Energy supply procurement services to improve the transaction process and help you get the most competitive prices Florida Public Service Commission July 19, 2002 Mike Borden, Director Southeast Services

Typical RFP Process 1- 9 Months or more Issue Your RFP Internal Process Responses Review Revise Evaluate Rank Negotiate Internal Process Difficult to explain selection process No economy of scope ?

Open, verifiable and documented process that withstands external scrutiny Competitive pressure lowers price Best bid wins Lower transaction costs Quick turnaround lowers prices Reduces margin bidders add to cover risk of holding prices open or reserving resources Auction Advantages over Bilateral Negotiations

The Auction Process Works for Capacity and Energy Create Competition Rank Bids Select Winners Auction Process Post Your RFPs Internal Process One time effort to develop: Replicable process Standard contract Selection Criteria Preferred product(s) Supplier Bids They know the selection criteria Product is clearly defined 1 Day Auction Short time frame makes bids more competitive Responses

Choose an appropriate contract structure Tolling, purchase, other Standardize non-price elements Develop transparent/objective selection criteria Design straightforward rules that convince bidders they have an opportunity to win The Keys to a Successful Auction are Preparation and Credibility

Direct Competition During an Auction Price Movements During an April 2002 Auction

Capacity Auction Example Tolling Contract Structure Non-price Terms and Conditions Contractual full load heat rate, capacity availability, variable 0&M, and others Selection Criteria Rank based on total annual cost i.e. A function of capacity price ($/mw-yr, including fixed O&M), capacity factor and energy price [suppliers could also bid a heat rate] Clearly defined adjuster(s) for location Auction Rules Buyer conducts a two-stage Anglo-Dutch auction among pre-qualified sellers. Buyer participates in some way in the auction.

Some Examples of Auction / Utility Interaction Utility Submits Sealed Bid Before Auction –Bid is binding –Best Auction Bid wins if it tops the sealed bid Utility Establishes a Reserve Price –Revealed/Not revealed until after the auction –A predetermined minimum quantity is allocated to non- utility bidders if they beat the reserve –Utility has opportunity to beat their own reserve Utility Participates in Auction as a Bidder –If utility is not successful bidder they are out