Breaking down the bill
How two housing associations are saving significant sums on communal energy procurement
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Services required: Energy procurement and bill validation
Estimated cost savings: £1.35m over 36 months
Energy procurement and management for communal areas is costly and time-consuming for many housing associations. When 19,000-home retirement housing specialist Hanover Housing made the decision to change energy broker, it was for two main reasons: a poor level of performance delivered by the previous provider and the need to deliver value for money for its tenants.
Luke Jackson, energy efficiency manager at Hanover Housing, says that because it procures energy for those over the age of 55 who are “economically vulnerable”, it is vital that the housing association reduces energy costs where possible, to ensure that tenants are not forced into a choice between heating and eating.
To this aim, Hanover has invested £2m over the past two years in low carbon and renewable heating systems, as part of a longer-term goal to decrease costs from gas bills. However, over the short-to-medium term, Mr Jackson recognises a need to be “smart in the energy market”, especially because the association has an annual community energy spend of £4-5m.
To deliver this strategic objective to provide value for money, Hanover took the decision to join forces with energy management consultancy STC Energy. The businesses have been working together since early 2013 and so far the cost savings achieved on communal area energy costs over that period of time have been significant, having been estimated at £1.35m over 36 months.
“The relationship we have had with STC has helped us to reduce our customers’ communal gas costs by 30% over the past two years, which is absolutely massive,” says Mr Jackson. “We also reduced communal electricity costs by 8% over that period as well.”
This has been achieved in part thanks to STC’s bill validation service. The invoices that Hanover receives are run through STC’s systems, which enables the association to identify where it has been overcharged, or whether the bill is based on an estimated figure. This allows Hanover to act and get those meter readings registered correctly so that customers are paying as close as possible to the actual amount of energy they are using.
“As you can imagine, having almost 20,000 properties at over 600 locations in England and Wales, we get lots of individual queries about energy meters and levels of consumption,” says Mr Jackson. “STC helps us to work through that and get the evidence that we need to put any issues right.”
Another service that STC provides for Hanover is Official Journal of the European Union-compliant communal energy tendering. As the landlord’s energy contracts are so large, it is legally required to comply with public sector procurement rules. STC takes on the responsibility of managing the process, releasing notices and running tenders, which has streamlined the process for Hanover, says Mr Jackson.
“[Energy] is a technical specialism within procurement, and we do not have that level of knowledge within the organisation. STC has helped us to outsource that specialism, so that we do not have to take on the risk internally,” he concludes.
Homes: More than 35,000
Services required: Energy procurement and bill validation
Estimated cost savings: £323,000 in 2015/16
In 2014, A2Dominion took the decision to review the procurement of its communal energy supply and put the service out to tender.
Although the landlord had an adequate relationship with its existing supplier, it was becoming increasingly concerned that the level of transparency in billing provided by the broker was not up to its preferred standard, according to Konrad Adamski, group procurement manager at 35,000-home A2Dominion.
“A lot of brokers work on the basis of receiving commission from energy suppliers,” Mr Adamski notes. A2Dominion began working with STC Energy in June 2015 and a key factor in the decision to use it was because it provided a more ‘direct’ service.
“From a supplier point of view, we have confirmation that energy supply contracts are free from any management fees and commission to the broker,” he says. “We now know what we are paying for - we pay the energy supplier directly for the provision of energy and we pay the broker directly for the service they provide, so there are no grey areas.”
Another aspect of the service provided by STC that impressed Mr Adamski during the tender process was its online ‘portal’ for bill validation, which he said helped it stand out against other similar energy providers.
“Other brokers were very much selling solely on the savings they could gain from procurement, from sourcing energy contracts, but not so many were that strong in terms of the support they could provide around the validation and the reporting,” he says.
“Our accounts payable team and procurement can go into the portal and access all the queries that are in place for our suppliers, and we can see the status of those queries on the bill; it’s all there, up-front, rather than having to be exported from one system and put into an Excel sheet.”
Support for A2Dominion is not solely provided through the portal, says Mr Adamski; it’s also backed up by a key account manager at STC, who is available to assist with any queries, or help manage the relationship with the supplier.
In terms of procurement, Mr Adamski says the association was looking for a provider which could fully manage the procurement process.
This is because energy procurement is very different to other areas of buying. This is especially true because “there is a lot of data that needs reviewing and making sense of” before you can identify what the tariffs represent in terms of value for money and hidden charges, for example.
Another consideration for Mr Adamski and A2Dominion in deciding on a broker was working with a supplier that was “pro-active” in ensuring that the best value energy prices are sourced.
“Throughout the procurement process we get regular updates of what market prices are doing, we get a narrative each month in terms of what’s happened over the previous month and what might be happening in the next month,” he says. “That’s all really useful stuff in helping us be informed in terms of savings that we’ve achieved.”