Thursday, September 27, 2007

How to “Do Nothing” About Your Energy Costs

“Do nothing” may be a valid way of dealing with energy costs. It’s a particularly attractive choice if you are determined to operate the plant the way you've always done it. You don’t have to run the gauntlet of approvals to get money for energy improvement projects, and you don’t have to force people to change behaviors and procedures. You avoid the risk of getting fired because the project that you fought to get approved failed to meet its projected performance measures. So instead of taking on the sharp pain that accompanies change, you settle for the dull ache of income lost to energy waste.

Doing nothing saves you from many problems, but it does not shield you from the fact that financial statements don't lie. Top management may not track energy, but they do track money. So as it turns out, “doing nothing” about energy eventually puts you at risk. Here are some suggestions for how to cover your tracks:

• Blame your energy expenditures on rising energy prices. You don’t set the price for fuel and power, the market does. You’re at the mercy of the market. Front-office people don’t always understand how your mechanical systems use energy, but they certainly understand price. To strengthen your case, start charting energy prices over time. Pictures like this are worth a thousand words. Use this price data to explain why your energy expenses keep going up.

• Remind your management that your competitors have to buy energy, too, so they have the same problem and therefore the playing field stays level. Don’t mention the fact that your competitors may be addressing their energy waste, because that would shoot a hole in your “level playing field” claim.

• Cut other expenses. As your energy bills go up, the money to pay them has to come from somewhere. The favorite targets are maintenance (which can always be deferred, right?) and labor, assuming you haven’t already trimmed payrolls to the bone and then some.

• Pass the costs increases on to your customers. There’s only one problem with this: competition. Customers can take their business elsewhere if they don’t like the price you charge. Compensate for product price increases with enhanced service that presumably doesn’t add to your expenses in other ways.

• Alter the mix and quality of subcomponents that make up your final product. For example, some creative manufacturers are settling for more brittle grades of plastic or metal hardware that’s not heat treated or thoroughly plated for corrosion resistance. That’s one way to hold down costs, but you run the risk of alienating customers with junk products.

• Change your accounting of energy costs. In other words, change the way facility-wide energy bills are broken down for assignment to individual departments. Many organizations have one meter for electricity, for example. An accountant merely prorates the total bill over the departments by some artificial measure, such as number of employees or square feet—measures which usually are poor indicators of energy use, but they are convenient for the accountant’s task. Use a spreadsheet to model energy cost allocations under different scenarios. Find an allocation that works to your benefit (that is, hides your energy waste), and persuade the finance controller to adopt your approach.

• Get political and start lobbying your legislature to ease restrictions on energy supply. Presumably, if we dig, drill, refine, and generate more power, the increase in supply will drive prices down. Corporate officers and politicians understand “price.” Any discussion about how energy is used (and wasted) gets too complicated. By focusing on price, you keep it simple, and therefore increase your chances of getting political support.

Good luck.



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