Mr. Poad

Eco-Friendly Practices

Compiling Utility Data to Make Capital Spending Decisions

By Jim Poad, Director of Client Solutions, Advantage IQ

The "No Vacancy" sign is the hotel operator's best friend. No matter where it's shining-from the top of Maine to the tip of Florida; from the Hudson River to the Grand Canyon; or from the Seattle Space Needle to the San Diego Zoo - the neon light signals a strong industry.

It also indicates a stable economy. The more rooms that are booked means more cars on the road, and more people traveling on planes and trains. And it means restaurants, shops, and amusement centers packed full with visitors.

But there's an underlying component that, if not addressed, can limit an operator's end profit. A crucial element here is energy costs.

When the "heads-on-beds" rate is high and hotels are fully occupied, it also means more demand on the facility's electric system-more lights turned on, more TVs left running, and more adjusting of HVAC units. Operators that do not conduct a thorough examination of their usage data-and many don't-are missing opportunities to squeeze higher profits from booked rooms.

One of the first steps is to collect historical usage data, a 12-month rolling record of the number of kilowatt hours of electricity a hotel uses. Hotel operators can learn plenty about how they use their energy over time by compiling and studying this information.

Once the historical data is compiled, hotel operators can gain a better perspective of exactly how and where energy is being used by measuring their energy usage and making comparisons to other similar hotel properties. This benchmarking process can also give hotel owners an idea of how particular sites in the portfolio are performing energy-wise against others. It will also help determine what capital improvements make the most sense.

For example, an operator with multiple hotels throughout the country might find that their properties in the Northeast have larger energy bills. Historically, hotels operating in the Northeast have experienced higher energy costs because of generally higher energy rates in that region. If you uncover this to be the case, you can now make better capital spending decisions, because improvement in this area could yield a higher return. By installing efficient HVAC units and high-tech control systems, the operator can dramatically improve efficiency and thus reduce energy costs in these properties.

Steps to take...

But before a hotel operator can benchmark across a multi-site portfolio, several important factors must be taken into account: the hotel's age, the equipment's age, the market's utility rates, and the hotel's vacancy rates. Pulling out and analyzing this information translates into valuable knowledge that can help determine where to make capital investments.

These investment decisions may include installing energy-efficient lighting, 'smart' thermostats on heating and cooling systems, and window shades; improving door and window seals and making sure HVAC units are updated, well-maintained, and operating at peak efficiency.

When the operator completes benchmarking, and all variables are accounted for, the operator should work with his demand-side management providers to determine what capital improvements will have the biggest bang for the buck. Seems obvious, doesn't it? But things aren't always what they seem.

Analyzing the information housed in the electricity data will help determine what steps to take, and in what order. Maybe the HVAC unit isn't the first step or best step to take. Perhaps putting in a new lighting system would be more beneficial or installing a control system or lighting sensors will help increase the site's electricity performance. Through a heavy analysis of the data, the path to lowering usage and costs will begin to be unveil itself.

Next, start targeted pilot projects by implementing different capital investments at select hotels within the portfolio to see what improvements allow the greatest return on investment. For example, if a hotel operator has 100 locations, by surveying 10 of them he will be able to get an idea of the average usage. Then, through implementing a few different energy saving tools, such as simple sensors or lighting controls, and measuring the results, it is easier to build a baseline that can be measured across the entire portfolio.

The process builds a set of assumptions that, once validated, can be rolled out over the entire portfolio to maximize profits. The bottom line: hotel operators should be trying to make capital improvements to drive the efficiency of the entire organization. It's not a stretch to say that analyzing the data and converting the information into knowledge can deliver anywhere from a 30 percent to 50 percent savings on utility bills.

Performing a 12-month benchmark on an operator's portfolio provides another benefit. In addition to providing information on an operator's demand-side options, historical data can be used to determine whether or not the utility has placed the site on the most economical rate. Hotel operators with a large multi-site portfolio can often qualify for multiple rate options. The historical data pulled out of a 12-month benchmark allows the operator to see what rate choices are available.

Factors that Influence Rates

Energy is a much more complex industry now than it was 15 years ago. The global business environment; the increasing reliance on foreign sources for oil; geopolitical issues; the opening of the natural gas market within the United States; and the deregulation of electric markets in some states, all of these factors greatly effect our energy rate.

These factors influence energy expenditures and should be closely watched. Because hotel operators have more pressing issues to deal with, like keeping rooms booked, they are increasingly appointing an internal energy manager or other designated personnel to stay on top of what affects energy prices and how to avoid unexpected cost increases.

Another growing sector is energy management consulting firms, experts in the industry that have the capability to benchmark quickly and have the experience, supply and demand knowledge, and network of suppliers to procure the best rate and take the burden off operators' shoulders. They can also help determine the best way to spend capital dollars and maximize savings, and make decisions on supply side procurement and rates.

Whether it's a new HVAC systems across the portfolio, or new lighting or security systems, operators can get the most efficiency out of their utility usage-and also limit the amount of energy used to light those "No Vacancy" signs-by compiling and analyzing utility data.

Jim Poad, a 30-year energy industry veteran, serves as Director of Client Solutions for expense and energy management firm, Advantage IQ. In this capacity, Mr. Poad is responsible for developing and directing the Company’s energy management programs on behalf of clients. He works with clients to develop and implement a customized strategy to better manage energy usage, reduce overall operational costs, and meet overriding corporate objectives. He has helped clients save millions of dollars through the implementation of supply-side and demand-side initiatives. Mr. Poad can be contacted at 608-755-1650 or jpoad@advantageiq.com. Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.