A Look at the Current Utilities Markets – And What Laundry Owners Are Doing to Control Costs
Natural gas futures collapsed to a 25-year low below $1.50 per MMBtu in late June, due in part to an ongoing supply glut made worse by the coronavirus-induced drop off in usage. – Nasdaq
This year, since mid-January, U.S. gas prices have been below $2.00 per MMBtu, an insanely low price for increasingly the world’s go-to fuel. The floor for gas prices over the past four years has been $2.50. – Forbes
Last year, Americans paid an average of $104 per month in water and wastewater bills, up more than 30 percent in less than a decade. Water and sewer bills are rising faster than inflation – and cities across the country are grappling with aging systems, fewer resources and extreme weather. – CBS News
If you’ve owned your laundromat long enough to have received at least a few utility bills, you’re probably nodding your head in agreement to the reports above.
Today’s water rates really are no surprise, as they’ve been rising steadily for years – for the reasons given above. However, natural gas may be a bit of a shocker for those who don’t follow the utility markets that closely.
So, what’s causing these historic lows in natural gas, and how long can store owners expect to see this type of pricing?
“These lows are being caused by several key factors when it comes to pricing electricity and natural gas,” explained Chris Ward, president of 4Ward Energy Solutions, based in Houston. These factors, according to Ward, include:
Supply and demand: The overall picture here is that we’re still seeing steady supply levels, and the demand hasn’t been as high in years past. Demand is heavily influenced by my second key factor – weather.
Weather: We haven’t seen the big swings in temperature, with the exception of a very hot summer in 2019. This had a huge effect on prices late in 2019 and into early 2020. Since we didn’t see much of a winter this past season, it let storage levels build up, and the demand for heating needs were minimal. Going into summer 2020, the temperatures have been around normal for most of the U.S., with a few exceptions. I live in the South and – although the temperature has started to rise – we have seen a steady wind, which generates a portion of the elements needed to produce electricity. As a whole, we are seeing more solar, wind and hydro power generation in electricity, so this is helping to curb dependence on coal, nuclear power and natural gas, which have been the main ingredients
Storage levels: We’re seeing record storage levels, due to lower demand and steady production. Although our five-year range is lower than in years past, our current numbers are nearing 2019 record highs.
Ward said he anticipates a shift in pricing. However, this shouldn’t occur until next year.
“In my opinion, weather and production are going to be the two biggest drivers of utility prices in the near future,” he noted. “All I can do is project, study and research past and current events – and then give my best guess. If I could predict the commodity futures, I would be talking to you from my private island, location unknown. But, in all seriousness, my job is to give the consumer historical data to make the best decision for them and their business going forward.”
Of course, 2020 has proven to be anything but a typical year, so the COVID-19 pandemic has impacted utilities as well.
“Overall demand and consumption is down, but the percentage is lower than what I would have guessed,” Ward said. “We’re seeing a 10 percent reduction in consumption across the U.S., compared to years past. Although commercial demand has been lower, residential demand has been higher, since most of us have been staying at home.”
At the Store Level
What are today’s laundromat owners seeing with regard to utility costs in their specific markets, and how are they attempting to conserve these vital resources?
In general, all of my utility costs per unit have been stable during the first two quarters of 2020. With that said, my total utility costs have risen 10 percent due to increased sales because of COVID-19.
My utilities – electricity, natural gas, water and sewage – as a percent of sales have been running under 9 percent. My laundromat uses utilities very efficiently since all 33 of my washers offer “Ecycles.” These are the most efficient cycle there is, because customers choose how many baths their loads require (two, three or four), depending on how dirty the garments are. For example, a third or fourth bath is not used on lightly or moderately soiled loads, but they are always available (at an upcharge) for heavily soiled loads. That’s why my Ecycles are effective, efficient, economical, expeditious and expandable.
During these very difficult times, my laundromat has emerged as a shining star that perseveres for the benefit of my employees and valued customers. As a result, I’ve fortunately seen no need to apply for a PPP loan.
Fort Smith, Ark.
My costs for natural gas and electricity have been stable this year. Water and sewer rates continue to rise, due to EPA mandates for our city, which have included expensive repairs.
Initially, the COVID-19 pandemic impacted my utility costs, due to approximately 30 percent lower volume, but our business has bounced back to pre-COVID levels.
Currently, our total utility costs represent between 16 percent and 19 percent of our gross revenues. My conservation efforts have been to install more efficient washers of larger capacity.
Natural gas costs have not increased, and we use very little electricity. We investigated solar power, but the ROI wasn’t great. We keep everything from the lights to the dryers on timers so that everything powers down at night and powers back up in the morning. That way a dryer doesn’t keep someone’s cloths fluffed all night long, and lights are not on when the store is closed.
As far as water goes, the city began a three-year rate increase on water and sewer this July. The timing is challenging, as we deal with the impact of COVID-19. It’s interesting that, as we all know, modern laundromats save the county water over home machines, but pay higher rates because of volume.
I’m not sure there is anything else we can do to conserve. We don’t have leaks or drips that would add to our utility costs. We have new machines, which lowered our water and gas costs significantly.
Right now, utility costs represent about 13 percent of our gross revenue.
In general, my utility costs are going up. Beyond replacing all of my washers and dryers last year with the latest equipment, I’ve also updated my store’s lighting and HVAC system.
My water/sewer rates increased by 15 percent two years ago, coupled with an annual 10 percent increase for the next several years. Fortunately, my new washers immediately gave us 50 percent savings on water and sewer usage.
