EXHIBIT 99.248
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XXXXX
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SEMPRA ENERGY SOLUTION ALLIANCE AGREEMENT DISCUSSION
NOVEMBER 2000
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[SEMPRA ENERGY LOGO]
OUTLINE
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Topics to be Covered
- Background: Xxxxxx's goals and existing C&I companies
- C&I market size
- Updated analysis of the Sempra proposed C&I strategy
- Alliance structures to consider
XXXXXX X XXXXXX [XXXXX SYSTEMS LOGO]
OUTLINE
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SEMPRA'S EXISTING C&I MARKET AND PLANS
C&I MARKET SIZE
UPDATED ANALYSIS OF THE PROPOSED C&I STRATEGY
ALLIANCE STRUCTURES TO CONSIDER
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XXXXXX X XXXXXX XXXXX
2
XXXXXX'S VISION AND MISSION
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XXXXXX'S VISION REFLECTS THIS FOCUS ON A RETAIL BUSINESS . . .
Sempra Vision
"Sempra Energy, the leader in
transforming retail markets through
creative customer solutions."
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XXXXXX X XXXXXX 3 [XXXXX SYSTEMS LOGO]
VISION AND MISSION
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....AND IT MISSION DESCRIBES WHAT THEY WILL DO TO GET THERE.
Sempra mission
"We will act with urgency to lead the transformation of retail energy markets by
creating innovative solutions that revolutionize the customer experience. We
will leverage the creativity of our people, our understanding of customer needs,
new technology and strategic alliances to deliver outstanding value to
shareholders, customers and employees."
4
PROPOSED STRATEGIES Introduction
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THEY HAVE DEVELOPED OUTLINE STRATEGIES FOR ALL SEGMENTS OF THE BUSINESS THAT ARE
CENTRAL TO THE RETAIL VISION.
[GRAPHIC OF SEMPRA(TM) ENERGY]
5
PROPOSED STRATEGIES / COMMERCIAL AND INDUSTRIAL
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SEMPRA WILL TAKE EARLY STEPS TO GROW OUR COMMERCIAL AND INDUSTRIAL (C&I)
BUSINESS.
- Build a full service C&I energy services business
(integrating Sempra Energy Sales, Facilities Management
and Sempra Energy Services)
- Initially focus regionally, moving to national
- Develop strong national account focus
- Focus on attractive target segments (to be selected)
- Develop, test, and roll-out high-value tailored offerings
- Develop capabilities
---------------------
- Focus on key account management - Top 3 in US
- 10% Market share
- Technical and engineering capabilities ---------------------
- Build through acquisitions, alliances, and joint ventures
- Ensure rapid learning
- Leverage Trading and Generation as key enablers
XXXXXX X. XXXXXX XXXXX
6
PROPOSED STRATEGIES Tailored Offerings / COMMERCIAL AND INDUSTRIAL
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THE OFFERINGS IN THIS STRATEGY ARE TAILORED TO CUSTOMER NEEDS.
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[ILLEGIBLE]
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- Long term contracts
- Complex packages, focused on total outsourcing
- Tailored offering to individual customers
- Asset ownership
- Integrated information systems
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[ILLEGIBLE]
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- Energy commodity sales
- gas, electric, fuel oil, solar, etc.
- Commodity aggregation
- Risk management services
- Financial services
- including possible asset financing
- Energy management
- Consolidated billing
- Metering
- Related information services
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SOPHISTICATED SALES AND MARKETING CAPABILITIES
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XXXXXX X. XXXXXX XXXXX
7
PROPOSED STRATEGIES RATIONALE COMMERCIAL AND INDUSTRIAL
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THE MARKET OPPORTUNITY IS EXCITING. XXXXXX HAS SOME FOUNDATION AND SKILLS,
BUT WILL NEED SUSTAINED COMMITMENT TO BUILD COMPETITIVE ADVANTAGE.
MARKET OPPORTUNITY
o Energy Management Services (EMS) estimated to be $23.3 billion in the
United States and Canada today
- Represents all behind the meter services including performance
contracting, energy audits, equipment sales, and project management
o Predicted to grow to as much as $43 billion by 2005 (Frost & Xxxxxxxx).
