How many times have you heard the term “polar vortex” this winter? Apparently, it is Public Enemy No. 1. It has already been blamed for the extremely harsh winter here in the U.S., leading to widespread power outages, burst water pipes, snarled traffic and an assortment of shortages – from propane to salt to winter boots. The polar vortex is also causing another shortage of particular interest to the energy industry: natural gas.
As demand for natural gas has increased, so have curtailments and interruptions for hundreds of companies across the country. One of our Sourcing directors recently noted the influx of calls from concerned clients on this very topic. The flood of media coverage and an increase in the frequency of supplier alerts has created a lot of confusion and concern, both of which can quickly lead to panic.
Some of our clients are concerned, and many of those are on interruptible natural gas distribution rates. These rates come with a significant discount versus firm – or uninterruptible – rates, but also come with the risk of interruption. Interruptible rates are not the right fit for every client, but they do provide real opportunity under the right conditions and with the right advance planning.
Energy planning begins with the consideration of your organization’s energy management strategy. It requires alignment on a number of elements – your energy needs, budget, options, goals and objectives, risk tolerance, etc. The planning process also involves “if/then” scenario planning. In this particular case, a reliable backup fuel system would be a “must have” given the potential for interruption of the natural gas supply. We strongly recommend backup fuel systems to clients on interruptible rates, and utilities increasingly require them. Backup fuel systems provide customers a safety net so that once they’re alerted to a scheduled curtailment or interruption, they can switch to backup fuel or buy replacement gas.
While backup fuel is more expensive than natural gas on the interruptible rate, it is significantly cheaper than buying replacement gas at a premium. Its cost is also much more predictable. Backup fuel is the clear choice, and planning ahead is key.
Preparation is also critical. Years ago, I worked with a large forest products company during an unexpected deep freeze. On one particular day we decided to sell our gas back into the marketplace. We shut down production for the day, and made more profit on the resale of the gas at a premium than we would have made on the day’s production. Now, reselling gas isn’t an option for the vast majority of companies, and I’m not suggesting it is. Rather, I mention it to illustrate that we prepared in advance. We proactively built our energy management strategy not just around our energy needs, but also our energy assets. As a result, we had options when other companies didn’t.
The point is advance planning and preparation as part of a proactive energy management strategy will help your organization avoid panic. The right strategy always pays for itself, even – or maybe especially – during a polar vortex.