Case Study: Reverse Auction Leads to Utility Savings
In early 2013, when a mid-sized nonferrous metalcasting facility in the Midwestern U.S. wanted to decrease its expenditures in electricity and natural gas, the company’s chief financial officer learned about a bidding process that had the potential to significantly reduce costs. EMEX is an integral part of the American Foundry Society (AFS)’s Energy Solutions program. Brian Reinke, an independent energy consultant with EMEX, created and manages the AFS Energy Solutions program. He utilizes EMEX wherever possible to provide energy procurement and risk management services to AFS members. EMEX LLC, is Houston-based technology firm that specializes in energy procurement and risk management consultancy. Reinke suggested that the metalcaster take part in an EMEX Reverse Auction—a real-time, online platform that enables metalcasting facilities (among other businesses and non-profits) to have suppliers bid against one another so the customer can choose the best rate per kilowatt-hour.
The metalcasting facility used the EMEX Reverse Auction platform to procure their natural gas and electricity rates. The electric supply auction resulted in a 3-year, fixed- price contract that provided a 22% savings when compared to the facility’s existing electric rate.
“After our raw material purchases and payroll, utility expenses are our biggest hit,” said the Midwestern metalcaster’s CFO. “If we can get more bang for our buck by having energy companies bid against one another, we definitely want to do that.”
Prior to the auction, EMEX consultants audited and projected the facility’s utility expenses, set the parameters for the auction and reviewed the suppliers’ contract terms to ensure bidders met predetermined specifications. While still relatively new to the metalcasting industry, Reinke guided several AFS corporate members through the EMEX Reverse Auctions as part of the Energy Solutions program, which began in 2008.
The fixed rate contract secured by the metalcasting facility included no time-of-use premiums, meaning that there was no concern on impacting the scheduling of melting operations. Additionally, penalties for unexpected increases or decreases in consumption were not allowed in the new contract for the nonferrous facility.
“I’m by no means a guy with a crystal ball,” said the CFO. “But as the demand for energy goes up more and more, it becomes an increasingly valuable commodity. If you can lock in prices today, considering energy costs are trending up, you might as well hedge it.”
This member also entered into a 3-year contract at a fixed rate for natural gas supply that also had no consumption penalties.
“The process helped alleviate the untold hours trying to figure this stuff out ourselves,” said the CFO. “We don’t want to drag vendors in here one at a time and get bids one by one. Once it got rolling, it didn’t take long at all.”