Energy Procurement Services: Scope and Cost

Commercial energy procurement services cover the work of buying electricity and natural gas supply for a business in a deregulated market: collecting usage data, analyzing the load, bidding it to competing suppliers, negotiating the contract, managing enrollment and tracking the renewal. Providers charge in one of three ways: a fixed per-unit fee paid by the winning supplier (the common broker model, which costs the client nothing directly), a flat consulting fee, or a percentage of documented savings. On a two-million-kWh account the supplier-paid model typically embeds a few thousand dollars a year in the rate; a flat-fee engagement for the same account runs higher and is paid whether or not the bid produces savings.

Buyers searching for procurement services usually want two things the market is bad at stating: a list of what is actually included, and a price. Here are both, with the places where scope is commonly thinner than it sounds.

What a full procurement service includes

1. Authorization and data collection

A Letter of Authorization that lets the provider request interval data and quotes on the client's behalf without binding the client to anything. Then twelve months of interval data from the utility for every account, plus a current bill per account to confirm the rate class, the supplier and the contract end date. Multi-site portfolios spend most of the first two weeks here, reconciling account numbers.

2. Load analysis

Load shape by hour and season, peak demand, load factor, and the split of the bill into supply and delivery. This is what decides the contract structure. A flat 24/7 load prices differently from a 7am-to-6pm load of the same annual kWh, and a provider that bids on annual totals alone is asking suppliers for a modeled range rather than a price.

3. Structure and term recommendation

Fixed, index, or block-and-index; 12, 24, 36 or longer; whether to fix gas basis; whether to layer in. A written recommendation with the reasoning, so the client can disagree with it before the bid rather than after.

4. Competitive bidding

Identical terms issued to every qualified supplier, with bids returned on a single day so each price reflects the same wholesale market. Normalization of swing, pass-throughs and credit terms so the comparison is on price. Inertia bids to {F('supplier_count')} vetted suppliers; the number matters less than the fact that they all see the same term sheet at the same time.

5. Contract negotiation and execution

The clauses that move money: usage bandwidth, material change, pass-through of capacity and transmission, early termination, assignment for site closures, add and delete rights for new locations, and the start date. Then the signed contract, and enrollment with the utility so the switch happens on the right meter read. Our note on contract clauses lists what to push on.

6. Renewal management

Tracking every contract end date, flagging the renewal window twelve months out, and restarting the process without being asked. This is the part most often missing, and the reason accounts fall onto holdover rates. A procurement service that ends at signature is a transaction, not a service.

What is usually not included

• Bill auditing. Checking historical bills for rate-class errors, tax exemptions and metering faults is a separate discipline. Some providers bundle it; most quote it separately as utility bill auditing, often on a share of recovered overcharges.
• Demand management. Reducing peak demand to cut delivery charges and capacity tags is engineering work on the facility side, not a procurement task.
• Efficiency projects and on-site generation. Lighting, HVAC, solar and batteries are capital projects with their own economics.
• Regulated-market work. In a state without retail choice there is no supply to bid. Savings come from tariff optimization and auditing, and an honest provider says so before engaging.

The three pricing models

Supplier-paid per-unit fee

The winning supplier pays the broker a fixed amount per kWh or per Dth delivered, built into the contract rate. The client pays nothing directly. This is how Inertia is paid and how most brokers are. The things to insist on are that the fee is disclosed in writing and that it is the same whichever supplier wins, so the broker has no reason to steer. On a two-million-kWh account a fee of a few tenths of a cent per kWh comes to a few thousand dollars a year, paid out of a rate that was set by competition with the fee already inside it.

Flat consulting fee

A fixed engagement fee, typically paid by the client in installments, with the supplier contract carrying no broker margin. This suits large, sophisticated buyers who want the provider's incentives fully separated from the supplier. It costs more in cash, it is paid whether or not the bid produces savings, and for mid-sized accounts the fee can exceed what the supplier-paid model would have embedded.

Percentage of savings

The provider takes a share, often a third to a half, of the difference between the old rate and the new one for a defined period. It sounds aligned, and for a bill audit it is. For procurement it has two problems: the baseline is arguable (savings against what, when the market itself moved?), and it rewards the provider for a buyer who was overpaying badly rather than for a good process. It is also usually the most expensive of the three for the client.

What it costs on a real account

Take a manufacturer using 2,000,000 kWh a year in Pennsylvania, paying $0.085 per kWh for supply on a contract signed two years ago. A same-day bid lands at $0.068 per kWh all-in, including a disclosed broker fee of $0.002 per kWh. The client's supply cost falls from $170,000 to $136,000, a saving of $34,000 a year, and the broker is paid $4,000 of the $136,000 by the supplier. Under a flat-fee model the same engagement might be quoted at $7,500 to $15,000 paid by the client, with the supply rate perhaps $0.066 because the supplier carries no broker margin: a saving of $38,000 less the fee, so roughly the same net result with more cash out of pocket and more risk if the bid disappoints. Under a percentage model at 40% of first-year savings the client would keep $20,400 of the $34,000. (The rates are illustrative; the arithmetic is the point.)

The honest summary is that the supplier-paid model is the cheapest and simplest for most mid-sized commercial accounts, provided the fee is fixed and visible; the flat fee makes sense for very large buyers who want total separation; and the percentage model is best left to bill audits, where the baseline is a documented overcharge rather than a moving market.

Questions to ask any provider

• How are you paid, how much, and is it the same for every supplier?
• How many suppliers will bid, and will they all bid on the same day on the same terms?
• Will I see every bid, not just the winner?
• Who tracks my renewal, and when do you start?
• Which of my sites are in markets where you cannot help, and what do you recommend there?

Our guide to vetting an energy broker has the longer list. The provider who answers all five plainly is the one to hire.