Strategic Energy Procurement: 5 Tips for CFOs

 

For most CFO’s, energy procurement isn’t on the radar screen. The opportunity costs are too high.  But energy prices can be extremely volatile, and energy markets and regulations are complex and changing. If you’re a CFO in manufacturing, health, education, property management or the like, it is a good practice to have energy on your risk management map and even better to have expectations that energy procurement and management can help lower costs.

Here are 5 tips to help you more effectively manage your energy costs:

  1. Ask how your energy is being procured. Energy procurement is one of those responsibilities that can be anywhere in your organization – maybe in Procurement, Facilities, EH&S, or Finance.  In working with several hundred companies and competing against a couple hundred brokers, one thing is clear:  the quality of your energy procurement is highly dependent on who’s doing it.
  2. Demand analytical, fact-based recommendations. Making decisions about procuring your energy involves the known and the unknown. There’s lots of data related to energy markets and individual usage, and informed analysis on how you are using energy and how it is impacting your costs should be done.  Knowing your budget and risk objectives helps you effectively deal with the unknowns like future energy prices.  Analysis will inform the appropriate strategy, product, and duration for your energy buys.
  3. Understand energy contracts. Your energy supply price is made up of many components. It’s important you understand all the components going into your price and whether your contract assigns the risk of changes to you or your supplier. Your contract should also take into account building expansions, moves, closures, onsite/offsite generation and other initiatives that could affect your rates or cause penalties.
  4. Identify opportunities to reduce costs. You can lower your energy costs with the right energy supply product and a competitive bidding process involving multiple suppliers.  In addition, there are services that can reduce your energy demand, such as demand response, energy efficiency measures, and on-site generation like solar.  Whether these additional services are right for you depends on what markets you are in and your specific usage circumstances.
  5. Measure results and learn. Once you do your due diligence on who’s doing your energy procurement, have the right team, and have gained the level of understanding required to be confident in the company’s energy contract choices, you should monitor results. You can track the effectiveness of your plan and actions, drive insight through analysis of data, and make improvements to better achieve your goals.

 Cost-effective energy management is increasingly complex in today’s business climate. Usouce’s expert team of energy advisors can work with you to proactively manage your risks and identify savings opportunities. Contact a Usource advisor today.

 


About the Author

Scott MacDonald is Usource's Managing Director. With more than 20 years of experience in the energy industry, Scott has extensive knowledge of energy market strategy, consulting, and energy economics.

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