Case Studies

Negotiating Credit Requirements

MAY 2009: Energy Edge assisted a large manufacturer in Houston, TX with poor credit reduce their collateral requirements by $450,000.

Challenge

  • The client was facing financial difficulties
  • The client’s incumbent supplier was not extending any contracts, thus requiring the client to switch providers
  • The client’s poor credit limited the potential supplier pool and drove requirements for collateral from the client

Energy Edge's Value Add

  • The Energy Edge team brought a deep understanding of the credit risks a supplier faces
  • Using Energy Edge's proprietary data and analysis, the team modeled both the mark –to-market and receivables exposure each supplier faced
  • Energy Edge leveraged relationships with key personnel at the suppliers to reduce the collateral requirements
  • Energy Edge also introduced a monthly pre-payment arrangement to further lower the collateral amount

Client Outcome

  • The client was able to secure an agreement with the supplier offering the most competitive pricing and favorable contract terms
  • The collateral requirements were reduced from a requested of $900,000 to a deposit of $330,000 and about $120,000 in monthly prepayment through negotiations
  • Total collateral reductions were $450,000

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Managing Volumetric Uncertainty

JULY 2009: Energy Edge helped one of the world's largest geophysical companies avoid $70,000 in annualized settlement charges on their electricity contract.

Challenge

  • The client was forecasting a 30% reduction in consumption due to the installation of new equipment
  • Given the uncertainty around actual future usage, suppliers were not willing offer liberal monthly bandwidth provisions
  • The supplier proposals varied widely and each posed a different level of financial risk to the client

Energy Edge's Value Add

  • Energy Edge’s technical knowledge of settlement calculations enabled the team to properly analyze the differences between each proposal
  • Energy Edge quantified the risk associated with each supplier’s offer
  • Additionally, Energy Edge worked with the client to better model the forecasted usage and reduce the volumetric uncertainty for the suppliers
  • Energy Edge also negotiated alternative contract language reducing the client’s financial risk

Client Outcome

  • The client was able to secure a contract that insulated them from most of the volumetric risk while still obtaining a competitive price
  • Upon reflection of actual versus forecasted usage the client would have realized a $2.50 per MWh liquidation charge without Energy Edge's involvement
  • Annual savings approximate to $70,000

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