The increase in heating costs will have a huge impact on facilities’ operations, and there’s no immediate end in sight. High prices may wane later in the winter if it’s severe. If there’s a high demand, prices may lower but not until after January 1, and more likely after the first quarter.
Any FM (facility manager) who locked in a gas price at least a year ago is a hero, but heroes are rare. Most companies are on six-month to one-year purchase contracts and wait until the beginning of the heating contract, or mid summer, to buy. Unfortunately, prices started going up around the beginning of the second quarter this year. If they’ve made commitments to purchase a minimum amount of gas, they’re stuck and must take that load.
Stuck, however, does not necessarily mean helpless. There are still measures facility managers can take to stay within their heating budget this year, and other actions to take that may lower their costs in the future.
1) Know what the facility uses
The first step to lower utility bills is becoming an informed consumer. Once FMs have the tools in place to monitor and benchmark their facilities’ utility usage, they’ll be in a better position to negotiate rates, adjust business operations, or fix faulty equipment. Putting such tools in place can instantly save a company five percent or more on its utility bills.
Energy management software can detect facilities operations that trigger unnecessary over-peak demands, such as all of the elevators going on at once. In addition to monitoring energy use, however, it can forecast loads so operations can be changed before energy peaks occur. The software can be used to adjust equipment scheduling, adjust set points at peak demands, and in extreme times reschedule business tasks.
The software is particularly useful to companies with multiple sites, helping FMs focus on the equipment or operations that most need maintenance to increase efficiency, reduce maintenance and downtime, and maximize staff and budget resources. Even if you’re paying more for energy, it’s still important to get the most you can out of it and keep the company performing smoothly.
2) Have an expert look at the bill
Companies are saying, ‘We need this or that gadget to control how much energy we use.’ Not saying the hardware isn’t necessary, but unless you strategically examine your whole energy expenditure, one-year business needs, and your objectives for how to spend energy dollars, you won’t have an overall solution. Ask the customer to step back and look at their energy use from a higher level to come up with a strategic energy plan that fits in with their business.
The place to start is simply by gathering monthly utility data and information about the site or sites. Then an energy plan skeleton can be created and fleshed out with issues like the company’s rate class. Often companies are in a contract rate or paying for a base demand they don’t know they’re paying for. Their contract may require a minimum monthly purchase of 200 kilowatts, and we find they haven’t used 200 kilowatts in months. Or they have a contract based on a load factor they simply don’t have. So we find a rate that might save them 10 to 20 percent. These are solutions that can be found quickly and deliver savings for years.
The next step is to look through the historical billing data for mistakes made by the utilities to get clients’ refunds. Because of number of customers utility companies have, they make tons of mistakes. Once the facility has an advantageous rate tariff and billing errors have been caught it’s essential to have a monitoring program in place. Tariff structures and rates can change. The facility also may make an advantageous change to its load shape. These potential changes make the energy plan a living document.
Having energy use, rate, and historical billing information puts the energy customers in an incredible negotiating position, especially in a deregulated market where they can get a much better price. They can also get an agreement that includes risk and operational requirements that fit their facilities much better.
3) Take advantage of deregulation
Bundling electricity with natural gas purchases is another way for FMs to lower their utility costs. It can help to lock down a lower, more flatlined price because the customer is committing a bigger piece of their utilities purchase to single provider. In return, the utility company can provide protection from price fluctuations over a specified cap set in the contract.
You’ll see more energy bundling in the long-term. It will be a few years, however, before there are more choices from energy companies who supply both. Natural gas is nationally deregulated and a known commodity play, whereas electricity choices are dependent on state-by-state regulations and facility managers can make better decisions on buying both commodities to provide a hedge on fluctuations.
4) Buy gas at a fixed rate
If the price of oil is significantly higher, people will see higher prices no matter what. The biggest thing energy users can do to avoid price fluctuations, with natural gas prices higher than ever, is lock in a fixed rate for 6 or 12 months.
