CHICAGO – Mercy Hospital and Medical Center has saved $570,000 over three years on new energy contracts by participating in online pricing events.

Richard Cerceo, chief operating officer at the Chicago hospital, said the hospital recently signed electricity and gas contracts via a “reverse auction” process and now uses “green” energy for 10 percent of its power.

“Every two or three years we’d work through a broker and lock in energy prices for a year or two,” Cerceo said. “The concept of a reverse auction was new to us. But the online auction process was efficient because it brought more suppliers to the table and we ended up with a better deal than we would be using the traditional RFP method.”

Mercy spends approximately $2.5 million per year on electric power and $1.5 million annually on natural gas.
Practice Greenhealth introduced the hospital to online energy auctions, Cerceo said. Practice Greenhealth created a healthcare clean energy exchange (HCEE) to provide a procurement tool so that hospitals could address climate change issues.

The Arlington, Va.-based organization wants to help optimize the energy procurement process so that hospitals can realize financial savings to purchase green energy.

“At the end of the reverse auction process, our electric prices came down over 8 percent, which translates to over $190,000 savings per year,” Cerceo said. “We ultimately signed a 36-month deal with 10 percent green energy starting in March 2010.”

World Energy Solutions ran the online procurement process in which Mercy participated. The Worcester, Mass.-based firm operates online exchanges for energy and green commodities and serves various industries.
Phil Adams, World Energy’s president, said his company uses an “Anglo-Dutch” reverse-auction approach in its online auctions, which are designed to get suppliers to offer their best prices.

Energy suppliers have visibility into competitive bids, but suppliers tend to place a best and final bid during the last few seconds of an auction. Adams said this often results in suppliers outbidding themselves in order to win business.

“The graph of the price changes really tanks on the last bids,” Adams said. “Hospitals have a very sophisticatedprocurement process and are always looking to be careful with their costs. They can see the value proposition.”

Nicholas DeDominicis, director of HCEE at Practice Greenhealth, said healthcare ranks as the second most energy intensive industry in the United States, spending more than $6.5 billion each year while experiencing double-digit cost increases.

EPA research suggests 30 percent of this energy use could be reduced without sacrificing quality of care through the use of renewable sources such as solar, hydroelectric and wind power, he said.

Renewable energy tends to be more expensive in the traditional RFP procurement process, but Cerceo says the online reverse auction made going green more affordable.

“We think hospitals need to take the lead and demonstrate that we can save energy,” Cerceo said. “We’ll be at 10 percent green (this) year, but we’re looking at supporting renewable energy well into the future.”