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Energy Accounting Challenges

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  rev. 2011-04-27        

Energy is a business expense.  So it's obvious to ask "Why would I need an energy accounting system?  Won't our financial accounting system do a good job?".  The answer is "Not Really".

Energy accounting tackles a number of challenges beyond the ability of standard accounting systems.  In this section we'll try to explain them.


                                                                The Energy Accounting module is designed as an extension to your existing accounting or ERP system, adding utility-specific functionality to what you already have.


Allocation of Usage and Cost Against Accounting Months

First, energy is invoiced after it is used, and the meter reading periods can be irregular.  The $4,200 invoiced in January may be the energy used in December of the prior year.  Or the usage may be divided between December and January.  Or some may be in November, some in December and some in January.  To accurately allocate usage and costs against accounting months, the system needs to be able to subdivide the usage and costs based on the time periods between meter reading dates.  This means that the system has to be able to store and process Start Date and Reading Date for each invoice, in addition to the Billing Date and Due Date handled by typical accounting systems.

Outside Influences (Independent Variables)

One important function of any accounting system is the tracking of expense categories over time.  Expense tracking allows management to measure the effects of cost-control initiatives and, where expenses are increasing, to prioritize areas needing attention.  This is particularly difficult for energy, because background influences like changing weather, varying production volumes or changes in occupancy have a very significant effect on energy use.  The effects of these independent variables can overwhelm the gains made from an energy conservation project, or indicate problems where there are none, or conversely give a false appearance of efficiency gains.

The influences of independent variables need to be factored out so that the real underlying trends can be captured.

Step Changes

We can't forget that we're dealing with utility meters which are attached to buildings.  Buildings are subject to significant physical or usage changes which can permanently change the nature of their energy usage.  Examples of such changes include: adding a wing on a hospital, demolishing part of a building, converting a school to public housing, installing a data center in an office building.

Intended Improvements

Whether it's called Green, Sustainable, or Corporate Social Responsibility, environmental improvement programs are now part of the business landscape.  And energy efficiency initiatives are a central part of any enterprise environmental program.

Those efficiency initiatives have savings targets, so they will have an expected impact on energy use.  The energy accounting system needs to be able to track the actual savings results against the targets,  which is a particular challenge where outside influences and step changes are creating background noise.

Tariff Complexity

Energy markets are complex and volatile.  They are exposed in varying degrees to live commodity markets.  Because energy is viewed as a necessity, retail energy markets are regulated and are vulnerable to political interference.  And they are subject to upward price pressure from the need to decommission old plants, build new plants and renew aging infrastructure.  Electricity, the most universal energy commodity, can't be stored and the cost of production varies throughout the day with changing demands on the generation and transmission infrastructure.


                                                                 Without the ability to effectively deal with monthly allocations, independent variables, step changes and tariff complexity, it is impossible to manage your energy spend with the same care and confidence that your enterprise applies to other business inputs.

All of this means that the normal formula (Total = Quantity x Unit Cost) does not apply to energy.  It's a rough approximation but is not good enough for business decisions related to energy management.  Energy accounting includes the ability to convert consumption into cost, tracing tariff details to tell you if you are being properly invoiced for your energy use and suggesting ways to save money through better procurement.

An energy accounting system must embrace all of this.  It must be able to turn the underlying details into clear, accurate business intelligence.

Baseline Challenges


                                    "Everything should be made as simple as possible, but not simpler."  Albert Einstein.

It's tempting to create a simple baseline, perhaps just monthly cost or consumption. However the complexities of energy use and energy markets will usually make  conclusions drawn from simple baselines unreliable. There will always be logical reasons why targets were not met or costs were too high.  Or there will be questions from management that you can't answer convincingly. ManagingEnergy turns baseline complexity into actionable business intelligence so you can be confident in visualizing and explaining the results of your energy management program.

The ManagingEnergy baseline methodology conforms to both the IPMVP and ASHRAE Guideline 14-2002.

ManagingEnergy allows users to quickly and easily establish a baseline for future comparison for any meter.  The concept of a baseline is simple, a basis for future comparison.  The devil is in the details.  ManagingEnergy deals with the baseline complexity so you don't have to, but it's still important to have a good understanding of the way in which baselines are derived.

The Baseline Period

The first step is to choose a period of time that will be used to establish the baseline, the Baseline Period.  This decision should be made carefully, because future performance will be measured against the baseline.  Include those people responsible for establishing corporate objectives, so that the Baseline and future reporting against it will reflect those objectives.

You might decide that best baseline period is the most recent 12 months, or the most recent calendar year or fiscal year.  Any of those choices would work, but none of them is likely to be perfect.

Meter Reading Periods

Meters can be read any time, so 12 invoices will not necessary cover 365 days.  They could, for example, cover 355 days or 379 days.  Utility companies often read meters when it is convenient rather than on a strict schedule, so individual invoices can cover very short periods, often 25 days or less, or periods much longer than a month, as long as 40 days.  Energy use during a longer period will naturally be greater than over a shorter period.  Conclusions based on a straight comparison between a current invoice and the equivalent baseline invoice will be obscured by any billing period difference between the two.


                                    Billing period differences can distort the comparison of energy use between one invoice and another.  Suppose for example you are tracking a lighting retrofit project expected to reduce lighting consumption by 30%.  If the lighting load represents roughly 1/3 of the total meter load, then you would expect to see 10% consumption savings on the meter (30% of 33%), equal to about three days of metered consumption every month.  A billing period difference of even one day would change  your conclusions around how well the lighting retrofit is performing.

Weather Sensitivity

In the same way that utility consumption depends on the billing period, it very often also depends on weather.  If the baseline period is colder or warmer than the comparison period , this difference will also obscure the analysis.

The Baseline Model

Energy analysts overcome these challenges by expressing a meter baseline as a formula, called the Baseline Model, explained in the next section.


Related Topics

Baselines and Usage Profiles

Baseline Model

Energy Accounting


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