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(Tip of the Month for May 2000, completely revised and
updated June 2, 2008)
Getting Good Advice
So you're ready to do a deal with a marketer, but feel the
need for some technical and/or contracting support. Who do you go to for help?
Here are a few options.
- Ask some marketers. That's a
bit like inviting the fox into the chicken coop. It never hurts to chat, but
keep your wallet in your pocket.
- Call your local public utility
commission (PUC). It may have useful general advice, but most
PUCs
cater primarily to the needs of residential and small business customers.
They seem to feel that any large commercial, institutional, or industrial
customers should fend for themselves when buying power, as they do in any
other business venture.
- Check with your local utility.
It may offer general advice on how to work with its rules and regulations
when purchasing power, but (based on our experience) very little (or no)
guidance is given on RFPs, contract review, price negotiation, terms, or
conditions. If an unregulated subsidiary of your utility is selling power,
there may also be a conflict of interest.
- Take a course
on buying power. Doing so will get you up to speed on the lingo,
options, and tactics, but you're still on your own when it comes to
negotiating with marketers. Unless you have prior corporate purchasing
experience, a seminar alone cannot ensure you get the best deal. Courses of
this type are offered by the Association of Energy Engineers (AEE),
among other organizations.
- Join an aggregation group.
Such groups typically work with a procurement consultant, so this is an easy
way to "outsource" the task. You may not get the best price and
conditions, however, because your specific needs (and possibly leverage) are
no longer paramount.
- Hire your own consultant. For
guidance on your first power contract, consider hiring someone with
experience in the field. Once you've seen it done, you'll be in a much
better position to do the next one on your own.
- Use an online auctioneer. Several
firms specialize in holding online real-time power auctions, with the lowest
bidder being the winner. Auctioneers are typically paid by the winning bidder,
who has included the auctioneer’s fee in the bid price. Auctioneers act as
consultants, but typically offer a stripped-down version of services that may
miss out on some ways to cut power costs (e.g., finding better delivery
rates).
Finding A Procurement Consultant
But how do you find and choose such a consultant? You could
ask associates in your field, check with your engineering contractors, surf the
Internet, or call affinity groups (e.g., BOMA, trade associations) where your
firm is a member. To get over that first hurdle, we've gone a step further.
Click here to find a
list
of consultants who spent the time, effort, and training fee to attain status
as Certified Energy Procurement Professionals (CEP). Certification is offered by
the Association of Energy Engineers (AEE), which is the professional society for
energy managers and consultants. This effort involves taking a 3-day seminar and
a 4-hour test covering a wide range of issues related to energy purchasing, with
a focus on electricity and natural gas. Those passing the test - and
demonstrating several years of relevant experience - receive a
certificate good for 3 years. When looking for a procurement consultant, request
a copy of his CEP certificate and check the expiration date.
Issues When Choosing A Consultant
While using a CEP-certified consultant does not guarantee
results, the absence of such a certificate brings into question the
qualifications of anyone offering you procurement services. Holding CEP status
is thus one of several issues you should consider when making this choice. Here
are a few others.
- Will a consultant really help?
If all you’re looking for is a lower price than you can get on your own from
discussions with marketers, your load had better be large and concentrated. If
you have many small commercial accounts, dispersed among several utilities, a
consultant’s fee could easily exceed the extra savings he might obtain for
you. Here’s a general rule of thumb: if your average account size is $20,000 a
year or less (total annual electric bill, including transmission and
distribution charges), or your total bill is less than $200,000 a year, a
consultant is unlikely to achieve significantly more savings than you could
get on your own. On the other hand, if you are also looking for better terms
and conditions or additional services (e.g., efficiency upgrades), a
consultant could save you much more than just dollars.
- What are you willing to spend?
Good consultants are not cheap. For a consultant to be worth hiring, he should
be able to secure for you at least 25% more annual savings than you could get
on your own. You can get general power pricing to determine such savings
through discussion with vendors listed on your PUC web site (see Scott
Rubin's Public Utility Home Page) and through Web-based brokers. If the consultant's quoted fee exceeds 50% of those
initial annual savings, you may wish to look elsewhere. Expect to pay
$10,000 to $50,000 (or more) for a consultant to help you develop a Request
For Proposals (RFP) and negotiate a contract.
- How will the consultant's fee be
determined? If price is your only concern, consider a shared
savings approach. Using the informal marketer price quotes discussed above,
determine a base amount you expect to save without a consultant and agree to
pay him a portion (most want 25% - 50%) of the extra savings he obtains above
that level for you. If he is uncertain about finding extra savings, he won’t
take the job. Alternatively, agree to pay a base amount plus a lower
percentage of the extra savings he secures for you. Be sure, however, that you
fully understand such agreements and that you are indeed authorized to enter
into them. If the consultant finds major savings, you will be contractually
bound to pay a major fee. Be especially careful if the consultant says he can
do the work at “no charge” to you. That means he is getting paid by the
winning bidder via a contract between the consultant and the bidders. While
most take about $.001/kWh, some take much more, and you may not know how much
you’re paying. As discussed above, this is typically the arrangement used by
online auctioneers.
- What is his procurement experience?
Energy procurement in competitive markets is a relatively new trade.
Many assert experience when all they have is second-hand knowledge. No level
of academics, “connections,” or mere company size equates with experience, and
prior employment with a utility has little or no bearing on purchasing energy
for a retail customer. If the experience was obtained while working for
others, ask for details and a way to verify that he was actually involved in
the claimed transactions. If the consultant cannot provide verification, look
elsewhere.
- What relevant background/knowledge
does he have? Has the consultant ever been involved with tariff
negotiation or intervention? Has he any experience with demand-side management
(DSM) or demand response (DR)? Has he ever analyzed or designed a
fuel-switching option? Ask for copies of studies, analyses, or testimony he
has delivered.
- What do you think of his style? Ask
him to stand up and give you an impromptu 5-minute summary of how
deregulation actually works in your state. Will his command of the subject,
presentation style, and demeanor be acceptable to your superiors if you need
him to present information to them?
To learn more about the AEE go to
http://www.aeecenter.org. Learn more about the CEP certification program at
http://www.aeecenter.org/certification/CEPpage.htm
Energywiz, Inc.
Adding New Dimensions to Energy Services
SM
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