Sourcing Energy at a Steel Manufacturer

Sourcing Energy at a Steel Manufacturer

1. Consider the different suppliers – which one would you select? What type of agreement would you use?

2. What are the risks and rewards to consider in this case? How can the team balance these risks and rewards?

A large steel producer in Pennsylvania decided to open up its energy-spending contract to a number of existing and new energy providers that had entered the market as a result of deregulation. Up to this time, each of the steel plants had a separate contract with the local energy provider. The goal was to include existing local suppliers, but also identify potential new entrants. The strategy development team included managers from building and property maintenance, engineering, plant stakeholders, and purchasing. Initially, the team elected to consider just a single facility contract as a pilot for their energy sourcing strategy. Of their other facilities:

• Pennsylvania – one facility considered had contracts expiring; the other is not yet in an openly competitive market, but will be in a year

• Maryland – competition arrives in two years

• New York – currently being served by a low cost hydroelectric provider – it is unlikely that anyone can compete with this provider

• Indiana – status of deregulation still unsure.

For the facility in Pennsylvania new entrants were identified and researched by studying their websites, and were sent an RFP. As a result of this open RFP, four potential suppliers were identified and interviewed to identify their proposals for reducing the organizations’ energy cost. This included the current supplier (Company A) and three new suppliers. Next, each supplier was invited to visit and present their case to the team, emphasizing why they should be the provider for this block of energy to the facilities. The following description of the utility evaluations illustrates how the team considered multiple criteria in evaluating each of the four suppliers:...