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A Q&A with Tony Barnhart, Vice President of Retail Energy Markets - World Energy Based in World Energy’s Dublin, Ohio offices, Tony plays a strategic role in identifying and servicing the retail energy needs of Illinois customers. Tony brings expertise earned over two decades in retail energy markets. He prides himself on the insights he can share with his customers and the benefits he helps deliver them. Tony can be reached at tbarnhart@worldenergy.com or (614) 553-6713. What are your top recommendations for Illinois energy buyers today? How can they get the most from their next procurement? Energy prices are hovering at five year lows. Businesses should evaluate supply offers from retail energy suppliers for the opportunity to reduce their existing electricity and natural gas rate – even if their current supply agreement may not expire for another 6-12 months. • What is the biggest myth or misconception about buying energy in today’s volatile markets? A significant misconception about buying energy is that all you need to do is get a couple of quotes from suppliers to obtain a competitive price. For most companies, buying electricity or natural gas is one of many daily duties performed by the person within their organization responsible for energy procurement. Typically, the buyer doesn’t have sufficient time to devote to the procurement process and ongoing market monitoring, so he or she may simply renew with the incumbent supplier. This path can be an expensive one. Supplier strengths and weaknesses often change over time in these incredibly volatile markets. Therefore, unless a buyer is conducting a competitive bidding event every time they go to market and maintaining a constant watch for buying opportunities, there is a good chance the company is leaving significant money on the table, money most wouldn’t choose to waste if they knew of a better alternative. • What advantages does online procurement pose for energy buyers over traditional broker methods? When suppliers compete for a customer’s business, the customer wins. Online procurement heightens competition, delivering a number of benefits to the buyer. Here’s how: 1. Apples to apples comparison: With an online event or auction, the customer fixes the parameters that suppliers must bid on. They can’t bid a different product or parameter. Often with paper-based RFPs, a supplier will bid their own product or terms, making apples to apples comparison difficult. 2. Expanding the supplier pool: With an online event or auction, the difference between letting 2 or 20 suppliers bid on an RFP is nominal – there is no marginal cost to adding another supplier. And our experience shows, the more suppliers, the better the competition, the lower the price. Each paper RFP requires labor to evaluate. More often than not, a consultant will send the paper RFP to a few suppliers to get a good price. We invite all qualified suppliers to the online event in an effort to secure an even better price. 3. Auction design: World Energy’s Anglo-Dutch auction design is a key, differentiating feature of the award winning World Energy Exchange® electronic platform. Simply put, the system is designed to get suppliers to give their best price. While the “Anglo” feature of the auction provides suppliers visibility into competitive bids, the Dutch feature causes suppliers to put a best and final offer in – the poker equivalent of going all in – as the seconds tick down at the end of the auction. 20 percent of the time, the then-leading supplier outbids itself to win the business, transferring the margin from the supplier to the customer. 4. One event, many auctions: In an online procurement event, World Energy typically runs multiple auctions for the customer, testing different term lengths, pricing structures and energy mixes (for example, 95% traditional, 5% green). This segmentation provides the buyer live information on where prices are settling (compare this to a traditional paper-based procurement), enabling them to choose the price and parameters that best meet their objectives. 5. Auction sequence: Because the auctions are run in immediate succession, testing the various parameters above, suppliers can quickly react to a loss, sharpening their pencils to win the next round. The dynamic nature of World Energy’s online procurement process helps suppliers get the real time feedback they need to more aggressively pursue the customer’s business, something missing from paper-based procurements. Again, this fuels competition and works to drive prices in the customer’s favor. 6. Closing in real time: Because the underlying commodity in energy is volatile, the amount of time it takes between accepting a supplier’s winning bid and signing the contract ultimately affects the rate. If the anticipated closing period is long, the supplier will typically add a risk premium to protect their position. By running an online, real-time event, where transactions are typically contracted in as little as an hour, World Energy lowers risk premiums, which further benefits the buyer’s final rate. 7. Audit trail: Automation clearly has its benefits. Along with driving competition, World Energy’s online procurement process captures, catalogues, and time stamps all bidding activity, providing customers a thorough audit trail of their energy procurement. • What markets and customers does World Energy currently serve in Illinois? What results/benefits have they gained using your services? World Energy is very active in the Illinois energy market and has been successful in helping national and regional brands across sectors, including Manufacturing, Health Care, Real Estate, and Colleges & Universities, procure their electricity and natural gas in all deregulated markets across the state. For some clients, this has even included securing green sources of electricity at rates on par with that of traditional “brown” sources. Following are just a few of our Illinois success stories: ???A global manufacturer of energy conservation equipment secured a 24 month contract with a 20% green component to qualify for an energy efficiency certification at a price lower than the 100% power of comparable term. ???A leader in the Transportation and Logistics industry simultaneously conducted 8 auction events and received 71 bids during a 90 minute period. By utilizing an electronic means to procure, the client was able to leverage robust competition to test various pricing scenarios and determine the most advantageous pricing structure for their requirements. ???A Fortune 500 food manufacturer was able to closely monitor market prices over an extended period of time by receiving ongoing price quotes from the supplier community. Once prices met the client’s objectives, the company was able to quickly secure a fixed price contract for a term commencing in 18 months. By using World Energy’s proprietary price discovery methods, the client achieved budget certainty in a highly volatile market, a strategic goal of the company. • What is special about World Energy’s market approach? Why should Illinois buyers consider World Energy for their next strategic energy procurement? World Energy, through its commercially-proven World Energy Exchange, helps energy buyers achieve highly competitive pricing by engaging multiple suppliers to compete for their business. Further testifying to the competitive nature of our approach, we have found that winning suppliers often outbid themselves to land a contract, something that just doesn’t happen in a traditional procurement. That said, probably the single most important reason to consider World Energy hinges on the expertise we’ve gained by conducting thousands of procurement events – across the country – for some of the most sophisticated and energy-intensive businesses in America, including federal, state and municipal government entities, 40+ utilities, and hundreds of industrial and commercial clients. This experience, coupled with a supplier base that is three times greater than that of our nearest competitor (World Energy has more than 400 suppliers nationwide), ensures that our clients benefit from the most competition and have the means to make the most informed energy buying decision. To learn more about the World Energy Exchange and how we can help you procure energy or environmental commodities, please visit us online at www.worldenergy.com
World Energy is author of this article on Energy Procurement Strategies. Find more information about Gas Energy Procurement here.
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