The Solution - Issue 26

The Solution The Quarterly Publication of Edison Energy

Issue 26 • July 2019

A quarterly publication highlighting relevant industry and Edison Energy team news keeping subscribers ahead on trends, upcoming events, industry leaders, and more.

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The Solution | Quarterly | July 2019

this issue 4

Edison Eye On: Natural Gas Storage

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Featured Project

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Spotlight On

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Philanthropy

10

Program of the Quarter

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Insights from Supply

18

What's Next

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Join Our Team

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Eye On How is Natural Gas Storage Valued?

By Jeff Bolyard, Vice President, Commodity Strategy, Edison Energy

THERE ARE VARIOUS WAYS IN WHICH NATURAL GAS CAN BE STORED, ALL OF WHICH COME AT SOME COST TO THE OWNER OR USER OF THE ASSET. Prior to technology advancements which brought about Liquified natural gas (LNG) and Compressed natural gas (CNG) storage into the mix, the Exhibit A location in which large volume storage could be developed was dependent on geology. The most common types of traditional natural gas storage are previously depleted gas wells & reservoirs, underground salt caverns formations, or aquifers; each one requiring specific geological conditions and each having its own physical characteristics and economics to operate. Although the exact amount of storage capacity in the continental U.S. isn’t known, the EIA estimates a maximum of 4.3 Trillion cubic feet of natural gas can be stored at any point in time. Each week, the EIA reports the amount of natural gas injected into or withdrawn out of storage and breaks the report down into five different regions, with ~84% of storage capability existing in the South Central, Midwest, and East regions (Exhibit A).

There are several ways in which one can calculate the value of storage. Here are the most common: Intrinsic value: The most common way to value storage is to calculate the differential in price between the injected cost and the withdrawal cost, less any carrying cost of capital used to purchase the gas and hold it in storage until withdrawals occur. In the typical forward market, there is a seasonal discount to the summer (injection) season vs. the higher winter (withdrawal) season due to supply being greater than demand in the summer and demand being greater than supply in the winter.

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The Solution | Quarterly | July 2019

The chart below shows the last 12 months of supply vs demand and the need for natural gas storage.

As of 6/18/19, the remaining average summer NYMEX strip (July-Oct. 2019) was trading at $2.38/ MMBtu while the following winter of Nov2019 to Mar2020 averaged $2.69 /MMBtu. Assuming a consistent fill the rest of the summer and a consistent withdrawal during the winter, the summer/winter spread would give us a starting point intrinsic storage value of $0.31/MMBtu. Extrinsic value: Since the cost to utilize storage is typically higher than the intrinsic value example above of $0.31, most entities that own storage also include some extrinsic value calculation into the decision to own storage.

Calculating the extrinsic value of any storage asset varies based on the type of storage facility, market conditions, and the capability of that storage to reach a specific market. For end users, storage provides the ability to avoiding purchasing gas during periods of high prices when their demand is higher than normal.

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Storage also allows them to avoid selling excess gas into a low-price market at a loss. Calculating this potential extrinsic value is very difficult to determine and depends on a list of variables, some of which are known, while others are not. For example, salt cavern storage has high volume injection capabilities at high pressures. The result of which is a high volume and quick withdrawal capability, which can be filled up and emptied and over a period of days, allowing the storage owner to cycle (inject into and withdraw gas from the storage

asset) gas many times in a single month or season, taking advantage of short term pricing opportunities while cutting the fixed cost component of owning storage in half each time the storage is cycled.

Another type of storage extensively used is depleted well storage, which has much slower injection and withdrawal limitations with minimum and maximum daily and monthly limits based on the geological limitations of the formation. This slower fill, slower withdrawal storage gives time for the gas to migrate through the geological formation when put in and taken out. Since there aren’t any walls to keep the gas in, geology ultimately determines how much can be injected and how long it can be left in the ground before it must be withdrawn prior to migrating past the point where it cannot be recovered. However, depleted well storage also provides access to storage over a much longer stretch of cold weather compared to salt dome storage.

