Energy Risk: The Unmanaged Exposure Sitting in Your P&L
Every CFO monitors debt, cash, FX, credit, insurance. Yet most ignore the one line item that can swing millions with no governance: energy. Electricity and gas commitments are treated like admin, not financial risk. That blind spot lets suppliers dictate terms, inflate charges, and lock in losses. Energy is not just a bill. It’s a volatile, complex, unhedged exposure running through your P&L and unless you manage it like a risk, it will manage you.
The Scale of Exposure: Bigger Than You Think
Most finance leaders underestimate the magnitude of energy exposure. A mid-market manufacturer with 10 sites might carry $4M–$8M in annual energy spend. Even a modest procurement error of 10% is a $400k–$800k hit every year of the contract. Compare that to FX slippage, insurance hikes, or bad debt write-offs. Energy dwarfs them. Yet unlike FX or credit, most boards have no policy, no risk appetite framework, no oversight process. It’s free fire for suppliers.
When a market spike adds 20% to non-commodity charges, that’s not an operations issue. It’s a P&L shock. A CFO who ignores it is leaving exposure unmanaged at board level.
The Illusion of “Fixed” Contracts
Suppliers love to sell “fixed price” deals. CFOs love the certainty story. But in reality, the only thing fixed is the headline unit rate. Distribution, transmission, balancing, environmental levies – all flow through and can change at any time. In practice, 40–60% of your bill is non-commodity cost, which you have zero control over. The “fixed” story is a half-truth designed to make you complacent while suppliers keep the upside.
When these charges shift, your “fixed” contract turns into a moving target. You thought you hedged. In reality, you just signed an exposure you can’t measure, explain, or defend.
Why Energy Risk Stays Unmanaged
- Procurement silos: Energy is delegated to site managers or category buyers who focus on price, not risk.
- Lack of data: Bills arrive late, in inconsistent formats, impossible to roll up into portfolio exposure.
- Board neglect: Energy rarely gets airtime compared to debt covenants, working capital, or tax planning.
- Supplier spin: Vendors actively discourage transparency, hiding behind jargon and “market volatility.”
- No benchmarks: Without external data, it’s impossible to know if your portfolio is aligned to market risk.
The result? Energy becomes a black box. Procurement believes it’s covered, finance assumes it’s fixed, and suppliers enjoy free margin while you carry the risk exposure.
The Consequences of Leaving Risk Unchecked
Unmanaged energy risk doesn’t show up in monthly variance analysis until it’s too late. The lag blindsides CFOs. Here’s what it looks like:
- Quarterly EBITDA miss traced to “unexpected utility increases.”
- Site managers escalating costs that were locked in six months earlier.
- Board questions you can’t answer about why peers have lower energy intensity.
- Banking partners asking about exposure management, only to find you have no policy.
By the time you’re explaining, the exposure has crystallized. The board now sees a finance leader who missed an obvious, controllable risk.
A Risk Framework for Energy
The solution isn’t more supplier meetings. It’s a shift in governance. Treat energy like financial risk, and the structure becomes clear:
- Policy: Define appetite for risk exposure, contract terms, and portfolio diversification – just as you would for debt or FX.
- Data: Consolidate consumption, contracts, and charges into a single dashboard. Fragmentation hides exposure.
- Benchmarking: Independent price indices to verify competitiveness, not supplier PowerPoints.
- Controls: Central renewal calendar, dual approval for contracts, and governance reporting to the board.
- Audit: Annual third-party review of spend, risk position, and supplier performance.
With this framework, energy stops being a black hole. It becomes a managed risk, visible in board packs, with defined accountability and controls.
Speaking the Board’s Language
Boards don’t want to hear about kilowatt-hours or distribution levies. They want to know: what’s the risk, how are we mitigating it, and what’s the financial impact? CFOs who can translate energy into financial exposure instantly shift the conversation. “We carry $12M exposure across 3 years. Benchmark variance is 7%. Risk-adjusted loss potential = $840k.” That’s a board-level discussion. That’s governance.
Without this framing, energy remains in the noise, and the CFO looks like they missed an obvious lever of value protection.
Audit Your Energy Risk Before the Market Does It For You
Markets don’t wait for your board cycle. Energy exposure is real-time, and suppliers exploit delays. The Energy Consultant delivers independent benchmarking, risk audits, and governance frameworks that strip out supplier spin and make risk visible in your board pack. Don’t let unmanaged exposure drain your P&L another quarter.