JANUARY/FEBRUARY 2007

POWERFUL IDEAS

With electricity bills busting budgets nationwide, scrap owners are looking for resourceful—and often simple—ways to save money. 

BY KIM FERNANDEZ 

Drive less, turn down the thermostat, and switch off the lights when you leave the room—experts have all sorts of advice for conservation-minded consumers and small businesses when energy prices go up. At a scrapyard, such small efforts might seem futile in the context of the energy needs of shredders, shears, balers, and other heavy processing equipment, which can lead to electricity bills that take a big chunk out of a monthly operating budget. With power prices inching upward at a steady clip, cutting electricity costs can seem like an almost-
impossible task. Short of pounding on the desk in frustration, it seems there’s not much you can do about it. Or is there?
   Experts say scrap owners can do a few things to try and tame their electric bills. It won’t be as easy as changing a light bulb, but with some determination or outside help, you should be able to make sense of your bill and find ways to reduce it. In fact, some scrap companies already have.

The economics of energy
As Jerry Seinfeld might say, what’s the deal with electricity prices? Why do they keep rising? The short answer is that power plants most often run on fossil fuels, and those fuels are becoming increasingly expensive.
   The fuel used most often to produce electricity is coal, which has skyrocketed in price over the last decade. But “the fuel that sets the price for electricity, especially in high-demand periods, is natural gas,” says Tim Brennan, a senior fellow at Resources for the Future (Washington, D.C.), even though it’s only the third in prevalence. The price of natural gas has “probably quadrupled in the last five to 10 years,” he says. (Nuclear power is the number-two source of electricity in the United States, followed by hydroelectric, petroleum, wind, and solar.) Petroleum, coal, and natural gas prices are expected to continue to rise over the long term—and nuclear power has fallen out of favor with consumers, who worry about its potential for disaster in communities surrounding power plants.
   There’s a fairly direct relationship between the price of electricity and the cost of the underlying fuel used to create it, Brennan says. “It’s just like comparing the price of a barrel of oil to the price at the pump. When a barrel of oil goes from $20 to $75, it’s not surprising that the price of gas is going to go up.” With electricity, how much of that increase is price gouging? Very little, Brennan says. “It’s a very highly watched industry. I’d be very surprised if there were people colluding on price or anything like that.”
   Further, Brennan says, many states negotiated contracts to buy electricity-producing fuels about five years ago, and those contracts are running out, causing even further price hikes. “Between that and the price of natural gas, one shouldn’t be surprised that there are these big electricity price shocks,” he says. “It’s not like the rest of the world is exactly the same and we’re seeing electricity go up.”
    In states that offer consumers a choice among several electricity providers, marketing efforts might make it sound like you can comparison-shop between utility companies the same way you can at a car dealership: Get two prices, play the companies off of one another, and end up with a rock-bottom deal. Unfortunately, it hasn’t quite worked that way.
   Electricity deregulation first made headlines in 1992, when the first President Bush signed legislation ordering the Federal Energy Regulatory Commission to launch the process. In 1996 California became the first state to give consumers a choice of electricity providers. By 2000, 23 other states and Washington, D.C., had deregulated. Then California experienced an unprecedented energy crisis in 2000 and 2001 caused in large part, FERC later concluded, by energy traders such as Enron manipulating the deregulated markets. The crisis cooled lawmakers’ interest in deregulation, Brennan says. Prior to that energy crisis, “on the federal level, senators and Congress were introducing bills that would force states to open their electrical retail markets to competition. Since California, nobody’s been rushing to do that,” he says.
   In the 24 states where consumers today have a choice in their electricity providers, overall they have not seen huge savings—their electricity bills have grown more and more expensive just as those in states where one utility provider serves all.

Cracking the rate code
So what’s a scrapyard owner to do? The first step, experts say, is to find out what you’re paying and why. This knowledge might allow you to take relatively simple steps to reduce your bill.
   For George Adams, president of Adams Steel (Anaheim, Calif.), saving money on an enormous power bill started with a simple phone call.
   “Five years ago, we used to run our electrical shredders every day. We’d start them up at 7 a.m. and finish at 5 at night,” he says. Then he saw a power company advertisement “saying that if you shift your power usage to offbeat times, you can save money. So I called and talked to the utility.”
   The ad was right—the power company representative told Adams he could reduce his electric bill if he ran his shredders during off-peak hours, which in this case meant at night. He made the switch right away and watched his monthly power bill drop from $55,000 to $27,000—“a lot of money to me” at the time, he says.
   The change was simple and didn’t have a huge effect on business, so Adams vowed never to run his shredders during the day again—until recently. With business booming, two years ago he installed a megashredder. Then he decided that the nearly $30,000 in monthly savings on what was now typically a $125,000 power bill didn’t justify juggling schedules to run the shredders only at night. So one month last summer, he ran them during peak hours.
   “That one month, that cost me $83,000 over and above my normal bill,” he says—a nearly 66 percent increase. “I had a heart attack. Luckily, I own the company because [another owner] would have fired me.”
   That did it: Adams Steel will never run another shredder during peak hours, Adams declares. “There are pretty dramatic differences between running on-peak or mid-peak or off-peak,” he says, so “we try to have no load on-peak. We work very hard at that.”
So running shredders at night will cut your bill? Not necessarily. Electricity rate structures are incredibly complex. Regulations and rates differ from state to state, and there’s no “Electricity Rates 101” book or Web site with instructions on how to reduce your expenses. “Every utility is different, and every rate schedule is different,” says Sherri Loscko, a principal of Commercial Rate Services (Hilliard, Ohio), a consulting firm that specializes in helping companies reduce their energy costs. Off-peak hours for one power company might be peak for another, and even those definitions can vary seasonally. Further, some utilities base their rates not on when you use power, but how much you use—your total or peak energy demand might determine your rates.
All these complications mean that saving money on a power bill isn’t as cut and dried as you might think. “I’ve been working on calculating savings for one customer, and it’s taken me days and days and days,” says Loscko, who founded CRS with her husband in 1989. “If it’s this hard and time-consuming for me, how can you expect a consumer who has [his or her] own business to run to figure it all out?”
   Adams was lucky, Loscko says: When he called his utility, he received accurate information. That’s not always the case. “There’s a lot of wrong information given out,” she says. “You’re at the mercy of whatever the utility company is telling you, and a lot of times, it’s so complicated that even the suppliers don’t understand it.”
   That said, she still recommends that scrapyard owners start by calling their utility and asking about reducing expenses. “Owners might find a customer service rep at the utility who might be able to look at the options, compare, and see if they’re on the best rate,” she says. At least find out if you have any options, Adams says. “The utility company puts the responsibility on the customer to make these choices, and a lot of times, they don’t tell the customer that there are options.”
   You might want to make a note of the utility’s advice, because if you find out later that lower rates were available and the company didn’t tell you about them, “you may be justified in asking for a refund,” Loscko says. In Ohio, at least one utility has been forced to give a refund in such circumstances, she says, and one scrap company brought a similar case all the way to the state Supreme Court.
  