Market conditions: Other factors that come into play in the valuation of storage relate to regional market conditions, often as it pertains to abnormal weather. Although rising significantly over the past 10 years, production has been on a somewhat steady rise month over month as seen in the chart above, while demand for gas is still more seasonal and exceeds supply significantly each winter, requiring withdrawal out of storage to meet peak winter demand. The market’s perception of whether there is enough inventory in storage to make it through the winter and the market’s perception of the ability to get storage full each summer prior to winter plays a huge part in the valuation of storage.

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Storage service level (firm vs interruptible): Another component worth considering is the service level of storage or the availability of storage during peak demand (firm storage); or whether the storage asset is only available during certain periods of less demand (interruptible) will greatly impact the value as well with firm storage costs being higher than the more economical but less available interruptible version.

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Market access: The ability to deliver stored gas into a highly priced, highly volatile market during peak demand periods has a lot more extrinsic value than deliverability to a less volatile, lower priced market. The same phrase used in valuing real estate also applies to natural gas storage, which is “location, location, location”.

Although not a guarantee, the likelihood of significantly increasing the value of storage has a stronger potential with deliverability in areas of high historical price volatility. For example, with a high demand stretch from January 1st – 10th in 2018:

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›› Storage owners that had access to premium northeast markets avoided daily gas prices that averaged $36.65/MMBtu (vs a January 2019 average price of $4.16), while storage capable of reaching the Chicago market in January 2018 only averaged $4.79 (vs January 2019 average of $3.22). ›› The Southeast market posted a $3.92 average in early 2018 (vs the January 2019 average of $3.00) while in west Texas, that region averaged $3.68/ MMBtu in 2018 vs the 2019 January monthly average of $2.04.

Regional weather differences played a major role in the year on year price differences, but so did the introduction of new pipeline infrastructure and access to supply, which can also change the value of storage.

Storage space vs injection/withdrawal rights: Also rolled into the economics is not only how much physical storage space is available in the facility, but also how much access is allowed on any given day. In other words, the amount of space available in storage to fill is important, but equally important is the amount of gas that can be injected or withdrawn each day.

1,000,000 MMBtu of gas in storage with a 50,000 MMBtu daily injection/withdrawal limit could be less attractive to one client while the same 1,000,000 MMBtu in storage with a 100,000 MMBtu daily injection/withdrawal limit would be much more attractive to another. It all depends on how the storage is intended to be used and what risks are trying to be avoided.

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SUMMARY In today’s complex energy environment, the ability to quantify the value and take advantage of assets like storage is a combination of known and unknown factors that depends on how one intends to use the asset and the flexibility storage can provide to an entity trying to avoid risk. Each variable that goes into calculating the potential benefit of storage comes with risk and reward and varies greatly based on known market conditions at the time, as well as unpredictable market conditions down the road being overlaid with the term commitment of owning storage. Edison Energy can help educate you with energy expertise to To find help you meet out more about financial goals, how to get independent, mitigate comprehensive, expert and unwanted data driven advice on your risk, and natural gas supply management, protect the contact your Energy Manager resiliency of directly at Edison Energy or your facilities. send an inquiry here and our Energy Team will promptly respond.

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The Solution | Quarterly | July 2019

Featured Project Achieving Energy Efficiency At SwimWest Swim School Edison Energy was contracted to perform an energy assessment on the SwimWest Madison facility located in Madison, Wisconsin. The energy assessment served as a means to identify and evaluate opportunities to optimize integrated equipment operation, reduce energy waste, and improve building performance and occupant comfort.

