Best Practices in Energy Management: Four Mistakes People Make (and How to Avoid Them)
CommercialNov 28, 2023
In this edition of Customer Insights, we’ll discuss some of the most common mistakes organizations make managing their energy spend, and how you can learn to elevate your energy management performance.
Four Areas Energy Users Make Mistakes
Usage and spend tracking
Energy supply contact management
Employing piecemeal approaches
Usage and Spend Tracking
When it comes to tracking energy usage and spending, organizations usually review the budget at the portfolio level on an annual basis. You can miss opportunities to save money this way. Deviations from plans that appear reasonable at the portfolio level can mask substantial issues at the account level. Also, reviewing usage and spending performance infrequently can result in issues only being identified after some damage is already done.
The best practice is to develop forecasts and budgets for each account – each month – and evaluate performance throughout the year. This provides the accurate and timely information necessary to drive superior energy management results.
Energy Supply Contract Management
Organizations with multi-regional account portfolios often sign multiple energy supply contracts but lack an effective management system. Your organization may be unaware of all the contracts you’ve entered into, are not sure when these contracts expire, and don’t have solid knowledge of the products or supplier elections or rationale. This can lead to duplicate contracts (which can result in financial penalties when one of the contracts needs to be canceled) or expensive holdover/month-to-month pricing provisions. More frequently, the result is lost time, confusion, and last-minute purchasing that does not allow for effective planning or decision-making, and can leave energy end users exposed to volatile market conditions.
You should conduct a thorough inventory of all your energy supply contracts, develop a centralized, accessible repository for them, and enter and track key details, including counterparty/supplier, important dates, signatory, key provisions, product specification, and price. Examine each of your energy bills and if you cannot find the contracts for those suppliers you should reach out to them directly. It’s also important to link each contract to individual utility accounts to minimize opportunities for oversight and support robust budgeting.
We’ve all heard the phrase to “keep it simple, stupid”, but when it comes to effective energy management, over-simplifying your approach may not provide efficiencies or cost savings. Two ways organizations oversimplify is by choosing a fixed “all-in” price and/or making energy buying decisions on a calendar basis.
By sticking with a fixed “all in” price, you may lose opportunities to manage energy spending like reducing energy consumption during peak demand, or not considering long-term risk management, like employing single point-in-time purchases vs. layering over time. Instead, you should consider how energy supply products are built, as well as how energy markets behave over the long term. When you evaluate options for products and strategies that offer cost and risk management results, you can outperform your competitors and increase your profits.
Employing Reactive or Piecemeal Approaches
When Senior Management says “jump”, organizations usually respond with “how high?”. Many times, employees struggle with how to satisfy the directive or how to overcome organizational inertia. You don’t want to end up making piecemeal decisions and taking actions reactively which can lead to disappointing results.
The remedy is adopting a holistic energy management approach within a comprehensive, consistent, and programmatic framework. This means developing a basic understanding of how things work across energy domains, such as utility rates, energy supply, demand side opportunities, and energy sustainability. A holistic energy management approach provides organizations with the means to uncover value-generating opportunities, while exposing pitfalls that might otherwise be hidden.
Developing frameworks is the best way to enhance organizational input and buy-in, reduce inertia and “knee-jerk” decision-making, while eliminating second-guessing. Employing a consistent, programmatic approach ensures that no aspect of your strategy is overlooked. With accountability built in from the start, your organization is poised to learn from the experience, successfully pivot when conditions change, and deliver optimal results over the long term.
Effectively dealing with energy spend and energy sustainability objectives are hard, especially when it’s not your core business and you don’t have sufficient resources. Often there’s little clarity or transparency with the options you have, and a great deal of complexity owing to the patchwork of utility, market, and regulatory structures. But you can get there by taking some basic steps in key areas, and learning what has and hasn’t worked for others. If you invest some time and effort now, your organization can make the transition from just getting by to getting ahead, and perhaps, even to leading the pack!
To learn more, please contact your AEP Energy Sales Representative. Not currently working with an AEP Energy Sales Representative? Click here to request more information.
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