A good place to begin looking for energy savings for your foundry may be your energy supply – both electricity and natural gas.
Electricity supply. U.S. electric utilities operate under various state-defined market structures. Some states allow market competition for retail energy supply to electricity customers – a trend called deregulation or restructuring. Utilities in deregulated markets are prohibited from generation and transmission ownership and are responsible only for distribution, operations, maintenance from the point of grid interconnection to your meter.
On the other hand, regulated markets feature vertically integrated utilities that own or control the total flow of electricity from generation to meter.
If you get frequent phone calls from someone trying to sell you electricity, you are probably in a competitive market! State public utility commissions provide information on potential suppliers and the competitive market.
Many foundries have agreements in place for competitive energy supplies, often for multiple-year terms. In deregulated electric markets, the per kWh rate that the local utility company charges you is determined by your state’s public utility commission. Alternative suppliers will compare their rates against the local utility rate, providing estimates of future savings. If you like the savings, you enter into a contract to get the lower rate.
New electric supply arrangements can begin as soon as the next scheduled meter reading. It generally takes about a month for your new supplier to notify your utility of the supply change, billing adjustments, etc.
Perhaps the greatest benefit of entering into an electric supply agreement is reduced price risk. As Texans learned recently, electric rates can rise rapidly and drastically. A good supply contract helps minimize such variations, often insulating you from major and unexpected costs that can be truly shocking.
Shopping for electric supply can offer a foundry a way to support a specific type of electric generation. Virtually all grids are supplied by a variety of generation technologies. Some foundries want to use only electricity produced by renewable sources.
Your local electric company will continue to deliver the power that you purchase. In deregulated markets, that’s what they are paid to do – so they don’t care from whom you buy your energy supply. You will continue to get a bill from the local utility for their power delivery services.
And, very importantly, your local utility also is in charge of repairing outages in their territory. You continue to call them with any service issues.
Natural gas supply. You also may be able to shop for your natural gas supply. While virtually everyone is connected to the electric grid, not everyone is served by natural gas supplies. Further complicating things is that not every natural gas utility area is served by alternative suppliers. But a large part of the country does offer competitive markets for natural gas supply and it can be well worth the effort to investigate potential savings.
Similar to shopping for electric supply, you may be able to lock in your per-therm rate below what your natural-gas utility charges. Overall prices could be reduced and be more predictable, also reducing your risk from unexpected price hikes.
Your local natural-gas utility is also in charge of repairing outages in their territory. You continue to call them with any service issues. And yes, you will continue to be billed by the gas utility for their natural-gas delivery services.
Managing the bid process. Choose quality suppliers to offer bids for your needs. I suggest you solicit bids from at least three suppliers; your state’s public utility commission has a list of potential suppliers.
Always compare quotes from alternate suppliers to the utility’s published rate. Get bids from multiple suppliers to take advantage of the competitive process – and let them know you’re doing it; that encourages them to sharpen their pencils! The savings can be dramatic.
This is not like shopping for scrap or ingots. Energy suppliers have their own language and understand that what they are offering can be confusing. Certainly, no one would take advantage of that!
Read the fine print in any proposed supply agreement. As an example, watch for “threshold” penalties, relating to your electric consumption being lower or higher than anticipated. Do not agree to such penalties.
Consider outsourcing the procurement effort. We have specialists that shop for energy from competitive suppliers on a daily basis and they understand the market. We assess bids received from suppliers and recommend what we believe would best serve your interests. Our fee is paid by the supplier because they see our service as lowering their marketing costs. All fees are factored into the rate being offered, giving you one cost to focus on. There is no out-of-pocket fee to you for our procurement services. Your procurement department can, and should, oversee the entire process and validate any recommended agreement and estimated savings.
Decision process. Like the stock market, you need to move quickly once a decision is reached. Electric and gas supply price offers are based on commodity pricing. Gathering and evaluating bids must happen almost simultaneously; offers are typically valid for only 24 hours.
We typically review final proposals in the morning and submit signed agreements for vendor acceptance in early afternoon. Why is this different from normal contracts, where your signature seals the deal? Well, price may have recently changed on the commodity market, so the supplier needs to confirm that the offer is still profitable for them.
Shopping for an alternative source for your energy supply needs can save you a lot of money and reduce your risk from unexpected costs. It also allows you to make more accurate budget forecasts. If you are in an area that is in a competitive market, it may well be worth investigating why many other foundries have been doing this for years.
Has your foundry benefitted from energy supply contracts? We’d love to hear from you and share your stories.
Brian Reinke, president of TDI Consulting, is an energy-cost saving consultant. Contact him contact him at [email protected].