Issue - meetings

The purpose of the report is to seek approval to enter into a contract for the supply of electricity for Council operated assets.

Purpose of report

To seek approval to enter into a contract for the supply of electricity for Council operated assets.

Decision

That Cabinet approves up to a four-year contract to Total Energies Gas and Power Ltd incorporating a fixed 12 month tariff utilising the ESPO Framework for the supply of electricity commencing on 30th September 2024.

Alternative options considered and rejected

The report confirmed that alternative frameworks had been considered but none offered the Council the most economically advantageous solution that met the Council’s requirements. Council could have chosen not to enter into a 12 month contract but this would have left the Council financially exposed to price uncertainty during the period.

Reasons for decision

The Framework consisted of a single supplier (Total Energies) with a proven and successful track record of delivering electricity, for various public sector organisations including South Kesteven District Council (SKDC).

As well as the supply of electricity, this framework provided a number of key features including:

• Automated Meter Reading (AMR);

• New meter connection, changes to existing connections/disconnections and upgrades; and;

• A dedicated account manager for ESPO Customers.

Additionally, ESPO also provided comprehensive support encompassing:

• Account management;

• Supply point administration;

• Portfolio management

• Price validation

• General queries and advice related to the contract and supply and market intelligence.

The framework was based on fully transparent pricing, with the supplier margin fixed for the full duration of the framework. Individual customer rates would however change based on changes to ‘Regulated Charges’ and the ‘Wholesale commodity price’, typically on an annual basis from 1 October. Customers were notified in advance of any price changes.

As the price of energy was extremely volatile, ESPO had adopted a flexible, aggregated risk management approach to energy procurement. The two ‘Price Risk Strategies’ currently used by ESPO under the flexible procurement option were:

·       Pricing in Advance (PIA) – in which 100% of the total forecast volume requirement was purchased before commencement of the supply period for electricity (October to the following September).

·       Pricing within Period (PWP) – in which an agreed portion of the total forecast volume requirement for the supply period (April to March) was purchased before the commencement of the supply period, with the balance purchased closer to the point of consumption, but before it was required.

These strategies allowed the price risk to be spread over an extended period of time, rather than purchasing 100% of the volume on a single day.

The principle behind the two options was that with PIA the price was known before the supply period commenced, whilst the PWP price was only partially fixed before supply period and was not completely known until the supply period ended.

The PWP option therefore represented a higher risk as a proportion of the cost was subject to fluctuation, depending on market price movement during the supply period, with reward partly based on the premise that the risk premium inherent in market prices reduces as the point of purchase and consumption  ...  view the full minutes text for item 107