Energy consultant Ralph Russell explains how installing equipment and setting it up right can improve your bottom line for years to come.
When it comes to developing a new plant, energy issues may not be at the top of your list. But they should be a major consideration so that the right utility and customer equipment is installed and that upfront and ongoing energy costs are minimized. If you have excess equipment installed, you won’t like the added cost. And if you set it up right, you can improve your bottom line for years to come.
TimberLine sat down with energy consultant Ralph Russell who has worked with a variety of industries including forest products companies to save money on their power bills and improve plant efficiencies. Russell is currently president of eDiscoveri Energy and has contributed
columns to this magazine in the past. Russell formerly worked as a key account manager for Dominion Virginia Power, and he knows the process of power management inside and out. You can reach Russell at 804-291-7667 or email rwrussell2@eDiscoveri.com.
TimberLine: What is the difference between internal and external factors in developing a new power system?
Ralph Russell: External factors are things that are going on with the utility that the customer may not have a direct influence over. Whereas internal factors, these are things that are happening inside the plant that the customer has 100% influence over. For example, can the existing electric utility service near the new plant meet customer power requirements without an upgrade? That equipment belongs to the utility. Whereas under internal, what’s the connected load? That’s something that the customer is installing in a new plant or an upgrade. A power consultant would come in and conduct a site assessment with the company looking at that particular location.
Early in my electric utility career, I had a consultation with a large customer putting in a massive industrial facility. The customer demanded a certain size transformer based on what he estimated his load was going to be internally. And as a result, a larger transformer than what was needed to serve the actual load was installed. The transformer size was based on what the customer said his load was going to be and not the diversified or actual load. The customer has paid an excess facilities charge for decades for the larger than necessary transformer. Unfortunately, they have paid millions of dollars in excess facilities that they could have avoided had they figured out what their diversified load was internally. Thats where I can come in and help companies figure out what their true load is not what some electrician or engineer guesses it could be. And this measurement is one of the key factors that drives everything in terms of the size of electrical facilities that are installed.
TimberLine: What are the key factors that you need to consider to get the right electrical service to a new plant?
Ralph Russell: There are several key factors. A customer recently told me that he thinks the number one key factor is to make sure the transformer is sized properly. The reason is that most utilities charge either something known as a facilities charge for excess facilities and/or a contract minimum demand. Let’s say that the load the connected customer provides the utility indicates that you need a 2500 kVA transformer. They’re going to want a return on the utilities, so they put in something known as a contract minimum demand (CMD) that you pay whether you use it all or not. Let’s say the CMD is 1,750 kW. So if the wrong load is provided and you really only use 1,000 kW, they’re paying 750 kW more than they should.
Where the problem starts is at the design phase. An electrician may be in contact with the utility about the power requirements, and he may simply add everything up, every 20-amp circuit gets added into the connected load. But usually everything is not running at the same time, and this method provides a safety margin that is way too high and adds cost. The electrician has protected his interests while you are left paying more than you should.
TimberLine: How do companies look at throttling up and down because that is going to change? When it comes to diversified and connected load, what about having a safety margin? Don’t you want the ability to grow as your facility expands?
Ralph Russell: Absolutely. I’ll talk about increased load. A couple of concerns here. One, you want to have a transformer and power infrastructure that you can grow into, but how much power will you ever need? If you plan it right, you have a little extra capacity, but small enough that it’s not causing you excess facilities or CMD charges.
TimberLine: What are some contract mistakes that you see a lot of people make in this kind of design or setup phase with a new or revised plan?
Ralph Russell: Well, one is the CMD; the other is selecting the right rate schedule. In many cases, there are optional rates. In some cases, there’s sort of a “standard rate” that the utility assigns companies. But there are also optional rates. One utility may assign a rate schedule based on your load, which is real simple. If you’re above a certain demand, you’re assigned a certain rate schedule. But with optional rates you may be able to save thousands of dollars. This applies not only to electricity, it can apply in some cases to natural gas and water/sewer as well. Another thing that can be an issue is the terms of agreement. If you signed an agreement that’s for five years, and something happens to your plant requiring you to shut down for a few months, you may still be responsible for certain CMD.
Another key consideration is the facilities charges, which is a fee by the utility for excess facilities, such as a larger transformer than needed, alternate service or multiple delivery points. Generally, I find that the person in the beginning dealing with the utility is an electrician, a consultant, an architect or an engineering firm, but it’s not the actual customer or the facilities manager who is responsible for paying the bill. And as a result, they don’t know how it’s going to impact the customer down the road. Their biggest concern is getting everything done on time with a significant safety factor. And they want to provide themselves the largest leeway possible. But that could result in significant facilities charges in the future.
TimberLine: So what about tax credits, exemptions and government assistance? I know those are important issues to consider when designing a plant. Explain what companies must keep in mind to save money.
Ralph Russell: Companies want to look and see if utility sales tax exemptions are available. This falls under the external factor category. In Georgia, if you are a manufacturer, you can request that a utility not collect sales tax on energy. It’s around 6%, and all you have to do is contact your utility and say, “Here’s my name. Here’s my address. Here’s my account number. Stop charging me.” Now, the sales tax is not something that goes into the coffers of the utility, it’s a tax that they collect on the behalf of the state of Georgia and the local municipalities. But it isn’t an automatic thing; you have to ask the utility to stop the collection. Many other states have something similar, and in some cases the process may be a little more involved to secure the exemption. For example, in Kentucky it’s a little bit more complicated than Georgia, but if you’re successful in getting the exemption, you not only avoid paying approximately 6% going forward, they’ll give you your money back for the past four years. And the same thing is true in Indiana.
Now each state has different requirements. For example, in Indiana, you have to have boots on the ground, you have to have someone that is taking nameplate data on every piece of equipment and showing what the connected load is for equipment that’s involved in manufacturing. In Kentucky it’s an accounting issue that you have to deal with and every state and area has different regulations.
TimberLine: Any more insights on tax savings, rebates, credits or economic incentives?
Ralph Russell: I know of a company in Georgia that ran a huge facility and saved $1 million the first year by filing for a sales tax exemption on natural gas they were purchasing. So it’s a large plant, but in many of these cases, it’s not just electricity, but other energy fuels where they can get the exemptions. Now internal, okay, there may be tax credits. For example, you’re putting in solar equipment, you’re putting in energy-efficiency equipment, there could be state and federal tax credits and deductions available.