TMT: Energy Tips for Facilities and Operations Managers

Video Transcript

If you’re a facilities manager, Director of Operations, or COO, you deal with almost everything happening at your facility on a daily basis. And if you oversee more than one facility, your tasks and responsibilities are even greater.

In this week’s Two-Minute Tuesday, we’re going to dive into energy concerns specific to you and share some energy tips for facilities and operations managers that make the process easier for you.

Concern #1: Ease of Procurement Process

One of your concerns is that you need the procurement process to be as easy as possible.

With all you have going on, you don’t have time to sift through mounds of paperwork or charts or spend hours considering every option.

To make the process easier on yourself, consider working with an energy broker or an energy advisor.

They’ll do the heavy lifting for you — requesting pricing, communicating with suppliers, and comparing supplier offerings. Based on their findings, they’ll give you a proposal that clearly states their recommendation based on your facility’s needs.

Concern #2: Efficiency

You also want your facility to be operating as efficiently as possible to reduce your bottom line. Old or outdated machinery could be using more energy than necessary and causing you to be over budget.

To combat this, have an audit performed on your facility to identify possible inefficiencies. The audit will identify both immediate and long-term opportunities for you to lower your energy usage.

And as an added bonus, many utilities currently offer efficiency incentives, reducing your overall project cost.

Concern #3: Budget Adherence and Risk Avoidance

Another important aspect of your job is making sure you’re adhering to your budget.

Can you explain to your CFO why your projected energy costs were ten percent over budget? Are you sure it was due to increased production? What if it was something else?

Taking unnecessary risks with your energy can easily blow up your budget, and you don’t have time to examine the details of every available energy product.

An energy advisor or broker is well-versed in supplier product options and can help you select the one that makes the most sense for your facility. This should be based on your production schedule, sustainability requirements, and any upcoming energy efficiency projects.

Concern #4: Looking for Competitive Advantages

Lastly, you’re looking for ways to give your facility a competitive advantage.

In addition to a strong procurement strategy and doing efficiency projects, consider enrolling in a Demand Response program.

Facilities that choose to participate earn money for voluntarily reducing their usage during test events and peak usage times. The more you can curtail, the higher your payout, and the more funds you have at your disposal for site upgrades.

 

As a facilities or operations manager, you deal with so many variables every day. Your energy consumption and spend is an important aspect of this, but it doesn’t have to be overwhelming.

Keep these energy tips for facilities in mind when looking at your next project or agreement.

Thank you for watching! If you found this video helpful, please feel free to share it with other operations folks, then like or comment below.

TMT: Energy Management Tips for Property Managers

When it comes to managing energy costs, property managers face a number of unique concerns.

It’s not just you making a decision — you have to help your board make a decision and, ideally, make the best one.

You’re worried about:

  • Budget certainty
  • Getting competitive pricing
  • Showing you did your due diligence
  • Saving money
  • Proving that you saved money
  • And did I mention getting consensus from a whole group?

You can’t tackle all of those at once, but we do have some advice on how to address some of these concerns. In this week’s Two-Minute Tuesday, we’re sharing some energy management tips for property managers.

Energy Concern 1: Staying within your budget

One area you’re concerned with is making sure you stay on track with your energy budget.

To achieve budget stability over time, it’s important to stay at least a season ahead of your contract end dates. A good rule of thumb is to test the market 12 months in advance and be prepared to take action in that 9-12 month time frame.

There’s no secret sauce for timing the market. However, following this time frame will allow you the flexibility to avoid rate spikes and take some of the speculation out of the market.

Energy Concern 2: Getting a competitive rate

You’re also looking for competitive rates to save your board the most money.

For larger buildings, a reverse auction is a great option for maximizing transparency and supplier competition. The end result is the lowest possible price on a given day and a very clear documentation to provide the board with confidence in their decision.

For mid-size buildings, you can create similar results with a multi-step bidding process.

Energy Concern 3: Managing board expectations

Lastly, you want to manage your board’s expectations regarding savings potential.

When you’re working with efficiency projects big or small, managing board expectations is critical.

So often I’ve heard about boards who are dissatisfied with a project that is saving them lots of money because it isn’t as much as the sales guy said it would be.

