NEPO Energy Procurement Guide for Academies

Transcription

1 NEPO Energy Procurement Guide for Academies NEPO Energy Procurement The North East Procurement Organisation (NEPO) has been responsible for energy procurement for member organisations since the phased deregulation of the energy markets in the early 1990 s. NEPO were the first public sector organisation to implement flexible energy procurement in 2006 and have successfully continued to operate energy contracts in this way ever since. NEPO operate via tactical execution of a Risk and Purchasing Strategy, operating in accordance with an external governance panel - the Energy Risk Committee - which provides constructive challenge. NEPO s customers currently comprise local authorities, police, fire and rescue services, schools and higher education establishments and various other public sector organisations. The NEPO approach to purchasing gas and electricity uses a fully flexible contract, based on the agreed Risk and Purchasing Strategy which outlines a clear methodological approach to buying energy. NEPO aggregates volumes, which allows access to the wholesale market costs, consistent with all other energy traders and brokers. The total requirement is broken down to allow multiple purchasing decisions. Purchases can be made in advance of the year of supply, or within the period of supply. Access to the day-ahead market is also available, which has historically turned out lower prices. Together this provides a longer window in which to make purchasing decisions against the portfolio in an unpredictable market. This strategy aims to achieve a market average or below market price. NEPO Energy Contracts NEPO contracts provide a full breakdown of costs, including commodity costs, pass through costs, and management fees. This provides for full transparency of energy costs, with no hidden costs or charges. 1. Electricity The annual spend of the NEPO electricity contract is 59m. This contract covers the purchasing and supply of electricity to half hourly, non-half hourly, un-metered supply, and street lighting. Following an EU compliant procurement process, a contract for 5 years (commencing April 2014) was awarded to npower for the supply of electricity. 1

2 The wholesale electricity market drives energy costs, which in recent years has become extremely volatile. A range of factors influence the electricity wholesale market, including supply & demand, weather, macroeconomic news, regulatory change, and market sentiment. Unlike the domestic energy market, there are a number of government imposed regulatory costs added to the final price for non-domestic customers. What may be publicised in the media about an energy price freeze for domestic customers does not apply to the industrial and commercial sector, including schools. The regulatory costs which are passed onto non-domestic customers have been increasing significantly in recent years. To illustrate this, the Renewables Obligation (RO) is forecast to increase by 19.3% from April The past few years has seen the RO increase by 34% in 2012, by a further 34% in 2013, and by 22% in The aim of the RO is to build a sustainable energy future through the investment in renewable energy generation. The UK is now generating much more renewable energy, so the level of support from the customer (through the RO) has also been increasing. 2. Gas The annual spend of the NEPO gas contract is 31m. This contract covers the purchasing and supply of mains gas. Following an EU compliant procurement process, a contract for 5 years (commencing April 2015) was awarded to Corona for the supply of gas. In a similar way to electricity, the wholesale gas market drives the cost of gas. The price of gas is particularly sensitive to the season and temperature. Since 2004 the UK has been a net importer of gas, through the European pipeline network, and via shipments of liquefied natural gas (LNG) from the Middle East. Gas transportation costs are not expected to increase as much as the anticipated increases in electricity non-commodity costs. Role of the Local Authority Schools have traditionally participated in the NEPO energy contracts through their local authority. The local authority will have provided an energy management service to schools as part of an SLA. The local authority energy manager is able to provide advice and support to schools, and to deal with issues related to metering, billing and invoice disputes. 2

3 Each local authority has a contract with the NEPO supplier, which sets out the legal obligations of both the supplier and the local authority. The contract particulars include a list of participating sites, and an overall volume commitment. Although schools may receive and pay their own invoices, they are not the contracting party (which is the local authority), and the ultimate liability remains with the local authority. Where a school has become an academy, they are still able to participate in the NEPO energy contracts through their local authority. The energy manager at the local authority will be able to advise on the requirements and obligations, including the contractual terms and conditions. The academy must indicate their agreement to participate in the NEPO contract through their local authority. Process for Academies Seeking Independent Energy Advice NEPO s energy contracts are benchmarked against best practice, and the prices compared to market rates, demonstrating value for money for customers. NEPO provides regular position reports for its customers, and supports the risk management strategy with Value at Risk (VAR) tools. By buying energy through a flexible contract, NEPO cuts out the highs and lows from the volatile wholesale market, providing a competitive price for customers over the longer term. NEPO understands that academies may wish to ensure that they are receiving value for money from the NEPO energy contracts. NEPO and local authorities will provide information to academies on the benefits of the NEPO energy contracts, and issue relevant guidance on energy management initiatives that can be implemented. Where an academy wishes to seek independent advice through an energy broker, they can obtain consumption and pricing data from their own invoices. However it is felt that the information given to the broker should relate only to supply details and not pricing, as this could encourage the broker to only return an offer of a better rate, but not necessarily the best rate available. When commodity costs are at a historically low point in the market, then it is possible to obtain a short term price advantage with a 12 month fixed price contract. If the broker needs to obtain further information about the energy contracts, the academy should contact the energy manager at the local authority. Letters of Authority Energy brokers and energy consultants, who have been engaged by an academy to provide a quotation for the supply of electricity or gas, usually request a letter of 3

