July 2002 - Intermittently, often during times of economic uncertainty, organizations focus greater attention on internal growth strategies to improve profit margins.  This, in turn, can combat declining revenues.  By doing so, organizations seek to enhance their net operating income, improve their bottom line, and increase their earnings per share and shareholder value. 
Few organizations give internal growth strategies equal attention all year, every year, even though this strategy contributes to improved cash flows and greater capital and credit availability. Energy efficiency has been climbing closer to the top of many organizations� list of internal growth strategies as they begin to realize that energy is a controllable cost whether it represents six or 36 percent of an organization�s operating costs.   Multiple reasons are propelling this realization, including energy price fluctuations, talk of energy shortages, utility deregulation, increasing tensions in the Middle East, and growing corporate commitments to sustainable economic growth. Given these realities, progressive companies nationwide are implementing energy management as an on-going internal growth strategy. 

To help companies recognize the financial value of strategic energy management, the US Environmental Protection Agency developed ENERGY STAR, a partnership program with organizations that voluntarily commit to improving the energy performance of their operations.  ENERGY STAR recommends a comprehensive approach to energy management; based on the idea that smart energy management involves all aspects of business, not just the engineering department.  In any company, everyone - from individual employees to the CEO - should take part in ensuring profitable energy management.  A continual process of committing, estimating and prioritizing investments, implementing and evaluating energy performance upgrades, and communicating results leads to sustained success.  
 
 

Commitment starts with the endorsement of a strategic energy management plan at the highest executive levels of an organization.  In 2000, Hilton�s President of Hotel Operations, Dieter Huckestein, signed and approved a corporate energy management plan that called all departments of the corporation to action.  The strategy involved business activities such as energy benchmarking, product purchasing, technology upgrades and hotel renovation, and staff training.

To turn commitment into dollars - responsibility, along with authority to take action - must be delegated within the company.  White Lodging�s Vice President, Housekeeping & Engineering, Randy Gaines, designated one employee at each hotel as the �Energy Champion�.  These Energy Champions oversee all aspects of energy management, and keep the corporate office informed of progress and challenges.  "Identifying an Energy Champion at each hotel helps ensure that White Lodging's commitment to energy efficiency is not only experienced at the corporate level, but is also being embraced from the ground up.  Assigning responsibility to oversee a hotel's energy management helps generate results that mean profit for our company"  said Gaines.  Upper management commitment, coupled with dedicated staff, is the foundation for profitable energy management and sustainable savings.  
 
When it comes to establishing priorities and implementing investments, Glenn Tuckman, Senior VP of North American Hotel Operations for Starwood Hotels, feels that energy efficiency is a no-brainer.  �At Starwood, we have decided to invest in energy performance time and time again.  Our competitors who may be right around the corner from our own properties don�t realize that they have to rent out more rooms just to keep up with the savings that we are generating on a daily basis from our energy performance investments.� said Tuckman.  �We�re investing in energy performance, generating revenue, and earning publicity �for free- for our smart investment decision-making.  This is truly a win win.�   The 2002 ENERGY STAR Award winner for hotels, Starwood Hotels developed an innovative and exciting program to challenge its hotels to develop their own most effective energy management plan.  Starwood awarded the winning property a Porsche Boxter to raffle off to its employees.  This creative approach resulted in one of Starwood�s housekeepers having the opportunity to drive off in a new set of wheels!!

So how profitable can strategic energy management be?  And what exactly does it mean to your bottom line?  Steve Lawrence, Senior VP of Finance for MeriStar, has found that investments in energy performance can ultimately enhance shareholder value.  �The financial impact of energy costs on a company�s income statement, and ultimately, shareholder value, is significant.  In fact, we have made energy-efficient upgrades that substantially reduced our energy use and significantly increased our earnings per share� said Lawrence.

Lawrence�s findings are supported by a recent EPA study indicating that in commercial property markets, whether they are hotels, retail, or office properties, organizations that engage in comprehensive and strategic energy management outperform their peers in stock market and financial performance by as much as 2,000 basis points.  To the Wall Street community, the study indicated, energy management is viewed as a proxy for overall superior corporate management.  

ENERGY STAR has developed a tool to help quantify the impact of investing in energy efficiency on earnings per share and other metrics.  The Financial Value Calculator (FVC) is a simple, MS Excel-based tool that helps companies understand the link between energy and financial performance.  By inputting five variables, the user can perform an early analysis of the corporate-wide potential for investing in energy efficiency and gain a more sophisticated understanding of these investments.  Corporate financial decision-makers can feel comfortable knowing what these investments mean to the bottom line.
 

Once the financial potential for investing in energy efficiency is understood, priorities can then be established and upgrades can be implemented.  Tools such as the ENERGY STAR benchmarking tool can help identify which hotels within a given portfolio represent the best opportunities for investments.  

The benefits of these investments not only impact a company�s bottom line and help the environment, they also enhance a company�s image.  Communicating achievements to investors and guests can help a company earn recognition as being fiscally and socially responsible.  In today�s investment markets, voluntary disclosure and corporate transparency are becoming increasingly appreciated.  

The bottom line is that energy is not a fixed cost.  Very few can control the price of energy, but everyone has the power to make a difference in how energy is used.  Whether it�s implementing energy-efficient technologies or low-cost no-cost measures, upgrading lighting or in-room televisions, or training employees, a significant difference can be made.  Following the ENERGY STAR approach, investments in energy performance have the potential to save millions of dollars each year, enhance your corporate image, demonstrate your commitment to environmental stewardship, and improve your bottom line.  This holds true regardless of economic conditions, so let energy be your competitive advantage.

The Hospitality Research Group of PKF Consulting has provided data for this article.

www.epa.gov/buildings/hospitality
www.energystar.gov