Buy utilities at the lowest cost

October 2016 — Purchasing utilities—such as electricity, gas, steam, oil, water, and sewerage—at the lowest cost is one way to ensure that your building is running as efficiently as possible, while also maximizing corporate net operating income and profits.

Many opportunities exist to reduce payments for utilities once a building’s energy consumption has been reduced to the lowest loads required to operate the building properly. Property managers who strive to buy utilities at the lowest cost must pay careful attention to utility expenses, the reasons for them, and the following opportunities to reduce energy payments:

  • Utility rate options
  • Utility service options
  • Opportunities stemming from deregulation
  • Demand-side management (DSM) programs
  • Accurate utility bills
  • Utility company and government rebates

Utility Rate Options

Because the choice of utility rates is typically the responsibility of the customer, property and facilities managers should obtain copies of the rate schedules, criteria, and regulations of all utility suppliers. Each rate schedule usually has what is called an availability clause, which describes the conditions required to qualify for a particular rate. As long as a building meets the criteria of the availability clause, the customer can choose that rate.

Shopping for electricity prices is not an easy undertaking as there are many variables that feed into electricity prices, such as a building’s load profile. A load profile is a graphic representation of a building’s kilowatt usage throughout a day, month, or year. For most commercial real estate, and especially for office buildings, a building’s daily load profile is shaped like a bell, with the bulk of the energy being used during the day (when energy costs are higher) and much less energy being used at night. To purchase prime electricity rates, the load profile of a building should be as close to a straight line as possible.

It is important for managers to compare utility rates periodically, especially as the building use changes over time. What may have been the best rate last year could be less competitive this year. In addition, just because a rate is intended for large buildings or is a wholesale or primary service rate does not always mean that it is the best rate for a particular building. Under some circumstances, small commercial rates or special rates can provide lower costs. Property managers should also keep a close eye on available riders and options, which may make certain rates more attractive.

Many energy consultants and utility companies offer online software products to create a building load profile, often at no cost or as part of a larger service offering. Taking advantage of these offerings will greatly assist managers as they negotiate power purchases, select the most advantageous rate schedules, and identify opportunities to reduce energy consumption.

Utility Service Options

Property managers looking for ways to identify costly overbilling and evaluate rate options should investigate services provided by their utilities, such as real-time metering and bill aggregation services. Real-time metering gives unprecedented access to around-the-clock, real-time billing information as well as the ability to manage and forecast energy loads and monitor energy use online. By monitoring energy loads throughout the day, companies are better equipped to avoid costly spikes in energy use and peak-demand charges. Bill aggregation, offered by many utilities and service providers, is a way for companies to pool their energy bills to try to attain a better rate.

Opportunities Stemming from Deregulation

The deregulation of the utility industry, much like the deregulation of the phone and airline industries, will lead to increased competition and potentially drive down energy prices, especially for the commercial sector. There are many ways to take advantage of deregulation. These include aggregating power purchases, negotiating rates, and new financial instruments.

One method for reducing electricity prices is to aggregate the power purchases of several buildings in order to receive a greater discount than each could receive individually. In 2001, many large commercial property management firms began to eye deregulation as an opportunity to significantly reduce their operating costs through aggregation. At the same time, they began to optimize the energy efficiency of their buildings. The combination of reduced energy prices and energy efficiency improvements has been very profitable.

Through deregulation, organizations are finding that power rates can now be negotiated in much the same way that the prices of other raw materials or supplies are negotiated. Also becoming more prevalent during deregulation, but perhaps not byproducts of deregulation, are new financial instruments that protect buyers from energy-related risks and sophisticated metering and bill-paying software that provide in-depth analysis of a building’s energy use and costs.

Demand-Side Management (DSM) Programs

A few utility companies offer DSM programs, which are usually mandated or approved by regulatory agencies and often involve taking advantage of alternative rates. These programs are intended to reduce the consumption of energy, the demand for energy, or both. Most often, they involve offering free advice or subsidizing the purchase and installation of various energy-conserving products. Occasionally, they provide additional rate options or commission existing building services.

Certain utility companies promote selected products and systems through their DSM programs that are subsidized by the utility company but that are not always aligned with the property owner’s needs. Such promotions should be examined carefully in the context of the property’s energy management action plan.

Accurate Utility Bills

One of the most cost-effective practices to reduce energy costs is to scrutinize utility bills monthly. Each utility bill should be checked in detail, starting with the meter readings. Building staff should take utility meter readings at least once each month, ideally on the same day that the utility company reads the meter. On request, most utility companies will furnish customers with their scheduled meter reading dates a year in advance. At no extra cost, some utility companies will provide spreadsheet templates or proprietary computer programs with which customers may calculate their rates. These should also be checked.

Utility Company and Government Rebates

Some utility companies and governments offer rebates to organizations that participate in DSM or energy-efficiency programs. Sometimes such rebates can make an uneconomical project worthwhile. If these rebates are for projects that the manager would undertake anyway, then they should be accepted. In the utility field, this is called being a free rider. A free rider is a customer who voluntarily takes a certain action to reduce energy consumption and demand, even without the incentive of the utility company program. Whenever possible, all property and facility managers should take advantage of free-rider options. There are also many regional energy and utility programs available to help fund energy upgrades. A list of state and utility energy management programs and incentives is maintained by the Pacific Northwest National Laboratory for the U.S. Department of Energy.

This article is adapted from BOMI International’s course Energy Management and Controls, part of the SMT and SMA designation programs. More information regarding this course or the new High-Performance certificate courses is available by calling 1-800-235-2664. Visit BOMI International’s website,