The Gulf Coast Retailers Association, founded in 1938, is a combined membership of 1,000 Texas Retailers, Wholesalers, Manufacturers, Suppliers and Brokers who capture great benefits in a number of areas of business interest, including: local, state, and national information on Legislative issues, Loss Prevention Programs, Electricity Purchasing Programs, Tax Audit Programs, and Group Health Insurance. CES' Texas affiliate, Competitive Energy - Texas, also known as CETX, began working with GCRA in the summer of 2002. Initially, GCRA endorsed CETX only with its small and medium size clients. However, in early 2003, GCRA asked CETX to assist in developing and implementing a purchasing program for all of its members, including large grocery store chains. GCRA contributes their confidence in CETX to a number of factors: ongoing member education, including newsletter articles and member meetings, CETX's tireless level of commitment and consistent focus on bringing maximum value to GCRA's smaller members, and the ease with which GCRA and CETX have captured the value of the attributes and contributions of our companies. The GCRA/CETX initiative is another sterling example of how an association endorsed program can and does offer a venue in which members can make informed decisions about electricity purchases and realize the savings and price certainty they are entitled to through deregulation.

In the fall of 1999, a group of eight large electricity consumers in Maine became aware that potential electricity suppliers were not taking an interest in supplying retail electric service to the Maine market that was scheduled to open for retail access on March 1, 2000. Concerned that without direct action on their part a retail market would simply not develop in Maine, these clients formed the basis of the Maine Electric Consumer Cooperative (MECC) and retained CES to manage the aggregation.

Within a month, the membership in the aggregation group had increased to over 100 Maine companies, representing about 20% of the total commercial and industrial load in the State of Maine, and included many of the largest electricity users in the State. CES obtained competitive bids from a number of suppliers to supply the aggregation members. Enron was the lowest bid, and on March 1, 2000, began serving these 100 plus members for 12 months under a standard retail electricity supply contract. The importance of the size and diversity of this aggregation group cannot be overemphasized. Quite simply, this aggregation group created the retail market for electricity in Maine, and for the first 6 months of the market's operation, it was the market. Further, as a result of the competitive bidding process, these companies saved over $8 million the first year compared to what they would have spent had they taken service under the prevailing Standard Offer.

Membership in the aggregation group continued to expand during the first year of operation as more and more small and medium sized commercial and industrial clients sought to achieve similar savings through purchasing electricity in the competitive market. At its peak the membership in this aggregation group was purchasing approximately 2 billion kWh per year - a little over 30% of all commercial and industrial load in Maine - through contracts brokered by CES.

Further, CES had a profound effect on the expansion of the competitive market in Maine. In fact, by December 1, 2001, seventeen months after the opening of the retail electricity market in Maine, competitive suppliers were serving approximately 88% of large customer load and 42% of the medium customer load for Central Maine Power Company, and slightly lower proportions for Bangor Hydro Electric. This conversion represents both the largest and the most rapid voluntary conversion of any state in the United States that has undertaken to open its electricity market to retail competition. CES is proud of the role we have played in creating this market, and even more proud of the savings we have been able to secure for our customers through our procurement services.

Everyone in the energy business remembers December 2, 2001. This was the day that Enron filed for bankruptcy in the Bankruptcy Court in the Southern District of New York, and in the process shook the foundations of the energy industry and indeed all of corporate America.

On the day that Enron declared bankruptcy, Competitive Energy Services had over 600 commercial and industrial customers in Maine with retail electricity supply contracts through Enron Energy Services, Inc., the retail marketing affiliate of Enron. These contracts represented approximately 25% of the total commercial and industrial electricity load in the State of Maine, and included clients ranging in size from 25 kW to 25 MW and contracts of between 12 and 60 months duration.

In the weeks immediately prior to Enron's bankruptcy filing, CES began to become concerned about Enron's financial strength and its ability to honor these contracts. We repeatedly sought and received both written and oral statements of Enron's financial condition from its corporate officers that unequivocally stressed Enron's ability and commitment to honor these supply contracts.

Despite such assurances, however, CES undertook certain actions to protect our clients from a failure of Enron. Thus, when Enron declared bankruptcy:

CES had an alternative supplier ready to step in, if necessary, to continue service, and therefore protect clients from exposure to financial penalties they might incur by falling back onto Standard Offer Service in Maine.

CES immediately retained bankruptcy counsel in New York and Maine and began the process of representing our clients at no cost to them in the bankruptcy proceedings.

Throughout the next six months, CES managed a constant flow of information between the courts and our clients. We published weekly updates and special announcements on our web site to keep our clients informed about the court proceedings and any issues that may affect them. In addition, we worked very closely with the Maine Public Utilities Commission to ensure that our clients were not unfairly disadvantaged by any unilateral termination of their contracts by Enron, or if the opportunity presented itself during the bankruptcy proceedings, by the clients themselves.

Finally, when it became clear that Enron intended to sell the contracts of our clients through an auction, we acted on behalf of our clients to negotiate (voluntary) replacement contracts for our clients with Constellation Power Source, the supplier that won the auction. These replacement contracts were at reduced prices that resulted in a total savings to our clients over the life of these contracts of more than $9 million. In addition, we negotiated the payment of a variety of outstanding Enron debts to our clients, including the return of security deposits.

Our ability to make a success out of this difficult situation is a reflection of our dedication to the interests of our clients, the scale of our operations, and the talents of our people.

