Energy Company Used Forecast Modeling to Renegotiate Its Microsoft EA
Industry: Energy & Utilities
Location: U.S. Midwest (operating across multiple states)
Organization Size: Large regional utility (10,000+ employees)
Initial Situation & Challenges
A multi-state energy company was approaching the end of its 3-year Microsoft Enterprise Agreement. As the renewal discussions kicked off, Microsoft proposed a steep increase in the EA’s cost for the next term.
A significant portion of this increase was tied to Microsoft’s push for the company to commit to a much larger Azure cloud spend.
Specifically, Microsoft’s offer bundled the EA renewal with a new Monetary Azure Consumption Commitment (MACC), requiring the utility to pre-commit millions of dollars to Azure over the next three years.
In return, Microsoft dangled certain discounts and incentives, but the price tag was daunting.
For the energy company, this was a critical negotiation. The industry is capital-intensive and cost-sensitive; an unreasonably high IT contract could force tough budget choices elsewhere.
The Chief Technology Officer (CTO) and the Software Asset Management (SAM) Manager recognized two main challenges:
- Uncertain Growth Projections: Microsoft’s proposed numbers assumed aggressive growth in cloud adoption and staff count that the company was not fully confident in. For example, Microsoft was forecasting ~30% year-over-year growth in Azure usage for the customer, far above the utility’s historical trend of ~5% growth in cloud spend. If those high projections didn’t materialize, the company would overpay for unused Azure services, since any committed funds not consumed would be forfeited at the end of the term. Essentially, the company risked paying for “cloud capacity” it might not need – a costly overcommitment.
- Rigid Contract Structure: The standard EA renewal was presented as a fixed 3-year deal with little flexibility once signed. The utility worried that if business conditions changed (e.g., growth slowed, or technology strategy shifted), they would have no way to adjust their commitments. Locking into a huge Azure spend, on top of all the Microsoft 365 licenses, felt like a potential trap. Traditionally, Microsoft EAs don’t allow mid-term reductions, and the company has never negotiated special clauses. This one-size-fits-all approach did not sit well with leadership, given the uncertainty in the energy market and evolving tech needs (for instance, the company was piloting some non-Microsoft cloud solutions too, which could affect Azure usage).
CTO: “Microsoft came to the table with a number that assumed we’d basically double our Azure usage in short order. It was a sky-high ask – they were effectively pricing in growth that we hadn’t even planned yet. As a technology leader, I’m all for cloud innovation, but I’m not about to sign a blank check based on someone else’s overly optimistic forecast.”
The SAM Manager also noted that the initial renewal quote was roughly 30% higher than the cost of their last EA. While this kind of jump was not unheard of in recent years, it was not feasible without strong justification.
The company needed to regain control of the negotiation narrative, grounding it in their reality rather than Microsoft’s sales targets.
Forecast Modeling & Analysis
Redress Compliance was engaged to level the playing field with data. The consulting team’s strategy centered on building a detailed multi-year usage forecast for the company’s Microsoft needs to serve as an objective foundation in negotiations.
Rather than accept Microsoft’s projections, Redress and the company’s stakeholders collaborated to create three scenarios—low, Medium, and High—for the upcoming three-year term.
- Data Gathering: The team began by analyzing the company’s actual consumption and license utilization over the past 1–2 years. This included Azure usage reports, Microsoft 365 license assignment and active use metrics, and any known upcoming projects (such as planned cloud migrations or new software deployments). They also reviewed business plans: e.g. anticipated employee growth or reduction, mergers or acquisitions on the horizon, and strategic initiatives (like new digital services for customers) that might impact software demand.
- Scenario Definitions: Using this data, Redress helped define three growth scenarios:
- Low Scenario: Assumed minimal growth, a status quo where the company’s IT footprint stays roughly flat. This scenario accounted for only minor increases in Azure usage (e.g., +5% annually) and perhaps a slight reduction in on-premises licenses as some systems migrate to SaaS. It represented a conservative outlook (e.g,. if certain cloud projects were delayed or the company focused on optimizing current usage).
- Medium Scenario: Envisioned moderate, most likely growth. For instance, it might include Azure usage growing ~10-15% per year, reflecting a few planned projects moving to Azure, and a modest uptick in Microsoft 365 users corresponding to expected headcount growth. This scenario aligned with the company’s internal plans and historical trends, a realistic middle ground.
- High Scenario: Modeled aggressive expansion, essentially Microsoft’s rosy view. This assumed rapid cloud adoption and perhaps new initiatives requiring extensive Azure resources (e.g., smart grid analytics, IoT deployments in the field). Azure consumption might jump 25-30% yearly, and the company might adopt additional Microsoft services like Power Platform enterprise-wide. While it is possible, this scenario required many “if everything goes right” assumptions.
