Energy Efficiency at Two Houston Center

Environmental Defense Fund

Climate Corps Internship

Tyler Monzel
Rice University MBA Candidate, Class of 2009
May 26 - August 1, 2008
 Table of Contents

EXECUTIVE SUMMARY ....................................................................................................................II

PROJECT OVERVIEW.......................................................................................................................1
DESCRIPTION OF PROJECT ................................................................................................................1
PROJECT SCOPE ..............................................................................................................................2
BACKGROUND..................................................................................................................................3
GREENING OF THE COMMERCIAL REAL ESTATE INDUSTRY ..................................................................3
TWO HOUSTON CENTER....................................................................................................................3
ENERGY GOALS, INCENTIVES, AND EMPLOYEE CULTURE ......................................................5
BACKGROUND...................................................................................................................................5
RECOMMENDED GOALS.....................................................................................................................5
ENERGY EFFICIENCY PROJECTS..................................................................................................9
UTILITY REBATES ..............................................................................................................................9
SETTING THE EXAMPLE .....................................................................................................................9
LIGHTING ........................................................................................................................................10
HVAC............................................................................................................................................13
OFFICE EQUIPMENT ........................................................................................................................15
VARIABLE FREQUENCY DRIVES........................................................................................................15
ENERGY MANAGEMENT SYSTEM ......................................................................................................15
SUMMARY OF ENERGY EFFICIENCY PROJECTS .................................................................................16
OPPORTUNITIES FOR SAVING BY CHANGING HABITS............................................................18
BARRIERS TO ENERGY EFFICIENCY ..........................................................................................19
OWNER-TENANT RELATIONSHIPS ....................................................................................................19
DIFFICULTY IN MEASUREMENT AND VERIFICATION ............................................................................19
PAYBACK PERIOD PHILOSOPHY .......................................................................................................20
OUT OF THE PUBLIC EYE .................................................................................................................20
CREATING AN ENERGY ROADMAP .............................................................................................21
CONCLUSIONS ...............................................................................................................................23
NOTE FROM THE AUTHOR............................................................................................................24

Financial Analysis Tools and Calculations………………………………………….enclosed CD-ROM

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Executive Summary
Overview
The Environmental Defense Fund Climate Corps Program places trained MBA interns into
companies to capture unrealized financial and environmental gains though the identification and
implementation of cost-effective energy efficiency improvements. Environmental Defense Fund is
partnering with Crescent Real Estate Equities to create an action plan for improving the energy
efficiency of Crescent’s holding at Two Houston Center. Some of the recommendations made in
this document can be extrapolated to other Crescent holdings.

Efforts to reduce energy consumption will not only lower costs, but will also bring positive
recognition to Crescent. Energy Star and LEED-EB certifications can increase rental rates and
building occupancies. The real estate industry is rapidly developing a “green” focus, and it is
important that Crescent take leadership on environmental issues to maintain a strong position in
the industry. This is especially true in downtown Houston, where competing firms, such as Hines,
have plans to construct new LEED buildings.

Analysis
The building’s recent energy bills were analyzed to establish a baseline of Two Houston Center’s
energy consumption. After reviewing trends in the data and information on the energy
consumption of comparable buildings, the intern and management team concluded that a 20%
reduction in annual energy use would be necessary to keep pace with the competition, and that this
reduction would be possible within 10 years. The analysis also determined that LEED-EB
certification was a realistic goal to incorporate into the energy plan for the building.

With this in mind, the intern and Two Houston Center management agreed that Crescent should
establish realistic (but challenging) long-term energy goals, including:

• Reduce energy consumption (in kWh/year) by 20% by the year 2018, using the average
annual energy consumption between 2003 and 2007 as a baseline.
• Apply for LEED-EB Operations and Maintenance certification by the end of 2012.
• Establish 2018 energy reduction goals and LEED-EB application submittal goals for the
remaining Houston Center buildings by May, 2009 (before the budget cycle begins).

These goals are important for the company because they will organize and prioritize investments to
the building. With constrained capital, having goals will ensure that efficiency investments are
given fair consideration amongst competing projects. Having and achieving goals will also give
credibility to Crescent’s “green” image. Crescent is planning a marketing campaign to highlight
environmental accomplishments, and forward-looking goals would enhance the message.

The intern reviewed energy-saving opportunities related to lighting, HVAC, and office equipment.
Because access to tenant areas is restricted, the analysis focused on building common areas.
Facility engineers and property mangers helped identify energy-saving actions. For each of the
potential energy-saving projects, an analysis was performed to determine the financial feasibility.

Results
While many of the potential no cost / low cost energy efficiency improvements have already been
implemented, there are significant savings available from projects requiring some capital
investment. The table below summarizes energy savings and paybacks associated with projects in
various categories. If all of these projects were implemented, total energy savings would be
2,722,871 kWh/year, representing an 11% reduction from the building’s average consumption. The
goal of reaching a 20% energy reduction will be obtainable because, in addition to the identified
11% savings, there will be reductions from: tenants switching to more efficient office equipment,

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engineers improving the building management system, maintenance employees sealing the
building envelope, and industry producing new and improved technologies over the next decade.

Energy CO2
Initial Annual Payback Savings Reduction
Investment Savings (years) (kWh/year) (tons/year)
Lighting $346,381 $111,198 3.1 736,308 523
Office Equipment $2,175 $4,059 0.5 25,558 18
HVAC $1,358,013 $283,023 4.8 1,820,152 1293
Other $773,036 $28,128 27.5 140,853 100
Total $2,479,604 $426,408 5.8 2,722,871 1935

Just by completing the projects identified in this document, Two Houston Center would save
$426,408 per year in electricity and maintenance costs. When Two Houston Center achieves the
goal of a 20% electricity reduction, it will save $738,000 per year in electricity costs alone!

Many of these projects have additional non-financial benefits that are not reflected in the numbers
above. For instance, the chiller replacements that are included under the “HVAC” line item not only
save energy, but are also required to meet the prerequisites for LEED-EB certification. The lighting
controls included in the “Lighting” line item are required to meet new building codes.

Barriers
While efficiency projects have the potential to offer great savings, there are several barriers that
may affect their implementation. Tenants may resist investing in their areas because they do not
directly pay their utility bill. Management may resist investing in the property without knowing
whether the property will be sold before the payback from the investment is realized.

A section titled “Barriers to Energy Efficiency” (page 19) discusses some ways to overcome these
barriers. Leases can be worded to promote owner-tenant co-operation, advocacy groups can be
formed to share ideas, and management can see energy efficiency as a stable investment.

Recommendations
In addition to the recommended goals above, an action plan is recommended to prioritize projects.
After weighting projects by payback period and initial investment, and after discussing priorities
with property management, the intern proposes the adoption of a timeline for achieving the goals.
This timeline should be re-visited often, and altered to meet the changing needs of the company.
VFD Installation
2008 Lights Out Houston
Parking Garage Lights
2009 Replace 1st Chiller 5%
LED Exit Signs
2010 Lobby Lighting Upgrade
Black =
Replace Escalators Payback
2011 Stairwell Occupancy Sensors analysis in this
Install Outside Air Economizer document
2012 Install Air Curtains & Seal Air Leaks
LEED Certification Gray =
Speculation of
2013 T12-T8 Retrofit 10%
future projects
Common Hall Lighting Controls
2014 CO Controllers on Garage Fans Purple =
Reduce Hours of Operation Milestone
All floors on DDC Controls
2015
Replace 2nd Chiller 15%
Implement Tenant Smart Metering
2016
Replace Oversized HVAC Fans
Motion Sensor HVAC for Shell
2017
Install High Efficiency Ballasts
Install New Solar Window Film
2018 20% Reduction Achieved

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Project Overview
Description of Project
Commercial real estate is a major contributor to worldwide electrical demand. The Houston
Center, though Energy Star certified as being in the top 25% of efficient buildings, used 24.7
million kilowatt hours in 2007. This consumption equates to 17,565 tons of carbon dioxide
released into the atmosphere over the course of a year, which is approximately the same as 2927
1
automobiles. With growing public awareness of the problems of global warming and greenhouse
gas (GHG) emissions, a wide range of new technologies and new regulations aimed to improve
energy efficiency have become available.

