1. Propane Market Overview & Demonstration of the PERC County Residential Propane Model version 2.0 Presented by: Mike Sloan msloan@icfi.com & Richard Meyer richardmeyer@icfi.com icfi.com © 2006 ICF International. All rights reserved. Propane Education and Research Council For Presentation Audio Call: (800) 561-4946 and Enter Code 500579

2. icfi.com 2 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Introduction to Propane Models General Market Overview Key Issues and Trends Market Challenges and Opportunities Near and Long-Term Propane Market Outlook Propane Model Discussion and Demonstration County Residential Propane Model (New Version 2.0) Questions are Encouraged

3. icfi.com 3 Presentation Audio Dial In: (800) 561-4946 Code: 500579 What are the PERC Propane Models? Propane Demand and Forecasting Model v5.0 (PDFM) State-level Projections Residential Commercial Reseller/CylinderIndustrial AgriculturalInternal Combustion County Residential Propane Model v2.0 (CRPM) County-level Projections Residential Only The models estimate and project odorized propane demand by end-use sector.

4. icfi.com 4 Presentation Audio Dial In: (800) 561-4946 Code: 500579 What can I use the PERC Models for? Estimate Future Demand –By region –By company service territory Evaluate Demand Uncertainty –Approximate demand potential under a variety of scenarios. –What will demand look like during a cold year? Warm year? High price? Low price? Identify New Sales Opportunities –What markets are growing? –Where are markets growing? Identify Use per Customer Trends –Models provide estimates on both propane customers and consumption.

5. icfi.com 5 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Primary Data Sources US Census Bureau –1990 and 2000 Census –American Community Survey –American Housing Survey –Survey of New Residential Construction U.S. Department of Energy - Energy Information Administration (EIA) –Residential Energy Consumption Survey (RECS) –Commercial Building Energy consumption Survey (CBECS) –Manufacturing Energy Consumption Survey (MECS) –Vehicle Inventory and Use Survey (VIUS) American Petroleum Institute –Sales of Natural Gas Liquids and Liquefied Refinery Gases (annual survey). National Oceanic and Atmospheric Administration (NOAA) U.S. Department of Housing and Urban Development (HUD) National Association of Home Builders (NAHB) Gas Appliance Manufacturers Association (GAMA) Propane Industry Sources Harris Interactive surveys for PERC Much of the data, including the census data on propane households, is included in the models.

6. icfi.com 6 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Looking Forward – Projections of Propane Demand 2008 – 2012 Energy prices remain near historic high levels –NYMEX futures prices for propane, natural gas, fuel oil. –DOE electricity price forecasts (modest growth from current levels) Residential housing starts do not rebound to 2000 levels before 2012. General Efficiency Trends Improvements –Equipment and Building Shell Efficiencies –Combined Improvement of 1.1% per year. Slow near term GDP growth –1.3% in 2008 –2.4% in 2009 Propane considered “environmentally friendly” in key markets. Weather “normal” is average of 1998-2004 weather. –This average is about 4% warmer than the 1971-2000 30-year normal.

7. icfi.com 7 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Propane Markets Projection Through 2012 Modest (+2.6%) growth in demand in 2007 due to returning to more normal weather Modest (-1.1%) decline in demand in 2008 –Demand supported by slightly colder weather Significant decline (-4.4%) in demand in 2009 due to higher prices. Very slow growth in other sectors partially offsets declines in residential sector. Very small decline in demand (less than 1 percent per year) in 2010 as growth due to general economic conditions in the non-residential sectors offsets declines in the residential market. Moderate growth in demand in 2011-2012 due to growth in all sectors. Forecast

8. icfi.com 8 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Historically High Energy Prices Prices peaked in July and have retreated somewhat. Significant price volatility in past 18 months. Price gap between fuel oil and propane has shrunk, opening opportunities: –New England –Mid-Atlantic

9. icfi.com 9 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Impact of Propane Price on Recent/Projected Propane Demand Higher prices have had a major impact on propane demand. –And can be expected to have a continuing impact. 12 percent difference between high price and low price demand scenarios by 2010.

10. icfi.com 10 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Impact of Housing Market on New Propane Residential Construction Starts Construction starts peaked in 2005, only to sharply drop off through the end of 2008 due to the housing slowdown. Housing expected to turn around by end of 2008/mid 2009.

11. icfi.com 11 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Market Share of Primary Space Heating Fuels Propane market share in new construction is increasing. Electricity continues to take market share from natural gas and fuel oil. Regional trends differ significantly. Source: U.S. Census Bureau

12. icfi.com 12 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Manufactured Housing Market Continues to Decline Total manufactured housing placements declined from 338,000 in 1998 to about 94,000 in 2007. Propane placements declined from 118,000 in 1998 to about 10,000 in 2007. Future placements are expected to decline further in 2008, before rebounding slowly thereafter. Older units with a high share of propane are being rapidly retired.

