Five Important Factors to Consider When Choosing a Supplier

There are five important factors that determine if your next energy supply contract is a success or if it could

There are five important factors that determine if your next energy supply contract is a success or if it could cost your company unforeseen monetary damages. If your company has ever experienced these damages it was because of one or more of these five factors.

1) Price components included in a supplier’s price – Electricity pricing includes the cost of Energy, Capacity, Transmission, Line-loss and Ancillary Service Charges. It is important you are aware of what components are included in supplier’s pricing. Suppliers offer many different types of products, and it is important that you are looking at an apple-to-apples comparison for supplier’s bids.

2) Determining how to obtain a fixed rate based on your energy profile – Your fixed rate depends on many factors including how you use your energy (on-peak versus off-peak usage), along with your Capacity and Transmission tags. In many instances your fixed rate can be obtained by utilizing supplier matrix or rack rates, which is the average rate for commercial accounts of similar size. But if your usage is mostly off peak or your average Capacity and Transmission tags are lower than average, then a custom price would offer you a lower rate . These are all factors that need to be identified to ensure you receive the lowest possible fixed rate.

3) Termination language – Each supplier contract contains language delineating their termination fees. The basic principle is they will receive compensation for damages incurred to liquidate unused power, but some supplier contracts are more prohibitive than others. In addition, some suppliers allow you to exit if you move, close or sell the location with no penalty. It is important you clearly understand what each supplier’s rules are, and what makes most sense for you based on what the future holds for your company.

4) Language on material change – All suppliers have some version of verbiage on material change. This explains what additional costs they can pass on to you going forward. This is a clause that can be a major pitfall for customers. Most of the larger and established suppliers will clearly state this only includes any new changes in regulatory law that occurs after execution. They can only cover what exists, and what has already been set to go into effect. However, other suppliers will pass through charges even though we know they will be going into effect during your agreement, such as capacity and transmission increases.

5) Proper timing of your energy hedge – The key to an effective hedge is the timing of execution. It’s impossible for most business managers to stay on top of the energy markets in order to secure the best price, at the best time. If you get this one wrong, it can cost your business thousands!

NAEA specializes in proper timing of the energy markets. We have a full time Commodity Analyst, Ray Franklin, that has over 30 years experience. Below you will see his latest Energy Alert explaining why we believe now is a great time to secure your next energy supply contract.

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We also have a video that better explains timing in the energy markets and how to protect your business moving forward.

 

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