Energy Procurement Consortia…. you must be joking!

With a disturbingly convincing impression of Ricky Gervais, the otherwise calm and controlled Bursar sitting opposite me blurted out “they’re having a laugh, they are having a laugh”. Rarely do you witness a rock-solid Ricky Gervais impression, but this lady clearly has a hidden talent. Yet the cause of this theatrical outburst was not really very funny at all; it was the explanation given to her by the Energy Procurement Consortium her school is contracted to for several years to come. Completely unintelligible, jargon laden and unconvincing.

She summarised it thus;

Apparently, I am handing control of my second largest budget item to an unregulated energy broker who tells me I can have no choice of my virtually unregulated suppliers, I cannot change my contract dates, they are not able to tell me in advance what I will pay, or when the costs will change and by how much because I am on a so-called Pass-through contract where the suppliers can charge me whatever comes there way,  and joy of joy I am locked into a seemingly never-ending rolling contract which I cannot interpret or escape. And to make life interesting the bills will be deconstructed to show 20 different items! The broker then sends me a plethora of indecipherable graphs to demonstrate how very successful their energy contracts have been compared to the “Wholesale Market”, whatever that may be…. they’re having a laugh”. Sadly, this bright, challenging and clearly talented Bursar is right…

 

  • The use of the term Consortium implies a shared objective, working together towards a common end and as such it is designed to reassure users that they are benefiting from a better service, price or A kindred spirit is expected to exist. But in the context of Energy procurement baskets or frameworks, the term Consortium is highly misleading, and promises a degree of mutuality which simply does not and was never intended to exist. There is no form of “Association” and no cooperation between “Members”.

 

  • This is not a semantic issue; it is about accuracy, honestly and transparency, and goes some way to explain why existing Energy Frameworks are proving to be an outmoded and inappropriate way to deliver “best value and best practice” for large energy users in an increasingly competitive energy supply In my experience there is no credible evidence that such Consortia have ever produced better prices for independent schools, or have any chance of doing so.

 

  • For a start, there is no meaningful competitive tender between suppliers. The framework uses one single supplier for each energy type, Half Hourly electricity, Non-Half Hourly electricity (sorry, more jargon) and gas and the chosen suppliers will be contracted for a period of at least three years, often in excessive of 5

 

  • And of course, the criteria for selecting the most suitable suppliers are not fully disclosed to the Framework Members, neither are the commercial terms between the intermediary broker and

 

  • Even more alarmingly, there is no actual tender for the energy itself. This is because the supplier is only ever contracted to supply energy at the prevailing market rate whatever that may be on the day. Known as Flexible buying, the Framework buys blocks of energy at a time determined by the Hope he or she is very clever at reading the tealeaves….

 

So why are so many independent schools locked into Consortia?

 

  • It may be the case that when first conceived the idea of all getting together in a school basket seemed a plausible strategy to deliver best value, particularly if Bursars do not have the time or inclination to become experts in all markets. Or perhaps Bursars are honest folk and expect the same from their Trusted Partners. Perfectly sound reasoning. But this is a two-edged sword and in my experience Energy Frameworks fail to deliver on virtually all of the core principles of Best Procurement Practice and provide a vehicle for routine abuse of that Trusted Partner status.

 

  • Logically increased buying volume is expected to deliver better energy rates than would otherwise be achieved by users acting on their own account, yet in practice, very little evidence exists to support this core assumption; quite the contrary with considerable evidence to suggest the lack of competition and transparency plus increased supplier and broker margins actually leads to far higher supply costs.

 

  • Admittedly the framework removes the need (or ability) to make decisions about energy. The contract is managed by others, and the invoices simply come in to be Members will be locked into the Consortium for a period of between 3 and 5 years, and for some there can be an attraction in this rigidity. But leaving such a large overhead running on virtual “autopilot” is not the style of management I see with the Bursars I meet today, so why does this persist?

 

  • Possibly a framework is seen as a low risk strategy even if the outcome is But since pricing is not known, and cannot be influenced, I would argue the framework carries a far higher risk than the alternatives I will refer to later.

 

  • And of course, the inherent weaknesses of the Flexible Framework impact directly upon all Members equally, and have resulted in excessive costs, onerous administration and accounting, and considerable uncertainty over future From the perspective of the Member, the system is rigid and prescriptive whilst any attempt to exit early is subject to considerable yet often unquantified financial penalties.

 

  • The Member has virtually zero visibility of future energy rates, and no certainty they will not change adversely without warning. With long-term projected increases for both gas and electricity costs, this exposes clients to unknown future costs quite outside of their control. Only after energy has been block bought will the Member be advised of the rate they are contracted to

 

Put bluntly the framework is as transparent as a foggy day in Winter; Members simply will never know how much the broker earns (do you know it is common practice for brokers to add a fee to standing charges because clients rarely notice these?), how decisions are made about choice of supplier, who makes the decision to buy energy at any given time, and what incentives are hidden in the relationship between broker and supplier.

Worse still, Flexible framework buying relies upon the competence of buyers to pick the right time to buy in a highly volatile market. With so much at stake, this really is quite a gamble. The graphs show the high degree of daily and monthly fluctuation in wholesale energy prices, with considerable volatility within just a few days. If the broker makes a poor decision, the consequences are irreversible for Members.

So, what is the alternative? Simple really, in fact disarmingly simple. Call Powerful Allies and under our Open Competition Charter we warrant that

  • All tenders will be open and fully transparent, capable of simple independent Copies of all tender documents will be quickly provided whenever requested.
  • All contracts will provide fixed and fully inclusive rates within each energy type. Nothing left out.
  • All commission payments will be declared and agreed in advance, warranted as the only payment to be received, and available for verification at any There will be no additional fees payable.
  • There will be no hidden rewards or incentives which may distort the choice of supplier.As far as practically possible, all variable (and hence risk bearing) elements will be eliminated. All tariffs and other charges will be highlighted and included within comparisons.
  • The consumption data used for benchmarking will be the latest available, without modification. Information will be imparted without complex industry jargon in Plain English.
  • Full competitive tender between multiple motivated suppliers ensures market forces produce the lowest possible energy supply costs for
  • All tenders will be fair and accurately presented, without distortion or preference.

Comparisons will be comprehensive, simply prepared and transparent in calculation.

Are you looking for more information?

The Powerful Allies team are here to help, please get in touch or call us on 01380 860196.