Energy Procurement – How the Right Strategy Wins

“The only constant in the energy market is volatility,” asserted Isaac Shkop, CEO of Prospect Resources Inc. (PRI), during a webinar presentation on smart energy purchasing strategies for the Chicagoland Apartment Association on April 12, 2022.

Dr. Shkop and his team have been helping property owners and management associations save millions of dollars on energy costs each year by employing a procurement strategy known as “layered hedging.” Rather than purchasing a facility’s electricity, gas and other energy needs all at once at fixed rates, layered hedging involves purchasing a percentage or “hedge” when rates are favorable and then topping off the rest of the property’s energy needs at later dates when the prices are most advantageous.

“I’m almost excited now as I was the first day [I started this business] because energy is a market that’s changing constantly,” Dr. Shkop said, explaining that he started PRI to “be on the side of the end user and do the best we can for them” by negotiating with energy suppliers.

PRI devises energy plans for its clients and uses sophisticated software to select the best dates for purchasing electricity and natural gas. The statistical models enable the company to project multiple years into the future and purchase for future energy needs now if the price is right.

In today’s volatile energy market, prices can change quickly and dramatically. Since last summer, for example, daily electricity prices have increased more than 100 percent. Natural gas prices have risen even more dramatically. In this environment, a bad decision in energy purchasing can mean dire financial consequences for facilities.

PRI’s layered hedging procurement strategy, however, serves to manage the risk involved in energy purchasing decisions, helping to mitigate the impacts of energy price “rollercoasters.” Using complex statistical tools and regression analyses, PRI can determine what percentage of energy needs to hedge, the best time to hedge and how long to hedge.

Because energy markets are unpredictable, facilities should not “put all your eggs in one basket,” Dr. Shkop advised. He likened purchasing 100 percent of energy needs all at once and signing long-term energy contracts at fixed rates to playing roulette.

Instead, Dr. Shkop suggested spreading risk by buying small increments of energy over a long period whenever the market presents a good opportunity. PRI monitors daily energy price fluctuations and purchases “a little bite” of its clients’ energy needs when prices are favorable.

Taking advantage of the market in this way requires tremendous involvement on a day-to-day basis, Dr. Shkop warned. But the results are terrific.

Over the past 18 years, PRI has saved clients an average of 16 percent on energy costs and has reduced their volatility by 60 percent. Its customized, layered hedging strategies have saved clients more than $50 million over the past four years.

PRI has clients in 14 deregulated states, including 148 rental properties, 73 condo associations, 200 healthcare facilities, 33 commercial office properties, and multiple universities, agricultural operations, light industry, warehouses and more.

Each client has different needs, Dr. Shkop noted. What’s good for an apartment complex is not necessarily good for an office building; energy procurement plans must be tailored for each type of facility.

Understanding each client’s specific needs and working to make decisions in their best interest takes hard work – and building trusting relationships between PRI and its clients. Going beyond serving as just an energy broker for clients, PRI becomes more like the outsourced energy department of its clients’ companies, Dr. Shkop asserted.

With hard work and sophisticated tools, PRI makes careful energy decisions to get the best results for its clients.

“We’re not in prophecy business, so we can’t predict the future. But we treat [our clients’ accounts] like it’s our own money,” Dr. Shkop said. “We make sure you’re getting the best [energy deals] you can get.”

For advice on commercial energy matters, contact Dr. Shkop and his team of energy procurement experts at [email protected] or (847) 673-1959.

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