Energy Outlook

By Bob Nieman | Apr 15, 2009

As a self-service laundry owner, your biggest variable expenses are your utility costs.

Your rent is fixed. Your equipment payments are fixed. And your payroll, for the most part, is relatively fixed as well.

So, if there’s one item that’s going to make or break your bottom line, it’s your utilities. And judging by the most recent Coin Laundry Association industry survey, utility costs are breaking the budget more often than not.

When asked to list the biggest problems facing their coin laundry businesses, a whopping 79 percent of survey respondents identified the high cost of utilities as a huge issue for their stores – with the next most pressing problem (abuse of equipment/vandalism) garnering only 37 percent of the votes.

In addition, high utility costs don’t appear to be only a regional issue. When broken down by segment of the U.S., respondents in the Northeast (82 percent), the Midwest (71 percent), the South (82 percent) and the West (78 percent) all overwhelmingly gave the nod to utilities as the biggest concern they have as laundry owners.

With utility costs clearly on almost every store owner’s mind, especially heading into the fall and winter months, we thought it appropriate to examine the current natural gas and electric markets, and provide some ways to keep those utilities from eating away too much of your hard-earned profits.

The Natural Gas Market

As of press time, there was actually some good news about natural gas

Working natural gas in storage reached 3 trillion cubic feet (tcf) at the end of August for the first time since 1990. This high level of storage has tempered natural gas spot prices. In fact, according to the Energy Information Administration, the Henry Hub spot price is expected to average about $7.30 per thousand cubic feet (mcf) in 2007 and slightly more than $8 per mcf in 2008.

Much of the resource growth can be attributed to U.S. onshore areas where success in extracting natural gas from shales and coal seams has resulted in revised assessments of existing resource plays and inclusion of new opportunities. This has been the case in numerous mid-continent production areas such as the Arkoma, Anadarko, Fort Worth and Permian basins. According to recent reports, additional growth in the resource base has resulted from new data from the Gulf Coast, Rocky Mountain and Pacific areas.

“Abundant natural gas resources help to keep energy costs affordable for U.S. consumers – as long as producers are allowed access to those resources,” said Chris McGill, managing director, policy analysis for the American Gas Association. “This kind of growth in onshore resources only happens when companies are permitted to explore and the opportunities for leasing and permitting of multi-use acreage is allowed to proceed.”

McGill added that the AGA recognizes that demand for natural gas has shifted recently among consuming sectors, primarily because of its greater use by electricity power generators. Natural gas is the cleanest fossil fuel and, therefore, its use in power generation helps many power plants to meet cleaner air standards. The AGA also believes that proposed climate change legislation may further the demand for natural gas in the future.

“Increased use of natural gas will help the United States to meet its environmental goals, but only if we adopt policies that address the need for natural gas production in tandem with natural gas consumption,” said McGill. “When supply is not allowed to keep up with demand, costs rise and American businesses and consumers pay a heavy price.”

According to the Department of Energy, about one-fifth of our natural gas production comes from the Gulf of Mexico, with another large portion coming from concentrated areas, including Texas, Oklahoma, the Gulf Coast onshore, New Mexico, the mountain west and Appalachia.

“Hurricane Katrina demonstrated how dramatically natural gas customers can be penalized when one producing region is impacted by supply disruptions,” McGill said.

Supply diversity is the key, according to McGill, who said the industry must continue to educate the public about advanced exploration and production technologies that have made onshore and offshore gas development safer and more environmentally acceptable.

Natural Gas Trends

Here’s a look at some of the market trends affecting natural gas, according to the EIA:

Consumption: Driven by increases in the residential, commercial and electric power sectors, total natural gas consumption is expected to rise by 4.5 percent in 2007. For 2008, the assumption of near-normal weather will temper consumption in the residential, commercial and electric power sectors considerably, leading to an increase in total natural gas consumption of only 0.3 percent in 2008.

Production and Imports: Although marketed natural gas production in the Gulf of Mexico is expected to decline by 4.3 percent in 2007, production in the “Lower 48” onshore region is expected to increase by 1.7 percent this year, led by strong growth in the second quarter. In 2008, the start-up of new deepwater production facilities is expected to increase marketed production in the Gulf by 7.1 percent, while marketed production in the “Lower 48” onshore is projected to increase by 0.3 percent. In sum, total U.S. marketed natural gas production is expected to increase by 0.8 percent in 2007 and 1.3 percent in 2008.

