Energy deregulation allows freedom in provider choice

Feb. 23, 2005
Businesses operating in a deregulated energy market are free to choose their electricity provider. Perhaps its time you look around and see if you can save on energy costs.

A business operating in a deregulated energy market can choose its electricity supplier. Depending on how much you pay for electricity, how much you use and your agreement with the supplier, switching to a new supplier could save money. According to Tractebel Electricity and Gas International., industrial customers typically “consume 1 megawatt or more of power and have utility bills ranging from $275,000 to $30 million per year. By evaluating their alternatives, they can potentially save between 5% and 15% annually on their electric utility costs, and manage the volatility inherent in the utility bill.”

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Choosing the right retail energy supplier for your business can be a time-consuming and confusing process. It requires gathering and weighing a large number of variables. The following are some of the questions you should ask when shopping for an alternate supplier.

Your requirements
Having a clear understanding of your usage history and current electricity requirements is the first step. What is your typical electricity consumption? Is it consistent during a 24-hour period or does it vary? How much is used during peak hours versus off-peak hours? What is your peak load? What price are you paying and what are the terms? Your supplier can help you answer these questions.

Energy management
Assess your risk tolerance and procurement objectives. Are you more concerned about saving money or avoiding risk? Is a predictable budget important or do you want the price to track with the market? Are you able to manage or curtail load? Can you specify amounts by hour, month or season? Do you want flat quantity transactions? Would you prefer to fix portions of load or energy costs?

Supplier status
Supplier qualification begins with the basics. Are the providers registered, licensed and approved by the public utility commission in your jurisdiction? Is the supplier financially stable? How long has it been in business, and how extensive is its industry experience and knowledge? Can it provide solid customer, partner and credit references?

Many suppliers offer more than one rate option. Is the price fixed, a flat percentage, or does it vary by the amount or time used? Are the rates competitive? Is a minimum term required? For how long is the price guaranteed? Are there built-in price increases or decreases? Are there switching, start-up or termination fees? Are any incentives offered? Under what terms can the supplier break or dissolve the contract? Large electricity users might want to ask whether provider contracts allow using more than one supplier -– one for base load and one for peak load.

Continuous electricity supply, commitment to customer service and reliable billing are additional factors in the decision process. Do risk-management capabilities ensure the provider can procure an adequate supply of electricity? Are value-added services offered, and how do they affect the price? Is billing timely and accurate? Are the bills easy to understand? How are billing disputes resolved? Is customer service available around-the-clock by phone or a self-service customer portal? Does the supplier measure and publish customer satisfaction metrics?

These are entities that bring consumers together to form a buying group and make buying decisions on behalf of the members. An aggregator may be able to negotiate lower rates by buying energy in bulk for the group’s members. If high energy costs are a concern, include certified aggregators in your comparison shopping.

Final selection
Once you’ve evaluated your electricity needs and completed a screening of competitive suppliers, it’s time to decide whether to make a change. If you believe you can justify a switch, pick the top suppliers on your scorecard and prepare a request for proposal that outlines preferred product specifications and your risk tolerance. The suppliers will respond with bids reflecting the terms best suited to your business objectives.

The lowest bidder might not be the best option for your company. Watch out for hidden costs, risk and price volatility. Make sure you’re comfortable with your rights and obligations. Once the contract is in hand, carefully review the terms and conditions as well as any fine print before signing it.

E-mail Contributing Editor Sheila Kennedy, managing director of Additive Communications, at [email protected].

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