Energy cost-cutting is on everyone’s mind, but a recession isn’t conducive to large capital outlays. An energy-saving program may be even harder for smaller processors, and harder still for ones with seasonal operations.
But if a relatively small tomato canner in Toledo, Ohio, can make a dent in its energy costs, so can you. Following is a look at several ways Hirzel Canning (www.deifratelli.com) trimmed its energy bills despite the seasonality of its operations and overwhelming competition from California vegetable processors.
Energy can be saved even before it gets to the plant through smart forward-contracting.
“We’re talking about 50 percent savings right now versus contracts that may have been done for a one-year forward term last year, or even Q2 or Q3 of 2008,” says Dave Sopko, director of supply origination and structuring for Delta Energy (www.deltaenergyllc.com), a regional natural gas marketer and energy consultancy based in Columbus, Ohio.
Sopko says all food processors should get out of the traditional “box” of buying one-year energy contracts and forgetting about them for the next 10 or 11 months. Current prices, hovering in the range of $5 per million BTUs, may make two-year contracts worth a look.
But when prices are likely to fall, six-month contracts are wiser. Consider how much money companies lost in 2008 if they bought one-year contracts during the spike and ignored the opportunity to sell before prices took a nosedive later in the year. (See adjoining chart of New York Mercantile Exchange prices.)
Following the market axiom that “the only cure for high prices is high prices,” last year’s spike led to major drilling and pipeline expansions that brought supplies up and prices down. But gas prices are highly volatile; experts are “still scratching their heads” over the first half of 2008, says Ron Sekinger, vice president at Delta Energy. “Prices kept going up and up and up, yet we had no Katrina or Rita; we had no major supply failure; and we had no fundamental factor to point to that could explain what happened.”
The energy execs say food plant buyers can save on gas purchases when they conduct valid energy balances, watch prices for a proactive mid-contract change as needed and call on experts if they have the resources to do so.
“Seasonality – that’s always hanging over our heads,” says Karl Hirzel, director of manufacturing at the family-owned company. “We have some pieces of equipment that only run 40 days out of the year, so traditional return-on-investment calculations and strategies don't always work for us. What works best are small, incremental ways to improve.”
Hirzel Canning produces more than 100 tomato products for its Dei Fratelli and Star Cross brands and sauerkraut under the Silver Fleece name from three northwest Ohio locations: a year-round plant at its Toledo (actually suburban Northwood) headquarters and ones in Pemberville and Ottawa that operate from early August to mid-October. Additionally, a storage facility at Ottawa is slated for upgrades that will make it a processing operation.
California’s tomato growers, which account for more than 90 percent of the U.S. crop and roughly half the world’s supply, affect the little Ohio firm’s fortunes as much as any factor — a good crop there can put the squeeze on the Ohio firm. Those are factors certainly outside of Hirzel Canning’s control. While the fluctuations of most energy costs also seem beyond the company’s grasp, Hirzel Canning has found ways of controlling some of its energy usage.
Partnering for improvements
Hirzel Canning’s first energy-saving moves centered on common-sense projects to cut major plant energy hogs. For some of the work, the company looked to outside experts. For example, Hirzel took advantage of energy management services from the local offices of Crescent Electric, a national electrical distributor, that resulted in upgraded lighting fixtures and motion sensors to shut-off lights in low-traffic areas.
Ohio Burner & Boiler Service, Toledo, assisted in tuning and optimizing heat processing and recovery equipment. Help also came from Smith-Boughan Mechanical Services, Lima, Ohio.
There hasn’t been a formal full-site energy assessment or audit, although that may be coming as a result of Hirzel’s growing relationship with the Edison Center for Innovative Food Technology (www.eisc.org), part of a statewide network supported by universities and the U.S. Environmental Protection Agency. Hirzel Canning’s work with the Edison center led to process upgrades including new equipment installations.
Natural gas is a volatile substance, financially speaking. If there was a triggering event that drove Hirzel Canning to take energy saving seriously, 2005’s Hurricane Katrina was “the biggest single factor,” Hirzel says.
Prices spiked to 2.5 times the norm before coming back down in 2006. But “they could go right back up any time just as easily, for any number of reasons,” he warns. Like many processors, Hirzel Canning defends against this uncertainty with forward contracting.