To demonstrate the environmental and financial benefits that the building sector could realize
from taking advantage of the latest technologies and policies, Environmental Defense Fund
(EDF) positioned a Climate Corps Intern with Crescent Real Estate Equities. The Environmental
Defense Fund Climate Corps Program places trained MBA interns into companies to capture
unrealized financial and environmental gains though the identification and implementation of cost-
effective energy efficiency improvements. The intern was located at the Houston Center, a
mixed-use urban real estate development located in downtown Houston. The complex consists
of 4.5 million square feet of Class A office space, a retail shopping mall, the Four Seasons hotel,
and six parking garages. A map of the facility is shown in Figure 1, below.

The goals of the project were to identify projects that reduce energy consumption at the Houston
Center and to calculate the financial paybacks associated with these projects. After quantifying
costs and benefits, the goal is to prioritize projects to create an implementation plan. In addition
to looking at specific efficiency projects, the internship also allows the intern to make
recommendations for improving Crescent’s energy goals and creating an energy-efficient culture.

Figure 1: Map of Houston Center in downtown Houston, TX.

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Project Scope

Projects related to lighting, HVAC (heating, ventilation, and air conditioning), and office equipment
were considered. There was not sufficient time during the internship to engage a study of the
energy management system or water heating, but these are seen as an additional opportunity
area which should be looked into in more detail.

Due to the large size of the Houston Center, the focus of the project was limited primarily to Two
Houston Center, one of the oldest and least efficient buildings in the complex. A few of the
recommendations in this document can be leveraged to other buildings.

For security reasons, tenant areas were off-limits for inspection by the intern. As a result, the
focus of the project was on building common areas, such as lobbies and restrooms, and shared
systems, such as HVAC. Some recommendations about tenant-area lighting were made based
upon data collected from building engineers and property managers.

Areas which were not able to be reviewed during this project time-period are shown in Figure 2.
Out-of scope areas should be reviewed in the future to identify additional energy saving
opportunities.

Figure 2: Project scope included in the primary analysis.

Buildings Energy Consumption Source

In-Scope Two Houston Center HVAC

Lighting
Office Equipment

Out-of-Scope Shops at Houston Center Energy Management System

(Opportunity to One Houston Center Water Heating
explore additional Four Houston Center
savings) Fulbright Tower

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Background
Greening of the Commercial Real Estate Industry

A great deal of momentum has been building in the real estate industry around “going green.”
The two most recognized industry standards for green buildings are Energy Star, which is a
designation given to buildings in the top 25% of energy efficiency, and LEED (Leadership in
Energy and Environmental Design), which is a certification for buildings meeting the strict
requirements of the U.S. Green Building Council. LEED is not limited to new buildings, as
existing buildings can apply for LEED-EB certification. Buildings with LEED certification are often
able to command a premium on rent, making the building more valuable than their less-green
counterparts. A recent study by CoStar Group indicated that LEED rental premiums averaged
$11.24 per square foot over non-LEED buildings, and that the LEED buildings averaged 3.6%
2
higher occupancy.

For buildings that are older, not LEED certified, or not Energy Star rated, there may be significant
improvements that can be made through changes to equipment and operating procedures. With
newer technologies so much more efficient, and with energy prices high and rising, many
investments in new technology can pay for themselves in energy saving over just a few years.
Additionally, an increasing public awareness of a need for energy efficiency had lead to
regulations providing financial incentives for upgrading facilities. Utility rebates and tax incentives
may be available for projects that reduce overall energy consumption.

As is common in the real estate industry, Crescent desires a payback of less than two years for
energy efficiency projects. In real estate there is always the possibility that a property will sell,
and, as a result, companies do not want to put money into in properties that may sell before the
investment payback is realized. While this is an understandable dilemma, there are several
things that make a payback analysis insufficient for evaluating efficiency projects:

• The hold period for most buildings is actually longer than two years. Property managers
need to better information on building hold periods in order to accurately determine the
correct payback period.
• Payback periods ignore benefits from holding the property longer than the payback
period. Efficiency projects are steady paybacks over time with little to no risk, much like a
bond investment.
• Costs of many efficiency investments would be recovered through an increased sale
price in the event a building sells. In this case, the payback period is irrelevant.

For these reasons, Environmental Defense Fund encourages land owners to treat efficiency
projects as long-term investments. They should be evaluated based upon return on investment
(ROI) and net present value (NPV) rather than payback. To provide proper comparison, ROI and
NPV at a 10% discount rate are usually shown with the payback in this document. This is
discussed in more detail on page 20, “Payback Period Philosophy.”

Two Houston Center

The focus of the project is on Two Houston Center, an office tower completed in 1974. The
building contains 40 stories of Class A office space with a net rentable area of 1,024,956 square
feet. It has a six level parking garage with enough spaces for approximately 495 cars.

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The building is well maintained and is Energy Star certified. Crescent would like to see the
building become LEED-EB certified, but does not yet have a timetable for making this happen.

The building has made improvements in lighting efficiency. Engineers have upgraded almost all
incandescent light fixtures to compact fluorescents, and have changed out about 55% of T12
fluorescents to more efficient T8 fluorescents and ballasts.

The HVAC system contains the original chillers that were installed in 1974, so there is significant
room for improvement if management is willing to make capital expenditures to improve the
system. In November, 2004, the public utility was brought in to perform a retro-commissioning
study on the HVAC system. They recommended changes to the start and stop settings and the
chilled water temperature set points which would save an estimated $17,387/year. These
changes were implemented prior to the EDF Climate Corps project.

Overall the energy consumption at Two Houston Center is heavily cyclical, peaking when HVAC
load are highest during the summer. Figure 3, below, shows monthly data for the past five years
of energy consumption. A regression of the data shows a downward trend in energy
consumption due to ongoing energy conservation activities. The data was also used to create a
model of expected energy consumption for each month, both past and future. This information
can be used to asses the effectiveness of future energy conservation initiatives and to track
monthly progress.

Figure 3: Monthly energy consumption per occupied square foot at Two Houston Center.

Monthly Energy Consumption of Two Houston Center

2.800
Energy Consumption per Occupied

Actual Consumption
2.600
Square Foot (kWh/OSF)

Expected Consumption
2.400

2.200

2.000

1.800
Trend
1.600

1.400
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Energy Goals, Incentives, and Employee Culture
Background

Management personnel at the Houston Center are aware of energy savings opportunities, and
are eager to make changes that improve both the environment and the bottom line. Building
engineers take pride in their Energy Star ratings, and show a desire to improve building efficiency
further. Crescent management has taken a leadership role in the Houston community when it
comes to energy efficiency by organizing a city-wide “Lights Out Houston” event and pushing for
downtown Houston to become “incandescent free.” Because of the size of the Houston Center,
Crescent has significant influence with other local property management companies, and is
actively seeking to use this influence to make Houston a leader in energy efficiency.

