Skip to content
  • Vervantis Racing
  • Careers
  • FAQs
  • (888) 988-5474
  • info@vervantis.com
  • HOME
  • OUR CUSTOMERS
  • SOLUTIONS
    • Energy Procurement
      • Renewable Enegry Procurement
      • Energy Risk Management
      • Energy Sourcing
      • Regulated Energy Sourcing
      • Energy Data Analysis
    • Utility Bill Management
      • Automated Invoice Collection
      • Utility Account Administration
      • Billing Exception Resolution
      • Audit & Accrual Resolution
      • Utility Deposit Recovery
      • Utility Budgets
    • Sustainability & ESG Reporting Software
      • Sustainability Reporting
      • Greenhouse Gas Emissions
      • Corporate Social Responsibility
      • Transport & Logistics
      • Energy Analytics
      • Waste
      • Water & Waste Water Treatment
      • Employee Commuting
      • Supply Chain Surveys
    • Energy Optimization
      • Energy Efficiency
      • Distributed Generation
      • Energy Storage
      • NET ZERO Emissions
    • Rebates and Incentives
    • Government Relations
  • ABOUT US
    • Our Team
  • PRICING
  • CONTACT
  • NEWS
    • Verve Energy Blog
    • Energy Market News – Americas
    • Energy Market News – Europe
    • Company News
  • LOGIN
 Avada Accountant Demo
  • (888) 988-5474
  • info@vervantis.com
  • HOME
  • OUR CUSTOMERS
  • SOLUTIONS
    • Energy Procurement
      • Renewable Enegry Procurement
      • Energy Risk Management
      • Energy Sourcing
      • Regulated Energy Sourcing
      • Energy Data Analysis
    • Utility Bill Management
      • Automated Invoice Collection
      • Utility Account Administration
      • Billing Exception Resolution
      • Audit & Accrual Resolution
      • Utility Deposit Recovery
      • Utility Budgets
    • Sustainability & ESG Reporting Software
      • Sustainability Reporting
      • Greenhouse Gas Emissions
      • Corporate Social Responsibility
      • Transport & Logistics
      • Energy Analytics
      • Waste
      • Water & Waste Water Treatment
      • Employee Commuting
      • Supply Chain Surveys
    • Energy Optimization
      • Energy Efficiency
      • Distributed Generation
      • Energy Storage
      • NET ZERO Emissions
    • Rebates and Incentives
    • Government Relations
  • ABOUT US
    • Our Team
  • PRICING
  • CONTACT
  • NEWS
    • Verve Energy Blog
    • Energy Market News – Americas
    • Energy Market News – Europe
    • Company News
  • LOGIN

Energy Price Risk

By Dan Moat|2023-08-21T16:00:20-07:00October 6, 2016|Verve Energy Blog|

Energy Price Risk

Buying Energy Conservatively?

For over a decade, large energy consumers have been using price risk management processes to support energy sourcing decisions. Still, these methods, while touted as risk management, are only useful if energy markets just rise. That’s because they can only fix prices.

Let’s be honest, if you could manage your energy purchases so that you automatically became more protected (fixed) as prices went up, yet became less fixed if prices fall – that would be great wouldn’t it?

So why, whenever it’s suggested, do organizations say…

‘Our company is too conservative; we can’t use dynamic price risk management.’

This is interesting as, in nearly every single case, the companies in question have no idea about the actual dollar value of energy price risk that is exposed to their organization every day.  It reminds me of the movie “The Big Short,” where no one understood the risk in what they were buying. What’s worse, so long as everything was okay today, no one looked or questioned anything.

Let me give you an example.

  • Given current market prices, do you think it more likely gas will rise or fall from their current levels?
  • When looking at your energy contracts, which months have the most price risk for you?
  • If you haven’t fixed 100% of your energy contract, what is going to act as a trigger to get you to buy?
  • The natural gas market has risen 20% since its low in March.  What is the impact for you this year, next year, or the year after come to that?

I would be surprised if more than 10% of readers could answer more than one question backed by their data.

The energy category (for most supply chain professionals I speak to) represents just a tenth of their overall tasks. Yet, unlike many other sourced items, it has the potential to impact profits substantially.

So, to help you, in this article, I aim to achieve the following objectives:

  • Help you understand which price risks your organization is taking.
  • Help you determine just how conservative your purchasing strategy is.
  • Demonstrate how price risk management can make you as conservative you want to be.

What risks is your organization currently taking?

I can ask 90% of the large energy consumers in the market place that question and the truth is, they don’t know.  So the first concern of any reader of this article should be, how do I know if I am conservative if I don’t measure my price risk?

Most organizations currently spend a lot of money on their manufacturing processes with Six Sigma, Kaizen, Kanban total quality, and other such techniques.  However, pretty much any saving your organization makes concerning process improvement can be wiped out by the increase in your energy spend in just a few days.

It would, therefore, only seem logical that the first step in the process of managing energy cost should be to apply a similar level of sophistication, diligence, and control to your energy spend as you apply to other parts of your business. It’s no more complicated than just measurement. 

The chart below gives an example of the sort of information any prudent (not even conservative) company should have available daily. If you do not review this type of data every day, you need to question why, and more importantly whether, not knowing the magnitude of the problem makes your behavior conservative.

energy-and-sustainability-chart

Is your Behavior Conservative?

To help you assess this, we have created the table below to assist you in determining your position.

behavior-conservative-chart

What Buying Behavior do I want to Have?

