Case Study: EMEX Risk Management Approach to Natural Gas Procurement Provides Savings vs. Fixed Price Contract with No Risk
The Millville New Jersey Board of Education (BOE) oversees 11 public schools in its district. Each school has its own designated person who is responsible for procuring the natural gas used to heat their particular school. This decentralized approach resulted in multiple natural gas bills with varying due dates, and higher overall energy costs. The Millville BOE joined a state-approved aggregation program, which allowed them to procure a lower natural gas rate. However, when it came time to renew its contract with the aggregation, the board decided to explore other opportunities.
The Millville BOE needed a natural gas procurement approach that focused on lowering costs and producing budget certainty. Although the Millville BOE had received a lower natural gas rate as part of its membership in a stateapproved aggregation program, the savings they had realized were less than what they had expected. Wanting to understand how the Market affects natural gas price fluctuation along with the complexity of fixed prices vs index prices as well as tariffs, the board members sought assistance to manage the school district’s natural gas costs in the future—services that an aggregator does not provide. Unsure of how to proceed, the Millville BOE contacted EMEX, LLC for advice.
EMEX performed a thorough analysis of Millville school district’s natural gas usage, the types of meters they had whether they were active or inactive, and the billing rates and due dates for each meter. Based on this analysis, we developed a unique product structure outside of either the traditional Fixed Price or Index + Basis approach.
EMEX designed a new product tailored to the board’s needs, including writing contractual language which complied with New Jersey public procurement regulations. The innovative product structure provides the Board of Education a guaranteed rate that saved them $10,000 per year versus a traditional Fixed Price, providing them with budget certainty and immediate savings. Additionally, this new product allows the Millville BOE to capture downward movement in the natural gas market when it occurs to create even greater costsavings. Based on risk management mitigation advice from EMEX, Milville BOE has locked in an additional $20,000 in savings just for the upcoming winter.
Given the rising natural gas market conditions, EMEX felt it was important to protect the clients’ best interest not only by getting them hedged, but also creating the opportunity to take advantage of lower forward gas prices when they occur.
In the end, Millville trusted EMEX to provide the best guidance for procuring natural gas and is very happy with the results. Not only have they achieved budget certainty, but they can also put the savings back into the school system to help pay for books, sports and other school activities and programs. “EMEX worked closely with us to explain how this product structure works. We felt comfortable that this product allowed us to budget using a fixed rate for the term,” said Toni Basich, Assistant Board Secretary/Purchasing with Millville Board of Education. “In addition, with EMEX’s guidance, we have locked in a lower rate during next winter, which is when our usage and costs tend to be highest. This type of customized procurement strategy is one of the main benefits of utilizing EMEX.”
EMEX continues to monitor the market for additional savings opportunities for Millville Board of Education and works hand-in-hand with the BOE to give unbiased advice that meets their needs. With a brand that has become synonymous with integrity and customer satisfaction, EMEX’s philosophy can be summed up in one statement: Do Right by the Customer.