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An Introduction to World Energy:

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1 An Introduction to World Energy:
Mark Burns Independent Energy Consultants January 2007

2 An eBay for Energy… CONFIDENCE World Energy brings together the intelligence and tools to enable energy buyers to procure energy more efficiently while reducing cost and limiting risk. ENERGY COSTS Have procured over $1,600,000,000 in electricity, natural gas, fuels, wholesale power, green credits and financial instruments Ranked #1 by Retail Energy Analyst KEMA of 280 Aggregators, Brokers and Consultants

3 … but More than Just Auctions
Market Rules Intelligence Future Price Trend Analysis Aggregation Marketing Load Pulling, Database Build Tariff Analysis Supplier Sourcing and Vetting Contract Terms Analysis RFP Structuring Products Contract Terms Green Power Mix Tranche Architecting Signatory Solicitation Development Process and Project Management Reverse Auction Price Discovery Decision Analysis Contracting Support Process Audit and Compliance Documentation On-going Contract, Site and Usage Monitoring On-going Support Management Reporting

4 Intelligence & Tools = Success
Where When How State by State Deregulation and Commodity Volatility Drive Purchasing Viability Price Trends and Customer Risk Profile Signal Market Timing Price Discovery Tool and Supplier Depth Determine Final Cost

5 World Energy – By the Numbers
Ranked #1 by KEMA 5x nearest competitor $1.6 Billion in Energy 24,000,000,000 kWh Electricity 52,000,000 dth Natural Gas 300 clients saving $200,000,000 100 deregulated utility markets 9 Government Awards Exchange 1000+ Auctions 18 months 200+ unique suppliers 450 registered users 3-7 suppliers bid 5-15 times Winning supplier outbids 20% 0 defeats to Paper-based RFP

6 World Energy Leader in On-line Procurement
Government Massachusetts District of Columbia Maryland Homeland Security General Services Administration Pennsylvania Montgomery County United Nations Dept of Justice Social Security Veterans Affairs EPA Property Management, Industrial, and Commercial Federal, State and Local Government Agencies and many Fortune 500™ companies trust World Energy with the online procurements

7 Market Leader: Awards Over the Past 4 years we have enabled clients to be recognized by their peers and superiors in winning 9 prestigious awards Awards for either Use of innovative technology Procuring green power Business best practices Winners include Boyd Rutherford, Secretary of State, MD Linda Collins, Director, NGAP GSA Region 2 Energy Center of Expertise Large Northeast Utility Louis R. Harris, Jr. Award Presidential Award GSA Environmental Award Innovative Technology Award

8 Market Leader: Awards Named “Outstanding Program”
Over the Past 4 years we have enabled clients to be recognized by their peers and superiors in winning 8 prestigious awards Awards for either Use of innovative technology Procuring green power Business best practices Winners include Boyd Rutherford, Secretary of State, MD Linda Collins, Director, NGAP GSA Region 2 Energy Center of Expertise Large Northeast Utility Named “Outstanding Program” in June 2005 for any cost saving program of any kind in any of the 50 states at NASCA/NASFA joint conference. Louis R. Harris, Jr. Award Presidential Award GSA Environmental Award Innovative Technology Award

9 Market Intelligence Module
Platform contains market analysis for all deregulated markets Wholesale Pricing trends Market Characteristics Switch Rules Regulatory History Rate Classes Current Go-to-Market recommendation

10 Broadest Market Coverage
Alberta Ontario Gas Only Electricity and Gas Limited / No Competition World Energy’s broad market coverage (37 States, 100+ Utilities) enables us to support Clients with locations across the country

11 Why the Exchange beats Paper RFPs
Engineering and Design Operations and Process Hybrid Anglo-Dutch Auction Design Direct Entry vs Proxy Bid Fixed End time vs “Popcorn” bidding Suppliers are required to bid to see current winning auction price Strategies to prevent gaming Number of auction participants not revealed Bid history not revealed Leading supplier not revealed Consistent terms enable true apples-to-apples comparison Exacting tariff analysis creates Price-to-Compare benchmarks to alert suppliers to maximum acceptable bid “RFP Architecting” - Multiple short duration auctions on same or similar loads divine the pricing of different parameters and contract terms Rapid Awards minimize supplier exposure, causing them to apply lower risk premiums to bids

12 Why the Exchange beats Paper RFPs
Engineering and Design Operations and Process Hybrid Anglo-Dutch Auction Design Direct Entry vs Proxy Bid Fixed End time vs “Popcorn” bidding Suppliers are required to bid to see current winning auction price Strategies to prevent gaming Number of auction participants not revealed Bid history not revealed Leading supplier not revealed Opening Price on average 15-20% above Price-to-Compare to ensure maximum participation Price-to-Compare benchmarks to alert suppliers to maximum acceptable bid “RFP Architecting” - Multiple short duration auctions on same or similar loads to divine the pricing of different parameters and contract terms Rapid Awards minimize supplier exposure, causing them to apply lower risk premiums to bids In designing our auction, we studied all the literature and best practices and have been in contact with the world’s leading economists - from MIT, U Chicago and Oxford – including Paul Klemperer and Steve Levitt, author of Freakonomics.

