Meeting: Cabinet	Date: 11 July 2023

Wards affected: All

Report Title: LASER Energy Contract

When does the decision need to be implemented? 01 August 2023

Cabinet Member Contact Details: Councillor Alan Tyerman, Cabinet Member for Corporate and Community Services, Alan.Tyerman@torbay.gov.uk

Director/Divisional Director Contact Details: Malcolm Coe, Director of Finance, malcolm.coe@torbay.gov.uk

1.	Purpose of Report

1.1	Since April 2016 Torbay Council have procured its energy through LASER Energy Group who are part of Kent County Council. LASER are a specialist trading arm within their Council, dedicated to delivering gas, electricity and other utility value added services for the public sector. They are an established Public Buying Organisation (PBO) set up for this very purpose and recognised nationally.

The current contract is for the supply of gas and electricity supplies for 280, single or multiple meter points. The electricity portfolio consists of unmetered and metered supplies.:

Unmetered electricity (UMS) – supply of electricity that is connected to the Distribution Network without a meter, for example street lighting, traffic signals etc.

Half Hourly (HH) supplies will relate to the large premises and will produce half hourly data for consumption.

Non-Half Hourly (NHH) being the lower consuming sites, usually under 100kVA using standard meters which are read manually or may feature Automated Meter Reading (AMR) technology.

Gas is billed using consumption only, similar to the NHH electricity supplies.

The current energy contract with LASER Energy Group ends on the 30th September 2024. However, to date LASER have purchased Torbay Council’s energy requirements in advance of a year, 1st October to 30th September for the following energy supply year, known as PIA – purchase in advance model. This contrasts with PWP (Purchase within Period) model which allows for in energy year purchase of gas and electricity - this provides greater flexibility in being able to buy gas and electricity at variable prices but does not provide budget certainty. The table below outlines how each of the baskets compares against each.

Torbay Council need to consider the procurement options and next steps. This varies from undertaking a full OJEU procurement process to a direct award to one of the Public Buying Organisations. An early decision will allow the supplier around 16 months to procure energy in advance of the new energy supply period which might enable a better PIA price to be secured.

The contract is a collaboration of local Devon authorities so that aggregated volumes can be used to the maximum to achieve value for money. Indication of market conditions regarding early signup vs late signup can be seen below.

2.	Reason for Proposal and its benefits

2.1	We want Torbay to be a premier resort in the UK, where our built and natural environment is celebrated and where we play our part in addressing the climate change emergency.

The proposals in this report help us to deliver this ambition by having a positive impact on identifying high usage energy areas, reducing energy waste consumption and reducing our carbon output.

The Public Buying Organisation’s offer up various initiatives to assist Councils in meeting their carbon reduction aims. LASER offers a comprehensive set of initiatives with a significant focus on green initiatives with suppliers.

2.2	The Devon Energy Group is led by Devon County Council, who along with Torbay Council and several other Authorities, use the contract as a vehicle for their energy needs. Each of the participating authorities liaises and contracts directly with LASER. This is a good example of local public bodies collaborating for mutual gain. Further savings have been offered by LASER through the group committing to the contract.

3.	Recommendation(s) / Proposed Decision

To continue to contract with LASER Energy Group (Kent County Council) to procure, manage and supply Torbay Council’s gas and electricity (metered & unmetered) needs from 1st October 2024 for four-years.

To give delegated authority to the Director of Finance in consultation with Cabinet Member for Corporate and Community Services to ascertain which basket option, Purchase in Advance (PIA) or Purchase within Period (PWP) Torbay Council should adopt.

That Torbay Council remains part of the Devon Energy Group and sign up to Torbay Council’s preferred solution.

To continue with the current Bureau Service at a cost of c£12k per annum, which includes monitoring, reviewing and reporting in respect of utilities consumption, which will provide a solution to data required to compile carbon footprint statistics and identify high usage area.

Appendices

Appendix 1: LASER’s current flexible frameworks

Appendix 2: Example of Bureau reporting

Background Documents

None

Supporting Information

1.	Introduction

1.1	Using the Purchase in Advance, (PIA), model LASER has delivered on or below average wholesale electricity prices, this is detailed in the table below for both gas & electricity.

All site volume purchased prior to delivery for a 12-month supply period. Pass through charges will be added to arrive at the delivered price in pence per kilowatt hour. The delivered price is fixed for the 12-month period. Key benefits include:

Protects against any market increases during the delivery period

More buying opportunities are available compared to short-term strategies.