Providing independent savings projections and establishing key performance indicators up front will go a long way to providing your board with the confidence necessary to move forward. It will also make verification of project success much easier.

Keep these energy management tips in mind.

As a property manager, you have a lot on your plate. But keeping these energy tips specific to property managers in mind will make this part of your job easier and keep you looking good to your board.

Thanks for watching! If you found this video helpful, send it to a fellow property manager, then like or comment below.

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Wall Street and Natural Gas

By Michael DeCaluwe, CEM

This winter, natural gas rates have continued their fall below the $2 per dekatherm price point. Weather and decreased production typically create a floor to gas prices. However, neither has been able to slow our run to historically low gas prices.

What’s Wall Street’s role in the market?

Typically, Wall Street’s venture capital firms invest in a company and assume an eventual payout.

  • For example, think of Amazon, which lost money for many years even while its stock price went up. Wall Street was investing in the potential of the company to eventually make money.

Investors applied the “loss leader” strategy to the energy sector, but they haven’t seen the same results. Venture capital firms invested heavily in shale during the post-2008 boom. Yet natural gas rates have continued to decrease, and so have the returns from energy companies.

Debt-riddled and highly leveraged, many natural gas producers have been unable to produce a return for investors.

How did Wall Street get it wrong?

The biggest aspect of the natural gas market that investors didn’t consider is the decline rate in production at the well head.

Gas Well Decline Rates

A decline rate is the decrease in the amount of gas a well is expected to produce year over year. For instance the amount of gas that a shale gas well produces declines by an average of 70 percent in Year 2 versus Year 1.

Natural Gas Decline Rate

Production and Royalty Declines in a Natural Gas Well Over Time — Source: geology.com

The chart above illustrates why the loss leader approach to investing in the natural gas industry has led to big losses.

If these wells aren’t making money in Year 1, the rate of decline means they surely won’t be profitable in future years.

Producers have had to drill new wells to keep production and cash flow up to repay their creditors. This, coupled with the lower domestic gas demand, has created a vicious cycle that has resulted in today’s sub-$.20 gas pricing.

What happens now?

The party might be over for the natural gas industry.

Investors are starting to pull their money out of energy companies, and natural gas rates are at 20-year lows. Shale producers decreased spending by six percent in 2019 and are forecasted to decrease by another 14 percent in 2020.

The number of natural gas-directed wells also decreased by over 35 percent in 2019.

In spite of this decrease in investment and rig counts, gas rates have continued to fall in 2020. It could take a year (or more) of decreased investment in the market to affect natural gas supply.

How This Impacts You

As a buyer, it’s important to understand Wall Street as a market factor. Here are some articles that explain this concept in more detail:

If you’d like to learn about other macro factors affecting the markets, check out our February Chronicles of Nania or feel free to contact me.

 

About the Author

Michael has served as the Senior VP of Commercial & Industrial Sales at Nania Energy Advisors since 2007. He believes that listening to and understanding clients’ energy needs is vital to becoming a thought leader in the industry and forming a mutually beneficial business relationship. In his spare time, Michael enjoys being a dad, staying active, and playing basketball.

Michael can be reached at mdecaluwe@naniaenergy.com or via phone at (630) 225-4552.

Deregulated Energy Markets – Ask An Advisor

Energy advisors, brokers, and consultants all operate in deregulated energy markets.

In today’s video, we’re going to talk about deregulation. I’m going to ask John some questions and we’re going to have some conversation about deregulated energy markets.

What does “energy deregulation” mean?

MZ: So John, when an energy market is deregulated in a state, what exactly does that mean?

JN: Let me turn back the clock a little bit. So back in the late 1980’s, the federal government allowed states to implement what they called “Choice” for natural gas. But it was up to each state to decide whether they wanted to do it or not.

That experiment produced extraordinary results in the states that implemented it. And the savings that the end users — mostly large commercial — realized was dramatic.

Then, in the late 1990’s and early 2000’s, the federal government deregulated electricity in much the same way. Each state got to choose.

So today, roughly half the states have deregulated natural gas, and probably one-third of all the states have opportunities where end users can purchase electricity in their deregulated market.