- Cost Modeling: Redress calculated the licensing and Azure costs for each scenario. This modeling considered known Microsoft pricing and any discounts the company could reasonably expect. For Azure, they incorporated the effect of commitment discounts: for example, if the company committed to high spending scenarios, Microsoft would offer a larger discount on Azure unit prices, but the risk of overcommitting would also be highest. Conversely, the Low scenario had little risk but would mean fewer discount incentives. The analysis clearly illustrated a trade-off: bigger commitments yielded better discounts per unit, but could waste money if usage didn’t meet the committed levels.
- Findings: The forecasting exercise revealed that Microsoft’s proposal effectively assumed something above the high scenario. In other words, the sales team had built the renewal quote as if the company would hit a cloud usage trajectory beyond what Redress’s most optimistic model showed. This gave the negotiation team concrete evidence that the ask was excessive. It also quantified the financial exposure: if the company agreed to Microsoft’s number and only the Medium scenario came true, millions of dollars of Azure commitment could go unused (money that would be lost under the “use it or lose it” cloud commit terms). On the flip side, if the company undershot its commitment, they’d be paying a premium in Azure rates — so it was all about finding the right balance.
SAM Manager: “Laying out those scenarios changed the whole conversation. We could finally see, on paper, what Microsoft’s dream scenario would cost us versus what we actually needed. The data didn’t lie – it was clear that our medium case was worlds apart from what Microsoft was pushing.”
The SAM Manager noted that involving IT and finance teams in this modeling was key. The CTO’s team provided tech roadmaps and usage stats, while Finance helped translate that into budget impacts.
Redress facilitated this cross-functional planning, ensuring the forecast was grounded and credible. By the end, the company had a solid, defensible medium-growth forecast to use as a baseline in talks.
Negotiation & Tactics
Armed with the forecast models and insights, the energy company, with Redress Compliance as an advisor, approached the EA renewal negotiation with a refreshed strategy and confidence.
The negotiation focused on right-sizing the commitment and embedding flexibility into the contract:
- Countering the Baseline: The company pushed back on Microsoft’s inflated baseline. In meetings, they walked Microsoft through their data, showing that a ~15% annual Azure growth assumption was much more realistic than 30% given their project pipeline. This was a turning point; by demonstrating they had done their homework (“Here’s our historical usage, here’s what’s planned, and here’s why your number is off…”), the company shifted the discussion from “just accept the increase” to “let’s find a reasonable middle ground.” Microsoft, faced with hard numbers, had to reconsider its stance. The parties eventually agreed to size the Azure commitment closer to the Medium scenario forecast. In practice, that meant the company committed to an Azure spend that was perhaps only 10% higher than current usage (with room to grow if needed), instead of the originally proposed ~30% hike. This dramatically lowered the upfront financial obligation.
- Flexible Commit Structure: Redress helped negotiate a “reopener” clause into the EA – an uncommon but highly valuable term. This clause stipulated that after a set period (for example, 18 months into the term), the company and Microsoft would revisit the Azure consumption against the forecast. If actual usage significantly diverged from the committed trajectory (much lower or higher), mutual agreement could adjust the contract. In essence, it was an insurance policy: if the company’s growth was slower than expected, they could potentially scale down some of the commit to avoid paying for ghost resources; if growth was faster (a good problem to have), they could increase the commit and still enjoy discounted rates without penalty. While Microsoft doesn’t freely offer such flexibility, the customer’s firm stance and data-backed arguments made it a point of negotiation. The clause was carefully defined with conditions (e.g., any adjustment could require a proportional change in discount, etc.), but simply having it was a big win for the company. It meant this EA wouldn’t be a straitjacket.
- Stepped or Tiered Commitment: Another negotiated element was a tiered commitment structure. Instead of locking in one giant number for three years, the deal allowed for a year-by-year commitment increase aligned with the forecast. For instance, commit $X in year 1 (close to current spend), then $X+10% in year 2, then $X+15% in year 3 – with the option to adjust those Year 2/3 figures via the reopener if needed. This way, the company wasn’t over-committing from day one, and Microsoft still got a picture of growth to work with. In effect, Microsoft granted a compromise: a moderate commitment with the promise of more if usage rises. Redress also ensured there was no punitive carryover clause for slight under-consumption – they negotiated that if the company came within a certain percentage of the yearly commitment, it wouldn’t be seen as a breach or require extra payments. This encouraged a fair arrangement: the utility would strive to use what it committed, but wouldn’t be harshly penalized if they were a bit under, as long as the overall trend was on track.
- Discount and Pricing Protections: Despite the focus on Azure, Redress didn’t neglect the other EA components. The team negotiated discounts on Microsoft 365 licenses by leveraging the Azure commitment as a bargaining chip. For example, since the company agreed to move more workloads to Azure (which Microsoft strongly desired), they asked for better pricing on their Office 365 E3/E5 renewals. Microsoft yielded some additional discount percentage points on these user licenses. Furthermore, Redress secured a price protection clause to guard against any unexpected Microsoft price list increases or the withdrawal of discounts in the next renewal. Given the volatile licensing landscape (with Microsoft introducing new products like AI “Copilot” features, etc.), having a cap on how much costs could rise annually (aside from the planned growth) was another important safeguard.
