel. No. 2 fuel oil is a good candidate. It may require you to install tanks for storage. But No. 2 is easier to manage than No. 6.

• Conservation is always a winner. Of course, it’s always good to burn less of any fuel. What to do? While you are upgrading your boilers and making the switch, look into other measures that will reduce your short-term fuel burning needs, such as upgrading insulation, windows, and your roof.

Success Story

I was fortunate enough to be the Construction and Environmental Manager for the conversion of three large boilers producing steam and domestic hot water at the East River Housing boiler house, serving 8 apartment buildings (over 2,700 units) in Manhattan. They had been burning over 2 million gallons of No. 6 fuel oil per year. We helped them switch to natural gas. The benefits became apparent very quickly. It has now been one full year since the switch. They saved over $2.2 million in fuel costs in the year compared to the year before despite the fact that this was a colder winter. Their avoided cost (cost differential had they never undertook this project) was $4.8 million in one year. The payback for their investment will likely be under 2.5 years. Given the 30 year expected life of the new/modified equipment, the total savings will be over $60 million. Plus, they have already seen secondary benefits, such as getting out of the Title V Permitting program, having no more truck visits (from 300 per year), and a more automated system to manage the new equipment.

This appears to be a unique time with many short- and long-term benefits to make the investment to switch to natural gas. One needs to do it right, but many of the financial and environmental factors are pointing in the right direction for your benefit. Don’t be afraid to get out of the ordinary and make a robust move, as it has been done successfully many times and has so many financial benefits.

CCES has helped buildings successfully convert from oil to natural gas and maximize their financial benefits. Our team of diverse engineers and technical experts can help you do this right, making the process as smooth as possible, including finding outside seed money to support such a project. Contact us today.

So, you are a Sustainability, Environmental, or Energy Manager or a key technical resource and part of your responsibility is to ensure and maximize the success of your (fill in the blank) Sustainability, Green, Energy, etc. Program. You have the technical knowledge (hopefully, at least in part, from CCES blog articles – see www.CCESworld.com/blog for the full list of useful energy and sustainability articles). That’s important, but now you need the organizational skills to get everyone on board and make sure that people are doing what they are supposed to and are motivated to perform their tasks and meet all goals in a first-class, timely manner.

In my work in this area with a wide variety of companies and municipalities, there are common organizational threads that strongly contribute to success or failure. Yes, technical knowhow (bringing in the right technical experts) and having use of capital are very critical. But without behavioral considerations, your program may be less than the success first envisioned or will take a longer time period at a greater cost.

Yes, behavior and that annoying word, “culture”. As engineers and scientists, we like to think good scientific thought and thorough planning and implementation are all that’s needed for success. But the reality is that companies and municipalities are led by people, and their attitudes need to be in sync for the Program to be successful and to ensure goals are met. Here are some critical steps to ensure success:

Get clear support from THE top. I have seen with my own eyes that this is the most important factor for such a Program’s success. Sustainability, energy conservation (whatever you call it) is not a “typical” program that people are used to, trained for, and comfortable with. Thus, to make sure that tasks for various people are taken seriously and not shoved aside, it is critical for the CEO him/herself to voice – not just once, but consistently – the Program’s importance and to empower managers to incentivize employees to perform needed tasks. I was involved in one project for a municipal entity, whose Executive Director declared that he wanted his to be “the greenest ___ in the U.S.”, a high priority. It was great working for this Authority, and staff was very cooperative gathering data and taking ownership of the Program. Then the Recession hit and the Executive Director had, I’m sure, other legitimate concerns and the Green Program became a much lower priority and he said so. Well, staff changed their attitudes quite quickly. Suddenly, people were not returning my e-mails and voice mails, and not providing promised data. At a meeting of its Environmental Committee, about half the group now openly admitted they did not believe in Climate Change and in the Program as a whole (this was the Environmental Committee!). The Program ground to a halt. Ironically, no longer following through ended up costing them money in not realizing the financial gains from energy and sustainability upgrades. And this could have helped them recover from the Recession.
Get support from the top, and keep the top up-to-date, knowledgeable and engaged.

Set reasonable goals. I don’t just mean set modest, easy-to-achieve goals. I mean set goals – both long- and short- term – that are measureable, understandable, and transmittable. These can be reductions in energy costs/usage and/or greenhouse gas emissions. But they should be clear and able to be communicated. There is a temptation to link “green” goals to those of other groups, such as Finance, Legal, Production, EHS, etc. That is certainly OK to get those groups on board. But this is secondary; goals should be reasonable, understandable and universal for the entity.

Use initial goals to catapault to others. Yes, do start your Program with modest goals that can be achieved in a relatively short time frame. This will demonstrate the worth of the Program and make that person at the TOP more convinced quicker of the value of the program (before he/she gets frustrated). If cost savings can also be demonstrated, you now have “house money” to pursue more challenging goals.

