What’s Going on Behind the Curtain?

Published to LA Confidential, Summer 2017

The Wizard told Dorothy and her friends many tales of his amazing powers, but a strong breeze blew away his credibility when it pushed aside the curtain, revealing those tricks as little more than noise and smoke. Such may be the case with energy account auditors, they may claim savings based more on a customer’s misplaced trust of the auditor than on any real financial wizardry.

Long before the pursuit of dollar savings from energy efficiency became a business, a cottage industry existed that focused on finding errors in utility billing. While some have estimated that up to 2% of bills contain errors, much of the savings may instead derive from fixing inadvertent errors made by customers, such as taking service under a sub-optimal rate, failing to pursue available economic development rate options, or misunderstanding how rate-making proceedings work.

The typical pitch of auditors goes something like this, “At no charge, I will review your utility bills for the last two years. If I find a way to save you money, I will pursue it and split the savings with you. It is a no-lose proposition. If I find nothing, you pay me nothing. Whatever I recover for you is “found” money. If a mistake was never uncovered, you would never have received that refund on your own. Just sign here, and I will get started right now identifying the errors and obtaining refunds.  ”

Many facility managers jump at such an opportunity without realizing just how much they could be giving up. Some auditing contracts take 50% of the savings from one-time refunds, and a like amount for costs that would have been incurred had the mistakes never been corrected, for up to five years.

A nationwide clothing chain that was expanding rapidly, opening a new store almost every day,  had a deal with an auditor whose primary trick was finding better rates shortly after each new store opened. In such cases, the auditor merely switched the customer to better rates and took 50% of the rate difference for five years, creating a cozy little cash flow for himself.

In essence, the auditor was depending on the ignorance of store managers rushing to open their doors, never looking to see if the rate offered by the utility was the best option. Recall that, when a new account is opened, many a utility need not offer the best option, only  one that’s appropriate to the customer’s rate class. In Con Edison’s service territory, the utility is required to help the customer pick a rate that is, “most favorable to the Customer’s requirements.” A time-of-use or other rate may yield a lower annual cost, but savings need to be independently verified before paying the auditor. If savings occur during part of the year, with losses occurring at other times, the auditor should be paid only on the net annual savings.

When this little scam was exposed, the customer asked the auditor if a fixed fee arrangement could be used, under which the auditor would simply check what rate was proposed before an account was opened and ensure that it was the best option, thus avoiding the need to later switch. When the auditor heard that idea, he threatened to sue the customer for “loss of anticipated revenue”.

However, similar to The Wizard of Oz, some auditors have better tricks up their sleeves.

Auditors may stretch the intent of their “free savings” contracts to include claims that their participation in a ratemaking proceeding yielded savings specific to their customer. Rate changes are realized through the efforts of a number of individuals, not just the auditor (who may not even have been significantly involved in the rate making process.) Nevertheless, auditors may look at a rate increase request that is reduced by a certain percentage after negotiation, and claim that same percentage against the customer’s bills as a savings for which they should be compensated. The auditor thus derives an enormous savings claim through the efforts of others.

In another case, an auditor wriggled his way into a facility’s demand response (DR) efforts based on an email he had sent to the customer years before, informing said customer about the utility’s DR program and incentives. At the time, the customer was aware of the opportunity, but unable to pursue it due to a lack of controls of equipment. After working with a DR provider to install the necessary devices, the customer secured both a one-time incentive and the annual DR revenue by cutting peak demand when requested. The auditor then made claims to portions of both the incentive and the ongoing revenue, based purely on that email. As often occurs with such demands, the customer refused the claim, only to find itself in civil court facing a possibly large financial judgment. In the end, it was cheaper to pay a portion of the claim than to pay legal fees.

A similar claim was made when an auditor learned that a customer had secured an electric price discount by participating in an economic development program. Anyone who has been involved with such programs knows the application process is time consuming and may involve a lot of paperwork, record keeping, and other bureaucratic efforts to obtain the discounts. The auditor had no role in the process, but made a claim anyway to a portion of the annual discount. He was able to point to the minutes of a meeting he had with the client years before when such programs were generally discussed. The contract between the auditor and the customer had no “sunset” date, so it was still legally in force. Once again, the situation ended up in court, with an out-of-court settlement the cheapest way to resolve it.

Some auditors could put the Wicked Witch of the West to shame with their boldness. While reviewing invoices from a third-party power supplier with whom the auditor had a commission based brokering relationship, he found that a monthly floating price for gas that had risen during the winter had never fallen again when weather moderated. The customer had not noticed that the price had instead gotten “stuck” at the high point for months. The auditor then laid claim to 50% of the refund he secured for the customer, even though the auditor had acted as the broker for the supplier that was cheating the customer. One wonders how often that scam has been run on customers that trust too much or do not have the time or understanding to review their bills.

Bottom line, before signing a bill auditing contract, be sure to limit the ways an auditor may claim savings. Otherwise, you may find yourself spending more on attorneys than you’ll save on your bills.


Is Courage Needed to Pursue DER?

Published to LA Confidential, Summer 2017

Energy efficiency and renewable projects are no longer skipping down the same yellow brick road as they were this time last year. Similar to the Cowardly Lion, some are inching courageously forward despite doubts from customers and the industry, while others have stepped off the road until the way forward becomes clearer.

