Understanding Your Energy Contract: Part 2
Why It Matters and How APPI Energy Can Shed Valuable Light on Your Current (and Future) Contract
Last month, we launched the first in a 2-part series on Understanding Your Energy Contract, taking a closer look at the nuts and bolts of your energy contract, but also diving into the common questions and drilldowns that companies can expect in an assessment of their contract terms.
We continue down that path this month, highlighting a few of the key areas to take note of when evaluating your contract.
First Things First, Why You Should Assess Your Current Contract
One of the first steps you’ll take with your dedicated consultant is taking an educated, unbiased look at your current contract. Selecting the best energy supplier price and contract is a complex process, and the critical goal is to ensure that each supplier’s quote includes the same price components and contract clauses. There are a variety of terms and conditions that can result in higher rates or pass-through fees than originally negotiated in a “fixed rate” contract. Contract price AND terms need to be considered when comparing suppliers. Let’s look at a few of the questions and key contract terms that you’ll tackle with your Energy Consultant:
Bandwidth Constraints – How are they defined and is there a swing tolerance?
Bandwidth is an allowed deviation from predicted and contracted energy usage. If you go above or below your agreed upon bandwidth, the supplier will either purchase or sell the leftover or excess on the spot market.
- What does this mean for you? Many agreements are restrictive regarding the use of energy that falls outside (above or below) the pre-estimated monthly volumes. Limits to bandwidth can make for a costly bill if you are buying energy outside of your agreement terms while the market is much higher than when you first secured your agreement rate.
Swing Tolerance – What percentage does your contract dictate?
Going hand and hand with bandwidth is ‘swing tolerance’ or the percent of energy that can be used above or below contracted quantities at a contracted rate. This percentage ranges from 0% to 100% (0% meaning that no variance is allowed, and 100% meaning you can use up to an additional 100% of projected usage).
- What does this mean for you? A few questions you’ll want to dig into further are: Does your supplier provide a swing tolerance? If so, is it effective for the entire term? Are there any adjustment or pass-through charges for being over or under?
MAC or Material Adverse Change – Does your contract include a material change provision?
Simply stated, a material change is incorporated into most providers’ contracts and addresses significant changes in usage, ultimately allowing suppliers to adjust the terms or price of the contract to account for those changes.
- What does this mean for you? A supplier could enforce a bill adjustment if you deviate beyond an established swing tolerance for 2 or more successive months, an unwelcome surprise that you may not be prepared for. What’s the difference between swing and material change? Great question! Swing addresses small changes to a contracted usage on a monthly basis, while material change addresses significant changes that could impact usage over the long term. Simply put, you won’t likely get the supplier to eliminate this clause from your agreement.
Ready to learn more? We’re ready to chat! Our team is primed to help you minimize unnecessary risk while ensuring you understand what you are buying. We are committed to complete transparency between our clients and their energy suppliers, but more importantly, we are committed to walking you through the entire process - before and after a contract is signed.
Connect with our team today! Reach us at 800-520-6685.
Direct Energy Business