Power Plays

To find value in blackouts, you'd have to think of them as recurring, costly reminders that power management is an ongoing fundamental challenge critical to manufacturing success. Virtually no one sees the need for enterprise power management diminishing. Instead the challenge is growing to the extent that even portfolio managers seek manufacturing firms engaged in energy and environmental management. "We believe that quality energy management can be an indicator of overall management activity," says Ingrid Dyott, associate portfolio manager and director of social research at Neuberger Berman, New York. Research is validating that perception. "Top performing companies are those that embrace energy and environmental management," asserts the Wall Street research firm Innovest Strategic Value Advisors. "These management practices are the hallmark of 'best-in-class' corporate management, resulting in real value to leading companies and their shareholders." The consensus: Building success in manufacturing requires sensitivity to energy management strategies. Experts suggest re-evaluating the source of your power, how efficiently it is consumed, and how it is purchased. They also suggest adequately preparing for disruptions. Alternatives To The Grid The vulnerability of the public power grid is a given, but so is the ingenuity of executive thinking in adopting distributed generating technologies such as fuel cells, microturbines and reciprocating generator sets. One example is Bob Bechtold, president of Harbec Plastics Inc., an Ontario, N.Y.-based injection molder of plastic parts for the medical, automotive and consumer goods markets. His adoption of alternate generating technologies kept his 48,000-square-foot plant running throughout the Northeast power blackout in August. Bechtold turned to on-site power generation in 2000 after years of increasingly frequent disruptions and other problems with the power grid. Today, Bechtold's facility has an array of 25 ultra-low emission 30-kilowatt microturbines from Capstone Turbine Corp., Chatsworth, Calif. All but five of the microturbines are mated to five heat-recovery boilers. Each boiler uses exhaust heat from four microturbines to heat water to 210 F. Total system efficiency exceeds 70%. The benefits: clean, economical, onsite electricity along with thermal energy for climate control. In addition to eliminating grid uncertainties, the solution yields a 36% net energy cost reduction. The grid now serves as backup. The heat produced by the turbines is used to heat the plant through radiant in-floor heating system and forced air systems. In warm and humid weather, the heated water fires a 200-ton absorption chiller to air condition and dehumidify the production and warehouse areas, which previously weren't cooled. Harbec's energy efficient technologies have saved over 446,000 kilowatts of electricity. Its energy independence also makes it much less vulnerable to power outages and brownouts. The company continues to update its energy independence. The newest addition is a 250 kilowatt wind generator capable of producing 25% of the electrical requirements. It's estimated that Harbec's wind turbine eliminates about 375 tons of carbon dioxide emissions annually. In March, when the Environmental Protection Agency (EPA) presented Harbec with the Energy Star Small Business Award, other energy innovations also were cited. These included lighting system upgrades to energy-saving compact fluorescent lamps, high-pressure sodium lighting and occupancy sensors. Window and skylight size also was increased to admit more daylight. Energy consciousness even extends to the company's vehicle fleet. Approximately 80% of the vehicles are hybrids. "Harbec Plastics' successful use of energy efficient technologies throughout its facility is proof that what's good for the environment can be very good for the bottom line," notes Kevin Bricke, EPA's regional deputy. Through the Energy Star program, manufacturers voluntarily partner with the EPA to evaluate and improve their company's overall energy efficiency. The resulting benefits beyond reduced energy consumption, emissions and operating costs include greater plant productivity and reliability. Convinced of a positive correlation to cost savings and stock performance, more and more companies are playing the energy card and partnering with EPA's Energy Star program. One example is Baldor Electric Co., a leading manufacturer of electric motors, drives and generators based in Fort Smith, Ark. The company, a maker of premium high efficiency motors, practices in its own factories what it preaches to its customers. By implementing premium-efficiency motors and improving energy practices, Baldor is experiencing nearly $1 million in annual savings at 14 of its manufacturing plants in the U.S. That translates into total energy savings of 10 million kilowatt-hours between January 2001 and April 2003 -- enough to power 1,300 U.S. homes for a year, the company estimates. John McFarland, Baldor's president and CEO offers a perspective on how motors relate to power management: "Over 60% of the electric bill in industry comes from operating electric motors, and 97% of the lifetime cost is the power consumed." Although those statistics suggest that motor purchase decisions deserve formal attention, actual buying practices seem to ignore that conclusion, notes a U.S. Department of Energy