Save on energy cost with a energy procurement reverse auction

Tools, Knowledge, and Expertise
for Successful Energy Transactions

A presentation on World Energy by
RUSS Consulting Group LLC

Copyright © 2008 World Energy Solutions Inc.

Contents

 Why RUSS Consulting Group partners with World
Energy
 Overview of World Energy
– Background
– Procurement Platforms
– Benefits
 Case Studies
 Next Steps

2

Why RUSS Consulting Group
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 Energy’s platform complements our existing services

3

World Energy Solutions

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

over $10B Electricity, natural gas, financial instruments, and green credit transactions

over 50M Megawatt hours transacted over the Exchange
Never beaten by
1 TCF Volume of natural gas transacted over the Exchange paper-based RFP process
on apples-to-apples basis
over $600M Customer savings EVEN NET OF OUR FEE!
16x Volume of nearest competitor

over 12,000 Auction events conducted
CONFIDENCE
over 300 Registered suppliers
ENERGY
2 – 10% Typical customer discounts vs. traditional RFP COSTS

3–7 Suppliers per auction

5 – 15 Bids from each supplier per auction event

20% Frequency winning supplier outbids itself last minute to ensure a win

4

Our Clients:
Leader in Online Procurement
Wholesale Utilities, Industrial, and Commercial

Government

Social
General Services Dept of
Veterans United Nations
District of Columbia Massachusetts Pennsylvania
Maryland
Security
Administration Justice EPA
Affairs

New Jersey Delaware
Connecticut

Wholesale Utilities, Commercial & Industrial Clients, and Government Agencies
trust World Energy with their energy procurements
5

‘Reverse Auction’ Process

Auction RFPs Energy
are posted Suppliers Bid
for Energy Competitively
Consumers for Contracts

Benchmark
Price

6

‘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 Exchange
For demonstration purposes only. Prices are the average of 12-month seasonal forward pricing on date of prompt month’s NYMEX contract expiration.

7

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
–

8

Product and Feature Breadth
Commodities Pricing Products Auction Features
Electricity Fixed (commodity/basis) Proactive Procurement
Natural Gas Index Structured Event with
Fixed End Time
Green Credits Heat Rate
Unique Hybrid
– Renewable Energy Capacity
Anglo/Dutch Design
Credits
Block
– GHG Emissions Final Blind Bid Feature
Baseload, no capacity
Credits
% of the system
On-peak, Off-Peak
Financial or Physical

Event Type Procurement Type
Reverse Auction Retail
Forward Auction Wholesale
Post and Respond

9

Documentation and Reporting

Tariff Models Contract Management
Accounts & Usage

Management Reporting and Data Services

Process RFP
Audit Trail Bid History

Due Diligence and Audit Book

10

What is the Process?

Needs Planning Pre Auction Auction or P&R Contract Support

• Provide • Review market • Review full • Summarize Results • Upload
Preliminary price drivers analysis based contracts,
• Product
Information on inputs & sites & usage
• Price to Compare • Term
needs
• Bills & Usage Data Analysis • Set renewal
• Supplier
• Understand trigger goals
• Site Information • Terms
• Results meet
Factors • Monitor
• Current Energy • Products expectations
• Agree to take
Contracts • Draft RFP • Review and
away price
• Review Data • RFP Approval finalize contract
• Information and
Contracts

Opportunity Submit RFP to
Run Event Sign Contract Renew Contract
Assessment suppliers

11

Benefits to the Customer

World Energy Exchange’s 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

12

Benefits to the Customer

World Energy Exchange’s 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

13

Never Beaten by a Traditional RFP

 Auction Design Optimizes Result for
Buyer “The auction saves between 7 and 9%
– Auction drives bidding activity versus the paper-based RFP process we
– Transparency forces hyper competition formerly used with our clients.”
amongst suppliers as end of auction
nears Eric Hoegger,
Cargill Energy Management Services
– No auction gimmicks to create risk and
uncertainty
 Significant Market Liquidity
– Supplier network of over 300 players
– Online nature attracts market entrants “The World Energy Exchange is brutally
by lowering their cost to acquire efficient at driving margins to the bare
 Automation Enables Testing of minimum.”
Multiple Consumer-Defined Contract Andrew Owens,
Parameters Entergy Solutions
– Pre Qualified suppliers compete on
price alone
– Customer can test different parameters
to optimize price
Better Pricing Through
 Time Efficient
Technology
– Contracts usually awarded within hours
of auction ending, enabling suppliers
to minimize risk premiums in pricing

14

Power Supplier Margin by
Procurement Method
World Energy’s unique methodology typically cuts supplier margins by
30-80 percent.
10

$4-8/MWh
8

6
$3-5/MWh
4

$0.25-2/MWh
2

0
Sole Source Traditional RFP World Energy
$/MWh Supplier and Consultants Exchange

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

15

Natural Gas Supplier Margin
by Procurement Method
Margins typically charged by suppliers when buyers use conventional
methods of procurement as compared to supplier margins for buyers
who use World Energy’s unique platforms.
$0.12