Other forecasts significantly higher.
o The commodity portion of the opportunity will be aligned with the market
opening profile.
XXXXXX'S STRENGTHS
o Some existing C&I capabilities across the organization.
o Strong position in existing utility markets.
o Systems capabilities.
o Market knowledge where presently participating.
GAPS TO BE FILLED
o Key account management capabilities, sophisticated sales processes and
relationships at the highest levels of large organizations.
o Significant financing capabilities.
o Fulfillment capabilities for many energy management service offering
elements.
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XXXXXX X XXXXXX 8 [XXXXX SYSTEMS LOGO]
PROPOSED STRATEGIES COMPETITION COMMERCIAL AND INDUSTRIAL
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SIGNIFICANT PLAYERS ARE POSITIONING TO CAPTURE THE MARKET, BUT AS YET ONLY
ENRON HAS A CONVINCING CLAIM TO LEADERSHIP.
POSSIBLE COMPETITION POSITIONING
o This large market will be ---------------------------
contested by a wide range of SOUTHERN ENRON
different competitors. NATIONAL PG&E
- Energy Service Providers DUKE
(unregulated subsidiaries of SEMPRA
regulated utilities plus new ---------------------------
players) PECO/EXELON
- Facilities Management LOCAL CON EDISON
Companies (e.g., Honeywell, DTE
Xxxxxxx Controls) CONECTIV
- Consultants ---------------------------
- Contractors TESTING COMMITTED
XXXXXX X XXXXXX 9 [XXXXX SYSTEMS LOGO]
SEMPRA'S EXISTING C&I BUSINESSES SUMMARY
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SEMPRA PARTICIPATES TO VARYING DEGREES ACROSS A RANGE OF C&I SEGMENTS TODAY,
BUT IS QUICKLY CHANGING ITS BUSINESS STRUCTURE TO ACCOMMODATE LARGE GROWTH.
SEMPRA - OFFERING: Natural gas and electricity commodity
ENERGY SALES
- TARGET SEGMENTS: Medium-size commercial customers
- OFFERING: Consulting, design and engineering
SEMPRA ENERGY
SERVICES - TARGET SEGMENTS: Government and institutions
SEMPRA
TODAY SEMPRA - OFFERING: Building heating and cooling, operations and
ENERGY maintenance and full energy outsourcing
FACILITIES
MANAGEMENT - TARGET SEGMENTS: Significant new buildings and
complexes
SEMPRA - OFFERING: Bill evaluation and processing (Encharge)
ENERGY
INFORMATION - TARGET SEGMENTS: Multi location companies
SERVICES
(Service Bureau)
XXXXXX X XXXXXX 10 [XXXXX SYSTEMS LOGO]
EXISTING C&I BUSINESSES SEMPRA ENERGY SALES
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SEMPRA ENERGY SALES PRESENTLY FOCUSES ON THE SALE OF GAS AND ELECTRIC COMMODITY
TO MEDIUM COMMERCIAL ACCOUNTS, WHILE ACTING AS A SALES CHANNEL FOR OTHER
VALUE-ADDED SERVICES PROVIDED BY OTHER SEMPRA AFFILIATES.
SEMPRA ENERGY SALES FINANCIALS (1999)
- Current business: 85 customers; 25 MMcfd - Revenue - $36.1 M
GAS
COMMODITY - Gross margins narrowing as market matures - Gross Margin - 3.4%
WEST and customer sophistication increases
- Net Margin - (3.3)%
- Focus on building presence and market share
in electric retail access states (e.g., Illinois) - Ongoing Capex - N/A
- PP&E - N/A
- Current business: 135 customers; 30 MMcfd - Revenue - $27.0 M
GAS - Primarily California border sales - Gross Margin - 1.2%
COMMODITY
WEST - Margins stable but narrow given highly - Net Margin - (6.3)%
competitive market for standard product
- Ongoing Capex - N/A
- PP&E - N/A
- Current business: 9 customers; 172 GWh - Revenue - $39.1 M
ELECTRIC - Primarily financial contracts (i.e., no physical - Gross Margin - 0%
COMMODITY delivery) inherited from Energy Pacific
- Net Margin - (5.8)%
- Physical delivery capability being added now
- Ongoing Capex - N/A
- PP&E - N/A
Source: ICF Consulting
XXXXXX X XXXXXX 11 [XXXXX SYSTEMS LOGO]
EXISTING C&I BUSINESSES SEMPRA ENERGY SERVICES
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SEMPRA ENERGY SERVICES (CES/WAY) OFFERS CONSULTING, DESIGN AND
ENGINEERING SERVICES, PRIMARILY TO INSTITUTIONAL CUSTOMERS.
