Decisions and will power... and electricity

You all have a lot to do in one day.  Develop and plan budgets, make decisions about new business, evaluate how well a building or facility is operating, take feedback from colleagues and clients.  It's exhausting.  It turns out that all the decisions that you have to make in a day takes a measurable physical toll on your body, your brain, and your mental energy.  The more decisions an individual has to make, the lower his or her capacity for continuing to make good decisions.  Willpower doesn't just apply to those of us who are contemplating managing a diet or exercise regime, it also has to do with how we spend our days, and how we make decisions.  Depleted energy reserves can result in reduced willpower. 

John Tierney wrote an article in The New York Times Magazine that reported on a series of studies that all relate to the impact of fatigue on all of us.  The article is titled "Do You Suffer from Decision Fatigue?" -- and I thought it had a lot of relevance to the challenges that our clients face every day.   

Tierney writes:

The more choices you make throughout the day, the harder each one becomes for your brain, and eventually it looks for shortcuts, usually in either of two very different ways. One shortcut is to become reckless: to act impulsively instead of expending the energy to first think through the consequences. (Sure, tweet that photo! What could go wrong?) The other shortcut is the ultimate energy saver: do nothing. Instead of agonizing over decisions, avoid any choice. Ducking a decision often creates bigger problems in the long run, but for the moment, it eases the mental strain. You start to resist any change... from "Do You Suffer From Decision Fatigue?" By JOHN TIERNEY August 17, 2011 in The New York Times.

Energy, power and natural gas-related decisions are on your list of priorities, but they may not be at the top.  You have a lot of other work to do.  By the time you get a chance to look at energy-related decisions, you may opt to farm out the decision to people who spend more time on these issues, or you may just choose not to do anything.  In the power business, not deciding is a big decision, one that can have significant impacts on your costs and budget (see Market prices make a difference in this blog).  As Tierney explains...  

Once you’re mentally depleted, you become reluctant to make trade-offs, which involve a particularly advanced and taxing form of decision making.....  To compromise is a complex human ability and therefore one of the first to decline when willpower is depleted.

Our industry is particularly taxing in this regard.  The choices seem incredibly complex and overwhelming-- there is no perfect decision or strategy-- only ones that make the best use of current, available information and apply that information to the specific needs of an individual or business.

So what are Tierney's conclusions about how best to address decision fatigue?  Sugar... be sure to eat and restore the brain's capacities before tackling complex decisions.  Researchers find that restoring glucose levels shores up will power.  Eat, sleep, and don't try to fight the fact that we human beings don't always operate perfectly throughout the day.  This article resonated with us at The Megawatt Hour because we realize that we are essentially trying to reduce the mental energy required to make and manage complex purchasing decisions.  We want to know what else we need to do to help you do your job.

Written by Deirdre Lord 

Ceding control...

I came across an interesting blog post by a venture capitalist who was exploring the risks to entrepreneurs of ceding control to intermediaries, like bankers, agents, recruiters, etc.  Here's a link to the post by Mark Suster ("Don’t Cede Control: Why You Need to Cut out Middle Men in Negotiations"). 

It made me think about the use of intermediaries in the electricity and natural gas procurement process.  There are a lot of talented professionals providing advice and counsel to energy clients.  There are some less talented shops.  In either case, it still pays to be vigilant about managing your electricity and gas purchases and not to cede control to the broker, agent or consultant.  I would argue that this is particularly true when it comes to brokers and agents who get paid by the supplier.  They only get paid when you do a deal.  They want you to continue to be their client, but they also need to get paid and the only way they do is by you doing a deal.  It's that simple.   

As Mark Suster says in his post

You have an interest in pursuing the absolute best outcome you can get. Often others have an interest in pursuing the best possible outcome they can get, without sinking in extra time, without risking ruffling feathers and without breaking conventions & norms.

It is food for thought, and applies to many aspects of business. 

How NOT to Buy Electricity... Lessons from the Field

This post describes an experience I had when I was talking with a prospective client about our business.

I was talking with a small business owner in the West Village of New York City last week.  He had recently opened a new gym in the neighborhood.  The facility has been open less than a year.  We were reviewing The Megawatt Hour.  We discussed business requirements and how he wanted to manage his electricity purchases.  He caught on right away to the challenges and opportunities connected to buying electricity and power.  

A few minutes in to our conversation, one of his colleagues greeted someone who walked in the door.  Within seconds, the employee directed the visitor to us.  The visitor was orderly and tidily-dressed with a messenger bag slung over his shoulder.  Our business owner had his 3-ring binder open to copies of his electricity bills.  Our new visitor saw the binder and said 

Oh, I see you're reviewing your Con Edison bills.. I am here to follow-up on a customer service message that is printed on your bill.  See?  Right here.  

