Mr. Poad

Eco-Friendly Practices

Evaluate Energy Expenses to Survive Today's Economy

By Jim Poad, Director of Client Solutions, Advantage IQ

According to ENERGY STARR, typical energy expenses account for more than 6 percent of a hotel's total operating costs. These costs have increased approximately 25 percent from 2004 to 2008.

By investigating procurement options, analyzing a history of utility invoices, exploring what rates you should be paying, and implementing green energy practices, operators can drive down utility costs without negatively impacting the comfort of their hotels or quality of the guest accommodations.

Profile Your Energy Costs

The first step is to develop an accurate "load profile" that reflects your energy usage. This information can be found within your utility invoices. Once you have gathered all of the demand information, a quality profile will consider how demand might have been affected by operating hours, occupancy, temperature, the amount and age of equipment, and lighting. For operators managing several sites, establishing a load profile for each site across the entire portfolio can help significantly in monitoring performance and reducing energy costs.

Next, analyze the information on the bills further. Were you billed properly? You would be surprised how often billing errors are found on utility bills. There are a lot of variables that can effect how you are billed. Review the rates to determine whether you are on the appropriate rate for your load profile.

For example, say a hotel is being billed a rate suitable for a 9-to-5 business, but obviously has different demand characteristics - it's a 24 hour-a-day operation! This qualifies it for a Time of Use rate that may be more favorable. An oversight of this kind dramatically increases monthly costs. Mistakes of this sort are surprisingly common. Operators assume that a utility rate can be reviewed once, never to be looked at again. On the contrary, rate review should be revisited regularly as sites open, close, or demand characteristics change.

Maximizing your savings opportunity requires an intimate understanding of the rates available within each utility your hotels operate, and these rates are not stagnant. Utilities can have multiple rate options. If you don't have the time or resources to stay current on all possible rates within the utilities you operate, an expense management partner may be a worthy investment. Leverage their domain expertise to expedite the identification of unfavorable rates and benefit from the immediate cost savings.

Know Your Market

Invoice auditing also gives operators another tool for planning the next fiscal year budget. You can see how much you spent the prior year and use that as a basis for what will be spent in the next year. In addition, hotel operators should be proactive and research ways to effectively cut costs over the coming months.

One step is knowing whether the sites are located in regulated or deregulated markets. Sites in a regulated market are tied to that market's utility. Hotel operators in regulated markets have no choice but to buy energy from the utility, and will want to be sure they are on the appropriate rate to minimize the effects of the noncompetitive costs discussed above.

In deregulated states like Illinois, Texas, Maryland, Massachusetts, and New York, where electric energy prices are competitive, you can shop around for the deal that makes sense for your company. Identifying the best deal comes from understanding your risk tolerance and finding the balance between lowest price versus budget certainty that is right for you. Have a conversation with your CFO. Where would they place risk and budget certainty on their priorities? And do you agree? An energy management consultant can explain the implications of each, find the right fit for your organization and then shop around the market, ensuring you get a competitive price suited to your risk tolerance.

It is never too early to start shopping around. Some businesses held 14-month electricity contracts in July 2008 at 8.8 cents per kilowatt hour (kWh) only to find that as the contracts expired, they were faced with rates as high as 14 cents per kWh-over 50 percent increase. You should always be aware of the opportunities available in the market and be ready to act.

There are two basic types of contracts to consider in a deregulated market: fixed or index. A fixed contract lets a hotel lock into a price for the duration of the contract, giving you budget stability and protection from rate spikes. Fixed contracts do carry the risk of missing out on lower rates, if prices drop.

With an index contract, there is greater potential for price volatility because rates will fluctuate with the energy markets. An energy consultant will weigh several factors to help their client choose the best approach for each of the markets in which they operate. They'll also analyze the volatility of energy futures versus the current rates offered by fixed contracts, and weigh them against the long-term plans of the hotel and their threshold for risk versus desire for budget certainty. Additionally, energy consultants offer the domain expertise, in-depth supplier network knowledge and well honed rate negotiation skills.

Go Green to Save Green

A third method for cost-cutting is to evaluate the carbon footprint of your hotel and work backwards to its primary source - energy consumption.

By pinpointing and addressing wasteful behaviors with effective green programs, a hotel operator will reduce consumption and in turn reduce costs. Green programs have a reputation for being expensive, but there are many no cost or low cost measures you can take. These can be used to drive cost savings that can then be reinvested in some of the more capital-intensive conservation measures. Recognizing that this is a long-term initiative, these programs pay for themselves over time.

Acknowledging that you can't manage what you can't measure, establishing a baseline is a necessary first step in conservation. Energy consultants can provide site performance benchmarking, to help you understand how a specific site performs today. As energy conservation efforts grow, you can compare current demand with the benchmarked demand. Managing multiple sites can be incredibly difficult and benchmarking can significantly improve performance by creating broader awareness and a competitive environment for which each locations' energy use and operating efficiency can be measured.

An average-use benchmark is established to highlight the best and worst performing sites. Consultants can then recommend high-return capital improvements and energy-efficiency investment opportunities. These recommendations might include upgrading dated equipment, adding energy-efficient lighting, and installing monitoring systems that control when to turn HVAC and lighting systems on and off. This is especially helpful at a lodging property where space conditioning, water heating and lighting account for nearly 80 percent of all energy consumed.

To be effective, energy management requires time, in-depth analysis of cost and consumption data, an understanding of available rates and negotiation skills. For hotel operators short on time or lacking the appropriate skills, partnering with an energy management consultant is often the best solution.

Developing a long-term energy strategy and sticking to it can cut energy consumption by up to 10 percent. Of course the aggregated savings will differ from business to business, but the calculations that determine whether the investment in benchmarking and reduction are worth it are simple.

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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