As a corporation, Crescent has a goal of having all of their buildings certified as Energy Star.
This is a good start, but since Energy Star represents the top 25% of buildings in the U.S., this
will be a moving target as other buildings make efficiency improvements and newer buildings
come on-line. Facility engineers are compensated based upon energy reduction goals, which are
usually based upon a percentage reduction from the average of the past three years of utility
data. Again, this is an excellent way to establish energy efficiency as a priority. However, the
reduction goals would be more meaningful if they came from a realistic, but aggressive, analysis
of where the building needs to be in the future, instead of an arbitrary 1% reduction each year.
Also, unless property managers are held to the same energy goals as the facility engineers, the
engineers may not be able to get approval for all of the energy efficiency projects they want to
implement.

Establishing clear long term energy goals will ensure important energy efficiency projects are will
not be pushed aside in favor of short term building improvements. Without financial incentives for
property managers, energy efficiency projects end up competing against cosmetic renovations
and other projects for financing. This becomes a problem when there is a limited amount of
capital to go around.

For instance, suppose that the building could benefit from a new chiller, which would significantly
reduce energy consumption, and that the building could also benefit from installing new carpet
because one of the tenants has commented that they think it is ugly. There is only enough
money to do one of the projects. Since the energy-efficiency project will not be accepted unless it
provides a two-year return, and the carpet is not required to provide any measurable return, this
is often not a fair comparison. The carpet may be selected simply because the chiller does not
offer the desired payback. Long-term goals can help balance this by providing a reason to look at
the big picture surrounding the chiller instead of focusing entirely on the two-year payback
window.

Recommended Goals

In order create a comprehensive energy plan for Two Houston Center, it is important to take a
long-term outlook. There is not enough capital available to undertake all energy efficiency
projects at once, so Crescent must first establish realistic but challenging long-term goals, and
then prioritize projects to create a roadmap for achieving these goals. The two primary goals
should 1) establish an energy reduction target for the building, and 2) establish a target date for
achieving LEED certification. Finally, the goals for Two Houston Center should be used as an
example for creating energy goals for other Houston Center buildings and creating a set of
Crescent corporate energy reduction goals.

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The following recommended goals came from a thorough analysis of Two Houston Center’s
current energy consumption and operational practices:

• Reduce energy consumption (in kWh/year) by 20% by the year 2018, using the average
annual energy consumption between 2003 and 2007 as a baseline.
• Submit application for LEED-EB Operations and Maintenance certification by the end of
2012.
• Establish 2018 energy reduction goals and LEED-EB application submittal goals for the
remaining Houston Center buildings by May, 2009

2018 Energy Reduction Goal: The reduction goal of 20% by 2018 was determined by looking at
the energy reduction trends over the past few years, comparing Two Houston Center to
neighboring buildings, and considering the progress that could be made by implementing
efficiency projects that are identified in this report.

Figure 4, below, shows actual annual energy consumption per square foot for Two Houston
Center from 2003 to 2007. It also shows the average annual energy consumption over this time
period, the trend in the data, and the levels that represent 10%, 15%, and 20% reductions from
the baseline average. The graph suggests that simply maintaining the same downward trend
through consistent piecemeal energy reduction efforts could reduce energy consumption by about
12% by 2018.

Figure 4: Downward trend in energy consumption per square foot at Two Houston Center.

Annual Energy Intensity

Annual Energy Consumption kWh/SF

26.00
Actual Consumption
Average Consumption (2003-2007)
24.00
Trend (2003-2007)

22.00 10% Reduction

15% Reduction
20.00
20% Reduction

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Note that while there was an increase in energy consumption in 2007, this can be explained
through several factors: 1) the occupancy of the building was higher than average 2) the outside
temperature was one of the hottest on record, increasing the load on the HVAC system, and 3)
additional HVAC was required for several floors due to a tenant with a 24-hour energy trading

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operation. The first two are anomalies, and the third problem will have less impact once the
building installs a new chiller that can run at lower capacity to avoid false-loading multiple floors.

To get a better picture of what energy consumption levels are possible for an office tower in
downtown Houston, Figure 5 overlays the energy consumption of several neighboring buildings
on top of the previous figure. The sample of buildings includes four office towers selected from
the Energy Star website that are of similar size and age to Two Houston Center, and includes
One Houston Center and Fulbright Tower from the Crescent Real Estate portfolio. This figure
allows us to see that the most efficient buildings in the marketplace consume 20-25% less energy
than Two Houston Center.

Figure 5: Two Houston Center energy consumption compared to surrounding buildings.

Annual Energy Intensity of Comparable Buildings

Annual Energy Consumption kWh/SF

26.00

Two Houston Center Average (2003-2007) = 24.0 kWh/SF

24.00
700 Louisiana, Bank of America = 22.83 kWh/SF
One Houston Center = 22.46 kWh/SF
22.00

1100 Louisiana = 20.86 kWh/SF

3040 Post Oak = 20.5 kWh/SF
20.00

Fulbright Tower = 18.9 kWh/SF

18.00 600 Travis, JPMorgan Chase = 17.8 kWh/SF

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The combined knowledge that current reduction trends put Two Houston Center on pace to
achieve 12% reduction by 2018, and that comparable buildings have been able to operate 20-
25% more efficiently than Two Houston center allows us to establish a 20% reduction by 2018 as
a reasonable, yet challenging, goal. This goal is also supported by the savings that could be
achieved by implementing the projects identified in this document. If all of the projects mentioned
in subsequent section of this documented are implemented, an 11% reduction in energy
consumption would result. The remaining 9% should be possible by identifying new projects,
encouraging an energy-efficient culture, bringing all floors into the building management system
with DDC controls, and utilizing more efficient technologies that become available over the next
decade. Much of Houston Center energy consumption is from tenant office equipment. As
tenants upgrade to more efficient equipment, total energy consumption will fall.

The next graph, Figure 6, shows the same figure from above, with the percent reductions
replaced by the corresponding annual savings. A 20% reduction in energy consumption would
result in annual savings of $738,000 per year at current energy prices. This is a powerful
incentive for reaching these targets.

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Figure 6: Dollar savings from reducing energy consumption, at $0.15/kWh.

Annual Savings from Energy Reductions

Annual Energy Consumption kWh/SF

26.00

Two Houston Center Average (2003-2007)

24.00

22.00 10% Reduction = $369,000/year

20% Reduction = $553,000/year

20.00
30% Reduction = $738,000/year

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LEED-EB Application Submittal by 2012: LEED certification is highly desirable because it can
increase building resale value, increase rental income, and increase occupancy. A preliminary
evaluation of 2 Houston Center with the help of Kris Zimmerman, a LEED accredited
professional, indicated that the two most difficult prerequisites for Two Houston Center to meet
involve ozone management and water consumption. The ozone management criteria could be
met by installing a new chiller, which is also need to meet the 20% energy reduction goal. The
water management prerequisite can be met by installing low-flow plumbing fixtures throughout
the building.

If capital is available, the chiller upgrade and low-flow fixture installation could be completed
within three years. This leaves another year to carry out other LEED-related projects before the
application would need to be submitted to meet the goal of LEED-EB certification by the end of
year 2012.

Goals for Every Houston Center Building: In order to make the biggest environmental impact
and the most cost savings, each building within the Houston Center should establish similar long
term goals. It is important to do this early in the year so that energy-saving projects can be
incorporated into the budget cycle. For this reason, energy goals and an energy-reduction
timeline for the remaining buildings should be established by May 2009.

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Energy Efficiency Projects

This section details how savings can be achieved by implementing specific efficiency projects.
Calculations for the savings and paybacks discussed in this section can be found the Excel
document “Climate Corps Financial Analysis Tool_Crescent2008.xls,” unless otherwise noted.

