Mr. Shuster

Hospitality Law

Maximizing Sustainability in Hotel, Resort, and Casino Properties

By Marc Stephen Shuster, Partner, Berger Singerman

Co-authored by Jeremy L. Susac, Partner, Tallahassee Office, Berger Singerman

The United States Green Building Council estimates that buildings account for approximately ("~") 38% of carbon emissions, ~14% of potable water consumption, ~30% of waste output, ~40% of raw materials, and a significant portion of our energy consumption. In California, roughly 19% of all energy consumed is for water treatment and pumping for human consumption. These numbers hold true for hotels, resorts, and casinos in warm climates. Maximizing sustainability in a hotel, resort, or casino property takes time and a considerable upfront capital investment. Detailed, below, are some reasons why sustainable measures are a "must" in the nation's hospitality market.

Take hotels, for example. The U.S. Environmental Protection Agency estimates that hotels spend more than $2,000 per guestroom on energy. That's an enormous estimate when multiplied by the number of hotels in our nation. In fact, National Grid estimates that lighting, space heating, and water heating represent close to 60 percent of total energy use, making those systems the best targets for energy savings. For a full-service hotel, these energy costs are usually between 4 and 6 percent of the hotel revenue, but historic and luxury properties may see energy costs closer to 10 percent or more. These cost estimates grow when multiplied by the number of hotels in our nation. According to the American Hotels and Lodging Association, the U.S. has more than 50,000 hotels, with over 4.9M guestrooms. The energy intensity of hotels varies widely based on location, climate, on-site amenities, size, and number of guestrooms; however, one common denominator is that cooling and lighting alone account for half of the building's electricity consumption.

As for water consumption, the U.S. Green Building Council estimates that 30-70% all water not used for agriculture is used for irrigating landscapes, and hotels, resorts, and casino properties are likely leading the way. Smart water use must be tied with smart, cost-effective reductions and strategic planning. For example, do we really need 1.6 gallons of drinkable water to flush each toilet? No, and today there are waterless urinals that can save upwards of 55% in some instances, or otherwise stated, a savings of 15,000 and 45,000 gallons of water per year. Further cost-effective reductions can also be achieved by using native plants, efficient irrigation technologies, and smart re-use policies. These strategies are particularly important to warm climate states like Florida, with its record-breaking 94 million tourists per year.

Take Miami as an example. Miami is the second "hottest" hospitality market in America, and is also one of the hottest cities, in terms of climate. Its economy is bustling and outpacing most cities in terms of development. In fact, some local officials claim the new state bird is the "industrial crane." But with great growth comes great environment impacts. And, in an effort to promote environmentally sensitive design and construction, the Miami-Dade County Commissioners passed an ordinance to expedite the permitting process for "green" buildings certified by a recognized environmental rating agency. Commercial, industrial, and residential projects are all eligible as long as they are located in unincorporated Miami-Dade County and the City of West Miami. In addition, renewable technologies - such as solar water heating and solar photovoltaic projects - are included in the "fast track" for permitting review. These renewable technologies also receive generous incentives under Florida law, and promoted by the State of Florida's Office of Energy - which is key to energy reduction by significant users.

Large energy users, such as hotels, often miss opportunities to significantly reduce start-up costs by failing to implement rate-reduction strategies available in a state like Florida. These sectors are large, and have great energy needs. These hotels and motels operate non-stop, and are constantly consuming energy, hosting guests, running restaurants, and maintaining key services such as heating/cooling, running water, and functioning swimming pools. This energy cost is a considerable expense in a recovering business climate. To help grow these businesses, utilities are now providing positive programs that reduce the initial cost of electricity, and free up capital to facilitate business growth. These programs are a product of a true public-private partnership with industry and state regulators.

The Public Service Commission in Florida is the economic regulator of electricity. Its primary role is ensuring that electric rates are fair, just, and reasonable. The Commission, however, has recently taken a new role with economic development. This role requires working with consumers and industry to install tiered rate-reductions to reduce initial start-up costs to help grow Florida's economy. This effort resulted in specific economic development rates by Florida's largest utility - Florida Power & Light (FPL).

FPL is the third-largest electric utility in the United States, serving the southern half of Florida - including the City of Miami. FPL has the lowest electric rates in Florida and among the highest reliability. In fact, FPL's large commercial bills are about 15 percent below the national average, and large industrial bills are about 34 percent below the national average. In addition, FPL's service reliability is better than 99.98 percent. It was recognized in 2014 as the most trusted U.S. electric utility by Market Strategies International and has earned the national ServiceOne Award for outstanding customer service for an unprecedented ten consecutive years. Most importantly, it has adopted these economic development rates to induce investment in the hotel, resort and casino sector.

