Pilot Unplugged: Ask Me Anything

In Episode 1 of Pilot Unplugged, we tackle real-world energy questions from business leaders, breaking down cost management, strategy, and sustainability in a way that’s simple and actionable.

Transcript

Jennifer Ford, Host 0:02

Welcome to the very first episode of Pilot Unplugged Ask Me Anything. I'm Jennifer Ford, and I'll be your host for this series. And today is a really exciting one for us because this is our very first podcast at Pilot Energy. And the whole point of this series is what the name suggests: open, honest conversations about the energy industry. We asked our audience to send us questions they've been wrestling with when it comes to energy markets, energy strategy, sustainability, and how organizations can navigate all of it while still running a business. And honestly, you all delivered. Thank you so much. So today, we're gonna tackle a few of those questions with two of our in-house experts who spend their days helping companies make sense of the energy markets and build smarter strategies. So today, joining me is Dave Hennekies, Director of Growth Initiatives here at Pilot Energy.

Dave Hennekes, Pilot Energy Expert 0:57

Thanks, Jennifer. Very excited to be here.

Jennifer Ford, Host 1:00

Awesome. And we also have Ricky Hopp joining us, our vice president of commercial and industrial sales and marketing.

Ricky Hopp, Pilot Energy Expert 1:08

Thank you, Jennifer. I'm so happy that we have a podcast now. This is something that I think we've wanted for a long time, and thank you for making it happen. So looking forward to the conversation.

Jennifer Ford, Host 1:18

And really, Ricky, that is the spirit of Pilot Unplugged. So before we get started and jump into the questions, I want to take a quick moment to explain a little bit about who we are at Pilot Energy because we may have some listeners today joining us who aren't familiar with what we do. At Pilot Energy, we work with large commercial and industrial organizations to help them navigate the complexity of energy markets and help them make smarter energy decisions. That sounds interesting. Dave, can you expand on that a little?

Dave Hennekes, Pilot Energy Expert 1:49

That's right, Jennifer. So, you know, energy is often one of the largest operating expenses of commercial and industrial businesses. And so what we do is help them uh take control of their energy and manage, anticipate, and save costs where they can.

Jennifer Ford, Host 2:04

Sounds great. Awesome. Uh Ricky, did you have anything else you'd like to add?

Ricky Hopp, Pilot Energy Expert 2:09

Yeah, we like to be an extension of the clients that we serve, right? Many companies are not set up to be able to properly manage uh energy at scale, right? So many of the our the teams that we work with, they know that energy is a very important part of their overall uh opex expenditures, right? Um, but oftentimes uh their teams are quite small. So we like to come in and work with them and become an extension of their team to help them achieve their goals.

Dave Hennekes, Pilot Energy Expert 2:37

Yeah, so things like running a competitive process to procure long-term contracts for their energy at the right time, uh doing a no-cost utility bill audit where we often 70 to 80 percent of the time can uncover very significant savings. And those are kinds of things that we help our clients do.

Jennifer Ford, Host 2:57

Awesome. So, really, at the end of the day, it's the same as our mission: helping people better understand what's happening in the energy world and helping them make the best decisions when it comes to their energy. All right. So, with that, let's jump into our first question. And our first question comes from Mark, a facilities manager in Springfield, Missouri. So Mark asks us, he says, our facility runs 24-7, and energy is one of our largest operating commas. Over the past few years, we've seen significant swings in electricity and natural gas pricing, while at the same time, corporate leadership is pushing for stronger sustainability targets. It's really becoming a challenge to balance cost control with long-term energy strategy and decarbonization goals. So, what practical steps can food manufacturers take to manage energy price volatility while still investing in more efficient or sustainability operations? So, Dave, I want to start with you on this one because we see this a lot with manufacturing customers struggling with balancing those swings in pricing and electricity.

Dave Hennekes, Pilot Energy Expert 4:14

So, what I always tell manufacturing, uh food manufacturing companies is don't treat energy as an overhead, treat it as a core component of your operating structure. And what that means is developing a strategic procurement and energy strategy.

