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TMT: Choosing the Right Energy Product

Video Transcript

Let’s discuss risk. If we were having this webinar three months ago, we would be talking a lot about the cost savings versus your prior contract and how we hit some of the lowest prices in the last 20 years in February, which was just unheard of.

It would have been a very different conversation from today where we want to focus on cost aversion — avoiding any risk in the future given all the factors that we’re aware of today. Where we anticipate using those factors, where we anticipate energy prices to go, and what that means for you and your energy costs.

The biggest way to do this is through product selection. When a supplier uses “product” terminology, they’re basically meaning of all the moving components of your electricity or natural gas costs, how are you fixing those and what is the variability going to be from those month-to-month on your invoice?

Low Risk Tolerance Customers

So when we look at this meter, you see in that bluish-white area is for low risk-tolerance customers. You need a lot of budget certainty, you can’t have a lot of variation in the rate month-to-month, and you need to plan in advance for what’s coming down the pike. This would be more of a fixed product, or a fixed all-in. You’re taking all of the different components of your energy cost and locking them as much as possible.

When done correctly, you should in theory have the same per-kWh or per-therm cost on your invoice every month.

High Risk Tolerance Customers

If you go to the other side of the meter, you have the index or variable or floating type of products. These ride the roller coaster of the energy market. So you’re going to have a lot of variability.

There’s been some advantages to this certainly in the past year or two where prices have continued to come down continuously, so if you’ve been riding an index product you may have seen some of those record-low prices and been able to take advantage of that.

But on the flip side, now we’re facing volatility. And volatility, again, means a roller coaster. So if you have a little more bandwidth to have a higher risk tolerance, then this may be the kind of product for you.

Product type is going to look different for every organization. We’ve already seen where COVID-19 has affected every business (even within the same industry) very differently, and going forward a recession could affect every organization differently. So I would stress that you should really look at your internal risk tolerance — not only what it was in the past but also what it’s going to be going forward with all of the unknowns.

Current Energy Product Trends

A trend that we’re seeing right now is even some of our long-term clients that have always been on some type of float or index product are actually looking to fix as much as they possibly can. There’s a lot of uncertainty still up in the air. We don’t know a lot of things that are going to shake out from COVID and the recession and these other factors we’ve described.

So to be able to have control over a certain portion of your budget via energy, we’re seeing where people are starting to switch more to the fixed and low-risk types of products.

 

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TMT: Energy Tips for Facilities and Operations Managers

Video Transcript

If you’re a facilities manager, Director of Operations, or COO, you deal with almost everything happening at your facility on a daily basis. And if you oversee more than one facility, your tasks and responsibilities are even greater.

In this week’s Two-Minute Tuesday, we’re going to dive into energy concerns specific to you and share some energy tips for facilities and operations managers that make the process easier for you.

Concern #1: Ease of Procurement Process

One of your concerns is that you need the procurement process to be as easy as possible.

With all you have going on, you don’t have time to sift through mounds of paperwork or charts or spend hours considering every option.

To make the process easier on yourself, consider working with an energy broker or an energy advisor.

They’ll do the heavy lifting for you — requesting pricing, communicating with suppliers, and comparing supplier offerings. Based on their findings, they’ll give you a proposal that clearly states their recommendation based on your facility’s needs.

Concern #2: Efficiency

You also want your facility to be operating as efficiently as possible to reduce your bottom line. Old or outdated machinery could be using more energy than necessary and causing you to be over budget.

To combat this, have an audit performed on your facility to identify possible inefficiencies. The audit will identify both immediate and long-term opportunities for you to lower your energy usage.

And as an added bonus, many utilities currently offer efficiency incentives, reducing your overall project cost.

Concern #3: Budget Adherence and Risk Avoidance

Another important aspect of your job is making sure you’re adhering to your budget.

Can you explain to your CFO why your projected energy costs were ten percent over budget? Are you sure it was due to increased production? What if it was something else?

Taking unnecessary risks with your energy can easily blow up your budget, and you don’t have time to examine the details of every available energy product.

An energy advisor or broker is well-versed in supplier product options and can help you select the one that makes the most sense for your facility. This should be based on your production schedule, sustainability requirements, and any upcoming energy efficiency projects.