The goals of the energy assessment were as follows: ›› Reduce annual energy consumption and annual costs ›› Improve building system control and occupant comfort

PROJECT RESULTS & KEY METRICS: Annual Cost Savings:

$5,514

ECMs Identified:

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Annual Water Savings:

23,624 gallons

Annual Electricity Savings:

45,251 kWh

Annual Natural Gas Savings:

3,426 therms

Peak Electric Demand Reduction:

1.7 kW

This energy assessment project’s scope included all building HVAC systems, lighting and electrical loads, building envelope, and all pool processes including pumping, heating, filtering, and domestic hot water supply. The boiler plant was reviewed onsite, but replacement of the plant equipment was already approved.

LEARN MORE As a certified Trade Ally for the Focus on Energy Program, Edison Energy was brought in to the project by Focus on Energy in order to help SwimWest Madison meet their energy efficiency goals. To learn more about the Focus on Energy Trade Ally Program, check out page 10, or to read the full SwimWest Madison case study, visit our website.

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"[T]hrough this work, my small company is on the path to lowering its utility bills by several thousand dollars annually, with a collective payback on my investments of less than three years."

K AREN CLAY Owner, SwimWest

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Spotlight On MATC Wins Efficiency Award Milwaukee Area Technical College (MATC) was recently awarded the 2019 Energy Efficiency Excellence Award from Focus on Energy and its partner utility, We Energies. The award is presented annually to organizations within the state of Wisconsin for their energy efficiency improvement efforts. Since 2017, MATC has been working with Focus on Energy on the completion of 21 energy efficiency projects.

The college took advantage of the energy expertise and financial incentives offered to customers of utilities that participate in the Focus on Energy program as it tries to meet the goal to reduce 50 percent of energy load use by 2030.

Edison Energy has been working with MATC on various projects, providing services such as: retro-commissioning (RCx), commissioning (Cx), sustainability studies, facilities operations problem solving, and humidity studies. All of these services have resulted in substantial energy reduction and operational improvement to the campus.

To read more about our work with MATC, download the case study.

Edison Award Finalist Luncheon Held at Edison International Headquarters Congratulations to Russell Smith, Senior Data Scientist at Edison Energy, one of 50 finalists who was selected to attend the Edison Award Finalist Luncheon at the Edison International headquarters in Rosemead, CA. The Edison Award program celebrates outstanding performance and is given to employees who go “above and

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The Solution | Quarterly | July 2019

beyond the call of duty” while living Edison International’s values and guiding behaviors.

Out of the fifty finalists, twenty winners will be selected in August.

Those winners will attend a special recognition event on September 28th.

To learn more about the Edison Award and to see past winners, click here.

Philanthropy

Save the Date The 8th Annual One More Tri

It's that time of year again! We are excited to announce that the 8th Annual One More Tri unified triathlon benefiting Special Olympics New Jersey (SONJ) will be taking place on Sunday, September 8th, 2019.

One More Tri is more than a race – it’s a Unified Triathlon Experience where triathletes of all skill levels compete side-by-side with Special Olympics athletes. This race is inspired by a simple principle: the act of competing together ensures a quick path to understanding, acceptance and friendship.

One More Tri features Sprint Triathlon, Short Sprint Triathlon, Duathlon, Aquavelo, and Relay event options, and a food tent stocked with specialties from Asbury Park’s best restaurants.

Even if you decide not to race, there are plenty of opportunities to get involved. We are always looking for volunteers, sponsors, and donations. If you would like to learn more about the race or want to learn how you can be a part of this feel-good event, please use the links to the right.

SEPTEMBER 8, 2019

LOOKING FOR MORE INFORMATION? ›› About SONJ ›› About One More Tri ›› Sponsorship Opportunities ›› Donate ›› Event Information • Race Distances • Packet Pick-Up & Info Sessions • Race Day Schedule ›› Register to Race

If you have any questions, or want to learn more about sponsoring, racing, donating, or volunteering, please contact Sarah Tritini at Sarah.Tritini@EdisonEnergy.com or at 848-303-4556.

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Program of the Quarter

Each quarter we will feature a utility incentive energy program across the US. This quarter we are highlighting:

Focus on Energy

To receive direct updates on Incentive Programs to your mailbox, sign up here.

