Proactive energy management
Energy services company Usource has major clients
engaged in global pharmaceutical
production and research across multiple facilities.
World Pharmaceutical Frontiers talks to
managing director Thomas Withka about how the
company provides cost and process
efficiencies by strategically managing its clients’
energy supply in an integrated manner.
World Pharmaceutical Frontiers: What is the
role of
an energy services broker?
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Energy costs comprise
a large portion of a facility’s annual
budget. Usource’s first-and-best offers
bring winning results to every customer.
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Thomas Withka: Usource represents industrial,
commercial, institutional, and government customers
– all consumers of natural gas or electricity
(or both) – and brings them together with
potential energy suppliers. We continually assess
the marketplace, strategically time offers to
buy and then present the best proposals from qualified
energy suppliers at one time. We partner with
our customers in securing the best price, terms
and length of contract for their operations.
Elite brokers such as Usource dedicate sophisticated
training and state-of-the-art tools to monitor
commodity
markets on an hourly basis. This provides customers
with
the most current market information for purchasing
decisions. Through a diligent, continuous review
of the
supplier community in the market areas we serve,
we ensure
that customers receive reliable and competitive
energy.
With an intimate knowledge of supplier operations
and
business practices, the right broker is an invaluable
partner in
continually evaluating complex contract provisions
in supplier
offers. In essence, Usource professionals serve
as a specialised
energy management employee on the client’s
staff.
What makes deregulated energy markets
particularly difficult to negotiate?
Natural gas and electricity markets have similar
characteristics
to most commodity markets with volatile pricing
changes, often
moving several percentage points on a daily basis;
for example,
most energy price offers are valid at the time
of the offer, but
are rarely held overnight. This creates a complicated
process of
internal review and approval for most companies.
| "Usource
customers can take advantage of energy markets
and extract the optimal pricing and terms
available." |
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At Usource, we use a multi-step process to help
customers
manage this challenge. Our proprietary model tracks
energy
markets on a real-time basis, searching to match
customer
objectives. We help customers review supplier
contracts
before the bidding process, strengthening their
position and
avoiding the inequities often written into these
contracts.
Our models generate pricing forecasts that help
anticipate
economic and business provisions prior to the
bid date. As a
result, our customers can take full advantage
of energy
markets and extract the optimal pricing and terms
available.
This process forces suppliers to offer their
best price first.
On bid day, with standardised contracts, market
objectives
and aggressive pricing predictions in hand from
Usource, the
client can execute a contract with confidence.
What impact can the wrong energy management
solution have on a facility’s ability to
function properly?
Unnecessarily high energy costs and poor contract
business
terms can dramatically affect facility financial
performance,
competitiveness and viability. If a company fails
to renew or
secure a new energy contract before an old one
expires, it
usually has to revert to utility supply or another
marketbased
price – one that in most cases is higher
than a
competitively bid contract.
Further, the wrong company strategy in the hands
of an
inexperienced energy broker will result in missed
opportunities and long-term cost increases; for
example,
firms that historically purchase energy on a fixed
calendar
may be unaware of certain risks. The fourth quarter
of the
year has extraordinary volatility, with pricing
dependent on
factors such as demand, economic activity, storage
balances
and weather. Often, prices are higher and customers
lack the
ability to wait for lower rates.
Firms that don’t manage energy on a strategic
basis are
unable to judge these market opportunities and
consequently default to higher prices; even fewer
firms
employ people dedicated to continually evaluating
the
energy marketplace. Usource manages this review
as an
in-house resource, actively advising the customer
about
market direction and recommending precise energy
procurement strategies.
Are there any issues worth considering that
are
particular to the pharmaceutical industry?
Since this industry has a relatively small number
of large
energy consumers, various energy supply aggregation
programmes can be of significant financial benefit.
These
programmes group the energy requirements of multiple
facilities in a manner that gives each location
lower prices
and better contract terms. Usource has successfully
developed such aggregation programmes with many
companies, including pharmaceutical companies
such as
Lonza.
On the natural gas side, multiple facility requirements
can
be effectively aggregated to reduce costs and
employ the
supplier in pooling operations to manage natural
gas delivery
risk. Commodity price risks can be managed from
either a
corporate or individual facility perspective.
Usource often
establishes risk targets with customers and then
monitors
the movement toward price objectives on a daily
basis.
On the electricity side, multiple facility requirements
should be aggregated to reduce cost through enhanced
supply dynamics. Procurement programmes may include
supply purchases that reflect fixed, variable
and block
pricing consistent with risk and pricing objectives.
The level
of corporate vs facility control in these risk
management
matters will vary by firm.
How can Usource help a customer in the
pharmaceuticals industry achieve a better deal?
Usource helps all of its customers achieve exceptional
energy deals through:
- dedicated, informed market monitoring
- broad solicitation of credible, qualified
energy suppliers
- a bidding process that yields the best supplier
prices the
first time
- a collaborative evaluation of all the terms
and conditions
- assistance in aligning the best energy deal
with our
customers' business needs and energy requirements.
Most important, customer needs inevitably vary,
especially
in a highly competitive industry such as pharmaceuticals.
