In late June 2006, World Energy held an online auction event for a Midwestern state government agency. The auction involved the procurement of 180 million kWh with a term of 17 months for an aggregation of participants . World Energy’s market directors developed forward curves to help define target pricing and established a projected price to beat. The World Energy Exchange auction delivered a price of 6.1 cents/kWh, which, using an official market formula, worked out to a rate of 6.4-6.5 cents/kWh for the members of the aggregation group depending on their rate class. About three months later, in September, the state hired a different well known energy consulting firm to hold a similar auction, this time procuring energy for the utilities. With market conditions very close to those in June, the common wisdom was that the state would be able to meet or beat the price the aggregation had gotten through the World Energy process. Unfortunately, the other firm was unable to duplicate World Energy’s success and the utilities received a price of 6.8 cents/kWh, working out to a retail price of 7.5-8.0 cents/kWh for the consumer. Result: World Energy’s process and people were able to beat the later wholesale auction by 0.7 cents/kWh wholesale, resulting in savings of 1.1-1.5 cents/kWh retail for the rate payers. The state agency has saved approximately $840,000 in electricity supply purchased over the course of three World Energy auction events for various contract periods. Compared to estimated utility rates, the three auctions realized cost savings of 12.4%, 3.5%, and 21.6% respectively.
Despite the fact that World Energy had run successful auctions for the state, their university system – which accounts for approximately one-third of the state’s total usage – was initially reluctant to buy into the concept and chose not to participate, hiring its own consultant. In the first year, certain college campuses outside the system found that they had much lower pricing than the university system, which had gone its own way. After six months of substandard price performance as compared to the out-of-system colleges, the system went back to its previous supplier, dispensing with the consultant.
Two years later, the state and the system were looking to purchase 1.4 billion kilowatt hours of electricity. World Energy made a presentation detailing the benefits of participating together in a series of auction events. The presentation was a success, but the real proof was in the actual results of the auctions. Even the state’s consultant agreed that the World Energy-engineered price was better than what he could have gotten from a paper RFP and the director of procurement for the state called the results “outstanding by any measure.” Result: Thirteen contracts were awarded quickly and efficiently, saving the taxpayers more than $31 million over a two-year period. The auction even included a 5% green component, which was awarded at no premium relative to the price paid for conventional power.
One of the largest cities in New England had been buying its power through a state consortium since 1998. With a goal of reducing electricity costs to the bare minimum – and the need to buy power for more than 400 accounts, including all city buildings, public schools, street lights, and the convention center – the city contracted with World Energy to run more than 30 separate auction events of individual and bundled loads in a single day.
The goal of the multiple events was to test pricing options and find the best. A paper RFP process would have required several lengthy steps: 1. Constructing separate or multi-part RFPs to reflect all of the needs of the various accounts
2. Compiling results as they come in from the respondents, grouping partial responses for later comparison
3. Analyzing and developing comparisons of partial versus complete responses to try to determine the best mix, and then harmonizing the various terms and pricing mechanisms while negotiating with the suppliers The added time this involves would necessitate the inflation of price offerings with premiums to cover the financial risk incurred by suppliers as they held their prices against a potentially volatile market. With the World Energy Exchange, however, suppliers studied the multiple standardized online RFPs created by World Energy Market Directors and offered their best prices in a matter of hours during the online auction event. The buyer watched the prices fall in real time, chose the supplier(s) with the most to offer, and awarded contracts promptly. Result: With a total of 123 bids tendered, the World Energy Exchange auctions yielded results that outperformed the then-current consortium pricing by $870,000. |