LOCATION: ›› Wisconsin

MAXIMUM INCENTIVES: As a certified Trade Ally through the Focus on Energy Program, Edison Energy is able to help businesses within the state of Wisconsin apply for and receive incentives for their energy efficiency projects.

›› $10,000 per site ›› $25,000 per customer

ELIGIBLE SYSTEM SIZE: ›› Businesses must have an average consumption of 40,000 kWh or less during July and August

Focus on Energy CY 2018 First-Year Annual Savings by Segment1

1. Source: Focus on Energy 2018 Evaluation Report - Volume I: https://www.focusonenergy.com/sites/default/files/WI_FOE_CY_2018_Volume_I.pdf

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Insights from Supply Natural Gas Storage Report 7/25/2019 for the week ending 7/19/2019

GAS STORAGE WEEK # 29 Weekly Change

Current Storage

Bcf 14

Bcf 575

Bcf 524

YOY ∆ 10%

Bcf 604

5-Yr ∆

East Region Midwest Region

23

650

522

25%

656

-1%

Mountain Region

4

151

145

4%

172

-12%

Pacific Region

3

271

256

6%

294

-8%

South Central Region

(8)

921

823

12%

994

-7%

1,500

TOTAL

36

2,569

2,269

13.2%

2,720

-5.6%

1,000

Regions

Year Ago (07/19/18)

5-Year Avg (2014-18) -5%

HISTORICAL COMPARISON OF DATA Expectations

+ 30 to 35 , 2 Bcf stronger than expected

5 Year Avg

+ 45 Bcf , 9 Bcf weaker than 5-Yr Avg

Previous Year

+ 24 Bcf , 12 Bcf stronger than Prev Yr

U.S. Natural Working Gas in Underground Storage

4,500 4,000 3,500 3,000 2,500 2,000

Week 29 Storage

300 Bcf > than Prev Yr 151 Bcf < than 5-Yr

500

14 Weeks left in WI

0

1

4

7

10

13

16

GAS S TORAG E RA NG E (1 994-2 018)

19

22

25

28

31

34

37

5-Y EAR A VG (2014 -2018)

40

43

201 7

46 201 8

49

52 201 9

STORAGE COMMENTARY The EIA reported an injection of 36 Bcf this morning, increasing total U.S storage inventories to 2,569 Bcf. Market expectations for the injection varied between 30 and 35 Bcf with a consensus of +34 Bcf. Going into the data release, the prompt contract was trading at $2.242, $0.022 higher than yesterday's close of $2.220. The 12-month strip was trading at $2.391, $0.014 higher than yesterday's close of $2.377. Immediately after storage was announced, the prompt contract (August) decreased by $0.010 and the 12-month strip decreased by $0.001 to $2.232 and $2.390, respectively.

Weekly Storage Change vs Previous Year & 5 Year Average 150 100 50 0 -50 -100 -150 -200 -250 -300 -350 -400

Jan-19

5-YEAR AVG (2014-2018)

Feb-19

Mar-19

Apr-19

2019

May-19

2018

Jun-19

Jul-19

Aug-19

The market decreased as a result of the injection being stronger than the general market expectation.

Currently, the storage level is 13.2% ahead last year and 5.6% behind the 5-year average.

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Natural Gas THIS WEEK IN THE MARKET Despite forecasts of record high temperatures across the northern United States last weekend, the natural gas pricing last week saw a full week of downward trending pricing in the NYMEX futures market. Driven by the short-term temperature outlook, which called for an end to the short-lived heat wave, the prompt August contract declined $0.202 over the course of last week. Aiding in the downward pressure, the longterm temperature outlook continued to call for a warmer 2019-2020 winter weather for nearly all of the continental United States. Keep in mind that even though the long-term temperature forecast is calling for a mild winter, do not get too comfortable with the prospects of lowered forward NYMEX pricing. The market may potentially provide attractive hedging opportunity in the fall. However, all it may take to reverse the market is a revision to the forecast calling for cooler temperatures or early arrival of winter for pricing to rally.

