COMPANY CONFIDENTIAL An Introduction to World Energy: Mark Burns Independent Energy Consultants January 2007.

COMPANY CONFIDENTIAL

An Introduction to World Energy:

Mark Burns

Independent Energy Consultants

January 2007

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CONFIDENTIAL

An eBay for Energy…

World Energy brings together the intelligence and tools to enable energy buyers to procure energy more efficiently while reducing cost and limiting risk.

ENERGYCOSTS

CONFIDENCE

• Have procured over $1,600,000,000 in electricity, natural gas, fuels, wholesale power, green credits and financial instruments

• Ranked #1 by Retail Energy Analyst KEMA of 280 Aggregators, Brokers and Consultants

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… but More than Just Auctions

• Market Rules Intelligence

• Future Price Trend Analysis

• Aggregation Marketing

• Load Pulling, Database Build

• Tariff Analysis

• Supplier Sourcing and Vetting

• Contract Terms Analysis

• RFP Structuring– Products– Contract Terms– Green Power Mix– Tranche Architecting– Signatory

• Solicitation Development

• Process and Project Management

• Reverse Auction Price Discovery

• Decision Analysis

• Contracting Support

• Process Audit and Compliance Documentation

• On-going Contract, Site and Usage Monitoring

• On-going Support

• Management Reporting

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Intelligence & Tools = Success

Where

State by State Deregulation and

Commodity Volatility Drive Purchasing

Viability

When

Price Trends and Customer Risk Profile Signal Market Timing

How

Price Discovery Tool and

Supplier Depth Determine Final

Cost

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World Energy

• Ranked #1 by KEMA

• 5x nearest competitor

• $1.6 Billion in Energy

• 24,000,000,000 kWh Electricity

• 52,000,000 dth Natural Gas

• 300 clients saving $200,000,000

• 100 deregulated utility markets

• 9 Government Awards

World Energy – By the Numbers

Exchange

• 1000+ Auctions 18 months

• 200+ unique suppliers

• 450 registered users

• 3-7 suppliers bid 5-15 times

• Winning supplier outbids 20%

• 0 defeats to Paper-based RFP

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World EnergyLeader in On-line Procurement

Government

Property Management, Industrial, and Commercial

United Nations

Veterans Affairs

Social Security

Dept of Justice

MarylandDistrict of ColumbiaMassachusetts Pennsylvania Montgomery County

EPA

General Services Administration

HomelandSecurity

Federal, State and Local Government Agencies and many Fortune 500™ companies trust World Energy with the online procurements

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Market Leader: Awards

• Over the Past 4 years we have enabled clients to be recognized by their peers and superiors in winning 9 prestigious awards

• Awards for either – Use of innovative technology

– Procuring green power

– Business best practices

• Winners include

– Boyd Rutherford, Secretary of State, MD

– Linda Collins, Director, NGAP

– GSA Region 2

– Energy Center of Expertise

– Large Northeast Utility

Louis R. Harris, Jr. Award

Presidential Award

Innovative Technology Award

GSA Environmental Award

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Market Leader: Awards

• Over the Past 4 years we have enabled clients to be recognized by their peers and superiors in winning 8 prestigious awards

• Awards for either – Use of innovative technology

– Procuring green power

– Business best practices

• Winners include

– Boyd Rutherford, Secretary of State, MD

– Linda Collins, Director, NGAP

– GSA Region 2

– Energy Center of Expertise

– Large Northeast Utility

Louis R. Harris, Jr. Award

Presidential Award

Innovative Technology Award

GSA Environmental Award

Named “Outstanding Program”

in June 2005 for any cost saving program

of any kind in any of the 50 states

at NASCA/NASFA joint conference.

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Market Intelligence Module

• Platform contains market analysis for all deregulated markets

• Wholesale Pricing trends

• Market Characteristics

– Switch Rules

– Regulatory History

– Rate Classes

• Current Go-to-Market recommendation

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Gas OnlyElectricity and GasLimited / No Competition

AlbertaOntario

Broadest Market Coverage

World Energy’s broad market coverage (37 States, 100+ Utilities)

enables us to support Clients with locations across the country

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Why the Exchange beats Paper RFPs

• Hybrid Anglo-Dutch Auction Design

– Direct Entry vs Proxy Bid

– Fixed End time vs “Popcorn” bidding

• Suppliers are required to bid to see current winning auction price

• Strategies to prevent gaming

– Number of auction participants not revealed

– Bid history not revealed

– Leading supplier not revealed

• Consistent terms enable true apples-to-apples comparison

• Exacting tariff analysis creates Price-to-Compare benchmarks to alert suppliers to maximum acceptable bid

