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Copyright © 2008 World Energy Solutions Inc. Tools, Knowledge, and Expertise for Successful Energy Transactions A presentation on World Energy by Independent Energy Consultants, Inc.
Copyright © 2008 World Energy Solutions Inc. 2 Why Independent Energy Consultants partners with World Energy Overview of World Energy – Background – Procurement Platforms – Benefits Case Studies Next Steps Contents
Copyright © 2008 World Energy Solutions Inc. 3 Why Independent Energy Consultants Partners with World Energy Deliver a Best of Breed Solution – Deliver the best price with reverse auction technology – typical savings are 2 to 10% from traditional paper RFP – Enhance traditional energy procurement with a transparent bidding process Deliver a Compliant Procurement Approach – The transparent reverse auction platform helps organizations address Sarbanes-Oxley Section 404 requirements Deliver Greater Customer Value – World Energys platform complements our existing services
Copyright © 2008 World Energy Solutions Inc. 4 World Energy Solutions Bringing together intelligence and tools – enabling energy buyers to obtain the best price and meet compliance requirements 20% 5 – 15 3 – 7 2 – 10% over 300 over 12,000 16x over $600M 1 TCF over 50M over $10B Electricity, natural gas, financial instruments, and green credit transactions Megawatt hours transacted over the Exchange Volume of natural gas transacted over the Exchange Customer savings Volume of nearest competitor Auction events conducted Registered suppliers Typical customer discounts vs. traditional RFP Suppliers per auction Bids from each supplier per auction event Frequency winning supplier outbids itself last minute to ensure a win ENERGY COSTS ENERGY COSTS CONFIDENCE Never beaten by paper-based RFP process on apples-to-apples basis EVEN NET OF OUR FEE!
Copyright © 2008 World Energy Solutions Inc. 5 Our Clients: Leader in Online Procurement Government Wholesale Utilities, Industrial, and Commercial United Nations Veterans Affairs Social Security Dept of Justice Wholesale Utilities, Commercial & Industrial Clients, and Government Agencies trust World Energy with their energy procurements Maryland District of ColumbiaMassachusettsPennsylvania EPA General Services Administration New Jersey Delaware Connecticut
Copyright © 2008 World Energy Solutions Inc. 6 Reverse Auction Process Auction RFPs are posted for Energy Consumers Energy Suppliers Bid Competitively for Contracts Benchmark Price
Copyright © 2008 World Energy Solutions, Inc. 7 Reverse Auction Process Price-to-Compare provides a market benchmark… Natural competition, enhanced by blinding the number of suppliers and leading supplier, drives price down Fixed end time causes suppliers to sharpen their pencils… … and often bid lower than would be otherwise required to win the business. } … against which customer savings are quantified.
Copyright © 2008 World Energy Solutions Inc. 8 Source: New York Mercantile Exchange For demonstration purposes only. Prices are the average of 12-month seasonal forward pricing on date of prompt months NYMEX contract expiration. Post & Respond Process Market visibility to your unique load Track the market over time Automated notifications when pricing approaches target Lock in a price when results match goal
Copyright © 2008 World Energy Solutions Inc. 9 RFP Architecting Enables Price Testing Running multiple Auctions or running multiple scenarios through the Post & Respond enables discovering the costs of various parameters – Green Power Mix – Pricing Product – Term Length – Credit Terms – Special Conditions
Copyright © 2008 World Energy Solutions Inc. 10 Product and Feature Breadth CommoditiesPricing Products Auction Features Electricity Natural Gas Green Credits – Renewable Energy Credits – GHG Emissions Credits Fixed (commodity/basis) Index Heat Rate Capacity Block Baseload, no capacity % of the system On-peak, Off-Peak Financial or Physical Proactive Procurement Structured Event with Fixed End Time Unique Hybrid Anglo/Dutch Design Final Blind Bid Feature Event TypeProcurement Type Reverse Auction Forward Auction Post and Respond Retail Wholesale
Copyright © 2008 World Energy Solutions Inc. 11 Documentation and Reporting Due Diligence and Audit Book Management Reporting and Data Services Process Audit Trail RFP Bid History Tariff ModelsContract Management Accounts & Usage