Utility Rebates

Projects with a demand reduction of 20 kW or greater, at peak hours, are eligible for rebates from
CenterPoint Energy. Rebate applications for projects to be completed in 2009 may be submitted
nd
starting November 2 , and are awarded on a first-come first-serve basis. There is an
th
informational meeting on the rebate program on October 20 , 2008, at the Sugar Creek Country
Club, in Sugar Land, TX. For more information visit http://www.centerpointcisop.com or contact
David Dzierski at CenterPoint (713-207-3341).

Setting the Example

In order to credibly ask tenants to make energy-efficient choices, it is imperative that Crescent
utilize the energy-efficient solutions in their own office space. The Crescent management office
in Suite 100 has several opportunities to reduce energy consumption, including replacing T12
lamps and ballasts, replacing non- Energy Star office equipment, reducing the number of printers
in service, and activating power management software for computers and monitors.

Crescent has been asking tenants to replace T12 lighting with new T8 lamps and ballasts, but
have not yet completed this change in their own office suite. Replacing the lamps and ballasts
would cost approximately $2160, and would save $530 per year, providing a payback of 4.08
years. Even though this payback is longer than two years, this investment is very important for
the message it sends to tenants.

Occupancy sensors have already been installed in offices and conference rooms. Additional
saving could be had by installing an occupancy sensor in the kitchen. For a cost of only about
$60, this sensor would save another $24 per year, which would payback the investment in 2.52
years. It may seem small, but this is a noticeable item to customers.

Crescent’s copy machines are Energy Star certified, which is an excellent step in reducing energy
costs. Crescent should ensure that all future purchases of laptops, monitors, and desktop
printers are Energy Star equipment. If all existing computers, monitors, and printers were Energy
Star then Crescent would be saving $450 per year in utility bills.

Each employee is given their own desktop printer. Each of these printers consumes about $120
in energy costs annually. There are two community printers available for employees to use.
Eliminating the 15 desktop printers would save $1800 per year, which is almost enough savings
in the first year to pay for the T8 lighting retrofit. In addition to reducing energy costs, employees
who do not have their own printer are less likely to print unnecessary documents, reducing the
amount of paper that is wasted and the number of ink cartridges that are used.

When employees leave in the evenings, many of the computers stay on overnight. According to
Ted Brockus, the head of IT at Crescent, it is company policy that all employees are supposed to
turn off their own computers when they leave. The IT department has disabled Windows power
management controls that would allow a user to have their computer hibernate or sleep after a
period of inactivity, because the IT department claims that they get too many complaints from
people who have their computers crash while in hibernation. While there may have been some
complaints, this seems like a poor excuse for disabling software that many companies are able to

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use successfully. A brief survey of computers at the Crescent offices at Two Houston Center
indicated that only 30% of computers were turned off at night. If each of these computers were
turned off or hibernating at night, the energy savings at Two Houston center would be $765 per
year. If the same ratio of computers is left on by all Crescent employees in the United States, the
total energy savings to Crescent for implementing power management software would be
$15,294 per year (assuming 300 Crescent employees).

There are several ways to activate power management settings. The settings in Windows XP
could be activated at no cost. For additional savings, there are centralized power management
software programs, such as EPA’s EZ Save or Verdiem SURVEYOR, allows central control to
override an individual users power management settings. These programs are available for free
or at a minimal cost. By allowing IT administrators to lower the power state of the computer at
night or to power computers on for software upgrades, the software give administrators greater
control over the machines they are expected to manage.

Lighting

Projects involving lighting are often able to provide energy savings that are significant and easy to
quantify. The Houston Center has made significant progress in converting to energy-efficient
lighting, but there are still areas that are not as efficient as they could be. The best lighting
projects will reduce the number of light fixtures required to light an area, reduce the amount of
time that existing lighting is turned on, or replace existing fixtures with more efficient lamps and
ballasts. Two Houston Center offers several opportunities for each of these types of projects.

Remove unnecessary lighting: The easiest way to make a measurable energy reduction is to
simply remove lighting that is not needed. For instance, the Two Houston Center parking garage
is exceptionally well-lit. The garage has many locations that have lighting levels greater than 20
footcandles (FC). The recommended average lighting levels for parking garages are only 0.5 to
3
2.0 FC in standard areas, 1.0 to 6.0 FC on ramps, and 25.0 to 50.0 FC at entrances. A lighting
consultant from Bos Lighting Design was brought in to map the garage and show where lighting
fixtures could be removed. At the time of writing this report, the consultant had not yet completed
the survey, but my own estimates are that a total of 350 light fixtures could safely be removed
from the garage. The total labor cost of the project is $28,300, assuming that an electrical
contractor will be performing all of the work. The utility company offers a rebate for projects that
create a reduction of greater than 20 kW at peak hours, and this project reduced demand by 20.3
kW. With the rebate of $9,225 and an annual savings of $26,601, the project had a payback of
0.7 years.

Because the lighting survey is not yet complete, and there is uncertainty about the exact number
of fixtures that can be removed, a sensitivity analysis is included in the file “Parking Garage
Scenarios.xls.” This file shows paybacks for various levels of delamping and for both in-house
and contract labor.

Other areas where energy could be saved by reducing lighting levels include the Two Houston
Center central plant, taxi lane, and loading dock. Crescent has responded that these areas are
kept very well-lit for safety and security reasons.

Reduce the time lights are on: Many of the lights in the Houston Center are already on timers
or tied into the existing energy management system. In this case, it is recommended that an
audit of the timers is conducted to ensure that all lights are turning on and off at the appropriate
times. For instance, it was noticed that the outdoor balcony lights had inadvertently been
switched to the wrong schedule and were coming on during the day instead of at night.
Correcting this schedule not only allowed for safer lighting at night, but also is projected to save
$420 per year in energy costs. Another example involves overhead lights in the lobby. The lights

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on the P3 level on the elevator side turn off at 10:00 p.m., while other lights in the area are off at
8:00pm. By setting all lights to go off at 8:00 p.m., there is an energy savings of $57 per year. A
thorough audit would likely identify other opportunities. These changes have no cost except the
time of the engineers conducting the audit.

There are also cases where lights are not on timers or sensors, but could be. For example,
stairway lighting is on around the clock every day in order to meet safety code requirements.
4
Stairways, however, are rarely occupied more than 5% of the time (1.2 hours per day). New
light fixtures by OccuSmart (www.occusmart.com) are available with motion sensors that can tell
if someone is in the stairwell. When the stairway is occupied the lights are turned on, but when
the stairway is empty, the special ballast reduces the lighting to 13 watts, enough to have
emergency lighting, but much less of an energy drain. Two Houston Center has two main
stairways, with an estimated 160 two-lamp lighting fixtures. Replacing the 58 watt light fixtures in
the stairs with OccuSmart lighting would cost $55,139. This project reduces installed kW by 8.9
kW, which does not meet the 20 kW reduction required for CenterPoint utility rebates. However
combining this project with other energy reduction projects would allow it to qualify for rebates.
Annual savings from the lighting change would be $11,711, for a simple payback of 4.7 years
(NPV = $11,711 and ROI =21.2%).

Replace old fixtures with more efficient models: Engineers at Two Houston Center have
made a great deal of progress replacing incandescent light bulbs with compact fluorescents
(CFLs) and replacing T12 fluorescents with T8s. Now it is important that this transition be
completed quickly.