• “RFP Architecting” - Multiple short duration auctions on same or similar loads divine the pricing of different parameters and contract terms

• Rapid Awards minimize supplier exposure, causing them to apply lower risk premiums to bids

Engineering and Design Operations and Process

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Why the Exchange beats Paper RFPs

• Hybrid Anglo-Dutch Auction Design

– Direct Entry vs Proxy Bid

– Fixed End time vs “Popcorn” bidding

• Suppliers are required to bid to see current winning auction price

• Strategies to prevent gaming

– Number of auction participants not revealed

– Bid history not revealed

– Leading supplier not revealed

• Opening Price on average 15-20% above Price-to-Compare to ensure maximum participation

• Price-to-Compare benchmarks to alert suppliers to maximum acceptable bid

• “RFP Architecting” - Multiple short duration auctions on same or similar loads to divine the pricing of different parameters and contract terms

• Rapid Awards minimize supplier exposure, causing them to apply lower risk premiums to bids

Engineering and Design Operations and Process

In designing our auction, we studied all the

literature and best practices and have been in

contact with the world’s leading economists -

from MIT, U Chicago and Oxford – including Paul

Klemperer and Steve Levitt, author of

Freakonomics.

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Approach to Yield Lowest Price

% o

f Tota

l S

avin

gs

0%

20%

40%

60%

80%

100%

Dynamic Auction vs Traditional Methods: Suppliers bidding creates a more competitive atmosphere and demonstrates real time bidding dynamics; shrinking time suppliers hold their prices causing them to bid more aggressively.

Direct Bid Entry vs Proxy Bid: Causes suppliers to lower their bid by more than the minimum amount to win.

Fixed End Time vs Overtime Format: Having a hard stop causes the last bid to be “blind” and for suppliers to put their best bid as their last.

25%

35 -40%

35 -40%

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Reverse Auction Process

Auction RFP’sare posted for Energy Consumers

EnergySuppliers BidCompetitivelyfor Contracts

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Reverse Auction Process

Auction RFP’sare posted for Energy Consumers

EnergySuppliers BidCompetitivelyfor Contracts

“The auction saves between 7 and 9% versus the paper-based RFP process we formerly used with our

clients.”Eric Hoegger, Cargill Energy Management

Going head-to-head with a traditional RFP run by my consultant, the World Energy Exchange

delivered a price 18% lower than my consultant’s paper process.”

Ford Motor Company

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Reverse Auction Process

Auction RFP’sare posted for Energy Consumers

EnergySuppliers BidCompetitivelyfor Contracts

“Our incumbent supplier tried to discourage us going to auction by delivering a pre-emptive renewal price. We made them participate in the auction, and not only did

they better their price in the auction, but another supplier bid even lower, saving me $90,000 versus if I

had accepted the incumbent’s pricing proposal.”Millipore Corporation

“We call our suppliers and negotiate a fair price, then we run it through an auction to get the best price.”

Boeing in The World is Flat

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Supplier Margins

Sources: Restructuring Today, Supplier Annual Reports, World Energy Supplier Survey, Sales Interviews

Mils

0

1

2

3

4

5

6

7

8

9

Sole Source Traditional RFP Auction

High End of Range

Low End of Range

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Supplier Margins

Sources: Restructuring Today, Supplier Annual Reports, World Energy Supplier Survey, Sales Interviews

Mils

0

1

2

3

4

5

6

7

8

9

Sole Source Traditional RFP Auction

High End of Range

Low End of Range

“We can bid up to 20 cents lower [per decatherm for natural gas] because I have lower operational costs due to the quality of the data World Energy

provides.”Natural Gas Supplier

“I build in less risk premium in my price because World Energy closes deals so quickly after

conclusion of the auction.”Electricity Supplier

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Supplier Margins

Sources: Restructuring Today, Supplier Annual Reports, World Energy Supplier Survey, Sales Interviews

Mils

0

1

2

3

4

5

6

7

8

9

Sole Source Traditional RFP Auction

High End of Range

Low End of Range

“I know where I stand as the auction ends, so if I don’t win I can quickly liquidate any positions I’ve

taken to cover my risk.”Electricity Supplier

“The World Energy Exchange is Brutally Efficient at Driving Margins to the Bare Minimum.”

