July 2009
www.misec.org
Inside This Issue:
President
Jim Hilgendorf, Superintendent, Johannesburg-Lewiston Schools
Past President
Michael Dewey, Superintendent, Bay-Arenac ISD
Vice President
Robert Brady, Associate Director Business Services, Waterford School District
Mitch Bart, Director of Facilities, Kent ISD
Ken Simon, Facilities Manager, Ingham ISD
Pam Smart, Business Office Supervisor, Van Buren
Public Schools
John Stoner, Director of Facilities, Operations & Transportation, Rochester Community Schools
Secretary/Treasurer
Ray Telman, Executive Director,
MCEA
Ex-officio Member To The Executive Committee
David Martell, Executive Director,
MSBO
The objective of MISEC’s newest program is to introduce greater predictability into your school district’s diesel fuel expenditures.
The MISEC Diesel Fuel Program (DFP) will allow districts to fix a portion of their diesel fuel costs for a predetermined period (3, 6, 9 months or longer). Using the DFP will reduce volatility in your monthly diesel fuel pricing and bring budget certainty to your diesel fuel expenditures. This program will ensure that your district will achieve price and budget certainty on an expenditure over which you have had no control in the past. It is also designed to complement your current purchasing methods, and can be easily integrated into your day-to-day diesel fuel purchasing program. This program is the most effective step a district can take to control its diesel fuel costs.
What is the current status of the DFP?
During the week of June 15, 2009, all Michigan Schools Energy Cooperative (MISEC) members received the First Amendment to the Michigan Schools Energy Cooperative Interlocal Agreement. An accompanying letter indicated that in order for MISEC to respond to member interests and offer additional services e.g. a Diesel Fuel Program, the original Interlocal Agreement must be amended by a two-thirds majority of its district’s schools. To that end MISEC is requesting that your district’s board of education consider and act on the Amendment as soon as possible. (This action by your board does not commit your district to any new programs.) If you have any questions about amending the Interlocal Agreement or about the Diesel Fuel Program please contact Doug McCall at 517-913-2155, dmccall@middlecities.org or Jan Rogers at 888-345-0440, ext. 26, jan.rogers@summitenergy.com
MISEC Is Currently Offering Electric Prices Lower Than Your Local Utility Rates
Over the past few weeks we have seen a very dramatic drop in the long-term price of wholesale electricity. While local utilities are predicted to continue to rise, MISEC is currently in the position to offer your district fixed, long-term pricing that is less than what you are currently paying. If you are interested in a quote or free analysis, please feel free to contact Jan Rogers, Client Energy Manager at 888.345.0440 ext. 26.
Common Mistakes Made When Buying Natural Gas
There are currently 2 programs (Gas Customer Choice & Transport) that districts can participate in when buying their natural gas from a supplier other than their local utility. Below is a list of 4 of the common mistakes that we have seen districts make over the past when purchasing their natural gas in the transport program.
Managing the purchasing of natural gas is not a simple matter of just seeing who has the lowest price. Remember, the supplier holds all of the cards. They live and work in the energy business all day - it’s their job - they have all of the knowledge and are in it for profit, no matter what they tell you. Therefore, a lot of potential problems can arise if you do not know what you are doing. Hopefully the tips below will help you in the future and possibly save you money in the long-run.
1. Only use the NAESB contract with the watermark.
Contracts can vary greatly from one company to the next. The North American Energy Standards Board (NAESB) has developed a contract, which is a good starting point with a base level of certain standards, and ALL Suppliers use them, therefore insist on using it, also. If you don’t see the NAESB watermark or copyright on the contract, tear it up. Without the watermark, someone has made some changes to the contract and they’re definitely not for your benefit.
2. Don’t lock in prices for 100% of your load.
One common strategy is to lock in 100% of your volume. Locking in 100% of your historical volumes can very quickly put you in what is called in the industry a “cash-out” position. If you think about it, what are the odds of you using exactly the same amount of natural gas next winter as you used last winter? Was it a warm winter/cold winter last year, what about this winter? When you buy an amount equal to your historical usage, and do not need it, your supplier will sell that excess gas back into the market (“cashing you out”) at a heavily discounted price and charge you the difference between the “cash-out” price and your contract price. We have seen non-MISEC members get charged an additional $2.00 or $3.00/Mcf. Needless to say, these cash-outs can greatly affect your overall price. Therefore, MISEC would recommend that a district consider only hedging 80%-85% of their historical usage and float the remainder at a pre-determined Index price. This will greatly reduce your district's exposure to cash-out penalties and possible speculative trading activities.
3. Be clear if there is a penalty for exceeding the prior year’s consumption or load.
Supplier bids vary greatly and a lower price might actually cost you more. How is that possible? A lower price can often be based on your using a predetermined amount of gas as based on last year. But what happens if you need some additional gas during the month? What is the price of that incremental supply? Many suppliers purposely fail to include language specifying pricing of “mid-month” supply in their contract and then charge a premium for this supply when you need it. Therefore, make sure that your contract contains very specific language regarding the price of any incremental gas supply that may be needed during the month.
4. Spread your purchasing out over time.
Another effective method to lower your natural gas costs is to break up your purchases into smaller quantities and purchase them over time. This approach will enable you to spread out your pricing risk and avoids the “all your eggs in one pricing basket” purchasing method. It will also allow you to evaluate gas prices daily/weekly and determine if they are under or over-valued by applying what you know about future weather and inventory conditions and how these will affect your future price. The 4 mistakes listed above are the most common errors that we have seen when meeting with Districts that are not MISEC members. Hopefully you will consider these when buying your natural gas for this winter.
Negotiating the Best Price for Energy
Negotiating the best price for natural gas and/or electricity in today's deregulated environment is a time-consuming and complex task. MISEC’s energy purchasing service is designed to save Michigan’s K-12 community money as well as unburdening them from having to figure out which of the price components, rates, and plans best fit the needs of your district.
As a member of the program, MISEC will:
- Prepare a "request for bid" with the appropriate bid specifications and disseminate it to relevant suppliers;
- Negotiate with suppliers as necessary to reduce each member's natural gas/electricity expense to the lowest possible cost;
- Review and audit all billing records (supplier and utility) to ensure that they are indeed invoicing as agreed;
- Coordinate the original account set-up as well as any subsequent account changes or set-ups; and
- Resolve any problems that may arise.
MISEC is the largest school energy cooperative in the country and is operated by an independent board that includes superintendents and school business officials elected by its member districts.
Partners:
