Energy Procurement in a Competitive Environment
As you are well aware, the energy industry is and will continue to undergo a substantial transformation from a regulated industry into a limited, partially unrestricted business. In the competitive market place, economies of scale continue to provide businesses with low material costs. Energy is a material cost to businesses that has virtually escaped the prudent, competitive cost mechanism, similar to bulk purchasing opportunities currently enjoyed by corporations with respect to all other materials.
As evident by the amount of media and legislation attention given to the deregulation of the electric industry, multi-location businesses may be bewildered by the different rules and regulations that accompany deregulation, particularly the fact that each state will have its own rules in addition to each local electric distribution company. A supermarket chain for instance located in 10 states may be required to take distribution services for each gas and electric Local Distribution Companies (LDC’s) their stores are located in, as well as, sign power generation contracts with one or several national or regional Energy Service Providers (ESP’s).
Thus, introduction of competitively purchased electricity and gas will require businesses to spend a substantial amount of time just to make sure they are purchasing their power in a cost effective in reliable manner, whether or not any major savings results from this process.
For many companies, there will be an opportunity to reduce overall oil, gas and electric costs by partaking in the competitive process on a company wide basis, wherever and whenever it is allowed. Management will desire and in a lot of cases require a prudent decision making process used to select a reliable and cost effective ESP.
Electricity is not the average commodity and requires more prudence in it’s selection than purchasing apples and oranges. It is virtually the only commodity that is manufactured, transmitted, distributed, and consumed all within the same second. Hence, the time value of electricity is a major component of it’s costs. One may be lead to believe that all that is required is to ask a few reliable Power Marketers for some prices, and pick the lowest one. This certainly is a method, however, the company may miss out on all of the opportunities that may be available to them to reduce costs further. Opportunities such as demand management, load shedding, conservation, fuel switching, real-time pricing, and more favorable contract terms and conditions may not be investigated to their fullest.
Virtually all businesses will at some point be required to make decisions as to whom to buy energy from. Many businesses would delight in having an energy procurement professional on board to facilitate the competitive energy procurement process. The amount of effort focused towards the procurement process should reflect it’s relative importance to the business operations and bottom line. Small, single location business may only desire and need a relative small amount of assistance choosing energy providers, while large nationwide corporations will focus a larger amount of time and effort.
If one is unfamiliar or desires addition information with the process, they may consider retaining the assistance of a energy procurement consultant to facilitate the corporation’s purchasing and energy management departments in the competitive energy purchase process.
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