Expense Reduction Analysts
Associate, Expense Reduction Analysts Effectively managing energy procurement
Every business needs energy, but many fail to take the necessary steps to efficiently procure this commodity. It’s easy to see why.
Supplier renewal offers come around every year or once every 24 months, and time critical termination or renewal deadlines can appear complicated. These supplier communications are often filed away with other correspondence and completely ignored. At best, this means the current contract will be rolled over at the supplier’s offered rates. At worst, you may find your contract on deemed contract rates or out of contract rates, which may be twice the prevailing market rates.
So, what can be done?
Astute buyers know their contract rates, end date and notice of termination. Once the notice window approaches and a renewal offer received, notice should be lodged and an acknowledgment obtained so you can seek competitive offers. This can take up to four months, and a new supplier will need up to 28 days to take over. This process is simple...if your business has one site. Complications multiply with multiple sites. Imagine the complexity for a business with multiple retail outlets supplied with gas and electricity. There are likely to be a handful of suppliers involved each with its own termination provisions and contract end date. Post-contract, things don’t always run smoothly. The registration process for a new site needs to be followed closely with closing and opening meter readings for final billing. The outgoing supplier can object to a new supplier, and a failed credit check can halt the entire process. It’s no wonder organisations find utilities management a hot potato. It’s not the glamorous end of the business! For large energy consumers, the problem is critical; fixed renewal dates mean the business is forced to lock into supply contracts at a random point in the market pricing cycle simply determined by history. What other volatile commodity is purchased this way by choice? If you don’t actively manage your business’ utilities procurement, consider engaging a broker or consultant to do so for you. Not only might this person reduce your headache but save you money as well. However, be clear the extent of the service and its cost. Energy consultants are typically paid a commission by the supplier, which brings a price uplift to your price per kWh. If a broker suggests your utilities will be managed at no cost, the offer is likely to be too good to be true! As long as there is complete transparency, this arrangement can work well. It comes adrift when hidden commissions are added, and the resulting unit rates bear little resemblance to current market pricing. As with all procurement,