Jennifer Ford, Host 4:32

Awesome. So, what I take from this is maybe if it's been a a little while since you've looked at your energy strategy, uh, it may be worth looking into or getting another opinion. So, what does that actually look like in practice for food manufacturers?

Dave Hennekes, Pilot Energy Expert 4:50

It means usually is layering your procurement in over time rather than you know purchasing all at once. And and that's one of the things we do. Companies have hedging options, there's multi-uh product environments to uh layer in different hedging strategies, and what we help them do is determine the right time and as I said earlier, run run these RFP processes to get them the best deal over the long term for their energy contracts.

Ricky Hopp, Pilot Energy Expert 5:22

Just to add to that, you know, if you were to look at the deregulated energy market forward curves, right? Which we look at every day, you would quickly be able to diagnose that energy is one of the the most, if not the most, volatile commodity in the world. Um it's not there, there's very few commodities out there that every 15 minutes there's a new price, and that price can go from $10 a megawatt hour to a thousand dollars a megawatt hour, sometimes even negative, right? So we focus a lot on working with our clients to say, okay, how are you diversifying your purchases over time in over a longer span or a longer horizon to make sure that you're getting a defendable energy position that you can show to your entire board, your C-suite, and say, we took the necessary steps to understand where the what the market was doing and where we could take optimal layered energy purchases as Dave was describing. So that's something that we really pride ourselves on. I think it's something that more manufacturers are moving towards and understanding that sometimes one energy purchase can be just as risky as no energy purchases. So by diversifying those purchases over time, uh we are seeing it be a more effective way to procure energy.

Jennifer Ford, Host 6:55

Yeah, those are really good points, Ricky. Um, and also I want to touch on sustainability a little bit because Mark also mentioned decarbonization goals. So where does that kind of fit in this equation?

Ricky Hopp, Pilot Energy Expert 7:09

Yeah, sustainability has become a very important part of a manufacturer's decision criteria. I mean, if you look at 10 years ago, cost was the number one driver uh and efficiency, right? Um, and then I would say five years ago, it was looking at renewables, and you looked at a lot of like especially food manufacturers have clients like the Walmarts of the world, the targets, retailers that were really relying on their manufacturers to focus on um purchasing uh from renewables and having much more sustainable practices, and that was really driving a lot of those decisions. Now, sustainability is still important, but it's taken on a more holistic lens of cost, renewables, and resiliency. So when I say cost, I mean affordability, renewables, and resiliency and wrapping that all together and experience, right? Manufacturers care so much about uptime and just operating, right? And be making sure that they operate and that they are not having downtime because that's that's money. Um resiliency helps ensure uptime and it helps ensure that they're continuing to have their processes and they're able to produce what they need to do to be able to get into customers' hands. And customers are still concerned about making sure that the the products that they buy are coming through sustainable practices, so you're seeing the strategy evolve, I would say, where cost, sustainability, and resiliency are all coming together. Um, and it's making things more complicated. But the the nice thing is there's uh new technology and opportunities to help manufacturers optimize all three of those.

Jennifer Ford, Host 9:00

Okay.

Dave Hennekes, Pilot Energy Expert 9:01

And I'd add one thing to that data visibility. Having good energy data visibility is critical to their operations. So if they want to achieve certain sustainability targets, having real-time, you know, digital available data visibility into equipment processes and the specific almost to this to the specific you know operating equipment level is what great enterprises do to get control of those energy costs.

Jennifer Ford, Host 9:31

Right.