SEMPRA OFFERINGS INDUSTRIES AND CLIENTS SERVED
---------------- -----------------------------
- Energy Audits and Feasibility Studies - UNIVERSITIES: Baylor University (TX); Louisiana
- Engineering Audits State University
- Engineering Design - HOSPITALS: All Saints Hospital (TX); Baylor
- Construction Management University Medical Center (TX)
- Operations Maintenance - PUBLIC SCHOOL DISTRICTS: Houston Independent
- Performance Measurement and Monitoring School District (TX); Atlanta Public Schools (GA)
- Training - MUNICIPAL AND STATE GOVERNMENTS: City of Huntington
- Utility Relations and Demand-Side Management Beach (CA); City of Reno (NV)
- Financing Assistance - FEDERAL GOVERNMENT: Hill Air Force Base (UT);
National Park Service - Liberty and Xxxxx Islands
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SEMPRA ENERGY SERVICES FINANCIALS (1999)
---------------------- -----------------
ENERGY AUDIT - A large revenue stream from an energy - Revenue - $60 million
ENGINEERING AND audit, engineering design and construction - Gross Margin - 24%
CONSTRUCTION - Contract size varies significantly but - Ongoing Capex - Zero
recently have averaged about $5 million.
- A smaller (recent average of $60,000 per
customer per year) but highly profitable - Revenue - <$1 million
ANNUITIES annuity revenue stream from maintenance, - Gross Margin - 40-45%
monitoring fees an shared savings - Ongoing Capex - Zero
performance
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Source: Sempra Energy Services
XXXXXX X XXXXXX 12 [XXXXX SYSTEMS LOGO]
EXISTING C&I BUSINESSES SEMPRA ENERGY FACILITIES MANAGEMENT
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SEMPRA ENERGY FACILITIES MANAGEMENT (SEFM) PRESENTLY OWNS, OPERATES
AND MAINTAINS LARGE-SCALE COOLING AND HEATING SYSTEMS AND ASSOCIATED
ENERGY INFRASTRUCTURES FOR COMMERCIAL, INSTITUTIONAL AND INDUSTRIAL FACILITIES.
SEMPRA ENERGY FACILITIES MANAGEMENT FINANCIALS (1999)
----------------------------------- -----------------
- Revenue - $24 million
- 5 plants, 23.5 million square feet - Gross Margin - 66%
DISTRICT HEATING - Plants serving chilled and heated water -> - Net Margin - 3.3%
AND COOLING to multiple buildings - Ongoing Capex - $0.5 million
- No service inside building - PP&E - $2.0 million
- 5 million square feet - Revenue - $1.2 million
BUILDING AND - Own no assets - Gross Margin - 18 percent
TECHNICAL - Provide operations and maintenance services -> - Net Margin - Negative
SERVICES - HVAC and other related services - Ongoing Capex - Zero
- PP&E - Zero
INTEGRATED - Revenue* - $4.5 million
ENERGY - 2 contracts, 9.5 million square feet - Gross Margin* - 80 percent
MANAGEMENT - Own and operate energy assets -> - Net Margin* - 45 percent
SERVICES - Long sales cycle - Ongoing Capex* - $50 million
- PP&E - $35 million
*50 percent of JV revenues and PP&E, (income increases
to $7.5 million in 2000)
Source: Sempra Energy Facilities Management
XXXXXX X XXXXXX 13 [XXXXX SYSTEMS LOGO]
EXISTING C&I BUSINESSES SEMPRA ENERGY INFORMATION SOLUTIONS
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SEMPRA ENERGY INFORMATION SOLUTIONS (SEIS) HAS A NUMBER OF OFFERINGS FOR THE
COMMERCIAL AND INDUSTRIAL CUSTOMER SEGMENT.
