Mr. Poad

Eco-Friendly Practices

10 Ways to Better Manage Your Energy Budget

By Jim Poad, Director of Client Solutions, Advantage IQ

With skyrocketing fuel prices eating into profits, hoteliers have few reservations about cutting energy expenses. They're adjusting thermostats, dimming lights in lobbies and hallways, consolidating trips for supplies, and even posting signs that ask guests to "please reuse towels."

While these are all good ideas, they're really just a start. To maintain or even maximize profitability, hoteliers need to go beyond mere cost-cutting and step into the realm of energy budget management. It can be a very effective strategy for reducing operating expenses and is something that, surprisingly, many hoteliers are overlooking.

That's too bad. This year, hoteliers will spend over $5 billion on energy expenses. In fact, utility expenditures represented the fastest-growing expense for hoteliers, increasing an average of 12 percent per year from 2004 to 2006, according to PKF Consulting's Hospitality Research Group. It's likely that energy costs will continue to climb in the foreseeable future.

Fortunately, an energy consultant can help hoteliers reduce operating expenses as much as three to five percent. An added plus: implementing an energy budget management plan can green your hotels, which may help drive revenue by attracting increasingly environmentally conscious travelers.

Better still, engaging an energy consultant is a low-risk, high-return approach that typically has a rapid and substantial ROI. Here are some areas that an energy consultant should be focusing on and what you can do to best manage and engage the relationship.

1. Be prepared.
   To ensure that your energy consultant can accurately budget and plan for your future, provide them with utility bills collected from the prior year at a minimum. This will provide your energy consultant with an accurate picture of what they're working with, what they should expect, and how they can affect change. If you don't have them anymore, historical invoices may be available from the utility, though even historical expense reports can be a proxy for consumption history. Current operational procedures and recent capital or infrastructure investments that affect energy consumption would also be beneficial.

2. Set your goals.
   It's important to establish an open dialogue with your energy consultant from the get-go, but also know what's realistic and what's not. Focus on a consumption reduction target that is measurable and achievable as energy conservation gains traction throughout the organization. On the other hand, don't expect to handle your utility costs the same way you'd handle other costs, such as maintenance. Any reputable energy consultant knows that if a hotelier tries to reduce utility costs by as little as 2 percent, they're setting themselves up for failure. That's because the volatility of fuel prices make cost cutting nearly impossible to control.

3. Be willing to go high tech.
   Say goodbye to the stacks of paperwork in your billing department. In today's digital age, energy bill auditing has been upgraded. An energy consultant will scan your monthly utility bills and enter them into a database that's been customized to rapidly analyze huge amounts of utility bill information. There's added value to this. For starters, auditing is out of your hands and under the expert eye of your energy consultant. More importantly, this database can deliver a monthly variance analysis which will highlight and explain what caused expense deviations. It can also anticipate future trends that help you better prepare your budget. One more thing: Ask your energy consultant if you can sit down with them to actually work together on the analytical process so you can gain a full understanding of how the process works.

4. Ask if your consultant is separating usage versus unit price.
   Most agree that when it comes to most of the technical information, you can leave it to the hands of your energy consultant. But there's one basic technique that any reputable consultant will implement. That's separating usage versus unit price. With your consultant, determine what your usage for electric, natural gas, and water is for each property. Then determine what the unit price was for the specific fuel or utility type over the past 12 months. Your energy budget management firm should then provide an appropriate percentage, based on rate changes, to forecast your annual budget. This will help you distinguish between expenses accrued from usage and expenses accrued from pricing. It'll also reveal usage trends, to help you and your energy consultant determine where you can adjust energy consumption in the future.

5. Sync your budget to your financial calendar.
   To improve your chances for staying in line with your budget, ensure that your energy consultant is using billing data that's normalized to your fiscal periods. If you don't do this you set yourself up for reporting surprises and can find yourself short on cash. Think about what you've been through this year with the volatility of energy markets. This is an example of what you should try to avoid in the future.

6. Talk weather and occupancy rates.
   It comes as no surprise that weather and occupancy drive energy consumption. But it's surprising how many hoteliers are not accounting for weather impact and occupancy rates when establishing their budget. Today, energy consultants are using weather impact scenarios to predict costs, even for regions where the chances of extreme heat or extreme cold are factors. They're doing the same for occupancy rates. If airline prices suddenly plummet and travelers flock to your locations, your energy consultant will predict the up-tick in energy expenses. Alternatively, if the staycation concept takes hold, a good consultant can show you how to adjust down energy consumption.

7. Determine your portfolio changes.
   If you're planning to roll out new properties, discuss the impact on the energy budget with your consultant. Be sure to account for construction schedules, hotel opening schedules, and what the ramp-up will look like for utility costs. Also consider properties you're selling or shutting down. Any change in the portfolio will have a cascading effect on your budget. It's crucial to keep your energy consultant in the loop, and armed with all relevant details.

8. Assess the quality of your consultant.
   Evaluate more than just the budget. Be certain your consultant is also aligned with your expectations. Verify they are keeping detailed records of their methodology and assumptions. Press them to defend the budget decisions that are made. If you're frequently hitting below or above your expected budget, consider that a warning sign. Before engaging them, be certain they provide you with a demonstrated track record of successful energy budget development. Conversely, it's unwise to allow this due diligence to foster a confrontational relationship. Welcome time and feedback. Their ability to provide feedback when you're over or under budget is just as important as building an accurate budget in the first place.

9. Make sure your firm is "in the know."
   After your budget is set, your energy budget management firm should keep you informed on major utilities' breaking news, new filings, and forecasted rate changes. Committed firms subscribe to a national database that keeps them updated on any major energy-related rate changes. Ask your consultant what database or sources they're using and how often they're checking and passing info to their hotelier clients.

10. Be proactive.
    When your energy budget management firm alerts you of a rate change or utility industry news, immediately pass that information on to your CFO or comptroller. Let them know that it's likely to have an impact on the energy budget. Relay your consultant's messages to others in your financial department as well so that appropriate adjustments can be made.

The bottom line:
Encourage a team effort within your organization for tackling energy budget management. With a collaborative effort, energy budget management will quickly result in the greening of your hotels-and more green for your bottom line.

Jim Poad, a 30-year energy industry veteran, serves as Director of Client Solutions for expense and energy management firm, Advantage IQ. In this capacity, Mr. Poad is responsible for developing and directing the Company’s energy management programs on behalf of clients. He works with clients to develop and implement a customized strategy to better manage energy usage, reduce overall operational costs, and meet overriding corporate objectives. He has helped clients save millions of dollars through the implementation of supply-side and demand-side initiatives. Mr. Poad can be contacted at 608-755-1650 or jpoad@advantageiq.com. Extended Bio...

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