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How to Mitigate Risk & Save Money Through Proper Energy Procurement

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Energy markets aren’t simple; with market conditions, regulations, and prices that change quickly, it can be overwhelming for anyone trying to manage spend, forecasts, several contracts, and risk across different regions. There are hundreds of local delivery companies (LDCs or energy utilities) in North America, and each has its own set of tariffs and pricing mechanisms that can affect negotiable energy supply. In addition to saving money, proper procurement of energy will enable hotel properties to better access renewable or cleaner fossil-fuel-generated sources of electricity. The money saved through effective energy management can be redirected toward other operations, to sustainability strategies, or to the bottom line.

Here are a few best practices for energy control and management as reported in the “The Paradigm Shift in Energy Procurement: A Strategic Sourcing How-To Guide,” prepared by Avendra and Zenith Energy:

  1. Aggregation: The energy spend of a single hotel may not command the attention of suppliers. However, a group of hotels can aggregate to create buying power in the market, leveraging to total spend to achieve lower costs and greater access to the best products and contracts. The aggregation of individual buyers is attractive to suppliers, and hotels should seek collaborative arrangements from within its brand or operated by the same management company to obtain these benefits.
  1. Alignment: Hotel owners with multiple locations and/or significant energy spend should form energy committees that include experienced in-house staff from the Finance, Procurement, and Facilities departments. The committee’s job is to develop a consensus-based energy purchasing strategy that is consistent with the organization’s long-term financial risk management strategy.
  1. Analytics: Once a hotel has established its energy committee, the team should use financial analytics and risk management tools when determining the energy procurement strategy, which should balance budget stability and cost savings. For short-term budget stability, a fixed rate may be best. If saving money is the priority, a market index rate approach may be best. A blended approach offers some of the savings of the market index approach with less risk.

Hoteliers with insufficient expertise in monitoring their energy spend across multiple markets will often end up taking whatever price is available in the market. A best practice is to monitor the energy markets or seek the services of an energy professional to do so. Working with a procurement services provider that has hotel expertise and geographical knowledge will help the energy committee leverage its spend in certain places (such as a large electric transmission area) and can provide insights into local market dynamics that will ultimately help the hotel’s team make a more informed purchasing decision.

About Chip McIntyre—Chip McIntyre is Senior Vice president, Strategic Sourcing for Avendra, North America’s leading hospitality procurement services provider. McIntyre oversees Avendra’s contracting and supplier management functions, as well as the company’s Supply Chain Development team. Avendra works with Zenith Energy to provide energy procurement audits for its customers.

About Kevin Ritter—Kevin Ritter is an advisor at Zenith Energy, a company focusing on advising commercial, industrial, and nonprofit clients on the procurement and management of energy supply in deregulated energy markets. Zenith Energy has drafted new best practices in energy procurement that are driving 10+ percent savings compared to traditional methods nationwide and is committed to helping clients build comprehensive energy management plans.

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