Energy Advantage works with Cadillac Fairview to keep operational costs low and tenant satisfaction high

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A COMPLEX AND VOLATILE energy commodity market complicates the already delicate balancing act of keeping operational costs low and tenant satisfaction high. Add pension fund ownership into the equation, and risk tolerance becomes particularly low.

For Cadillac Fairview, which is wholly owned by the Ontario Teachers' Pension Plan Board, energy expenditures represent a significant portion of operating costs in a portfolio of nearly 38 million square feet of high quality office and retail space stretching from Victoria to Moncton. To best manage this, the company engaged expertise for a portfolio-wide approach to invoice processing and energy reporting, independent advice on risk mitigation, and strategic energy procurement.

"We can now tolerate changes in energy prices, and more efficiently budget across the company and across the country. We're better at anticipating energy costs for our tenants as well, so we can offer them an attractive lease situation," reports Kevin Delorme, National Director of Operations for Cadillac Fairview.

Standardizing the utility bill payment system and implementing a thorough quality assurance process was one of the first steps. An extensive portfolio translates into an enormous amount of utility data to monitor. Cadillac Fairview has thus far recouped more than $1.1 million in identified utility billing errors.

Verification software applies numerous checks and balances across multiple data points to make sure each invoice is correct. Once the automated system verifies key data elements of the invoice, an energy analyst investigates suspect data related to such things as usage patterns, unusual spikes or unexpected demand drops.

The data is also leveraged for many other purposes, including energy accounting and budgeting, identifying and strategizing for energy commodity procurement opportunities, monitoring and tracking of energy conservation initiatives, building certification initiatives such as BOMA's Go Green program, and energy related capital expenditures.

Cadillac Fairview's commodity management program addresses the potential for the dramatic upswing in prices inherent in the deregulation of electricity and natural gas commodity markets in Canada, and helps provide stability through predictable costs. Pooling together all of Cadillac Fairview's properties across the country in one negotiation represents a huge amount of buying power, giving suppliers strong motivation to provide a preferred price.

The supplier makes the deal with a national portfolio at the corporate level rather than having to deal with individual purchasers. It's a bonus for the company too because it allows the property managers at individual locations to manage energy consumption without worrying about the price.

Financial reporting to the company's pension fund owners necessitates accurate budgeting and forecasting so energy analysts work directly with the portfolio directors of each region to offer strategies and tools to manage price volatility. Discussions are held at least twice a year in a Director's meeting where those in charge of each region hash out strategies with their energy advisors to minimize the impact of an uncertain energy market. The end result is a team effort with an overall strategic vision based on expert forecasting of what the market will do.

Cadillac Fairview plans to soon adopt a demand response program for its Ontario property portfolio. Using less energy during hours of peak pricing will help to lower operating costs, while also making Cadillac Fairview eligible for the multitude of demand response and energy efficiency programs offered by governments and utilities.

Cadillac Fairview is demonstrating good corporate citizenship in assisting the province in times of tight supply by taking a portion of its electrical load off of the grid. Taking this active role in conservation can help to improve public relations and branding – both for Cadillac Fairview and its tenants.

"As prudent landlords, we want to make the most of our energy budget. That means astute procurement, monitoring consumption, and accurate billing," Delorme says. "We've seen the opportunities in each of those areas. We were a bit surprised at how complicated the energy market could be, even just the billing, but we've made great progress in getting a comprehensive energy management program in place. It's really paying off."

Rob Kirkby is President and CEO at Energy Advantage Inc., a provider of independent, objective energy management services, including Cadillac Fairview's portfolio-wide energy program. For more information, see the web site at www.energyadvantage.com.