ANNAPOLIS – The University System of Maryland could better manage increasing energy costs by signing long-term contracts with providers, a Board of Regents panel is recommending.
“We have a huge problem with rising energy costs, just as homeowners and businesses do,” said Regent Jim Rosapepe, a member of the Regents’ Finance Committee.
The committee will recommend that the full board allow the largest institution in the system, the University of Maryland, College Park, to seek out natural gas contracts that could affect all USM institutions.
The system is expected to spend upwards of $25 million next fiscal year on natural gas and roughly $20 million on electricity. Meanwhile, predictions show costs for both energy sources rising, with natural gas rates estimated at 38 percent higher than last year.
One of the four methods of curbing “volatile” natural gas costs that UMCP included in its proposal involved buying 25 percent of all estimated gas needs in advance, through a long-term and fixed-price contract. The contract could be binding for as long as seven years.
By locking down prices, UMCP hopes to avoid any spikes in natural gas market prices.
“The objective is to be protected. We’ll miss the peaks, but we don’t take advantage of the bottoms of the valleys,” explained Frank Brewer, the associate vice president for facilities management at UMCP. “Buying forward has been beneficial to the University System in the past.”
Regent Richard Hug, also a panel member, said that, given recent energy trends, UMCP should even aim to pre-pay up to 40 percent of estimated natural gas requirements to hedge more losses. His suggestion will be reflected in the proposal and brought to the attention of the full board.
Any contract that UMCP is able to arrange would be available to other USM institutions.
UMCP’s current contract, which hedges natural gas costs through buying natural gas at market prices established by the New York Mercantile Exchange, is scheduled to expire on June 30, 2007. John Pocari, UMCP vice president of academic affairs, said the university anticipates saving $7.5 million during fiscal years 2006 and 2007 through this contract.
The committee also reviewed a proposal to allow UMCP to seek out contracts that would supply electricity to all USM institutions. Using the purchasing power of the 13-member institutions, UMCP hopes to cut costs and get more competitive rates.
It was noted that institutions could opt out of the contract bid, if they chose.
The University System of Maryland holds a unique position as an energy consumer, Pocari explained, because its electricity needs are “fundamentally different” than the average business.
For most companies, electricity usage peaks during the day and tapers off in the evening. In a university or a college, there is a need for energy spread throughout the day, as academic buildings require power during the day and residential buildings need it at night.
Pocari explained that this makes the University System of Maryland more appealing to suppliers. Collective buying has been a success in the past, he said, as a contract with Reliant Energy has saved USM institutions an estimated 10 percent of total energy service costs.
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