Premiums are kept to a minimum.

We aren’t tied to suboptimal pricing when markets change.

However, in order to adopt this model, the Council will need to seek evidence / reassurance that the current energy prices are not artificially high following the market turbulence over the last 18 months.

Power – 250 day benchmark
Purchase	Period	Achieved Price	Market Average	% Difference
In Advance (PIA)	Oct 16 to Sept 17	39.65	39.23	1.07%
Oct 17 to Sept 18	41.44	44.46	-6.79%
Oct 18 to Sept 19	46.11	52.04	-11.40%
Oct 19 to Sept 20	50.51	51.65	-2.20%
Oct 20 to Sept 21	43.44	45.35	-4.22%
Oct 21 to Sept 22	59.92	114.08	-47.48%
Average %	-11.84%

Gas – 250 day benchmark
Purchase	Period	Achieved Price	Market Average	% Difference
In Advance (PIA)	Oct 16 to Sept 17	37.77	37.08	1.86%
Oct 17 to Sept 18	41.99	45.69	-8.10%
Oct 18 to Sept 19	49.78	54.75	-9.08%
Oct 19 to Sept 20	53.8	49.98	7.64%
Oct 20 to Sept 21	36.32	34.96	3.90%
Oct 21 to Sept 22	55.28	106.82	-48.25%
Average %	-8.67%

Source LASER Energy 2022

1.2	Using the PWP model, LASER will purchase a proportion of the required volume prior to delivery for each 6 month supply period. The remainder is then purchased within this period. The full year price will be based on a ‘reference price’ averaged for the entire year. At the end of that period a reconciliation exercise would occur whereby Torbay Council would be credited, dependant on the cost of energy purchased within the remaining period. Key benefits include:

PWP provides the chance to reduce costs if markets fall within period.

By offering an extended purchase window, more buying opportunities are available compared to more short-term and purchase in advance strategies.

Premiums associated with securing a fixed price are kept to a minimum.

By purchasing within period, you aren’t tied to suboptimal pricing when markets change.

It is worth noting that if Torbay Council decide on a particular model, this does not mean we are tied into that model for the length of the contract. A minimum of 6 months’ notice must be given to change models for the forthcoming year.

1.2	LASER has mitigated against a large proportion of the market extremes through flexible procurement. However, it is important to note that prices remain elevated compared to levels prior to the energy crisis and the view will continue to vary where baskets are not 100% purchased.

Electricity and Gas Forecasts:

1.3	Torbay energy spend with LASER over the last 3 years has seen a significant increase due to the turbulent market. The spend below includes both electricity and gas charges for the sites listed on our portfolio and includes c£42k management and procurement costs per annum split between the Council and participating schools.

Gross	Net
2020/21	£1,486,356	£1,252,473
2021/22	£1,611,659	£1,357,511
2022/23	£2,696,012	£2,264,103

There are a number of key elements that make up the billable rate. For gas a high percentage is still made up of wholesale energy cost, but electricity has seen other cost factors increase such as network costs (distribution and transmission) and green levy. This has reduced the impact that wholesale electricity changes may have in the billable rate. Over the coming years gas non commodity costs will also see increases whereas electricity non commodity costs are expected to stabilise.

The graph below shows the wholesale energy market had been relatively stable until the war in the Ukraine causing price volatility. Pass-through costs such as network and green levies have also increased significantly leading to high gas and electricity price increases especially in electricity. We are unable to influence the pass-through costs of the billable rate, the pass-through costs are fees paid for the operation and maintenance of the supply networks. These charges are approved each year by the energy regulator.

The South-West electricity distribution charges are higher than the national average, this is due to the electricity being transported over longer distances, using more of the transmission system to reach them.

