5 top tips for procuring energy
Date: 10th Feb 2020 By: Peter McMullan length: 6 Minutes Tags: Utilities
The supply of energy (electricity and gas) often represents one of the single largest areas of spend for any institution yet is often one of the area’s most commonly overlooked or least understood. CPC has developed 5 top tips to assist our members in the procurement of gas and electricity to help you get greater benefits and outcomes from your energy supply arrangements.
- Be proactive and plan in advance
The best single piece of energy advice that we can provide is to consider your gas and electricity procurement options well in advance of your current energy contract renewal dates.
Energy markets are actually a “futures commodities market”, which means you can purchase a future dated energy supply contract at any point well in advance of your current contract end date. You can increase your opportunity of identifying and contracting at a lower and more effective cost point by allowing plenty of time for the procurement process, as there is greater opportunity to track the energy markets to determine the most optimum purchasing arrangement for your requirements.
Failing to take proactive steps to manage your current gas and electricity supply contracts terminations may expose you to unnecessary costly risks such as being subjected to higher “deemed/out of contract” rates.
- Be mindful of onerous clauses and terms
The Guardian newspaper, recently published an article by OFGEM the energy regulator which outlines the potential pitfalls of using energy brokers in an unregulated marketplace.
Should you use the services of a “broker” to source the energy supplies, you need to be especially mindful when presented with “Brokerage Agreements” which will govern the contractual relationship between you and the broker. Certain brokers will try to enforce a brokerage agreement which will often outlast any individual energy supply contracts placed. This will severely limit the options available to you when your supply contract expires. Make sure a brokerage agreement terminates at the point of the energy supply contract expiry.
Another common pitfall to be aware of is that certain “Letter of Authority” templates allow brokers to sign contracts on your behalf without prior notice or consent from you. We would advise you to be wary of both these practices as they are in the interests of brokers much more than energy end-users. The CPC Utilities Supplies and Services framework requires no obligation from members and all quotations are free and without pressure to proceed. All costs will be presented in a transparent manner with full supporting explanation so you can make an informed decision.
Letters of Authority (LOA) are a data protection requirement of energy suppliers as they are needed in order to request quotations your behalf. Our LOA template contains the following statements to protect your interests as the customer:
“Contracts or binding documentation will continue to require the approval and signature of an authorised representative of the company.”
- Understand and implement termination notices
Nearly all suppliers have termination notice requirements which should be adhered to and which ensure that you retain freedom of choice at the end of your contract period. There is often a misconception that a termination notice will end your contract early or prevent you receiving a renewal offer but this is simply not the case. A termination notice should always be submitted as good practice to protect your own interests.
The actual gas or electricity supply contract often won’t detail termination requirements and they vary from supplier to supplier, with some more pervasive than others. Termination notice requirements and email addresses for submission can be found in the corresponding set of terms and conditions accompanying your supply contract. A minimum of 30 day’s notice is usually required but for some suppliers it can be as much as 90 days and in extreme cases, if termination is not submitted, you may be rolled onto much higher “deemed / out of contract” rates for a full 12 months.
"Brokers” should take responsibility for this but often they don’t as they are trying to keep customers in one place. The nominated supplier on the CPC framework Utilities Procurement Group Limited (UPG) will always submit your termination notice on your behalf and in good time for every contract that they place. UPG will assist you to submit notice to your current suppliers if you wish, as long as enough time has been left to do so.
- Keep up to date and accurate records of energy contract/usage
The initial stage of gathering correct and current energy supply and contract information, in order to request quotations and provide full cost analysis, can appear be very time-consuming. UPG can greatly assist with this if you provide them with a Letter of Authority and a copy of your energy invoice for gas/electric supply points. UPG can obtain the remaining information from your suppliers with the LOA but it does take a few days for suppliers to provide information.
Try to keep up to date records as this will ensure a more streamlined procurement process and quicker return of quotations. This also provides the significant benefit of having usage figures for legislative/environmental reporting and cost figures for budgets, which facilitates easier year-on-year comparison.
- Understanding overly complex contract types
Many suppliers and brokers give a fantastic “stock-market trader” style sales pitch about more complex flexible contracts, however, often the full picture isn’t provided to customers. Although these types of contracts provide more than one purchasing point, there is a risk that the majority of your energy usage is initially left “unlocked” in consideration of price and therefore subject to the volatility of the energy markets. Rates often vary from month-to-month and invoice-to-invoice making determination of actual costs sometimes impossible before the contract has ended. Many suppliers and brokers take advantage of this lack of transparency and cost visibility. Often no tangible future costs can be provided for the yet unpurchased volumes, aside from a forecast which is just that and gives no certainty.
UPG have the technical expertise to provide a full range of contract types and variants. UPG will try and fully explain the pros, cons, risks and restrictions of each variant transparently. Should you value known upfront costs, budget certainty, energy rates that will not alter for the contract duration providing ease of forecasting, our recommendation would undoubtedly be a fully fixed contract.
Find out more about CPC’s Utilities Supplies & Services Framework by visiting the framework web page or contacting the dedicated Energy Helpdesk on 03453 020041.