The Solution - Issue 23 by Trio

The Solution The Quarterly Publication of Edison Energy's Demand Solutions Team

Issue 23 â&#x20AC;¢ October 2018

A quarterly publication highlighting relevant industry and Demand team news - keeping subscribers ahead on trends, upcoming events, industry leaders, and more.

The Solution | Quarterly | October 2018

this issue 4

Edison Eye On: What is Real Savings When it Comes to Energy Expenses?

Featured Program

Spotlight On

Community Outreach

In the News

Insights from Supply

What's Next

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Eye On What is Real Savings When It Comes to Energy Expenses? By Jeff Bolyard, Vice President, Commodity Strategy, Edison Energy

ecently my wife and daughter came home with several bags of newly purchased items after a fun day of shopping. After pretending to be interested in each fashion forward piece they excitedly showed, I got to the real question that had been burning in my mind, which was “How much did this cost?” My daughter quickly pulled out the long receipt of itemized expenditures and as I attempted to find the total spent, she immediately directed me to the highlighted and circled area at the bottom that clearly stated “SAVINGS” –which was nearly 50% of the total amount that was spent! Wow…Really?! 50% savings? Compared to what benchmark? An inflated and unreasonable price most budget conscious individuals likely would not have paid? This made me ponder… what does “savings” really mean to individuals?

DETERMINING WHAT “SAVINGS” REALLY MEANS For example, take the natural gas market, which has been deregulated at the industrial level for decades. Most public utilities still buy gas for some number of customers, mostly residential, behind their system and have a default gas cost pass-through rate for anyone that hasn’t taken advantage of third party supply; which is usually higher than any market price where true competition exists. Would it be acceptable to calculate savings based on a 4

The Solution | Quarterly | October 2018

market-based tariff price from a utility that hasn’t served large industrial or commercial accounts with supply for the last 15-20 years? Or what about a calculation of savings that compares the current year to the previous year, or the average from the previous 2 or 3 years? How about including only sites with a reduction in cost and not including any sites that had an increase in cost? We’ve seen these types of savings, along with many others, used by various companies and energy consultants to try and quantify the financial benefit of an energy purchase strategy, project, hedge or decision from the past. Unfortunately, there is not yet a way to determine what qualifies as “savings” when it comes to looking in the rear-view mirror to quantify how much money was saved. As a result, I wanted to attempt to categorize a few different ways in which we, at Edison Energy, have seen savings defined. What I’ve come to understand from managing energy supply for hundreds of commercial and industrial site locations over the past 20+ years is that each one has their own way of defining savings. Often, a company or purchasing policy dictates how an entity defines the term. One item that is important in choosing the right energy consultant is that both customer and consultant understand and agree on the benchmark that allows savings to be reported.

COST AVOIDANCE Another similar, although non-standard term in the energy business is “Cost Avoidance”. Often even more difficult to explain and quantify than savings, this term considers actions that are taken to avoid or reduce future costs. Because the cost is reduced or completely avoided, it requires “what-if” scenarios to be developed and agreed upon to be quantifiable. Some corporations and energy brokers consider savings and Cost Avoidance one and the same while others would never even think of trying to calculate Cost Avoidance let alone call it savings. For this discussion, I’ll focus on the savings term.

MARKET SAVINGS We know that there are a lot of ways savings for energy supply can be determined. The first category of savings that many clients use I’ll call “Market Savings”, and can be a true reduction in cost, one caused by a downward movement in market pricing, even if it is through a short window of opportunity that disappears quickly. Timing a supply procurement event to capture this value is very possible and something Edison Energy excels at doing, but the market still needs to drop to provide a financial benefit in this area. If pricing goes on a multiyear upward price trend, like the NYMEX did from 2012–2014, it would have been difficult to show year on year Market Savings in this category for anyone that chose a NYMEX LDS price structure (See exhibit A below). Choosing the most appropriate pricing structure at the right time and being nimble enough to transact during the open window will determine whether the Market Savings category saves or loses money.

