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— By Rita Tatum, Contributing Editor
Deregulation of the $200 billion U.S. electric power industry is moving forward. California,
Pennsylvania and more than a dozen other states already have begun deregulating their
markets. Experts estimate that 44 percent of the country will have electricity supplier
choice by the end of 2000.
“In California, more than 20 percent of the industrial customers, representing 33 percent of
electricity consumption, have switched providers in order to gain rate reductions from 3
percent to 5 percent,” says Ahmad Faruqui, manager of the retail and power markets area for
the Electric Power Research Institute, the science and technology development organization
for the power industry. “This is a higher rate of switching than AT&T experienced during the
first year of the telecommunications industry’s deregulation.”
The good news regarding electricity deregulation is that building owners and facility
executives will be able to shop for energy suppliers. The bad news? Demand will dictate the
price tag per kilowatt hour.
“Because a large percentage of a typical building’s energy load — often 28 percent to 30
percent — is used by the mechanical system, the HVAC system will be affected by electricity
deregulation,” says Roger Morey, vice president of business development for Carrier’s North
American operations and chairman of the large tonnage liquid chiller section of the Air
Conditioning and Refrigeration Institute (ARI).
Slowly Wheeling In
To transform a marketplace that has been regulated by individual states since its toddler
days into a free market enterprise takes time. A learning curve exists both for the building
owner and the energy service provider, as each sizes the other up.
“Deregulation is moving very slowly,” observes Jane Sidebottom, manager of utility and ESCO
marketing programs for the Worldwide Applied Systems Group of Trane. “Nevertheless, building
owners need to understand the opportunities of electricity deregulation and begin planning
now for the onset of competition.”
How should building owners size up this brave new electricity marketplace? By
being “information savvy,” stresses David E. Matasek, director of utility services at the
Controls Group of Johnson Controls. “As in any business venture, the person with the most
information is going to win. You don’t want that person to be the supplier. If the supplier
has more information than you do, then you are going to leave money on the table.”
Electric deregulation means the generation and distribution markets of the electricity
industry will be controlled by supply and demand economics. Based on deregulation in other
industries — notably telecommunications and airlines — experts expect that deregulation will
cause electric companies to slash costs to gain bigger market shares.
Retail wheeling allows low-cost producers in one area of the country to provide electricity
to customers in another area. Real-time pricing is based on the cost of producing and
delivering electricity at a given point in time. Real-time prices are developed from daily
cost information and can vary hourly, depending on conditions such as weather and demand.
Real-time Pricing
Real-time pricing means building owners will be paying a variety of prices to operate their
chillers. During off-peak periods, the price could be substantially lower, but the cost
during high-demand periods also may increase. So a user might be paying 4 cents per kwh
during summer evenings and the winter months, but 15 to 25 cents per kwh or more at 2 p.m. on
a hot summer afternoon. In southern California, where utilities are pushing for real-time
pricing, on-peak rates are as high as $3.50 per kwh.
“Under deregulation, when buildings use energy will mean far more than how much is used,”
says Martel Chen, director of power and utilities business development at Siemens Building
Technologies. “Pricing volatility will be passed down to the consumer, so the facility
executive needs to know how to move electric loads around. Otherwise, a hot summer day or two
could blow the budget.”
“In the short run, the volatility in pricing will be more pronounced,” explains Kavita Maini
of Alliant Energy Services. “In the long run, as with gas and other companies that underwent
deregulation, real prices will come down.”
“We’ve seen tremendous jumps between seasons and day and night rates,” says Roy Nathan,
vice president of sales and marketing for Calmac. “We have building owners asking us to show
them just how much they would save and quite frankly we cannot do it because of the
tremendous fluctuations in prices on the spot market. What we do know is that the energy
service companies are looking to recruit preferred power users. The standard office building,
which uses most of its electricity during on-peak periods, is definitely not a preferred
power user. Anyone who can shift a good portion of their electricity loads to the evening to
take advantage of off-peak rates will be ahead in the long run. We just cannot predict how
much better off yet.”
So, if the pricing is going to fluctuate, does it really matter if any energy is
saved? “Energy efficiency is still a very, very good investment,” says Matasek of Johnson
Controls. “Evaluating energy efficiency will be tougher because you no longer can compare it
to a simple price per kilowatt hour. The only cloud on energy efficiency’s horizon is if
electricity prices plummet and stay down. But not too many people are saying that anymore.”
To Save or Not to Save
Freeman Ford, president of FAFCO Inc. and chairman of ARI’s Thermal Energy Storage Section,
agrees. “We have to accept the fact that our supply of electricity is limited. The rolling
brownouts east of the Mississippi this past summer are strong testimony that failure to use
power efficiently precipitated hardship on a large number of people.”
The end of July was hot and humid nearly everywhere in the continental United States, so it’s
not surprising that the U.S. electric power industry set a new record for electricity output.
