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 Dont 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:

Technical charts show strong uptrend across all major regions and forward indices when compared to 2012.

NERC Summer Electric Capacity Assessment: North America has enough power to meet
summer demand. However, Texas and the Western U.S. may have some problems. Expect volatility.

Other news:

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 Short Term 2 to 6 Months Medium Term 6 to 12 Months Long Term 1 to 5 Years

Production
Demand Electric Power Sector Weather Tropical Storms LNG Economy

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
800

Rig Counts

700 600

500 400
300 200

100 0

Oil

Natural Gas

United States Oil/Natural Gas Drilling Rigs Drilling Rigs Current 6/14/2013 1,413 353 1,766 Last Week 6/7/2013 1,406 354 1,760 Change 7 (1) 6 1,405 562 1,967 Year Ago 6/15/2012 % Change 0.6% -37.2% -10.2%

Oil
Natural Gas Total

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) Mild (Named Tropical Storms) Moderate (Hurricane Categories 1-2) Intense (Hurricane Categories 3-5) 12 6 3

Record Values 27 (2005) 15 (2005) 8 (1950); 7 in (2005)

2013 Projected Values 18 (CSU); 13-20 (NOAA 70% confidence) 9 (CSU); 7-11 (NOAA) 4 (CSU); 3-6 (NOAA)

Hurricane Induced Shut-In Production as a Percentage of Normal Monthly Production (1995-2011) 0.82% 1.15% 2.00% 2.98% 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.

$/MMBtu $3.00 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 30-Apr 11-Jun 28-May $3.20 $3.40 $3.60 $3.80 $4.00 $4.20 $4.40 $4.80 $5.00

(NYMEX) 11 June 2013

NATURAL GAS FORWARD CURVE

$4.60

14-May

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 NERCs 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) 18,000 16,000 14,000 12,000 Planned Coal Retirements (MW) Cumulative Retirements (MW) 41,857 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2011 2012 2013 2014 2015 2016 2017

MW

10,000 8,000 6,000 4,000 2,000 0

MW

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

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

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Discovering Exceptional Value with Rebate Management Solutions June 27th

5 Tips to Alleviate the Pains of Budget Planning & Management July 18th
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Telecom Strategic Sourcing Secrets - September 25th

Questions, comments, suggestions? webinars@ecova.com

Q&A Session

Thank you!