2013 ENERGY MARKET OUTLOOK AND INDUSTRY TRENDS

NATIONAL WEBCAST – ROB PATRYLAK & ANN DONNELLY

2013 ENERGY MARKET OUTLOOK AND INDUSTRY TRENDS ENERGY MARKET PERSPECTIVE – MID YEAR 2013

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This report was prepared for Client by Black & Veatch Corporation (“B&V”) and is largely based on information not within the control of B&V. As such, B&V has not made an analysis, verified, or rendered an independent judgment of the validity of the information provided by others, and, therefore, B&V does not guarantee the accuracy thereof.

In conducting our analysis and in forming an opinion of the projection of future operations summarized in this report, B&V has made certain assumptions with respect to conditions, events, and circumstances that may occur in the future. The methodologies we utilize in performing the analysis and making these projections follow generally accepted industry practices. While we believe that such assumptions and methodologies as summarized in this report are reasonable and appropriate for the purpose for which they are used; depending upon conditions, events, and circumstances that actually occur but are unknown at this time, actual results may materially differ from those projected.

Use of this report, or any information contained therein, shall constitute the user’s waiver and release of B&V and Client from and against all claims and liability, including, but not limited to, any liability for special, incidental, indirect or consequential damages, in connection with such use. In addition, use of this report or any information contained therein shall constitute an agreement by the user to defend and indemnify B&V and Client from and against any claims and liability, including, but not limited to, liability for special, incidental, indirect or consequential damages, in connection with such use. To the fullest extent permitted by law, such waiver and release, and indemnification shall apply notwithstanding the negligence, strict liability, fault, or breach of warranty or contract of B&V or Client. The benefit of such releases, waivers or limitations of liability shall extend to B&V and Client’s related companies, and subcontractors, and the directors, officers, partners, employees, and agents of all released or indemnified parties. USE OF THIS REPORT SHALL CONSTITUTE AGREEMENT BY THE USER THAT ITS RIGHTS, IF ANY, IN RELATION TO THIS REPORT SHALL NOT EXCEED, OR BE IN ADDITION TO, THE RIGHTS OF THE CLIENT.

Readers of this report are advised that any projected or forecasted financial, operating, growth, performance, or strategy merely reflects the reasonable judgment of B&V at the time of the preparation of such information and is based on a number of factors and circumstances beyond our control. Accordingly, B&V makes no assurances that the projections or forecasts will be consistent with actual results or performance. To better reflect more current trends and reduce to chance of forecast error, we recommend that periodic updates of the forecasts contained in this report be conducted so more recent historical trends can be recognized and taken into account.

Any use of this report, and the information therein, constitutes agreement that: (i) B&V makes no warranty, express or implied, relating to this report, (ii) the user accepts the sole risk of any such use, and (iii) the user waives any claim for damages of any kind against B&V.

BLACK & VEATCH STATEMENT

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ENERGY MARKET PERSPECTIVE—MID YEAR 2013

ABOUT THE ENERGY MARKET PERSPECTIVE

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Clients use the EMP to plan for and manage risks of North American shift to natural gas generation

• Bi-annual subscription based service

• Provides 25 year projections

• Results are reported for various North American regions

Key Report Deliverables

• Insights on industry trends and market opportunities

• Fundamental capacity, energy, emission and power fuel price forecasts for North American Energy Markets

• Easily assessable data

OVERVIEW OF THE ENERGY MARKET PERSPECTIVE (EMP)

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INTEGRATED MARKET MODELING

Energy and Environmental Policies

World Oil & LNG Prices

Black & Veatch Energy Market View

World U.S.

