Electricity ranks as one of the highest expenses for enterprises, powering their lighting, HVAC systems, machinery, and overall operations. But with commercial electricity prices climbing upwards over the past decade, it also increasingly burdens bottom lines. Energy-intensive industries especially feel the financial pinch, with utility bills reaching millions annually.

However, in regions where electricity markets have deregulated, there exists new opportunities for businesses to take control of their costs. By strategically procuring supply – thoroughly vetting suppliers, scrutinizing contracts, negotiating better rates, and actively managing consumption – enterprises can make substantial savings.

In this guide, we explore the best electricity procurement practices enterprises should follow to maximize opportunities in deregulated electricity markets.

Understand your usage

Launching an informed procurement process begins with understanding a company’s unique consumption patterns and needs. This way, managers can develop a usage profile that provides the critical foundation to forecast accurate budgets, research potential suppliers, and ultimately negotiate favorable contract terms.

Start by thoroughly analyzing 12-24 months of historical usage, both in aggregate and broken down across time intervals. For example, are there major spikes or dips by season, day of the week, or even hour of the day? What drives the peak demand, the single highest point of electricity draw? Does it relate to weather, production schedules, or other factors?  

Beyond numerical demand patterns, discussions with management around major operational changes should also come into play. Have facility expansions, new production lines, or large equipment upgrades altered electricity needs? Did downsizing initiatives, process optimization, or other moves do the opposite?

With this historical consumption context and data, you can now easily forecast projected usage for the upcoming year or contract term. This kind of analysis can help enterprises to engage suppliers prepared with their expected requirements.

Understand retail pricing factors

While customers only see a total bill charge, behind the scenes electricity pricing contains several components that procurers must understand when comparing options. Specifically, charges can stem from the costs of power generation, transmission, distribution and other miscellaneous expenses.

Beyond grasping pricing structures, procurers must also navigate choices in the underlying rate model. Most common options include:

• Fixed Rate: A flat per kWh price for the contract term
• Variable Rate: Floats based on real-time market conditions
• Time-of-Use: Prices differ based on peak demand hours versus overnight and weekends
• Real-Time Pricing: Hourly pricing mirroring volatile wholesale spot markets

Determining the ideal model requires balancing an organization’s financial risk tolerance against desire for budget predictability. For example, heavier electricity users or more risk-averse enterprises often gravitate toward fixed rate contracts.

The procurement process

With expected usage defined and pricing factors now clear, the procurement process begins by establishing selection criteria for suppliers. Most enterprises narrow the field to 3-5 vetted providers based on key evaluation aspects like experience, price, customer service and billing.

Some enterprises also choose to use energy consultants or brokers to access suppliers and represent them during negotiations. These experts know the local markets, vendor histories, current commercial energy tariffs and procurement intricacies. Additionally, consider leveraging energy contract management services to optimize your procurement contracts and ensure favorable terms. Their relationships and insights can prove invaluable for securing profitable contracts.  You may also want to explore adding some onsite renewable generation like solar panels or wind turbines.

Before settling on a specific supplier or contractor, ask them to provide detailed proposals from several of them to compare both pricing and terms. Beyond base rates, contracts contain many variable provisions that you need to scrutinize including length, renewal options, and early termination fees among others.

Remember, no standard perfect contract exists so be sure to meticulously review the fine print and understand all definitions, fees, adjustment calculations, and other elements before finalizing.

Negotiating deals

With competitive suppliers eager for large contracts, the procurement process grants significant leverage to negotiate deals. Skilled negotiators press for the best achievable rates and terms by driving competition to pressure concessions, applying patience and silence and sometimes even projecting indifference if needed.

Even so, respect and collaboration remain equally crucial as negotiations are relationships. The most advantageous outcomes need to satisfy both parties’ core needs.

While at it, procurers must determine acceptable tradeoffs between ideal pricing and operational constraints over the contract timeline. Keeping future business needs in focus while securing favorable current terms is key.

Managing consumption and costs

Finally, companies need to actively track and manage their electricity usage to get the most bang for their buck after securing strong procurement contracts.

A good first step is to install advanced metering systems and analytics that provide real-time visibility into consumption patterns across all facilities. This allows you to pinpoint areas of waste and variability in usage.

For many organizations, the biggest savings come from addressing inefficient lighting systems. For example, swapping out old bulbs for LEDs can make a dramatic difference. It’s also surprising how much can be saved by optimizing HVAC schedules so you’re not over-cooling or over-heating spaces when unoccupied.

When your utility offers demand response programs, take advantage of them. By agreeing to reduce electricity usage during peak pricing periods, you can earn nice rebates and discounts. You may also want to explore adding some onsite renewable generation like solar panels or wind turbines.

Conclusion

Proper electricity procurement and management practices enable enterprises to gain control over one of their largest overhead expenses. By dedicating resources to build expertise around electricity markets, pricing models, suppliers, contracts, and consumption techniques, organizations can enjoy substantial cost savings.

The procurement process requires thoroughly analyzing historical usage patterns, forecasting future needs, researching pricing constructs, establishing supplier criteria, obtaining competitive bids, scrutinizing proposed terms, and negotiating ideal contracts. What’s more, continually monitoring consumption with advanced metering and identifying efficiency opportunities can help to further optimize the entire process.

To this end, the financial benefits from structured procurement and active management make electricity a priority for leadership. Organizations that commit to continuous improvement around their energy strategy are able to reap multiplied rewards over time as costs compound downward.

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