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September 2009
Ohio Natural Gas Program and Industry Terminology
State of Ohio Natural Gas Program / Natural Gas 101
September 2009
Ohio Natural Gas Program and Industry Terminology
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
September 2009 Ohio Natural Gas Program and Industry Terminology 4
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
Ohio Natural Gas Program and Industry Terminology
Natural Gas 101
September 2009 Ohio Natural Gas Program and Industry Terminology 6
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).
September 2009 Ohio Natural Gas Program and Industry Terminology 7
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)
September 2009 Ohio Natural Gas Program and Industry Terminology 8
MCF versus DTH - Conversion
PriceDth x Btu = MCFMCF / Btu = Dth
VolumeDth / Btu = MCFMCF x Btu = Dth
September 2009 Ohio Natural Gas Program and Industry Terminology 9
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
September 2009 Ohio Natural Gas Program and Industry Terminology 10
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.
September 2009 Ohio Natural Gas Program and Industry Terminology 11
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
September 2009 Ohio Natural Gas Program and Industry Terminology 12
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.
September 2009 Ohio Natural Gas Program and Industry Terminology 13
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
Ohio Natural Gas Program and Industry Terminology
State of Ohio Natural Gas Program
September 2009 Ohio Natural Gas Program and Industry Terminology 15
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
September 2009 Ohio Natural Gas Program and Industry Terminology 16
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!
September 2009 Ohio Natural Gas Program and Industry Terminology 17
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
September 2009 Ohio Natural Gas Program and Industry Terminology 18
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”)
September 2009 Ohio Natural Gas Program and Industry Terminology 19
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
September 2009 Ohio Natural Gas Program and Industry Terminology 20
Selecting Suppliers
RFP language
Project pool volumes
Supplier analysis
Negotiate contracts
Offer Analysis
Provide analyses and recommendations to State
Select suppliers
September 2009 Ohio Natural Gas Program and Industry Terminology 21
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
September 2009 Ohio Natural Gas Program and Industry Terminology 22
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.
September 2009 Ohio Natural Gas Program and Industry Terminology 23
12-Month NYMEX Strip Prices
September 2009 Ohio Natural Gas Program and Industry Terminology 24
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
September 2009 Ohio Natural Gas Program and Industry Terminology 25
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
September 2009 Ohio Natural Gas Program and Industry Terminology 26
Bill Payment Site View Screen
Data, payment info, and bill image posted on bill payment website
September 2009 Ohio Natural Gas Program and Industry Terminology 27
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
September 2009 Ohio Natural Gas Program and Industry Terminology 28
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
September 2009 Ohio Natural Gas Program and Industry Terminology 29
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
September 2009 Ohio Natural Gas Program and Industry Terminology 30
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
Ohio Natural Gas Program and Industry Terminology
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