ENERGY PROCUREMENT FOR THE 21ST CENTURY E N E R G Y A U C T I O N - PDF document

ENERGY PROCUREMENT FOR THE 21ST CENTURY E N E R G Y A U C T I O N E X C H A N G E

Table of Contents (a) Deregulation: The Basics (b) Electricity 101 (c) Index vs. Fixed Rates (d) Mission (e) Problems With Selling And Procuring Energy (f) EAE Model/Process (g) Benefits (h) Buyer/Seller Advantages (i) Reverse Auction Vs. RFP’s (j) Sales Goal (k) Contract Process (l) Bidding Process (m) Tips For Success 2

Deregulation: The Basics • Until recently, the Electric Utility Industry was regulated. Each Electric Utility served a franchise territory and provided all three • components of your electric service: Generation, Transmission, and Distribution . Customers could only purchase electricity from the Electric Utility serving • their area (monopoly). The price at which each utility charged its customers for electricity was • regulated by the Public Service Commission. 3

Deregulation: The Basics (continued) •Now, with deregulated electricity supply markets throughout the United States, there are substantial electricity cost savings for companies willing to take the time to explore the opportunities. •Legislatures and the Public Utility Commissions of many states have opened retail competition for Electricity Supply. • The generation and transmission components are combined and called “Supply” and the distribution component is called “Delivery” . • The electricity “Supply” is open to competition, so the customer has a choice of the company that supplies them with electricity, even though it is still “Delivered” by the Utility. • The Utility’s role is the portion that remains regulated – the “Delivery” of power to the customer’s location. Delivery is the utility’s main focus and business. • The Local Utility’s primary goal is to deliver electricity, read the meter and make sure the power stays on. 4

Electricity 101 Power companies charge by the power customers consume. Any electrical instrument will consume certain power when in use and this consumption is measured in watts (W) or kilowatts (KW). Energy consumed is measured in terms of power consumed within a specified time (H, in hours). So, Energy = Power x Time. kWh = KW X H

Electricity - Supply and Delivery

Electricity-Supply and Delivery Supply Host Utility (Delivery of Electricity) U Generator Distribution/Consumers Transmission 3 1 2 Power passes through Electricity Generated in High Voltage lines transmit switches to distribution many ways. Power is electricity to the power grid. The lines. Power is delivered to ramped up by Step Up ISO monitors this process consumer. Transformer to high voltage between marketeers,,buyers, to transmit over long suppliers. Power is reduced to distances lower voltage for distribution. 7

Index Versus Fixed INDEX Commodity is purchased based on market price at the time the commodity is used. It is a variable price that changes monthly. Supplier does not add a premium to cover fluctuations, because pricing is real time. Savings are passed along to customer. COST + ADDER FIXED Average forward curve is projected and guaranteed over the term of the contract. Supplier adds 15% premium or more to cover risk and usage fluctuations. If projected price is under estimate, supplier makes profit on margin. COST + PREMIUM + HEDGE COST

Mission • Our goal at Energy Auction Exchange is to provide our clients the absolute lowest prices on energy supply in the most efficient and transparent manner.

The Problem With Selling Energy Today • Cumbersome Process • Most larger customers are under contract • Competitive • Price driven • Fight for customer at every renewal • Not process driven

Problems That A Customer Has With Procurement • Procurement process for companies is painful and time consuming • Bidding is not done in a open format • Usually customer is not getting lowest price or margin from supplier • Large Company’s generally need procurement to meet strict standards

Building the EAE Model • We know we needed a exclusive agreement with customer • We know we needed a unique and valuable process to get that exclusive agreement • Had to be process not price driven • Meet strict procurement standard • Get customer the lowest price

Simple Four Step Process • Energy Profile • Auction Date Scheduled • Login to Live Auction • Review and Sign Contract

