In many states, end use customers, have the choice to select energy suppliers to serve their natural gas and/or electricity needs. While selecting an energy supplier might seem to be a simple task, there are multiple factors that need to be considered. Choosing a supplier based only on “lowest price”, could result in unexpected charges and unpleasant surprises down the road.
End users need to evaluate and compare supplier’s contract terms and conditions, product offerings, credit worthiness, and customer service, among others. The importance of these factors will vary by customer, but these are all important considerations. Following is a little more in depth look at each factor, from an energy risk management perspective:
-
Contract Terms and Conditions. While price is certainly an important condition of any agreement, the terms and conditions can dramatically affect the final price paid by a business. For instance, a company can receive what appears to be a very low rate, but there may be charges which are passed through to the customer that can materially increase the total energy costs. A careful examination of the contract commercial provisions, especially when comparing suppliers against each other, is critical to ensure that a sound energy risk management strategy is implemented correctly. An apples-to-apples comparison is critical to make sure the end user executes the proposal that offers the best value. A supplier who is transparent and honest about the obligations of both the supplier and the end user under the contract will tend to provide better value to the end user.
-
Product offerings. Energy procurement is ultimately about evaluating and managing risks. One of the key ways to do this is through the product structure selected by the end-user. A risk assessment and risk evaluation should be performed to select the product that will meet the end user’s performance goals. For instance, a fixed price product carries the least risk to the end user, but the highest risk to the supplier, and will therefore tend to have higher risk premiums included in it since the supplier is wearing more risk. Conversely, an index only product shifts the risk from the supplier to the end user, meaning that the risk premiums charged by the supplier are lower, thereby reducing the costs charged to the end user. Some suppliers have greater flexibility to offer creative products that can be tailored to customer’s needs. Understanding your load profile and future consumption is a key to not only selecting the best product but also the best supplier for you.
-
Credit Worthiness. While a typical energy supply contract grants the supplier the ability to run a credit check and request a deposit from an end user if the supplier has concerns about the creditworthiness of an end user, the contract typically does not provide the same rights to the customer. Therefore, it is important for an end user to investigate the creditworthiness of a supplier ahead of time. Learning about the credit status of a supplier is not only important for determining whether a supplier has the financial wherewithal to perform a supply agreement, but also will impact the costs ultimately borne by the end user. For instance, a supplier with a strong credit rating can obtaining the credit needed for long term energy purchases at a lower cost than a supplier with weaker credit. From an end-user’s standpoint, the better a potential supplier’s credit rating, the better able the supplier is to manage risks involved in energy procurement.
-
Customer Service. While this is one of the hardest areas to quantify, it is a very important factor to consider. For instance, if the supplier is non-responsive when there are issues with billing meter adds, meter deletes, the benefits of a low price can easily be lost. Therefore, it behooves a savvy end user to investigate the ability of a potential supplier to provide the appropriate level of customer service. This is an area where the use of an outside energy advisor who deals with suppliers on a daily basis can provide significant insight and benefit.
Conclusion
Energy risk management strategies require careful evaluation of multiple factors. While price is certainly a critical consideration, there are multiple factors which should be considered when selecting an energy supplier. These factors include contract terms and conditions, product offerings, the financial stability of potential suppliers, and their ability to provide cost-effective customer service. Through a thoughtful and careful consideration of these factors, decision makers charged with the complex and often daunting task of selecting an energy supplier can make an informed decision that is likely to provide the greatest benefit to the end user. The unbiased opinion of an energy advisor can provide valuable insights in making this decision.
