What Power-Industry M&A Means for Fortune 500 Energy Buyers – And How To Win Moving Forward

By Paul Shagawat, Co-Founder and Managing Director, Transparent Energy

As most of you already know, on January 10^th, Constellation announced it will acquire Calpine, creating the largest power-generation company in the U.S., with a projected 60 GW of electricity-producing nuclear, natural gas, and renewable assets all under one roof.

While the merger of these energy heavyweights is breathtaking in scope and underscores the bullish demand for electricity that has literally energized the industry, it also does something that will dramatically impact large energy buyers:

It shrinks the competitive supply pool.

That is not good news for S&P 500 companies and other large entities looking to manage their energy costs and risk exposure today and in the years ahead. But it may also be the jolt they need to re-examine their energy-procurement processes – and improve them.

If You’re Not Sourcing Energy via Auctions, You’re Not Maximizing Competitive Dynamics in Your Favor

At Transparent Energy, we’ve built our business on a single, powerful premise: offer large energy buyers a safe, convenient, highly-competitive online marketplace that maximizes visibility and, through the competitive dynamics of online reverse auctions, encourages power and natural gas suppliers to bid down their prices and reduce their margins.

This approach stands in stark contrast to the approach many large energy buyers rely on, which favors retaining the incumbent (which is often Constellation or Calpine, who together serve 30-50% of the Fortune 500) in order to make contracting across multiple sites easier.

Not to say that Constellation and Calpine aren’t excellent at what they do – they are – but large energy buyers are selling themselves short by prioritizing perceived convenience over the value of healthy and productive competition.

For example, there are many other highly qualified, financially sound and vetted, retail energy providers capable of meeting the electricity load requirements and contract structures demanded by Fortune 500 companies.

And they all do business on the Transparent Energy auction platform – Constellation and Calpine included.

In fact, Transparent Energy has more than 100 suppliers registered on its platform, but for an apples to apples comparison, let’s narrow it down to 10-15 suppliers with the heft and transactional track record of companies like Constellation and Calpine.

When large energy buyers succumb to sole-sourcing their energy needs from a leading supplier or defaulting to the incumbent they lose out in many ways:

1. By not competing their load via a live reverse auction, they don’t get to see how the market is really pricing energy.
2. By not competing their load via a live reverse auction, they don’t force the incumbent or lone supplier to fight to win their business, a process that typically drives down the resulting prices 7-8% over other methods.
3. By not competing their load via a live reverse auction, they don’t get to see that lone supplier or their current incumbent shave its margins by 200-300%.

Choose to Get the Best Price in the Market

The merger of Constellation and Calpine is a wakeup call to large energy buyers: There will be one less supplier in the competitive market. And less choice will likely mean higher prices for you, and potentially more risk.

But there is something you can do about it. Fight back! The best way to do so is to bring your energy load out to competitive bid. Transparent Energy’s auction process is exacting – we’ve honed it over the course of 11,000+ successful live auction events for some of the largest companies in the U.S. We do the heavy lifting, so you don’t have to.

With an investment of just 1-2 hours of your time, Transparent Energy will bring you a highly competitive, highly liquid event (think 6-8 suppliers on average – not just the 1, 2, or 3 you may have become accustomed to – bidding hundreds of times over the course of just 15-20 minutes) that will give you price discovery found nowhere else in the market and an ability to contract easily and at a much lower rate, including much lower supplier margins, than traditional methods.

As an added benefit, you choose the winner. And even if that winner turns out to be your incumbent supplier, they will have contracted at a lower rate than what they would have offered had you negotiated with them one-on-one.

I know, because it’s a dynamic we’ve seen play out thousands of times.

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Interested in learning more about taking your load out to auction to heighten competition for your business, reduce energy costs, and manage risk? Contact Transparent Energy at LetsTalk@TransparentEdge.com.