Copyright © 2008 World Energy Solutions Inc. 12 What is the Process? Needs Planning Pre Auction Auction or P&R Contract Support Opportunity Assessment Review market price drivers Price to Compare Analysis Terms Products Draft RFP RFP Approval 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 Run Event Provide Preliminary Information Bills & Usage Data Site Information Current Energy Contracts Review Data Information and Contracts Submit RFP to suppliers Sign Contract Renew Contract
Copyright © 2008 World Energy Solutions Inc. 13 Benefits to the Customer World Energy Exchanges unique process: Creates transparency, promoting competition and driving down prices – Instant feedback forces suppliers to sharpen their pencils Allows price discovery – you can test the market with a variety of scenarios to determine the pricing sweet spot Simplifies bidding, reducing administrative costs for suppliers and creating lower prices for large buyers – All qualified suppliers have an equal opportunity to win the business – No protests have ever been filed regarding one of our events
Copyright © 2008 World Energy Solutions Inc. 14 Benefits to the Customer World Energy Exchanges unique process: Speeds up award times, minimizing risk premiums Provides data management – All procurement information is captured on the platform – Secure access to data for various stakeholders (hierarchy) – The Customer can run reports on contracts and bid history – Complete auction and process documentation book supplied for audit purposes (Regulators, SOX) Helps you achieve your objectives such as budget certainty, cost savings, and fulfillment of green energy requirements at the least cost
Copyright © 2008 World Energy Solutions Inc. 15 Never Beaten by a Traditional RFP Auction Design Optimizes Result for Buyer – Auction drives bidding activity – Transparency forces hyper competition amongst suppliers as end of auction nears – No auction gimmicks to create risk and uncertainty Significant Market Liquidity – Supplier network of over 300 players – Online nature attracts market entrants by lowering their cost to acquire Automation Enables Testing of Multiple Consumer-Defined Contract Parameters – Pre Qualified suppliers compete on price alone – Customer can test different parameters to optimize price Time Efficient – Contracts usually awarded within hours of auction ending, enabling suppliers to minimize risk premiums in pricing Better Pricing Through Technology The auction saves between 7 and 9% versus the paper-based RFP process we formerly used with our clients. Eric Hoegger, Cargill Energy Management Services The World Energy Exchange is brutally efficient at driving margins to the bare minimum. Andrew Owens, Entergy Solutions
Copyright © 2008 World Energy Solutions Inc. 16 $/MWh Power Supplier Margin by Procurement Method $4-8/MWh $3-5/MWh $0.25-2/MWh Traditional RFP and Consultants World Energy Exchange Sole Source Supplier Sources: Restructuring Today, Supplier Annual Reports, and World Energy Supplier Survey World Energys unique methodology typically cuts supplier margins by percent.
Copyright © 2008 World Energy Solutions Inc. 17 $/Dth Natural Gas Supplier Margin by Procurement Method $ /Dth $ /Dth $ /Dth Traditional RFP and Consultants World Energy Exchange Sole Source Supplier Sources: Restructuring Today, Supplier Annual Reports, and World Energy Supplier Survey Margins typically charged by suppliers when buyers use conventional methods of procurement as compared to supplier margins for buyers who use World Energys unique platforms.
Copyright © 2008 World Energy Solutions, Inc. 19 Case Study: Multi-Site Fortune 400 Industrial ResultsSituation 19 Integrated producer of steel products with plants located across 4 states and multiple utilities Historically managed financial and physical risks separately through different processes Had proactively managed physical risk for over 5 years through the Post and Respond system Established goal of 5% year-on-year savings from 2006 to 2007 and solicited World Energys help Jointly designed a 2007 risk management program that commenced in August 2005 World Energy facilitated over 50 proactive procurement events for customer Supply is now diversified across 11 individual suppliers Savings to date against budgeted targets have amounted to approximately $2M Produced 27% savings to date Copyright © 2008 World Energy Solutions, Inc.
