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Energy Supply Market Update June 20, 2013

Presenters: Jonathan Lee, Senior Energy Procurement  Advanced Analytics Manager, and Denny Pearson, Senior Director, Supply Solutions with Ecova


ENERGY MARKET INTELLIGENCE Here is What We are Going to Tell You: •

Natural gas and electricity prices are becoming more correlated due to the increasing reliance on gas-fired generation. •

Wholesale gas and electric prices have risen significantly off 10-year lows experienced in 2012. Expect to see an impact to new supply contracts and regulated rates when compared to 2012.

Many Bulls & Neutrals, Few Bears Among the Drivers. •

Economy: Bullish market sentiment creep – Don’t expect rational market behavior. However, there are still underlying concerns.

Natural Gas Production, Demand, Storage: Production at an all-time high. Demand continues to grow. Storage around 5-year average, but filling fast with some power burn shifting back to coal due to recent uptick in prices.

Weather and Water Forecast: Demand-driven market and weather will continue to be one of the major drivers. Below-average reservoirs in the West, resulting in lower hydro output.

Some Detail on Electric Prices:

NERC Summer Electric Capacity Assessment: North America has enough power to meet

Other news:

Technical charts show strong uptrend across all major regions and forward indices when compared to 2012. summer demand. However, Texas and the Western U.S. may have some problems. Expect volatility.

Two LNG export terminals approved, operational in 2016-2017 timeframe. San Onofre nuclear power plant permanently retired. Wave of coal plant retirements hits in 2015.


MARKET FUNDAMENTALS – FEW BEARS 13 June 2013

Near Term Next 60 Days Storage

Production Demand Electric Power Sector Weather Tropical Storms LNG Economy

Short Term 2 to 6 Months

Medium Term 6 to 12 Months

Long Term 1 to 5 Years


ENERGY PRICES ARE UP ACROSS THE BOARD •

After several years flat to declining prices owing to a nearly “Perfect Storm” of global recession, increases in building efficiency investment AND simultaneous dramatic increases in shale gas production . . .

Retail electric rates are on the rise again • •

EIA outlook is for national average increases of 2-4% ($.003 to .004/kWh) from 2012 to 2013 and again to 2014. But beyond the gross average, some sites may see as much as $.01 to $.015/kWh 2012 to 2013 annual impact where capacity prices, grid congestion, high use of natural gas for electric generation, deregulated contracts, or increasingly prevalent regulated fuel cost pass-throughs allow retail prices to move more abruptly.

Natural gas is up, too • •

EIA outlook is for overall national average increases of 5-10% from 2012 to 2013 and again to 2014. BUT, some sites will see as high as $1 to $1.25 per Dth where regulations or contracting allow for quick pass-through of commodity costs.


PRICES ARE RISING OFF OF 10 YEAR LOWS YR/YR 12 month retail contracts are generally back to 2011 levels CA electricity is higher due to San Onofre retirement. About $1 per Dth change from April 2012 in most deregulated natural gas supply offers

Analysis from 6/13/2013


NATURAL GAS STORAGE

Short-Term Trend: With more power burn coming from coal compared to last year, (natural gas power sector demand down about 3 Bcf/d vs last year) gas storage injections have been healthy the last several weeks.


GAS POWER BURNS – NORMALIZING A BIT


U.S. – OIL WELLS OFFERING BETTER RETURNS Baker Hughes Active Oil/Gas Drilling Rigs

1,500 1,400 1,300 1,200 1,100

1,000 900

Rig Counts

800 700 600

500 400 300 200

100 0

Oil

Natural Gas

United States Oil/Natural Gas Drilling Rigs Year Ago

Current

Last Week

6/14/2013

6/7/2013

Change

6/15/2012

% Change

Oil

1,413

1,406

7

1,405

0.6%

Natural Gas

353

354

(1)

562

-37.2%

Total

1,766

1,760

6

1,967

-10.2%

Drilling Rigs


SUMMER TEMPERATURE OUTLOOK - MIXED NOAA/NWS, EIA; 16 May 2013 June - Aug

EIA projections are showing that Cooling Degree Days will be below last year, at average levels, however NOAA projections are showing the likelihood of warmer-than-normal conditions in some regions


LONG RANGE DROUGHT OUTLOOK – DRY WEST NOAA/CPC - 3 month outlooks; 11 June 2013

Pacific Northwest is continuing to have drier than normal conditions which are leading to some drought developments Oregon and Idaho areas. All of California is now considered in drought. Snowpack is listed at 15% of average. For reservoirs, currently the northern half shows slight below normal (~92%) and the southern half is still holding below normal (~83%) for reservoir levels against the YTD historic average.


