Energy management based on overarching objectives

Summit led a large dine-in restaurant chain through the process of devising an energy management strategy aligned with the company’s main goals and objectives. Summit Energy used this customized strategy to guide energy procurement and energy risk management activities, resulting in more than $1 million in savings.

Regional Market Intelligence Influences Results: A centralized, strategic approach to managing energy is critical for companies seeking to mitigate energy volatility and manage price risk. The requirements for such a strategy include a disciplined process, adequate resources and timely market intelligence. In extremely volatile energy markets, such as Texas, regional expertise and in-depth understanding of pricing options also are crucial for developing the most effective strategy.

SITUATION
A restaurant company operating 1,200 locations with seven different “concepts” in North America and 14 other countries, was unsure about its corporate risk tolerance and the relationship to overall corporate goals and objectives. To complicate matters, the company had a large concentration of sites consuming more than 30 million kWh annually in one of the most volatile commodity markets in the world, Texas. The volatility in the state combined with deregulated power regions resulted in many different pricing options for the restaurant company, including Heat Rate products.

Before partnering with Summit Energy, the restaurant company had entered into a power market agreement that put them at risk in a volatile, 15-minute interval-settled market. In the wake of Hurricanes Rita and Katrina, the regional Texas power Index settled extremely high, making the rising energy costs a critical issue for the Texas-based restaurants.

LEADERSHIP
Summit Energy began by leading the large dine-in restaurant chain through the process of determining its energy goals and objectives and defining the company’s risk tolerance level. Summit also helped the chain articulate the corporate goal as it applied to specific energy markets: Limit the restaurants’ exposure to price volatility, yet maintain a competitive price advantage in the marketplace.

Based on the defined risk profile, it became apparent that the restaurant chain’s Texas contract assumed more risk than the company believed appropriate. Summit negotiated a more conservative electric power pricing approach for the remainder of the term of the original contract while preparing for a more strategic power purchase.

Drawing on its regional market expertise, Summit identified the most opportune time to purchase power for the following year. With a clear understanding of the client’s energy goals, Summit recommended a Heat Rate product more suited to the company’s aim to lower the exposure to market volatility while still taking advantage of competitive pricing. Heat Rate products allow buyers to fix or float electricity costs in relation to natural gas prices.

RESULTS
The recommended strategy allowed the restaurant company to lower energy costs in Texas through strategically fixing the natural gas price component of the Heat Rate throughout the year.

Through its focus on the restaurant company’s objectives, Summit was able to secure electric power contracts that resulted in both a significant cost reduction and an effective risk management strategy. As a result of these and other efforts, Summit guided the dine-in chain to more than $1.1 million in hard dollar savings in a two-year period.

Energy management based on overarching objectives.pdf