When you buy printer paper, you are likely buying something like 500 sheets of 8 ½ by 11 white stock. You know what it is and know exactly what to expect. Paper is a tangible product that has pricing and product choices that are relatively stagnant. And it doesn’t revolve around markets that move every minute. Energy does.
Why Energy Procurement Matters
Buying energy isn’t like buying paper. Multifamily building owners in New York City can spend 20-30% of a building’s annual operating budget on energy. But through energy procurement, owners can lower supply costs, solidify building budgets, and hedge the risk of inevitable market fluctuations. It’s particularly important for our clients who own and manage multiple buildings in a portfolio. Large portfolios can often receive reduced rates by bundling energy purchasing contracts for multiple properties.
Having an Energy Purchasing Strategy
Electric and gas costs are large expenses but they can be strategically controlled by having an energy purchasing strategy. There is no set standard for buying energy as there is for paper. There are many options available, to match differences in energy consumers’ preferred terms and exposure to price risk.
The most common product is a fixed rate. However, it’s a common misconception that a fixed rate is a price that is fully locked, or that it is the best (or only) energy purchasing strategy in every situation. A fixed electric rate from an energy supplier may or may not include a dozen or so cost components like capacity costs, line loss, and GRT tax fees. Each of these costs can represent a significant percentage of your total energy cost. Plus with a fixed rate, your supplier is taking some future price risk, and there is a cost to that baked into the rate.
A trusted energy procurement consultant can help you navigate this complex process and make a decision that is right for you.
What’s the Best Option for You?
With one of our commercial clients, the lease structure indicated that tenants pay our client each month for the electricity they use, at the market rate (the utility’s varying price) for that month. The best product for this client was a floating rate contract to ensure they can achieve a consistent margin on submetering their tenants’ contract each month.
In contrast, through our BEPI aggregation program, we help some of NYC’s largest supportive and affordable housing owners procure energy to create budget certainty. Operating with extremely tight budgets, they need to focus on operating their buildings and providing valuable services for their residents. For them, fixed-rate contracts captured at low dips in the market are the best procurement option.
Find an Expert
Energy procurement should be a seamless and efficient process that leads to results and operational benefits for your buildings. It’s a key tool for managing budgets now and in the future, though it may require a trusted expert, like Bright Power, to help you achieve those benefits. Done right, buying energy can feel almost as easy as purchasing paper – with all the unknown variables handled and monitored for you.
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