There is a lot of money that can be found in institutional energy utility bills.  Money that would normally be given to pay electric bills can be discovered as energy cost savings.  There are a number of ways to find it. 

The primary reason is that utility bills are virtually invisible to all but a very few people in your organization.  Another reason is that very few people look at the utility bill in a way that savings can be recognized.  Unless you have someone who is a professional in the industry you may never notice what a financial resource your utility budget is.  There are a number of companies who do have the expertise to find savings and they can be of great benefit to your institution. 

The purpose of this pamphlet is to make you aware of several key points you must consider before contracting with companies that will help you find the savings that are hidden away in your institutions energy costs. 

1. Operations – use energy consuming equipment and lights only when needed.  This can be done by installing more automatic controls or by encouraging people (through awareness, education, and training) to develop better habits in consuming utility resources.

2. Technology – use the most energy efficient equipment available.  When you need to consume energy, try to use the most efficient equipment and lighting systems. 

3. Utility Bill Auditing – check the bills to make sure they are correct.  Thousands of dollars worth of mistakes (reading errors, calculation errors, and wrong rates) can be found each year in your energy bills. 

This pamphlet focuses on contracting for services that will help you accomplish 1 through 3 above.  Some of these contracts can be very costly.  Each institution is obligated to perform due diligence in making sure that contract language provides for an equitable share of the savings to all parties.  Calculation of energy savings can be a tricky and complicated endeavor.  The information in these articles will give you a head start in making sure that your institution is treated fairly. 

Contents

• Familiarize Yourself with IPMVP 
• Energy Performance Contracting 
• Wait! Don’t Sign! Read this first. 
• The Effect of Load Creep on Energy Baseline Development 
• The Effect of Using “Average Unit Cost” 
• Correcting Utility Bill Mistakes 
• Understanding Your Electric Bill

Any organization contracting for large energy efficiency projects should be familiar with the International Performance Measurement and Verification Protocol (IPMVP).  Although the word “large” is a relative term, for a school district that is probably going to be projects over $100,000.  Information on IPMVP is easy to obtain.  You can down load a copy from their web site at: www.ipmvp.org. 

The main objective of IPMVP is to provide a “framework to determine energy and water savings resulting from the implementation of an energy efficiency program.”  The framework provided by IPMVP has become the industry standard for savings verification.  This article is concerned with Volume I, Concepts and Options for Determining Energy and Water Savings.  Other volumes address the subjects of monitoring the performance of renewable energy systems and enhancing indoor environmental quality in buildings.

According to the IPMVP, it provides “an overview of current best practice techniques available for verifying results of energy efficiency, water efficiency, and renewable energy projects.”  Volume I addresses energy conservation measures that reduce energy through the installation or retrofit of equipment or the modification of operating procedures. 

Because energy consumption and costs are often “invisible” to all but a very few administrators, a very important question arises when considering energy efficiency projects, “how can we know what we are really saving?”  Large energy efficiency projects should include at least some of the elements recommended in the IPMVP.  Often these contracts include a savings guarantee that helps to pay for part or all of the costs of the energy efficiency initiative.  The IPMVP provides a very credible approach to help the administrator verify that savings have occurred and how much has been realized. 

According to Environmental Energy Technologies News, Lawrence Berkeley National Laboratory, “use of IPMVP has become standard in almost all energy efficiency projects where payments to the contractors is based on the energy savings that will result from the implementation of a variety of energy conservation measures (ECM’s). IPMVP has been translated into ten languages. More than 300 professionals from 100 U.S. and international organizations have contributed thousands of hours on a completely voluntary basis to update and revise IPMVP.”  Although the volume is large and somewhat technical there are several sections that administrators should be familiar with. 

• Savings Measurement
• Measurement Options
• The Measurement & Verification Plan
• Third Party Verification
• Valuation of units of utility resource savings

There is a very simple formula for measuring savings:

Energy Savings  =  Base Year Energy Use  –  Post Retrofit Energy Use  + or –  Adjustments

It is very important to understand where these numbers come from and especially how adjustments will be applied.  The IPMVP addresses both routine and non-routine adjustments.

There are four approaches to measuring savings that are termed “Options A, B, C, and D.”  These are the cornerstones of the standardized set of procedures contained in the IPMVP.  This group of options can be divided in to two main categories. 

Options A and B (Isolation Retrofit Approach)
Options A and B focus on the performance of specific ECM’s such as items of equipment, installed retrofits, that can be measured in isolation from the rest of the building.  Before and after measurements are taken and compared to determine the savings. 

Options C and D (Whole Building Approach)
These options are used when the nature of the ECM is not easily measured in isolation from the rest of the building operations.  This could be typical of operational and control changes that affect many areas of the building.  The Option C approach assesses savings at the whole-facility level by analyzing utility bills before and after the implementation of the ECM’s.  Option D uses simulations and modeling of the whole facility, usually when base year energy data is not available or reliable. 

