Optimizing Management of Your Regulated Energy Spend and Market Risk

In recent years, significant increases in energy market price volatility have occurred, resulting in sizable impacts to organizations’ energy budgets. ?Most recently, in 2022, a?14.3% surge?in electricity prices added unwelcome financial pressure to corporate energy managers.? Companies who have not built a strategy to actively manage their energy purchasing may be especially vulnerable to major hits to their budgets, as a result.? Impacts of this volatility reveal the need to actively manage energy purchasing in both regulated and deregulated markets, based on timely market insights and analysis.?

While energy rates have seen gradual increases for many years, a number of providers have recently announced double digit rate increases to be implemented in the near future.? In addition to increases in base energy rates, fuel costs are increasing, the combination of which can impact your budget significantly.? The primary focus of these increases is on electricity, which represents the bulk of energy cost for most organizations.

Impending rate changes have been announced by multiple providers, including PG&E, Duke Energy, and ComEd, to the tune of 10-17%; some represent annual increases while others stipulate multi-year rate increases.? Reasons cited for these increases span the spectrum, and include assurance of safety and reliability, wildfire mitigation and grid improvement.

View replay of our recent webinar: "Optimizing Management of Your Regulated Energy Spend and Market Risk"

It is not uncommon for organizations to underestimate the proportion of energy purchased within regulated markets; in fact, almost 75% ?of US energy spend is in regulated markets. ?Many corporate energy managers focus primarily on deregulated energy spend where they can competitively source their energy supply.? Evaluating your organization’s exposure to volatility in regulated markets is a first step in building a more comprehensive energy strategy.

In addition to this spate of rate changes, there are other costs impacting organizational energy budgets; fuel costs have been quite volatile over last few years and can also render major impacts to budgets.? The means by which utilities levy fuel costs varies by category and/or timing but, regardless, typically adds complexity to the energy buyer’s assessment of rate changes.?

Another trend influencing energy purchasing includes the impact of renewables, specifically a rapid uptick in solar and wind renewable energy, which is impacting how prices are set during the day.? This dynamic has changed how utilities collect revenue and is a shift from the previous structure, necessitating a review of relevant tariffs and analysis of the best approach for organizations to take.

View replay of our recent webinar: “Optimizing Management of Your Regulated Energy Spend and Market Risk”

Energy market volatility typically increases during winter months due to increased heating demand.?

Increased demand for natural gas also occurs and often exceeds production levels, which forces utilities to pull gas from storage inventories.? This increasing demand for gas also contributes to energy market price volatility and underscores the importance of an energy purchasing strategy to protect against the risk and impact to budgets from this volatility.?

Read our insightful guide to Optimizing Winter Readiness?here

The actual impact of these volatility factors is difficult for organizations to predict and prepare for, revealing a need to gain insight into these dynamics in order to successfully navigate an uncertain environment and execute a strategy. Energy executives have found that formulating and deploying an energy management strategy, in advance of the scheduled rate increases and typically volatile winter market pricing, blunts the downstream impacts of this uncertainty.

View our recent webinar: "Optimizing Management of Your Regulated Energy Spend and Market Risk"

Let's continue the conversation about how to ensure your organization is ready to optimize management of your regulated energy spend and market risk! To schedule an initial discussion,?click here.

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