Commercial Energy Contracts: What Business Owners Should Know Before Renewing

For many businesses, electricity is simply another bill that gets paid every month.

Until the energy contract approaches expiration. Then someone receives a renewal notice, obtains a few quotes and makes a decision - sometimes under significant time pressure.

Businesses in competitive energy markets may benefit from taking a more deliberate approach. A commercial energy contract can affect operating costs for months or years, so understanding a few fundamentals before renewal can be worthwhile.

# Don't Wait Until the Last Minute

One of the simplest improvements businesses can make is knowing when their current energy contract expires.

Record the expiration date well in advance. Waiting until shortly before expiration can leave management with less time to understand market conditions, review alternatives and evaluate contract terms.

Energy procurement should ideally be planned rather than treated as an emergency.

# Don't Evaluate the Rate Alone Price obviously matters. But comparing commercial energy contracts can involve more than looking for the lowest number on a proposal. • Contract length • Pricing structure • Usage requirements • Termination provisions • Renewal provisions • Additional fees • Supplier terms • Changes in business operations A proposal with an attractive headline price isn't necessarily the best economic choice if the underlying terms don't fit the company's needs.

# Understand Your Company's Energy Profile

Before evaluating a new contract, understand how your organization actually consumes energy. • How much electricity do we use annually? • Does consumption vary significantly by season? • When are our highest-use periods? • Are we adding or closing facilities? • Will new equipment materially change consumption? • Are operating hours changing? Historical bills and usage data can provide useful information for answering these questions. A contract should ideally reflect the company's actual operating characteristics rather than assumptions.

# Consider Your Tolerance for Price Risk

Different businesses have different priorities. One company might place tremendous value on budget predictability. Another might be comfortable accepting more price variability in exchange for a different purchasing strategy. There isn't necessarily one universally correct approach. The important thing is for management to understand the relationship between the proposed contract and the company's financial objectives. Energy purchasing is ultimately a form of risk management as well as expense management.

# Multi-Location Businesses Should Look at the Portfolio

Companies with multiple facilities should avoid viewing every energy bill in isolation. • Differences between locations • Unusual consumption patterns • Contract expiration dates • High-cost facilities • Efficiency opportunities • Potential purchasing opportunities Centralizing this information can also prevent different locations from making energy decisions without understanding the company's broader strategy.

# Separate Procurement From Consumption

A company can negotiate an attractive energy supply arrangement and still waste electricity. Likewise, an efficient facility can still potentially have an energy purchasing strategy that deserves review. That's why businesses should think about two related questions: How are we buying energy? And how are we using energy? Addressing both can provide a more complete approach to energy cost management.

# Know What Happens After You Sign

Energy management shouldn't necessarily stop when the new agreement is executed. Businesses should maintain important contract information and periodically review performance. • Usage • Costs • Contract milestones • Facility changes • Market conditions • Upcoming renewal dates The objective is to avoid returning to exactly the same situation several years later: discovering that the contract expires next week and having to make another rushed decision.

# A Better Renewal Process

A disciplined commercial energy renewal process might look something like this: • Step 1: Gather existing bills and contracts. • Step 2: Analyze historical energy usage. • Step 3: Identify operational or facility changes. • Step 4: Understand the organization's budget and risk priorities. • Step 5: Compare appropriate supplier and contract alternatives. • Step 6: Review important contract provisions. • Step 7: Execute the selected strategy. • Step 8: Monitor performance and prepare early for the next renewal. That transforms energy procurement from a periodic administrative task into an ongoing business-management process.

# Start Before Your Contract Expires

You don't have to wait until renewal month to understand your energy position. Businesses can start by identifying their current contract expiration date, gathering recent energy bills and understanding how their facilities consume electricity. The earlier management understands the situation, the more time it has to make an informed decision.

# Mister Vincent Partners Strategic Partner Resource

Redstone Energy provides commercial energy brokerage, consulting and energy-efficiency solutions. Its process begins by reviewing a company's bills and contracts, analyzing usage and risk, comparing supplier options and developing an appropriate energy strategy.

Businesses can begin by requesting an Energy Review and providing a recent energy bill for analysis.

Request an Energy Review with Redstone Energy

Disclosure: Redstone Energy is a strategic partner of Mister Vincent Partners. Mister Vincent Partners may receive compensation when readers use certain partner links or become customers. This article is for general educational purposes. Energy markets, regulations, contract structures and available supplier options vary by jurisdiction and customer.