Winter Is Coming: Finalizing a Short & Long-Term Natural Gas Strategy

By Michael DeCaluwe

The energy industry is dynamic. It can be intimidating, especially when you consider that energy costs can account for as much as 15-20% of the annual budget for many manufacturers, property managers and/or municipalities. It takes a true expert – someone who has been around the industry long enough to understand the market and the trends associated with it – to really hold your organization’s hand and walk you through it without fear.

Natural gas is king during the winter months. The winter of 2017-2018 is going one of two ways – 1) warmer than usual or 2) colder than a Charles Dickens novel. Not only should you account for your costs in the short-term, but you’ll need a long-term (5 years and longer) approach to ensure the decisions you make with regard to fixed/indexed billing rate, usage, storage, etc. are the right ones.

What’s more, you’ll need to be honest about what kinds of risks you’re prepared to take (or for that matter, which ones you’re not prepared to). Understanding your risk tolerance in planning for energy needs is really half the battle. So here are a few things to consider when planning your natural gas strategy in both the short and long-term.

Short-Term Energy Planning for Natural Gas.

Understand the pricing structure of your current energy plan.

For each pricing structure, there are benefits and risks that can save you money. Reconciling your pricing structure in the short-term can help you plan in advance and maximize savings (or minimize damage). Fixed rates save you money in a particularly cold winter (especially if you’ve locked in early and/or participate in a pooled billing system). For a warmer season (like what we have seen in the past couple of years), you potentially run the risk of overspending. In this case, we’d recommend a variable rate in the short-term (especially if you can hop into a pool and help mitigate risk). Another way to address it might be a fixed rate swing plan. A swing gives you a range or tolerance that you can use over or under (determined by a two-year monthly usage average) and still pay the same fixed rate. In any case…

Lock in your gas prices now.

Due to the dynamic nature of our industry, there’s a lot of “hurry up and wait” in our business. What do this mean? It means that deciding on a natural gas energy strategy requires both thought and urgency. Whether it be a fixed or variable rate, single or dual billing, we advise our clients to be opportunistic – give thought to which product and plan are most appropriate for their business and the season and move on it.

Long-Term Energy Planning for Natural Gas.

Consider long-term market trends when deciding on term length.

It’s important to know and review long-term market trends when deciding on a term length of your current gas service. One major market influencer of the natural gas market is our country’s export of natural gas. As our nation’s volume of exported gas continues to climb in the coming years, it will be important to see if the worldwide price of gas (which is 3 to 4 times what it is in the U.S.) starts to influence gas prices here. These long-term market influencers help determine a proper buying strategy and term length for your gas needs today.

Look for efficiency opportunities.

Energy efficiency projects have particular benefits for your long-term energy costs. Not only do many of these projects have great ROI (return on investment) periods, but there are utility rebates in place to help fund many of these types of projects. Outside of raw energy costs, investing in new energy-efficient equipment can also cut maintenance costs and provide reliability to your operations, providing you peace of mind. But again, the decision regarding whether to invest in efficiency opportunities lies in having a sound long-term energy strategy that takes these types of projects into account as you attempt to lower and control natural gas costs.

It bears repeating that once you’ve found the right natural gas strategy for your business, you should act without hesitation. This means understanding your product pricing and the terms it includes (rate, usage, storage, contract length, etc.) and being decisive. This is underscored by the necessity to keep an eye on those outside forces that affect the natural gas market (like exports and foreign trade). Of course, not everyone has time to do that. So when planning your natural gas solution, look for someone who can act as a partner and resource for you while you’re focused on other things – like running your business.

Whatever your energy budget may be, we can help work with you and our supplier partners to tailor a natural gas solution that is friendly. Contact us at 630-225-4557 and we’ll help you go over your current and future energy strategy to maximize its value to your organization.

NYC Benchmarking

The waves created by New York Mayor de Blasio’s announcement revealing new mandates of NYC’s 14,500 least efficient buildings on September 14, 2017 are still being felt throughout the energy industry.

The new rules will force building owners to drastically reduce greenhouse gas emissions through boiler, heat distribution, water heater, roof, and window upgrades, or they will face sharp financial penalties.

The announcement followed Mayor de Blasio’s pledge to adhere to the Paris Climate Agreement earlier this year at a local level if President Trump backs out at the national level.
The mandates apply to all buildings over 25,000 square feet, striving to reduce citywide greenhouse emissions by 7 percent by 2035.

Penalties for non-compliance will be issued annually starting in 2030 and will vary with building size and level of non-compliance.

Early predictions estimate penalties to average $2/square foot each year a building is operating over the fossil fuel use target. A 30,000 square foot building would face a bill of $60,000/year until they are compliant with their target.

Expect similar cities who voted to upload the Paris Climate Agreement, including Chicago and Baltimore to follow suit and issue mandates following benchmarking initiatives currently underway.

What does this mean for you? If you have facilities located in areas that have general benchmarking reporting requirements now, you will want to review the efficiency of your buildings NOW to make sure that they are operating most efficiently. Right now there are great ROIs and utility rebates to make these projects financially attractive without any city requirements.

By waiting, you risk being MANDATED to make these changes. This will likely mean higher contractor costs and lower utility incentives available when these projects are forced upon the market.

If you would like to review the efficiency of your building, call our office we can present both project and funding/financing options to both increase the efficiency of your building and save you money.

The Moving Target of Capacity: What Does It Mean for Your Budget?

Capacity has been a topic of conversation in the energy community for a while now but what exactly is capacity as it relates to your electricity, and how does it affect your business?

Imagine you have a garden hose, and when you turn on the water full blast, the total amount of water that can flow through the hose at one time is limited by the diameter of the hose. The only way to get more water from Point A to Point B is to use a wider hose or add more hoses.

Capacity works the same way. The amount of electricity that can flow through the transmission lines at any given time is limited. To ensure reliability of the power grid, power generators and transmission companies by law have to have the infrastructure in place to meet the needs of the grid when usage is at its maximum for all end users.

To make this possible, a capacity charge is passed through to consumers as part of their total energy cost.

While the cost of capacity has always varied based on metrics of supply and demand, since the Polar Vortex of 2014 and the continued retirement of coal-fired generation, capacity costs have grown substantially over the past three years. Capacity now makes up over 25% of your total supply costs, where it was previously only about 7-10%.

To combat these higher capacity costs, you can do two things:

  • Enroll in a “PLC Management” program that provides alerts on peak days of the summer when your capacity costs will be set for the following year.
  • Take energy efficiency measures such as LED lighting retrofits or HVAC upgrades that will reduce your energy usage and demand-based capacity costs.

Higher capacity costs likely are here to stay for the next few years. By acting now, you can help reduce this now significant component of your energy cost.