Presentation on theme: "2010 12 th Annual REAP Meeting October 15, 2010 Four Seasons, Landisville, PA 2010 12 th Annual REAP Meeting October 15, 2010 Four Seasons, Landisville,"— Presentation transcript:
th Annual REAP Meeting October 15, 2010 Four Seasons, Landisville, PA th Annual REAP Meeting October 15, 2010 Four Seasons, Landisville, PA REG’s new office
Agenda Intro Intro The Economy…what in the world? The Economy…what in the world? Energy Market Update Energy Market Update Break Break REAP Performance REAP Performance Demand Side Response Demand Side Response Technologies and Lighting Technologies and Lighting Act 129 Implementation Act 129 Implementation PUC/Regulatory Issues PUC/Regulatory Issues Awards Awards Lunch Lunch Golf-Scramble Format Golf-Scramble Format
Refer a Friend Prizes Most Referrals = IPad Most Referrals = IPad Other Referral prizes: Other Referral prizes: $200 Lowes Gift Card $200 Lowes Gift Card $50 Ticketmaster Gift Card $50 Ticketmaster Gift Card $50 Sheetz Gas Card $50 Sheetz Gas Card
Refer a Friend There’s still time! But not much There’s still time! But not much Yellow Sheets in your packet Yellow Sheets in your packet Must turn in yellow sheets before our mid- morning break is over Must turn in yellow sheets before our mid- morning break is over
Meet Richards Energy Group (REG) Staff Staff Pete Richards Pete Richards Tina Gentzler Tina Gentzler Mike Frey Mike Frey Steph Baylor Steph Baylor Lew Knepp Lew Knepp Michele Leabhart Michele Leabhart Travis Keeney Travis Keeney Greg Steinmetz Greg Steinmetz Study Team Study Team Don Hornung Don Hornung Al Neuner Al Neuner Ed Brignole Ed Brignole Bob Abbato Bob Abbato Andrew Fritz Linda Ulmer Victor Wueschinski Charlie Goedken Gary Gearhart Mary Richards Frank Richards Advisors Bob Cook Jeff Doane
Platinum Sponsors Direct Energy Direct Energy Customized Energy Solutions Customized Energy Solutions Constellation New Energy Constellation New Energy
Silver Sponsors PPL Energy Plus PPL Energy Plus Liberty Power Liberty Power
Contributing Sponsors Amelia’s: Gift Card Amelia’s: Gift Card Brenneman Enterprises: Bowling Party for 10 Brenneman Enterprises: Bowling Party for 10 RW Connection: Tool Kit and hat RW Connection: Tool Kit and hat PPL+: Jacket PPL+: Jacket Fulton Financial: Billfold Fulton Financial: Billfold Constellation: Jacket, Shirts, LED solar flashlights Constellation: Jacket, Shirts, LED solar flashlights
The Economy_ What’s Going On? Tom Weber Tom Weber Sr. VP Fulton Financial Advisors Sr. VP Fulton Financial Advisors
Economic and Market Insights G. Thomas Weber Senior Vice President October 15,
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?
