The Commonwealth of Virginia 2015 State Contracts Meeting – Compass Energy Placeholder

History and Details The Commonwealth of Virginia State Natural Gas Contract Compass Energy awarded in April 2010 Began supplying in July 2010 almost 5 years ago Supply small and larger meters on CGV, VNG, City of Richmond, Atmos Energy, Washington Gas, Roanoke Gas. Contract pricing is based on a cost formula that changes with usage, length of term, utility, market area, other factors, plus our adder of $.028 per dth. Longest term for pricing is 30 months into the future.

Average Delivered Cost of Gas The Commonwealth of Virginia FY Averages (per dth) FY 2010$5.977 FY 2011$5.915 FY 2012$4.699 FY 2013$5.100 FY 2014$4.744 (to date)

Winter of 2015 The Commonwealth of Virginia Winter of 2015 Winter was 3% colder (GWHDD) than the 30 year average, but 4% warmer than last winter. Winter was the 6 th coldest winter in the past 30 years. Gas demand for winter was down.8 bcf/day versus last winter while gas production increased 5.7 bcf/day over last winter. February 2015 alone gave us: Coldest February since 1979 One of the 5 coldest Februarys since 1950 The 6 th and 7 th highest single days of natural gas consumption on record Columbia Gas of Virginia 3 all-time highest delivery days February 19, February 20, and February 15

Pipeline and Utility Restrictions The Commonwealth of Virginia Winter of 2015 VNG – multiple matching day restrictions Roanoke Gas – no restrictions City of Richmond – no restrictions however daily balancing hurts the same Atmos Energy – multiple utility OFO days (operational flow order) Washington Gas – multiple utility interruptions/curtailments on all levels of interruptible transport customers Columbia Gas of Virginia – 30 utility-issued balancing service restriction days (34 in winter of 2014, 1 in winter of 2013)

Utility Restrictions The Commonwealth of Virginia Winter of 2015 OFO/BSRs are called by utilities to conform to upstream pipeline requirements and to protect storage. The utility requires the customer to match daily usage (highest CGV penalty was $73 per dth on Feb 19). The option is to use alternate fuel, curtail load, or buy additional daily gas needed at market price for that day avoiding penalty. Comm of VA accounts did very well this year using alternate fuels and curtailing load on BSR days.

It’s All About the Shale

The Commonwealth of Virginia

Shale Production in the US The Commonwealth of Virginia

Marcellus Shale The Commonwealth of Virginia

New Virginia Interstate Pipeline Projects The Commonwealth of Virginia Virginia suffers from a severe lack of interstate pipeline capacity and access to shale gas resources resulting in high winter basis costs and high winter daily prices. We have plenty of gas available in Marcellus, but no way to get it to Virginia. The winter of is the earliest any of these projects would come on line.

Storage: Injection Season Begins The Commonwealth of Virginia Storage inventory begins April -11% below the 5 yr avg but 75% above year ago levels. Robust injections that narrow the deficit to the 5 yr would be bearish for prices, while maintaining or widening the deficit would support NYMEX prices.

Prices in the Past The Commonwealth of Virginia

Prices Going Forward The Commonwealth of Virginia Despite winter weather demand that was higher than both the 10-year and 30-year normal, NYMEX calendar strips are currently at all-time lows and as a result of significant year-over-year growth in gas production that has left the market over-supplied coming-out of Winter.

NYMEX Prompt-Month Since Winter Peak The Commonwealth of Virginia NYMEX prompt month prices are down 30% from the winter peak in late November Prices have been in a narrow sideways trend between recent weakness with current prices in the $2.50/MMBtu range

Prices Going Forward The Commonwealth of Virginia Nymex Natural Gas Futures Production increases outgaining demand increases, despite the cold winter, has storage in good shape and Nymex forward prices low. With gas demand expected to increase due to new natural gas-fired generation coming online and increased coal to gas switching occurring due to low prices. This could create upward pressure on gas prices as supply and demand start to re-balance.

Prices Going Forward The Commonwealth of Virginia Basis/Transportation Lack of interstate pipeline capacity into Virginia and the Eastern seaboard. Caused by massive shift away from coal to natural gas fired electricity generation and industrial production and lack of proactive pipeline projects. Results in constrained pipeline space during high demand winter months And means high winter (Dec-Feb) basis prices and high winter daily prices during peak demand. Even with high basis prices, the current Nymex forward strip pricing should allow the Commonwealth accounts a lower price for FY2015 than FY2014.

Constellation Energy The Commonwealth of Virginia ! CNG Emergency Generation Battery Storage Fuel Cells CNG Fueling Stations Co- Generation Solar Projects A division of Exelon Corp (EXC) Headquartered in Chicago One of the largest competitive U.S. power generators, with more than 32,000 megawatts Constellation business unit provides energy products and services to more than 2.5 million customers

Questions? The Commonwealth of Virginia To find out more specifics about the state natural gas contract, contact: Barry M. Koski (804)