With temperatures and humidity pushing heat indexes into triple digits, the electric output
for the week ending July 24 reached 81,144 gigawatt hours (gwh), surpassing the previous
record of 80,335 gwh set last August, according to data collected by the Edison Electric
Institute (EEI).
The largest percentage increase in cooling degree days occurred in Ohio, where readings were
70 percent above normal, reports EEI. Indiana and Illinois reported increases of 57 percent
and 48 percent respectively. In addition to record national electric output, a number of
individual utilities reported record-high electricity demand. Duke Power set demand records
over three consecutive days from July 21-23, American Electric Power set a new summer load
peak of 19,795 megawatts and Dayton Power & Light hit a peak that was 3 percent higher than
the previous year on July 22. Record demands also were handled by Carolina Power & Light,
Cinergy, Commonwealth Edison, Illinois Power, Kansas Power & Light, Madison Gas & Electric,
PP&L and Wisconsin Electric Power.
“Under deregulation, energy efficiency is probably the best investment any building owner can
make because operating cost savings go directly to the bottom line,” says Todd Van Hyfte,
manager of product strategies for Lennox Industries. “And, if your operating costs are lower
than your competitors’ costs, your company is going to have an edge in your marketplace.”
When such dramatic increases in electricity needs are required, the ability to shift
electricity requirements from on-peak to off-peak periods gives some building owners an edge
over competitors. One way to accomplish that shift, of course, is thermal storage. In thermal
storage, ice or chilled water is produced during the night and used to cool the building
during the day.
“What happens with thermal storage is that 30 to 40 percent of the electricity load is
shifted to night hours when there is no demand charge,” explains Bill McCloskey, executive
vice president of Baltimore Aircoil Co. “In Chicago, for example, that means a building owner
with thermal storage is paying a nighttime rate of 2.4 cents per kilowatt hour to create
cooling. The daytime rate is 15 cents.”
Another way to lower peak-load needs is to install hybrid chiller plants containing both
electric-drive and alternative-drive (hot water, steam or gas) chillers. Hybrid chillers
offer building owners the flexibility to operate with the energy source that provides the
greatest operating savings.
Energy Decisions
Is there a dollars and cents side to shifting loads? Many experts say yes. “As utilities
become more profit-oriented, they will want to increase their off-peak load,” explains Victor
Ott, president of Cryogel Ice Ball Thermal Storage. “It’s cooler at night; they use less
fossil fuel to generate the same kilowatts at night as during the day, so there’s less air
pollution. All those things point to giving customers incentives to purchase power at night
so that the energy company is making money 24 hours a day.”
Not all building owners can afford to replace chillers or other pieces of HVAC equipment that
still perform moderately well. For those situations, however, things still can be done to
make sure older chillers perform well in a deregulated electricity market.
“Look at your older equipment and determine its efficiency,” suggests Brian Smith, senior
marketing engineer for York International. “There may be better ways to operate that
equipment. Or maybe you can retrofit it using one of the new refrigerants.”
Building owners converted or replaced only 4,231 CFC chillers in 1998, according to a survey
of chiller manufacturers by the Air-Conditioning and Refrigeration Institute (ARI). At the
current pace, the United States will not eliminate use of CFC chillers until 2010.
Approximately 52,060 chillers — 65 percent of the estimated 80,000 CFC chillers in service in
the early 1990s — still used CFCs at the beginning of 1999.
Non-CFC chillers can be 40 percent more efficient than the CFC units installed 20 years ago,
resulting in operating savings that can pay back the replacement cost in a few years.
However, federal tax laws pertaining to depreciation of capital improvements were not changed
when the ban on CFC production went into effect. Congress is being asked to consider
accelerated depreciation for CFC chillers so that unused depreciation can be apportioned over
a four-year period, providing building owners with more incentive to replace CFC units.
Adoption of the change could take years — or, worse, not happen at all.
“Other retrofitting options include installing a parallel line drive so that you can run on
electricity or natural gas, for example,” says Smith. “You can attach a second compressor so
one runs off an electric motor and the other operates with a gas engine or steam turbine.
Variable speed drives can help you save 20 to 30 percent of your energy use. Lower your
condenser water temperature if possible.
“If you have no money at all, at least look at tweaking your existing equipment. Make sure it
is maintained properly.”
One question building owners need to address is whether to outsource energy
management. “Perhaps the ownership of HVAC will change hands,” suggests Sidebottom of
Trane. “There are a number of companies willing to offer building owners outsourcing
contracts to manage their power usage. HVAC manufacturers are offering such services, along
with ESCOs and ESPs. Some building owners are choosing to own the building’s shell, but not
the noncore businesses inside the building.”
Morey of Carrier agrees, seeing a trend among energy services providers and ESCOs to offer
more than just electricity. “A number of the large energy wholesalers want to offer more than
a commodity to their customers,” says Morey. “To develop a closer relationship with the
building owner, they are offering energy management, performance contracting and even
facility management services.”
