Hudson's Bay does the math on energy buying
The Canadian retailer's energy executive shares what he's learned about getting energy projects off the ground.
The Retail Industry Leaders Association (RILA) recently sat down with retail energy veterans representing finance, energy management and construction perspectives to discuss how they recommend bridging the gap between energy and finance, plus lessons learned. Find the first interview, with Cole Haan's Bob Bedard, here and the second, with REI's Mark Lester, here.
In this last of three interviews of the series, Gary Levitan, director of energy and facilities purchasing with Hudson’s Bay Company, shares how a career background in finance has influenced his approach to energy management at an influential luxury retailer.
Founded in 1670, Hudson’s Bay Company is the oldest company in North America. The Toronto-based retailer operates six banners and over 350 stores in U.S. and Canada.
Erin Hiatt: Tell us a little about your position and background with Hudson’s Bay Company.
Right now my job can be divided into three distinct categories:
1. Energy procurement: I manage the entire energy purchasing program for all deregulated markets in North America.
2. Capital projects: I manage all capital projects affecting the utility expense centers. This includes everything from lighting to HVAC upgrades.
3. Accounting: I am responsible for all utility expense budgets for every location in the company. This includes planning, forecasting and monthly reconciliations.
Hiatt: When and where did you work in finance?
Levitan: I consider finance my first career. I started as a credit and financial analyst at JP Morgan and eventually became a credit portfolio manager for Hess corporation years later. That is the moment that my interests started developing a more "energy-centric" slant.
Hiatt: How and why did you transition from finance to energy?
Levitan: I began to learn about deregulation and energy price drivers from the inside at my job with Hess. The transition was smooth considering that all third party utility transactions are very finance-driven. This led me to switching over to the demand-side of the business in 2008 where my industry knowledge was a very rare and hot commodity at the time.
Once I started to get my company’s energy purchasing strategies under control, I immediately noticed a major opportunity within our energy usage trends. Because of my exposure to so many different businesses at my time at Hess, I had a solid understand of how much energy certain types of buildings should be consuming. At this point, began to use my finance background to investigate and implement capital projects that would save the company money.
Hiatt: In your prior finance role, did you work much with energy investments? If so, how did you perceive energy managers who you interacted with?
Levitan: They didn’t exist back then, at least not in the capacity they do today. Old-school energy managers have always been engineers or facilities professionals, whose reasonability was to maintain lighting and HVAC systems at any given location. Today, energy managers are required to bring a lot more value to their organizations, which is why I feel a finance background is very important.
Hiatt: Considering the importance of financial literacy, what are the three things you recommend all energy managers do differently to improve the likelihood of their projects being approved?
1. Learn to speak your finance team’s language. How do they rate investments? How do they like to see a pro forma? What is their capacity for risk?
2.Understand your company’s financial position. Are you cash rich or is all your money tied into expansion? Is there a capital contingency budget? Is the company interested in quick paybacks or long-term value?
3.Quantify, quantify, quantify. Break down every part of expected savings into its most basic arithmetic. Energy projects are some of the easiest to quantify savings because energy usage is simple math. CFOs are looking at investments with many assumptions every single day; don’t allow yours to fall into that trap. Most energy savings don’t have to rely on assumptions and estimates; show your math in its most granular form.
Hiatt: What do you think are the three biggest pitfalls energy managers can fall victim to when creating/pitching a proposal to the finance team?
1. They use the vendor’s language and assumptions and are then unable to elaborate on how they arrived at these conclusions.
2. They don’t learn the needs and wants of the players whose projects they affect.
3. They do not quantify savings on a granular level.
Hiatt: What is your step by step process for socializing a new project internally?
Levitan: Once the vendor is put through the "meat-grinder" consisting of every single savings and cost assumption being broken down into its atoms, the project is presented as an investment opportunity to finance. Once finance gives their blessing on the numbers, all of the other internal stakeholders are presented with the logistics of said project. Upon buy-in from all stakeholders, a formal capital request is made to the finance team in order to get the budget approved.
Hiatt: What do you think most finance professionals don’t know (but should) about energy as an expense and efficiency as an investment? Why?
Levitan: Energy usage and savings is math. A watt is the same in every corner of the world and most projects can be broken down to its most indisputable level.
Also, do not ever take a vendor's long-term energy cost projection at face value. Everything is an estimate and if your salesperson knew where the price of electricity was going to be in four months, let alone four years, they wouldn’t be selling you lightbulbs.