Graph: Source LASER Energy 2022

2.	Options under consideration

2.1	Procurement Options

Advantages	Disadvantages
Continue the existing model of procuring energy (gas & electricity) requirements through a Public Buying Organisation (PBO)	Aggregated volumes will give more purchasing flexibility	Loss of control with public body buying our gas and electricity.
Continued improved monitoring of markets will better inform purchasing decisions.	Issues in pricing transparency of PBO charges.
Governance board in place with third party specialist organisation auditing and challenging.	Delegated authority would need to be given to the PBO to purchase energy on our behalf (although still within Public Sector). This is already taking place with Torbay energy contracts.
Direct award can be made to a PBO subject to authorities being satisfied that it meets their own financial regulations and VFM	Cost of change unless incumbent.
Central government are encouraging authorities to join PBO energy consortiums.
PBO’s undertake UK compliant competitive procurement exercises with regulated energy providers.
PBO competitive procurement exercise to open market tests the market and demonstrates VFM.
Using aggregated volumes to drive cost savings and innovation.
Any profits reinvested into public services.
LASER undertake invoice validation on behalf of Torbay Council thus ensuring incorrect supplier invoices are held and queried for errors.
With the appointment of a Contracts Officer in November 2022, the supplier relationship has significantly improved reducing delays in queries and site additions.
LASER monitors overall performance of Suppliers. Service Level Agreements (SLAs) have been drawn up, with Key Performance Indicators (KPIs) to monitor performance. Regular reviews of supplier operation will be carried out during the framework’s lifespan through reporting and regular meetings, which form our supplier management program.
Carrying out a full OJEU procurement including utility brokers	Allows all organisations both public and private to bid providing greater competition and opportunities in delivering savings and innovation.	Delegated authority may need to be given for the private company (if successful) to purchase energy on Torbay’s behalf. Torbay need to be comfortable with providing this.
Limited governance on utility brokers compared to PBO’s & the regulated energy companies.
Brokers would apply a profit administration margin and would need to transact with one of the regulated energy companies who in turn would apply a management fee.
Appointing a broker can involve extended times in resolution of account management queries.
Pricing transparency with multiple suppliers in the chain is often difficult to obtain and monitor.
Time and resource required to undertake the procurement and cost of change.
Public authorities tend to have few HH sites but a high number of NHH which are less attractive to the market being low usage but still requires maintenance and support. Whereas a HH site is high volume and value which is more appealing to the market.
The time and resource required to research, identify if the frameworks provide value for money. Potential cost of change with changing meters over to new suppliers/providers.
Procure using a PBO framework	Using a PBO framework would be OJEU compliant without Torbay having to run a further procurement process.
To establish a framework the PBO would have been through an OJEU compliant competitive process to demonstrate VFM.
Mutual public sector interest in supporting public bodies.
Profits are reinvested within the Public Sector.
Energy volumes aggregated to give better purchasing volumes.

2.2	PBO Frameworks Available

PBO Frameworks available	Advantages	Disadvantages
Crown Commercial Services (CCS) – RM6011 CCS have two frameworks in place with two suppliers: Electricity - EDF Gas – TotalEnergies Gas & Power	UK procurement regulations compliant framework allowing for direct call off.	Change of supplier for electricity means cost of change plus additional administration and contract management. Taking away the advantages of a single point to call for any gas and electricity queries. There would be switching costs, time, resources and potential disruption to services.
Eastern Shires Purchasing Organisation (ESPO) ESPO framework consists of two frameworks one for the supply of gas the other for electricity. The supplier for both is Total Gas & Power Ltd.	UK procurement regulations compliant framework allowing for direct call off.	Change of supplier for electricity means cost of change plus additional administration and contract management. Taking away the advantages of a single point to call for any gas and electricity queries. There would be switching costs, time, resources and potential disruption to services.
Yorkshire Purchasing Organisation (YPO). YPO framework consists of two frameworks: Electricity – Npower Gas – Corona.	UK procurement regulations compliant framework allowing for direct call off	Change of supplier for gas means cost of change plus additional administration and contract management. Taking away the advantages of a single point to call for any gas and electricity queries. There would be switching costs, time, resources and potential disruption to services.
LASER (Kent County Council) LASER framework consists of two frameworks although they act as the single point of contact with NPower and Total Gas & Power acting as sub-contractors. Electricity - Npower Gas – Total Gas & Power	UK procurement regulations compliant framework allowing for direct call off. No switching costs, time, resources or potential disruption to services. Currently level of service is good with Torbay and other Councils also content. LASER Identified £978.2k per year cost avoidance by being on a PBO framework and additional benefits offered by LASER.	None noted

3.	Financial Opportunities and Implications

3.1	Benchmarking Energy Costs

It is very difficult to benchmark energy costs especially for electricity. There are many variable factors that make up a meter point bill. To do an accurate benchmark an exact like for like comparison would need to be made at the same point in time against that same meter.

However, there are elements of the billable rate we are able to compare and contrast as detailed below.

