1. MASBO Annual Institute May 13, 2015 Achieving Budget Success in a Volatile Energy Market

2. 2 The New England Market Despite temporary dips, long-term price volatility remains  A warmer start to last winter coupled with record natural gas production resulted in briefly favorable market prices – but frigid temps in Q1 2015 caused continued price volatility  Underlying fundamentals in the New England market will not change for at least a few years  School districts need a strategy to be prepared

3. 3 Electricity Prices Track Natural Gas Significant price correlation between electric & gas Algonquin city-gate spot vs NE HUB Real-time 24hr average  Natural gas is the region’s leading fuel used to generate electricity  Natural gas pricing is impacted by weather and production/storage inventory

4.  Temperatures across the U.S. predicted to be average to slightly above average May – July  Given this, electricity demand should not exceed predicted levels, keeping price spikes at bay Weather Update Average temps could keep price spikes at bay

5. 5 Natural Gas Storage Strong position could mean buying opportunities When gas storage is above 5yr average (surplus), NYMEX price typically down When gas storage is below the 5yr average (deficit), NYMEX price typically up 5yr Average  Last week the EIA reported a 63 Bcf injection  Outpaced both last year’s and the 5-year historical average for this time last year  Now 81.7% above last year and just 8.6% below the 5-year average

6. 6 167% increase in natural gas use 2000 vs 2014 Generation mix has become highly dependent on natural gas Less fuel diversification = increase in price volatility So why is electricity now so costly in MA despite newfound domestic natural gas? New England Regional Fuel Mix Natural Gas Coal Oil Nuclear Year: 2000 Year: 2014 Resource: ISO New England http://www.iso-ne.com/about/what-we-do/key-stats/resource-mix#air-emissions Natural Gas Hydro/ renewables Coal Oil Nuclear 34% 40% 15% 5% Hydro/ renewables

7. 7 Loss of Electricity Generator Facilities Greater reliance on natural gas FacilityCapacity (MW)LocationFuel Source Projected RetirementCurrent Status Norwalk Harbor530Norwalk CTOil2013Closed Brayton Point1,500Somerset MACoal, Fossil Fuel2017 Salem Harbor330Salem MACoalQ2 2014Closed Vermont Yankee605Vernon VTNuclear2014Closed Total MW Capacity2,965  5% of New England’s generating assets were retired in the past 18 months; another 5% will be off line in 2017  Greater reliance on natural gas for region’s electric needs

8. 8 Natural Gas: Current Supply Access Premium cost for gas in NE due to lack of pipeline  Dramatically increased reliance on natural gas in region has created new, higher market demands  Minimal pipeline capacity limits business’ ability to benefit from lower commodity prices  Pipeline space is priced at a premium and all non-interruptible service is spoken for New Hampshire $30.02/Dth Peak day price 2015 New York $3.83/Dth Peak day price 2015

9. 9 Proposed Pipeline Expansion Any relief still years away Kinder Morgan Northeast Energy Direct (2018) Spectra Energy Algonquin Incremental Market (2016) & Atlantic Bridge (2017)

10. 10  A drop in natural gas (commodity) does not significantly impact final wholesale electricity generation in New England  New England faces another component of the natural gas price called BASIS; the cost of transporting the natural gas to the region  Greater demand for natural gas combined with very limited pipelines serving the New England means natural gas is only available at a premium total price compared to other US regions  The local utility also adds on its cost to deliver the gas to the meter at the customer’s facility New England Basis Pipeline constraints limit delivery Commodity Price Basis Price Total Price Commodity and basis must be considered in tandem

11. 11  There are two main components of Capacity  Capacity Cost – The generation price set per kilowatt-hour by the NE-ISO forward capacity market auction  Capacity Tag – The total kilowatt-hours used by a facility on the peak hour of the peak day per the NE-ISO  The capacity year runs June 1 st to May 31 st  What you use this year on the peak day will become your future capacity assignment  Your capacity assignment will impact your energy costs beginning June 1, 2016 and last through May 31, 2017 Other Cost Components: Capacity Opportunity for savings You can’t control You can control Capacity CostCapacity TagTotal Capacity Charge

12. 12 MA Capacity Costs on the Rise

13. 13 Other Considerations Be aware of additional items affecting your costs  Rate code assignments  Supplier contract terms and conditions  Swing provisions  Change in Law clauses  Treatment of ancillaries  Operational Flow Orders (OFOs)  Regulatory Changes  Winter Reliability Program  Utility “stay-out/in” rules  SREC II

14. 14 Case Study – Swansea Public Schools Client since: 2014 The Situation  Swansea Public Schools was concurrently facing:  Expiring Natural Gas Contract  Expiring Electricity Contract  Solar Net Metering Project  Solar Remote Net Metering Project  Unsure how these contracts and projects could affect one another  Capacity Tag Costs are about to dramatically increase and no one was advising on a strategy to mitigate these costs The Strategy  Develop a long term energy buying strategy  Closely monitor the energy market for next electricity and natural gas supply contracts  Review and advise on solar proposals for net metering and remote net metering

15. 15  Fundamentals not changing near-term  New England energy market price volatility will continue  Schools need to have a strategy in place to keep budgets intact  Understand your needs and objectives  Evaluate your options for budget savings, stability and risk mitigation  Be proactive and think long-term  Understand the market and regulatory drivers  Monitor the market - buying opportunities open and close quickly  Use an Energy Advisor as your resource  Customized energy strategies to meet your objectives  Deep market expertise and continuous monitoring  Identify other factors that affect pricing – capacity, etc.  Pre-vet supply contracts and manage any billing inconsistencies that may arise in future Key Takeaways Finding stability despite price volatility

16. 16 Our Clients Include…