Concern #4: Looking for Competitive Advantages

Lastly, you’re looking for ways to give your facility a competitive advantage.

In addition to a strong procurement strategy and doing efficiency projects, consider enrolling in a Demand Response program.

Facilities that choose to participate earn money for voluntarily reducing their usage during test events and peak usage times. The more you can curtail, the higher your payout, and the more funds you have at your disposal for site upgrades.

 

As a facilities or operations manager, you deal with so many variables every day. Your energy consumption and spend is an important aspect of this, but it doesn’t have to be overwhelming.

Keep these energy tips for facilities in mind when looking at your next project or agreement.

Thank you for watching! If you found this video helpful, please feel free to share it with other operations folks, then like or comment below.

TMT: Energy Management Tips for Property Managers

When it comes to managing energy costs, property managers face a number of unique concerns.

It’s not just you making a decision — you have to help your board make a decision and, ideally, make the best one.

You’re worried about:

  • Budget certainty
  • Getting competitive pricing
  • Showing you did your due diligence
  • Saving money
  • Proving that you saved money
  • And did I mention getting consensus from a whole group?

You can’t tackle all of those at once, but we do have some advice on how to address some of these concerns. In this week’s Two-Minute Tuesday, we’re sharing some energy management tips for property managers.

Energy Concern 1: Staying within your budget

One area you’re concerned with is making sure you stay on track with your energy budget.

To achieve budget stability over time, it’s important to stay at least a season ahead of your contract end dates. A good rule of thumb is to test the market 12 months in advance and be prepared to take action in that 9-12 month time frame.

There’s no secret sauce for timing the market. However, following this time frame will allow you the flexibility to avoid rate spikes and take some of the speculation out of the market.

Energy Concern 2: Getting a competitive rate

You’re also looking for competitive rates to save your board the most money.

For larger buildings, a reverse auction is a great option for maximizing transparency and supplier competition. The end result is the lowest possible price on a given day and a very clear documentation to provide the board with confidence in their decision.

For mid-size buildings, you can create similar results with a multi-step bidding process.

Energy Concern 3: Managing board expectations

Lastly, you want to manage your board’s expectations regarding savings potential.

When you’re working with efficiency projects big or small, managing board expectations is critical.

So often I’ve heard about boards who are dissatisfied with a project that is saving them lots of money because it isn’t as much as the sales guy said it would be.

Providing independent savings projections and establishing key performance indicators up front will go a long way to providing your board with the confidence necessary to move forward. It will also make verification of project success much easier.

Keep these energy management tips in mind.

As a property manager, you have a lot on your plate. But keeping these energy tips specific to property managers in mind will make this part of your job easier and keep you looking good to your board.

Thanks for watching! If you found this video helpful, send it to a fellow property manager, then like or comment below.

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Wall Street and Natural Gas

By Michael DeCaluwe, CEM

This winter, natural gas rates have continued their fall below the $2 per dekatherm price point. Weather and decreased production typically create a floor to gas prices. However, neither has been able to slow our run to historically low gas prices.

What’s Wall Street’s role in the market?

Typically, Wall Street’s venture capital firms invest in a company and assume an eventual payout.

  • For example, think of Amazon, which lost money for many years even while its stock price went up. Wall Street was investing in the potential of the company to eventually make money.

Investors applied the “loss leader” strategy to the energy sector, but they haven’t seen the same results. Venture capital firms invested heavily in shale during the post-2008 boom. Yet natural gas rates have continued to decrease, and so have the returns from energy companies.

Debt-riddled and highly leveraged, many natural gas producers have been unable to produce a return for investors.

How did Wall Street get it wrong?

The biggest aspect of the natural gas market that investors didn’t consider is the decline rate in production at the well head.

Gas Well Decline Rates

A decline rate is the decrease in the amount of gas a well is expected to produce year over year. For instance the amount of gas that a shale gas well produces declines by an average of 70 percent in Year 2 versus Year 1.

Natural Gas Decline Rate

Production and Royalty Declines in a Natural Gas Well Over Time — Source: geology.com

The chart above illustrates why the loss leader approach to investing in the natural gas industry has led to big losses.

