State of Ohio Natural Gas Program / Natural Gas 101

September 2009

Ohio Natural Gas Program and Industry Terminology

State of Ohio Natural Gas Program / Natural Gas 101

September 2009


Introduction of The E Group

September 2009 Ohio Natural Gas Program and Industry Terminology 3

The E Group

A National Provider of Energy Management Services

Information management

Energy consulting, procurement and rate audits

Risk management

Supply and demand-side energy management strategies


FirstEnergy Corp. (NYSE: FE)A Public Utility Holding Company

$12B Market Cap$34B Assets

FirstEnergy UtilitiesFirstEnergy Generation

Competitive Unit of FE

FirstEnergy Solutions

The E Group

Organizational Chart

September 2009


Natural Gas 101


What is Natural Gas?

•Created by organic matter decaying over millions of years, creating hydrocarbons.

•Hydrocarbons existed between sand and porous rock, eventually forming natural gas and liquid petroleum.

•Primary component is Methane (CH4).


Gas Measurements

•CCF - abbreviation for one hundred cubic feet of gas

•MCF - abbreviation for one thousand cubic feet of gas

•BCF - abbreviation for billion cubic feet of gas

•Decatherm (Dth) - ten therms or one million btu, the approximate heat content of one thousand cubic feet of gas; (1 therm is equal to 100,000 Btu)

•MMBtu - Million British Thermal Units; (1MMBtu = 1 Dth)


MCF versus DTH - Conversion

PriceDth x Btu = MCFMCF / Btu = Dth

VolumeDth / Btu = MCFMCF x Btu = Dth


Roles in the Marketplace•Producer - one who owns or leases wells producing oil or gas

•Transmission Pipeline – pipeline installed to transmit gas from a source or sources of supply to one or more distribution companies.

•Interstate Pipeline - a company that transports natural gas across state lines. Governed by Federal Energy Regulatory Commission (FERC)

•Intrastate Pipeline - a company that transports gas within one state’s boundaries

•Distribution Pipeline - LDC - a natural gas utility that sells gas directly to consumers under jurisdiction of a state regulatory commission

•Local Distribution Company (LDC) - a company that buys gas, then distributes and resells it to residential, commercial, and industrial customers.

•Marketer - a company involved in the business of purchasing and reselling gas


Industry Terms

•Wellhead – point where gas is extracted and measured

•Gathering Lines- pipelines that connect wells or meters to a transmission line

•City Gate - the site where a distribution utility company receives and measures gas from a pipeline company.

•Transportation - the movement of gas for third parties through pipeline facilities for a fee

•Fuel Loss / Fuel Inverse / Retainage - a small percentage of gas kept by the transporter for use primarily as compressor fuel.

•GCR – Gas Cost Recovery Rate - the cost of gas that a LDC buys to serve its customers.


Natural Gas Futures

Energy Related Futures Exchanges:

•The “New York Mercantile Exchange” (“NYMEX”) -Natural Gas @ Henry Hub

• A NYMEX Natural Gas Contract Unit is 10,000 MMBtu delivered over a monthly period

•Delivery Point is Henry Hub, LA. Seller moves gas through hub & pays hub fee.

•The NYMEX is trading through 2020 although there is not a lot of liquidity beyond three years at this point

•Trading terminates 3 business days prior to the deliver month


Basis

Basis - the differential that exists any time between the futures or forward price for a given commodity and the comparable cash or spot price for the commodity.

Basis can reflect different time periods, product qualities, or locations.


Burner Tip Cost Components

Burnertip Price Components

Commodity (NYMEXLTDS)

Basis

Local Distribution

Example – September 2009 Gas

Component Per DTHCommodity (NYMEX LTDS) 2.843$ Basis 1.250$ Local Distribution 2.500$ Total 6.593$

September 2009


State of Ohio Natural Gas Program


Overview A procurement initiative that takes advantage of the

buying power of many state accounts in order to save money on gas bills

Deregulation allows purchasing gas from third-party suppliers

State program in place since mid-1990’s

Administered through DAS

The E Group began administering the program in May 2003


Successes! Over $27 million saved FY 2004 through 2008. Average savings of 11% of spend compared to

applicable utility rates Over $50 million annual spend Over 4,400,000 mcf/yr. There are many large, reputable suppliers seeking the

State’s gas business!


