Summit Energy: Tips for Negotiating the Energy Buy

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Know What’s Realistic. You may attempt to employ the “same tactics” that you employ on other commodities, and in some cases, that may be realistic. However, some tactics – such as “volume” purchasing – simply do not work in the energy markets. There aren’t “volume discounts” like there are in other purchasing categories, Going from 12 to 18 months – raising volume of contract by 50% – may not significantly reduce your commodity price. You can’t “store” electrons on a pallet in a warehouse. Instead of trying to use larger volumes as leverage, use your load volume to reduce supplier premiums and delivery charges. - Vance W.

Know the Exact Timing. There are a lot of moving parts when you purchase energy, but the wholesale to retail spreads often remain static. Smart buyers should try to peg an offered retail price to specific wholesale market conditions. Within your RFP always be sure to specify the single point in time at which all the vendors have based their quotes. It creates a fair comparison among competing offers and helps you box suppliers in on their retail spreads. This will arm you with additional leverage when negotiating the final price. - Tom M.

Know Your Leverage. Don’t settle for high outrageous natural gas pricing while in bankruptcy! When suppliers know you are working through bankruptcy, they will often propose unrealistic credit requirements and/or pricing options. The reality is that you will face some sort of credit restriction, so let suppliers know you are willing to post a deposit or consider prepayment. You will get more offers on the table. Also, credit requirements are based on worst-case predictions. Worst-case is code for “room for negotiation.” - David T.

Know Your Supplier’s Portfolio. When physically hedging (fixing a price), energy marketers typically will add a margin to your commodity costs to cover their cost of business and other transactional risks such as very small loads. One negotiating tactic is to learn whether your supplier can group your load with another customer or if they have additional gas on their books that has already been purchased at lower prices. This can provide a great opportunity to obtain supply at more favorable prices than otherwise could have been achieved. - Patrick W.

Know Your Strategy. Obtaining a best-buy price could be eased if the customer is aware of recent market price evolution and shows willingness to discuss and negotiate this with the supplier. Additionally, it is essential to have a risk management strategy to plan those purchases and this is where companies differ to the ones which have the ability to risk manage and those who are effectively managing their energy procurement portfolio. - Boyan B.