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

E N E R G Y A U C T I O N E X C H A N G E

ENERGY PROCUREMENT FOR THE 21ST CENTURY

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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

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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.

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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
• pened 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.

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

Generator Transmission

Distribution/Consumers 2 1 3

High Voltage lines transmit electricity to the power grid. The ISO monitors this process between marketeers,,buyers,

• suppliers. Power is reduced to

lower voltage for distribution. Electricity Generated in many ways. Power is ramped up by Step Up Transformer to high voltage to transmit over long distances Power passes through switches to distribution

• lines. Power is delivered to

consumer.

U

Supply Host Utility (Delivery of Electricity)

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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

• utbid themselves, as the last minute is run “blind”, to give each supplier
• ne 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

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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.

Benefits of Energy Sales

Easy – All you need to do is sell auction concept get bid agreements signed and we do everything else Residual Commissions – Your commissions are paid monthly for life of energy contract Potential for Earnings Growth – As you sign up additional companies your monthly check will grow Renewals – Unlike other contracts this one should renew at the end of each cycle – Potential for very long term income stream

Contract Process

Sales Representive

• Agreement
• LOA(Letter of Authorization)
• Copy of a bill(only 1 month)
• Forward all information and agreements to Bill Schiman

(bschiman@energyaex.com).

• Bill will check the paperwork to make sure it is in order.
• If all is in order then the paperwork will be forwarded to EAE’s operations

group

Bidding Process

• EAE Receives Paperwork
• Within 24-48 Hours EAE Conducts a Welcome Call With The Customer

(Typically 20-30 minutes).

• Customer Sets Terms And Conditions
• EAE Sends Terms and Conditions To Suppliers
• Suppliers Adhere To Terms and Conditions And Are Entered Into The

Bidding Pool

• Once All Suppliers Are Gathered A Time For Auction Is Set
• Auction Is Conducted
• Bid Report Is Given To Client
• Client Accepts Bid
• EAE Sends An Agreement From The Winning Supplier
• Client Signs The Agreement And Returns It To Sale Representative
• Sales Representative Sends To Bill Schiman
• Bill Schiman Sends Agreement for Processing

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Tips for Success

• Everyone’s a potential customer – get those utility bills! A lot of small

customers add up.

• Keep it simple.
• As with any sale, it’s about building relationships; the customer must trust

you.

• Persistence & Organization
• Sell the process not the just a price
• They’re shopping price, but more importantly they’re buying you and the

process

• Active listening; pay attention for the closing signs.
• Don’t be afraid to ask for the sale.

Contact

Bill Schiman Energy Auction Exchange Phone - 513-309-8313 eFax - 301-576-7558 email - bSchiman@energyaex.com