Energy Education: Companies Feeling the Sting of Fuel Costs
Aug. 24–Bryant Lee is a man companies call when they have an energy crisis. His phone rings often these days.
As managing director of Viking Energy Management in Charlotte, Lee advises companies on how to cut their financial risk when buying energy, such as oil and natural gas.
While most consumers and businesses struggle with higher energy prices, Lee’s company is among those profiting.
Soaring pump prices have dominated headlines, but companies are feeling a proportionately bigger sting than consumers.
Last month, producers paid 4.4 percent more for their energy, including gasoline, diesel fuel, electricity and natural gas, according to the Labor Department. Consumers’ energy costs, meanwhile, rose 3.8 percent.
Companies say competition prevents them from raising prices. That’s where Lee comes in, to help on the cost side of business.
A former energy trader with Enron Oil Trading and Transport, Lee created Viking in the spring of 2004. He runs the five-employee company with his wife, Kim Austin Lee, and brother Preston Lee.
Their goal: help companies navigate volatile energy markets.
He believes the traditional way companies buy energy (asking for proposals, evaluating bids and awarding contracts) is inefficient in a world where prices can jump 15 percent in one day.
“The risk you have is you happen to buy on the highest day or the lowest day,” he said. “But it’s just not a good way, when the market is as choppy as it is, to try and pick that right day.”
Instead, Lee preaches the gospel of hedging, or using financial tools such as short-selling and futures contracts, to lock in prices and secure a cost-effective energy supply.
Prices are expected to soften but not retreat significantly in the near term. Longer-term, many economists think energy prices will continue to climb.
“It’s finally starting to sink in that we’re in a period, perhaps a prolonged period, of higher prices,” said Lee, who has worked in the energy industry since 1992, including a four-year stint with DukeSolutions, a division of Duke Energy that helped major customers design their energy systems. (That division has since been sold.)
Viking is working with four customers, mostly medium-sized industrial and commercial businesses, across the U.S. and is in talks with dozens more, Lee said. His company said it saved one customer, a Texas bank, $42,000 a year by rewriting electricity contracts. (Texas’ electricity market is deregulated.)
Another customer, Bruce Thorn, senior vice president of operations with LESCO Inc. of Cleveland, asked Viking to help his company lock in lower natural gas prices. LESCO manufactures and distributes lawn-care products, including fertilizer. Fertilizer makers are among the nation’s largest users of natural gas.
“When you’re trying to run a business and having to worry about commodities at the same time, it never works,” Thorn said.
Citing competitive pressures, Thorn declined to say how much money his company saved. But, he said, Viking’s guidance last year “put me in a better situation than any of my competitors for 2005.”
Surprisingly, Lee said, companies who call in a panic can wait months before taking action. And that can prove costly.
Since June, the price of natural gas has risen $3.28 per dekatherm. Lee gave an example of a medium-size manufacturer that uses 15,000 dekatherms a month.
The price hike would cost that company $50,000 a month.
LESCO’s Thorn admits to delaying decisions — even ignoring some of Lee’s advice — something he now regrets.
“Those times when I didn’t take it,” he said, “I’m kicking myself.”
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