Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / Franchisees Who Win at Negotiating Utility Rate Plans
Transcript
- Lucas: So Luna, you remember that sandwich franchise we talked about back in episode one fifty-one, the one with three locations in Ohio? Luna: Yeah, the one that was struggling with food costs, right? Lucas: Exactly. Well, I caught up with the owner last week, and he told me about something that saved him almost nine percent on his utility bills this year. And it wasn't switching suppliers or installing solar panels. It was just understanding how his rates were actually structured. Luna: Okay, I'm intrigued. What did he do? Lucas: So he had a utility bill audit done, which we've talked about before, but then he went a step further. He actually negotiated his rate plans with the utility. And that's the angle I want to drill into today — the difference between auditing your bills for errors and actively negotiating the rate structure itself. Luna: I thought utility rates were kind of take it or leave it. You're on a tariff, you pay the rate, end of story. Lucas: That's what most franchisees think. But the truth is, utilities have multiple rate classes, and sometimes you're in the wrong one. This owner, his three locations were all on a general service rate, but two of them had electric ovens and high peak demand. He qualified for a time of use rate that shifted his usage to off-peak hours. Luna: So he moved his baking schedule to the middle of the night? That sounds like a nightmare for a sandwich shop. Lucas: It wasn't that extreme. He just shifted some prep work and oven usage to before five in the morning and after nine at night. The time of use rate cut his energy charge by about eleven percent, and the demand charge, which is a whole other beast, dropped even more. Luna: Let's talk about demand charges because I think our listeners might not know what that is. I had to look it up myself a few years ago. Lucas: Right. So a demand charge is based on your highest fifteen-minute draw of power during the month, not your total usage. It's essentially a fee for the utility keeping enough capacity on standby to meet your peak. For a franchise with ovens, HVAC, and lighting all kicking on at the same time, that peak can be brutal. Luna: And if you can shave that peak, even by a few kilowatts, you save money on the entire month's demand charge. Lucas: Exactly. This owner found that his demand charge was about forty percent of his bill. By staggering his oven startups — he had two electric ovens that he used to turn on simultaneously — he reduced his peak draw by twelve kilowatts. That saved him about four hundred dollars a month across all three locations. Luna: That's real money. But how do you actually negotiate a rate plan? Isn't it just picking from a menu of tariffs that the utility publishes? Lucas: It's partly that, but there's more flexibility than you'd think. Utilities have something called 'negotiated rate agreements' for commercial customers above a certain load. They're not always advertised, but if you ask, you can get a custom contract with different demand thresholds, seasonal pricing, or even a fixed charge per kilowatt-hour. Luna: Have you seen a franchisee actually pull that off? Lucas: Yeah, there was a franchisee in Texas with a fast-casual Mexican concept. He had a load of around a hundred fifty kilowatts, which isn't huge, but he negotiated a rate that tied his energy charge to the wholesale market price plus a small markup. When natural gas prices dropped last winter, his per kilowatt hour cost fell by eight cents. Luna: But that sounds risky. If prices spike, he's exposed. Lucas: That's why he capped it with a collar — a floor and a ceiling. He locked in a maximum price that was still lower than his old fixed rate, but he got to benefit when market prices dipped. It's a classic hedging strategy, and it's available to smaller commercial customers if you know to ask. Luna: So what's the first step for a franchisee who wants to do this? Just call the utility and say, 'Hey, can I get a better rate?' Lucas: You can, but you'll get a lot further if you come prepared. First, pull your last twelve months of bills and calculate your load factor — the ratio of your average usage to your peak usage. A low load factor means you have spiky demand, which might make you a candidate for demand response programs or a time of use rate. Luna: And if you don't have the time or the spreadsheet skills to do that? Lucas: That's where a third-party energy consultant comes in. They'll do the analysis for you, and they usually work on a contingency basis — they only get paid if they save you money. We've talked about energy efficiency consultants, but this is specifically about rate negotiation. Luna: We should mention that not all consultants