Be an “Energy Star”

For many business owners 2008 was a record year for energy costs. The Obama administration, while pledging to reduce greenhouse gas emissions 80% by 2050, has said that ‘energy efficiency’ is the cheapest, cleanest and fastest energy ‘source.’

Consider the following tips to make your business more energy efficient.

 Make a commitment. Whether you operate from a one-person home office or multiple commercial buildings, you can expect to achieve measurable energy savings in response to reasonable investments of both time and capital. The government claims that Americans, through its Energy Star program, saved enough energy in 2007 to prevent greenhouse gas emissions equivalent to those from 27 million cars while saving $16 billion on their utility bills.

 Assess performance. Perform an energy audit to measure the actual or estimated performance of your facilities and equipment against benchmarks for similar facilities, equipment and operations. Although professional energy auditing and consulting firms and high-end software tools are abundant, most are neither cost-effective or necessary for the average small business. Small businesses can take advantage of free do-it-yourself tools available on the Internet from reputable sources such as their utility providers or government agencies.

           

Electric utility Duke Energy, for example, provides free online energy auditing tools customized by state for its residential and commercial customers.

           

Businesses requiring a more sophisticated tool can use Portfolio Manager, an interactive energy management tool, to rate building energy performance. For many facilities, you can rate energy performance on a scale of 1–100 relative to similar buildings nationwide. A rating of 50 indicates that the building, from an energy consumption standpoint, performs better than 50% of all similar buildings nationwide, while a rating of 75 indicates that the building performs better than 75% of all similar buildings nationwide. Buildings rating 75 or greater may qualify for the Energy Star label.

 Set goals. Energy saving goals should be incorporated into your overall operating plan. Based on your energy audit, you should have a good idea where savings can be attained. The Energy Star for small business program recommends that you visualize an overall savings of 25% to 35%, which for many businesses can have a significant impact on the bottom line.

 Create action plan. Your plan should fit your business. The U.S. Environmental Protection Agency (EPA) publishes a 39-page document called Putting Energy Into Profits: Energy Star Guide for Small Business. This document, which provides action items and resources for several basic improvements for specific types of small businesses, provides a framework that CPAs can use for planning and to engage in dialog with stakeholders including owners, managers, property owners (leasors), lenders, equipment suppliers and building contractors.

 Calculate tax advantages. A tax deduction of up to $1.80 per square foot is available to owners or designers of new or existing commercial buildings that save at least 50% of the heating and cooling energy of a building that meets ASHRAE Standard 90.1-2001. Partial deductions of up to $0.60 per square foot can be taken for measures affecting any one of three building systems: the building envelope, lighting, or heating and cooling systems. These tax deductions are available for systems “placed in service” from Jan. 1, 2006 through Dec. 31, 2013 (see IRS Sec. 179D(h) as amended by Sec. 303 of the Emergency Economic Stabilization Act of 2008 and IRS Notices 2006-52 and 2008-40). A summary of federal tax credits for energy improvements that includes links to relevant IRS publications is available here.

 Compare prices. As with any plan, accurate assumptions are essential to its success. Energy Star rated appliances must meet special requirements and, as a result, tend to have higher purchase prices than standard models. Many utilitiy service providers offer rebates to offset the added cost of Energy Star-rated equipment. CPAs should carefully assess all tax incentives and rebates as well as claims for future operational improvements. The Energy Star Web site includes a search tool to help find applicable rebates. Cost savings calculations prepared by the the EPA and Department of Energy (DOE) typically use national average retail utility rates provided by the Energy Information Administration (EIA). Because retail utility rates vary significantly from state to state, CPAs should use state-specific rate data available in the EIA’s State Energy Profiles if more specific historical rate data is unavailable.

           

 Implement action plan. Due diligence is essential. Products and workmanship must meet specific requirements to qualify for certain tax deductions. In the case of building improvements, the software used to calculate the energy efficiency of commercial buildings must be on the DOE’s approved list and such improvements must be independently verified by a qualified individual to meet IRS requirements for tax deductions (see IRS Notices 2006-52 and 2008-40).

 Evaluate progress. Continually compare and correct plan assumptions to results. For example, if you (or your client) own three similar apartment buildings and you install heating and air conditioning equipment with an anticipated improvement to energy consumption of 30%, verify the results from the first building upgraded before committing resources to upgrade the remaining buildings.

 Recognize achievements. The EPA has prepared a number of ready-to-use materials that are available free-of-charge to Energy Star partners. These include print ads that you can customize for your business, banner ads for the Web, Energy Star partner logos for use on your signage and literature, a customizable news release, promotional event ideas and a certificate of participation that you can display in your place of business.

 

By Matthew G. Lamoreaux, a JofA senior editor. His e-mail address is mlamoreaux@aicpa.org.