Organisation	Call off method	Outcome of investigation	Recommendations
Crown Commercial Services (CCS)	Framework	Costs not made available. Must go with price offered. Deal direct with energy supplier no direct account management support from CCS. Different approach to energy baskets.	Not able to benchmark price. CCS do charge a flat supplier spend rebate fee assumed to be their standard 1%. In addition, there will also be a cost to serve fee applied by CCS or the contracted supplier. LASER charge around £42K per annum management fee. This is based on current volumes.
The Yorkshire Purchasing Organisation (YPO)	Framework	Costs not made available. Must go with price offered. Deal direct with energy supplier no direct account management support from YPO. Different approach to energy baskets.	Not able to benchmark price. YPO do charge a flat supplier spend rebate fee assumed to be their standard 1%. In addition, there will also be a cost to serve fee applied by YPO or the contracted supplier.
Eastern Shires Purchasing Organisation (ESPO)	Framework	Costs not made available. Must go with price offered. Deal direct with energy supplier no direct account management support from YPO. Different approach to energy baskets.	Not able to benchmark price. ESPO do charge a flat supplier rebate fee but not clear what this is. In addition, there will be a cost to serve fee for managing the contract.

4.	Legal Implications

4.1	No legal implications

5.	Engagement and Consultation

5.1	No formal engagement or consultation process has been carried out due to the specialised nature of the commercial energy market and purchasing arrangements, which would make is difficult to hold effective resident and/or public consultation.

The core focus of this paper is to recommend the most effective commercial vehicle to source Torbay Council’s energy and is therefore not focussed on energy usage or carbon footprint which would require public consultation.

6.	Purchasing or Hiring of Goods and/or Services

6.1	The frameworks have been procured in accordance with the Public Contracts Regulations of 2015, as amended (PCR2015). Kent County Council remains the Contracting Authority for all LASER contracts. This permits a public body to access LASER’s frameworks and services without the need to run a separate procurement process to do so. The contract and award notices can be viewed as follows:

Y22008 Flexible Procurement and Supply of Natural Gas, Daily Metered and Non-Daily Metered with Additional Services:

Y22009 Flexible Procurement and Supply of Half Hourly (HH), Non-Half Hourly (NHH), Metered and Unmetered (UMS) Electricity with Additional Service

6.2	The tender requirement for flexible procurement was thoroughly reviewed, in conjunction with customer feedback, prior to release with the aim of providing a framework that maintained the positives from previous framework arrangements but expanded certain categories that were important to our customer base and essential to allow ongoing improvement.

The 2024 -2028 Framework has a notable shift in emphasis with regards to:

Social value

Net zero

Contract/performance management

6.3	Primary awarded suppliers for the contract are:

Gas Y22008 - Total Energies

Total Energies provided a thorough response and supported many of their responses with samples and evidence. They were the overall first place supplier and scored particularly well in the following 3 areas:

Supplier Management Fees – quantitatively scored and Total Energies were in first place.

Social Value - A very good response which gave full recognition of the importance of social value with time and money committed going forward as well as a list of previous activities. It is evident that Social value has played a big part of Total’s setup for some time and examples are provided across the board.

Procurement and Trading – This was a good response that addressed the demands of the practicalities behind flexible procurement.

Electricity Y22009 – Npower

This was a well-presented tender submission by npower, with relevant additional attachments and some high-scoring categories in:

Supplier Management Fees - quantitatively scored and npower were in first place. LASER Flexible Procurement Framework Information Pack

Social Value - A full and encouraging response which gave full recognition to the importance of social value with time and money committed going forward. A well laid out plan is provided with 4 key focus areas supported by KPIs to ensure progress.

Procurement and Trading - This was a very good section for npower with the trading process in particular being covered thoroughly.

6.2	Social Value (Tender Weighting: 10%)

LASER’s procurement requirement encompasses economic, environmental and social side of social values and highlights the framework providing an opportunity for suppliers to contribute to the expansion of social value. The projects are not specified but instead emphasis is placed on the geographical spread and range of customers and the importance of delivering value beyond the normal scope of the framework is noted. An essential part of the requirement relates to the ongoing reporting and appointment of a supplier contact responsible for ensuring continuous delivery of value throughout the contract period. A Social Value Plan is to be delivered by each supplier in January 2024.

Supplier questions concentrated on what they can deliver to customers beyond the normal scope of the framework and also how they could demonstrate that their own organisations promoted and succeeded in their goals for social value delivery.

Supplier responses were encouraging with regards to the ongoing internal achievements relating to social value but their offering of volunteer days and funding towards projects linked to customers is also going to have a significant positive outcome. Depending on customer uptake, a pot of up to £130k per annum will be available to spend across initiatives nominated by LASER customers.

