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Energy Buyers: Outsourcing Continues to Grow

Energy Buyers: Outsourcing Continues to Grow

A panel of energy buyers at GasMart/Power 2000 agreed last week outsourcing energy management is still on the upswing as end users strive to avoid complexity and save money.

"A lot of people are giving up on managing their own supplies," said Joe Ewing, a strategic sourcing manager for Procter & Gamble Co., "in the sense that [energy management] is getting too complicated."

Jackson Mueller, director of energy for the Seattle-based privately-held Simpson Investment Co. said his outsourcing arrangements have cut the company's energy budget from $142 million a couple of years ago to $18 million for this year. Simpson owns land worldwide and is heavily involved in the wood and paper industries. He attributed the cuts to a combination of outsourcing strategy and a new initiative by the owners of the firm to cut operations.

"We've had choices and been terrorized by them," Mueller said. "As a result it has led us to outsource to other people. We just [account for it] as energy services... That way, our operations people and accounting staff get a dollars worth of energy/ton of product figure and don't have to worry about capital budgeting for the different resources. We've done outsourcing arrangements with almost all our plants."

Mueller added that another benefit of outsourcing is its ability to allow companies to focus on its core competencies. "If we can get someone to offer us all the [energy management services] under one umbrella so that we ultimately only have to operate our business, that is our objective."

The panelists said the advent of deregulation in many markets, improving technology to switch fuel supplies, a growing number of financial and physical supply options and risk management have made procuring energy a daunting task.

One outsourcing trend that has developed is an apprehension by many buyers to sign with "energy service provider extremes (ESPs)," said Glen Lewis, the western region procurement manager for Stockton, CA-based Del Monte Foods. He said customers are finding that large ESP's customer service operations are lacking in many cases, while signing with small ESPs raises the question of reliability.

Although admitting the outsourcing trend is still growing, Ewing said Procter & Gamble only outsources special projects. The consumer products giant spends $220 million annually on gas and electricity. Its energy procurement group, in which Ewing is included, made the decision to develop a team in-house to manage the company's energy costs. Since then, the group has worked to gain regional knowledge of electric and gas distribution as well as sign contracts with energy suppliers.

"What we're looking for are suppliers who offer customized products, specific industry expertise, superior customer service and are financially stable. They need to be able to align with our needs, even if the needs change rapidly, and sign a deal with a simple contract process. They need to deliver what they promise."

John Norris, Denver

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