HURRICANE OUTLOOK ~ AVG YR, LOWER IMPACT FROM GULF NHC/NOAA; 11 June 2013

Atlantic Hurricane Average Outlook Values June 01 - Nov 30 (1981-2010)

Record Values

2013 Projected Values

Hurricane Induced Shut-In Production as a Percentage of Normal Monthly Production (1995-2011)

Mild (Named Tropical Storms)

12

27 (2005)

18 (CSU); 13-20 (NOAA 70% confidence)

0.82% ± 1.15%

Moderate (Hurricane Categories 1-2)

6

15 (2005)

9 (CSU); 7-11 (NOAA)

2.00% ± 2.98%

Intense (Hurricane Categories 3-5)

3

8 (1950); 7 in (2005)

4 (CSU); 3-6 (NOAA)

25.00% ± 35.64%

Historic Maximum Storm Count by Month 9 8 7 6 5 4 3 2 1 0

~2.5 Of 10 Bcf Gulf Production. = around 4% of US consumption


LNG – FROM IMPORT TO EXPORT

LNG export capacity is expected to ramp up from 0 to 9.5 Bcf/Day export capacity from 2016 through 2020 from 5-10 terminals (~10% of US consumption).

2 terminals are conditionally approved with 4-5 year build schedules.


NORTHEAST PIPELINES – ON THEIR WAY

2012 was the lowest year in a decade for overall US pipeline expansions, but the second highest year in the Northeast. The industry added 3.2 Bcf/d, representing two-thirds of total capacity additions. 2013 is another huge push as gas from Marcellus tries to find ways into hungry NY City, CT, Massachussets Markets.


Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

Mar-15

Feb-15

Jan-15

Dec-14

Nov-14

Oct-14

Sep-14

Aug-14

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

Dec-13

Nov-13

Oct-13

Sep-13

Aug-13

Jul-13

$/MMBtu

NATURAL GAS FORWARD CURVE

(NYMEX) – 11 June 2013

$5.00

$4.80

$4.60

$4.40

$4.20 30-Apr

$4.00

14-May

$3.80 28-May

$3.60 11-Jun

$3.40

$3.20

$3.00


NATURAL GAS

$MMBtu (12-Month Strip) – 12 June 2013 – Short Term Trading Channel


ELECTRIC WHOLESALE PRICES Ecova 7 June 2013

Retail Impacts Texas

1 cent New York

2 cents 1 cent Middle Atlantic

.8 Cents Northeast

1.5 Cents California

1.3 Cents


ERCOT – 12-MONTH STRIP Ecova 7 June 2013


NY ISO ZONE J – 12-MONTH STRIP Ecova 7 June 2013


PJM – 12-MONTH STRIP Ecova 7 June 2013


NEPOOL – 12-MONTH STRIP Ecova 7 June 2013


CALIFORNIA NP15/SP15 – 12-MONTH STRIP Ecova 7 June 2013


NERC SUMMER ASSESSMENT 16 May 2013

North America has enough electricity for summer air conditioning season, but Texas and Western U.S. may have some problems.

Texas has seen continued growth in demand and only small increases in power resources. Anticipated reserve margin is at 12.88% for the summer, which is below NERC’s 13.75% target for this area.

California (mainly San Diego and L.A.) may see some operational challenges due to the continued shutdown of SONGS. Especially if there is a prolonged heat wave. –

Update: Fed indefinitely delayed a decision on restarting SONGS.


COAL PLANT RETIREMENTS Coal Retirements (MW)

Planned Coal Retirements (MW)

Cumulative Retirements (MW) 41,857

45,000

16,000

40,000

14,000

35,000

12,000

30,000

10,000

25,000

8,000

20,000

6,000

15,000

4,000

10,000

2,000

5,000

0

0 2011

2012

2013

2014

2015

2016

2017

 Total Capacity of U.S. Coal Plants Already Shut: 15,677 MW  Total Capacity of U.S. Coal Plants Scheduled to be Shut: 34,306 MW

MW

MW

18,000


Upcoming Webinar On Budgeting

Regulated rate impacts of recent market movement

Join us for “5 Tips to Alleviate the Pains of Budget Planning and Management” educational webinar on July 18th, where we will address how to: – Identify and understand market drivers – Start 2014 outlook communications early

– Establish a solid baseline – Project planned portfolio changes – Document assumptions and gain stakeholder buy-in


Upcoming Ecova Webinars INSIDE ENERGY & SUSTAINABILITY 

Discovering Exceptional Value with Rebate Management Solutions – June 27th

5 Tips to Alleviate the Pains of Budget Planning & Management – July 18th

Big Data Energy Trends Educational Webinar – July 25th

DIAL IN THE SAVINGS SERIES 

Telecom Strategic Sourcing Secrets - September 25th

Questions, comments, suggestions? webinars@ecova.com


Q&A Session


Thank you!

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