Traditionally energy, especially electricity, has been purchased in large quantities for a fixed period of time. In the pre-deregulation era, most electricity transactions were between generators and utilities or very large users. Price volatility was not a major issue, and price certainty, especially for utilities was of paramount importance. As the energy market was gradually deregulated, the size of transactions became much smaller and the end user could purchase directly from generators; nevertheless, the practice of fixing 100% of energy prices for a long period of time still prevails. Suppliers and generators prefer to “fix the price for as long as possible” as it guarantees them profits and customers for that period of time.
The problem, however, is that in a highly volatile market these traditional systems of purchasing energy are tantamount to gambling. The system of fixing energy prices for a year or longer is nothing more than betting the market price on the lock-in date will be to your advantage. Chances of the fixed price being the optimum for the contract period are 1 in 365. Even the chance that it will be below contract period average is no better than flipping a coin!
Buying energy at market index which constantly fluctuates is the same as betting that energy prices will be low more often than not. Good luck with trying to budget your energy costs under that scenario. It’s tossing the dice! And you really have no choice in the matter, since you are forced to make energy purchases as needed whatever the price happens to be at the time.
A dedicated Energy Procurement Department, or an outside firm dedicated to the kind of planning and hedging that optimizes your energy program through
layered hedging, can reduce volatility by 65%. That can translate to big savings.
Prospect Resources Strategic Energy Purchase Plan puts control into your hands, allowing you to do what the other systems don’t do – make some purchases when energy costs are at least below average, maybe even when at their lowest.