Question 1

Commodity Hedging Strategies

Answer

A hedge is a means of protection or defense against a financial loss. For producers or consumers of energy commodities, hedging is vital for establishing a comfortable range of uncertainty around major revenue or cost items. Hedges can come in the form of contracting at specific prices and volumes or through the use of futures contracts on exchanges or trading platforms. Hedges can also be found naturally within portfolios depending on the correlation between various asset values within a portfolio. L. E. Peabody & Associates, Inc. has the experience and tools needed to help clients understand the risk around unknown purchases and sales of energy commodities and to establish hedging strategies based on a client's tolerance for risk.

Our approach to developing hedging strategies starts first with clearly defining and quantifying the risk our client faces, whether through the purchasing of fuel to supply power plants and equipment or through the sale of power at wholesale or retail levels. Once risk is defined and quantified, we work with our clients to identify acceptable levels of risk given the client's strategic goals and financial targets. After the identification of acceptable levels of risk, we develop a means by which clients can manage risk, whether through contracting at certain volumes and pricing or the purchase of real or financial call or put options. Price and volume options within a hedging strategy come at a cost, whether it’s to cover a counterparty's risk, transaction costs or collateral requirements. L. E. Peabody & Associates, Inc. analyzes and prices financial options and real options with the use of closed-form option modeling and through the use of monte carlo simulation.

Question 2

Management Planning Strategies

Answer

The Firm is acutely aware of the reasons for success in the supply chain process. The successful enterprise has a keen understanding of the myriad of interactions among today's transportation and logistics organizations. These interactions between human, information and operational systems determine the success of the supply chain organization. L. E. Peabody & Associates, Inc. brings considerable depth of experience in these critical system areas and the field experience necessary to insure successful implementation. We assist our clients in assessing the critical systems that drive the transportation cost function, and we provide them with the tactical and strategic decisions that lead to long-term success. L. E. Peabody & Associates, Inc. facilitates this process through rigorously identifying objectives, determining the related economics and integrating the solution into the client's organization.

The Firm's involvement does not end with a recommendation, however. In today's ever-growing and dynamic environment, we bring consistency and on-going support to our clients through the Firm's stability. As various new forces impact a client's strategy and position, L. E. Peabody & Associates, Inc. provides staff experience and knowledge to address a client's particular issue that will assist in setting a new course of action.

Question 3

Market Assessments

L. E. Peabody & Associates, Inc. understands the need for decision makers involved with the services and commodities market to comprehend supply, demand, pricing and costing issues. Our expertise includes the ability to assess competitive markets through the analysis of supply, demand, correlated markets and regulatory constraints to arrive at market views specific to client needs. Our data are based on the aggregation of public information, internal knowledge and experience, and our proprietary views on market drivers, both current and future.

Many of our market assessments examine not only what we expect to happen but what might happen if existing drivers change or if new drivers are introduced to markets, such as potential environmental compliance or market design regulations. This type of risk assessment is easily constructed with the proper structuring of a fundamental model plus the proper modeling of correlated variables.

Our market assessments also consider drivers that may be specific to a client's disposition but not to the market in general, such as equipment/facility characteristics and access to transmission, rail, water, pipelines, etc.

Answer

The competitive marketplace requires leading companies in every industry to reduce expenditures on products and services and to drive down transaction processing costs. As a result, numerous companies are reviewing their procurement practices and adopting specific sourcing procedures as a strategic tool. Strategic sourcing and supply chain management break down the traditional walls between buyer and seller, purchaser and user so that organizations may achieve maximum competitive advantage.

L. E. Peabody & Associates, Inc. has assisted its clients in implementing strategic sourcing and supply chain improvement programs across a wide spectrum of industries and for a range of materials and services. The Firm has assisted clients in sourcing rail and truck transportation, small package delivery services, automobiles and light trucks and gasoline and diesel fuels. As part of these and other engagements, L. E. Peabody & Associates, Inc. has led programs that assess and redesign distribution channels and implement all aspects of the strategic sourcing process. Our approach to strategic sourcing involves a rigorous multi-step process that includes:

Answer

The understanding of asset value is vital to making rational asset and capital decisions. This includes acquisitions, divestitures, retrofits or retirement of assets. L.E. Peabody & Associates, Inc. uses several methods to value the current worth of assets, including the income approach, cost approach and comparable sales.

