Many businesses are feeling the impact that rising energy costs are having on their bottom line. In fact, a recent study commissioned by the National Federation of Independent Business found that 76 percent of small business owners lowered their earnings or profits to compensate for increased energy prices.
The unpredictability in the energy market is leading an increasing number of Illinois businesses to explore their options with deregulated retail energy providers. Nationally, about 65 percent of commercial and industrial customers now receive their energy from a retail energy provider other than their local utility.
In a deregulated marketplace, customers have the freedom to choose their energy provider like they would any other business partner. As in other deregulated industries, energy companies compete for a customers business through innovation, customer service and price. Remember, it wasnt until after the telephone industry deregulated that innovations such as caller ID, call waiting, high-speed Internet and other now standard services that we take for granted first began to appear.
Unlike traditional utilities, energy retailers employ a complex combination of long- and short-term buys to achieve predictability and mitigate a companys exposure to energy price fluctuations.
How to choose a provider
Im frequently asked by business owners what they should look for when evaluating retail energy providers. My best advice is to explore all the options so that you fully understand the choices that are available. While the perfect fit should be based with an eye on your companys unique needs, there are three main criteria that you should consider when choosing an energy provider.
First, financial stability needs to be a critical consideration. Make sure that your provider has the financial resources required to support your business for the long term. Because of aggressive pricing and the competitive nature of the market, some providers have defaulted, leaving their customers in a difficult spot until they are able to enroll with another provider a process that could take a couple months. You should also inquire about the financial backing of your provider to better understand its stability and available capital.
Secondly, make sure that the provider has experience operating in deregulated energy markets. The value a provider brings to your business lies largely in its ability to predict the markets dynamics and provide reliable service. This is not an easy process and experience in not only your market, but in other states and countries, is a key indicator of how successful a company is likely to be. Lack of experience in how to best navigate turbulent energy markets could result in costly headaches for your company.
Finally, select a provider based on its ability to best minimize risk and reduce your exposure to market fluctuations. Ask your energy provider to review the various products they offer to mitigate risk at a level with which your company is comfortable. Retail providers all have their own set of proprietary plans, but at the end of the day the only question you have to answer is: How easily will this provider help the energy costs fit within my budget?
Pitfalls to avoid when in the energy market
Despite the best research and preparation, making the right choice is never a guarantee. From my many years in the energy business, I can share some final tips on finding the right provider.
Cost should not be the only factor: While lower energy prices might be a priority, remember that customer service, years of experience in deregulated markets, and a shared commitment to your growth are also very important.
Shop around: Deregulation is all about choice; so even if you find what seems like a great energy provider, take time to find out what its competitors are offering in your region.
Beware of hidden charges: Watch out for energy companies that want to charge a customer charge or administration fee.
Ask questions: Ask for existing customer references and closely examine the track record of your prospective energy provider. Also ask questions about their management, number of clients served and the length of time theyve been in the business.
As energy prices continue to climb, making it harder for businesses to forecast and budget energy expenditures, it makes sense to take advantage of the Illinois deregulated energy market and seek a provider that can serve as your partner to help manage energy costs. A little effort and research can result in big returns for your bottom line.
David Braun is the director of Illinois Business Markets with Direct Energy, one of North Americas largest competitive retail energy providers with more than 5 million customer relationships and 2004 revenue of $4.5 billion. Direct Energys parent company, Centrica plc, is a global energy company with more than 33 million customer relationships worldwide and $22 billion in annual revenues. Direct Energys regional headquarters are in Oak Brook, Ill.
From the Nov. 23-29, 2005, issue