SL Green electricity purchasing program a model for industry.

SL Green, with over 18 million square feet and 37 properties, is one of the largest landlords in New York City--as well as the third largest commercial energy consumer in the City.

The company's annual consumption of electricity is estimated at a whopping 265,000 mega watt hours, enough to power 66,000 average sized homes.

SL Green began its electric purchasing strategy in 2003. While many other landlords go into fixed price contracts for convenience, such a strategy was not unilaterally beneficial to SL Green or its tenants. Although fixed pricing guarantees budget certainty, the consumer does not benefit from downward trends in the market and is further subject to penalties if the contract is terminated prior to the end of term.

Instead, SL Green works alongside highly specialized consultants performing an exhaustive cost-benefit analysis, comparing each of their buildings' consumption rates and tenant recoveries with the various products available on the market.

A determination is then made, based on recovery and consumption in each property, regarding the best fit for each individual building--including whether to go with a conservative fixed rate, or a discount approach, or whether to opt for the market's floating rate via Day Ahead or Real Time pricing, which are relatively new products offered by Energy Service Companies (ESCOs).

Since deregulation and the emergence of Energy Service Companies (or ESCOs), SL Green has purchased power from these providers to take advantage of sales tax benefits for transmission and distribution, which encompasses approximately 23% of its total electric expense (approximately $46 million annually). Purchasing energy on the commodities market allows landlords to pass along significant tax savings to tenants.

For example, the purchase of Day Ahead or Real Time pricing products from ESCOs allows the consumer to purchase power in blocks for its base load with the balance of the energy purchase at market price. With the purchase of these products there is an associated "Adder" cost.

The "Adder" cost, similar to an administrative fee, is where the ESCOs provide their competitive pricing, which fixes approximately 25-30% of the cost.

Already for 2005, using competitive electric supply has netted $500,000 in savings to SL Green's bottom line and $800,000 in savings to their tenants.

"We're very mindful of our tenants and their expenses," explains Edward V. Piccinich, executive vice president and director of property management and construction for SL Green. "By utilizing ESCOs and their various products, we constantly strive to ensure that the tenants get the best price and benefit from our savings."

While Piccinich can't speak to other companies' practices regarding electricity purchasing, he says he assumes that the larger, savvier companies explore similar, sophisticated approaches to purchasing electricity.

One thing electricity purchasing requires is flexibility, for the ESCO market is in flux, along with the energy market in general.

For example, ESCOs are no longer offering what is called mil discounts, measured in one tenth of a penny increments--to Time of Day buildings, or those buildings with a larger load.

Smaller buildings, however, can still get mil discounts, and 8 of SL Green's smaller buildings utilize this product. Several other SL Green buildings, for reasons concerning their electric load profile and consumption, have opted to go with Day Ahead pricing or Fixed pricing.

It is this unique and customized blend of electricity purchasing approaches that helps make SL Green buildings so appealing to current and prospective tenants.

Only a handful of other companies enjoy the capacity to engage full-time consultants to monitor the energy markets on a constant basis to ensure that the company gets the absolute best price for electricity and tenants benefit from the resulting savings.

SL Green's size and long-term relationships with ESCOs such as Con Edison Solutions also prove advantageous for tenants.

Although they were shying away from providing mil discounts, because of SL Green's bulk buying from Con Ed Solutions, the utility subsidiary was willing to provide a competitive mil discount product to SL Green.

This level of cooperation is based not just on SL Green's size and purchasing power, but also on the day-to-day working relationship that their team has fostered with companies like Con Ed Solutions.

Clearly, when it comes to innovative, research-based electricity purchasing, SL Green's approach is a model for the industry. They constantly seek not only to improve their own bottom line, but also that of their tenants.

This concern, along with their continuous day-to-day analysis of the electricity market, ensures that whichever firm moves into an SL Green building can be assured that it is getting the best possible deal on electricity purchasing.