With a little pre-planning, FMs can lock in costs so they won’t be exposed to unexpected surges. It’s locking in certainty. You won’t get a rock bottom price, but you can protect your business from unexplained rises.
An energy service company (ESCO) should be able to provide a competitive analysis with recommendations, showing the effects on the energy budget of riding the market versus locking in a price. Just before the heating season starts is not a good time to lock in because prices are highest then. After the winter surge is better.
5) Get help
Whether FMs buy fuel at a fixed price or ride the market, few understand and follow the energy industry well enough to get the best energy deals without some expert help. Such varied events as warm weather, a Mideast peace conference, or a promise to dip into the strategic oil reserve can have an impact on far-reaching contract decisions.
There are too many variables and no one solution. Energy consultants can find a best solution for each individual customer, in terms of the marketplace, month, week, type of client, and their load characteristic.
FMs may not be sophisticated enough to play the markets 18 months out. It will take times like this to prepare them for the future. We don’t deny there are a few who can lock in a low rate far in advance, but less than 10 percent watch the market closely and understand the futures game well enough to make purchase decisions 18 months in advance.
6) Consider alternative options
Under deregulation FMs may want to generate their own electricity when prices are soaring, the utility pays companies to shed load, or the utility offers an interruptible load rate. FMs can partner with an electric company that not only can generate electricity on-site but sell the thermal load of that generation at a reduced rate. Inventories of heating oil remain more than 15 percent below 2009, but oil isn’t the only game in town. Facilities can improve their load characteristics by using a combination of fuels. A facility currently dependent on electric heating, for instance, could consider installing natural gas-fired compressors. Using more gas could improve their gas load profile, lower gas costs, and lower the electricity bill.
7) Be aware of the facility’s entire energy picture
We suggest looking beyond the heating bill to find savings. You have energy expenses including oil, gas, electricity, service, and upcoming capital maintenance that could include energy-efficient equipment. If those remain individual pieces, the facilities manager doesn’t grasp the true opportunities. Look at all the pieces and combine them.
For instance, ESCOs can offer a percent off the facility’s heating and electricity bill if the FM will offer a contract to make the facility more energy-efficient. Energy also can be delivered at a greatly discounted rate under a shared savings contract, financing package or BTU contract.
8) Give facility systems a tune-up
While negotiating, FMs can discuss operations and infrastructure with their ESCOs. From a year-out perspective, they should consider the demand-side measures that can be put in place. Many ESCOs and architects have internal and outsourced partners ready to provide retrofits and HVAC service as needed.
Mechanical service can include cleaning ducts and filters, installing high-efficiency motors, and checking the settings on air handlers and boilers. Computers and other equipment in offices generate heat, which may lower the heating needs for those areas. Other options are installing heat recovery systems or preheating incoming cold air. Brown recommends finding an ESCO that offers turnkey services ranging from facility improvements to financial solutions that lower overall costs. You want an energy company that can do more than just offer energy. If you get the lowest price at the gas station, great, but if your car is tuned so it’s using less gas, you’re even better off.
9) Consume efficiently
We see facility executives paying more attention to individual lighting controls, zoned air conditioning, and employee awareness. These days managers are asking employees to take their work and laptops home so the building can be idle after regular business hours. HVAC is either turned down at six o’clock or charged to a cost center. Individual meters are making departments more accountable. And lighting retrofits can include individual automated controls to turn down the lights when employees leave their cubicles, or slide switches that control the lights over each computer.
While some controls can be turned down or operation schedules changed, most corporate facilities are unwilling to lower their temperature set points. You have to keep heating costs in perspective: we don’t recommend energy savings that reduce comfort.
Julian Arhire is a Manager with DtiCorp.com - DtiCorp.com carries more than 35,000 HVAC products, including industrial, commercial and residential parts and equipment from Honeywell, Johnson Contols, Robertshaw, Jandy, Grundfos, Armstrong and more.
