Eutility Interview

Alargepartoftheroleisthenegotiationofenergysupplyagreementswiththemajorenergy
retailersinordertominimisecostexposuretoyourclients.
Thefollowingskillswouldbeappreciated,butarenotrequiredifotherrelevantexperiencecan
demonstratethenecessaryabilityrequiredforthisrole:

3yearsexperience(2ofwhichpreferablyintheElectricityIndustry),asananalystor
accountmanagerwithcustomerserviceinteraction.

Experienceofutilitysupplycontractnegotiation.

Abilitytoworkinastructuredandorganisedmanner

Abilitytoworkautonomouslyandwithinateam

Keyproblemsolvingabilityfortheelectricitymarketformatterssuchasmetering,data
souringandmanagement

Understandingofenergyandnetworkbillingprocesses

Veryhighdegreeofcomputerliteracyandanalyticalability.

ExcellentspokenandwrittenEnglishskillsessential

NEM
trading platform for east coast capacity with approx. 100
registered users
50% black coal, 25% brown coal, 12% gas, rest
wholesale market where generators sell & retailers buy to sell
on to consumers.
Thecontrastingmeritsofthetwomainmethodsofenergyprocurementreverseauctions,andtender
andnegotiationareexplainedbyNEILGIFFORD,generalmanagerSmartProcureservicesat
Eutility.
Negotiatingwithenergyretailerscanseemtobeaminefieldformany,withsomanychoicestomake
whichenergyretailer,whatproduct,whenistherighttimetogotomarketandforhowlongshoulda
retailcontractbesigned?Whenitcomestochoosingthemethodofprocurement,therearetwomain
methodstoconsider,eitherthetenderandnegotiationprocessorusingareverseauctionplatform.
Bothhavetheirmeritsand,dependingonyourvieworcircumstances,onemayprovidebetterresults
thantheother.Theyarebothtoolstoensurethatthebestpriceisachievedandinbothcasesresults
mayvary.
REVERSEAUCTIONS
Reverseauctionsandonlineauctionplatformsarenowafeatureofmoderndaylife.Mostpeopleare
awareofonlineauctionplatforms,suchaseBay,thatprovideonlinetoolstoparticipateinpurchasing
goods.Bidsareplacedfrompotentialpurchasersuptoapredeterminedtimeandthebestoffer
submittedwhentheauctionclosesislockedintopurchasingthegoods.Thisprocessworksbybidders
offeringincreasinglyhigherpricestosecurethegoodsorservice.

