Ohio’s SB3 deregulated the electric market in 1999, and by 2001, commercial and industrial businesses were able to select their own electric generation suppliers. However, by 2008, 90% of the market still acquired their generation from their utility directly. The intent behind deregulation was to increase competition through “shopping” and ultimately drive down pricing for the consumer.
Today, many businesses are seeing the benefit of shopping beyond their utility to service their electric generation. Despite this, most clients I work with haven’t fully taken advantage of the increased competitive landscape. In my experience, mid-market businesses shop similarly (if not identically) to the small commercial and residential markets. Mid-market businesses typically field offers from brokers and suppliers; evaluate a fixed rate option versus a variable rate option; and consider one, two or three year terms.
This method of shopping will certainly get a deal done, but leaves substantial savings on the table for larger energy intensive businesses. Let’s evaluate this concept further using two examples.
Example 1: A local hardware store is in need of a new electric generation contract. They use 28,000 kWh annually and approach a broker about a potential deal. The broker fields a few offers in the market and returns with the best option. A two-year fixed rate deal at 6.85 cents per kWh. Over the course of the agreement, our hardware store owner will pay a total of $3,836 for their electric generation.
Perhaps if they had used an energy advisor, they may have saved 2/10 of a penny per kWh. That a savings of about $112 or nearly $5 per month. In truth, that’s probably not enough savings for our hardware store owner to fret over. Shopping on their own would likely work just as effectively. But for larger energy intensive businesses, the difference of a few tenths of a penny could be substantial.
Example 2: A mid-sized manufacturer that consumes 6 million kWh annually is looking for a new electric contract. The facility director for the plant approaches a broker and inquiries about what electric contract would be best for the business. The broker then evaluates a few options and returns with the best deal. As a larger user, the manufacturer has increased purchasing power. As such, they receive a more favorable rate of 6.55 cents per kWh for a two-year fixed rate contract. Over the term of the agreement, our manufacturer will pay $786,000.
However, had they utilized a knowledgeable energy advisor, they could conceivably have secured a deal that was 3/10 of a penny less per kWh. Over the course of a two-year agreement, that amounts to a savings of $36,000 or $1,500 per month. Almost all my clients would consider that a savings worth pursuing.
The logical question our manufacturer would now ask is how they can take advantage of that better pricing. Below are some helpful tips to get the best deal possible for your business’ unique energy portfolio.
- Explore shopping through an auction platform. Suppliers will offer only one price while brokers may provide two or three. On an auction platform, you have access to every potential supplier in the market bidding for your business.
- Most businesses choose between a fixed rate and variable rate option. Consider a blend of both, where you capitalize on rates when they are low while insulating yourself against potential market volatility.
- Do not wait to shop until a month or two prior to your existing contract expiration. The closer to expiration, the higher the pricing will be. Begin exploring options at least six month beforehand.
- Try to buy when pricing trends lower during the winter months. As demand declines during the cold season, so too does the pricing in the market.
Be sure to work with your energy advisor to understand the complexities of shopping for an electric contract and securing the best option for you and your business.