[LOGO]
SEMPRA ENERGY INFORMATION SOLUTIONS FINANCIALS (1999)
----------------------------------- -----------------
- Revenue - $1.56 million
- Bill payment processing and reporting
- Gross Margin - (4.5) percent
- Bill checking
ENCHARGE -> - Net Margin - N/A
- Energy rate analysis
- Ongoing Capex - $1.3 million
- Web-based reporting
- PP&E - N/A
-----------------------------------------------------------------------------------------------------------
- Revenue - $0.12 million
- Web-based energy rate library - Gross Margin - 25.6 percent
POWERRATE - Search capabilities -> - Net Margin - N/A
- Links to PUC and Utility web sites - Ongoing Capex - Zero
- PP&E - Zero
-----------------------------------------------------------------------------------------------------------
- Revenue - $0.05 million
- Gross Margin - (3.3) percent
- Analysis of energy supply options
POWERCHOICE -> - Net Margin - N/A
- To be discontinued
- Ongoing Capex - Zero
- PP&E - Zero
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Source: LEK Analysis
XXXXXX X XXXXXX 14 [XXXXX SYSTEMS LOGO]
EXISTING C&I BUSINESS UNIT GROSS MARGINS BY BUSINESS
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UNIT GROSS MARGINS EXPERIENCED BY THE BUSINESSES TO DATE VARY SIGNIFICANTLY
ACROSS THE SEGMENTS.
SEGMENT GROSS MARGINS
------- -------------
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Gas: 2-4%
SEMPRA ENERGY SALES -----------------------------
Electricity: (2)-1%
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Contracting: 20-25%
SEMPRA ENERGY SERVICES ------------------------------
Annuity: 40-45%
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SEMPRA ENERGY FACILITIES MANAGEMENT (BTS) 15-20%
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SEMPRA ENERGY FACILITIES MANAGEMENT (EMS) 60-70%
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Sources: ICF Consulting for Sales; Xxxxxx X. Xxxxxx analysis of most recent
contracts for Services; Xxxxxx X. Xxxxxx analysis of ongoing contracts
for Facilities
XXXXXX X XXXXXX 15 [XXXXX SYSTEMS LOGO]
OUTLINE
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TOPICS TO BE COVERED
-> SEMPRA'S EXISTING C&I MARKET AND PLANS
-> C&I MARKET SIZE
-> UPDATED ANALYSIS OF THE PROPOSED C&I STRATEGY
-> ALLIANCE STRUCTURES TO CONSIDER
XXXXXX X XXXXXX 16 [XXXXX SYSTEMS LOGO]
MARKET SIZE Market Definition
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IN CREATING OUR PRELIMINARY ESTIMATE OF THE TOTAL COMMERCIAL AND INDUSTRIAL
(C&I) "ENERGY SERVICES" MARKET, WE HAVE FOCUSED ON THE TRADITIONAL ENERGY
SERVICES MARKET.
C&I BUSINESS DEFINITION
ENERGY SERVICES
COMMODITY PROVISION
- Gas market largely open, except for small commercial
- Power markets opening on a state-by-state basis
CONSULTING AND ENGINEERING
OPERATIONS AND MAINTENANCE
- HUGS market propelled by legislation
- Industrial and commercial market driven by development of innovative
offerings to meet needs
ASSET OWNERSHIP
- Total outsourcing (including asset ownership) emerging as a potentially
large business
XXXXXX X XXXXXX 17 [XXXXX SYSTEMS LOGO]
MARKET SIZE Definition
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Our definition excludes industries that are increasingly converging with energy
management to create total facilities management offerings. This convergence
will increase opportunities, but also intensify competition.
