A CFO’s perspective on managing energy spend over the long-term
With so many purchasing options and volatility in the electricity and natural gas markets, executives need to watch energy spending more than ever to make sure they’re realizing all potential cost savings and maximizing efficiency.
Our new Chief Financial Officer Steven Campbell is keenly aware that many firms are missing out on potentially huge energy savings that can drastically impact the bottom line. Steve recently joined Patriot Energy Group after holding key leadership roles at Raytheon, IBM, Juniper and Progress Software, among others, and is now, along with the Patriot team, helping CEOs, CFOs and managers identify ways to reduce their energy spend over time.
For companies that have their fiscal year closely aligned with the calendar year, this is a critical time as most companies are moving from strategic planning process to the budget process. This is a great time of year to take a hard look at expense line items and capital expenditures needed to support business goals.
Below is our CFO’s perspective on a few issues as you plan your budget and explore ways to save money on your long-term energy spend.
Question: How do CFOs at most companies’ approach energy spending?
Aside from cost of goods sold, many company’s CFOs evaluate their primary controllable expenses – labor (e.g., salaries, bonus, benefits, and taxes) and labor-related activities such as travel and entertainment – as their largest categories. Not often do they think of energy cost as an expense item where savings can be found. Although energy is rarely at the top of the list, I’ve come to realize that energy cost is one key area that needs attention.
In the past, I had financial and operational responsibilities of a firm’s energy spend but I would rely on trusted business advisors to tell me what was happening in the industry and where I should look for savings. It is critical to analyze these items as you could easily find savings/ funding for other investments needed to support the company’s strategic vision. Smart, informed decisions are best made with business advisors who regularly monitor market conditions and economics.
There are essentially three ways to reduce a company’s energy spend:
- Buy it for less
- Use less of it
- Make your own
Patriot Energy can share ways to address each of these three areas.
Q: With all the changing regulations, market volatility and other factors impacting the energy markets today, what do CFOs need to know?
Steve: CFOs would benefit from having that go-to individual, or subject matter expert, who can make them aware of regulatory changes and market influences. We’re constantly monitoring the markets, identifying new product offerings, savings programs and efficiency improvement options. Additionally, we’re watching weather and other factors that impact energy costs, and we’re always looking for cutting-edge technology that we can bring to our clients to help reduce their energy spend.
Q: Why don’t companies pay more attention to monitoring energy usage and spending?
Steve: Some companies have energy efficiency programs in place and they pay attention to it. In these instances, the companies are seeing a benefit. But in my opinion, and speaking from my past experiences, there is so much more decision makers can do to find efficiencies or a better method of purchasing energy. For the companies that have not paid much attention to their energy spend, there are savings to be recognized, and we can help identify them.
Q: How do you measure ROI on energy efficiency spending?
Steve: When looking at spending for energy efficiency projects, you have to break it down into two focus areas; 1) capital improvement projects with energy savings as a benefit and 2) Pure energy savings projects that have other soft benefits.
There are impressive incentives and rebates being offered by many states for energy efficiencies. The goal would be to look at your capital improvements and build an ROI model for energy efficiency investments that use the rebate to offset the investment and also account for the savings your company might receive as a result of the efficiency improvements.
For example, I have seen many projects that leveraged a state rebate process which paid for a large amount of the upgrade. One of our more recent projects was an LED upgrade, where the state paid for 60% of the project. Working with our trusted vendors, we secured that account with 0% on bill financing, adding to the attractiveness of the overall upgrade. The company also realized a benefit of a few hundred dollars a month from lower energy consumption. This resulted in a net monthly savings compared to the amount that hit the expense line item. In addition to the efficiency and the rebate, there is a hidden benefit which is processing the rebate. Following up on those rebates can take several months and involve extensive administrative labor. Rarely do businesses think about the draw of resources and the costs associated with following through on these savings programs. We offer programs to walk companies through that process, cut through the red tape and process those rebates for them, offering a full, turnkey solution.
Lighting is just one of the many energy conservation measures that will help reduce usage. Others to consider are:
- HVAC Controls
- Capital equipment replacement
- Energy Management Systems
- Kitchen hood and walk-in cooler controls
Q: What’s your message to companies looking to save money on their energy spending?
Steve: Contact us at Patriot Energy and we’ll get some insight on your business operations, determine how and when you use energy, and discuss your current energy strategy. We can also bring you up to speed on what is happening in the electricity and natural gas markets and the factors that impact rates, sometimes on a daily basis.
What we offer, which is very different than other firms, is that we work with a full range of suppliers, and all of their product offerings and efficiency and management, to help our clients reduce their long-term energy spend. Even if your company is locked into an energy supply contract, it doesn’t prevent you from talking to us about how to improve efficiency or enrolling in our peak notification program.
Our peak notification program can help businesses save money by providing timely information to adjust electricity consumption during peak hours. These hours occur when usage on the electrical grid is at its highest, which is during heat waves and cold snaps. Although these extreme weather periods are short lived, during these times prices are often highest and can make up a significant portion of a company’s total electricity bill.
By working with a trusted energy advisor, you will have an expert evaluating your overall energy strategy and identifying programs and customized solutions that will help you manage your energy spend over the long term.