Building Your Energy Budget for Optimal Performance

Rick Clough

Budgeting for energy, which can vary erratically from month to month, can be a challenge. Energy managers need to know how much energy their organization will consume and at what rate—when both are moving targets. The following recommendations can help establish an energy spend baseline to help you gain control over your budget.

ESTABLISH BOTH A USAGE AND UNIT PRICE BASELINE AT THE SITE LEVEL

Build your energy budget on a site-by-site basis. Energy budgeting at the site level unlocks pinpoint consumption and utility price forecasting, reducing variability in your budget. Using your general ledger or a state-by-state approach can be problematic to reach an appropriate baseline for your energy spend; these methods are quickly developed, but do not have a desirable level of accuracy or accountability.

ALWAYS BOOK A FULL PERIOD OF EXPENSE USING ACCRUALS, RATHER THAN BUDGETING BASED ON BILLS THAT HAVE BEEN PAID

Use full period accruals to create a more normalized energy spend picture. Full period accruals eliminate variance driven by bill timing and help avoid misleading conclusions in energy budget analysis, resulting in a more complete financial picture. To enhance your accrual’s accuracy, apply site-level adjustment factors that reflect month-over-month expense changes due to seasonality.

KEEP TRACK OF UNIT COST AND CONSUMPTION

Analyze your performance at each site against budget to provide better insight into sources of variance with regard to unit cost and consumption. Important questions to include:

  • How is my entire portfolio doing in terms of cost drivers?
  • How are things unfolding with energy spend compared to plan?
  • How are individual sites and regions performing?

By exploring these questions, you will be better positioned to know your energy budget against actual, understand where any problems lie, and how they can best be resolved with well documented unit costs and usage.

APPLY ADJUSTMENTS TO YOUR BASELINE ACCOUNTING FOR INTERNAL AND EXTERNAL FACTORS IMPACTING YOUR ENERGY BUDGET

Start from your baseline to incorporate internal portfolio factors that estimate the impact of usage changes. Important budget factors include operational changes, capital improvements, and new/closing site information, as well as operating hours and production schedules. Also, be sure to work with procurement to account for new energy contracts in deregulated markets.

The volatility of specific energy types varies region-by-region, largely driven by its energy generation profile. These regionally shifting prices will have a unique impact on each site and your portfolio. Therefore, it is crucial to apply rate projections to protect you from future increases. Rate projections for electric and gas should be applied at the site/utility level ensuring the most accurate adjustments are made.

By following these recommendations, you can build an energy budget which more closely reflects your actual spend, enhancing your overall financial position, while setting a foundation for broader energy management and sustainability efforts.

Not sure where to start? Ecova has the resources to help you compile and analyze baseline data in addition to applying individualized rate forecasting for each of your sites. We leverage our data warehouse and our knowledge of impending rate changes to provide customized budget reports, which results in an annual and monthly electric and/or gas service budget for usage and spend, with a variance report showing actuals against budget.

To learn more about budgeting strategies and how Ecova can help you, watch our educational 30-minute webinar below, “Don’t Let Your Budget Drivers Drive You Crazy” from our Inside Energy & Sustainability webinar series.

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