Energize Your Energy Purchases

12/01/2010 | By Richard Costello

Selecting the right options for your energy purchases is a critical step that can be a far more challenging task than it appears on the surface. Richard J. Costello, president of the Acela Energy Group, walks us through some of the solutions for powering up your energy purchasing potential.

1. Before you can research an energy purchase plan, the first thing to determine is who will be taking the role of energy manager. Many times this duty can be mistakenly tossed to the accounting department because it involves simple cost management at the base level, but in actuality the decisions involved in making smart energy purchase decisions can include an entire team, featuring facility management, accounting, legal, and support from inside and outside the company at the consultant level.

2. The next step, which can be overlooked by facility management, is to establish a working relationship with the local gas and electric utilities; this will keep you well informed of current rates and incentive programs, and ensure that you are ready for any emergency situation.

3. Next, it's time to establish with your team what sort of risk spectrum to pursue for your energy purchase. Is it a better idea to get locked in early at a high price for superior reliability, or can you afford to take a chance on future prices? Often the nature of the business will determine the correct answer here, as a school district or government-run facility will often want to go with a low risk lock in, but a more aggressive commercial endeavor will be looking to take a few risks where future prices are concerned.

4. Speaking of price changes, this is an area where you can gain a huge edge over the competition if you're prepared. A framework should be in place for market price change contingencies, so in the event of a price shift a decision can be quickly made, based on:

  • Risk assessment
  • Budget methodology
  • Procedures and controls
  • Program for management approval
  • Hedging strategy

A solid framework in place dictating reaction to a price shift will prevent the chaos and confusion of having to deal with serious industry impact on the fly.

5. Now it's time to begin soliciting power marketers. It's very important to not get caught up in placing too much value in the prices that you'll be hearing, and focus your assessment on the energy purchasing contract terms. In your introduction, it's an excellent idea to inquire about existing clients, energy data, and most importantly, the legal language of the contract.

At this stage of the energy purchase game, if you're interested in consulting an energy purchasing consultant or a power broker, now is a good time. These professionals can assist in selecting the appropriate power marketer in the consulting capacity, and may or may not be a worthwhile investment depending on what time and team you already have. Also, be very sure of how the consultant or the broker gets paid, and gain a thorough understanding of this before you move forward with them.

6. Areas of concern that need to be discussed before selecting an energy plan with your power marketer can be overlooked in the face of too-good-to-be-true price quotes. Make sure you've gone over at least the following before committing to an energy purchase:

  • Electric upper and lower limits
  • Early termination
  • Force majeure
  • Impact of buying or selling a facility
  • Exact term (Meter read date)
  • Evergreen clause
  • What exactly are you purchasing

Once you have negotiated energy purchasing contracts with several marketers, it is now finally time to ask for a price. Cost-effective energy purchasing doesn't have to be complicated, but without a skilled team, solid analysis, an in-depth review and negotiation, and constant monitoring for windows of opportunity, you could end up getting shocked.

Richard J. Costello is president of the Acela Energy Group. He can be reached at Richard.costello@acelaenergy.com

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