Energy Auction Exchange Process • Orientation Call – In our orientation call, we obtain the necessary information from you in order to invite suppliers to your auction event. We also discuss the contract and pricing terms you are looking for, as well as the auction preferences you would like. Before the call is through, your auction will be scheduled, and an invitation will be sent to you with your login info to view your auction live. • Auction Event – The auction event usually lasts between 5 -15 minutes. You will be logged in to watch the event live. You will see each suppliers bid submitted in real time, and in the last minute, you will see suppliers even outbid themselves, as the last minute is run “blind”, to give each supplier one last chance to win your business. The result—the true rock bottom price. • Implementation – Immediately after the auction is completed, a post- auction results report is generated. Together with your auction manager, you review the report, the winning bid, and the contract details that you specified in the orientation call. Since you dictate the contract terms, and set the parameters before the auction event, most contracts are executed within an hour of the completed auction. Fast, Simple, and Straight- Forward.

Benefits of Energy Auction Exchange • 10 – 20% Savings over traditional energy procurement • Set your contract terms before the auction happens, instead of after you receive a bid • Speed- Auction process is 4-5 times faster than traditional energy procurement • Real Time bidding results • Transparency-Completely transparent process • Competition ensures level playing field between suppliers/larger supplier pool(over 30 suppliers) • Compliance is built in • 75% less paperwork

Auction Savings 20% Savings 20% Savings

Buyer Advantages • Set Contract Terms(Total Control) • Competitive Bidding Platform • Open/Objective/Transparent Process/No RFP • Keep Suppliers Honest/Forced To Compete • No Preference Toward One Supplier • Leverage • Efficient/Less Time Consuming/Time Can Be Used For More Stategic Initiatives • Bid Reports • Solidify Relationships By Providing An Even Playing Field • Drives Pricing To Levels That Cannot Be Achieved In One on One Negotiations • 10-20% Savings Above The Direct Suppliers Pricing

Selling Agent Advantages • Price vs. Process • Consolidation of Sales Process • Ability to Close Even If Customer Is Under Contract • Exclusivity • Closing Rate Higher

Reverse Auctions VS. RFP’S(Request For Proposals) • Online auctions can provide significant price transparency and control that the paper-based RFP process does not always provide. • With the reverse auction approach, price quotes are delivered in real-time via a Web-based platform, which results in dynamic bidding and helps achieve rapid downward price pressure that is not normally achieved using conventional paper-based bidding RFP procurement • With an RFP suppliers generally might not want to respond since request are not “cookie cutter,” as they know there is a large time commitment involved to respond, • Because of this many suppliers either will opt not to participate or will take these “risk” or “cost” into account, which will result in higher bids and less bids. • To ensure the most broad participation and validate interest from the market a Reverse Auction process is a much better process to provide important information to suppliers. The efficiency of the marketplace will increase the participation from the suppliers and real-time transparent bidding will help to

Reverse Auction vs. RFP’s Traditional Paper RFP Method • 1-3 Month Process • Paperwork/Time Intensive • Takes Away Organization Resources From More Strategic Initiatives • Static Bidding • Bid Revising Takes Too Long • 2-5 Supplier Pool/Low Competitveness • Higher Costs • Cumbersome Compliance

Reverse Auction VS. RFP Auction Process • 1-2 Week Process/30 Minute Bidding Process • Automated System • Dynamic, Real Time Bidding • Bid Revising Happens in Real Time • 5-15 Supplier Pool/Very Competitive/Increase in Competitive Bidding • Suppliers Offer Electricity At Best Possible Price • Built In Compliance/Transparency • Streamlined Buying Process • Allows Organization To Focus On More Strategic Projects • Helps Make Suppliers More Efficient • Reduce internal Cost To Organizations • 10-20% Lower Final Bid

Sales Goals / Expectations • Company Commission Plan Commissions are paid monthly. • You are paid in the month following receipt of payment from your customer • based on ‘Actual’ kWh usage. This typically takes 90 - 120 days from actual enrollment of customer . • 22