Since critical asset decisions need to also consider the range of an asset’s risk and opportunity, we typically employ an income approach to asset valuation based on real option analysis. This approach considers the extrinsic value inherent in having the option, but not the obligation to undertake certain business initiatives under uncertain market conditions. A common application of this approach is for the valuation of electric generating assets, where an asset owner has the option to start or stop a power plant depending on market conditions. Our models consider operating flexibility as well as market uncertainty around correlated variables to calculate the extrinsic value of assets. Our approach relies on "Monte Carlo" simulation which replicates decision making under varied market conditions to arrive at an expected value of an asset and to define a probability distribution around expected results.

L.E. Peabody & Associates, Inc. has experience with valuing electric power generating assets, energy commodity contracts, transportation infrastructure, railroad equipment fleets as well as entire companies. With more and more reliance on embedding optionality in economic decisions, we offer the ability to price optionality whether it is related to a physical asset or a contract with reopeners, early termination rights or volume flexibility. Our valuations rely not only on sophisticated tools but also on the business acumen needed to understand markets and the drivers that impact client value.

Answer

The understanding of asset value is vital to making rational asset and capital decisions. This includes acquisitions, divestitures, retrofits or retirement of assets. L.E. Peabody & Associates, Inc. uses several methods to value the current worth of assets, including the income approach, cost approach and comparable sales.

Since critical asset decisions need to also consider the range of an asset’s risk and opportunity, we typically employ an income approach to asset valuation based on real option analysis. This approach considers the extrinsic value inherent in having the option, but not the obligation to undertake certain business initiatives under uncertain market conditions. A common application of this approach is for the valuation of electric generating assets, where an asset owner has the option to start or stop a power plant depending on market conditions. Our models consider operating flexibility as well as market uncertainty around correlated variables to calculate the extrinsic value of assets. Our approach relies on "Monte Carlo" simulation which replicates decision making under varied market conditions to arrive at an expected value of an asset and to define a probability distribution around expected results.

L.E. Peabody & Associates, Inc. has experience with valuing electric power generating assets, energy commodity contracts, transportation infrastructure, railroad equipment fleets as well as entire companies. Whether our clients are looking to calculate Net Liquidation Value (NLV) or want guidance with other value based strategic decisions, we taylor our valuation to the client's needs. With more and more reliance on embedding optionality in economic decisions, we offer the ability to price optionality whether it is related to a physical asset or a contract with reopeners, early termination rights or volume flexibility. Our valuations rely not only on sophisticated tools but also on the business acumen needed to understand markets and the drivers that impact client value.

Answer

L. E. Peabody & Associates, Inc. regularly determines the value of real estate and rail assets to assist our clients in maintenace planning, acquisitions, net liquidation, cost to cure and a variety of other decision making. This process requires in depth understanding of real estate, grading, bridge, culvert, rail and other costs. Our Firm has decades of experience developing reliable infrastructure appraisals for our clients. Appraisals developed by our Firm are regularly put to the test against other industry experts during litigation or maximum rate determinations. As a result, our appraisals provide reliable and definsible results our clients can rely on.

Question 4

Strategic Sourcing

Assessing opportunities available in the supply market for the purchase of specific goods or services;
Development and evaluation of alternative sourcing strategies;
Definition and implementation of project-specific sourcing procedures and tasks;
Developing negotiation strategies and providing support in negotiations with suppliers; and
Designing and executing implementation plans to ensure negotiated benefits are captured and retained.

To accommodate an ever-shifting business environment, L. E. Peabody & Associates, Inc. has gone beyond the traditional norms of linking buyers and sellers. In recent years, the Firm has assisted its clients by investigating and assessing alternative strategies such as the outsourcing of the entire procurement process and participating in consortium buying programs.