Glacial Energy Introduction to Natural Gas. Agenda Gas Overview Glacial Gas Logistics Customer Data Pricing Billing Enrollments.

Glacial EnergyIntroduction to Natural Gas

Agenda

• Gas Overview• Glacial Gas Logistics• Customer Data• Pricing• Billing• Enrollments

Formation of Natural Gas

– Natural Gas is formed by the compression and heating of organic materials over centuries. – Natural Gas and many other Fossil Fuels can be found in methane clathrates, coal beds, marshes, bogs, and landfills.

Natural Gas Vs. ElectricityElectricity

• Electricity is not easily stored and requires balance between consumption and generation

– This role is generally fulfilled by an Independent System Operator (ISO).

• Electricity usage tends to spike in the summer (Along with prices).

• Grid Operators (ISOs) incentivize off peak usage by raising prices on peak usage within a day.

– In order to maintain balance (Generation and Consumption) and not overload grid systems, most LDCs will set prices that make peak hour usage expensive.

– Electricity customers may be pooled by the LDC into service classes that charge based on time of use (TOU).

Natural Gas• Natural Gas markets do not require an ISO.

– Natural Gas can be stored in underground facilities.

– Natural Gas delivery and consumption may vary and can be reconciled within an imbalances market.

• Natural Gas usage tends to spike in the winter (Along with prices).

• Natural Gas Does not have peak hours within a day.

• Natural Gas is measured by :– CCF/MCF- a volumetric measurement of

Natural Gas. – Therm/DTH- a measurement of the

heating value of gas

Natural Gas Measurements– Centum (100) Cubic Feet/ Mil (1000) Cubic Feet (CCF/MCF)- a measurement of space or

volume of natural gas. A CCF represents the amount of gas contained in a space equal to one hundred cubic feet (1000 cubic ft= MCF).

– Therm/Dekatherm (Therm/DTH)- a measurement of energy content of an amount of natural gas (1 Therm = 100 000 BTU.)

– British Thermal Unit (BTU)- amount of energy needed to raise the temperature of one pound of water one degree Fahrenheit.

– Therm Conversion Factor- converts the volume of gas (CCF/MCF) to the amount of energy (Therm/DTH).

• 1 CCF is approximately equal to 1 Therm.• This factor will change monthly to reflect actual energy content of gas delivered that

month.

1 CCF = 1 Therm = 30 Kwh = 103,200 BTU

1 CCF x 10 = 1 MCF 1 Therm x 10 = 1 DTH

Volumetric MeasurementsCCF 100 Cubic Ft

MCF 1000 Cubic FtMMCF Million Cubic FtBCF Billion Cubic Ft

TCF Trillion Cubic Ft

Producing Natural Gas

• Natural Gas is hard to find as it can be trapped in porous rocks deep underground• Once natural gas comes out of the ground, it goes to a processing plant where it is

cleaned of impurities. • Natural Gas may come from several sources such as, coalbeds and landfills, which

comprise approx 5 percent of the total gas supply. • Today natural gas is produced in 32 states, though just 3 states, Oklahoma, Texas

and Louisiana produce more than 61 percent of the country’s natural gas

Components of Natural Gas

– Like electricity, natural gas has three distinct components: the commodity SUPPLY portion; the long-distance TRANSPORTATION portion; and the local DISTRIBUTION portion.

– SUPPLY is the actual commodity itself and is the only component that is deregulated. Consumers in many states have the “choice” of who supplies their natural gas.

– TRANSPORTATION is the movement of the gas from the Production area/well-head to the market area (city gate). This occurs using large pipelines.

– DISTRIBUTION is where gas is moved from the city gate or utility, to the customer, aka the burner tip. This step is done using small pipelines.

– Transportation and distribution of natural gas is not open to choice and the price for those services continues to be set by state and federally approved tariffs.

Transporting and Storing Natural Gas

• How does gas get to the consumer?– More than 1 million miles of underground pipelines link natural gas fields to major

cities across the US. – Compressor stations, which are spaced 50 to 100 miles apart, move the gas along

the pipeline at about 15 MPH. – Some gas is “temporarily” stored in huge underground reservoirs. The

underground reservoirs are typically filled in the summer so there will be enough natural gas during the winter heating season.

– Eventually gas reaches the “city gate” of a local utility, aka LDC. The pressure is reduced and an odorant is added so leaking gas can be detected. The LDC uses smaller pipes to carry gas to the consumers.