Choosing Electricity and Natural Gas Products

MZ: So when you talk about purchasing electricity, we talk to our clients about different products whereas you don’t really get a choice with the utility. Talk a little bit about product mix and what products are available in deregulated energy markets.

JN: Well, if your business or home resides in a deregulated state, with gas and electricity you have the ability to purchase them in different ways.

There’s what we call “floating market” or “spot market” and you could also fix a price for some duration, whether it’s for three months or even out as far as ten years.

If you’re using the utility — whether it’s a default service in your state or your state doesn’t offer choice — the utility almost always provides some kind of variable rate. It is subject to the market and subject to change.

So the products that have been created over time in response to how the utilities provide their prices are generally around fixing a rate. Fixing a rate is the tool that probably 95 percent of customers in deregulated markets use.

MZ: And part of that product mix, too, is green energy and sustainability. Can you talk about that?

JN: When consumers have choice in deregulated markets, it’s proven not only to provide savings but also budget certainty. That means that customers now know roughly what their total cost is going to be for energy.

But a newer reason why people want to be in deregulated markets is that they can choose whether they’d like to go green or not.

Unfortunately, there are not many green options for natural gas — it just doesn’t exist that way. But in electricity, “going green” means that you could be buying your electricity from a renewable source — like solar, wind, water, or waste.  By doing so, you’re aiding the environment.

These are generally not options that you have when you’re operating in a regulated market.

MZ: We’ve helped a lot of our manufacturing clients achieve their sustainability requirements by buying Renewable Energy Credits (RECs). In these deregulated markets, people have been asking about RECs a lot more recently as well.

Which states have deregulated energy markets?

MZ: Some of the states or areas of the country are deregulated. Would you mind talking about which ones?

JN: What we saw with natural gas is that the states that were heavily populated with manufacturing were the

States with deregulated energy markets

States with deregulated energy markets

first ones to adopt deregulation. So think about the Midwest and the Northeast. Since natural gas has been deregulated longer than electricity, it has spread a wider net.

So about half of the states in the nation have opportunities end users — whether it’s for commercial, residential, or both — to choose for natural gas.

On the electric side, probably 13 or 14 states are offering choice. Again, a lot along the Midwest to Northeast corridor, California, and certainly Texas which is the biggest market by far.

Benefits of Energy Deregulation

MZ: So, obviously, states have deregulation available. We get asked all the time by customers about why their state isn’t deregulated. What are some of the benefits that you see to deregulation?

JN: Well, the evidence is absolutely conclusive at this point. The end users in states that have implemented choice have realized lower costs.

The best example is Illinois versus Wisconsin. Illinois deregulated electricity early in this process. Wisconsin never deregulated. Before deregulation, businesses were leaving Illinois and flocking to Wisconsin because they wanted to take advantage of the lower electric rates.

That has since ended. Wisconsin’s electric rates today on average are probably 20-30 percent higher that what they are in Illinois. Being neighbors, we source our power from the same places. Nothing else has really changed. The only thing that has is the fact that Illinois offers its businesses and homeowners choice, and in Wisconsin they don’t.

Downsides of Deregulation

MZ: Sure. And some other big advantages besides the lower prices are product mix like we talked about and budget certainty. But there are the naysayers and those that talk about the downsides of deregulation. What are your opinions on that?

JN: The downside of it is that the utilities lose some of their monopoly. So most of the doubts that have been cast about deregulation and its effectiveness have been by those people representing the utilities, who have a vested interest in leaving regulation in place.

The stakeholders are the legislators, politicians, and utility companies in those regulated states, and they want more of the status quo.

In other states, the stakeholders are the end users and they have a voice.

There’s really no downside. We haven’t seen a market that’s re-regulated. At one point, California re-regulated and now they’ve deregulated again. But otherwise, no market has and in fact several states are actually pushing for deregulation.

The Carolinas, Florida, Arizona, Virginia are the most recent ones moving toward deregulation because they know that the benefits to the end user work. And they need to make their state competitive if they want to attract businesses and employment accordingly. They have to be able to make it a better business environment, and what better way to create that environment than giving them the opportunity to lower their energy costs?

The only other downside is in the residential market. There’s been some less-than-scrupulous players that have gone after less-informed consumers and taken advantage of them by putting them in higher rates than they otherwise would be paying.