52-week average: $2.704

52-week low: $2.166

52-week high: $2.979

NOTEWORTHY NEWS ›› Freeport LNG cleared to flow gas to 1st train for commissioning. ›› Gas use in the country rose week over week to 68.7 Bcf/d as consumption hit an all-time record of 43.8 Bcf/d on July 17, according to the U.S. Energy Information Administration. ›› National Fuel Gas applies to FERC for upgrade of Pennsylvania pipeline system to provide 330,000 Dth/d of additional gas transportation capacity. ›› The Federal Energy Regulatory Commission approved the company's request to build and operate gas storage facilities to boost the injection capability of the Petal Gas Storage complex in Mississippi.

REGIONAL COMMENTARY - MIDWEST Storage injections in the Midwest are continuing at a near-record pace with cash prices for June in Chicago and Detroit averaging $2.10 and $2.15 per Dth respectively. Panhandle deliveries into Consumers city-gate have been maxed out for the better part of three months and the curve suggests this trend will continue throughout the injection season. As the result of nearly 3.3 Bcf/d of injections, the Midwest is sitting on an inventory around one half Tcf. The injection rates this summer are 126% higher YoY, and analysts suggest that we could see a five-year max by mid-October if the pace continues. If the weather remains mild and gas-fired generation does not pick up – Chicago, Detroit, Appalachia and Oklahoma (PEPL, ANR, NGPL Midcontinent) could all face tumbling prices later in the injection season.

With 10 GW of new wind capacity beig developed in the Midwest by June 2020, analysts suggest this new wind generation could wipe nearly half of one Bcf/d of gas-fired generation off the table and if this plays out as suggested, storage injections could be even higher than the record pace that they are on this year.

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Electric THIS WEEK IN THE MARKET

Calendar Year 2019 Wholesale Electricity Prices

All seven hubs that are tracked in this publication lost strength last week ending July 19. ERCOT-S saw the largest decrease in pricing, losing $1.15 per MWh, a loss of 3.73%. Houston and WCMA saw the next highest loss, both falling $1.10 per MWh, or a decrease of 3.46% and 2.76% respectively. PJM-W saw a decline of $0.30 per MWh, a decrease of 1.05%. ATSI and SP-15 both lost $0.20 per MWh. Northern Illinois saw the smallest decreasing in pricing, losing a dime to settle at $23.90 per MWh.

REGIONAL COMMENTARY - MISO Network Integration Services Costs (NITS) rates are based on the recovery of costs by the Transmission Owner serving that Zone. The Zone in Illinois for Ameren Utilities is called Zone 3A (AMIL). The allocation of costs for NITS is based on each customer’s monthly peak load share in the relevant control areas (CA’s).

The CA’s submit monthly metered load shares for their peak hour each month to cover network integration services. MISO uses this data to calculate transmission charges applicable to NITS customers which is then distributed to applicable revenue recipients. MISO manages the costs for this service through Schedule 9 – Network Integration Transmission Service (NIT). n reviewing Schedule 9 – NITS rates for Zone 3A, the costs have continued to rise each year at a pace of almost 15 percent on average since Planning Year 2008/2009 (see Table). NITS costs are now the second largest cost component in the retail supply stack next to energy commodity costs. Using a 65 percent load factor for an assumed Schedule 9 - Transmission Network Costs Zone 3a (Ameren IL) $/MW-Yr. $/MWh* load profile, the cost for NITS back in Planning Year 2008/2009 was PY19/20 $41,317.72 $7.26 about $1.85/MWh. Using the same assumption, the cost has now PY18/19 $41,267.93 $7.25 risen to about $7.26/MWh – more than three times what is over 10 PY17/18 $38,641.71 $6.79 years ago.

