5 th Annual Natural Gas Conference Powering Maine s Future

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1 5 th Annual Natural Gas Conference Powering Maine s Future Commercial/Industrial Usage Moderator: William Harwood, Verrill Dana, LLP Panelists: Dana Storer, Maine Natural Gas Rich Silkman, Competitive Energy Services Stuart Jablon, Backyard Farms Sarah Tracy, Pierce Atwood LLP

2 Maine Natural Gas September 28, 2017 Expansion Considerations COMPETITIVE-ENERGY.COM

3 Table of Contents Purpose: Provide an overview of the LDC expansion considerations Agenda: Anchor Qualities Contract Components Service Area Business Planning Opportunities 2017 Gas Conference 3

4 Ideal Anchor Qualities Industry Leader Established Financially Stable Positive Community Relations Minimal By Pass Threat Interest or Opportunity Consistent Leadership 2017 Gas Conference 4

5 Contract Components Period Volume / Usage, Revenue Time Price Tariff Rate, Premium, Discount Fixed, Variable, Subscription Fee Exclusive, Dual Fuel, Biomass, Other Firm or Interruptible, Sales or Transportation Conditions Precedent Maximum Daily & Hourly Usage Confidentiality Termination, Performance 2017 Gas Conference 5

6 Service Area Alignment with current operations Regulatory ability to serve Sufficient density to expand beyond anchor Community support Municipal Relationships Contractor Relationships Emergency Service Providers Soil sandy, depth to bedrock, flood zones Distance from NG inter/intra state pipelines 2017 Gas Conference 6

7 Business Planning Regulatory Implications Timeline Business Plan Engineering & Contracting Market Conditions NG Alternative Fuels Raw Materials Project Recovery Expectations from Anchor Expectations from Service Area Point of No Return Risks Competition Technology Legislative Regulatory Other 2017 Gas Conference 7

8 Opportunities Legislative Support Reduce Carbon Emissions Infrastructure Funds / Bonds Technology CHP, Distributed Generation NG Heat Pumps Vehicles / Fleet Management Other 2017 Gas Conference 8

9 Questions? Thank you for listening Gas Conference 9

10 COMPETITIVE ENERGY SERVICES, LLC Understanding Maine Basis Richard Silkman September 28, 2017 COMPETITIVE-ENERGY.COM

11 What Is Basis Basis is the difference between the price of natural gas at any Liquidity Point on the U.S. Pipeline System and the price of natural gas at Henry Hub. Basis is a product that is traded in Futures Markets, but its market fundamentals are observed in the supply and demand conditions of Spot Markets. 11

12 Pricing/Liquidity Points in New England Basis Products in New England: Algonquin (Boston) Tennessee Zone 6 Spot Market Pricing Delivery on Pipelines: TZ6 Highly Liquid AGT Less Liquid Lately PNGTS Has Become More Liquid M&N (U.S.) - Spotty 12

13 What Is Maine Basis There is no tradable product in national futures markets for gas delivered in Maine that is comparable to Basis at various pipeline liquidity points. For our purposes, we have defined the Maine Basis as the difference in Spot Market prices between the price of gas delivered on PNGTS/M&N (US) and the price of gas delivered on TZ6. 13

14 Pricing/Liquidity Points in Northeast EAST Day Ahead Indices Hub Wtd Avg Index High Low Volume (MMBTU) No. of Trades No. of Companies Weekly Avg Monthly Avg AGT-CG (non-g) , /19/2017 8/21/2017 Col Gas TCO , /19/2017 8/21/2017 Dominion-North /19/2017 8/21/2017 Dominion-South , /19/2017 8/21/2017 Iroquois (into) , /19/2017 8/21/2017 Iroquois-Z /19/2017 8/21/2017 Iroquois-Z , /19/2017 8/21/2017 Leidy-Transco , /19/2017 8/21/2017 M&N US , /19/2017 8/21/2017 Millennium EP , /19/2017 8/21/2017 PNGTS , /19/2017 8/21/2017 REX E-ANR , /19/2017 8/21/2017 REX E-MidW , /19/2017 8/21/2017 REX E-NGPL , /19/2017 8/21/2017 REX E-PEPL , /19/2017 8/21/2017 REX E-Trunk , /19/2017 8/21/2017 REX Zone , /19/2017 8/21/2017 TETCO-M2 (receipt) , /19/2017 8/21/2017 TETCO-M , /19/2017 8/21/2017 TGP-Z4 Marcellus , /19/2017 8/21/2017 TGP-Z4 Sta , /19/2017 8/21/2017 TGP-Z4 Sta , /19/2017 8/21/2017 TGP-Z5 200L , /19/2017 8/21/2017 TGP-Z6 200L , /19/2017 8/21/2017 Transco-Z5 North , /19/2017 8/21/2017 Transco-Z5 South , /19/2017 8/21/2017 Transco-Z6 (NY) , /19/2017 8/21/2017 Transco-Z6 Sta , /19/2017 8/21/2017 Begin End Measures of Maine Basis: PNGTS - TZ6 = $0.874 M&N US TZ6 = $

