ders presentation

Energy Market Update

Duke Energy Retail

June 2013

Today’s Discussion

2

Introduction to Duke Energy’s Commercial Business

Market fundamentals to watch

Managing energy risk with uncertainty

Duke Energy Commercial Business

3

Duke Energy Corporate: scale, diversity, flexibility

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Duke Energy Commercial Business

Midwest Commercial – operating coal- and

gas-fired generation in PJM and serving load

through retail & wholesale customers

Renewables – investing in highly-contracted

projects with attractive risk-adjusted returns and

growth opportunities

Strategic Initiatives – focused on dynamic

load business strategies

International – highly contracted generation

portfolio with strong cash flow and earnings

diversity

Fuel Type

Natural Gas

Hydro

Wind

Coal / Oil

Solar

Brazil 2,112 MW

Guatemala 283 MW

Ecuador 160 MW

Peru 678 MW

Wind – 735 MW

Argentina

523 MW

El Salvador 296 MW

Midwest Generation Ohio generation

(~4,000 MW)

Midwest gas-fired generation

(~3,600 MW)

DEI Latin American assets

National Methanol

Other

Renewables Wind

Solar

Commercial Transmission

Solar 17 MW

Current Market Snapshot

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PJM Energy Prices

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12

PJM AD-Hub Around the Clock Energy (USD/MWHR)

PJM Capacity Prices

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

PJM Rest of Market $41 $112 $102 $174 $110 $16 $28 $126 $136 $59

First Energy Ohio $355 $114

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

PJM Rest of Market$/MW-Day

Natural Gas Prices

$-

$2

$4

$6

$8

$10

$12

$14

$16

$18

Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12

NYMEX: Henry Hub Natural Gas Futures (USD/MMBTU)

US Natural Gas Storage

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

BCF

Week

US Working Gas in Storage

5-Year Range 5-Year Avage 2012 2013

Market Fundamentals To Watch

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0

5

10

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25

30

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2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030

bc

fd

Barnett Fayetteville Woodford Haynesville Marcellus Horn River Montney

Looking Ahead: Shale Gas Production is Now Widely Viewed as the Growth Engine of Future Supply

Looking Ahead: Coal-fired vs. Gas-fired Generation Battle Continues

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$(100)

$(50)

$-

$50

$100

$150

$200

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11

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41

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1

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$/M

W

Renewables Nuclear Controlled Coal Uncontrolled Coal

Combined Cycle NG Simple Cycle NG Fuel Oil Carbon

Illustrative PJM Supply Stack

Looking Ahead: Reliability vs. Environmental Regulation vs. Court Challenges Create Uncertainty

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Looking Ahead: Local vs. Global Commodity Markets

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Regional Steam Coal Market Integration (2008)

With natural gas prices at $14-18/MMBtu in Asia...Why won’t regional markets integrate?

Looking Ahead: Real Cost of Renewable Energy

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Source: SEIA 2013.

Average Installed Solar PV System Prices

Looking Ahead: Load Is Becoming Smarter and Connected

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Duke Energy Ohio Smart Meter Data – June 5 Matt’s Home Thermostat

Looking Ahead: Drivers for Consumer Behavior May Not Be What We Think

Recent Challenge from Duke Energy Retail’s Energy Outlook Portal

Is everyone missing something on shale gas production?

How much coal-fired generation survives a war of attrition?

Is nuclear generation faced with a similar future?

Will markets connect US gas to international demand?

When will renewable energy survive without incentives?

Where is baseline demand growth headed?

How much load will become responsive to market prices?

So What?

Managing Risk with Uncertainty

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Retail

Sales

Wholesale

Marketing

Wholesale Energy Markets

Fuel, Emissions & REC Markets

Continually Ask Three Simple Questions

> What is my position?

> What is my view?

> What is my hedging strategy?

Commercial

Load

Commercial

Generation Portfolio

Optimization

Risk Management Values

Daily hedging process

Flatten positions

Optimize positions separately

Market values drive decisions

Implications for Generation

Optimizing make vs. buy decision

Focused on commodity exposure,

O&M & capital deployment

Improved co-owner partnership

Implications for Sales

Hedges retail & wholesale load

through wholesale markets

Focused on risk-adjusted returns

Allows flexibility in pricing and

structuring of products/services

Our Active Risk Management Approach

Considerations for Retail Energy Risk Mgmt

What is my position? What is my view? What is my hedging position?

Energy Supply

Energy Demand

Sustainability Investments

Take Aways

Low wholesale energy & capacity prices

have benefited customers

Future energy prices are uncertain

Future capacity prices are higher

Future value may be driven more from

behaviors

Suggested Action Items

Be disciplined in your risk management

approach; Keep asking 3 questions

Think about optimizing your portfolio

Recognize that changing behaviors will

take time within your organization

Managing Commodity Risk

Matthew M. Walz

Vice President of Marketing

Duke Energy Retail

matthew.walz@duke-energy.com

513-287-2165

www.DukeEnergyRetail.com