If your business falls within a deregulated state, you have the power to choose your electric and natural gas providers. To some extent, this allows you to pick your rates.
Fearing change, however, many of us stick with our current suppliers, and weather increasing prices or variable rates. In other words, we miss out on the savings we'd get by switching to a different provider.
Utilities would like us to switch to retail electric providers (REPs) - companies that buy power from them, and then sell it to the end consumer - so they can focus on things like maintaining the grid and delivering electricity. While it seems like this model would drive up the cost of power, it doesn't.
That's because you can choose from several REPs. Consumer choice encourages competition and efficiency, leading to lower prices. REPs also handle bill pay and any service issues (save the power going out) related to your energy bills, freeing up your local utility's resources.
Say you're ready to switch - now what? While energy shopping can eat up your time, you'll find many resources, tools, and people who can help, including this guide. Read on to learn about the process and what to look out for.
How to Buy Energy
Before you start shopping around, you’ll need your billing info. This should include your business locations and meters, current electric rates, contract term, utility name, and annual load.
Next, set up an energy usage analysis for your company. The analysis will give you a comprehensive picture of your energy needs, and help you choose the most appropriate rate and supplier.
Energy analysis data for a sample company.
You’ll need to provide your business’s legal entity name, address, and tax ID for the supplier's credit check. New businesses without an extensive credit history may need to put down a deposit. The amount will depend on your credit history, market conditions, the rate you'll be paying for electricity, and the contract term.
If you don’t want to make a deposit, be prepared to personally guarantee the contract (meaning if your company is unable to pay the bill you, as guarantor, will pay instead). Once you've passed the credit check, remember to review all contract terms and conditions before signing on.
Stop overpaying on energy bills. Get a free energy consultation today.
When to Use Energy Consultants
If you're short on time or feel like you've bitten off more than you can chew, there are alternatives. An energy consultant can help you with the energy buying process.
Many business shy away from using energy consultants to avoid what they believe will be high upfront costs. Most companies aren't aware, however, that paying a consultant typically involves a small fee that's embedded in the monthly contract price.
When considering whether or not to hire a consultant, ask yourself these questions: Do I have the time to do it myself? Do I want to do it myself? Where do I start? Can I benefit by working with an expert?
You can always price and negotiate your own contracts. But unless you're pricing with multiple suppliers, how will you know you're getting the best deal? An energy consultant will handle all of the negotiation, paperwork, and heavy lifting for you, saving you time and money.
With small to midsized businesses, energy consultants focus on sealing in a low, long-term electricity rate. A good consultant will stay with you throughout your contract term to assist you with any needs that may arise, such as a meter change, location change, or billing issue. Generally speaking, established consultants have strong relationships with many suppliers and can get you better rates than what you could negotiate on your own.
When to Buy Electricity
You’ll want to buy when rates are low, but when is that? Looking back over the past decade, we see that prices usually trend upwards during the summer (May - September), when air conditioning causes demand to swell. Winter brings another uptick (from December through February).
Rates tend to dip in the "shoulder months" (March - April and October - November), when temperatures are moderate. This is the time to buy. If your contract ends in December or another high-demand period, it’s typically better to lock in a three-month fixed rate plan that will carry you over into a shoulder month. Then, when your short-term contract ends, you can choose a 12, 24 or 36-month contract at a lower rate.
Things to Consider Before You Buy Energy
Historical data shows that the overall cost of electricity rises each year. This means that a short-term contract lasting six to 12 months probably won't give you the best deal in the long run.
Consider requesting bids for multiple terms from each supplier you talk to. That way, you can compare how much you'd save with single-year and multi-year contracts. Make sure each bid represents an apples-to-apples comparison with your current electricity rate.
Here's how you can do this:
- Multiply your current rate by your annual usage over the past year. This will give you the total amount you spent on electricity during that year.
- Next, multiply the lowest rate for each contract by your annual usage.
- Finally, record the difference between your current annual total and the total you'd pay under the new contract, which represents your potential annual savings. Use this number when comparing energy plans, rather than the term savings.
For example, imagine that your current rate is $0.07632/kWh, and your annual usage is 219,360 kWh. By following the steps the outlined above, you'll find that your business spent $16,741.56 (219,360 kWh x $0.07632/kWh) on electricity per year (not including other fees such as delivery and service charges). If you select a new contract at $0.0430/kWh, you’ll spend about $9432.48 a year. That means your business can expect to save roughly $7,309.08 per year on electricity.
Once you’ve calculated your annual savings for each plan, you’ll want to consider the term length. Since electricity prices tend to increase from year to year, you'll probably come out ahead by locking in a longer contract with a term of 24, 36, or even 48 months. In the chart above, for example, the six month plan offers the lowest rate, but the 24 or 36 month contract may actually save you the most money in the long run.
Now's the Time to Choose Your New Energy Plan
Why put off til tomorrow what you can do today? October and November are ideal months for energy shopping. To recap, get quotes for multiple terms from multiple suppliers. Consider the time of year, estimated annual savings, and term savings. Finally, give the contract a thorough read and bone up on fees and conditions before you sign.