Agenda Intro The Economy…what in the world?


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2010 12th Annual REAP Meeting October 15, 2010 Four Seasons, Landisville, PA


Agenda

  • Intro

  • The Economy…what in the world?

  • Energy Market Update

  • Break

  • REAP Performance

  • Demand Side Response

  • Technologies and Lighting

  • Act 129 Implementation

  • PUC/Regulatory Issues

  • Awards

  • Lunch

  • Golf-Scramble Format



Refer a Friend Prizes

  • Most Referrals = IPad

  • Other Referral prizes:

    • $200 Lowes Gift Card
    • $50 Ticketmaster Gift Card
    • $50 Sheetz Gas Card


Refer a Friend

  • There’s still time! But not much

  • Yellow Sheets in your packet

  • Must turn in yellow sheets before our mid-morning break is over



Meet Richards Energy Group (REG)

  • Staff

    • Pete Richards
    • Tina Gentzler
    • Mike Frey
    • Steph Baylor
    • Lew Knepp
    • Michele Leabhart
    • Travis Keeney
    • Greg Steinmetz
  • Study Team

    • Don Hornung
    • Al Neuner
    • Ed Brignole
    • Bob Abbato


Platinum Sponsors

  • Direct Energy

  • Customized Energy Solutions

  • Constellation New Energy



Silver Sponsors

  • PPL Energy Plus

  • Liberty Power



Contributing Sponsors

  • Amelia’s: Gift Card

  • Brenneman Enterprises: Bowling Party for 10

  • RW Connection: Tool Kit and hat

  • PPL+: Jacket

  • Fulton Financial: Billfold

  • Constellation: Jacket, Shirts, LED solar flashlights



The Economy_ What’s Going On?

  • Tom Weber

    • Sr. VP Fulton Financial Advisors




General Themes

  • Economy stable but fragile

  • Not typical recession – lower interest rates are ineffective

  • Consumer challenged – Employment, housing, slowed by thrift and productivity

  • Too much capacity – Inflation or deflation?











































Do Not Look For The US Consumer To Lead Us Out of Recession



















Source: RBC Capital Markets, Kenneth R. French

  • Source: RBC Capital Markets, Kenneth R. French

  • Past performance is no guarantee of future results.  This chart is for illustrative purposes only and is not representative of performance for any specific investment.  There are no guarantees that dividend paying stocks will continue to pay dividends.  In addition, dividend paying stocks may not experience the same capital appreciation potential as non-dividend paying stocks. 



What to Do?

  • Old Normal -- Stay the course

  • New Normal - 5 ways to approach new normal

    • Diversify (correlations different)
    • Lower equity exposure because of higher risk
    • Introduce alternatives
    • Emphasize High Quality stocks, high dividends
    • Use Prudent Bear Fund (negative correlation)
    • Disclaimer:
  • The opinions expressed are those of the presenter and not necessarily the opinion of Fulton Financial Advisors. Investments and returns mentioned are not reflective of any specific account or fund. Information is believed to be reliable but is not guaranteed.



Energy Market Update

  • John Bodine

  • Info provided by Direct Energy







Installed Capacity

  • Installed Capacity

    • Coal 41.0%
    • Natural Gas 29.0%
    • Nuclear 18.5%
    • Oil 6.6%
    • Hydroelectric 4.4%
    • Other 0.5%
    • Total 100.0%
  • 15-20% of coal plants are more than 40 years old.





Natural Gas Correlations

  • Natural Gas Correlations

    • Strong and consistent correlation with electricity prices all markets
    • Weak correlation with oil and related products
  • Wholesale energy is the largest component of total energy costs

    • Largest and most volatile compared to adders and T&D
  • Ongoing low price environment

    • Sustained prompt natural gas futures prices below $6.00 for first time since 2001 – 2003
    • Long-term prices also posting new lows despite premium


Strong domestic production via shale

  • Strong domestic production via shale

  • Weak Economy

  • Weather

    • Record summer heat ending
    • Active hurricane season has not delivered Gulf of Mexico storms
    • Winter approaching – early forecasts predict milder temps
  • Natural Gas Storage Deficit

    • Summer heat reduced injections
    • Repeat of 2009 storage glut is unlikely
  • Gas and coal compete as a fuel for generation

    • $4.00 – 5.00 price range at Henry Hub is tipping point
  • Weak Imports

















LNG (Liquified Natural Gas)

  • LNG (Liquified Natural Gas)

