Building Owners Charged Up About Deregulation

FT. WORTH-Texas building owners are making out their lists and checking them twice to decide which retail electric provider is a good match for the up and coming deregulation that goes into effect Jan. 1, 2002.

Bass Enterprises Production Co. Fort Worth and Crescent Real Estate Equities Co., also Ft. Worth, have office buildings in a pilot program to test the waters. Bass already has pared its providers’ list to four while Crescent expects to do the same by early next week. Still, it’s not an easy decision, but is one that seems to be carrying a guaranteed cost savings to building owners and tenants, say executives from both companies.

Bass will make its final cut Tuesday, Bud Smith, project manager for Bass’ City Center Development Co., tells GlobeSt.com. It will be a one- to two-year contract that is expected to bring a savings of 5% to 10% in electricity bills. It will boil down to who can reliably provide the best per kilowatt hour rate. And that, says Smith, raises the possibility of commercial property aggregating so that costs can be driven down even further.

City Center is a 1.5 million sf, two-tower project that has had $6 million of energy-efficient equipment brought on line to battle rising costs and improve efficiency at the class A, office-retail combo in the city’s heart. The business-savvy Bass says teaming the upgrades with deregulation is just smart business and more so since it also brings an energy rebate from TXU and projected energy savings of $500,000 over the long run. “We are realizing the savings now,” Smith says. “We are using less kilowatt hours today than we used for a comparable day last year and we are passing these along to the tenant.”

The six-block City Center was selected for the pilot program because it was more manageable as an entry project. As Jan. 1 nears, the Bass conglomerate is looking at all aggregate options for its oil wells, manufacturing holdings and 40 city blocks of commercial buildings, which includes the premier Sundance Square. A consultant has been hired to help sort the aggregate possibilities. The goal is to be ready to go when the calendar flips.

Crescent has three buildings in downtown Dallas in the pilot program: The Crescent and Fountain Place, each more than 1.2 million sf, and Bank One Center, about 1.5 million sf.

Dennis Cruse, Crescent’s energy services manager in Houston, is, like Smith, confident that deregulation won’t bring rolling blackouts to Texas. And if they do occur, Cruse tells GlobeSt.com, “it won’t be the REPs (retail electric providers) fault.”

Crescent too is looking at aggregating its buildings. The method is such that it’s conceivable that multi-building complexes could have different providers. Crescent is using TXU Energy Management as its partner to develop the best possible strategy.

Crescent floated RFPs to nine REPs and seven have responded that they’re interested in the REIT’s business. Cruse says Crescent is letting the aggregating decision rest on “the creativity of the REP.” It could be for all or it could be for part of the portfolio or for that matter even a portion of a complex, such as Houston’s multi-building Greenway Plaza with more than 4.3 million sf.

Cruse says Crescent will have its short list by early next week. Credit worthiness, price and reliability to provide what is promised are the deciding factors. “The long part will be negotiating the contract itself,” he believes. But, he also believes, that in the long run “the pricing will be better. It could go south…but I believe we will all be better off for it.” And so will the tenant, he stresses, since the pass-back to operating costs will trickle down to the user level.

The executives say tenant input was part of the process. But clearly, they say, it’s a building owner’s decision. “We are the ones responsible for paying the bills at the end of the day,” says Cruse.