ENERGY MATTERS SUMMIT

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1 Navigating Ontario s Energy Landscape ENERGY MATTERS SUMMIT Chris Hanlon 22 February 2005

2 Agenda Recommendations Shell Trading North America Who Are We? Energy Procurement Define! Risks & Risk Management Develop the Strategy (Plan) Prices & The Rules Market Prices Load Profiles & Blocks Contract Types Energy Procurement What & How? Questions & Answers

3 RECOMMENDATIONS

4 RECOMMENDATIONS: Build Your Plan Risk Assessment & Type Risk Management Strategy Type of Contracts Procurement Strategy Choose Your Supplier(s) Execute & Evaluate

5 SHELL TRADING

6 Shell Trading today Sales Volume/Overview Services Gas 3Q BCF/day Power 3Q MM MWh A1/A- Credit Rating North American Reach Strong Customer Focus Technology Asset Management Risk Management Energy Utilization Resources Part of Global Shell Trading Network Access to 1.5 Bcf/d of Gas Supply From Shell in the U.S. and Canada 5,000 MW Controlled for Marketing and Trading

7 Shell Trading Products: Natural gas Crude oil Chemicals Renewables Electrical power Refined products Risk management products Hydrogen Company World class skills Financial resources Brand strength Highest credit worthiness Geographic scope Commitment & reliability

8 Corporate-Market Status Power Licensed Electricity Retailer in Ontario (& Alberta) Wholesale Reseller License Ontario Wholesale Market Participant (Buy & Sell via IESO) National Energy Board (NEB) License for exports to the U.S. The only energy marketer to build & operate generation in Ontario

Power supply portfolio Western Farmers Elec.

Riverside County, CA Simple Cycle, 138 MW COD: August 2001 Brighton Beach Windsor, Ontario Combined Cycle, 560 MW COD : July 2004

Combined Cycle, 263 MW COD: April 2003 Kiamichi Pittsburg County, OK Combined Cycle, 1220 MW COD: April 2003 Gateway Rusk County, TX

9 Power supply portfolio Western Farmers Elec. Coop Anadarko, OK Simple Cycle, 92 MW COD: May 2001 Other Ontario MW Ontario 340 MW Effective date: May 2002 Wildflower Indigo Riverside County, CA Simple Cycle, 138 MW COD: August 2001 Brighton Beach Windsor, Ontario Combined Cycle, 560 MW COD : July 2004 Wildflower Larkspur San Diego County, CA Simple Cycle, 94 MW COD: July 2001 La Rosita Cycle, 263 MW COD: Baja, Mexico April 2003 Combined Cycle, 263 MW COD: April 2003 Kiamichi Pittsburg County, OK Combined Cycle, 1220 MW COD: April 2003 Gateway Rusk County, TX Combined Cycle, 845 MW COD: July 2001 Fluvanna Fluvanna County, VA Combined Cycle, 885 MW COD: May 2004 Baconton Mitchell County, GA Simple Cycle, 195 MW COD: June 2000 Alabama II Autauga County, AL Combined Cycle, 885 MW COD: May 2003

10 ENERGY PROCUREMENT

11 ENERGY PROCUREMENT (def... CLH)...the buying of electricity commodity to meet my usage needs (physical)...and fixing my price for varying time periods and volumes of electricity up to the total usage...(hedging)

12 RISK MANAGEMENT

13 Role of Risk Management The key to creating corporate value is making good investments. The key to making good investments is generating enough cash internally to fund those investments Cash flow can often be disrupted by movements in external factors such as exchange rates, commodity prices and interest rates potentially compromising a company s ability to invest. A risk management program, therefore, should have a single overarching goal: to ensure that a company has the cash available to make value-enhancing investments. Source: Froot, Scharfstein, Stein Harvard Business Review

14 Risk analysis and advisory expertise Natural gas & Power swaps, options and forwards Shell Trading Risk Management Capabilities Interest rate & currency swaps and options Gas liquids, crude oil, & refined product swaps, options & forwards

15 FORCES THAT DRIVE RISK Social Economic Political Environmental Technology... how many of these affect you as a municipal entity?