15 Observed Maine Basis $3.00 One Measure of the "Maine Basis" Difference Between PNGTS and TZ6 Spot Gas Prices Tends to be Highest in the Non-Winter Season $2.00 $1.00 $/mmbtu $0.00 1/1/2013 3/1/2013 5/1/2013 7/1/2013 9/1/ /1/2013 1/1/2014 3/1/2014 5/1/2014 7/1/2014 9/1/ /1/2014 1/1/2015 3/1/2015 5/1/2015 7/1/2015 9/1/ /1/2015 1/1/2016 3/1/2016 5/1/2016 7/1/2016 9/1/ /1/2016 1/1/2017 3/1/2017 5/1/2017 7/1/2017 -$1.00 -$2.00 Tends to be Lowest in the Winter Season -$

16 Pipeline Flows Define Two Operating Conditions on PNGTS and M&N: 1. Net gas flows out of Canada exceed Maine Off-Take Demand, and as a result gas flows on both pipelines are N to S along their entire lengths. 2. Net gas flows out of Canada are less than Maine Off-Take Demand, and as a result flow on M&N is S to N from Portland North. 16

of Days per year) 300 250 Number of Days 200 150

17 Pipeline Flows 350 M&N Deliveries into Maine Sufficient to Meet Scheduled Off-Take in Maine (No. of Days per year) Number of Days Yes No YTD Calendar year 17

18 Pipeline Flows $1.300 M&N Deliveries into Maine Sufficient to Meet Scheduled Off-Take in Maine (Maine Basis - PNGTS Differential) $1.100 $0.900 $0.700 (PNGTS - TZ6) $0.500 $0.300 Yes No $0.100 ($0.100) YTD ($0.300) Calendar Year 18

19 Pipeline Flows $1.300 M&N Deliveries into Maine Sufficient to Meet Scheduled Off-Take in Maine (Maine Basis - M&N(US) Differential) $1.100 $0.900 $0.700 (M&N(US) - TZ6) $0.500 $0.300 $0.100 Yes No ($0.100) YTD ($0.300) ($0.500) Calendar Year 19

20 Atlantic Canada Gas Conditions 700, , , ,000 Avg. Daily Production/Delivery 500, , , , , , , ,000 Avg. Daily Canadian Deamnd Canaport Deep Panuke Sable Canadian Usage 100, ,000 0 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Month/year 0 20

21 Atlantic Bridge 132,000 mmbtu/day Replace Sable Island and Deep Panuke Production S to N Flows on M&N North of Portland will become the norm 21

22 Conclusions Expect to see Maine Premium throughout the year with possible exceptions of when Canaport Deliveries exceed combined Off-Take in Canada and Maine. This Premium will be reflected in a Maine Basis in gas futures contracts for delivery into Maine. Atlantic Bridge - second source of gas for Maine - may exert some downward pressure on prices overall, but unlikely to be enough to offset Maine Basis. 22

23 THANK YOU COMPETITIVE-ENERGY.COM

24 Natural Gas: Powering Maine s Future September 28,

25 Backyard Farms Overview 42 acre tomato greenhouse operation in Madison, Maine ~31 NFL Football Fields 1.5x larger than the Pentagon building Local + Quality Pick ripe, only ship within 1 day drive of Madison Varieties selected for taste, color, shape not for yield 215 full-time employees 25MM+ lbs. of fresh tomatoes per year Shipped primarily within New England - customers include: Hannaford Whole Foods Shaw s Walmart Market Basket 25

26 Energy Profile Winter: Intensive energy usage from November to March to keep plants alive and growing during the long, dark, cold months Summer: Moderate energy usage, to drive humidity out of the greenhouse, create CO 2 Electricity: 21,00 x 1000 watt high pressure sodium grow lights Mid-September through end of May Thermal 3 boilers, 2 heat storage tanks 4 options for fuel Pipeline gas connected to Summit pipeline in November 2014 LNG plant, 85,000 gallon tank Propane tanks, 90,000 gallon storage Fuel oil CO 2 captured from boilers and pumped into greenhouse 26