Commodity Market Models

Fuel, Power and Allowances

16 July 2013 ENERGY MARKET PERSPECTIVE—MID YEAR 2013

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Integrates primary research, leading data sources and client consulting experience

• Generation expansion plans

• Transmission infrastructure

• Unit retirements

• Supply and pipeline expansion plan

• Finding and development costs

• Regulation

• RPS requirements and response

• Power demand and conservation

• Fuel demand and pricing

• LNG imports / exports

• Future construction costs

KEY ISSUES AND ASSUMPTIONS THAT INFLUENCE THE BASELINE PERSPECTIVE

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• Available as a national or regional service

• Regions covered: • Western • Texas (ERCOT) • Northeast • Midwest • Southeast

EMP NORTH AMERICAN MARKET COVERAGE

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INCORPORATES FINDINGS FROM OUR STRATEGIC DIRECTIONS SURVEYS

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THE MID-YEAR 2013 BASELINE VIEW

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U.S. ECONOMIC EXPANSION HAS RESUMED


Source: U.S. Department of Commerce; Black & Veatch Energy Market Perspective Analysis

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10

11

11

12

12

13

13

14

14

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

(Tril

lion

2005

$, A

nnua

lized

)

United States GDP

BLACK & VEATCH VIEW ON POWER DEMAND


-

200

400

600

800

1,000

1,200

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038

Coin

cide

nt P

eak

Dem

and

(GW

)

Ann

ual G

row

th R

ate

Projected U.S. Peak Electric Demand Annual Growth Rate Coincident Peak Demand

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RULEMAKINGS COMPLIANCE PLANNING & DEADLINES


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IMPLICATIONS OF BASELINE GHG ASSUMPTIONS


$0

$5

$10

$15

$20

$25

$30

$35

$40

2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037

GH

G E

mis

sion

Allo

wan

ce P

rice

(201

3 $/

shor

t ton

)

Projected Greenhouse Gas Emission Allowance Prices

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MA: 15% By 2020, +1%/yr after

States with RPS Requirements

States with RPS Goals HI: 40% By 2030

NJ: 22.5% by 2021

CT: 27% by 2020

ME: 30% by 2000 7% new by 2017

MD: 20% by 2022

DC: 20% by 2020

VT Goal: All New Gen, 10% cap

DE: 25% by 2025

SD: 10% By 2015


STATE RENEWABLE PORTFOLIO STANDARDS

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CA: 33% by 2020

NV: 25% by 2025, 6% Solar by 2016

AZ: 15% By 2025 NM: 20%

by 2020

TX: 10,000 MW by 2025

WA: 15% By 2020

OR: 25% By 2025

UT: 20% by 2025

OK: 15% by 2015

MN: 25% by 2025 (Xcel 30%)

IA: 105 MW

CO: 30% by 2020

MT: 15% By 2015

ND: 10% By 2015

MO : 15% By 2021

KS: 20% by 2020

NE: 10% Goal

WI: 10% by 2015

IL: 25% By 2025

VA: 15% by 2025

OH : 12.5% by 2025

MI:10% by 2016

IN: 10% by 2025

NC: 12.5% by 2020

WV:25% by 2025

NY: 29% by 2015

PA: 8/10% Tier I/II by 2020

RI: 16% by 2020

NH: 23.8% (16% new Gen) By 2025

NATURAL GAS AND POWER FUELS OUTLOOK

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NATURAL GAS PRICE FORECAST


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038

2013

$/M

MBt

u

Historical (Nominal) B&V Projection (Year-End 2012) B&V Projection (Mid-Year 2013)Henry Hub Natural Gas Spot Price

Decrease relative to Year-End 2012 forecast: Driven by expectation of increased gas production due to liquids uplift

Dry gas production becomes profitable as prices rise

Spot prices rise to $5 by 2020, increasing competitiveness of Coal

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Shale production will augment flattened conventional production and drive aggregate production growth • Largely driven by growth in

Marcellus, Utica, and Eagle Ford production

US Gulf Coast and Canadian conventional production decline • Incremental conventional gas

production will be associated with oil and NGL production from Anadarko and Permian sub-basins and flanking platforms.

