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August 8, 2005

COMMENTARY: A thorough investigation | Why you should shop for the best electric prices — and how to know when you've found them

By Bob Sutter, Vice President, Northeast Region, Suez Energy Resources Na
Since March 2000, Maine's residents and business owners have had the opportunity to choose their electricity provider from a variety of suppliers. A recent survey revealed that most businesses did not do their research and, therefore, choose to do nothing. Today, many who did switch have returned to local utilities, finding better rates compared to competitive retail providers. This trend is largely credited to a recent six-month power purchase by the state of Maine.

The survey ˆ— conducted earlier this year by Houston-based SUEZ Energy Resources NA Inc., which provides power to businesses in Maine, Maryland, Massachusetts, New Jersey, New York, Texas and Pennsylvania ˆ— also showed that 58% of medium and large businesses in the Northeast, and an even larger percentage of small businesses, never switched from their local incumbent. What these businesses don't realize is that with deregulation, there are now more choices available ˆ— many of which save the customer money. However, "shopping" for the right provider can seem daunting, and many companies find there is more to it than simply finding the provider with the lowest price.

An open, competitive market can sometimes be confusing, especially if consumers don't have a lot of time to spend investigating their options. However, gaining a better understanding of the deregulated market options can actually save a typical commercial and industrial, or C&I, customer thousands ˆ— if not millions ˆ— of dollars, depending on the firm's energy consumption.

Doing nothing can have costly consequences: On average, a C&I company can shave 10%-15% off its electricity bills simply by shopping for the energy supplier that's right for the firm.

In addition, beyond the dollar savings, competition in a deregulated market means better customer service, such as more accurate, timely billing. Customers gain more control over the volatility inherent in their utility bill, and assume more responsibility for managing their energy needs. C&I customers derive even more benefits by taking advantage of innovative products and services. The bottom line is that competition forces energy providers to stay on top of their game to win and retain customers.

Why is the process of choosing an energy provider so time-consuming, confusing and stressful? Some obvious reasons include the need to sift through a skyrocketing number of providers, the reluctance of customers to assume risk for price volatility and a feeling of uncertainty about the qualifications of suppliers.

To help simplify the process, there are some basic steps that reduce the confusion and make the process of finding the right provider easier and less time consuming. First, the process should start with researching three to five candidates before seeking and evaluating competitive bids. Then, consider the following: If the provider you're reviewing can't meet most, if not all, of the criteria outlined below, perhaps you should look elsewhere.

Be registered and approved by the state Public Utility Commission. Each state PUC approves legitimate and credit-worthy competitors, and each supplier must meet minimum standards.

Offer refined risk management capabilities. A legitimate supplier should be able to describe each component of its offering and the level of risk passed on to or mitigated for the customer.

Provide innovative and simple products. At a minimum, the supplier should be able to show fixed or index commodity solutions. These two products represent each end of the risk spectrum. In between those two options there are other products, such as stipulated quantities, block prices and cross-commodity swaps, that can create value for specific customers. And a good sales manager should be able to explain these alternatives and help you determine which is right for you.

Have a fair and balanced contract. A contract should follow a standard form and handle exceptions equitably and expeditiously.

Offer competitive pricing. Get at least three bids and evaluate each for product specification and risk tolerance. The lowest bidder may not be the best solution. Low bids sometimes indicate the potential for hidden costs, hidden risks and hidden price volatility.

Ensure that billing is reliable, timely and accurate. Customers should see samples of a customer bill and understand how the supplier resolves billing disputes.

Be financially stable, with significant industry experience. Credit checks and references are a must. A good question to ask is whether the supplier's credit has ever been denied by an independent system operator, or ISO. If so, it would seriously curtail the supplier's ability to ensure availability of power for its customers. Customers should also look for an established history in the industry.

Ensure efficient and effective customer service. The best supplier should deliver a very efficient enrollment plan, provide accurate contact information and measure customer satisfaction with published metrics.

Businesses can make the right decisions when given the right information about the deregulated energy market and their energy provider. The right choice gives companies a competitive edge in the marketplace, helping to ensure their long-term success.

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