Keeping Energy Costs in Line

The outlook for energy costs isn’t rosy, but you can employ some short- and long-range strategies to lower your utility bills.

By William Atkinson

Utility prices have been increasing, sometimes stratospherically, in recent years like we’ve never seen before. In a lot of cases it’s a desperate situation – to the point of driving some companies out of business. But with some well-directed planning, you can get your arms around those fat utility bills.

“In terms of pricing, we are in unforeseen territory,” says Jennifer Wynn Stoll, president and CEO of Utility Reduction Analysts in Traverse City, Mich. (www.utilityreduction.com), a consulting firm that helps companies reduce utility costs. “We are seeing rates from some utilities that are crippling to some companies. For example, if their bill goes from $25,000 a month to $60,000 a month, that can be devastating.” According to Stoll, companies need to be strategic when it comes to energy. They need to think ahead, learn all of their options, and explore those options.

Patrick Klima agrees. Klima is operations manager for Abraxas Energy Consulting in San Luis Obispo, Calif. (www.abraxasenergy.com), another energy consulting firm that focuses on energy cost savings and energy management. He cites a specific example of the importance of diligence: “The House Ways and Means Committee once found that 90 percent of all utility bill errors are in the utility’s favor,” he says.

Understanding energy generation
Everyone knows that the electricity that powers their businesses comes from their local utilities. However, not everyone knows the “mix” of the fuels that these utilities use to generate the electricity. Nationally, the current mix is this:
• About 50 percent of all electricity is generated from coal.
• Another 19 percent comes from nuclear power.
• Another 19 percent comes from natural gas.

Beyond this, the numbers are 6 percent from hydroelectric; 3 percent from petroleum; and 3 percent from renewables.

In most regions of the country, coal and nuclear energy are “base load” fuels, meaning that during periods of average demand, coal and nuclear power plants can provide virtually all of the energy that the service territories require. (In parts of the Northeast, base load fuels are nuclear and natural gas.) However, when demand spikes (called “peaking”), utilities must purchase additional power, usually at significantly higher prices, and usually from natural gas plants (called “peak load” plants).
The good news is that coal and nuclear power prices tend to remain relatively stable. As such, when a utility is generating or purchasing all or most of its power from one or both of these sources, you will likely see relatively stable utility bills. However, with the demand for energy increasing significantly around the nation, especially during very hot summers and very cold winters, most utilities are forced to purchase additional power from natural gas providers, and prices for natural gas can fluctuate wildly (as everyone discovered after hurricanes Katrina and Rita).

Hydroelectric prices tend to remain stable, petroleum fluctuates, and renewables tend to be somewhat expensive as a result of the newness of the technology and the challenges of transmission. Renewables include wind, solar, biomass and geothermal. Since the locations of these power sources tend to be distant from urban areas, it is an expensive challenge to build transmission lines to move the power from the generating locations to the utilities.

The future of energy costs
According to the Energy Information Administration’s “Annual Energy Outlook 2007” (which studies energy supply, demand and prices through 2030), despite the rapid growth projected for biofuels and other non-hydroelectric renewable energy sources, oil, coal and natural gas are still projected to provide roughly the same share of the total U.S. energy supply in 2030 that they did in 2005.

However, EIA makes it clear in its report that this projection, as well as all of its other projections in the report on the generation and usage of the various energy sources, are based on the assumption that there will no changes in existing laws and regulations related to clean air, requirements for renewables, etc. However, such assumptions are dangerous, because to date at least 25 states have already begun to mandate that a certain percentage of energy come from renewables in the coming years, and several states have created carbon emission standards. Congress also may increase requirements for renewables. As more of this legislation at the state and federal level occurs, it is likely that coal and natural gas usage will decrease and renewables will increase. Demand for nuclear energy is unclear at this time. While it is considered a “clean” source of energy, public backlash makes it difficult to site new nuclear plants these days.

Let’s look at the future of coal and the potential impact of “green” legislation. According to the EIA’s “Annual Energy Outlook 2007,” coal consumption is projected to increase from 22.9 quadrillion Btu’s in 2005 to more than 34 quadrillion Btu’s in 2030, with significant additions of new coal-fired generation capacity. However, again, the report makes it clear: “These projections are particularly sensitive to the underlying assumption that current energy and environmental policies remain unchanged. Steps to reduce greenhouse gas emissions through the use of an economy-wide emissions tax or cap-and-trade system could have a significant impact on coal use.”