Generally, Options C and D involve much more time and skill to conduct and, therefore, are going to be more costly.  See Table 1 for a more detailed description of each option. 

According to the IPMVP, “an M&V Plan is central to proper savings determination and the basis for verification.”  An M&V Plan “fundamentally defines the meaning of the word ‘savings’ for each project” and should include the following elements:

• A description of the ECM and its intended result
• An overview of the intended IPMVP option to be used that applies to the ECM’s to be employed, documentation of pre-ECM or base year operating data, design of the energy savings program, and the boundaries of the savings determination
• Measurement methods and equipment to be used
• Commissioning of the newly installed ECM’s
• Documentation of post ECM energy and operating data
• Savings report
• Costs of M&V operations and equipment

The IPMVP provides an extensive list of other elements to be included in an M&V Plan depending on the nature of the project. 

According to the IPMVP, “where the firm performing the energy savings determination has more experience than the owner, the owner may seek assistance in reviewing savings reports.”  This should begin at the time that the M&V plan is being developed. 

This is especially important for contracts where a guarantee of savings has been included so that both parties believe the information that determines the payments is valid and accurate. 

The IPMVP section that relates to Energy Prices is quoted in its entirety:

“Energy cost savings may be calculated by applying the price of each energy or demand unit to the determined savings.  The price of energy should be the energy provider’s rate schedule or an appropriate simplification thereof.  Appropriate simplifications use marginal prices which consider all aspects of billing affected by metered amounts, such as consumption charges, demand charges, transformer credits, power factor, demand ratchets, early payment discounts.”

“Across the country, energy performance contracting (EPC) is offered by Energy Service Companies (ESCOs) as a practical way for public sector entities to obtain and finance energy-saving projects for their facilities.  EPC can provide the resources to finance and acquire needed capital equipment and improve energy efficiency and comfort in public buildings.  Numerous states, including Florida and the federal government, have enacted legislation that authorizes public facilities to use EPC for implementing energy improvement projects.” 

So opens the Energy Performance Contracting Manual for the state of Florida.  The manual is designed to be an information resource for public administrators and can be viewed in its entirety on the internet at: www.energyservicescoalition.org/chapters/FL/resources.htm. 

Energy Performance Contracting is a procurement tool - a way to  obtain and finance energy improvement projects and services including detailed facility analyses, project design and engineering, equipment acquisition, construction management, equipment repairs and upgrades, project financing and long term savings guarantees.  It can also include energy awareness and extensive training programs.  It uses a "design-build" approach.  With this type of contract the contractor, known in the industry as an energy service company or ESCO, guarantees that a certain amount of savings will be achieved.  Engineering design is approached from a perspective of long-range operational efficiency and optimal energy use.  The savings are generated from the increased efficiency of the new equipment that is installed.   Performance contracting is addressed in Florida State Statute 1013.23 Energy Efficiency Contracting.  This legislation authorizes the use of energy performance contracting and was designed to ensure appropriate protections to schools and ensure that the process will deliver a quality product and guaranteed savings over a contract term of up to 20 years.  A special feature included with this type of contract is the ability for schools to use tax-exempt lease financing to accomplish the project with a guaranty from the ESCO that the savings achieved by the project will pay off the lease.  In some cases, partial owner funding and partial financing  has been shown to be  an optimal approach to accomplishing a large volume of needed capital improvements and repairs.  This approach is being used throughout schools and state and local governments in Florida and across the nation.  The Federal government is using it extensively to improve its facilities. 

You can use energy performance contracting to accomplish needed facility repairs and upgrades.  If you review your "Five-Year Capital Improvement Plan" you may find that it identifies HVAC (air-conditioning equipment) and lighting repairs for several schools.  You can use the performance contracting process to accomplish these repairs.  During this process the ESCO will perform a detailed energy audit of the school facilities to evaluate the types of energy improvements and repairs needed and perform a detailed analysis of the opportunities for energy savings.  The audit report will be presented to school administration officials with various technical recommendations for the project.  You will determine and negotiate the final scope of work and enter into an "Energy Services Agreement" with the ESCO for the work to be accomplished.  The types of items that could be included in the project include: air-conditioning equipment and control system repairs, replacements, and installations, lighting upgrades, and plumbing fixtures.  Additional services may include system "re-commissioning," maintenance staff training, utility bill auditing, and advanced audit training for your technical staff. 

HVAC and lighting systems are the largest users of energy in a school’s energy utility budget - as high as 75%.  When these systems become very old they become less efficient.  It takes more and more energy to produce the same level of output for which the system was designed.  Some of these systems could be well past 20 or 25 years old.  You pay for the extra energy these systems need every month and every year.  When these systems are replaced with new and updated technology energy use goes down.  In general, the minimum amount of savings realized from such projects range from 10% to 15%.  If you are annually spending over $3 million on electrical energy, a 10% savings on your energy bill would equal $300,000 per year or $6,000,000 over a 20-year contract period, the maximum allowed by law.  These are significant savings and could pay the cost of the repair project. 