13. icfi.com 13 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Impact of Conservation on Propane Space Heating Consumption per Household Between 2000 & 2007 weather normalized propane use per customer dropped by about 12.8%. By 2010, propane space heat use per household is expected to decline by 20 percent. Higher efficiency technologies reduce per customer demand by about 0.6% per year. Improvements in building shell efficiency reduces per customer demand by about 0.5% per year Price response reduces demand by an additional 5% from 2007 to 2009.

14. icfi.com 14 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Current Consumer Propane Market Opportunities High End Residential Construction Modular Housing –(But not manufactured housing) New Applications in Existing Propane Homes –Tankless water heaters –Heating Oil Conversions Fuel Oil Conversions Engine Fuel Applications –Fleet vehicles –Commercial mowers –Irrigation pumps –Backup generation/distributed generation The current high energy price market has created an opportunity for propane in every market where propane competes with distillate fuel oil. (Primarily home heating fuel oil markets and engine fuel markets.) We expect the “price window” to close somewhat from current levels. However, changes in U.S. and international regulations, and promotion of diesel in fuel efficiency programs are likely to lead to high distillate prices relative to crude oil for the foreseeable future.

15. icfi.com 15 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Propane Conversion Opportunities 3 million propane customers could add propane water heating and/or cooking applications. –About 430,000 cooktop replacements and 431,000 water heater replacements occur naturally each year. Substantial market for conversion of fuel oil customers, especially in Northeast. –400,000 fuel oil customers replace furnaces and water heaters each year.

16. icfi.com 16 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Propane Internal Combustion Engine Sector Growth in forklift propane demand is expected to offset near term declines in on- road propane use. Projected growth in new propane on-road vehicles indicates growth in this market starting in 2008.

17. icfi.com 17 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Questions?

18. icfi.com 18 Presentation Audio Dial In: (800) 561-4946 Code: 500579 New in PERC Propane Models New Forecasts, Now Extended Through 2012. New Data –Weather & Energy Prices Updated through mid-2008 –American Community Survey 2006 (implemented where applicable) –Survey of New Residential Construction 2007 –American Petroleum Institute Survey 2007 Updated User-Interface in County Model. –New Control Panel –Streamlined Design Now More Intuitive

19. icfi.com 19 Presentation Audio Dial In: (800) 561-4946 Code: 500579 County Model New User-Interface Structure Scenario Builder Control Panel Run the Model & Two Run Scenario Comparison Single Run Output Tables Scenario Comparison Output Tables Print Shortcut Select Counties Customize County Household Data

20. icfi.com 20 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Hardware / Software Requirements CRPM and PDFM developed in Excel 2003. –Tested on Microsoft Excel 2007 and Windows Vista Computer Requirements –CRPM Memory Requirements – Model may take few minutes to run –Number of counties selected at one time will affect speed performance. Macro Security

21. icfi.com 21 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Model Demonstration

22. icfi.com 22 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Outline of Model Demonstration Show Title page, Control Panel, and review basic structure of CRPM. Select Counties (3 in N. Oregon, 1 in S. Washington) –Columbia, Multnomah, Washington, Clark –Show optional “Save To” and “Restore From” feature. Run one scenario, observe output. –Note analysis times vary proportional to number of counties selected. –Discuss types of data found in Output Tables Note relative year-to-year change in consumption for the counties. –Discuss “Chart Usage” and “Chart County” Pivot table graphs. Scenario Comparison (Compare two model runs) –Overview Scenario Builder and different factors that can be adjusted. –Run a Cold/Warm weather scenario. Highlight comparison table / chart –Back to Scenario Builder, run two price scenarios using spot price. Scenarios will be pre-set and loaded from the model. This will exhibit the Save/Restore feature on the Scenario Builder. High price = Base Case * 1.2. Low price = Base Case * 0.8 Compare output using Scenario Comparison on Control Panel User-Defined Values –Explain purpose of Res_Stock_Def_User page, and how propane stocks that are input now automatically adjust future years.

23. icfi.com 23 Presentation Audio Dial In: (800) 561-4946 Code: 500579 Questions?

24. Propane Market Overview & Demonstration of the PERC County Residential Propane Model version 2.0 Presented by: Mike Sloan msloan@icfi.com & Richard Meyer richardmeyer@icfi.com icfi.com © 2006 ICF International. All rights reserved. Propane Education and Research Council