Ricky Hopp, Pilot Energy Expert 9:32

When you when they used to do their financial models to say, okay, well, our chiller is uh coming towards the end of its life, or our you know, manufacturing uh equipment you know was no longer operating, they have to shut down a part of their process, right? And that goes into their capex equations, right? Um, in terms of their payback periods. Now, with the introduction of things like artificial intelligence, um, there's a there's a lot more that can be done without having to shut down your processes and to have um a better line of sight as to when they will absolutely need to upgrade equipment. Um and you know, we've seen some of our the manufacturers that we work with in in in implement this incredible like software that uses artificial intelligence that does these nano adjustments across all their different components, and it's things that operating teams just weren't able to do with from the the naked eye in in history, but now there's little adjustments that you don't even see at the at the human eye level, but that can improve efficiency 10 to 20 percent, and then there's also triggers on you know temperature load, vibration, things that these that the software can identify that says, okay, this equipment may only have another year or so of life. Now you need to start thinking about how are you going to maintain it to get another two to three to four years. So the technology with artificial intelligence is is allowing current equipment to last longer, and it's also making more investments pencil and manufacturers be more profitable.

Jennifer Ford, Host 11:19

That makes a lot of sense. So what I'm gathering here is even just a small operational change can save a surprising amount of energy. And I even see a little decarbonization triangle here. Um, so if we want to summarize this for Mark, we're talking about three big steps efficiency improvements and energy data and monitoring. Is that about it?

Dave Hennekes, Pilot Energy Expert 11:43

Yeah, and I would say, Mark, if you haven't had uh a company look at your utility bills as a whole in a in quite a while, it'd be a good idea to do that because that too can uncover a lot of uh potential savings and opportunities for you.

Ricky Hopp, Pilot Energy Expert 11:59

I would just also add you don't have to solve everything at once, right? That this is a complex uh world that we live in right now. There's a lot of different things you can do uh before jumping ahead and replacing all of your equipment, though, see what technology is available at your disposal to be able to optimize what you currently have, would be my recommendation because I think there's technology available now to help more in the last couple of years than was available even five years ago.

Jennifer Ford, Host 12:26

Awesome. Good points, Ricky. Thank you. Okay, so we're gonna move on to our second question. This comes from Danielle, director of property operations out of Dallas, Texas. So Danielle asked us, she says, we manage several large office and mixed-use buildings, and energy costs have become one of our biggest operational expenses, especially with the fluctuating electricity prices and increasing pressure from our tenants and investors around sustainability and ESG reporting. So at the same time, their occupancy levels and usage patterns have changed since the pandemic, making it harder to forecast energy needs and optimize building performance. So her question here: how can commercial real estate owners build a smarter energy strategy that helps control costs today while also positioning buildings to meet future sustainability expectations from tenants and investors? So, Ricky, I know you work closely with a lot of real estate portfolios. So, what would you say here to Danielle?

Ricky Hopp, Pilot Energy Expert 13:33

Yeah, it's a really good question. Thank you, Danielle, for that. Um commercial real estate used to be, I don't want to overuse the word simple, but it was very predictable, right? Uh before the pandemic, everyone went into the office. Uh nine to five, the loads were were incredibly predictable, but then everything changed once the pandemic happened, and then we're still dealing with that today. You do some tenants in a building are requiring people to go back to work every day. Others uh have a remote policy. Um energy loads are constantly shifting, and sometimes people are coming in working half the day, and you know, and you don't know what half the day it is. It could be the morning, it could be the afternoon. So it's getting harder to forecast uh energy usage in commercial real estate. So that's uh one challenge that we're seeing. Additionally, you need to design the buildings in a way that make it where people want to go back to the office. And there's more focus on that now where the expectation was that people were gonna go into the office, regardless. Now it's you know, for those that have the choice, if their office doesn't have that welcoming, a lot of times a sustainable feel, a feel that makes you feel like you want to be in that office, um, they're they're you're gonna continue to fight getting occupancy back into the building. And that could be from just the visual aesthetics of how a place looks with plants and sunlight and uh uh and just overall, yeah, the overall feel of the office, but also in the the controls and the smart energy controls, right? Where it used to be where all the air conditioning would pump down on people at the same, but but you might like uh the temperature to be at 70 degrees, you might like the temperature to be at, you know, 68, right? It everyone has different comforts and and feelings of how they like to work and how they're more most pro um productive when they are working. So, you know, this is another challenge that we're seeing, and energy actually plays quite a bit big role in making sure that you get people to come back to the office to have more predictable loads um that can be controlled. So, and also tenants, I would say the last thing is tenants do care again that there are sustainable practices in commercial real estate. So lead certification is still if not it's it was always important, but it's become even more important for uh tenants to make sure that they're if they're gonna take office space, that there are sustainable practices that are been implemented throughout the building.

