Whitman handed out energy awards to Woodland Hills-based RealEnergy and Los Angeles-based Arden Realty Inc. for their efforts to generate power on-site at commercial buildings, but the awards carry a significance beyond their kudos for the two firms. It also illustrates that some of the nation's largest property owners are tackling the task of reducing their dependence on utilities and reducing energy costs at the same time.

RealEnergy has generated more than 20 million kilowatt-hours of power on-site for some of the largest real estate owners and investors nationwide, including an Arden building at 8383 Wilshire Blvd. in Beverly Hills that is powered in part by a 600-kilowatt combined heat and power system. The system, which generates approximately 55% of the building's power and much of its cooling, is manufactured and marketed by RealEnergy.

According to Daniel Cashdan, chairman of RealEnergy, combined heat and power systems like the one at Arden's 8383 Wilshire building, "are the next step in providing a reliable and secure energy supply for our country."

Cashdan says the systems, known in the industry as "CHP," are growing in popularity among commercial real estate property owners nationwide. He points out that the power produced on-site is not only cleaner and more cost-effective, but makes more power available to the public energy grid during peak demand times.

RealEnergy built and owns the on-site system at Arden's building in association with an Arden subsidiary called NextEdge, which provides energy management services for Arden and other real estate owners, corporations, hospitals, hotels, schools, medical buildings and other customers.

Scott Lyle, NextEdge president, tells GlobeSt.com that Arden has on-site generation systems at five properties, some of which include more than one building served by the system. NextEdge is working on facilities at commercial buildings and a host of other facilities throughout the state, he says, including one that will produce 5.2 megawatts, relatively large for an on-site power plant.

Lyle explains that on-site systems make perfect sense for commercial buildings because electricity usage tends to run highest in such buildings during the "peak load" times when overall demand for electricity also is at its highest, in the afternoon. That's also when electricity is most expensive, so any company that can produce its own cheaper electricity during peak load times can save money.

Arden, the largest office building owner in Southern California with 19.4 million sf in its portfolio, is just one of a number of large property owners embracing the concept of on-site power generation. Thomas W. Smith of Equity Office Properties Trust notes that the on-site approach also is called distributed generation to distinguish it from the central generation of power plants operated by utilities.

Smith, Equity's vice president of energy operations, says the REIT has six buildings with on-site systems in Southern California and two in Northern California. He says Equity is taking a different approach from Arden in that it has opted to own its systems and provide the power through a subsidiary called OnSite Energy Providers LLC.

"We're providing the buildings with lower cost energy and we are operating them in a way to eliminate peak energy prices so it gives us more overall efficiency in our purchasing of power," Smith says. He says office buildings typically use about 80% of their power during peak times. "If you change that percentage, you can buy power better when you go out for procurement in open markets," he says.

Equity also is taking waste heat from engines that generate electricity and using it to produce steam, hot water and chilled water. The combined heat and power systems, he notes, are actually the latest incarnation of an idea that was popular in the 1920s and 1930s, when the world was first getting wired for electricity. In those days, manufacturing companies and building owners often operated "cogeneration" facilities on their premises, but the practice fell out of favor with the trend toward central power plants--until recent energy price spikes, technological advances and other developments turned cogeneration into an idea whose time has returned.