    • Potential for additional supply due to record growth (+26%) in international LNG capacity during 2010
    • US import capacity 10 - 12 Bcf/day and growing
    • Henry Hub at a severe discount vs. National Balancing Point (NBP)
    • Summer imports fallen to near 1.0 Bcf/day
  • Canadian Pipeline Imports

    • Exports to U.S. peaked at 9.76 Bcf/Day in 2003
    • 2010 exports averaging 6.5 Bcf/Day
    • Declines due to:
      • Geology – mostly conventional supply (vertical)
      • Resource depletion
      • Steep Provincial Royalties


All periods have recently posted all-time lows

  • All periods have recently posted all-time lows

    • Strong domestic supply
    • Weak economy
  • Contango Forward Curve

  • Key risk #1 – Supply

    • Reduced drilling incentive due to low prices - despite rapid growth, shale gas is less than 25% of US supply while the bulk of US supply has higher finding costs.
    • Reduced imports
    • Shale production is also vulnerable to low prices, accelerated depletion rates, and environmental & tax regulations
  • Key risk #2 – Demand

    • US market is currently demand challenged due to weak industrial demand
    • Growth and “greening” of the US economy could increase US demand for natural gas
  • Key risk #3 – Surprises

    • Geopolitical events
    • Impact of equity and currency market trading and speculation


Bearish

  • Bearish

  • Bearish supply outlook due to Shale

  • Slow recovery by economy

  • Bullish

  • Non-shale production declines

  • Disappointing Imports

  • Coal versus gas competition

  • Wildcards

  • Storage inventories

  • Winter Weather

  • Financial market impacts







Energy prices have been trending lower with little volatility for almost two years.

  • Energy prices have been trending lower with little volatility for almost two years.

  • Reasons not to buy

    • Longer term prices are higher than near-term
    • Bearish natural gas supply outlook due to shale production
    • Prevailing trend of price declines since mid-2008
    • Weak day-ahead prices
  • But to ignore the risks in the energy markets is a mistake



    • Historically low prices
    • Reduced Long-Term price premium
    • Winter weather risk
    • Domestic supply risks due to low prices
    • Environmental & tax risks to shale drilling
    • Weak imports via LNG and Canada
    • Potential for economic recovery
    • Comparison of Forward versus Index Prices
    • Risk of market volatility
    • Difficulty in timing a market bottom
    • Balance business considerations with market
    • considerations to form a strategy


15 minute Break

  • Get your Referral sheet returned

  • Visit Sponsor Tables

  • Coffee/continental breakfast/mid-morning snack



REAP Report

  • 446 Members (+180)

  • 1,561 Electric Meters

  • $90 Million of electric bills

  • $6 million Shopping Savings year to date

  • $65,000 non-shopping Found Savings year to date

  • $1+ million non-shopping Ongoing Savings



Fall 2009 Approach

  • Layered Blended Pool

    • 500 million KWH
  • Fixed Price or Block and Index

    • 200 million KWH


Gas Prompt Month, 2000-2010



Market Shift



Fall 2010 Approach

  • Market has shifted dramatically downward

  • 7 year lows on futures market

  • Fixed price contracts result in 28 month price stability at historic lows



Current REAP Suppliers

  • Direct Energy

  • PPL Energy Plus

  • Liberty Power

  • Constellation

  • Hess

  • First Energy Services

  • Dominion

  • Duquesne Light Energy







Fixed Price Performance-PPL

  • Price range 8.2-9.7

  • Most in 9.1-9.6 range

  • 10.4 PTC



Price to Compare



Price to Compare - PPL



Price to Compare Increases (est.)

  • Met Ed

    • 2010 ~ 7.7 ¢/kwh
    • 2011 ~ 8.5 ¢/kwh
  • Allegheny

    • 2010 ~ 6 to 8 ¢/kwh
    • 2011 ~ 7 ¢/kwh
  • Penelec

    • 2010 ~ 6.2 ¢/kwh
    • 2011 ~ 7.5 ¢/kwh
  • PECO

    • 2010 ~ 6 to 9 ¢/kwh
    • 2011 ~ 8.5 to 9 ¢/kwh


PPL RS Shopping

  • 8.69



Shopping Stats 10/1/10



PJM Programs

  • Demand Side Response (DSR)

  • Bypass Utility

  • Deal through Customized Energy Solutions (Curtailment Service Provider)

    • Capacity
    • Energy
    • Synchronous Reserve


PJM



Who’s doing PJM DSR this year?



What are these 51 receiving this year?

  • $669,000!