Imports of liquefied natural gas (LNG) are expected to increase by 47 percent in 2007, and by 19 percent in 2008. Relatively high U.S. natural gas prices during the first half of 2007, compared to other LNG-consuming countries, were largely responsible for the recent surge in U.S. imports. As demand for LNG around the world begins to rise in the near term, shipments to the United States are projected to decline during the third and fourth quarters before increasing again at the start of 2008.

Inventories: On August 31, working natural gas in storage was 3,005 bcf. Current inventories are now 284 bcf above the five-year average (2002–2006) and 39 bcf above the level of the corresponding week last year.

Prices: As mentioned, spot prices at the Henry Hub averaged $6.37 per mcf in August, about the same as the monthly average spot price in July. Spot prices at the Henry Hub are projected to begin rising to a winter peak of $9.01 per mcf in January 2008. For the year, the Henry Hub spot price is expected to average about $7.31 per mcf in 2007 and $8.07 per mcf in 2008.

The Electricity Market

Summer temperatures have exhibited significant variability this year, according to EIA reports. Cooling degree-days in July were about 3 percent below normal and 18 percent lower than July of last year. Yet, preliminary weather information for August indicated cooling degree-days were 24 percent higher than normal and warmer than temperatures last year. This extreme August weather had been particularly severe in the Southeast and Midwest regions.

Overall, as of press time, electricity consumption for the third quarter was expected to average about 1.6 percent higher than the same period in 2006 and was predicted to grow by 2.5 percent for the entire year. Growth in 2008 is expected to slow to 0.8 percent as temperatures are assumed to return to near-normal levels.

As for prices, after the sharp increases experienced last year, U.S. residential electricity prices averaged 11.1 cents per kilowatt hour in June 2007. Residential electricity prices are expected to grow by 2.5 percent in 2007 and by 2 percent in 2008, slightly lower than the rate of inflation, according to the EIA. Industrial electricity prices are expected to grow by 5.0 percent in 2007 and by 1.0 percent in 2008.

Conserving Energy

A key to surviving this winter’s natural gas costs will certainly be conservation. And your laundry’s water heater is the first place to begin your conservation effort.

Water heating systems are available in many different designs, and design is one of the biggest determinants of efficiency. Age and system conditions are the other determining factors. To begin this part of your evaluation, go to your heater room. When opening the door, does the heat knock you down? Does the room feel hot and stuffy?

The next things you need to look for are the two air openings into the room. There should be one near the floor and one near the ceiling. Do not close them up at all, not even partially. These two openings provide the air supply and movement for your water heater to combust the gas properly. In fact, be sure that these holes are large enough. Most water heaters require one square inch of free area for every 1,000 BTUs of input for your water heater – half near the ceiling and half near the floor. If you have a 670,000 BTU heater, you should have two openings approximately 18 inches by 24 inches. Without these openings for the water heater to “breathe,” your energy bills will go up; not to mention, the life of the water heater will decrease.

Another cause for that hot and stuffy feeling is the fact that your storage tank and hot water piping should be insulated. An uninsulated storage tank can add $2 per gallon to your gas bill, and typically you can insulate a 350-gallon tank in just a few hours for less than $100.

Next, be sure to review your water heater setting. Anything greater than 120 degrees in a self-service laundry is a waste of energy. Also, note that setting your water heater below 115 degrees can cause problems with condensation and potentially cause much greater problems than high energy bills. Therefore, 120 degrees is the most widely accepted — and energy efficient — setting.

Another possibility for further conservation regarding your water heating system is to shut the system off at night, thus eliminating the possible cycling that would occur to keep the system at a certain temperature when not in use. This type of conservation typically requires a time clock and a separate thermostat attached to the control system of the water heater. A word of warning: If your store is in a colder climate, don’t try this without some sort of freeze protection. Otherwise, the water in your heater can freeze and burst the tank.

The final aspect to consider regarding water heaters is total replacement, especially if your system is more than 10 years old. As a general rule, be sure that your payments (if financed) are less than your energy savings per month.

Combined with other savings, such as tax benefits and depreciation, buying new, energy-efficient equipment can add up to substantial savings.

