Why Commercial Real Estate Property Managers Need to Be Educated as to Energy Deregulation

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“Energy deregulation will be the largest transfer of wealth in history.” — Warren Buffet

For many years, consumers were limited to one company that controlled both the generation and distribution of electricity and natural gas. Historically, energy utility companies sold electricity and natural gas and delivered it through their power lines or natural gas piping systems. These local utility companies were the only providers of safe and reliable energy to consumers, giving them the power to set the price for energy within the state government’s regulatory approval.

Nearly 35 years ago a number of states began changing regulations that affect suppliers of electricity and natural gas. These new laws resulted in a competitive marketplace for energy whereby suppliers other than the local utility company were able to offer electricity and natural gas services and products to smaller users at rates lower than those of local utility companies.

The ability for consumers to choose their own energy supplier is still fairly new in many parts of the United States (as well as in Canada and Europe). However, in those states where energy has been deregulated, a vast number of consumers currently experience the benefits of being able to choose their energy supplier including competitive pricing, improved customer service and product innovation. Competition in the energy marketplace allows the consumer the opportunity to save on their utility costs. So far 31 states in the U.S. have some form of deregulated energy with additional states scheduled to follow.

The advent of energy deregulation has changed the energy market giving consumers the power of choice. In some cases, consumers even have the power to choose between different types of companies such as investor-owned utilities, local publicly owned electric utilities, independent electric service providers, even renewable energy sources, such as solar or wind.

Here’s how it works. Under deregulation, each part of energy service is broken down into separate pieces that are provided by different companies. Delivery of electricity as well as all necessary service is still provided by the local utility company, which ensures that the consumer will be provided with safe and reliable electricity. Suppliers of energy, other than the local utility, are licensed and registered with state and federal agencies and are not in competition with the local utility. Since the local utility does not make any money on the energy, only on the delivery and service of electricity, they support consumers who choose to switch suppliers. Smaller suppliers provide energy to the existing grid and the local utility company still delivers that energy directly to a consumer’s home or business. The utility continues to makes a profit on energy delivery, however consumers are able to enjoy significant savings and other benefits by buying their electricity or gas on the open market from other suppliers.

Deregulation allows a consumer to choose the supplier from whom they buy their energy. This choice creates a competitive marketplace in which an individual energy supplier works to provide the best product, the lowest price and improved quality. In some instances, these energy suppliers offer flexible pricing options such as a fixed rate plan, a variable price plan or a blended plan. If desired, a consumer could guarantee a rate for several years with a contract, which is an option that is not available with a local utility company.

The commercial real estate industry is directly affected by energy costs. Energy represents 30 percent of the typical office building’s costs and is one of the top five operating expenses for most real estate assets. As such, building owners and property managers are always searching for innovative ways to cut costs, control expenses and save money. With electricity and natural gas deregulation, building owners and property managers in many states now have the power to choose from a variety of energy suppliers resulting in a drop in energy costs. Having the ability to choose an energy supplier allows a property manager to maximize operational excellence by:

o  Reducing energy costs and operating expenses
o  Increasing asset value
o  Enhancing tenant satisfaction, attraction, and retention
o  Increasing occupant productivity and health
o  Demonstrating environmental leadership by reducing energy usage.

Property managers have a responsibility to provide the best service to their clients and tenants including becoming educated as to the benefits of being able to choose alternate energy suppliers that will provide safe and reliable energy at a competitive price.

View this News Release (external link)
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