Originally posted – Apr 11, 2014
Written By: Mustafa Oluwa
If your business is located in an area where energy has been deregulated, identifying and locking in the lowest electricity and natural gas rates is, of course, the prudent thing to do. The benefits of energy deregulation include offering consumers choice when selecting an energy provider.
There’s usually no risk in selecting one provider over another, thereby making price the only variable when selecting an energy provider. In an attempt to get the lowest and most competitive electricity and/or natural gas rates, some business owners request rate quotes from several suppliers and then simply select the lowest rate.
Unfortunately, shopping for energy rates in this manner has a number of disadvantages:
• The hidden cost. This approach could cost unsuspecting business owners hundreds and possibly thousands of dollars annually.
• It’s time-consuming. This approach also can be time-consuming, as it requires that consumers have multiple conversations with multiple energy suppliers over a period of days or even weeks.
• It’s tedious. Another drawback of this approach is the need to provide the same details to several energy suppliers.
Using this method can be costly. Many people don’t even realize that shopping this way is inefficient because it has become routine. You need to ask yourself: Could I be overpaying for energy – and by how much?
If you are using this method, I suspect that, yes, you probably are overpaying for energy. The average energy customer who is using this approach is overpaying by 5 percent to 10 percent.
What’s the Solution?
It’s an approach called an energy reverse auction. It’s a fancy name for an approach where energy suppliers in your area bid against each other for your business in a five- to 10-minute online auction.
The auctions are usually free to the energy customer and are at no obligation whatsoever. This procurement approach, because of its transparency during the hyper-competitive bidding among suppliers, remains the most effective way to extract the absolute lowest rates from energy suppliers.
Energy reverse auctions, which are now available to almost all businesses of all sizes, have been used as the preferred energy procurement approach by government entities, towns and large industrial companies for almost a decade.
Robyn Rocke of Rocke Wildlife Studios in Eureka, Ill., paints the picture.
He was offered a competitive 12-month renewal rate of 5.073 cents per kWh by his current energy provider. He instead chose to have multiple providers compete against each other in a live five-minute auction and ended up with a rate of 4.631 cents per kWh for 24 months – a savings of 8.71 percent!
The Downside of Reverse Auctions
There are only two disadvantages:
• Minimal use. Reverse auctions are not tailored for those with minimal energy use. Businesses using less than $250 per month tend to generate very little bidding interest among suppliers.
• Variable rate pricing is not available. The auctions offer only fixed rate contract pricing (six- to 36-month terms). Customers who only want month-to-month variable pricing cannot benefit from the auction.
However, for businesses that don’t fall under these characteristics, this approach remains the most efficient way to save time and money.
Advantages of Reverse Auctions
• They’re transparent. You can usually watch the bidding on your account in real time from your computer. At the end of the auction, you may choose to lock in the lowest rate, or you may choose to do nothing – there’s no obligation.
• They save time. Attempting to get the lowest rates on your own could take several hours. Energy reverse auctions usually take 10 minutes or less.
• They save money. Because of the competitive environment created by the auction, it forces the price lower than what you could get on your own.
• It’s easy to sign up. Most energy brokers can sign you up for an auction, and all you need is a copy of a recent bill.
All in all, energy auctions can certainly be a way to potentially turn the tables in your favor when it comes to your business’ utility costs.
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