How Purchasing Energy Will Boost Your Bottom Line
By: Jim Dunne, CEO, Hope Energy
Energy options have become hot topics in Illinois — and many other states — over the last 18 months. During this period many businesses and consumers have been introduced to the deregulated energy market for the first time. In years past you may have assumed that your only options for purchasing energy came from the utility companies; in the Chicagoland area, this is mainly ComEd and Nicor. This is not the case in an energy deregulated state, however, and buying energy competitively can be very beneficial to your bottom line.
In deregulated states consumers have the right to purchase their electricity and natural gas outside their local utility — from Retail Energy Suppliers (RES). The utility companies do not and cannot treat customers who purchase their energy from RES differently. Often this procurement process is handled through an agent, broker or consultant on behalf of consumers.
ComEd estimates that by the end of 2012 it will have lost over half of its original accounts. Customers have been switching at a rate of almost 50,000 per month. The reason for this exodus from the utility companies, particularly on the electricity side, stems predominately from pricing. ComEd purchases its electricity from the same markets as the RES but ComEd does not make money on the supply and tries to keep pricing steady while dealing with a very volatile market. Theyâ€™ve done this by entering into long term purchase contracts. This means ComEd customers are paying much higher rates because ComEd purchased electricity supply in the past at much higher rates. RES are able to take advantage of a down market and pass these lower rates onto customers. Many suppliers feel they purchase electricity much more efficiently which adds to their ability to offer savings to customers.
If youâ€™re going to consider purchasing electricity, consider how much you use and how much you are charged for it. Larger buyers are billed on an index rate by ComEd which more closely mimics current market conditions. Smaller buyers are billed by ComEd as described above, using a fixed rate comprised of years of energy purchasing.
For small buyers, comparing rates is easy. A small business pays ComEd 8.5 cents/kwh. If you purchase electricity competitively you could pay between 5.4 cents/kwh and 7 cents/kwh depending on your specific needs and terms.
For larger customers the saving calculations can be more complicated. However, many large customers switch because they desire fixed rates that ComEd does not offer. This mitigates against market risks and keeps their expenses in line and more predictable. No business wants to see energy bills quadruple in a month because of weather-related events and on an index rate this can occur.
It is a great time to buy energy competitively. Like mortgage rates, natural gas and electricity rates are historically low. You can lock into a low rate and reduce your overhead. The best part about making the switch is that the energy companies do all the work coordinating with the utilities. Most donâ€™t charge a fee. As a business you can switch with no capital outlay, no physical changes, and no lapse in service. Some save tens of thousands per year. Did I mention you get the exact same service? This is an easy way to boost your bottom line without spending a dime.
In these difficult economic times people struggle at home and work coming up with ways to cut costs and boost income. Taking a look at your energy rates can be a great way to help reach your financial goals for the year.
James Dunne is a licensed professional engineer and the founder of Hope Energy. Mr. Dunne has an extensive real estate and private equity background which gives Hope the experience and knowledge to understand property and facility managersâ€™ and ownersâ€™ needs when procuring energy. Mr. Dunne has successfully founded and run a real estate investment company as well as managed real estate development for the largest home builder in the world. This unique marriage of real estate finance and energy experience has enabled Hope to grow very quickly and save its customers significantly on energy costs. Contact Mr. Dunne at: email@example.com.