In the past 30 years, energy business has changed. In today’s competitive environment, it has become hyper-critical to reduce organizations’ operating expenses. Energy spending now receives a great deal of attention. In order to reduce a facility’s energy spend and manage it over the long term, you have to focus your approach. Through years of experience, trial and error, and client success, we have compiled some guiding principles that can help direct you on the path to a true energy management plan.
This blog is the first of many, with an objective to provide energy management and cost saving tips that can help organizations drive lower energy costs and support a more sustainable future for all. Read on to learn more about our first topic, “Energy Procurement.”
- Know your electric and natural gas energy markets.
If you are in a deregulated market (many states are), be aware of the drivers that determine the price of energy and influence future trends of the market price. If you are in a regulated market where you are required to buy directly from the utility or if you choose to stay on utility tariff rates in a deregulated market, understand how rates are determined and what risks you face. It is important to define risk, amount of hedge and your organization’s desire to lock in long term. Depending on the current market cycle, we can help determine the strategy for your portfolio.
- Know your internal budgetary goals and risk tolerance.
When developing a strategy, it is important to consider the requirements and concerns of all internal groups affected by the decisions being made about your energy strategy. This could include personnel from treasury, finance, facilities, operations and anyone with ultimate profit and loss (P&L) responsibility. A local non-profit organization may have a vastly different set of decision-making criteria than a large international manufacturer that is used to commodity risk and foreign exchange risk.
- Know your tariff structure.
An energy bill is quite complicated and most of the time is “just paid” as a part of doing business. The energy rate paid for usage is just part of the bill. There are many different components and charges on your bill. Companies can save (or lose) large amounts of money based on the tariffs and rate structure on the bill. Have an expert review your bill to ensure it is correct.
- Cost Transparency.
In the deregulated energy markets, many customers use a third-party consultant or broker to assist with their energy buying. Under the broker model, the broker fee is included in the energy price paid by the customer to the third party supplier, thus hidden from the customer who is ultimately incurring the cost. If you do not know what your broker is charging, ask. It is impossible to measure value as calculated by dollars paid vs services rendered if you don’t know what you are paying. If they are unwilling to share the fee, then find a new, trustworthy broker. In many industries, like financial planning, the rates are part of the transparency, so why is it a secret in the energy world? Ask and see what happens.
- Influence of your usage profile.
Natural gas prices are determined by a client’s seasonal usage profile and electric prices are determined by both the seasonal usage profile and the daily usage profile. Being able to influence these patterns of usage can have a significant influence on the pricing you are able to negotiate with suppliers. There are several ways to influence your load profile that may involve a sophisticated building management system or participating in a Demand Response program.