Our visitor, we'll call him Nick, started to draw the binder away from our business owner, whom I'll call Charlie.  Nick gestured to the box under the supply cost bill detail.  The note from Con Edison reads: 

Your total electricity supply cost for this bill is 8.5 cents/kWh.  You can compare this price with those offered by energy services companies (ESCOs).  For a list of ESCOs, visit PowerYourWay.com or call.

This same message appears on every Con Edison utility bill-- no matter whether you are a residential, small commercial, or large commercial client.  I knew that Nick was not from Con Edison, but he did not openly reveal who he represented until pressed, when he finally said that he was with an ESCO (one that shall remain nameless).  

Misleading piece of information #1 - our visitor did not represent Con Edison.  It sure sounded as if he did when he walked in the door. 

Finally, when pressed, our visitor showed an id card with the supplier (ESCO's) name on it.  He seemed somewhat concerned about pulling his id out of his pocket-- it struck me that there might have been more than one id for more than one company in his pocket. 

Our business owner said that he had received a price from another supplier.  Nick really wanted to know what that price was.  He also didn't care to spend much time explaining what Charlie's options were.  He told Charlie that the best thing Charlie could do was get a rate that was fixed and reliable very month.  He went on to quote that his supplier was the 7th largest energy company in the world, and that the daily customer service statistics showed that this company had a daily approval rating of 95%. 

Misleading piece of information #2 - While this information about the ESCO may be interesting to some, these facts are irrelevant.  This information does nothing to help our business owner make an informed decision about price and product.  

Nick, the visitor, insisted that he had the best price available in the marketplace at 10.4 cents/kWh.  He said that our business owner would not be able to beat that price, which was pre-printed on a contract that Nick pulled out of his messenger bag.  I asked how our business owner would know that this was the best price in the market?  Nick directed Charlie to the Power Your Way site, which lists 53 companies and their websites.  So our business owner was free to go and contact all those suppliers and get pricing from them.  Nick stood by his ESCO's price.  Also, when asked why prices didn't change daily, along with the market, Nick explained that the prices for supply were set in the winter and didn't change.  As a side note, the pre-printed fixed price on the contract from the ESCO was actually 10.49 cents/kWh.  (While that is a detail, Nick's short-hard to a price of 10.4 cents further eroded his credibility.)       

Misleading piece of information #3 - Electricity markets are as volatile (sometimes more so) than the stock market as you can see in this forward curve chart.  

If a price is set and pre-printed on a contract, you're not getting a good price, guaranteed.  The ESCO is going to put a large premium on any pre-printed fixed price to make sure they take NO market risk when they sign new customers.  It is a guarantee of a non-competitive price.  

Nick urged our business owner to sign a contract.  'Let's get started now' sort of approach.  The conversation ended with a savvy Charlie saying that he was not prepared to sign anything right then and there, but if Nick would leave his card he would give him a call.  Nick said 

I don't have a card.  If I had a card it would mean I was selling something.  I am here on a customer service call.  

Misleading piece of information #4 -  The proverb "If it walks like a duck, quacks like a duck, looks like a duck, it must be a duck" proverb leaped to mind.  It is hardly worth pointing out, but... if someone is going to ask you to sign a contract, then he's selling you something.  The reason Nick didn't have a card is because he's a hired gun contractor sales person.  He doesn't work for the ESCO in question, he is a contract sales person who may sell electricity one day and telecom another.  

I came away from this experience disheartened by the approaches that ESCOs are taking to bringing new customers in to the retail experience.  While I couldn't imagine customers going for this type of sales approach, some people must fall for it or our friend Nick wouldn't be out there pounding the pavement.  I also felt a level of embarrassment for the industry to which I've devoted my career.  We must do better.  Most of all, I felt certain that the approach to acquiring and serving clients that I had witnessed in the West Village will not prevail in the end.  Customers won't stand for it.  

  

How to buy electricity...

What does it take to do a good electricity deal?

There are a few, very manageable steps to take in order to do a good electricity deal.  I will list them here:

1)  Make sure you have all of your utility account numbers. 

2)  Understand your current electricity contract--

• when does your current agreement end, what month?
• what are you paying for electricity right now? 

3) Take a look at the forward curve for electricity.  Does it seem like a good time to buy electricity?  Where is the forward curve for electricity?  Is it high or low relative to recent months?  How about relative to your last contract?  You may not know... but you should be able to see it on TheMWh.com.  

4) Understand what your business' goals are.  Is it critical for your business to remain within a clearly defined budget or can you have some variation in your monthly or annual budget?  If it is the former, then you need a fixed price.  The latter?  You can buy an index or block product.  Take a look at the potential variations in costs between index, fixed, and block on the strategy section on TheMWh.com.  

5) View the pricing forecasts on TheMWh.com's website, on the contracts section.  Compare the monthly cost forecasts.  Take a look at the term sheet in the strategy section-- so you know exactly what to ask a supplier.  

6) You are ready to buy.  Feel free to contact Deirdre Lord at TheMWh.com if you want additional help.  dlord@themwh.com.