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A Balanced Energy Strategy for a Tire Recycling Business
Discover how one growing business lower costs with a thoughtful approach to energy use.
A Balanced Energy Strategy for a Tire Recycling Business
Discover how one growing business lower costs with a thoughtful approach to energy use.
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DILEMMA
Fixed wasn’t fixed
When Mahantango considered selecting a retail supplier instead of the local utility for their electricity supply, they were looking for price protection and a “fair deal.” This led them to sign what they thought was a low fixed price plan, with all energy supply costs wrapped into one fixed rate “that would not increase even if the company used more or less energy.” This seemed like a great way to protect their growing business from cost increases and price uncertainty.
It turns out however their fixed price plan wasn’t completely fixed and, without key pieces of information on how to properly manage their daily consumption, they were not only seeing their energy costs increase, but they were also missing key opportunities to lower costs and even earn money toward their bill.
“As a business owner, I was inundated with electricity supply offers. Retail energy providers and energy brokers were eager to throw contracts in front of me without reviewing the details in the fine print,” said Troy Hess, President of Mahantango, who is also in charge of energy purchasing. “Market complexities and lack of full disclosure on the handling of certain energy supply costs resulted in unawareness of what was really in the details of the contract terms,” he added.
Although the cost of their commodity portion was fixed, Hess discovered that the transmission and capacity portion of their costs, which comprised about 30% of their total energy bill at that time, were being adjusted each year to account for Mahantango’s energy demand on the peak demand days in their region. These adjustments, which amounted to cost increases, were erasing any cost stability the company was hoping to achieve through a fixed strategy.
The wrong time to grow a business
A growing business is normally a good thing — except when that growth is at time of the day or the wrong season of the year. In this case, the company was beginning to increase its production across all shifts and was running at peak capacity during the summer. This was due primarily to the seasonal demand for the rubber products they produced and an uptick in their feedstock (tires) during these warmer months.
Once aware of the risk of running its operations at full capacity during times of peak grid demand, the company decided it was time to re-evaluate its strategy and consider another energy broker, energy supplier, and energy plan. In late 2019, after an exhaustive search, the company engaged Aspen, an energy broker, to do just that before implementing additional production to its shift schedule.
“Facing adversity gives you a chance to go back and make changes to what you’re doing, which usually results in something better in the end,” said M Roger Hess.
SOLUTION
Manufacturing a new plan
Aspen consulted with NRG Account Executive, Elizabeth Friel, along with NRG Technical Sales Representative, Rob Wood. Together they evaluated Mahantango’s previous strategy shortcomings, their historical consumption patterns, their targeted increases in production, and their ability to shift load. With all of this in mind, Wood provided the blueprint for a new, thoughtful approach.
The recommendation:
- Lock in commodity rate to continue to hedge against upside price risk and to provide price predictability as desired by Hess.
- Pass through capacity and transmission cost components to position the company to take advantage of the opportunity to lower these costs through appropriate and strategic load management.
- Capitalize on technology to guide load management efforts through in-advance alerts for best times to curtail and visibility into usage during those critical timeframes so that adjustments can be made.
- Participate in demand response to earn money for the curtailment that’s being managed through technology support.
The proposed solution positioned Mahantango to take control of their costs in a way that wasn’t possible in the past, without deviating from the core product structure they had been on. With a new strategic approach, technology support, and the expertise and guidance from the NRG Technical Sales team, Mahantango was not only able to lower costs through appropriate management of when they were consuming power, but they were also able to earn money for their ability to decrease usage when called upon — all without compromising production output or product quality.
RESULTS
Production is up; costs are down
Since they became an NRG customer in 2019, Mahantango has almost doubled their manufacturing operations and corresponding consumption from ~6,000 MWh/year to more than 10,000 MWh/year, while saving substantially on energy costs:
- From 2021-2024 decreased their average capacity tag by 70% and average transmission tag by 55%. This helped them save $243,300 in capacity and transmission costs.
- Earned more than $45,000 to date for their participation in a Demand Response program.***
"When you’re running a business, there is always a shortage of time, so finding time to manage your energy strategy and consumption is a struggle. But, we knew that in order to grow we needed to find a way to cut costs or prevent increases so we could continue to invest in our company’s growth. The strategy provided allowed us to quickly gain a better understanding, gain control, adjust, save, and grow."
Troy Hess
Owner, Mahantango Enterprises, Inc.
Positioned for the future
While saving money has been a fruitful outcome, Hess is far from done with his consultative relationship with NRG. He continues to capitalize on the tools and resources he’s been given, including the ongoing dialogue and analysis with Wood.
When his contract was coming up for expiration at the end of 2023, Hess received an analysis from Wood on the performance of his current fixed price strategy, which saved him $415,000 over what market index rates settled at for that same contract term. The analysis also highlighted how current market conditions could open up additional opportunities for savings by modifying his strategy — especially given the increase in fixed price product structures since his initial contract term.
This information helped inform a new buying approach that combines layered forward (fixed price) hedges, with some portion of his consumption settled at market rates. This strategy will benefit him in several ways:
- He can lock in portions of his projected usage for certain terms — now and in the future — to protect from price upswing, given the bullish fundamentals that are putting pressure on forward prices.
- With the ability to track real-time prices via the NRG Active Management Platform (AMP) application, Hess is now able to more closely align his facility’s consumption to peaks and valleys in pricing — something he couldn’t benefit from while on a fixed price strategy.
- Given the upward shift in forward prices, the price for a 5-year fixed price was higher than the fixed price from his previous 4-year term. A layered approach helped him avoid having to lock in all of his requirements at once for a 5-year term at a higher rate.
- Capacity and transmission costs are still handled as pass-through components. This will allow Hess to continue to track the potential for peak demand/transmission days thru the AMP application, and shift his operations to lower peaks during those critical timeframes — especially given the forecast for increases in capacity rates in his region
In addition to a more flexible, hands-on strategy that puts cost control in Hess’ hands, Mahantango will continue participating in demand response by leaning on the AMP application to receive alerts with enough advance notice to safely shut down operations and maximize their curtailment efforts and DR payments.
According to Hess, a surprising result of participating in curtailment events and shifting load when coincident peak days were likeliest is that they received benefits from planned facility shutdowns. When shutdowns are planned, his team now shifts efforts to critical equipment and line maintenance functions, enhancing the downtime with productive and thorough plant enhancements.
CONCLUSION
Making energy savings simple
Current dynamics are creating a growing need and increased monetary value for load management across many regions. They’re also creating a need for more flexible buying strategies that go beyond a basic fixed price contract. Managing an energy strategy while controlling what you use and when you use it may seem daunting to a business, but it doesn’t have to be.
“Right now, we’re in a changing environment where finding load flexibility is more financially lucrative — and technology is making it easier to execute load management strategies,” said Wood. Technology can also make monitoring the market and managing your energy purchases simple and straightforward — putting you in control of more favorable energy outcomes, he added.
Do you think your business could benefit from a similar strategy? Lean on our expertise to help you analyze your individual usage requirements and energy plan to identify opportunities for shifting or reducing load — or moving to a more flexible strategy that puts you in control of costs. We’ll provide the technology to help you minimize the amount of load and the duration of your reduction, while maximizing your savings or earnings.
* Depending on the region, a business’ peak demand may be measured and calculated based on one or more peak demand days per year.
** Because of when peak load contributions are measured, then applied, the first year Mahantango was able to see the benefits of managing their capacity and transmission was January 2021 (transmission) and June 2021 (capacity), even though they began working with NRG in early 2020.
*** Measured from 2021, when they began the DR program, to 2024.
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