Some Things to Watch Out for in Energy Supply Contracts

Energy supplies that are less than firm

Your contract will include a clause that’s entitled “force majeure,” which excuses delivery for certain “uncontrollable events.” Some suppliers include the inability to obtain transportation, high prices or a simple failure to contract for energy supplies. Non-firm energy is cheaper than firm energy—but unless you can stand an interruption in the peak periods, this is not for you.

Short-term energy supplies

Your contract may be only for the spring or fall months—before electricity supplies become tighter or natural gas becomes expensive. You will have to pay much more for your energy after your short-term contract expires. So, insist on a quote for year-round supplies, not partial years, unless you really know the markets.

Misleading price guarantees

Your contract may provide an “estimated savings” in the 20-percent range, with either no contractual savings guarantee, or a contract that estimates 20 percent, but only guarantees 5-percent savings. Make sure you know the difference between an estimated savings and a guaranteed savings.

Incorrect payments to the local utility

Your contract may show estimated savings based upon lower payments for energy transportation. Make sure that transportation costs are included in your contract and not a pass-through item.

Incorrect energy usage assumptions

A calculation that assumes greater energy usage will result in greater dollar savings—but not necessarily a greater percentage in savings. Also, estimates that assume that you use more energy in the spring and fall, and less in the summer or winter, will result in lower prices than you will achieve in reality. This is referred to as “load factor.” Be sure to review load factor assumptions in your contract offer.

Math errors

Your “estimated savings” may include calculations with overt math errors. We’ve seen contracts offering “savings of 18 percent,” based upon savings of 11 percent in one year and 7 percent in the next year of a two-year contract. The real savings here is an average of 9 percent, but unless you carefully review the calculations, you will not see the mathematical errors.

Fly-by-night companies

A license to sell energy by the state utility commission is not an endorsement or a guarantee by the commission. Do your due diligence.