There is a very structured process for implementing performance contracting projects.  The State of Florida has developed the Energy Performance Contracting Manual to assist Florida’s public agencies in implementing successful projects and complying with the State’s performance contracting statutes.  Your district may also find it helpful to retain a third party consultant to help you with your procurement process, contracting documents, and assist you in conducting the necessary due diligence.  Below is a list of steps that would normally be involved: 
 

1. Obtain procurement assistance.
Before you begin the process you may want to hire a third party consultant to help you work through the procedures and documents that will be required.  This may be well worth the cost. 

2. Select an Energy Services Company (ESCO). 
The State of Florida has developed a list of qualified ESCOs for you to choose from.  This could help advance the request for proposal (RFP) process by allowing you to jump to the “short list” phase of the selection process.  Three or four ESCOs could be selected from this list for final evaluation.  Each company would then provide you a written proposal, an oral presentation, and client references.  These would all be evaluated, scored, and ranked.  The highest scoring company would then be awarded the project subject to requisite approvals. 

3. Commit to an Audit Agreement.
This is the first point at which a financial commitment must be made.  The company will perform an investment grade energy audit of the buildings you designate.  This audit is required by the state statute because the ESCO must guaranty savings.  This audit is a very detailed and comprehensive technical and economic analysis of the potential project.  It provides the basis for the scope of work to be accomplished under an Energy Services Agreement (a later step).  When the audit is completed, the ESCO will present a list of technical recommendations for repair and upgrade.  They will also identify project costs and the amount of savings that they will guaranty.  The investment grade audit conducted by an ESCO is similar to an engineering study that is done at schools prior to design and construction.  The cost can also be about the same.  However, this audit contains much more engineering and procurement detail and allows for a much quicker project start when notice to proceed is given.  Payment for these audits is not normally required by the ESCO until the project begins and the first progress payment is requested.  However, if no projects are initiated, then payment may be due after a specified number of days of receiving the audit report.  Therefore, it is best not to enter into an audit agreement unless you are committed to accomplishing the project. 

4. Receive the Audit Report.
The ESCO will present the final audit report which will contain the technical and economic recommendations for the project sites identified in the audit agreement.  It will then be incumbent for you to conduct a technical and financial review of the report within the period of time specified on the agreement.  Once you agree to the scope of work and exactly what will be accomplished, an Energy Services Agreement (ESA) is then negotiated and executed.

5. Commit to an Energy Services Agreement (ESA) 
Execution of the ESA  will commence with the design and construction periods.  At the conclusion of construction, project commissioning and your acceptance that the project is operable and fully functioning, the guarantee period begins (start of contract term).

6. Savings Monitoring and Verification
Once the projects are completed, a process will be set in place to make sure that the savings guaranteed by the ESCO are actually realized.  There will be a cost for this phase that will be determined by which verification process you select.  In most cases, the ESA has a provision that the energy savings achieved by the project cover the costs of ongoing savings measurement and verification.

This is a very important consideration, especially if you intend to use the savings to cover the project financing costs.  There are several important components of the performance contracting process that enable you to determine what the amount of savings will be and that they will actually be achieved. 

1. Investment-Grade Energy Audit
This is a very detailed and extensive engineering and economic study of the specific facility(s) and forms the basis of the savings guarantee provided by the ESCO.  Florida’s laws require that ESCOs guarantee that energy savings must meet or exceed the cost of the project and in the event that the guaranteed savings are not achieved, the ESCO is contractually liable for the shortfall.  Savings shortfall is rare, but when they do occur ESCOs must make payment to the owner of the project. 

2. Measurement & Verification (M&V) Plan
This is a very important part of the contract documents for the Energy Services Agreement.  The plan provides details on how energy will be measured (pre and post-project), how it will be valued (calculations and rates), and who will be involved in the process.  Unless you have some resident expertise, it is highly advisable that you obtain a third party industry professional to help review these documents.  Further details on this subject are provided under the article “Familiarize Yourself with the IPMVP [International Performance Measurement and Verification Protocol].” 

Many school district officials are concerned about increasing the debt service to their districts.  Energy Performance Contracting is unique since the most common source of financing projects in schools is through the use of tax-exempt lease financing and the annual lease payments are covered by savings which are guaranteed by the ESCO.  If you have to finance a project using tax-exempt lease financing, this is the best kind of financing to use and it is guaranteed to be paid off. 

In many cases it is more economically advantageous to borrow money for at least a portion of the project cost (33% to 50%) because the amount of the interest payments is less than the amount of savings that will NOT be achieved if the project is NOT implemented.  In such a case it actually pays to borrow money to do the project.  However, this is only true of projects that have the potential to save operational expenses.  This is why energy savings projects are so unique.  Projects such as roof repairs, parking lot and road repairs, painting, would not typically be good performance contract projects because they do not produce savings on the energy utility bill when completed.

