resources > In Pursuit of Balance: Are You Getting the Most From Your Utility Management Service

In Pursuit of Balance:  Are You Getting the Most from Your Utility Management Service?

UAI conducts unbiased rate and tariff analyses of regulated utilities and energy procurement in deregulated service areas.

By Utilities Analyses, Inc.

You’ve found a well respected, big name, and reliable utility management service to handle all of your entire utility spend – everything from bill presentment to energy procurement.  You’ve taken the burden of managing multiple vendors off of your program manager, things are running smoothly and you feel like you’re saving money from a bundled service.  In short, you’ve found the perfect solution – right? 

In spite of the convenience of using one provider for all of your energy supply-side needs, is it really wise to outsource your entire utility spend to just one single firm?  Where are the checks and balances?  How do you know that your service provider is exercising quality checks on every aspect of energy management?  You owe it to your shareholders to be absolutely certain you are getting the best quality of service for the least amount of money.

The Tradeoff:  Quality vs Convenience

In a typical utility management scenario, the thorough process goes like this: the utility bill is presented, processed, paid, audited and a rate tariff analysis is performed.  The final step in open utility markets is to go out and procure the energy commodity in deregulated states.  There’s no doubt that it’s more convenient to have one company handling this entire process.  Corporate energy staffs have been reduced through cost cutting measures and many program managers don’t have time to manage several vendors, so for ease, they turn over entire process to one entity. 

It sounds good in theory, but where are the checks and balances – or the belts and suspenders?  Who is performing the verification and validation necessary to ensure you are running a balanced program?

Keep in mind that although many firms offer a wholly integrated solution, the reality is that they are generally not experts in every step of the process – at least not best in class.  This is where costly mistakes and oversights can hurt you, particularly when your service provider offers a performance guarantee, which ensures that you will receive results, no matter how the provider arrives at them. 

Here’s a simple example that gives a false sense of security and results for many large national energy enterprises.  The outsourced bill payer receives and processes the monthly utility bill but is paid late.  Late fees are assessed and passed on to the end user, perhaps unintentionally.  The bill payer then works to get the fees reduced and counts the reduction as savings that have been gained for client towards performance guarantee.  In this situation, the client believes that their service provider has saved them money, when in reality the outsourced bill payer is getting credit for correcting a mistake.  This may be intentional or inadvertent, but the result is the same:  you are lulled into a false sense of security by your provider.

Then there are those consultants who claim savings in deregulated markets where there is no realistic benchmark in an open competitive market.  What are the actual savings?

In essence, when you use a single vendor for your whole utility spend, there are no “belts and suspenders.”  Because of a lack of checks and balances, you are opening yourself to the possibility of fraud and your shareholders are getting hurt because earnings are being affected by higher unnecessary costs of utilities.  If you really want to see the results of your initiatives and benchmark savings, you should be receiving a report of savings that shows real measureable undisputed savings based on calculations of real effects of the service provider.

In some cases, an outsourced utility consultant may claim savings of high usage identified but without any implementation to secure and document effectual savings.

Muddy Waters

Is it really worth it to bundle supply side services?  Many companies opt to receive bundled services not only because of convenience, but also because of a mistaken notion that bundled services accelerate cost savings.  The truth is that segmented services can be just as cost efficient as bundled services if you are using the right providers.

The real problem with bundling of services lies in the fact that bundling muddies the effects of each individual service. For example, when services are bundled, it’s difficult to dissect and quantify the value and any savings attributed to energy commodity because there is not a firm benchmark to calculate savings.  The calculations change depending on timing.  But it’s still essential to have good processes in place that are sound for purchasing energy in a volatile market.  Comparing a bundle of services differs widely from the exact comparison you can do when comparing just one service. To accurately benchmark savings, segmented services provide a better yardstick that is more exact and attributes success to specific initiatives. 

Checks and Balances:  A Better Solution

Checks and balances are essential if you want to accurately benchmark savings and be certain that you’re receiving fair and balanced utility management.  The best way to ensure good checks and balances is to use a multi-vendor system with distinct segments by expertise.

Large national energy enterprises can be divided into three distinct segments.  In a multi-vendor system, a different utility management provider would handle each segment:

Vendor #1 – With a transactional focus, handles bill presentment, bill processing, and bill payment; easily charged on a per bill per month basis.

Vendor # 2 – With a focus on, and experience in, utility supply-side pricing especially in regulated areas with filed rate tariff schedules, audits the bill payment process for refunds and tries to optimize future pricing according to regulated rate tariffs; value is easily measured from documented results and calculations on a monthly basis.

Vendor # 3 – With a focus on, and understanding of, energy commodity markets in deregulated environments, goes out to arrange for energy supply by negotiating the commodity contracts; able to be charged as a margin adder or as a monthly retainer.

This system provides the checks and balances necessary to provide quality, cost savings and convenience.  Shareholders will be happier and you’ll have peace of mind knowing that you are a good steward of your company’s utility spend. 

Though it’s tempting to fall prey to the convenience of using a one-stop company, I strongly urge you to consider segmented services.  Using multiple vendors may be slightly less convenient, but the savings can be huge to get the best in their particular fields managing such a significant annual cost item.   Ask yourself: is the bundling of utility of supply side services really worth the risk.

About Utilities Analyses, Inc.

Since 1986, UAI's utility rate consultants have helped large utility customers reduce their costs. UAI offers a full spectrum of services, including utility rate consulting, energy information & utility bill processing management, utility bill audit & refund recovery, utility tariff analysis & rate optimization, energy supply procurement and risk management, energy demand side and efficiency management and strategies to produce guaranteed measurable ROI with reduced on-going utility pricing.