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Five Areas Not to Overlook in Reducing Energy Costs

University Business, June 2011

There was a time, and not all that long ago, when many organizations looked at energy costs as a fixed cost of doing business over which they had little control. But rising energy prices, coupled with a challenging economic environment and an increasing focus on carbon reduction, have grabbed American leaders by the shoulders and shaken them into a greater state of consciousness when it comes to energy.

Energy can and should be strategically managed with an eye toward minimizing costs. More and more organizations, large and small, are now taking a harder look at how they can optimize their energy costs--taking into account both the price and consumption side of their energy budget. Here are five areas of potential energy savings that should not be overlooked.

A logical starting point is to aggregate all energy-related information into a single place. Create one database for energy price, consumption, and cost information across the company. This will enable you to benchmark performance at various locations, which also enhances the ability to target sites with the highest price or consumption on a per-site or per-unit of production basis. With access to an all-inclusive database, you can better target those opportunities with the highest potential benefit, rather than taking a shotgun approach and hoping you hit something.

Energy management can become an extremely bureaucratic affair. Most organizations delegate energy data to accounting, energy supply to procurement and energy demand to either facilities or engineering. This separation results in an obvious disconnect of information, information that should be analyzed as a whole and not in various silos.

Energy data is the basis for benchmarking energy performance, and through this data, you can verify savings from energy management programs. The data also is critical to measuring the effectiveness of energy supply and demand management initiatives. Managing energy supply without taking into account how the price will affect the cost/benefit impact of energy capital programs drastically reduces your potential returns. Furthermore, an independently managed energy demand system can lead to consumption reductions that can cause an organization to fall below its minimum-volume commitments in its energy supply contracts increasing the average cost per unit of energy and negating the benefits associated with reduced energy consumption. While separating energy data, supply, and demand responsibilities might seem logical on the front end, they must be managed in concert to maximize benefits.

Energy markets are volatile, and most often, the time to take advantage of positive market shifts does not correspond to the termination dates of contracts. To optimize energy pricing, it is important to constantly monitor energy rates and leverage positive shifts in the market by re-negotiating or extending contract terms to reap the benefits of positive movements in the marketplace.

New York Mercantile Exchange (NYMEX) natural gas prices and local basis (the price difference between the NYMEX price and price at the location of the actual delivery) trade at differing levels. When NYMEX increases, basis may contract and vice versa. Contracting both jointly takes away your ability to negotiate the best price for each individually, foregoing the opportunity to realize the lowest overall cost.

Being ineligible for deregulated energy supplies does not prohibit organizations from pursuing ways to reduce energy costs. Regardless of whether an organization is in regulated or deregulated energy markets, the following are all effective ways to reduce energy costs:

  • Verify utility bill accuracy to eliminate errors
  • Avoid late payment fees
  • Maximize sales tax exemptions
  • Identify the best utility rate structure
  • Alter load pattern to qualify for improved utility rates
  • Improve energy efficiency
  • Review demand-response program opportunities
  • Review on-site generation and alternative fuel systems

Being aware of--and taking advantage of--these areas of opportunity can provide a strong foundation for your campus' energy management efforts. By implementing strategies such as these, organizations are reducing energy costs by as much as 5 to 25 percent. And lowering energy costs is not a one-time exercise. It's a strategy that keeps on paying dividends year in and year out. With volatility in worldwide energy markets expected to continue for years to come, a comprehensive energy management strategy is a critical component for organizations desiring to minimize energy costs and maximize delivery reliability.

Rick Sievertsen is vice president with Louisville-based global energy management firm Fellon-McCord.