Cost-Saving Benefits of Commercial Energy Procurement
Energy Procurement with Nachy Kanfer
Energy is a large, yet typically overlooked, operating expense for most commercial and industrial businesses. Choices are now proliferating thanks to deregulation, innovation, and the falling price of alternative energy. Your management of these choices can influence your bottom line significantly, especially in “deregulated” states like Ohio, Pennsylvania and Illinois.
In an effort to simplify and clarify the often complicated analysis and process to optimize your energy supply contracts, we are sharing a brief overview on energy procurement and how it can benefit your business.
What is Energy Procurement?
Energy procurement, in “deregulated” markets like Ohio, is the process of selecting a competitive energy supplier to power your operations, whether you are a small office building, a large manufacturing facility, a school, a hospital, or anywhere in between.
In “deregulated” markets, energy is no longer generated by the large utility company you receive your bill from. While the utility company (e.g. Duke Energy) continues to be the “delivery” service—in other words, it owns the wires, poles and equipment responsible for delivering energy to your business—the energy is actually being generated by a “supplier”. Dozens, and sometimes hundreds, of suppliers hope to compete for your business, all offering different prices, lengths of contract, and various other terms and conditions.
**Note: in traditional, “regulated” markets -- like Indiana, Kentucky and West Virginia -- you do not have the ability to shop for competitive energy suppliers. In these states, the utility company continues not only to deliver energy to your business, but also to generate the energy in the first place. Happily, investments in energy efficiency typically generate even larger financial returns in these states.
The Energy Procurement Process
Large organizations that spend millions of dollars per year on electricity often have a full-time energy manager, or even a team of energy specialists, on staff. Small to mid-sized businesses, on the other hand, often partner with an energy consultant like Donovan Energy to leverage our deep understanding of energy markets, rates, and best practices.
At Donovan Energy, we analyze your electric bill and perform some calculations to determine your “price to compare,” which is typically not specified in your bill. We stress-test this price against your historical usage. Then we discuss your risk tolerance and priorities. For example:
Do you prefer the absolute lowest-cost contract available on the market today?
Do you prefer to lock into a stable rate for five or more years, even if it’s not quite the lowest cost?
Do you prefer the flexibility of a short-term contract -- especially if you are operating leased assets?
Our goal is to help you navigate the process, ask the right questions, and end up with a competitive energy supply contract that matches your strategic growth priorities and saves scarce operating cash.
Energy procurement does not help you use energy more efficiently -- though we strongly recommend investments in energy efficiency, which can offer paybacks many times that of energy procurement. But energy procurement is still vitally important, if you do business in a “deregulated” state. As with any commodity, the force of competition drives costs down -- but also drives a certain amount of volatility that was previously absent from retail electric markets. Working with an experienced energy consultant can help you optimize the energy savings while minimizing volatility.