Adding Energy to the Bottom Line

Article From: Products Finishing,

Posted on: 2/1/1999

Tips on how the metals industry can get the most from electricity deregulation...

By now you have probably heard,read or been affected by plans to restructure the electric utility industry. Lower energy prices and value-added services were anticipated to encourage energy providers to be more responsive to the needs of their customers.

Do you believe this? Well, it is true according to Dave Lambert, business development manager in American Electric Power's metals sector. "Competition in the electric utility industry is a complex issue, and as many believe, the long-term benefits will provide potential savings, better service and options for selecting suppliers and products not presently enjoyed." Mr. Lambert said.

"While your present electric company will continue to deliver electricity to your business, competition allows you to buy that electricity from many suppliers. This choice gives you greater control over how much you pay for the energy you use, as well as making available a variety of services never offered before," he noted.

Exactly when the electric utility industry will be fully deregulated is unknown, although some states are moving ahead faster than others. Now is the time for metals managers to prepare for electricity restructuring by evaluating their energy needs.

Getting the best value.

Electricity pricing will depend on a number of factors, such as the time of day and time of year when your business uses the most energy, your ability to curtail use or provide an alternate source, and the risks you are willing to take. Mr. Lambert commented that the metals industry can prepare for competition by finding out how its facilities use the electricity they are billed for each month.

"Some use, or loads, are constant and do not vary significantly from month to month. Lighting and solution heating fall under this category and are called base loads. These base loads along with your process loads will be key to energy pricing. They will allow your energy supplier to accurately estimate the monthly amount of energy its needs to deliver to your company.

Choosing an electric company.

Restructuring will create the need for metals industry managers to choose an energy supplier. Prior to making the decision, consider what caused you to choose your present natural gas or long-distance telephone carrier. Apply similar logic to choosing your electric company.

Decide in advance what criteria are important. Is price the only consideration? How about the ability to speak with a knowledgeable customer service representative when you need to? Maybe billing processes and convenience are most important to you. Reliability and other value-added services and products should also be considered.

Mr. Lambert suggests managers consider the following questions:

  • How familiar is the electric company's name?
  • How long has it been in the energy business?
  • Will you have an assigned account representative as your single point of contact with the company?
  • Will you receive separate bills from your local provider and your new supplier?
  • How many customers does this new company presently serve?
  • Can it supply you with customer testimonials and telephone numbers so you can verify the customers' satisfaction levels?

Basis for negotiation.

Competition in the electric utility industry will be an exciting time for utilities and their customers. However, you need to do research before talking with suppliers. "In many ways, you will be negotiating the price, service and contract length," noted Mr. Lambert. "Since no one knows what the price of energy will be tomorrow, avoid long-term contracts initially, unless you have the right to unilaterally cancel your agreement without financial penalty."

If you do not have an energy strategy, establish one. This should encompass a thorough knowledge of your energy consumption, the energy cost of individual production lines and/or processes, your ability to withstand interruptions and the associated impact on production issues, such as just-in-time delivery, etc.

As far as staying current on changes within the electricity industry, a utility representative should provide businesses with timely, pertinent information on this topic. If your utility is not providing this information, ask it to start. Being an informed consumer can translate into significant savings for your business.

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