Thereverseauctionplatformemploysspecialisedsoftwarethatismanagedbytheconsultants,with
accessgiventotheinvitedparticipants,inthiscaseenergyretailers.Sitespecificinformationforeach
customerisdisplayedforeachindividualsupplyorgroupsothatretailerscandeterminetheload
profilesandsubmitpricesaccordingly.
Theonlinereverseauction(sometimesreferredtoasaneauctionplatform)providesasimilarservice
toanonlineauction,asthebasicprincipleremainsthesame.Themaindifferencesarethatselected
energyretailersareinvitedtoparticipateintheauctionwithasettimeanddatefortheauctiontotake
place.Energyretailersthenlogintotheauctionplatformandplacebids(typicallyovera10minute
period).Theoffersaredisplayedtoencouragetheparticipantstoofferbetterpricingandoneclear
winnerisdefinedaftertheauctionfinishes.Thisprocessseesthebidsreduceduringtheauction
process.
Fromacustomerperspective,theyhavetheabilitytologintotheauctionandwatchthelivebidding
process,whichprovidestransparencyonthepricesachieved.Aspartoftheauctionparticipation,
energyretailersandcustomersareboundbythetermsofthereverseauctionprogram.Oncetheauction
iscomplete,areportisforwardedtotheclienthighlightingthetopthreebids.Thecustomerthen
decideshowtheywishtoproceed.
Aswithallmethodsofprocurement,itdoeshaveitsdrawbacks.Somecommentatorsbelievethat
reverseauctionsaremoresuitedtobuyingcertaincommoditiesandservices,andnotnecessarily
commoditiesandservicesthatareusedandtradedinsegmentsofanhour.Settingapredetermineddate
andtimemaynottakeintoconsiderationmarketmovementsand,therefore,maynotachievethebest
energyratesavailable.
Thisisessentiallyacomputerbasedtransactionwithlittleornohumaninterventionandthiscanbe
seenasaweakness,asitdoesnotalwaysprovidetheenergyretailerwiththeoptiontonegotiate
aroundcontracttermsortoimprovepricingaftertheauctionwindowisclosed.
TENDERANDNEGOTIATION
Theotherandmostpopularformofenergyprocurementisthetenderandnegotiationprocess.This
methodhasbeenusedformanyyearsinenergymarkets(aswellasotherareas)andiswellsuitedto
purchasinggoodsandservicesthataretradedonadailybasis.
Thetenderandnegotiationwithenergyretailersbeginswiththecompilingofalltherelevantdatafor
eachsite.Thisisthensenttotheselectedretailers.Theanalystdealingwiththetenderwillemailthe
individualretailersprovidingdetailsofthesitesorgroupsofcustomerstobeincludedwithinthetender
andinvitethemtoprovidetheirinitialpricingonagivendate.Energyretailersrespondtothetender
invitationknowingthattheyareinacompetitivesituation(providingtheirpricingblind)astheyarenot
awareofotheroffers.Thismethodofprocurementmeansthattheyneedtooffertheirbestpricesto
stayinthenegotiationsasusuallythetopthreeretailersareselectedforfurthernegotiation.
Theoffersfromthevariousenergyretailersarethenenteredintoareportthatcompareseachofthe
offersonalikeforlikebasis.Thisgivestheanalysttheopportunitytorespondtotheretailersovera
periodofdaysorweeks,dependingonmarketconditions,toensurethatthebestpriceisachievedfor
thecustomer.
Thisisamorehandsonapproachandaffordseachofthepartiesinvolvedtheopportunitytocontribute
personallyduringthenegotiationphaseandrevisetheirpositionandoffers.Discussionswithenergy
retailersprovidetheanalystswithinformationonmarketconditionsandmovements,andhowthese
changesmayinfluencethedecisionmakingprocess.
Thetenderreportisthenpresentedtothecustomerandtheoptionsarediscussed,includingcontract
duration,carbonpricingoptions,environmentalcharges,paymenttermsandanyotherfactorsthatmay
berelevanttothecustomer.Onceadecisionismade,authorisationformsaresignedandthecontracts
withthechosenenergyretailerarepreparedforsigning.
Thisprocesscanbelengthierthanareverseauction,asitcanofteninvolveinputfromallpartiesat
variousstagesthroughtheprocessandmaynotsuiteveryone.Inaddition,itisdependantonaquick
responsetimefromclientswhenitcomestosigningthecontractwithinthevalidityperiodofthe
contractoffers,whichcansometimesbeasshortasafewhours.
PERSONALPREFERENCE
Bothenergyprocurementmethodshavetheirmeritsandsuitdifferentpeopleororganisationsbetter
thanothers.Aclientrecentlylikenedthedifferencetobuyingorsellingahousesomepeopleusethe
auctionprocess,whileotherswillprefersettingthepricepointandnegotiating.

