News 21st August 2018 Utility procurement

Managing the procurement of utility supplies on behalf of clients is a difficult task at the best of times, requiring in-depth industry knowledge, which is why we use a selection of pre-approved, specialist utility consultants to act on our behalf.

However, a mixture of industry-specific and geopolitical factors have made the energy market harder than ever to navigate during 2018.

Normally, we look to fix rates for autumn contract renewals in the spring as this is when prices have historically been most competitive.

Higher rates in 2018

In 2018, however, rates were at an unprecedented high in spring and we deferred renewing many of our client’s supply contracts as a result. Those rates have remained high throughout the year, typically up 15-20% year-on-year across all energy types.

This has proved the case with all suppliers and with all our approved utility consultants, as a result of a mix of factors from; fixed cost increases and a lack of new power stations coming onto the grid to wider issues such as Brexit and perceived political instability in the US.

As a result, these levels of increases appear unavoidable, regardless of supplier or consultant so as a result our property management teams are ensuring they are properly communicated and budgeted for going forward.

Importance of the right contract term

Clearly, in a market such as this, agreeing on the right contract term is both critical but extremely difficult to judge. In many cases, our clients will specify minimum or maximum terms that they are prepared to commit to, but in the absence of such requirements, we would currently recommend fixing contracts for a maximum of two years.

There haven’t been any significant reductions in rates in recent years and with on-going rises in non-commodity charges (e.g. CCL and feed-in tariffs), do not anticipate there being a material improvement during that period. We wouldn’t however commit beyond this time-frame to comply with our procurement framework.

We will continue to monitor the market closely, but with summer coming to an end and winter approaching, we do not expect to see an end to these increases in the immediate future.

VICKY COTTON, Wellbeing and Sustainability Director – Workman LLP