study. Only 11% of motor buyers have a written specification for purchases and only two-thirds of those include efficiency in their specifications. The best solution, of course, is to incorporate the written specification in a corporate motor plan, a goal that is being promoted by the Motor Decisions Matter campaign of the Consortium for Energy Efficiency Inc., Boston. Over a five-year period such an approach captured $2.5 million in cost savings for Weyerhaeuser, says John R. Holmquist, professional engineer, Federal Way, Wash. The company, with over 57,000 motors in its U.S. and Canadian plants, had written motor specifications for both maintenance and major capital projects, but the company never had consistent company-wide specifications for purchasing new motors. Holmquist says one of the major goals was to reduce the "total cost of ownership." That involved looking at energy costs and how purchasing and installing higher-efficiency motors can reduce energy costs. Although higher-efficiency motors cost more, they make economic sense because of sharply reduced energy costs, he adds. "And because they run at cooler temperatures and include higher quality parts, higher efficiency motors also tend to be more reliable, thus reducing downtime." Real-Time Savings Another dimension of energy management -- how it's purchased -- has brought significant savings to Joe Orosz, vice president, operations, Danfoss Commercial Compressors, Lawrenceville, Ga. For example, he has been able to double his plant's operating time while restricting energy cost increases to only 30%. He says his success started with avoiding a fixed rate contract although he admits that approach does have advantages for unsophisticated power consumers. "Fixed rate agreements can offer a predictable annual cost." Instead, Orosz employs what he calls a real-time methodology. "Essentially what we're doing is buying our power at 60 minute intervals. What it has allowed us to do over the last few years is to alter our working schedule to capitalize on how utilities vary power cost during a typical 24-hour period. "Originally, our factory scheduled two 10 hour shifts in a 24 hour day. For example, the first shift would operate from 6:30 in the morning to 4:30, with the second shift continuing until 2:30 the next morning. We revised that schedule after we completed a study of how energy costs varied throughout the day. What we discovered was that energy costs rose enormously from 3:30 in the afternoon until about 7:30." Orosz says not running the factory from 4 p.m. to 8 p.m. became the logical conclusion. "Now we run a shift from 6 in the morning to 4:30 in the afternoon, and then we restart at 7:30 with our second shift." Orosz describes the rate swings: "If you're buying power in the middle of the night, the rate might be 1.5 cents to 1.8 cents per kilowatt-hour. But during mid-day peak times during the summer, rates will average near 26 cents per kilowatt-hour. With generating capacity lagging, the utilities are using price to even out demand." Orosz notes that while utilities have added generating capacity, the newest equipment, operating on natural gas, is the most expensive to use. It runs only when demand is very high. "So naturally when you're buying power at a flat rate, the peak generating cost is factored in. Our approach is to buy power in real time with the goal of modifying production schedules to avoid peak power charges. The key to our energy savings is having the flexibility to move work hours around. . . . We're achieving average cost levels of 3.8 cents per kilowatt-hour." Planning For Outages Managing electrical power risks is one of the challenges Raelene Wong manages from her San Jose, Calif., office. As corporate disaster recovery manager for Solectron Corp., she finds the electrical power issues in rapid flux for the contract manufacturing plants the company operates on five continents. In electrical power she mourns the loss of one long-held presumption -- the superiority of the North American electrical infrastructure. "In years past we believed that North America had an edge with respect to power stability. We were right until August brought us the longest power outage in our global experience." Fortunately Wong was prepared to aid the nine facilities affected in the Northeast blackout. Her preparedness is built on business-continuity software (Strohl Systems Inc., King of Prussia, Pa.) and periodic risk assessments of all locations. Because power outages are so common, that risk is assessed quarterly to keep response plans current. "First we want to know the cost of potential downtime followed by how a plant's emergency power systems are implemented. Unfortunately the presence of such systems tends to give people the perception that all backups are designed to take over power needs indefinitely. Some backup systems only power graceful [gradual] shutdowns." Her next priority is to be intimately familiar with any business-interruption insurance the plant may have. "Know what it does and does not cover and for what period of time." Overall, Wong recommends establishing a personal liaison with managements of the power provider. "During a power disruption, that one step will produce major savings in time and money." Wong's final advice: "make business-continuity planning an ongoing process that sets goals for making the process continually more robust and detailed."