Agenda item

[Report of the Director of Housing, Regeneration and Planning. To be introduced by the Cabinet Member for Climate Change and Sustainability.]

Awarding of the electricity and gas supplier contracts for the Council and its partner organisations. A total spend of approximately £6.2m per year.

The Cabinet Member for Climate Change and Sustainability introduced this report which sought formal approval for use of the LASER Energy Framework Agreement to administer the purchase and supply of the Council’s corporate gas and electricity contracts for the period 1 April 2020 to 31 March 2022 with the option to continue with the purchasing arrangements under a rolling forward buying commitment arrangement until 31 March 2025 (unless terminated by the Council).

The Cabinet Member noted the Council’s energy consumption represented a significant, but necessary cost to the Council. Haringey Council was committed to mitigating these costs as much as possible through flexible purchasing solutions, transactional efficiencies and energy conservation measures.

The strategy set out in this report ensured the Council reduced exposure to peaks in energy prices by spreading our purchasing over several months. In addition, the aggregation of our consumption with other public sector bodies helps reduce costs further, through economies of scale. And finally, this new contract would enable the Council to purchase green energy for a competitive price and give access to an energy efficiency advice service for all users to reduce carbon and costs.

In response to a question from the Leader, Officers informed LASER was not an acronym but just the name of the company.

Further to considering exempt information at item 30,

RESOLVED

1. To approve the use of the LASER Energy Framework Agreement to administer the purchase and supply of the Council’s corporate gas and electricity contracts for the period 1 April 2020 to 31 March 2022 (at an annual cost of £7.2m per annum) with the option to continue under a rolling forward buying arrangement up to 31 March 2025 (unless terminated by the Council) at an estimated total value of £36m.

2. To approve the use of LASER’s appointed energy framework suppliers for the supply of gas and electricity through the framework duration. The breakdown of contract spend between the appointed suppliers is estimated at; Npower (LASER Framework Y18003 - corporate electricity supplies, HRA and street lighting) at £5.2m per annum (up to £26m over 5 years), and Corona Energy (LASER Framework Y18002 - corporate gas supplies) at £2.02m per annum (up to £10m over 5 years); and to authorise the Director of Housing, Regeneration, & Planning to award the contracts and facilitate the execution, implementation and operation of the contract, including the use of ancillary services available under the contract

3. To authorise the Director of Housing, Regeneration, & planning to manage the Council’s energy purchasing strategy through price and risk. Reviewing options for alternative price risk management strategies for the supply of energy during this supply period in order to minimise risk and market volatility and obtain best value. This will be undertaken though advice of the LEP, LASER and energy suppliers.

4. To approve the use of a REGO backed ‘green’ tariff for Corporate Estate (Schools, Civic Buildings, Street Lighting etc.), as part of the Council’s commitment to carbon reduction. This will cost approximately £17k per year on top of the £5.2m electricity contract. This cost will be shared among all services who pay for electricity (Schools, Council Buildings.) The green tariff will not cover Homes for Haringey as this would require tenants voting on this policy and its implications.

Reasons for decision

Following a previous failed procurement the LEP accessed an existing LASER National framework which had been awarded in December 2018.

• Y18002 – Flexible Procurement and Supply of Daily and Non-Daily Metered Natural Gas
• Y18003 – Flexible Procurement and Supply of Half Hourly and Non-Half Hourly Metered and Unmetered Electricity

The LEP specification for transactional efficiency, online portal, budget tools, customer service and wider strategic objectives including social value and green energy were embedded as an enhanced Service Level Agreement with the suppliers for LEP members. The social benefit is secured by requiring suppliers to ensure the London Living Wage is delivered through direct employees and being worked towards through their contractors. The suppliers are also required to recognise unions and the right for workers to join them. To demonstrate the green energy supply suppliers are required to produce REGO backed certificates that demonstrate a green energy supply chain has been followed.

The contract to supply Electricity (Half Hourly – covering large electricity sites, Non-Half Hourly – covering small electricity sites, unmetered supplies and street lighting) was awarded directly to the Framework supplier following formal evaluation to ensure the enhanced SLA for LEP members could be fully delivered.

A mini-competition was undertaken between the Framework gas suppliers that assessed the supplier’s capability and price to deliver the enhanced pan-LEP SLA. Corona Energy was evaluated to be the most economically advantageous provider following this process. Full details of the evaluation is detailed in the Part II.

In utilising the proposed pan-LEP arrangements, the Council will be able access best practice energy contract arrangements as endorsed by the LEP. Implementing the new arrangements from the 1 April 2020 to:

Address the Council’s target to become carbon neutral by 2030 through:

• securing arrangements for the supply of 100% Renewable Energy Guarantee Origin (REGO) sourced energy
• deliver arrangements which facilitate on-site energy generation, demand side response, community engagement, development of district heat networks and Power Purchase Initiatives
• implement energy supply contracts that provide a one-stop route for energy efficiency, financing innovation and carbon reduction measures

Build on Value for Money and efficiencies already achieved in working in collaboration with the London Energy Project (LEP)

• achieve better budget, price and risk management through the continued aggregation of the Council’s energy supplies with the rest of the public sector portfolio managed by Central Purchasing Bodies
• adapt to the changing energy supply market, the changing makes up of energy cost and move away from a transactional relationship with the appointed energy suppliers
• implement arrangements where the supplier is required to facilitate better energy consumption data analysis to support energy efficiency measures, improved billing quality and increase efficiency of back office processes

Ensure that the Council’s Fairness and Responsible Procurement ambitions are realised.