NORTH AMERICAN NATURAL GAS PRODUCTION


0

20

40

60

80

100

120

140

160

2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037

Bcf

/d

North American Natural Gas SupplyShale Conventional Coalbed Methane LNG Imports

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RISING OIL AND NGL PRICES WILL CONTINUE TO SUPPORT ROBUST GAS PRODUCTION


020406080

100120140

2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

2013

$/bb

l

WTI and Brent Crude Oil ForecastWTI Brent

0

5

10

15

20

25

30

2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

2013

$/M

MBt

u

Mont Belvieu NGL PricesPentanes Plus iButane nButane Propane Ethane

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• Electric sector demand for natural gas will nearly double in the next 20 years

• Economic recovery will drive modest near-term growth in residential, commercial, and industrial demand • Efficiency gains will

moderate demand growth

• LNG exports are projected to grow significantly from 2016-2023. • DOE study potentially

supports higher LNG exports

• Transportation sector demand is expected to be limited due to limited market penetration

ELECTRIC SECTOR DRIVES FUTURE NATURAL GAS DEMAND GROWTH


0

20

40

60

80

100

120

2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037

Bcf

/d

United States Natural Gas DemandCommercial Electric Industrial Residential Transportation LNG Exports

Electric Residential Commercial Industrial2.58% 0.83% 1.29% 0.39%

Projected 2013-2038 Compound Annual Growth Rate

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• Overall growth is driven by regional demand in the Midwest, Southeast, and Texas

• Demand growth prior to 2020 is driven by coal-fired capacity retirements

• Post-2020 demand growth is driven by a Federal CO2 emissions program

US NATURAL GAS DEMAND FOR POWER GENERATION IS EXPECTED TO GROW BY MORE THAN 20 BCF/D BY 2035


Mid Atlantic-Northeast Midwest Southeast Texas East/West South Central West

Incremental Lower 48 Gas Demand for Power Generation from 2013

0

5

10

15

20

25

2015 2020 2025 2030 2035

Bcf/

d

20

I H

Export Import

Kenai, Alaska

Kitimat Douglas Channel

Petronas/Progress Energy Shell/Mitsubishi/PetroChina

/KOGAS

Jordan Cove

Freeport LNG Lake Charles

•Sabine Pass LNG

Cove Point

Costa Azul, Mexico

Altamira, Mexico

Gulf of Mexico Excelerate Energy

Freeport Cheniere

Elba Island, GA

Everett MA

Excelerate Northeast Gateway Neptune

Canaport

Cameron LNG

Dominion Cove Point LNG

•Golden Pass LNG •Gulf Coast LNG

Pangea LNG

Southern LNG

Main Pass Energy Hub Trunkline LNG

MULTITUDE OF LNG EXPORT PROJECTS AWAIT IN QUEUE FOR DOE LICENSE APPROVAL

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Applications for 30+ Bcf/d in export capacity have

been filed in the US

This capacity would comprise nearly all of

current and more than half of future

global demand

Source: FERC; Black & Veatch Analysis


OUTLOOK ON NORTH AMERICAN LNG EXPORTS


0

2

4

6

8

10

12

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037

Bcf

/d

North American LNG Export AssumptionsSabine Pass Gulf Coast LNG Sabine Pass Exp Freeport LNG LNG Canada Kitimat Alaska LNG

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NORTH AMERICAN GAS INFRASTRUCTURE SHALE GAS REDEFINES PIPELINE FLOWS AND ASSET VALUES


2012-2022 Flows Increase

2012-2022 Flows Decrease

2012-2022 Flows Stable Natural Gas Pipelines

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Black & Veatch Mid-Year 2013 Energy Market Perspective

Electric Power Coal Demand Will Trend Downward

• Demand will rise from 2012 to 2015 as natural gas prices rise.

• In 2016, coal retirements primarily due to the MATS rule will mute demand.

• Demand will remain relatively constant from 2016 to 2019.

• Imposition of greenhouse gas regulations in 2020 profoundly impacts demand.

• Illinois Basin coals fare better than other basins.

• Central Appalachia in a protracted decline.

Market Drivers

Black & Veatch Mid-Year 2013 Energy Market Perspective

Coal Price Trends

Going forward, BOYD projects US coal prices will remain relatively flat…

…although prices will rise to levels necessary to sustain an ongoing industry in the face of deteriorating reserves, rising costs and required new mine replacement.