It’s a bad practice. The states’ attorneys have aggressively gone after those companies, and we as an industry have self-policed aggressively. So to say that no one has ever been harmed by this would not be true.

Aside from that, deregulation is mostly a positive. In Illinois, for instance, almost 98 percent of all the businesses that have a choice are actually taking advantage of it. That means they like it.

Closing Thoughts

MZ: Absolutely. And we’ve seen the overwhelming savings and positivity from our clients in our market, but in the other states that also have deregulation you can see the big impact it has on their bottom line.

Any other general thoughts on deregulation? Anything else you’d like to touch on?

JN: Well, deregulation has brought choice to end users. And that choice comes with options. How long are you going to fix a rate? Do you want to use a different product than the utility company is offering as the default?

But the most recent benefit is that end users can choose to go green now whereas they didn’t have that option before. So whether you’re a business or a resident, you can buy your power from a sustainable source, and that’s kind of cool. It doesn’t exist in natural gas per se — we haven’t figured out how to “green up,” if you will, natural gas — but we’ve certainly done that in electricity.

MZ: Well John, thank you very much for your time today. It was a great conversation on deregulation. And thank you all for watching! If you’d like to learn more about options in your state, please feel free to reach out to us or visit our website.

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TMT: Benefits of a Reverse Auction

Video Transcript

What’s the difference in electricity and natural gas supplied to you between one supplier or another?

The answer? None. They’re both commodities. There’s absolutely no qualitative difference if your supplier is Constellation, Direct Energy, or any of the other dozens of retail energy suppliers.

So, what does matter? Making sure that you’re getting the best effort from all qualified suppliers to provide your organization with the best results.

In this week’s Two-Minute Tuesday, we’re going to talk about how a reverse auction for energy procurement can compress supplier margin and drive energy savings for you.

How does a reverse auction work?

In a reverse auction, all qualified energy suppliers are invited to compete against each other in a live event that you can watch through an online portal.

With each bid, suppliers attempt to win your business by under-bidding one another. They can’t see who the lowest supplier is, but they can see the price to beat. This gives each supplier “last look” and dramatically improves the level of competition.

What happens when the auction ends?

At the conclusion of the auction, when no supplier is willing to go any lower, you’re left with the supplier who was willing to put their money where their mouth is. And the lowest possible energy rates achievable.

You’ll also have a report with time and date stamped bids from all suppliers during the auction.

Consider using a reverse auction for your procurement.

For commodity procurement, there is no more efficient and transparent platform than the reverse auction. But it’s important to note that the auction is just one tool in your energy management toolbox. You aren’t guaranteed the best results just by virtue of using one.

Your consultant or broker should also be:

  • Helping you develop an RFP that defines your energy goals and assists you in making the best decision
  • Monitoring the market for you to advise on the timing of your purchase, and
  • Partnering with you directly to meet the reporting needs of your organization.

When you’re considering options for your upcoming commodity agreement, check out a reverse auction. It might provide some valuable competition you might be missing from your process.

Thanks for watching! If you found this video helpful, please like, comment, or share below.

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Green Options for Schools – Energy ABC’s #4

Video Transcript

One of the hottest topics on the streets today is about sustainability and green energy.

You’re likely already facing some pressure from your Board members and community to become more green as a District but still maintain that limited budget that you have.

So, in today’s video we’re going to cover 3 green options for schools that can help you become more sustainable as a District and discern which is best and fits best with your budget.

Green Option 1: Solar Power

The reason that solar is such a big deal and a big talking point in Illinois right now is there are new financial incentives to improve the overall ROI of solar installations.

These incentives include:

  • Utility rebates in the form of a check that you get after the solar installation is completed
  • Solar Renewable Energy Credits (or SRECs) that you can sell for money for any power that’s produced from your solar array
  • Federal tax incentives that you don’t really qualify for as a tax-free entity.

Because you can’t take advantage of the tax incentives, you may want to consider a Power Purchase Agreement, or PPA, in which an outside developer takes advantage of the incentives and installs the solar panels on your rooftop or your ground mount. They get paid by you over the course of a 20-25 year agreement.

