WCOAEE Meeting:Natural Gas & Electric Update

April 16, 2015

Natural Gas System

Natural Gas Supply

Natural Gas Interstate Pipelines

Natural Gas BTU Flow in 2008

LNG Imports Rise & Fall on Price

Canadian & LNG Import History

Canadian Imports Fill Rising US Need & Keep Prices Low

Canada Can’t Keep Up & Prices Rise

US Production Up, Canadian Imports Down

Production increased 30% in 10 years and 5% in past year alone.

Declining Production

Katrina & Rita

Gas Demand

Residential Consumption

Slow Peak Increase & Highly Weather Dependent

Steady Summer Use

Commercial Consumption

Increasing Winter Peak if Normal Weather

Steady Summer Use

Higher Beginning Levels

Warm Winter

Cold Winter

Higher Storage Peaks

Industrial Consumption

Rising Prices & Declining Use Low or dropping prices & Increasing Use

Electric Generation Consumption

$6.00

$13

$4.80 $4.40

$3.00

$3.50

$3.40

Dramatically Growing Use. Nearly 50% Rise in 10 Years.

Regulatory Update

Large expansion of gathering lines is gaining speed in Ohio.

Siting of gas stripping plants is going to accelerate. Interstate pipeline reversals & expansions will shift basis

markets. Horizontal fracking regulations always a possibility. If fracking regulations are implemented expect dramatic

increases in natural gas, oil & electricity prices.

Trends & things to watch for

Gas production has continued to increase BUT… Oil Price decline will eventually reduce gas production. Rig Productivity has Increased dramatically in past 5

years. Low Costs have created future Industrial demand. Gas use for electricity will continue rising…the pace will

be driven by the EPA and the Price. CNG Trucks and Fleets will continue expanding but more

slowly. LNG Exports Coming in 2016. first to Flow due to Price.

Electricity

Electricity Supply

Electricity Supply

Supplying customers is broken into three main components… Generation (deregulated in Ohio). Transmission (federally regulated). Distribution: sub-stations to customer meters (State

Regulated). Generation cannot be easily stored. It is produced as needed by customers. Customer consumption varies significantly from day to

night or weekdays to weekends.

1,978,301

100,39120,754

710,100

15,252

788,528

268,417

83,067

Electric Generation by Fuel Source 2004

Coal

PetroleumLiquids

PetroleumCoke

NaturalGas

OtherGas

Nuclear

HydroelectricConventional

RenewableSourcesExcludingHydroelectric

1,585,998

13,41013,453

1,113,665

12,271

789,017

269,136

253,328

Electric Generation by Fuel Source 2013

Coal

PetroleumLiquids

PetroleumCoke

NaturalGas

OtherGas

Nuclear

HydroelectricConventional

RenewableSourcesExcludingHydroelectric

Natural Gas up 57% from 2004 to 2013

Renewable Production tripled from 2004 to 2013.

Electricity demand

Jan-

73

Nov-7

3

Sep-

74

Jul-7

5

May

-76

Mar

-77

Jan-

78

Nov-7

8

Sep-

79

Jul-8

0

May

-81

Mar

-82

Jan-

83

Nov-8

3

Sep-

84

Jul-8

5

May

-86

Mar

-87

Jan-

88

Nov-8

8

Sep-

89

Jul-9

0

May

-91

Mar

-92

Jan-

93

Nov-9

3

Sep-

94

Jul-9

5

May

-96

Mar

-97

Jan-

98

Nov-9

8

Sep-

99

Jul-0

0

May

-01

Mar

-02

Jan-

03

Nov-0

3

Sep-

04

Jul-0

5

May

-06

Mar

-07

Jan-

08

Nov-0

8

Sep-

09

Jul-1

0

May

-11

Mar

-12

Jan-

13

Nov-1

3 -

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Residential & Commercial Electric Use 1973 thru 2014

