What every business needs to know before signing an energy supply contract
Since a contract is the blueprint for your relationship with your energy supplier, it’s important to understand and be sure you feel comfortable with the terms, especially when those terms could affect your cost. It may feel overwhelming, but you don’t have to be a legal expert to understand it. Let’s take a closer look at some of the factors that may affect your costs.
What should you look for in a supplier contract?
There’s a lot more that goes into (and could possibly impact) your energy cost beyond just the number on the proposal. For instance, does the language allow the supplier to upcharge for weather events? “Be sure to read closely, because that ‘low’ rate could potentially get costly very quickly,” explains Adam Hartman, lead regional sales manager with IGS Energy.
Depending on the contract language, provisions and limitations could impact your overall cost. Before signing an agreement with any supplier, make sure you feel comfortable with their terms concerning these factors.
Regulatory factors – With an aging infrastructure that requires upgrades, additional charges may be assessed during the term to accommodate for these changes.
Material deviation – Can include supplier charges to help recoup costs for changes to your operations, equipment, and your use.
Capacity cost – This cost is based on your peak demand and changes annually.
Ancillary costs – Includes many small cost components that add up and some suppliers may pass through to you during the term.
Swing tolerance – Most contracts offer what is known as “100 percent swing” so be sure your supplier can point out where this is outlined.
How can you confirm if a contract is accurate and transparent with no hidden fees?
Once you’ve reviewed a few suppliers’ contracts for the above factors, it’s time to make a decision. Quality suppliers will review their contract in detail with you and address any questions or concerns before you sign. “Whether you want the stability of predictable pricing or are interested in taking advantage of market volatility, a flexible contract could really help you achieve your goals,” said Hartman. Additionally, pay attention to how quickly a supplier is willing to review their contract with you – if they don’t do this early this could be a potential area of concern.
Transparency is more than just the words on the contract, too. “Your price is only as good as the contract that supports it,” said Hartman. This in mind, make sure you’re clear about how things will be handled at the end of the term. Will you be proactively contacted by your rep prior to that date to explore your options? An energy partner that’s invested in your business will want to make sure your contract continues to meet your needs as your usage evolves and can adjust as needed. “They should contact you prior to the conclusion of your contract to assess any changes that may make sense,” he said.
The bottom line is, do your homework and ask the tough questions before choosing a supplier you can trust to manage your organization’s energy needs.