Q1 2015 Energy Market Outlook

Energy Prices and Market Intelligence Q1 Update February 26, 2015

Presenter: Jason Stoffel, CEP, Senior Energy Procurement Analyst

With average winter temperatures and strong gas production, energy prices are falling to their lowest level since 2012.

− As the nation increases its reliance on natural gas-fired electric generation, wholesale gas prices will play an even bigger role in the direction of electric prices.

Fundamental Drivers – Bulls and Bears

• Winter Weather: The winter of 2014/2015 has been near-normal for much of the eastern U.S., while California experienced the warmest winter in the last 120 years.

Natural Gas Production, Storage, Demand: Production continues to grow at a record pace, which has helped drive the amount of gas in storage to a surplus compared to last year and the 5-year average. Winter heating demand has not kept pace with supplies.

Regional Electric Outlook:

– Northeast: Fixed pricing in these areas can be more favorable than index due to the cold winter price spikes.

– Southeast: Texas rates are at a 4 year low.

– Midwest: Capacity market fluctuations heading into 2015/2016 planning year.

– West: Current warm winter is having a positive impact on electric pricing.

ENERGY MARKET INTELLIGENCE

Short TermNext 6 Months

Long Term 1 to 5 Years

StorageSurplus compared to last year and 5-yr avg.

Weather dependent, increased demand, LNG Exports

ProductionGross Production 13.22% above last year .

U.S. gas reserves increased by 10% in 2013 to a record 354 Tcf

DemandWinter weather continues to attract heating demand. Low prices will likely spur coal-to-gas switching.

Economic improvement to spur industrial demand, increased heating and cooling demand.

Electric Power Sector

Gas-fired generation up 6% so far this year, and 16% higher than the 5-yr avg.

Increased reliance on gas-fired generation. 47,000 MW Coal plant retirements.

WeatherWinter weather has been on par with 10-year average and quite a bit less severe than last year.

Weather forecasts are very hard to predict, and we will likely see continued volatility.

Tropical Storms

Atlantic Hurricane Season begins June.

Onshore production boom diminishing impact.

LNGCanadian imports down dramatically.

First LNG export facilities to begin operations in late 2015.

Economy 257k jobs created in January.Continued improvement in labor sector, industrial/manufacturing sectors.

MARKET FUNDAMENTALS 17 February 2015

Storage

Production

Demand

Electric Power Sector

Weather

Tropical Storms

LNG

Economy

WINTER 2014/2015

Winter Recap

EIA revealed 2014/2015 heating degree days were much lower than last winter and mostly below the 10-year average. March is expected to be in line with the average.

NOAA; February 2015

Winter 2014/2015 was the warmest on record for CA, and much above average for the majority of the West. The rest of the country has been near average.

NEAR-TERM TEMPERATURE OUTLOOK

Wet conditions are expected for much of the South and Mountain West. Warm and dry conditions forecast for the Midwest and Northeast.

NOAA, Accuweather; February 2015

February Outlook Spring 2015 Outlook

NATURAL GAS STORAGEEIA; February 2015

Storage near 5-yr average with strong production and average winter demand.

Gas production exceeded 77 bcf/day in

November 2014

Continued growth seen through 2015

STRONG NATURAL GAS PRODUCTIONEIA; February 2015

Shale gas a major contributor to

production growth

SUPPLY AND DEMAND BALANCE

Gas production continues to outpace demand, which has limited storage withdrawals.

Residential/Commercial consumption expected to decline in 2015, while Power Sector and Industrial demand is expected to rise.

EIA; February 2015

NATURAL GAS FORWARD CURVE(NYMEX) – 17 February 2015

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Mar-

15

May-1

5

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15

Sep-1

5

Nov-1

5

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6

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16

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6

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16

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6

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6

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7

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17

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7

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17

Sep-1

7

Nov-1

7

Jan-1

8

Mar-

18

$/M

MBtu

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17-Feb

Natural Gas Curve at Lowest Level Since June 2012

NATURAL GAS$MMBtu (12-Month Strip) – 13 February 2015 – Short Term Trading Channel

ELECTRIC WHOLESALE PRICESEcova: 13 February 2015

NATURAL GAS POWER SECTOR DEMANDEIA 28 January 2015

Power burn at a record high during

January 2015, almost 6% greater

than the same period in 2014.

PIPELINE CONSTRAINTS

The main choke points in the Northeast and New England are the Algonquin and Transco Zone 6 pipelines

Due to the increased reliance on gas-fired generation, Algonquin pipeline utilization has remained constrained even during non-peak times of the year

Increased strain on the system has resulted in some of the highest and most volatile basis prices in the country

RELIEF COMING, BUT WHEN?

NE PA Dry9.1 Bcf/day

West Marcellus/Utica

23.9 Bcf/day

An estimated 33 Bcf/day of takeaway capacity expansions

by 2018

3.1 Bcf/day of expansions in 2014 to benefit Northeast

4.9 Bcf/day of expansions planned for 2015 to benefit Northeast

New England to see additional pipeline capacity in 2016

Total Capacity of U.S. Coal Plants Already Shut: 22,689 MW

Total Capacity of U.S. Coal Plants Scheduled to be Shut: 30,778 MW

COAL PLANT RETIREMENTS

44,742

0

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2011 2012 2013 2014 2015 2016 2017

MW

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Coal Retirements (MW) Planned Coal Retirements (MW) Cumulative Retirements (MW)

POWER PLANT RETIREMENTS/ADDITIONS EIA 27 January 2015

Large amount of coal plants being retired in the Great Lakes

and Southeast regions.

Lost generation replaced by natural gas-fired and renewable

generation.

U.S. REGION: NORTHEAST

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NATURAL GAS AND WHOLESALE ELECTRICITY ARE AT THEIR LOWEST LEVEL SINCE 2012.

Energy prices are likely to rise following Q1 2015 as the supply and demand picture balances.

POWER SECTOR DEMAND FOR NATURAL GAS TO INCREASE

With around 17,000 MW of coal-plant retirements scheduled for this year, gas-fired generation will continue to grow and potentially introduce more volatility.

REGIONAL ELECTRIC OUTLOOK

Northeast: Look for April low to lock in future fall/winter prices.

Southeast: Due to summer volatility in Texas, the current level of forward pricing offers a great opportunity to lower costs and create budget certainty.

Midwest: The capacity shortfall in MISO North region in early 2016 has the potential to lead to higher power prices over the next several years. Low energy prices present an opportunity to lower costs amid fluctuating capacity prices.

West: Current California electric market are seeing an estimated minimum of 10% savings over utility prices.

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