Your Energy Manager
Topic: Energy Contracts - More Than Just Price
July 2007
In This Issue
Sign Up
Quick Links
Welcome,
Logo_small

Independent Energy Consultants, is committed to helping its clients make well-informed and cost-effective decisions regarding their energy supply and consumption. We are sending you this newsletter to help you understand how energy decisions that are made, or not made, effect your company's bottom line.

When sourcing a natural gas or electric (energy) contract, savvy customers will review and attempt to extract value from their often overlooked or under utilized assets. Effective use of these assets may result in a lower initial price and/or more favorable terms during the life of the contract. In this month's newsletter we will highlight some possible ways to enhance an energy contract.

Retail energy contracts, while moving toward a standardized version, remain complex and vary greatly between market areas and suppliers. Having said this, a customer should still expect to receive an understandable contract with an acceptable price. A key to enhancing an energy supply contract is realizing when you have leverage with suppliers, and helping them see why it is in their best interest to negotiate with you. Now, let's take a look at a few examples.
Utility companies, and even deregulated marketers with thousands of customers, develop pricing models that attempt to group similar customers in an effort to streamline their pricing process. These groupings are often referred to as rate schedules or rate codes. For an electric customer it is common to know only your monthly energy consumption (kWh) and your monthly peak demand (kW). Customers seeking supply offers and providing only this minimal level of detail to marketers may be hurting themselves. The marketer will likely take your data and apply it to a standardized utility load profile to calculate your price offer. That may or may not be in your best interest. If your actual load profile is less costly to serve than the group average, you will in effect be subsidizing the rates of others in the group. If your load is less attractive than the group average, the opposite is true and you may want to remain on that pricing structure.

For customers served on time-of-use rates, interval meter data (15, 30 or 60 minute intervals) should be available and can shed light on the true cost to serve a customer's load. When possible, a customer should identify parameters such as their consumption during peak, off-peak, and intermediate-peak time periods, load factor, power factor, etc. When armed with that detailed data and a thorough understanding of utility tariffs, the customer is empowered to make wise energy purchasing decisions and the ability to negotiate with suppliers. The better a supplier understands your load, the less risk they are exposed to, and the better pricing they can provide.
Independent Energy Consultants has the ability to source energy contracts through multiple means. The decision as to which method to select is driven by a customer's size, market volatility, time to make a decision, the number of qualified suppliers, and last but not least, the customer's preference. We are able to source energy contracts by:
  1. Issuing Requests for Proposal (RFP) or Requests for Quotes (RFQs) via email with a set response date. This is the simplest method for sourcing. All three methods mentioned here should be considered before ever accepting an unsolicited offer from a new supplier or a renewal offer from an incumbent supplier.
  2. Issue RFPs through a post-and-respond process where suppliers bid and refresh their bids as markets move. The customer then has the ability to accept a supplier offer during an extended period of time.
  3. Issue RFPs via an Internet Reverse Auction. Reverse auctions when conducted on an a platform designed for energy and well respected by suppliers, can yield tremendous competition and bidding behavior that benefits the customer. Click here to learn more about our Reverse Auction capabilities.
There are a number of other factors that can be negotiated depending on a customer's leverage and the competitiveness of a given market. Often suppliers will appreciate creative ideas that are revenue neutral or beneficial to them. In exchange they will pass on savings or conditions that could prove beneficial during the term of your agreement. Here is a short list of areas ripe for consideration:
  • Minimizing or eliminating the costs created by a sub par credit rating,
  • Expanding the bandwidth on swing tolerances or obtaining full requirements at the same price,
  • If your operations allow, accepting service subject to brief periods of interruption,
  • The ability to convert variable prices to fixed prices during the contract,
  • Offering naming rights of a facility during the term of the agreement,
  • Request a lower initial price if contracts are extended without going through a competitive bidding process, and
  • The ability to renegotiate if rates drop by more than a given percentage within a predetermined time period.

Independent Energy Consultants' are certified brokers and aggregators of natural gas and electric. Let us put our experience and expertise to work for you. In this issue we remind our readers that the initial contract price is only one component of a contract's value. You may have room to negotiate a better offer and should always explore your options.

Contact Independent Energy Consultants for help with your energy purchases, and all your energy management needs.


phone: (330) 995-2675
                                        
Forward email