understanding esco contract language

A PASS-THROUGH PRIMER

“FIXING” FIXED RATES

AN OBJECTIVE LOOK AT ENERGY SUPPLIER CONTRACT LANGUAGE

THIS PRESENTATION WILL COVER

▸ Avoiding costly mistakes before entering into a contract

▸ Factors affecting the decision making process

▸ Comparing contract language

▸ Common provisions that allow for “pass-through” charges

▸ Addressing concerns with a supplier or broker

73% OF SMB EXECUTIVES POLLED WERE MOST INTERESTED IN A FIXED PRICE ENERGY CONTRACT

-Energy Research Council Study

FIXED PRICE CONTRACTS CARRY LITTLE MARKET RISK AND ENHANCE BUDGET CERTAINTY

DON’T MAKE THE MISTAKE OF BUYING ON PRICE

ENERGY PRICING CAN CHANGE DURING THE TERM OF YOUR AGREEMENT

▸ Not all fixed rates are created equal

▸ Many factors can affect energy supply pricing once a contract has started

▸ Reviewing and understanding contract language is increasingly important

COMPARING CONTRACT LANGUAGE

BE SURE TO REVIEW THE FOLLOWING CONTRACT PROVISIONS

▸ Are all pricing components defined clearly?

▸ Does the contract reference assignability?

▸ What are the bandwidth provisions?

▸ What is the suppliers stance regarding a “change in law”?

▸ End date of contract and any early termination or post contract fees?

CONTRACT LANGUAGE THAT CAN AFFECT ENERGY PRICING

▸ Change in Law - Changes to energy pricing during the term of an agreement that occur as a result in a change in law

▸ Bandwidth - Penalties that can be incurred based on the amount of energy used during the agreement

TEXT

UNDERSTANDING CHANGE IN LAW PROVISION

▸ Justified as this protects supplier from additional costs incurred as a result in laws or regulations

▸ Rare for a supplier NOT to have this clause in their default contract language

▸ These provisions should not be written to help the supplier recoup costs as a result of adverse market conditions

▸ Rarely suppliers will remove this clause even if a premium is added to pricing

UNDERSTANDING BANDWIDTH PROVISIONS

▸ Many suppliers reserve the right to charge additional fees should your energy usage vary by a pre-defined percentage during the course of your agreement

▸ Can be referred to a either ‘bandwidth” or “swing”

▸ Historical energy consumption provides a baseline for the supplier

▸ Most suppliers will remove this clause if asked some may charge a premium

UNDERSTANDING AND NEGOTIATING THESE TERMS IS AN IMPORTANT FACET OF ENERGY MANAGEMENT. BE SURE TO REVIEW THESE TERMS CAREFULLY BEFORE EXECUTING YOUR NEXT CONTRACT