CREJ - Property Management Quarterly - April 2017
I was in the local Ace Hardware store last week shopping for replacement light bulbs – T12 fluorescent bulbs, to be exact. I noticed that since the old incandescent bulbs were phased out when production ended in 2014, we now have lighting options ranging from krypton, zenon, halogen, fluorescent, compact fluorescent, halide and LED lighting. Lots of choices. Most of the new bulbs range from $8 to $15, compared to the old incandescent bulbs that you could buy for about 75 cents. The bulbs I needed cost about $8 for a two pack. While I was there, I remembered I needed a few indoor floodlights and a small halogen light bulb as well. I ended up walking out of Ace Hardware with a $90 receipt for 10 light bulbs. I realized that the high cost of light bulbs is a great example of one of the many expenses building operators must factor in when considering going green and investing in energy-improvement upgrades for commercial buildings. I know that the new light bulbs have benefits, including lower energy usage and longer life but, then again, some of the lights and brightness levels are lousy compared to the incandescent light bulbs. Because of these types of tradeoffs, we really need to think about how we can make energy improvements more cost effective. This topic is timelier than ever because the city of Denver is adopting a municipal amendment that requires buildings over 50,000 square feet to track and publicly report their energy performance through the Energy Star Portfolio Manager program. The folks up in Boulder already are using this benchmarking approach. In short, these programs will require building owners to enter operating and utility data for their buildings into the program, which then evaluates how the building performs as compared to other buildings of similar size, type and occupancy. For a score of 75 percent or greater, the building earns the Energy Star rating and receives a plaque. For a score falling below 75 percent, the goal is for the owner to be motivated to improve the building. These improvements can range from new lighting, extra insulation, changing out the windows, upgrading the heating, ventilating and air-conditioning system or doing whatever is needed to achieve a score of 75 percent or better. I’m all for reducing energy consumption, having more comfortable buildings and reducing our carbon footprint, but after my recent light bulb excursion, I can’t help but wonder about better ways to accomplish these goals. Back to the light bulb example. What if you could get a dollar-for-dollar tax credit on your annual tax return if you installed the “good stuff” or the most energy efficient light bulb on the market? Let’s say you buy six LED 40-watt light bulbs for the lamps in your living room, which are used all the time. Six bulbs multiplied by $9 each equals $54 in light bulbs. In this scenario, you could save this receipt and apply it to your tax return as a credit next year. On a larger scale, the initial cost or investment would be credited back to the owner, the building would be improved through energy-efficiency improvements and the savings would occur once the improvements are completed. This could be a “prescriptive” incentive example for installing certified products that reduce energy consumption. Staying with a performance-based approach, we could focus on reducing annual building energy consumption based on your Xcel bill by comparing it to past performance or to other buildings of similar size, use and occupancy. That is, if you completed a project that reduced energy consumption, you could secure a tax credit to offset the capital cost of the improvement. You would demonstrate your reduction in annual usage and be able to receive a tax credit to offset the investment cost. If the credit was generous enough and could pay for the upgrades in a short amount of time, I believe it would be very popular. For a commercial building, it would be great if the landlord and tenants could split this tax credit so they both have an incentive for promoting the improvements. Or from a conservation standpoint, any building that performs better than a code minimum standard would be allowed to include a tax credit on next year’s return. Due to the challenges and costs of reducing commercial building energy consumption, I think the government could provide a more practical incentive to promote energy efficiency improvements and energy conservation through tax credits. We currently have the EPACT Fed 179D deduction but, like the tax code, it can be cumbersome and difficult to apply. I say we create an energy tax credit that is easy to understand, easy to document, and incentivizes building owners and tenants to reduce energy consumption. I’ll see if I can pitch this to Gov. John Hickenlooper and Mayor Michael Hancock the next time I see them at the hardware store.