Although one of the most beneficial features of performance contracting is the ability to obtain financing, some schools have chosen a fully funded approach.  There are still several advantages to performance contracting even if financing options are not included, such as, the economy of the design-build approach to repair projects, knowledge of energy savings accomplished by the project (which could help to sell future such projects), and opportunities for installing energy savings technology. 

This article provides information to school business officials on what to consider before signing a contract with a firm that offers behavioral modification services (energy education and training) to reduce energy costs.  If you don't understand some of the concepts or issues below, make sure you get a competent industry professional (energy management, industrial, mechanical, or electrical engineer that is familiar with school facilities) to assist you.  Make sure you get a legal review as well.

1. Contracting Process
If you are considering contracting for energy management and training services that will involve paying hundreds of thousands of dollars over the period of the contract, it is highly recommended that you use the Request for Proposal (RFP) process.  Check with your purchasing office.  You may find that procurements over a certain dollar amount actually require the RFP process.  Even if the company claims that the program will not cost your district any money and that it will be paid for by the savings, and even if they guarantee this in writing, you will be paying them tens of thousands or hundreds of thousands of dollars from school district funds.  Make sure you can find at least three companies to send proposals.  They are out there.  Ask around to find out who they are.

2. Proposal Review
When you review the proposals there are several things to look for. 

a. Savings Guarantee
Is there a guarantee of savings?  Some company proposals will guarantee a certain amount of savings over district costs.  Some company proposals will only guarantee that there will be no cost to the district to use their program, but there is no guarantee of savings beyond that.  Be careful to notice the difference between "proposed" or "expected" savings and "guaranteed" savings.  Don’t be fooled by the marketing material.  For example, showing chart upon chart of expected savings versus actual savings does not tell you much unless they also show the baseline from which the savings are measured. 

b. Fees
How is the company's fee determined?  Is it a set fee or is it a percent of savings?  If it is a percent, what is the percent applied to - net savings or gross savings? If a percentage fee is based on gross savings, then you can expect that the actual percent you get to keep will be significantly less than what is stated once you pay their fees and other operational expenses. 

c. Savings Calculations 
What method will be used to calculate savings?  Will there be an independent means of verifying actual savings?  This should be clearly spelled out in the contract, including the variables and formulas that will be used.  Make sure an industry professional gets to review this and determine its reasonableness. 

d. Client References
Are there client references?  Make sure you contact the clients that are listed in the proposal to find out their experience with the company.  Here are some specific questions to ask: 
- What were your baseline actual costs (the actual costs for the base year)? 
- What were your actual costs for each of the two, three, or four years following the baseline year? 
- What was your district's square foot for the baseline year and for the two, three, or four years following? 
- What savings did they achieve for the three or four years following the baseline year? 
- Would they be willing to send you a copy of their contract?
- Would they be willing to send you copies of any savings reports that they generate?
With this information you can graph their district's performance and savings.  A picture is worth a thousand words.  Make sure you understand how savings are characterized. 

3. Contract Review
When you review the contract there are several very important things to consider. 

a. Verification of Savings
How will savings be verified?  Is there a specific computer software program that will be used?  Who will input the data?  Is training required, included?  How will the software calculate the savings?  Can savings be independently verified by another means (third party)? 

b. Baseline Adjustments
There will undoubtedly be a lot of adjustments made to the baseline numbers during the years to account for various changes, such as, rate increases, square-foot changes, weather, operations, large scale renovation projects (HVAC and lighting), and more.  These adjustments will significantly affect the amount of savings reported (which may affect the contract fee payments if based on a percentage of savings).  How will adjustments be made?  What criteria will adjustments be based on?  Who will have the final say on what gets adjusted?  Some contractors use special energy utility management software to calculate savings such as Metrix, FASER, or Utility Manager Pro.  These programs are very complex and contain special statistical regression algorithms to determine the effect of outside temperature on savings results.  For example, hotter than normal weather during the cooling season would tend to increase energy use and possibly skew the results of energy conservation measures (ECM's).  To handle this problem the software tries to account for the increase in cooling degree days (CDD's) as it is compared to the baseline CDD's.  CDD's are calculated by subtracting the average daily temperature (average of the daily high and low) from a "balance point" temperature (usually between 58 and 68 degrees).  However, each facility has a slightly different balance point.  You can think of the term "balance point" for cooling as the temperature just before the air-conditioning comes on.  For heating it is the temperature just before the heater comes on.  Both FASER and Metrix allow you to "tune" the building meter for the optimal balance point.  Some facilities may have a balance point as low as 60 degrees, others as high as 68 or even 70 degrees.  In very rare situations you may find a balance point as low as 55 or 56 degrees.  This means that there is such a heat load internal to the building (computing center, ovens, or other heat producing appliances) that causes the air-conditioning to come on when it is 57 degrees outside.  The setting of this balance point might make a big difference in how savings are reported. 

