save on energy cost with a energy procurement reverse auction

Tools, Knowledge, and Expertisefor Successful Energy Transactions

Copyright © 2008 World Energy Solutions Inc.

A presentation on World Energy byRUSS Consulting Group LLC

Why RUSS Consulting Group partners with WorldEnergy

Overview of World Energy– Background

– Procurement Platforms

– Benefits

Contents

Copyright © 2008 World Energy Solutions Inc. 2

– Benefits

Case Studies

Next Steps

Why RUSS Consulting GroupPartners 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 transparentbidding process

Deliver a Compliant Procurement Approach


– The transparent reverse auction platform helps organizationsaddress Sarbanes-Oxley Section 404 requirements

Deliver Greater Customer Value– World Energy’s platform complements our existing services

World Energy Solutions

Bringing together intelligence and tools – enabling energybuyers to obtain the best price and meet compliance requirements

over $600Mover $600M

1 TCF1 TCF

over 50Mover 50M

over $10Bover $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

Never beaten bypaper-based RFP processon apples-to-apples basis


20%20%

5 – 155 – 15

3 – 73 – 7

2 – 10%2 – 10%

over 300over 300

over 12,000over 12,000

16x16x

over $600Mover $600M 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

ENERGYCOSTS

ENERGYCOSTS

CONFIDENCECONFIDENCE

on apples-to-apples basisEVEN NET OF OUR FEE!

Our Clients:Leader in Online Procurement

Government

Wholesale Utilities, Industrial, and Commercial


Government

United NationsVeteransAffairs

SocialSecurity

Dept ofJustice

Wholesale Utilities, Commercial & Industrial Clients, and Government Agenciestrust World Energy with their energy procurements

Maryland District of Columbia Massachusetts PennsylvaniaEPA

General ServicesAdministration

New Jersey DelawareConnecticut

‘Reverse Auction’ Process

Auction RFPs Energy


Auction RFPsare postedfor EnergyConsumers

EnergySuppliers Bid

Competitivelyfor Contracts

BenchmarkPrice

‘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


Source: New York Mercantile ExchangeFor demonstration purposes only. Prices are the average of 12-month seasonal forward pricing on date of prompt month’s NYMEX contract expiration.

RFP Architecting EnablesPrice Testing

Running multipleAuctions or runningmultiple scenariosthrough the Post &Respond enablesdiscovering the costs of


discovering the costs ofvarious parameters– Green Power Mix

– Pricing Product

– Term Length

– Credit Terms

– Special Conditions

Product and Feature Breadth

Commodities Pricing Products Auction Features

Electricity

Natural Gas

Green Credits– Renewable Energy

Credits

– GHG EmissionsCredits

Fixed (commodity/basis)

Index

Heat Rate

Capacity

Block

Baseload, no capacity

Proactive Procurement

Structured Event withFixed End Time

Unique HybridAnglo/Dutch Design

Final Blind Bid Feature


Credits Baseload, no capacity

% of the system

On-peak, Off-Peak

Financial or Physical

Final Blind Bid Feature

Event Type Procurement Type

Reverse Auction

Forward Auction

Post and Respond

Retail

Wholesale

Documentation and Reporting

Management Reporting and Data ServicesManagement Reporting and Data Services

Tariff Models Contract ManagementAccounts & Usage


Due Diligence and Audit BookDue Diligence and Audit Book

Management Reporting and Data ServicesManagement Reporting and Data Services

ProcessAudit Trail

RFPBid History

What is the Process?

Needs PlanningNeeds Planning Pre AuctionPre Auction Auction or P&RAuction or P&R ContractContract SupportSupport

• Review marketprice drivers

• Price to CompareAnalysis

• Terms

• Review fullanalysis basedon inputs &needs

• Understand

• Summarize Results

• Product

• Term

• Supplier

• Uploadcontracts,sites & usage

• Set renewaltrigger goals

• ProvidePreliminaryInformation

• Bills & Usage Data

• Site Information


OpportunityAssessmentOpportunityAssessment

• Terms

• Products

• Draft RFP

• RFP Approval

• UnderstandFactors

• Agree to takeaway price

• Results meetexpectations

• Review andfinalize contract

trigger goals

• Monitor

Run EventRun Event

• Site Information

• Current EnergyContracts

• Review Data

• Information andContracts

Submit RFP tosuppliers

Submit RFP tosuppliers

Sign ContractSign Contract Renew ContractRenew Contract

Benefits to the Customer

World Energy Exchange’s unique process:

