Central kitchens can budget to the penny

Any budget item that can be stabilized in these volatile economic times is one less worry for business owners like Mark Dubinsky, CEO of a Central Production Location (CPL) in Methuen, Mass. When that line item is your energy cost, all the more important, Dubinsky said.

Dubinsky–who has run the facility since it opened a decade ago–provides donuts and other fresh-baked goods to 92 Dunkin’ Donuts locations in Massachusetts and New Hampshire. Many of these customers operate units that used to be part of Dubinsky’s 27-unit Dunkin’ Donut franchise operation years ago. Like all CPL operators, Dubinsky said it’s all about delivering the freshest, best-tasting donuts on time, every time.

“One thing that drives a CPL crazy is not being able to budget cost,” Dubinsky said. And there are a number of costs to factor in when operating a facility almost around-the-clock. “Food costs are at mercy of the market,” Dubinsky gave as one example.

“You make your best educated guess when do your budgeting,” he said, but there are no guarantees. But when it comes to his energy costs, Dubinsky has known the price to the penny since contracting with Secure Energy Solutions (SES) several years back.

Based in East Longmeadow, Mass., SES is a licensed aggregator and authorized agent in the energy market. As explained by Erik J. Ness, Vice President and General Counsel for SES, energy bills are divided into two charges: delivery and generation. The delivery charge is the cost to physically deliver either electricity or natural gas to one’s home or business; the generation charge is the cost to purchase that energy on the customer’s behalf.

The delivery charge and service will always come from the local distribution companies such as National Grid and NStar. In other words, Ness explained, “when the power goes out, that’s who you call.”

The generation end, however, is controlled by the end-user¬, i.e. the customer paying the bill. It used to be that the local energy distribution company controlled both delivery and generation, but since the 1980s, many states have been restructuring their electric and natural gas utilities (often referred to as “Energy Deregulation.”) In New England, all states except Vermont have deregulated their electric and natural gas utilities. Customers in these states are free to shop around in the energy market for the best rate.

“But just like the stock market, the energy market can change day-to-day, hour-by-hour,” Ness said. Keeping track of energy prices can be a full-time job. Indeed, SES has a full-time “pricing staff” that does just that. It is their job to keep customers like Dubinsky informed of changes in the energy market and when it might be best to lock in a price for the upcoming contract.

According to Ness, when meeting with a potential client, SES will obtain authorization from that client to review previous energy bills to develop what’s called a “load profile.” The needs of each customer will differ based on usage patterns, peak hours, and other considerations that factor into overall energy consumption. In the case of most CPL’s, energy usage is very predictable.

SES uses this “load profile” to then price out different suppliers. Once the best rate is found, it is then signed into a contract, which typically runs from one to three years.

Having the price locked for up to three years is different than what customers will experience if they opt to go with the local utility for generation charges, Ness said. For some rate classes, the utilities will adjust rates as frequently as monthly. Sometimes the rate goes up; other times it goes down. In either case, the actual cost may vary dramatically from what had been budgeted.

“And that’s a problem,” Dubinsky said. He prefers the fixed energy cost through contracting with SES to the fluctuations in price when dealing with the local utility provider.

“It’s stability,” Dubinsky said, “which in the long run means saving money.”