Thursday, September 1, 2011

Decisions and will power... and electricity

You all have a lot to do in one day.  Develop and plan budgets, make decisions about new business, evaluate how well a building or facility is operating, take feedback from colleagues and clients.  It's exhausting.  It turns out that all the decisions that you have to make in a day takes a measurable physical toll on your body, your brain, and your mental energy.  The more decisions an individual has to make, the lower his or her capacity for continuing to make good decisions.  Willpower doesn't just apply to those of us who are contemplating managing a diet or exercise regime, it also has to do with how we spend our days, and how we make decisions.  Depleted energy reserves can result in reduced willpower. 

John Tierney wrote an article in The New York Times Magazine that reported on a series of studies that all relate to the impact of fatigue on all of us.  The article is titled "Do You Suffer from Decision Fatigue?" -- and I thought it had a lot of relevance to the challenges that our clients face every day.   

Tierney writes:
The more choices you make throughout the day, the harder each one becomes for your brain, and eventually it looks for shortcuts, usually in either of two very different ways. One shortcut is to become reckless: to act impulsively instead of expending the energy to first think through the consequences. (Sure, tweet that photo! What could go wrong?) The other shortcut is the ultimate energy saver: do nothing. Instead of agonizing over decisions, avoid any choice. Ducking a decision often creates bigger problems in the long run, but for the moment, it eases the mental strain. You start to resist any change... from "Do You Suffer From Decision Fatigue?" By August 17, 2011 in The New York Times.
Energy, power and natural gas-related decisions are on your list of priorities, but they may not be at the top.  You have a lot of other work to do.  By the time you get a chance to look at energy-related decisions, you may opt to farm out the decision to people who spend more time on these issues, or you may just choose not to do anything.  In the power business, not deciding is a big decision, one that can have significant impacts on your costs and budget (see Market prices make a difference in this blog).  As Tierney explains...  
Once you’re mentally depleted, you become reluctant to make trade-offs, which involve a particularly advanced and taxing form of decision making.....  To compromise is a complex human ability and therefore one of the first to decline when willpower is depleted.
Our industry is particularly taxing in this regard.  The choices seem incredibly complex and overwhelming-- there is no perfect decision or strategy-- only ones that make the best use of current, available information and apply that information to the specific needs of an individual or business.

So what are Tierney's conclusions about how best to address decision fatigue?  Sugar... be sure to eat and restore the brain's capacities before tackling complex decisions.  Researchers find that restoring glucose levels shores up will power.  Eat, sleep, and don't try to fight the fact that we human beings don't always operate perfectly throughout the day.  This article resonated with us at The Megawatt Hour because we realize that we are essentially trying to reduce the mental energy required to make and manage complex purchasing decisions.  We want to know what else we need to do to help you do your job.

Written by Deirdre Lord 

Tuesday, August 16, 2011

Market prices make a difference

We were working on some analysis for a potential client recently and thought we'd share the information with others.  We've often talked about the power of seeing market prices.  It is our view that identifying good buying opportunities based on where the market is (high, low, flat) makes a tremendous difference in avoiding additional cost.  When we did the following analysis for a NY City based client, we learned how significant that difference can be.  Take a look at the following graphs...

Change in cost due to forward curve movement
(Fixed price cost for 12 month term starting in Jan 2012)

The top graph shows the change in total budget costs for a fixed price contract in NY City's Zone J.  The changes are driven by moves in the forward curves over the period from June 2010 to June 2011.  The bottom graph shows the same data, but in different units (instead of total dollars, we show $/kWh or unit cost).  So, if the client had had the ability to see these changes in the market price over time, he or she could have avoided $180,000 worth of cost.  While no one will ever time the market perfectly, picking the right time to buy can be very powerful.  The information provided here really demonstrates two things about how people who buy power should think about the process:

1) As a commercial or industrial customer, you are always short and should always be shopping.
2) Doing this reasonably well can make you a hero in your organization.