Mr. Kiesner

Eco-Friendly Practices

Time for Energy Efficiency to Take Center Stage

By Steve Kiesner, Director of National Accounts, Edison Electric Institute

The country's steadily growing demand for energy will continue to present challenges for legislators, both at the federal and state levels. Two energy-related issues in particular-rising prices and global climate change-will demand innovative and bipartisan solutions.

The nation's electric utilities believe that a key component of these solutions will be an expanded commitment to energy efficiency. We are working with the new Congress and with state legislators and regulators to broaden the role that energy efficiency plays in addressing these issues. We are encouraging the hotel industry, and all sectors of the economy, to join in this effort.

Electricity Demand Growing

The U.S. Energy Information Administration is predicting that the country's total energy consumption will increase at an average rate of 1.1 percent per year through 2030. Demand for electricity is expected to grow at a slightly faster rate, expanding at an average annual rate of 1.5 percent per year.

This growth in electricity use will build upon already high demand levels. Electricity demand in 2006 was the second highest ever. It fell just shy of the record set in 2005. The country actually did set an all-time weekly electric demand record last summer, only to be eclipsed two weeks later. Looking ahead, we expect that more records for electricity use will be set.

The population of the U.S. is anticipated to grow 23 percent between now and 2030. The nation's GDP is projected to double in that time. Both events lead the federal government to predict that electricity use will grow by 40 percent over the same period.

This sustained growth in electricity demand is beginning to strain the system. The North American Electricity Reliability Corporation (NERC) forecasts that most U.S. regions will see their electric capacity margin-the difference between net capacity (a system's total capacity resources) and net internal demand-continue to decline through 2015. NERC also believes that in just the next two to three years much of the U.S. will be at or below minimum margin levels. Additional, uncommitted generating resources offer the potential to keep supply ahead of demand a bit longer, but this report holds the potential for real concern.

Nonetheless, these numbers do point out a hard reality-it is time to build more power plants and transmission lines. The federal government believes that almost 1,000 medium-size power plants will need to be added by 2030. The cost to add all of this new capacity is estimated to be in excess of $275 billion. Adding the new power plants will also mean that more wires will be needed to transmit that power, and more environmental controls will be required to further reduce air emissions.

Expanding Efficiency's Role

Against this backdrop, electric utilities are meeting with state regulators and policymakers to discuss measures to broaden the role that energy efficiency can play in helping to meet the country's growing demand for electricity. Central to this discussion are new business models and policy constructs that will enable energy efficiency to produce even greater results.

Electric utility programs and services have helped the country to take control of its electric bills since the early 1970s. And these efficiency efforts have made a difference. From 1989 to 2005, electric utility efficiency programs and efforts saved more than 796 billion kiloWatt-hours (kWh) of electricity-enough to power nearly 74 million average U.S. homes for one year, according to the U.S. Energy Information Administration. These savings are equal to the annual electricity output of slightly more than 336 baseload power plants (rated at 300 megawatts each). Looking ahead, the industry's efficiency programs are a key reason why the nation will be able to defer building at least 500 more power plants until 2030.

Edison Electric Institute is now leading an effort driven by its member electric power companies to re-invent the role energy efficiency plays within the industry. We are pursuing a variety of innovative business and regulatory approaches that will encourage the use of state-of-the-art-energy efficiency technologies and services.

At the heart of this effort are the efficiency advances that new technologies are now making possible. One example is the impact of two-way communication and advanced metering technology. These are both rapidly advancing. They can expand information exchange between customers and their electric utility. They can support real-time pricing, billing, change-of-service, outage communications, and broadband. And in the not-too-distant future, "smart" technologies and appliances-or what the Electric Power Research Institute calls "dynamic systems"-will be able to make decisions about when to operate and even "learn" how to best combine efficiency, cost, comfort, and convenience for their customers.

When coupled with innovative approaches to rates and ratemaking design, energy efficiency, demand response, and smart technologies will expand the industry's portfolio of resource options. They will be able to help mitigate the effects of volatile fuel costs. And they will make regulated retail markets more responsive to competitive wholesale markets. The result will be a foundation for a dynamic partnership between utilities and their customers to achieve the mutual goals of greater reliability, power quality, environmental protection, cost control, and risk management.

