February 2023 Volume 5

OPERATIONS & MANAGEMENT

to expire turns you into an “order taker,” a company forced to take what the market is offering at that moment vs. a company going into the market when buying conditions are most favorable, something we can help you with immensely. To illustrate some of these points, let’s look at the real-life examples of your fellowmembers. Liquidity Out West A large West Coast forging operation was intrigued by our value proposition and spoke with FIA’s CEO and President, Jim Warren, about our process. As a result, Transparent Energy presented to company leadership, won their trust, and began work immediately on a natural gas procurement. One constraint many forgers face, as did this one, is that oftentimes they operate in “illiquid” markets. Simply put, there aren’t many natural gas suppliers to engage, so forgers often settle for doing business with the incumbent supplier or sticking with the utility. For this West Coast forging operation, Transparent Energy defied the odds and brought six suppliers to the table. In a sealed-bid auction that tested four different term lengths – 12, 24, 36, and 48 months – 20 supplier bids were recorded. The competitive process drove down the winning price, with the client seeing for itself how the auction process compressed supplier margins and saved them money. As a result, the delighted client got the best price available in its market and signed the contract with the winning supplier on the spot. HedgingTheir Bets Some forging companies prefer a “managed energy product” over one that is “fixed,” meaning they want some ability to float with the market and pick their entry point based on favorable pricing opportunities as they unfold. This approach to energy management requires a more consultative approach, market vigilance, and an ability to execute quickly to lock in real-time pricing. For one forger, the solution was Transparent Energy. In this case, Transparent Energy ran a “basis” auction, pitting suppliers against each other to lock in the transportation charge portion of their energy needs, and, as in the example above, drove down the winning price accordingly. From there, Transparent Energy monitored NYMEX pricing daily, and when prices were most favorable, executed the company’s hedges, a process that required quick and seamless communication both with the client and natural gas suppliers to transact effectively. “We are very happy with the work Transparent Energy has done for us to date. They understand our energy needs and are extremely nimble, using process and technology to raise buying natural gas to an art form. Working with these guys is light years beyond what we were doing before, and the results are speaking for themselves,” said

local energy knowledge hit it hard in the wallet. Not understanding that the electricity contract it had inherited with its acquisition was about to expire, the forger found itself stuck with a floating rate – i.e., floating with the market – at a time when energy prices were rising rapidly. Through the FIA, the forger reached out to Transparent Energy, which quickly analyzed the situation and presented a fix. By rapidly developing and soliciting an RFP to area suppliers – again, in a very illiquid market – Transparent Energy made the incumbent supplier sharpen its pencil. Although only two other suppliers bid on the business, the incumbent dramatically reduced its price to keep the customer, delivering a 12% savings to the forger, or over $100,000 annually. Timing the Market for Additional Savings While the examples above all occurred in 2022, we did help a forger with plants in several states procure energy in late 2021. Natural gas and electricity prices were lower then than in much of 2022, but our auction dynamics yielded the same results: intense competition among multiple suppliers that drove down the winning price. This forger is sitting pretty, having locked in the best of the market in late 2021. But guess what? Renewals are not that far off – those contracts will end in 2024. This is important. Before working with Transparent Energy, this forging client would have considered an energy contract expiring in a year as a non-event. Things are different now. With Transparent Energy, there is already a dialogue going on. We are watching the market daily and working with the client to re assess their risk appetite and identify periods of market softness – now, for instance – that could be the trigger for their next buy, well in advance of contract expiration. Getting Started Is Easy (It’s alsoMission Critical) Energy procurement rewards the prepared. If nothing else, let this article, and the examples provided by your peers, spur you into action. Contact us now, regardless of when your energy contracts are ending, so we can help you get ready to put your best foot forward in 2023 and beyond, buying when the time is right. Note : Transparent Energy not only offers FIA members preferred pricing, but it also contributes a percentage of all FIA energy transactions to the FIERF forging foundation. Jane Seagraves, Vice President, Association and Partner Development Transparent Energy Phone: 862-210-8770 Email: jseagraves@transparentedge.com

the company’s president. Powering an Acquisition

As in many industries, M&A activity is a fact of life in forging. But what happens when you buy operations in areas of the country where you haven’t regularly done business? For one forger, a lack of

FIA MAGAZINE | FEBRUARY 2023 51