Decision Maker:

Outcome: For Determination

Is Key Decision?: Yes

Is Callable In?: Yes

Date of Decision: September 2, 2024

Purpose:

Content: 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.