You don’t have any upfront capital outlay — you simply pay the installer for any power produced by the array over the 20-25 years. So if you have no bond ability, no capital outlay, and you can’t purchase the array directly, this may be an option that you want to consider if the numbers are favorable.

The final question you want to ask yourself is how quickly can you act as a District. Those SRECs that we talked about  — those Solar Renewable Energy Credits — are on a diminishing scale. So you’re getting paid less and less for each kWh of electricity that’s generated the longer you wait to install a solar array.

If this is something you can act on quickly, the can drastically change the ROI on your project and may make it cost prohibitive.

Green Option 2: Lighting

A second option that you can explore is to lower your carbon footprint through lowering your overall energy consumption. This is done by completing efficiency projects.

One of the lowest-hanging fruit in this category is lighting upgrades, or installing LEDs.

The beautiful thing about this option is that the cost of LEDs has come down considerably, but there are still utility rebates available for completed projects.

You can also reduce the lighting portion of your energy usage by as much as 80 percent with an LED upgrade. So it’s definitely something worth considering.

The best part is if you can achieve an ROI under two years, that may be an easier sell to your board than a 20-25 year PPA for a solar project.

Green Option 3: Purchasing RECs

A final option you can take is purchasing green, renewably-sourced power.

For a small premium — usually 2-3 percent of your overall energy cost– you can purchase power that comes from, wind, solar, or water generation sources. So you have the PR to say that you are a District that is powered by 100 percent green renewable energy.

While this isn’t a direct offset of your carbon footprint, it will help appease in many situations any initiatives that your Board or community may have for your District.

 

Hopefully this gives you a great overview of the green options available to you to become more sustainable as a school District. For more information on any of the topics we talked about it this video, check out the links below or certainly reach out if you have any questions.

Thanks for watching, and we’ll see you next time on Energy ABC’s!

See more posts about Sustainability:

 

TMT: Liquefied Natural Gas

Video Transcript

Did you know that natural gas can be turned into a liquid?

In today’s Two-Minute Tuesday, we’ll be talking about why liquefied natural gas (or LNG) is an important factor in the cost of energy in the US.

Liquefied Natural Gas: Fast Facts

Liquefied natural gas, or LNG, can be exported on ships.

At export terminals, natural gas is cooled to about -260 degrees Fahrenheit, at which point it becomes a liquid. It’s then shipped using special ocean tankers to import terminals. There, LNG is heated and returned to its gaseous state.

Historically, the United Stated imported LNG, so most of our ports are designed to heat LNG to turn it into a gas.

However, recently we’ve seen a rise in shale fracking and an increase in our natural gas production. This led to the opening of the first US LNG export facility in February 2016.

Since then, we’ve added five more export facilities, with more scheduled to come online in the coming years.

Why is Liquefied Natural Gas important?

LNG can affect the price of natural gas both domestically and internationally.

Historically, the price for gas in Europe and Asia has been 80-100% above the cost of gas in the US. This matters because of how it impacts our supply market.

Domestic natural gas producers can get a higher return for their natural gas in the international market versus the US market.

Although we only export a small amount of LNG right now, our exporting capacity could increase because gas producers are driven to capitalize on the market differences. Could this siphoning of supply cause the cost of gas in the US to rise to the level of the international market?

The Future of LNG

The future of LNG exports has a lot riding on the upcoming election. Depending on who wins this contest, the US LNG market could continue to expand or could be cut back. Regardless of the election, LNG exports will continue to influence domestic energy prices for both natural gas and electricity, and its expansion is a factor to watch over the next decade.

Thanks for watching this Two-Minute Tuesday, and look forward to future videos! If you found this video helpful, please like, comment or share below.

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Run an Effective Energy RFP – Energy ABC’s #3

Video Transcript

Figuring out when to buy energy and what to include in your energy RFP can mean the difference between an operating budget bust or surplus for your District.

Get your notes ready! Because I’m about to rapid-fire some best practices for running an effective energy RFP for your district.

Give yourself plenty of time.

Let’s say you get yet another call from an energy provider asking you about your gas and electric contracts. You spout off your standard answer of “We’re locked in for another three years, so we’re all good” and hang up the phone.

While you’re not interested in taking a sales call, it does jog your memory that you haven’t looked at your actual contracts in quite a while. So you track them down and see that you’re up in the next 12 months. So now what?