Copyright © 2008 World Energy Solutions Inc. 20 Case Study: Hospital Saves $3 Million A Texas hospital had sole-sourced with one supplier In cost cutting effort, they decided not to automatically renew the contract, choosing instead to hold a competitive auction with World Energy Incumbent supplier was invited to bid and spoke out against the auction process stating that they had already offered the lowest price available The hospitals energy buyer proceeded with the auction, inviting the supplier to submit their best bid in a competitive environment Over 40 bids were generated in the auction Faced with stiff competition the incumbent was forced to reduce its price Supplier cut their bid by $3 million in a multi-year contract in order to keep the customer ResultsSituation 20 Copyright © 2008 World Energy Solutions Inc. Hospital saved $3 million by using the competitive auction process
Copyright © 2008 World Energy Solutions Inc. 21 Case Study: Ford Motor Company ResultsSituation 21 Ford Motor Company desired to re-bid its natural gas supply Their procurement consultant sent out RFPs to their top 5 suppliers World Energy tapped its network of suppliers to participate in an auction event Online auction was conducted on the day pricing from the RFPs was due Going head-to-head, World Energy beat the paper RFP process by 18% Visible, real time bidding drove price down Suppliers, confident that with WE contract would be awarded to winning bid promptly, cut their risk premiums Ford got a lower price from the auction event than from the consultants RFPs Copyright © 2008 World Energy Solutions, Inc.
22 Case Study: Aggregation Group Member Mass High Tech Council selected supplier of choice VP of a member firm felt pricing too high, contacted World Energy to conduct an auction World Energy sent out invitations to bid to supplier network Council official contacted members CEO to advise against wasting money on an auction when they already had the lowest price Member went on with auction, asking incumbent to bid with others Online auction event generated 39 bids Incumbent bid below its current rate, showing the competitive power of the auction Another supplier beat the incumbent, saving the company nearly 11% of previous price Results Situation 22 Aggregation group member saved $90K Copyright © 2008 World Energy Solutions, Inc.
Copyright © 2008 World Energy Solutions Inc. 23 A new, privately-held specialty hospital was in search of its first energy supply contract Ethicus entertained a default quote from the incumbent supplier The hospitals design engineer referred Ethicus to World Energy Ethicus engaged World Energy to secure the best possible price for a defined usage Ethicus proceeded with the reverse auction process, however only desired a fixed-priced, 12- month term due to usage forecasts Online auction event generated 88 bids over six tranches from five suppliers Products tested: – 12, 24 & 36 month fixed – 12, 24 & 36 month fixed w/ 5% green 36 month fixed product w/o green offered Ethicus the best value but Ethicus was concerned with their usage forecasts World Energy Market Director was able to secure 100% swing at no premium for the 36 month term World Energy helped provide budget certainty, savings and usage protection with a 100% swing ResultsSituation 23 Copyright © 2008 World Energy Solutions Inc. Compared to quote from incumbent supplier, Ethicus saved 27.5% Case Study: Ethicus Healthcare Management LLC.
Copyright © 2008 World Energy Solutions Inc. 24 Case Study: Vesuvius ResultsSituation 24 Vesuvius had been purchasing electricity the same way they purchased all materials – paper-based RFPs Vesuvius goal in using World Energy was to save time and gain more control over electricity procurement The ability to shop the market over time and evaluate alternatives was important to them Vesuvius selected World Energys Post & Respond platform Post & Respond experience resulted in a new efficient approach to energy procurement Eight suppliers responded to posting with initial or refreshed offers Vesuvius filtered out non-competitive suppliers over a 2-week process Selected supplier based on factors of price, delivery and other requirements Process was judged to be seamless, quick and efficient by Vesuvius management Currently posted electricity and natural gas forward procurement Copyright © 2008 World Energy Solutions, Inc.
Copyright © 2008 World Energy Solutions Inc. 25 Next Steps Perform Initial Evaluation of Requirements to Ensure Fit Execution of World Energy Exchange Agreement Collect Required Data for Analysis – Letter of Authorization for Historical Load Information – Copy of current contract – Copy of most recent bills Refinement of your Specific Product Requirements Development of Electronic RFP Finalize All Terms and Conditions During the Pre-Event Conference Call Perform Final Verification of Supplier Participation Conduct Auction Event or post to Post & Respond Execute Transaction
Copyright © 2008 World Energy Solutions Inc. Thank You Independent Energy Consultants Mark Burns P: F:
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