Why does your end date matter? – MES #2

Feb. 11, 2021 – In the second video of the Manufacturing Energy Success series, Mike Zaura discusses how knowing the end date of your electricity or gas agreement can impact your bottom line.

Video Transcript

Hello! I am Michael Zaura, and welcome back to Manufacturing Energy Success.

Tell me if this scenario sounds familiar to you. Last night, your phone starts blowing up. You’re getting a bunch of emails about production on second or third shift. You get to the office this morning, and now all of a sudden someone’s out and maybe you’re short-staffed. Or maybe certain production materials didn’t come in as you expected.

The point to all of this is: you have a lot on your plate as a packaging manufacturer. You guys have been busier than ever, and energy might not be high on your priority list.

In this week’s video, we’re going to touch on how something so simple as knowing the end date of your electric or gas agreement can make a big impact on your bottom line.

Why is knowing the end date of your electric or gas agreement so important?

Let’s back up a little. There’s an old rule of thumb in energy that says “Buy your gas in the summer and your electric over the winter.” The thought process was that you use a lot less gas over the summer and less electric over the winter, so prices would be much lower.

That’s not necessarily the case anymore. There’s a number of reasons behind this, but primarily natural gas is used so much in producing electricity now that the market produces opportunities throughout the entire year. You don’t know which month you might find a market opportunity that presents itself.

How does your end date impact your energy purchasing strategy?

Let’s look at two different scenarios when it comes to the end date of your agreements.

Scenario #1

You’ve rifled through all your paperwork and you find out that the end date of your current gas agreement is at the end of March. You have a short time frame in which to look at your options.

The first thing you look at is the number of days you have to terminate with your current supplier. It could be 30 days, it could be 60. You might love your current incumbent but you do want to shop the market and see what’s out there. If you have a 60-day termination clause, now you have to go with that current incumbent and you can’t explore the market.

Couple that with a weather pattern that we’re currently having and prices that have risen dramatically over the last couple of weeks. Now, prices have gone up, and you really have no other options to look at.

Scenario #2

You look through your current power agreement and find out that the end date is December 2021. What are your options?

You can go to market and get rates from suppliers for a December 2021 start date. This gives you a benchmark so you can set up a market watch. A market watch enables you to set a trigger point for a price you’re looking for over the course of the next few months.

Say it’s June and you wanted a five or ten percent savings against that benchmark rate, and the market watch alerts you that the market has hit that point. Now, you have further options.

  • You can sign with the current incumbent and renew your contract with them starting in December 2021.
  • You can go out to market again and see which suppliers might be offering even lower rates than that trigger point that was just hit.
  • Third option, and maybe the best, is a reverse auction platform utilizing technology to get the best of all those worlds.

So, you can see in Scenario 2 that you have many more options to impact your bottom line when it comes to your energy procurement than you do in Scenario 1.

Whether it’s two months, ten months, or even 24 months from now, knowing the end date of your energy agreement can have a significant impact on the options you have. The earlier you look at this will increase your opportunities to make the best decision at the best time for your facility.

Join us next week!

Thank you for watching! I hope you found today’s video valuable. In our next segment, we’ll be exploring a way to create a new revenue stream for your facility in the form of a Demand Response program.

Stay warm out there, and have a great week!

 

Follow us on LinkedIn!

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *

seven + 12 =