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TRANSCRIPT
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
5
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
6
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
$18
Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12
NYMEX: Henry Hub Natural Gas Futures (USD/MMBTU)
US Natural Gas Storage
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
BCF
Week
US Working Gas in Storage
5-Year Range 5-Year Avage 2012 2013
Market Fundamentals To Watch
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0
5
10
15
20
25
30
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2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030
bc
fd
Barnett Fayetteville Woodford Haynesville Marcellus Horn River Montney
Looking Ahead: Shale Gas Production is Now Widely Viewed as the Growth Engine of Future Supply
Looking Ahead: Coal-fired vs. Gas-fired Generation Battle Continues
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$(100)
$(50)
$-
$50
$100
$150
$200
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11
21
31
41
51
61
71
81
91
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1
11
1
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1
13
1
14
1
15
1
16
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17
1
$/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
14
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
513-287-2165
www.DukeEnergyRetail.com