understanding esco contract language

9
A PASS-THROUGH PRIMER “FIXING” FIXED RATES

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Page 1: Understanding ESCO Contract Language

A PASS-THROUGH PRIMER

“FIXING” FIXED RATES

Page 2: Understanding ESCO Contract Language

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

Page 3: Understanding ESCO Contract Language

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

Page 4: Understanding ESCO Contract Language

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

Page 5: Understanding ESCO Contract Language

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?

Page 6: Understanding ESCO Contract Language

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

Page 7: Understanding ESCO Contract Language

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

Page 8: Understanding ESCO Contract Language

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

Page 9: Understanding ESCO Contract Language

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