EnergyActionhighlightswaystochoosetherightenergyprocurementpartner.
Withthecostofenergysteadilyincreasingandtheintroductionofthecarbontax,itismoreimportant
thanevertomakesurethatyouaregettingthebestpriceforenergyforyourfacilitythatyou
can.Manybusinessesareturningtoprocurementpartnerstohelpthemchoosethebestenergysupplier
fortheirneeds.Areputableenergyconsultantcanhelpsecureasuitablecontract,butitcanbedifficult
toknowwhotoselect.Whenchoosinganenergyconsultantweadvisethatyou:
1.Chooseapartnerthatistransparentandprovidescomparativequotes
Goforapartnerthatistransparentandwillingtogiveyoualltheinformationyouneedtomakean
informeddecisionregardingyourneeds(someconsultantsonlyprovideyouwiththeirtop
recommendations).Thelowestpricedoesnotnecessarilyequatetothebestoption,astherearemany
otherfactorstoconsider,suchasenvironmentalcharges,networktariffoptimisation,operational
chargesandcontractduration.
2.Goforaclearcommissionstructureandestablishwhopays
Understandyourcostsupfront.Ensurethatthepartneryouchoosereceivesthesamecommissionfrom
allenergyprovidersthisensuresthereisnofavouritism.Also,chooseapartnerthatdoesnotcharge
multiplestakeholdersfortheprocurementinitiative(someconsultantsmaychargeapercentage
commissiontotheretailerandthenalsotoyouforanominatedpercentageofyoursavingssecured).In
somecasestheretailerpaysthecommissionforthesigned,sealedanddeliveredbusiness,oryoumay
berequiredtopaytheconsultantdirectly.
3.Dontselectapartnerthathasquotastofillwithproviders
Ifacompanyhasquotastofillwithproviders,itmaybedifficulttoremainunbiased.Choosean
independentpartnertoensureunbiasedadvice.Oftenaconsultantwhoonlyprovidesoneoption(the
bestoption)couldbetryingtofillaquota.
4.Ensureyourpartnerislicensedtoprovideadvice
EnsureyouaredealingwithanenergymanagementcompanythatholdsanAustralianFinancial
ServicesLicense(AFSL)particularlywhenlookingatforecastedpricesandfuturecontracts.Withan
AFSL,companiesarelicensedtoprovidefinancialadviceinrelationtothewholesaleelectricity
market,whichultimatelyimpactsretailpricing.Thislicenserequiresthebrokertohaveanindepth
understandingoftheNationalElectricityMarketandfinancialproducts.Certifiedbrokersregularly
undergomarkettrainingandmustactinaccordancewithASICregulations,maintainingthehighest
levelsofcompliance.
5.Chooseapartnerthatlooksatthewholepicture
Dontchooseanenergyconsultantwhoonlylooksatenergyratesandfailstoconsiderotherfactors.
Theseotherfactorsmayincludebeingonanunfavourablenetworktariff,whichcandramaticallyaffect
costs.Chooseaproviderthatlooksatthebiggerpictureonyourbehalfafterall,asenergyexperts,
theyshouldbeabletoidentifysavingopportunitiesforyourbusinessoutsidecontestablecontract
options.
6.Makesureyourpartnercantailortheirservicestoyourbusinessneeds
Manycompetitiveretailersarewillingtoprovideapricebasedonbusinessspecificenergy
requirementsespeciallysincederegulation.Anexperiencedbrokerorenergymanagementcompany
candevelopacustomisedspecificationforabusinessenergyprofileandadviseasuitabletimetotake
yourcontracttomarket.Theywillthenreviewandanalysethevariousoffers,givingallthe
informationnecessarytomakeaninformeddecision.
7.Makesurethecarbontaxisincludedintheirnegotiations
Someretailelectricitycontractsdonotfactorinthecostofcarboninstead,theycontainclausesthat
allowforanadjustmenttobemadewhenthecarbonpriceisintroduced(note:thecarbontaxwas
introducedonJuly1).Insistonacarboninclusivecontracttoavoidunexpectedincreasesincostdueto
carbonprices.

Thecomponentsoftheenergysupplychain
Therearethreemaincomponentsintheenergysupplychain:

theenergycommodity:eitherthegenerationofelectricityatpowerplantsortheproduction
ofnaturalgas

networkservices:whichincludestransmissionormovingtheenergyinhighvolumesfrom
theirsourcestowardendusersanddistributionorsupplyingandmeteringenergytoendusers
premises

retailservices:billingandmanagingpriceriskforendusers.

Eachofthesecomponentsmaybeundertakenbyseparatebusinesses.
Thecomponentsoftheelectricitysupplychainaredepictedbelow.

Source:AustralianEnergyMarketOperator
Gasproductionfordomesticconsumptionhasremainedseparatefromtransportandsupplyandis
dominatedbyafewmajorgassuppliers.Themainsegmentsofthegassupplychainaredepicted
below.

Source:basedonAustralianGasAssociation(2003)

Thekeymarketplayers
Detailedlegislationandregulationsareinplacetosafeguardallparticipantsinthemarket,including
energyusers.Theselegalarrangementsestablishmarketgovernanceandregulatoryarrangementsand
requirethatallsupplysidemarketparticipantsmustholdalicenceorexemptionineachStateand
Territoryinwhichtheyoperate.AlistoflicensedparticipantsinyourStateorTerritorycanbefound
onthejurisdictionalregulatorswebsiteandcanbeagoodstartingpointifyouarelookingforanew
energyretailer.
Thesummarybelowoutlineswhoswhoamongthesupplysideparticipants,andthegoverningand
regulatorybodiesthatoverseeAustraliasenergymarkets.

