Your Choices: Products

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The appropriate product choice should balance the short-term and long-term goals of your business, and the available and expected opportunities within the marketplace. There are two basic products options, fixed pricing and indexed pricing. More advanced product options will combine both of these options.

Fixed Price

Pros:
  • Hedge against rising market conditions
  • Ability to budget and predict costs
Cons:
  • Downward market movement below contract price

Fixed pricing is a conservative approach to purchasing electricity or natural gas. With this product, you are promised electricity at a certain price for an agreed upon term length. This price is guaranteed regardless of market conditions, with no variability month-to-month.

Index Price

Pros:
  • No risk premium cost
  • Purchase at true cost to supply power/gas
  • Aggressive buying strategy
Cons:
  • No hedge against upward market movement
  • Potential for extreme volatility

Index pricing is an aggressive approach when purchasing electric or gas. An index product menas you are billed for the actual cost of the commodity, with no "risk premium" for a hedge. This can bring you a lower priced product if the index remains low, or can end up costing a fortune more than a fixed price if the index moves upward. There is no stability or hedge against market movement.

Combination Approach (Various Advanced Products)

Pros:
  • Combine fixed / index pricing for best of both
  • Layer fixed hedges over time to diversify
  • Allow for changing risk tolerances
  • Ability to react to market movement
Cons:
  • Requires minimum annual energy usage of 7,500 MWh - 10,000 MWh
  • Potential for additional risk

Combination strategies use fixed and indexed products to achieve a target risk level. Layer partial fixed hedges over time to achieve diversified portfolio and risk goals by season, time-of-day, etc. Modify strategy in response to markets, risk tolerances, etc.

Demand Response

Please see information on Demand Response and if that is an additional product option for your entity.
 
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