Summit Energy: Tips for Negotiating the Energy Buy

Buying energy is tricky territory. We compiled 20 energy buying tips from our very own analysts working in energy markets across the globe everyday. Purchasing Magazine featured 5 of these tips in a recent article from their July 2009 issue. Read all 20 tips below. We have lots more where those came from. Contact us to discuss other hints to make the energy buy easier for you and your company.

Next 5 Tips >>

Know Wholesale Value. Similar to car buying today, you need to know the wholesale price of energy commodities before going to market. Most regional markets have an underlying wholesale index that is transparent. Looking at the NYMEX website or a subscription service like Bloomberg enables you to identify relevant wholesale price points. Just initiating an RFP from multiple suppliers will not reveal whether pricing is “realistic” in light of market movements and other factors such as fuel charges, transportation costs and capacity rates. Knowing the value of underlying price components can help you estimate supplier margins and provide negotiating leverage. - Garrett T. / Jon S. / Patrick W.

Know Market Dynamics. Every geographic market has unique drivers and nuances. Understanding the regional dynamics of the natural gas and power markets can empower you to know when and how to negotiate with potential suppliers. Power delivered to a facility in New England has different components than one delivered in Texas (comparisons can mislead!). There are often myriad criteria to consider beyond just the energy commodity. Factors like capacity, transmission or renewable portfolio standards can have significant impact on the delivered price – and these factors vary widely across the U.S. and the globe. - Erin J. / Rusty V.

Know Your Usage. This may seem obvious, however, you can pick up significant leverage when you have a firm handle on your site(s) usage levels. Having accurate forecasts of planned consumption can save big dollars. First, accurate usage information allows you to select the most effective option among the different products available. Different load shapes lend themselves to different purchasing strategies. Second, it can position you to negotiate out premiums for things like swing tolerances (amount over/below your contracted volume). Generally, the more precise you are, the tighter the pricing. - David T. / Melanie H.

Know Your Suppliers. Building and maintaining strong relationships with your energy providers can go a long way when negotiating a lower price, better contract terms, or a more advantageous rate option. Stay in frequent contact with the energy supplier, particularly with your account manager. Coming from a position where the supplier is already familiar with your load profile, contract terms, and long term energy needs can provide the opportunity to learn of opportunities and get the fairest price at any given moment. Increase your odds for a successful negotiation by seeking solutions that provide mutual benefit. - Boyan B. / Dominic B.

Know Your (and Your Company’s!) Goals. Have a clear understanding of your specific purchasing goals and your organization’s overall corporate goals. If you know that you, your facility personnel and your finance team are on the same page, you can have more leverage at the negotiating table because you know your boundaries. Energy prices, particularly on power, do not wait around – you sometimes have only minutes to execute. Things like an approved risk management strategy or pre-approved contract language can help you capture opportunity and move more decisively. Clearly knowing what your company wants to achieve and establishing it as a goal in the procurement process is the first step in having a successful procurement experience. - Rusty V.