“He who lives by the crystal ball is destined to eat ground glass … Between 1979 and 1982, I had eaten enough glass to realize that what was most important wasn’t knowing the future, it was knowing how to react appropriately to the information available at each point in time.”
– Ray Dalio, Principles
Procuring energy in a volatile market has become a challenge (and savings opportunity) for healthcare organizations that are under pressure to reduce costs and risks while providing a safe and productive environment for staff. All the while, navigating the complex legal guidelines surrounding energy deregulation in your state can prove overbearing.
A Few Things to Consider:
- Do you have in-house expertise to accurately compare and receive competitive pricing?
- For example, power prices can have 10-15 separate ancillary components that are all billed differently by different suppliers. Those components can drastically affect your overall spend.
- Is the supplier reputable?
- Can you get better terms and conditions? What is standard?
- When is the best time to go out for a new deal?
- Is the supplier/broker just wanting to collect revenue for as long as possible even though it may not be in my best interest?
Ecom-Energy is the independent expert on energy procurement in the healthcare industry. We have assisted clients in the procurement of electricity and natural gas in every major region of the United States. We know the ins and outs of the deregulated markets and help our customers assess their internal risk to provide a product that best suits their needs.
Simply, Ecom-Energy sits on the customer’s side to proactively manage their utility portfolio with the best market information and timing available.
Ecom-Energy’s competitive procurement process provides:
- Budget Certainty – Energy procurement mitigates risk and allows facilities to create budget certainty.
- Savings Potential – With proper market timing, expertise, and strategy, customers can take advantage of savings opportunities.
- Cost Control – Take control of your own budget and spending to dictate when, how, and from whom you purchase your energy.
Ecom-Energy’s procurement solution includes:
- Assessment of Customer Needs and Market Conditions
- Risk Assessment Based on Customer Needs
- Deal Structure Analysis
- Strategy Development and Implementation
- RFP Development and Bid Selection
- Bid Analysis and Price Negotiation
- Contract Review
Market Snapshot: Southern California
The graph below displays a snapshot of market conditions in Southern California via the Bidweek Indices for the region.
Bidweek Indices include transactions done at the end of each month for gas to be delivered for the entire following month. They paint a picture of the natural gas market volatility that healthcare facilities are exposed to and Ecom-Energy can help navigate.
Hover over each month on the graph to see historical pricing.
Energy Procurement Fact Sheet
All facilities need to purchase energy (natural gas and electricity). The question is never, “Should I buy?” It is, “From whom, at what price, and how?”
The process of purchasing a commodity in the futures market, similar to purchasing soybeans, coffee, oil, etc.
Prices constantly fluctuate in the open market based on internal (trading) and external (weather, supply/demand, etc.) factors.
There are two main contracts for energy procurement:
- Master Agreement: Lays out basic terms/conditions and allows the supplier and customer to do business together (enabling agreement).
- It is standard that a Master Agreement be signed before a deal is hedged as the Master Agreement carries no obligation to transact any business.
- Confirmation/Addendum: Details the particulars of a deal once hedged in the market (i.e. product, term, price, volumes, etc.).
Energy procurement confirmations or addendums are take or pay. This means that once a deal is locked/hedged, the supplier hedges it in the futures market.
You cannot cancel a deal before the term is set to expire without incurring liquidation costs.
As procurement is a hedge in the futures market, it is important to accurately hedge the proper volumes per month.
An improper, and substantial, deviation from hedged volumes versus actual volumes can create negative economic impacts.
What Is Energy Deregulation?
Energy deregulation gives you the power to switch your electricity or natural gas supplier and affects how much you will pay for energy.
Deregulation gives consumers a choice when it comes to their energy supplier. It also motivates suppliers to differentiate their products and offer comparable rates and pricing to be competitive in the marketplace.
Standard Utility Process
What Does Deregulation Mean for Me?
Having the power to choose your energy supplier allows you to compare natural gas and electricity rates, giving you more control over your energy costs. Deregulated energy also gives you the chance to choose from different products based on your organization’s budget and risk tolerance. A spectrum of product mixes are available, from 100% fixed price products to 100% market-based products.
You don’t have to worry about service interruptions when you switch energy suppliers because your local utility continues to deliver the physical commodity to your facility. Your utility is still responsible for distributing energy commodities to your facilities, regardless of the supplier that you choose. The only difference is that the supply price is not set by your utility. You will typically receive one monthly bill for the commodity from your supplier, and one monthly bill for the utility for the delivery of that supply.
Is My State Deregulated?
Energy Deregulation in the United States