13 Approach to Yield Lowest Price
100% Direct Bid Entry vs Proxy Bid: Causes suppliers to lower their bid by more than the minimum amount to win. 35 -40% 80% 60% % of Total Savings Fixed End Time vs Overtime Format: Having a hard stop causes the last bid to be “blind” and for suppliers to put their best bid as their last. 35 -40% 40% 20% Dynamic Auction vs Traditional Methods: Suppliers bidding creates a more competitive atmosphere and demonstrates real time bidding dynamics; shrinking time suppliers hold their prices causing them to bid more aggressively. 25% 0%

14 Reverse Auction Process
Auction RFP’s are posted for Energy Consumers Energy Suppliers Bid Competitively for Contracts

15 Reverse Auction Process
Auction RFP’s are posted for Energy Consumers Energy Suppliers Bid Competitively for Contracts “The auction saves between 7 and 9% versus the paper- based RFP process we formerly used with our clients.” Eric Hoegger, Cargill Energy Management Going head-to-head with a traditional RFP run by my consultant, the World Energy Exchange delivered a price 18% lower than my consultant’s paper process.” Ford Motor Company

16 Reverse Auction Process
Auction RFP’s are posted for Energy Consumers Energy Suppliers Bid Competitively for Contracts “Our incumbent supplier tried to discourage us going to auction by delivering a pre-emptive renewal price. We made them participate in the auction, and not only did they better their price in the auction, but another supplier bid even lower, saving me $90,000 versus if I had accepted the incumbent’s pricing proposal.” Millipore Corporation “We call our suppliers and negotiate a fair price, then we run it through an auction to get the best price.” Boeing in The World is Flat

17 Supplier Margins Mils 1 2 3 4 5 6 7 8 9 Sole Source Traditional RFP
1 2 3 4 5 6 7 8 9 Sole Source Traditional RFP Auction High End of Range Low End of Range Mils Sources: Restructuring Today, Supplier Annual Reports, World Energy Supplier Survey, Sales Interviews

18 Supplier Margins 1 2 3 4 5 6 7 8 9 Sole Source Traditional RFP Auction High End of Range Low End of Range “We can bid up to 20 cents lower [per decatherm for natural gas] because I have lower operational costs due to the quality of the data World Energy provides.” Natural Gas Supplier “I build in less risk premium in my price because World Energy closes deals so quickly after conclusion of the auction.” Electricity Supplier Mils Sources: Restructuring Today, Supplier Annual Reports, World Energy Supplier Survey, Sales Interviews

19 Manager C+I Marketing, National Energy Supplier
Supplier Margins 1 2 3 4 5 6 7 8 9 Sole Source Traditional RFP Auction High End of Range Low End of Range “I know where I stand as the auction ends, so if I don’t win I can quickly liquidate any positions I’ve taken to cover my risk.” Electricity Supplier “The World Energy Exchange is Brutally Efficient at Driving Margins to the Bare Minimum.” Manager C+I Marketing, National Energy Supplier Mils Sources: Restructuring Today, Supplier Annual Reports, World Energy Supplier Survey, Sales Interviews

20 Product and Feature Breadth
Commodities Electricity Natural Gas Fuels (Heating Oil, Diesel, Propane, Jet Fuel, Gasoline) Green Credits (RECs, Emission Credits) Financial or Physical Pricing Products Fixed Index Heat Rate Capacity Block Baseload, no capacity % of the system Auction Features Closed Auction Fixed End Time Blind Bidding Bids lower than opening price Event Type Reverse Auction Forward Auction Procurement Type Retail Wholesale Account Type Full Service Self Serve

21 Multiple RFPs to Test Pricing Dynamics
Term Rate Class Load Profile % Green Mix Utility Territory Pricing Product Fixed Indexed Block Baseload

22 RFP Architecting Intelligent sequencing of RFPs yields bidding behavior that favors the customer Auction 1 Supplier 1 Supplier 3 Supplier 1 Supplier 4 Supplier 2 Supplier 3 Supplier 1 Supplier 1 Auction 2 Supplier 3 Supplier 4 Supplier 1 Supplier 5 Supplier 1 After losing the first RFP, Supplier 3 submits a last bid 2.8 mils lower than the current lowest bid and 1.9 mils lower than the second lowest bid.

23 Elements of a Successful Procurement
Documented process for Sarbanes-Oxley compliance Best of Breed Reverse Auction Process Proven to Secure the Lowest Price in the Market Provides an Array of Pricing Parameters Market Expertise and Pricing Knowledge Energy Procurement Experience Delivered Using a State of the Art Web-Enabled Software Suite Specifically Designed for Energy Procurement Management

24 Auction Scenario 1 104 m kWh Various Terms run to test pricing
12 Bid Auction Great pricing yields 9% Savings over Price -to- Compare Winning supplier outbids themselves to secure the load!

25 Auction Scenario 2 44 m kWh Various Terms and Green Power Components run to test pricing Great pricing yields 11% Savings 5% Green Power Auction results in equivalent pricing as 0% Green run earlier

26 SOX Compliance – Process Audit Trail
Deal Task Tracking Tariff Modeling RFP Bid History Usage Tracking Contract Reporting

27 Opportunity Assessment Submit RFP to suppliers
What is the Process? Needs Planning Pre Auction Auction Contract Support Provide Preliminary Information Bills & Usage Data Site Information Current Energy Contracts Review Data Information and Contracts Review market price drivers Price to Compare Analysis Draft RFP RFP Approval Terms Index/Fixed Review full analysis based on inputs & needs Understand Factors Agree to take away price Summarize Results Product Term Supplier Results meet expectations Review and finalize contract Upload contracts, sites & usage Set renewal trigger goals Monitor Opportunity Assessment Submit RFP to suppliers Run Reverse Auction Sign Contract Renew Contract

28 World Energy & You World Energy as a toolset Reduce energy costs
Auditable process trail Verify Account Enrollment, upload & update contracts Monthly check on charges, payment & usage upload Advise and research papers on energy matters Access to bid history, forward wholesale charts Access to Market Intelligence and Opportunities Renewal Triggers set and implemented

29 Thank you! Mark Burns Independent Energy Consultants


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