Prime Advantage Blog

Make Risk Your Advantage, Not Your Obstacle

Guest Contributor on Mar 10, 2016 10:19:05 AM

As part of Prime Advantage, Endorsed Suppliers have been invited to share their insights on the present and future of manufacturing success. In this post, Andrew Dickerson from Constellation Energy Resources, discusses managing your energy risks.

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What do you think of when you hear the word, "risk"? Oftentimes it feels like a threat, like hearing on the news that there’s high risk for flooding in your seaside town. Sometimes risk can be daring or dangerous, like a bungee jumper standing at the edge of a bridge seeking a thrill. So whatever you think of when risk is brought up, chances are, it’s nothing good.

However, consider this lesson taught in introductory economics classes: Risk doesn’t mean something bad might happen, it means something unknown might happen. In other words, risk implies we’re simply not sure what the outcome will be.

Energy costs are often a cringe-worthy thought. Will the east coast experience more hurricanes this summer and affect my gas prices? Or will it be cooler than usual and I won't have to power as much AC in my store? Your bill might be higher, or it might be lower.

Regardless of how you purchase power and natural gas, there is going to be some level of risk. But there are methods of purchasing both fuels as part of an encompassing energy portfolio that give you the fluidity to minimize the risk of something bad happening, while taking advantage of the opportunity that something good might happen.

Consider asset allocation for a retirement plan: depending on the risk tolerance level of the investor, there is often a percentage of bonds (generally more stable) and a percentage of stocks (generally more fluid), that come together to a much more predictable and consistent overall investment than might be realized by a single investment purchase alone. How can this be applied to buying power and natural gas? They are actually very alike.

For example, assume power costs are going up for your New England distribution centers, so you take a conservative approach to power purchasing, similiar to how you might treat bonds. You can proactively manage your power supply in a way that helps protect against high volatility. Then assume that natural gas prices are dropping for your mid-Atlantic stores, so you take a more aggressive approach with gas supply, treating it more like an opportunistic stock purchase. You can purchase natural gas through a managed approach to give you flexibility to take advantage of market opportunities. Over time, this begins to create balance across your energy portfolio: increasing budget predictability and strengthening risk management across both fuels in a way that might not be likely when each is purchased without consideration for the other.

The concern we most often hear is that this approach is too complex or time-consuming for businesses. Constellation’s team of natural gas and power experts have the tools and expertise to build custom strategies that work for your business – ranging from reporting tools and automated purchasing to hands-on account management. We understand how to pull the right levers to drive toward the results your business needs.

Your business can intelligently use risks to your advantage by diversifying your energy portfolio like you would an investment portfolio. Start building your energy strategy today to confront the risks you might be avoiding. You don’t have to be a bungee jumper to take that dare.

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Topics: Procurement

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