Contracting for municipal electricity is complex. And not just a little complex—seriously complex. We see a lot of cities falsely assume that any old RFP will do, just find/replace “concrete” with “electricity” and your low bid’s the best bid!
But not so. There are nuances that if not understood and expertly navigated can cost millions. But never fear, we’re here to give you the top five mistakes that we see City Managers make and how not to make them yourself.
5) Assuming the lowest bid will save your city money
The deregulated market is incredibly competitive. But, there’s still no such thing as a free lunch, and too-good-to-believe deals inevitably are. That’s why you need to be able to ask the right questions and accurately parse the gotchas in the fine print. That low per-kWh price is meant to distract you from the limitations and caveats written in deliberately opaque legalese. TCAP’s specialist legal, energy industry, and, legislative consultants know just what to watch for to take care of its members now and as the energy market landscape changes.
4) Assuming long-term contracts are better than short-term contracts
The longer the term of a municipal electricity contract, the higher the premium you’ll pay a REP or broker. Why? Because risk rises steeply with time just as do futures prices for the commodities needed to generate the electricity they want to sell you. They’re not willing to lose their shirts on you, so the longer the term, the higher the premium you’ll pay. Then, if prices fall rather than rise you may end up with serious egg on your face. That’s why a fixed-rate, long-term contract that looks great today, may not seem so down the line. On the flip side, choosing too short a contract can compromise your long-term budgeting.That’s why TCAP works continually to find the best balance of price, certainty, and services for its members.
3) Assuming brokers and REPs have your City’s best interest in mind
Those broker and REP salespeople courting you are neither philanthropists, nor are they your friends. It’s all about big deals, big commissions, big profits. But you might think, if the market is competitive, maybe that’s why they’re able to offer such a great deal. But no, to compete, they develop marketing strategies that allow their per-kWh pricing and program seem attractive, while downplaying or outright hiding details designed to make penalties elsewhere in the contract compensate them for the savings they’re baiting you with. TCAP is not a REP or a broker. We’re a non-profit, for cities by cities, aggregator uniquely able to buy at the same wholesale prices the for-profit vendors offer.
2) Assuming all contracts are created equal
While the contract fine print may cause your eyes to cross equally or create the same kind of migraine headache, not all contracts are created equal. Ceilings, meter charges, congestion costs, and other “adders” in a contract can turn what seems like a “low bid” into the worst deal ever. If you are not intimately familiar with the language and the tactics that REPs and brokers employ, you are at their mercy. Luckily for our members, these sort of gotchas are not issues they have to deal with.
1) Assuming “going it alone” will secure you a great contract
We run into some City Managers who believe that they can craft a fool-proof RFP for electricity, or negotiate a better contract on their own. But, you see, a city’s ability to negotiate is directly proportional to the electric “load” it represents and its knowledge of the electric market in Texas. TCAP’s aggregated load brings us to the attention of suppliers and service providers, giving us the clout to bargain at a level only the biggest cities can match.
Whether we’re the right fit for your City or not, we’re here to help you wade through the murky waters. Don’t go it alone.
