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What is Blend and Extend

Energy, Blend and Extend

Today’s tip is about a strategy for buying energy that may help save you money in the short term, if your budget has been slashed due to the ever-declining economy. The strategy is known as a blend-and-extend.

Previously associated with lease negotiations in the early 90s, buying electricity or, more commonly, natural gas with a blend-and-extend plan can be a way to save money now, and spread the cost of energy out over a longer period of time. A blend-and-extend is only an option if you’re in a deregulated market or buy energy from a third party marketer or wholesaler at a fixed rate.

Here’s how a blend-and-extend might work: Say you’re paying $10 per decatherm for natural gas, and you’re currently in the second year of a two-year contract. Well, say the gas company is projecting that gas will drop next year to $8 per decatherm. You could extend your contract another year, lock in next year’s $8-per-decatherm rate, and blend it with this year’s rate to pay only $9 now while we’re in a very poor economy and money is tight. You’d also pay $9 through the third year of the contract as well, meaning you’re paying $1 less this year, but $1 more next year. If you’re concerned about hitting your 2009 budget, a blend-and-extend may be a way to even out your operational costs over a longer period of time.

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