In order to track down any remaining incandescents in the building, management agreed to have
scavenger hunt where the winning person who found the most incandescent bulbs and turned in
work orders to have them replaced with CFLs was awarded with a $100 gas card. The
scavenger hunt resulted in the replacement of 57 incandescents, and a savings of $1873 per
year. It is believed that the only remaining incandescent bulbs are in hard to reach locations, or
remain at the special request of a tenant.

The conversion from T12 to T8 linear fluorescents has been slowed because many tenants have
been reluctant to pay for lighting changes that do not directly offer them energy savings.
Currently, 45% of the building still uses T12 lamps. Tenants in the building are not individually
metered for their utility usage, but rather are billed based upon the total building energy
consumption prorated by the number of square feet the tenant occupies. This conflict of interest
is discussed further in the section “Barriers to Energy Efficiency” on page 19. In order to help the
property management persuade tenants who did not want to change to T8s, a set of marketing
materials was developed to emphasize the non-financial benefits of converting to energy efficient
lighting. These materials are available in the file “Marketing Campaign Flyers.pub.” Replacing all
T12 fixtures with T8 lamps and ballasts is estimated to cost $138,600. The project would be
eligible for $14,585 in CenterPoint utility rebates, and would save $30,043 per year. The payback
on investment in this case would be 4.6 years (NPV = $45,999 and ROI = 21.7%).

Consider efficiency during renovations: As the building undergoes future renovations and
upgrades, it is imperative that energy efficiency be given consideration. For instance, in order to
comply with building codes the ceiling of the two Houston Center lobby must be retrofitted with a
sprinkler system. The height and design of the ceiling will require significant amounts of
scaffolding to be put in place and large sections of the ceiling to be opened. This would be an
ideal time to also upgrade the lobby lighting system.

The current lighting is a series of recessed can lights, some of which contain CFL bulbs and
others that are high-intensity sodium. Replacing this lighting system with a new architectural
design featuring efficient lighting could offer significant long term savings. Potential for savings
can be seen by comparing the cost of maintaining lighting in the Two Houston Center Lobby to
the cost of maintaining the lighting in the lobby of neighboring Fulbright Tower. The comparison

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can be seen in Figure 7, below. Fulbright has a new design and several custom fixtures, which
makes the replacement cost higher for some fixtures higher, but the energy savings from the
advanced lighting design make the overall design more energy efficient and more cost effective.
Considering that old light fixtures also make the building look dated, this is an opportunity to make
architectural improvements that could enhance the re-sale value of the building, as well.

Figure 7: Comparison of Two Houston Center lighting costs to a modern design, such as
Fulbright Tower. Numbers have been adjusted to account for differences in square
footage.

Estimated Energy Total Annual

Consumption Cost of Cost of Operational
(kWh) Energy Maintenance Cost
Two Houston
Center 179,425 $26,914 $7,867 $34,781
Fulbright Tower
(Scaled to 2HC
square footage) 113,399 $19,449 $11,600 $31,049
Savings 66,026 $7,465 ($3,733) $3,732

Replace Escalator Lights with LED: Renovations have already commenced on three of the
Two Houston Center escalators in the lower lobby. New escalators are desired because the
thirty-year old existing escalators are becoming a maintenance hassle, but the replacements will
also demonstrate significant energy savings. The new escalators have handrails with efficient
LED lighting that replaces the old T12 lighting. Replacing the T12 bulbs in the three bottom
escalators with LED lighting, will save $3,027 per year in energy costs. If the T12 lighting is
replaced on all ten of the Two Houston Center escalators, the total annual energy savings would
be $9,467.

Figure 8: Photographs of old escalator lights with T12 lighting. Efficient LED
replacements are available for these lights.

The new escalators are also able to take advantage of new technologies such as high efficiency
planetary gears and eco-start / soft-start load management devices that save energy in constant
speed, variable load motors. Case studies on the soft-starts have shown energy savings of about
5
40% from this feature alone. Energy savings of this magnitude on the Two Houston Center
escalators would result in annual energy savings of approximately $5,880 ($588 per escalator).
Combined with the savings on handrail lighting, renovations of all escalators would save over
$15,000 per year! This is an excellent benefit in addition to the maintenance savings, and should
be considered when deciding whether to replace the seven remaining old escalators.

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HVAC

Upgrades to the building HVAC system will require significant invested capital, but this area
represents the single largest opportunity for advances in energy efficiency. Upgrading even one
chiller would make a significant dent in energy consumption, and replacing two chillers would
position the building well for meeting LEED-EB prerequisites. Other considerations for the HVAC
system include looking into improvements to the building envelope to reduce the amount of air
conditioning that escapes to the outside.

Chiller Replacement: The cooling system at Two Houston Center consists of three chillers, as
shown in Figure 9. The chillers are original to the building, making them over thirty years old.

Figure 9: Two Houston Center cooling water schematic, from a 2004 report by CenterPoint
Energy’s Commercial and Industrial Retro-Commissioning Program.

The age of the chillers makes them much less efficient and less reliable than currently available
models. Both engineering and management are aware that the chillers need to be replaced and
are currently working to determine when to make the investment and how much capital they want
to spend. With the help of TMD Engineering and Houston Center facilities engineers, we were
able to develop payback calculations for installing new chillers. Yearly energy savings are
extracted from a report by TMD Engineering. Options are summarized in Figure 10, below, and
include: no action at this time, investing in one new chiller, or investing in two new chillers.
Replacing two chillers at the earliest opportunity is the best way for Crescent to realize rapid

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results on energy conservation, but management does not feel they will be able to gain access to
enough capital for both chillers this year.

Figure 10: Cost comparison of replacing the first chiller, replacing the second chiller, and
replacing both at the same time.

HVAC SYSTEMS
Install 1st New Chiller Financial Summary
Upfront Capital Investment $320,120 Net Investment $709,404
Available Rebates $102,841 NPV $727,369
Yearly Energy Savings (kWh) 1,078,419 Annual Savings $168,763
Labor for Installation ($) $492,125 Payback Period 4.2

Install 2nd New Chiller Financial Summary

Upfront Capital Investment $320,120 Net Investment $648,609
Available Rebates $70,734 NPV $356,258
Yearly Energy Savings (kWh) 741,733 Annual Savings $114,260
Labor for Installation ($) $399,222 Payback Period 5.4

Alternative: Install two new chillers at

same time Financial Summary
Additional Upfront Capital Investment $640,240 Net Investment $1,080,853
Available Rebates $173,575 NPV $1,328,679
Yearly Energy Savings (kWh) 1,820,152 Annual Savings $283,023
Labor for Installation ($) $614,188 Payback Period 3.8

The recommendation to purchase two chillers now is not only based upon the favorable payback
period, but also takes into account the following key considerations:

Environmental Impact:
• Current chillers use CFC-based refrigerants, which are known to deplete the ozone layer.
• LEED-EB Energy & Atmosphere Prerequisite #3 has to do with refrigerant management. In
order to qualify for LEED, there must be a plan to replace all CFC-based chillers unless the
payback is greater than 10 years. Crescent would need a plan to replace two chillers to meet
the LEED prerequisite, which is the first step toward achieving the increased property values
associated with LEED certification. Prerequisites are different from LEED points… a building
cannot be LEED certified without meeting all LEED prerequisites.
• Efficiency of the new designs would result in 766 fewer tons of carbon dioxide per year
released into the atmosphere for each chiller that is upgraded. That is the equivalent of 127
cars removed from the road for each chiller that is replaced.

Maintenance Savings:
• The current chillers are old and likely to fail. New chillers would have greater reliability and
would be covered under warranty.