EQUIPMENT SUPPLY BUILDING MANAGEMENT
Energy efficient equipment ENERGY SERVICES* Janitorial Services
not sold for energy management; Building Management
Consulting and
- Control Equipment Engineering
- Facilities Management Asset Ownership
Xxxxxxx Controls COMMUNICATIONS BOSS
Honeywell INFRASTRUCTURE GroupMAC
United Technologies Service Master
*Note: "Energy Services" as defined by Frost & Xxxxxxxx includes equipment sold
for the primary purpose of energy management.
XXXXXX X XXXXXX 18 [XXXXX SYSTEMS LOGO]
MARKET SIZE Total
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In revenue terms, the total C&I market in the United States is estimated to be
substantial today and growing at a significant rate, dominated by commodity
revenues.
ESTIMATED REVENUE BY SEGMENT
[GRAPH]
*Note: Includes consulting & engineering, operations & maintenance, and asset
ownership
Source: ADL Analysis, EIA, Frost & Xxxxxxxx
XXXXXX X XXXXXX 19 [XXXXX SYSTEMS LOGO]
MARKET SIZE Commodity Natural Gas
THE NATURAL GAS MARKET IS LARGELY OPEN, HOWEVER SMALLER COMMERCIAL MARKETS ARE
ASSUMED TO OPEN IN LINE WITH RESIDENTIAL MARKETS.
NATURAL GAS MARKET ASSUMPTIONS
- Market size based on 1998 state commercial and industrial gas consumption and
overall 1998 average gas price in the commercial and industrial sectors
- Market growth based on EIA's projected growth rates for industrial and
commercial gas
- The Industrial Sector is assumed to be currently open for all states
- The Commercial Sector is assumed to be partly open, opening fully with
deregulation
- 80 percent of commercial sector is open (to account for medium/large
commercial markets) in all states
- 100 percent of a state's commercial sector is assumed open starting at the
anticipated residential deregulation date (assumes that the remainder of
commercial markets will open when the residential market opens)
PROJECTED RESIDENTIAL GAS MARKET OPENINGS
1999
New Mexico, New Jersey, West Virginia, California, Colorado, Georgia, Maryland,
Massachusetts, New Jersey, Ohio, Pennsylvania
2002
District of Columbia, Delaware, Illinois, Indiana, Michigan, Montana, Nebraska,
South Dakota, Virginia, Wisconsin, Wyoming
2005
Iowa, Kansas, Kentucky, Maine, Minnesota, Nevada, New Hampshire, Oklahoma, South
Carolina, Texas, Utah
2010
Arkansas, Alabama, Arizona, Connecticut, Florida, Hawaii, Idaho, Louisiana,
Mississippi, Missouri, North Carolina, North Dakota, Oregon, Rhode Island,
Tennessee, Utah, Washington
Source: ADL Analysis, EIA
XXXXXX X XXXXXX 20 [XXXXX SYSTEMS LOGO]
MARKET SIZE Commodity Electricity
THE ELECTRICITY MARKET SIZE IS DRIVEN BY PROJECTED MARKET OPENING.
ELECTRICAL MARKET ASSUMPTIONS
- Market size based on 1998 revenues from electricity in the industrial and
commercial sectors
- Market growth based on EIA's projected growth rates for industrial and
commercial electricity
- Anticipated electricity deregulation dates for each state applied to both
industrial and commercial sectors
PROJECTED ELECTRIC MARKET OPENINGS
1999
California, Illinois, N Hampshire, Rhode Island
2000
Iowa, Maine
2001
Arizona, Connecticut, Delaware, Nevada, New Jersey, Pennsylvania
2002
Arkansas, Indiana, Maryland, Massachusetts, Michigan, New Mexico, New York,
Oklahoma, Texas, Virginia, Wisconsin
2003
Alabama, Montana
2004
Colorado, District of Columbia, Florida, Georgia, Idaho, Oregon, Utah, Vermont,
Washington
2005
Ohio
2008
Kansas, Kentucky, Louisiana, Minnesota, Michigan, Missouri, N. Carolina, N.
Dakota, S. Carolina, S. Dakota, W. Virginia, Wyoming
2010
Hawaii, Alaska, Nebraska
Source: ADL Analysis, EIA
XXXXXX X XXXXXX 21 [XXXXX SYSTEMS LOGO]
MARKET SIZE Non-commodity
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THE NON-COMMODITY MARKET SIZES WERE GENERATED FROM ESTIMATES OBTAINED FROM
FROST AND XXXXXXXX.