Marketparticipants
Electricitygenerators:Electricityisgeneratedfromfossilfuels,suchascoalandgas,andrenewable
sourcessuchashydroandwind.Someenergyusersalsoownandoperateelectricitygeneratorsthatcan
beusedtosupplyelectricityandprocessheatfortheirownuseorexportelectricitytothegrid.
Gasproducers:Gasisextractedfrombothoffshoreandonshoregasfieldsandprocessedtoremove
impuritiestoproducenaturalgas.ThereareonlyafewgasproducersoperatingineachofAustralias
gasmarkets,althoughthismaychangeascoalseamgasresourcesaredeveloped.
TransmissionNetworkServiceProviders(TNSP):Bulkelectricityistransportedviaextrahigh
voltageelectricitytransmissionlines.Bulkgasistransportedinhighpressuregastransmissionlines.
Eachstatehasasinglemonopolyelectricitytransmissionbusiness,butthereismorethanonegas
transmissionbusinessinsomestates.AllelectricityTNSPsareconsideredtobenaturalmonopolies
andareregulatedbytherelevanteconomicregulator.TheregulatedstatusofgasTNSPsvaries,
althoughallarerequiredtoprovideaccesstothirdpartiesonfairandreasonablecommercialterms.
Someenergyusersareconnecteddirectlytotheelectricityandgastransmissionnetworks.
DistributionNetworkServiceProviders(DNSP):Bothelectricityandgasaredeliveredtothe
overwhelmingmajorityofendusersthroughalocaldistributionnetwork.DNSPsarenatural
monopoliesandareregulatedbytherelevanteconomicregulator.TherearemultipleDNSPsinmost
states,supplyingeitherelectricityorgastospecificgeographicareas.Formostcustomers,DNSPsare
alsoresponsibleformeteringinstallationsandservices.

Retailers:Retailersprovidebillingandpriceriskmanagementservicestoendusers.Retailbusinesses
arenowgenerallystandalonebusinessesthatoperateonlyintheretailsegmentalthoughafew
retailersalsoownelectricitygenerationinterests.
Otherparticipants:ThereisarangeofotherparticipantsinAustraliangasmarkets.Alistofthe
participantcategoriesandabriefexplanationoftheroletheyplaycanbefoundontherelevantmarket
operatorswebsites.
Intermediaries:Intermediariesarecompaniesthatofferarangeofservicestoenduserssuchas
informationandadviceonenergyuseandprocurement,supportingnegotiationswithretailersand
facilitatingdemandsideresponsemeasures.TheycanbefoundbylookingunderEnergyManagement
ConsultinginYellowPageslistingsorusingtermssuchasenergytrading,energybroker,energy
management,energyservicesorenergyresponseinaninternetsearchengine.

NationalGovernanceandRegulatoryBodies
COAGEnergyCouncil:TheCOAGEnergyCouncilcommencedinMay2014,replacingtheformer
StandingCouncilonEnergyandResources(SCER).ItincorporatestheworkoftheformerSCER,
MinisterialCouncilonEnergyandtheMinisterialCouncilonMineralandPetroleumResources
(MCMPR).TheEnergyCouncilseekstoensurethesafe,prudentandcompetitivedevelopmentofthe
nationsmineralandenergyresourcesandmarketstooptimiselongtermeconomic,socialand
environmentalbenefitstothecommunity.
TheEnergyCouncildoesthisby:

facilitatingnationaloversightandcoordinationofgovernance,policydevelopmentand
programmanagementtoaddresstheopportunitiesandchallengesfacingAustraliasenergy
andresourcessectorsintothefuture

providingnationalleadershiponkeystrategicissuesandeffectivelyintegratingthesestrategic
prioritiesintogovernmentdecisionmakinginrelationtotheenergyandresourcessectors

enhancingnationalconsistencybetweenregulatoryframeworkstoreducecostsandimprove
theoperationoftheenergyandresourcessectors.

TheEnergyCouncilcontinuestoprogressCOAGsenergymarketreformprogram,includingensuring
balancedincentivesforefficientdemandsideparticipationinenergymarketsandnetwork
development,progressinganationalframeworkforsmartmeteringandgreaterprovisionofenergy
informationtoconsumers.
TofindoutmorevisittheCOAGEnergyCouncilwebsite,emailenergycouncil@industry.gov.auor
phonetheEnergyCouncilhotlineon0262437788.
AustralianEnergyMarketCommission(AEMC):TheAustralianEnergyMarketCommission
(AEMC)istherulemakerforthenationsenergymarkets.Itisanational,independentbodythat
makesandamendstherulesfortheNationalElectricityMarketandelementsofnaturalgasmarkets.
TheAEMCalsoprovidesstrategicadvicetotheCOAGEnergyCouncil.
InformationabouttheroleoftheAEMC,relevantmarketrulesanddetailsofAEMCsreviewsofthese
rulescanbefoundontheAEMCwebsite.
AustralianEnergyRegulator(AER):TheAERisresponsibleforoverseeingandmonitoringthe
NationalElectricityMarketandgasmarketsinsouthernandeasternAustralia.TheAERisalso