If these wells aren’t making money in Year 1, the rate of decline means they surely won’t be profitable in future years.

Producers have had to drill new wells to keep production and cash flow up to repay their creditors. This, coupled with the lower domestic gas demand, has created a vicious cycle that has resulted in today’s sub-$.20 gas pricing.

What happens now?

The party might be over for the natural gas industry.

Investors are starting to pull their money out of energy companies, and natural gas rates are at 20-year lows. Shale producers decreased spending by six percent in 2019 and are forecasted to decrease by another 14 percent in 2020.

The number of natural gas-directed wells also decreased by over 35 percent in 2019.

In spite of this decrease in investment and rig counts, gas rates have continued to fall in 2020. It could take a year (or more) of decreased investment in the market to affect natural gas supply.

How This Impacts You

As a buyer, it’s important to understand Wall Street as a market factor. Here are some articles that explain this concept in more detail:

If you’d like to learn about other macro factors affecting the markets, check out our February Chronicles of Nania or feel free to contact me.

 

About the Author

Michael has served as the Senior VP of Commercial & Industrial Sales at Nania Energy Advisors since 2007. He believes that listening to and understanding clients’ energy needs is vital to becoming a thought leader in the industry and forming a mutually beneficial business relationship. In his spare time, Michael enjoys being a dad, staying active, and playing basketball.

Michael can be reached at mdecaluwe@naniaenergy.com or via phone at (630) 225-4552.

TMT: Benefits of a Reverse Auction

Video Transcript

What’s the difference in electricity and natural gas supplied to you between one supplier or another?

The answer? None. They’re both commodities. There’s absolutely no qualitative difference if your supplier is Constellation, Direct Energy, or any of the other dozens of retail energy suppliers.

So, what does matter? Making sure that you’re getting the best effort from all qualified suppliers to provide your organization with the best results.

In this week’s Two-Minute Tuesday, we’re going to talk about how a reverse auction for energy procurement can compress supplier margin and drive energy savings for you.

How does a reverse auction work?

In a reverse auction, all qualified energy suppliers are invited to compete against each other in a live event that you can watch through an online portal.

With each bid, suppliers attempt to win your business by under-bidding one another. They can’t see who the lowest supplier is, but they can see the price to beat. This gives each supplier “last look” and dramatically improves the level of competition.

What happens when the auction ends?

At the conclusion of the auction, when no supplier is willing to go any lower, you’re left with the supplier who was willing to put their money where their mouth is. And the lowest possible energy rates achievable.

You’ll also have a report with time and date stamped bids from all suppliers during the auction.

Consider using a reverse auction for your procurement.

For commodity procurement, there is no more efficient and transparent platform than the reverse auction. But it’s important to note that the auction is just one tool in your energy management toolbox. You aren’t guaranteed the best results just by virtue of using one.

Your consultant or broker should also be:

  • Helping you develop an RFP that defines your energy goals and assists you in making the best decision
  • Monitoring the market for you to advise on the timing of your purchase, and
  • Partnering with you directly to meet the reporting needs of your organization.

When you’re considering options for your upcoming commodity agreement, check out a reverse auction. It might provide some valuable competition you might be missing from your process.

Thanks for watching! If you found this video helpful, please like, comment, or share below.

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TMT: Liquefied Natural Gas

Video Transcript

Did you know that natural gas can be turned into a liquid?

In today’s Two-Minute Tuesday, we’ll be talking about why liquefied natural gas (or LNG) is an important factor in the cost of energy in the US.

Liquefied Natural Gas: Fast Facts

Liquefied natural gas, or LNG, can be exported on ships.

At export terminals, natural gas is cooled to about -260 degrees Fahrenheit, at which point it becomes a liquid. It’s then shipped using special ocean tankers to import terminals. There, LNG is heated and returned to its gaseous state.

Historically, the United Stated imported LNG, so most of our ports are designed to heat LNG to turn it into a gas.

However, recently we’ve seen a rise in shale fracking and an increase in our natural gas production. This led to the opening of the first US LNG export facility in February 2016.

Since then, we’ve added five more export facilities, with more scheduled to come online in the coming years.

Why is Liquefied Natural Gas important?