• The Living-Wage will be applicable for directly employed and sub-contracted staff with respect to the proposed contracts.
• The providers are signatories of the Modern Slavery Act (2015) incorporating a whistleblowing policy and enabling the freedom of employees to join a trade union and not be treated unfairly because of belonging to one.
• Both providers have committed to the provision of Quality Apprenticeships under the contractual arrangements
• Both Providers have more than 250 staff and are signatories of the London Healthy Workplace Charter
• The necessity for rolling arrangements are to allow effective risk management and to accommodate decision making processes and timescales for Cabinet on extensions and terminations. Haringey Council would typically need to serve termination notice by March at least one or two years in advance of the supply period, e.g. in March 2020 to prevent a contract being delivered in April 2022. For effective management, our recommendation is that call-off contracts can roll forward with a final supply date of 31st March 2025, unless terminated by the Council, which is allowed as per recommendation number 3b).
• If the termination notice is not given the arrangement rolls forward automatically. The contracts allow us to reduce or increase our overall volume requirement each year prior to supply delivery without attracting a financial penalty. During each forward buying commitment period and contract delivery period the Council may remove Sites from the Site Schedule in the event that such Site has been sold or closed, without attracting a take or pay penalty and may add new sites to the contract under the same terms and conditions and non-energy pricing offered by the framework.

Alternative options considered

Spot Buy (Fixed Price Contracts)

This is where the Council would buy short-term contracts for a fixed price over the time period. Although there are savings that could be made, the Council would be more exposed to the vagaries of the wholesale market (a price is fixed on a single day in the year) and could pay higher off-contract prices until an appropriate new contract is in place. It is also not compliant with either Procurement Standing Orders (PSOs) or public procurement legislation. This was ruled out due to the risk of price volatility, lack of in-house expertise and the fact that this does not comply with Council Standing Orders.

Procure our own energy by direct tender

This option is possible, but it would involve a standalone OJEU (Official Journal of the European Union) tender to secure contracts directly with the selected energy provider(s) (or via a broker see option 5.3). This approach is unlikely to produce the best results due to the relatively small scale of the portfolio compared that of most large purchasing organisations. In contrast, a Public Sector Buying Organisation can obtain good wholesale prices through aggregating the demand of a large number of public sector organisations. In addition, a direct tender would require the Council to engage additional resources (skilled energy traders and additional staff for contractmanagement) and provide greater risk of exposure to energy price fluctuations. It was therefore determined as unviable.

Procure through a Private Sector based provider

The Council would require a tender for a private sector Third Party Intermediary (TPI) to procure energy supply (as Option 2), but it would need to be sure that it would be getting best value through a truly aggregated, flexible contract. Full price transparency of all costs, including TPI fees and any commission paid by suppliers to the TPI would be needed. By aggregating the Council’s volumes, the TPI could access the wholesale market on our behalf but we may only receive prices based on the supplier’s view of the market. A full OJEU tender process would be required to engage with such a provider with all the associated resource and time implications that would be entailed. TPIs may have issues regarding business continuity in the present economic climate are unlikely to be able to aggregate the Council’s volume with other customers in an OJEU compliant manner or to the same level or offer the same additional and social value as the Pan-LEP contracts. Due to this level of complexity and lack of in-house resources to deliver this, this option was dismissed.

Procure from generators

The Council could purchase electricity via an OJEU procedure from nominated generators. Power Purchase Agreements (PPAs) typically facilitate the sale of energy from the operators of small scale off site renewable generation assets including Combined Heat and Power (CHP) plant, wind turbines, solar PVs and anaerobic digestion. It is unlikely that the Council could rely solely on such a source, due to security of supply issues, but could combine such energy with that provided from a conventional supplier. As a customer, this could help increase the Council’s environmental credentials through being seen to invest in generation from low carbon and renewable sources. Depending on the type of PPA, it could also reduce the impact of power/price volatility on the organisations as it is possible to fix prices on a long-term basis (typically up to 5 years ahead).

These are usually more attractive if the electricity can be supplied from the generator directly to the user without involving the national grid (i.e. over ‘private wires’) as this reduces the amount of transmission and distribution charges payable, but a conventional licensed supplier would need to be involved to ensure there is an adequate and consistent source of supply of electricity. It would also remain necessary to make suitable arrangements for the purchase of gas and oil. This type of PPA ‘sleeping’, will be possible through the Pan-LEP arrangement.

This option was not taken forward due to the complexity, lack of market interest for the Council (we are not a large energy purchaser in the national scale), and as similar environmental outcomes can be delivered through the Pan-LEP agreements.

Generate the Council’s own energy

The Council could invest in electricity generating assets and use the output to contribute towards the supply of electricity to Council owned or operated buildings. Such as Combined heat and Power, or renewable technologies. A licensed supplier would still need to be involved to facilitate this and to ensure that the Councils still received an adequate supply of electricity. This option is available within the Pan-LEP contract and was included with the OJEU process to ensure compliance with procurement regulations. And will be delivered as the Council starts to deliver the Decentralised Energy Network (DEN) projects. But due to the high level of investment and timescales this was not taken forward.

Procure via Central Purchasing Bodies (CPB)

The Public Contracts Regulations 2015 define a Central Purchasing Body (CPB) as ‘a contracting authority which provides centralised purchasing activities and which may also provide ancillary purchasing activities'. CPBs often set up and operate framework agreements which are accessible to contracting authorities such as the Council.

There are a number of advantages to using a CPB, including better prices through economies of scale, lower transaction costs, improved capacity and expertise. A key role of most CPBs is the conclusion of framework agreements or other consolidated procurement tools. Framework agreements seek to achieve efficiency gains and greater value for money in the public procurement process using the aggregated purchasing power and expertise of CPBs that creates economies of scale in both supply and demand.

Do nothing

This is not an option as the Council and users of its buildings rely on energy to operate. It would place a requirement on schools and Homes for Haringey to procure their own energy supplier or run out of contract which is a cost with a premium.