TROUBLE AHEAD, TROUBLE BEHIND

SOME THOUGHTS ON THE ENERGY OULOOKAND THE LOW-INCOME CONSUMER

INTEREST

NCAF LEVERAGING CONFERENCE

ST. PETERSBURG, FLORIDA

OCTOBER 25, 2006

EIA Winter Outlook For 2006-2007

Heating Oil Prices Flat Heating Oil at $2.46 per gallon Natural Gas Prices Down 16%, Propane Down 5% Natural Gas at $12.23 per mcf, Propane at $1.85 per

gallon Electricity Prices up 5 % National average of 10.1 cents per kwh A Normal Winter Will Wash Away The Price Drop Last Winter Was So Warm It Was Off The Charts!

HISTORY OF MIDWINTER NATURAL GAS COMMODITY PRICE

Price Trend For January 07 Futures Contract

Source: Wall Street Journal, 9/19/06

EXPECTED EXPENDITURES FOR 2006-2007

Low-Income Households

$806

$1,832

$1,034

$2,311

$1,289

$2,714

$520

$1,344

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

NaturalGas

Propane Fuel Oil Electricity

By Primary Heating Fuel

Heating/CoolingTotal Bill

Source: ORNL Tabulation from EIA STEO & RECS

SHORT-TERM MARKET CONDITIONS

Inventories well above average levels for all major fuels

No repeats of Hurricanes Katrina and Rita

Most (but not all) production losses from last year restored

Normal weather will increase demand

Consumers of fuel oil and propane now compete with European demand

Natural gas demand is highly dependent on industrial and power generation growth

SUPPLY DEMAND

RESIDENTIAL PRICE TRENDS SINCE 1997EIA HISTORICAL DATA

Home Heating Oil Prices have increased 138% since 1997

Natural Gas Prices have increased 85% since 1997

Electricity Prices are up 26% since 1997

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

Heating Oil Electricity

Natural Gas

AGGREGATE RESIDENTIAL ENERGY EXPENDITURES BY LOW-INCOME HOUSEHOLDS

Eligible for LIHEAP

By Primary Heating Fuel

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

2001 2004 2005 2006 2007

Fuel OilNautral GasPropaneElectricity

SOURCE: ORNL TABULATION BASED ON EIA STEO AND RECS

Millions of Dollars

1970 1980 1990 2000 2010 20250

5

10

15

20

25

30

35 History Projections

Production

NetImports

Consumption

Pipeline Liquefied Natural Gas0

1

2

3

4

5

6

2001

2025

Natural Gas Net Imports, 2001, 2025(trillion cubic feet)

Source: AEO 2003

1970 1980 1990 2000 2010 20250

5

10

15

20

25

30

35 History Projections

Production

NetImports

Consumption

Pipeline Liquefied Natural Gas0

1

2

3

4

5

6

2001

2025

Natural Gas Net Imports, 2001, 2025(trillion cubic feet)

Source: AEO 2003

Natural Gas Supply, Consumption, and Imports Are Projected to Expand Through 2025

(1970-2025, trillion cubic feet)

HOME HEATING OIL

NO PRICE CONTROLS

NO SIGNIFICANT PRICE REGULATION

LARGE COMPANIES AT TOP OF PRODUCTION CHAIN AND SMALL ONES AT THE BOTTOM

WELL DEVELOPED FUTURES MARKETS AND ESTABLISHED PRICE/VOLATILITY REDUCTION METHODS

JAWBONING

NATURAL GAS

DEREGULATED AT THE WELL HEAD, COMMODITIES TRADING MARKETS

FEDERAL PIPELINE REGULATION

LOCAL DISTRIBUTION COMPANY REGULATION

MAJOR CHANGES IN MARKET CONDITIONS

REGULATORY INTERVENTION OPPORTUNITIES IN PRICE VOLATILITY REDUCTION, RESOURCE ACQUISITION AND CONSUMER PROTECTION

ELECTRICITY

PARTIAL DEREGULATION OF WHOLESALE ELECTRICITY IN SOME PLACES AND COMPANY CONSOLIDATION, NEW MARKET MECHANISMS LIKE RTOs

CONTINUED REGULATION OF TRANSMISSION AT FEDERAL AND STATE LEVEL

STATE REGULATION OF LOCAL DISTRIBUTION

PUBLIC BENEFIT FUND PARADIGM, EFFICIENCY INVESTMENTS, RATE CASE PROCEEDINGS

TIGHT MARKETS MEAN MISCHIEF

REMEMBER ENRON AND CALIFORNIA?

AN INVITATION TO SPECULATION AND MANIPULATION

WATCH OUT FOR THE ECONOMISTS!

HISTORY OF MIDWINTER NATURAL GAS COMMODITY PRICE

Price Trend For January 07 Futures Contract

Source: Wall Street Journal, 9/19/06

MARKET DANGERSMISALLOCATION

PROBLEMS COMMON TO ‘NETWORK’ INDUSTRIES

SUPPLY IS PRICED AT THE MARGIN WHILE CONSUMER PRICES DISCRIMINATE

BOOM AND BUST INVESTMENT CYCLES CREATE INCENTIVES FOR PRODUCERS TO TRY TO SHIFT RISKS TO CONSUMERS

MARKET DANGERSSPECULATION

A GROWING PERCENTAGE OF TRADE IN ENERGY MARKETS IS SPECULATIVE

THIS INCREASES PRICE VOLATILITY AND PUSHES PRICES UP AND DOWN MORE SHARPLY

MUCH OF THE TRADE IS UNREGULATED WITH NO OVERSIGHT

MARKET DANGERSMANIPULATION

WITH POOR REGULATION COMES LACK OF INFORMATION NEEDED TO PREVENT PROFITEERING

PRICES CAN BE MOVED IN EITHER DIRECTION!

UNDER THE RIGHT CIRCUMSTANCES INDIVIDUAL ACTORS CAN CONTROL AND DIRECT PRICES

WHAT CAN WE DO?

Don’t Drink The kool-Aid Defend The Provider Of Least Resort With A

Balanced Supply/Price Portfolio Pursue Supply Surplus Fight Monopoly Market Pricing Keep Public Benefits Together- Sustainability and

Affordability Hand In Hand Consumer Protection Regulation & Info Vital When’s The Next Train?

IN SHORT…

SIGN AND ORGANIZE AROUND THE PRINCIPLES OF ENERGY AND WATER SECURITY FOR ALL AMERICANS

www.ncaf.org/issues/energy