AIRPORT BUSINESS: What types of things have you learned
at Boston and Philadelphia?
Stanton-Hoyle: In almost any commercial facility, there tend to be some pretty significant opportunities for decreasing utility costs and they're often overlooked because people are working on their core business. And, investing in your facilities often provides higher return on investment than investing in the core business. It's true for typical office buildings and it's true for typical airports.
Investing in your facilities to decrease utility costs usually turns out to be the best investment of all. It's not unusual to see ROI (return on investment) of 20 to 50 percent.
At Logan, the most significant cost reductions that they derived were by paying less per unit of energy. Also, we're working with them on an overall energy master plan to help them to make their facilities more efficient.
Also, somewhat unique at Logan but likely to exist at many other airports, is that on the supply side Logan was able to purchase electricity on the wholesale market.
The thing that will make the biggest difference in whether or not an airport is able to do what Logan did has to do with the way that it's chartered. If an airport is chartered in such a way that it is reselling electricity or fuels to airlines, air freight companies, or concessioniares, they can purchase the fuel at one price, mark it up, and sell it at a different price. They often don't mark it up because they're not in the business of acting like utilities. But what we determined at Logan was that they could be acting like a utility - in fact, they could buy their power on the wholesale market rather than on the retail market.
Rather than go to Boston Edison and pay whatever the prevailing rate was to industrial customers, they were able to go out on the open market and allow various generators of electricity to bid on their long-term needs. Where a lot of people have seen significant increases in their electricty prices, Logan has a locked in rate. That's where savings went from roughly $5 million a year to $10 million a year. For the ten-year contract that they have, it looks like they could be saving $80 million or more.
On the demand side, they also were assuming that they were going to have to build a new central plant. Part of that was because of the phaseout of CFC refrigerants and the expansion of the entire airport under Logan 2000. We were able to analyze what their real demand was likely to be for cooling and analyze a more sophisticated solution to their production of cooling and determine that they didn't have to build a new central plant. They were about to spend somewhere toward $15 million to build that plant.
Now, we're continuing to do other things with them on the demand side. For example, working with them on the second step of potentially converting over the whole airport from steam distribution to hot water distribution. That could save roughly 20 percent, because steam systems are inherently leaky and it's pretty common for them to leak 20 percent.
In addition to lowering operating costs because of energy use, you also look at sustainable development from the perspective of the materials they use - natural light, that sort of thing.
Taking a broad perspective can be very useful. There really are synergies involved when you don't just look at the supply or demand side, or just new construction or retrofits, or only one terminal, and you don't look at the entire distribution system. Working with them on an ongoing basis, we have the benefit of being able to do things that fit together well.
The same is true for other airports. We're working with Philadel-phia, for example, and mostly looking at the landside facilities. Again, there is tremendous interaction among systems. And, there is opportunity to analyze the demand side options along with supply side options.
A key concept that often gets thrown into the middle of that is co-generation - which in some ways is like a bridge between the supply and the demand side. It's sometimes used as a bargaining chip with the utilities. A facility will say, 'We're paying so much for our fuel, I think we'll just generate onsite.' Utilities, wanting to keep a large customer like an airport, will often evaluate with the airport whether or not it makes sense to lower the price of the commodity rather than to have them build co-generation capacity onsite.
AB: How likely would that be?
Stanton-Hoyle: It is pretty likely.
AB: In terms of an airport buying electricity, is there a lot of opportunity to get competitive bids?
Stanton-Hoyle: I think there is a lot of opportunity; for one thing, most airports are only dealing with one utility. They may have a lot of negotiations with them, but it's usually only one utility.
Airports only see themselves as consumers of energy, not wholesalers of energy. The way that it's chartered is important because it may allow them to purchase fuel on the wholesale market and resell it. This is where the whole deregulation thing comes into play. What's partly an opportunity here is for them to go back, have a legal analysis of their charter done, and determine whether or not they are actually capable.
AB: When we're talking deregulation of the energy industry, what exactly are we talking about?
Stanton-Hoyle: Mostly, right now, we're talking about the electric industry. Natural gas has been considerably ahead in market deregulation.
For example, you often hear of people purchasing their natural gas at the wellhead. Then the pipes that are in the ground are just what the local utilities are required to provide. They get to mark it up; they get to make a profit based on having to invest in the infrastructure of the pipes.
The same is now becoming true in the electric industry. The local utility that's invested in all the wiring and infrastructure gets to make a profit, but they don't necessarily get to provide you with the electricity that they've generated. Because of this, a lot of utilities that are trying to stay ahead of the deregulation tidalwave are divesting in their generation capacity. So, a utility like Pepco in the Washington, D.C. area no longer generates; it's sold off all of its powerplants. It's becoming a distributor.
The third element of this is who takes care of all the meter reading and billing? Those services can also be separated from the whole. So the idea of these vertically integrated utilities that used to generate, transmit, distribute, and then read the meters and provide you the bills - those things can now all be divided up.
It's all part of a quickly changing landscape. I've spent a fair amount of time overseas, and this is occurring in different ways and at different rates, but with a fair amount of similarity, across the world. England is ahead of us in terms of their deregulation; the Australians are moving pretty quickly.
It's about customer choice; it's just like the deregulation of the phone industry in many ways. We can choose to pay for MCI, Sprint, or whomever to handle all of our long distance calls. Well, that's the same way utilities are now doing it with power marketing companies coming to your business. The generators can be whomever you choose.
In the last two or three years the buzzwords have changed from demand side management to market transformation. The concept: because we're now deregulating these utilities, you can't be requiring utilities to do something in a specific service territory because they don't operate only within that service territory. You've got this mix of generation, transmission, and distribution companies. It's no longer centralized as a monopoly.
