MADISON, Wis., Nov. 3, 2016 /PRNewswire/ -- This article by MEP Solutions, originally published in the Wisconsin Schools News magazine, discusses four focus areas found in natural gas contracts that warrant extra scrutiny by contract administrators. A failure to address any of these four areas can have a severely negative impact on the probability that a gas purchasing program will save money for the consumer.
Areas covered include:
Know Your Price – Gas pricing can be purchased on a fixed price or a floating (indexed) price basis. Fixed price is the most straight forward transaction. Floating deals can be done against a variety of indexes ranging from prices linked to the NYMEX price to locational prices published by Platt's or Argus Americas. Selecting the correct pricing requires contract administrators to understand the risks associated with the various types of pricing.
Forecasting Usage – Just as you cannot forecast the number of minutes you will use on your cell phone in any month, it is very difficult to forecast the amount of natural gas that will be consumed in any month. How you address this issue in your contract is critical to the potential for saving money. Is your price clearly defined? Is the price for any excess usage or under usage also clearly defined? If they are clearly defined then you can calculate the impact of buying 50% of your average gas usage or a 120% of your gas usage.
Perpetual Contracts – Contracts should have definitive end dates. Period. Retail gas marketers frequently add contractual provisions that make exiting their contracts very difficult. Contracts with a definitive end date give the purchaser negotiating leverage. One way to approach this issue is to require that the retail gas marketer uses the North American Energy Standards Board ("NAESB") Base Contract.
Metrics Revisited – It is critically important that all gas purchase contract administrators know how to run program metrics. How is the program performing versus the cost that would have been incurred from the local gas utility? How is the program performing versus your budget objectives? Given the number of gas programs that lose money, there should either be someone in-house that can properly evaluate the metrics or there should be consideration given to bringing in outside expertise.
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SOURCE MEP Solutions, LLC