Delta stays grounded but still arrives on time with energy procurement & contract negotiations when the situation is turbulent.
SERVICE: Custom Energy Strategy, Contract Negotiations, Industry Relationships
CLIENT INDUSTRY: Aerospace
SITUATION: One of Delta’s customers in the metals industry recently made an acquisition of a company with numerous facilities in North America, one of which is located in the central Midwest with owned pipeline capacity and reservation costs in excess of $15,000 per month. The acquired company was using another energy management services firm, which conducted an RFP for this location and recommended a two year supply contract with citygate delivery using the customer’s capacity. However, the service provider neglected to notice that the customer’s capacity contract on the pipeline expired in one year, resulting in the supplier being unable to sign the transaction confirmation because the term of the deal and the accompanying asset were out of sync. In addition, there were other contract terms not aligned with the clients’ objectives, which the energy management provider did not communicate. The situation required immediate action, so rather than attempt to educate the previous service provider of the complex issues, Delta’s client turned to us for help.
Instead of simply evaluating the supplier bids, Delta began by calculating the value of the pipeline capacity owned by the customer. Through this process, Delta discovered that due to changes in demand, the pipeline capacity for delivery to the customer was no longer constrained and capacity on the open market was available at much lower prices. The customer was still under contract to purchase the capacity for one year, so Delta renegotiated the contract with the new supplier to end at that time. Delta then worked with the supplier on a new transaction confirmation for year two, with the terms of the new agreement requiring the supplier to deliver firm gas to the customer at the citygate, using the supplier’s capacity.
Delta’s supplier relationships were key to being able to amend the contract, negotiate terms which were aligned with the client’s objectives, and get the deal completed in a timely manner.
Since the new supply arrangement did not require the customer to own capacity, they were able to save reservation charges amounting to $180,000 in year two of the agreement and going forward. The supply costs did increase slightly due to the new delivery requirements, but this was well offset by the $180,000 annual savings.
Delta’s client was so pleased with the new arrangement and with the efficient manner in which we were able to get the deal completed that they moved all of the accounts from the other provider to us.