“ Like gold, US dollars have value only to the extent that they are strictly limited in supply. But the US government has a technology, called a printing press (or today, its electronic equivalent) that allows it to produce as many US dollars as it wishes at essentially no cost. By increasing the number of US dollars in circulation, or even by credibly threatening to do so, the US government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper- money system, a determined government can always generate higher spending and hence positive inflation.” -Ben S. Bernanke, FED Governor November 21, 2002 Before the National Economists Club, Washington, DC “Deflation: Making Sure “It” Doesn’t Happen Here”
GDP: Last Fourteen Quarters Cash for Clunkers 1.45% in Q3 ‘09 0.4% in Q4 ‘09
GDP: Last Fourteen Quarters – Ex. Cash for Clunkers Cash for Clunkers 1.45% in Q3 ‘09 0.4% in Q4 ‘09 Change in Private Inventories.7% in Q3 ’09 3.9% in Q4 ‘09 1.7% in Q1 '10
GDP: Last Fourteen Quarters – Ex. Cash for Clunkers and Inventory Change in Private Inventories.7% in Q3 ’09 3.9% in Q4 ‘09 1.7% in Q1 '10 Cash for Clunkers 1.45% in Q3 ‘09 0.4% in Q4 ‘09
Institutional Sales Material. Not to be reproduced or distributed to the public. Source: Ned Davis Research Past performance is no guarantee of future results 164% 1929 Stock Market Top 260% 1933 when FDR devalued U.S. Dollar 40% 268% 2000 Stock Market Peak 370% As of 9/30/09 Sep-09
Should We Worry About Inflation or Deflation? Source: Deutsche Bank Securities July 2010
Source: Bureau of Economic Analysis, Merrill Lynch Do Not Look For The US Consumer To Lead Us Out of Recession US Consumer spending as a share of GDP US Personal Savings Rate (six-month moving average) (percent)
Valuations are Not Cheap
Leading Indicator Warns
Consumers Have Lots of Cash
Companies Have Lots of Cash
US: We’ve Already Lost A Decade Source: Strategas, January 2010CAGR=Compound Annual Growth Rate.Past Performance is no guarantee of future results. This chart is for illustrative purposes only and is not representative of any specific investment.
You are Here Source: Strategas, March 2010
High Dividends Worked During Japan’s Lost Decades 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 John Bodine Info provided by Direct Energy Info provided by Direct Energy
44 NYMEX Natural Gas Prompt Month
45 Energy Market Correlations – 2011 Gas versus Power
46 PJM Generation Stack Installed Capacity Coal 41.0% Natural Gas29.0% Nuclear18.5% Oil6.6% Hydroelectric4.4% Other0.5% Total100.0% 15-20% of coal plants are more than 40 years old. Increased coal versus gas competition due to: Low natural gas prices Increased regional gas supply Cleaner emissions from gas plants Gas plants have greater dispatch flexibility
47 Energy Market Correlations – Oil versus Gas
48 Current Price Environment 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
49 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 –US prices at significant discount versus Asia and Europe –Canadian production declines NG: Short-Term Supply & Demand Fundamentals
50 U.S. Natural Gas Storage Inventories
51 Natural Gas Rig Count Rig count basics: Measure of drilling activity for additional supplies. Depends on viable supply opportunities (geology) and market economics. Usually lags the market price.
52 Horizontal Rig Count
55 US Natural Gas Supplies Shale production is increasing, but conventional supplies will remain majority of North American supply for the long-term.
56 Industry views on Full Cycle Costs for Selected Basins and Shale Plays West Coast US Associated Gas Offshore/Gulf Coast Barnett Marcellus* Haynesville Rockies Mid Continent Woodford Eagle Ford** Horn River Fayetteville *Based on very limited data, compared to size of play ** inclusion of oil revenues reflects economics but not true gas cost Sources: IHS/CERA, Woodmac, Ross Smith, ScotiaWaterous, Company reports, DE analysis Current range within which forward HH curve is trading Analysis of industry data demonstrates that exact full cycle costs are difficult to specify Costs vary significantly within basins, and for specific reserves Conventional gas Shale gas $/mmbtu Several key basins (MidCon, Rockies, Gulf Coast) have cycle costs above current spot prices. Higher prices may be needed to incentivize ongoing drilling in these plays.
57 LNG (Liquified Natural Gas) –Potential for additional supply due to record growth (+26%) in international LNG capacity during 2010 –US import capacity 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 Natural Gas Imports
58 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 Long-Term Price Trends
59 Market Outlook 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
60 Wholesale Power Price Analysis Conclusions Forward prices remain near all-time lows. Forward prices for all terms have sustained huge declines since July All prices in $ per MWh and represent wholesale price component only. The Current Percentile represents the percentage of days during the reference period in which the market prices has been below the current price.