Creates transparency, promoting competition anddriving down prices– Instant feedback forces suppliers to sharpen their pencils

Allows price discovery – you can test the market with avariety of scenarios to determine the pricing sweet spot


variety of scenarios to determine the pricing sweet spot

Simplifies bidding, reducing administrative costs forsuppliers 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

Benefits to the Customer

World Energy Exchange’s unique process:

Speeds up award times, minimizing risk premiums

Provides data management – All procurementinformation is captured on the platform– Secure access to data for various stakeholders (hierarchy)

– The Customer can run reports on contracts and bid history


– The Customer can run reports on contracts and bid history

– Complete auction and process documentation book suppliedfor audit purposes (Regulators, SOX)

Helps you achieve your objectives such as budgetcertainty, cost savings, and fulfillment of green energyrequirements at the least cost

Never Beaten by a Traditional RFP

Auction Design Optimizes Result forBuyer

– Auction drives bidding activity– Transparency forces hyper competition

amongst suppliers as end of auctionnears

– No auction gimmicks to create risk anduncertainty

Significant Market Liquidity– Supplier network of over 300 players

“The auction saves between 7 and 9%versus the paper-based RFP process weformerly used with our clients.”

Eric Hoegger,Cargill Energy Management Services


– Supplier network of over 300 players– Online nature attracts market entrants

by lowering their cost to acquire

Automation Enables Testing ofMultiple Consumer-Defined ContractParameters

– Pre Qualified suppliers compete onprice alone

– Customer can test different parametersto optimize price

Time Efficient– Contracts usually awarded within hours

of auction ending, enabling suppliersto minimize risk premiums in pricing

Better Pricing ThroughTechnology

“The World Energy Exchange is brutallyefficient at driving margins to the bareminimum.”

Andrew Owens,Entergy Solutions

6

8

10

Power Supplier Margin byProcurement Method

$4-8/MWh

World Energy’s unique methodology typically cuts supplier margins by30-80 percent.


0

2

4

6

$/MWh

$3-5/MWh

$0.25-2/MWh

Traditional RFPand Consultants

World EnergyExchange

Sole SourceSupplier

Sources: Restructuring Today, Supplier Annual Reports, and World Energy Supplier Survey

$0.08

$0.10

$0.12

Natural Gas Supplier Marginby Procurement Method

$.05-.10/Dth

Margins typically charged by suppliers when buyers use conventionalmethods of procurement as compared to supplier margins for buyerswho use World Energy’s unique platforms.


$0.00

$0.02

$0.04

$0.06

$/Dth

$.02-.05/Dth

$.005-.02/Dth

Traditional RFPand Consultants

World EnergyExchange

Sole SourceSupplier

Sources: Restructuring Today, Supplier Annual Reports, and World Energy Supplier Survey

Case Studies

Case Study:Multi-Site Fortune 400 Industrial

ResultsSituation

Integrated producer of steel productswith plants located across 4 statesand multiple utilities

Historically managed financial andphysical risks separately throughdifferent processes

Had proactively managed physical

Jointly designed a 2007 riskmanagement program thatcommenced in August 2005

World Energy facilitated over50 proactive procurementevents for customer

Copyright © 2008 World Energy Solutions, Inc. 1818

Had proactively managed physicalrisk for over 5 years through the Postand Respond system

Established goal of 5% year-on-yearsavings from 2006 to 2007 andsolicited World Energy’s help

Supply is now diversifiedacross 11 individual suppliers

Savings to date againstbudgeted targets haveamounted to approximately$2M

Produced 27% savings to date

Copyright © 2008 World Energy Solutions, Inc.

