Group Purchasing Saves Heating Dollars

Group Purchasing Saves Heating Dollars

Depending on your location and the crops you grow, heating fuel may be one of our most significant input costs. Some greenhouse operations in Colorado and California are mitigating that expense through a program that provides group purchases of natural gas.

Greenhouse Services Foundation, Inc. (GSF) is a non-profit 501 © (5) corporation that provides group wholesale purchasing of natural gas supply for greenhouses and agriculture-related business. Combining natural gas volume requirements from multiple facilities improves purchasing power and those savings are passed on to the program participants.

GSF maximizes savings by handling as much of the administration as possible.

“Having an active and involved board, as well as natural gas industry managers, has allowed the program to evolve and respond effectively to changing natural gas dynamics,” says Tagawa Enterprises’ Dave Tagawa, an early GSF board member and past president. “This unique program has proven to be beneficial for the growers.”

Group Purchases Step-By-Step

Here’s how the program works:

• Current areas of physical supply operation include California (PG&E: non-core) and Colorado (Xcel Energy).

• A volunteer board of directors provides oversight of the program. board members are owners or representatives from both Colorado and California participating growers.

• Natural gas industry professionals with more than 40 years of combined experience administer the program.

• Each grower signs a natural gas supply contract with GSF for full volume requirements.

• Each participant has an annual credit support requirement based upon peak monthly usage and pricing. Sixteen percent of estimated winter gas cost is posted as a cash deposit. This is held through the heating season and returned in the late spring and early summer months as a credit on the invoices. The balance of the annual credit support can be covered with a letter of credit, personal guaranty or cash. In lieu of the letter of credit or personal guaranty, monthly prepayment arrangements can be made for participants.

• Pricing is calculated monthly from the weighted average cost of gas. That month’s purchases and any pipeline imbalance trades are included in the calculation. The treasurer reviews and approves monthly pricing before invoices go out.

• Each participant has access to a special section in the GSF website, gsfi.net, where they can view volume history data for each meter, current natural gas market commentary and indicative future pricing.

One of the most unique features of the program is active supply procurement. Given the volatility of natural gas prices and weather demand swings, the supply portfolio for each area is made up of monthly, daily and term purchases. The program administrators are in the market daily and purchase decisions are based upon current usage, prices, weather forecasts and monthly balancing. This flexibility allows purchases to be made based upon the best economics for the group at the time.

Over the last several years, the board approved locking up a portion of the winter supply requirements at a fixed price. This smooths out price swings that can occur during severe winter storm periods.

Another feature of the program is price flexibility for large users. An individual grower may want a different fixed price level, term or volume than the board established. The program allows a large end-user to set its own volume and price levels and have the program administrator procure that supply on their behalf.

Benefits Beyond Direct Savings

There are numerous benefits for growers in the program. First, of course, is savings versus the local utility tariff sales rates. From October 2008 through June 2013, including all program costs, growers in the program experienced a combined savings of more than $3.4 million. This breaks down to be $0.72 per dekatherm (dth) for Colorado participants and $0.24 per dth for California participants.

Program administrators actively monitor the natural gas market on a daily basis and make procurement decisions based on keeping costs at a minimum, not to make extra margin.

“The fact that supply volumes, prices and imbalance trades are independently reviewed gives me confidence that my monthly pricing is correct,” says California Pajarosa’s John Furman.

Depending on the pipeline system, GSF will hold the transportation agreement or act as agent to manage the participants transport agreement and, if necessary, their existing supply contract. More time can be focused on the greenhouse business, eliminating the need for committing resources for market research or even employing a full-time energy manager.

The administrators can also act as agents for participants in other natural gas matters such as filing claims associated with class action lawsuits or finding a gas supplier on other pipeline systems.

Can Group Purchases Work For You?

Local utility rules, regulations and rates vary across the country. However, if growers are currently purchasing transport natural gas supply, it would be worth exploring. Here are a few considerations:

• On the local utility, determine how many growers could be aggregated and what their monthly/annual usage would be. Your local grower association may be able to help start the process with its existing members. There are economies of scale, so more volume is better.

• Check state and utility rules to see if licensing is required.

• Review the natural gas tariff sales rate structure with your local utility and verify that adequate savings can be realized from a third-party supply program.

• Identify transport agreement options. Understand the scheduling and balancing rules and confirm billing cycle(s) and sales tax responsibility.

• For program management, determine what structure and oversight would work best. Do not forget about legal, accounting and banking services.