FPL has a total three economic development rates that provide substantial reductions to a business' energy costs. Two of FPL's economic development rates are designed to induce investments in new or expanding mid-size hotels, and their percentages are outlined below:

1. New business or expansion of existing business:

Year 1 - 20% discount
Year 2 - 15% discount
Year 3 - 10 % discount
Year 4 - 5% discount

2. If the business is vacant for more than six months, then the following reductions apply:

Year 1 - 25%
Year 2 - 20%
Year 3 - 15%
Year 4 - 10%
Year 5 - 5%

3. Large Energy User - Commercial Industrial Service Rider (CISR)

FPL also offers a third, and very new, CISR rate that is also designed to attract investment from large energy users such a destination casino with multiple pools and restaurants. This CISR rate provides FPL with the flexibility to negotiate potentially greater discounts on the base energy and/or base demand charges with large commercial/industrial customers which:

a. Demonstrate that they have viable lower cost alternatives to FPL for power in other service territories (particularly competing states); and
b. Consume loads of 2 megawatts (MW) or greater. One example of such a customer would be a large data center.

FPL's new CISR rate will be limited to fifty contract service arrangements for a total of three-hundred MWs of load (whichever limit is reached first). The negotiated discount, however, applies only to base energy and/or base demand charges. The rate must cover the incremental cost to serve the CISR load plus a contribution to fixed costs. As of the publication of this article, twelve companies across FPL's service territory had qualified for the economic development rate. The availability of the rate is becoming more limited, so the time to act is now. Lastly, FPL offers incentives for lighting that can result in a noticeable savings as seen in the case study below.

FPL utilized an athletic club in Sarasota, Florida, for its case study. According to the utility, the club is 23,000 square feet with 131 fluorescent lighting fixtures. The athletic club, with the help of FPL's incentive, replaced each of those fixtures with more efficient T8 fluorescent fixtures with electronic ballasts. That incentive program alone represented a replacement strategy that reduced energy consumption by 26 percent, resulting in yearly savings of $5,387 for the athletic club. In four years, that club will save over $20,000 and be able to modernize with new equipment. Many other utilities have similar rate reduction programs.

Duke Energy Florida (Duke) offers an Economic Development Rider and Redevelopment Rider (existing building) that result in significant savings from its base rates and non-fuel charges, depending on different scenarios. In the scenario of a new or expanded building, Duke requires a minimum of 500 kilowatt consumption, and 25 net new full time employees or $500,000 or greater in capital investment. If these requirements are met, Duke will reduce the customer's bill significantly in the first five years of operation as outlined below:

1. New business or expansion of existing business:

Year 1 - 50%
Year 2 - 40%
Year 3 - 30%
Year 4 - 20%
Year 5 - 10%

Duke has a similar program for redevelopment within an existing building and that program provides a 100% discount off base rates in the first four years of business. As for Jacksonville Electric (JEA), it offers companies a 30% discount on base rates if the company adds 300 kilowatts per month of new demand, at a single site, and brings in at least fifteen new employees. JEA's 30% discount is for the first year, and will drop by 5 percent each year for six years as outlined below:

2. New business or expansion of existing business:

Year 1 - 30% discount
Year 2 - 25% discount
Year 3 - 20 % discount
Year 4 - 15% discount
Year 5 - 10% discount
Year 6 - 5% discount

In conclusion, maximizing sustainability in hotel, resort, and casino properties is a must for the nation's hospitality market. Now, more than ever, consumers not only want to save money, but also save energy, emissions, and water - particularly in Florida. As such, new or expanded hotels in Florida should consult with energy attorneys -- ones that have an added environmental background in this new regulatory field -- to properly examine financial incentives and reduction strategies that will shape their business decisions. Using unique and new rate-reduction strategies for hospitality outlets will reduce operating costs in the first few years, and free up necessary capital to help finance new environmentally-focused investments necessary to accommodate the ever-growing tourism base in Florida.

alt textJeremy L. Susac, Partner, Tallahassee Office, Berger Singerman co-authored this article. Mr. Susac has a broad background in economic and environmental regulation of energy and water. He also has a strong understanding of regulated markets and all aspects of government, including, but not limited to, the legislative process, administrative proceedings, and judicial court system and executive branch functions. Mr. Susac carries additional hands-on experience with economic development, project management, and commercial litigation. He previously served as president of the Real Energy & Environment Strategies Group, a company providing comprehensive turn-key governmental affairs and consulting services to the energy and environmental industries. In this capacity, Mr. Susac worked extensively on clean energy, clean tech, and smart grid solutions, including a U.S. Department of Energy smart grid project. Mr. Susac may be reached at: 850-521-6736 and jsusac@bergersingerman.com.

Marc Stephen Shuster is a partner in the Miami office of Berger Singerman, Floridaís business law firm. Mr. Shuster is a business attorney with extensive experience in commercial real estate transactions, both healthy and distressed, and corporate M&A deal work, with an emphasis on the hotel and hospitality industry. He advises both traditional hospitality conglomerates and Internet advertising sites serving the industry. Mr. Shuster he has served as counsel to a Florida-based emergency management/services conglomerate in negotiating for disaster relief work throughout the Caribbean. Mr. Shuster speaks and writes on novel issues affecting the hotel and hospitality space, serves on various community boards, and has been recognized with numerous awards and accolades. Mr. Shuster can be contacted at 305-982-4080 or mshuster@bergersingerman.com Extended Bio...

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