Give some ownership to all. Keeping a Sustainability Program as the “baby” of a single department will not engender support. It is important to make everyone in all departments feel they are part of the Program and reaping benefits. Items like energy cost savings, recycling gains, etc. should be shared with all employees. A lot of anecdotal evidence is springing up that communicating such successes with all employees makes them proud to work for the entity – and less likely to leave.

It’s a long-term Program. It is tempting to think with each positive change in your organization (lights, insulation, water conservation, etc.) you can check off another box to reach the magic goal of “Sustainability”. But, this is really a long-term game whose “goal posts” shift some over time. Therefore, training staff to properly maintain implemented strategies is a key to success. Also, technology changes, and thus, it is important to be aware of changes and upgrade when necessary and cost effective. Finally, while gains are being made, there is no final goal. One can always improve energy or water efficiency a little more for benefits (reduced risk and costs).

Prepare everyone in advance that this is a long haul, but with positive outcomes throughout.
Shaping your Program these ways will better ensure that your technical work will be successful and recognized.

CCES has the experience and expertise to help you organize your Sustainability or Green Program to maximize the chances of long-term interest and success. Plus, our technical experts can help achieve success in all facets. Contact us today.

Why M&V Is Important

For different reasons, we are reaching a “perfect storm” of the need for companies to implement a robust program to measure and verify environmental performance.

• In the environmental sphere, many regulatory agencies have cut back and now expect facilities to rigorously self-monitor and report key compliance indicators.

• For energy, cost savings resulting in investments in energy-saving strategies need to be substantiated by measuring key energy efficiency parameters.

• For green building, the USGBC, which oversees LEED, has changed emphasis to not just demonstrating implementation of green building upgrades, but requiring performance measurements to assure that upgrades are maintained for continuous green performance. LEED credits can be taken away and certification removed if proper verification of actions and performance is not performed.

• Finally, monitoring is critical for demonstrating to management that your energy efficiency or sustainability strategies have met goals and/or saved money.

For all of these reasons, it is important for a facility to invest in measuring key activities and verifying their performance for continued cost savings or compliance. This has become its own category of work, known as Measuring & Verification or M&V.

Therefore, it is becoming more and more important for a company to devote proper resources and develop proper procedures for such an M&V program. For best results and to save money, M&V should be part of an organized, written program.

Verifying compliance, meeting goals and cost savings are important for many reasons. As intimated above, M&V can demonstrate compliance with applicable environmental rules beyond a doubt to reduce legal risk. M&V can be the proof to upper management, having devoted resources to a sustainability or energy efficiency program, that their decisions are justified. M&V can be used to prevent misunderstandings with consultants and ESCOs who may work on contingency of money saved. Some NGOs and agencies require M&V to determine certification of goals met and incentives earned.

Written M&V Plan

A formal, written M&V Plan should be prepared and approved by all parties (owner, ESCOs, equipment suppliers with performance guarantees, NGO, etc.) before the project begins. This plan should clearly list the parameters to be measured, when, for how long, and by what procedure. The methods that these measured parameters will be used to calculate energy and cost savings should be written, also. Potential issues that can come up in M&V work, such as equipment availability, data quality, changes in energy or building processes, etc. should be discussed, addressed, and finalized.

Putting the M&V Program Together

One useful source to get started in developing a viable M&V program is the International Performance Monitoring and Verification Protocol (IPMVP) found in: http://www.nrel.gov/docs/fy02osti/31505.pdf. The key provisions of the IPMVP are:

• Determine which key parameter(s) an energy conservation measure (ECM) will affect when implemented to determine energy savings, such as kilowatt-hours of electricity or quantity of fuel used, etc. The parameter should be measured before and after ECM installation, taking into consideration site-specific conditions. Inputting the data into and running an energy model may be needed to fully determine the broad effects on energy usage throughout the building of the ECM. Make sure baseline (pre-ECM) data is accurate.

• Then determine the best way to measure this parameter. Can the parameter be isolated around the ECM or specific equipment? Or must you must measure, for example, a whole building’s usage and determine a correlation to the ECM?

• Determine, measure, and record the chosen energy-related parameter for the ECM as accurately as possible. Do you have the proper equipment to measure and record the parameter accurately, such as usage meters, proper software?

While the protocol focuses on energy savings, the same M&V approach can be directed to compliance. Be sure to understand the necessary parameter to prove compliance; understand fully the regulations and make sure your permit reflects this. Determine which parameters correlate with compliance; it should be contained in the permit. Make sure the regulatory agency agrees. Determine the most accurate/cost-effective way to measure/record the parameter and determine how to communicate this to the agency.

Remember that activities are never static, so be aware to review and possibly change your M&V program. I had a client that implemented many ECMs, such as lighting, windows, insulation, to reduce fuel and electricity usage. The building owner leased out an unused part of his building to a light manufacturing operation during the upgrades. Added efforts were needed to estimate likely energy savings due to the ECMs alone.

CCES has the experience and expertise to help you both perform an environmental compliance audit or an energy efficiency upgrade to save you money and to manage the M&V program to help you demonstrate your compliance or calculate cost savings to meet the goals your company has. All this to save you money and to make your life easier and reduce your risk and demonstrate progress. Great stuff. Give us a call today.

