September 2009 Ohio Natural Gas Program and Industry Terminology State of Ohio Natural Gas Program / Natural Gas 101

September 2009 Ohio Natural Gas Program and Industry Terminology Introduction of The E Group

September 2009Ohio Natural Gas Program and Industry Terminology 3 The E Group A National Provider of Energy Management Services n Information management n Energy consulting, procurement and rate audits n Risk management n Supply and demand-side energy management strategies

September 2009Ohio Natural Gas Program and Industry Terminology 4 FirstEnergy Corp. (NYSE: FE) A Public Utility Holding Company $12B Market Cap $34B Assets FirstEnergy Utilities FirstEnergy Generation Competitive Unit of FE FirstEnergy Solutions The E Group Organizational Chart

September 2009 Ohio Natural Gas Program and Industry Terminology Natural Gas 101

September 2009Ohio Natural Gas Program and Industry Terminology 6 What is Natural Gas? Created by organic matter decaying over millions of years, creating hydrocarbons. Hydrocarbons existed between sand and porous rock, eventually forming natural gas and liquid petroleum. Primary component is Methane (CH4).

September 2009Ohio Natural Gas Program and Industry Terminology 7 Gas Measurements CCF - abbreviation for one hundred cubic feet of gas MCF - abbreviation for one thousand cubic feet of gas BCF - abbreviation for billion cubic feet of gas Decatherm (Dth) - ten therms or one million btu, the approximate heat content of one thousand cubic feet of gas; (1 therm is equal to 100,000 Btu) MMBtu - Million British Thermal Units; (1MMBtu = 1 Dth)

September 2009Ohio Natural Gas Program and Industry Terminology 8 MCF versus DTH - Conversion Price Dth x Btu = MCF MCF / Btu = Dth Volume Dth / Btu = MCF MCF x Btu = Dth

September 2009Ohio Natural Gas Program and Industry Terminology 9 Roles in the Marketplace Producer - one who owns or leases wells producing oil or gas Transmission Pipeline – pipeline installed to transmit gas from a source or sources of supply to one or more distribution companies. Interstate Pipeline - a company that transports natural gas across state lines. Governed by Federal Energy Regulatory Commission (FERC) Intrastate Pipeline - a company that transports gas within one state’s boundaries Distribution Pipeline - LDC - a natural gas utility that sells gas directly to consumers under jurisdiction of a state regulatory commission Local Distribution Company (LDC) - a company that buys gas, then distributes and resells it to residential, commercial, and industrial customers. Marketer - a company involved in the business of purchasing and reselling gas

September 2009Ohio Natural Gas Program and Industry Terminology 10 Industry Terms Wellhead – point where gas is extracted and measured Gathering Lines- pipelines that connect wells or meters to a transmission line City Gate - the site where a distribution utility company receives and measures gas from a pipeline company. Transportation - the movement of gas for third parties through pipeline facilities for a fee Fuel Loss / Fuel Inverse / Retainage - a small percentage of gas kept by the transporter for use primarily as compressor fuel. GCR – Gas Cost Recovery Rate - the cost of gas that a LDC buys to serve its customers.

September 2009Ohio Natural Gas Program and Industry Terminology 11 Natural Gas Futures Energy Related Futures Exchanges: The “New York Mercantile Exchange” (“NYMEX”) - Natural Henry Hub A NYMEX Natural Gas Contract Unit is 10,000 MMBtu delivered over a monthly period Delivery Point is Henry Hub, LA. Seller moves gas through hub & pays hub fee. The NYMEX is trading through 2020 although there is not a lot of liquidity beyond three years at this point Trading terminates 3 business days prior to the deliver month

September 2009Ohio Natural Gas Program and Industry Terminology 12 Basis Basis - the differential that exists any time between the futures or forward price for a given commodity and the comparable cash or spot price for the commodity. Basis can reflect different time periods, product qualities, or locations.

September 2009Ohio Natural Gas Program and Industry Terminology 13 Burner Tip Cost Components

September 2009 Ohio Natural Gas Program and Industry Terminology State of Ohio Natural Gas Program

September 2009Ohio Natural Gas Program and Industry Terminology 15 Overview n A procurement initiative that takes advantage of the buying power of many state accounts in order to save money on gas bills n Deregulation allows purchasing gas from third-party suppliers n State program in place since mid-1990’s n Administered through DAS n The E Group began administering the program in May 2003

September 2009Ohio Natural Gas Program and Industry Terminology 16 Successes! n Over $27 million saved FY 2004 through n Average savings of 11% of spend compared to applicable utility rates n Over $50 million annual spend n Over 4,400,000 mcf/yr. n There are many large, reputable suppliers seeking the State’s gas business!

