Amtrak operates the US national passenger railroad system, responsible for transporting more than 31 million passengers per year to more than 500 destinations across 46 states. With that responsiblity comes an energy expenditure of more than $150 million annually: energy used to power more than 300 trains and 1,000 sites. About one third of that total is spend on what Amtrak terms “non-traction utilities” or the power used to operate everything except its electric powered trains.
DATA FUELS SUCCESS
Amtrak and Ecova have partnered for expense and data management across Amtrak’s portfolio since 2007. Central to the success of the partnership is the data captured through Ecova’s management of Amtrak’s utility bills and the online reporting platform that contains detailed reports and usage metrics. The partnership has since evolved to use this cost and consumption data to support a portion of Amtrak’s energy spend.
Bob Jones and Larry Beddis are the men responsible for managing Amtrak’s energy budget wisely. Jones is Senior Director of Utilities Management at Amtrak, while Beddis serves as Principal Officer of Utilities Management. Both are well versed in the complexities and dynamics of the energy markets, but at the end of the day, Jones says the technical details, staff, and tools to sufficiently perform the necessary evaluations that go into energy procurement and contract management are not available at Amtrak.
“Although we are adept in the procurement process, with an enterprise of this size, optimizing our energy portfolio requires in-depth market knowledge and expertise that is not a part of our core business.”
The fact that Amtrak is a subsidized entity adds to its energy procurement complexity. Strict federal regulations mandate that Amtrak competitively procures energy from multiple suppliers in executable RFP fashion. In a constantly changing deregulated market comprising of hundreds of energy suppliers, this adds exponentially to the competitive RFP process and contract renewal burden. At the same time, with energy market volatility resulting in prices that can rapidly fluctuate, Jones and Beddis know timing is key to contracting the best terms and prices.
“In a business of this scale, one mistake-or one inaction-can cost you millions. It’s prudent to have professionals with expertise as your partner to ensure you’re optimizing the management of your utiltiies portfolio and to validate your energy procurement decisions.”
Ecova has managed energy procurement for all of Amtrak’s non-traction utilities since 2011.
RESERVE AUCTION YIELDS RESULTS
The overarching energy procurement goal at Amtrak is to leverage market deregulation to acquire energy at the most competitive price possible, driving down its operational costs. Ecova uses its market expertise to execute the appropriate tactics to best suit Amtrak’s strategic goals. One example of thetactics deployed was a reverse auction format used for Amtrak’s largest non-traction electric account. While some energy suppliers aren’t fond of reverse auctions due to the squeeze they put on profit margins, energy consumers typically enjoy the savings produced by the transparent process. Suppliers receive instant feedback on the competitive standing of their bids throughout the auction, allowing them to adjust their offers downward accordingly.
At the conclusion of the auction, executable bids submitted by suppliers translated to an 11.3% cost avoidance, when comparing the final winning bid to the highest bid received at the start of the event. While some of this cost reduction can certainly be attributed to market conditions, Ecova’s expertise facilitating the negotiation of a competitive rate at the appropriate time contributed to the success of the auction. The auction platform was timed right and executed well based on Amtrak’s large consumption load within this market.
While cost avoidance figures for this auction are impressive, they only reveal part of the story, and are just one approach to Ecova’s Energy Supply Management solution. Supplier pricing may be good for as little as one day, and often only hours. Markets open late and close early, typically leaving a narrow window of time for decision makers to receive pricing, analyze options, and execute contracts. At Amtrak, contracts must also be vetted by executive level, legal and financial teams. Ecova takes the burden off internal staff by conducting the bid process and recommending optimal contract terms based on market conditions and Amtrak requirements. Ecova then analyzes and presents data-driven recommendations to Amtrak to execute same-day contracts.
Because reverse auctions are typically planned six weeks in advance of the event, in some of Amtrak’s markets it’s more strategic for Ecova to conduct a traditional RFP, where it can leverage its day-to-day market timing expertise. Regardless of procurement strategy, the agile and proactive Ecova management process is based on the market, not the calendar.
A CLIENT-SPECIFIC APPROACH TO PROCUREMENT
The engagement with Amtrak showcases the client-specific approach Ecova takes to energy procurement. Because Amtrak is subject to strict regulations imposed by the U.S. Government, supplier and contract negotiations are an integral part of Ecova’s procurement efforts.
Ecova has also helped Amtrak mitigate risk in some of its largest-spend markets by taking advantage of low market conditions to secure favorable long-term rates. Ecova also works closely with suppliers to provide Amtrak with sophisticated products that are tailored to fit the company’s unique risk management approach, such as layered hedge products that allow for a balance of budget certainty and market exposure. Advising on Amtrak’s procurement portfolio means Ecova must continually monitor legislative issues and identify emerging deregulation opportunities, supporting budget certainty, spend reduction, and risk management for Amtrak in several markets.
Ecova’s in-depth reporting and analytical tools have proved useful in gauging the success of implemented energy supply contracts. Custom reports have provided visibility into Amtrak’s deregulated spend through a summary view of all managed supply deals, contract start and end dates, and estimated cost avoidance figures, and the data needed to evaluate the performance and ongoing status of the overall Energy Supply Management program.