If you own or operate a business with multiple locations across various states or locations, then procuring energy supply for your business can be quite challenging, given the various tariffs, utilities, and rules regarding energy deregulation. Multi-site energy procurement can be even more challenging to manage on an ongoing basis with contract renewals, document management, and rate changes. This article speaks to the challenges of developing an effective energy plan for multi-site operators and how you can centralize your energy procurement strategy.
Understanding Multi-Site Energy Procurement
To fully understand multi-site energy procurement and develop an effective strategy that reduces costs, procurement managers and business owners must be able to execute on several key initiatives to overcome challenges, such as:
Contract Complexity
Each site, depending on the commodity, usage profile, and utility rate class, can have different suppliers, contract structure, and term. For example, a 24-hour manufacturing plant with heavy electricity and gas usage might elect to purchase a block and index electricity contract to take advantage of low-cost, off-peak hours, while fixing its gas rates on a long-term agreement. Managing several different contracts across several sites can be challenging, especially when those contracts are up for renewal.
Billing Management
Having multiple utility accounts with different billing methods and cycle dates makes managing true costs even more difficult. While accounting systems can streamline expenses for reporting, diving into the specific numbers becomes more challenging. For example, an organization might elect for dual billing with its energy supplier, where utility delivery costs are billed separately from supply costs. Matching billing cycles across many accounts is difficult, as each utility account typically has a unique meter read date. Auditing these utility bills for discrepancies becomes an ongoing task as each billing cycle ends. Having a centralized billing platform can make managing multiple bills easier.
Regional Differences
Billing practices can change based on the location of your site. For example, each state treats the application of sales tax as it relates to utility billing differently. At the utility level, various tariffs and deregulation rules make applying a “one-size-fits-all” strategy ineffective. A successful manager needs to understand the nuances of each state, utility, and local policy to effectively pay the least for utilities.
Operational Efficiency
Managing utilities site-by-site wastes valuable human resources. Centralizing your procurement strategy can help to overcome these challenges, creates leverage when negotiating rates, and presents a more unified approach.
Multi-Site Energy Procurement Framework
- Standardize contracts where possible (terms, renewal windows, product types)
- Centralize data (billing, contracts, usage, suppliers)
- Segment strategy by market (utility rules, weather risk, capacity exposure)
- Monitor forward markets continuously, not just at renewal
Benefits of Centralizing Energy Procurement
There are several key benefits to centralizing your energy procurement strategy and developing a comprehensive utility bill management system, including:
Volume Discounts
While it’s not necessarily true that aggregating usage across markets can lower prices due to the locational nature of energy markets, grouping facilities in single utility footprints can help to increase the overall contract volume and allow businesses to secure more favorable pricing. For example, a chain of hotels in a single market might be able to get a more favorable custom price than when priced individually on a supplier’s matrix.
Aligned Contract Terms
Deciding on a single procurement strategy based on usage at each facility can help to improve energy procurement management. It is difficult to manage multiple contracts with different terms and end dates. Normalizing these contracts into aligned terms helps administrators not miss market opportunities or contract renewal dates.
Simplified Administration
By centralizing your procurement strategy, you can cut down on the administrative time needed to manage a portfolio of energy accounts. For example, by simply having all of your third-party supply agreements end in the same month, administrators can model energy futures pricing in order to lock in renewal rates when prices are low. This task is near impossible when having to model several different futures contract windows.
Improved Data Reporting
A centralized system can help organizations report on true energy expenses as a unit of operating costs. This can help executives understand energy costs by location to make data-driven decisions about energy efficiency and other projects.
