Explaining Budget Variances

A budget variance is the difference between the amount you budgeted for and the actual
amount spent.  When preparing energy budgets, it is practically impossible to be “right
on the money;” therefore resulting in a budget surplus or deficit. The main goal is to keep
these margins slim, especially since energy is one of the leading expenses for buildings.
So many factors can affect your utility budgets, which can result in higher than hoped
variances; however, they are definitely explainable.
The most obvious factor one may look at when explaining their energy variance is
usage. Some scenarios where usage could be affected are:

 Was there more or less electricity, steam, gas, or water used than budgeted? Energy
consumption is extremely volatile and a lot can happen between the time a budget
was created and the month one is reporting. For example, if a tenant who is a “high
energy user” lease expires, and it wasn’t incorporated into the budget, it could have
a great effect. The same could happen if a new tenant moved into the building.

 Were there any energy efficiency projects implemented throughout the year?
Something as simple as replacing old bulbs with LED lights may decrease electricity
consumption. If projected savings weren’t integrated into the budget, one may be
looking at a budget surplus.

 Has the chief engineer made any significant operational changes that may have
affected the usage or demand?

These are all factors one needs to think about when observing actual versus budgeted
usage.

Another key element when looking at usage variances is weather. However, only when
the data is normalized, is it possible to quantify consumption variables due to weather
extremities. It is important though to look at heating and cooling degree days especially
in the summer and winter months. Electricity is sure to rise in the hot summer months
when using air conditioning to cool down the building, while gas or steam is being
generated in the cold winter months to heat the building.

However, even if the energy consumption projections are on target, if accurate rates
were not projected, then high variances are likely.
 Was the most recent tariff of your local distribution company used when preparing
the budget? The Public Service Commission may have issued a rate case that you
were initially unaware of.

 When preparing the budget, did you know what your supply rate structure was going
to be for electricity and/or gas the following year? If you had signed a contract for a
fixed rate with your electricity service company, you would think that the actual rate
would be right on target. However, legislative changes may have been included that
could have increased your costs. If you aren’t in a fixed supply deal, unpredictable
market prices could easily cause wild variances.

For more information on how to budget for the recent effect of the Tax Cuts and Jobs Act
of 2018 on utility expenses, read on here: https://watchwire.ai/tax-cuts-jobs-act-impact-
con-edison-rates/
There are many components that should be incorporated in preparing energy budgets
and ultimately, the more factors implemented, the easier it is to explain budget
variances. EnergyWatch utilizes our expertise of the energy market, utility tariffs,
consumption, and real estate to forecast your electric, natural gas, steam, fuel oil,
water/sewer, chilled water, and hot water budgets for the future.  Our budgeting
algorithm accounts for factors such as occupancy, weather, energy conservation
measures, and capital projects, regulatory changes, and more, to account for budget
variances and provide a data-driven, defensible energy budget for your
building(s).  Contact us to learn more about how we can help simplify your budgeting
process.