Regardless of the business you’re in, energy most likely represents one of your company’s most significant costs. That’s why it makes sense, whether building a new facility or revamping your current space, to take a good, hard look at what you pay for energy.
The 1996 deregulation of the electric utility industry in Pennsylvania introduced a new host of considerations for business owners and managers. Dozens of energy companies from all over the country are entering the market, promising lower rates and a wide range of energy management services.
In the emerging competitive marketplace, those who explore all their options will find that energy deregulation has the potential to yield significant cost savings.
Taking into account the changing energy needs of your building or plant — and the opportunities resulting from deregulation — here are four things to consider as you seek the best solution for your firm:
1. What competition really means. Electricity arrives at your business through a three-step process: It is generated, then transmitted to a location from which it is distributed to your building or plant. Electric companies charge for all three services. The generation portion of your energy contract is the only one open for competition.
You can shop among different electricity suppliers by knowing your “price to compare” — essentially, the average cost of the generation (and, in some cases, transmission) portion of your electric bill. Keep in mind that cost comparisons and analyses must take into account customer transition charges and other ancillary service fees.
2. Understanding an energy contract. Many businesses, looking to take advantage of deregulation, have entered into service contracts with energy suppliers. These contracts, which can be attractive if they spell out guaranteed rates, often are a good deal. But some energy contracts include terms and conditions that allow the supplier to tack on additional charges above and beyond the agreed-upon rate.
One business owner told me of a contract that guaranteed his business an all-inclusive rate of 3.6 cents per kilowatt hour. However, the owner was actually billed an additional “transmission charge” of 0.2 cents per kilowatt hour. Make sure you understand your energy contract and what you will be charged for.
An increasingly common energy purchasing method is auction-type bidding for energy contracts via the Internet. This allows energy companies from all over the country to bid on your energy contract, based on the customized set of parameters you select. You can write your own RFP or let your energy management firm do it for you.
3. The importance of managing your energy consumption. Landing the best price on your energy contract is only part of a total energy management solution. You’ll also need to implement strategies that help you optimize your company’s energy usage. Your energy bills can be lowered significantly through upgrades to your energy plant, such as the installation of new energy-efficient lighting, energy controls and HVAC systems. The savings you realize by optimizing your energy usage may be several times greater than those obtained through competitive energy purchases.
4. Outsourcing is often the best solution. As a result of energy deregulation, a proliferation of new companies called energy management firms has emerged. A good energy management firm will implement the plant-upgrade strategies detailed above and ensure that your equipment is running efficiently from an energy usage perspective.
Most importantly, they‘ll put together a plan that effectively manages both the supply and demand portions of your energy usage. Managing the supply side means finding the best possible alternative for your electricity and natural gas supply. From a demand standpoint, it means developing and implementing strategies to reduce energy consumption within your facility.
In the end, to make the right energy choice for your business, you need the right information. This involves gaining an understanding of your energy needs, as well as the intricacies of the options. While this process is not necessarily easy, businesses that aggressively review their options stand to gain the most from deregulation.
John J. Zbihley is president of OnDemand Energy Solutions.
