Supply Chain

Getting In with the Grid

Some companies are cutting energy costs by dealing directly with the electric grid.
Alix StuartDecember 16, 2011

Short of turning off the lights at night, few CFOs get involved with corporate energy management efforts. At EnerNOC, which recruits companies to participate in demand-response programs and become more energy-efficient in other ways, only 2% of the firm’s 50,000 customer contacts have “finance” in their title, EnerNOC CFO Tim Weller notes. That surprises him to some extent, he says, “because you learn a lot about your business from that energy data,” including things like which facilities are least efficient and who may be sneaking in extras shifts to make production quotas.

While focusing on energy costs can take a variety of forms, ranging from energy audits and new policies to major investments in new equipment, some energy-intensive companies have a particularly interesting opportunity: dealing directly with the grid.

One such energy-intensive company is TPC Group, a $1.8 billion producer of specialized chemicals based in Houston. Steve Johnson, who oversees energy along with the major raw materials that go into the petrochemicals, says the company has become a net seller of electricity. The plant in Houston produces an extra five megawatts of electricity, which the company uses in part for another plant nearby. The rest is sold back to the grid. Depending on pricing, Johnson is willing to create more for this purpose. “We can vary to some extent what we produce for sale by how we run our plant; we can turn various pieces of equipment on or off,” he says, and also switch operations to steam power to create more electricity for sale.

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Demand-response programs can enable a wider variety of companies to indirectly “sell” their electricity back to the grid on an ad hoc basis. In such programs, companies generally get an up-front payment for agreeing to curtail a certain amount of energy use during peak demand, and additional incentives for actually turning off lights and air conditioning when the utility calls.

Another option for companies and institutions that use at least five megawatts of electricity among various buildings in a region: buy energy wholesale and schedule directly with the grid operator, rather than using a retail electric supplier market.

One Midwestern metals company recently made this switch. While the process involved completing a lot of forms to gain regulatory approvals (and now some regulatory oversight), “we save a lot in ancillary fees, and the retail markup on prices,” says the executive in charge of the decision, who did not want to be named for competitive reasons. The company used Fellon-McCord, an energy-management firm, to assist with the setup work, and continues to rely on the firm to manage its wholesale electricity portfolio through such activities as day-ahead scheduling, price benchmarking, market intelligence, counterparty interaction, and recommending energy hedging strategies.

Many companies are surprised to find out they qualify for wholesale treatment, says Rick Sievertsen, vice president of sales and marketing for Fellon-McCord. “If you have several smaller sites that add up to at least five megawatts of peak demand, like 20 department stores or restaurants all in one operating region, you can play the game,” he says, provided the market is deregulated. By cutting out the middleman, a company can save 5% to 15% of electricity costs, depending on the number of wholesale suppliers available and how constrained the transmission system is in a particular area.

That savings, of course, may be tempered by the use of a third party to handle the administrative piece. Besides regulatory filings, companies also need to be able to schedule their electricity usage 24 hours a day, something that is ripe for outsourcing. That’s one reason, in fact, why some companies have been slow to adopt the practice, even though it’s standard in the natural-gas market.

“A lot of companies buy directly from the wholesale natural-gas market and have been doing it for many years, but it’s easier because it’s a daily market as opposed to an hourly market for energy,” says Peter Brown, COO of Fellon-McCord, and also has fewer regulatory requirements and reporting burdens.