PY16/17 $32,792.69 $5.76 PY15/16 $31,456.13 PY14/15 $24,409.50 PY13/14 $22,330.38 PY12/13 $19,720.81 PY11/12 $13,765.03 PY10/11 $15,501.55 PY09/10 $11,469.66 PY08/09 $10,505.66 * Assumes a load factor of 65 percent.

$5.52 $4.29 $3.92 $3.46 $2.42 $2.72 $2.01 $1.85

In most zones the grid sees its peak occurring between the weekday hours of 2pm until 5pm. If an end-user can curtail load during these hours, then a self-managed program could help mitigate the allocation of these costs thereby controlling their expenses. Even though capacity costs have been relatively low in comparison to say PJM or the New England ISO markets, the end-user could also further reduce retail costs by lowering their peak load contribution used to determine capacity costs. ©Edison Energy. All rights reserved.

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Electricity Deregulated Activity MICHIGAN The Michigan PSC adopted an order maintaining the current state reliability mechanism (SRM) capacity charge at Upper Michigan Energy Resources Corporation (UMERC) until a final order in Upper Michigan Energy Resources Corporation’s next general rate case.

Specifically, the PSC ordered that the state reliability mechanism capacity charge approved for Upper Michigan Energy Resources Corporation in Limited Case No. U-18253 shall remain in effect until the Deregulated / Active final order in Upper Michigan Energy Resources Corporation’s next general rate case. In such case, the PSC had set the state reliability mechanism capacity charge of $229,523 per megawatt-year, or $629 per megawatt-day.

ARIZONA The Arizona Corporation Commission (ACC) adopted a policy statement to institute a competitive electric supply buy-through program open to medium-sized C&I customers.

Currently very large customers can seek competitive supply in a similar buy-thorough program.

ACC Chair Tom Forese requested that commission staff prepare a proposal to allow a limited number of customers, smaller than the existing threshold for very large customers, to take competitive supply under a similar program.

Implementation of the policy statement will be evaluated in the next rate cases for the state’s three large utilities.

ILLINOIS Similar to New York, Illinois is implementing a program to subsidize the State’s nuclear generation assets.

Through a mechanism being called a Zero Emission Credit (ZEC), market participants will pay into a fund to boost revenues for nuclear generation facilities within Illinois (mainly owned by Exelon).

Effective June 1, 2019, retail suppliers are relieved of the renewable procurement compliance obligation under legislation passed on 12/7/16 under SB 2814 (Public Act 906) effective 6/1/17, the enrolled bill transitions renewable energy procurement obligations solely to the Illinois Power Agency with costs recovered on a non-bypassable basis. The enrolled bill affirms the design of the nuclear subsidy zero emissions credit program such that, unlike in New York, Illinois retail suppliers will not be responsible for costs of the ZECs, with ZECs centrally-procured with costs recovered by utilities on a non-bypassable basis.

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Electricity Deregulated Activity NEW YORK Governor Andrew Cuomo announced that he would seek 100 percent clean electricity generation for the state of New York by 2040. This target makes New York one of three states (Hawaii, California, Washington and the District of Columbia) with total electricity decarbonization goals.

Governor Cuomo was careful to make the distinction between “renewable generation” and “clean or carbon-free generation.” For example, with clean generation, the state’s nuclear generation fleet could help achieve the aggressive goal.

Clean Energy Standard - New York Public Service Commission (NYPSC) adopts standard to enhance and support renewable generation under two new programs. Cost impact to end-users is around $3.50 per MWh. Renewable Energy Standard (RES) - A statewide requirement to procure and integrate renewable power resources as a certain percentage of total electricity load beginning in 2017 (0.6 percent), with annual increased percentages through 2021 (4.8 percent). Load Serving Entities (LSE) can either procure RECs or make Alternative Compliance Payments (ACP) through NYSERDA. LSEs will ultimately recover these costs from end-users.

