James A' Ajello

1
Making the Texas CI Market Work
Gulf Coast Power Association Spring, 2002
Conference
James A. Ajello President Reliant Energy
Solutions
April 3, 2002
2
Reliant Energy Solutions Overview

• Integrated energy services company serving
  large Commercial, Industrial and Institutional
  (CI) clients
• What we do . . .
• Reduce energy costs
• Manage energy price risks
• Improve facility efficiencies
• How we do it . . .
• Tailored commodity products (Texas)
• Energy management services (USA)
• Reliant Energy is. . .
• One of the nations leading wholesale and retail
  merchants of electricity, natural gas and
  complementary services.

3
Texas Choice and Deregulation

• While deregulation may have been set back
  nationally, the reports of its death are greatly
  exaggerated Texas is alive and well
• In Texas, the lights stayed on and large CI
  clients saved lots of
• In the second half of 2001, more than
  one-half of the large CI market signed
  term contracts
• The demise of Enron was a fairly minor
  occurrence in the launch of the Texas market

4
Texas Choice Accomplishments
Reliant Energy Solutions has

• Closed 350 transactions (gt20,000 customer
  locations)
• 6000 MW at peak delivery (gt34 ERCOT
  share)
• Attacker and defender role
• Healthy margins
• Complex, negotiated transactions (11
  products)
• 10 of transactions have multiple products
• Established Reliant Energy as first
  mover, one of the most broad-based, active
  and client- focused players in the CI segment

5
Texas Choice Accomplishments
Reliant Energy Solutions has

• Created a portfolio of diverse, high-quality
  clients to up-sell additional products and
  services
• Built a first-class team, reflecting the
  best of the old and new Reliant Energy
• Helped underwrite the growth of the Retail
  Group to prepare for Texas Electric Choice

6
Competition for CI Customers
Reliant TXU Sempra
AES New Energy Strategic Energy Dynegy BP First
Choice Entergy
7
Lessons Learned

• Complexity under estimated, sole focus on savings
• Clients needed to work more than anticipated to
  arrange favorable outcomes
• New diagnostic tools (Energy Commander)
  facilitated process
• High-tech, Web-based diagnostic tool to
  collectreal-time energyinformation
• Customer-side energy usage and cost control

8
Lessons Learned

• Clients often motivated by short-term movements
  in gas and power prices
• Volatility can help and hurt
• Clients learned value of Wholesale-Retail
  linkages
• Risk management tools important
• Scale and market access critical

9
Lessons Learned

• Electronic systems and handoffs are more
  complicated than anticipated
• Data handoffs often stymied by defective data and
  inflexible systems
• Clients less focused on service offerings and
  more inclined to make commodity purchases
• Avoid short-sighted focus on commodity price
• Look for a company with product development
  expertise

10
Lessons Learned
Clients should. . .

• Take advantage of asset, energy efficiency
  side of business
• Select a company that understands both
  commodity and energy management
• Do not disassociate commodity purchases and
  energy efficiency
• Evaluate market players from risk management
  perspective, not purely from procurement point
  of view
• Make apples-to-apples comparisons

11
Lessons Learned
If we could do it all over. . .

• More testing for a longer period of time
• Full six-month pilot program
• Perfect the switching routines
• Complete six billing/invoice cycles
• Phase in start of competition for different
  segments
• CI vs. Residential
• Get lucky with natural gas pricing

12
Summary

• Texas Choice/Deregulation is off to an active
  start with a variety of competitors serving
  more than 50 of the large CI market
• Early systems issues can be resolved in the near
  term
• Large CI clients participating in the process
  are realizing substantial savings
• The Texas model for Choice has the potential to
  expand to other locations, taking into
  account Lessons Learned

13
A Final Thought
If you want to succeed you should strike out on
new paths rather than travel the worn paths of
accepted success. - John D. Rockefeller,
Jr.
14
Making the Texas CI Market Work
Gulf Coast Power Association Spring, 2002
Conference
James A. Ajello President Reliant Energy
Solutions
April 3, 2002