The Future of Supply-Side Energy Management

The Futureof Supply-SideEnergy Management

Confidential & Proprietary2

Fellon-McCord OverviewEnergy Market UpdateFuture of Supply-Side Energy Management

Meeting Energy Needs

Supply & Demand-Side Considerations

Closing Thoughts

Today’s Agenda


Fellon-McCord Overview

Some of Our Clients

What We DoKey Statistics1992Founded in Louisville, Kentucky

$14 BillionAnnual client energy spend in North America and UK/Europe

400Supported by a partnership network of more than 400 energy professionals worldwide

24/7Power Control Center staffed 24 hours per day 7 days per week with certified energy professionals

Energy Consulting & Management

Data Management & Utility Bill

Payment

Energy Scheduling & Dispatching

Reduce Costs for Energy Consumers Services

3

http://www.rrd.com/wwwRRD1/Home.asp

http://www.leggett.com/


Fellon-McCord delivers energy solutions for global organizations

Global Focus

y

Energy MarketUpdate


Disclaimer

The data and information contained in this presentation are gathered and provided to Fellon-McCord & Associates through proprietary and public sources and are published with the intention of being accurate. Fellon-McCord & Associates, and any affiliates cannot, however, insure against or be held responsible for inaccuracies and further assumes no liability whatsoever arising from use of such data or any information contained in this presentation.

The material in this presentation does not, in any way, represent a recommendation of any kind that you or your company purchase or sell any commodity. Discussions or representations of past market performance do not predict future market results. Any forecast of potential future energy prices or market trends are for discussion purposes only and are expressly not intended to induce the purchase of any commodity of any kind.


U.S. Natural Gas Production

Source: EIA, NYMEX

Increasing U.S. Natural Gas Production Has Pulled Prices Down

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-1440

45

50

55

60

65

70

75

$0

$2

$4

$6

$8

$10

$12

$14

U.S. Dry Gas Production NYMEX Natural Gas Price

Prod

ucti

on B

cf p

er D

ayG

as Price $ per MM

Btu


Power Prices Correlated with Gas Prices

Jan-05Jul-0

5

Feb-06

Sep-06

Mar-07Oct-

07

May-08

Nov-08Jun-09

Jan-10Jul-1

0

Feb-11

Sep-11

Mar-12Oct-

12

May-13$30

$45

$60

$75

$90

$105

$120

$2

$4

$6

$8

$10

$12

$14

PJM Power Price vs. NYMEX Natural Gas Price

PJM Power NYMEX Gas

PJM

Pow

er $

/MW

hGas $/M

MBtu

Source: InterContinentalExchange, Market View


Jan FebMarMarAprMayJun Jul AugSep OctNovDec$1.00$1.20$1.40$1.60$1.80$2.00$2.20$2.40$2.60

Iso-Butane

$ pe

r G

allo

n

NGL Prices Trending Down

Jan FebMarAprMay Jun Jul AugSep OctNovDec$0.00$0.10$0.20$0.30$0.40$0.50$0.60$0.70$0.80$0.90$1.00 Ethane

$ pe

r G

allo

n

Jan FebMarMarAprMay Jun Jul AugSep OctNovDec$0.20$0.40$0.60$0.80$1.00$1.20$1.40$1.60$1.80 Propane

$ pe

r G

allo

n

Jan Feb Mar AprMay Jun Jul AugSep Oct NovDec$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20N-Butane

$ pe

r G

allo

n

Source: EIA

9


Chile Italy

Japan

Germany

Spain

Belgium U.K.

Sloven

ia

France

Sweden

RomaniaChina

Bulgaria

Canada

U.S.$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

Global Industrial Power Prices 2012

$US

per k

Wh

Source: EIA, Bloomberg, Europe’s Energy Portal, Shenzhen Government Online, Canadian Electricity Association

North American Competitive Advantage


Manufacturing Renaissance


Long-Term Energy Price Risks

The Four Forces that are driving U.S. energy prices higher

Regulation of Hydraulic Fracturing

Coal/Nuclear Retirements LNG Exports Manufacturing


EPA Fracking Study Due December 2014

• Impetus – As part of a 2009 appropriations bill, Congress directed EPA to study impacts of fracking on drinking water.

