For finance directors, the responsibility of energy management is just one
small element of an already extensive job remit.
Utilities costs are unavoidable and necessary to run any operation. With this
in mind the focus should be on minimising the impact of these overheads. The
potential to reduce utilities expenditure in business should not be
underestimated. If left unmonitored, energy users can expect to face escalating
utilities prices and inefficient usage issues.
Deregulation of the energy markets has led to a vastly more complex
purchasing and decision-making process for businesses if they are to optimise
price, choice of supplier and negotiate better terms.
Price volatility in utilities has also contributed to the complexity of the
market as the move to a commodity market impacts on electricity, gas and
A further consideration has been the build-up of environmental legislation
and taxation policies that have led to additional cost burdens on utility
pricing. This in turn has focused users on controlling their costs and
Saving energy is core to energy management just as much as price
optimisation. For FDs to be in control of utilities they must employ a
two-pronged approach, focusing on effective energy management, to control usage
as well as price.
One of the main concerns for FDs is the volatility of energy pricing and how
to manage this effectively to minimise the risks involved. Those in the know are
making substantial savings by employing the expertise of organisations that have
the experience and time to obtain these results.
There are five utilities that need to be considered: electricity, gas,
water/wastewater, fuel and telecoms. Each one is as important as the next in
devising an energy management strategy. Overcharging occurs in all of these
Bills have become more complex and, as a result, it’s more difficult for
consumers to detect anomalies or areas of overcharging. The elements of charges
that make up bills, and the rationale behind these elements, are often at fault.
Detailed knowledge is essential in identifying many discrepancies; often, albeit
understandably, this is not typical within an average accounts department, whose
main focus is bill payment.
The gas market is extremely volatile, with different drivers affecting
commodity prices to varying degrees. Speak to an expert.
Water prices rose on 1 April 2005, and look set to continue rising over the
next five years. Businesses and water-intensive industries can no longer ignore
the fact that this utility should be recognised as an area in which costs can be
reduced. Traditionally, a lack of knowledge at how to offset the price rises has
led to many FDs overlooking water as part of their energy management strategy.
To optimise efficiencies of price and usage negotiation, expert industry
knowledge and monitoring of the markets, and the factors driving fuel prices, is
To achieve the best prices available in the fuel market, FDs need to monitor
the markets and any developments in them. Additionally, they need enough market
knowledge and experience to allow them to interpret any trends or changes to the
markets, and to recognise how these will affect their business.
In monetary terms, the greatest risk concerning telecommunications costs is
fraud. A number of ‘unauthorised usage’ issues need to be addressed. Records
show that some employees in the UK may be making as many as 15 premium rate
calls during the working day. It’s possible to minimise the level of risk your
company is exposed to through system abuse by setting thresholds and alert
triggers – where employee indiscretions can be identified very quickly and
action can be taken.
There’s also a very real danger of financial risk that accompanies
non-analysed bills. Industry reports show that 80% of telecoms bills are
incorrect, with anomalies ranging from incorrect address details to poorly
applied tariff structures and incorrect charges. Millions of pounds each year
are lost through inaccurate billing and human errors.
Although businesses are bombarded with offers of cheap call rates and
seemingly unbeatable packages, and while these may seem an attractive option,
the market is a minefield and there are pitfalls FDs should be aware of.
So how do the energy experts do it?
• Don’t assume your supplier is giving you the best deal available
• If you are receiving advice from a supplier, remember it’s not impartial
• Costs for energy are dependant on where your energy comes from, when you
use it, where you use it and how much you use
• Prices should be reviewed at times other than when contract renewal is
imminent in order to optimise your energy resources
• Continuous market monitoring is essential to identifying key buying times
• Your exposure to risk increases when assessment of energy charges is a
one-off solution, this should be a continuous process
• In terms of both providers and charging structures, one size doesn’t fit
all – this is dependant on your requirement as a company
• Don’t assume that water charging structures are simple just because they
are non-negotiable – there are savings to be made
• Buying fuel is amore complex business than ringing round the main suppliers
when you need to refuel, the market fluctuates and should be monitored to
identify the most effective buying times
• Free energy audits may be tempting but remember that an audit doesn’t
secure any areas of saving
• Implementation of cost-effective measures are only beneficial if they are
continually managed l30%ofwater produced in the UK is lost before it reaches the
customer, it follows that a percentage of the water received will be lost by the
• It’s commercially attractive for businesses to tackle environmental issues.
There are penalties for those companies who don’t address this matter and this
affects the bottom line
• Energy efficiency is a large area of expertise with many solutions
available – it’s unlikely that your site manager or engineer will be aware of
all of innovative efficiency measures which could be implemented
David Gray is financial director of international energy
consultancy McKinnon & Clarke
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