Do you own or work for a medium to large business and need to lock in a new electric rate to bring down the energy bills? You may have heard about the benefits of joining a reverse auction to procure a low energy rate. Just as the name implies, a reverse auction is conducted the opposite of a regular auction. In a regular auction, buyers compete, bidding up the price of the item to the benefit of the seller. In a reverse auction, it is the energy suppliers (sellers) that compete to the benefit of the buyer. Reverse auctions can lead to the buyer walking away with a lower electric rate than had they just priced with one energy company.
So, are reverse auctions worth it? How much energy does your company have to consume to qualify for a reverse auction? These are just a few questions we will answer in this article to help you understand the benefits of reverse auctions and whether it’s worth participating in one.
Benefits of Utilizing a Reverse Auction to Secure a Low Energy Rate
If you live in a deregulated electricity market, then you have the power to choose an alternate electric supplier and lower the supply rate on the electric bill. But how do you know the energy provider is offering a good rate? Joining a pool of energy suppliers that have to compete for your business will force energy suppliers to cut down on their profit margins to win your business. Securing a low electric rate from a pool of energy suppliers will leave you walking away more confident that you received a competitive rate. It’s this same competitive environment that has pushed down energy prices in deregulated electricity markets.
Below are a few pros that come from joining a reverse auction to secure a low electric rate:
- Transparency – Energy suppliers are all working with the same information that is needed to offer competitive rates. This information pertains to the customer’s usage history and demand patterns.
- Market Factors – The energy market can be extremely volatile. Reverse auctions take place in a specific time frame so that all participants (energy suppliers) have to deal with the same market conditions.
- Unbiased Results – If you’re working through a third party, then reverse auctions cut out any bias a party has towards a specific energy supplier. Reverse auctions give a fair chance to all participants to win the customer’s business.
- Apples-to-Apples – A set of conditions must be met in the final price offered by the electric suppliers. For example, these conditions may require the electric suppliers to include all components of the supply rate into the final price. This leaves out any room for deceptive practices and hidden charges.
What are the Cons of a Reverse Auction?
Not every business will qualify for a reverse auction. If you’re not spending at least $10,000 per month or more on energy bills, then don’t expect to qualify. The average small-size business consumes less than 100,000 kilowatt-hours annually. An energy supplier will not bend over backward to outbid their competitors for a customer this size. Companies that qualify for reverse auctions consume millions of kilowatt-hours each year. If your business has multiple properties and the aggregate consumption of all meters is in the millions, then you may still qualify.
So, what are the cons of joining a reverse auction?
- Gimmicks – If your business consumes less than 500,000 kilowatt-hours per year and you’re being sold on joining a reverse auction, then don’t be fooled. Energy suppliers will not be cutting margins to win a small energy consumer. Any third-party advertising a reverse auction to your small business should be met with a red flag. Chances are good this is nothing more than a sales gimmick.
- Incompetent Energy Suppliers – There are well over a dozen energy suppliers providing generation services to customers in deregulated electricity markets. Energy suppliers may offer a low supply rate they can’t back up. If the energy company goes out of business, then your company might be stuck paying a much higher rate.
- Buyer Beware – Unless you have an expert reviewing the contract of the winning bidder, you might be stuck paying a higher rate than you think. It’s not uncommon for energy suppliers to leave out charges in the supply rate, such as line loss or capacity charge, to make the rate appear lower than it is. They will then by-pass these additional charges onto the electric bill as separate line items, leaving you with a much higher energy bill.
Is it Worth Participating in a Reverse Auction?
If you’re a large to industrial size energy user consuming over a million kilowatt-hours per year, then it is worth considering a reverse auction to secure a low energy rate. If you plan on participating in a reverse auction, then it is important to go through a trusted source that can properly implement the process. Setting price criteria for energy suppliers to follow, working with the same market conditions, and using a pool of qualified energy suppliers are three key factors in pulling off a successful reverse auction.
In the Market for Electricity Rates?
Whether you’re looking to participate in a reverse auction or own a small business wanting the lowest possible rate, ElectricRateSelect.com can help. We are a price comparison website with established relationships with some of the country’s top energy suppliers. Speak to one of our qualified energy advisors and we will work to meet your needs.
While we encourage customers to shop around, we caution on signing a contract before an expert can review and approve the rate. We are happy to review any contract you receive to make sure the rate includes all supply charges and there are no hidden fees. If an energy supplier is offering a rate lower than what we can provide, then we will let you know. While we value your business, at the end of the day we want you walking away with the lowest possible rate, whether it’s with us or a competitor.
Want to know if you qualify for a reverse auction? Are you in the market for electricity rates? Fill out the form below and one of our energy advisors will be in touch with you within 24 hours.