5 Reasons Railroads Need to Pay More Attention to Energy Spend in 2024
May 9, 20244 mins read
Written by: Keith Laake

5 Reasons Railroads Need to Pay More Attention to Energy Spend in 2024

With around 160,000 miles of railroad track across the U.S. and a flashing signal—complete with its very own meter—at each and every crossing, it’s no wonder that many railroads have a hard time keeping up with their energy bills. It’s not uncommon for the largest railroads to maintain more than 10,000 different utility accounts with as many as 70% tied to geographically dispersed signals and equipment. As staffing shortages continue to plague the industry, few operations have the internal bandwidth to process and pay all these bills on time, never mind the time or expertise to scour for opportunities to reduce the costs. 

The problem is, this puts profits and sometimes even operations in jeopardy. Further, it is not a very sustainable approach to business. Railroads need to start prioritizing better utility bill and cost management practices in 2024 to keep their businesses on the best track forward. As energy costs continue to rise and sustainability takes on increasing importance, in the future, energy costs and efficiencies will continue to matter more and more to stakeholders of every type. 

Here are the top five reasons for railroad operators to increase focus on energy spend today:  

  • Avoid costly late fees. The thousands of utility accounts needed to service railyards, signals, switches, and equipment across many different states create lots of opportunities for bills to slip through the cracks and go unpaid. Railroads get slapped with hefty late fees all the time. A big part of the problem—especially for rapidly growing railroads that are acquiring facilities, constructing new ones, or installing or updating equipment—lies in properly setting up or transitioning new or acquired utility accounts. Often the billing address is different from the physical location of the equipment or meters. Without available internal staff to pay careful attention to these details, the bills never even make it to the right place for processing. These mistakes are extremely common and can end up costing the typical railroad anywhere from 2% – 5% of their total utilities costs in late fees per year.
  • Safeguard against shutoffs. Railroads are considered critical infrastructure and, technically, the power can’t be shut off for nonpayment. But utilities don’t always comply with this rule for a variety of reasons, and it’s typical for railroads to receive frequent disconnect notices. Railroads that miss payments month after month—often because the bills are never making it into their account payable systems—are risking the catastrophic consequences that could result from a loss of power.
  • Ensure the most optimal tariff rate. The typical railroad spends hundreds of thousands of dollars per month on energy to keep its rail yards and equipment running 24/7. And most are paying significantly more than they should for the energy they use. For one thing, utility billing errors are extremely common, and most railroads are due refunds in the tens of thousands of dollars or more range. But few operations have the dedicated people to scrutinize thousands of utility bills per month to uncover these errors or to pursue refunds. The even bigger savings opportunity lies in rates and rate change opportunities. In regulated markets, it is not uncommon for a utility to offer as many as 50 or more different rate schedules and tariff rate options. Careful audits and reviews of current tariff rate assignments and tariff rules almost always turn up significant savings opportunities through options such as lower cost time-of-use rates. In these cases, the railroad doesn’t need to change anything about its operations or the energy it is consuming, it simply needs to identify and ask for the optimal rate. 

For one of our railroad clients, we found nearly $600,000 in first year cost savings from rate changes and billing error corrections in one year alone and we found $868,000 in first year cost savings and refunds for another.

  • Obtain lower costs in deregulated energy markets and protect against price spikes. In deregulated or open states (like Texas or Ohio), it is critical to proactively source and secure market competitive supply rates for electricity and natural gas not only to ensure lower overall utility costs, but also to eliminate the price volatility caused by extreme weather conditions. One only needs to consider the fallout from the 2021 Texas ice storms to understand the enormous consequences of supply constraints caused by unexpected weather events. Those not locked into fixed rates at that time saw their prices per kilowatt hour increase up to 100 times the normal rate, taking a huge toll on profitability for many businesses.
  • Be prepared for sustainability reporting requirements. Beyond saving money, there’s another critical reason that railroads need to focus on energy spend. More and more stakeholders including regulators and investors are demanding increasingly detailed emissions reporting including calculations for scope 1, 2, and 3 carbon emissions and detailed public disclosures including established emissions reduction targets. Meeting these expectations starts with in-depth knowledge of energy spending and detailed analysis of utility data. 

Get ahead of the energy savings requests.

Whether the push to reduce energy costs comes from your CFO or the need to reduce greenhouse gas emissions comes from investors or state or local governments, it’s only a matter of time before railroads will need to demonstrate more proactive management of their energy usage and costs. It’s complex work that often requires daily oversight to know what the markets are doing, stay on top of the current rules, optimize rates, and keep up with the data and energy management work to be done. The utility experts at SIB are ready to help. If you want to make 2024 the year you give energy spending the attention it deserves and start preparing your business for a more sustainable, more profitable future, reach out to start the conversation today.