Special Indirect Procurement Category Update: Utilities
Major Takeaway
After a banner year in 2020, utility prices are expected to take an upward turn in 2021. Corporations and PE firms should take steps now to reduce costs and mitigate potential electricity & natural gas rate increases.
2020 Utilities Review
ACC manages 30+ indirect expense categories, and in this issue we are featuring Utilities, an expense area not exempt from the chaos of 2020. Lockdowns and reduced economic activity made a significant impact on demand and utility pricing across the board.
- According to the U.S. Energy Information Administration (EIA), U.S. electricity prices were down 10 cents/kilowatt in the industrial sector compared to 2019.
- Electricity consumption fell 4% and natural gas declined 2% from 2019.
- The U.S. added 23 gigawatts of wind turbine generating capacity, breaking the previous record of 13.2 GW set in 2012.
- The EIA showed a reduction of 5.9% in commercial sector electricity sales and an 8.8% reduction in industrial sector sales.
- Despite modest growth in the clean energy sector, the World Meteorological Organization recorded 2020 as one of the top three hottest years on record. The 6 warmest years on record have all occurred since 2015.
- According to the Rhodium Group, America’s greenhouse gas emissions from energy and industry were down at least 10%, a 30-year low.
2021 Utilities Forecast
- A 1.3% uptick in U.S. electricity consumption is expected, especially in regions where climate change is expected to drive up electricity prices.
- The EIA expects monthly prices for natural gas to average $3.01/MMBtu in 2021, up from the 2020 forecast of $2.07/MMBtu.
- Electricity generated by wind power in the U.S. is predicted to exceed 23 Gigawatts in 2020, far more than the previous record of 12 GW added in 2012. The EIA forecasts wind’s share to reach 10.3% in 2021.
- Congressional changes do not necessarily translate to altered energy policy, though they are possible. Passing new measures or regulations would require broad support and energy views vary on both sides of the aisle.
- If passed, new laws would require significant time before going into effect and making a material impact on company pricing.
Take a Proactive Stance
By accurately forecasting your upcoming utilities spend, analyzing energy factors and comparing rates across similar industries, you can prepare for coming changes and reduce costs 2% – 6% with a strategic energy sourcing and procurement program.
Let ACC help get your organization ready. Contact us.
Alliance Cost Containment is a leading U.S. expense reduction consulting firm. We assist private equity backed companies, corporations and institutions of higher education with profit improvement by lowering indirect procurement costs.
Our Louisville, KY based team leverages market knowledge, technology, national agreements and subject matter experts to reduce common expenses.
In addition to reducing costs, ACC’s approach also instills institutional behavioral changes and adherence to best practices. ACC has performed 3,000 audits on cost savings already implemented.
