A brief look at Measurements and Verification for utility bills.
Checking up and verifying company costs is an ongoing process. Improvements have been made internally at your stores, energy efficient protocols and equipment installed at each site. Yet, why are the monthly and annual costs continuing to increase? Take a journey with me as we place ourselves in the position of proving that all those energy efficient appliances, and facility protocols are worth the initial investment of time and capital.
Imagine yourself as a stakeholder in your company. Two years ago, you spent over $10 million on utilities alone. Then beginning last year, you hired an Energy Manager to implement an energy management program. By the end of last year your company spent $12 million on utilities. You went from spending $10 million two years ago, to spending $12 million last year, plus the salary for the new Energy manager. Now ask yourself, should you fire the Energy Manager, or praise the Energy Manager?
The honest answer to this scenario is we simply don’t have enough information to decide if the energy management program worked. It’s easy to have a quick answer to the hypothetical situation, however one must truly look at all areas internally to see if the energy management program was effective. This is known as a system of Measurements and Verification. At the end of the day, a process of measurements and verification reveals how much money and energy the project really saved. There are several standards for providing an accurate report, software systems, internal departments and proven methods. So, let’s only focus on some of the areas that are sometimes missed when comparing savings between a baseline year and current expenses.
On the surface, it appears our annual cost increased by $2 million. So, let’s look at the variables. First, consider the baseline conditions of the stores. To do this we need to look at the occupancy of the stores. How many employees were in the building per day, plus the customers who entered the stores on any given month. It may seem like a trivial concept, however the quantity of people in each building accounts for loss of energy efficiency in regard to HVAC.
In addition to occupancy, there are several areas which are commonly missed during a measurement and verification review. Weather conditions vary from month to month, and also when comparing from year to year. Your utility provider usually helps with this area of measurement. Often the utility company will publish on your routine bills the months average daily temperature, and also compare it to the previous year. It wouldn’t be a fair assessment to fault the energy management system for increased energy use, and higher utility bills if the weather increased from previous years.
Next comes an area which can take a great deal of research when making the assessment. The change in commodity cost. The commodity, whether its kWh and kW for electrical usages, or Therm for natural gas. The commodity cost is guaranteed to change. Each region has published utility Tariffs which are passed by the local Public Utilities Commission (PUC). These Tariffs govern the costs that apply to each specific rate schedule that each utility bill is on. Tariffs change more often than we think, and to make matters worse, Vendors do not always send email announcements to let you know. Looking at the cost per commodity used, year over year is crucial when factoring in if the energy management system has been effective.
On the same subject of costs for your commodity, there comes into the equation Transport Gas, and Electric Supply. Which simply means that if your stores are in a deregulated area, your companies procurement department has more than likely entered into a specific natural gas or electric agreement with a third-party seller for the commodity. If the third-party contracts are inferior to the default costs with the utility vendor, it would account for higher utility charges even if your stores used less energy each month. If your contracts with suppliers are fixed costs, the measurement process will be simpler to compare. However, a variable cost over index pricing will change each month causing some months to be lower and others to be higher depending on how the market adjusts.
Allow me to put all this into a real word example. A particular client had a store which outperformed all other facilities in sales each year within the company. However, the increased costs for utilities caused the store to be close to a loss after expenses were considered. The store uses both electricity and natural gas as a means of energy. At the baseline year (prior to implementing the energy management protocols), the store’s utility costs in April totaled $3,040.00. After the company started the energy management program, installed various energy efficient equipment, and cost avoidance protocols, the current year’s April utility costs was $4,227.50. That’s an increase (not a decrease) of $1,187.50 for the same month in the prior year.
During an evaluation of this individual site, the following was discovered. During April of the baseline year, the electric usage was 25,000 kilowatt hours (kWh), and the electric commodity cost at ¢10 per kWh used, totaling $2,500 in electricity. Also, the natural gas usage for that month during the baseline year was 1,200 Therms, and the gas commodity cost at ¢45 per Therm used, totaling $540 for natural gas.
The following year, after the energy management program was initiated, April’s Electric usage was at 23,500 kWh (a decrease from the baseline year), however the electric commodity increased due to market conditions. The electric vendor had a Tariff increase on the rate schedule the facility was on, causing the cost per kWh used to increase by ¢1.5. Electric costs for 23,500 kWh at ¢11.5 was $2,702. Looking at electricity alone, the energy management program did its job by reducing the overall electric consumption, even with higher than normal daily temperatures, however, due to market conditions with the utility vendor, the price of the April’s monthly bill increased by $207.
Now let’s look at the Natural Gas. This is where a major error took place, causing the store to be flagged. In our April of the baseline year, the gas cost per Therm was ¢45. This store is in a deregulated area and the company procured a third-party supply agreement for natural gas in prior years. The Transport Gas contract expired in December of the baseline year, and automatically switched to a month to month rate at an extremely high cost per Therm used. The company missed the renewal notices which caused the store to be charge $1.25 per Therm used. That’s in increase of ¢80 from when they were in a contract with the gas supplier. The current year’s April gas usage was about the same as the baseline year at 1,220 Therms used. But instead of a competitive cost of just ¢45, they were charged $1.25 causing the April gas bill to be $1,525. An increase of $985.
The good part of this story is our firm was able to catch the error in over-billing with the natural gas and put them back on a market competitive pricing. Additionally, we were able to recover back billing from when the third-party natural gas supplier had them on month to month pricing. Electric, was placed on an alternate rate through the current electric vendor and the site is saving an average of 5% overall electric costs regardless of electric usage.
Going back to the question at the beginning of the article, we praised the energy manager for his works to reduce overall electric usage per facility. The energy management protocols, and equipment installed are helping reduce the usages each month. Plus, with the added benefit of a utility bill audit working in tandem with the energy management team, we have been able to reduce their commodity costs and produce refunds to help their bottom line.
In addition to energy management, efficient equipment, and cost avoidance protocols, it is worth going the extra mile to have the utility bills reviewed, verified, and audited on a regular basis. Having a third-party audit team on your side is the extra security any organization needs to stay on top of current market trends and continual review of billing accuracy. At the end of the day, we can praise the energy manager for reducing the overall monthly consumption of energy and rejoice with the results of the utility bill audit for its reduction of costs.