What Manufacturers Need to Know Before Signing an Energy Supply Contract

What do know before signing an energy supply contract

Your energy supply contract is the blueprint for your relationship with your energy supplier. That’s simple enough, right?

As with all business decisions, it’s important you understand and are comfortable with your contract’s terms – especially when those terms could affect your cost – before you sign an agreement with a new energy partner.

But while the contract process might  seem overwhelming, energy decision-makers don’t need legal expertise to be successful.

Energy contract terms you should know

Beyond the rate shared on the proposal, there’s a lot that goes into (and could possibly impact) your energy cost. For instance, contract language could allow an energy supplier to upcharge for weather events.

“Be sure to read your contract closely and ask up-front for transparency,” explains IGS Energy’s Adam Hartman. “What appears to be a ‘low’ rate could potentially get costly very quickly.”

Depending on the contract language, provisions and limitations could affect your overall energy cost. Before signing an agreement with a supplier, make sure you feel comfortable with their terms concerning these five factors.

Regulatory factors

With an aging infrastructure that requires upgrades, added charges may be assessed during the term to accommodate these changes.

Material deviation

Material deviation can include supplier charges to help recoup costs for changes to your operations, equipment and your use.

Capacity cost

Capacity cost is based on your peak demand and changes annually.

Ancillary costs

These costs include many small cost components that add up – and some suppliers may pass them through to you during your contract’s 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 to verify a contract's accuracy – and transparency

Once you’ve reviewed a few suppliers’ contracts for the factors mentioned above, it’s time to decide on the right partner for your business – and your goals.

Quality suppliers review their contract in detail 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,” Hartman says. 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,” Hartman explains.

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.

“Your supplier should contact you prior to the conclusion of your contract to assess any changes that may make sense,” Hartman says.

The bottom line: Do some research and ask tough questions before choosing a supplier you can trust to manage your organization’s energy needs.

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