CTO: “We went into this negotiation differently than any before. Instead of arguing back and forth on cost with no foundation, we laid out a data-driven plan. We said, ‘Here’s what we’ll realistically need. Let’s base the deal on that.’ Microsoft actually listened. In the end, we got a deal that mirrors our true usage, not their fantasies. Plus, we built in flexibility – something I’ve never had in a Microsoft contract until now.”
The SAM Manager was equally enthusiastic, noting that this proactive stance changed Microsoft’s demeanor: “I think they realized we weren’t going to be steamrolled. We knew our numbers better than they did. Redress gave us the playbook on challenging their assumptions respectfully but firmly.”
During final negotiations, the inclusion of an “out clause” for major business changes (like if the company were to divest a division, for example) was discussed. While not every wish was granted, the final agreement did allow the company to revisit the arrangement if a truly significant, unforeseen change occurred, providing additional peace of mind.
Outcomes & Benefits
The energy company achieved a much more palatable EA renewal using forecast modeling and shrewd negotiation.
The outcomes demonstrate how preparation and flexibility can yield tangible savings and risk reduction:
- Controlled Cost Increase: Instead of a 30 %+ jump in spend that Microsoft initially proposed, the company managed to hold the effective increase to around 10% over the three-year term (roughly aligning with actual growth in usage). This translates to multi-million dollar savings over what would have been spent in Microsoft’s scenario. The CFO and finance team were relieved – the final deal came near the budget they had planned, avoiding a potential budgetary crisis. This case proved that EA costs don’t always skyrocket if you negotiate based on facts.
- Avoidance of Overcommitment: The utility greatly reduced its financial exposure thanks to the rightsized Azure commitment. There’s no looming fear of paying for unused cloud services: the commitment is calibrated to a level they are confident they will consume. In numbers, if Microsoft wanted, say, a $20M/year Azure commitment but the company only really needed $15M, not agreeing to that extra $5M/year saved them up to $15M over the term that might have gone to waste. Moreover, if growth accelerates unexpectedly, the company can still expand usage, knowing the contract will accommodate it (via the reopener or simply leveraging the ability to add licenses at the pre-negotiated rates).
- Built-In Flexibility: The negotiated reopener clause and tiered structure mean the company’s EA is not a static artifact but a somewhat living agreement. This flexibility is invaluable in the fast-changing tech and business environment. For instance, mid-way through the term, the company will formally review cloud consumption with Microsoft and can make adjustments. This takes a lot of pressure off the SAM and IT teams – they won’t be stuck with a “bad deal” if things change. The SAM Manager now feels empowered to continuously optimize usage, knowing there’s an avenue to recalibrate the contract if needed. It’s essentially a safety valve that most Microsoft customers never get, and it could set a precedent for how the company handles vendor contracts.
- Data-Driven IT Management: The process of creating detailed usage forecasts had an added benefit: it improved internal planning. The IT department adopted the forecasting models (with templates provided by Redress) as a regular practice. Quarterly reviews of license utilization and Azure spend have been conducted, comparing actuals to forecasts. This means any deviation can be caught early. If a project is driving Azure consumption higher than expected, they’ll know to potentially increase capacity (and can inform Microsoft earlier, perhaps leveraging the situation for more concessions). If usage is tracking lower, they can adjust spending patterns or consider new initiatives to use the prepaid capacity. The organization has stepped up its IT financial management maturity, bridging gaps between technical usage and cost control (a core FinOps principle).
- Stronger Vendor Relationship: Interestingly, by the end of the negotiation, the tone with Microsoft became more collaborative. Initially, it was adversarial with the big price hike. However, when the company presented well-reasoned data, the Microsoft account team treated them more like partners planning for mutual success. The inclusion of flexibility clauses required trust on both sides. The utility’s leadership feels that Microsoft now understands their business better, and Microsoft likely appreciates that this customer will approach deals thoughtfully. This could mean smoother negotiations in the future. The CTO said, “Instead of just saying ‘no’ to everything, we said ‘here’s how we can say yes – on our terms.’ That changed the dynamics. We ended up with a contract that, I dare say, both sides are happy with.”
SAM Manager: “For the first time, I feel like we have control over our Microsoft agreement, rather than it controlling us. We have this mid-term checkpoint to adjust if needed, and we’re not paying for a bunch of maybe-never-will-happen usage. And every decision was backed by numbers. This approach has set a new standard for how we negotiate big IT contracts.”
In summary, this energy company’s case shows that a clear-eyed analysis and negotiation strategy can turn the tide even when faced with aggressive vendor demands.
By forecasting its needs and negotiating based on a realistic, middle-ground scenario, the company saved money and gained contractual terms that ensure agility.
Redress Compliance’s expertise demonstrated that complex agreements like a Microsoft EA can be molded to fit a client’s unique future path, rather than the client bending to fit the contract.
The result is a win-win: the customer avoids overspend and feels confident in their commitments, and Microsoft retains a satisfied (and still growing) customer for the long haul.
