Maryland Reverse Energy Procurement Auction
Wins Awards from NASFA and NASCA July 14, 2005. Worcester, Massachusetts. World Energy announces that the State of Maryland has won awards from the National Association of State Facilities Administrators (NASFA) and the National Association of State Chief Administrators (NASCA) for an innovative reverse energy auction that was conducted using the World Energy Exchange. The awards were presented during a joint NASFA/NASCA conference held June 25-29 in Phoenix, Az. NASFA presented Maryland its 2005 Innovation Award, while NASCA honored the state with its 2005 Outstanding Program Award. "We are delighted by this national recognition and the two awards," said Maryland Governor Robert L. Ehrlich, Jr. "This innovative approach demonstrates the benefits of good government at work. In tight budget times, the impact of this program is huge." Maryland's cost-cutting approach to energy procurement has allowed the state to cost-avoid more than $5 million annually in energy price increases. "In a time when energy prices are going up, Governor Ehrlich sought significant energy savings," said Boyd K. Rutherford, secretary of the Department of General Services. "The reverse auction has helped reduce the rate of increase for facility operations." NASFA judges presented Maryland the award for a state program and policy which represents the best new and creative approach to significant state issues. "Maryland's innovative energy program is a creative solution to helping contain ever-higher state facility costs," said NASFA President Bob Bippert. "Each of our state members can use the Maryland model to help cost-avoid future electricity increases. This procurement approach allows states to pool their buying muscle to get better prices." Maryland's energy procurement was also recognized by NASCA for leadership and innovation. "This creative procurement approach, which can be replicated by other states, is a creative solution to providing lower-priced electricity for various Maryland agencies," said Tom Torti, NASCA President and Vermont"s Agency of Natural Resources Secretary. "This award not only reflects positively on the Maryland Department of General Services and its innovative staff, but also on state leadership that encourages and recognizes performance." Conducted in March 2004 using World Energy's unique Internet-based technology and in conjunction with a World Energy partnership with SAIC, the award-winning auction allowed the state to lock-in the lowest possible electricity costs before energy price caps expired in the summer of 2004 as part of the state's phased move from a regulated to a deregulated energy market. Using the auction platform, utility bidders won an estimated $53 million in state business, representing approximately three quarters of the state government's power needs in areas served by Baltimore Gas & Electric Co. (BGE) and Potomac Electric Power Co. (Pepco). The state government spent $94 million on electricity the previous year, with an estimated $65 million to $70 million of that in the BGE and Pepco areas, figures from the state's Department of General Services show. Subsequent to the successful auction for BGE and Pepco that was acknowledged by the awards, the state has used the World Energy Exchange to procure additional electricity two more times, including a two-year contract beginning January 2005 for approximately 100 million kWh needed by the state in the area served by Allegheny Power and for a two-year contract starting in September 2005 for some 32 million kWh in the area served by Conectiv (now Delmarva Power and Atlantic City Electric). The state is one of the biggest power users in Maryland, and as part of its move towards deregulation, Maryland officials decided to pool the state's considerable buying power to secure the best possible price on electricity in a competitive market. Officials hoped that by leveraging a reverse auction platform, electricity suppliers would undercut each other's bids to win the state's business. They also hoped to lock in rates with two-year contracts designed to avoid power price spikes on the open spot market. The energy suppliers who won the reverse auction are now supplying power to the two major sports stadiums in Baltimore and to state agencies and departments including the Departments of Transportation, General Services, Juvenile Services, Public Safety and Correctional Services, Natural Resources, Maryland State Police, Military, Agriculture and the District Court of Maryland. The World Energy Exchange used by Maryland is a business-to-business energy exchange that matches buyers and suppliers and automates the complex steps required to purchase gas and electricity in today's market. The Exchange includes an on-line request-for-bid system, as well as related Internet-based tools and comprehensive energy market intelligence that enable energy buyers to quickly identify and select reputable suppliers using an objective, Web-based procurement process. The system uses up-to-the-minute market pricing information and forecast data, along with the buyer's energy usage data, to create bid requests, solicit competitive bids from qualified suppliers, evaluate the bids and select the optimal sources with whom to contract based on bid results. Extensive automation including date and time stamping of bids, and automated stop times ensure the integrity of auction events and creates audit trails and a self-documenting capability essential to Sarbanes Oxley compliance. Using the Exchange, qualified electricity suppliers competed against one another to secure Maryland's business using a structured and transparent reverse auction platform. Throughout the auction, natural marketplace competition pushed prices progressively lower, with winning bidders agreeing to provide the power needed at the price determined by the auction's results. "Experiences clearly demonstrate that the reverse auction process secures the lowest available market rate for power, while also protecting consumers from market volatility and other risk factors," commented Richard Domaleski, chief executive officer of World Energy. "Certainty around auction end times means bidders are exposed to market risks for the shortest possible period, thus minimizing their exposure and enabling them to shave the risk premiums off their final price." "Suppliers benefit," he noted, "because the process is so transparent. Unlike traditional RFP processes, with an on-line auction, suppliers know exactly where they are in the bidding process. They understand their chances of winning in real time and can hedge or dump their positions, minimizing their risk."
|
