Wednesday, August 19, 2009

A Snapshot of Corporate Energy Management in 2009

A superlative study of energy management as practiced by 48 U.S. corporations was released in April 2009 by the Pew Center on Global Climate Change. Their survey, conducted in early 2009, provides insight on how companies from a cross-section of industry formulate and implement energy cost-control strategies. While the survey includes both manufacturing and non-manufacturing companies, the sample frame was designed to purposely focus on the results of companies that have declared a proactive focus on improved energy performance. For this reason, the survey presumably captures “best practices” as opposed to “average” practices. The survey highlights a number of lessons-learned:

• The motivations for pursuing energy management vary. The most frequent reason cited by survey respondents was to contribute to the reduction of their company’s carbon footprint. This was followed by (2) need to offset rising energy prices, (3) demonstration of social responsibility, and (4) to leverage energy efficiency as a way to boost productivity innovation and growth. Additional reasons are cited.

• Corporate energy programs are led by a variety of professionals. Per this survey, plant or facility managers, environmental health/safety officers, and operations directors (when counted collectively) are cited as the energy champion more than twice as often as a senior corporate officer.

• Widespread engagement of all personnel. Almost 90 percent of all companies surveyed conduct outreach to engage and inform their employees with respect to energy use and its impact on business as well as in their homes.

• Moving from reactive to proactive. To varying degrees, all survey participants anticipate increasing energy prices and the onset of climate change regulation that will impact their operations. Forty-nine percent of respondents indicate that energy performance is integral to their job performance and career advancement.

• Strategic planning. Most corporations set their own internal targets and timelines for improved energy performance. The average base year for benchmarking is 2003 while the average target year for goal achievement is 2013. The average annual energy savings goal among respondents is approximately 2.2 percent. The modal value of energy reduction goals is 25 percent savings. Forty-eight percent of respondents indicate that they are meeting or exceeding their goals.

• Spin-off impacts and benefits. Energy managers cite a variety of positive impacts from their efforts. These include increased employee engagement; better communications across business units; and support, recognition, and awards from management.

• Energy management is not without challenges. These vary across companies, but often include limited capital availability, limited management leadership and support, competing priorities and resources, and lagging momentum and employee interest.

• Networking and recognition. Most companies participate in government-sponsored support programs and reference materials, such as the U.S. EPA’s Energy Star, the U.S. Department of Energy’s Manufacturing Energy Consumption Survey, the Carbon Disclosure Project, and other networks.

• Lessons learned. Companies applied corrective actions as they gained experience. These included increased use of energy audits to inventory and evaluate their potential improvements, team-building to enhance accountability and effectiveness, development of employee feedback mechanisms, capital fund set-asides strictly for energy, and securing upper management endorsement.


Friday, August 14, 2009

Budgets Before Profits: Hidden Barriers to Energy Cost Control

In most industrial organizations, daily decision-making can be woefully disconnected from the overall profit motive. Why? In part, this is because of the size and complexity of the organizations themselves. Because many skills and resources are needed to serve a production process, division of labor is a practical necessity. This is evident in the creation of departmental functions—- and budgets. But in an environment of scarce resources, departmentalization can foster an internal, competitive dynamic that misallocates wealth.

Here’s why: Budget development is as much about perception as it is the money itself. Budgets tend to be modeled on the previous year’s actual experience. This puts the manager in a precarious position: under-spending this year could undermine the claim for next year’s funding, while overspending may create the impression of waste or mismanagement. In effect, the department manager who economizes has just demonstrated the need for a smaller budget in the coming year. Managers tend to guard their budget dollars as a source of discretionary power. Over time, the annual cycles of budget development, defense, and execution yield a culture of hoarding.

Within the typical industrial organization, certain barriers to energy cost control are a consequence of departmental competition for budget dollars. Energy control activities and costs may be delegated to a “facilities” department, or wherever engineering and maintenance tasks are handled. An industrial facility manager ensures that buildings, manufacturing processes, and attending staff have the heat, power, ventilation, and other services needed to function effectively. These activities are often perceived as secondary in importance, relative to the core business of manufacturing products and meeting production goals. Accordingly, facility managers may be at a disadvantage when competing for internal budgetary and analytical resources. “Success” for a facilities manager means keeping emergency failures to a minimum. By definition, emergency issues are unpredictable in size and frequency. Given the choice between emergency preparedness and the efficiency of ongoing operations, many facility managers are hesitant to spend money on “fixing things that aren’t broken.” This allows energy waste to persist.

Everyone else carries on business as usual without regard to the energy expense implications of their actions. The facilities manager alone would be responsible for reversing the wasteful choices of others. This could be the job of a proverbial Sisyphus, never-ending and without reward. Unless everyone is accountable for energy use, an energy manager’s effectiveness is severely limited. Under these circumstances, energy waste will prevail, directly reducing the financial return available to shareholders.


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