L L o ng te rm o ng -te rm Na tura l Ga s Pric e F o re c a st - - PDF document

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L

• ng te rm

L

• ng -te rm

Na tura l Ga s Pric e F

• re c a st

June 7th 2013

1

Dra ft Ag e nda

• Welcome and introductions

9:00 to 9:15 il’ d li i d f f

• Council’s modeling overview and use of forecasts
• Northwest Gas Outlook –(NWNGA)

9:15 to 9:45

• Shale Gas- alternative scenarios (CEC)

9:45 to 10:15

• NAMgas model- (CEC)

10:15 to 10:45

• Draft Environmental Costs

10:45 to 11:00

• Break
• Straw man proposal 7th plan forecast prices

11:10 to 12:00 – Result of fuel price poll Result of fuel price poll – Comparison to other forecasts

• Council’s Portfolio Model

12:00 to 12:20

• Next steps

12:20 to 12:30

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Co unc il’ s Po we r Pla nning Pro c e ss

Economic & Demographic Forecasts Demand Forecasting System Residential Commercial Industrial Irrigation Fuel Price Forecasts Conservation Programs and Costs g

Total Electricity Use Supply - Demand Balance (RPM Model)

Electricity Price

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Generating Resources and Costs

( ) Resource Supply (Cost and Amount)

Price

Ho w HH pric e fo re c a st is use d

• Demand Forecast

– Direct Calculation of Retail natural gas Rates

• Electricity Price Forecast

– Direct Calculation of burner-tip prices for power plants.

• Resource Portfolio Selection
• Resource Portfolio Selection

– Stochastically Used in setting expected values for natural gas market price excursions.

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12.0 14.0

Re la tio nship b e twe e n Re ta il Na tura l Ga s Pric e s a nd He nry Hub Pric e s

4.0 6.0 8.0 10.0 Dollar s Pe r MMBT U He nr y Hub ID_COM ID_IND ID_RE S 5 0.0 2.0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 He nry Hub pric e fo re c a st sho wn he re is fo r e xa mple , Co unc il’ s na tura l g a s pric e pro je c tio ns will b e upda te d la te r this ye a r.

Co mpa riso n o f F

• re c a st a nd

Ac tua l 2012 (2012$)

He nr y Hub Pr ic e Natur al Gas F t PRB Coal Pr ic e s 2012$/ mmbtu Re fine r s Ac quisition Cost F

• r

e c ast 2012$/ B l F

• r

e c ast 2012$/ mmbtu 2012$/ Bar r e l

L

• w

$2.4 0.79 $85 Me d-L

• w

$2.5 $0.80 $90 Me dium $2.6 $0.82 $95 Me d-Hig h $2.7 $0.83 $98

$2.66 Ac tual $0.78 Ac tual

Hig h $2.7 $0.84 $105

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$101 Ac tual

E xc e pt fo r c o a l, a ll fue l pric e s we re within fo re c a ste d ra ng e

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2013 NWGA Outlook Overview

Natural Gas Advisory Committee June 7, 2013 Portland, OR

1914 Willamette Falls Dr., #255 West Linn, OR 97068 (503) 344-6637 www.nwga.org

NWGA Members:

Avista Corporation Cascade Natural Gas Co. FortisBC Energy Intermountain Gas Co. NW Natural P get So nd Energ Puget Sound Energy Kinder Morgan Ruby Pipeline Spectra Energy Transmission TransCanada GTN System Williams NW Pipeline

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Supply

BC Production Forecast

Source: Canada National Energy Board

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Rockies Production Forecast

Source: Kinder Morgan, US Energy Information Administration

Rockies Rig Productivity

50 60

25 30

• Gas well drilling efficiency increases

– 2011 average rig drilled twice the number of wells per year compared to 2006 – Last 3 years average wells productivity increased 20 30 40

10 15 20 ells Drilled per rig per year

MMcf/d/yr/rig

– Last 3 years average wells productivity increased 40% – Rig productivity up by almost 150% from 2006 ‐ 10

5

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

We Rig Productivity Wells Drilled per Rig

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Demand

Recent Gas Demand

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2013 Outlook Demand Forecast Forecast Comparison by End Use

300 350

Base Case

150 200 250

Million Dth

50 100 '13 Res '13 Comm '13 Ind '13 Gen '08 Res '08 Comm '08 Ind '08 Gen

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I-5 Peak Day Demand-Resource Balance

7 8 9 '08 Peak Day '13 Peak Day 2 3 4 5 6 7

Million Dth

1 2

Capacity Projects

Pipelines

• Southern Crossing Expansion
• Palomar

Kitimat LNG

Palomar

• Sunstone
• Blue Bridge (N-MAX)
• Ruby
• Pacific Connector
• Pacific Trail
• Oregon LNG
• Washington Expansion

LNG Terminals

Bradwood Landing LNG

18 Kitimat LNG (export) Bradwood Landing Oregon LNG Jordan Cove LNG Storage Facilities Mist Jackson Prairie

Oregon LNG Bradwood Landing LNG Jordan Cove LNG

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1914 Willamette Falls Dr., #255 West Linn, OR 97068 (503) 344-6637 www.nwga.org

NWGA Members:

Avista Corporation Cascade Natural Gas Co. FortisBC Energy Intermountain Gas Co. NW Natural P get So nd Energ Puget Sound Energy Kinder Morgan Ruby Pipeline Spectra Energy Transmission TransCanada GTN System Williams NW Pipeline

California Energy Commission

North American Market Gas North American Market Gas-

• Trade

Trade (NAMGas) Model: (NAMGas) Model:

Updated Common Updated Common Cases Cases Updated Common Updated Common Cases Cases

