The Hidden Pitfalls of Energy Procurement Every CFO Misses
CFOs pride themselves on spotting leakage, enforcing governance, and protecting margin. Yet in one of the most volatile cost lines – energy – many are blind. Not because they’re careless, but because procurement is wrapped in supplier noise, operational firefighting, and false assumptions. The result? Unmanaged risk. Margin erosion. Missed credibility.
This guide exposes the traps that catch even the sharpest CFOs. If you think energy is “under control,” read on. You may discover it isn’t control at all—it’s chaos wearing a polite mask.
Assumption #1: “Operations Have Procurement Covered”
Wrong. Operations renew contracts under pressure. They take the path of least resistance. That means defaulting to incumbents, accepting renewal offers without benchmarking, and running last-minute processes with no leverage. The board thinks you govern costs. In reality, you’ve delegated margin leakage.
Impact: You inherit fragmented contracts, inflated tariffs, and supplier-friendly terms. The leakage doesn’t show up in operations KPIs. It shows up in your EBITDA responsibility.
Assumption #2: “Energy Costs Are Too Small to Matter”
CFOs under pressure prioritize debt, payroll, FX. Energy feels tactical. Yet for multi-site businesses, energy spend runs $50k to $1M annually. Margins in many sectors hover around 10–15%. A 5% overspend on energy wipes out days of EBITDA contribution.
Impact: By treating energy as trivial, you ignore one of the easiest controllable levers in the P&L. Your competitors who manage it? They secure a permanent cost advantage.
Assumption #3: “Suppliers Will Advise Us Honestly”
No. Suppliers are not neutral advisors. They are commercial entities with one objective: maximize margin. The more fragmented your contracts, the more urgent your renewals, the less visibility you demand – the more profit they extract.
Impact: You think you’re getting “market advice.” What you’re really getting is a one-sided sales pitch. Suppliers win when you treat them as partners. You win only when you make them compete.
The Four Procurement Traps That Drain EBITDA
Across hundreds of businesses, the same traps recur. They aren’t accidents – they’re structural. Unless you actively counter them, you’ll fall into them too.
- Trap 1: Fragmentation — Sites procured individually. Volumes split. Negotiation power destroyed.
- Trap 2: Last-Minute Renewals — Contracts rolled days before expiry. Zero time, zero leverage, maximum supplier margin.
- Trap 3: Hidden Pass-Throughs — Non-commodity charges quietly inflating bills by 20–40%, unnoticed because no one audits line by line.
- Trap 4: No Board Visibility — Procurement treated as admin. Results never reported in EBITDA terms. Leakage hides in plain sight.
Each trap alone is costly. Combined, they represent systemic financial mismanagement. As CFO, you cannot afford systemic mismanagement in any cost line – especially one this exposed.
Why Energy Procurement Is Risk Management
You already govern FX risk. Interest rate risk. Credit risk. Energy should be in the same category. Prices are volatile. Supplier terms are complex. Pass-through costs change with regulation. If you treat it as transactional, you miss the exposure. If you treat it as risk, you can manage it.
- Locking in at the wrong time can add 20% to annual spend.
- Defaulting to “market rate” leaves you exposed to peaks.
- Ignoring hidden charges turns budgeting into guesswork.
Boards don’t forgive CFOs who miss risk exposure. Energy is no exception.
The CFO’s Framework for Procurement Discipline
You don’t need to master energy markets. You need a framework that ensures discipline, strips out supplier advantage, and frames outcomes in board-ready terms. Here’s what that framework looks like:
- Audit: Independent benchmark of every site, every contract, every rate. No blind spots.
- Consolidation: Aggregate volumes across sites. Convert fragmentation into leverage.
- Competitive Process: Force suppliers to bid. Never accept a renewal at face value.
- Governance Timeline: Run procurement on your calendar, not the supplier’s.
- Board Reporting: Translate savings into EBITDA impact. Elevate energy from admin to governance.
With this framework, you remove chaos. You insert discipline. And you demonstrate control where competitors still firefight.
Win the Boardroom Conversation
Boards don’t want jargon about kilowatt-hours. They want financial governance. Show them you’ve identified leakage, imposed discipline, and secured margin. That’s a board-level story. And it’s how you protect credibility as CFO.
Every CFO is under pressure to prove grip on cost. Energy is the easiest test and the most visible miss if you fail. Win here, and you prove governance. Lose here, and you prove blind spots.
Close the Pitfalls—Start With an Audit
The easiest way to expose hidden leakage is an independent audit. Every contract benchmarked. Every pass-through exposed. Every renewal mapped to EBITDA impact. One report that turns chaos into control and gives you the board narrative you need.