Energy Analysis: A Quality Issue

Many organizations are turning to outside operations-expense management companies due to the recognition of billing scrutiny as a key quality control and quality assurance issue. “When performing bill-auditing and rate-analysis services, many utilities in the United States have errors on at least one to three percent of the bills they send to their customers and have at least some of their customers on the wrong rate. Sometimes finding and fixing these quality mistakes translate into small incremental savings, but other times it’s a quality error that can add up to a major erroneous expense,” says Jeffrey Hart, CEO of Cadence Network, an operations-expense management firm.

When most customers receive their utility bill, they go through the following steps:

• The bill comes in to a customer who looks at the bill and makes a mental comparison with the last bill.
• This person then writes a check and pays the bill.
• The bill is filed in a cabinet, most likely to be never seen again.

The quality process with outside operations-expense management firms is much different. Instead of three steps, there are more than ten documented quality steps depending on the type of solution being offered.

The quality steps for operations-expense management are:

• Scanning and bar-coding the bill
• Extracting the data
• Stage one of bill auditing, which includes auditing 120 data points
• Paying the bill
• Uploading the data into Web-hosted software
• Performing information management functions such as analytics and document storage and retrieval
• Invoice auditing
• Rate analysis
• Benchmarking
• Demand-side management
• Performing many other operational-expense management services
• Budget forecasting and variance reporting

Ironically, for less than the cost of in-house bill payment, expense-management firms can provide these quality control and quality assurance services. In addition to saving hard dollars, there’s great value in having data visibility for actionable business intelligence.

Additionally, it’s not feasible for multiple-site organizations to hire the domain experts and develop the systems and process that specialized firms such as Cadence Network have spent millions of dollars creating.

The cost of a faulty meter
One large manufacturer had a faulty meter that was resetting at incorrect intervals. As a result, the manufacturers had been paying higher bills for five years until they hired an operations-expense management firm. When auditing their bills, the irregularity was found and a check for $250,000 in overpayment was returned to the manufacturer from the utility. Without scrutinizing their bills, the manufacturer would have continued to pay this incorrect amount indefinitely.

Quality and benefits in energy-procurement contracts by outsourcing energy management
It’s better to outsource the quality-expense management operations than to implement checks and balances internally because there are distinct insights that come with a volume procurement contract. A key consideration for firms that outsource this service is whether the solution is Sarbanes-Oxley-compliant. In the case of publicly traded companies, there’s less work and an assurance that the bill-processing and quality-check solution is being held to high standards. Even private companies want to utilize the same quality standard.

The nightmare scenarios
Not extracting the correct data when paying utility bills and omitting the required in-depth auditing can potentially cost an organization millions of dollars. Many organizations don’t understand what to do with the data once it’s abstracted. The result is misallocation of capital dollars and no way to verify if the promised benefit is being achieved. Companies run the risk of overpaying on their electricity bills year after year by not being able to verify the best possible rate.

As energy costs become a greater part of operational expenses, companies that neglect to manage these costs will experience smaller margins, lost shareholder value and tougher competition from better-managed organizations.

The companies that don’t recognize operational expenses as a quality control issue will have to pass these higher costs onto their customers, which will result in lost market share, slumping stock prices and the inability to remain competitive.

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