Some municipalities may shy away from the idea of independent natural gas purchasing because of the perceived benefits of bartering rights-of-way-compensation for free gas. They may also be put off by the supposed risks of moving away from what may be perceived to be a fixed-price agreement with a utility provider but is typically pegged to the market price offered at that time by the franchisee.
By reviewing current natural gas bills and use with the assistance of an impartial energy advisor, municipal consortium members can purchase natural gas on a wholesale basis and sidestep some of the pitfalls that may lie in wait for a municipality that decides to “go it alone” when buying on the open market. Expert monitoring of prices and contracts can help avoid problems such as:
- Price gouging or unreasonably high margins built into supplier rates
- Lack of transparency in fixed-price transactions
- Price slippage caused by the high volatility of natural gas as a traded commodity
- One-sided contracts
- Biased information
Knowledge + Volume = Buying Power
As a consortium grows, its purchasing power allows its members to renegotiate better deals and lower margins in good faith with suppliers who recognize the value of working with high-volume buyers. With professional help from an independent expert, a municipal consortium can enjoy the freedom to make informed purchasing decisions including:
- Utilize unbiased market advice so the group can control its own destiny without speculating blindly on market trends.
- Reduce risk of fixing prices with a supplier when that’s not in the group’s best interests.
- Create greater transparency with the supplier, ensuring that all cost components are itemized, the correct tariffs are applied, and the most favorable contract terms are adhered to.
As an example of what can be achieved, an initiative was set up by public school districts in Indiana to buy natural gas on the open market. The consortium gradually evolved over the course of 10 years to include 72 members who realized savings of approximately $8.1 million during that period, thanks to the buying power they were able to leverage jointly in their marketplace.
Developing a Municipal Partnership Purchasing Program
A consortium of as few as 15 municipalities working together can begin to realize the benefits of a cooperative purchasing program and move towards greater budget certainty with increased savings. Group members have the opportunity to learn from the experience of other municipalities and share best practices for procurement, management, and delivering services – and as membership grows, the consortium can further improve price and mitigate risk across all municipalities.
This arrangement offers municipalities collective self-control and the chance to realize a vision for energy pricing independence. By working as a group, communities have the opportunity to chip away at supplier margins and improve annual budgets – a vital strategy for maximizing revenues in a tough economic climate.