LNG can affect the price of natural gas both domestically and internationally.

Historically, the price for gas in Europe and Asia has been 80-100% above the cost of gas in the US. This matters because of how it impacts our supply market.

Domestic natural gas producers can get a higher return for their natural gas in the international market versus the US market.

Although we only export a small amount of LNG right now, our exporting capacity could increase because gas producers are driven to capitalize on the market differences. Could this siphoning of supply cause the cost of gas in the US to rise to the level of the international market?

The Future of LNG

The future of LNG exports has a lot riding on the upcoming election. Depending on who wins this contest, the US LNG market could continue to expand or could be cut back. Regardless of the election, LNG exports will continue to influence domestic energy prices for both natural gas and electricity, and its expansion is a factor to watch over the next decade.

Thanks for watching this Two-Minute Tuesday, and look forward to future videos! If you found this video helpful, please like, comment or share below.

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Run an Effective Energy RFP – Energy ABC’s #3

Video Transcript

Figuring out when to buy energy and what to include in your energy RFP can mean the difference between an operating budget bust or surplus for your District.

Get your notes ready! Because I’m about to rapid-fire some best practices for running an effective energy RFP for your district.

Give yourself plenty of time.

Let’s say you get yet another call from an energy provider asking you about your gas and electric contracts. You spout off your standard answer of “We’re locked in for another three years, so we’re all good” and hang up the phone.

While you’re not interested in taking a sales call, it does jog your memory that you haven’t looked at your actual contracts in quite a while. So you track them down and see that you’re up in the next 12 months. So now what?

I’ll give you a hint: the answer is not file it away in a cabinet until a month before your contract expires.

Give yourself ample time to review this process. Engage with new providers. Watch the market. And get buy-in from any necessary parties, such as your Board.

By giving yourself plenty of runway, you could save thousands of dollars and add to your bottom line.

Know your contract end date.

Because all energy supply contracts are purchased on the futures market, they’re all technically forward-facing agreements. So, you can go to market at any time during your current agreement for your renewal.

Let’s say, for example, you have a December end date on your current agreement. You can go out to RFP in January, if you’d like. And you would set a parameter for a December start date. Suppliers can start the new contract whenever you’d like.

How this would work is your new contract would bookend to your current agreement. Just make sure you have accuracy in what your current contract end date is. What you don’t want to happen is to have an overlap of two supply agreements or have a gap in service — both which can result in large penalties to your District.

Watch the market.

So is there a better time of year to buy than others?

Not really.

In theory, it makes sense that you would buy in the off-peak seasons — so you would buy gas when it’s warm outside and buy electricity when it’s cool outside.

But anymore, the market’s not really weather-driven because we’re at a surplus of natural gas domestically. You want to pay more attention to geopolitical speculations and financial gains of any traders, and that’s really what’s going to affect the market.

If you’re trying to “time the market,” you’re better off to give yourself enough runway to watch the market for opportunities. And if you don’t have the time to do that, align yourself with a partner who will and will notify you of any substantial changes.

Consider competitive bidding.

Which brings me to my final point. Call your peers and ask for referrals of any energy partners they utilize. Then pick their brains on RFP parameters that they have.

Keep in mind any changes you have upcoming, such as a closing building or solar installation. These partners should be able to help you build out an effective energy RFP to run on your own, or maybe you trust them enough to run it for you.

Also, keep in mind that energy procurement in public schools does not require a formal bidding process per school code. So, you’re able to work and align with partners that you trust and value.

However, competitive bidding is always a great option, whether you do a traditional sealed bid or maybe you utilized a more tech-advanced option, such as a reverse auction software. Competitive bidding where multiple suppliers compete against each other can really drive down your overall cost.

Build your own effective energy RFP.

Now that you have a jumping-off point, pull out those dusty old contracts and see when they end. If it’s in the next 12-18 months, now is the perfect time to start gathering information and engage with new partners.

Thanks for watching! Check us out in our next video in the series Energy ABC’s.

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3 Ways to Purchase Energy – Energy ABC’s #2

Video Transcript

Hey guys! It’s Becky with Nania Energy, back with the second video in our series “Energy ABC’s.”

Today we’re going to cover a heavy topic of the different ways to purchase energy.