• With credit, the structure of the program will determine which entity has the credit risk. Identify workable/reasonable options to address credit risk, such as cash deposit, letters of credit, personal guaranty or prepayment.

If such a program is impractical to work in a given area, growers should at least consider going out for bid as a group to see what the market can offer.

Leave a Reply

More From Finance/Operations...
Trays move on an overhead conveyor to the end of the production line, where workers carefully pack the cleaned, sized, graded, counted and sorted Calla tubers

November 29, 2016

Texas Judge Halts Overtime Rule; Here’s What It Means For Greenhouse Growers

According to Craig Regelbrugge at AmericanHort, the injunction against the overtime rule is welcome news for horticulture.

Read More
Craig Regelbrugge, senior vice president of AmericanHort - Feature image

October 25, 2016

Contribute To HRI To Help Honor Industry Advocate Craig Regelbrugge

In honor of Craig Regelbrugge's extraordinary contributions to the horticultural industry, AmericanHort and the Horticultural Research Initiative created a special HRI endowment fund in his name: "The Craig Regelbrugge - Advocates for Horticulture Fund."

Read More
Lucas Greenhouses Shipping

October 6, 2016

Greenhouse Shipping Costs Down, But Concerns Remain

Lower gas prices have led to lower shipping costs for some growers, but many continue to seek out ways to become more efficient.

Read More
Latest Stories
Trays move on an overhead conveyor to the end of the production line, where workers carefully pack the cleaned, sized, graded, counted and sorted Calla tubers

November 29, 2016

Texas Judge Halts Overtime Rule; Here’s What It Means F…

According to Craig Regelbrugge at AmericanHort, the injunction against the overtime rule is welcome news for horticulture.

Read More
Craig Regelbrugge, senior vice president of AmericanHort - Feature image

October 25, 2016

Contribute To HRI To Help Honor Industry Advocate Craig…

In honor of Craig Regelbrugge's extraordinary contributions to the horticultural industry, AmericanHort and the Horticultural Research Initiative created a special HRI endowment fund in his name: "The Craig Regelbrugge - Advocates for Horticulture Fund."

Read More
Lucas Greenhouses Shipping

October 6, 2016

Greenhouse Shipping Costs Down, But Concerns Remain

Lower gas prices have led to lower shipping costs for some growers, but many continue to seek out ways to become more efficient.

Read More
Pansy ‘Cool Wave Blue Skies’ (Wave)

September 20, 2016

PanAmerican Seed Settles Alleged Trade Sanction Violati…

PanAmerican Seed, a division of Ball Horticultural Co., has been charged with violating trade sanctions to Iran over a number of years. According to a release from the U.S. Treasury department, PanAmerican Seed made 48 indirect sales of seeds to two Iranian distributors. The company shipped the seed to consignees based in countries in Europe and the Middle East. PanAmerican Seed’s customers then arranged for the re-exportation of the seeds to Iran. The release states that the Office of Foreign Assets Control (OFAC) determined PanAmerican Seed did not voluntarily self-disclose the alleged violations to OFAC, constituting an egregious case. “We believe that the settlement was extreme; however the alternative was to litigate with the U.S. government, which would take months, if not years,” says Todd Billings, Chief Financial Officer for Ball Horticultural Co. When asked what Ball Horticultural Co. has done to ensure that violations to trade sanctions do not […]

Read More
young-plants

September 20, 2016

The Top Young Plant Growers, And Four Critical Challeng…

In Greenhouse Grower’s 2016 Top Young Plant Growers Survey, growers discuss the latest challenges and opportunities in fulfillment, shipping, labor, and crop protection.

Read More
Cavicchio Greenhouses

September 6, 2016

Cavicchio Greenhouses Wins Inaugural Sustainability Awa…

The Sudbury, MA, growing operation sustains more than 250 acres of annuals, perennials, and nursery stock, with a number of practices to mitigate its impact on the environment.

Read More
Charlie Hall Feature Image

September 6, 2016

10 Insights From Charlie Hall’s Green Industry Economic…

With the uncertain current economic climate, Texas A&M economist Charlie Hall says now may be the perfect time to invest — as long as you do it smartly.

Read More
Penn State Plant Bud

August 23, 2016

AmericanHort Is Helping Plant Importers Adjust To New R…

A report from Craig Regelbrugge at AmericanHort says the government is implementing a streamlined system for imports, in which all required data will be submitted electronically through a single window.

Read More
Plug Connection Assortment

August 9, 2016

AmericanHort’s Plug And Cutting Conference Will Feature…

This year’s conference, which takes place Sept. 19-21 in Carlsbad, CA, features discussions on water, pest and disease control, and production inputs, as well as a biocontrols workshop and tour of local cuttings facilities.

