How to get the most out of the deregulated energy market and avoid the pitfalls
There are several things to keep in mind when you want to get the most out of the deregulated energy market. Here is how to avoid the pitfalls.
Know your contract's end date. All fixed rate contracts have a specific time frame in which you receive one price. If your fixed rate contract term expires without a new contract being signed, your rate becomes a month-to-month variable rate.
Every contract that I have seen allows the supplier to increase their commission when this occurs. Most suppliers will increase their commissions on these scenarios so much that you will actually be paying more than ComEd is charging.
Work with a reputable broker
• Work through an established ABC (agent, broker, consultant.) An ABC can provide you with rates from multiple suppliers at once and explain the differences between their contracts. The Illinois Commerce Commission has a list of licensed and bonded ABCs in the State of Illinois: https://www.icc.illinois.gov/utility/default.aspx
• Avoid MLMs (multilevel marketing companies.) Often times these companies are more focused on trying to build their pyramid of "consultants" rather than providing a real value to their customers. Their salespeople are generally new to the industry and can only provide you with one rate.
Read your contract
Supplier contracts are the same in many ways, where they differ can be significant.
• Early Termination Fees - If you plan on selling or closing down a location before the end of the contract, be sure to understand this section of your contract. The reason suppliers are able to offer you savings is because they are allowed to buy power on the Futures Market. The supplier will buy all of your power for the term you selected in advance. If you terminate your contract early, the supplier is stuck with your unused power.
When this happens, the supplier will resell the extra power to a new customer. But if the market price has gone down, the supplier will suffer a loss because they bought your power at a higher price than they can resell it. The supplier loses money and will look to you to remedy their damages. If you are planning on selling/closing any locations, speak with your ABC about modifying the contract or selecting a more appropriate term.
• Material Change (Electricity) - Basically the supplier wants to be sure that your power needs remain relatively consistent with your past usage history. Considering the fact that the supplier purchases the power for your entire term in advance, they don't want to have to turn to the open market to make up any usage differences one way or the other. The contract will include a clause stating that if you go outside of the designated usage of the contract, you may be subject to paying extra for it. The range on this can vary from 5 to 100 percent and is negotiable.
• Material Change (Natural Gas) - Considering how volatile the natural gas market can be, this section is very important. Not all suppliers are the same in this category. Some contracts will designate how many "therms" of natural gas are being purchased on your behalf. If you used more than what was purchased, you pay market rate plus an adder. If you use less than what was estimated, the supplier buys it back at market rate minus an adder.
If it is a very cold winter like the Polar Vortex winter we recently experienced, customers are using more gas and are paying inflated market rates for this extra gas they need. This can result in very high energy bills. There are suppliers however that don't have these clauses in their contract and will only bill you for the natural gas you actually use.
Hopefully these tips will help you navigate your next power contract.
• Bill Brudenell is president of Cost Advisor in Libertyville. Contact him atbill@costadvisor.us.