Residential Commercial

Use Grows As Economic Activity Increases

Wider Swings in Use due to AC Load

Jan-

73

Nov-7

3

Sep-

74

Jul-7

5

May

-76

Mar

-77

Jan-

78

Nov-7

8

Sep-

79

Jul-8

0

May

-81

Mar

-82

Jan-

83

Nov-8

3

Sep-

84

Jul-8

5

May

-86

Mar

-87

Jan-

88

Nov-8

8

Sep-

89

Jul-9

0

May

-91

Mar

-92

Jan-

93

Nov-9

3

Sep-

94

Jul-9

5

May

-96

Mar

-97

Jan-

98

Nov-9

8

Sep-

99

Jul-0

0

May

-01

Mar

-02

Jan-

03

Nov-0

3

Sep-

04

Jul-0

5

May

-06

Mar

-07

Jan-

08

Nov-0

8

Sep-

09

Jul-1

0

May

-11

Mar

-12

Jan-

13

Nov-1

3 -

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Industrial Use 1973 thru 2014

Increased Use with Economic Ex-pansion

Recession

Electricity Demand

Charts show that electricity use rises with growth. Peak demand has risen faster than Use. 1973 peak month exceeded average monthly use by

10%. 2013 peak month exceeded average monthly use by

15%. 5% may not seem like much but that equals 22,000 MW. Generation output of FE – Ohio, DP&L & Duke-Ohio

combined!

Generation Capacity Basics

Electricity can’t be economically stored in large quantities.

FERC assigns balancing generation responsibilities to PJM.

PJM covers 65 million people in 13 states.

Balancing is happening 24 hrs/day….every day.

PJM is broken into Zones by Dist. Utility.

Value of capacity established by Zone.

Gen. capacity Basics #2

Generation capacity is imbedded in your electric supply costs.

Amount of capacity needed is established by PJM.

Capacity value by region established via auction.

May 2015 Auction: June 2018-May 2019.

PJm system 18/19 peak Est. @ 175,000 MW.

System includes Reserve margin of 15-20%.

Gen. Cap. Are payments to power generators to meet system needs.

Capacity payments for 16/17 est. @ $5.5 billion

How much does this impact Me?

Yearly Capacity cost per MW

Est. Cost imbedded using 200 kW PLC with annual use of 1.0 GWh.Territory Jun ’13-

May ’14Unit Cost

Jun ’14- May ’15

Unit Cost

Jun ’15- May ’16

Unit Cost

Jun ’16 –May ’17

Unit Cost

FirstEnergy 2.1 mills 9.4 mills 21.6 mills 6.6 mills

Rest of Ohio 2.1 mills 9.4 mills 9.9 mills 4.3 mills

TerritoryJun ’13- May ‘14

Jun ’14- May ’15

Jun ’15- May ’16

Jun ’16- May ’17

FirstEnergy $10,400 $47,200 $108,000 $33,000

Rest of Ohio $10,400 $47,200 $49,500 $21,700

State Regulatory Update

Duke, AEP & FE all have ESP Cases pending at the PUCO.

Duke & FE attempting to eliminate load factor riders. All 3 Utilities are requesting stabilization riders. Duke is/was only looking for OVEC Pass thru. AEP initially only looking for OVEC past thru. FE requested pass thru On 4 plants for 3,200 MW. AEP increased their pass thru request by 2,700 MW. AEP & Duke orders issued in past 5 weeks.

PJM/Federal Regulatory Update

PJM is tasked with keeping power flowing 24 hrs. x 7 days/week.

winter 2014 peaks were much higher than anticipated. Lots of generation unavailable. Winter 2015 peaks > 2014 but system was better

prepared. PJM is starting to modify its system to include winter peaks.

Trends/Things to watch for

Additional coal plant retirements if EPA restricts carbon. Low gas prices = added pressure on coal Plants. Electric Price squeezes or spikes likely to more frequently. Very cold weather will trigger electric & gas price spikes as gas

delivery capacity is stretched very thin. Nationwide renewable trend is likely to continue. Generation capacity cost roller coaster will continue. Higher ancillary costs and price spikes will make electric

suppliers more risk averse and they will add margin to cover. Ongoing emphasis on energy efficiency will continue.

Questions?

Mark FryePalmer Energy/Palmer Conservationmfrye@palmerenergy.com419-539-9180