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ENERGY MANAGEMENT SERVICES MARKET
FOR NORTH AMERICA
---------------------------------------------------------
Energy
Management Energy
Year Total Revenues Equipment Services
($ billions) ($ billions) ($ billion)
--------------------------------------------------------
1995 18.7 4.9 13.8
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1996 20.1 5.1 14.6
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1997 21.6 6.1 15.5
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1998 23.3 6.8 16.6
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1999 25.3 7.6 17.7
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2000 27.5 9.5 19.1
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2001 30.0 9.3 20.7
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2002 32.7 10.4 22.4
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2003 35.8 11.5 24.4
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2004 39.2 12.7 26.6
--------------------------------------------------------
2005 43.0 14.1 28.9
CAGR (1998-2005): 9.1%
Source: Xxxxx and Xxxxxxxx, "North American Non-Residential Energy Management
Services Market", Report # 7063-14
ENERGY MANAGEMENT SERVICES
- Xxxxx & Sullivan's estimates are focused on the primary competitors of the
ESCOs
- The market estimates do NOT include:
- Commodity sales (natural gas, electricity, etc.)
- Non-energy facility management
- Utility-sponsored demand side management
- Third-party project financing
- Energy management software
- Sales of energy management efficiency equipment where the primary reason
for purchase was not energy management
- Frost & Sullivan's estimates assume that equipment revenues will grow
slightly higher than services due to anticipated technology innovations that
will drive the retrofit market
- Projections for 2006-2010 based on a 9.1 percent CAGR and a 33/67 percent
total revenue split between equipment and services and consulting,
respectively
XXXXXX X XXXXXX 22 [XXXXX SYSTEMS LOGO]
OUTLINE
-------------------------------------------------------------------------------
TOPICS TO BE COVERED
-- SEMPRA'S EXISTING C&I MARKET AND PLANS
-- C&I MARKET SIZE
-- UPDATED ANALYSIS OF THE PROPOSED C&I STRATEGY
-- ALLIANCE STRUCTURES TO CONSIDER
XXXXXX X XXXXXX 23 [XXXXX SYSTEMS LOGO]
ANALYSIS Introduction
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IN ORDER TO REFINE THE FINANCIAL IMPLICATIONS, WE HAVE DEFINED KEY ASSUMPTIONS
OF A STRAW-MAN IMPLEMENTATION STRATEGY.
ASSUMPTIONS
- MARKETS TARGETED BY XXXXXX
- SEGMENT OFFERINGS
- SEGMENT GROSS MARGINS
- MARKET PENETRATION RATES
- SEGMENT COSTS
XXXXXX X XXXXXX 24 [XXXXX SYSTEMS LOGO]
ANALYSIS Market Size Sempra's Target Market
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WE CALCULATED A TARGET MARKET FOR SEMPRA. WE ESTIMATE THAT, BY 2010, THE TOTAL
C&I MARKET IS OF THE ORDER OF $250 BILLION, WITH SOME $100 BILLION IN STATES AND
SEGMENTS TARGETED BY XXXXXX'S STRATEGY.
[GRAPH]
[ ] NATURAL GAS [ ] ELECTRICITY [ ] ENERGY MGMT EQUIPMENT [ ] ENERGY SERVICES
[GRAPH]
[ ] NATURAL GAS [ ] ELECTRICITY [ ] ENERGY MGMT EQUIPMENT [ ] ENERGY SERVICES
XXXXXX X. XXXXXX 25 XXXXX
ANALYSIS MARKET SIZE SEMPRA'S TARGET MARKET
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A NUMBER OF ASSUMPTIONS WERE MADE TO CONVERT THE TOTAL MARKET TO SEMPRA'S TARGET
MARKET.
Assumptions
- Focus on attractive regions
--------------------------------------------------------------------------------
- Regions with a significant contestable power market
- Regions likely to have attractive future generation opportunities
(capacity needs, spark spreads, etc.)
