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A Subtle Opportunity in Energy Futures

Nov. 8, 2022
Electricity and natural-gas buyers should expect big cost increases in upcoming supply deals, especially for 2023, but you may find significant savings hiding in plain sight.

A simple, yet little-noticed opportunity may exist for some foundries to gain some major savings on natural gas and electricity supply bills. If you operate in a state that allows you to shop for alternative gas and/or electric supplies, consider a simple change to your procurement strategy as you shop for new contracts. If you are not requesting price quotes for multiple-year terms, you will not have seen the opportunity.

We get energy price quotes for our clients from multiple suppliers, for one- to five-year terms, and we have noticed that the prices quoted for future years vary widely. The price quoted for 2023 was much higher than for later years and while there probably are myriad reasons for this, I think supply/demand and weather are prime factors.

For example, I recently gathered natural gas prices for one of my foundry clients. I noticed the price for 2023 was much higher than for later years. I could see this because I had requested pricing for 12-, 24-, 36-, 48- and 60-month terms.

If you are just renewing a contract for a 36-month term, you’d never see the price difference per year, because the supplier will blend the various annual costs into one rate before presenting it to you.

It is common for companies to delay shopping for a new energy contract until three to six months before a current contract expires. No one likes the drudgery of shopping for utilities every few years; it’s unfamiliar territory, with its own language and procedures, and the rules of the market (NYMEX) are rapidly changing. Even dedicated procurement departments hate it.

But careful timing of when you shop is how you might find that subtle, hidden savings opportunity.

If you can, shop for your next energy contract early. Like a year or more before your contract expires. This could allow you to “leapfrog” the next year, such as 2023, if it is too expensive. Some energy suppliers are happy to offer a contract to supply your needs that far in the future. A new contract will begin when your current contract ends.

How early can you shop? My foundry client had 15 months left on its supply contract, ending at the start of 2024. An alternate supplier was happy to provide various rate quotes for multi-year contract terms that would not begin until the start of 2024. The most expensive rates of 2023 were not included because the existing supply contract covered all of 2023.

Of course, not all suppliers are willing to commit to a contract-start date that is so far in the future. And be sure to check the fine print in any agreement – to remove additional terms that are unacceptable.

Time is your resource when shopping for energy supplies, so allow yourself plenty of it as you scour the market for deals you can be comfortable with. It’s a bit tedious to request multiple quotes, multiple times from multiple suppliers. Then you must compare the various quotes, review the contract terms, etc. Then the market changes, and it’s rinse and repeat.

We provide that service, so you don’t have to make the effort. We find the best suppliers, rates, and savings, then present them to you. If you don’t like the suppliers’ offers, there is no charge to you. If you see an offer you like, our fee is included in the rates being quoted. You just compare the various supplier rates being offered to the rate being charged by your local utility. You choose your preferred supplier and contract term, then we get a copy of the supplier agreement to you for review and signature.

Prices everywhere are rising rapidly. Big increases are happening in the energy futures market, especially for 2023. But the years beyond 2023 still offer significant savings in many parts of the country. This is a good time to review your future energy supply strategy.

Energy is the lifeblood of every foundry, and those gas and electric bills will keep coming. Energy-supply contracts are one way to provide significant savings. Perhaps more important, they can provide price predictability and peace of mind.

Brian Reinke, president of TDI Consulting, is an energy-cost saving consultant. Contact him at [email protected] for a customized, no-obligation quote to review your electric system.