Supplier responses and level of commitments to Social Value were encouraging, and includes:

Offer of volunteering days and funding towards LASER customer projects

A pot of up to £130k pa to spend across customer initiative.

7.	Tackling Climate Change

7.1	Net Zero (Tender Weighting: 7%)

Net Zero now has a dedicated section in the requirement rather than being part of additional services.

Net Zero Carbon services to help to:

Review our current carbon footprint and establish a plan to achieve net zero emissions.

Reduce our carbon emissions through compliant procurement solutions and hands on project management of energy efficiency and renewable energy projects across your portfolio.

Replace remaining sources of carbon emissions through renewable electricity and green gas procurement, Power Purchase Agreements and renewable energy investments, such as customer owned solar farms.

7.2	Bureau Service

A suite of 4 standard reports will be issued on a monthly basis to assist with cost, consumption and CO2 monitoring.

A suite of site and meter level reporting will be available via a web portal, allowing customers to download and extract invoice and consumption data. These widgets include:

Two-week comparison charts – comparing usage, cost or CO2 for the current week with a previous week.

Utility comparison chart – a pie chart displaying usage, cost or CO2 for each utility at the site.

Two year comparison chart – a chart comparing usage, cost or CO2 for the current year with the previous year.

Top sites percentage change.

Top sites per unit of comparison.

Invoices are validated using a 20+ point validation process which provides assurance that the invoiced consumption is in-line with expectations and helps to remove the uncertainty of estimated billing.

Additional Reporting (Gas, Electric) Includes:

Carbon Reporting

LASER will support our carbon reduction initiatives by collecting, collating and presenting carbon data in a format to meet our needs.

Example of Electricity Carbon Emissions Report.

8.	Associated Risks

8.1	If no organisation is contracted to deliver the service, Torbay will move on to default rates which would see a significant increase in energy costs as we are not in a position to undertake a tender process independently of the Devon Energy Group.

9.	Equality Impacts - Identify the potential positive and negative impacts on specific groups

Positive Impact	Negative Impact & Mitigating Actions	Neutral Impact
Older or younger people	There is no differential impact
People with caring Responsibilities	There is no differential impact
People with a disability	There is no differential impact
Women or men	There is no differential impact
People who are black or from a minority ethnic background (BME) (Please note Gypsies / Roma are within this community)	There is no differential impact
Religion or belief (including lack of belief)	There is no differential impact
People who are lesbian, gay or bisexual	There is no differential impact
People who are transgendered	There is no differential impact
People who are in a marriage or civil partnership	There is no differential impact
Women who are pregnant / on maternity leave	There is no differential impact
Socio-economic impacts (Including impact on child poverty issues and deprivation)	There is no differential impact
Public Health impacts (How will your proposal impact on the general health of the population of Torbay)	There is no differential impact

10.	Cumulative Council Impact

10.1	None

11.	Cumulative Community Impacts

11.1	None

Appendix 1: LASER’s current flexible frameworks have achieved significant cost avoidance for Torbay Council:

In total, LASER’s flexible frameworks have reduced the Torbay Council energy spend by £978.2k per annum. The new frameworks retain all the features and benefits of the existing frameworks in addition to a number of key enhancements with the new framework:

Enhanced social value requirements with a pot of up to £130k per annum to spend across initiatives nominated by LASER customers.

A suite of options to help your organisation achieve your net zero ambitions including:

Purchasing energy from Power Purchase Agreements

Sleeving in electricity from a customer’s own Power Purchase Agreement

Selling electricity and gas from customer owned generation

Implementation of Demand Side Response and Energy Efficiency projects LASER Flexible Procurement Framework Information Pack

Supply and install of on-site renewables or heat decarbonisation projects.

There is further support LASER can offer to assist your organisation to reach net zero.

Additional protections against supplier failure – the option to switch between suppliers on the framework in the event of a supplier failing to deliver their contract commitments or going out of business.

Enhanced trading strategies – the ability for LASER to amend and introduce new trading strategies to meet bespoke customer requirements and changing market conditions.

Additional management information requirements – increased requirements on suppliers to provide meaningful management information to customers.

Additional supplier Service Level Agreement requirements including enhanced KPIs and Poor Performance Remedies

Information provided by LASER 21/04/2023.

Appendix 2: Example of Bureau reporting (illustration only and not actual data – first report due June 2023)