There are many options for purchasing energy, and the pros and cons of each option must be examined thoroughly before developing a detailed energy purchasing plan. Here are factors to consider before choosing a strategy:
- What percent should be hedged initially? …in subsequent hedges?
- What are the parameters that will trigger additional hedges?
- Should the same strategy be employed for both natural gas and electricity?
- Should electricity hedging be done on regular kW blocks, or on load-following blocks?
- Which non-energy components should be hedged, and under what conditions?
- Should the same strategy be employed across facilities in multiple states, or should there be local and regional differences?
- There are many ways to hedge, and an ideal strategy may include several types of layers (strips), as each one provides unique prospects. Here are some examples of possible hedging layers (strips):
- Strips based on % of usage throughout the entire year
- Strips based on % of usage for particular months only
- Seasonal strips
- Strips of On-Peak and Off-Peak vs. Around-the-Clock usage
In addition, the contractual clauses that define and assign risk will impact energy prices. Cheaper prices are the result of greater assumption of risk by the end user. As such, these clauses must be thoroughly examined.
Finally, local, state and public utility rules and regulations could influence the choice of purchasing options.
Prospect Resources utilizes its set of proprietary analytic tools to craft and execute an effective and flexible strategy which mitigates risks, reduces volatility, increases budget certainty and stability and significantly reduces overall energy expenditures.