The pandemic has given us an opportunity to add safeguards for our customers, such as adding a handwashing sink that we located in a visible space with signage encouraging customers to wash their hands. We’ve also added UV germicidal lights to our HVAC system, and we’ve followed CDC guidelines to increase our water temperature to 140 degrees. These COVID-19 changes will slightly increase our water, sewer and electric costs.
My utility costs are 7.5 percent of my gross revenue. And good all-around maintenance and proper vend pricing should help keep this percentage in line.
1 Clean Laundry
St. Cloud, Fla.
My utility costs have remained flat. However, with reduced demand during March through May, natural gas costs were lower. Electric costs remained about the same, since here in Florida we still need to cool the store.
In addition, our water and sewer costs have remained flat – but reduced demand during that March-though-May period caused lower bills, due to lower consumption.
In mid-March, all heck broke loose with COVID-19 and demand dropped. In April, I had to furlough an employee, as demand dipped below 50 percent, compared to April 2019. In May, we started to see an improvement, to where we were down just 6 percent from the previous year. And, in June, we also were down just 6 percent from 2019.
All in all, our utility costs currently represent 12 percent of our gross revenue.
Our equipment is just five years old, so we have no plans to add any new equipment in the near future. Our two-year natural gas contract will be coming up for renewal in the next few months. That will require some decision-making, as far as whether we stay on a fixed rate or go with a variable rate.
The cost of natural gas and electricity in my market has been fairly stable the last few years. To help conserve energy, we’ve replaced all of our lights with LED bulbs, which use very little electricity, and we’ve been regularly replacing our washers and dryers as they age and as new, more efficient equipment becomes available.
The cost of water and sewer is out of control. The only thing we can do is keep our equipment as up to date as possible and to increase our vend prices in order to keep pace with the rising water and sewer rates.
When the COVID-19 outbreak first hit, our business was down about 40 percent in the beginning, but it is gradually returning to normal. However, as a result, our utility usage and costs have been less for that period. Right now, our utilities represent about 16 percent of our gross revenue.
To help control my utility costs, I’ve installed a devise called an “air stop,” which I’ve placed on my water main. It has cut my water usage by 17 percent. I’ve actually had it in place several years.
Little Giant Laundry
New Haven, Conn.
Several years ago, my local electric company offered a special program for small businesses. They replaced all of the lighting at my laundromat – interior and exterior. They also installed cost-saving mechanism on my vending machine. After paying off the cost of the device, I’ve noticed an approximate 30 percent reduction in my electric bills.
On the other hand, my sewer and water bills continue to be consistently high.
To save on utilities, I’ve reduced my dryer time from six minutes to five. In addition, I replaced my oldest washers with more energy-efficient units in June, and I’m anticipating water cost savings from that move. I also plan to increase the vend prices on my washers in the near future.
Currently, my utility cost are about 23 percent of my gross revenue.
Of course, the COVID-19 pandemic impacted my overall revenue by approximately 30 percent during the initially outbreak. However, I’ve noticed increased activity the last couple of months.
Su Nueva Lavanderia
Palos Heights, Ill.
We’ve been lucky the last several years with regard to the cost of gas and electricity. It doesn’t seem like that long ago – but it was more than 10 years now – that natural gas prices had exploded. At that time, it was common to see the commodity cost alone reach levels above $1.00 per therm. Since the advent of fracking, natural gas prices have come down to levels that we never thought possible.
Electric prices are being tied more and more to natural gas prices, since there has been a major shift away from using coal for electric generation to gas-fired plants. In both cases, I’ve always used fixed price contracts to manage my costs in those areas. In addition, I have switched over all of my stores to LED lighting, which has helped tremendously.
Water and sewer is the biggest issue we are facing in my area, with the possible exception of wages, where we’re currently at a $14 minimum wage. The cost has increased 350 percent in the last 10 years, with an unconscionable 30 percent tax on water and sewer that was implemented a few years ago. To manage this cost, I’ve invested in new equipment at two of my stores, with a third retool set for later this summer. I’ve also reduced the number of rinse cycles from three to two, which made a big difference.
I’ve been fairly lucky during the current pandemic, in that my revenue has dropped only about 10 percent, which – which significant – is nowhere close to what other small businesses have experienced. The cost of utilities have decreased modestly, due to this reduction in business.
Currently, we’re at about 17 percent on utilities, with water/sewer representing the lion’s share of the cost.
No Dumb Questions
“The best advice I can give laundromat operators is to review your electricity and natural gas contracts annually,” Ward said. “If you use a consultant or broker to help you, ask them questions about what they’re seeing in the market and what their thoughts are going forward.
“It’s also a great idea to look into making your locations more energy-efficient,” Ward added. “Most utilities have information on their websites about programs and rebates they offer or endorse. For instance, if you’re looking to replace your water heater or dryers, a lot of utilities out there right now will give rebates on those replacements.
“Above all, remember that there are no dumb questions, and it’s your money. You have to spend money on utilities – they are the lifeblood of your business – so do so as efficiently as possible.”
[Editor’s Note: The Coin Laundry Association is working with 4WARD Energy Solutions to offer a program designed for laundromat owners when purchasing electricity and natural gas from a third-party provider. Members and past members across the country can receive a free analysis of their natural gas and electricity accounts to determine if cost savings or alternative options are available. For more information, visit www.coinlaundry.org.]