Why Pay a Consultant for Energy Advice When Suppliers Offer It for Free?

February 2009

• An energy consultant can guide your organization through a number of areas where value can be found: supply planning and procurement, utility rates, and operational management.
• An energy advisor who is paid a fee to exclusively represent your company's interest can often be a cost effective asset for finding value in your energy program.

In challenging economic times, it can seem counter-intuitive to add an additional expense to your energy costs by hiring an outside energy consultant. However, leveraging the knowledge of an energy consultant rather than a supplier is an efficient way to develop cost reduction strategies for your energy supply. An energy consultant can guide your organization through a number of areas where value can be found: supply planning and procurement, utility rates, and operational management.

Supply planning and procurement

Rather than relying on a single source for your energy supply, an energy consultant can work with you to develop a supplier portfolio as a means of reducing both cost and risk. Having multiple suppliers can ensure that you pay a competitive price for your energy. As shown in the table below, prices for summer 2009 solicited in December 2008 from three different suppliers gave the client in question the option of securing the lowest priced energy available from his supplier portfolio.

Supplier 1	$7.650/GJ
Supplier 2	$7.610/GJ
Supplier 3	$7.680/GJ

A supplier portfolio also reduces the potential risk associated with a supplier failure. The summer of 2008 saw the failure of a large Canadian natural gas marketer. Companies that sole-sourced their natural gas from the marketer had to find alternative arrangements on very short notice. On the other hand, clients with supplier portfolios were able to contact an alternate supplier to meet their natural gas requirements.

Diversifying a supply portfolio by transacting with multiple suppliers also allows your organization to spread credit exposure among multiple suppliers. On balance, this results in a lower credit exposure than one would have if all supply came from one supplier. In times when suppliers may be less willing to extend credit, being able to spread credit exposure among multiple suppliers can reduce the need to post credit to meet the requirements of a single supplier.

Review of utility rates

Many companies recognize that utility rates are regulated and as such, they feel that they have little control over this cost. However, with the help of an experienced energy consultant, the determination of the utility rate category that best suits your business and the establishment of the contract parameters within the rate category are areas that potentially can provide additional savings.

Using natural gas as an example, large-volume rate categories typically require the establishment of a daily demand level. It may be tempting to simply set the demand level higher than the highest expected level of daily consumption. An alternate approach would be to assess historical daily consumption, determine what level of contingency is required, and then review the resulting demand volume on a year-by-year basis adjusting it as appropriate. This type of process can help to ensure that your business is not paying more in demand charges than is necessary.

Operational management of supply

Effective management of the operational aspects related to supply of natural gas is another key area for potential savings. Many organizations tend to balance their banked gas accounts with their utility only at the conclusion of their contract year. However, value can be found by proactively managing a banked gas account throughout the year, potentially taking advantage of periods when the prices available for buying or selling natural gas are advantageous. An experienced and knowledgeable energy consultant can manage this process efficiently.

At a time when cost management is a key focus for many organizations, the ability to dedicate resources entirely to the management of their energy supply is frequently not possible.  An energy consultant who is paid a fee to exclusively represent your company's interest can often be a cost effective asset for finding value in your energy program.

Managing cost and risk with a supplier portfolio Read more»

Make sure your energy procurement goal is "SMART" Read more»