There’s a lot of different options available to you: there’s consortiums, using a broker or consultant, or going direct through a supplier. We’ll cover the pros and cons of each so that you can figure out which is best for your district.

Option 1: Consortiums

Alright, so let’s start with consortiums — or, buying groups or co-ops.

These are typically large groups of similarly-structured businesses, like a K-12 school, that band together to purchase energy in bulk.

A lot of these were created over a decade ago when electricity was first deregulated in Illinois and there was a lot of volatility in the market. So they banded together for safety in numbers.

Consortium — Pros

Think of it like a glacier — it’s large and slow moving, but doesn’t veer much off course. That’s the way that consortiums typically purchase energy, which is great for you as a school district because it’s little to no maintenance.

Consortiums are typically governed by an appointed board, and they oversee a third party — such as a consultant or a supplier — that makes a purchasing decision on your behalf. So it’s kind of a set it and forget it option for your school district. This is really great for you if you’re a smaller school and energy isn’t a large portion of your budget, and you just don’t have the time to dedicate to it.

Consortium — Cons

Some of the disadvantages that come with this, however, is that they’re not a low-cost provider. They don’t set out to be. They’re trying to flat-line the price and eliminate any of the big highs and lows that may exist.

So any opportunities that pop up like we saw in summer 2019 — when we had the lowest prices in the last decade — you’re not able to take advantage of, and you’re limited in the flexibility that you have to look outside of the buying group itself.

A lot of times, to even exit the group once you’re a member could take 3 or 4 years. So you have to be pretty committed to the process if you’re going to join.

 Option 2: Advisor, Broker, or Consultant

The second option you have to purchase energy is to use an ABC — an Advisor, Broker, or Consultant.

While there’s differences between those three, one similarity is that they’re all a third-party that acts as a middleman between your district and your supplier.

ABC — Pros

They often have several supplier relationships, so when they run an RFP for you they’re able to bring a large level of competition — which translates into a lower rate for your school.

They also can offer a range of services to help make your life easier and save you time and energy. This includes:

  • Bill auditing services
  • Handling customer service issues you have with the utility
  • Helping you forecast your forward fiscal budget
  • Validating any ROIs you have on efficiency projects.

ABC — Cons

Some disadvantages to using an ABC, however, is that there is an additional cost. You do pay them a fee, and you should know what that fee is to know that it’s fair and reasonable for your district.

Each ABC handles this a little bit differently. Some require an up-front consulting fee, some bill you directly monthly, and others will actually bake their fee into your fixed rate on your supplier bill.

Make sure you have the conversation ahead of time and know what this is. If your current ABC isn’t willing to share this information with you, it’s generally a red flag that something’s probably not right.

Another drawback of using an ABC is that there are unfortunately low barriers to entry in our state. There’s literally hundreds of brokers in the state of Illinois.

Make sure that you do your due diligence and ask them for references of other K-12’s they’re working with. Check up on them and make sure that they have a full understanding of how your school business operates. It’ll be most important to your bottom line.

Option 3: Directly through a supplier

A third option you have is to work directly through a supplier. These are the people you receive your invoice from each month.

Direct through Supplier — Pros

By working directly through a supplier, there’s no third-party administration cost like there is with using a consortium or a broker.

They also may be able to offer you some completely customized products that you’re not able to get by running a standardized RFP.

Direct through Supplier — Cons

However, this option is really best for districts that have the time and energy that it takes to understand the energy world and make sure they’re not putting their school at risk.

 

There’s a lot of moving pieces to energy, and having a partner to help guide you through that process is imperative to ensure you’re making the best decision for you and your school business.

I hope you enjoyed this video and found it helpful in determining which method you’ll use going forward. If you have any questions, drop us a line or shoot us a note — we’d be happy to help.

Otherwise, we’ll see you next time on Energy ABC’s!

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Energy Buying for Schools – Energy ABC’s #1

Video Transcript

Hi guys! I’m Becky with Nania Energy.

When I talk to school business officials about purchasing gas and electric, I’m often given a lot of questions about how the process works, and there’s a lack of clarity and a lot of misunderstanding around it all.