c. Escalation factors
Some contracts contain escalation factors that automatically adjust the baseline by a set percentage each year.  Look carefully for escalation factors to determine their reasonableness and how and why they are applied.  Escalation factors stated in the contract may appear small and insignificant.  However, if the escalation factor is applied to the total energy bill, then a 4% factor could add as much as 25 to 40% on to the amount of savings reported (assuming actual savings are between 10 to 16%).  Check to see if they are applied as a compounding factor or as a straight percentage across each year.  The factor being applied should be applied in the appropriate way based on the specific factor used. For example, if a load creep (also called “energy creep”) factor is applied as a baseline adjustment you would expect it to be applied as a compounding factor.  Escalation factors, if not applied properly, are items that can make a lot of money for a contractor at your expense.  See the section below for a detailed overview of the use of load creep as an adjustment factor.

d. Calculation of Savings
How are savings calculated?  You need to understand how savings are calculated.  For example, if savings are calculated simply by multiplying an average unit cost to the amount of energy unit saved, then you run the risk of overstating savings.  This could happen when you realize off-peak savings (only the cost of KWH) and try to apply the average unit cost of the whole bill (demand costs included, which may not have changed).  This could overstate savings by as much as 50% for that utility account.  Unless the ECM affects the entire range of the electric bill, including peak usage, it is not advisable to use an average unit cost, effective rate, or blended rate.  See the section below for a detailed overview of the effect of using the average unit cost method. 

e. Contract Period
How long is the contract duration?  This type of contract should be expected to be two years in duration (possibly as long as three years).  Most of the significant energy conservation measures (ECM's) will be put in place during the first year.  You can verify savings during the second year (and third if necessary).  Beyond this, you run the risk of overpaying for services received.  If you are going to pay the contractor on a percentage of savings basis, then each year you continue to pay for what has already been accomplished the first two or three years.  You may want to structure the contract period to have two base years with an option to add a third or fourth as you deem necessary. 

f. Termination Provision
Make sure that you have a reasonable means to terminate the contract if it turns out not to be what was expected.  Check for reasonableness of termination notice (30 to 90 days is reasonable).  Check for termination costs.  Look at all the clauses in the contract to see if they address termination issues.  Not all termination issues may be covered in the contract clause entitled "Termination."  There may be hidden costs to termination listed in other clauses. 

g. State Law
There may be several statutes on the books in your state that apply to this procurement and should probably be addressed in the contract.  Below are some examples from the State of Florida.

- FS 1013.23 Energy Efficiency Contracting.  This statute addresses contracting for energy conservation measures.  This term includes training programs as well as facility alterations to attain savings.  There are requirements for public disclosures and an annual reconciliation of the guaranteed energy cost savings. 

- Florida Public Records Law.  This law will affect various aspects of confidentiality and disclosure issues with contract documents.  For example, “Section 287.058(1)(c), F.S., requires, with limited exceptions, that every procurement for contracted services by a state agency be evidenced by a written agreement containing a provision allowing unilateral cancellation by the agency for the contractor’s refusal to allow public access to “all documents, papers, letters, or other material made or received by the contractor in conjunction with the contract, unless the records are exempt” from disclosure.” (Government-in-the-Sunshine Manual 2004 Edition, Volume 26, page 65)

According to experts in the energy management industry “load creep” is a concept that relates to all electrical loads but primarily plug loads. Load creep can actually be up or down. The idea is that over time additional appliances (such as TV’s, Computers, refrigerators, etc.) are added to a facility causing the overall consumption of energy to go up. In addition to that, compressor motors become less efficient over time. There are several approaches to account for this factor when maintaining an energy consumption baseline that will be used to compare to current year consumption. 

One approach, and the most accurate, is to calculate on a case-by-case basis the degree to which additional loads have been added to the facility. You can interview building occupants to determine the number of appliances added. You can check purchasing department records to see what appliance have been purchased over a given year. You can take measurements of the compressor motors to determine the degree of change of efficiency from year to year. But, it is time consuming. 

Another approach is to apply a global percentage to the baseline calculation to increase the baseline for load creep. The important question here is, “What is a reasonable percent to use?” Should a globally applied load creep factor even be used? 
Here are some significant issues concerning the use of load creep as an across the board baseline adjustment (a stipulated percentage). 

1. Let’s say your total energy consumption for one year is 1,000,000 KWH. This becomes your baseline year. 

2. The next year you were able to save 5% on your energy consumption and only used 950,000 KWH (assuming that there were no additional square foot added to your facilities, the cooling and heating degree days were identical, same occupant operations). The amount of savings you achieved was 50,000 KWH. 

3. If you use a load creep factor of 1%, then you would adjust your baseline upward by 1% (to account for the additional appliances, and mechanical inefficiencies that gradually “creep” into the facility). In this case you would increase the baseline by 10,000 KWH to 1,010,000 KWH before you subtracted your actual savings achieved from energy conservation measures (ECM’s). 

4. Subtracting 950,000 KWH from 1,010,000 results in a savings of 60,000 KWH. Even though the baseline was adjusted by only 1%, the impact on the savings reported increases by 20%. 