Competitive Energy Services worked with our customers to take advantage of a program administered by the New England Independent System Operator ("ISO-NE") whereby its customers are paid to reduce their electric usage during periods of shortages in New England.

The program helps to reduce the potential for region-wide power blackouts during high-demand periods this summer, while at the same time lowering electric bills for participants.

"This is a very important program for manufacturers in Maine that are able to interrupt part or all of their production processes to reduce electric usage when the market price is high," said Steve McGraw of the Chinet Company in Waterville and president of the Board of Maine Electric Consumer Cooperative. "Chinet has participated in these types of programs in the past and is very happy that the MECC and Competitive Energy Services are able to offer this program this summer to their customers."

The Program, called Interruptible Program - 2000, is a voluntary program under which customers can elect to participate or not participate depending on their situation and market conditions at the time a request for interruption is issued. The program is quite simple. If a customer elects to participate, the customer is paid a share of the difference between the actual market price and that customer's contract price for each kilowatt-hour it does not use during the period of interruption.

Depending on the market price for electricity, the payment to customers can reach levels up to $1 per kilowatt-hour for each kilowatt-hour interrupted. By participating in this Program, CES customers not only are able to make money, but they know that their actions help moderate the price of electricity for everyone in New England and help New England avoid rolling blackouts, like those experienced in California, during periods of severe electricity shortages.

"We are especially pleased that we have been able to develop a program that is available to medium-sized commercial and small manufacturing facilities," said Glenn Poole, the Energy Manager for the International Paper (formerly Champion) mill in Bucksport and a member of the Board of MECC. "Our company has historically participated in this type of program when it was available to the largest electricity users in Maine, and we certainly hope many small and mid-sized customers will join us in participating in this new program."

The Program was initiated in advance of the traditionally high price months of July and August where peak demands and supply shortages can lead to very high prices of electricity in New England. CES worked hard to design an interruptible program that is easy to participate in, that is voluntary and that provides significant financial incentives to the customer. This Program demonstrates how the competitive market works to lower electricity costs, and how the CES team responds rapidly with new programs to meet the needs of its customers.

Competitive Energy Services’ (CES) commitment to our customers does not end when a customer signs a contract for retail electricity service. Quite the contrary – we continue to monitor the usage, prices, billings and service performance of retail electricity providers to ensure that our customers receive the full value of their electricity contracts – and we do this for all of our customers, no matter how small their electricity usage.

A good case in point is Randy’s Car Wash of Melrose, Massachusetts. Randy’s Car Wash executed a contract for electric service for three of its locations in the Boston area. As a result of an error by its utility company, one of its accounts was not enrolled with its new supplier. By the time the error was noticed, the market price had increased significantly above the price Randy’s Car Wash had contracted for in its electricity supply contract. As a result, the account remained on the utility’s Default Service, at a price well in excess of the price in the retail contract.

CES worked with Randy’s Car Wash and the utility to preserve the value of the retail supply contract. Each month, the customer faxes a copy of its electricity bill for this one account to CES. CES, on behalf of Randy’s Car Wash, files a complaint with the utility in which we dispute that portion of Randy’s bill for Default Service in excess of the rate contracted for. And each month, Randy’s Car Wash receives a credit for this disputed amount. To date, CES has saved Randy’s Car Wash in excess of $2,000.

Maine’s Governor John Baldacci, in his inaugural address in January 2003, committed to reducing electricity costs throughout Maine State Government by $1,000,000 in order to help balance the State’s budget in the face of significant revenue shortfalls. In addition, during this same address, the Governor pledged to increase the percent of electricity used by state government that is generated from renewable sources. To help achieve these competing objectives, the Governor’s Energy Director turned to Competitive Energy Services, LLC (“CES”) for assistance.

CES developed a strategy whereby the State could achieve both of its objectives. First, CES supplied over 750 of the State’s smaller electricity accounts with its Maine Renewable Energy product. This product is generated from 100% renewable sources (hydro and biomass) located in the State of Maine. To offset the slightly higher cost of this product as compared to the alternative Standard Offer Service these accounts were on, CES implemented an energy efficiency program that CES guaranteed would achieve conservation of sufficient amount to offset this increased cost. The incorporation of both renewable generation and energy conservation is resulting in annual reductions of 29,000 lbs of NOx emissions (a major source of ground-level ozone and smog), 43,000 lbs of SOx emissions (a major source of acid rain) and 6,200 tons of CO2 emissions (a major source of greenhouse gasses). This combination allowed the state to achieve is renewable objective with no net increase in cost and a reduction in overall consumption.

Second, due to the fact that CES tracks retail pricing on a daily basis across multiple suppliers, CES was able to identify an opportunity to lock in lower market prices when retail forward prices dipped during the summer of 2003. Even though the State’s existing electricity supply contracts still had four to seven months remaining on their respective terms, by locking in forward prices at that time, the State was able to guarantee lower fixed prices under new three year contracts for its medium and large accounts. These contracts secured prices that are today (one year later) more than 2 cents a kWh below market prices, equating to thirty percent below market, and are providing savings of almost $1.5 million – 50% more savings than proposed by the Governor.

Finally, due to CES’ database and evaluation capabilities, CES has been able to provide the State with audited reports documenting the results of these efforts. These reports are essential, since they serve as support for an important component of the Governor’s budget and as documentation demonstrating that the State is meeting its environmental objectives.