Forwards versus Historical Day-Ahead Prices PPL Zone
62 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 Reasons customers are not buying
63 1.Historically low prices 2.Reduced Long-Term price premium 3.Winter weather risk 4.Domestic supply risks due to low prices 5.Environmental & tax risks to shale drilling 6.Weak imports via LNG and Canada 7.Potential for economic recovery 8.Comparison of Forward versus Index Prices 9.Risk of market volatility 10.Difficulty in timing a market bottom Balance business considerations with market considerations to form a strategy Top 10 Reasons to Buy Energy Now
15 minute Break Get your Referral sheet returned Get your Referral sheet returned Visit Sponsor Tables Visit Sponsor Tables Coffee/continental breakfast/mid-morning snack Coffee/continental breakfast/mid-morning snack
REAP Report 446 Members (+180) 446 Members (+180) 1,561 Electric Meters 1,561 Electric Meters $90 Million of electric bills $90 Million of electric bills $6 million Shopping Savings year to date $6 million Shopping Savings year to date $65,000 non-shopping Found Savings year to date $65,000 non-shopping Found Savings year to date $1+ million non-shopping Ongoing Savings $1+ million non-shopping Ongoing Savings
Fall 2009 Approach Layered Blended Pool Layered Blended Pool 500 million KWH 500 million KWH Fixed Price or Block and Index Fixed Price or Block and Index 200 million KWH 200 million KWH
Gas Prompt Month,
Fall 2010 Approach Market has shifted dramatically downward Market has shifted dramatically downward 7 year lows on futures market 7 year lows on futures market Fixed price contracts result in 28 month price stability at historic lows Fixed price contracts result in 28 month price stability at historic lows
Current REAP Suppliers Direct Energy Direct Energy PPL Energy Plus PPL Energy Plus Liberty Power Liberty Power Constellation Constellation Hess Hess First Energy Services First Energy Services Dominion Dominion Duquesne Light Energy Duquesne Light Energy
PPL REAP Pool to Date MONTH Pool Average PPL POLR (GS) January 8.80 cents/kwh 9.97 cents/kwh February 8.87 cents/kwh 9.97 cents/kwh March 8.43 cents/kwh 9.97 cents/kwh April 8.45 cents/kwh 9.97 cents/kwh May 8.51 cents/kwh 9.97 cents/kwh June 8.94 cents/kwh 9.97 cents/kwh July 9.70 cents/kwh 9.97 cents/kwh August 9.04 cents/kwh 9.97 cents/kwh September 8.54 cents/kwh 9.97 cents/kwh October (thru 10/7) 8.28 cents/kwh 9.97 cents/kwh
Pool Performance To Date Blended YTD average = 8.80 Cents/kwh $4,000,000 Dollars saved YTD Over 150 Wholesale Purchases made
Fixed Price Performance-PPL Price range Price range Most in range Most in range 10.4 PTC 10.4 PTC
Price to Compare Becoming Extinct Becoming Extinct Utilities moving to Utilities moving to Quarterly Quarterly Monthly Monthly or Hourly pricing or Hourly pricing
Price to Compare - PPL Rate Class Jan-May 2011 Jun-Aug Estimated 10/5/10 RS ↑↑↑ GS ↑↑↑ GS ↑↑↑ over 500 kwn/aHourly LP ↑↑↑ over 500 kwn/aHourly LP59.31Hourly
Price to Compare Increases (est.) Met EdMet Ed 2010 ~ 7.7 ¢/kwh2010 ~ 7.7 ¢/kwh 2011 ~ 8.5 ¢/kwh2011 ~ 8.5 ¢/kwh AlleghenyAllegheny 2010 ~ 6 to 8 ¢/kwh2010 ~ 6 to 8 ¢/kwh 2011 ~ 7 ¢/kwh2011 ~ 7 ¢/kwh PenelecPenelec 2010 ~ 6.2 ¢/kwh2010 ~ 6.2 ¢/kwh 2011 ~ 7.5 ¢/kwh2011 ~ 7.5 ¢/kwh PECOPECO 2010 ~ 6 to 9 ¢/kwh2010 ~ 6 to 9 ¢/kwh 2011 ~ 8.5 to 9 ¢/kwh2011 ~ 8.5 to 9 ¢/kwh
PPL RS Shopping
Shopping Stats 10/1/10
PJM Programs Demand Side Response (DSR) Demand Side Response (DSR) Bypass Utility Bypass Utility Deal through Customized Energy Solutions (Curtailment Service Provider) Deal through Customized Energy Solutions (Curtailment Service Provider) Capacity Capacity Energy Energy Synchronous Reserve Synchronous Reserve
