ENERGY MARKET PERSPECTIVE National Overview 2014 Neil Copeland Management Consulting Division

About the Black & Veatch Energy Market Perspective Black & Veatch EMP: 2014 Outlook About the Black & Veatch Energy Market Perspective EMP North American Market Coverage . The EMP is prepared every six months to provide Black & Veatch clients with an assessment of the current North American energy markets, and a base case, long-term view of how those markets may function. The EMP is available as a National Service or as one or more regional services: Western, Texas (ERCOT), Northeast, Midwest and Southeast.

Top 7 Electric Industry Issues Black & Veatch EMP: 2014 Outlook Top 7 Electric Industry Issues 2012 Strategic Directions Survey Each year, Black & Veatch survey participants are asked to rate on a scale of 1 to 5 (where 1 indicates “Very Unimportant” and 5 indicates “Very Important”) the importance of a variety of issues to the electric industry. This chart represents the mean rating for each issue among utility respondents. The top issues are historically fairly constant, but in the past several years, we’ve seen new entrants like cybersecurity and natural gas pricing rise in importance. Reliability, environmental regulation, and economic regulation are the top issues industry-wide

Black & Veatch Outlook on U.S. Power Demand Black & Veatch EMP: 2014 Outlook Black & Veatch Outlook on U.S. Power Demand Growth of 1.6% annually from 2014-2016, before reverting to a long-term growth trend of about 1.0% per year Talk track: Given this atypical period in the history of the U.S. electric market in which real demand declined for a several year period due primarily to decreased economic activity, our longer term growth risks emanate from both conservation successes like demand response and energy efficiency efforts and new demand factors (such as electric cars, greater industrial and manufacturing activity and more.) Source: EIA, Black & Veatch Energy Market Perspective Analysis

The Changing Capacity Mix: Where U.S. energy will come from Black & Veatch EMP: 2014 Outlook The Changing Capacity Mix: Where U.S. energy will come from CAPACITY MIX (MW) IN 2014 CAPACITY MIX (MW) IN 2038 Anything stand out here? Maybe stress the revolutionary nature of this shift given our long history with coal dating back centuries. Capacity represents the total amount of electricity that can be produced.

The Changing U.S. Energy Mix Black & Veatch EMP: 2014 Outlook The Changing U.S. Energy Mix ENERGY MIX (GWh) IN 2014 ENERGY MIX (GWh) IN 2038 Should this be 2014 and 2039? Energy mix refers to total electricity consumed and where that electricity came from.

Coal Unit Retirements Forecasted at 60.1 GW by 2020 Black & Veatch EMP: 2014 Outlook Coal Unit Retirements Forecasted at 60.1 GW by 2020 Continuing trend in retirement of smaller, older coal-fired assets through 2020 Forecasted retirements driven primarily by low-cost natural gas prices and EPA hazardous air pollutant requirements Future Green House Gas emission regulations could materially alter projections This changing capacity mix, driven by low cost gas and EPA regulations, will result in 60.1 GW of coal coming offline by 2020. Question: This is in addition to xx amount that has come offline over the past 12 months? Source: Black & Veatch Black & Veatch forecasts additional 86.2 GW of coal-fueled generator retirements by 2038

Natural Gas-Fueled Generation Will Continue to Grow Black & Veatch EMP: 2014 Outlook Natural Gas-Fueled Generation Will Continue to Grow Power sector demand for gas expected to grow 3.1% annually More than 364,000 MW of new gas capacity is expected before 2038 Technology advances, clean air initiatives drive growth The last bullet needs some story around it. Please put it in context. Is the following still accurate? Electric sector demand for natural gas will nearly double during next 20 years Substantial investment in pipeline infrastructure required to increase capacity, ensure reliability of supply to power generating units Utilities must examine transportation, gas supply and on-site storage options West County Energy Center, Fla. Source: Black & Veatch Coal retirements and decline in regional reserve margins will drive continued capacity growth

Natural Gas Price Forecast Black & Veatch EMP: 2014 Outlook Natural Gas Price Forecast 2017-2022 Price growth is driven by LNG exports, coal capacity retirements, and GHG legislation 2013-2017 Growth in low-cost supplies dampens price growth Explain choppiness as being from seasonal impacts. Also might be worth it to touch upon the Liquids vs. Dry gas play. Natural gas prices are expected to recover to $5.00/MMBtu levels by 2020 Near-term price recovery is dampened by sustained production, but bolstered by recovery of residential, commercial and industrial demand Natural Gas Liquids (NGLs) trade at oil-indexed prices providing incentive to increase production in liquids-rich shale plays – even at modest gas prices

