Energy Procurement – Risk Tolerance

Understanding your Product Risk:

 

Risk Graphic v2 Arrow

100% Fixed 

Advantages:

- Price/budget Certainty

- Straightforward/easy to understand

Protects against market volatility


Disadvantages:

- Little to no flexibility

- No benefit in a declinging market

- Highest cost (Risk Premiums)

                                                                                 

  Program Examples: 

  Electric: Fixed Price, Fully bundled, Full Requirements, etc. 

  Natural Gas: Fixed Price, Full Requirements, All

  Inclusive, etc.

Hybrid/Blended

Advantages:

- Procurement/purchasing Flexibility

- Ability to react to market fluctuations

- Option to fix 100% of volumes (offering budget certainty and protection against market volatility)


Disadvantages:

- More complex compared to fixed and variable

- Requires more attention and ongoing management

- Only available to qualified businesses

                                                                                 

  Program Examples:

  Electric: Load Following, Block & Index, Fixed al la carte,

  etc.

  Natural Gas: NYMEX Plus/basis Contract, Fixed Price 

  Triggers/Hedges, etc.



100% Variable

Advantages:

- No Risk Premiums

- Flexibility 

- Ability to react to market fluctuations


Disadvantages:

- Exposed to market volatility

- Little to no price certainty

- Little to no budget certainty

                                                                                 

  Program Examples:

  Electric: Market Index, Variable, etc. 

  Natural Gas: Market Index, Variable, etc.