• Focus – Five main areas– Large volume water withdrawals from ground and surface

waters– Surface spills on or near well pads– Well injection and fracturing process– Surface spills of flowback water– Wastewater treatment and disposal

• Progress– Progress Report released December 2012 (no conclusions)– Final draft scheduled for release “late 2014” for public

comment and peer review.


Coal Retirements

Source: SNL Financial


Natural Gas Needed to Replace Coal

2013 2014 2015 2016 2017 2018 2019 2020 2021 20220.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

1.16

0.46

1.870.20

0.410.24 0.00

0.25 0.00 0.05

Additional Natural Gas NeededTo Replace Coal Generation (by year)

Nat

ural

Gas

Bcf

per

Day

Source: SNL Financial, Fellon-McCord


US Nuclear Plant Closures / Additions

New – Under Construction (5,634 MW)At Risk (11,535 MW)Closures Announced (4,164 MW)

San Onofre 2,150 MW

Vt. Yankee620 MW

Crystal River838 MW

Kewaunee556 MW

Vogtle2,234 MW

Virgil C Summer2,200 MW

Watts Bar1,200 MW

Source: Nuclear Regulatory Commission, Inside Climate News, Bechtel Corp, Southern Company


Coal Generation Being Displaced by Natural Gas

Coal48%

Natural Gas21%

Petroleum1%

Nuclear20%

Hydro6%

Renewable3%

Other1%

2008

Coal37%

Natural Gas30%

Petroleum1%

Nuclear19%

Hydro7%

Renewable5% Other

1%

2012

Coal Generation Being Displaced by Natural Gas

Source: EIA


LNG Historical Price Disparity


LNG Export Approval Pipeline

Five terminals with a total of 8.5 Bcf per day of capacity have received DOE approval for LNG exports to non-FTA countries

Sabine Pass (2.2 Bcf per Day)

Freeport LNG(1.8 Bcf per Day)

Lake Charles(2.0 Bcf per Day)

Cove Point(0.8 Bcf per Day)

More than 20 pending

applications(>25 Bcf per

Day)Cameron

(1.7 Bcf per Day)

DOE Approval

FERC Approval/ Environme

ntal Review

Construction

Exports(late 2015?)

DOE Approval

FERC Approval

Construction Exports (late 2015)


Industrial Consumption Increasing

2006 2007 2008 2009 2010 2011 2012 201338

46

54

62

70

16

17

18

19

20

U.S. Gas Production Industrial Gas Consumption

Gas

Prod

ucti

on B

cf/d

ayIndustrial Consum

ption Bcf/day

Source: EIA

Major Shift in Crude Oil



U.S. Crude Production

Source: EIA

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

U.S. Crude Oil Production

Mill

ion

Barr

els

per

Day


Canadian Crude Production

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1.5

2.0

2.5

3.0

3.5

4.0 Canadian Crude Oil Production

Source: National Energy Board

Mill

ion

Bbls

/day


Jan-00Jan-01

Jan-02Jan-03

Jan-04Jan-05

Jan-06Jan-07

Jan-08Jan-09

Jan-10Jan-11

Jan-12Jan-13

-2

-1

0

1

2

3

4

5

15

16

17

18

19

20

21

22

U.S. Petroleum Product Net Importsvs. Consumption

Product Net Imports Total Consumption

Net

Impo

rts

Mill

ion

Barr

els

per

Day Consumption

Million Barrels per D

ay

U.S. became a net exporter in late 2010

Source: EIA

U.S. Now a Net Exporter of Petroleum


Could increase by as much as 74% by 2020

Source: Citigroup

North American Liquids Production


Mexico Energy Reforms

Mexico’s state-owned oil company, Pemex, has held a monopoly on oil and gas production for the past 75 years, per constitutional amendment.Aging fields and the lack of capital, technology, and expertise to develop new resources have resulted in declining production.Mexico’s president pushed through constitutional reforms that passed the legislature in December 2013. Secondary laws to enable implementation are due by mid-April.These reforms will allow foreign capital, technology and expertise to enter Mexico’s energy markets, providing a path to increased production and market transparency.