OHIO House Bill (HB) 6 was passed by the House late in May and is sought to provide approximately $180 million funds annually to support two aging nuclear plants within the state owned by FirstEnergy Solutions (FES), which is currently under Chapter 11 Bankruptcy protection. FES stated that without the states support both plants will be closing within the next two years stating they are unable to compete in todays deregulated market. In the version of the bill passed by the House, the law would also eliminate the current mandates for energy efficiency programs and renewable energy targets. HB 6 provides significant funding for FES’ nuclear plants plus additional funding for two 60+ year old coal-fired plants owned by the Ohio Valley Electric Corporation, which AEP Ohio has a significant ownership. While HB 6 is titled as the Ohio Clean Air Program, the bill in the original version does very little to position Ohio for the future in being a clean air state.

TEXAS Texas electricity futures are trading higher after the latest Capacity, Demand and Reserves (CDR) report projects a summer 2019 peak margin of only 8.1 percent. This is less than the 11 percent projected for summer 2018 which sent forward prices soaring to more than $140/MWh last spring.

The report suggests that there will be a higher probability of blackouts/brownouts for the next several summers. Coincident with the CDR report, the Public Utilities Commission of Texas (PUCT) is expected to modify their current Operations Reserves Demand Curve, which sets pricing during scarcity events, to introduce additional pricing levels and incentivize construction of new generation.

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Petroleum Markets The NYMEX WTI crude futures were significantly lower on the week lead by continued concerns with the health of global economies and reduced demand forecasts. The August contract settled Friday at $55.63 per barrel, down $4.58 per barrel or 7.6% on the week. ›› The U.S. inventory report for crude was neutral, but it was the products that gave direction to the markets. Crude inventories decreased by 3.1 million barrels vs. market expectations of a 3.0-million-barrel draw. The surprise was with the products. ›› Gasoline inventories increased by 3.6 million barrels for the week while distillates increased by 5.7 million barrels. Currently gasoline stocks are 2% above the five-year average while distillate stocks are about 2% behind. ›› Disruptions due to Hurricane Barry which limited export shipments most certainly have skewed the above numbers, but nonetheless, the significant builds during the height of demand season will temper upside risk at this point. ›› Refinery capacity utilization rates remained stable at 94.4%. Expect rates to remain elevated for at least another one and a half months. ›› Signals that the global economy is slowing came once again from Asia. China reported that second quarter GDP grew by only 6.2% YOY, the lowest growth rate since 1992. ›› Baker Hughes reported Friday that the number of oil rigs decreased by five for the week. The total count is now at 779.

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›› U.S. production levels provided the one bullish metric from this week’s report. Production dropped 0.300k bpd to 12.0 mbpd. Production response this year has been underwhelming when compared to forecasts at the start of the year. However, given YOY reduction in deployed rig counts and reduction in capex spending by E&P’s coming into 2019 this retraction is not entirely surprising. (See below graph) Last week’s strong weekly close above $60 did not hold as prices and stochastics retreated from overbought conditions. As the market digests flip-flopping fundamental inventory reports and tweets concerning trade and middle east tensions, the crude chart continues to trade in textbook technical patterns. The long-term consolidating pennant formation has continued, and prices are approaching levels where the expected break of the pennant formation will occur. Near term, stochastics are back to oversold conditions thus prices are expected to correct and strengthen early this week.

Continued price consolidation is expected as typical of the pennant or flagging technical formation.

Sustainable Energy News U.S. ENVIRONMENTAL PROTECTION AGENCY FINALIZES AFFORDABLE CLEAN ENERGY RULE On June 19, the U.S. Environmental Protection Agency (EPA) finalized its Affordable Clean Energy, or ACE, rule. Billed by the Trump administration as an alternative to the Obama-era Clean Power Plan, the regulation would cut about 11 million short tons of CO2 from existing coal-fired generators by 2030, according to the EPA. In comparison, when the EPA finalized the Clean Power Plan in 2015, it projected the rule would cut about 870 million short tons of CO2 by 2030.