Pipeline System

Natural Gas Process

Natural Gas Uses

• About 24% of energy used in the United States came from natural gas in 2008. The United States used 23.8 trillion cubic feet (Tcf) of natural gas, matching the record high set in 2000.

• Natural gas is used to produce steel, glass, paper, clothing, brick, electricity and as an essential raw material for many common products. Some products that use natural gas as a raw material are: paints, fertilizer, plastics, antifreeze, dyes, photographic film, medicines, and explosives.

• The major consumers of natural gas in the United States in 2008 included:

1. Industrial sector — 7.9 Tcf (Trillion cubic feet) 2. Electric power sector — 6.7 Tcf3. Residential sector — 4.9 Tcf4. Commercial sector — 3.1 Tcf

How does Glacial get Gas to its Customers

– Gas moves from the production area to the burner tip (customer). – There are several ways that Glacial will be buying gas; in production area,

or the well-head or various points along the pipe, or in the market area.– All gas (east of the Mississippi) is based on a Henry Hub, La. price. The

difference in price from the Henry Hub to any point where we buy gas is called “basis”.

– Basis can be defined as the difference in cost of transporting gas from the Henry Hub to the location where the gas is purchased .

Who does Glacial Purchase Gas From?

Gas can be purchased from a number of sources:

– Producers –• Involved in exploration and production• Regional player• Typically do not have transportation assets• Devon, Anadarko, Cabot

– Regional Suppliers• Smaller player, may or may not have own production• Typically strong at a few purchase points in a given region• Texla, eServices, Sprague

– Full-Service Suppliers, aka Integrated Producers• Production capabilities• Storage and Transportation Assets• Typically trade at all liquid points in the US• BP, Shell, Conoco Phillips, Sempra

Assets• Pipeline Capacity and Storage Space are assets that marketers

such as Glacial try to attain to give them a competitive advantage.

• Having Pipeline Capacity allows us to evaluate the basis spreads on a given day /month to try to optimize our purchases.

• Injections are made into storage during the summer season so that there is enough gas for the winter season. Typically, but not always, gas can be injected into storage at “less than” winter prices.

• Not all LDC’s release pipeline capacity or storage space.• Pipeline capacity can also be “bid” on during an open season directly from the

pipeline company.• Similarly, Storage space can be purchased directly from storage field

operators. • In lieu of having assets, gas is bought at the city gate (highest price gas).

Customer Data: Acquisition and Flow

- Data is typically acquired through an intermediary referred to as an Electronic Data Interface Provider (EDIP).

- The data flow process is initiated by a sales person (BDM) who receives permission to provide a price comparison for a potential customer.

- Glacial Energy requests Historical Usage Data (HUD) from an EDI Provider.- If a customer decides to chose Glacial Energy as an Alternative Gas Supplier

(AGS), Glacial will then use an EDI Provider to facilitate with Enrollment, Meter Readings, as well as potential customer Drops if necessary.

Glacial Customer Pricing• Once the appropriate customer data has been gathered, the Pricing

Team begins a customer analysis.

• Glacial Energy offers our customers index based products.– Indexed Product: Variable Price shall reflect each month the wholesale cost of

natural gas. This cost includes commodity (NYMEX last day settle), transportation (basis), storage, balancing, operational expenses, profit, all applicable taxes and fees, and any other market price factors.

• Glacial Energy Pricing Model– Model generates average price and savings estimates for a particular customer

based on: Utility Prices, the Glacial Index, and Specific Customer Information (such as: Load Profile, Service Classification, etc).

Glacial Customer Pricing

• Glacial Energy Pricing Model- Pricing models are used to create a Pricing Analysis for individual

customers.- Pricing Analyses include:

- Customer Name and Address- Customer Profile (HUD)- Average Rates for both the Utility and Glacial Energy- Average amount of savings that this customer can expect by

switching to Glacial Energy.

* Please See Sample Analysis for Illustration (Next Slide).

Customer Name, Address and Account Info- Show the customization of the proposal and customer’s current utility and rate class.

Glacial and Utility Average Price- show average rates and total charge estimates for a particular customer over a given period.

Savings Analysis- Shows Customer Savings With Glacial Energy.

HUD Summary- show total usage and the analysis term period.

Average Price trending for both Glacial and Competitor.

Customer’s annual usage profile.

