Operationally intensive businesses like hotels live and die by their ability to grow revenues while managing expenses. In light of the recent economic downturn, where revenues are expected to continue to decline through the foreseeable future, managing expenses has never been so critical. Despite the fact that energy deregulation in certain states has been around for a decade, most hotel executives still view energy costs as regulated across the board, and thus uncontrollable.

The charts below illustrate states that offer deregulated utilities, and thus allow you to evaluate several competitive bids for your utility business.

Others are still employing the same procurement strategies they used in the early days of deregulation. Back then, when default energy tariffs were set for two- or four-year intervals, predicting energy costs was a straightforward exercise. Today, however, default utility rates change much more rapidly, in step with wholesale markets. This fundamental shift in default pricing has rendered a once conservative strategy among the riskiest and most costly.

As reflected below, over the past decade, energy prices have increased at an average annual rate of 15% per year, albeit with considerable volatility and varying rates over shorter periods. (Over the past four years in North America, the correlation between natural gas and electricity pricing has been 97%.) The collective view of most energy experts is that the energy supply and demand relationship will remain tight through at least the next decade, and historical trends are unlikely to change much.

Our strategic sourcing service includes the following steps:

• Application of Strategic Sourcing and Best Practices
• Charting Team; engaging stakeholders
• Detailed spend analysis
• Identification of opportunities
  • Spend analysis
  • Interviews of stakeholders & participants
  • Historical experience
  • Equipment standards checklists
  • Equipment/facility benchmarking
  • Facility audits (if necessary)
  • Carbon inventory
• Planning workshop with key stakeholders
• Strategy Map
• Priorities and Market “Map”
• Action plan development
• Supplier qualification, selection, negotiation, & contracting
• Process improvement/adaptation
• Stakeholder review & approval
• Execution
• Tracking, periodic review, and adjustment

Ideal candidates for this service operate hotels in the unregulated states illustrated above and have an average annual utility spend in excess of $10 million.