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Other common ways energy procurement groups can quantify or could at least be considered “incremental value” or “cost avoidance” include: ›› Demand response ›› PLC tag management ›› Invoice errors (pricing & volume errors, late fees, inconsistencies with contract, Btu conversion, fuel calculations, etc.) ›› Supply contract terms negotiations For any savings metric that compares a look back at various pricing structures, the original reason for choosing a one structure vs another would need to be documented, i.e. was a fixed price structure preferred over a market-based structure to protect the budget? If so, it would be unfair to compare a market based structure to that fixed price if the market price ended up being lower. Other common ways companies track energy cost value includes the following: ›› Actual third-party supply cost vs Utility default supply cost - The result of this comparison is often influenced by how often a utility changes its gas supply rates. For example, a utility that changes its rates once every 12 months and is under-collected during a higher priced market period will appear lower until the true-up year occurs in year two. ›› NYMEX LDS + Basis (monthly market pricing where basis is fixed and NYMEX is floating vs Regional Monthly Index price (IFERC or NGI) (where basis fluctuates monthly) ›› Fixed price vs Monthly Index vs Spot / Cash pricing structures – When using this comparison, regional supply / demand factors for a forward contract term aren’t known. Typically, a high demand period like a cold winter in an area without excess delivery capacity would produce a higher monthly Index price

The Solution | Quarterly | October 2018

›› Utility contract negotiation ›› Utility tariff interpretation, application and representation / support ›› Regulatory intervention / better rate filing outcome ›› Transaction confirmation review ›› Scheduling/Operations management (asset utilization, balancing, OFO coordination, nomination services) ›› Penalty avoidance / least cost option analysis ›› Meter errors and meter error resolution ›› Tariff analysis / switching to lower cost rate schedules ›› Bypass analysis ›› Forecasting / load modeling

IN CONCLUSION So, when someone asks or is asked by their company to quantify savings, it is important to first define what would qualify. It is also key to document the reasoning behind any contract structure, term, and any sitespecific conditions or company policies that may prevent certain structures or terms from being used or require others to be utilized would be wise to keep. Without a set of ground rules clearly stating what can or cannot be classified as â&#x20AC;&#x153;savingsâ&#x20AC;?, the number can achieve unrealistic highs or unfair lows in the final calculation of any savings amount. No matter how narrowly or widely defined by you or your company, Edison Energy can help educate you with energy expertise to help you meet financial goals, mitigate unwanted risk, or protect the resiliency of your facilities while meeting your savings targets.

To find out more about how to get independent, comprehensive, expert and data driven advice on your energy supply management, contact Edison Energy.

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Featured Program NYSERDA P-12 Benchmarking An Intitative for Cleaner, Greener Schools QUICK LINKS: ›› To learn more about this initiative, click here Or contact Thelma Arceo at: ›› P12Benchmarking@EdisonEnergy.com ›› (718) 275-1536

In November 2018 the New York State Energy Research and Development Authority (NYSERDA) will be officially launch their P-12 School Benchmarking Program, which will provide free benchmarking services to eligible private schools in New York State. Benchmarking is a valuable tool which will help schools better understand their building's energy usage and utility costs over time relative to other similar buildings. In addition, benchmarking establishes a baseline of energy use and helps identify inefficiencies, maximize energy performance and support financial planning and budgeting. Throughout the Benchmarking Program, the schools will receive periodic benchmarking updates that summarize their utility and sustainability performance metrics over time. Edison Energy's Demand team has partnered with NYSERDA for this initiative and will be working with schools within the Five Boroughs (as well as Orange, Rockland, Putnam, and Westchester counties) to help these schools develop a tailored approach to energy conservation, facility operation, maintenance and sustainability to meet the expectations of parents and students alike.

The Solution | Quarterly | October 2018

Spotlight On ADVANCED ENERGY WORKERS FOR OHIO Tiffany Christie, Managing Director of Supply Advisory, was profiled by the Advanced Energy Economy. ›› Read Tiffany's Profile here.

IS A RENEWABLE ENERGY GOAL RIGHT FOR YOU? Our Renewables team worked with the Retail Industry Leaders Association (RILA) on a blog post about setting a renewable energy goal, what the benefits are, and more. ›› Read the blog post here.

MAJOR PROJECT SOLICITATION FOR NOVARTIS Novartis AG recently signed a virtual power purchase agreement (VPPA) which will add 100 MW of wind power to the electrical grid. Edison Energy conducted a competitive project solicitation for Novartis. ›› Read more here.

BOSTON UNIVERSIT Y'S 48.6 MW WIND PPA Edison Energy took the lead in conducting a competitive solicitation as Boston University's energy purchasing consultant, ultimately helping them land on a 48.6 MW wind farm in South Dakota. ›› Read more here.