Jennifer Ford, Host 16:23

So yeah, I really feel like since the pandemic and not being in the office, um, and maybe even being in the office half the time or a quarter of the time, that energy efficiency is just not there. People are still spending a lot of money to use the lights, the AC. So I really feel like a good procurement strategy is what these commercial real estate places need. Um, Dave, can you touch on that a little bit more?

Dave Hennekes, Pilot Energy Expert 16:57

Yeah, I think I procurement is still a huge uh role in, especially now in real estate. Um I think what we're seeing is tenants are tying energy procurement and operating cost directly to, you know, the asset values that the building owners are are trying to maintain. There's there's equipment life, as Ricky mentioned, there's maintenance costs, and energy procurement is becoming part, you know, part and parcel, very integral to that strategy. So uh what we what what we see tenants trying to do is make sure they can manage their risk, meaning volatility in energy prices, as well as optimizing, you know, those costs around different office times and things like that.

Jennifer Ford, Host 17:48

So really it's not just operational anymore. There's also a financial strategy behind it.

Ricky Hopp, Pilot Energy Expert 17:55

Exactly. Yeah. I would say also tenants, they're asking better questions now, too, right? They want to know things like what's the building's energy intensity, you know, are there renewable energy programs? Things I touched on earlier, right? They care. They want to know that sustainability is part of uh the building's strategy that they're gonna be working out of, right? So um it's becoming more complex, but having a thoughtful procurement strategy that forecasts not on the way things used to be, but how things are now and how things are expected to be with a changing hybrid office, you know, come and go type of uh policy, as well as ensuring that sustainability is through is implemented throughout the building envelope so that people feel more comfortable when they're going to work and that they want to be in the office is our are are critical uh aspects of commercial real estate that we're seeing.

Jennifer Ford, Host 18:58

Okay. So if Danielle is gonna think about the next five to ten years, what should be top of mind for her?

Ricky Hopp, Pilot Energy Expert 19:07

I would say first invest in smarter building controls, right? These are the things that help ensure that your tenants are comfortable and happy in a building, right? But they also provide more dynamic opportunities to uh reduce peak peak demand in times when uh energy demand is at its highest, right? And the ability to be able to adjust in a much more um dynamic way, where you're not just turning off the air conditioning across the building, you're segmenting different parts of the buildings uh so that you're being more optimal. I'd say that's probably the number one thing. And then the second is look longer term for your procurement strategy, right? Make sure that you're partnering and looking at, okay, here's how uh our energy usage is now, here's what it used to be, and here's where we think it's going to go. And and be very thoughtful in that and align your purchasing strategy towards uh the next three to five years, as opposed to looking at just one year forward. Um, and again, take a bit more of a layered purchasing approach as well. Here, I think makes sense where you can have diversified purchases. Uh, but as part of your procurement strategy, it's important to look at how do you reduce those very expensive peak demand charges that drive a pretty large part of the overall energy bill. In addition to having a uh layered purchasing strategy, making sure that you have your sustainability reporting really locked down and making that an asset for your portfolio because again, your tenants and your investors do care about that and they want to see that you're taking steps to improve the sustainability and just the overall um you know the feel of of your commercial real estate portfolio. And that adds to the value of those properties. So again, thinking about just your overall business objectives, um, having sustainability reporting is not just a cost, but it's also a value add for your uh commercial real estate portfolio.

