It has been more than 15 years since the energy markets in the US have deregulated. At this point, electricity supply is deregulated in about a fourth of the states, and natural gas is deregulated in many more.
Deregulation itself takes a number of forms, but the process is designed to give you, the buyer, more choices and freedom in how you contract for your energy supply. Sounds like a win for the consumer… so why are we still hearing so many complaints about it?
Unfortunately, many customers – public agencies and private businesses alike – are still not availing themselves of the opportunities and benefits created by deregulation. “It isn’t working” or “It’s just too complicated” are all-too-common refrains.
The end result is that many consumers in deregulated markets are not taking advantage of opportunities, in terms of what they pay for their energy and how they pay for it, because of three key “errors”:
- Being stuck on utility supply
- Just working directly with a supplier
- Not planning long-term
All These Choices… and You Haven’t Done Anything Yet?
As an advisor to clients on energy matters, it is amazing how many times we find organizations that are still receiving their electricity or natural gas supply from the local default utility.
Most deregulated markets allow customers to just “do nothing” and receive their supply from the local utility – just as if deregulation never happened. This doesn’t mean this is always a bad thing all the time. In exercising a properly managed energy procurement strategy, it is important to compare default utility rates to competitive third-party supply rates. And sometimes that means it’s OK to stick with the local utility – provided you’ve done your due diligence and found that the utility is still the best option.
There are those who perform this comparison and make the logical decision to go on a utility rate for a period of time.
Unfortunately, these well-informed customers are the minority, and they’re not the people that we’re concerned about. The people we’re focused on make up the vast majority of the “do nothing” contingent: These are the people who stick to the local default rate because they a.) didn’t know that other options were open to them or b.) mistakenly thought the default was the best option.
This lack of awareness is more common in natural gas markets. Even today, it is not unusual to talk to a national business that is unaware of the opportunities available to competitively contract for cheaper natural gas rates in many of their markets.
If you only do one thing after reading this article, make sure you educate yourself on the local opportunities in your organization’s area. Taking advantage of deregulated electricity or natural gas could save you a tremendous amount annually.
Deregulated Energy Markets
All These Choices… and You’re Still Just Working with One Supplier?
The point of deregulation is to create competition and access a host of new choices that you, as the buyer, didn’t previously have.
We typically see well over a dozen suppliers at any given time competing head-to-head to supply customers in most deregulated markets. In order to stay competitive, suppliers must continually develop new products, new contract terms, and new ideas. As an advisor to clients around the world, we see a wide array of products and offerings that exist to service a variety of customers and situations. The only way to ensure a variety of choices is by continually having all suppliers in the market compete – and the only way that customers will know all their choices is by being educated consumers.
With all these choices, it is disappointing to see how many buyers limit themselves to dealing with one particular supplier. It is not unusual to find customers who have decided that Supplier X is the best for them – when, in actuality, many different suppliers could sufficiently provide the needed electricity or natural gas. Limiting your selection like this not only means that you lose out on all the variety out there, but you also create the atmosphere for less favorable pricing.
About the worst thing you can do, as your organization’s procurement specialist, is to cozy up to one supplier without considering what the competition can offer. Pricing always gets sharper as more suppliers compete head-to-head. Energy advisory firms are good at finding even those suppliers with no external sales force and bringing them to the table to compete with the big boys. The results? Better pricing and terms for you, the consumer.
All These Choices… and You Aren’t Budgeting Long-term?
Creating a predictable, stable budget is good not only for a household. It’s equally good for small businesses on up to the Federal Government. As your organization’s procurement specialist, you would certainly concur.
Just think back to the days before deregulation: Your energy costs were always contingent upon what your state’s utility commission allowed your utility to charge. This meant a lot of variance from year to year. One year, you may pay $500,000 for electricity – the very next year, it might be $1.5 million.
One of the key benefits that deregulation has given us is the ability to create and secure a long-term budget. In some areas, we are even seeing solutions involving the procurement of long-term solar energy, resulting in stabilizing electricity costs for well over 10 years. Imagine running a business and knowing what your energy costs would be for the next decade! This would help you better stabilize a key component of your operational costs, allowing you to leverage other aspects of your business.
Again, however, consumers have been slow to respond to these long-term opportunities. Even though deregulation allows us to negotiate and procure long-term contracts for electricity and natural gas, we see too many consumers just doing one-year contracts because “that’s how we’ve always done it”.
A good energy procurement strategy considers where the market is moving with regards to establishing short or long-term contracts. But don’t overlook the incredible benefits achieved by creating a stable long-term budget.
Take Action – Make a Choice
Make a choice today to better educate yourself on what markets you are in – and the opportunities that exist in that market.
With the continual changes in deregulated areas, you can create new strategies and pave the way for others in your industry. Enlist the help of a qualified energy advisory firm that can help you fully understand your options and work with you to create and execute a solid procurement strategy for the future.
Don’t just fall back on a certain utility because it’s easy. Don’t just work with one supplier because they promise that they are taking care of you. And don’t just sign one-year contracts because that is what you have always done.
Make a choice today to take advantage of deregulation.