Changes at both the federal and state levels are creating a less certain future, but Dorothy assures me that the basic reasons for pursuing distributed energy resource (DER) projects remain viable, regardless of which federal policies remain intact.

While relatively little federal energy grant money is distributed directly to commercial and industrial (C&I) customers that implement energy projects, some of it was routed to them in the past via state agencies and utilities receiving federal funding. If that earlier support is cut back, some programs may not be renewed, or remain robust.

As New York State (NYS) pushes its Clean Energy Standard (under which programs like NY-SUN are supported), the NY Public Service Commission (PSC) and NYSERDA have been “resetting the table” on how future incentives and rebates for DER may be provided. For instance, support for Combined Heat and Power (CHP) projects is now limited to systems with capacities of 3 MW or less. The imminent shutdown of the Indian Point nuclear power plant has created uncertainty regarding forward capacity and power pricing after 2020, even as two nearby gas-fired plants and a 1,000 MW power line from Canada may be arriving at about the same time. Add to that the recent PSC order re-valuing various aspects of DER, and it is as if a flock of flying monkeys are swirling around your head.

While local utility DER rebates are almost as high as a year ago, new tariffs for all NYS utilities are appearing that re-define the value of excess power from such resources such as Photovoltaics (PV), CHP, and energy storage. Recently, net metering rewarded owners of such systems at the full supply value of utility electricity regardless of when that excess was fed back into the grid. That process created an incentive to build large systems that could provide much of the valuable power beyond what is needed by a host facility for many hours each year.

However, now a “value stack” that consists of separate variable values for energy, capacity, demand reduction, societal benefits, among others, will determine the level of remuneration to each DER system. For example, under one alternative, if a PV system produces low kW due to a heavy rain storm that is coincident with the grid-wide peak, it will be paid for only the capacity it produced at that particular hour, for each month in the following year. The energy it produced will now be paid at the hourly locational based marginal price (LBMP), rather than the utility’s monthly billed supply price. Fearing that its financial positions could suddenly go “underwater”, one local PV developer has pulled back on several community solar projects.

Despite these uncertainties, others are pushing ahead, finding ways to quantify, and where necessary, financially hedge any potentially negative impacts. With a little luck and a great deal of number crunching, we may all finally get to a truly “green” Emerald City.


The Brains Behind the Savings

Published to LA Confidential, Summer 2017

The Scarecrow had enough sense to know that he needed a brain, but what about your building? The impending rollout of distributed energy resource (DER) tariffs and power pricing suggests that many facilities may soon need their own “transplants.”

According to the latest building survey data from the U.S. Department of Energy (DOE), almost 15% of U.S. commercial and industrial (C&I) facilities are equipped with some form of “energy management and control system” which refers to  an energy management system (EMS), building management system (BMS), or building automation system (BAS). Several independent studies by agencies, such as the U.S. Environmental Protection Agency (EPA), have found that such systems help facilities cut their annual energy use by 10-20% relative to comparable sites lacking them.

Many, if not most of them, however, are designed to control heating, ventilation and air conditioning (HVAC) and lighting equipment based on standard utility tariff pricing, rather than the complex energy cost valuation methods resulting from DER proceedings.

DERs include any form of behind-the-meter energy supply such as solar Photovoltaic (PV), cogeneration, and energy/power storage.   These systems have the ability to control electric load (demand) in real-time as opposed to demand-side management (DSM) which focuses on energy use reduction.

The rapid adoption of on-site solar generating technology has challenged the initial simple method of paying for its excess output, that being net electric metering (NEM). This method valued extra kilowatt-hours generated by a power customer at the total of a utility’s supply and most of its delivery charges. In its place, several states, including New York and California, recently instituted proceedings to create a more appropriate “value stack” that reflects the many ways that DERs may benefit the power system and other customers. That stack not only includes energy and capacity, but also local system relief and demand management, as well as societal benefits like avoided carbon emissions.  The values are each based on a separate algorithm.

To maximize the value of a facility’s DERs, a typical EMS/BAS will require more than just tweaking. It will need the ability to sense facility-wide electric load as it is occurring and trending; links to real-time zonal power pricing as it varies by the hour (and – in the future – maybe shorter intervals); and, built-in algorithms that translate that data into control commands that financially optimize a facility’s mechanical responses. This must occur while maintaining comfort conditions.

Similar mind expansions have been seen in systems controlling so-called all-electric, “zero energy buildings” (ZEB). Such facilities are equipped with large solar arrays that, under NEM, could zero out their net energy use, but not their real-time electric demands. In a 2009 DOE study entitled, “Why High Performance Buildings Do Not Perform,” it was found that maintaining the technical complexity found in some ZEBs often required a technician in a white lab coat rather than the usual blue collar personnel that run most buildings. Fortunately, the falling cost and increasing sophistication of artificial intelligence systems offer ways to meet the challenges that DER economics are offering to today’s buildings.

Smart facility managers are now working with their EMS providers and energy consultants to develop the “smarts” needed to make the most of DER valuation opportunities. Equipped with that level of brilliance, even the Scarecrow may give the Wizard a run for his money when it comes to money-making “magic.”