Most of our readers are manufacturers and, for them, the cost of utilities represents a significant portion of their overall operating costs.
I remember talking with an IBM executive a couple of years ago. He had been in charge of the team that eventually selected Manassas, Va., as the site for a major chip manufacturing plant IBM and Toshiba were building jointly.
When we got to the subject of utilities, he pointed out that even a half-cent rate reduction meant big money savings for a plant the size his company was envisioning. The phrase, “several million dollars,” crossed his lips.
Obviously most of you are not anticipating building a $2 billion chip manufacturing facility, or an aluminum smelting plant, or some other mega-energy-using operation. Still, if you’re a manufacturer, you can garner yourself some major savings by negotiating even a marginal reduction in your current or projected energy rates.
That’s why you need to make sure that you talk to the utility rep early on in your site search and bring her on board with your project.
For years utilities have been one of the mainstays of local business attraction programs because, in order for them to get a new industrial customer, the utility had to have them set up within their service area. That created a natural synergy between the utility and the local chamber of commerce and economic development officials, both of whom were trying to bring in new businesses to their community.
Don’t overlook the point that there’s big money on the table for all parties – the city wants the jobs and the future tax revenue, and the utility is eager to have your company as an industrial consumer. That gives you some leverage with which to deal.
How eager might the utility be to have you as a customer? That’s a pretty easy one to answer because it’s tied to how much energy you use. The more you consume, the greater your bargaining position.
Many utilities are able to tell you, in a matter of seconds, what your utility costs will be in their service area based upon your current or projected usage. Some, like Baltimore Gas & Electric, even have it on their web site so that you can call up their site on your desktop computer, enter a few figures and, presto, instant cost estimate. I wouldn’t be surprised to see this feature on most utility web sites within the next year or so.
Why do I think so? In a word, deregulation.
As deregulation of the electric utility industry looms on the horizon of most states, more and more utilities have acquired multi-state service territories. This only increases the amount of assistance they can provide you because they are now able to provide you with rate comparisons over a number of states.
As utilities begin to be able to sell their energy products and into what formerly was someone else’s legally protected service area, the whole dynamics of the industry will change. I wouldn’t be surprised if, within a couple of years, you’ll be able to sit at your desk and, in less than an hour, calculate utility cost estimates for your manufacturing facility in 40 different locations served by 20 different utility companies. Talk about comparison price shopping.
But that’s still a little bit in the future. For now, it’ll take you a bit longer to work out those calculations. Still, it’s worth it to your bottom line and the money you save might just make the difference in the economic viability of your planned facility expansion.
Bill King is the editor of Expansion Management.
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