Energy procurement: Best practices

Attendees at a recent webinar learned how their organizations could use a Tradition Energy cooperative contract through U.S. Communities to enhance energy buys. The title of the online event: “Energy Procurement Best Practices – Steps That Ensure Procurement Success.” The webinar focused on buying electricity, but the strategies discussed were also applicable to natural gas buys.

Bob Wooten, Tradition Energy’s Director of National Accounts, told the audience that the company serves more than 1,100 commercial, industrial and government clients. Its customers range from Fortune 500 global companies to medium-sized businesses to cities and counties.

The firm manages contracts that represent 90 billion kilowatt-hours in energy usage and more than $15 billion in annualized energy spend. It is a wholesale brokerage that provides insights into the functionality and sentiment of the marketplace. “We look at where the energy market is at any point in time and where prices are headed; that data drives strategic decisions that Tradition Energy makes for its customers,” Wooten told webinar attendees.

Wooten explained how his firm assists its clients in managing their energy price risk exposure and in developing and implementing risk management strategies to control and reduce their electricity and natural gas expenditures.

Through its cooperative contract, the company delivers services that help agencies maximize savings on energy expenditures, provide better budget and cost control and improve procurement efficiency. As a consultant, the firm performs several functions to help agencies in their energy procurements Tradition Energy prequalifies energy suppliers, it creates an unbiased and transparent RFP process and it consolidates supplier responses in the bidding process.

Wooten listed the following energy procurement best practices to ensure procurement success:

Get organized,

Follow the wholesale market,

Analyze your usage load profile,

Develop a formal procurement strategy and implement that strategy,

Negotiate agreement terms and then re-price—look at everything on a level playing field,

Verify enrollment and invoice accuracy, and

Never stop monitoring markets, reporting, and adjusting

In the webinar, Wooten spotlighted four pricing models that his firm considers as it helps its clients develop a formal procurement strategy. The pricing models and their characteristics are:

Fixed price—no price volatility—no price risk—This is a good fit in a low-price market. This model, though, has opportunity cost risk;

Block and index—This model takes significant risk off the table. It offers limited price volatility, but customers face partial opportunity cost risk with this model;

Utility default—This model has price volatility, but it offers partial budget certainty. This model requires the customer to face moderate risk of higher prices; and

Full index—This model can be a roller coaster. It features some price volatility. Through it, customers can benefit from declining prices.

In the webinar,  Wooten urged agencies to look closely at the reputations of potential energy providers. “Look at the utility’s complaint history. Does the utility treat customers well and fairly?”

Wooten says his firm scans state public utility commission records, regulatory filings, Better Business Bureau reports and other sources to measure customer service responsiveness of utilities. “When you have an issue, you want the supplier to answer the phone and solve problems quickly. You don’t want to see customers forced to call a utility regulator due to non-responsiveness.”

There’s a new Energy Consulting & Management Contract Webinar at the U.S. Communities’ video library site. Le Sealey, manager of purchasing for Mesquite, Texas, and Bob Wooten, C.P.M., CEP, who is Tradition Energy’s director of national accounts, discuss the recently extended U.S. Communities cooperative contract with Tradition Energy for energy consulting services. Go here for information on the cooperative contract with Tradition Energy.

Michael Keating is Senior Editor at Government Product News, an American City & County sister brand.