With natural gas and electricity prices near ten-year lows, why worry about long-term energy procurement strategies?  Many experts caution that low prices should not be taken for granted.  In the short term, weather can create significant price volatility; U.S. energy prices quadrupled in unregulated markets during the winter of 2013 - 2014.

Long term, the forecast is for upward pressure on energy prices.  This will be driven by an increase in domestic demand for natural gas due to coal plant retirements (natural gas is now the fuel of choice for electricity generation as new EPA regulations impact 1,400 coal and oil units) and by increased natural gas exports to Asia and Europe.

What can companies do?  To limit future exposure to price spikes, BLS & Co. recommends that customers in deregulated states give serious consideration to longer term energy supply agreements, such as:

  • Fixed Price Agreements: These provide customers with price and budget certainty.  Usage becomes the only variable that is monitored and managed.
  • “Block and Index” Structures: A customer can fix all or a portion of the price of energy.  Pricing can be locked in blocks or percentage levels.  This entails more management and oversight, but allows a company to dollar-cost-average the price, as an investor would do with a stock purchase.

Via Sugarloaf Associates™, we have many years of experience negotiating energy prices on the commodity markets, and our team frequently structures and negotiates energy services agreements for clients. 


 
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