Firms must plan for energy costs
The profit-and-loss battles this winter could be influenced by energy prices more than ever. And for some businesses, energy costs could...
Knight Ridder Newspapers
AKRON, Ohio — The profit-and-loss battles this winter could be influenced by energy prices more than ever. And for some businesses, energy costs could rule the day.
Natural gas. Heating oil. Propane. They all will cost significantly more this winter. Businesses that rent could find themselves paying costs passed on by their landlords.
The situation is severe. After hurricanes Katrina and Rita hit the energy-producing Gulf Coast, President Bush asked the entire nation to conserve energy.
One area the federal government is targeting is business.
Industry uses more than one-third of all the energy consumed in the United States. Most of the energy is from natural gas and petroleum, with electricity coming in a distant third, followed closely by coal, according to the U.S. Department of Energy (DOE).
To help industry and the federal government save energy, the DOE is sending teams of energy-efficiency experts to 200 of the nation's most energy-intensive factories and to federal government facilities to identify quick and easy ways to save energy this winter.
But most business owners will not get the benefits of such consultations. For them, the best answer may be investments in improved equipment and a healthy dose of common sense.
The surest way to cut costs might also be the cheapest, said Richard Lubinski, president of Think Energy Management, a consulting firm with headquarters in Silver Lake, Ohio.
"The key is applying common sense and good engineering to the management of the building," Lubinski said.
Often, Lubinski has found that companies run two boilers at full power, in case one gives out. He said it is more economical to run the backup boiler at half-power.
People think, "If one is good, then two is better," Lubinski said. "Well, that's not really true."
Business owners also should consider changing the temperatures at which they set boilers, chillers and air compressors. Moving the dial closer to room temperature by a few degrees is smart, as long as it doesn't affect the device's effectiveness, Lubinski said.
Also, turn off lights and motors when they are not in use. From Lubinski's experience, those ideas are generally overlooked.
"The best energy-management measure is a switch," he said.
Lubinski said it's important to replace appliances and lighting based on its usage.
"If something runs a lot, it's important [to upgrade]," he said. "If it doesn't, who cares?"
For a hotel owner, improving the efficiency of a hallway light can be significant, but changing the lighting inside closets is nearly worthless.
For an industrial-plant owner, it would be wise to upgrade the efficiency of lights within a plant that operates 24 hours a day. But don't worry as much about the lights that run only at night.
Also consider how quickly a new appliance will pay for itself. When buying a new motor, managers should consider that only 2 percent of the motor's lifetime cost comes from its initial purchase, Lubinski's company estimates. The company pays the other 98 percent in the energy that the motor consumes.
Those factors play a part in Lubinski's recommendations when consulting.
"The biggest issue is first cost vs. life-cycle cost," he said.
But the first cost is often what executives want to avoid. They do not see energy-saving purchases as a future moneymaker, just a sunk cost.
But sometimes, the consultant said, energy savings aren't enough to persuade a financial officer to spend money on energy management.
"If you have a secondary benefit — such as better lighting, [or there is] more comfort in the building — then it's a winner."
The rising energy costs have led more businesses to seek out Akron-based Jennings Heating, President Mike Foraker said.
"This fall, we're having a lot more people call because they're concerned about energy costs," Foraker said.
Two years ago, Foraker said, most energy-management consultation came from utility companies, which had little incentive for lowering energy use they make money on. Foraker wanted to change that.
"I thought that we were in a better position to help our clients," Foraker said.
But even with consultation and upgrades, energy bills will increase for most businesses.
" 'Business as usual' doesn't work anymore," Lubinski said. "People that follow 'business as usual' may not be around."