The next step is to ask the utility to send a representative to your scrapyard to see the operation and make suggestions. “Most utilities should send somebody out to show business owners their rate schedules and explain how they’re billed,” Loscko says. That can help clear up one big misconception, she says—that scrapyards use power the same way that other big businesses do.
   Many power companies bill based on load factor, Loscko explains: the average amount of power a business uses in a given time period. Because scrapyards demand a lot of electricity, utilities often bill them on the same schedules as hospitals and other businesses with big power demands. The problem with that, she says, is that hospitals and similar companies use their power 24/7—the lights never go off and the machines never shut down. In contrast, scrap processing machines run for a set amount of time, whether it’s a shift or two per day or until they process a set amount of material.
   “Utilities often assume that recyclers have a constant load because they’re high-demand, and they put recyclers on their highest rate schedules,” Loscko says. So having a utility rep visit your property and understand how and when you use your machines can make a big difference, possibly placing your facility on a less expensive rate schedule.
   That’s essentially what Adams discovered. His utility structures its rates by time of day, so running the machines during less expensive times slashed his electric bill. Many utilities offer similar structures, and working with the power company to create a schedule for shredder and other big-equipment use can help cut costs, sometimes dramatically. By working with the power company and the scrapyard, “I’ve helped two ISRI members cut about 24 percent off their total bill,” Loscko says.

Other strategies
If you’re not satisfied with what you find out from your utility, you can have an independent company come in for an energy consultation, especially if you run a large company with huge power bills. “Scrap owners can hire an energy management services company to audit their whole process and see if they’re using the most efficient equipment,” says Roberto Torres, program manager, energy, for Frost & Sullivan (San Antonio). “A company might not be aware that [it’s] using the wrong machine or that there might be another process that is more efficient.”
   In states with deregulated electricity, you can contact the competing electricity companies and see if they’ll be competitive about rates. It’s possible that switching utilities will save money, either alone or in comparison with other energy-saving moves. But Loscko warns that different companies, even in the same state, might not work off the same rate schedules, so it might be difficult to make an apples-to-apples comparison. “It’s really complicated,” she says. “Even if consumers know they have an option [to use a different provider], they may not be able to do the comparison themselves.”
   If your operations allow it, consider switching to an interruptible power schedule: you get a discount on your bill in exchange for allowing the power company to switch your electricity off for short periods during times of extremely high demand. “You can get cheaper rates for agreeing to that,” Adams says. “If it saves you a ton of money and doesn’t happen that often, it’s worth it. I would much rather have interruptible power and be able to shred on-peak if they’d occasionally cut the power for a while.” Not every utility offers such an option, however.
   Adams adopted another strategy that came with a high initial cost but will save him money over the long run: He installed his own substation to purchase power at a higher voltage—69,000 volts versus the 12,000 volts the utility was providing through a regular line. The higher voltage will cost him less, Adams says, but the installation was expensive enough—costing more than half a million dollars—to be prohibitive to all but the largest scrap companies. “There are only a handful of people who would spend that kind of money,” he says.
   Finally, you can look into alternative sources of electricity. Torres says that advances in solar power, for example, make it possible to install panels on a rooftop that could help power shredders and other equipment independently of the power grid. You can even install your own generator, which might create enough electricity to not only power your equipment but also sell the surplus back to the local utility.
   Cycle Systems (Roanoke, Va.) uses old locomotive engines to generate power. The firm says the machines—which run on petroleum diesel fuel or a mix of that and biodiesel—are reliable and relatively inexpensive to operate. (For more on this approach, read “Power Play” in the July/August 2006 issue of Scrap.)
   Even if that’s beyond your capabilities, it takes almost nothing to make a phone call—just a little energy. •

Kim Fernandez is a writer based in Bethesda, Md.