I’ll give you a hint: the answer is not file it away in a cabinet until a month before your contract expires.

Give yourself ample time to review this process. Engage with new providers. Watch the market. And get buy-in from any necessary parties, such as your Board.

By giving yourself plenty of runway, you could save thousands of dollars and add to your bottom line.

Know your contract end date.

Because all energy supply contracts are purchased on the futures market, they’re all technically forward-facing agreements. So, you can go to market at any time during your current agreement for your renewal.

Let’s say, for example, you have a December end date on your current agreement. You can go out to RFP in January, if you’d like. And you would set a parameter for a December start date. Suppliers can start the new contract whenever you’d like.

How this would work is your new contract would bookend to your current agreement. Just make sure you have accuracy in what your current contract end date is. What you don’t want to happen is to have an overlap of two supply agreements or have a gap in service — both which can result in large penalties to your District.

Watch the market.

So is there a better time of year to buy than others?

Not really.

In theory, it makes sense that you would buy in the off-peak seasons — so you would buy gas when it’s warm outside and buy electricity when it’s cool outside.

But anymore, the market’s not really weather-driven because we’re at a surplus of natural gas domestically. You want to pay more attention to geopolitical speculations and financial gains of any traders, and that’s really what’s going to affect the market.

If you’re trying to “time the market,” you’re better off to give yourself enough runway to watch the market for opportunities. And if you don’t have the time to do that, align yourself with a partner who will and will notify you of any substantial changes.

Consider competitive bidding.

Which brings me to my final point. Call your peers and ask for referrals of any energy partners they utilize. Then pick their brains on RFP parameters that they have.

Keep in mind any changes you have upcoming, such as a closing building or solar installation. These partners should be able to help you build out an effective energy RFP to run on your own, or maybe you trust them enough to run it for you.

Also, keep in mind that energy procurement in public schools does not require a formal bidding process per school code. So, you’re able to work and align with partners that you trust and value.

However, competitive bidding is always a great option, whether you do a traditional sealed bid or maybe you utilized a more tech-advanced option, such as a reverse auction software. Competitive bidding where multiple suppliers compete against each other can really drive down your overall cost.

Build your own effective energy RFP.

Now that you have a jumping-off point, pull out those dusty old contracts and see when they end. If it’s in the next 12-18 months, now is the perfect time to start gathering information and engage with new partners.

Thanks for watching! Check us out in our next video in the series Energy ABC’s.

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TMT: Demand Response Program for Schools

Video Transcript

Starting June 1st of 2020, significant changes to the Demand Response program in our region could mean a drastic reduction in your school’s payout.

In this week’s Two-Minute Tuesday, we’ll talk about these changes and what they mean for your school district.

What is Demand Response?

Let’s start with a quick recap of Demand Response.

On days when our power demand is at its highest, relative to the “capacity” available to handle that demand, our grid — also known as PJM — has to ensure that everyone who needs power has it. This prevents blackouts.

Rather than installing expensive infrastructure that may only be used a few hours a year to meet that high demand, PJM started a program known as Demand Response.

In the Demand Response program, participants can voluntarily commit to reducing their power load during times that require it.

The only caveat is that participants have to prove that they can hit those levels during an annual 1-hour test event. In return, those participants receive money from PJM for both the test event and any emergency events, should they occur.

What’s new this year?

Historically, these real emergency events only posed a threat in the summer on the hottest days of the year.

Given recent history, however, the winter now also poses a threat in bouts of extremely low temperatures. So how has the Demand Response program changed?

Well, starting June 1st of 2020, the program will require year-round enrollments versus summer only of previous programs. Your total curtailment amount as a school district is now based off the lower of your two PLCs — both winter and summer.

Unless you use electric heat, this means your total curtailment is likely going to decrease dramatically — and so is your money earning potential.

Some curtailment service providers have adapted their software to accommodate these changes and may be able to offer you a unique solution to still enroll for summer only. But keep in mind: your total payout will likely be half of what it was in the past.

Ask your provider how this will impact you.

If your current provider has not yet contacted you about these changes, reach out and ask them how it’s going to impact your revenue potential.

And, if you have questions about how you can still capture some of the earnings — versus dropping out of the program altogether — reach out to us. We’re happy to help!