- Exclude segments which are difficult to penetrate (petroleum refining,
primary metals, commodity chemicals, small commercial)
- Exclusions of 35 percent for Industrial and 34 percent for Commercial
--------------------------------------------------------------------------------
- Focus non-commodity services in the same states/segments as commodity
supply
- Exclude equipment from non-commodity market
Note: During our corporate strategy discussions, it was concluded that:
- Generation is required to support the C&I market
- Generation will need to be able to 'stand alone' in terms of economic
returns
As a result marketing areas selected are judged to be likely
attractive generation locations
XXXXXX X XXXXXX 26 [XXXXX SYSTEMS LOGO]
ANALYSIS MARKET SIZE SEMPRA'S TARGET MARKET
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THE TARGET STATES ARE CLUSTERED IN ATTRACTIVE LOCATIONS.
[MAP]
* Targeted States
- Washington - Massachusetts - Michigan - N Carolina - Pennsylvania
- Oregon - Connecticut - Indiana - Mississippi - Delaware
- California - New York - Ohio - Alabama - Maryland
- Nevada - Virginia - Tennessee - New Jersey
- Arizona - Kentucky - Georgia
- Colorado - S. Carolina
- Florida
XXXXXX X. XXXXXX XXXXX
27
ANALYSIS Gross Margins
WE DEVELOPED GROSS MARGIN ASSUMPTIONS BASED UPON EXISTING MARGINS, AND SOME
JUDGMENT OF LIKELY TRENDS.
[ILLEGIBLE] [ILLEGIBLE] [ILLEGIBLE]
- Gas based on historical margin experience,
anticipating a margin squeeze as the market
matures and customer sophistication
GAS : 2-4% 1% FOR GAS increases
ELECTRICITY : (2%) - 1% 2.5% FOR ELECTRICITY
- Electricity based on most recent experience
and also the fact that complexity likely to give
margins greater than gas
-------------------------------------------------------------------------------------------------------------
20-25%
(CONTRACTING) 24% INITIALLY - Reduced from existing margins to reflect
FALLING TO 15% increased competition and extension beyond
40-45% HUGS markets
(ANNUITY)
-------------------------------------------------------------------------------------------------------------
- Consistent with both Sempra and external
15-20% 15-17% experience, at lower range to reflect
competitive pressures
-------------------------------------------------------------------------------------------------------------
60-70% 12% IRR - Consistent with Sempra experience on
(UNDERLYING 85% Venetian and plans with slight upward
GROSS MARGIN) adjustment to target IRR to reflect
increasing risk
-------------------------------------------------------------------------------------------------------------
XXXXXX X. XXXXXX XXXXX
28
ANALYSIS Gross Margins
--------------------------------------------------------------------------------
WHEN THE DIFFERENT MARGINS ARE APPLIED ACROSS THE SEGMENTS IT IS CLEAR THAT,
WHILE THE COMMODITY DOMINATES REVENUE, A VERY LARGE PROPORTION OF THE GROSS
MARGINS WILL BE REALIZED FROM NON COMMODITY OFFERINGS.
[GRAPH]
Note: Includes consulting & engineering, operations & maintenance, and asset
ownership
source: ADS analysis, XXX, Xxxxx & Xxxxxxxx
[GRAPH]
Note: The Services margin is the weighted average of the margins for the
individual segments shown on the previous side
Source: ADS Analysis
XXXXXX X. XXXXXX XXXXX
29
ANALYSIS Segment Costs
--------------------------------------------------------------------------------
USING SOME SIMPLIFYING ASSUMPTIONS, WE ESTIMATED OPERATING COSTS FOR EACH OF
THE SEGMENTS.
[ILLEGIBLE]
- $20 million investment over first two years to build systems infrastructure
to support multi-regional commodity sales (EDI connections, etc.)