Manager C+I Marketing, National Energy Supplier

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Product and Feature Breadth

• Commodities– Electricity– Natural Gas– Fuels (Heating Oil, Diesel,

Propane, Jet Fuel, Gasoline)– Green Credits (RECs,

Emission Credits)– Financial or Physical

• Pricing Products– Fixed– Index– Heat Rate– Capacity– Block– Baseload, no capacity– % of the system

• Auction Features– Closed Auction– Fixed End Time– Blind Bidding– Bids lower than

opening price

• Event Type– Reverse Auction– Forward Auction

• Procurement Type– Retail– Wholesale

• Account Type– Full Service– Self Serve

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Multiple RFPs to Test Pricing Dynamics

• Term

• Rate Class

• Load Profile

• % Green Mix

• Utility Territory

• Pricing Product

– Fixed

– Indexed

– Block

– Baseload

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RFP Architecting

Intelligent sequencing of RFPs yields bidding behavior that favors the customer

After losing the first RFP, Supplier 3 submits a last bid 2.8 mils lower than the current lowest bid and 1.9 mils lower than the

second lowest bid.

Auction1

Auction2

Supplier 1

Supplier 1Supplier 1

Supplier 3

Supplier 3

Supplier 3

Supplier 1

Supplier 5

Supplier 1

Supplier 4

Supplier 1

Supplier 4

Supplier 2

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Elements of a Successful Procurement

• Documented process for Sarbanes-Oxley compliance

• Best of Breed Reverse Auction Process

– Proven to Secure the Lowest Price in the Market

– Provides an Array of Pricing Parameters

• Market Expertise and Pricing Knowledge

• Energy Procurement Experience

Delivered Using a State of the Art Web-Enabled Software Suite Specifically Designed for Energy Procurement Management

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Auction Scenario 1

• 104 m kWh

• Various Terms run to test pricing

• 12 Bid Auction

• Great pricing yields 9% Savings over Price -to- Compare

• Winning supplier outbids themselves to secure the load!

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Auction Scenario 2

• 44 m kWh

• Various Terms and Green Power Components run to test pricing

• Great pricing yields 11% Savings

• 5% Green Power Auction results in equivalent pricing as 0% Green run earlier

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SOX Compliance – Process Audit Trail

Tariff Class TRANCHE (ACCOUNT GROUPING)

ANNUAL KWH

# OF ACC. TERM IN MONTHS

Sensitivity Case (0% Annual Cost

Increase)

Base Case (5% Annual Cost

Increase)

Moderate Growth Case (10% Annual

Cost Increase)

Expected Value (10% Sensitivity, 55% Base,

35% Moderate)BPL, GLP 3,040,904 30 24 0.0609 0.0627 0.0644 0.0631BPL, GLP 3,040,904 30 30 0.0609 0.0636 0.0664 0.0643BPL, GLP 3,040,904 30 42 0.0609 0.0652 0.0697 0.0663

LPLS 13,550,480 5 24 0.0650 0.0669 0.0689 0.0674LPLS 13,550,480 5 30 0.0654 0.0684 0.0714 0.0691LPLS 13,550,480 5 42 0.0658 0.0705 0.0754 0.0717

BPL, GLP, LPLS C 4,478,818 9 24 0.0616 0.0635 0.0653 0.0640LPLP 10,396,800 2 24 Hourly N/A Hourly N/A Hourly N/A Hourly N/ALPLP 10,396,800 2 30 Hourly N/A Hourly N/A Hourly N/A Hourly N/ALPLP 10,396,800 2 42 Hourly N/A Hourly N/A Hourly N/A Hourly N/A

D, E

A

B

Price to Beat ($/kWh, no taxes)

Deal Task Tracking Tariff Modeling RFP Bid History

Usage Tracking Contract Reporting

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What is the Process?

Needs Planning Pre Auction Auction Contract Support

Opportunity Assessment

Review market price drivers

Price to Compare Analysis

Draft RFP

RFP Approval

- Terms

- Index/Fixed

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 Reverse Auction

Provide Preliminary Information

- Bills & Usage Data

- Site Information

- Current Energy Contracts

- Review Data

Information and Contracts

Submit RFP to suppliers

Sign Contract Renew Contract

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World Energy & You

• World Energy as a toolset

– Reduce energy costs

– Auditable process trail

• Verify Account Enrollment, upload & update contracts

• Monthly check on charges, payment & usage upload

• Advise and research papers on energy matters

• Access to bid history, forward wholesale charts

• Access to Market Intelligence and Opportunities

• Renewal Triggers set and implemented

COMPANY CONFIDENTIAL

Thank you!

Mark Burns

Independent Energy Consultants