What's perceived in the common good today is to bring about energy efficiency, but to do it on a statewide basis rather than on a single utility basis. States that are on the leading edge of all this are California and New York. Massachusetts is also very active - places with high utility rates.
AB: So, if I'm a manager of a mainstream commercial airport, what should I be looking at? The charter?
Stanton-Hoyle: I don't think that's necessarily the first thing you should do. The first thing an airport administrator should do is to develop a plan for how to look at the various integrated pieces of their facility, with an eye toward maintaining reliability and decreasing operating costs.
Airports are just like any other industrial process where throughput is everything. If decreasing reliability means they have to start turning away flights, then that would be suicide. So, maintain the reliability while reducing costs. Often, you can increase reliability and increase comfort, at the same time that you're reducing costs.
At Philadelphia (Int'l) Airport they had main feeders coming in from the Philadelphia Electric Company. Each feeder is large enough to handle the whole airport, but not the wiring from building to building. So, if you ever lost one feeder, you couldn't keep the entire airport running. As part of our evaluation for them, we've been looking at ways to decrease the operating cost and provide significantly better redundancy.
They should at least start to develop a plan that looks at these various components. They may have engineering staff on board that are capable of doing this; they may have attorneys on board who are capable of analyzing their charter. It really helps to bring in people or send your own people to training courses so that they're constantly staying on top of what's going on with deregulation.
AB: If they review their charter, what is it they're looking for?
Stanton-Hoyle: If they find that they are chartered with the ability to be a reseller of energy, they have flexibility and options. It happens maybe less than half the time.
AB: If I've instituted a plan and have reviewed how to reduce costs while maintaining reliability, and have had a legal review of the charter, what do I do next?
Stanton-Hoyle: After you kind of dipped your toe in each of those areas, then you need to develop a detailed plan, decide whether or not you're going to run it in-house or hire a consultant, or make it part of the scope of work for a consultant you already have on board.
If you've got an airport that's growing a lot and/or has aging facilities and is thinking about whether or not they're going to have to add on new central plan equipment in order to meet new demand, then you've got enough complicated issues that you need to be going ahead and developing an energy master plan.
AB: It would seem that a key target or focus would be to look at what you're paying for energy today.
Stanton-Hoyle: The first thing that's going to happen is your local utility that's already serving you is going to try to lock you into something like a ten-year contract at slightly lower rates. The next thing is, if there are competitors that are able to get in on the game - if you're chartered right or you're in a state that's in a particular stage of deregulation - they're also going to want you to sign a ten- or 15-year contract. It's really helpful to be not signing a ten-year contract without already having looked at your demand side.
AB: You pretty much feel that there's opportunity here for almost any airport.
Stanton-Hoyle: I haven't been in any facility that didn't have an opportunity to decrease its operating costs. Most folks are not thinking about it. I could walk into your house and put together a list of dozen items that if you chose to invest in them would decrease your utility cost 30 percent.
So, the question is, where is it cost-effective to make these investments? And the answer is, most of the time, most places, it's cost-effective.
AB: If I want to go out and get competitive bids for energy, do I go through a typical bidding process?
Stanton-Hoyle: Competitive bidding doesn't even necessarily come into play here. In the Logan example, we helped them put together a bid package for the purchase of electricity. In their particular situation, having people bid for electricity in a long-term contract made sense to them.
In a lot of other cases, though, without going out for bid, any airport can evaluate its most cost-effective fuel mix. That can involve purchasing contracts that they already have with their various utilities. Part of what can be done as part of this energy master plan is to evaluate whether or not it really is most cost-effective to be generating your cooling with gas rather than with electricity, or to be generating your heating with electricity rather than gas.
AB: Is there typically only one supplier of a particular energy?
Stanton-Hoyle: It's usually one. In the case of the electricity provider, you're still using Commonwealth Edison lines or whomever to get the electricity to your airport, but you can be buying your power from Hydro Quebec.
AB: It would seem that most people don't think they have any control over energy.
Stanton-Hoyle: That's right. It's said over and over again, utility costs are just fixed costs - the cost of doing business. Yet, when people go around and order copy paper they'll check two or three different sources; you can do the same thing with your electric costs.
It's more than just shopping around. It's like if you know you can replace every light in a building and can easily knock down what you're paying for lighting by 40 percent. And that decreases the amount of energy that you also pay for cooling. So, if the whole thing will pay for itself in three years, why wouldn't you go after that that type of return on investment?
And airports that run more efficiently have a very clear way of saying to the populations near them that they are being more environmentally responsible by running our airport in an energy efficient manner.
Harris Energy Systems, a division of DMJM+Harris, recently completed a Master Energy Plan that is projected to save Boston Logan International Airport some $80 million in operating expenses over ten years. The Plan is part of the Logan 2000 initiative to upgrade the airport.
Plan consists of three phases. In Phases I and
II, undertaken simultaneously, the strategy calls
for adding capacity to the central heating plant
to meet the construction schedule, upgrading mechani-cal/electrical
systems for greater efficiency, and negotiating
favorable wholesale rates with the utilities.
During these phases, the Plan has already paid
off by saving Logan $15 million in avoided capital
costs at the central heating/cooling plant.
Phase III looks to 2006 and analyzes the comparative benefits of replacing the existing central plant or building a co-generation plant. The Master Energy Plan is already saving Logan at least $8 million a year in energy costs.
Any master energy plan - comprehensive in scope - can serve an airport as a valuable strategic road map for ensuring a reliable, flexible, and cost-effective supply of energy.
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