- 100 Staff, growing to 300 by 2010 to operate the business
- Overhead expenses equal to 50 percent staff expense
- Customer acquisition cost of 0.5 percent of incremental commodity revenue
[ILLEGIBLE]
- All staff costs included in cost of goods sold assumptions
- Direct overhead included in costs of goods sold assumptions
- Scaling effects: SGA of 14.5 percent of revenues initially, decreasing to
9 percent of revenues by 2010
[ILLEGIBLE]
- Administration, sales, and support staff expensed outside of gross margin
assumption
- Initially 50 staff growing to 140 by 2010
- Overhead expenses at 50 percent of aforementioned staff expense
[ILLEGIBLE]
- Economics projected by scaling "Model Project" from SEFM Financial Plan
assumptions
- All asset purchases carried on Sempra Balance Sheet per SEFM Plan
- 80 percent Debt Financing, 10 year maturity, 8 percent interest rate per
SEFM Plan
- 10 year, straight-line depreciable life per SEFM Plan
- Scaling effects: O&M cost reduction of 20 percent by 2010
XXXXXX X. XXXXXX XXXXX
30
ANALYSIS Pro-Forma Financials
-------------------------------------------------------------------------------
USING THE DETAILED ANALYSIS ON MARKET SIZE AND MARGINS AND APPLYING THE REVISED
ASSUMPTIONS, WE HAVE RESTATED THE FINANCIALS FOR THE C&I BUSINESS.
[GRAPH] [GRAPH]
[GRAPH] [GRAPH]
Source: Xxxxxx X. Xxxxxx analysis
Note: Projection excludes Service Bureau
XXXXXX X. XXXXXX XXXXX
31
ANALYSIS Pro-Forma Financials
USING THE DETAILED ANALYSIS ON MARKET SIZE AND MARGINS, AND APPLYING THE
REVISED ASSUMPTIONS, WE HAVE RESTATED THE FINANCIALS FOR THE C&I BUSINESS.
[GRAPH] [GRAPH]
[GRAPH] [GRAPH]
Source: Xxxxxx X. Xxxxxx analysis
ILLEGIBLE
PREVIOUSLY 29
NEW 556
SUBMITTED PLAN 498
XXXXXX X. XXXXXX XXXXX
32
OUTLINE
TOPICS TO BE COVERED
- SEMPRA'S EXISTING C&I MARKET AND PLANS
- C&I MARKET SIZE
- UPDATED ANALYSIS OF XXXXXX'S C&I STRATEGY
- ALLIANCE STRUCTURES TO CONSIDER
XXXXXX X XXXXXX 33 [XXXXX SYSTEMS LOGO]
ALLIANCE Introduction
--------------------------------------------------------------------------------
WE DISCUSSED SEVERAL ALLIANCE MODELS THAT WOULD MEET XXXXXX'S REQUIREMENTS.
THEIR PREFERRED MODEL IS OF COURSE THE FIRST ONE LISTED.
- EXCLUSIVE SEMPRA ALLIANCE LIMITED TO
THEIR VERTICAL MARKETS
- EXCLUSIVE SEMPRA ALLIANCE LIMITED TO
VERY SPECIFIC VERTICAL MARKETS, AND DOES
NOT INCLUDE "XXXX STATES"
- EXCLUSIVE SEMPRA ALLIANCE THAT
INCLUDES TARGETED COMPANIES, PLUS CA
- SEPARATE PRODUCT DEVELOPMENT FOR
SEMPRA, IC NOT SHARED
- VENDOR RELATIONSHIP, LIKE SILICON ENERGY
XXXXXX X. XXXXXX XXXXX
34
ALLIANCE ISSUES Alliance Contributions
--------------------------------------------------------------------------------
WE DISCUSSED WHAT EACH PARTY WOULD BRING INTO THE ALLIANCE. WE ALSO ASSUMED THE
TOTAL SERVICE OFFERING WOULD BE BRANDED UNDER SEMPRA ENERGY SOLUTIONS.
[SEMPRA LOGO] - Brand name
- Existing customer base
- Intellectual capital-rate data base, Casino
model, etc.
- Sales force
[XXXXX LOGO] - IQom solution
- IT infrastructure
- Service provider
- Vertical industry contacts
[XXXXXX X XXXXXX LOGO] - End-user customer consulting services
- Vertical industry business expertise
and contacts
- Sales force
XXXXXX X. XXXXXX XXXXX
35
