Why Energy Procurement Can Benefit You

Q. What is energy procurement?

A. Electricity and natural gas supply and delivery is controlled in many states by a local utility company within a protected service area, which means customers typically don’t have a choice when it comes to supplier or price. Today, however, many states, including New Jersey, Pennsylvania and New York, have deregulated the supply of energy, which encourages competition by offering customers a choice of supplier, price and contract term. Energy procurement firms such as Langan Energy Solutions will analyze a business’s historical usage data, create a customized energy supply and risk management strategy and execute the plan that best meets a business’s needs. Depending upon the business’s risk threshold, it may elect to lock into a guaranteed price for a specific length of time or it may choose a variable pricing plan that fluctuates with the market. In the case of a variable pricing plan, the customer’s price is a percentage of the wholesale cost, so there is a built-in guaranteed savings regardless of the direction in which the wholesale price moves. Another option is a combination of the fixed and floating options. Businesses that do not make a choice are served by a default provider -- usually the local utility -- at rates set by state regulators. The default rates are often the most expensive.

Q. How does deregulated energy affect my electricity bill?

A. The deregulation of energy affects the supply side of your electricity bill. Supply, which is the actual electric or natural gas that a business uses, is the area that is now open to competition. In most markets, businesses can now choose to buy electricity and natural gas from many providers. The delivery of electricity and natural gas is still managed by the local utility and regulated by the state public utility board. In contrast to supply, the rate that businesses pay for delivery remains the same, no matter whom they buy their electricity from.  

Q. How will an energy procurement firm help my business?

A. Not all businesses have the time and effort required to get the best energy procurement deal. By using an energy procurement firm, businesses can capitalize on the benefits offered by deregulation without committing significant time and resources to understanding the complexity of the markets. After getting to know a business’s specific energy needs, an energy procurement firm will negotiate with energy providers to secure the best rates and options. Many factors are taken into consideration, including demand (measured in kilowatts), consumption periods (peak and off-peak measured in kilowatt-hours), seasonality (June through September or October through May), market price, length of contract, type of contract (fixed-price, index, hybrid, etc.) and credit history.

Once a profile is created, a Request for Pricing Proposal (RFP) is released to a number of suppliers with products that meet a business’s individual needs. After analyzing the price quotes and selecting the best option(s), a proposal and contract are prepared for review. Businesses can often achieve immediate energy cost reductions following their next meter reading. 

Q. How does energy procurement help me save money? 

A. Specifically, an energy procurement firm helps businesses realize cost savings through:

• Budget Certainty -- Lack of certainty about long-term energy costs makes managing a business’s budget difficult. A contract with a third-party supplier with a term length decided by the business makes this much easier. Based upon historical usage, businesses are able to predict and set an energy budget for the duration of the contract term.

• Expense Reduction -- Multiple third-party suppliers compete through their product offerings and prices to earn your business. An energy procurement firm will negotiate with these suppliers on your behalf. Energy procurement firms are independent companies that represent businesses -- not suppliers -- ensuring that you receive the best possible product and price.

• Risk Management -- The use of an energy procurement firm allows businesses to gain control and leverage savings potential by managing and mitigating the risk associated with volatile energy markets. While local utility companies may be subject to tariff restrictions that limit their ability to offer better prices and term lengths, third-party suppliers are able to offer innovative strategies and products that better meet businesses’ individual needs and risk tolerances.

• Product Choice -- There are many products available in deregulated energy markets. An energy procurement firm helps businesses understand this market and makes recommendations based on the analysis of a business’s profile. The energy procurement firm will recommend multiple products with a variety of term lengths, not cookie-cutter solutions.

Q: Will the reliability of my electric or natural gas service change with a new supplier?

 A. No. The transition to a third-party supplier is seamless. Reliability and service are not affected. In fact, a business won't even notice when the competitive supplier starts providing service. Businesses do not need new equipment, new meters or new account numbers. The only difference is that they pay a competitive supplier rather than the local utility. Thousands of consumers and businesses change suppliers every day. Regardless of which energy provider a business chooses, their electricity and natural gas will continue to be delivered safely and reliably by the local utility company, which is regulated by the local Public Utility Commission.

Q: What happens if my business has an emergency or power outage?

 A. Because the local utility company is still responsible for the maintenance and repair of poles and wires, businesses will still call the utility in the event of an emergency or outage. Nothing changes. The same local utility service team will be dispatched to service the power lines and turn the power back on under the same protocols that have existed for years. The local utility is still responsible for all aspects of delivering and servicing power. Businesses, as well as all other consumers in the utility’s service territory, including residences, schools, churches, etc., pay the utility a tariff every month for the delivery and servicing of the wires. In fact, the local utility is indifferent to what supplier a customer uses.

Q. Who should use an energy procurement firm?

A. Any business can benefit from using an energy procurement firm, but the incentives to do so are greater for businesses with higher usage. In New Jersey, commercial and industrial customers with peak loads of 750 kilowatts or more are subject to a retail margin of one-half cent per kilowatt-hour if they continue to buy from their utility. Those customers with peak loads of 1,000 kilowatts or above are also subject to hourly pricing: their supply costs change hour-by-hour to reflect the actual cost of generating electricity during a particular time period.

Q. Why is energy procurement especially important in the Northeast?

A. The Northeast has some of the nation’s highest electricity costs. New Jersey, for instance, has the nation’s fourth highest rates, according to the draft of the 2011 state Energy Master Plan, which was recently released by the N.J. Board of Public Utilities.

Q. Why don’t more businesses take advantage of this service?

A. Many businesses don’t believe that energy procurement services are for real – they think they are a hoax. But they’re not – businesses can save a substantial share of their electric bill through energy procurement. 

Q: How much do energy procurement firms charge for this service?

A.   NOTHING. Businesses don’t pay us anything. The alternative suppliers pay us for the opportunity to compete for your business.