November 2012

Environmental agencies must develop cost-effective enforcement programs to meet goals within tighter budgets. One idea is to provide incentives for facilities to self-audit, voluntarily report any violations, and self-correct to return to compliance. Since finding and correcting violations are how most agencies are judged, self audits are a good fit.

Federal Self-Audit Program

The USEPA has had a self-auditing policy for over 25 years. Some relevant publications may be found here: http://cfpub.epa.gov/compliance/resources/policies/incentives/auditing/. The main incentive that the USEPA offers to encourage self-auditing and reporting is penalty reduction. The USEPA fine policy takes two factors into consideration: gravity of the violation and the economic benefit of violating. The USEPA has stated that it can reduce the penalty’s gravity portion fully or by 75% if certain self-reporting conditions are met. The USEPA will not reduce the economic benefit portion. In addition, the USEPA will not normally recommend an entity for criminal prosecution if it self-reports.

According to USEPA policy, a facility has to make the discovery voluntarily (not because of a legally-mandated audit or monitoring) and report a violation within 21 days of its discovery in writing to the USEPA. A violation is discovered when any officer, director, employee or agent of the facility has an objectively reasonable basis for believing that a violation has, or may have occurred. “Objectively reasonable” is difficult to define as a facility can find a potential violation but then take time (by necessity) to examine it thoroughly through legal counsel to determine whether it is a true violation or not. The disclosure must be made to the facility’s appropriate USEPA Regional Office and should, at a minimum, identify the means of discovery and type of violation. Correction of the violation is expected to be made within 60 days of the discovery date, although an extension can be granted. A system to reasonably prevent recurrence must be developed. The USEPA Audit Policy does not cover repeat violations, those that could cause serious harm, nor violations of a judicial, administrative, or consent order.

On the State Level

Roughly 30 states have enacted environmental audit privilege and/or penalty immunity laws. New York State is in the process of updating its self-audit rule. The NYSDEC is expected to post its draft self-audit policy for public comment beginning later this month. A final policy is expected to be posted and implemented in the spring of 2013.

The draft New York State Audit Policy applies to any facility within the state subject to environmental rules. It will not apply to repeat offenders (even for different but similar violations elsewhere in a facility) nor to “uncooperative” entities. It will not apply to violations made during department inspections or those that may cause serious harm.

Disclosure must occur within 30 days of discovery, although, like in the USEPA policy, discovery is not well defined. The draft policy emphasizes communication and written agreement. The self-reporting entity is encouraged to meet with regulators in person to coordinate future steps. An Audit Agreement must be agreed to describing the violation, the steps to remediate it, and reduction in fines. The violation must be corrected within 60 days of disclosure; although that can be changed in the Audit Agreement.

The New York State draft policy gives the NYSDEC the right to waive the gravity portion of a fine. In addition, it can also reduce the economic benefit portion to a de minimis value and/or allow credit for pollution prevention costs that the entity will spend to prevent recurrence. The draft policy offers additional incentives, such as 50/50 cost sharing for energy upgrades, priority for Small Business Program and other assistance, and being placed as a “Low Priority” as a NYSDEC inspection candidate.

Wisconsin has a program called “Green Tier” which provides incentives to entities that voluntarily improve their environmental performance, irrespective of having a violation or not. The program has two tiers. Tier One participants are entitled to deferred civil enforcement as well as statutorily capped or stipulated fines for violations. The WIDNR promises not to seek penalties for those entities that self-disclose violations and take corrective action. Tier Two participants generally contract for a limited form of immunity from any civil action for self-disclosed violations.

What Should You Do?

The descriptions here demonstrate the many advantages for self-disclosing/correcting environmental violations. Environmental rules applicable to your facility are generally listed in your permits (Title V, etc.). Most environmental rules are science-based (i.e., measurements of certain parameters). Make time to make appropriate measurements to ensure that you are still in compliance with all applicable rules. If you find a violation (for example, excessive quantity of a waste or a composition of a paint), then measure it again and even a third time to make sure the measurements are correct. Even use a second lab, if necessary. Then discuss the potential violation with legal counsel to determine whether this is truly a violation of an applicable rule. Then work with Legal and management on how to approach the USEPA or your state agency to self-disclose the violation to take advantage of the incentives. Finally, take the time to review your monitoring systems that are supposed to indicate your compliance status. Are they functioning properly? Can they be upgraded if a more reliable technology is available?

This article is a technical overview of self-auditing policies. Be sure to consult your legal advisor before making decisions on how to approach these issues. CCES has the experts and experience to assist you in performing a 3rd party environmental audit to determine early on any potential violations for self-reporting. We can design and manage your compliance program and work with you to provide technical (not legal) advice when you deal with the regulatory agency to maximize your approval in the self-auditing rule. We can also help you design a new or upgrade an existing compliance monitoring system to enable you to determine compliance early in the future. Contact us for more information.