Your Energy Manager
Topic: Utility Accounting - Key to Controlling Utility Costs
November 2007
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Independent Energy Consultants, is committed to helping its clients make well-informed and cost-effective decisions regarding their energy supply and consumption. We are sending you this newsletter to help you understand how energy decisions that are made, or not made, effect your company's bottom line.

Utility costs are a top-five indirect spend category for most commercial, industrial or governmental entities. Successful companies who are serious about addressing this spend category typically formulate goals such as:

  • Reducing utility costs or mitigating price increases
  • Promoting energy/environmental awareness
  • Identify and correct billing errors
  • Verify the results of prior utility savings initiatives
  • Prioritizing facilities for utility efficiency projects
  • Troubleshoot unusual energy consumption or spend patterns
  • Collecting detailed data to support shopping for electricity
  • Benchmarking to rank usage and spend history at similar facilities, and
  • Tie utility savings goals to employee or departmental monetary incentives.
    • Once you have identified your goals and objectives, and obtained commitment from senior management and key decision makers, it's time to get the organizational "buy-in" to make your program a success. The intelligence and rallying point for that buy-in can be an objective, economical and powerful utility accounting system.
    • Before you can manage utility costs, you need to know what they are. Utility accounting provides feedback on how much (electricity, gas, water, sewer, fuel oil, propane, etc.) your organization uses, and how much it costs.
    • An effective utility accounting system provides a means to communicate utility data that facility staff, building occupants and managers can use to improve cost management.
    • In an organization with many facilities, utility accounting makes it possible to capture and compare utility use and cost among facilities and to monitor how utility use changes over time. By communicating this information, those responsible for managing utility costs can get feedback on how they are doing.
    • Troubleshoot utility problems and billing errors. By consistently tracking utility use, you can quickly identify problems and spot billing errors.
    • Benchmarking provides a basis for prioritizing utility capital investments. Find out which facilities have the highest utility costs, and consider targeting them for energy efficiency projects or other management efforts.
    • Evaluate how prior utility management efforts have faired? For example, did the dollar savings from an HVAC or lighting retrofit meet the savings predicted by your vendor or contractor? Without utility accounting, it is impossible to know.
    • It is important to communicate the results of utility management activities. Online utility accounting reports and graphs are powerful tools to provide this feedback.
    • The more knowledge you have of your precise electricity needs, the better chance you will have of paying lower prices. In last month's newsletter we discussed the "Anatomy of an Electric Bill". We discussed how a supplier's risk is reduced and they can provide lower rates when they know how much energy your organization consumes during different seasons, days of the week, and times of day. A robust utility accounting system will prepare you to negotiate for the best electricity deals in deregulated markets.
    To see a 5-minute overview of the powerful utility accounting and bill auditing system used by Independent Energy Consultants, please click here.
    Now that we see a need to manage utility costs and the value in a utility accounting and auditing system, why isn't everyone doing this? Some of the more common reasons are:
    • It is often difficult to find someone in an organization to take on the task of carrying out utility management activities because there is little incentive. A maintenance director or site manager may not see much benefit in reducing utility costs if all of the savings revert to a common fund, or if lower utility bills only results in a smaller budget next year.
    • If utility costs are measured, budgeted and paid at the corporate level, individual departments or facility managers have little incentive to reduce costs.
    • With a steady increase in utility costs that often outpaces inflation rates, it is difficult for procurement managers to demonstrate savings in new energy contracts. Therefore, the tendency is to think that nothing can be done and it's best to remain supplied by the local utility.
    To address the "conflicts" between responsibility and benefits, organizations may want to create incentives for utility cost management by sharing utility savings. Utility accounting makes it possible to allocate costs and set quantifiable cost reduction goals. Armed with that capability and by way of example, a local government might decide to reward a facilities team by using realized utility savings to augment the facility management budget for the next year. Another example would be school districts sharing savings with individual schools that cut costs through utility management activities.

    The term energy savings is used loosely by suppliers and end-users alike. Often the expression is defined to fit a particular agenda, or estimated because there is no means for calculating an accurate value. A good accounting system will allow you to compare your rates against alternative rates from the local utility. It will also capture the effects of weather or other cost drivers that are out of your control. That information is vital in explaining the true reasons for cost over/under runs. Purchasing managers faced with rising energy costs should not be penalized or shy away from energy purchases, but rather embrace the process and be rewarded for price-increase mitigation, budget stability and risk-exposure reduction.

    On your own, it may be difficult or too time-consuming to setup and manage a utility accounting system. At Independent Energy Consultants we can relieve you of this task for a small fraction of your current utility spend. We are also willing to turn the process over to your staff after we have your system up and running smoothly. A utility accounting system in the right hands can quickly pay for itself many times over. It can be one of the most cost-effective tools for school districts, cities, counties, colleges and commercial or industrial companies who process more than 50 utility invoices per month. Please contact us if you would like to see a demonstration and to discuss your needs.

    Contact us for your energy management needs.

    email: info@naturalgas-electric.com
    phone: (330) 995-2675
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    Independent Energy Consultants, Inc. | 820 Deepwoods Drive | Aurora | OH | 44202