New England price spikes in winter signal infrastructure constraints Black & Veatch EMP: 2014 Outlook New England price spikes in winter signal infrastructure constraints

Major Pipeline Constraint Points During Peak Winter in New England Black & Veatch EMP: 2014 Outlook Major Pipeline Constraint Points During Peak Winter in New England Winter pipeline constraints exist due to a lack of market area storage and growing peak residential, commercial, and power generation demand During last week’s winter storm, regional natural gas prices reached above $40.00/MMBtu while Gulf Coast prices remained at $4.00/MMBtu M&NE and TGP Dracut Tennessee 200 Line Algonquin G System/J Loop Algonquin Gas Transmission Iroquois Gas Transmission Maritimes & Northeast Portland Natural Gas Tennessee Gas Pipeline Tennessee 300 Line Pipeline Constraint Points

Planned U.S. Pipeline Projects Highlight Constraints on the System Over 50% of 2012 projects are in the Northeast U.S. This map shows the very large number of pipeline projects the industry is planning in the U.S., according to the EIA. Each planned project indicates that new capacity is needed to fix a constraint. Take a look at where the projects are concentrated, the Northeast, in the Appalachian region, where increasing Marcellus production is constraining pipeline take away capacity to the Northeast, Southeast, and western markets. Texas also needs more pipeline capacity, to move new Eagle Ford production to markets. Florida also is has pipeline capacity limitations due to increasing demand and a new pipeline is planned there.Today’s pipeline constraints are likely to be supply driven, that is, there is too much supply for the available capacity. But other constraints are demand driven, such as in New England during the recent historically cold weather. (Transition to Denny’s slide) Source: EIA, March, 2013 12

Renewable Energy Growth Will Continue Black & Veatch EMP: 2014 Outlook Renewable Energy Growth Will Continue In the short term, the status of tax incentives for wind looms in the political arena ~93,200 MW of new capacity additions anticipated by 2038 Wind will make up majority of new capacity additions Solar capacity expected to grow as a result of technology advances Renewable additions remain meaningful (112,000 MWs by 2037) with increasing reliance on solar additions driven primarily by technology changes and portfolio standard requirements, and less by economic incentives Transmission development changes tend to be favorable for continued wind developments. Currently, PTC/ITC incentives for wind are set for expiration at the end of 2012. Many believe that meaningful movement on this issue will be deferred until after the November, 2012 elections. Black & Veatch believes an extension will be granted. The potential expiration of the 1603 Grant Program means more challenges in monetizing the effects of incentives. Continued declining cost trends for solar and wind are expected with performance improvements. Lopburi 55 MW Solar Farm - Thailand Source: Black & Veatch Renewable capacity additions are driven by state Renewable Portfolio Standards requirements

Trajectory of Renewables Growth The EMP approaches renewable resource development through consideration of state RPS goals and regulations (such as the allowance of imported renewable power), the state and regional renewable resource base, transmission adequacy, likely sources of revenue and other development criteria. Source: Black & Veatch Energy Market Perspective Analysis

National Projections: What does it all mean? DURING THE NEXT 25 years: Black & Veatch EMP: 2013 Outlook National Projections: What does it all mean? DURING THE NEXT 25 years: Overall electric generation capacity will increase by 30% Natural gas generation ↑ 100+% Renewable generation ↑ 150% Nuclear capacity ↓ 35% Conventional coal ↓ 40% Overall market share will also shift Natural gas = more than half of all electricity consumed Coal’s market share ↓ 20% Nuclear’s market share ↓ 10% The entire utility model is changing. Coal, once dominant becomes a supporting baseload fuel source. Natural gas becomes the largest source of generation capacity. Renewables grow while nuclear shrinks. To meet these projections new technologies and greater organizational efficiency will be key. For states with highest levels of renewables like California, Nevada, Colorado, (as well as DC and Maryland) they’ve set targets for renewables that represent a great deal of intermittent supply using a network that wasn’t designed for it. Utilities will have to make significant investments in transmission, energy storage and intelligent technologies to ensure reliable power and sustainable operations. These investments will likely cause increases in rates in the short term, but long term efficiencies, particularly as the focus on clean air continues, could be significant. Nuclear and coal retirements will vary by region.