Debunking Myths About Energy Purchasing

An online poll conducted during an Energy Manager Today webinar this week found that the majority of webinar participants only looked at their energy procurement strategy once a year.

Karl Van Orsdol, national account manager with DNV KEMA Energy & Sustainability, said, “You can develop and purchase a supply portfolio to meet your load needs, but you must be cognizant of the attendant risks. Electricity is the most volatile commodity in world.”

Some of the factors to consider when purchasing a facility’s energy, according to Van Orsdol are:

  • Contracts are based on prices today for delivery in the future.
  • The process requires complex forecasting and risk management.
  • There are accounting considerations.
  • Think about supplier credit risk issues.
  • -Energy offerings include a variety of standard and customized products.

The energy purchaser must even consider the possibility of black swan events, which Van Orsdol explained are highly improbable events that could cause dramatic consequences. (Think the lights going out during the Super Bowl).

Bill Kenworthy, a director of energy marketing for Hess Corporation, presented some myths and realities about energy purchasing.

Myth Number 1 is that suppliers offer essentially the same services and options, said Kenworthy, adding that services can vary greatly depending on the type of partner an energy purchaser works with, including:

  • Utilities that are a default supplier;
  • Full service marketers that offer myriad products and have deep knowledge;
  • Discount Marketers offering price specials, but have limited products and mixed knowledge;
  • Consultants who offer strategies and key contacts;
  • Brokers with mixed knowledge and key contacts.

In advance of procuring energy, Kenworthy recommends keeping an eye on prices as much as six months out in order to have a good idea about the average price.

Besides price, energy purchasers should be very familiar with their load needs. Kenworthy said it’s a myth that buyers have little control over their energy bills, when in reality they can manage around consumption patterns. First they need to understand their usage by compiling multiple years of data. In many cases discounts are offered for flat and off-peak consumption patterns.

As a rule of thumb said Kenworthy, “You don’t want to shop for electricity in July if you can help it. You don’t want to start your contract in peak months; summer for electricity or the dead of winter for natural gas.”

“It depends to some extent where you are located and what you’re energy supply mix is,” added Van Orsdol. For example, if hydro is a big part of the energy mix for a particular area, prices will reflect the amount of precipitation, determining whether it’s a good hydro year.

The Energy Manager Today webinar “Your Roadmap for Energy Management First Stop: Myths & Realities of Energy Purchasing” is now available on demand.

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