Q4 Energy Market Outlook and 2015 Planning Energy Prices and Market Intelligence Q4 Update December 4, 2014

Presenters: Jonathan Lee, Senior Energy Market Intelligence Manager and Jeni Murphy, Senior Energy Procurement/Strategy Manager

After a relatively calm summer, energy prices are experiencing increased volatility as arctic air descends upon the U.S. − 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: A potentially chilly winter could boost natural gas demand and severely

deplete already below-average storage levels.

Natural Gas Production, Demand, Storage: Production continues to grow at a record pace, but with winter taking grip, demand for the fuel is also on the rise. Natural gas in storage is at a 6-year low even after posting a record-setting injection year.

Northeast/New England: Market volatility continues to soar in the Northeast and New England natural gas and electric markets.

– Root causes to the volatility: Power plant retirements, increased reliance on natural gas-fired generation, and pipeline constraints combine to increase wholesale price volatility.

– Timeline for potential relief: Pipeline completions to bring some relief to the Northeast in 2015, but New England will have to wait until 2016 and beyond.

– Strategies to consider

ENERGY MARKET INTELLIGENCE

MARKET FUNDAMENTALS 4 December 2014

Near Term Next 3 Months

Short Term 4 to 6 Months

Medium Term 7 to 12 Months

Long Term 1 to 5 Years

Storage

Production

Demand

Electric Power Sector

Weather

Tropical Storms

LNG

Economy

Storage

Production

Demand

Electric Power Sector

Weather

Tropical Storms

LNG

Economy

WINTER WEATHER OUTLOOK AccuWeather, Farmers’ Almanac, NOAA, Weather Trends 360

Another bitter cold winter ahead??

Potential El Niño patterns forming for late 2014 could help CA hydro next year, and keep the East drier and warmer this winter.

El Niño patterns, as shown below, primarily reach maximums during Dec-Feb and typically persist for 9-12 months.

EL NIÑO WINTER IMPACT NHC/NOAA; AccuWeather: December 2014

RECORD STORAGE REPLENISHMENT

Entered traditional injection season at an 11-year low, but peaked at just a 6-year low

Ended 6.2% below the 5-yr avg

35% (722 Bcf) above the average refill amount over the last 14 years

Avg 20 Bcf/week above last year

EIA: November 2014

RECORD: Gas production exceeded 75 bcf/day in August 2014

Continued growth seen through 2015

ROBUST NATURAL GAS PRODUCTION EIA: November 2014

Shale gas a major contributor to

production growth

SUPPLY AND DEMAND BALANCE EIA: November 2014

2014 gas production is outpacing demand, which led to

a strong injection season

Consumption expected to decline in 2015, especially in the Residential/ Commercial sector.

NATURAL GAS FORWARD CURVE (NYMEX) – 2 December 2014

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00 Ja

n-15

Feb-

15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-

15

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr

-16

May

-16

Jun-

16

Jul-

16

Aug

-16

Sep

-16

Oct

-16

Nov

-16

Dec

-16

Jan-

17

Feb-

17

Mar

-17

Apr

-17

$/M

MBtu

13-Oct

27-Oct

10-Nov

2-Dec

NATURAL GAS $MMBtu (12-Month Strip) – 2 December 2014 – Short Term Trading Channel

ELECTRIC WHOLESALE PRICES Ecova: 28 November 2014

IN FOCUS: NORTHEAST AND NEW ENGLAND

NV

WY

UT

AZ NM

ND

SD

NE

KS

OK TX

MO

AR

LA

CO

MN

IA

WI

IL

MI

IN OH

PA

WV VA

NC

SC

GA

NY

VT

NH

ME

RI CT

NJ MA

DE KY

TN

MS AL

FL

AK HI

ID

CA

OR

WA MT

NV

SPIKE IN WINTER DEMAND

Competition for constrained resources has resulted in significant price spikes in

past winters

Consumption in the Northeast reached its third-highest recorded November level this year, exceeding 24 Bcf, 10 Bcf higher than normal.

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 Dry 9.1 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

POWER PLANT RETIREMENTS EIA and NERC

1,827 MW combined shutdowns since last winter to challenge operations in the New England market − Vermont Yankee Nuclear Plant (605 MW) and Salem Harbor Station (745 MW) among largest

− New gas-fired plants, renewable generation, and hydro power from Quebec to make up for lost generation

− 1,520-MW Brayton Point coal- and gas/oil-fired power plant, expected to be shut down in 2017

REAL-TIME ELECTRIC PRICE VOLATILITY

Natural Gas Pipeline Constraints During High

Demand Periods Result in Market Volatility. Real Threat

Heading into Winter 2014/2015

Daily average real-time electric prices soared to nearly $350/MW in New England and over $400/MW in New York.

