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The energy budget and reporting process is designed to bring energy costs under control and properly mitigate risks from market variables and internal changes in energy demand.
An energy budget, implemented with variance analysis, will help ensure energy expenses are being apportioned for the lowest costs. Variation analysis indexes trends in previous forecasts to provide the greatest statistical outline for your future energy expenditure. Leveraging this data helps protect your business against rising costs by understanding where previous energy spend rose.
Consider conducting an energy audit before constructing your energy budget or enlisting an energy management company to provide integrated historical and market data to determine the best pricing for your energy procurement.
Better manage your energy resources with a multi-level strategy and budget reporting process that aligns procurement costs with regional intelligence analysis for energy savings.
Covering all the Bases
A professional and comprehensive energy budget must defend against any perceived fluctuation and be defendable to your shareholders and financiers. When starting the energy budget process, ensure that energy cost spend, based on all perceived variables, is easily identifiable and incorporate this data into your baseline assumptions.
How do we identify the correct data for our baseline assumptions? It’s key to conduct a mutli-level approach that incorporates site-level baselines for usage and price, as well as regional and corporate baselines.
At the site-level usage, you will need to confer with stakeholders and your corporate level executives to predict site-level usage according to projected capital expenditures and contract changes.
Keep in mind that the utility billing cycle can run anywhere from 28-35 days. Match energy consumption and budget expenses against the fiscal calendar to account for overlapping billing cycles and seasonal accruals.
We stress this point because you can’t trust your general ledger to account for accruals and credits within your re-forecasted budget.
Essentially, your budget should be able to identify all of the responsibility centers to balance procurement costs against your perceived risk tolerance.
Site-Level and Regional Factors
The energy cost per kilowatt hour varies greatly between each state and the winter of 2013-2014 saw many states in the East Coast raise their energy rates by 1000%. Weather, trade tariffs, supply side distribution and even how well your business performs will result in changing energy costs and energy demand.
Regional factors shouldn’t necessarily affect your upcoming utility budget, but they do protect against volatility in deregulated marketplaces.
Identify variations in regions with deregulated contracts to help mitigate risks from market variations at the site-level. Leverage market intelligence to specifically identify price volatility due to floating contracts on unit prices.
Your regional data collection will help protect your budget against any seasonal accruals at specific site-level operations and help with reforecasting for your upcoming budget.
Involve Stakeholders and Financiers
It’s important to immediately get your stakeholders and financiers involved in the budgeting process. Communicate with your organization to identify areas of changing energy demand due to capital investments, corporate expansions or contractions.
In deregulated marketplaces, your business may encounter floating contracts without fixed- prices. Any rise in unit cost owed to floating contracts will entirely disrupt the budgeting process.
Use energy auctions or conduct a consultation, in line with stakeholders, to identify the safest contracts at the cheapest rates. Calculate your total expenditures against floating contracts to identify your risk tolerance before undertaking a floating contract.
Let’s face it, the top-down level to energy budgeting doesn’t work. Applying a portfolio wide escalation variable to the region of a site-level operation will result in massive variations at the site-level. Failing to incorporate stakeholders early into the budgeting process will sharply increase your risk and disrupt the forecasting of the upcoming budget proposal.
What are some strategies you can execute?
Index all seasonal accruals, energy expenditures, and unit prices for each region and site-level operation over a twelve month period to conduct reverse forecasting. Identify any overlapping invoices, variations at the site-level and unusual billing to a month-by-month estimated consumption price.
Further research future markets, spot markets, government forecasts on fossil fuel prices and combine this with your historical data to come up with more accurate energy forecast.
Discover methods of cost-savings through changing technologies or energy sources. Whether you’re in a fixed market place or a deregulated marketplace, it’s key to always monitor your energy consumption to identify peak demand days.
Utilize these tips for a more accurate energy budget and for ways to protect against risk in a deregulated marketplace.
The ultimate goal of the energy budget and reporting process is to maintain site-level variations by analyzing your multi-level variation data. Incorporate your perceived future energy consumption in alignment with your historical energy consumption to provide a more accurate procurement and usage cost.