4 authority (LOA) from the academy. A LOA has no legal status, but provides a mechanism between the customer, the supplier, and the broker. The LOA is signed by the academy, giving permission for the broker to approach the existing energy suppliers for information relating to the account. The LOA may also give the broker the authority to obtain a quotation, and to act on the academy s behalf to procure a new energy contract. Where the academy issuing a LOA is part of the NEPO energy contract, the LOA will be sent by the broker to npower for electricity, or Corona for gas. On receipt of a LOA relating to a NEPO site, both npower and Corona will contact the relevant local authority before issuing any data to the energy broker. They will also advise the broker that they will not issue any data until advised to do so by either NEPO, or the relevant local authority. Academies are able to make their own financial decisions. However where they have previously agreed to participate in a NEPO energy contract through a local authority, they are not the contracting party with npower or Corona. The contracting party with the energy suppliers will be the local authority. It is only the contracting party that has the ability to issue a valid LOA. The academy should therefore contact their local authority energy manager, who will be able to assist, and if necessary will contact the energy supplier for the data requested by the broker. If an academy does not have an SLA through a local authority, but has a direct contract with npower or Corona, they will be able to issue a valid LOA. An academy should read a LOA carefully before signing it, and be fully aware of what is being given to the broker. Your local authority energy manager will be happy to assist with this. Public Procurement Regulations The Department of Energy issued guidance for schools in March 2014, entitled Effective Buying for Your School. This guidance advised schools and academies that they should purchase their energy through a Public Sector Buying Organisation, such as NEPO. Whilst this advice is not mandatory, it helps schools to understand their obligations in relation to the rules of procurement when spending public money. Although academies have independence from the local authority, they are still publically funded, and therefore subject to the public procurement regulations, including a requirement to obtain value for money. Where the expenditure exceeds the EU Procurement threshold of 172,514, a notice advertising the opportunity must be placed in OJEU. 4

5 The appointment of an energy broker by an academy must be procured in accordance with the public procurement rules. Whilst a broker may charge an agreed fee, often their fees are built into the energy unit charge, so may not be transparent to the academy. An academy must satisfy itself that an energy supply contract obtained through a broker is fully compliant with the public procurement rules. A contract that is in breach of the public procurement rules is at risk of a formal legal challenge, and possible substantial penalties. Procedure for Academies Wanting to Change Contract Where an academy wishes to seek alternative energy supply arrangements outside of the NEPO contract, the academy should contact the local authority energy manager as soon as possible. The energy manager will be able to advise the academy on their existing contractual obligations, including volume commitments. The energy manager will also be able to provide advice on any quotations the academy has received, to ensure that the academy is not being disadvantaged or misled in what can be a complex technical market. Provided that the academy is not going to be in breach of any contractual or volume commitments, the academy must advise the local authority in writing as soon as possible of their intensions. The local authority energy manager will then issue a change of occupier (COO) form to the incumbent NEPO supplier. It is important that good communications are maintained between all parties during the change process to avoid an academy being placed on a deemed rate for a period of time between suppliers. A deemed rate can cost twice the price of a contracted rate. Once the new contract commences, the academy becomes liable for all the contractual and legal requirements relating to the new energy supply contract, this includes: the payment of all invoices monitoring consumption, to ensure the annual quantity is unchanged resolving metering and invoice queries relating to the account for HH sites, the appointment of a meter operator for sites with AMR, managing the meter connection any site works relating to a change or upgrading of supply procuring a new contract prior to the end date of the existing contract Should an academy wish to re-join the NEPO energy contracts at a future time, then they should contact their local authority energy manager for advice. June