5 Best Practices for Utility Budgets April 9th, 2015

Presenters: Sheila Johnston, Manager, Sustainability & Analytics, Ecova

Accurate Utility Budgets = Fiscally Responsible Spending

“Our budget needs to be what we say it is going to be. Our financial team uses this information for management and planning to develop their annual goals and projections, and it affects our bottom line.”

Environment and Facility Department Director

Mix of complex, custom spreadsheets and ‘best guess’ approach

Lacked critical information

Draining internal resources

‘Crushing’ budget numbers is not a good thing

Risks and challenges

Best practice approach to create and maintain reliable budget

Upcoming webinars

Q&A

Agenda

Complicated Numbers Game

Utility costs are a top operating expense

Internal and external drivers

Accuracy is critical

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mat

eria

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utilit

ies

Avoid Top Down / Macro Approach to Building Your Budget

Pros:

Based on GL, data quickly available

Little time/resource commitment

Add inflationary rate increase

Cons:

Can include GL/vendor billing issues

No ability to track variances with confidence

Will miss regional specific rate impacts

Recommendation Start with site specific baselines

#1 Best Practice Start with site specific baselines

Normalize Data at Site/Service Level

Determine appropriate source of baseline data

Normalize data to fiscal calendar to resolve billing discrepancies – If not Gregorian, is this the “catch up” year (53 weeks)?

Review Baselines Visually

Analyze data for anomalies

Ensure cost and usage are representative

Assess significant usage changes

Model for new locations

Remove locations set to close

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

January February March April May June July August September October November December

Use

Budget

2014

2013

2012

2011

2010

Winter Weather Continues to Challenge

Source: http://www.ncdc.noaa.gov/sotc/service/national/statewidetavgrank/201412-201502

Statewide Temperature Ranks: January – March 2015 Period: 1895 – 2015

Statewide Temperature Ranks: January – March 2014 Period: 1895 – 2014

Include Market Influencers and Regional Intelligence

Natural gas and wholesale electricity prices at their lowest level since 2012

Power sector demand for natural gas set to increase

Regional electric outlook

Ecova Market Intelligence

– Energy Price Hub – Weekly Energy Market

Watch e-newsletter – Quarterly Energy

Outlook webinars

http://www.ecova.com/news-media/energy-price-hub.aspx

The Risk of ‘Going it Alone’

Pros:

Complete control over project

No need to coordinate other’s schedules/agendas

Cons:

May be difficult to create buy in

May miss valuable insight from other departments

Can decrease overall accuracy

#2 Best Practice Engage stakeholders early and often

Capital Budget

Rebates

Efficiency Projects

Regulated Rate

Options Regional Volatility

Hedged Positions

Price Targets

Operating Budget

Forecast

Energy Procurement

Utility Expense Strategy

Stakeholders • Procurement • Finance • Energy • Real Estate • Facilities

Engineering

Acceptable Risk

Levels

Create Stakeholder Buy-in and Trust

Meet early and often

Accelerated timelines can affect budget accuracy

Discuss processes and assumptions – Comprehensive

– Defendable

– Accountable

Align Budget Risk with Energy Procurement

Understand the energy procurement strategies

What may have they changed?

Ask for an estimate of value at risk for open supply contract positions

Document and Share Assumptions

Address Variances Proactively

What will stakeholders need to track?

Anticipate commonly asked questions

Think beyond the current budget cycle to position for future stakeholder interactions

Have a process in place for early communication

Risk of Tracking Expenses Based on Bills Paid

Pros:

Quick/Simple methodology, minimal resources

Can align budget to match bill timing

Cons:

Difficult to track variances due to bill timing

Current invoice can reflect the prior month or months usage

Seasonality can affect budget accuracy

#3 Best Practice Align accrual and budget process

Maintain budget accuracy throughout the year

Estimate monthly remaining expenses

Align accrual methodology with budget process

Booking full period removes “bill timing” as cause of variance

Daily cost method

Review for anomalies

Recommended: Book Full Accruals

Adjust Accruals for Seasonality

$0.00

$1,000.00

$2,000.00

$3,000.00

$4,000.00

$5,000.00

$6,000.00

Cost 2013

Cost 2014

Non Seasonal Accrual

Risk of ‘Reacting’ to Budget

Pros:

Only utilizing resources if questions are asked

“If tracking well, no need to review”

Cons:

No current methodology in place to track variances

No immediate answers ready

Lack clear insight into how budget assumptions are tracking

#4 Best Practice Track variances for cost AND usage

Lessons Learned: Polar Vortex 2014

Extreme weather conditions drove high volatility

Variances were anticipated, but which factor was driving them?

Understand what’s driving variances

Track Accruals and Variance Monthly

Rates and Usage Relies on accrual approach

consistent with budgeting approach

Cost drivers (usage and/or unit price)

Research large variances

Identify trends

Analyze at Multiple Levels

Portfolio

Regional/Divisional

Site

Missed Opportunities with Review at End of Fiscal Period Only

Pros:

Can see the entire year view

Time/resources saved during year

Cons:

May have missed opportunities to adjust problems before they become major issues

Lack of insight to emerging trends that support reforecasting usage

#5 Best Practice Adjust AND communicate as needed

Utilize Information to Reforecast

Catch & Resolve Issues Quickly

Identify poor performers through site level analysis

Is there an issue with the budget?

Is there an issue at the location?

Summary

Plan ahead and allow adequate time

Involve stakeholders and document assumptions

Manage the budget throughout the year

Leverage resources Achieve Budget Accuracy and Credibility Good data for use and

spend across portfolio, region and site

Internal resources review and approve

Stakeholder support

Upcoming Webinars

INSIDE ENERGY & SUSTAINABILITY

Prioritizing Energy & Water Efficiency Project Rollouts Across a Complex Portfolio – Thursday, April 23rd at 11am PST

Quarterly Energy Market Outlook – Tuesday, June 2nd at 11am PST

Questions, comments, suggestions? webinars@ecova.com

Q&A

Thank you!