Key Alliance - JHA 2004

1. Key Alliance - JHA 2004 Energy - Key Issues for Today 23rd. June 2004 John Hall Managing Director John Hall Associates Limited John.Hall@jhal.com

2. John Hall Associates • 1973 - Set up UK Oil Services to Buyers • 1973 - Conferences & Seminars • 1985 - UK Gas Market De-regulation • 1990 - Electricity Market De-regulated • 1990 - Contract Management Services • 1999 - Extended to Pan-European • 2004 - US Affiliation – Summit Energy

3. JHA Approach • Team Focus • Provision of Dedicated Resource • Resource as Extension to Client’s Own • Working at Site or Group Level • Tailored to meet Client’s Needs

4. JHA Business Ethics • Totally Independent & “Unique” • Fixed Fee Basis – Agreed in Advance • No Shared Savings • No Third Party Remuneration • No Affiliation with any Supplier • No Sponsorship • No Tele Sales or Agents!

5. JHA Systems • In-house Development • Specified to JHA/Client Requirement • Host Own Web Site • On & Off-Line Services • Electronic Data Transfer • Best Mix of People & Technology • We drive systems not they us!

6. JHA Company Profile • Around 300 clients • High Retention Rate • 60 – 80 Pan-European • Electricity - 10 TWh • Gas - 1.5 Billion Therms • Oil - 1.5 Billion Litres • Working with all assessed suppliers

7. JHA Services UK to Pan-European • Electricity, Gas, Oil, Water & Telecoms • Market Reports – Daily/Weekly/Monthly • Bespoke Reporting Services • Day-to-day Market Support • Contract Management • In-house Training & Client Briefing • Conferences & Seminars

8. JHA European Energy Services • Contract Management: - - Data & Information Collection - Profile Generation & Management - Invoice Management - Performance Benchmarking - Procurement Services - Environmental Services

9. JHA European Energy Services • Continuous Market Monitoring - Market Conditions - Supplier/Market Intelligence/Gossip - Real Time On-Screen Pricing • Profiles in State of Readiness - Tender or Extend or Renew? • Fixed or Flexible or Mixed Pricing?

10. JHA Profile Management • Site Consumption Reporting • Comparison of Site Consumption Profiles • Identification of Production Anomalies • Profiles Maintained

11. JHA Invoice Management • Invoice Simulation • Compare to Supplier Invoice or Self Bill? • Pay or Withhold? • Anomalies Investigated • Monthly & Annualised Reporting

12. JHA Performance Brnchmarking • Internal - Site to Site - Against Budget • External - Company to Company - Against Market Indicators

13. JHA Procurement Services • Invitation to Tender (ITT) Prepared • ITT Agreed with Client • ITT Submitted Electronically to Suppliers • On-Line Auction Facility • Offers Analysed • Results Selectively Viewed On/Off-line • Offer Analysis to Client’s Specification

14. JHA Offer Analysis • Offers Analysed by Site/Group/Division • Site by Site or Group Overall? • Also Analysed by Supplier • Provision of Best Mix or Single Site

15. Key Market Factors • Energy = Oil + Gas + Electricity • Oil Prices Influence/Control Gas Prices • Gas Prices Influence Electricity Prices

16. Key Market Factors • Profile not Volume Driven • Country by Country not Pan-European • Terms & Conditions Significant as Price • Suppliers do Make Mistakes • Suppliers are not well Co-ordinated • Markets more Favourable to Suppliers • Timing more important than Means

17. Key Market Drivers • Economic Factors - World Events • Supply & Demand - Capacity/Storage • Weather • Interconnector Flows • Short Term Supply Constraints • Outages • Trading Activity

18. Opening Views • Who would have known…. • Effect of Iraq Conflict on:- • UK Government – Elections looming • European Industrial Energy Markets • The vulnerability of OPEC • The threat of Oil supply disruptions • The alignment of European Energy Prices

19. Opening Views • Who would have known…. • The effect of Emissions Trading on:- • The Electricity-Gas market • The meaning of “Spark/Dark Spread” • The adverse role of both on the market

20. Market Irritants - Consumers • Daily phone calls from consultants • We can make you big savings • Won’t cost you a penny! • Not from JHA – we can’t do them! • JHA gets them too! • Lack of supplier response within contract • Poor administration – all round

21. Market Irritants - Consultants • Suppliers that try to exclude the consultant • Suppliers that try to fool the consumer • Suppliers that try to manipulate the data • Suppliers that don’t follow procedure • Consumers that appoint two consultants • Consumers that appoint but ignore consultants • Consumers that don’t listen

22. Market Myths • Prices only ever fall • We always achieve savings • We always have the best price • We employ experts so we know • We just can not exceed our budget allowance • So the market is rising - we still want the “wins”

23. Market Reality • Why didn’t you warn us it was going to happen • We can not accept an increase • If you want to retain our business…… • We want the same price again! • Tell the supplier to hold his price another week • We respond when it suits us not the supplier • My Board will not accept this! • My Board doesn’t want to hear this!

