Last winter, millions of businesses that rely on natural gas for their energy needs saw their bills double or triple. In large part, the price shock was due to the aftermath of hurricanes Katrina and Rita, which disrupted the offshore operations of approximately 20 percent of America’s natural gas supply. One can only imagine what might have happened if we had experienced a rough winter on top of it.

America faces a growing energy supply shortage that affects the cost of nearly everything we do – driving, adopting new technologies, heating our homes. Energy demand continuously increases while supply stagnates, forcing prices to rise higher. What does this mean for restaurants? Higher energy prices squeeze profits. One way to compensate is to raise prices but that comes with the risk of chasing away customers.

When it comes to planning budgets and setting prices, you project the costs your company will incur and plan accordingly. The trouble with budgeting for energy is that while you can estimate many of your expenses, such as cooking supplies and high-demand menu items, your energy costs are unpredictable. Sudden increases in energy rates can bust the budget of even the most successful enterprise.

At the same time, you cannot stop running your business. What you can do is take matters into your own hands by making wise, informed decisions about the energy plan you choose for your business.

Mary Ellen Borge, owner of Gloucester’s Lone Gull Coffee House, chose to insulate herself from volatile energy prices by taking a simple step – signing up to purchase her electricity from MXenergy. This helps her save money, as MXenergy can offer her a lower rate through April, but also assists her in managing her business costs. MXenergy is one of several companies offering price protection in the form of a supply agreement that locks in the cost per unit of electricity through April 2007.

As with any restaurant, Lone Gull Coffee House consumes a significant amount of energy running equipment such as coffeemakers and dishwashers on a daily basis.

“Being able to budget for a fixed energy cost helps me set prices and manage my expenses,” Borge said. “With the cost of coffee, milk and other items rising, it’s helpful to be able to budget for my electricity bill.”

Consider This

Every restaurant must focus on three issues:

• Fixed or floating – Should we lock in our energy price or let it float with market prices? This answer depends on whether you can pass on increased energy costs to customers. If your restaurant can charge higher prices, then locking in is probably not necessary. If prices cannot be passed along to the customer, locking in energy rates may be necessary.

• Term – For how long should we lock up our prices? The duration of fixed price protection is generally from one year to three years. If a business believes prices may drop in the future, a shorter term is advisable. If a business does not have confidence in its long-term projections, then longer-term protection may be advisable. That way, if prices go down in the short term but bounce back in the long term, the business will be protected.

• Price – How much should we pay and to whom? Sometimes it is more important who you buy from. A fixed price from a supplier that goes bankrupt when prices spike will be as helpful as an insurance policy from a bankrupt insurer. Beware of low-ball prices that look too good to be true – they probably are!

Before signing up for a fixed-rate energy plan, be sure to do your due diligence on the providers you are considering. The provider you choose should have a strong balance sheet, access to financial capital and the risk-management processes that are necessary to enable it to offer the long-term protection being advertised.

As heating season continues, now is an ideal time for restaurants to take control of energy bills by choosing energy providers and enrolling in fixed-rate plans that lock in long-term price protection. Like the fixed-rate mortgage that protect homeowners from rising interest rates, fixed-rate energy plans safeguard your business from unexpected increases in energy costs, regardless of whether prices rise because of natural disasters, limited supply or political crises.

By choosing a fixed-rate plan, you will be protecting your business against future energy price increases that could cut into your profit margins or force layoffs. If history is any guide, locking in energy rates is one of the most sensible things you can do to lessen the financial impact of the constantly increasing demand for energy.