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Take Control of Energy Costs in Five Simple Steps

Buying energy is unlike buying other goods and services. Natural gas and electricity markets are a unique hybrid of volatile commodity markets and complex regulated utility services. Energy is a major operating cost for most commercial and industrial organizations. What's the best way to reduce costs and manage risks in energy procurement?

5 Simple Steps

Here are 5 key steps that large energy buyers can take to effectively control energy cost uncertainty in their organization, as recommended by Aegent Energy Advisors

Use a buying team: Avoid vesting responsibility for energy procurement in just one person. A buying team with diverse functional representation does a better job of bringing all the important energy procurement considerations to the table, enabling better decisions.

Set clear risk management objectives: Each organization has a different tolerance for energy price risk, depending on its organizational goals and the realities of the environment it operates in. Buyers must set explicit, quantifiable, and realistic procurement objectives.

Create competitive buying processes: Buyers should build a procurement program that ensures access to competitive prices in any energy transaction. That means taking the time build a supplier portfolio. Prices do vary from supplier-to-supplier at any point in time, and unless you have a choice, you'll pay too much. And tailoring the quantity and the term length of your purchases can also yield savings.

Diversify your risks: Structure your energy supply arrangements to avoid having all your eggs in one basket. Don't rely on one supplier, one supply path, or one decision day as being the best one. Develop a portfolio. Make decisions rationally and analytically within a risk measurement framework.

Track performance: Measure results to gauge how well your procurement strategies are meeting your organizational objectives. It's the only way to know if you're on track. Be sure to set up your measurement system when you begin your procurement program. And make sure you measure the right things - if price stability is your prime goal, it doesn't make sense to measure whether your price "beat the index". Defining appropriate measures makes sure everyone - right up to senior management - understands the objectives and knows what success will look like when it comes.

By following these five simple steps, you can achieve structure, process, and have a well-founded plan, which will lead to cost reduction, greater cost certainty, and better peace of mind.

 
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