Also, keep in mind that proper sizing is the key to long life and high efficiency. Installing an undersized water heating system will cut your fuel usage; however, you’ll no doubt lose customers due to cold water at peak times.

Dryers & Utility Costs

Age is the biggest clue to the energy efficiency of dryers. The older they are, the less efficient they will be, as the advancements in dryer technology have been quite dramatic in recent years. The BTU/hour input for a 30-pound dryer has dropped from 125,000 or more to less than 80,000 to dry clothes in the same or less time. If the BTU input of your dryers is greater than 100,000 BTUs for a 30-pound dryer or if you have a standing pilot light (as opposed to spark ignition or a “glow bar” style ignition), it might be time for new equipment. And this could reduce your total gas bill by 25 percent to 30 percent.

If you can’t afford to replace all of your dryers, replace some of them and vend them for less than your older ones. At a minimum, you can charge more to help offset their extremely high operating cost. Reduce the amount of time given per quarter. If you have to keep some of the older models, at least make sure the ignition systems have been updated and that there are no standing pilots.

Above all, be diligent when it comes to dryer cleaning and maintenance. Nothing increases gas consumption more than plugged airflow passages.

Also, by adding insulation, you can increase your building’s resistance to heat loss and gain. Depending on the shape of the building, it may be more economical to insulate the roof, rather than the walls, particularly for one-story buildings.

In very hot or cold climates, insulation is a smart move. And it saves you money year-round. In the winter, it reduces your heating bill; in summer, it cuts your air conditioning bill.

Roof insulation may be installed inside, under the roof, or outside between the structural roof members and the weather-proofing material. Batts, rolls or blow-in insulation are used inside, while foam boards are typically used outside.

Electrical Efficiency

All coin laundry operators understand the value of a well-lighted store to their businesses. By ensuring the safety of your store through adequate lighting and proper attention to the elimination of any electrical or other mechanical hazards, you have gone a long way toward creating a safe, comfortable laundry for your customers.

In doing so, be sure that the electrical work is done in the most cost-effective manner possible, yet, again, with safety as your main goal. It’s important to use all of the energy-conserving techniques available to lower your operating costs. One of the best places to begin evaluating your store’s utility usage is with your lighting. There are several low-cost lighting options to consider.

1. Incandescent. This is the most common light source. It is the simplest to use and has low-cost lamps. Its disadvantage is its low lumens-per-watt rating. Illumination or brightness is measured in lumens. Watts tell the amount of power it takes to make a bulb work.

The higher the wattage requirement is for an incandescent bulb, the greater its efficiency. For example, one 100-watt bulb gives more light than two 60-watt bulbs and uses 20 percent less energy to do it.

2. Longer life. Longer life bulbs give several times as many hours of use as a standard incandescent bulb, but provide less illumination. These bulbs would be appropriate in areas where bright light is not as critical, such as storage areas, boiler rooms, counter areas and so on.

3. Fluorescent. Fluorescent lighting is distinguished by its tubular design in straight, circular or U-shapes. Light output increases with tube length. A 40-watt fluorescent lamp produces more light than a 100-watt incandescent bulb at half the energy cost. It also will last up to 10 times longer. Fluorescent is bright light suitable for the customer work areas in a coin laundry.

4. High intensity discharge lamps. There are three types:

• Mercury vapor. This type of lighting is particularly suitable for outdoor use because of its low cost, high light output and long lamp life.

• Metal halide. Similar to mercury vapor, this lamp offers better color rendition. Its efficiency is nearly two times greater than mercury vapor with similar color to incandescent, making it suitable for in-store use.

• High pressure sodium. This lamp produces a golden-white color, but requires a specific ballast. Its advantages are high light output, high energy efficiency, long life, compact size and low installation cost.

Improving Light Efficiency

Consider these techniques for reducing electrical lighting costs:

• Substitute lamps. For example, refit a high pressure sodium light into an existing fixture.

• Mix and match lamps. Intersperse a high pressure sodium lamp with mercury, incandescent or fluorescent lamps.

• Clean lamps for highest illumination.

• Replace the entire system with a more efficient system.

• Automatic and manual controls are available to help save energy and cost.

Photoelectric cells turn outdoor lights on and off automatically with the rising and setting of the sun. Timers perform the same function and can be used indoors, but must be set to compensate for changes in sunrise and sunset.