This is part one of a three-part series on buying energy. The remaining five questions will be published in the coming weeks.
In an ideal world, shopping for energy would be like everything else these days: something you do online with full-price transparency and clear options. You plug in your utility account number, and some Priceline-style site goes to work finding you the lowest price, pulling data from your utility where needed. And just like that, you have the perfect contract terms and rate.
While choosing an airline has its own level of complexity for unknowing shoppers – you only need to fly Spirit Air one time to learn that lesson – shopping for energy introduces variables one would never dream of. Here are pricing questions to ask before entering the market:
1) How many suppliers should I be comparing rates between? Is it worth using an energy broker?
We would recommend comparing rates between at least 3-4 suppliers. There is no single supplier that always has the best rates for each service territory and rate class, and you’d be surprised at how much pricing can vary between suppliers. One benefit of using a broker is that suppliers are accustomed to giving their best available pricing to a broker, knowing that they will be comparing rates of many suppliers.
2) Are there any accounts I could be aggregating with this?
Is there a small commercial account powering your parking deck light supply? A corporate office account? Always ask yourself what other accounts you could be pulling in to increase your load size. Not only does it often result in more price competitiveness, it also simplifies your life by having one set of contract end dates. Even if you aggregate accounts, you can usually get separate contracts for the different entities.
3) What pricing products work for my organization’s goals?
Swing requirements: Do you anticipate your power needs to increase substantially in the next year? What about those solar panels you’re considering that will reduce your energy needs from the grid by 80%? Often, energy consumers opt for a fixed rate to protect themselves against price volatility without being advised on “swing” or “requirements.” This is essentially translates to: no matter whether I use more or less energy than the previous year estimate that my supplier has on file, I will pay the same rate for energy therm or kWh. Where a contract only has 10% swing, for example, if your property uses 25% more energy one February than it used the previous February, you will have to buy the difference (15% of that usage) on the market at market prices, which may work out in your favor if the market is low, or to your detriment if the market is higher than the prices you lock in.
Variable vs. Fixed vs. Blended: Is going for variable pricing worth the risk? It is important to know that any of the tactics above leave you open to some risk, whether it is upside or downside risk. With variable pricing, you float month to month, taking the settlement price in your given market. In a fixed price structure, you secure a “fixed” cost per unit of energy, ensuring you’re protected from rising rates, but leaving open the option that you may lock in a rate one month, only to see rates fall the following month. With a blended structure, you fix a price for a percentage of your load while the remainder of the load is priced at a variable index rate. Your organization’s energy cost strategy should be based on your own risk tolerance, corporate goals, budgets and fiscal calendars.
Although the bottom line is very important, there are other factors to consider before selecting where to buy your energy, such as contract concerns and when to buy. In a few weeks, part two of this blog series will be published. Stay tuned!