The electric utility industry's support for energy efficiency has led it to endorse the National Action Plan on Energy Efficiency (NAPEE). NAPEE is an important new initiative to save electricity and natural gas. It was launched last summer by the U.S. Department of Energy and the U.S. Environmental Protection Agency, with the participation of utilities, public utility commissions, energy consumers, and non-governmental groups. NAPEE's efforts have focused on developing the business rationale for greater energy efficiency investment, and have included research, analysis, and documentation of strategies aimed at addressing key barriers that prevent greater energy efficiency investment in the United States.

The first phase of this multi-year effort identified numerous examples of successful energy efficiency programs as well as the potential for energy savings across the U.S. In addition, more than 80 organizations announced public commitments to advance their own energy efficiency activities.

The industry is pursuing actions now to seize a wide range of opportunities to improve energy efficiency:

These projects will take time, but they are essential to keeping electricity affordable and reliable. In the meantime, hotels, and indeed all electricity customers, can help by making sure that they are getting the most value they can from each dollar they spend on electricity.

The good news is that you have many resources waiting to help your company to improve its energy efficiency. The Energy Policy Act of 2005 (EPAct) is one. Another is the electric company or companies that serve your business. I encourage you to take advantage of both. There is always room for greater savings. And as you know, these savings can add up to greater profitability.

EPAct contains a variety of initiatives and incentives to boost the country's overall energy efficiency. One way is by setting higher energy-efficiency standards for new commercial products that use large amounts of energy. Another is by offering tax deductions and credits to encourage homes and businesses to purchase high efficiency products and appliances.

For example, commercial buildings that are built to exceed by 50 percent the energy efficiency rating of a "baseline" building in the American Society of Heating Refrigeration Air Conditioning Engineer's (ASHRAE) building code 90.1-2001 can qualify for a tax deduction of $1.80 per square foot.

If the whole building does not reduce energy use by 50 percent compared to that standard, it can still qualify for a tax deduction of $0.60 per square foot per "sub-system". The eligible sub-systems are interior lighting, heating, cooling, ventilation, and hot water systems, and the building envelope (essentially everything that separates the inside from the outside). These sub-systems must exceed the energy efficiency of a "baseline" sub-system in the ASHRAE 90.1-2001 building code. The window for these incentives is scheduled to close on December 31, 2008.

To get the deduction, the U.S. Department of Energy (DOE) has to determine the energy and cost calculation requirements (based on the guidelines of the 2005 California Nonresidential Alternative Calculation Method Approval Manual). DOE has to approve of "qualified computer software" to use for these calculations. There is also a certification process that must be defined by DOE, which will include inspection and testing by qualified individuals.

One caveat to this is that ASHRAE has published new commercial building codes: 90.1-2004 Standards. The International Code Council also updated its Energy Conservation Code in 2003 (IECC 2003). At least 20 states have adopted ASHRAE 90.1-2004 or IECC 2003. And both are more stringent than 90.1-2001.

Businesses are encouraged to try to obtain tax deductions in states that have already adopted the 2003 or 2004 codes. The reason: In those states, the building are already more efficient. Businesses should also try to combine the federal tax incentives with any incentives being offered by the states, electric utilities, or both.

Through EPAct, you can also qualify for tax credits on on-site solar energy systems. As with the other tax credits, theses are available only this year and next year.

The tax credits for solar energy systems have increased from 10 percent to 30 percent for 2006 and 2007. There is no dollar or cost cap on the tax credit. The following solar systems qualify:

And of course, your electric utility is a good source for information and assistance to help you get started. Your account representative will likely have historical data about your energy use. The local electric can also help you with answers about electric utility incentive programs, discount electricity rates, energy-efficient equipment, or any other energy-related question.

The country's volatile energy prices will be a challenge for legislators and businesses alike. And although there are no quick and easy answers to our energy situation, we can all do much in the short term through energy efficiency to soften their impact. Now is the time to get started.

Steve Kiesner is Director of the Edison Electric Institute’s National Accounts Program. Based in Washington, D.C., Edison Electric Institute (EEI) is the association of United States shareholder-owned electric companies, international affiliates and industry associates worldwide. Our U.S. members serve approximately 90 percent of the ultimate customers in the shareholder-owned segment of the industry, and nearly 70 percent of all electric utility ultimate customers in the nation. They generated almost 70 percent of the electricity generated by U.S. electric utilities. Mr. Kiesner can be contacted at 202-508-5000 or skiesner@eei.org Extended Bio...

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