Leveraging Jobs For Energy Dollars

(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.
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