In sum, the future of electricity generation, both in terms of how it will be generated and how much more it will cost, is “up in the air” at this point. The only thing unlikely is that prices will decrease to any large extent in the future.

Generation and cost in the short term
According to the EIA’s August 2007 “Short Term Energy Outlook” (its monthly report), projected growth in electricity consumption will raise electric power-sector coal consumption this year by about 1 percent. Coal production, which increased by 2.6 percent in 2006, is expected to have fallen by about 2.6 percent in 2007, and fall again another 0.5 percent in 2008. The combined increase in demand and decrease in supply will lead to an estimated decline in existing coal stocks held by producers/distributors of more than 12 percent in 2007. Producer/distributor stocks are projected to shrink by an additional 11.2 percent in 2008. In sum, look for price increases in coal.

And in terms of natural gas, the August report notes that the price of natural gas is expected to increase almost 5 percent between 2007 and 2008, while consumption is expected to rise 4 percent in 2007 and 1.3 percent in 2008.

The result is that electricity prices are expected to rise. According to the EIA’s August report, “The price of electric power is projected to increase 2.6 percent in 2007 and another 2.9 percent in 2008, with prices in the mid-Atlantic region expected to increase at a faster than normal rate.”

Addressing energy costs
There are three major ways for precast companies to address energy costs:
1. Consumption reduction: Use less energy (energy audits).
2. Rate reduction by changing utilities (customer choice).
3. Rate reduction with existing utility: Pay less for the same amount (bill audits and rate adjustments).

There are two ways to explore these options: Work with your existing utility and work with a consultant.

Working with Your Utility. One option is to contact your local utility company. While they are, obviously, in the business of selling electricity and natural gas, they have to pay premium prices for more power once they exceed peak loads. And, of course, they have to pass these higher costs on to customers. Since utilities are committed to the economic strength of their geographic regions, most of them want to do whatever they can to attract new businesses and retain existing ones. One of the greatest attractions for businesses to locate and remain in an area is competitive utility rates. As such, utilities are generally happy (or at least willing) to help businesses find ways to reduce energy costs.

When working directly with your utility, Stoll of Utility Reduction Analysts recommends that you meet with your utility rep to make sure you are on the right rate and to discuss other rate options. Also, during interactions, be cooperative, agreeable and patient, she says.

Some utilities include energy-saving ideas for businesses and homeowners on their Web sites. For example, Allegheny Power of Hagerstown, Md. (www.alleghenypower.com/Bus2Bus/250Ways.asp) lists 250 energy-saving strategies for businesses organized into 30 categories.

Working with a Consultant. Consultants tend to offer services in three areas, with most specializing in one or two of the three: energy audits (helping you reduce energy consumption), customer choice (helping you find a more competitively priced utility), or bill audits and rate adjustments (helping you find a better rate with your existing utility). For some inside information on how they charge for their services, see the sidebar “Consultant Charges.”

• Energy Audits. This option involves hiring a consultant to audit your facility and its energy usage to help you identify energy-wasting activities.

Klima of Abraxas Energy Consulting identifies the three most common opportunities to find the “low-hanging fruit.” The first is a lighting retrofit. Second is the HVAC system. Third is equipment that uses motors. Abraxas also provides energy management training for managers and employees in how to become more energy efficient. “In addition, we have software that helps customers analyze their utility bills, which can help them compare usage between two or more facilities,” he says. If one facility’s costs are significantly higher than the other, it is important to find out why.

• Customer Choice. Many states offer “customer choice,” meaning that businesses and/or residences can competitively shop for utility services from a number of different utility providers. “In states that offer customer choice, which include about half of them, if you have a high utility bill and are not competitively shopping for electricity, you are missing a huge amount of cost savings,” says Murray Sim, director of energy and utility services for Titus in Milwaukee (www.thetitusgrp.com).

In addition, according to Sim, you can competitively shop for natural gas in all 50 states. He recently worked with a client who had been involved in a competitive natural gas procurement program for about 20 years (playing the futures and derivatives market). He helped the client investigate a market area storage program, which involved buying gas in the summer, storing it (using storage services from the pipeline) and using it in the winter. When they compared the price of this option versus what the client had been doing, they found that the storage program was more cost-effective for this particular client.

• Bill Audits and Rate Adjustments. You can also hire a consultant who will audit your utility bills, looking for ways to lower your rates. In some cases, these consultants can identify lower rates that your utility could offer that you are not aware of. In other cases, they can locate billing errors made by the utility that caused your bills to be higher than they should. As a result of utility bill audits, even if you don’t do anything to cut your usage, such consultants can often find ways to help you cut your utility expenses.