Who’s doing PJM DSR this year? Bailey Farms Geisinger Health SystemsMelmar Acres Farm Bally BlockGreen Springs Trout FarmMichael H. Musser Farm Bleacher Farms Herr Family Farm Morrill Curtis Farm Bridge Valley FarmHigh Farms NEP Cold Storage Brubaker FarmsHill Top Acres Farm Mkt Noah O. Wenger Farm Chickes Creek Farm Homewood Retirement Pendu Manufacturing Cleason Sensenig Farm J.L.Moyer & Sons Pequea Lawn Farms Cold Spring Rental / FarmJoe Jurgielewitz & SonRidge Valley Farms Conestoga Wood Joel Frey FarmRisser's Poultry Farm Country Fresh Onions Joel Rutt Farm Sight & Sound Daniel Fellenbaum FarmJohn F. Martin & SonsSKH Denver Cold Storage Karl Martin Farm Wenger Feeds Donald NewcomerKeen Transport WFMZ Dutch Valley Food Dist. Kirby Horst Farm What A View Farm Eberly FarmsLamar Moyer FarmWhite Oak Mills Egg BasketLongeneckers HatcheryWillow Valley Retirement Fairmount HomesMahoning Valley Home Zimmerman's Farm
What are these 51 receiving this year? $669,000! $669,000! Program defined for at least another 3 years Program defined for at least another 3 years
What does it take? Ability to reduce load Ability to reduce load or run backup generation or run backup generation 25kW minimum 25kW minimum June 1-Sept 30 June 1-Sept 30 Up to 10 interruptions for 6 hours each Up to 10 interruptions for 6 hours each Monthly payments Monthly payments
Platinum Sponsors Customized Energy Solutions Customized Energy Solutions
Analyze. Simplify. Implement. Customized Energy Solutions Ltd Walnut Street, 22 nd Floor Philadelphia, PA USA Phone: Fax: Confidential (www.ces-ltd.com) Customized Energy Solutions 87Confidential (www.ces-ltd.com)
Analyze. Simplify. Implement. Confidential (www.ces-ltd.com) 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 Confidential (www.ces-ltd.com) 88
Analyze. Simplify. Implement. Confidential (www.ces-ltd.com) Customized Energy Solutions Service Offerings Confidential (www.ces-ltd.com) 89
Analyze. Simplify. Implement. Confidential (www.ces-ltd.com) PJM Load Response Programs – 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 Confidential (www.ces-ltd.com) 90
Analyze. Simplify. Implement. Confidential (www.ces-ltd.com) Ancillary Service Programs – 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 Confidential (www.ces-ltd.com) 91
Platinum Sponsors Direct Energy Direct Energy Jo Anna Kendrick Jo Anna Kendrick
Tariff Issues and Changes PPL PPL REG participating REG participating Distribution Filing will raise RS rates in 1/11, GS and LP rates flat Distribution Filing will raise RS rates in 1/11, GS and LP rates flat RTS increase limited…DSR possible? RTS increase limited…DSR possible? CTC will finally be gone CTC will finally be gone GS1 GS3 gouging by PPL will be mitigated GS1 GS3 gouging by PPL will be mitigated
Tariff Issues and Changes Met Ed Met Ed Rate Filing effective 1/11 Rate Filing effective 1/11 PTC 8% increase expected PTC 8% increase expected CTC gone but partially replaced by “NUG” CTC gone but partially replaced by “NUG” Rate unchanged or decreased depending on load factor Rate unchanged or decreased depending on load factor Seasonal Rate Gone as of 1/11 Seasonal Rate Gone as of 1/11 12 hour or 8 hour TOD window locked 12 hour or 8 hour TOD window locked 12 hour kW rate same as 8 hour 12 hour kW rate same as 8 hour > 400kW getting interval meter installed > 400kW getting interval meter installed
Tariff Issues Met Ed Met Ed GSL 400 kW criteria being challenged GSL 400 kW criteria being challenged Return to Default 1 year requirement Return to Default 1 year requirement
Lighting Retrofits Pete Richards Pete Richards
Act 129 Implementation - PPL Implementation - PPL Energy Conservation Plan Energy Conservation Plan Big Rebate $ from all electric utilities in PA Big Rebate $ from all electric utilities in PA 2% of total revenue 2% of total revenue Fully Recovered from _____? Fully Recovered from _____?