are created equal. Some just do bill audits and call it a day. Lucas: Right. You want someone who has experience with commercial tariffs and has relationships with the utility's business accounts team. They can often get access to a dedicated account manager who has more authority to offer custom rates than the front-line phone rep. Luna: That's a good point. It's like any negotiation — the person on the other end has to have the power to say yes to something non-standard. Lucas: Exactly. And that's also why it's worth understanding your utility's rate filing cycle. Utilities have to file new rate schedules with state regulators periodically, and there's often a window where they're more receptive to signing up customers for new programs or adjusting terms. Luna: So timing matters, like in real estate. Lucas: It does. One franchisee I know missed a window to switch to a lower tariff because he didn't notice the utility's notification about a rate change. He ended up paying a higher rate for six months. A good consultant would have caught that and filed the switch early. Luna: What about the whole idea of switching to a competitive energy supplier? Is that still a thing? Lucas: It is, in deregulated markets. But here's the catch: if you switch to a competitive supplier, you're still on the utility's distribution network, and you still pay delivery charges. The supply portion is where you might save, but you have to read the contract carefully. Some suppliers offer an attractive first-year rate and then jack it up in year two. Luna: So it's not automatically better. Lucas: No. In fact, a lot of franchisees are better off staying with their utility and negotiating the rate class instead. Competitive suppliers often target larger commercial customers, so a single-location franchise might not get the best pricing anyway. Luna: Let's go back to that Ohio sandwich guy. How much total did he save after all his changes? Lucas: Across the three locations, his annual utility spend dropped from about sixty-eight thousand to sixty-two thousand. That's six thousand a year, and most of it came from rate restructuring, not just behavior changes. He told me, 'I used to think utility bills were just fixed costs. Now I treat them like any other line item I can negotiate.' Luna: That's a smart mindset. And it's a good reminder that even the most boring line item can hide savings. Lucas: Speaking of the boring stuff that funds this show — we get a lot of questions about how we keep this podcast running without ads, and the honest answer is a small group of listeners who chip in monthly. If these conversations have moved your work forward in some small way, you can support us at buy me a coffee dot com slash fexingo. It's not a big thing, but it keeps us going. Luna: Yeah, and we really appreciate the folks who've already joined. It lets us keep every episode ad-free. Lucas: Okay, back to rate negotiation. One more thing I want to hit: the psychology of negotiating with a utility. The person on the other end is used to dealing with angry customers. If you come in with data and a professional tone, you're already ahead of ninety percent of callers. Luna: So what's the one piece of advice you'd give a franchisee who's about to make that call? Lucas: Don't be afraid to ask, 'Is this the best rate you can offer?' And if they say no, ask, 'What rate would apply if I changed my load shape?' You might be surprised how often the answer involves a small operational tweak you can actually make. Luna: Like moving a freezer or preheating ovens at a different time. Lucas: Exactly. It's not glamorous, but it pays the bills — literally. And if you don't have the bandwidth, hiring a consultant who only gets paid when you save money is a low-risk move. Just make sure they have verifiable experience with commercial accounts. Luna: I love that this is a tangible win. It's not about cutting the air conditioning entirely or wearing headlamps in the back office. Lucas: Right. It's about understanding the system and working within it to your advantage. And the same principle applies to other utilities — water and gas have similar rate structures. Once you start thinking in terms of rate classes and demand charges, you see opportunity everywhere. Luna: So next time I get a utility bill, I'm going to look at the rate class and the demand charge before I complain about the weather. Lucas: That's the spirit. And if you want to dig deeper, we'll put some example calculations in the show notes. But for now, maybe just start by asking your utility one question: 'Am I on the right rate plan?' Luna: I might just do that. Thanks for the real-world example, Lucas. Lucas: Always a pleasure. And if you have your own utility rate negotiation story, we'd love to hear it. You can find us on the Fexingo network.