Read More
Cannabis In Greenhouse

July 27, 2016

The Top 5 Myths About Cannabis Production Cleared Up

There is a lot of misleading information going around about growing cannabis. Industry insider James Lowe makes sure you know the truth about cannabis production.

Read More
Joe Bischoff

July 26, 2016

SAF Partners With Cornerstone Government Affairs To Adv…

A new partnership between the Society of American Florists (SAF) and Cornerstone Government Affairs ensures that SAF will continue its highly effective work advocating for issues that affect the floriculture industry. “SAF and Cornerstone together provide experienced voices on Capitol Hill to protect our growers’ interests,” says SAF CEO Peter Moran. “We’ll continue to move major policy priorities forward on behalf of small business and agriculture.” Cornerstone is a public affairs firm specializing in government relations, strategic consulting, and advocacy. Its team of more than 50 senior professionals includes former senior professional staff from both authorization and appropriations committees and the U.S. Department of Agriculture (USDA), as well as veterans of the horticulture industry. Agricultural and horticultural issues of primary concern to SAF members include access to labor, immigration, crop protection, international trade and other matters related to the day-to-day operations of growers. Before she retired this year, SAF lobbyist Lin […]

Read More

July 26, 2016

AFE Releases New Videos Highlighting Industry Successes

The American Floral Endowment (AFE) recently released five new videos, created to highlight floriculture successes through industry collaboration, support, and participation. “Each video shares real stories from industry members on career development through scholarships and internships, and true examples of research solutions that have shaped how the industry operates today,” says Laura Shinall, President of Syndicate Sales, Inc., and AFE Public Relations and Development Chair. “We’re excited to be able to share some great success stories in an effort to increase industry participation.” The introductory video “Heard of the American Floral Endowment?” helps educate those who aren’t currently aware of AFE’s programs, while other segmented videos (retail, wholesale, grower) share how Endowment programs complement each group and why it’s so important that everyone in the industry participates: Retail Florists Share Why They Turn to AFE New Resources for Floral Wholesalers and Suppliers AFE Helping Growers Profit Ready for a Career in Floriculture or Horticulture? […]

Read More
Briscoe White, Growers Exchange

July 6, 2016

The Grower’s Exchange Unlocks The Secret to E-Commerce

In the Internet era, Briscoe and Kenan White knew they had to adapt or die and specialize to survive. Here’s how they took The Grower’s Exchange online.

Read More
Brie Arthur

July 6, 2016

5 Can’t-Miss Events To Watch For At Farwest 2016

Whether it’s classes on biocontrols and gardening trends, or networking opportunities in and around the trade show floor, there’s plenty happening at Farwest 2016 in Portland, OR, in August.

Read More
Cannabis states 2016

July 1, 2016

Adult Use Of Cannabis On The Ballot In 2016

25 states have legalized cannabis and public opinion is increasingly positive. Here’s where things may be headed as we move toward the fall elections.

Read More
Practical Software Grower Vertical

June 18, 2016

Practical Software Solutions Increases Accessibility, E…

Practical Software will demonstrate Grower Vertical, its customizable and scalable enterprise management system for the horticulture industry, at Cultivate’16 in July.

Read More
Battlefield Farms Company shot

June 14, 2016

Battlefield Farms Is A Finalist For 2016 Operation Of T…

Battlefield Farms in Rapidan, VA, is one of three finalists for Greenhouse Grower’s 2016 Operation Of The Year award and winner of the Excellence In Innovation award for 2016.

Read More

June 7, 2016

Ball Seed Offers Full Mobile Ordering Capabilities With…

The latest update for Ball Seed’s WebTrack To Go mobile app now includes full ordering capabilities for the industry’s largest assortment of seeds and plants. App users can also complete order fulfillment via seed count or package size, find product substitutions, get personalized “contact us” information, request plant tags, and more. “Upgrading WebTrack To Go to the full suite of ordering and management tools is where we’ve always wanted to be,” says Mark Morris, Director of IT for Ball Seed. “With this new roll-out, we’re keeping up with our customers on-the-go and providing them the information and access they need –- even while away from their desks.” The Ball Seed WebTrack To Go app lets customers: Check order status and shipment tracking 24-7 Access up-to-the-minute product inventory from hundreds of suppliers Place orders by seed count, packet size, and more Find product info, culture and photos when and where they […]

Read More
[gravityform id="35" title="false" description="false"]