In recent years, facility executives relying on natural gas to heat buildings have felt the pinch of rising prices. Wholesale gas costs have roughly doubled in the past few years, and according to many economists, this trend will likely persist. In fact, the Federal Reserve Bank of Dallas predicts that high gas costs will hold through 2010.

And high gas prices are affecting electricity costs as well. Due to modifications to emissions standards, generating systems and wholesale power markets, most new power plants are natural-gas-fired. In fact, the use of natural gas in electric power production has climbed 7 to 8% per year since 2000, according to figures from the U.S. Department of Energy's Energy Information Administration (EIA). Thus, the price of gas impacts the price of electric power, creating a relationship in which electric demands could push up gas prices and gas demands could raise electricity prices. In some regions, this could mean peak rates in both the winter and the summer.

To soften the blow of skyrocketing prices, facility executives can start acting this winter. It's not only a good time to evaluate how your organization consumes gas and electric, it's also an opportune time to figure out how to take advantage of the more moderate energy prices that start in spring. By locking these rates in, you can reduce next winter's heating tab.

To secure fixed fuel and power prices for next winter, those with energy bills topping $100,000 a year should keep close tabs on their energy suppliers. Be prepared to sign a contract on a day's notice because prices could go up the following day. In areas where there's retail electric deregulation, it's a good idea to renew a current contract—if existing terms are satisfactory—or to solicit bids from new suppliers. If contractual issues can cause delays in contract signing, address them now and leave the price as the only remaining issue. Identify the person who needs to sign the contract, and also, keep a backup official on-hand in case the former cannot be reached promptly.

Another approach is securing a share—say, 50% of average monthly consumption—of electricity, gas or oil at a set monthly price while paying market prices for the rest of usage. If prices go down, you're still partially benefiting from falling rates, and if prices rise, you will have locked a portion of the load at bargain prices.

If your only option is a utility tariff service, take the time to evaluate it. Check to see if there's a fuel adjustment charge and if there are constraints, such as a maximum rate that's not affected by market pricing. Also, explore tariff options, such as interruptible electricity and gas rates or load shedding. Find out how the utility tracks consumption to see how effective it would be to briefly cut consumption during high-priced usage periods. Additionally, confirm if the utility will give you a call to ask you to lower usage or switch fuel when prices escalate. Finally, determine if the utility will let customers secure a price for part of their fuel or power use.

If these options are all unavailable, then consider discussing how they can be offered with the public utility commission during the utility's next rate filing. Some facility executives also take such measures as reducing outside air intake, closing off unoccupied parts of a facility or relying on thermal inertia and lowering heat near the end of the workday in order to decrease electricity usage during high-price periods.

There are also measures available for budgets surpassing $1 million a year. Financial options such as weather insurance and purchasing energy futures can help organizations mitigate the impact of energy price hikes. Indeed, the trick is to plan ahead and to get the ball rolling as early as this winter.

Source:

Heating Up Electrical Costs
Lindsay Audin
Building Operating Management, October 2004
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