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RESOLVED:
 
1.  Approve that the Council enter the LASER Framework
Agreement for 4 years to cover the period April 2025 to March
2029.
 
2.  Approve the procurement of 12 months supply contracts for Gas, Non-Half Hourly,
Half Hourly and Unmetered Electricity with the currently appointed
supplier TotalEnergies Gas and Power
covering the period April 2025 to March 2026.
 
3.  Agree that the Chief Executive may exercise
delegated authority to engage TotalEnergies Gas and Power for provision of the
service in (3.2) by means of three further annual contracts to
commence in April 2026 for all supplies contracts for Gas, Non-Half
Hourly electricity, Half Hourly and Unmetered electricity and
subject to recommendation 3.5 below.
 
4.  Note that retrospective Contract Award (CA)
reports will be presented to Cabinet Procurement and Insourcing
Committee each year. The report will detail contract costs for each
year and will give the Committee opportunity to confirm it remains
content for the Chief Executive to exercise the delegated authority
sought by recommendation 3.3.
 
5.  Agree that the Chief Executive may exercise
delegated authority to engage TotalEnergies Gas and Power for provision of up to
30GWh zero carbon electricity per annum through a negotiated PPA
procured through the LASER Framework provided the price per MWH
falls within the range proposed in Appendix 2.
 
Reason(s) For
Decision
 
1.  
As part of essential commodities deployed in the delivery of
Council services, the Council has an ongoing requirement to
purchase gas and electricity. For over 15 years, the Council has
engaged the services of a
Public Buying Organisation (who buys
on behalf of several public sector
bodies) to procure its annual energy
supplies contracts.
2.  
At its meeting in September 2020, Cabinet Procurement and
Insourcing Committee agreed the appointment of LASER to procure
energy contracts for the year commencing October 2020 and also
authorised the Group Director of Finance and Corporate Resources to
engage this organisation to procure the energy supplies contracts
for four subsequent years.
3.  
As the delegated authority given to the Group Director of Finance
expires this year and in the light of the Council’s ongoing
effort to source renewable energy supplies and secure its contracts
through PPA with renewable energy generators, this Business Case
report is written to provide Members with information on current
developments in the energy market with regards to the purchasing
options for the Council and to also recommend the procurement
approach that best meets the needs of the Council for the
foreseeable future.
4.  Within this report, it is recommended
that the Council continues to procure the Council’s energy
supplies contracts using the locked prices purchasing in advance
(PIA) methodology through LASER acting as PBO whilst securing up to
30GWh electricity through a short term PPA subject to achieving an
acceptable price. The rationale for this recommendation is further
discussed in other sections of this report.
5.  The opportunity to include a short
term PPA element being approximately 50% of the Council’s
electricity requirement, will be procured through LASER and is only
available from implementing the proposed renewal of the Framework
and the existing Energy Supplier. This will not represent any
restriction on the Council over the use of the same or another PBO
in the future.
6.  Any PPA supplies will be melded into
the ongoing supply of electricity sourced by LASER acting as PBO
with no additional cost. On an hourly and daily basis, with 50% of
supplies being purchased in advance, there will be some days and
hours where the PPA volume will be more than our demand for that
period - approx 9-10% of energy
purchased. However, the potential contract with TotalEnergies Gas and Power will include settlement
and therefore these oversupplies should generally be absorbed into
TotalEnergies’s wider volume. If
this were not successful, LASER has also agreed to use their best
endeavours to absorb any periods of oversupply into its wider
procurement portfolio although they cannot guarantee this in every
case and may potentially result in additional cost to the Council.
These are two levels of protection, which means that the PPA can be
assessed purely as an advanced purchasing option to be progressed
if it offers a likely saving or not if the pricing does not offer
any opportunity.
7.  If implemented, PPA supplies of
electricity will be lower than the  TotalEnergies
energy supplies for the Council less Housing. The Council will be
able to elect, without delay or S20 requirements, in each year
whether to apply the PPA supplied volume to the HRA or not. The
implication of this is that in a scenario where the wholesale
market price falls below the price of the PPA, the risk may be
concentrated into the Council’s energy supply should the HRA
choose not to take any share of the PPA supply. It is for this
reason that any entry into the PPA is subject to close control
within the range recommended and should be seen as an advance
purchase opportunity only if the price offered is likely to
represent a saving.
 
Alternative Options
(Considered and Rejected)
 
1.  
Most public sector organisations adopt the “aggregated,
flexible and risk managed energy procurement”; these are
typically known as Purchase in Advance/Locked (PIA) Strategy. There
are other options such as Direct Tender and Procurement through a
private sector third party intermediary (TPI) but these are
discounted as they would not deliver the best value for the
Authority and do not benefit from the sophisticated risk management
strategies deployed by the PBOs.
2.  
The Purchase in Advance Strategy delivers contract price certainty
prior to the start of the 12 months
delivery period. There is also the option to Purchase within Period
(PwP) meaning final prices will not be
known before the contract starts. The features of this option
include:
 
? Lack of cost certainty for
budgeting purposes as final commodity prices will not be determined
until the end of the year when the products are being bought and
used simultaneously.
? Billing is based on a monthly
reference price.
? A Variable Report will provide a
forward price every month before bills are presented.
The characteristics of PwP described above and the associated
administrative burden of reconciling actual spend against the
budgets particularly for Housing and Schools accounts makes it less
suitable for the Council.
3.  Procure 100% through PPA: This is not
practical as the generation from even a combination of renewable
technologies does not completely match the Council purchasing
profile meaning that the Council will either have a shortfall of
energy to purchase in a half hourly period or a surplus to sell.
The Council does not have the resources or skills to manage such a
trading desk activity which is why any PPA would be restricted to
c50% of the volume and is best deployed within a PBO strategy as
currently used.
4.  Renew with LASER but procure the first
year supply through an alternative to TotalEnergies Gas and Power. This option is
realistic and could save money against the profile of purchases
because NPower were ranked first on
price for the management fee on electricity (TotalEnergies were first on gas) within the tender
and so progressing this option could save around £100-150k
per annum. The reasons this approach is rejected are:
 
? The first year contract is likely
to be valued around £22-24m depending on energy inflation.
The potential savings are therefore less than 0.5%. ? The cost and
risk to change, moving in excess of 3,500 metres from one supplier
to the other is substantial. There is substantial risk associated
with this process and often some supplies are missed or fail the
process and end up on out of contract rates. These costs to change
which can be up to 2-5% of the contract value or £0.4-2m
would substantially erode or remove the potential savings.
? TotalEnergies Gas and Power scored first on the
customer service criteria within the Framework and certainly have
the reputation of more accurate billing and greater customer
focus.
? The very high energy prices in
2023-24 have caused a number of schools to struggle with their
payments for energy with approximately £900k arrears across
60 schools. TotalEnergies have
committed support to assist these schools to reconcile the accounts
and are working actively with the energy team to progress this.
? The Council has a backlog in metre
readings for which action is progressing. TotalEnergies have committed engineer resources to
work with the energy team to progress both metre readings and smart
metre installation to resolve both the short term problem and to
prevent a recurrence.
? By renewing with LASER and
TotalEnergies, the Council will have
the opportunity to advance purchase a proportion of its usage from
the Seagreen offshore wind Field. It
may be that the price will be unattractive but it is equally likely
that the advance purchase could save more than the potential
savings from switching supply. This is impossible to know as it
will depend on available prices in September.
? If the Council chooses to pursue a
PPA in the future, LASER advises that the processes within
TotalEnergies are much more compatible
and likely to reduce costs compared with others.