Jennifer Ford, Host 21:20

Awesome. Lots of great advice for Danielle, and thank you for that question. Uh okay, so we're jumping into our final question today. Comes from Jason, Senior Director of Facilities and Energy Management out of Columbus, Ohio. So Jason writes our company operates hundreds of stores across multiple states, and one of our biggest challenges is manage managing energy costs consistently across locations that all have different utility markets, different climates, regulations, and rate structures. On top of that, we're being asked to improve store efficiency and support. Corporate sustainability goals without disrupt disrupting our store operations or the customer experience. So, what strategies should large retail chains consider to better manage energy costs and procurement across a multi-state portfolio? Dave, I feel like this question probably resonates with a lot of multi-state companies across the nation.

Dave Hennekes, Pilot Energy Expert 22:25

That's right. Yeah. Thank you for the question. And as you said, lots of states, lots of different regulations, often means lots of complexity. And so what we usually say is the first step is centralizing visibility and control.

Jennifer Ford, Host 22:42

Yeah, I totally agree. Is that it?

Dave Hennekes, Pilot Energy Expert 22:51

Yeah, and I think so, here again, like other industries, developing a portfolio-wide procurement strategy and approach, once you have visibility and control, is what we usually advise. And once you have that visibility combined with things like a utility bill audit, you can get a good picture of how to optimize those costs and optimize that strategy over time.

Jennifer Ford, Host 23:28

So one word that comes to mind, Dave, when I'm thinking about all this is hedging, uh, hedging electricity in deregulated markets. We wrote a blog on hedging recently, hedging 101, and it explains all about that. But for those of us who are joining us today, can you touch a little bit more on what hedging actually means and why it could be a good strategy?

Dave Hennekes, Pilot Energy Expert 23:52

Yeah, hedging is uh is simply a term that means making decisions of when and at what price to purchase your energy, your water, your um natural gas. And so companies that look into different hedging strategies, they're typically being offered a variety of different options. Do I buy all fixed price all up front now for three years? Do I layer in uh hedging over time? Kind of like in your personal portfolio, dollar cost averaging comes to mind. Um and hedging is simply a uh a structured approach to layering in the right kinds of uh purchasing decisions for your energy and other, you know, over a period of time. That that manages two things. One, your cost objectives, and two, your risk objectives. And let's not forget, risk is this is one of the most volatile markets in the world. So risk is a very important factor in that hedging decision.

Jennifer Ford, Host 25:04

Yeah, definitely. Thank you for explaining that. Um so really how that works, if prices spike, you're not fully exposed, and if prices drop, you still have opportunities to capture those lower rates. Um, that's what I'm gathering from that. Thank you, Dave. So now, Ricky, where does efficiency really come in when it comes to these multi-state portfolios in the retail state?

Ricky Hopp, Pilot Energy Expert 25:28

Yeah, the nice thing about efficiency when it comes to the multi-state retail portfolios is a a small, a small improvement can scale because, again, of your large diversified portfolio. So being able to find something that helps improve, you know, through a smart thermostat or some sort of a small improvement in refrigeration can scale, right? As long as you have a partner that can scale that at a national or a regional level, wherever your operations are. Oftentimes, though, we find that retailers work with very um localized contractors that do the upgrade work but can't replicate that across uh uh numerous sites. So I do think that there's opportunities if you can find a player that can scale with you and your portfolio, you can um maximize a lot of those efficiency gains. Um I also think it's important that you look at how those efficiency gains translate into your procurement strategy. So kind of going back a little bit to what Dave talked about, right? When you're improving your lighting or your controls or your um you know your refrigeration, and if you're able to reduce that, I go, I go back to that peak demand because that peak demand is what's really driving a lot of the excess costs. And uh retailers are constantly looking at how can I reduce that that um that peak load demand or my capacity tag in certain markets that it has a different name uh depending on what you know uh state you're in. But if you can reduce that, that can significantly help improve your overall procurement costs. But you need to be on the right procurement structure to be able to realize those gains. So making sure that the right hand when it comes to efficiency is talking to the left hand, which is your procurement department, making sure those community that communication is happening is absolutely critical. Um so I would say, yeah, being able to look at your poll your portfolio holistically and understanding that even a very small incremental gain uh can translate into large savings, but also making sure that uh any improvement that you do make on the efficiency side, your supply procurement structure is able to take advantage of those um improvements.