  • Program defined for at least another 3 years



DSR Payout for 1,000kW

  • 2010-11: $48,700

  • 2011-12: $32.300

  • 2012-13: $38,300

  • 2013-14: $62,000

  • Total: $181,300 or

  • Average: $3,800/month



What does it take?

  • Ability to reduce load

  • or run backup generation

  • 25kW minimum

  • June 1-Sept 30

  • Up to 10 interruptions for 6 hours each

  • Monthly payments





Platinum Sponsors

  • Customized Energy Solutions





    • What do we do for our clients?
      • Provide wholesale market services that enable our clients to provide value added services for their customers
      • Examples
        • LSEs
        • Aggregators (REAP)
        • Munis, Coops
      • Provide additional value to REAP Services
    • We are independent and provide services to a broad spectrum of participants in the energy markets




    • Economic Program
      • REAP Electrical Agreement provides economic benefits to Customers who reduce load at high prices
    • Emergency Program
      • ISO or Utility calls interruption
      • Payment based on load reduction capability
      • Performance test required if no event occurs
      • Payment will offset portion of fixed charges under REAP contract for energy


Supplement value of REAP Services

    • Supplement value of REAP Services
    • Synchronous or Spinning Reserves
      • Load reduction must be achieved in 10 minutes
      • Good Value for participation
      • Remote start for back-up generation or automated notification of event for customer to reduce load
      • Value depends on hours of participation
    • Regulation Service
      • Battery technology or flywheel technology
      • Typically a difficult service for loads but value is significant


Platinum Sponsors

  • Direct Energy

    • Jo Anna Kendrick


Tariff Issues and Changes

  • PPL

    • REG participating
    • Distribution Filing will raise RS rates in 1/11, GS and LP rates flat
    • RTS increase limited…DSR possible?
    • CTC will finally be gone
    • GS1GS3 gouging by PPL will be mitigated


Tariff Issues and Changes

  • Met Ed

    • Rate Filing effective 1/11
    • PTC 8% increase expected
    • CTC gone but partially replaced by “NUG”
      • Rate unchanged or decreased depending on load factor
    • Seasonal Rate Gone as of 1/11
    • 12 hour or 8 hour TOD window locked
    • 12 hour kW rate same as 8 hour
    • > 400kW getting interval meter installed


Tariff Issues

  • Met Ed

    • GSL 400 kW criteria being challenged
    • Return to Default 1 year requirement


Lighting Retrofits

  • Pete Richards



Act 129

  • Implementation - PPL



All lights are not created equal

  • Peter Richards

  • Richards Energy Group, Inc.









Lighting - Concerns

  • Mercury

    • Toxic Metal
    • Many Lamps Contain
  • Mercury Lifecycle

  • Proper Disposal Required

    • Local Distributor
    • Home Depot


White LED Lighting

  • 100,000 Hours!!!!

    • Driver Life 15-20,000 Hours
    • Integrated Drivers
  • CALiPER program by DOE

    • “Reliable, unbiased product performance information”


PA ACT 129

  • House Bill 2200

  • Mandatory Reduction Plan for most EDC’s

  • 3% usage reduction over next 4 years

  • 4.5% Peak 100 Hours Demand Reduction

  • Funded by 2% of Gross 2007 revenues

      • Fully Recovered from _____?
  • PPL

    • Variety of Rebate Options for EE&C
    • Retroactive to 7/1/2009


PPL ACT 129

  • 1. Efficient Equipment Incentive Program

  • 2. Residential Energy Assessment & Weatherization

  • 3. Compact Fluorescent Lighting Campaign

  • 4. Appliance Recycling Program

  • 5. ENERGY STAR® New Homes Program

  • 6. Renewable Energy Program

  • 7. Direct Load Control Program

  • 8. Time of Use Rates

  • 9. Energy-efficiency Behavior & Education

  • 10. Low-income WRAP

  • 11. Low-income E-Power Wise

  • 12. Commercial and Industrial Custom Incentive Program

  • 13. HVAC Tune-Up Program

  • 14. Load Curtailment Program











Lighting Retrofits- who’s doing them?

  • Adhesives Research

  • High Industries

  • Phillips Group

  • ECORE (Dodge-Regupol)

  • GSM Industrial (Gooding)

  • Amelia’s Grocery Outlet

  • Willow Valley Retirement Comm.

  • Wayside Presbyterian

  • USA Spares

  • Homewood Retirement Community

  • St. Anne’s



Referral Awards!

  • IPad

  • $200 Lowes card

  • $50 Ticketmaster

  • $50 Sheetz Gas card



Prizes







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