Energy cost management: Supplier differences-product offerings

Oct 20

What impact could supplier product offerings have on you, the commercial and industrial buyer? Why should you care about the range and general structure of products offered by your supplier, if you have already received a price you like? We believe there are good reasons to pay attention to the entire range of supplier products, even if you have no intention of buying those other products.

This past summer we did a series on how to understand and discern the differences between power and gas suppliers. The point of the series was to help commercial and industrial customers understand that all suppliers of gas and power are NOT the same. There are important differences between power and gas suppliers that extend beyond price and that will have consequences for customer cost and risk. We started the series by reviewing the key components of price and why pricing may differ from one supplier to the next. We talked about differences between supplier contracts and what that means to customers, you can review that article here. We also reviewed the impact of credit worthiness on supplier pricing, risk and costs to customers. You can read that article here.

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Today, we review the importance of specific product offerings. Most suppliers will offer an index or fixed price for gas and power products. (If you are puzzled by the use of the words “product offerings” when referring to electricity and natural gas, we understand! Review our prior articles on product definitions here.)

There are several components that make up electricity costs.

Depending on the size of the purchase, you may receive an offer that is more nuanced or complex. For example, you may have the opportunity to buy a hybrid index/fixed product in the form of buying an index with a component of fixed costs. So why care about the full suite of a supplier’s products? What can product offerings tell you about a supplier?

Here’s why the product offering is important:

  • It can be an indication of the sophistication of the supplier,
  • It could give you a hint about their creditworthiness,
  • Understanding product offerings can help you to understand how well-positioned they are to meet your current and future needs as a customer.

How can a supplier product offering give you an understanding of how well a supplier is positioned to serve you?

  1.  Sophistication. You want to purchase from a supplier that can structure more than one kind of product. Even if all you care about is a fixed price, it is good to know that your supplier can serve a range of needs. Pricing sophistication can also be an indication of how well they will serve you.
  2.  Creditworthiness. A fixed price offering requires a supplier to commit their credit (a scarce and valuable resource) to wholesale counterparties. In general, you want to make sure that your supplier has the credit wherewithal to operate in the marketplace and that they, themselves, can secure products from the wholesale market to deliver power and gas products to you. Creditworthiness of a supplier therefore also reflects on their sophistication (see above).
  3. Service orientation. You can learn a lot about how a supplier views their customers by approaching them with questions regarding products. How engaged are they in seeking a solution to your business objective? Are they creative in working out the right product for your business needs? How adaptable will the supplier be to finding the right product for your business now and into the future, when your needs change?

 

  1. Bottom line for financial decision makers and energy managers and experts: Don’t just look at price when you are buying power or gas. Ask suppliers what their range of products is and how they would deliver their services to you.

 

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