This post is another in our series intended to shed light on the differences between suppliers and the impact those differences may have on you, the commercial, institutional or industrial customer. Prior posts in the series include: Energy cost management: Supplier differences-product offerings, Energy cost management: Supplier differences – contract terms, Top 10 energy cost management questions: Why you should care about supplier creditworthiness, and Fact or Fiction: There is no difference between supplier prices.

Some suppliers tell our clients they’ll get better pricing from them (as opposed to the competition) because they own assets—power plants, gas infrastructure, etc. Not surprisingly, it’s the big suppliers — who own these assets — that are making this pitch to clients. So, is it true, or not? Fact or fiction?

Answer: Really, it’s fiction.

Here’s why.

Yes, there are large suppliers that own wholesale and retail businesses as well as these kinds of physical assets, and own them within the same organization. And often, the wholesale entities in these companies are responsible for managing the sale of the power generated or flowing through those assets (in the case of a power company). So, it is logical to expect that if a single company owns assets and is also responsible for managing the sale of the power output of those assets, then the wholesale entity will make that power output available to its sister entity, in this case the retail business. After all, that retail business serves commercial, industrial or residential customers. Why not sell the power or gas to another entity within the same company?

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Sounds logical, right? Well, not necessarily. All retail, wholesale and physical assets are evaluated based on how well they run their businesses. Managers in charge of wholesale/physical assets have incentives to maximize their profits, just as retail suppliers do. Wholesale entities managing the sale of the gas or power in question will seek the best business outcome. They will not discount supply to retail sales entities, no matter how closely related they are in terms of corporate ownership.

So neither institutional, commercial, industrial nor residential customers will not receive “better pricing” as a result of being part of a larger organization that also owns power plants or gas capacity. It just doesn’t make business sense to do so. Any pitch that a vertically-integrated power or gas company may make to a commercial, industrial or residential customer that indicates some advantage over other retailers that don’t own assets will largely be a marketing pitch, and will not be supported by lower pricing.

An important side note: There may be some advantage to buying from a large, vertically-integrated energy supplier thanks to the ins and outs of how wholesale and retail credit is handled. That’s why we say “largely fiction”, above. We discuss the issue of creditworthiness in a prior post, here. Credit at the wholesale/retail level is beyond the scope of this article. But there is not a great deal of evidence to show that large vertically-integrated power and gas companies pass on a credit benefit in the form of lower prices to their customers.

Bottom line for financial experts and energy decision makers: Buying from an asset-owning supplier probably won’t bring you significant additional cost-reduction benefits. It is more important to consider a range of criteria. Don’t let asset ownership be your only (or perhaps even your main) consideration when you’re selecting a supplier.