Financial Advantages:
• When considering whether to replace a second chiller, it is not adequate to say that there are
no costs associated with delaying the second chiller purchase until later. Delaying the
purchase would add cost by eliminating construction efficiencies. Also, labor costs have
been rapidly rising as much as 20% per year.
• The selling value of the property may absorb the costs of the chiller replacements, because
anyone interested in purchasing the building with old chillers would negotiate a lower sale
price to accommodate the needed replacement. Even if the building were to sell, Crescent

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 would be better off to realize the energy savings while they own it, and then sell for a value
that is higher because of the new chillers.

Building Envelope Upgrade: The efficiency of the HVAC system could also be improved by
taking more effort to seal the building envelope. A significant amount of AC is able to escape
through the front doors. Replacing the broken revolving door and installing air curtains above the
existing doors are some potential solutions. Doors to the plaza patio and pond area are in need
of new weather stripping to ensure they seal properly. Properly maintaining the building envelope
can reduce demands on the cooling system, and may reduce the number of times that an extra
chiller needs to be turned on to manage the load.

Office Equipment

As mentioned in the section “Setting the Example” on page 9, there are several opportunities for
Crescent to improve the energy efficiency of their own office space. These energy opportunities
are magnified many times if they could be extended to the spaces occupied by tenants. If only
75% of tenants are currently using Energy Star appliances, the savings that could be realized
from having the last 25% convert to Energy Star equipment would be significant. Assume 10
floors (25% of building) do not purchase Energy Star equipment, and that each floor has 2
copiers, 40 PCs, and 40 monitors. Simply switching these floors to Energy Star equipment would
save $12,420 per year. Similarly, getting 25% of the building to activate power management
software to their computers would mean savings of $20,329 per year. It is difficult to tell tenants
how to manage their own equipment, but having the appropriate marketing tools and an energy-
efficient Crescent office would give more credibility to the efforts. Sample marketing materials
can be found in the file “Marketing Campaign Flyers.pub,” and more discussion of breaking down
barriers with tenants can be found in Barriers to Energy Efficiency on page 19.

Variable Frequency Drives

Crescent is currently installing variable frequency drives (VFDs) for cooling tower fans and
domestic water pumps. The new VFDs should create energy savings by allowing motors to run
at a lower frequency when there is lower demand on the system. The total cost of replacing 3
pump VFDs and 5 fan VFDs is $109,000 ($90,000 equipment and $19,000 to tie it into the EMS).

While it is difficult to ascertain the exact savings from a complex system such as domestic water
delivery, there are tools on the ABB website (PumpSave and FanSave) that allow a user to
simulate savings from VFD installation. Using these tools, the intern estimated the savings from
installing each pump VFD as 13,076 kWh/year and the savings from each fan VFD as 15,957
kWh/year. The calculations are available in the files “PumpVFD.xls” and “FanVFD.xls.” This is a
rough estimate, because there is no recorded data on what percentage of the time the equipment
is operating. The savings indicated by the ABB tools correspond to a savings of $19,852 per
year, which would pay for the investment in 5.5 years (NPV = $60,011, ROI = 18.2%).

Energy Management System

The existing energy management system (EMS) offers the ability to control HVAC and lighting
throughout the building from a central point in the control room. The capability of the EMS
system is not able to be fully utilized because most floors are still using old pneumatic controls for
air handlers and temperature control. Floors that have switched to direct digital controls (DDC)

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are easier to operate, require less maintenance, and require fewer house calls. In several
interviews, personnel mentioned that currently there is one person dedicated to making house
calls most of the day every day. Only floors 6, 15, 16, 20, 21, and 27 have made this conversion.
Upgrading to DDC controls on other floors could reduce labor costs by reducing house calls, and
could reduce energy costs by allowing greater control of building systems. Instead of controlling
temperature based on two thermostats per floor, operators would be able to see multiple
temperature readings across the floor and would be able to adjust the air handler accordingly.
Time did not permit a study to quantify the costs and benefits of this project.

Summary of Energy Efficiency Projects

Energy savings from projects discussed in this document are summarized in Figure 11. The total
expected reduction in energy consumption from executing these projects is 11.1%. As a result,
approximately 1935 tons of CO2 will not be emitted into the atmosphere (based on ERCOT 1.421
lbs-CO2/kWh multiplied by 2,722,871 kWh). This is the rough equivalent of removing 332 cars
from the road (based on EPA average vehicle emissions of 12,100 lb CO2/year).

Figure 11: Energy savings summary of efficiency investments.

Kilowatt Hours per Year (kWh)
Estimated
Savings from New Energy
Current Usage Investments Usage Savings
Lighting 6,403,930 736,308 5,667,622 11.5%
Office Equipment 5,172,405 25,558 5,146,847 0.5%
HVAC 11,330,030 1,820,152 9,509,878 16.1%
Other 1,724,135 140,853 1,583,282 8.2%
Total 24,630,500 2,722,871 21,907,629 11.1%

Project by Project Energy Savings

Lighting kWh tons CO2
Delamping Garage 177,341 126.0
Replace Ecalator Lighting 62,061 44.1
Stairwell Lighting Retrofit 78,072 55.5
T12 -> T8 Retrofit 193,284 137.3
Incandescent -> CFL Retrofit 11,915 8.5
Exit Signs 82,992 59.0
Lobby Lighting Rennovations 66,025 46.9
Lights Out Houston Initiative 60,225 42.8
Dimmers & Lighting Sensors 4,393 3.1
Total Lighting 736,308 523.1

Office Equipment
PC & Monitor Management 5,098 3.6
non-Energy Star Equipment 3,000 2.1
Remove Desktop Printers 17,460 12.4
Total Office Equipment 25,558 18.2

HVAC
Replace 1st Chiller 1,078,419 766.2
Replace 2nd Chiller 741,733 527.0
Total HVAC 1,820,152 1293.2

Other
Upgrade Escalators 21,840 15.5
Install VFDs 119,013 84.6
Total Other 140,853 100.1

Total Energy Projects 2,722,871 1934.6

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Financial savings from the projects are summarized in Figure 12. The expected payback from
completing all of the listed projects is 5.8 years (ROI = 17.2%) with annual savings of $426,408.
The payback is distorted by the inclusion of the escalator replacements and adding sensors and
dimmers (lighting controls), which are negative NPV projects that management plans to complete
for maintenance and building code purposes. Removing these two line items gives a total
payback of 4.3 years (ROI = 23.0%).

Figure 12: Financial summary of efficiency investments.

$Dollars, Pre-Tax
Initial
NPV 10% Investment
Discount (Capital & Annual Payback
Investment Rate Labor) Savings (Years)
Lighting
Delamping Garage $144,378 $19,075 $26,601 0.7
LED Escalator Lights $23,800 $37,600 $9,467 3.6
Stairwell Lighting Retrofit $16,819 $55,139 $11,711 4.7
T12 -> T8 Retrofit $45,999 $138,600 $30,043 4.6
Incandescent -> CFL Retrofit $11,222 $285 $1,873 0.2
Exit Signs $43,491 $40,683 $13,699 3.0
Lobby Lighting Rennovations N/A N/A $3,732 N/A
Lights Out Houston Initiative N/A N/A $9,034 N/A
Sensors and Dimmers ($6,377) $55,000 $5,039 10.9
Total Lighting $279,331 $346,381 $111,198 3.1

Office Equipment
PC & Monitor Management $724 $2,175 $765 2.8
Non-Energy Star Equipment $1,706 $0 $450 N/A
Remove Desktop Printers $17,475 $0 $2,844 -
Total Office Equipment $19,905 $2,175 $4,059 0.5

