Modern Co-op Era
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The Modern Co-op Era
The way public entities buy and manage energy has fundamentally changed.
The big shifts that we have kept up with:
Budgets
Budgets are already crammed and as funding gets tighter and expenses creep, public entities are looking to squeeze every last drop out of their funds.
Staffing
Nearly all departments of public entities are understaffed and constantly fighting for more.
The old ways of procuring and managing energy for public entities have not kept up with these major shifts.
The two old models for buyingpublic energy
The two old models for buying public energy
1. Do-it-yourself RFP
X Lack of Competition:
Running an internal RFP has one significant downfall, fewer bidders. The lack of competition results in higher pricing impacting your budget and gives the supplier, not the buyer, an advantage.
X Contract Comparisons:
Not all contracts are the same. Two contracts will often have multiple provisions under the same section with very different structures and terms. This is assuming only two contracts but as we know, there should be more competition from more suppliers to get the lowest pricing. Without direct expertise in energy contracts, it is near impossible to capture the most cost savings and avoid risks associated with contract comparisons.
X Time and
Labor Lost
In the time and team stretched world today, internal RFP’s create an immense amount of work and take an average of 3-6 months to award a contract.
X No Independent Advocacy:
When to buy is one of the most important aspects of procuring energy which takes deep market knowledge. RFP’s add significant price risk by not utilizing energy trading expertise. Not having a season energy expert on your side to negotiate and interface with a supplier leads to the supplier having an advantage.
Old world cooperatives are generalists providing procurement for everything from pencils to paper. Energy is only another revenue stream that lacks expertise and guidance.
X Lack of competition:
With energy procurement not being their focus they look to make it as easy for themselves as possible. Generalist Co-ops commonly use fewer bidders/suppliers, and many times only use one bidder. This goes directly against the principle of why deregulated energy was created.
X Cross-Subsidization:
In some cases, generalist Co-ops use an “all members buy at the same time” model. It is supposed to include savings but in fact reduces the good members savings by subsidizing other members with poor energy practices: In today’s fast moving world, waiting for other organizations to buy is a bad strategy. Energy is a marketplace, which means you want to buy at the time that is right for your strategy and meets your budget needs.
Without an expert to interface between the energy supplier and the buyer, increased risk occurs again, similar to the RFP model.
According to the Department of Energy
There are two ways to manage energy costs: 1) “cost-based” or “budget-based” management, where you obtain lower rates, reduce budgets, etc.; and 2) “usage based” management, where you manage actual consumption by improving efficiency or improving control. DOE publication here
Built for the modern era
Given that energy is one of the most controllable budget items, it deserves dedicated expertise. Our expert partners guide each pool member on procurement and provide operations management guidance.
Here’s what the Modern Co-op era looks like.
Join others in the Modern Co-op Era
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We’ve seen enough of the old ways, we’re ready to join others in the modern Co-op.
Contact us
2726 Bissonnet, Suite 240-136
Houston, TX 77005
713-662-2636
info@txpea.org
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