Preparing for Deregulation
If choice of electricity suppliers isn’t already a reality in your state, chances are it will
be soon. Getting the best energy price means knowing not only how much your facilities are
consuming each billing cycle, but also precisely when energy is being used and what equipment
is using it. The only way to know those details is to measure and chart them into an electric
load profile by using data from the main billing meter supplied by the electric company as
well as from submeters on energy-consuming areas or equipment within the facility.
“You need to understand your load profile,” says Sidebottom of Trane. “If you don’t
understand it, you are not in a position to negotiate for better pricing or service.”
To study a load profile for real-time pricing, building owners need to submeter. “The influx
of submetering systems and services that provide real-time access to equipment monitoring,
storage, management and control in multiple facilities should help reduce the energy cost of
all equipment that is being monitored,” says Maini of Alliant Energy Services.
For those building owners unsure where to begin gathering information, Ben Schlinsog, manager
of corporate communications for McQuay International, suggests starting with the local
electricity utility. “Utilities are a tremendous source of information, particularly if you
need to figure out where and when your energy loads are. Use them as a resource now. They
have a great deal of information. You just have to be smart enough to ask for it.”
Kilowatt Pricing: Brave New World
In mid-July the spot electricity energy market in Chicago was at $1.50 per kilowatt hour.
That was the price utility companies such as Commonwealth Edison had to pay to purchase
additional energy to meet their customers’ demand. But that wasn’t the price customers were
paying.
In a regulated market, prices for electricity are set to average costs. Utility functions,
including power production, transmission, distribution and voltage regulation are sold as a
package. These bundled costs are divided by kilowatt sales to determine an average cost per
kwh.
Under regulated power, generation generally comprises 75 percent of total costs, with
transmission and distribution making up the rest, according to the Energy Information
Administration.
Under deregulation, prices are set by what it costs to generate electricity, plus a profit
margin, rather than to average costs. For periods of high demand, the least efficient
generating units will be brought online. These units cost more to operate, so they naturally
will produce more expensive electricity. In addition, the demand placed on a finite supply
will cause the price to rise above the operating and fuel costs.
Because electricity capacity is fixed by the number of power plants available to produce it —
and new generating stations cannot be built quickly — the only way supply and demand can
reach equilibrium during high demand periods is by increasing the price to encourage frugal
building owners to reduce their usage.
That higher price is because the most efficient generating plants provide power during normal
time periods. The less efficient power plants — those with higher operating cost margins —
are brought online only as the demand exceeds the supply capacity of the more efficient
plants.
With deregulated, competitive pricing, building owners may see more price volatility,
including time-of-use prices. Though such pricing may take some getting used to, it does
offer savvy building owners the opportunity to reduce electricity bills by saving energy and
scheduling some uses during nonpeak times when energy is cheaper.
HVAC Minimum Efficiency Standard
The final draft of revised Standard 90.1-1989R was approved by all levels of the American
Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE). If no appeals are
upheld, the revised standard could be published as 90.1-1999 and be available by early next
year.
ASHRAE Standard 90.1 establishes minimum efficiency levels for many HVAC products, including
unitary equipment, geothermal heat pumps, chillers and many gas combustion products. The
revised efficiency levels become effective two years after the standard is fully approved,
including completion of any appeals. Currently, the best guess when new equipment will need
to meet the new efficiency levels is September 2001.
Several provisions in the revised standard, including economizer requirements, hot gas bypass
limitations and automatic controls, become effective upon adoption of the standard by
jurisdictions that wish to use it as an energy code. The revised standard is written in code
language for ready adoption.
The Energy Policy Act of 1992 (EPACT) requires all states to adopt an energy code at least as
stringent as 90.1. Under the terms of EPACT, the Department of Energy will undertake its own
analysis of the revised standard to determine if the federal government should adopt the
standard’s equipment efficiency levels as national requirements.
Titled “Energy Standard for Buildings, Except Low-Rise Residential Buildings,” Standard 90.1
serves as an energy code for the design of commercial buildings. It specifies the minimum
requirements for the envelope, lighting, HVAC and service water heating components.
HVAC Certified, Rated Products Defined
Before purchasing new HVAC equipment, you should check out its credentials to make sure you
are getting what you expect. HVAC products that claim to be “certified” or “rated” are not
the same, according to the Air-Conditioning and Refrigeration Institute (ARI). At a recent
ARI Certification Programs and Policy Committee meeting, the difference between the two terms
was defined to differentiate HVAC products that carry ARI certification as compared to those
that claim to meet an ARI standard.
Products rated to ARI standards and certified will carry the certification logo and be
identified as being certified in accordance with a specific ARI certification program, which
is based on a specific ARI standard. Products rated to ARI standards but not certified will
be able to say they are rated in accordance with a specific ARI Standard.
According to Peter Alexander, chairman of the ARI Certification Programs and Policy
Committee, “The changed wording helps differentiate between manufacturers’ products that
have been subjected to performance verification of a certification program and products that
claim to meet an ARI standard. This is another way ARI can assure those who rely on ARI
certified equipment are receiving what they need.”
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