Are you paying to power your competitor when they could be paying for you?

Are you paying to power your competitor when they could be paying for you?

By Jeff Julia/Author, Navigating the Maze of Energy Efficiency Projects

If your brand isn't doing some energy-saving projects, you're likely paying for your competitors to do so, at least in part, through the rebate checks your competitors are getting for their projects that you are helping fund every month through your utility bill.

At a time when energy consumption is one of a restaurant operator's biggest expenses, if you're not taking advantage of this ever-more-popular source of rebate cash for energy-saving projects which then save your business money long term,  you are leaving cash on the table and your competition is picking it up. 

Here's how the rebates work and can work for restaurants' bottom lines.

Utility companies nationally are actually required to make these types of energy project rebates available to customers who undertake energy-saving improvements. In Pennsylvania, for instance, measures like the nearly 10-year-old Act 129, impose "new requirements on electric distribution companies, with the overall goal of reducing energy consumption and demand." 

Utilities get behind this because they need to recapture some of the energy customers are now consuming to sell to new customers in their ever-expanding business base. Thus for the utilities this is a cost-effective business strategy because it is hugely expensive to boost transmission capacity and simultaneously stabilize the power grid. 

Ironically, you and your business are already funding these types of rebates by paying into them monthly through utility bill charges nicely camouflaged under acronyms and other vague terms like the Pennsylvania's service charge, labeled "PA EEA Surcharge." 

Regardless of what it's called though, the fact is your restaurant is paying into a fund in which you get no equity nor return on investment, unless that is, you capitalize on this non-negotiable surcharge by undertaking energy-saving projects for your restaurant.

Isn't that 'renting' the utility bill? 
One could argue that participating in this offer is renting a utility bill, much like a lessee receives no equity or cash-back for lease payments and has no equity created when the term expires. But restaurants that continue to capitalize on the availability of these rebate funds actually do end up with something in the form of reduced operating expenses. Essentially, they "own" their utility bill.

Plus, since utility companies do not cap the rebates paid out to restaurants at the amount they have paid into the funds, restaurants which only pay in through their utility bills to subsidize these initiatives, actually end up using competitors funds to pay some of their long-term operating expenses. 

But if, for example, "Restaurant A" pays $50,000 in rebate fund surcharges over a year, but also performs an energy-saving project for which they receive a $150,000 rebate check, the $100,000 difference they end up getting is basically coming from all those other restaurant operators who paid the surcharge and didn't undertake any projects nor receive any rebates. Ouch. 

Now, combine that fact with the long-term savings the subsidized energy-saving project returns to participating restaurants, and the increase in Net Operating Income and you likely see the reason for considering these programs. 

And now, the "but" in this deal ... 

The interesting and even somewhat disheartening dynamic in all this is that although businesses pay into these rebate fund pools, the funds are often committed and allocated to participating companies more quickly than they are replenished. 

When this happens, rebate programs close until the funds are replenished or reallocated within the utility company itself. At this juncture, restaurants have several options:

  • Implement the energy efficiency projects and forfeit the once available rebates. 
  • Delay implementation of the energy-saving project until the rebate program re-opens, though there is no guaranteed time frame for this to occur, so you could be waiting a while.
  • Implement a different energy efficiency project in a program where rebate funds are not yet fully committed. 

For example, if a rebate fund subsidizing light fixture replacement costs closes, a restaurant operator might opt to pick up an HVAC project, like energy-saving kitchen hood control replacements since HVAC rebate funds have not been fully committed and the program has few applications.  

But be forewarned, this is a growing trend and as all businesses' climate action plans and corporate sustainability programs become more established, more restaurants and other businesses will seek to capitalize on these programs, depleting rebate funds more quickly and frequently. 

In the short term though, this is an opportunity for restaurant owners to make some financial gains until the lucrative rebate programs become more popular and must be scaled back to accommodate the higher participation. in other words, in this case, the power goes quite literally goes to those who act. 

Photo: iStock

Topics: Business Strategy and Profitability, Equipment & Supplies, Going Green, Operations Management

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