Tips for managing energy costs

Deregulation gives businesses energy options By Robert S. McCarthy This past June, the Federal Energy Regulatory Commission (FERC) ruled to implement a newly designed Forward Capacity Market (FCM), a plan to add power plants in New England. The increase in rates would fund a $5 billion program to promote investment in new and existing power resources needed to meet growing consumer demand and maintain a reliable power system. A local news item on the proposed increase suggested that customers of Western Massachusetts Electric could see their monthly bills rise about 14 percent by the year 2010. The attorney generals in Connecticut and Massachusetts opposed the new proposal, saying that the way it is structured, it could produce a windfall for power companies at the expense of consumers (WWLP, March 10, 2005). For small-to-medium size businesses, especially those which consume significant amounts gas and electricity, energy costs have been and continue to be a concern. But there are options to help businesses plan for and perhaps control those costs. Buying energy Historically, small-to-medium size businesses in western Massachusetts have purchased power from one of two utilities, National Grid or Western Massachusetts Electric Company (WMECO). Risk Services Group (RSG), an independent supplier of gas and electricity, has watched energy prices rise 35 to 40 percent annually and suggests there are definite steps companies can take to assess and perhaps control those costs. RSG, based in Shrewsbury, was formed in 2003 to provide assistance to business and institutional customers in Massachusetts and the northeast in energy purchasing and related areas. The company's current clients include colleges and universities, manufacturers, regional and national multi location consumers (healthcare, restaurants, etc.), individual small and medium businesses and various municipalities in the Northeast, Mid-Atlantic and Mid-West markets. According to Bill O'Brien, RSG's Chief Operating Officer, the company looks at competitive choice opportunities to help customers take control of their energy expenses. Savings can come in one of two ways, says O'Brien, through energy efficiency and/or purchasing energy from the competitive market. Audit usage and costs To become efficient in usage reduction, O'Brien directs companies to reach out to their local utility. The utilities have programs for any business to provide everything from energy audits of their facilities to incentives in the form of monies to offset the costs or even pay for the cost of energy savings technologies. Both National Grid and WMECO offer professional assistance for small businesses in the form of programs for upgrading and reducing energy consumption, lighting equipment, occupancy sensors, programmable thermostats and programs for companies that have coolers or refrigerators and out door lighting controls and things of that nature. (See sidebar for contact information.) Energy Options Whether a company investigates or makes changes to equipment they should also pursue competitive energy supply opportunities. Utilities have the obligation to supply both the local delivery, maintain the poles and wires, and they also have the obligation to provide the energy to customers who are not purchasing it on their own. A business may want to purchase their electricity or gas from a competitive supplier for couple of reasons. Controlling costs Utilities are not allowed to offer a fixed price for energy over long periods of time, an option which is available in the competitive market. That option can give a company control over how and when they buy energy and the ability to "lock in" a known price for a known period of time. That allows a company to budget those energy costs which can reduce or stabilize energy costs. The competitive process Upon request, RSG will review a customer's gas or electric bill from the local utility. The review provides a picture of a customer's historic usage over previous year, what rate class they are served on, the data that defines both the cost they will pay if they decide to stay with the utility or the data that RSG needs to work up a customized analysis and show the customer available options from a competitive supplier. RSG identifies the best fit for the customer in terms of the type of suppliers that are available, the contracts and the pricing options. "This analysis is a free service," O'Brien said. "If it shows that the best program is with their utility company, then we will make that recommendation." Keeping tabs RSG recommends companies revisit their decision from time to time. Energy costs and infrastructure technology do change over time. Businesses should check with their utility company to find out if there are incentives or rebates. The same applies to the competitive market. There may be benefits to entering into a longer term agreement to lower costs when energy prices fall. A changing landscape Frank Peraino President of RSG, says that for some time now big businesses have viewed energy as not only a controllable expense that could be budgeted, but an expense that created risk, if unmanaged. They realize that energy costs, like other major operating expenses needed to be managed. Statistics available through the Massachusetts Division of Energy Resources (DOER) show that of the largest customers in Massachusetts, 75 to 80 percent buy from a competitive supplier. But that is changing. When electric restructuring was initiated in 1998, it included Standard Offer Service which was intended to provide a "safety net" for a defined period of time for customers who could not or would not choose a competitive supplier, says Peraino. When Standard Offer Service expired in February 2005, small businesses looked at their costs and more of them started to migrate off utility supply. As energy costs continue to fluctuate, resourceful companies may want to audit their usage and comparison shop energy suppliers with an aim towards improving their operational efficiency and controlling costs.