Below is a calculation of the impact of using an across the board load creep factor for baseline adjustments over multiple years (assuming the scenario above). 
 

Year	Original Baseline	Revised Baseline w/1% Load Creep	Total Consumption	Total Savings	%
1	1,000,000 KWH	N/A	1,000,000 KWH	N/A	N/A
2	1,000,000 KWH	1,010,000 KWH	950,000 KWH	60,000 KWH	5.9%
3	1,000,000 KWH	1,020,100 KWH	950,000 KWH	70,100 KWH	6.8%
4	1,000,000 KWH	1,030,301 KWH	950,000 KWH	80,301 KWH	7.8%
5	1,000,000 KWH	1,040,604 KWH	950,000 KWH	90,604 KWH	8.7%
6	1,000,000 KWH	1,051,010 KWH	950,000 KWH	101,010 KWH	9.6%

If you implemented ECM’s in the first year that gained you 50,000 KWH in savings and that’s all you did, so that in each succeeding year you did not use more than 950,000 KWH you could show a savings each year from the original baseline of 50,000 KWH or a 5% savings. But if you use a 1% load creep factor to adjust the baseline each year, by the end of the fifth year beyond the baseline year you will show a savings of 9.6% over the revised baseline year. 

It’s amazing how just a 1% adjustment in the baseline can change what would otherwise be a 5% savings to a 9.6% savings. If the load creep factor is increased to 2%, the savings in year six are 14%. If it is increased to 4%, the savings in year six are 21.9%. And this is just from 5% savings in the first year maintained in the succeeding years. If no load creep factor is applied, the savings in year six is still only 5%. 
 

This has important implications for baseline management. If load creep is occurring and not accounted for in your savings calculations then savings could be underreported. If it is overstated, then savings will be overstated by an even greater magnitude. 

If load creep is applied, then it should probably be applied mainly to the plug load. Other loads that are affected to a small degree include aging of motors (especially compressors and motors connected to belts that can loosen over time. For example, if your school district’s consumption profile is 50% HVAC, 33% lighting, and 17% other, it might be reasonable to apply a 4% load creep to the “other” category representing 17% of the consumption of the school (primarily plug loads). This calculates to an overall 0.7%. If you add 0.1% (a reasonable range could be from 0.1% to 0.5% per year) for HVAC system increase in inefficiency, then the overall factor you might use is 0.8% per year. However, the more appropriate approach would be to calculate load creep school by school based on actual data. You may find that there is actually a “de-creep.” As old systems and appliances are replaced with newer more efficient systems the energy use will actually go down. 

Other utilities may also have load creep such as water and natural gas. As water distribution systems age valves may begin to leak. Pipes may rupture underground causing even just a slow seepage. Natural gas boilers may become less efficient over time requiring additional fuel in order to provide the same degree of heating. If you have an active preventative maintenance program, these problems may not be very acute. With some investigation you may find a reasonable factor to be on the order of 0.1% to 0.5% per year.  When systems are replaced or repaired you may even see de-creep.
 

One of the important steps in determining savings that come from instituting energy conservation measures (ECM’s) is to place a cost value on the unit of utility measured to have been saved.  For example, we can measure how many kilowatt hours of savings have been achieved by a given ECM, but then we need to translate that into how much money was saved.  This is a fairly straight forward process for many types of utilities such as water, sewer, gas, but not electricity. 

Most schools are large enough energy users to have a General Service Demand (GSD) rate.  This means that you are paying for two aspects of energy use.  You pay one rate for the total “consumption” of energy for the month measured in kilowatt hours (KWH).  You pay another rate for the highest amount of power needed at any one time during the month.  That is called the “demand” peak and is measured in kilowatts (KW). 

Sometimes for budgetary simplicity we might use a number called “average unit cost” to estimate how much energy is being used or is needed in the future by proposed new facilities.  The easiest way to do that for electricity is to take an electric bill from a similar size and type facility, note the total cost, and divide it by the total number of KWH.  Although this does not take into account the demand charge of the electric bill, it does give a good idea of total costs for budgetary purposes.  For one school district in Florida the average unit cost for electricity is $0.075 per KWH.  If you wanted to estimate the costs of a new school, you could estimate the amount of KWH it would use, multiply times $0.075, and you would have a good estimate of costs.  However, this method is by no means appropriate for valuing energy savings from ECM’s placed in public schools. 

If the average unit cost is used to determine cost savings, you run the risk of greatly overstating the dollar value of savings.  The reason is because most ECM’s for school districts will not affect the peak load of the school as much as the off-peak load.  Savings of off-peak loads do not reduce the demand charge on the energy bill.  There are two problems with using the average unit cost to calculate the value of energy savings.  One is the “false rate increase” problem and the other is “wrong actual cost” problem. 

