TROUBLE AHEAD, TROUBLE BEHIND SOME THOUGHTS ON THE ENERGY OULOOK AND THE LOW-INCOME CONSUMER INTEREST NCAF LEVERAGING CONFERENCE ST. PETERSBURG, FLORIDA OCTOBER 25, 2006

EIA Winter Outlook For Heating Oil Prices Flat Heating Oil Prices Flat Heating Oil at $2.46 per gallon Heating Oil at $2.46 per gallon Natural Gas Prices Down 16%, Propane Down 5% Natural Gas Prices Down 16%, Propane Down 5% Natural Gas at $12.23 per mcf, Propane at $1.85 per gallon Natural Gas at $12.23 per mcf, Propane at $1.85 per gallon Electricity Prices up 5 % Electricity Prices up 5 % National average of 10.1 cents per kwh National average of 10.1 cents per kwh A Normal Winter Will Wash Away The Price Drop A Normal Winter Will Wash Away The Price Drop Last Winter Was So Warm It Was Off The Charts! Last Winter Was So Warm It Was Off The Charts!

HISTORY OF MIDWINTER NATURAL GAS COMMODITY PRICE Price Trend For January 07 Futures Contract Source: Wall Street Journal, 9/19/06

EXPECTED EXPENDITURES FOR Low-Income Households Source: ORNL Tabulation from EIA STEO & RECS

S HORT-TERM MARKET CONDITIONS Inventories well above average levels for all major fuels Inventories well above average levels for all major fuels No repeats of Hurricanes Katrina and Rita No repeats of Hurricanes Katrina and Rita Most (but not all) production losses from last year restored Most (but not all) production losses from last year restored Normal weather will increase demand Normal weather will increase demand Consumers of fuel oil and propane now compete with European demand Consumers of fuel oil and propane now compete with European demand Natural gas demand is highly dependent on industrial and power generation growth Natural gas demand is highly dependent on industrial and power generation growth SUPPLYDEMAND

RESIDENTIAL PRICE TRENDS SINCE 1997 EIA HISTORICAL DATA Home Heating Oil Prices have increased 138% since 1997 Home Heating Oil Prices have increased 138% since 1997 Natural Gas Prices have increased 85% since 1997 Natural Gas Prices have increased 85% since 1997 Electricity Prices are up 26% since 1997 Electricity Prices are up 26% since 1997

AGGREGATE RESIDENTIAL ENERGY EXPENDITURES BY LOW-INCOME HOUSEHOLDS Eligible for LIHEAP SOURCE: ORNL TABULATION BASED ON EIA STEO AND RECS Millions of Dollars

Natural Gas Supply, Consumption, and Imports Are Projected to Expand Through 2025 ( , trillion cubic feet)

TIGHT MARKETS MEAN MISCHIEF REMEMBER ENRON AND CALIFORNIA? REMEMBER ENRON AND CALIFORNIA? AN INVITATION TO SPECULATION AND MANIPULATION AN INVITATION TO SPECULATION AND MANIPULATION WATCH OUT FOR THE ECONOMISTS! WATCH OUT FOR THE ECONOMISTS!

HISTORY OF MIDWINTER NATURAL GAS COMMODITY PRICE Price Trend For January 07 Futures Contract Source: Wall Street Journal, 9/19/06

MARKET DANGERS MISALLOCATION PROBLEMS COMMON TO ‘NETWORK’ INDUSTRIES PROBLEMS COMMON TO ‘NETWORK’ INDUSTRIES SUPPLY IS PRICED AT THE MARGIN WHILE CONSUMER PRICES DISCRIMINATE SUPPLY IS PRICED AT THE MARGIN WHILE CONSUMER PRICES DISCRIMINATE BOOM AND BUST INVESTMENT CYCLES CREATE INCENTIVES FOR PRODUCERS TO TRY TO SHIFT RISKS TO CONSUMERS BOOM AND BUST INVESTMENT CYCLES CREATE INCENTIVES FOR PRODUCERS TO TRY TO SHIFT RISKS TO CONSUMERS

MARKET DANGERS SPECULATION MARKET DANGERS SPECULATION A GROWING PERCENTAGE OF TRADE IN ENERGY MARKETS IS SPECULATIVE A GROWING PERCENTAGE OF TRADE IN ENERGY MARKETS IS SPECULATIVE THIS INCREASES PRICE VOLATILITY AND PUSHES PRICES UP AND DOWN MORE SHARPLY THIS INCREASES PRICE VOLATILITY AND PUSHES PRICES UP AND DOWN MORE SHARPLY MUCH OF THE TRADE IS UNREGULATED WITH NO OVERSIGHT MUCH OF THE TRADE IS UNREGULATED WITH NO OVERSIGHT

MARKET DANGERS MANIPULATION WITH POOR REGULATION COMES LACK OF INFORMATION NEEDED TO PREVENT PROFITEERING WITH POOR REGULATION COMES LACK OF INFORMATION NEEDED TO PREVENT PROFITEERING PRICES CAN BE MOVED IN EITHER DIRECTION! PRICES CAN BE MOVED IN EITHER DIRECTION! UNDER THE RIGHT CIRCUMSTANCES INDIVIDUAL ACTORS CAN CONTROL AND DIRECT PRICES UNDER THE RIGHT CIRCUMSTANCES INDIVIDUAL ACTORS CAN CONTROL AND DIRECT PRICES

WHAT CAN WE DO? Don’t Drink The kool-Aid Don’t Drink The kool-Aid Defend The Provider Of Least Resort With A Balanced Supply/Price Portfolio Defend The Provider Of Least Resort With A Balanced Supply/Price Portfolio Pursue Supply Surplus Pursue Supply Surplus Fight Monopoly Market Pricing Fight Monopoly Market Pricing Keep Public Benefits Together- Sustainability and Affordability Hand In Hand Keep Public Benefits Together- Sustainability and Affordability Hand In Hand Consumer Protection Regulation & Info Vital Consumer Protection Regulation & Info Vital When’s The Next Train? When’s The Next Train?

IN SHORT… SIGN AND ORGANIZE AROUND THE PRINCIPLES OF ENERGY AND WATER SECURITY FOR ALL AMERICANS SIGN AND ORGANIZE AROUND THE PRINCIPLES OF ENERGY AND WATER SECURITY FOR ALL AMERICANS