Usource listens carefully to understand those
needs; for
example, one facility may have a very stable load
profile and
may be best served by a fixed price contract.
Another
company may have a more flexible usage profile
and can
secure lower prices by buying electricity on an
on-peak, offpeak
basis. Usource works hard to understand customer
and
industry needs and collaborates to establish a
viable,
profitable procurement strategy.
How can companies with multiple facilities
across
different markets benefit from Usource’s
offering?
Usource has researched and developed procurement
strategies for a number of customers with facilities
that
involve many combinations of utilities, states
and power
pools. As one of the largest energy advisors in
the US,
Usource is able to design and leverage the best
possible
strategy for a multiple-location company. We routinely
secure
customer pricing that incorporates large volume
discounts.
These, in turn, mean lower prices for each customer
facility
than if bid and priced on a stand-alone basis.
What is Usource’s involvement in the
pharmaceuticals
industry? How do you see this evolving?
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Energy costs comprise
a large portion of a facility’s annual
budget. Usource’s first-and-best offers
bring winning results to every customer.
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Usource has provided services to the pharmaceutical
industry since electricity markets opened in New
England ten years ago. Today, Usource offers energy
management and consulting services to a number
of international firms. We typically begin service
for a single pharmaceutical facility, demonstrate
the benefits of our partnership, then add sister
companies to the programme.
The best approach for a pharmaceutical client
is to
aggregate all of its business and energy requirements
under
an energy broker who can deliver the long-term
strategy
and the results that answer company objectives.
This facility
aggregation best ensures large volume discounts
with
maximum operational and risk management options.
Earlier this year, Usource entered a corporate
agreement
with Lonza, a large multinational pharmaceutical
client. We
agreed to provide energy management, consulting
and
brokerage services for the parent corporation
in addition to
each of Lonza’s US operating facilities.
Usource has
expanded its services to include a recent Lonza
acquisition.
As a result, Usource and Lonza are addressing
a much
larger energy supply programme that will benefit
each
company facility with enhanced production offerings
and
lower pricing.
Contracting for energy is not for the faint of
heart.
Energy costs comprise a significant portion of
any facility’s annual budget. Usource’s
unique process for securing
first-and-best offers from a broad range of suppliers,
along
with continual monitoring of marketing pricing
and
conditions, and favourable contract terms bring
a full
time professional team and winning results to
every
energy customer.
Case study: Lonza USA
A 2011 agreement forged between Usource and Lonza
highlights the benefits of proactive energy management
in
the global pharmaceutical industry. Lonza is one
of the
leading suppliers to the pharmaceutical, healthcare
and life
science industries, with thousands of employees
and
dozens of facilities worldwide. The company also
operates
a major biologics production facility in Portsmouth,
New
Hampshire, US, near Usource headquarters.
| "Collaborating
with Usource
allowed Lonza’s managers to
closely align energy demands,
business and financial criteria,
and strategic operating goals." |
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Discussions between companies quickly targeted
potential cost savings and energy efficiencies
for the Portsmouth site. More importantly, they
led to a strategically (and geographically) integrated
plan to manage Lonza USA’s national energy
demand.
As a global leader in the production and support
of
active pharmaceutical ingredients, chemically
and
biotechnologically, Lonza requires reliable, predictable
and
cost-effective power for its production and research
facilities. To achieve this, it needed a unified
and
strategic energy plan for its sites. Collaborating
with
Usource allowed Lonza’s managers to closely
align energy
demands, business and financial criteria, and
strategic
operating goals for its US operations.
Usource and Lonza crafted a sustainable strategy
for
energy management, supported by state-of-the-art
information tools, highly informed consultation
and expert
24/7 market analysis. Usource provided the following
basic
tools and services:
- a proprietary market tracking system with
the latest
energy market pricing
- monthly indicative electricity and natural
gas
basis prices
- a monthly natural gas commodity position report
- quarterly meetings with Lonza managers to
review the
market and purchasing strategy
- round-the-clock communications to assess favourable
market opportunities and challenges
- a monthly market analysis and regulatory
update newsletter
- regular review of the invoices from energy
suppliers
and/or utilities.
According to Bill Woodward, lead buyer technical
equipment & services for Global Strategic
Sourcing at the
Lonza USA's Walkersville, Maryland headquarters,
the
benefits of the Usource relationship have been
measurable.
Now just one energy broker manages all the energy
needs
for Lonza USA sites, leveraging the volume of
this demand
to ensure financial benefits for the company,
he says.
Bundling these power requirements and securing
transparent, competitive bids from multiple energy
suppliers
help Lonza to control infrastructure costs and
sustain
competitive advantages. The unified energy procurement
process, procedures and guidelines that Usource
brings to
Lonza, further optimises already high levels of
synergy among
Lonza USA's sites, according to Woodward.
"Usource is a very professional, competent,
and capable
energy broker organisation," he says. "It
has demonstrated the
expertise and knowledge that provide Lonza with
visibility of
the energy marketplace and provide professional
guidance
and direction accordingly to the Lonza USA sites."
In a volatile energy market, surrounded by a turbulent
economy and increasingly competitive business
environment, the Usource-Lonza partnership allows
each company to do what it does best.
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