Case Study:Hospital Saves $3 Million

A Texas hospital had sole-sourcedwith one supplier

In cost cutting effort, they decidednot to automatically renew thecontract, choosing instead to hold acompetitive auction with WorldEnergy

Incumbent supplier was invited to bid

Over 40 bids were generatedin the auction

Faced with stiff competitionthe incumbent was forced toreduce its price

Supplier cut their bid by $3million in a multi-yearcontract in order to keep the

ResultsSituation


Incumbent supplier was invited to bidand spoke out against the auctionprocess stating that they had alreadyoffered the lowest price available

The hospital’s energy buyerproceeded with the auction, invitingthe supplier to submit their best bid ina competitive environment

contract in order to keep thecustomer

19Copyright © 2008 World Energy Solutions Inc.

Hospital saved $3 million by using thecompetitive auction process

Case Study:Ford Motor Company

ResultsSituation

Ford Motor Company desired to re-bidits natural gas supply

Their procurement consultant sentout RFPs to their top 5 suppliers

World Energy tapped its network ofsuppliers to participate in an auctionevent

Visible, real time biddingdrove price down

Suppliers, confident that withWE contract would beawarded to winning bidpromptly, cut their risk


event Online auction was conducted on the

day pricing from the RFPs was due

Going head-to-head, World Energy beat the paper RFPprocess by 18%

promptly, cut their riskpremiums

Ford got a lower price fromthe auction event than fromthe consultant’s RFPs


Case Study:Aggregation Group Member

Mass High Tech Council selected supplierof choice

VP of a member firm felt pricing toohigh, contacted World Energy to conductan auction

World Energy sent out invitations to bid

Online auction eventgenerated 39 bids

Incumbent bid below itscurrent rate, showing thecompetitive power of theauction

ResultsSituation

Copyright © 2008 World Energy Solutions, Inc. 21

World Energy sent out invitations to bidto supplier network

Council official contacted member’s CEOto advise against “wasting money” on anauction when they already had thelowest price

Member went on with auction, askingincumbent to bid with others

auction

Another supplier beat theincumbent, saving thecompany nearly 11% ofprevious price

21

Aggregation group member saved $90K


A new, privately-held specialtyhospital was in search of its firstenergy supply contract

Ethicus entertained a defaultquote from the incumbent supplier

The hospital’s design engineerreferred Ethicus to World Energy

Ethicus engaged World Energy to

Online auction eventgenerated 88 bids over sixtranches from five suppliers

Tested 12, 24 and 36 monthproducts, both 100%traditional and 5% green

36 month fixed product w/ogreen offered the best valuebut Ethicus was concernedwith their usage forecasts

ResultsSituation

Case Study:Ethicus Healthcare Management LLC.


Ethicus engaged World Energy tosecure the best possible price for adefined usage

Ethicus proceeded with thereverse auction process, howeveronly desired a fixed-priced, 12-month term due to usageforecasts

but Ethicus was concernedwith their usage forecasts

World Energy Market Directorwas able to secure 100%swing at no premium for the36 month term

World Energy helped providebudget certainty, savings andusage protection with a 100%swing

22Copyright © 2008 World Energy Solutions Inc.

Compared to quote from incumbent supplier,

Ethicus saved 27.5%

Case Study:Vesuvius

ResultsSituation

Vesuvius had been purchasingelectricity the same way theypurchased all materials – paper-basedRFPs

Vesuvius’ goal in using World Energywas to save time and gain morecontrol over electricity procurement

Eight suppliers responded toposting with initial or refreshedoffers

Vesuvius filtered out non-competitive suppliers over a 2-week process


control over electricity procurement The ability to shop the market over

time and evaluate alternatives wasimportant to them

Vesuvius selected World Energy’s Post& Respond platform

Post & Respond experience resulted in anew efficient approach to energy procurement

week process

Process was judged to be“seamless, quick and efficient”by Vesuvius management

Posted electricity and naturalgas forward procurement as aresult of initial auction success


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


Refinement of your Specific Product Requirements

Development of Electronic RFP

Finalize All Terms and Conditions During the Pre-Event ConferenceCall

Perform Final Verification of Supplier Participation

Conduct Auction Event or post to Post & Respond

Execute Transaction

save on energy cost with a energy procurement reverse auction

Business

world energy solutionsbringing

energy buyers

energy procurements

traditional energy procurement

successful energy transactions

best price

price review data rfp

auction event20