Every month we get an energy consumption report from our local utility or energy provider – it’s called an “energy bill.” While the report seems complicated to the average lay person, it contains a lot of good information that, when combined with other monthly energy reports (bills), yields data that unlocks significant savings for buying and using energy better, according to Dan Reiff, Senior Vice President of Business Development for SourceNet Solutions, a utility bill management supplier. “In the world of energy, companies need to make information-based decisions if they are going to save money,” he says.
Reiff says energy information management is important because of the complexity and volatility of energy costs. The diagram below shows the volatility of energy prices in a deregulated state like Texas, which was 209 percent from February 2003 to January 2004, according to the Electric Reliability Council of Texas. In comparison, the S&P 500’s price volatility for the same period was just 16 percent, according to the Chicago Mercantile Exchange; gold prices had a volatility of 17 percent, according to the New York Mercantile Exchange. “It’s interesting that we hire professionals who have access to information to manage risks around our investments, while we attempt to manage a much more volatile market with minimal information,” says Reiff.
Successful energy management programs, which cover electric, gas, and water bills, have three phases.
- Phase 1: Collect monthly bills to verify and pay them, and then to scour bill data for usable energy information.
- Phase 2: Use the information to make better energy purchasing decisions. There are many tools available to provide rate and tariff analysis, aggregation analysis, and e-Procurement, but they all require information as an input.
- Phase 3: Use the information to identify the best energy conservation projects. “If you have $500,000 committed to system upgrades somewhere in your 100-facility portfolio, wouldn’t it be nice to have the information to identify the projects that will give you the most bang for the buck?” asks Reiff.
If you combine some basic facility information, (i.e. square feet, hospital beds, hotel rooms, etc.) with energy data from the monthly bills, you can produce benchmark reports, like the one shown below, to compare one site with another or to identify outliers.
The last three columns of this report provide information to benchmark sites with one another.
“This sample report helps you decide where to focus your precious resources like time and money,” says Reiff.
The SourceNet executive says “we don’t do anything magic; it’s basic blocking and tackling.” The supplier uses a repeatable bill payment process to help its buyers unlock the necessary information to perform energy management. SourceNet’s repeatable process originates from its own accounts payable outsourcing service. Reiff points out utility bills are “a bit special” because they are recurring and because they must be paid within aggressive timeframes to avoid late fees and terminations. SourceNet’s basic process:
- Centrally receives all client utility bills
- Scans the utility bills to facilitate use of workflow management tools to pass the bills to the appropriate action-driven teams
- Enters and validates the bill data and verifies its reasonableness based upon previous months’ bills for the same meter
- Resolves and chases down all exceptions
- Pays the bills
The Importance of Bill Verification
Verification is a key function of utility bill payment. SourceNet runs each utility bill through a barrage of 30-35 electronic audits. These audits compare invoice data to a set of business rules implemented for each client. For example, SourceNet will flag a bill for further review if electric consumption is 25 percent more than the average of the three previous months – the increase could indicate a bad meter read, an estimated read, or maybe it’s accurate and based on increase in the client’s business. Sometimes the utility’s computer charges everyone sales tax; government agencies are exempt – there could be an audit to flag any kind of taxes charged.
Reiff says SourceNet flags 20-30 percent of all utility bills for further review. “Unless you perform the extra review, you can’t be sure which of the utility bills have real errors,” he says.
SourceNet also watches for missing bills. Utilities have traditionally charged late fees even if the bill never arrived. “You can argue with them until you are blue in the face and still have to pay the late fee,” says Reiff.
SourceNet’s software notes the missing bill and prompts an employee to track down a copy of the bill so it can be paid on a timely basis.
One of SourceNet’s clients, a large transportation company with over 20,000 bills per month, reduced its direct cost to pay its utility bills by 30 percent. SourceNet also reduced its late fees to .00001 of total billings, well below industry standards, according to the SourceNet Web site.
The Advantage of EDI
When SourceNet amasses enough volume from one energy provider, it will arrange with the provider to have the bills sent directly to SourceNet using EDI (electronic data interchange.) Currently SourceNet has EDI connections with over 30 of the large energy providers.
The advantage of using EDI billing is threefold: the bills never get lost, the cycle is faster, and the data is more accurate, since SourceNet’s staff does no data entry. “While EDI provides accuracy and time benefits for our clients, EDI is a significant labor arbitrage for SourceNet. “With tools like EDI, intelligent document recognition, and workflow management, we can remain competitive with the offshore labor providers while keeping our workers in America and focus our internal staff on valued energy bill expertise,” Reiff says.
SourceNet’s contracts include service level agreements that guarantee it will pay its buyers’ utility bills within a specified number of days. If SourceNet misses the deadline, it pays the late fee. SourceNet entered the energy bill-paying market three years ago.
Reiff says getting their energy bills paid is not the main reason its buyers decide to outsource the process. “Companies want to get the information to move on to Phases 2 and 3; often, there are 15-25 percent savings available,” he notes. As energy deregulates, companies have the option of selecting an energy provider instead of being forced to use a prescribed utility. “Once you know how you use energy, you have the information you need to strike a better deal with the energy retailers,” says Reiff. Most of SourceNet’s buyers use the information SourceNet provided to craft their energy procurement policies and to provide visibility to energy consumption.
“In today’s highly competitive marketplace, executives don’t need to spend their energy and resources on energy bill payment,” says Reiff. “That’s why they let an expert like SourceNet take over the process.”
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].