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McLaren Adopts Long-Term Efficiency Strategy Designed to Optimize Systems, Control Utility Costs

Case Study /

McLaren Adopts Long-Term Efficiency Strategy Designed to Optimize Systems, Control Utility Costs

McLaren Health System and Stark Tech Group identified an alternative risk management portfolio planning approach with long-term strategy to control and reduce gas spend through 2025.

Summary: Stark Tech Group has been providing engineering and project planning services for McLaren Health Care System, one of Michigan’s largest integrated, managed care healthcare organization, for the past 14 years and counting. The McLaren Health System grew from four main hospital campuses to 15 since the beginning of the partnership.

Customer Challenge: When Hurricane Katrina ravaged the Gulf Coast, McLaren Health System was impacted by the fall out of the devastation. McLaren had been procuring natural gas for its facilities through a single broker-supplier relationship. The hurricane exposed flaws with this type of buying strategy as the natural gas supply was devastated which tripled natural gas prices. McLaren called Stark Tech Group’s PRES Services team to suggest an alternative approach to purchasing their gas commodity.

Stark Solution: The team at PRES provided an alternative risk management portfolio planning approach customized based on McLaren’s risk tolerance. Over the next 14 years, Stark’s PRES team has provided analysis and guidance for systematic purchases of short-and long-term positions in the market.

The four critical components in the portfolio buying strategy include:

  1. Buy throughout a five year time horizon with staggered purchasing to diminish impact of poor market timing issues that may arise
  2. Use multiple suppliers for greater market price transparency and risk reduction
  3. Create an historical context for future purchasing agreements
  4. Adjust hedges to market ratios to achieve the appropriate risk profile

Results: McLaren was able to decline overall Corporate gas purchasing budgets while the healthcare system expanded from four facilities to 15. The strategy hedges more than 60% of future purchases of natural gas through year 2025 at historically low gas rates with the ability to manage purchases and store gas at reasonable costs.

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