Summary

Oil and natural gas production in North America have increased more than 30% in the past five years.Increased supplies have pulled industrial gas and power prices down to give the U.S. and Canada a competitive advantage in energy prices.This, and other competitive advantages are attracting manufacturing back to North America.There are four forces that can drive energy prices higher• Fracking regulations• Coal generation retirements• LNG exports• Industrial (manufacturing) renaissance – increasing

demand


High Volatility

Low Prices Uncertain

ty

Energy markets are dynamic and always a cause for a plan

A centralized solution (i.e., single source) for energy supply and demand

Ways to leverage energy needs to create savings across all locations

Ways to track Plan performance

Ability to demonstrate Environmental Stewardship


CEO’s, CFO’s, COO’s, CPO’s are looking for:Developing a Plan


Budget Certaint

y

Low Cost

Supply


Goals/Challenges:Procurement Strategies

Load Aggregation Contract Management Sustainability Initiatives

Reporting and Benchmarking

Data Management

Managing Risk Price Forecasting Market Timing Market Movement

Developing a Plan



Energy Commodity Cost

Transmission Delivery Cost

(Basis)

Utility Distribution Cost

Supplier Margin

Total EnergyDelivered Cost

Consumers need to create transparency in the Energy Supply Chain.

Developing a Plan


Opportunities exist in deregulated and regulated markets


Deregulated Markets Regulated Markets

• Load profile optimization• On-site generation• Tariff optimization• Regulatory intervention (rate cases)• Demand response• Ancillary market participation• Procurement: physical and financial*

• Load profile optimization• On-site generation• Tariff optimization• Regulatory intervention (rate cases)• Demand response • Ancillary market participation• Utility negotiation*

Look for solutions in all regions where you have facilities.

Developing a Plan


SUPPLY

Procurement Risk Management

Data Management OPEX CAPEX

Supply and Demand-Side Services are typically fulfilled in a non-aligned manner.

• Aggregation• RFPs• Contract Optimization

• Market Intelligence• Market Timing• Continuous Monitoring

• Benchmarking• Opportunity Targeting• Performance

Assessment

• System Optimization• Operating Procedures• Behavior Modification

• Equipment• Controls• Building Modification

CUSTOMER’STOTAL ENERGY COST

DEMAND


Supply & Demand Side: Today

SUPPLY

Procurement Risk Management

Data Management OPEX CAPEX

Businesses need to reduce energy usage, and obtain the most reliable and economic energy supplies available.

• Aggregation• RFPs• Contract Optimization

• Market Intelligence• Market Timing• Continuous Monitoring

• Benchmarking• Opportunity Targeting• Performance

Assessment

• System Optimization• Operating Procedures• Behavior Modification

• Equipment• Controls• Building Modification

DEMAND


Supply & Demand Side: Future

CUSTOMER’STOTAL ENERGY COST

√ Physical, financial, regulatory and legislative factors - globally, nationally and locally - will continue to impact our region’s energy pricing.

√ Energy Pricing will likely continue an upward trend.

√ Power now tracks natural gas and this fact likely will not change any time soon due to coal and nuclear plant retirements.

√ Accessing the real market price of power will be a challenge in Kentucky and could put Kentucky at a disadvantage to other areas of the country that can readily access third-party supplies.

√ Focus on lowering your energy usage, first, and then buy what your facilities do need to consume as close to market pricing (i.e. wholesale) as possible.


For Kentucky, as well as much of the Midwest:

Closing Thoughts


We appreciate the opportunity to present to

Thank you

Andrew R. (Drew) FellonPresident & CEO502-214-9418

[email protected]

Documents

The Future of Supply-Side Energy Management