Local Company taps a niche, benefits from high energy prices

BY MICHEAL PAULK

Higher energy costs have been hitting manufacturers hard, but that has been good for a local firm specializing in helping companies cut their utility bills.

Many firms are cutting spending or freezing expenditures because of increasing energy costs. In December, International Paper CO., the world's No. 1 paper maker and employer of about 2,800 in the Memphis area, warned that fourth quarter earnings would miss Wall Street forecasts by 30% due to slowing economy and energy costs.

For the quarter, IP found that its energy costs--mostly related to the dizzying price of natural gas--rose $40 million. Overall, the company's cost for its utilities were $220 million higher than the previous year, an increase of about 20%, IP spokesman Jack Cox says.

"Energy costs are a significant part of the cost of making paper," Cox says. "Our annual energy costs are in the neighborhood of $1 billion."

Companies like IP can benefit from Memphis-based Optional RATES Co. The company, a consultancy founded by H. Woodson McRae, specializes in ferreting out overpayments and waste in the utility bills of manufacturing companies.

Large operations often overlook utility rates, falling into a habit of paying them as an unavoidable cost.

"The larger the operation is the more opportunity there is for overpayment," McRae says. "It all comes down to economies of scale."

One Memphis manufacturer recently discovered through Optional RATES that it was overpaying its sewage bill by about $6,000 a month. When you take into account that the company had been in business for about 10 years, that overpayment totaled more than $720,000.

The future savings that its clients realize is where Optional RATES makes its revenues--keeping 50% of the savings it finds for 36 months afterward.

In the past eight years, Optional RATES says its success rate is over 76%--discovering over $3 million for its industrial clients in the past 24 months alone.

A smaller manufacturer like Lifetime Industries, Inc. has also been feeling the pinch from high natural gas prices, especially during the recent cold winter months.

The firms utility bill increased from $4,000 per month to more than $10,000 per month based mostly on the cost of heating its 60,000-square-foot facility.

The company which makes filters for industrial heating, air conditioning, and ventilation systems, has been able to absorb the added cost, so far resisting the urge to pass it along to customers, but that could change if utility costs rise further, president William E. Cayce says.

"If it were to go up and double again it would definitely hit out bottom line," Cayce says.

Because natural gas is not part of his company's processes, Cayce looks at recent spikes in his energy costs as a short-term hit.

But the added costs for keeping the lights on in a manufacturing operation have been enough to focus the attention of Cayce and other manufacturers on energy costs.

McRae says that the recent attention higher bills have drawn has been good for his firm and made it easier for them to secure new clients.

"There is no question about it," McRae says. "the people who were resistant are now getting calls from the home office or CFO telling them to do something about (high utility bills)."

CONTACT staff writer Michael Paulk at 259-1726 or by e-mail at mpaulk@bizjournals.com