By Matthew Bechard

Spencer Abraham was sworn in as the 10th Secretary of Energy in January 2001. Under his leadership, the Department of Energy has tackled a broad agenda relating to the country's energy usage and efficiency and the security of those resources. Abraham served as U.S. senator of Michigan from 1995 to 2001.

Abraham spoke with Portfolio regarding the National Energy Policy, the 2003 blackout, and how REITs can improve their energy efficiency.

On Energy Policy

In his three years as Secretary of Energy, Abraham has seen the federal government place an increased emphasis on energy issues. Abraham says prior to President Bush, the country went 12 years without a national energy policy, which meant there were "some major energy challenges."

In Abraham's view, the National Energy Policy (NEP) is a comprehensive plan for securing America's energy future, establishing specific goals to solve our energy challenges, including increasing conservation, diversifying energy supplies, improving and accelerating environmental protection, modernizing the infrastructure and strengthening U.S. energy security.

"The NEP offered more than 100 specific recommendations to increase domestic energy, diversify energy sources, modernize conservation efforts, and upgrade our national energy infrastructure," Abraham says. "To date, progress is being made on 96 of the 105 recommendations, so I think it has been quite successful. However, congressional action is still needed to complete the picture of energy security."

For the immediate future, Abraham says the two most significant energy issues facing the U.S. are outdated infrastructure and increased demand for resources.

"We project that over the next 20 years there will be a 45 percent increase for electricity, 50 percent increase for natural gas, and 33 percent increase for oil," he says. "We need Congress to pass a comprehensive energy bill, a plan that will guide us in dealing with these challenges. Energy legislation will help us achieve energy security by improving our infrastructure and transforming our economy from one dependent on foreign petroleum to one that uses domestically produced fuels, such as hydrogen or nuclear power."

On the 2003 Blackout

To millions of residents, property owners and businesses from Ohio through the Northeast and up into Canada who may not have given the nation's energy reliability a second thought, the rolling blackout of Aug. 14, 2003 certainly got their attention. And one of the worst blackouts in U.S. history was largely preventable, Abraham says. However, he adds that once it got started and reached a certain magnitude, "nothing could have been done to prevent it from cascading out of control."

"In the 100-plus years that the grid system has been in operation, massive power outages have occurred only a few times, but smaller outages occur every day," he says. "These minor outages are inevitable on such a vast and complex array of interconnected and interrelated machinery that is so vulnerable to internal malfunctions and external forces. Things go wrong and it is the responsibility of the people who operate the system to keep the small problems from getting bigger."

Some politicians have used the blackout as a call to establish a national power grid in order to have one entity oversee the whole system. However, Abraham disagrees.

"The issue isn't having one national grid; it's that people have to observe high standards of behavior," he says. "Even if you had one company running the whole grid, if they aren't maintaining their equipment in the right condition, if they aren't doing the right things, then blackouts are going to be a problem. The key is to have in place fail-safes, checks and balances, a variety of communications tools and diagnostic tools to prevent this and we need a way to enforce the current reliability standards."

Currently, the North American Electric Reliability Council (NERC) and its affiliated organizations set the voluntary reliability standards that govern the operations of U.S. power grids. Abraham says an initial report of the blackout conducted by the U.S.-Canadian Power System Outage Task Force concluded that at least four reliability standards established by NERC were not observed by one electric company on Aug. 14th, and two were not followed by the Midwest Independent System Operator (MISO), which coordinates power transmission in the region where the blackout started.

One of the components of the energy bill still being debated in Congress would be to make these standards enforceable through punishments that could be exacted against someone who doesn't meet them, Abraham says.

"Right now the standards are voluntary, and we believe that there should be this kind of power vested in the federal government to make sure that the systems run properly," he says.

Abraham also says the task force is preparing its final report that will contain recommendations for improving the infrastructure and reliability of our electric system in order to prevent future blackouts.

"Even one major blackout is too many, and we intend to use what we've learned from our investigation to make the system even stronger and even more reliable," Abraham says.

On REIT Efficiency

The importance of improving energy efficiency should not be taken for granted, Abraham says. It is in this regard where Abraham sees REITs playing a significant role, both for the environment and for the bottom line.

"Most buildings can achieve cost-effective energy reductions of 10 percent to 15 percent through improvements made to systems operations," Abraham says.

As a first step to improving efficiency, he recommends owners should understand the energy performance of their portfolio; identifying which buildings have the greatest chance for performance improvements, and focusing their improvement dollars to get the most for their investment. One tool to achieve this is ENERGY STAR's Portfolio Manager. Introduced by the Environmental Protection Agency in 1992, ENERGY STAR offers a proven energy management strategy that helps in measuring current energy performance, setting goals, tracking savings, and rewarding improvements.

"Second, owners should investigate building equipment and operation and maintenance practices in order to create a strategic plan for an owner to boost net operating income," Abraham says. "The plan may begin with improvements to existing equipment and systems then, using savings generated through lower operating expenses, move on toward retrofit of inefficient equipment."

Long term, owners should commit to tracking energy performance as part of a larger strategic energy management plan, Abraham says. Owners can track the progress of investments as well as be on the alert when performance declines.

Abraham recommends companies interested in improving their buildings' efficiency and lowering energy costs should join the more than 100 real estate partners and key industry associations involved with ENERGY STAR.