Getting off the grid-State buildings in California experiment with on-site power systems

They look like four enormous metal boxes connected to a maze of pipes and ducts. But the new power generators inside the state office building in San Francisco could very well be the future of electricity.

Dan Levy, San Francisco Chronicle Staff Writer

With memories still fresh from the energy crisis that sent California’s electricity prices soaring, commercial landlords are beginning to install on- site power systems, known as distributive generation, as a way to lessen dependency on the Pacific Gas and Electric Co. grid.

"The most important thing is to have the ability to keep our buildings running in case of failure of the grid," said Dave Wall, executive vice president of San Francisco’s Fremont Properties, which is installing generators in buildings on Fremont and Beale streets.

"Ever since Sept. 11, and seeing what’s going on in the Middle East, we’re in a new era of the way things work," Wall said. "There’s the security issue of keeping your computer system running and the issue of what happens in a catastrophic event like an earthquake or terrorism."

The state of California could end up running the most influential experiment with on-site power, with tens of millions of square feet of office space potentially using the technology.

So far, the state has installed pilot systems in the state office building on Golden Gate Avenue, the Public Utilities Commission headquarters on Van Ness Avenue and the Elihu Harris building in Oakland.

"If the state decides this is a good business, we’ll start building them into our new buildings," said Randy Ferguson, head of energy management for the General Services Agency, which runs state buildings.

The on-site systems in the three state buildings have saved about $80,000 annually in energy costs so far, Ferguson said.

There’s also an environmental justification for the generators, proponents say.

On-site systems run on natural gas during peak demand hours, producing electricity that augments the electricity supply being taken off the grid. They are designed so that waste heat produced by the system is recycled to cool and heat the building.

This lessens the load on utilities, which don’t have to provide a building’s total electricity needs, while conserving energy and saving money.

It’s a point not lost on the nation’s largest office landlord.

"There is absolutely no reason why this shouldn’t be more widespread," said Frank Frankini, senior vice president for development and energy operation at Equity Office Properties, the Chicago real estate investment trust that controls about 125 million square feet of office space around the country.

EOP is seeking approval for an on-site generation plant at One Market, its 1.45 million-square-foot downtown office complex in San Francisco. The company has developed distributive generation systems in nine other buildings in Massachusetts, New York and Illinois — all of which have deregulated their electricity market.

If approved, the One Market system could help EOP save 10 to 20 percent on its energy bills, Frankini said.

Operationally, the on-site power concept is straightforward.

Instead of relying on PG&E or another utility to provide all of their power,

tenants in distributive generation buildings receive part of their electricity from on-site plants built either by building owners such as EOP or by private distributive generation companies.

In the case of a private installation, companies build generators on roofs or in basements, pay rent for the space and bill landlords in a lump sum or tenants individually.

Both the San Francisco and Oakland state office buildings are served by RealEnergy.

The Woodland Hills firm installed an 800-kilowatt system in the boiler room atop the San Francisco building last year. The system runs on natural gas provided by PG&E.

Nick Cimino, the building manager, said the RealEnergy system provides about 40 percent of the power in the 1.1 million-square-foot structure and charges 7.5 percent less than PG&E’s rate.

"So far, it’s been seamless," Cimino said. "It’s like taking electricity from a second utility company."

The surge in distributive generation has its roots in the deregulation of California’s energy market and the resulting crisis two years ago. Companies were beset by wildly inflated electricity prices and lost critical computerized data files when rolling blackouts shut down their power supplies.

Even with the nightmare stories from the crisis, few landlords are contemplating a full break from the PG&E grid.

"During the energy crisis, there was an argument that you could be suddenly cut off and therefore should get off the grid," said Severin Borenstein, director of the UC Energy Institute, an energy think tank at UC Berkeley.

"But nobody is serious about getting off the grid. The most reliable solution is having distributive generation and being hooked up to the grid," Borenstein said.

The Public Utilities Commission, for its part, is encouraging distributive generation development. Its own building on Van Ness Avenue has an on-site plant.

Commissioner Jeff Brown said that because large energy users are increasingly choosing to take less electricity from the grid, smaller users are in danger of paying more for the power contracts already signed with PG&E and other utilities.

As a result, the PUC might impose a surcharge on the energy produced by most distributive generation systems, Brown said. The idea is still in the proposal phase.

"People want to set up their own plants on site, but does this mean we allow another class of people to pay through the nose for these power contracts?" Brown said. "It’s quite a controversial subject."

"All the indications we have from the governor’s office and the Legislature is that the state will be distributive generation-friendly," said Dan Cashdan, chief executive of RealEnergy.

The PUC will take up the matter at its March meeting.

E-mail Dan Levy at [email protected].

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