Presentation on theme: "An Introduction to World Energy:"— Presentation transcript:
1 An Introduction to World Energy: Mark BurnsIndependent Energy ConsultantsJanuary 2007
2 An eBay for Energy…CONFIDENCEWorld Energy brings together the intelligence and tools to enable energy buyers to procure energy more efficiently while reducing cost and limiting risk.ENERGYCOSTSHave procured over $1,600,000,000 in electricity, natural gas, fuels, wholesale power, green credits and financial instrumentsRanked #1 by Retail Energy Analyst KEMA of 280 Aggregators, Brokers and Consultants
3 … but More than Just Auctions Market Rules IntelligenceFuture Price Trend AnalysisAggregation MarketingLoad Pulling, Database BuildTariff AnalysisSupplier Sourcing and VettingContract Terms AnalysisRFP StructuringProductsContract TermsGreen Power MixTranche ArchitectingSignatorySolicitation DevelopmentProcess and Project ManagementReverse Auction Price DiscoveryDecision AnalysisContracting SupportProcess Audit and Compliance DocumentationOn-going Contract, Site and Usage MonitoringOn-going SupportManagement Reporting
4 Intelligence & Tools = Success WhereWhenHowState by State Deregulation and Commodity VolatilityDrive Purchasing ViabilityPrice Trends and Customer Risk Profile Signal Market TimingPrice Discovery Tool and Supplier Depth Determine Final Cost
5 World Energy – By the Numbers Ranked #1 by KEMA5x nearest competitor$1.6 Billion in Energy24,000,000,000 kWh Electricity52,000,000 dth Natural Gas300 clients saving $200,000,000100 deregulated utility markets9 Government AwardsExchange1000+ Auctions 18 months200+ unique suppliers450 registered users3-7 suppliers bid 5-15 timesWinning supplier outbids 20%0 defeats to Paper-based RFP
6 World Energy Leader in On-line Procurement GovernmentMassachusettsDistrict of ColumbiaMarylandHomeland SecurityGeneral Services AdministrationPennsylvaniaMontgomery CountyUnited NationsDept of JusticeSocial SecurityVeterans AffairsEPAProperty Management, Industrial, and CommercialFederal, State and Local Government Agencies and many Fortune 500™ companies trust World Energy with the online procurements
7 Market Leader: AwardsOver the Past 4 years we have enabled clients to be recognized by their peers and superiors in winning 9 prestigious awardsAwards for eitherUse of innovative technologyProcuring green powerBusiness best practicesWinners includeBoyd Rutherford, Secretary of State, MDLinda Collins, Director, NGAPGSA Region 2Energy Center of ExpertiseLarge Northeast UtilityLouis R. Harris, Jr. AwardPresidential AwardGSA Environmental AwardInnovative 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 awardsAwards for eitherUse of innovative technologyProcuring green powerBusiness best practicesWinners includeBoyd Rutherford, Secretary of State, MDLinda Collins, Director, NGAPGSA Region 2Energy Center of ExpertiseLarge Northeast UtilityNamed “Outstanding Program”in June 2005 for any cost saving programof any kind in any of the 50 statesat NASCA/NASFA joint conference.Louis R. Harris, Jr. AwardPresidential AwardGSA Environmental AwardInnovative Technology Award
9 Market Intelligence Module Platform contains market analysis for all deregulated marketsWholesale Pricing trendsMarket CharacteristicsSwitch RulesRegulatory HistoryRate ClassesCurrent Go-to-Market recommendation
10 Broadest Market Coverage Alberta OntarioGas OnlyElectricity and GasLimited / No CompetitionWorld 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 DesignOperations and ProcessHybrid Anglo-Dutch Auction DesignDirect Entry vs Proxy BidFixed End time vs “Popcorn” biddingSuppliers are required to bid to see current winning auction priceStrategies to prevent gamingNumber of auction participants not revealedBid history not revealedLeading supplier not revealedConsistent terms enable true apples-to-apples comparisonExacting 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 termsRapid Awards minimize supplier exposure, causing them to apply lower risk premiums to bids