September 2009Ohio Natural Gas Program and Industry Terminology 17 Current Enrollment n149 Entities o21 State Agencies o128 Coops (NOTE: Many more individual sites since most entities are made up of several different locations) n1,229 Accounts o178 Transport o1,051 Choice

September 2009Ohio Natural Gas Program and Industry Terminology 18 Coverage n Work behind the 5 major utilities in Ohio oColumbia Gas of Ohio (“COH”) oDominion East Ohio Gas (“DEO”) oDominion West Ohio Gas (“DWO”) oDuke Energy (“Duke”) oVectren Energy Delivery of Ohio (“VEDO”)

September 2009Ohio Natural Gas Program and Industry Terminology 19 Process - What We Do n Determine best utility delivery rate schedule n Enroll facility in program n Select suppliers through Request for Proposal (“RFP”) process n Procure gas n Pay the bills n Audit monthly supplier invoices n Calculate savings n Market the program

September 2009Ohio Natural Gas Program and Industry Terminology 20 Selecting Suppliers n RFP language n Project pool volumes n Supplier analysis Supplier analysis n Negotiate contracts n Offer Analysis Offer Analysis n Provide analyses and recommendations to State n Select suppliers

September 2009Ohio Natural Gas Program and Industry Terminology 21 Gas Procurement / Risk Strategy n Purchasing basis through RFP process oFuel, shrink, supplier adders n Setting commodity price oFollow risk strategy oTrigger volumes in layers (not buying all at once) oDriven by NYMEX n Local utility still involved for gas delivery and customer service

September 2009Ohio Natural Gas Program and Industry Terminology 22 Managing Price Volatility n Market monitoring and forecasting oFollow natural gas fundamentals, including amount of natural gas in storage, number of operating natural gas rigs (rig count) and weather forecasts. oAnalyze price chart technicals and determine support and resistance levels. oFollow the NYMEX strip prices and individual monthly prices.

September 2009Ohio Natural Gas Program and Industry Terminology Month NYMEX Strip Prices

September 2009Ohio Natural Gas Program and Industry Terminology 24 State Price Structures Per “Pool” General Transportation Services (“GTS”) refers to large consuming sites. Choice refers to small consuming sites. COH GTS = Layered NYMEX Pricing COH Choice = Layered NYMEX Pricing DEO GTS = Layered NYMEX Pricing DEO Choice = Guaranteed Savings Offer DWO GTS = Layered NYMEX Pricing DWO Choice = No Program Available at This Time Duke GTS = Layered NYMEX Pricing Duke Choice = No Program Available at This Time VEDO GTS = Layered NYMEX Pricing VEDO Choice = Guaranteed Savings Offer

September 2009Ohio Natural Gas Program and Industry Terminology 25 Bill Payment n Bills paid through central agent – utility bill payment system n Transport Accts: 2 invoices - 1) utility, 2) supplier n Process oSetup of account in bill payment system oBill received at central agent oBill data keyed into system oBill validated (run through various criteria) prior to payment oCheck issued for payment to vendor oFunding request to customer made via EDI or ACH/wire transfer

September 2009Ohio Natural Gas Program and Industry Terminology 26 Bill Payment Site View Screen n Data, payment info, and bill image posted on bill payment website

September 2009Ohio Natural Gas Program and Industry Terminology 27 Bill Payment (continued) n Benefits oEliminates vendor late fees oEliminates paper invoices and costs associated with processing them (estimated at $40 per invoice) oFunding requests made electronically oWeb access to all natural gas bill information oBill validation oNatural development of database for auditing, strategy and procurement activities oEnables users to quickly produce reports or graphs on historic usage or dollar spend

September 2009Ohio Natural Gas Program and Industry Terminology 28 Criteria for Joining State Program n Must be served by DEO, DWO, COH, Duke, or VEDO systems n Current third party supply contracts must be terminated before joining the program n Coop membership

September 2009Ohio Natural Gas Program and Industry Terminology 29 Enrollment n Enrollment Inquiry Form n Most Recent Bill Copies n Memorandum of Understanding (MOU) n Annual renewals n No fee to join n All program costs are included in the cost of natural gas

September 2009Ohio Natural Gas Program and Industry Terminology 30 Program Benefits! n Could save 5% to 30% on gas bills compared to applicable utility rates (historical results) n Allows you to outsource your gas management and concentrate on your core business n Electronic bill payment reduces paperwork and utility late fees n Trained, skilled personnel available to answer questions and act as liaison between end user and Supplier and/or utility

September 2009 Ohio Natural Gas Program and Industry Terminology State of Ohio Natural Gas Program Team Jim Hunley - DAS, Procurement Supervisor Nikki Erb – DAS, Administration Eileen Mikkelsen - The E Group, Director Dave Miles – The E Group, Account Manager Stephanie Everhart - The E Group, Gas Management Rich Mason - The E Group, Bill Payment