Ed Caswell, C.E.M., C.D.S.M.
Track H | Industrial Energy Management
As Engineering continues to focus on consumption reduction through demand side management, Procurement is challenged with rate reduction. In their individual silo’s, the two teams are limited with the knowledge and skills each possess. Combine the two, add a Finance team member and now you have a very resourceful team that can recognize opportunities that would otherwise be overlooked.
These opportunities exist in both regulated and non-regulated markets. Often, we accept the rate because it’s what we have always had but this is based on tribal knowledge. The process of analysis requires providing the team with information such as: Existing and potential tariffs; Contracts; A years’ worth of invoices to see seasonal swings; The facilities load profile; Industry Cost Curves; Value Stream Maps; and a Rate Calculator.
We begin with identifying all the components of the rate. This will provide some indication of which tariff(s) and contract(s) to research. The ability to clearly break out every component of a utility rate can be burdensome, requiring understanding of your tariff’s, contracts and terminology, but the benefits of this knowledge can be very rewarding.
Market awareness is also critical in the analysis. Value Stream Map’s provide insight of the utility from generation to meter. Knowing your generator’s portfolio is important as environmental and economic impacts will influence rates. Their ability to swing fuel sources can also be valuable information. Industry Cost Curves will provide insight to cost drivers based on capacity and demand, again valuable if the generator has swing capability.
The rate calculator is the key instrument for organizing the data and presenting the step chart to demonstrate addressable vs non-addressable components of the rate. In this session, I will present an example of a clean sheet exercise that breaks down a rate structure. It was used to identify the impact of scheduling such as maintenance and production around peak periods, capacity, transformer, power factor and other charges.
Having this level of detail will provide a cross-functional team the ability to begin brainstorming based on real data.