When Centralized Procurement Works Best
- Multi-site portfolios within the same ISO or utility footprint
- Predictable load profiles with stable operating hours
- Organizations with procurement, finance, and ops alignment
When It Requires Customization
- Highly weather-sensitive or seasonal loads
- Mixed C&I + retail portfolios across multiple ISOs
- Sites with on-site generation or demand response participation
The Role of an Energy Broker in Multi-Site Procurement
For organizations with multiple locations in different states or utility markets, the role of an energy broker becomes more and more important. Brokers can help to alleviate some of the administrative burden of managing multiple contracts and can even help you unlock additional savings. A good energy broker can assist in a variety of ways:
Market Expertise
Energy brokers working daily in the energy markets understand price trends, contract structures, and how they might apply to your usage profile. An experienced energy broker will help you choose the best-fit energy supply product for your business to maximize savings and reduce risk. This can eliminate much of the research associated with vetting suppliers and contract terms.
Contract Negotiation
Brokers also understand the motivation of energy suppliers and can help you to leverage your portfolio of energy accounts. Oftentimes, suppliers are willing to negotiate contract terms in exchange for an agreement to supply all locations. Brokers have long-standing relationships with energy suppliers and can help you navigate the best suppliers based on the location of your sites.
Price Monitoring
One often overlooked aspect of energy procurement management is the ability to secure low prices when futures markets are favorable. You do not need to wait until the end of your existing contract term to shop for renewal pricing. An effective energy broker will monitor future prices to help you hedge in an effort to meet budgetary goals.
Administrative Relief
Finally, utilizing the services of an energy broker can help to eliminate the administrative burden of tracking multiple energy contracts. Your broker will record each contract in a centralized database, store a copy for your records, and can even assist with utility-related matters as they arise. One of Diversegy’s many multi-site customers sung our praises during the Covid-19 pandemic as we helped to negotiate payment plan terms with multiple utility companies as a result of a mandated shutdown and loss of revenue.
Risk Management and Market Volatility
If you have several locations across multiple markets, there are additional aspects of your strategy to consider, like risk management and market volatility. Let’s evaluate some of the key things to consider when contracting multiple facilities:
Supplier Risk
While you might benefit from signing all of your accounts with a single supplier, you should consider the risk of over-reliance on a single company. If the company declares bankruptcy, you might lose out on your negotiated fixed energy price. You should consider the size and creditworthiness of the supplier before contracting your entire portfolio. Another strategy would be to contract with multiple suppliers based on pricing in each market and attempt to align contract terms accordingly.
Market Risk
It’s important to understand that all energy markets are not the same. Pricing in Texas can and is completely different than pricing in the Northeast for a variety of reasons. It’s also important to consider the location-based dynamics of the market when choosing an energy product. For example, an index gas product in Texas might be less risky than an index gas product in New York, where extreme winter weather can cause spot prices to soar. It’s best to consider these market trends when deciding on the best-fit product structure for each location.
Regulatory Risk
While regulatory changes do not always directly impact the ratepayer, it’s good to be abreast of the latest policies to prepare for changes in cost. For example, customers on the PJM grid recently experienced a drastic increase in electricity prices due to surging capacity prices in the wholesale market. A recent price cap regulatory order was approved that limits these prices from running away; however, many experts believe that prices will remain near the price cap for many years to come. These policies cannot be avoided, but should be monitored to accurately forecast future costs.
How Diversegy Helps Multi-Site Businesses
Diversegy’s team of energy market experts has over 100 years of combined experience managing multi-site energy contracts for our commercial and industrial customers. We specialize in customized energy procurement strategies, contract negotiation, and risk-adjusted pricing models. In addition, our team has a robust database to help our customers manage their sites, utility accounts, and energy contracts at a global level. If you’re struggling to implement a national energy procurement strategy or have yet to be able to generate significant energy savings through deregulated markets, we can help. Contact our team today for an energy consultation to see how we can help you develop an effective strategy.
Key Takeaways for Multi-Site Operators
- Energy costs scale in complexity faster than they scale in volume
- Misaligned contracts create hidden financial and administrative risk
- Market structure matters as much as price when choosing products
- Centralization improves visibility, not automatic savings
