For most hotel owners, energy costs run on autopilot, and that’s exactly the problem
By Dave Hennekes
Hotel owners negotiate for almost everything: Commission rates with OTAs, terms with linen and laundry vendors, pricing with F&B suppliers, renewal terms on PMS and POS systems. Many work with a broker for property insurance and a franchise rep for brand standards. Yet one of the largest, most volatile line items on the P&L, energy, often goes untouched from the day the contract is signed until the day it renews itself.
That gap is worth a closer look, because energy is rarely a set-it-and-forget-it expense. In many states, hotel owners have more control over their energy costs than they realize, and in deregulated markets, they may be able to shop for supply the same way they shop for any other vendor.
The problem isn’t that better options don’t exist. It’s that most owners don’t have anyone advocating for them, and the default supplier has no incentive to point that out.
The Cost of Not Asking
Energy contracts are often signed once, during a renovation or a change in ownership, then largely forgotten. Many include auto-renewal or evergreen clauses: If no action is taken by a certain date, the contract renews automatically, sometimes at a significantly higher rate. Missing that window can lock a property into unfavorable pricing for another one to three years without anyone deciding that was the right move.
This is where self-advocacy becomes useful. It doesn’t require becoming an expert in utility markets, just knowing which questions to ask, when to ask them, and recognizing that energy costs are negotiable in ways many owners haven’t been told.
What to Ask
A few questions can make a meaningful difference in what a hotel pays over the life of a contract.
Is this a fixed or index rate? A fixed rate locks in a set price per unit of energy for the contract term, offering budget certainty. An index rate fluctuates with the wholesale market, which can mean savings in some periods and unexpected spikes in others. Neither is inherently better, but every property should know which one it has and why.
When does the contract renew, and how? Contract end dates should be tracked the same way lease expirations and franchise agreement dates are tracked. If a contract auto-renews, owners should know the exact notice period required to opt out or renegotiate, often 30, 60, or 90 days before expiration.
What are the demand charges? Many commercial energy bills include a demand charge, based on the highest rate of electricity use during a short window in the billing period, separate from total consumption. A property can reduce its total energy use and still see its bill barely move if demand charges aren’t addressed. Understanding this line item is often the most overlooked opportunity for savings.
Has the contract been competitively bid? In deregulated markets, suppliers submit competing offers for a property’s energy load. Many owners renew with their current supplier by default rather than soliciting bids. A competitive bid process can be run on a predictable schedule, well ahead of renewal, without disrupting operations.
What are the exit terms? Early termination fees, capacity obligations, and other penalty clauses should be understood before a contract is signed, not discovered when circumstances change, such as a sale, a brand conversion, or a major efficiency upgrade that shifts usage patterns.
Advocacy as a Habit
The properties that manage energy costs most effectively treat it the way they treat other major expenses, with a calendar, a checklist, and periodic review. That might mean assigning one person to track contract dates, or simply asking at each budget cycle: Does anyone actually know what’s in our energy contract right now?
One practice worth adopting is a routine utility bill analysis, conducted every six to 12 months rather than only at renewal. Utility bills are complex, layered with rate classifications, seasonal adjustments, and fees that shift over time, sometimes due to a rate case decision or tariff change a property owner would have no reason to know about.
A periodic review – ideally done with an energy advisor who specializes in commercial accounts – can catch billing errors, flag rate classifications that no longer fit a property’s usage, and identify whether market conditions make renegotiation worthwhile before a contract comes up for renewal. This is a different exercise than the once-per-contract review most owners already do. It functions as a standing checkpoint that treats energy the way any other significant recurring cost deserves to be treated.
For many owners, the honest answer to that question is no, and that’s precisely the gap that self-advocacy, whether handled internally or with outside help, is meant to close. Just as hoteliers wouldn’t sign a franchise agreement without reading the fine print, energy contracts deserve the same scrutiny. The tools to negotiate a better position already exist in most markets; what’s often missing is simply someone asking on the property’s behalf.
Energy costs will keep fluctuating with the broader market. Whether a hotel is positioned to weather that fluctuation often comes down to a much simpler factor – whether anyone advocated for a better deal in the first place.
As Director of Growth Initiatives at Pilot Energy, a Bronze Industry Partner, Dave Hennekes helps hoteliers make confident energy decisions through independent guidance, data-driven insights, and strategies tailored to their goals and energy needs. He can be reached at dhennekes@pilotenergy.com or via phone at (858) 678-0118.
Image: Nadezhda Buravleva/stock.adobe.com
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