Utility Budgeting – Do’s and Dont’s
Energy is one of the top operating expenses for buildings, typically in the mix with debt service, taxes, cleaning, and staff salaries. It’s usually the most volatile operating expense for buildings, but it’s also one of the most controllable and explainable. There are countless variables that can affect your utility budgeting; consumption could drop due to efficiency retrofits, lease expirations, and operational changes; supply rates could increase three-fold due to supply contract rate structure and market movement, and delivery rates could increase substantially due to Public Service Commission rate cases and new legislation. It is not enough to simply take a three year average of rates and consumption and project forward into the future. Such a large, potentially volatile monthly expense should be budgeted utilizing the data-driven process of energy market experts. Here are some of EnergyWatch’s recommended Do’s and Don’ts when it comes to utility budgeting.
- Forecast usage/demand based on variables that impact usage/demand
- Adjust for changes to occupancy/production, operating hours, energy conservation measures (behavioral and equipment)
- Project costs based on actual utility tariff rates
- Incorporate legislative changes that will increase your costs
- Reforecast when given the opportunity
- Track monthly budget variances and provide concise explanations
- Note any assumptions used to create the budget
- Provide a data-driven, defensible budget
- Add all applicable city and state taxes
- Check with your chief engineer for any significant operational changes that may affect future usage and demand
- Project future costs based on historical costs or averages
- Forecast usage/demand without considering impacting variables (weather, production, occupancy, ECMs)
- Take last year’s numbers and apply a blanket percentage increase
- Get caught saying “I don’t know” when someone asks you why the actual usage/costs were higher than budget
- Include changes for tenants/spaces that are directly metered
EnergyWatch’s watchwire platform acquires, audits, and consolidates utility invoice and interval data in a central web-based platform for use by you and your team. watchwire ’s budgeting module analyzes this historical usage/consumption against weather, occupancy, and/or production/operating variables to create forecast models for annual budgeting. These forecasts are used to create delivery projections based on actual tariff models for your utility provider, as well as supply projections based on your actual supply contract and/or the market rates (where applicable). To incorporate potential adjustments, watchwire ’s budgeting module provides the ability to enter leasing/occupancy projections, energy conservation measures, public service rate case increases/decreases, custom line items for new legislative charges (e.g. clean energy standard), as well as countless free form adjustments to tailor the budget to your business. Once budgets are completed, you can reforecast with a single click to incorporate to-date actual invoice data and reforecast the remaining budget period based on the latest data. And each month, our budget variance reports will allow you to track performance vs. the budget, as well as explain any variances due to usage and/or rates.
Accurate budgets allow more efficient allocation of capital, and data-driven, explainable budgets provide peace-of-mind that all factors were considered when creating your budget. And when there’s inevitably a variance vs. the budgeted numbers, you’ll know that you can provide an explanation backed by real market data and statistics, not just “it was hot outside”.
Reach out to EnergyWatch to learn more about how watchwire can improve your utility budgeting process.