Energy Procurement – 3 Common Mistakes


There are 13 states in the US that have deregulated their electricity and natural gas markets. In these areas, manufacturers can choose from whom to buy energy. In these newly competitive states, the growth of brokers and wholesalers has created competition and business practices that in some cases are designed to retain customers for as long as possible.

Here are 3 tips to avoid the common pitfalls of energy purchasing:

1) Always buy in the shoulder season. In the northeast of the US, for example, natural gas, oil, and to some extent, electricity is more expensive in the winter (due to heating demand). In the summer, electricity is definitely more expensive (due to cooling demand). The best times to sign procurement contracts then, are the shoulder seasons (spring and fall). Take a look at the image below and you’ll see the variation in energy prices. If your existing contracts end on a peak-use time, sometimes odd-length contracts can be negotiated to true-up to an off-peak season.

2) Beware of “evergreen” clauses. Contracts that automatically renew are rare these days, but they are still out there. So are soft renewals where, unless a certain action is taken by 30 or so days before the end of the contract, service continues with the existing supplier, but at market rates, instead of a more reasonable rate. Strike the clause from the initial contract, or use a different provider, or at least put a reminder 3 months in advance in your calendar.

3) Beware the budgets. Some companies will provide a great price on energy based upon last year’s usage, or an average of several years. Many times this will include a capacity constraint (such as + / – 10% of the determined average). Keep in mind that extreme weather (much more common these days) can force you outside your budget and the supplier will purchase additional energy on the day-price – which will be much more expensive. Look for unrestricted contracts instead.

What experiences do you have with energy purchasing?

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