24. Market Reality • Where are the fundamentals? • What are they? • Weather/Stocks/Supply/Demand/Exchange • Do they really matter? • In part, but not in entirety • What does matter? • Rumour/Perception/Trading Activity

25. UK Weather Pattern

26. UK Monthly Temperature Pattern

27. Market Reality • Three months on – market prices still rising • Media Attention solely on “petrol prices”! • Energy Costs now a Boardroom Agenda • If not, make it one! • UK Government “unaware” of any issue! • Energy still part-time for UK Minister

28. Market Reality • EU Emissions Trading Scheme • Bad for UK within Europe • Bad for Europe within World • UK Climate Change Levy • Electricity +0.43 ppkwh & Gas +0.15ppkwh • UK Renewables Obligation • +£1.49 pMWH

29. Market Concerns - Geo Political • Shortage of Oil, Gas & Electricity supplies • Terrorist attack • Producer cut back • Inability/Ability of OPEC to manage Oil market • Effect of higher Oil prices on consumers • Effect of higher Oil prices on producers

30. Market Concerns • Decreasing number of suppliers • Each Supplier with limited capacity • Buyer/Supplier risk awareness – price/supply • Can supplier deliver – can buyer pay?

31. Market Interest - Consumers • Better Supplier Administration • Accurate Consumption Data Flow • Awareness to buyer needs • Clear Understanding of price structure • Flexible & Fixed Price options • Financial Tools • Take opportunity to manage own risk

32. Market Interest - Consumers • Understand Best Practice • Price competition is still fierce! • Evaluate Suppliers before seeking price • Ensure that they can provide required service • Then, Consider Energy Management

33. Market Needs - Consumers • Pan-European Support • New or Old EU Members? • Country by Country or Overall? • Same supplier - Different deals in each country • Improved pan-European Supplier Integration • Transparency/Harmonisation on Taxation • Common views across organisations • Same language – different culture!

34. Market Rumblings - Consumers • What does the UK offer? • Higher Energy Taxation • Higher Environmental Controls • Higher Delivery Charges • Higher Energy Costs • Higher Labour costs • Benefit of weaker Dollar-Sterling Exchange • UK Government aware on Labour Costs only! • Are they moving away and if so, where to?

35. Market Prices • Relativity between different sources • Duty has played a major role • Oil – back up to the 1985 levels • Gas – back to the 1985-1992 levels • Electricity – Moving up!

36. UK Annualised Price Index

37. UK Oil Market Prices

38. UK Gas Market Prices

39. UK Electricity Market Price

40. Oil-Gas-Electricity Link • Oil drives Gas which drives Electricity • Continental Gas prices linked to Oil Price • UK Gas price linked to Continental Gas Price • 40% UK Generation fired by Gas • By 2010 UK Generation will be 50% Gas fired • Oil-Gas Relationship • Electricity-Gas Relationship

41. UK prices 1 January – 21 June 2004

42. Oil-Gas-Electricity Link • Gas follows Oil up • Electricity follows Gas • But Gas is slow to follow when Oil falls • Realistic lag or market manipulation?

43. Understanding Spark Spread • Which drives the other – Gas or Electricity? • If Spread is above £6.00 per MWH • Electricity is generated • If Spread is below £6.00 per MWH • Gas can be sold back in to system • Electricity is not generated • Higher return for selling gas than generating!

44. Spark Spread – Day Ahead

45. Spark Spread – Month Ahead

46. Spark Spread – Season Ahead

47. European Electricity Prices • All moving up • UK prices based on Year from specific month • Continental prices based on calendar year • France & Germany at bottom end • UK has overtaken Holland to hit the top spot

48. European Market Prices 2004

49. European Market Opportunities • Analyse requirement by site and by country • Understand supplier coverage • Talk to suppliers in each country • Cross reference them to get optimum fit • Investigate Tax Reduction Benefits • Potential CCL Exemption in UK

50. Issues For Today • What is the outlook for energy supplies? • Are we going to run out soon? • Will UK Government make it’s decision? • UK – with or without Nuclear? • Take out 20% - Replace it with what?