Rising energy costs have a dramatic effect on the bottom line. The annual average crude oil price has jumped from under $30 per barrel in 2003 to over $50 per barrel in 2005 (approximately a 40% increase)! Many companies have seen similar increases in their electricity bills, particularly in areas where deregulation has occurred. Even well established companies like Alcoa, Inc. have considered closing plants in response to their increasing energy spend.

Energy costs show no sign of slowing, and with our continued dependence on fossil fuels, combined with catastrophic hurricanes, frigid winters, rolling blackouts and energy deregulation, many companies are bracing for the worst.

One way for companies to mitigate the burgeoning energy crisis involves developing a comprehensive Strategic Energy Plan. A Strategic Energy Plan (SEP) establishes and defines a company's energy goals from supply-side to demand-side management. An effective SEP should define the extent to which you examine your energy procurement and conservation practices. It can begin by establishing a cross-sectional team of individuals from several key areas of the organization to assist in the development of the SEP to help gain acceptance, identify energy minimization opportunities, ease the implementation burden, and create a foundation for organizational change.

Energy Spend

Many companies will hire an outside energy accounting and auditing firm to conduct a bill audit. This audit will reveal common errors such as power factor problems, incorrect meter readings and inappropriately applied sales tax. Bill audits may also identify unusual usage fluctuations and assist in determining if a more favorable qualifying billing rate applies. The electric company should be able to calculate your bill at different rates upon request, although usually not to the length or extent of an outside energy firm.

The key incentive for performing a bill audit is that it can immediately produce savings with no capital investment. The fees for conducting the audit are normally funded by the cost savings realized.

Another low-cost, capital-free option is to hire an energy procurement specialist capable of analyzing and negotiating agreeable energy contracts and rates. Partnering with an energy procurement specialist is especially crucial when working within a deregulated framework, which lends itself to variable pricing. This specialist can also assist in the development of the SEP by focusing on energy procurement strategy.

Energy Use

An energy bill analysis will reveal where the main energy spends exist within the company (i.e. electricity, gas, transportation fuels, etc.). In addition, most electric companies can provide you with comprehensive energy usage data (by hour or minute) in order to determine when it is used and how it is used (constantly or fluctuating) - both have a dramatic effect on the price. Depending on the size of the company and the complexity of the operations, in-house staff may be able to easily determine what activities have the greatest impact (transportation, heating, cooling, etc.). Once identified, the company may begin to focus on developing and implementing solutions to reduce energy consumption.

Demand-side opportunities often exist in the form of modifications that are relatively easy to put in place and provide quick returns on investment (i.e. the "low-hanging fruit"). Some tried and true energy savings opportunities include:
  • Lighting retrofits
  • Variable speed motor replacements
  • Air compressor replacement
  • Alternative energy and fuel sources
  • Boiler tuning and optimization
  • Furnace tuning and optimization

    The savings can often appear in multiple forms. Therefore, when reviewing the feasibility of these projects, your company should assess both the direct (lower costs, greater efficiency) and indirect savings (tax credits and deductions). There are federal and state programs which provide numerous incentives and provisions for energy-efficient buildings (new and existing), equipment, products and vehicles (including alternative fuel vehicles). The U.S. Department of Energy's website (www.energy.gov) provides detailed information on The Energy Policy Act of 2005 (EPACT) and a comprehensive list of state programs.

    It is important to keep in mind - technology has transformed once impractical options into viable alternatives. Wind power, solar power, biodiesel and hydrogen fuel cells have all found markets with proven benefits. In addition, many companies have found that opting to use alternative fuels and renewable energy can significantly improve employee relations and public image while simultaneously reducing the company's environmental footprint, of which both can be assigned monetary values. IH