HVAC
Install 1st Chiller $727,369 $709,404 $168,763 4.2
Install 2nd Chiller $356,258 $648,609 $114,260 5.4
Total HVAC $1,083,627 $1,358,013 $283,023 4.8

Other
Upgrade escalators ($582,394) $664,036 $8,276 80.2
Install VFDs $60,011 $109,000 $19,852 5.5
Total Other ($522,383) $773,036 $28,128 27.5

Total $860,480 $2,479,604 $426,408 5.8

In addition to projects discussed in this document, additional energy savings can be realized by
completing the following projects:
• Install low-flow water fixtures
• Install an outside air economizer for HVAC intake
• Install carbon monoxide detectors for parking garage fans
• Seal the building envelope and install air curtains or revolving doors at main entrance
• Implement smart metering for tenants to monitor consumption by floor
• Continue to install DDC controls to give EMS more control capability
• Consider reducing hours of operation for lighting and HVAC in shared spaces

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Opportunities for Saving by Changing Habits
In addition to saving energy by installing new technologies, it may be possible to achieve
significant energy reductions by changing the habits of tenants and building personnel. Getting
people to take responsibility for turning off lights and office equipment that are not in use can go a
long way toward adding up to real dollar savings.

A great example of changing habits came from Crescent’s involvement in sponsoring “Lights Out
Houston.” This city-wide initiative aims at getting businesses to develop operating procedures to
ensure that non-essential lighting is turned off when personnel are not present. The initial
weekend-long event saved about $55,000 (495,000 kWh) for the 104.8 million square feet of real
6
estate that participated. Since Two Houston Center is approximately 1% of the square feet
participating, we can make a rough approximation that approximately 495 kWh saved for the
weekend at the building. This savings would be about 60,225 kWh if continued over the whole
year ($9034).

In order to sustain these efforts, operations procedures have been developed to ensure lights are
turned off. Security guards survey the building each night at 11:00pm (after housekeeping is
finished), and take note of areas that are lit. They then turn off lights where they are on, but no
one is working and report where lights are on to property managers. The property managers
work with tenants to encourage them to turn off lights. This is important because, as explained in
the section “Creating an Energy Roadmap” (page 21), the installation of lighting controls with
occupancy sensors will probably not be complete until 2013.

Nightly reports from security guards were used to generate Figure 13, which demonstrates that
building has not just maintained a culture of turning out the lights, but that the percentage of lights
out has actually increased since the weekend of “Lights Out Houston.” This is a good indication
that extra effort spent to help people remember to turn out the lights can really pay off.

Figure 13: Average weekly percentage of lights turned off at night, compiled from nightly
surveys by security guards (11:00 pm).

Houston Center Percent of Lights Out at Night

5/28-7/27
% Dark (Weekly Average)

100
1HC
95 2HC

90

85

80
5/25 6/1 6/8 6/15 6/22 6/29 7/6 7/13 7/20 7/27 8/3

Week

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Barriers to Energy Efficiency
Owner-Tenant Relationships

Energy costs are distributed evenly to all tenants, with the exception of tenants who require
special services, such as after-hours air conditioning. This set-up means the benefits of
investments in energy efficiency by one tenant get split amongst all of the other tenants. Since
no one feels that they will see the payback of their investments, no one wants to invest.

To overcome this resistance, it may be possible use non-financial incentives to encourage

investment. Increased interest in sustainability may make it possible to sell some of the tenants
on energy efficiency measures by appealing to a moral sense of duty. Using peer pressure by
highlighting what other tenants are doing may be helpful. Marketing materials located in the file
“Marketing Campaign Flyers.pub” may be useful for explaining non-financial benefits.

Another way to capture tenant interest is to form tenant environmental committees, similar to a
homeowners association. Many large companies have aggressive sustainability policies, of
which the property manager does not have a detailed understanding. Likewise, the tenants are
not sure what Crescent is doing to be green. Crescent could solicit volunteers from each tenant
to participate on an environmental committee to open up communication channels.

This peer-to-peer advocacy allows passionate tenants to be heard and allows Crescent to have a
dialogue about their green initiatives. The forum gives tenants with high interest in sustainability,
such as Shell Oil, a chance to motivate other tenants to become more involved. Featuring the
group in a newsletter will raise awareness about eco-initiatives. Crescent can also use the forum
to communicate challenges of becoming LEED certified, and avoid unreasonable expectations.

While appealing to the tenants’ softer side may show some progress, nothing would speed the
implementation of energy efficiency projects faster than real financial incentives. For this reason,
Crescent should consider inserting provisions in leases to encourage green investment. Leases
could include wording that allows rebates to tenants who can demonstrate energy savings. The
owner and tenant could share renovation costs, since both parties benefit from improvements.

In the future, it may become desirable to install individual meters for each tenant area. This
would allow better monitoring of the results of energy efficiency projects, and would give tenants
a direct financial incentive to lower electricity consumption.

Difficulty in Measurement and Verification

Another difficulty in selling efficiency projects is that it is hard to prove the savings are being
realized. The entire building is on one meter, so there are many things that could be affecting the
utility bill from month to month. It becomes impossible to separate the impact of any single
efficiency project, and this makes it difficult for management to feel any tangible benefits from the
project. One solution to this problem would be to install a sub-metering system that would allow
efficiency gains to be directly attributed to the area of the building that saw the reduction.

Without the ability to sub-meter, the best option is to not worry about precise verification of any
specific project. In this case, it is best to look at overall trends in building consumption compared

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to previous years. This is where the regression forecast in Figure 3 becomes useful. Engineers
can plug in new monthly values to see if they are keeping up with past reduction trends. This tool
is available in the file “Baselines and Projections.xls.”

Payback Period Philosophy

Much decision making in the real estate industry is centered on the concept of payback period. It
is easy to understand why payback is used when you consider that a property may be sold at any
time. It is important to the owner that they see a return on their investment before selling the
property. This thinking, however, does not take everything into consideration. While the
investments may be sold at any time, many efficiency investments add value to the property, so
the expense is at least partial recovered by the sale. Also, the hold period for most properties is
longer than two years, making a two year payback expectation inappropriate. For these reasons,
it is important to look at the NPV and ROI of a project, and not rely solely on payback period.

Energy investments are much like bond investments, in that they offer extremely low-risk, steady
payouts every year in perpetuity. To evaluate a project based on payback period is to completely
ignore the value of all the reliable cash flows that will keep coming in after the payback is
achieved. Thus, a project with a four-year payback might be rejected despite having an annual
return on investment of greater than 25% and reliable long-term financial benefits. A bond
investment with a 25% annual rate of return would probably make a Wall Street investor jump
with joy, even if it does carry some risk.

On the contrary, net present value allows us to evaluate the long term benefits of the project,
while it also allows us to take into account the risk associated with the possibility of selling a
building. In the calculation of net present value, risk is taken into account through the selection of
an appropriate discount rate. For the projects in this document, a discount rate of 10% was used.
Note that this is more conservative than the real discount rate of 4% used by the EPA Energy
7
Star program and the real discount rate of 5.5% used by the California Public Utilities
8
Commission .

In summary, payback period often used instead of NPV because of a perception that NPV does
not account for risks associated with the project. This is not true, and NPV is a better indicator of
the long term impact of a project. If payback period is to be used, property managers must be
made aware of the intended hold period for their property (i.e., when it is expected to go on the
market). Without this information, the property manager cannot be expected to know the
appropriate payback period for an investment.

