Energy & Environment

Purchasing For Power

Some states and localities keep a lid on energy costs by using old- fashioned leverage and new-tech auctions.
by | July 2007

Facing higher electricity costs, several states and localities are earning significant savings by pooling the purchasing power of multiple agencies or even multiple levels of government. How states go about applying leverage to their energy buys depends, in part, on the size of the problem.

In Delaware, for example, price caps from a 1999 electricity deregulation effort had been holding down rising costs. But those caps were set to expire in May, and government electricity consumers faced increases of 55 to 107 percent. To help counteract the size of the rise, Delaware budget officials won legislative permission to form an "aggregation group." The measure allows the partnering of government entities in order to get a better electricity deal. The Delaware bloc includes the state government, each of Delaware's three counties, nearly every public school district and community college, and the government of the state's largest city, Wilmington.

The bloc was able to negotiate increases up to a maximum of 56 percent. All totaled, the state estimates it will save $20 million from the deal.

Group purchasing may be a key solution in neighboring Maryland as well. There, electricity price caps for many consumers are set to expire this month, with Baltimore Gas & Electric customers facing rate increases of 72 percent. Many county governments, community colleges, chambers of commerce and groups of local school districts are forming cooperatives to bid for electricity rates. They are planning to bypass utility companies and work through a broker who can tap into a wider range of options.

Meanwhile, Montgomery County, Maryland, isn't facing the same price spikes as other parts of the state--thanks to preemptive action. A couple of years ago, 18 county agencies and organizations-- representing over 2,500 separate electricity accounts--banded together to form the Montgomery County Aggregation Group. Earlier this year, that bloc of agencies utilized a series of online auctions to save $25 million over current energy prices--a savings of 15 to 25 percent. The auctions proved so successful that officials ultimately placed 98 percent of the group's total load requirements through the auctions-- about twice the amount anticipated. The electricity will power 616 buildings and facilities, as well as traffic signals and streetlights.

Not only did the county achieve monetary savings, it also gained budget certainty. "It's not enough to band together and form this 800- pound gorilla," says Steve Nash, of the county's public works department. "You have to have the right tools, like this online auction. You have to learn to be flexible, to be nimble."

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