All lights are not created equal Peter Richards Richards Energy Group, Inc.
Original System TypeWatts TROFFER 4' - 4F34T12CWES144 INDUSTRIAL 8' - 2F96T12CWES125 HID - 360W Metal Halide415 Currently Annual Calculated kWh (Based on Above Readings) 419, Annual Calculated Cost (Based on Above Readings) $ 38,339.19
Supplier 1 Type Watts Measured by LTL, Inc% of Origional Retrofit to TROFFER 4' - 2F32T8841XPHBF Mirro % Retrofit to INDUSTRIAL 8' - 2F32T8841XPHBF Mirro % New Fixture - HBF - 6F32T8841XPHBF Mirro % Supplier 1Proposed Annual Calculated kWh (Based on Above Readings) 244, % Annual Calculated Cost (Based on Above Readings) $ 22, % Annual Savings $ 15, Turnkey Project Cost (Materials, Labor, and Recycling) $ 69, Sales Tax $ 4, Total Project Cost $ 74, Payback Period (years - current rates) 4.66 Payback Period (years - projected increase) 2.36
Supplier 2 Type Watts Measured by LTL, Inc % of Origional Wattage Replace with Troffer 4' - 3F32T8741 LBF white % Replace with Industrial 8' - 4F32T8741 LBF white % New Fixture - HBF - 6F54T5HO841 Mirro % Supplier 2Proposed Annual Calculated kWh (Based on Above Readings) 329, % Annual Calculated Cost (Based on Above Readings) $ 30, % Annual Savings $ 7, Turnkey Project Cost (Materials, Labor, and Recycling) $ 49, Sales Tax $ 2, Total Project Cost $ 51, Payback Period (years - current rates)6.76 Payback Period (years - projected increase) 4.83
Lighting - Concerns Mercury Mercury Toxic Metal Toxic Metal Many Lamps Contain Many Lamps Contain Mercury Lifecycle Mercury Lifecycle Proper Disposal Required Proper Disposal Required Local Distributor Local Distributor Home Depot Home Depot
White LED Lighting 100,000 Hours!!!! 100,000 Hours!!!! Driver Life 15-20,000 Hours Driver Life 15-20,000 Hours Integrated Drivers Integrated Drivers CALiPER program by DOE CALiPER program by DOE “Reliable, unbiased product performance information” “Reliable, unbiased product performance information”
PA ACT 129 House Bill 2200 House Bill 2200 Mandatory Reduction Plan for most EDC’s Mandatory Reduction Plan for most EDC’s 3% usage reduction over next 4 years 3% usage reduction over next 4 years 4.5% Peak 100 Hours Demand Reduction 4.5% Peak 100 Hours Demand Reduction Funded by 2% of Gross 2007 revenues Funded by 2% of Gross 2007 revenues Fully Recovered from _____? Fully Recovered from _____? PPL PPL Variety of Rebate Options for EE&C Variety of Rebate Options for EE&C Retroactive to 7/1/2009 Retroactive to 7/1/2009
PPL ACT 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 Adhesives Research High Industries High Industries Phillips Group Phillips Group ECORE (Dodge-Regupol) ECORE (Dodge-Regupol) GSM Industrial (Gooding) GSM Industrial (Gooding) Amelia’s Grocery Outlet Amelia’s Grocery Outlet Willow Valley Retirement Comm. Willow Valley Retirement Comm. Wayside Presbyterian Wayside Presbyterian USA Spares USA Spares Homewood Retirement Community Homewood Retirement Community St. Anne’s St. Anne’s Cooper Tools Cooper Tools Elixir Industries Elixir Industries Good’s Store Good’s Store Leonhardt Mfg. Leonhardt Mfg. Eden Resort Eden Resort Ken’s Restoration Ken’s Restoration Electron Energy Electron Energy IREX Corp. IREX Corp. Shank’s Shank’s James V Brown Library James V Brown Library How about YOU? How about YOU?