27 Backyard Farms LNG Installation Propane Tanks 27

28 Light & Heat Sources High Pressure Sodium Grow lights Heat Pipes/Trolley Rails Snow Pipes 28

29 Boiler Room at Backyard Farms 29

30 Thermal Energy Usage By Month as % of Total All Sources 30

31 Backyard Farm $/MMbtu Pricing for Thermal Energy vs Base 2007 Propane 100% LNG 100% Nat Gas, Propane,LNG 31

32 Cost Components of Backyard Farms Natural Gas Spend 35% 27% 38% Delivery Henry Hub Basis 32

33 Energy Purchasing Strategy Requirements: Flexibility Heating requirements are weather driven. Daily standard deviation of +/- 25% during winter Replanting requirements driven by market conditions, disease and pest pressures Force majeure terms that recognize challenges of greenhouse agriculture Guaranteed delivery Minimize cost Budget certainty Back-up options Monthly balancing Process: RFPs sent out to propane, LNG and natural gas suppliers in July for 11/ /2018 heating season Typically request fixed pricing for 75% of expected usage under 3 scenarios Full year Winter only Summer only November 2015 October 2016: LNG & natural gas winter, propane summer November 2016 October 2017: Propane winter, natural gas summer November 2017 October 2018: 100% natural gas for 75% of volumes 33

34 Energy Efficiency Initiatives Re-insulated heat storage tanks Replaced all grow light bulbs older than 3 years & started planned replacement program Initiated scheduled grow light reflector cleaning program Installed dual fuel burners on boilers Installed new CO 2 condensers on boilers COGEN (CHP) plant 34

35 A Quick Visit To Our Greenhouse 35

36 Encouraging Natural Gas Expansion in Maine through Flexible Ratemaking Sarah B. Tracy Pierce Atwood LLP September 28, 2017

37 Fundamentals of Public Utility Rate Regulation Rates must be just and reasonable (35-A M.R.S. 301(2)) Utility must file notice of change in rates with the PUC 30 days before the rate effective date, unless the PUC approves an earlier effective date (35-A M.R.S. 307) PUC approval of a rate change usually required (35-A M.R.S. 310) No discrimination allowed: It is unlawful for a public utility to give any undue or unreasonable preference, advantage, prejudice or disadvantage to a particular person (35-A M.R.S. 702) 37

38 Rate Making Flexibility An Act to Facilitate the Local Distribution of Natural Gas, P.L. 1997, Ch. 707 Whereas, the availability of natural gas utility service is of vital importance to the well-being of the State s citizens and economy Whereas, the impending construction of new natural gas pipelines offers an opportunity for the expansion of natural gas utility service in the State Legislature granted the PUC authority to adopt reasonable alternative rate-making mechanisms for gas utilities (35-A M.R.S. 4706) Maine law allows a public utility to make a special contract for a definite term subject to PUC approval (35-A M.R.S. 703(3-A)) 38

39 Why are Special Rate Contracts Special? Rate may be at a discount or premium relative to the tariff rate May guarantee a certain rate for a fixed term May have other provisions that require treatment different than what is contained in the utility s tariff 39

40 Special Rate Contract Authority Maine Natural Gas, Summit Natural Gas and Bangor Natural Gas are authorized to enter into special rate contacts without prior PUC approval, provided: Contract is filed informationally with the PUC Utility provides a short-run marginal cost analysis i.e., does the contract price exceed the marginal costs of service? Issues regarding management s prudence in entering into such contracts, and associated issues related to recovery of revenue shortfalls are reserved for later PUC review Translation: The utility s shareholders bear the contract risk 40

Governor s Energy Office Concerned About Maine s Dependence Upon Heating Oil Maine is still the most heating oil dependent state for home heating in the country which

41 Governor s Energy Office Concerned About Maine s Dependence Upon Heating Oil Maine is still the most heating oil dependent state for home heating in the country which means Mainers remain more vulnerable to volatile oil prices than other states, as we depend on heating oil for both heating and transportation. Source: Mainebiz, 3/16/17 41

42 Natural Gas is a Viable Alternative for Maine Home Heating, if available Source: U.S. EIA Maine Profile Data at 42

43 Natural Gas Expansion to Maine Businesses and Residential Customers Additional special rate contract flexibility may incentivize additional large commercial and industrial anchor customers to convert to natural gas Expansion of service to anchor customers facilitates natural gas infrastructure buildout Increases availability of natural gas for small Maine businesses and residential customers 43

Gas Infrastructure and Deliverability in New England

Understanding Our Energy Distribution Systems: Gas Infrastructure and Deliverability in New England Richard Levitan, rll@levitan.com March 5, 214 Agenda Price Discovery During the Polar Vortex New England