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The 7 Biggest Mistakes Businesses Make When Purchasing Electricity

Purchasing energy use to be so simple. In a monopoly environment, you had no choices to make. You just took what they gave you. But now that energy has been deregulated, there are so many factors to consider that it’s easy to lose sight of key factors, fine print and hidden fees…and end up paying way more than you need to. Here are some of the most common mistakes business owners make in the new “Wild, Wild West” of deregulated energy…and how to avoid them.

Mistake #1. Focusing on the short term.

Your contract expiration date is looming, and you need make an a quick decision on your electricity contract. Sound familiar?

The problem is, if you want a fixed rate and your plan is about to expire, you have no choice but to accept the current market price.

Mistake #2. Misplaced loyalty.

Blind loyalty to a single provider at contract signing time is like the old “putting all your eggs in one basket.” Your company’s current supplier is in the energy business and understands that clients switch suppliers regularly. It’s a natural part of being in a deregulated environment.

Mistake #3. Assuming you can get the best price.

Obtaining best prices for energy is a combination of skill, determination and experience. Dealing with the commodity of energy requires a different skill set than overseeing how the company uses electricity.

Mistake #4. Failing to monitor the markets

The energy market shifts in line with supply and demand. To get the best prices you need to track the ups and downs of energy prices and make purchases accordingly. Tracking wholesale prices requires extensive experience, reliable sources of market data and plenty of time.

Mistake #5. Underestimating the complexity.

Are you developing an energy management strategy that takes into account a roller-coater energy market, the myriad rate plans and the right length of term for your unique business needs? Or could the time you spend trying to manage your energy purchasing be better spent on revenue-generating activities?

Mistake #6. Focusing on price, not savings.

The kWh unit price may be attractive, but what else is involved? You also need to consider other factors:

  • Are there ancillary fees hidden in your contracts?
  • Are you able to make apples-to-apples comparisons of the offers you do receive?
  • Are you considering where the market is going over the next 2-5 years and how that effects the deal you sign today?

Mistake #7. Going it Alone.

Trying to procure energy alone reduces the options (and savings) available to you. Online prices are seldom the best, but getting one-to-one attention from a range of suppliers to establish competition can be a real challenge for smaller users. Group buying schemes can offer savings but the “one-size-fits-all” pricing sometimes benefits only the largest members of the group.

How do you avoid these mistakes?

You can go it alone or choose to retain the services of an experienced independent energy broker.

  1. Brokers secure competitive bids from multiple providers and decipher confusing charges and hidden fees to find the true lowest electricity rates.
  2. Brokers leverage volume purchasing to negotiate on your behalf, causing a bidding war for your energy contract.
  3. Brokers capitalize on windows of opportunity that exist in the energy markets, helping you hedge your position to limit risk and save money.
  4. Brokers help you develop an energy management strategy, addressing both short and long term energy costs.
  5. Brokers provide market intelligence, making you aware of trends and opportunities in the energy markets, always looking for ways to save money and mitigate risk.

texzon-utilities-logo

Since 2002, as one of the industry’s most respected brokers, Texzon Utilities has helped companies of all sizes make well informed, strategic decisions regarding their energy purchases, producing savings that track to the bottom line.

Is an Energy Broker right for you? Start by allowing us to provide you with a True Apples-to-Apples rate quote, no hidden fees. We’ll give you a Starbucks Gift Card for your time.

Click here to learn more.

5 Truths About RFPs for Electricity Procurement

Conducting RFPs (Request for Proposal) for procuring commodities and services is an established practice, many times a mandate of the organization. But what many have found is RFPs are not the best tool for the procurement of electricity. Why? Electricity prices are like the stock market. There can be huge swings and short deadlines which presents a challenge for even the most savvy energy buyer. In many cases, energy prices are only good for a few hours. RFPs can be an inflexible tool when it comes to making decisions where precise timing is a key component.

The two most important questions in electricity procurement are:

1. “Is now the right time to buy?”
2. “Is this price the lowest price available?”

An RFP cannot effectively answer these questions. Here’s why:

1. RFPs focus on the process, not the final price
The focus of an RFP should be on picking the right supplier to partner with, and securing the best final pricing. It should not be a result of which supplier is willing to invest more in the RFP response. An RFP is extremely time intensive and produces reams of paperwork. This impacts both parties and we all know that these costs must be recouped somehow.

2. RFPs are not time sensitive.
Effective energy management more often hinges on when to buy not how to buy. If the RFP process places the buy window when prices are peaking, the lowest price at that time may be much higher than if you had written the contract a month earlier or later. Timing is everything in today’s energy markets. By nature, RFPs are not geared for quick, informed decisions.

3. RFPs force you to choose a supplier before knowing the final price.
Even though the process is designed to facilitate a competitive bid situation, RFPs can have the unintended result of driving buyers into a “single source” negotiation. Why? Because although a “preferred supplier” is identified through the process, the final energy contract still needs to be negotiated. Because of the variable nature of the market, a refreshed price would need to be obtained, which would not be subject to competitive bids.

4. RFPs don’t end up getting true apples-to-apples pricing.
As mentioned above, even though the RFP process results in competitive bids being generated, the unintended effect of the RFP is that the “winning bidder” will still need to get refreshed pricing based on daily fluctuations of the market, and when doing so would be removed from the scrutiny of an apples-to-apples comparison with other bidders. This result is the opposite of a competitive bid situation.

5. RFPs limit competition.
Even though the RFP has become a standard in many types of procurement, many vendors avoid it because of the reasons above and because the process is long and laborsome. Unless they are willing to invest a lot of time and money in the process with no guarantee of success, many may choose to pass on the invitation to submit. This may end up excluding suppliers that would have made the best partners, and limiting the number of competitive bids you receive.

In conclusion, when procuring electricity, it is debatable whether an RFP is the right tool for the job. Not only is the process outdated, but it puts more emphasis on the process than on the final results. The intended outcome is a competitive bid situation, yet the process in thwarted by a volatile energy marketplace. A more strategic and agile approach is to deal with an independent broker who will keep you abreast of the market and conduct an “internal RFP” on your behalf, bringing several competitive bids to the table at the exact time the market is right. The result is being able to definitively answer “Yes” to the two most important questions in electricity procurement:

Is now the right time to buy? Is this price the lowest price available?

There are over 300 electricity providers in the U.S., but only one Texzon. Since 2002, as one of the industry’s most respected independent brokers, Texzon Utilities has helped companies of all sizes make well informed, strategic decisions regarding their energy purchases, producing savings that track to the bottom line.