It’s time to stop speculating on energy prices
As a commercial energy advisor with Bruce Power Direct, I speak with business executives from all backgrounds every day: energy managers of multinational corporations, maintenance supervisors of single-location manufacturing plants, CEOs, CFOs, operation managers and everything in between.
It’s tough navigating the energy space these days. My customers are all trying to do more with less, conserve energy while still meeting production targets, balance investment with return, all while juggling a whole tickle trunk full of hats they are expected to transition between at—well, the drop of a hat.
The challenges are as varied as those experiencing them, but energy prices are a consistent source of frustration for my customers. And that’s understandable—electricity pricing is complicated! There are so many factors that go into an electricity bill and managing each component is critical to lowering costs.
At some point in the conversation, when we’re discussing options for lowering costs, I’ll suggest looking into fixed electricity pricing. And, invariably, I’m always asked “Wouldn’t that be speculating on the future price of electricity?”
The simple answer is this: by choosing to do nothing, you are already speculating. I know, I know—that could be seen as an inflammatory answer—but let me explain.
Between the bull and the bear
Many of my customers assume that a choice to not participate in fixed pricing strategies is a neutral position on the electricity market. In actual fact, a choice to float on the market index Hourly Ontario Electricity Price (or HOEP, which is the default position for any large commercial customer in Ontario), is itself a speculation on the future electricity price. Taking a floating position, or accepting it as the status quo, is what I like to call passive speculation on the price of electricity in Ontario.
To illustrate what I mean, let’s dive into this example:
A bullish position on the price of electricity—you think the price of electricity will go up—should be managed with a 100% fixed price.
A bearish position on the price of electricity—you think the price of electricity will go down—is managed with a 0% fixed price, floating 100% on the HOEP index.
If you want a neutral position on the price of electricity, then a fixed price of 50% is the only way.
Sometimes when a decision has already been made—as in the case of the default to float on the HOEP index—it is easier to push the decision to lock in a fixed price to the back burner.
But my advice to my customers is this: If you are unsure of the future of electricity prices, my recommendation is to put in place a 50% fixed price position. You’ll have the ability to participate in the benefit of falling prices and the comfort of a fixed rate should prices rise. It’s a true conservative energy management approach for customers not willing to speculate on the future of prices.
My clients make a thousand decisions a day by making informed, logical choices, and that’s where I try to help: by providing historical analysis of my clients’ usage, insight into the electricity market and market drivers, and by running risk factors on the price of electricity on both the upside and the downside.
At the end of the day, if my clients take an informed, active position on the price of electricity, then I know I’ve done my job well. And hopefully they’ll feel the same when they look at the bottom line.