(Tip of the Month for June 2005)
With energy prices rising, many facility and building
managers are looking for new ways to cut or contain such costs. One option often
forgotten in this process is the pursuit of rate discounts available under many
programs designed to spur local economic development.
All states, and some large cities and counties, have
Economic Development Organizations (EDOs) that focus on attracting jobs and
business. More people working and more businesses operating translate into
increased tax revenue and growth that enhance community stability. Such programs
change often, however, and may not be found in utility tariffs, so it pays to
keep an eye out for opportunities that open the door to such discounts. Many EDO
programs will pay merely to keep jobs in a city, so a showing that a firm is
considering moving to another location may be sufficient to create eligibility
for a rate discount.
Get Paid To Stick Around
EDOs have arrangements with local utilities to cover part
of the energy bills of those eligible for economic development rates. EDOs
typically target zones in which jobs and/or businesses have disappeared over
time, creating "distressed" areas. Offering multi-year rate discounts is one of
several ways new businesses are drawn into such areas to revitalize them. Part
of the deal is based on the creation or retention of jobs for a defined period,
with the rate discount being determined by a formula related to the number of
jobs involved. Using EDO procedures, applicants must demonstrate the number of
jobs and/or business revenue their organization will add or retain inside those
distressed areas. To make this task easier, some EDOs are willing to provide
personnel to handle most of the paperwork (which may be considerable).
Worth The Effort - Maybe
A clear understanding of the potential savings is the
first step when considering involvement with such programs. Typical rate cuts
are in the 15% to 40% range, usually lasting several years. Lower percentages
may occur when deals run for a decade or more. The actual dollar value could
then depend on prevailing energy rates.
The form of the rate cut is also important. If provided as
a clear discount or replacement price, the cash value may be easily determined
and even forecast as tariff rates change. When given as a reduction in corporate
income or property taxes, however, results may depend on the profitability of
the company or the value of the facilities it maintains in the distressed area.
Nonprofit corporations, for example, may not pay corporate income taxes, making
such offerings of little value. Companies operating on very thin profit margins
may also see only minimal benefits. On the other hand, a successful economic
development program may increase property values in distressed areas, making a
tax rate discount (if offered as a percent) worth even more in the future.
Read The Fine Print
Value may also be impacted by exactly how the offering is
worded and interpreted. In some cases, examination of the laws or regulations
authorizing the EDO may yield greater returns. In one case, an application form
implied that a discount covered only the power used by a new building wherein
new jobs would appear. Based on the wording of the application form, it looked
like the new building would need to be submetered to show only its usage. Any
electricity received at the new building but redistributed to existing
facilities would not be covered by the discount.
A review of the actual EDO law indicated, however, that
the discount could apply to all electricity seen in the electric bill for the
utility account covering that new building as long as the power was consumed
in that new facility. That new account was designed to feed both the new
building and a new central chiller plant being built below it. The new plant,
however, was designed to cool both the new building and many existing facilities
nearby. Because chilled water distribution was never mentioned in the EDO law,
power used to make chilled water in the new plant but sent to existing buildings
was also eligible for the discount. The new chiller plant allowed
power-consuming cooling equipment in existing buildings to be shut down,
significantly reducing power consumption not eligible for the discount.
Instead of saving a few hundred thousand dollars over a decade, this broader
interpretation resulted in saving millions.
In a second case, a benefit designed to draw jobs back to
a part of a city affected by a natural disaster (and to keep those still
remaining) was limited to "customers having peak demands of 500 (or fewer) kW."
The discount applied whether or not any plans existed for relocating a facility.
A small college in the area had a combined peak demand (for all its accounts) of
2600 kW, and concluded it was ineligible. Once again, a close look at the rules
indicated that the limit could instead be applied to a single account (which was
the regulatory definition of a "customer") even if the entity owning the
building had other electrical accounts. By applying for a rate discount for only
its largest building (having a peak load of 400 kW), the college was able to
secure a rate cut for about 15% of its campus.
Finding EDO Programs
Many business and facility managers are just too busy to
read everything they receive from their utility and local government and may
miss out on programs described in such mailings. Those responsible for sites in
more than one state or in multiple utility territories are especially challenged
to keep up. To help, the International Economic Development Council offers a web
site for finding economic development programs across the U.S. at
http://www.iedconline.org/?p=Links_US_EDOs.
Some energy and business consultants offer services that
focus on securing economic development rates and similar cost-reduction options.
Find them through your local EDO, consulting engineering firms, or business
associations such as Building Owner's and Manager's Association (BOMA) and the
local Chamber of Commerce.
Energywiz, Inc.
Adding New Dimensions to Energy Services
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