U OF R AND THE ROAD TO CARBON NEUTRALIT Y Edison Energy served as a consultant to the University of Richmond in signing the 47,000 panel Spider Solar array. The array will produce 41,000 MWh of solar energy annually. ›› Read more here.

ADVENTIST HEALTHCARE Progress continues at the Adventist Healthcare White Oak Medical Center Central Utility Plant (CUP) project site. The project recently "topped out", in September, or put the highest piece of structure in place. ›› Check out progress photos here. ©Edison Energy. All rights reserved.

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Community Outreach One More Tri Thank you for another successful year! 2018 BY THE NUMBERS: ›› Over 300 athletes ›› 48 Special Olympic athletes ›› 250 volunteers ›› Close to 1,000 spectators ›› Over $70,000 raised Thank you to all who participated in this event – from volunteering to racing – it wouldn't have been possible without your support! See you next year!

Headline Here Intro Paragraph here

View more photos from the event here

The Solution | Quarterly | October 2018

In the News Renewables ›› Novartis announces US renewables agreement to reduce greenhouse gas emissions – Press Release ›› Setting the Standard for Sustainability; New Spider Solar Project Puts University of Richmond on Fast Track to Carbon Neutrality – Press Release ›› University Announces Massive Wind Power Purchase • BU Wind piece on BU Sustainability Website

Supply ›› Where Gubernatorial Candidates Stand on Energy Policy in key State Races – Press Release • Advanced Energy Works for Ohio

Demand ›› Blueprint for Efficiency: An 80x50 Buildings Partnership Report • Download the Blueprint for Efficiency

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Insights from Supply Natural Gas Storage Report 10/11/2018 for the week ending 10/05/2018

U.S. Natural Working Gas in Underground Storage

4,500 4,000 3,500 3,000 2,500

Regions

East Region

Weekly

Current

Year Ago

5-Year Avg

Change

Storage

(10/05/17)

(2013-17)

Bcf

YOY ∆

Bcf

5-Yr ∆

790

881

-10%

869

-9%

2,000 1,500 1,000 500 0

GAS STORAGE RANGE (1994-2017)

Midwest Region Mountain Region Pacific Region

871

1,019

-15%

1,004

-13%

180

223

-19%

210

-14%

5-YEAR AVG (2013-2017)

2016

46 2017

52 2018

Weekly Storage Change vs Previous Year & 5 Year Average 120

262

314

-17%

340

-23%

854

1,146

-25%

1,139

-25%

100 80

South Central Region TOTAL

2,956

3,583

-17%

3,563

-17.0%

Historical Comparison of Data Expectations

+ 88 to 94 , 0 Bcf stronger than expected

5 Year Avg

+ 90 Bcf , 0 Bcf stronger than 5-Yr Avg

Previous Year

+ 81 Bcf , 9 Bcf stronger than Prev Yr

20 0 -20 -40 -60 Mar-17

Apr-17

May-17

Jun-17

5-YEAR AVG (2013-2017)

Jul-17 2018

Aug-17

Sep-17

Oct-17

2017

COMMENTARY The EIA reported an injection of 90 Bcf this morning, increasing total U.S storage inventories to 2,956 Bcf. Market expectations for the injection varied between 88 and 94 Bcf with a consensus of +90 Bcf.

1 2 The Solution | Quarterly | October 2018

The market decreased as a result of the injection being stronger than the general market expectation. Currently, the storage level is 17.5% behind last year and 17.0% behind the 5-year average.

Energy Perspectives WEATHER NOAA’s 6-10 day weather outlook predicts belowaverage temperatures for approximately 50 percent of the nation from the Northeast all the way to Texas. The highest probability of below average temperatures at 65 percent focus around central Texas and the Northeast region. The Pacific Northwest, Pacific Southwest, and Florida are seeing above normal temperatures with the highest probability of 70 percent in central Washington and Oregon. Normal temperatures are expected in the Southeast and High Plains regions. Weather this week is bringing much cooler temperatures to most of the country. The Plains and Rockies are seeing winter like conditions with freezing temperatures and even some snow fall in areas of Minnesota early in the week. The Ohio Valley to parts of the East Coast will see rain in the early part of the week followed by a cold front dropping temperatures by Wednesday. Monday and Tuesday in the Southeast is expected to be warm and later cool down into the 60s by Wednesday.

