Has your city been solicited by an energy broker or a retail electric provider? If so, you’re not alone. Slick-talking sales people have approached a number of city officials with what may seem like tempting deals — but with one very big caveat: that the new power agreements get locked in now, well before the current TCAP contract expires in 2017. There’s all sorts of reasons why this is a bad idea.
The Texas Coalition for Affordable Power has put together this informational document to explain the potential problems with these offers … and how TCAP members benefit through the non-profit coalition’s unique approach to energy procurement.
TCAP wants our members to understand the dynamics of our energy market, especially for those members who may be considering contracting for future periods. Our analysis suggests that now is not an optimal time to be contracting for energy. Some reasons include the high-price hangover effect of summer (traditionally a time of high price volatility in ERCOT), and emerging trends suggesting that prices may be moving lower over time.
TCAP’s analysis reveals that year-to-date wholesale commercial market prices for 2014 are higher than both 2013 and 2012 average market prices. One common scare tactic we’ve heard from brokers is that consumers should buy now before prices rise even more. But energy markets are complex and prices are driven by many variables. TCAP sees a number of signs that market prices instead may move downward in the future. For instance, a plentiful supply of natural gas — including gas ready for delivery and gas in the ground — should provide ample feedstock for generation. In addition, there have been a number of generation plants to come on line in Texas over the past year. More generating plants are planned for the future. While nobody can predict the price of energy with certainty, TCAP sees the emergence of future opportunities.
TCAP also is developing new supply portfolios that should significantly lower prices over traditional energy offerings, but that also will allow members to sign up for more customized deals based on their individual priorities for low price, renewable energy content, long-term fixed-price security or some combination of all three.
Energy Brokers typically receive “adder” payments from retail electric provider for bringing in customers. If you buy energy from a broker you are probably paying two profit margins for every kWh you use — one for the REP and one for the broker. TCAP has heard informally that in some cases brokers may make more profit on a kWh sold than the REP does.
Some brokers will work for one REP and some will have relationships with a number of REPs. But either way, it is important to understand that in most instances brokers are only going to present offers from REPs with whom they have a contractual relationship. Even if the broker is working with a number of REPs — and the would-be customer is offered a “choice” — there is no guarantee that these deals are the best the market has to offer.
Sometimes brokers may focus the buyer on price, but there are numerous potential contractual pitfalls or potential price adders that may make a seemingly attractive price less than desirable in the long run. Our experts look to find these potential price adjustments, quantify their potential impacts, and negotiate more advantageous terms for TCAP members. This can be best seen by the refunds TCAP has provided to its members since 2009.
In addition, TCAP learned years ago that the REPs that offered the best prices for energy and the REPs offering the best customer services were often different. In order to bring its members the best of both worlds, TCAP manages for its members separate contracts for energy procurement and for billing services — a groundbreaking practice at the time that is now used by many larger end-use customers.
A number of energy sellers may suggest they have proprietary access to markets or unique market tools that allow them to procure energy at prices below that available to other parties. TCAP knows that energy markets are already fairly efficient. That’s why we believe the best strategy is to review all potential market offerings, not just a subset of market offerings.
Some parties may suggest a strategy of timing the market to hit market lows for pricing. On the surface this may sound impressive, but the truth is that nobody knows the future price of energy. While you may know that market prices are low now when compared to the recent past, no party can see into the future to tell you with certainty what prices will be next month or next year.
TCAP knows there is no substitute for a widely-focused procurement, thorough analysis of deal structures and proposed contracts, and aggressive and effective negotiations. This hard work, carried out by professionals who only represent TCAP and their members, is the best pathway to successful energy procurement.
TCAP has and still represents the best procurement option for its members. Advantages include:
Other benefits – TCAP provides a number of other benefits including protecting member interests by advocating for favorable energy policies at both the state legislature and in regulatory proceedings.