Managing your company’s energy supply procurement and contracting can be complex and challenging. Having a reasonably up-to-date plan saves time and reduces friction throughout the process, allowing you to be more proactive and take full advantage when market conditions create opportunities for savings. Managing energy procurement plans take time, so lean heavily on your team or energy supply consultant for help.
1. ASSESS YOUR CURRENT PORTFOLIO
The best place to start with your energy procurement plan is by assessing your current energy portfolio. You will want to know the breakdown of your energy use by asking a few key questions:
- How much of your portfolio’s energy spend is electricity vs. natural gas?
- How much of the portfolio is in regulated vs. deregulated markets?
- What percent of your spend within the deregulated markets is actually controllable?
- How does volatility affect your final price?
Your answers to these questions will frame where your energy portfolio has the biggest cost and risk reduction opportunities.
2. REGULATED VS. DEREGULATED MARKETS
In regulated markets, energy costs have historically tended to be a bit more stable, but as more utilities add quarterly or semi-annual fuel cost adjustments, that stability is eroding over time. It is best practice to make sure you are on the most advantageous rate that the utility offers―utilities are required to put you on an applicable rate, but not necessarily the best rate. Many commercial businesses find millions of dollars per year of savings by ensuring that they are getting the best rate possible. Make sure your plan addresses how you will deal with managing deregulated rates.
Competition for your business in deregulated markets means you have more choices among various suppliers and types of price products. More choice also means more due diligence is necessary to choose well among various offers, and seemingly lower prices are rarely a guaranteed slam dunk. Make sure your plan includes details about how you will thoroughly evaluate energy supply offers against each other and against your default utility options.
3. CLARIFY YOUR RISK APPETITE
Deciding how much budget variance you can comfortably absorb will impact your approach to purchasing energy in deregulated markets. If your risk appetite is low, negotiate your energy contracts to include fixed rates while considering risk variances by term. If you have a higher risk appetite, take more risks with your contract terms or language. Using this strategy allows you to benefit from market declines.
4. REVIEW CONTRACT STATUS AND RATIONALE
The next step is to review your existing contracts. Consider these factors:
- When does each contract expire and how much money is at stake within each contract?
- Do the types of contract (fixed, blended or variable) fit well with your company’s risk appetite?
- Is there a reason that a specific type of contract was chosen in a specific market?
5. BUILD YOUR TACTICAL PLAN
Maintaining summary documents about current contract expiration dates, rationale for contracted products in each market, and planned timing to pursue each opportunity helps stakeholders understand the portfolio, and have confidence that the process is well managed. A few helpful tips:
- Keep yourself from focusing on offers that are out of sync with your company’s risk appetite.
- Have a strategy in place before existing markets start to fluctuate. Knowing your strike prices for certain market conditions will keep you hedged from an accelerated spike in the price.
- Energy markets can be unpredictable and volatile. Consider how each potential contract would be affected if the wholesale market moved up by 20 or 30%.
Managing your company’s energy supply procurement can be challenging – however, it doesn’t need to be. The suggestions and guidelines referenced above can be used as a starting point to help you think about and create a long-term strategy for energy success. Learn about Ecova’s Energy Supply Management Solution.