What energy opportunities exist for small businesses?
1. Energy Supply Rate
When shopping for electricity and natural gas, not all rates are created equal. What kind of rates are available, and which is best for your business?
· Fixed - With a fixed rate, the price you pay per unit (kWh for electricity, mcf or ccf for gas) remains the same for the entire term of the supply contract, regardless of what happens in the market.
· Introductory – With an introductory rate, you may receive an extremely low rate for 1-3 months. Beyond the introductory period, you are typically then charged a supplier variable rate.
· Variable - With a variable rate, the price you pay per unit fluctuates monthly. There are many types of variable rates. Below are the most common for small commercial customers:
o Electricity Price-to-Compare (PTC) – This is the standard utility rate you receive if you have not shopped for electricity. This rate is set monthly and changes through a process dictated by Ohio’s regulators, the Public Utilities Commission of Ohio (PUCO). These rates are historically higher when demand is higher, such as in the summer months when customers are running air conditioning.
o Natural Gas Standard Choice Offer (SCO) – This is the standard utility rate you receive if you have not shopped for natural gas. These rates can be set in different ways depending on your utility region. However, these rates have also historically been higher when demand is high, such as in the winter months when customers are running gas heating.
o Supplier Variable Rate – This is an offer from a Certified Retail Electric or Natural Gas Supplier. These rates are often offered through door to door or telemarketing. When compared to fixed offers, they often appear to be much “lower”, but in reality, they can be far costlier as the rates tend to increase in the long term.
The winner? Fixed. – The uncertainty of an introductory or variable rate makes it difficult to budget monthly expenses. In addition, fixed pricing offers protection from market swings, seasonal demand spikes, and suppliers overcharging. For most small businesses fixed is the clear choice.
2. Terms and Conditions
Although price is typically the primary consideration, there are other factors to consider when signing up for a new product that could impact your energy costs.
· Automatic Renewal Clause – Many suppliers will enroll the account in an automatic renewal program if not acted upon prior to a contract’s expiration. These programs vary in length from month-to-month up to the full length of the initial term. Some suppliers require 30-60 days’ notice prior to the end of the contract to prevent an automatic renewal. It is important to understand your electric and natural gas supplier’s policy to prevent your company from being swept into an autorenewal term at higher-than-market rates.
· Early Termination Fees (ETF’s) - Most supply contracts include language regarding their fees for ending your contract prematurely. However, each supplier may calculate these differently; the two most common types are flat fees and damages.
o Flat fees tend to be a one-time fixed charge (e.g. $100 per account).
o Damages are typically the difference between your contract rate and market electricity or natural gas rates multiplied by how much they projected you would use for the remaining months of the contract.
What is right for you? – For most small businesses, it is ideal to get a supply contract that renews on a month to month basis, allowing you to move to a new agreement easily at the end of the term. There is no “one-size fits all” when it comes to ETF’s. However, it is important that the fee calculations are easy to understand and reasonable based on your usage.
3. Tax Exemptions
Many businesses in Ohio aren’t aware that they are eligible to reduce or eliminate their natural gas sales tax. Are you using gas in food or manufacturing process? Are you a non-profit organization? You might be eligible for a full or partial tax exemption.
4. Contract Management
Once you have signed an agreement, be sure to take the following steps:
· Create a file - Place a copy of your new supply agreement in a folder and write down the phone numbers for your energy advisor, supplier, and the utility.
· Create a reminder in your calendar - Place a reminder in your calendar to renew your supply contracts at least 120 days prior to the date of expiration.
Always avoid rolling to a monthly variable rate at the end of your contract so as not to erode your savings. Managing the end of your contract and proactively shopping for a new product will pay off greatly in the long run.
When in doubt, turn to your chamber. The Greater Medina Chamber of Commerce’s savings programs are vetted with trusted providers. Use them as a resource!