THIS WEEK IN NATURAL GAS The prompt month November NYMEX contract closed Friday at $3.161; the 12-month strip closed at $2.935 and the winter strip closed at $3.204. Last week the EIA reported an injection of 90 Bcf for the week ending Friday, October 12, 2018. Total storage inventories now stand at 2,956 Bcf, -627 Bcf lower than this time last year, and –607 Bcf below the five-year average. According to the EIA, total storage inventories in each region are: 709 Bcf in the East (-11.5% below the 5-year average); 770 Bcf in the Midwest (-15.4% below the 5-year average); 170 Bcf in the Mountain (-14.6% below the 5-year average); 255 Bcf in the Pacific (-22.3% below the 5-year average); and 818 Bcf in the South Central (-23.6% below the 5-year average). According to the EIA, total storage inventories in each region are: ›› 790 Bcf in the East (-9% below the 5-year average) ›› 871 Bcf in the Midwest (-13% below the 5-year average) ›› 180 Bcf in the Mountain (-14% below the 5-year average) ›› 262 Bcf in the Pacific (-23% below the 5-year average) ›› 854 Bcf in the South Central (-25% below the 5-year average

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THIS WEEK IN ELECTRIC

NATURAL GAS MARKETS

Last week, calendar year 2019 wholesale electricity prices predominantly strengthened, as six of the seven hubs reported here finished the week higher. The WCMA Massachusetts Hub was the one that dropped back $0.15 per MWh, or –0.34%. South Path 15 gained the most, closing at $1.85 per MWh higher than the previous week, gaining 4.76%. The Texas Hubs, ERCOT-S and Houston, came in the next highest adding $0.45 and $0.30 per MWh respectively. Northern Illinois and ATSI Hubs both saw increases of $0.25 per MWh from the previous week. PJM-W saw the smallest value increase at $0.20 per MWh a change of 0.60%

After yet another roller coaster in the forward NYMEX last week, today’s market has again risen this morning with an increase of $0.078 for the November contract over last Friday’s close to trade at $3.235 at print time. With the same story line but a different week, this continues to be driven by weather concerns of a cold early winter and continued lagging storage inventory.

Last week’s Cal19 Electric Strip closes and change for each hub are below:

Calendar Year 2019 Wholesale Electricity Prices

With the FERC flow authorization of Nexus mainline on October 10, 2018 and Atlantic Sunrise just a week earlier, nearly 2 Bcf/day of northeast Appalachian production can now get to market that previously was not able to a month ago. Offsetting this production increase is the continued colder weather forecast across most of the country over the next three weeks. Confirmation in the coming weeks of measurable incremental production impacting storage inventory levels will be the true test to see if this recent NYMEX run will last. If the year on year and 5-year deficit is consistently reduced, look for early winter to give up. However, should the gap be maintained or get worse, watch out for another run up with few technical resistance levels past $3.35. NYMEX prompt September contract, trading at 3.235 ›› Pricing up $0.078 from last Friday (10/12) • 52-week average: $2.92 • 52-week low: $2.696 • 52-week high: $3.278

14 The Solution | Quarterly | October 2018

PETROLEUM MARKETS November prompt NYMEX crude settled this afternoon at $71.41 per barrel (bbl). After peaking the week before at $76.90/bbl in intraday trading, the November contract closed last Friday at $71.34; losing $3/bbl on the week. This was the biggest weekly loss in more than a month. In mid-August, the prompt month closed as low as $65.01/bbl but since then crude has been on a tear; closing as high as $76.41 just eight trading sessions ago. Bullish market forces are lining up including: ›› Harsh U.S. sanctions on Iran could remove as much as 1.5 million bpd from the market.

Volatility in the next few months is expected with prices of $80/bbl or $65/bbl being plausible. There are two wildcards in the oil market dynamics causing the wide gap in expected pricing. The disappearance of Saudi journalist Jaml Khashoggi may erupt into a full-blown crisis with the Saudi’s; pushing prices even higher. At the same time, a trade war with China continues to threaten global economic growth. Last week the IMF downgraded its outlook for global growth for 2019 from 2.9 percent to 2.5 percent. Either event could push prices sharply up or down. Looking ahead, in next few weeks, NYMEX crude is likely to trade near $73/bbl.

