The efficient way to buy energy, Part 1
The importance of energy buys is expanding in public procurement. In our latest Keating Report survey covering government budgets and spending, nearly 2 out of 5 respondents said energy products and consumption line items would be growing in their entity’s 2016 budget.
GPN reached out to Bob Wooten to get some pointers on effective energy acquisition through coops in the public sector. He is Director of National Accounts for Tradition Energy and works with cities, schools, colleges, universities, housing authorities and municipal districts. Tradition Energy is an experienced full-service energy consulting firm. The company has a U.S. Communities contract for energy consulting and management services.
GPN: Do you have any advice for local government administrators if they are considering buying energy through cooperative purchasing programs?
Bob Wooten: what we’ve found by experience is that usually the most favorable way of using a cooperative contract is to coordinate your specific purchasing needs as opposed to being part of a large aggregation.
GPN: What’s the difference between the two?
BW: There are typically two ways that public sector customers historically use coops when it comes to energy buys. The first way was kind of the way that most everybody thought it would work, like other commodities, which is, you create a coop contract because you have a large group of members that are all going to buy that commodity, and you get a better price for that commodity. The concept is called an aggregation, where let’s say you get 50, 100 or 150 different governments together, and they all go in and they all get the same price for electricity or gas, or whatever it is that they are acquiring.
That was the conventional practice governments started doing about 15 years ago. What was discovered was that what you called bulk purchasing rules – the more need you put together, the further down you drive the price, and that would be true of things like cars, office supplies, furniture, etc. But when it comes to energy commodities, the bulk purchasing rules don’t apply.
What actually gets a better price is the supplier’s ability to really customize that price around the customer’s individual needs. It’s a complex issue, but it’s the prime issue when it comes to energy buys and coops. You are going to get a better price if you conduct a specific procurement for your specific needs, as opposed to going in with a large group of entities. Because once you go in with a large group, certain members are cross-subsidizing other members, and it makes it difficult for the supplier to see what the needs and requirements are of each individual agency.
GPN: Are there any resources that can help public buyers in their energy procurements?
BW: There is a recent Tradition Energy webinar on energy consulting and management services that has useful information. You can learn more about the webinar at U.S. Communities’ video library.
In the second installment of this interview, “The efficient way to buy energy, Part 2,” Bob Wooten will discuss trends in cooperative purchasing and the importance of timing in energy buys.
Michael Keating is Senior Editor at Government Product News, an American City & County sister brand.