16 RISKS to be managed: Volume electricity usage by hour Price HOEP vs. Forward Supplier are they worthy? Regulatory what time will the next change occur? Costs how much change in cost can you absorb? Credit how will increasing costs affect our credit rating? Payment how much bad debt can you carry? Weather how much of your load is susceptible to weather? Act of God ice storms, black-outs

17 RISK PROFILE HIGH - Cash Rich - Credit Limited - Speculative LOW Risk Appetite Hedging Level LOW - Budget certainty - Cash Flow Protection - Protect Taxpayers HIGH

18 PRICE & THE RULES

19 PRICE & THE RULES: 1) Currently 4.7/5.5 /kwh 2) RPP comes into affect 1 April 3) No more MPMA/BPPR 4) Provincial Benefit is $0.10/MWH for Q1 5) RPP applies to???? MUSH Sector???? 6) RPP will be set for two years but will be adjusted based on real cost 7) RPP will be????????????????????

20 MARKET PRICES

21 Hourly Ontario Energy Price (HOEP) May 1, December 31, 2002 $400 * Max: 1400 hr $350 $300 $250 CDN$/MWh $200 $150 $100 $50 $ * Min: 2400 hr Month

22 Hourly Ontario Energy Price (HOEP) January 1, December 31, 2003 $400 $350 $300 $250 CDN$/MWh $200 $150 $100 $50 $ Month

23 Hourly Ontario Energy Price (HOEP) January 1, December 31, 2004 $400 $350 $300 $250 CDN$/MWh $200 $150 $100 $50 $ Month

24 Hourly Ontario Energy Price (HOEP) January 2005 $250 $225 $200 $175 CDN$/MWh $150 $125 $100 $75 $50 $25 $ Day

25 LOAD PROFILES & BLOCKS

26 Annual Load Profile OCT 03 - SEP MW Month

27 Blocked Profile - July MW Day

28 Indicative prices for commodity only: INDICATIVE Pricing for Sample Municipality STRUCTURED BLOCKS Start Date: 1 March 2005 Block Volume (MW) 1-yr Term Base Block (7 x 24) 32.0 $54.24 Peak Block (5 x 16) 28.0 $65.41 Blended Blocks Total $57.52 BPPR -$6.40 NET TOTAL $51.12

29 Indicative prices for commodity only: INDICATIVE Pricing for Sample Municipality STRUCTURED BLOCKS vs. FULL REQUIREMENTS vs S.L. Start Date: 1 March 2005 Block Volume (MW) 1-yr Term Base Block (7 x 24) 32.0 $54.24 Peak Block (5 x 16) 28.0 $65.41 BLENDED BLOCKS Total $57.52 FULL REQUIREMENTS $59.55 STREET LIGHTING 10.0 $51.50

30 CONTRACT TYPES

31 Typically Used Electricity Contracts Physical Bilateral Contract (PBC) For larger Wholesale Market participants registered with the IESO Retail Physical Agreements using Distributor Consolidated Billing (DCB) For embedded Retail Customers For Customers who want same billing process they use now For Customers who want to apportion their hedge based on usage by site Master Swap Agreement (MSA) For customers just looking to protect their price Financial Agreement (ISDA)

32 ENERGY PROCUREMENT

33 ENERGY PROCUREMENT: 1) Know your Load 2) Define Your Budget 3) Determine your Preferred Buying Approach 2) Single Block 3) Structured Block 4) Full Requirements 4) Decide on Type of Contract 5) Select Your Supplier(s) 6) Arrange Credit (Check Supplier Credit) & Contract 7) Decide on your Deal Term 1, 2, 3 years or longer

34 ENERGY PROCUREMENT: 8) Set Your Price... You re Ready...

35 RECOMMENDATIONS

36 RECOMMENDATIONS: Build Your Plan Risk Assessment & Type Risk Management Strategy Type of Contracts Procurement Strategy Choose Your Supplier(s) Execute & Evaluate

LAS Electricity Procurement Program Overview

LAS Electricity Procurement Program Overview Township of Huron-Kinloss Council Presentation Graham Proudley LAS Client Relations Specialist September 3, 2014 WHAT IS LAS? Affiliated with AMO Focus toward