Jennifer Ford, Host 27:59

Thanks, Ricky. That was a lot of good information. So I want to touch on sustainability a little bit. What about sustainability goals?

Ricky Hopp, Pilot Energy Expert 28:05

Yeah, sustainability remains a very important um strategy for retailers, right? Uh their customers are focused on making sure that they're spending at places that align with their beliefs. Um, so you're seeing more retailers over the last five years doing things like power purchase agreements off of renewable assets, solar and wind. Um, for those that maybe don't have as the ability to take as large of an off-take purchase, because many of these uh power purchase agreements or PPAs are 10 to 15 year agreements and often have a minimum requirement of you know 50 megawatts, translates into many millions of dollars. Uh, other retailers still want to be involved and know that their dollars are being helped to promote the generation of new renewable assets. So they can purchase uh renewable energy certificates or RECs, and those can be RECs is the uh short name for renewable energy certificates, and those can be purchased to help promote wind development, biomass projects, local projects, national projects. So there's numerous opportunities for retailers to get involved, and um, you know, customers care, and and you can see that in sustainability reports. Again, it's it's it drives more people to your store, more customers to your store. And that's why you're seeing a lot of retailers still find ways to be able to help uh promote improvements in the environment and in the in in promoting cleaner energy generation.

Jennifer Ford, Host 29:45

Yeah, I like that. Dave, did you have anything to add?

Dave Hennekes, Pilot Energy Expert 29:48

Yeah, that's very well said. And in fact, you know, the other big thing is retail stores want their customers to be comfortable. So sustainability initiatives also need to have the flexibility of not disrupting operations. And that's that's why there's physical ways like rooftop solar, but also as Ricky mentioned, renewable energy credits are a financial way to participate in renewable sustainability initiatives without with simplicity.

Jennifer Ford, Host 30:18

Yeah. And at Pilot, that's something that we can help companies with. Yeah.

Dave Hennekes, Pilot Energy Expert 30:24

Yeah, exactly.

Ricky Hopp, Pilot Energy Expert 30:25

I also just want to add really quickly that you're seeing more retailers focus on how do they get backup generation so that they can continue to have resiliency when the grid falters, right? I live in Houston, Texas. I'm no stranger to having times when we lose power for extended periods of time. But retailers like HEB, as an example, has backup generation in place that they can run their stores regardless of what the grid is doing. And that translates into millions of dollars that they can continue to bring in. And also their brand obviously improves quite a bit when in times of need, people can rely on HEB to be able to go to their store and uh shop no matter what's going on weather-wise. And those are the times when people really need to go out and get the you know the goods that they need. So retail having sustainability and resiliency with backup generation or some form that they can continue to have their operations in times of need is uh incredibly paramount, and you're seeing retailers consistently focus more on those initiatives.

Jennifer Ford, Host 31:38

Yeah, those are really good points because down here by the coast, we're definitely not strangers to hurricanes and losing power. So having all of that is really helpful for consumers as well.

Dave Hennekes, Pilot Energy Expert 31:51

That really applies in all regions of the country and many industries, actually. Uh resiliency as well as sustainability, combining those efforts to be able to optimize their energy strategy.

Jennifer Ford, Host 32:05

Yeah, definitely. Well, thank you all so much. And I want to say thank you to everyone who submitted questions for our very first episode of Pilot Unplugged, Ask Me Anything. If you didn't hear your question today, don't worry. We're gonna be continuing this series and tackling more topics around energy markets, procurement strategy, sustainability, and all the things in between. And this is really just the beginning. So in upcoming episodes, we'll focus on specific industries, starting with cold storage facilities in our next episode. And we'll be bringing in guest speakers from different industries to join us in the conversation. So if you have any questions or want us to cover your space, submit them to pilot energy and our team. And remember, we're always powered online at pilotenergy.com. Thanks again for listening to Pilot Unplugged. I'm Jennifer Ford, and we'll see you all next time.