Summit Energy: Tips for Negotiating the Energy Buy

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Know the Big Players. Understanding the major players in a marketplace is one of the first steps to negotiating a favorable supply agreement. The larger energy marketing firms are often able to provide the most competitive pricing due to their economies of scale. Many energy suppliers have marketing divisions that will seek you out. Many times the best deals develop from your own research. Utilize local utilities or pipelines to determine which suppliers handle significant load on their systems. - Patrick W.

Know Your Triggers. Be realistic and reasonable. In a highly volatile commodity market it is important to set a realistic price goal, and not be afraid to lock in once the target is hit. Having a target will eliminate emotional responses and provide you with greater leverage. The supplier wants the deal and might be willing to shed a few cents off the price if he knows you are willing to pull the trigger. - David T

Know the Possibilities. Particularly in third-world or developing regions, fewer financial tools and parties exist, so your options can become limited. Be creative and work with suppliers to help them “grow into” more appropriate options and offerings. For example, in Puerto Rico, oil suppliers will not take on hedges, so you must hedge financially, through a bank or other counter party. But, your company policy may prevent financial hedging of energy commodities. In that case, try getting another supplier to post the cash for the transaction, and lock your price with that supplier. You help him increase his offering, he takes on the fiscal transactional risk and your Controller and CFO are happy! - Dean B.

Know Your Supply Dynamics. This is one of the more difficult tasks for the novice energy buyer to understand. Markets and infrastructure are continually changing, and no two are identical. Utilizing your own market knowledge to pressure your counterparty to use a more economical way to deliver your supply can provide benefits. Just showing them alone that you have this market knowledge will tell your counterparty that you cannot be easily fooled. In some cases, the possibility of building a direct connect pipeline to your facility can persuade a supplier or utility to be more financially aggressive. - Patrick W.

Know Your Credit. Whether your company is 10 years old or 10 decades old, your credit can be limited by market conditions and other things out of your control. Credit limitations can dictate your sourcing strategy. Particularly in this current economic climate, credit issues can be one of the top issues in contract negotiations. Take control by spreading the risk in conjunction with aggressive negotiation of payment and assurance options. - Vance W.