What can energy buyers do now to ensure they get the most from their next energy procurement?
Energy prices in many deregulated markets are hovering near five year lows. Businesses should evaluate supply offers from retail energy suppliers for the opportunity to reduce their existing electricity and natural gas rate – even if their current supply agreement may not expire for another 6-12 months.

What is the biggest myth or misconception about buying energy in today’s volatile market?
A significant misconception about buying energy is that requesting quotes from a few suppliers is all that is necessary to obtain a competitive price. For most companies, buying electricity or natural gas is one of many daily duties performed by the person within their organization responsible for energy procurement. Typically, the buyer doesn’t have sufficient time to devote to the procurement process and ongoing market monitoring, so he or she may simply renew with the incumbent supplier.

What advantages does online procurement pose for energy buyers over traditional broker methods?
When suppliers compete for a customer’s business, the customer wins. Online procurement heightens competition, delivering a number of benefits to the buyer. Here’s how:

1. Apples to apples comparison: With an online event or auction, the customer fixes the parameters that suppliers must bid on. Suppliers are not able to bid a different product or parameter. Often with paper-based RFPs, a supplier will bid their own product or terms, making an apples to apples comparison difficult.

2. Expanding the supplier pool: With an online event or auction, the difference between letting two or 20 suppliers bid on an RFP is nominal – there is no marginal cost to adding another supplier. World Energy, Inc.’s experience shows, the more suppliers, the better the competition, the lower the price. Each paper RFP requires labor to evaluate. More often than not, a consultant will send the paper RFP to a few suppliers to get a good price. In an online procurement event, all qualified suppliers are invited in an effort to secure an even better price.

3. Auction design: Auctions can be a critical feature of a successful online procurement and come in many flavors including "forward" (where prices are bid up), "reverse" (where prices are bid down), "sealed bid" (where prices are not disclosed to the bidders) and "multiple to multiple" (where both price and terms are part of the bid). World Energy, for example, uses an "Anglo-Dutch" reverse-auction approach, which is designed to get suppliers to give their best price. While the "Anglo" feature of the auction provides suppliers visibility into competitive bids, the Dutch feature causes suppliers to put a best and final offer in – the poker equivalent of going all in – as the seconds tick down at the end of the auction. Twenty percent of the time, the then-leading supplier outbids itself to win the business, transferring the margin from the supplier to the customer.

4. One event, many auctions: In an online procurement event, it is possible to run multiple auctions for the customer, testing different term lengths, pricing structures and energy mixes (for example, 95 percent traditional, five percent green). This segmentation provides the buyer live information on where prices are settling (compare this to a traditional paper-based procurement), enabling them to choose the price and parameters that best meet their objectives.

5. Auction sequence: Because auctions can be run in immediate succession, by testing the various parameters above, suppliers can quickly react to a loss and sharpen their pencils to win the next round. The dynamic nature of an online procurement process helps suppliers get the real time feedback they need to more aggressively pursue the customer’s business, something missing from paper-based procurements. Again, this fuels competition and works to drive prices in the customer’s favor.

6. Closing in real time: Because the underlying commodity in energy is volatile, the amount of time it takes between accepting a supplier’s winning bid and signing the contract ultimately affects the rate. If the anticipated closing period is long, the supplier will typically add a risk premium to protect their position. By running an online, real-time event, where transactions can be contracted in as little as an hour, risk premiums can be lowered, which further benefits the buyer’s final rate.

7. Audit Trail: Automation clearly has its benefits. Along with driving competition, an online procurement process can capture, catalogue, and time stamp all bidding activity, providing customers a thorough audit trail of their energy procurement.

About World Energy
World Energy Solutions, Inc. (NASDAQ: XWES) operates online exchanges for energy and green commodities. For more information on how to make the most of your next energy procurement, or about World Energy’s award-winning online procurement platform, the World Energy Exchange®, please contact Kenneth Antos at: kantos@worldenergy.com.