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Summary

Summary. PRL Performance Contracting Opportunity We See the Benefits – Now Follow the Money Perspectives of Parties Allocation of Risk Barriers to Performance Contracting Approach Critical Success Factors Examples – Transferable Lessons Learned. PRL Performance Contracting Opportunity.

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Summary

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  1. Summary • PRL Performance Contracting Opportunity • We See the Benefits – Now Follow the Money • Perspectives of Parties • Allocation of Risk • Barriers to Performance Contracting Approach • Critical Success Factors • Examples – Transferable Lessons Learned

  2. PRL Performance Contracting Opportunity • PRL offers benefits to various participants as well as some bystanders • Do they see the benefits? • Can they capture the benefits? • Do they have the “wherewithal” to take the right actions and capture the benefits? • Performance contractors provide mechanisms (i.e., “wherewithal”) in exchange for a portion of the benefits

  3. We see the benefits -- can we follow the money? • Sources of financial benefits • ISO incentives • Retail Supplier avoided costs • Customer avoided costs • Financial float • Claims to the benefits • Retail Supplier • Customer • Contractors and allies • Everyone else

  4. Perspectives of Parties • Perspective is a very powerful discriminator: • ISO • Wholesale Supplier • Retail Supplier • Customer • Contractor • Do the perspectives complement each other? • How do the customers view PRL?

  5. Retail Supplier Perspective • Fulfill customer contract obligations • Minimize power costs • Manage price and reliability risk • Attract & retain customers through program benefits

  6. Customer Perspective (Desires) • Manage (reduce) energy costs • Manage information • Improve operations • Avoid distractions & focus resources on core business • Maintain control • Minimize reliability risks • Maximize predictability • Enhance reputation & do good

  7. Contractor Perspective • Profit • Enhance reputation & brand (and profit) • Expand product offerings (and profit) • Build business base (and profit) • Manage risk (and profit) • Meet customer needs with bundled services (and profit)

  8. Risk Allocation • Performance contracting is based on balancing the cost/risk with benefits • Each party views risk differently • Financial • Operational • Differences in risk profiles and perspective underly the performance contracting model

  9. Barriers to Performance Contracting Approach • Customer characteristics • Ability and willingness to play • Meaningful load • Complicated contract mechanisms • Financial penalties (programmatic) • Potential mismatch of cost/risk and benefits • Time horizon expectations vs. requirements • Noncoincident incentives of “third party” players

  10. Critical Success Factors (PRLM Deal) • Meaningful (tangible) benefits for the parties • Clear understanding among parties • Control • Flexibility • Risks • Rewards • Good match between investment requirements and expectations • Predictability (program, markets, prices, incentives, operations)

  11. NYISO 2000 Price Duration – 1st 100 Hours

  12. Examples • Why would customers sign up? Assuming the customer is able, what would encourage the customer to play? • Interruptible/Curtailailable rate programs experience • Energy Services Performance contracting • Why would a performance contractor offer a deal?

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