Here’s the math:

Let’s say you totaled the past year’s bills for one of your schools and arrived at the following data:

Year #1 Consumption: 3,000,000 KWH   Demand: 10,455
  Consumption costs:  $141,000  Demand costs: $57,503
  Rate: $0.047/KWH    Rate: $5.50/KW
 

Total costs: $198,503
  Average Unit Cost: $0.0662/KWH

Next, you initiated several ECM’s to control energy waste, such as, reducing nighttime lighting, turning off air-conditioning systems at night, and turning off other appliances (computers, water fountains, and soda machines) at night.  You did this for one year (assuming no rate changes and weather conditions were identical).  Then, you totaled the second year’s bills and found that you achieved a 5% savings of KWH.  But, since there was no on-peak savings (demand) that number stayed the same.

Year #2 Consumption: 2,850,000 KWH   Demand: 10,455
  Consumption costs:  $133,950  Demand costs: $57,503
  Rate: $0.047/KWH    Rate: $5.50/KW

Total costs: $191,453
  Average Unit Cost: $0.0672/KWH

  KWH Savings: 150,000 KWH
  Cost Savings: $7,050 

Notice that the average unit cost went up by $0.001.  This shows a “false rate increase” of 1.5% when in fact the KWH rate did not actually increase at all.  If contractors are allowed to use the average unit cost method to determine the dollar value of savings they could show that a rate increase occurred when in fact it did not actually occur.  In this case 1.5% does not seem very significant.  However, if this is applied to a $5,000,000 annual school district electrical energy bill, it would equal $75,000 in falsely reported savings. 

The “wrong actual cost” problem is a little easier to see.  The issue here is taking the 150,000 KWH and multiplying it times the average unit cost of $0.0672/KWH and arriving at $10,080 in cost savings instead of using the actual cost of KWH, which is $0.047, that gives you in reality $7,050 in costs savings.  The former overstates cost savings by over 40%. 

If your annual school district electrical energy bill is $5,000,000, and the example above is typical of all schools in the district in that you saved 5% in energy consumption for the entire school district the effect would be very significant.  Actual savings would be $177,579.  But, if you used the average unit cost method to calculate the savings you would arrive at $253,900 in cost savings.  This overstates actual savings by $76,221. 

If you had an agreement with the contractor for a fee of 35% of the savings, then the true fee to be paid should be ($177,579 x 35%) $62,152.  However, if you allowed the contractor to use the average unit cost method, the fee would be ($253,900 x 35%) $88,865.  If this fee were paid, it would represent 50% of the actual cost savings actually achieved.  You would be paying an extra 15%, or $26,713, to the contractor that should be yours to keep!

The industry standard for calculating the dollar value of savings is to use marginal rates (the consumption rate and the demand rate) not an average unit cost, blended rate, or effective rate.  This will resolve any of the possible problems outlined above.
 

Utility bill errors happen more often than you might expect.  Metering electric use and preparing billing statements are a complicated process and sometimes things can go wrong.  It does not happen very often, but it happens often enough to make it worth while to check for errors.  The cost of the effort to review the bills for errors can be a fairly quick payback. 

Rest assured that your utility company is not dreaming up ways to sneak an extra couple of bucks from you.  If they had the time to check each bill, of the thousands that are processed each day, they probably would.  Here are some things that can cause an incorrect electric bill.

1. Meter Problems – Like any mechanical device they can malfunction.  Some times it can be in your favor.  There may be a manufacturer’s defect.  Meters are changed out all the time in the field.  Some times when the new one is put in, mistakes can be made.  If a utility company finds a bad meter they may have to estimate the readings for that month.  They try to pick a fair estimate but it is possible that they used wrong assumptions.  The new meter may have a different constant than the old meter and they may forget to update it in the utility metering software.  The number that shows on the meter is not the actual kWh or KW.  It is a meter unit that must be multiplied by a “constant” or “multiplier” to get the actual kWh or KW amount. 

2. Meter Reading Problems – This can happen in several ways.  As mentioned above sometimes the meter reader can’t get to the meter that month so the utility company has to estimate the readings.  This is okay for the kWh.  If it was over estimated the previous month it will correct itself at the next reading because it is a cumulative number.  This is not true of the demand reading.  There is no way to make sure what it actually should have been other than to have copies of bills showing the previous month or the same month from the previous year. 

3. Calculation Errors – Sometimes a utility company may change to a new system of calculating bills and improperly place billable items in the wrong sequence.  There are taxes and fees that are applied to certain items and not to be applied to others.  It is possible that taxes or special fees are applied to billing items where they should not be applied.  Some taxes do not apply to schools. 

4. Wrong Rates – The utility company is responsible for giving you the best rate for your situation, however, they can’t always look at every bill each month to see if that was done.  Most schools’ main meters have a General Service Demand rate.  You are charged a rate for total consumption (kWh, energy charge) and a separate rate for demand (KW, peak power for that month).  The second most common is the General Service rate which is simply a charge on the total consumption (kWh).  In some cases a Time of Use rate may be applied.  These rates should be checked periodically to make sure that you have the one most beneficial. 