NEW YORK CITY WHOLESALE ELECTRIC $/MWh (ATC 12-Month Strip)

NEW ENGLAND WHOLESALE ELECTRIC $/MWh (ATC 12-Month Strip)

GAS PRICES ELEVATED FROM HISTORIC RANGE

New pipeline capacity to the Northeast has helped NYC winter gas prices

decline to historical levels.

However, Boston winter gas prices are experiencing must slower relief.

EIA – 24 November 2014

BASIS MARKETS UNDER PRESSURE

27%

WINTER RELIABILITY PROGRAM 14/15 Second year in a row ISO-NE has implemented the Winter

Reliability Program − Objective is to maintain reliability during cold winter months

− Program responds to concerns for upcoming winter:

− Generators’ difficulty in replenishing oil mid-winter

− Severe constraints on gas pipelines

− Retirements of non-gas fired generating units

− Offset carrying cost of unused fuel purchased by generators for winter period

Similarities to 2013/2014: − Charges for 3 month period, cost allocator will be same as 2013/14 pro-rata on Real Time Load

Obligation, instead of net billing, charges will be collected, and then credits will be paid in a subsequent bill

Differences to 2013/2014: − Estimated charges will be billed out monthly for 3 months, and then a true up reflecting final

actual unused inventories will be calculated and billed; charge estimates based on 75% of eligible inventory on Dec 1st; payment to generators for unused fuel inventory will take place on one bill

How does your business define its success as it relates to energy risk management?

– Do you have a predetermined benchmark?

– Does your energy risk management strategy align with your company’s corporate goals?

KNOW YOUR GOALS

Low-Risk Tolerant Clients – May take shorter term positions at a premium

– Set targets in anticipation of seasonal softening

– Keep pulse on market opportunities for long-term budget certainty

Medium-Risk Tolerant Clients – Consider Volatility & Load:

• Low Load & Low Volatility; Consider Index

• High Load High Volatility; Consider fixed

• Hybrid

High-Risk Tolerant Clients – Know your VaR and be prepared for seasonal volatility

– Keep a pulse on good value-buy opportunities

KNOW YOUR RISK PROFILE

KNOW OTHER RISK FACTORS

PJM ISO – VOLATILTY ISN’T ISOLATED TO NEW YORK/NEW ENGLAND − During the frigid winter in early 2014, market-based electric rates also saw significant upward

pressure in Maryland, New Jersey, and Pennsylvania

− Capacity increases across the PJM footprint, with the largest capacity increases in northeast Ohio

TEXAS – SUMMER VOLATILITY IN THE SPOTLIGHT − ERCOT raising System Wide Offer Cap (SWOC) to $9,000/MWh in June 2015

CALIFORNIA – STEADY CLIMB IN WHOLESALE ELECTRIC PRICES − Persistent drought conditions have reduced hydropower output and increased the reliance on

natural gas and renewable energy sources. California has aggressive plans to reach 33% Renewable Portfolio Standards by 2020

EPA REGULATIONS – LED TO INCREASED COAL-PLANT RETIREMENTS − Power plant operators must come under the Mercury Air Toxic Standards (MATS) rule by April

2015. Already, about 60 GW of coal power plants are scheduled to permanently retire

OTHER REGIONAL FACTORS: Winter 2014/Summer 2015 Outlook

NATURAL GAS AND WHOLESALE ELECTRICITY ARE LIKELY TO EXPERIENCE ANOTHER VOLATILE WINTER Market volatility will continue for the foreseeable future as the nation relies more on gas-fired

power plants to generate electricity

ENOUGH GAS IN STORAGE TO MEET WINTER DEMAND? With end of injection season supplies at a six-year low, market participants are concerned

over the winter of 2014/2015

NORTHEAST/NEW ENGLAND ENERGY MARKETS Energy prices among the highest and most volatile across the nation during the winter

Root causes to the volatility: Power plant retirements, increased reliance on natural gas-fired generation, and pipeline constraints combine to increase wholesale price volatility

Pipeline completions to bring some relief to the Northeast in 2015, but New England will have to wait until 2016 and beyond

Develop a clear, concise strategy on procurement activities

MAJOR TAKEAWAYS

Q&A

Thank you!