Stockton BC Corporate and Social Inclusion Select Committee Ian Taylor NEPO Director

2 NEPO n The North East Procurement Organisation (NEPO) was established in 1976 as a professional buying organisation to aggregate demand, lead on joint contracting and pool purchasing knowledge and expertise. n NEPO is governed by a Joint Committee comprising of members from the 12 North East Local Authorities. n NEPO has recently expanded its remit to deliver collaborative procurement in all major areas of external expenditure including Social Care and Construction. n NEPO have developed leading edge category management processes and commissioned category management training across the region. n NEPO’s objectives are to undertake Collaborative Procurement to: Save money Develop competitive regional suppliers Enhance procurement capability

3 NEPO Energy Procurement n NEPO has been responsible for procuring the early 1990’s. n Specialist resource dedicated to managing energy. n NEPO are able to access contract options that would be unavailable to individual customers. n The contracts aggregate volumes to provide flexible, risk-managed energy procurement with robust contract management, performance and service levels. n NEPO’s Gas and Electricity contracts are Pan Government approved.

4 NEPO Energy Procurement Gas Contract commenced April 2011  Annual volumes 30M Therms (Stockton 2.8M)  Annual value £26.9m (Stockton £2.5M)  Current supplier Corona Electricity Contract commenced April 2009  Annual volume 546Gwh (Stockton 33 Gwh)  Annual Value £49m (Stockton £3M)  Current supplier Npower Also a range of ancillary contracts such as Meter Operator and Automatic Meter Reading.

5 NEPO Energy Customer Breakdown

6 Electricity Price Breakdown

7 Electricity Market Japanese Tsunami

8 Flexible Energy Procurement n It is almost impossible to obtain best price in a single contracting decision. Traditional fixed price contracts gives 1 in 250 chance of getting it right. n Flexible procurement allows multiple buying decisions to enable optimisation of the purchasing portfolio in an unpredictable market. Gives access to all markets and flexibility on when and how much energy is purchased. n NEPO utilise live trading screens, a wealth of market data, and forecasts to support the energy trading and buying decisions. n Direct access to traders within the suppliers.

9 Fixed Price Contract

10 Flexible Purchasing

11 Buying and Risk Management n NEPO have developed a Risk and Purchasing Strategy. n NEPO Energy Risk Committee which is made up of representatives from finance, procurement and energy management. The group meet monthly and agree the tactical execution of the strategy. n The Energy Risk Committee report into the Regional Resource Directors. n Range of systems and tools to manage the purchasing of energy.

12 Savings n Savings against the market Gas & Electricity n 09/10 £13.7M (Stockton £883k) n 10/11 £10.6M (Stockton £664K) n 11/12 1.8M (Stockton £120k) n Saving Against Agreed Budget Electricity Only n 09/10 £1.4M (Stockton £94k) n 10/11 £79k (Stockton £5k) n 11/12 £637K (Stockton £40K)

13 Benefits for Members n Dedicated specialist regional resource. n NEPO lead on procurement process. n Support members with the exit and implementation of contracts. n Manage contracts ensuring service levels are met, provide escalation and resolution for more complex issues and develop supplier relationships. n Act as a source of expertise and conduit to members ton ensure they are fully informed of market developments and best practise is shared. n Represent the region at a national level. n Members benefit from economies of scale.

14 Future Developments Energy n NEPO are currently exploring working with GPS to develop a solution for longer term buying from sustainable sources. n This would further spread the risk of buying by directly contracting with generators across time periods from 5-25 years. This will lock in prices during periods of uncertainty. NEPO will look to engage regionally to encourage generators to bid for this contract. n The current contracts allow purchasing directly from generators to be “Sleeved” in against the current contract. This can be from contracts entered into on behalf of a single authorities or a wider initiative as detailed above. n NEPO are also developing a collective buying strategy for the wider community and are currently engaging with several organisations to develop this solution.