One of the biggest misunderstandings in the US energy market today is Risk Management.  It is better to determine first what your objective is, and then decide what behavior you will adopt to achieve it.  You can then consider whether your energy procurement behavior is conservative or not.

Large consumers have two conflicting objectives concerning performance against budget and performance against the market.  These objectives are opposite sides of the same coin and require senior management to determine the relative importance of each of them.  A company that does a fixed price deal to meet its budget is no more conservative than a company that floats its price with the market; both are the opposite of conservative, speculating that their opinion will turn out to be correct.

In general, the correct answer for any company should be never to be at one extreme or the other but somewhere in between.  To this end, many companies consider mixing fixed and flexible contract options for a 70% fixed and 30% market indexed position or a 50:50 position.  While this might make sense at the time you make the decision, the one thing that is guaranteed is that the market for energy and your company’s objectives will change over time, and as such, you need to be able to adapt this decision as time goes by.

So if you were to ask yourself whether your company is conservative in its approach to energy procurement, I would like to think that if your answer is yes, then you would be able to identify your behavior with the following principles:

  • You measure the risk of your energy position daily; if you don’t, then what do you do to evaluate your behavior.
  • You take your decisions in small steps so that you can adjust your choices as you learn more about how the market and how your company is changing over time.
  • You can fix, and where possible unfix prices because you know prices can go up and down, and therefore, you always want to be able to adjust your decision as things happen.

Remember, ‘Conservatism’ is a method and not in itself an objective.  The company following the bullet points above is taking a conservative approach to energy risk management and, in doing so, can outperform the majority of the market place; the question for you is, are you as conservative as you think you are?

For more information, call our sourcing specialists: +1 888.988.5474 or contact us here.

Share This Post, Choose Your Platform!

FacebookXLinkedInWhatsAppEmail

About the Author: Dan Moat

Dan is president of Vervantis Inc. an energy, sustainability, and utility bill management specialist providing advice, software, and expertise to large and medium-sized companies across North America. His career in utilities began in 1994 in Europe where he spent over 15 years almost exclusively supporting commercial and industrial energy consumers before coming to the United States in 2010 where his passion for energy continues unabated. Vervantis manage a diverse portfolio of clients in the retail, restaurant, real-estate, medical and industrial sectors from its headquarters in Phoenix, AZ where it is operationally responsible for the processing and payment of hundreds of thousands of utility accounts and the purchase of several billion dollars in energy spend. The company is focused on streamlining energy, utilities, and environmental management processes so that businesses can focus on revenue-generating activities rather than costly administrative tasks. Vervantis is SOC 2 Type 2 certified, EcoVadis Platinum accredited and CCPA compliant, which means client data is secure, and it is a company to be trusted.

Related Posts

Corporate Climate Commitments on the Rise: Majority of Public Companies Strengthen Emission Goals
A Stronger Path to Net-Zero: SBTi Releases Draft of Corporate Net-Zero Standard V2 for Public Consultation
The Impact of Trump’s Tariffs on Energy and Utilities in U.S. Border Regions.
Trailblazing Women in ESG and Sustainability: Leading the Charge for a Greener Future

Recent Posts

  • Corporate Climate Commitments on the Rise: Majority of Public Companies Strengthen Emission Goals
  • A Stronger Path to Net-Zero: SBTi Releases Draft of Corporate Net-Zero Standard V2 for Public Consultation
  • The Impact of Trump’s Tariffs on Energy and Utilities in U.S. Border Regions.
  • Trailblazing Women in ESG and Sustainability: Leading the Charge for a Greener Future
  • Avoiding Costly Mistakes: The Key to Efficient Utility Bill Management

Vervantis Inc. is an energy, sustainability, and utility bill management specialist providing advice, software, and expertise to large and medium-sized companies across North and South America. The company manages a diverse portfolio of clients in the commercial and industrial sectors from its headquarters in Phoenix, AZ where it is operationally responsible for the processing and payment of more than a million invoices a year and over $3bn in energy spend.

Vervantis is focused on streamlining energy, utilities, and environmental management processes so that businesses can focus on revenue-based activities rather than costly administrative tasks. The company is SOC 2 Type 2 and EcoVadis Platinum certified, which means your data is secure, and we are a company you can trust.

Overview

  • About Us
  • Contact Us
  • Our Customers
  • Pricing Plans
  • Company News
  • Career
  • Privacy Policy
  • Terms Of Service
  • Environment
  • FAQ

MEET US AT

Business Info

Papago Buttes Corporate Plaza III, 1250 W Washington St., Suite 101, Tempe, AZ 85288

Tel: (888) 988-5474
Tel: (480) 550-9225
Fax: (480) 336-2887

info@vervantis.com

© 2025 Copyright . All rights reserved.

Back to top
Page load link
Request Procurement White Paper

[gravityform id=”1″ title=”false” description=”false” ajax=”true” tabindex=”49″ field_values=”check=First Choice,Second Choice” theme=”orbital”]

Skip to content
Open toolbar Accessibility Tools

Accessibility Tools

  • Increase TextIncrease Text
  • Decrease TextDecrease Text
  • GrayscaleGrayscale
  • High ContrastHigh Contrast
  • Negative ContrastNegative Contrast
  • Light BackgroundLight Background
  • Links UnderlineLinks Underline
  • Readable FontReadable Font
  • Reset Reset
Go to Top