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Beware of Remarketers As You Plan Your Energy Purchasing Strategy

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NATIONAL REPORT—Imagine as a hotel general manager or chief engineer never having to worry about energy budgets, energy deviations and energy conservation. This is a new marketing strategy being employed by suppliers of gas and electricity to the hotel industry. These suppliers are commonly known as energy “remarketers.”

The concept is fairly simple. The remarketer approaches the hotel owner, general manager or chief engineer with a proposal that entails just one payment every month for all forms of energy, regardless of how much energy the hotel uses. At first glance, this proposal may seem very attractive, as the negotiated figure is an extremely easy number for the hotel manager to budget for, and completely eliminates unanticipated variances associated with any high or low use trends of energy by the hotel.

The concept is fairly straightforward for the supplier to implement; it is also simple for them to use as a tremendously profitable venture. The supplier of gas and electricity simply obtains a five-year history of cost and consumption for energy of the hotel seeking the proposal. A complicated computer model is used to project energy use in coming years. Then the supplier simply takes the highest predicted energy use cost and adds a sizeable profit margin to the monthly payment.

Some of these energy service companies can make well over $100,000 per year on just a couple of hotels by handling the energy accounting end of the business. Unwitting hoteliers may enjoy the certainty of knowing the exact level of their energy payments in advance, but they may not realize how much more they are likely paying for this service than need be.

The worst part of this entire concept is that it completely eliminates all incentives for energy conservation. For example, if in an effort to lower energy consumption a hotel were to install a guestroom energy management system that would reduce energy use by perhaps 20 percent in guestrooms, the hotel would not realize the sought after savings. According to the terms of the agreement with the supplier, the hotel’s energy bill is a fixed payment on a monthly basis, regardless of energy consumed.

Don’t Expect Adjustments

As a hotel energy audit professional, many suppliers have indicated to me that they will adjust the monthly payment based on the hotel’s potential energy conservation actions; but I consider this very unlikely. Attempting to get anybody to accept less than the agreed upon rate once a contract is in place is like trying to swim upstream during flood season. There is no reasonable rationale for a remarketer to accept any compensation less than what they negotiated. As a simple rule of thumb, I recommend that hotels pay for what they use and use what they pay for, efficiently.

Deregulation, which is more prevalent on the east and west coasts and in southern states, has provided an avenue for many new marketing techniques of both gas and electricity. It is almost impossible for the typical hotel manager to nominate and purchase deregulated gas and electricity on their own. They need a professional to assist them in this task in the same way one needs a lawyer when you go to court.

There are many high quality professional energy providers throughout the deregulated areas of our country. The majority of these deregulated suppliers are subsidiaries of the former extremely large electric and gas utilities, such as Con Edison. There are also many private aggregators that offer energy at a fair and competitive price based on actual use.

An aggregator is simply a reseller of gas and electricity. Their energy rates are based on their ability to obtain the largest number of customers possible so they can negotiate the most competitive price for either gas or electricity directly from the energy sources. This is the primary variable to keep in mind when looking for potential suppliers of energy for your hotel.

Seeking out a reputable energy aggregator in a deregulated area is an option that may require a little more planning and work, but is by far the fairest way of purchasing energy for a hotel. It is recommended, if possible, that an hotelier seek out an energy aggregator that works specifically with the hotel industry, such as Tharaldson Energy out of Washington, D.C.

Beware of Free Offers

Over the years, there have been a variety of different energy service companies that, for the most part, are very profitable as they take advantage of a customer’s lack of knowledge of understanding utility bills. Some of these companies simply offer to audit a hotel’s utility bills. Generally, they realize their revenue by splitting the amount of any utility billing errors they identify for the next five years. This does not seem like much money on the surface, but can grow into tens of thousands of dollars. There is a great deal of information on both gas and electric bills that a professional eye can spot, and as a result, take advantage of the customer. Remember, we are talking about energy invoices the hotel has already paid or will pay in the future.

If any energy service company comes to your property and offers to provide all these services for free, I would generally recommend that you turn them down and retain a professional energy consultant to help guide you on an informed course towards understanding commercial energy. A consultant’s fee is typically far less than that of a potentially manipulative energy service company, and the consultant can teach you how to understand your own utility bills. More importantly, the consultant will work for your best interests, not his. If he doesn’t, his reputation will be damaged.

A good energy accounting program is also important for all properties. First and foremost, keep all utility bills in correct order and neatly filed for at least five years. There are an incredible number of operations and maintenance issues that can be resolved by looking at historical data. The next step of energy accounting is to tabulate the energy use, the cost and the billing date on each individual bill, including water. Gas is usually measured in thousands cubic feet (MCF), and electricity is measured in kilowatt hours (KWH). Both units of measurement are different from each other, but are always relative to each other.

Obviously, if your kilowatt hours in July double over the previous year, you know you’ve got a serious problem in the hotel! The same could be said for gas during the heating season. It does not hurt to track weather and occupancy either, to better understand the normal fluctuations of energy use throughout the year.

In conclusion, given the highly competitive marketing of energy throughout America, it is recommended that you closely scrutinize all vendors attempting to provide this service. Clearly, if it looks too good to be true, it is probably one of the newer highly technical marketing strategies of an energy service company.

Phil Sprague is a member of the AH&LA Executive Engineers Committee and president of PSA Hotel Energy Consultants. Based in Minneapolis, PSA Hotel Energy Consultants assists lodging companies and individual properties to develop effective, cost-saving energy strategies by auditing and assessing all energy consuming devices and appliances, and delivering comprehensive, customized recommendations in an actionable format. They can be reached at 952-472-6900.

This article first appeared in The Rooms Chronicle, Vol. 14, No. 4.

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