So I had this idea to release this mini-vlog series called “Energy ABC’s” where we’re going to really hone in on the biggest obstacles that school districts face and give you tangible ways to overcome them.

Right now, we’re going to swap seats. I’m going to act as the school business official and go through some of the biggest obstacles that our clients have told us they face.

Obstacle 1

Energy is so complex. There’s so many layers.

You don’t even know which way to purchase — do you use a consortium? Or do you go directly through a supplier like Constellation?

You’re getting 22 calls a day from different providers saying they can offer you a better rate and more savings.

But how do you know who to trust?

Obstacle 2

You also have a lot of customers that you have to appease in your position. You have school board members, you have other administrators, you have the community. So any decisions you make for change you have to take very heavily and very seriously. And you have to make sure all the boxes are checked.

You also are managing a lot of aspects of school business from teacher contracts to lunch programs to maybe even transportation. You don’t have the time to dedicate to energy, and you’re not an expert in that field.

So how do you know what the right choice is to make? And how do you know what the opportunity cost is by waiting until your contract expires versus looking at it sooner?

Obstacle 3

And finally: how do you make your district more green? How do you become more sustainable and keep up with the Joneses, so to speak?

You’re being asked to bring in more green initiatives to your district while simultaneously being asked to cut your budget and reduce your spending. How is that supposed to work?

Learn how to make energy work for your district.

So, over the next couple of weeks we’ll release some videos that really show you how to address these concerns and make them work for your school district. If there’s something that we haven’t talked about today, shoot me a line or drop us a note and let us know of something you’d like us to discuss.

Otherwise, we’ll see you next time on Energy ABC’s where we’ll dive into the 3 main ways that schools purchase energy. Thank you!

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How to Switch Energy Suppliers

By AJ Brockman

If you want to switch energy suppliers, there’s one section of your current energy agreement that you need to look at first: the “term” or “delivery period.”

The “term” or “delivery period” section contains auto-renewal language, which is a standard part of any energy contract.

Usually, this clause states that the contract will automatically renew for a certain amount of time (ex. 12 months) on a variable or holdover rate unless you submit a notice to terminate in specified terms (ex. 60 days) before your contract expires.

For a smooth supplier switch — and to comply with the terms of your agreement — there are two documents you need to submit to your current supplier: a non-renewal notice and a termination letter.

What is a non-renewal notice?

A non-renewal notice (sometimes called a “Notice to Shop”) tells your current supplier that you intend to shop for rates and you don’t want your contract to automatically renew.

This notice can be retracted and does not automatically terminate your service if you decide to renew with your current supplier.

  • See a sample non-renewal letter here.

When should you submit a non-renewal notice?

You should submit the notice as soon as you decide to shop for rates — which should be at least 6-9 months before your contract expires. This ensures that your accounts don’t automatically rollover while you’re shopping, and you’re following your contractual obligation to give formal notice.

What is a termination letter?

A termination letter notifies your current supplier that you will be using a different energy supplier when your contract expires. It clearly outlines which account numbers and service addresses you wish to terminate.

The letter also states that you are not responsible for any energy delivered to your accounts after your termination date.

  • See a sample termination letter here.

When should you submit a termination letter?

You should submit a termination letter after you sign an agreement.

Note: it is imperative that you submit the termination letter before the deadline that’s stated in your contract. This may require you to submit it before you sign a new agreement.

This deadline varies by supplier — some want the notice 60 days before your contract expires, others require 90 days or even 6 months’ notice.

If you submit the termination letter after this deadline, you could encounter issues or even termination/liquidation fees if the contract has already renewed.

What is the process for drafting a non-renewal or termination letter?

If you’re working with an advisor, we’ll draft up the letter for you that includes all the necessary information (account numbers, service addresses, supplier address, etc.).

When we send it to you, you should copy it onto your company’s letterhead and sign it.

To submit the letter, you can either send it to the supplier yourself or send it to us — we’ll send it to the supplier on your behalf. If you choose to send it yourself, we recommend faxing or emailing a copy to the supplier in addition to mailing it.

Ask your broker or advisor how to switch energy suppliers.

These documents are necessary for switching suppliers and submitting them on time will make the switching process seamless. Ask your broker or advisor for templates and guidance.

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