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2030

BOYD Coal Price Forecast Constant 2012 $/Ton FOB Mine

Pitt 8 Rail Medium Sulfur CAPP Low Sulfur ILB 5 lb Rail Gillette High Btu

POWER MARKET IMPLICATIONS

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COAL RETIREMENTS OF 58.7 GW ARE PROJECTED BY 2020


-

10

20

30

40

50

60

70

2014 2015 2016 2017 2018 2019 2020

GW

Projected Cumulative U.S. Coal Capacity RetirementsEAST WECC ERCOT

Near-term retirements are driven by MATS compliance

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Emporia Energy Center - Kansas

Coal retirements and decline in regional reserve margins will drive continued capacity growth

• Power sector demand for gas expected to grow 2.57% annually

• More than 403,000 MW of new capacity is expected before 2038– a nearly 17% increase from previous forecast

• Technology advances in combined cycle with advances in combustion turbine technology

NATURAL GAS-FUELED GENERATION WILL CONTINUE TO GROW


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Refueling Nuclear Reactor

In the near-term, budget deficit and waste disposal concerns limit federal loan guarantee programs

• Expect deferrals and cancellations of new units to continue

• Utilities will work to get the most of existing units with up-rates

• Uncertainty regarding Fukushima “lessons learned” will diminish

• Over the next 25 years, B&V forecasts a decline in nuclear resources

ECONOMY, GAS PRICES SLOW NUCLEAR DEVELOPMENT


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RENEWABLE CAPACITY ADDITIONS OF 98 GW EXPECTED BY 2038


0

20

40

60

80

100

120

140

160

180

200

2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038

Rene

wab

le N

amep

late

Cap

acity

(GW

)

Projected Cumulative U.S. Renewable Resource AdditionsEastern Interconnect ERCOT WECC

•Capacity additions are driven by state RPS requirements •Wind will make up a majority of additions

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The share of gas-fired capacity will increase significantly over the next 25 years

THE CHANGING U.S. GENERATION CAPACITY MIX

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Data Label Legend: Technology, Capacity (MW), Share of Total (%)

2014 Capacity Mix (MW) 2038

301,708

97,444

221,340

137,082

74,379

124,135

11,856

93,346

Coal

Nuclear

Combined Cycle

Combustion Turbine

Wind

Hydro & Other Renewables

Solar

Other

174,917

61,181

565,840

229,884

146,529

128,537

37,830

59,141

Coal

Nuclear

Combined Cycle

Combustion Turbine

Wind


Solar

Other

28.4%

9.2%

20.9%

12.9%

7.0%

11.7%

1.1%8.8%

12.5%

4.4%

40.3%16.4%

10.4%

9.2%

2.7%4.2%

1,100,639

486,039

2,824,476

43,431

391,927

449,450

81,250

34,242

- 1,000,000 2,000,000 3,000,000

Coal

Nuclear

Combined Cycle

Combustion Turbine

Wind


Solar

Other20.3%

9.0%

52.2%

0.8%

7.2%

8.3%1.5% 0.6%

42.9%

18.4%

21.6%

0.6%4.5%

10.2%0.6% 1.2%

1,808,286

774,686

909,463

25,794

188,254

430,829

23,620

50,025

- 500,000 1,000,000 1,500,000 2,000,000

Coal

Nuclear

Combined Cycle

Combustion Turbine

Wind

Hydro & Other …

Solar

Other

Natural gas’s “market share” increases from 25% of electricity consumption to 56%, while coal’s decreases from 43% to 21%

COAL TO GAS: THE CHANGING U.S. ENERGY GENERATION MIX

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2014 Generation Mix (GWh) 2038

Data Label Legend: Technology, Capacity (MW), Share of Total (%)

QUESTIONS?

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CONTACT

ANN DONNELLY Director Natural Gas & Power Fuels Office: 360-433-2570 [email protected]

ROB PATRYLAK Managing Director Planning and Energy Markets Office: 678-932-9131 [email protected]

[email protected]

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2013 ENERGY MARKET OUTLOOK AND INDUSTRY TRENDS

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