One such company is Midwest Utility Consultants in Cincinnati (www.mucinc.com), which helps clients find lower rates for gas, electric, water, sewer, waste removal, phone, Internet, Web hosting and wireless. “With precast concrete companies, we can also look at diesel and gas for their trucks,” says Patrick Maue, president. According to Maue, there are a variety of rates available, which are different from market to market. “In the Cincinnati area, for example, there are three pages of rates and riders that are available to clients,” he says. The best rate for a client will depend on usage patterns and other criteria.

Another firm offering similar services is Utility Reduction Analysts. “Our work involves addressing the rules, regulations and tariff audits,” says Stoll. “We audit what clients are paying, what rate they could be on, and if they are due refunds.” Her firm tends to focus on companies spending $600,000 to $20 million a year for utilities.

These days, according to Stoll, while her firm is still able to find significant savings for some clients, there are fewer such opportunities. “Deregulation has not fared as well as expected,” she explains. “As such, these days we are looking for ‘needle in the haystack’ savings, maybe around 6 percent, rather than savings around 15 percent that occurred during the heyday of electric utility deregulation.”

Still, opportunities exist: “Because of the number of people who have been downsized from utilities and customer companies, more things slip through the cracks,” she explains. “For example, companies might acquire other companies, and they turn over all their bills to a different person.” As such, because of workload, downsizing and automation, errors can still occur.

Stoll offers recommendations to clients for working with an energy consulting firm:
• When selecting a firm to conduct your audit, look for testimonials. “Get in touch with companies they have worked with in the past to see how satisfied they were with their results.”
• If you are in a state with a choice program for gas and electric, before you work with an alternative energy provider (AEP), check them out. Get testimonials and check the numbers. “This is one reason some people hire us – to check out the numbers,” she says. “AEP salespeople can sometimes get creative.” For example, one utility had two facilities it wanted to focus on. The salesperson provided a rate that would have included all 20 of their facilities. “We look at all the terms and conditions, look at ‘apple to apple’ savings, and the representation for ongoing support from the utility.”
• Look at all of your utilities. Stoll’s firm covers electric, gas, water, telecommunications, trash and sewage. It is important to look at as many of these areas as possible, because there may be more opportunities for savings. “For example, if someone gives us just their electric and gas, they may be missing a huge water savings or refund,” she says.
• Have as many records as possible for the consultant to review in terms of past bills and other data.
• Be open to exploring different ideas. “The more things we can look at, the more opportunities will exist for savings.”
• Finally, make this a priority. “We have a lot of clients who say after we conduct an audit, ‘I wish I would have done this sooner.’”

Besides rallying a defense with long-term strategies such as energy audits and alternate energy sources, there are also some short-term tactics you can use at your plant (see the sidebar “Energy-Saving Tips”). It’s also a wise idea to keep an eye on government mandates on emission standards and renewable energy sources. Whatever actions you decide to take, any savings you can make on energy consumption is good for the environment and good for your pocketbook.

Energy-Saving Tips
Here are a few ideas where precasters can save on their utility bills right now.
• Use automatic timers for office lights.
• Cool your offices to 78 degrees F; heat them to 68 degrees F.
• Monitor the use of window air conditioners.
• Limit coffee pot quantities.
• Limit the number of space heaters.
• Install vestibules where feasible.
• Use economizer cycles on HVAC systems.
• Depending on your area of the country, consider heat pumps.
• Check air handling systems and filters.
• Convert lighting in the plant to energy-saving devices. Check ballasts, clean fixtures.
• Use thermostat controls on infrared heaters rather than allowing them to run constantly.
• Experiment with lower temperatures for steam curing.
• Use limit switches and timers on building doors to retain heat in winter.
• Repair leaks in compressed air equipment.
• Perform an energy audit.
• Perform an electrical distribution audit. Instead of requesting a service size increase, find out if a redistribution (load balance) will save energy.
• Perform routine maintenance on chilled water systems, boilers, heaters, etc.
• Insulate hot-water lines, boilers, water heaters, etc.
• Check truck tire inflation daily.
• Wash the vehicles (excessive dirt and mud can inhibit performance).
• Reduce engine idle time where feasible.
• Combine/consolidate trips/deliveries.

William Atkinson is a freelance writer who covers business and safety issues.