“Winter Vortex II” or Winter is Coming (Again)
October 24, 2014
Many business and industrial customers may have received a surprise last winter when electric (and some natural gas) prices spiked due to the “Polar Vortex.” In reality, all wholesale energy prices exploded in (mostly) January but many customers had contracted with energy suppliers for a fixed rate, usually on a one to three year term. Those end users skated through without seeing a big spike in one month. However, those one year or longer deals probably resulted in the end user paying more in all the other months than they would have if they had contracted on an “hourly energy price” basis.
The lesson is a business can save a material amount on their energy bill merely by shopping around for electricity or natural gas, just as they do for every other input into their product. A quick primer: Businesses typically have two energy supply options: (1) receive default service; or (2) shop for electricity. While default service supply is procured by a local electric distribution company, it is purchased from wholesale suppliers and is always a plain vanilla offering. It doesn’t offer the array of terms and other attractive features that the competitive market does – and it isn’t intended to. It is designed as just a last resort and most commercial and industrial customers have figured this out and are now using a supplier. Competitive energy suppliers are in the business of providing supply services that are tailored to meet the needs of the individual business. And, more and more frequently, they also offer “bells and whistles” that provide added value – e.g., green products or free furnace tune-ups have been offered by some. While that added value may only be available if one subscribes to a monthly variable rate, the tradeoff may be well worth the necessity to watch your bill more closely.
Another issue to be aware of is what charges will be “passed through” to the customer. Rates are only comparable if all the pass-through charges are also handled in the same way. A rate that promises a certain price for energy, but specifies that all “RTO charges” will be passed through is not the same as a rate that promises not to pass through any other charges (except in industry affecting emergencies).
Can you “negotiate” the terms of these contracts? To a limited extent – if you are big enough. But a small or medium sized business usually only has 2 options: take the terms offered or find another supplier. The latter option many times will get you a better deal or one with more attractive terms. And having a couple of suppliers vying for your business does not hurt one’s negotiating ability either.
To get an idea of the offers being made by suppliers or to see what products may be available check PA Power Switch, a powerful online tool that provides a side-by-side comparison of electric supply offers for small and large businesses.
If you have any questions about shopping for electricity, please contact Dan Clearfield at (717) 237-7173; dclearfield@eckertseamans.com.
This Eckert Seamans Energy and Utilities Blog is intended to keep readers current on matters affecting businesses and is not intended to be legal advice.