12 Why the Exchange beats Paper RFPs Engineering and DesignOperations and ProcessHybrid Anglo-Dutch Auction DesignDirect Entry vs Proxy BidFixed End time vs “Popcorn” biddingSuppliers are required to bid to see current winning auction priceStrategies to prevent gamingNumber of auction participants not revealedBid history not revealedLeading supplier not revealedOpening Price on average 15-20% above Price-to-Compare to ensure maximum participationPrice-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 termsRapid Awards minimize supplier exposure, causing them to apply lower risk premiums to bidsIn 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 SavingsFixed 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 ConsumersEnergy Suppliers Bid Competitively for Contracts
15 Reverse Auction Process Auction RFP’s are posted for Energy ConsumersEnergy 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 ManagementGoing 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 ConsumersEnergy 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 123456789Sole SourceTraditional RFPAuctionHigh End of RangeLow End of RangeMilsSources: Restructuring Today, Supplier Annual Reports, World Energy Supplier Survey, Sales Interviews
18 Supplier Margins123456789Sole SourceTraditional RFPAuctionHigh End of RangeLow 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 SupplierMilsSources: Restructuring Today, Supplier Annual Reports, World Energy Supplier Survey, Sales Interviews
19 Manager C+I Marketing, National Energy Supplier Supplier Margins123456789Sole SourceTraditional RFPAuctionHigh End of RangeLow 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 SupplierMilsSources: Restructuring Today, Supplier Annual Reports, World Energy Supplier Survey, Sales Interviews
20 Product and Feature Breadth CommoditiesElectricityNatural GasFuels (Heating Oil, Diesel, Propane, Jet Fuel, Gasoline)Green Credits (RECs, Emission Credits)Financial or PhysicalPricing ProductsFixedIndexHeat RateCapacityBlockBaseload, no capacity% of the systemAuction FeaturesClosed AuctionFixed End TimeBlind BiddingBids lower than opening priceEvent TypeReverse AuctionForward AuctionProcurement TypeRetailWholesaleAccount TypeFull ServiceSelf Serve
21 Multiple RFPs to Test Pricing Dynamics TermRate ClassLoad Profile% Green MixUtility TerritoryPricing ProductFixedIndexedBlockBaseload
22 RFP ArchitectingIntelligent sequencing of RFPs yields bidding behavior that favors the customerAuction 1Supplier 1Supplier 3Supplier 1Supplier 4Supplier 2Supplier 3Supplier 1Supplier 1Auction 2Supplier 3Supplier 4Supplier 1Supplier 5Supplier 1After 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 complianceBest of Breed Reverse Auction ProcessProven to Secure the Lowest Price in the MarketProvides an Array of Pricing ParametersMarket Expertise and Pricing KnowledgeEnergy Procurement ExperienceDelivered 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 AuctionGreat pricing yields 9% Savings over Price -to- CompareWinning supplier outbids themselves to secure the load!
25 Auction Scenario 244 m kWhVarious Terms and Green Power Components run to test pricingGreat pricing yields 11% Savings5% Green Power Auction results in equivalent pricing as 0% Green run earlier
27 Opportunity Assessment Submit RFP to suppliers What is the Process?Needs PlanningPre AuctionAuctionContractSupportProvide Preliminary InformationBills & Usage DataSite InformationCurrent Energy ContractsReview DataInformation and ContractsReview market price driversPrice to Compare AnalysisDraft RFPRFP ApprovalTermsIndex/FixedReview full analysis based on inputs & needsUnderstand FactorsAgree to take away priceSummarize ResultsProductTermSupplierResults meet expectationsReview and finalize contractUpload contracts, sites & usageSet renewal trigger goalsMonitorOpportunity AssessmentSubmit RFP to suppliersRun Reverse AuctionSign ContractRenew Contract
28 World Energy & You World Energy as a toolset Reduce energy costs Auditable process trailVerify Account Enrollment, upload & update contractsMonthly check on charges, payment & usage uploadAdvise and research papers on energy mattersAccess to bid history, forward wholesale chartsAccess to Market Intelligence and OpportunitiesRenewal Triggers set and implemented
29 Thank you!Mark BurnsIndependent Energy Consultants
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