JM is a global manufacturer of catalysts, fine chemicals and pharmaceuticals, with 12,500 employees and over $14 billion in revenue. In the U.S. they have 8 large manufacturing facilities spread across 3 states, as well as many smaller locations. Applied Energy Partners has been JM’s energy procurement partner since 2010, holding several auctions each year for a variety of locations, large and small.
In their two most recent procurement auctions, held in 2014 and 2016, JM asked us to test various combinations of facilities to find out which combination of energy-loads produced the lowest price. The answers were different each time…
Their 2014 auction included 7 facilities in 3 states and 4 utility areas. We were asked to get bids for 12, 24 and 36-month fixed price contracts for the following:
- Each facility priced separately
- Facilities in each utility area combined, but states kept separate
- Facilities in each state and in each utility area combined
- All facilities in all utility areas and all states combined (i.e. the largest energy volume).
The Results. The best combination in the 2014 auction turned out to be combining all facilities in each state, which saved 10% over pricing each facility individually. The worst price was for all facilities in all states combined. Overall, the client saved 10% or $500,000/year compared with their previous supply contract.
Their 2016 auction was for 5 facilities located in 2 utility areas but only 1 state. We were asked to price the same combinations as before, with the exception of the multi-state combination since that didn’t apply.
This time, the result was different. The best combination was pricing every facility separately and the worst was combining facilities by state. The client saved 22% or $1.2 million/year compared with their current supply contract.
The 2016 auction was conducted through The Energy Exchange (TEX), our proprietary electronic reverse auction process. TEX incorporates two rounds of bidding – the first round to get the best initial prices and the 2nd round to get the best final prices from the top 3 or 4 initial bidders.
The 1st round produced very competitive bidding from 12 suppliers and the 2nd produced a small but worthwhile improvement over the previous best offer from the winner. It was crystal clear that no supplier had anything better to offer after the second round.
AEP’s auction process has tremendous flexibility in getting prices for multiple locations and multiple contract types all at the same time. Variables can include…
- Fully fixed, indexed, or block-and-index contracts
- 12, 24, 36 or 48-month contract terms – or odd terms to fit in with other contracts (e.g. 17 or 21 months).
- Included or Excluded Capacity, Transmission and Ancillary charges
- Payment terms, bandwidth and other contractual requirements.
- With or without Green power, which is remarkably inexpensive in our auctions.
So a client can ask multiple questions and get many different prices at the same time on the same day.
One final point – all this is accomplished with a minimal time commitment by the Client:
In JM’s 2016 auction, we required about 3 hours of management time:
- One hour to define the scope
- One hour to review 1st round bids
- One hour for final decision and contracting.