$.05-.10/Dth
$0.10

$0.08

$0.06
$.02-.05/Dth
$0.04

$.005-.02/Dth
$0.02

$0.00
Sole Source Traditional RFP World Energy
$/Dth Supplier and Consultants Exchange

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

16

Case Study:
Multi-Site Fortune 400 Industrial

Situation Results
 Integrated producer of steel products  Jointly designed a 2007 risk
with plants located across 4 states management program that
and multiple utilities commenced in August 2005
 Historically managed financial and  World Energy facilitated over
physical risks separately through 50 proactive procurement
different processes events for customer
 Had proactively managed physical  Supply is now diversified
risk for over 5 years through the Post across 11 individual suppliers
and Respond system
 Savings to date against
 Established goal of 5% year-on-year budgeted targets have
savings from 2006 to 2007 and amounted to approximately
solicited World Energy’s help $2M

Produced 27% savings to date

18
Copyright © 2008 World Energy Solutions, Inc.

Case Study:
Hospital Saves $3 Million

Situation Results
 A Texas hospital had sole-sourced  Over 40 bids were generated
with one supplier in the auction
 In cost cutting effort, they decided  Faced with stiff competition
not to automatically renew the the incumbent was forced to
contract, choosing instead to hold a reduce its price
competitive auction with World  Supplier cut their bid by $3
Energy million in a multi-year
 Incumbent supplier was invited to bid contract in order to keep the
and spoke out against the auction customer
process stating that they had already
offered the lowest price available
 The hospital’s energy buyer
proceeded with the auction, inviting
the supplier to submit their best bid in
a competitive environment

Hospital saved $3 million by using the
competitive auction process
19

Case Study:
Ford Motor Company

Situation Results
 Ford Motor Company desired to re-bid  Visible, real time bidding
its natural gas supply drove price down
 Their procurement consultant sent  Suppliers, confident that with
out RFPs to their top 5 suppliers
WE contract would be
 World Energy tapped its network of awarded to winning bid
suppliers to participate in an auction
promptly, cut their risk
event
premiums
 Online auction was conducted on the
 Ford got a lower price from
day pricing from the RFPs was due
the auction event than from
the consultant’s RFPs

Going head-to-head, World Energy beat the paper RFP
process by 18%
20

Case Study:
Aggregation Group Member

Results
Situation
 Mass High Tech Council selected supplier  Online auction event
of choice generated 39 bids
 VP of a member firm felt pricing too  Incumbent bid below its
high, contacted World Energy to conduct current rate, showing the
an auction competitive power of the
auction
 World Energy sent out invitations to bid
to supplier network  Another supplier beat the
incumbent, saving the
 Council official contacted member’s CEO
company nearly 11% of
to advise against “wasting money” on an
previous price
auction when they already had the
lowest price
 Member went on with auction, asking
incumbent to bid with others

Aggregation group member saved $90K

21

Case Study:
Ethicus Healthcare Management LLC.
Situation Results
 Online auction event
A new, privately-held specialty

generated 88 bids over six
hospital was in search of its first tranches from five suppliers
energy supply contract
 Tested 12, 24 and 36 month
Ethicus entertained a default
 products, both 100%
quote from the incumbent supplier traditional and 5% green
The hospital’s design engineer  36 month fixed product w/o

green offered the best value
referred Ethicus to World Energy
but Ethicus was concerned
Ethicus engaged World Energy to
 with their usage forecasts
secure the best possible price for a  World Energy Market Director
defined usage was able to secure 100%
Ethicus proceeded with the swing at no premium for the

36 month term
reverse auction process, however
only desired a fixed-priced, 12-  World Energy helped provide
budget certainty, savings and
month term due to usage
usage protection with a 100%
forecasts swing

Compared to quote from incumbent supplier,
Ethicus saved 27.5%
22

Case Study:
Vesuvius

Situation Results
 Vesuvius had been purchasing  Eight suppliers responded to
electricity the same way they posting with initial or refreshed
purchased all materials – paper-based offers
RFPs
 Vesuvius filtered out non-
 Vesuvius’ goal in using World Energy
competitive suppliers over a 2-
was to save time and gain more
week process
control over electricity procurement
 The ability to shop the market over  Process was judged to be
time and evaluate alternatives was “seamless, quick and efficient”
important to them by Vesuvius management
 Vesuvius selected World Energy’s Post
 Posted electricity and natural
& Respond platform
gas forward procurement as a
result of initial auction success

Post & Respond experience resulted in a
new efficient approach to energy procurement

23

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

24

Thank You

RUSS Consulting Group LLC
Michael A. Russell
President/CEO
877-250-1905


Save on energy cost with a energy procurement reverse auction

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