responsibleforregulatingthepricesthatelectricityandgastransmissionanddistributionnetworksmay
chargeinallstatesandterritories,exceptWesternAustraliaandtheNorthernTerritory.
InformationabouttheAERsrolecanbefoundattheAERwebsite.Thesitecontainslinkstoregular
reportsontheperformanceofelectricityandgasmarketsoverseenbytheAER.Theweeklyreports
alsoprovideinformationonwholesalepricemovementsthatcouldbeusefulwhenpreparingfor
negotiationswithyourenergyretailer.TheAERalsopublishesaStateoftheEnergyMarketreport
eachyearinDecember.

StateRegulatoryBodies
StateandTerritoryregulatorslicensesupplysideparticipantsandregulateaspectsoftheenergymarket
intheirjurisdictions.1Theregulatorswebsitesprovidelistsofelectricityandgasretailerswhoare
licensedtooperateinthatjurisdiction.TheAustralianEnergyRegulatoralsoregulatesaspectsofthe
energymarketintheNationalEnergyMarketjurisdictions.

Listsofstateregulatorybodiesandlicencedelectricityandgasretailers
State

RegulatoryBody
QueenslandCompetitionAuthority
Queensland
(QCA)
IndependentPricingandRegulatory
NewSouthWales
Tribunal(IPART)
AustralianCapital IndependentCompetitionand
Territory
RegulatoryCommission(ICRC)
EssentialServicesCommission
Victoria
(ESC)ofVictoria
OfficeoftheTasmanianEconomic
Tasmania
Regulator(OTER)
EssentialServicesCommissionof
SouthAustralia
SouthAustralia(ESCoSA)
EconomicRegulationAuthority
WesternAustralia
(ERA)
NorthernTerritory UtilitiesCommission

Listoflicencedenergyretailers
Queenslandenergyretailers
NSWelectricityretailersNSWgasretailers
ACTenergyretailers
RefertotheLicencessectionoftheESC
website
TasmanianelectricityretailersTasmanian
gasretailers
SouthAustralianelectricityretailersSouth
Australiangasretailers
WesternAustralianelectricityretailers
WesternAustraliangasretailers
RefertotheUtilitiesCommissionwebsite
forinformationontheirrole

Marketoperators
TheAustralianEnergyMarketOperator(AEMO):AEMOoperatestheNationalElectricityMarket
andtheretailandwholesalegasmarketsinsoutheasternAustralia.
AEMOswebsitecontainsdetailedinformationonthestructure,planningandoperationoftheeastern
Statesenergymarkets,includingdetailedinformationonenergyprices,networklossesandancillary
servicecosts.ThisdataisaccessedbyfollowinglinksfromtheElectricityDataandGasDatatabs.
Weeklyreportsarealsoavailablethatprovideausefulsummaryofmarketoutcomes.
AEMOalsopublishesreportseachyearthatoutlineforecastconditionsinboththeelectricityandgas
marketsoverthecomingdecades.ThemostusefulofthesereportsforenergyusersaretheElectricity
StatementofOpportunities,theGasStatementofOpportunitiesandtheNationalTransmission
NetworkDevelopmentPlan.
IndependentMarketOperator(IMO):IMOoperatesthewholesaleelectricitymarketinWestern
Australia.

TheIMOwebsitecontainsdetailedinformationonthestructure,planningandoperationoftheWestern
AustraliaSouthWestInterconnectedSystem(SWIS)electricitymarket.Thisincludesdetailed
informationontheSWIScapacitymarketinwhichenergyuserscanparticipate,energyprices,network
lossesandancillaryservicecosts.ThisdataisaccessedbyfollowinglinksfromtheReserveCapacity,
PublicationsandReportingandMarketDatatabs.Weeklyreportsthatprovideausefulsummaryof
marketoutcomesarealsoavailable.
IMOalsopublishesaStatementofOpportunitiesreporteachyearthatoutlinesforecastconditionsin
theSWISelectricitymarketoverthecomingdecade.
RetailEnergyMarketCompanyLtd:REMCoistheretailmarketoperatorforthecontestablegas
retailmarketsinWesternAustralia.
InformationaboutREMCosrolecanbefoundattheREMCowebsite.TheREMCowebsitecontains
informationthatismorerelevanttoretailgassupplybusinessesinWesternAustraliathantoenergy
users.However,familiaritywiththesitecontentwillhelpyouunderstandhowgassupplytocompeting
retailersismanaged.