FINANCIAL MANAGEMENT/Saving money on energy costs

The way energy is bought, sold and delivered in the United States is changing dramatically. And as it changes, state governments are emerging as the new champions in the fight to reduce energy costs for cities and counties.

Local governments are saving on energy costs by tapping the purchasing power of state contracts and volume buying. Additionally, gas suppliers are unbundling services, allowing cities and counties to evaluate the most cost-effective energy source in each location. In essence, what has always been a fixed cost is becoming a variable cost local governments can influence.

In Florida, for example, a program called EnergyDIRECT is helping cities and counties save energy and money. Initiated in 1994, the program, in part, is implementing an age-old concept that large businesses and some governments have used for years: By encouraging users to band together and, thus, increase volume, the state essentially creates a “joint action program” to obtain the lowest price for natural gas and other fuels on the open market.

“There’s been a dramatic shift in thinking about how to save energy and save money,” says state of Florida energy management consultant Jim Geer, who worked with the state to implement its program. “What’s so exciting about it is that we are just beginning to scratch the surface. The possibilities are endless.”

In Florida, the state reached an agreement with Enron Capital & Trade Resources, a commodities broker, to provide gas on the interstate pipeline system. Under EnergyDIRECT, a master gas transportation agreement between the state Department of Management Services and a local gas provider covers the local delivery of gas to all program customers.

The state contract also allows all governmental participants to unite to buy natural gas on the open market at a low price and arrange delivery through a local distribution company. (Ohio, Michigan, New Jersey, New York, Oklahoma and Texas have similar energy-sharing programs in place or currently are in the process of implementing them. In addition, Pennsylvania, North Carolina and Georgia are looking into the idea.)

Since gas costs are a pass-through for gas distributors, there is no loss of margin revenue. Consequently, the local gas provider agreed to let the state buy gas on its own and arrange for transportation independently. The move has created a steady rise in state demand for natural gas.

The program is not a cookie-cutter solution. In some areas, the lack of existing lines, the low price of electricity or the return on investment may not make the switch to natural gas a viable solution.

However, the savings are real. And the lower prices make natural gas a good candidate for schools and other locations that traditionally have had to rely on other fuels. Additionally, gas-fired water heaters recover more quickly than electric heaters, providing a steady, uninterrupted stream of hot water — important in school areas like locker rooms and kitchens. In fact, Florida is looking at adding the Duval County School System in Jacksonville to its customer list.

Besides the schools, Florida’s program includes 38 facilities across the state. Those facilities have saved an estimated $1.15 million thus far in energy costs, Geer says. In the next year, the state plans to add about 500 new facilities to the program.

City and county managers and engineers interested in participating in a program like EnergyDIRECT should contact their state’s purchasing offices to see if one is in place. “When it comes to energy usage, saving money and being more efficient, we’re not playing in the same old ball game,” Geer says. “And we won’t be again.”