Municipal coffers may be a bit fuller in 2017 thanks to recent moves by an alliance of local officials throughout the state. This past month, the New Jersey Sustainable Energy Joint Meeting (NJSEM) – a group of over 100 villages, townships, boroughs, and cities – obtained natural gas supply for its members via a competitive bid process that will produce significant reductions in the price for natural gas. Through NJSEM, municipalities practice cooperative purchasing and thereby exercise their collective purchasing power in order to secure lower natural gas and electricity supply prices for government buildings. In the face of increasing pressure on municipal budgets, measures that save energy dollars on public facilities are crucial to holding the line on property taxes.
NJSEM carefully monitors the often volatile energy markets in order to identify opportunities to ‘hedge’ energy cost at favorable prices. Dips in market prices over the past several months created opportunities on which NJSEM capitalized. Although its current power supply contracts do not expire until June 2016, the NJSEM accepted bids for electricity supply in December 2015 and was able to achieve power supply cost reductions, that will kick-in beginning in June, averaging about 16%, resulting in aggregate member cost reductions estimated at about $3.8 million annually over each of the next two years. More recently, although its current natural gas supply contracts do not expire until December 2016, the NJSEM accepted bids for natural gas supply in late April and was able to hedge its gas supply prices and achieve gas supply cost reductions that will take effect at the heart of the next heating season in January 2017. The new contracts will provide price certainty for the next heating season, and will result in aggregate gas supply cost reductions for NJSEM members ranging from 10-15%.
Officially, NJSEM is a joint meeting authorized by the State of New Jersey that operates according to public bidding guidelines dictated by state laws that protect taxpayers. Bids above a sought price, otherwise referred to as a ‘Strike Price,’ are not considered. Participation in the meeting is voluntary and any member that wishes to opt-out of any individual bid may do so.
A recent proliferation of purchasing cooperatives such as NJSEM represents a paradigm shift in thinking about energy procurement. For decades, if individual local government units wished to secure a contract that would lock in a price for multiple periods of service, they would have to negotiate all of the public bidding and contract negotiation hurdles themselves. This made it difficult for all but few local units with dedicated legal and business teams to get competitive pricing. Large pools such as NJSEM, which aggregates over 100 local government entities, make this process much more efficient for individual members. The successful completion of the April 27th gas bid by NJSEM represents the latest success story for cooperative purchasing.
William Close, Sparta Township Manager and the Chairman of the NJSEM, emphasized the benefits that cooperative purchasing has produced for NJSEM members and taxpayers in participating municipalities. “The NJSEM has been proactive in seizing market opportunities, and this latest natural gas supply bid builds on past successes in protecting members against price volatility, achieving budget certainty and cost savings for our members. Since our inception, NJSEM has saved its members in excess of $20 million. “Gas Competition Means Big Taxpayer Savings For Local Governments