Don’t miss anything

Low electricity rates, boiling frogs, and learning from mistakes

low-rates-crop

I’m a bargain hunter. I know a good deal when I see one.

I stalk eBay, antique stores and flea markets looking for my next victim. I’ve been known to bring home 15lbs of peaches because I hit the market late in the day and found the vendors marking everything down half price, just so they didn’t have to pack it up. I’m the queen of the sale section.

My love for a good deal is also my customers’ gain. There’s nothing I love more than to find the best value for my clients—even if it means my pricing analyst needs to run the numbers a dozen times (sorry Gabe!) to find the best window for a purchase.

Which is why this is such an exciting time for me. Electricity has rarely been cheaper to lock in—the second lowest in 10 years—and I want to tell everybody. (This has proved to be somewhat problematic in yoga class and at the grocery store – apparently nobody wants to hear about bargain electricity rates while they’re in the middle of a downward dog.) So I’ve taken it to the Bruce Power Direct blog to preach: if you’ve ever considered locking in your electricity rates, now is the time to do it.

[divider style=”thin”]

Cheap as chips

Back in March 2012, forward electricity prices fell to all-time lows. Prices had been dropping steadily since November of the year prior. A weak (warm!) winter pushed prices further in to the basement on fears of natural gas storage congestion. Index electricity pricing was cheap as chips, and the forward prices were following suit. I remember the day the markets hit their bottom—I was pricing out a fixed forward price for one of the largest manufacturers in southeastern Ontario, and was finally able to hit their target price.

In a twist of irony, however, the company decided to wait on making their decision to lock in because they were concerned prices would continue to fall and their strategy to lock in would end up working against them. They missed the window, and that week pricing took a turn and started to increase.

In the end, this company’s hesitation cost them $5 million over three years. Ouch.

[divider style=”thin”]

Boiling frog syndrome

The good news is that in commodities, cycles are often repeated and we can learn from the mistakes of the past. We are currently in a cycle that mirrors winter 2012, and now just as then, has opened up the opportunity for companies to lock in at record low rates.

I like to call this the boiling frog syndrome. My chemistry teacher once told me if you put a frog in boiling water, it will jump out. But, if you put that same frog in cold water and gradually heat it to boiling, it will be cooked to death.

I find this all too analogous in my interactions with my customers. If prices were to fall 30% overnight, my clients would jump on the opportunity to lock in. However, if those same prices fell gradually over the course of 6 months, my clients have a tendency to sit back and continue to wait on making a decision.

When forward rates are low is the time to buy. You might not want to miss this window—it could make $5 million difference.

Contact me for more information and a custom price quote. (And when I say “contact me”, I mean contact me right away—the window may start to close soon.)

boiling-frog-crop
Kate Bagshaw

Kate Bagshaw

Senior Electricity Advisor