Glacial Customer Pricing

• Glacial Energy Pricing Flow 1) BDM acquires LOA and Utility Bills from customer.

2) BDM submits PRF, LOA*, and Bills.

3) CADs team inputs the potential customer into CRM and waits for HUD.

4) Pricing team gathers customer info and prices.

5) Pricing Team sends completed analysis back to the BDM.

Enrollments

• Requesting Historical Usage Data (HUD)– Account # or Customer #– EDI or Manual: Michigan, Texas, and Maine are manual.

• Deadline to enroll– Listed in LDC tariff or call pipeline representative– Varies by rate class and meter reads

• Method of Enrollment– EDI– Meter Read Dates

Billing

• Citygate (CG) to Burnertip (BT)– A citygate is a point on an interstate pipeline where an LDC assumes gas– A burnertip is the end point at which a customer burns gas– LDCs charge for fuel to move the gas from CG to BT

• Dekatherms (Dth) and Therms (Th): 1 dth=10 Th– Wholesale purchases are in Dth at the CG– LDCs account for usage in Th at the BT

• Example: – A customer uses 1,000 Th at BT. The LDC fuel rate is 1.4% (.014)– To supply this customer, we need to buy 1,014 Th at CG (1,000 x 1.014)– Our CG purchase is 101.4 Dth (1,014 Th)

Billing

• Dual vs. Consolidated– Dual

• Will be the majority of customers• Like electric, we receive data from utility and bill customer

– Consolidated• We send price to utility and they bill customer• Michigan is a “Purchase of Receivables (POR)” state, and will require

consolidated

• Proration Given Meter Reads– Monthly bills may include a weighted average price for multiple price points on our

index.

Drops

• Deadline to Drop

– Most LDC tariffs specify how many days prior to a customer’s next meter read (billing cycle) date a supplier has to submit a drop request.

– If the supplier does not submit a drop request within the allotted time period, the customer will not be dropped until the next meter read.

– Most of these transactions are handled through an intermediary, such as an EDI provider ( In most cases this will be done through ESG.)

Natural Gas Leaks

• Gas Leaks

– If a customer detects or is concerned about a potential leak, they should contact their LDC and vacate the premises immediately.

– A customer may also call 911 for assistance with this type of situation.

Commission

• Commission – Channel Partner = $ .02 per therm used and paid for by the customer

Glossary

– Aggregator – a group or organization that represents energy consumers to buy natural gas in a deregulated energy industry

– Baseload – Gas purchased during bid week prior to start of month– Basis – In gas, generally refers to the price differential vs. buying gas at the Henry Hub– BCF – Billion Cubic Feet– Bid Week – ends on the third business day prior to the 1st of the subsequent month. It is

generally referred to as the 3rd , 4th and 5th days prior to the end of the month…With the 5th business day prior to the end of the month being known as that 1st day of bid week and so on.

– BTU – (british thermal unit) – one btu is equal to the amount of heat required to raise the temperature of one pound of water by 1 degree fahrenheit

– BTU factor – conversion rate to go from a dekatherm to an mcf.– Burner Tip – refers to the location at which gas is being consumed by the end-user.– Capacity Release – the assignment of firm transportation rights from one shipper (releasing

shipper) to another shipper (replacement shipper). – CCF – 100 cubic feet– City Gate – location where natural gas transfers from the interstate gas pipeline to the LDC’s distribution center.

Glossary

– Dekatherm (dth) – Ten therms, or 1 million Btu. One dth is equal to approx. 1,000 cubic feet (Mcf).

– Degree Day – measure of the coldness of the weather (heating degree day) or its heat (cooling degree day) based on the extent to which the mean temperature falls below or rises above 65 degrees Fahrenheit. Example: at 60 degrees there are 5 hdd.

– Delivery Point – Location designated at which delivery may be made in fulfillment of contract terms – usually where the sale or transportation of gas exits the pipeline.

– Distribution – the delivery of natural gas to the retail customer’s home or business through local gas pipelines.

– Downstream – pipeline closer to the market area.– Dual Fuel Capacity – ability of a facility to use more than one kind of fuel for the same purpose

non-concurrently.– Force Majeure – – Fuel Loss – associated with transporting natural gas across a pipeline system (aka: line loss or

shrinkage).– Gas Day – the standard day by which gas is nominated (e.g. 10:00 am to 10:0 am the following day).