Out of the Public Eye

While many of today’s large public companies are facing extreme scrutiny over their sustainability
practices, smaller companies and private firms are often left to police themselves. As a private
company, Crescent does not need to prepare an annual report for the SEC, much less go to the
added effort of creating an annual sustainability report for shareholders. The good news is that
they still do many of these things internally.

Two Houston Center employees create their own sustainability report each year, highlighting
energy investment and opportunities. This is a valuable document, and it would be very useful to
compile reports at each building into a corporate report. This document would be an excellent
tool for demonstrating environmental awareness to key stakeholders, including Crescent’s
owners, potential tenants, concerned employees, and management decision makers. Bringing
small private companies under the same scrutiny as public companies would ensure that smaller
firms take actions to mitigate their environmental impact.

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Creating an Energy Roadmap
Now that energy goals have been formulated and projects have been identified, the next step is
to prioritize the projects and create a roadmap for reaching the desired goals. The roadmap does
not need to be carved in stone, but is a good set of guidelines that will help keep Two Houston
Center moving in the right direction. Actual progress should be checked against the timeline
annually, and the timeline for projects should be adjusted accordingly.

When considering which projects to take on first, it is helpful to look at the projects in terms of
capital investment required, energy saved, and payback period. Projects with a fast payback and
low initial investment should be prioritized first. Projects that have a slower payback and require
more initial investment come later. Projects with a high NPV should be prioritized ahead of low
NPV projects, as long as the capital is available. Some projects will be ongoing over several
years, such as changing T12s, and this also needs to be taken into account.

In this fashion, the projects can be sorted into categories of short-term, medium term, and long-
term. For example, removing lights from the parking garage is a project that should be
implemented in the short-term, because it has a great payback (< one year), a strong NPV, and
requires little initial investment compared to other projects. Projects such as installing stairwell
occupancy sensors have a lower NPV per initial investment dollar, and should be pursued later.
Projects are grouped into short-, medium-, and long-term endeavors in Figure 14.

Figure 14: Projects prioritized into groups, placing quick wins first and heavy investment
later.

Short-term Projects Medium-Term Projects Long-Term Projects

0 to 6 months
Parking Garage Lighting
Lights Out Houston
VFD Installation (in progress)
Incandescent to CFL
6 months to 2 years
Install 1st Chiller
Power Management for PCs
LED Exit Signs
2 to 6 years
Install 2nd Chiller
T12 to T8 Retrofit Completed
Lighting Controls Completed
Install Stairwell Occupancy Sensors

Once projects were grouped into these three categories, the building property manager and chief
engineer were consulted to help create a timeline for implementing energy efficiency projects.
The timeline proposed in Figure 15, below, shows projects that were analyzed in this document in
black font. These projects alone will add up to an 11% energy savings when fully implemented.
The remaining projects, shown in grey, are speculation of other projects that might be
implemented to help achieve the full 20% energy reduction. Some of the projects in grey, though
not cost effective now, may be cost effective in five to ten years.

The creation of a timeline allows us to see clearly when milestones should be reached, and will
help track progress. It will also be useful when requesting funds, because management is more
likely to approve money for a project if they are able to see how the project fits into an overall plan
for building improvements.

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Figure 15: Proposed timeline for implementing energy efficiency projects to reach the goal
of a 20% energy reduction by 2018.

Creating a Timeline
VFD Installation
2008 Lights Out Houston
Parking Garage Lights
2009 Replace 1st Chiller 5%
LED Exit Signs
2010 Lobby Lighting Upgrade Black =
Replace Escalators Payback
2011 Stairwell Occupancy Sensors analysis in this
Install Outside Air Economizer document
2012 Install Air Curtains & Seal Air Leaks
LEED Certification Gray =
Speculation of
2013 T12-T8 Retrofit 10%
future projects
Common Hall Lighting Controls
2014 CO Controllers on Garage Fans Purple =
Reduce Hours of Operation Milestone
All floors on DDC Controls
2015
Replace 2nd Chiller 15%
Implement Tenant Smart Metering
2016
Replace Oversized HVAC Fans
Motion Sensor HVAC for Shell
2017 Install High Efficiency Ballasts
Install New Solar Window Film
2018 20% Reduction Achieved

This timeline shows approximately when the building would be expected to reach the 5%, 10%,
and 15% reduction milestones, and shows the goal of LEED-EB certification in 2012.

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Conclusions
Two Houston Center has been well operated and maintained since it was constructed in 1974,
but there are significant opportunities to invest in new equipment and lighting that can significantly
reduce energy consumption and save money. By implementing each of the projects in this
document, the building will reduce energy consumption by 11.1%. This will benefit Crescent, who
will save $426,408 in utility bills each year, and will also benefit the environment by keeping an
estimated 1935 tons of carbon dioxide per year from entering the atmosphere.

In addition to analyzing several specific projects, an attempt was made to develop a ten-year
energy plan to help Two Houston Center reach the ambitious, but achievable goal of 20% energy
reduction by 2018. Getting to this goal will require hard work, but result will be an energy efficient
building that is LEED-EB certified and highly profitable to operate. When this goal is achieved,
Two Houston Center will save $738,000 per year in electricity costs, holding prices constant.

The next steps are to begin implementation of the plan that was created, and to leverage this plan
to other buildings. In order to realize the maximum benefit, each building under Crescent
management should establish a long-term energy reduction goal and timeline. Crescent should
establish corporate goals that are in-line with the plans created by the individual buildings, and
they should support these goals with financial incentives for employees. Finally Crescent should
tie energy efficiency into their overall CSR initiatives, and they should incorporate the results into
their marketing. The initiatives outlined here will not only pay dividends through utility bill savings,
but also through improved customer relations, yielding higher rents and higher occupancies.

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Note from the Author
It has been a pleasure working with the teams at Crescent and the Environmental Defense Fund.
I know I have learned a lot during this internship, and I am confident that valuable energy savings
were identified as a result of the Climate Corps program. If there are any questions about this
document, or if there is anything I can do to help with future energy efficiency efforts, please do
not hesitate to contact me. It is very important to me that these projects be implemented to the
fullest extent possible.

Thank you for the opportunity,

Tyler Monzel
Rice University MBA Candidate
Class of 2009
713-515-2836
Tjm2@rice.edu

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End Notes

1. Based on ERCOT emissions of 1.421 lbs CO2 / kWh

(http://www.epa.gov/cleanenergy/documents/egridzips/eGRID2006_Version2-1.zip) and EPA
estimated average vehicle emissions of 12,100 lbs per year
(www.epa.gov/appdstar/pdf/brochure.pdf).

2. Burr, Andrew C. “CoStar Study Finds LEED, Energy Star Bldgs. Outperform Peers,” March
26, 2008. Available at: http://www.usgbc.org/News/USGBCInTheNewsDetails.aspx?ID=3637

3. IES and NPA Recommended Illumination Standards for Parking Garages. Available at:
http://www.intencitylighting.com/IntenCity_garagecover.htm

4. OccuSmart Energy Savings Calculator. Available at: http://www.occusmart.com/

5. Power Efficiency Corporation case studies: “Sam’s Town Hotel and Casino” and “Bellagio
Hotel and Casino.” Available at: http://www.powerefficiencycorp.com/case_studies.php

6. Preliminary results from Lights Out Houston. Available at www.lightsouthouston.org

7. For example, see

http://www.energystar.gov/ia/business/bulk_purchasing/bpsavings_calc/Calc_computer.xls

8. Moss, Steven, et al., “Distributed Energy Resource (DER) Implementaion: Testing Effective
Load Management at the Feeder Level.” California Energy Commission, PIER. 2006, p. 73.
Accessible at: http://www.sfpower.org/research/report.doc

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