Other utility meters are not as complex, but they too have potential problems in terms of malfunctioning meters, misreading, etc.  Water meters also have a charge based on the diameter of the pipe.  In some cases this is set at the time of building commissioning based on engineering specifications.  You may find that actual usage dictates a smaller meter with a lower charge.  Sometimes water service that is used primarily for irrigation or cooling towers includes a sewer charge that is not appropriate.  Although there are no meters, telephone bills are also worth pursuing. 

There are companies available to help you find these errors.  They can also assist you in getting the corrections made and a return of any amounts that are due back to you.  Here are some things to consider when contracting with these companies.

1. There are several approaches to fees that are offered by these companies.  Many Utility Bill Analysis companies will offer a “no cost to you unless we find something” type of fee.  Typically they will ask for a 50% share of any of the saving found, however, there may be some room to negotiate the actual split.  The other approach is to offer a fee for services based on the number of hours used to do the analysis.  Each approach has its advantages and disadvantages.  A shared savings approach with no up front cost lets you get started without any funds.  If anything is found, you are guaranteed at least 50%.  This, however, risks the company being paid far more than the level of effort required if they find something big.  There is no guarantee that any savings will be found.  All the risk is on the contractor.   On the other hand, paying a fixed fee places all the risk on you.  But, in this case any large savings will be yours as well.  You need to decide how you want to handle the risk.  Some companies will agree to a cap on the 50% sharing.  This way they can benefit from any large find but not to an unreasonable degree. 

2. There are two categories of corrections that are treated differently – past errors and the effect of rate changes on future costs.  Corrections of billing errors on bills that have already been paid mean that you will be getting a check back from the utility company.  If it is a small amount, then they may just apply a credit of that amount to the next bill.  However, rate changes affect only future bills.  You will have to make some arrangement with the company to pay the agreed share of their compensation.  This can be accomplished by the company providing a report showing what the bill would have been under the previous rate and comparing it to the actual bill under the new rate.  This could be included with their invoice for the amount of their compensation.  The key question here is how long you will have to pay them for sharing the savings of rate changes.  This will vary; however, you should be able to get a period of time that is at least as low as 24 months.

A good part of seeing the “gold” in your electric utility bills is being able to read and understand them.  This article helps to illuminate the components of an electric bill.  You will find that billing formats vary from one company to the other.  Not all elements described below may be presented on each electric bill. 

Meter Number – most meters on your facilities are digital and have a unique meter number.  Generally speaking, each meter is the basis for an electric billing account.  Some meters are more sophisticated than others allowing you to download an hourly load profile for that facility. 

Meter Constant or Multiplier – The digital readout on the meter is not the KWH.  It is a meter unit that must be multiplied by the designated constant for that meter to determine the total KWH used.

Rate – each meter is assigned a rate by which it will compute charges.  Information on rates can be obtained from the electric utility company or the Florida Public Service Commission. 

General Service (GS) – this is the simplest rate to understand since it is very similar to your residential rate.  The total kilowatt-hours (KWH) that are consumed are simply multiplied times the KWH rate.  There is also another KWH-based component to the rate that relates to fuel costs to the electric company.  The most common rates used in Florida have not changed for years, however, the fuel adjustment factor has changed recently as often as every six months when fuel costs are going up significantly.  This rate is used for smaller loads.

General Service Demand (GSD) – this is the most common rate for most schools.  It consists of two rates, one for consumption (KWH) and one for demand (KW).  The demand rate is a charge for peak power use during the billing period.  In the summer this might be the hottest day during the billing period when all the air-conditioners were running longer than normal.  Peaks in the summer can occur between noon and 2 PM.  In the winter, the peak might be in the early morning when heat strips are all coming on at the same time. 

Other special rates include “Time of Use” or “Interruptible” which are more complicated. 

Energy Charge – Total consumption, KWH, times the rate per KWH. 

Fuel Charge – an additional cost per KWH to account for the cost of generating electricity.  Very seldom do you see the electric “rate” increase.  Utility companies are allowed to increase the cost per KWH as often as twice per year by increasing the fuel charge.  This may be referred to by other terms on your bill, such as, “power cost adjustment,” “bulk power cost adjustment,” or some other term.

Demand Charge – the cost of the highest power peak, measured in KW, during the billing period.  An elementary school can average as much as 300-500 KW, a middle school 600-800 KW, and a high school 1000-1400 KW at any point during the month.  Rates per KW can range from $3.00 to $6.00. 

Energy Management Cost Adjustment – Utility companies are allowed to charge a small cost per KWH for conservation programs, such as free auditing, that help reduce energy consumption. 

Florida Gross Receipts Tax – this is a tax that is applied to all energy related charges. 

Franchise Fees – An additional cost added by a municipality, usually a town, where the meter is located. 

Billing Period – The time, in days, between meter readings.  This can vary, usually between 28 and 33 days.  Sometimes the units are estimated if an actual reading is not performed.