The conversation around index agreements is one of risk tolerance. As your Energy Advisor, we work to understand your objectives and risk tolerance to present a solution that satisfies your needs while minimizing your quantifiable risk and exposure.
Some questions to consider:
- Is your business more aggressive or more conservative when it comes to taking on risk?
- Are your current options leaving you more likely to take on more risk than previous years?
- What is most important to you – price certainty or the cost over time?
Benefits of an Index Price or a monthly variable product include:
- Greater flexibility and a lower cost over time than a fixed price contract.
- You pay actual closing costs of the commodity without the risk premium of hedging into a future market.
- If the markets do not perform as predicted on the day you execute your commodity agreement, it can outperform a fixed rate contract. The tradeoff is price stability, which is often misinterpreted as risk.
Many Index Price or variable rate contracts carry a shorter-term commitment (i.e., pre-negotiated agreements through Freedom can be as short as a 30-day term). Shorter terms allow for greater flexibility in your buying strategy and provide opportunities to react quickly when markets do fall.
Freedom can set up agreements for you that will automatically execute when the markets reach your desired price. The ability to react quickly and pivot is a major benefit to an index agreement especially in highly volatile markets.