Budget Control through Energy Procurement- When Timing is Everything

This is the third installment of a three-part series on buying energy for your buildings’ needs. Read more about energy pricing and energy suppliers published in previous weeks.

Most of you reading this blog are already taking the right steps to control your energy costs. You’ve watched the webinars about your lighting options; you’ve done the audits and consulted with engineers; and, if you’re Aquicore clients, you’ve quickly learned how much reducing your energy demand can benefit your bottom line.

And kudos. That work to decrease your energy demand is critical and should pay dividends for years to come.

It is also just half the equation.  And, unless, you are one of the lucky and well-budgeted few to have gone net-zero, you will be buying energy. Now it’s your choice how to tackle it: perhaps you’re a commodity market maven who knows energy markets up and down and feels confident you’re looking at apples-to-apples numbers. Perhaps you rather skip the legwork and work with an advisor to stack the top suppliers against each other and get them to compete.

Whichever your choice, I want to arm you with some tools. The unpredictability of commodity markets is a given, and with energy, you’re talking about the most volatile commodity in the world.

In your final phase of energy solutions, be sure to ask yourself these timing questions.


1) Are energy markets going up or down?

No matter what anyone tells you, no one really knows how global political and climate issues will affect commodity rates over the few next years. At the time of this blog posting, energy markets were close to five year lows. We never know when we’ve hit the bottom of the market, but with the Clean Power Plan ruling and an El Nino winter ahead, analysts are skeptical that the market will dip much further before winter.

For due diligence, it is important to look at what you might pay without a locked price.  Many utilities future publish what utility rates will be. For example, in Pepco DC, we know what rates will be out through May 2016. As such, for limited time windows there is some certainty on what will happen to energy prices in the near term.

What may make it worth pursuing now is knowing you’re protected against a significant rate hike if we have an unexpectedly cold winter like we did in 2014 when many floating ratepayers saw their rates double or triple over the course of a month.

As for long term changes in the market? Well, we can look at EIA data and see that over time, prices tend to trend upward. Of course, past performance is not an indicator of future performance. While I am no psychic, I have my hunch, and I am sure you have your own.


2) I am on a contract until March. Is it too soon to look for new energy sources?

Not at all. Now is actually an ideal time to start researching your next contract options. An energy advisor can help determine if suppliers are putting hedges on the prices they’re offering you to protect themselves from risk associated with a “future start” contract. Many of the future price hedges of yesteryear have faded in recent supplier pricing. You can also take advantage of the fact that we are right at the start of a “shoulder month” for energy markets, where you might find a lower price than you’d find shopping after the first snow storms have hit.


3) When will my contracts come up for renewal, and does it matter?

It is rare that we suggest a client shopping in September sign a 16-month contract. Prices are typically lower in the shoulder months of summer and fall since electricity and gas tend to trend together. By setting a client on a 16-month contract, they’ll come off contract in January, and we would be shopping for their next rate in December, a time of year that typically sees higher prices. Absent any sweet spots in a strip of pricing, it’s smart to sign a contract with a term length that puts you in a good position once the duration of the contract has passed.

Questions? Comments? Interested in a gut check on your energy buying strategy? Please reach out and let me know if I can help you navigate the space and avoid pitfalls. When you’re ready, take the plunge!

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