›› Venezuelan production is dwindling rapidly and there does not appear to be any resolution soon that will restore production. ›› Hurricane Michael reduced Gulf production by more than 4.0 million barrels per day (bpd). ›› Winter space heating demand peaks are only a few months away. At the same time, bearish market forces are at work: ›› Gulf production is rapidly coming back online. ›› With refineries still down for maintenance, we could see as many as four consecutive weeks with inventory builds of 5-10 million barrels (MMbbl).

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What's Next? Catch us at these upcoming events.

CONNECT CFO LEADERSHIP SUMMIT

AHC GROUP WORKSHOP Birmingham, AL • 10/24 - 10/25

Chicago, IL • 10/21 - 10/23 Edison Energy will be sponsoring and attending this event at table #605. Rob Federighi will also be presenting on "Managing Complex Energy Portfolios, Risk and Capital"

Edison Energy CEO, Jay Zoellner, will be presenting on "Artificial Intelligence for Energy Solutions: How Analytics Informs Energy Portfolio Solutions" → Learn more

→ More information

EEI FALL KEY ACCOUNTS WORKSHOP San Antonio, TX • 10/21 - 10/24

Edison Energy will be sponsoring this event. Be sure to connect with our team: Trish Collins, Greg Pool, Kristin Stafford, and Benjamin Landry → Register to attend here

16 The Solution | Quarterly | October 2018

GLOBAL POWER & ENERGY BLOCKCHAIN CONFERENCE Orlando, FL • 11/1 - 11/2

CEO Jay Zoellner will be speaking in two sessions: " Demystifying Blockchain and its role in the Utility Industry" and " Path Forward: The Future of Blockchain in Utility Transformation" → More information

DISTRIBUTED ENERGY INNOVATION PARTNERSHIP (DIEP) MEETING: MICROGRID DEVELOPMENT IN PENNSYLVANIA Philadelphia, PA • 11/8

The Distributed Energy Innovation Partnership (DEIP) convenes industry, academic, nonprofit, and public agency leaders to conduct research, education, and outreach on distributed energy technologies including solar, energy storage, combined heat and power, microgrids, electric vehicle infrastructure, and building/ campus energy management. This event is a half-day workshop on Microgrid Development in Pennsylvania – Case studies on Systems Integration and Controls. Our Demand team will be attending. → Click here to register

COMMUNIT Y SOLAR 2.0 New Orleans, LA • 11/13 -11/15

At Infocast’s Community Solar 2.0, solar developers, customer aggregation firms, retail energy suppliers, utilities, the finance community and other industry players will gather to dive into the business of developing and financing third-party community solar. Rich DiMatteo will be speaking during the presummit workshop on "Engaging the Fortune 500: A Report from the Frontline" → Click here to view the agenda

HOSPITAL ENGINEERING SOCIET Y OF GREATER NEW YORK (HESGNY) ANNUAL SEMINAR AND VENDOR EXPO Queens, NY • 11/15

Saverio Grosso will be attending the annual HESGNY Seminar and Vendor Expo taking place at Russo's on the Bay in Jamaica, New York. This event is free of charge for healthcare facility professionals. → Click here to register

POWER-GEN INTERNATIONAL Orlando, FL • 12/4 -12/6

POWER-GEN International is a 30-year-strong power generation event with diverse content for all forms of energy - with a multi-track summit and knowledge hubs, a huge exhibition with 900+ companies and comprehensive networking and matchmaking. The topics and trends focus on technology, innovation and policy advancements - unmatched insight for the future of the energy spectrum and mix. Zachary Power will be presenting on analytics and Alan Freidman will be attending. → Click here to register

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Energy is the largest unaddressed risk most companies face and can exceed foreign currency, interest rate and other operational risks. We create competitive advantage for market leaders by quantifying this risk and designing the portfolio solution to protect shareholder value threatened by complex energy policies, technological advancements, and new products. Our Demand Solutions and Installations team specializes in delivering comprehensive consulting, engineering, and implementation services. We partner with clients as a strategic adviser, specialty implementer—or both—to design, develop and execute complex energy efficiency and conservation projects. By leveraging technology and years of engineering expertise, we implement innovative yet pragmatic investment plans tailored to core business objectives – proven to ensure optimum facility performance and lower operating costs. C A LIFORNIA 17875 Von Karman Ave., Ste. 100 Irvine, CA 92617 (949) 491-1633

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Additional regional offices located in: Arkansas, Ohio, Toronto, and Wisconsin