5 Ways Your Electric Supply Deal Can Go Wrong

You have done your due diligence, solicited the market for the best supply offers, read and reread the energy contracts, picked your supplier and signed on the dotted line. Energy supply nirvana (insert record scratch sound here) until it is not. A majority of the time things go as planned but what happens when they don’t and how can the more common issues be prevented?

 

1. Complicated Billing

You shouldn’t have to know calculus to figure out your electricity supply invoice. If you typically purchase a standard fixed rate then the invoicing should be a breeze. But, as you move into more sophisticated supply products the complexity will increase.   Items I have seen that create billing confusion are:  a) description of charges so watered down that the actual meaning is lost, b) lack of supporting calculations, c)  no transparency into calculation inputs, and d) no way to validate charges such as true-ups.

Prevention: Request a sample invoice prior to contract execution for the exact product you are considering. If the supplier can not easily explain each line item then reconsider the product.  Remember your boss will likely ask you to support the charges and you will be on the hook to explain them.

 

2.  Pass-Through Charges

All electric supply contracts allow for costs to be passed through in the event of change in law, regulation or market rules. This should not and does not include energy market price movements. In the past few years we have seen an uptick in pass-through charges as supplier margins continue to be under pressure making them unable to absorb most impacts from market rule changes. The alternative of pricing this risk into your deal ahead of time will be way too expensive.

Prevention: Set your expectations appropriately with your team. The energy market is complex and ever changing so there is a reasonable chance that pass-through charges may appear if you execute a multi-year term. If a pass-through event were to occur, have your supplier explain the cause of the charge and provide the supporting calculation of your exact impact.

 

3. Early Termination

Suppliers purchase forward energy in support of their customer obligations. This allows them to honor your contract rate even if the market goes up. When a customer terminates a contract early there will likely be costs/penalties associated with the unused future power. Early termination can happen for numerous reasons including facility shut down, ownership change, or even misalignment of contract start and end dates. Whatever the reason, early termination fees can be painful.

Prevention: Communicate with your supplier about changes that would trigger early termination fees. Under certain circumstances such fees can be reduced or even waived. Early contact is key because once the early termination fee is in the hands of collections, it is difficult to pry open those fingers to get it back.

 

4. 1-800 Customer Service

Nothing is more frustrating than having an issue and the help on the other end of the phone is clueless. Customer service departments vary greatly between suppliers and can test the patience of even a yogi master. Knowing the right questions to ask with the right industry vernacular is critical in resolving your concern. In some cases, the supplier will win through sheer customer exhaustion of the process.

Prevention: Do not accept this as your fate. This is where a reputable broker/consultant worth their salt will shine. Make them do the leg work for you using their knowledge and supplier relationships. They will know what to say and how to say it to get the answers and resolutions you need.

 

5. Lack of Transparency

Transparency by both customer and supplier is the foundation to creating a sound relationship throughout the term of your agreement.  Issues can arise when a customer enters into a deal knowing that operations will change drastically within the term. Or when a supplier is opaque to what may or may not be included in the rates that are quoted. Any issue can be resolved as long as both want a fair and equitable outcome.

Prevention: If you feel your energy sales person is not being completely transparent then reconsider placing your trust with them. The buying balance is definitely tipped toward the seller in energy contracts as the acumen for the product lies with the supplier. Follow your instincts and work with only those suppliers/brokers/consultants that earn your trust.