While the Clean Power Plan would have allowed states to meet individual emissions reduction targets through a combination of "outside the fence line" compliance flexibilities, including substituting renewable and lower-emitting natural gas-fired generation, the ACE rule takes a narrow "inside the fence line" approach. Notably, the ACE rule does not set any emissions reduction targets for individual states.

In repealing the Clean Power Plan, the ACE rule outlines a three-step process for meeting the agency's goals that starts by outlining a menu of heat-rate improvement "candidate technologies" for states to consider at the individual plant level. The rule does not consider certain inside-the-fence-line measures such as fuel-switching and carbon capture and sequestration to be candidate technologies because the agency said they are not cost-effective.

Once the guidelines are finalized, states will have three years to develop and submit compliance plans that include site-specific measures based on a coal unit's potential for efficiency gains.

The final ACE rule does not include changes to the Clean Air Act's New Source Review (NSR), permitting program initially seen as a key element of the original proposal. That program requires major sources of air pollution such as coal plants to install the latest pollution controls when they undertake modifications that are projected to result in a significant increase in emissions. In the ACE proposal, the EPA noted that NSR permitting requirements could stand in the way of many heat-rate improvement projects such as turbine upgrades because required pollution controls can often exceed the cost of an efficiency upgrade.

Under the ACE rule, the EPA projected that CO2 emissions from the U.S. power sector will decline roughly 35% by 2030 compared to 2005 levels. Virtually all of those reductions would come from a continued shift away from coal-fired generation toward cheaper power sources such as natural gas and renewables. ŠEdison Energy. All rights reserved.

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What's Next?

Catch us at these upcoming events.

27

TSC IDEA FORUM Nebraska City, NE • 8/27 - 8/29

As a Tier 1 Member of The Sustainability Consortium (TSC), we will be attending the Idea Forum. → Click here to learn more.

16

SMART ENERGY DECISIONS RENEWABLE ENERGY SOURCING FORUM Ponte Vedra Beach, FL • 9/16 - 9/18

Edison Energy will be a presenting sponsor at the Fall Forum. → Click here to register

10

RIMS CHICAGOLAND Chicago, IL • 9/23 - 9/24 Edison Energy will be sponsoring this

event. → Click here to register

18 The Solution | Quarterly | July 2019

23

SOLAR POWER INTERNATIONAL Salt Lake City, UT • 9/23 - 9/29

Edison Energy will be attending this event. → Click here to register

Join Our Team!

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Click on the positions below to learn more about how you can apply.

ENERGY ENGINEER Los Angeles, CA San Francisco, CA San Diego, CA

JR. DATA SCIENTIST Boston, MA

SR. DIRECTOR, PRODUCT MANAGEMENT

PROJECT MANAGER New York, NY

Boston, MA

DESKTOP SUPPORT TECHNICIAN

TESTING & BALANCING TECHNICIAN

Boston, MA Dublin, OH

New York, NY

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Energy is the largest unaddressed risk most companies face and can exceed foreign currency, interest rate and other operational risks. We create competitive advantage for market leaders by quantifying this risk and designing the portfolio solution to protect shareholder value threatened by complex energy policies, technological advancements, and new products.

C A LIFORNIA 3501 Jamboree Road, Ste. 270 Newport Beach, CA 92660 (949) 491-1633

NE W YORK 39 Broadway, Ste. 1520 New York, NY 10006 (212) 269-2302

ILLINOIS 564 W. Randolph, Ste. 200 Chicago, IL 60661 (732) 988-8850

OHIO 545 Metro Place South, Ste. 400 Dublin, OH 43017 (614) 339-2600

M AS SACH USE T TS 53 State St., Ste. 3802 Boston, MA 02109 (617) 209-3701

VIRGINIA 7926 Jones Branch Dr, Ste. 530 McLean, VA 22102 (732) 988-8850

NE W JERSE Y 613 Bangs Ave. Asbury Park, NJ 07712 (732) 988-8850

Additional regional offices located in: Texas, Toronto, and Wisconsin Global presence in: North and South America, Europe and Asia-Pacific

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