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Case Studies
Each case study below is connected to Foster LLC’s Services, with the exception of Case Study #1, which describes the financial benefits related to eliminating hidden energy broker fees. There are tremendous opportunities to reduce cost leakage, lower risk, and capture new savings throughout the entire energy supply chain with effective energy cost management – valued as high as 40% of total energy spend!
Case Study # 1: Benefit Related to Exposing & Eliminating Hidden Energy Broker Fee Price Markup
A manufacturer engaged an energy broker to help them find a cost-effective natural gas supplier. One of the appealing features of the broker’s offer was that they would not charge the consumer for their brokering service. Moreover, the energy broker indicated that their fee would be “paid by the supplier,” the commission for arranging a supply agreement between the consumer and a supplier. The consumer and Foster had an introductory meeting. Foster educated the consumer about the nature of these arrangements, and expressed concern that the energy broker may have misled the consumer how the broker was actually compensated. Foster explained that natural gas brokers and electricity brokers oftentimes manipulate energy supply prices by adding undisclosed and significant markups to an energy supplier’s original price. Since the supplier’s original price was inflated with a markup by the energy broker, Foster demonstrated that the energy broker’s fee was actually a markup embedded into a manipulated price. Consequently, the energy broker’s fee was entirely at the consumer’s expense – not the supplier’s. The consumer engaged Foster to flush out the facts. As a result, the client discovered (and the supplier verified) that the broker inflated the supplier’s actual price by $1.00/MMBtu. Based on an annual natural gas consumption of 140,000 MMBtu, the energy broker was collecting, both unbeknownst by and at the expense of the consumer, $140,000 per year. Once discovered, the consumer terminated the relationship with the energy broker, and the consumer’s annual natural gas expenditure declined by $140,000.
Case Study # 2: Benefit Related to Natural Gas/Electricity Procurement
An industrial company located in Hanover, Pennsylvania asked Foster to solicit proposals for natural gas supply in lieu of growing concerns about cost adjustments (associated with variances between billed volumes and contract volumes) that were appearing on their invoices from the incumbent supplier. Upon review of competitive offers from multiple suppliers, the client found that the incumbent’s natural gas supply price was significantly higher than other suppliers’. In addition, the incumbent supplier’s contract terms did not provide the same degree of flexibility related to variances between contract volumes and billed volumes. As a result, the client switched suppliers. The total annual benefit related to the selected supplier’s offer vs. the incumbent’s offer was $49,000.
Case Study # 3: Benefit Related to Managing Commodity Price Risk
A hospital in West Virginia was struggling to secure natural gas prices that would meet or beat their budgeted price. Upon review of their budgeting process and risk tolerances, Foster presented a purchasing program that would allow the hospital to secure commodity prices using a portfolio approach that spread their price risk over a series of purchases, while finalizing the purchases prior to budget submission. This removed the hospital’s budget risk and eliminated the potential costs related to a one-time event purchasing approach. Given commodity price volatility, the value related to this strategy is $180,000 annually.
Case Study # 4: Benefit Related to Monitoring Energy Price Drivers
A Pennsylvania manufacturer made a decision to hold-off on a longer-term commodity purchase in response to information provided by Foster that U.S. natural gas supplies were near record highs while energy demand in the natural gas, electricity, and crude oil sectors was sluggish. Their decision paid off, as natural gas prices fell. The monthly benefit related to this decision was $8,000/month.
Case Study # 5: Benefit Related to a Budget Report
A manufacturer in Ohio wanted a report to track progress against budget. Given the various cost components related to their natural gas supply arrangement (commodity costs, basis costs, utility distribution costs, etc.), the client found it difficult to put together a report that was both accurate and comprehensive. Foster tailored a budget report to meet the client’s needs, and provided a monthly and up-to-date report. The client references the report in monthly upper-level budget meetings, and indicated that the time savings associated with putting the report together themselves, in addition to the real-time data provided in the report, was “invaluable”.
Case Study # 6: Benefit Related to Invoice Auditing
A lumber company in West Virginia engaged Foster to audit electric invoices for 21 plant locations. Upon review, it was discovered that one of the facilities was receiving service from the electric utility under an outdated rate schedule. In fact, the utility was billing the client for a minimum demand that far exceeded actual demand, as the production facility had been scuttled and electric usage was significantly reduced from manufacturing consumption to office lighting usage. This dynamic existed for years. Foster facilitated a switch to the appropriate rate schedule which resulted in annual cost reduction of $19,000.
Case Study # 7: Benefit Related to Supplier Interface
When a Pennsylvania manufacturing company placed their commodity buy orders with their supplier, they found that the confirmed prices were higher than the prevailing market at the time the order was placed. The magnitude of the variance was about $0.070 per million British thermal units (MMBtu). On an order of about 10,000 MMBtu/month, that translated to a cost exposure of $700/order, or an annualized cost of $8,400. The client asked Foster to place the orders on their behalf. The premiums disappeared.
Case Study # 8: Benefit Related to Utility Rate Negotiation
A Pennsylvania manufacturing company was receiving distribution service from a natural gas utility. After discussing with Foster, the client engaged another local utility company to create a competition between the two utilities. As a result, the client found that they could receive a significant cost reduction by switching their service to the competing utility while maintaining the same degree of reliability. The annual cost reduction amounted to $200,000.
Case Study # 9: Benefit Related to Demand Response Provider Competition
A hospital engaged Foster to evaluate the benefits of participating in an electric demand response program. Once it was determined the client would be good candidate for the program, Foster distributed a “Request for Proposal” (RFP) to several Curtailment Services Providers (CSP). The responses to the RFP demonstrated significant cost and service variances between the CSPs. The hospital elected to move forward with a CSP that, prior to Foster’s engagement, had not been considered. The value associated with this selection amounted to $5,000 annually.
Case Study # 10: Benefit Related to an Evaluation of Alternate Energy Opportunities
A Pennsylvania manufacturing company was paying the natural gas utility for costs associated with ensuring supply reliability. Upon engaging Foster, it was discovered that the client had a propane system that backed up natural gas in the event of a natural gas utility supply outage. The client could switch from natural gas to propane at the press of a button, and local propane availability was abundant. As such, the reliability premium paid to the natural gas utility was redundant insurance. The utility eliminated the charge, and the annual savings was $6,600.
Case Study # 11: Benefit Related to Other Energy Cost Savers
A large energy consumer in West Virginia was incurring significant costs from their natural gas supplier related to under-utilization of their contracted quantities. More specifically, the cost associated with under-utilization was defaulting to the supplier’s contract terms. Foster explained to the client that there were other solutions to mitigate this cost. The client executed the solution. The cumulative result of the solution totaled $75,000 over a three month period.