Blend/extend option offers budget stability, flexibility
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November 1, 2007
Municipalities that have signed long-term supply contracts for electricity benefit from budget stability during the contract term, but may still be concerned about market rates.
Communities that signed contracts when the rates were higher than the current market want to get in on the lower price. And those that locked in at a lower-than-market rate are girding for the budget jolt they’ll face when their contract expires.
An option is available that can help customers in either situation. For participants in the MMA’s MunEnergy program, the option is called Blend & Extend.
Using this option, customers may change their locked-in price in response to market rates. This modified contract price, which falls between the contract price and the market rate, is the “blend.” The contract then “extends” to a longer term to provide continuing budget stability. The product can be beneficial whether one is “blending” their price down or up.
The town of Greenfield used Blend & Extend last month to reduce its contracted rate because rates were lower than when the town signed a fixed-price contract more than a year ago. If the town’s year-to-year usage remains the same, the town will save more than $40,000 during the current fiscal year.
“The ability to take advantage of lower market rates made a significant difference in our budget this year,” said Public Works Director Sandy Shields, “while locking in for a longer period of time protects us against price volatility for years to come.”
Other municipalities have “blended” their contract price up. This option might not sound as beneficial, but for municipalities that are currently at below-market rates, the “extend” aspect means their electricity rate can be expected to remain below-market beyond their existing contract term.
One MunEnergy customer executed a contract at a time when rates were much lower than they are today. This municipality was concerned about having to budget for much higher rates when its contract expired. Under current market conditions, the town’s cost would double a year from now.
With Blend & Extend, the community “blended” its lower rate with current market rates, and then extended to a longer term. Now the community will not have to double its budget for the next fiscal year, softening the budget impact.
For more information about MunEnergy, contact Program Manager Emily Neill at (617) 772-7513 or This email address is being protected from spambots. You need JavaScript enabled to view it. .
- Written by MunEnergy Program Manager Emily Neill
