Auctions in the Energy Industry

an industry look at bidding goods and services in on-line reverse auctions

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Objectives For Today

• Industry trends in e-commerce• What is an online auction?• When can you use an online auction?• What are the criteria to perform an action?• A Case Study

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Who is Pantellos and what do we do?

Pantellos is the leader in supply chain services and solutions in the energy industry

Rapid BusinessAssessments

Training & Implementation

Strategic Sourcing (Supply Contracts)

Supply Chain Improvement

Projects

Business Process

Solutions

Document Translation

Content Management

Integration Hub Marketplace Platform

Auctions

Market Research &Benchmarking

Electronic Bid Management

Contingent Workforce

Transaction Engine

Supplier Adoption

Analytics

Craft Labor

E- Settlement

Dynamic Services

ProfessionalServices

SupplyManagement

Service

Supply ChainConsulting

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Pantellos’ Auction Experience

Proven Results & Track Record

Over $ 1 Billion in Volume, 650 Auctions Over $190 Million customer reported savings 18% Average Savings Over 20 utility customers, 13 are in programs

Industry Specific Expertise Energy Industry Focused Experience in over 100 Spend Categories Extensive online auction experience

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Industry Trends In e-commerce

In 2002 ISM reported that in 84% of Global 2000 use a form of e-sourcing 20 of the top 25 largest US Electric utilities utilize auctions Studies find that 40% of a utility’s spend is “auctionable” IDC reported in 2001 $192 billion of goods and services were auctioned, 2002 $ 350 billion In 2003 est that $600 billion will be sourced on-line On-line auctions are quickly becoming a standard in sourcing Pantellos’ customer are experiencing 18% average savings from over $1billion in auction volume

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What are On-line Auctions?

A process which stems from traditional procurement methods allowing organizations to make more informed decisions through an online, competitive bidding format to obtain best available market prices.

On-line reverse auctions are transforming industries into more efficient marketplaces

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What Happens in a reverse Auction?

9:30 AM 10:00 10:30 11:00 11:30 12:00 PM 12:30 1:00 1:30 2:00 PM

Closing Price $64.9M

Buyer Goal $72.0M

First Bid $76.6M

10%

18%Overtime Period

Millions

Opening Period

$ 76.0

$ 78.0

$ 74.0

$ 72.0

$ 70.0

$ 68.0

$ 66.0

$ 64.0

GSU Transformers Reverse AuctionGSU Transformers Reverse Auction

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Bidder Interface

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Auction Value Proposition

Benefits to Buying Organizations Reduction in negotiation time and effort Improved pricing, more representative of market Introduction to new, quality suppliers Improves internal processes Shortens overall procurement cycles Improved decision making capabilities Provides market transparency Compliments other supply chain initiatives

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Auction Value Proposition

Benefits to Suppler Organizations More market feedback and competitive position Typically faster turnarounds and decisions from buyers Typically tighter requirements Value added positions stay in tact (MVB) Introduction to new business opportunities Fair and ethical process

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When should I consider an auction?

When it meets your procurement goalsCurrently use a sealed bid processCost and/or Process savingsIntroduction to new marketChanges in market conditionsEstablish a value reference for strategic relationshipIncreased pricing clarityEstablish new supplier/buyer relationships

Success Factors 3 or more suppliersSelection criteria is quantifiable The good or service has some “margin” or “compressibility” in priceA clear bidding spec and a level playing field can be established

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Auction Categories Executed

Generation Corporate MROWood Cross Arms Pole Inspection Mechanical Outage Bill Forms Welding CurtainsPower Transformers Wood Poles Re- Insulation Envelopes ToolsShut Reactors Fiberglass Poles CEMS Hotel Safety EquipmentRegulators Metal Poles PVC Rental Cars ScrubsDistribution Transformers Lighting Feed Water Heater Dumpsters Emergency SirensPedestals Luminaries Cooling Tower Port-o-lets Motor RefurbishmentInsulators Lamps Remediation Roof Repair Electrical TapeHand holds Pole Top Maintenance ISO Phase Bus Ducts Bill Processing Compressor OilVegetation Management Bird Discouragers Economizer Upgrade Copiers Misc. Industrial SuppliesMeter Reading Transmission Line Construction Super Heaters Bulk Stock Paper Control ValvesSubstation Construction Cable -Low Voltage Precipitators Fleet Purchase ConduitUnderground Burial Cable - Med Voltage Stack Repair Building Construction BatteriesSubstation Site Preparation Cable - High Voltage Demolition Landscaping GaugesPower Pedestals Auxiliary Transformers Test Pitts Security Services

GUS Transformers Box Pads Coal Fitness For Duty ChemicalsDistribution Cutouts Substation Batteries Site Preparation Media Printing Caustic

Auxiliary Boilers Painting Bleach

Fuel Gas Pipeline Tank Erection Odorants

Uranium 12", 24", 36", Pipe Boiler Tubing and Fabrication IT Sulfuric AcidCoal 610mm Sour Services Fiber Burial Bulk Gases

Gas Mainline expansion Nuclear Software Agreements Sodium BisulphateCompressor oil Transmission Pipeline Construction Nuclear PVF IT storage & installation ResinFuel Handling System Pipe Sales (forward auction) Uranium Voice Com SystemsConveyor Belts Odorants Safety PVF

Transmission and Distribution

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Business Case

Utitlity Auction

Events Auction Volume Reported Savings

Utility A 15 228,204,587$ 42,544,990$ Utility B 20 133,495,906$ 30,451,786$ Utility C 38 158,854,310$ 26,219,722$ Utility D 40 96,623,038$ 14,669,393$ Utility E 15 56,982,380$ 9,722,606$ Utility F 9 35,906,000$ 9,489,500$ Utility G 29 45,502,097$ 7,838,847$ Utility H 24 37,015,026$ 4,746,826$ Utility I 9 29,104,432$ 3,954,432$ Utility J 15 14,243,700$ 3,872,700$

Statistics for top ten programmatic users of auctions sorted by savings

since January 2001.

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Closing Thoughts

It’s not all about the technology Auctions transform traditional markets into more efficient markets CAPS research concludes that on-line auctions will be a standard way to source goods and services