As with taxes, everyone seems to complain about "the energy crisis," but no one seems to do anything about it.To accomplish the goal of managing its energy purchases, Saint Gobain, a global manufacturer of construction products and high-performance materials, collaborated with Summit Energy Services Inc., an energy consulting company based in Louisville, Ky.
Saint Gobain's North American operations, headquartered in Valley Forge, Pa., comprise over 200 facilities that are decentralized and involved in diverse businesses. As the energy market became more volatile, Saint Gobain realized it had to take better control of energy use throughout the entire organization if it was to remain competitive in its core markets.
According to John Marrone, vice president of purchasing for Saint Gobain of North America, the company needed to develop a comprehensive energy program, and couldn't do it without third-party help.
"After all, Saint Gobain is not in the energy management business as a specialty," noted Marrone. "We felt that once we had better control of our energy purchases and consumption, we would be able to concentrate wholly on our core businesses, which are our specialties."
First, Summit Energy built an energy database of Saint Gobain's electrical and natural gas usage to see if the company was efficiently using these resources.
Summit then developed a program to manage Saint Gobain's procurement of electricity and gas (Saint Gobain uses about 50/50 of each), which helped develop a broader access to energy suppliers.
"Summit Energy discovered that although Saint Gobain's four or five sites in Texas were buying electricity and gas from the same supplier, they were all doing so at different prices," said Marrone. "There was no synergy among the divisions on utility purchasing."
What was more surprising, Marrone said, was that Saint Gobain wasn't even aware this was happening in Texas, and it was probably occurring in other regions, too.
"With Summit Energy's market intelligence, we were able to combine our buying power in Texas for a better pricing structure," he said.
Of course, Summit can't change the prices of gas and power, but it can show a manufacturer how to be a better purchaser of these commodities, explained Steve Wilhite, president of Summit.
"For example, in Chicago, we are able to make bulk purchases of gas and power for about 100 facilities in the area," said Wilhite. "So we can get a better price than if each individual company had to make their own contracts. The suppliers also prefer having a single source to deal with, rather than 100 individual companies."
Each company that collaborates with Summit gets its own customized proposal and quote; they do not all have to pay the same price or get the same delivery deal.
Summit Energy's next solution helped St. Gobain get a handle on deregulation practices and government regulations, while centralizing natural gas management helped St. Gobain save money on the huge swings in the volatile gas market.
It's not just the complexity of making energy purchasing decisions, but also the market complexity, that makes energy management such a major concern for most manufacturers.
Wilhite noted that because there are so many rules and regulations governing the purchasing of gas and power, manufacturers must understand how to take advantage of pricing breaks in relation to rates, risks and availability.
"Otherwise, manufacturers will become 'price takers' rather than finding the best solution for their plant," cautions Wilhite. "Just in the last five years, the gas market has seen the most volatility going from $2 per MMBTU to $15 dollars per MMBTU (Million British Thermal Units) in the aftermath of Hurricane Katrina. Manufacturers cannot afford to be exposed to this volatile market without it affecting their bottom line."
It's not the same old, sleepy utility industry, noted Wilhite, and, with oil prices at $50 to $60 a barrel, every corporation should be looking at their energy costs and consumption, he added.
Once Saint Gobain had better control of its energy procurement and costs, it was able to concentrate on energy reduction and conservation.
"We wanted to be smarter in how we used energy in our offices and manufacturing facilities, too," Marrone said.
Marrone believes that just as profitability is a specific target for a manufacturing facility, so should it be for reduced energy consumption. For a company to have a successful energy-saving program, it must have a commitment from senior management and top level executives, and "the plan should be to reduce energy consumption by 'X' percent by a certain time period," he added.
As for why some manufacturers don't get more involved with managing energy costs, Wilhite contends that many companies have a false sense of security when it comes to energy matters; "executives think that someone, somewhere in the company is paying attention to these things, but many times that is not the case."
Marrone suggests that companies who want to conserve energy should invest in an energy audit and meters to clock energy use. Metering will allow companies to know how much is spent on energy in a facility, and how to use energy efficiently in conjunction with peaks and valleys in energy deployment. Audits, which can be done by a third party or by in-house personnel, will tell a company how much energy is used on lighting, compressed air, office equipment, etc.
"No matter what business a company is in," Marrone said, "energy is one area that should be focused on."
Wilhite echoes this sentiment by noting that "energy prices are at the core of almost every geo-political event. If you are not managing it (energy), then it is probably managing you."