There are two main retail energy commodities:
- Natural Gas
It’s important for any energy consumer to comprehend, that both natural gas and electricity are commodities. As a result, they will experience price changes on a daily basis. This is why your monthly bills for electricity and natural gas fluctuate.
We at Orzel Energy Solutions, help our customers get low fixed prices on natural gas and electricity. Businesses like fixed rates since it helps them budget for future energy costs.
Before we explain how to save money on natural gas and electricity. Let’s review some basic energy terms. A wise man once told me, “if you know the rules, you can play the game.”
There are two types of charges that appear on utility statements:
SUPPLY VS DELIVERY
- Supply Charges – in order to use natural gas or electricity, a company needs to actually buy the commodity. The supply part of your bill describes the purchase of natural gas and/or electricity. In other words, the statement explains how much electricity and/or natural gas your business has used. Since the prices for electricity and natural gas fluctuate on a daily basis, your bill will also fluctuate on a monthly basis. For example, some months you’ll pay 14 cents per kWh while other months it can be as low as 6 cents (prices vary by utility).
- Delivery Charges – once your company purchases the commodity, it is then delivered to you by your utility company. The utility company sets the prices for delivery and there are no discounts on delivery charges. The delivery side of the energy business is somewhat similar to an oligopoly with a couple of exceptions. Namely, there are many different markets with varying costs of delivery.
HOW WE PAY FOR ENERGY
When a business hires a consulting firm, they know the fees associated with their decision. However, when it comes to energy, customers have no idea what the prices will be. Why? The price for electricity and natural gas change daily.
VARIABLE RATE VS FIXED RATES
Utility companies only supply natural gas and electricity on a variable rate basis. They don’t offer fixed rates. A fixed rate is an energy product which is exclusively offered by energy service companies (ESCOs). ESCOs specialize in energy risk management. This means, they help business hedge energy prices. They give the customer the ability to lock in their energy prices per kWh (electricity) and therm (natural gas).
How do variable rates work?
If a business purchases their supply from their local utility, they are playing the markets. If prices per kWh stay low, they win! However, if prices per kWh soar, they might sustain heavy losses.
For Example: ABC Corporation uses 100,000 kWh per month.
If the current price they’re paying per kWh is $0.0900, their monthly bill would be $9,000. The next month the price per kWh could go up to $0.1100. As a result, their monthly bill can increase to $11,000. Alternatively, the price per kWh can go down to $0.0600. This would lower their monthly bill to $6,000. One can see, prices changes per kWh can have a significant effect on your electricity and natural gas bills.
A company can hedge and avoid the volatility in the energy markets by locking in their rates. When a company enrolls in a fixed rate, the price per kWh remains the same whether the prices go up or down. When a business pays a fixed rate for the supply of electricity or natural gas, there will be months that they come out ahead, since the contract rate can be cheaper than their utility. Yet, there will be times that their contract rate will be more expensive than the utility. The job of an energy broker is to find a rate that equals your current supply cost or perhaps or even save you 5-10%!
Orzel Energy Solutions LLC is a full-service energy brokerage that specializes finding savings in the procurement of natural gas and electric. We are a family business with over 1500 clients. Prior to entering the energy business, Chaim advised customers on investments at JPMorgan Chase. Chaim has also passed multiple securities licenses and graduated with Honors from Johns Hopkins University – Carey Business School. For energy savings questions, please feel free to call Orzel Energy Solutions at (855) 578-9900
Where does one buy electricity or natural gas?
One can buy these commodities from their utility company or an energy service company (ESCO).
Why does my bill fluctuate every month?
Natural gas and electricity are traded on exchanges. As a result, prices will fluctuate, and the utility company will charge you a different rate every month.
What is the difference between buying these commodities from a utility company and an ESCO?
It’s the same. Electricity and natural gas are delivered your utility’s distribution system.
question is, how does my delivery change?
It doesn’t. In fact, it’s delivered the exact same way. The reason is, your utility company is responsible for delivery. As a result, it’s delivered through the exact same wires and pipes that are currently set up.
Another common question is, what happens if my power goes out?
Your utility company will fix it, they are the ones which you pay delivery charges on a monthly basis. You will ALWAYS pay delivery charges to your local utility regardless of your supplier.
A broker’s role in supply chain, is to help you navigate which Energy Service Company (ESCO) is right for you. You always want to be comparing apples to apples. There are many clauses in these contracts and the job of the broker is to look out for you and get you the lowest rate with the best terms.
In contrast, if there is a polar vortex and everyone’s usage goes up, your price will also go up by a significant amount.
(The advantage of a fixed rate contract is precisely to avoid such pricing situations. When you have a contract, you always pay the fixed rate (assuming you have unlimited bandwidtgh). So, when everyone is paying crazy prices during winter or very hot summer, youre paying a fixed price. It’s possible that your fixed rate will be more expensive for some momths. However, the goal is to pay lower prices overall. Thus, saving money. In reality, it’s a gamble either way. If you stay with the utility, your prices will fluctuate whereas if yoyre under contract, there is somedegree of certainty since youre paying a fixed price.)
(Solution: Contracts …………….your potential savings would come from procuring a lower supply price, which in turn would lower the total supply cost. . A broker’s role in supply chain, is to help you navigate which Energy Service Company (ESCO) is right for you. You always want to be comparing apples to apples. There are many clauses in these contracts and the job of the broker is to look out for you and get you the lowest rate with the best terms.)
what is the supply cost for natural gas and electricity?
If the utility company is supplying the natural gas and electricity, everyone pays the same price (according to the pricing table on the utility company’s website). However, When pricing it out at various ESCOs, the pricing will be different. The price would be based on usage, Efficiency and the type of contract you get.