Thanks so much for watching. If you found this video helpful, please like, comment, or share below.

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3 Ways to Purchase Energy – Energy ABC’s #2

Video Transcript

Hey guys! It’s Becky with Nania Energy, back with the second video in our series “Energy ABC’s.”

Today we’re going to cover a heavy topic of the different ways to purchase energy.

There’s a lot of different options available to you: there’s consortiums, using a broker or consultant, or going direct through a supplier. We’ll cover the pros and cons of each so that you can figure out which is best for your district.

Option 1: Consortiums

Alright, so let’s start with consortiums — or, buying groups or co-ops.

These are typically large groups of similarly-structured businesses, like a K-12 school, that band together to purchase energy in bulk.

A lot of these were created over a decade ago when electricity was first deregulated in Illinois and there was a lot of volatility in the market. So they banded together for safety in numbers.

Consortium — Pros

Think of it like a glacier — it’s large and slow moving, but doesn’t veer much off course. That’s the way that consortiums typically purchase energy, which is great for you as a school district because it’s little to no maintenance.

Consortiums are typically governed by an appointed board, and they oversee a third party — such as a consultant or a supplier — that makes a purchasing decision on your behalf. So it’s kind of a set it and forget it option for your school district. This is really great for you if you’re a smaller school and energy isn’t a large portion of your budget, and you just don’t have the time to dedicate to it.

Consortium — Cons

Some of the disadvantages that come with this, however, is that they’re not a low-cost provider. They don’t set out to be. They’re trying to flat-line the price and eliminate any of the big highs and lows that may exist.

So any opportunities that pop up like we saw in summer 2019 — when we had the lowest prices in the last decade — you’re not able to take advantage of, and you’re limited in the flexibility that you have to look outside of the buying group itself.

A lot of times, to even exit the group once you’re a member could take 3 or 4 years. So you have to be pretty committed to the process if you’re going to join.

 Option 2: Advisor, Broker, or Consultant

The second option you have to purchase energy is to use an ABC — an Advisor, Broker, or Consultant.

While there’s differences between those three, one similarity is that they’re all a third-party that acts as a middleman between your district and your supplier.

ABC — Pros

They often have several supplier relationships, so when they run an RFP for you they’re able to bring a large level of competition — which translates into a lower rate for your school.

They also can offer a range of services to help make your life easier and save you time and energy. This includes:

  • Bill auditing services
  • Handling customer service issues you have with the utility
  • Helping you forecast your forward fiscal budget
  • Validating any ROIs you have on efficiency projects.

ABC — Cons

Some disadvantages to using an ABC, however, is that there is an additional cost. You do pay them a fee, and you should know what that fee is to know that it’s fair and reasonable for your district.

Each ABC handles this a little bit differently. Some require an up-front consulting fee, some bill you directly monthly, and others will actually bake their fee into your fixed rate on your supplier bill.

Make sure you have the conversation ahead of time and know what this is. If your current ABC isn’t willing to share this information with you, it’s generally a red flag that something’s probably not right.

Another drawback of using an ABC is that there are unfortunately low barriers to entry in our state. There’s literally hundreds of brokers in the state of Illinois.

Make sure that you do your due diligence and ask them for references of other K-12’s they’re working with. Check up on them and make sure that they have a full understanding of how your school business operates. It’ll be most important to your bottom line.

Option 3: Directly through a supplier

A third option you have is to work directly through a supplier. These are the people you receive your invoice from each month.

Direct through Supplier — Pros

By working directly through a supplier, there’s no third-party administration cost like there is with using a consortium or a broker.

They also may be able to offer you some completely customized products that you’re not able to get by running a standardized RFP.

Direct through Supplier — Cons

However, this option is really best for districts that have the time and energy that it takes to understand the energy world and make sure they’re not putting their school at risk.

 

There’s a lot of moving pieces to energy, and having a partner to help guide you through that process is imperative to ensure you’re making the best decision for you and your school business.

I hope you enjoyed this video and found it helpful in determining which method you’ll use going forward. If you have any questions, drop us a line or shoot us a note — we’d be happy to help.

Otherwise, we’ll see you next time on Energy ABC’s!

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