In light of the availability and ease of access to information online, one of the questions we hear frequently is whether the rate you see is the best rate available. There are a number of things to consider in evaluating the best rate, and this article will explain some of the factors Community Energy Advisors considers in making recommendations to our clients.
Things to Consider in Evaluating the Best Rate:
1.) Early Termination Fees
Early termination fees may be included in your supply contract, designed to protect the supplier against the risk of losing a customer unexpectedly. Although these fees are common, they present an element for evaluation against other suppliers. Contracts without steep early termination fees likely include a built-in risk premium to protect the supplier against the cost of customers jumping from contracts every time the market fluctuates. Factors that may impact your evaluation of early termination fees include:
- What is your company’s risk appetite?
- Is your company considering relocation?
- Do you have any pending mergers or acquisitions that will alter your location?
- Are you considering any significant investments that will impact your energy load?
2.) Variable Rates
Supply contracts may include provisions allowing suppliers to adjust rates over the course of your contract. Suppliers may build in language allowing variation on a monthly, quarterly, bi-annual, or annual basis to protect against market fluctuation. Factors that may impact your evaluation of variable rates include:
- What is your company’s risk appetite?
- Is the supplier tied to a market index or do they have freedom to set any rate?
- How have energy markets behaved in the past 12-18 months?
- Are market predictions indicating significant volatility?
3.) Monthly Fees
Occasionally suppliers will offer rates that include specific monthly fees in addition to the rate charged for energy consumption. These fees may significantly increase the price you pay, particularly in comparison to market rates. Although a price may appear competitive, fees can add up quickly if not carefully evaluated prior to signing a new supply contract. Additionally, suppliers may include language requiring your monthly load to be within a particular range of the original estimate. Internal factors that may impact your evaluation of monthly fees include:
- Are you able to estimate monthly and annual energy consumption for your facility?
- Have you applied all fees identified in your contract to your anticipated usage to ensure a standard comparison?
- Will your load change significantly over the course of your contract term, violating assumptions included in the contract?
The CEA Difference: Defining the Best Rate for Your Company
There are a number of factors that may influence the determination of the best rate available in the market for you, and considering all of them is critical in finding the best solution for your company. While finding the lowest available rate is relatively easy, ensuring that the contract you sign is best suited to your company’s needs is much more difficult—and entirely essential. Simply identifying the lowest available rate may not account for variation in contract language or ensure a valid comparison among available suppliers.
At Community Energy Advisors, we are committed to ensuring that the contract you sign will be with a supplier, product, and price that best matches your operations and needs. Before you sign a contract, it is important to consider the questions above at a minimum and to evaluate your answers against the options in the market. We will work with you to understand your business’s needs and ensure that the contract you sign is the absolute best for your company.