So, if you have been following my blogs, you already know that energy is a commodity that is subject to volatile price swings based on supply and demand factors in the marketplace.

Mistake 1 - Sending Request for Proposal (RFP's) to a select number of suppliers for either natural gas or electricity pricing.

As any procurement professional knows, sending out RFP's is the best way to allow good old competition to drive down your prices. However, if forces are not in play to either drive down demand or increase supply within the energy market, your RFP process will result is very little price variation. There may be a few percentage point differences, but it will most likely be at a higher price because of the market conditions.

Mistake 2 - Not understanding your consumption.

Do you know how much natural gas your plant in Chicago, Illinois is consuming in a month, or a year? Do you know what their consumption will be next year? Energy suppliers are dealing with a highly volatile commodity, so they are not willing to gamble for you. Therefore, without good consumption data, not only are you losing out on a better price, but many energy suppliers will build in a risk premium.

The other thing to consider is that energy contracts are based on volume. If your volume is off, the supplier can easily catch you out. For example, if you take energy conservation measures and your gas consumption is much less than you expected, you could be heavily penalized for using less gas than your contracted volume.

Mistake 3 – Wrong energy price comparisons.

I would say that the majority of Americans are not able to read their gas or electric bill! There are a lot of components that go into your energy bill. While one supplier’s price may look to be the lowest, in the small print you may find that some charges have been omitted. This can greatly distort the price that you are likely to pay in any given year.

So, to avoid these mistakes you will need to monitor the market and understand when the best time to go out for pricing is. Track your energy usage by site and month to provide accurate data to your bidders. Finally, read your contracts closely for the fine print and missing fees. If you do not have the time, expertise, access to market data or a network of suppliers, you should have discussions with an energy manager to determine how they can help. Go to our blog "When Should you Use an Energy Broker" for more details.