January 12, 2024

Understanding index rates: How David Energy compares to your utility

For businesses, understanding what drives your operating costs up or down is key for budgeting and cost management. On the seemingly endless list of priorities you juggle as an owner or operator, managing your energy costs is probably far down the list – and may seem like something you can’t really control. However, you have more leverage than you might think.

To successfully control your energy costs, first you need to understand what you arepaying and why. The challenge: if you buy energy from the utility, you probably have noidea why the price is what it is. That’s because utilities don’t offer transparency ontheir pricing and don’t have the resources to offer you energy plans tailored to yourneeds. To effectively manage what you pay, it’s important to understand how utilitycompanies charge you and where you may be getting the short end of the stick.

How the utility’s index price works

If you buy power from the utility, you are on an index price plan. This is the default plan offered by the utility, and it means your monthly electricity bill will vary based on what’s happening in energy markets. That means when costs rise, they get passed on to you. How this actually happens behind the scenes varies depending on the utility, but the index price structure is similar across providers.

In some cases, the utility buys several months of energy ahead of time, then charges you based on some average of those costs. Other utilities tie your price to the real-time market, which can be very volatile. Then, in addition to the actual cost of energy, the utility layers on other charges, including capacity costs, transmission and distribution, and other miscellaneous items. At the end of the month, your utility company presents you with a single sticker price, but all of those costs are factored into the final number that you are expected to pay.

This means one thing for your business: your bill may swing wildly from month to month, and you won’t have any idea why it’s changing or what to do about it.

How David Energy’s index price works

At David Energy, we offer index products comparable on price with the utility but with greater transparency. Our two main index pricing options are tailored to different levels of risk, but both offer increased visibility into your monthly energy costs.

Our first, lower-risk option is called Index Adder – this plan exposes you to real-time energy market prices while stabilizing the other charges on your bill. You will pay the real-time, market-based cost of energy, but we’ll protect you from everything else that would otherwise impact your final bill (like those capacity costs mentioned earlier). Everything but the price of energy is managed for you by us, so you don’t have to worry about those additional costs swinging wildly and adding to your bill.

Our second, higher-risk option is called Index Adder with Capacity Pass-Through. Like the basic Index Adder, you will pay the real-time, market-based cost of energy. Additionally, we will pass through real-time, market based capacity charges to you, which expose you to a bit more risk.

However, you can take advantage of this risk by implementing our software platform which, among other features, will help lower your capacity tags (which is what determines your capacity costs). We do this by making small adjustments to your HVAC and thermostat operations during a few key hours on the grid – small changes that can pay dividends on future energy bills.

Value beyond your bill: Work with a trusted energy markets advisor

Navigating the ins and outs of energy market is complicated, and you have much more important things to focus on as you run your business. From choosing the energy plan that makes sense for your business to ensuring your locations are using energy as efficiently as possible, there are levers you can pull to help bring your costs under control.  David Energy is here to help you navigate this complexity as your trusted energy advisor, helping you use and buy energy smarter.

Our software will give you visibility into and control over how your locations operate, enabling you to identify trends and optimize operations to lower your energy usage and save money. On the markets side, we’ll help you pick the right energy product for your business, optimize your consumption habits, and guide you on when it's best to make a change or lock in a long-term price.

The end result of partnering with us is a more predictable bill, greater transparency into your costs, and confidence that you are getting the most out of the markets.

Have questions or want to learn more?

Do you want to get a handle on your business's energy costs? Want to understand whether there's room for savings on your current energy bill? Book a meeting with someone from our team here. We’re happy to help!

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