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Why Commercial and Industrial Energy Users Need to Get Creative

The GP Energy Management Team recently examined the energy procurement strategy of a large industrial company based in New York State. Our findings highlight exactly why these types of energy users need to consider new, more creative procurement strategies.

08 / 03 / 2018 Power Cy McGeady, Analyst

The GP Energy Management Team recently examined the energy procurement strategy of a large industrial company based in New York State. Our findings highlight exactly why these types of energy users need to consider new, more creative procurement strategies.

Across a series of manufacturing facilities in New York, this company consumes annual volumes of roughly 500,000 dth of gas and 60,000,000 kWh of power. Their energy is currently supplied via third-party retailers under "index-plus" deals. This type of contract requires the retailer to pass the entire monthly cost of that supply on to the customer. For this service, the retailer charges a fixed volumetric "management" fee. Our analysis showed the customer was paying annual fees of over $480,000 for gas and $305,000 for power, representing 20% and 10% of their annual costs, respectively. Making matters worse, they are fully exposed to the  fluctuations of the wholesale power and gas markets. In volatile weather, such as a serious cold snap like the one experienced this past January, wholesale market prices can run wild (see chart below) and "index-plus" arrangements result in shocking increases in total commodity costs.

 

Gas and Power Costs

 

GP's recommendation? Establish yourself as a self-supplier, eliminate the fees detailed above, and build an energy procurement strategy that fits the specific needs of your business. This process is seamless with GP's full scope of services. With our turn-key solution, our regulatory team can efficiently guide you through the application and licensing phase, our operations desks will procure your supply and manage your positions, and our strategy team will provide GAAP-compliant financial modeling of the whole operation.

The bottom line? Our findings highlight a trend in energy procurement for big operations; large commercial and industrial firms are overpaying for their energy supply. Operating officers at these firms need to rigorously examine their current procurement strategy and be willing to pursue creative new strategies to minimize costs, maximize value, and ensure they're getting the biggest bank for their buck. Give us a call, we're happy to help.