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September 7, 2006 By David Raths
For the third iteration of electricity procurement in 2006, Nash began talking to World Energy and SAIC about using their reverse auction technology. "The more I talked to them, the more I realized they were speaking our language. Everything that got screwed up in the second iteration, they had been there, done that. We started to see this online reverse auction as a silver bullet."
World Energy executives said approximately 60 percent of the company's revenue is from government accounts. "There are a lot of online auction sites that deal with pencils and rubber bands, but our single focus is energy," Harvey said, adding that that specialty is important to government customers. "We bring them a tool so the procurement doesn't create an undue burden on them, and they don't have to deal with figuring out all the market forces at work."
World Energy's business model creates no risk and no up-front cost to the customers, according to Harvey. "If we don't get them rates they like, we don't get paid. If they do sign a contract, we get paid a fee by the winning supplier."
On March 21 and 22, World Energy ran 68 auctions for Montgomery County's aggregation group, with each auction lasting five minutes. With a graph projected on his conference room wall, Nash monitored each auction as the prices dropped. Much of the activity occurred in the last 15 seconds before the auctions ended. "It was so cool," he said. Out of 2,565 accounts, 2,407 were awarded, representing 97 percent of the aggregation group's total electricity load.
Montgomery County is now working on moving up to an even higher level of sophistication. Its school system is developing a pilot project to buy blocks of energy on the wholesale market, the same way utility companies do.
Both Nash and LaVerghetta said that although the cost avoidances they've achieved were substantial, government entities moving into aggregated procurement and reverse auctions shouldn't underestimate the complexity and the amount of organizational effort involved.
"You've got to be informed," Nash said, "and have a team with the horsepower to complete the deals on your side."
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