Current Enrollment 149 Entities

o 21 State Agencieso 128 Coops

(NOTE: Many more individual sites since most entities are made up of several different locations)

1,229 Accounts o 178 Transporto 1,051 Choice


Coverage Work behind the 5 major utilities in Ohio

o Columbia Gas of Ohio (“COH”)o Dominion East Ohio Gas (“DEO”)o Dominion West Ohio Gas (“DWO”)o Duke Energy (“Duke”)o Vectren Energy Delivery of Ohio (“VEDO”)


Process - What We Do

Determine best utility delivery rate schedule

Enroll facility in program

Select suppliers through Request for Proposal (“RFP”) process

Procure gas

Pay the bills

Audit monthly supplier invoices

Calculate savings

Market the program


Selecting Suppliers

RFP language

Project pool volumes

Supplier analysis

Negotiate contracts

Offer Analysis

Provide analyses and recommendations to State

Select suppliers


Gas Procurement / Risk Strategy Purchasing basis through RFP process

o Fuel, shrink, supplier adders

Setting commodity priceo Follow risk strategyo Trigger volumes in layers (not buying all at once)o Driven by NYMEX

Local utility still involved for gas delivery and customer service


Managing Price Volatility

Market monitoring and forecastingo Follow natural gas fundamentals, including amount of natural gas

in storage, number of operating natural gas rigs (rig count) and weather forecasts.

o Analyze price chart technicals and determine support and resistance levels.

o Follow the NYMEX strip prices and individual monthly prices.


12-Month NYMEX Strip Prices


State Price Structures Per “Pool”

General Transportation Services (“GTS”) refers to large consuming sites.

Choice refers to small consuming sites.

COH GTS = Layered NYMEX Pricing

COH Choice = Layered NYMEX Pricing

DEO GTS = Layered NYMEX Pricing

DEO Choice = Guaranteed Savings Offer

DWO GTS = Layered NYMEX Pricing

DWO Choice = No Program Available at This Time

Duke GTS = Layered NYMEX Pricing

Duke Choice = No Program Available at This Time

VEDO GTS = Layered NYMEX Pricing

VEDO Choice = Guaranteed Savings Offer


Bill Payment Bills paid through central agent – utility bill payment

system Transport Accts: 2 invoices - 1) utility, 2) supplier Process

o Setup of account in bill payment systemo Bill received at central agento Bill data keyed into systemo Bill validated (run through various criteria) prior to payment o Check issued for payment to vendoro Funding request to customer made via EDI or ACH/wire transfer


Bill Payment Site View Screen

Data, payment info, and bill image posted on bill payment website


Bill Payment (continued)

Benefitso Eliminates vendor late feeso Eliminates paper invoices and costs associated with

processing them (estimated at $40 per invoice)o Funding requests made electronicallyo Web access to all natural gas bill information o Bill validationo Natural development of database for auditing, strategy and

procurement activitieso Enables users to quickly produce reports or graphs on

historic usage or dollar spend


Criteria for Joining State Program

Must be served by DEO, DWO, COH, Duke, or VEDO systems

Current third party supply contracts must be terminated before joining the program

Coop membership


Enrollment

Enrollment Inquiry Form

Most Recent Bill Copies

Memorandum of Understanding (MOU)

Annual renewals

No fee to join

All program costs are included in the cost of natural gas


Program Benefits!

Could save 5% to 30% on gas bills compared to applicable utility rates (historical results)

Allows you to outsource your gas management and concentrate on your core business

Electronic bill payment reduces paperwork and utility late fees

Trained, skilled personnel available to answer questionsand act as liaison between end user and Supplier and/or utility

September 2009


State of Ohio Natural Gas Program TeamState of Ohio Natural Gas Program TeamJim Hunley - DAS, Procurement SupervisorJim Hunley - DAS, Procurement SupervisorNikki Erb – DAS, AdministrationNikki Erb – DAS, AdministrationEileen Mikkelsen - The E Group, DirectorEileen Mikkelsen - The E Group, DirectorDave Miles – The E Group, Account ManagerDave Miles – The E Group, Account ManagerStephanie Everhart - The E Group, Gas ManagementStephanie Everhart - The E Group, Gas ManagementRich Mason - The E Group, Bill PaymentRich Mason - The E Group, Bill Payment

State of Ohio Natural Gas Program / Natural Gas 101

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