Northwest Power and Conservation Council Northwest Power and Conservation Council Natural Gas Advisory Committee Natural Gas Advisory Committee June 7, 2013 June 7, 2013 Robert V. Kennedy Robert V. Kennedy y Electricity Analysis Office Electricity Analysis Office Electricity Supply Analysis Division Electricity Supply Analysis Division California Energy Commission California Energy Commission rkennedy@energy.ca.gov//916 rkennedy@energy.ca.gov//916-

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California Energy Commission

Work Continuing with Cases

__________________________________

• February 19th I EPR Workshop

– NAMGas Model – Leon Brathwaite – I terative Modeling Process – I vin Rhyne

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– Stakeholders’ comments and suggestions

California Energy Commission

Work Continuing with Cases (cont.)_______________

Rice University

I terative Modeling Process

Production Costs North American Gas Model

Updated Economic/ Demographic Assumptions CA Transportation Demand Models CA Demand Models

22

WECC Electricity Production Cost Model

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California Energy Commission

Reference Case: Changes Made from February 19th Assumptions___________

• Coal Fired Generation Retirement:

– 30 GW starting in 2014 = > 61 GW starting in 2014 – The Brattle Group - October, 2012

• Renewable Portfolio Standard:

– California meets RPS on time, 5 year delay for other states = > California and rest of WECC states meet RPS on time, 5 year delay elsewhere

• Updated I nfrastructure Capacity Addition to Export

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• Updated I nfrastructure Capacity Addition to Export

Natural Gas to Mexico

• Added Structure to I mprove Performance of the LNG

Sector

– Conversion from WGTM to NAMGas

California Energy Commission

High Price/ Low Demand Case: Changes Made from February 19th Assumptions__________

• Cost Environment:

– P50 Line = > P10 Line

• Updated I nfrastructure Capacity Addition to Export

Natural Gas to Mexico

• Added Structure to I mprove Performance of the LNG

Sector

– Conversion from WGTM to NAMGas

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California Energy Commission

Low Price/ High Demand Case: Changes Made from February 19th Assumptions__ _

• Cost Environment:

– P50 Line = > P90 Line

• Coal Fired Generation Retirement:

– 1 GW starting in 2014 = > 31 GW starting in 2014 – The Brattle Group - October, 2012

• Updated I nfrastructure Capacity Addition to Export

Natural Gas to Mexico

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• Added Structure to I mprove Performance of the LNG

Sector

– Conversion from WGTM to NAMGas

California Energy Commission

North American Market Gas Trade Model: Developing a Cost Environment______________

Typical Cost Environment (P50): 1975, 1986, and 2003 26

Sources: Baker I nstitute.

• Staff must simulate the cost environment for analysis:

− Graph shows indexed cost between 1960 and 2010 − High cost environment ~ 1979 – 1984 − Low cost environment ~ 1992 – 2000.

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California Energy Commission

Common Cases: Supply Balance _______________________

Performance of Cases: Performance of Cases: Lower 48 Lower 48

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California Energy Commission

Common Cases: Price Performance of Cases (Henry Hub) ___

8.00

Henry Hub Prices

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 2010$/Mcf Prelim II A Hi Case Prelim II A Ref Case Prelim II A Low Case Orig Hi Case Orig Ref Case Orig Low Case

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• I n general, prices behave as expected:

− High Price case produced highest prices − Low price case produced lowest prices

• Adjusted cases have created a larger “zone of uncertainty”
• Orig. Hi Case
• Orig. Ref Case
• Orig. Low Case

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California Energy Commission

National Cases: Price Performance of Cases (Differentials) __

Topock - Henry Hub

‐0.20 ‐0.10 0.00 0.10 0.20 0.30 2010$/Mcf

Topock‐Henry Hub Price Differential

P li IIA Hi C P li IIA R f C P li IIA L C

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• I n general, differentials turn positive after 2013:

– Resource abundance more evident in the eastern US – Access to shale and ‘tight’ gas resources is re-ordering the supply portfolio, impacting eastern prices more than western.

Prelim IIA Hi Case Prelim IIA Ref Case Prelim IIA Low Case

California Energy Commission

Common Scenarios Cases: Supply Portfolio of Reference Case (2025)__

Canadian Lower 48 Production: 74.6 Bcf/ d Demand: 76.9 Bcf/ d Canadian I mports: 13.3 Bcf/ d

• Two main demands: End-use and

Exports

• Demand satisfied by:

− Canadian I mports − L48 Production − LNG I mports

30 Exports: 8.2 Bcf/ d LNG I mports: 0.24 Bcf/ d

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California Energy Commission

Common Scenarios: Reconfiguration of Supply Portfolio (2025)__

Canadian

High Price/ Low Demand

Lower 48 Production: 74.0 Bcf/ d Demand: 70.6 Bcf/ d Canadian I mports: 13.0 Bcf/ d

• Two main demands: End-use (-8.2% )

and Exports (+ 61.0% )

• Demand satisfied by:

− Canadian I mports (-2.3% ) − L48 Production (- 0.8% ) − LNG I mports (-100.0% )

• Competing sources of natural gas

reconfiguring the supply portfolio

Case (+ 16.9% )

31 Exports: 13.2 Bcf/ d LNG I mports: 0.0 Bcf/ d

reconfiguring the supply portfolio

( ) Percent change from reference case

California Energy Commission

Common Cases: Reconfiguration of Supply Portfolio (2025)__

Canadian

Low Price/ High Demand

Lower 48 Production: 78.3 Bcf/ d Demand: 83.0 Bcf/ d Canadian I mports: 13.2 Bcf/ d

• Two main demands: End-use (+ 8.0% )

and Exports (-36.5% )

• Demand satisfied by:

− Canadian I mports (-0.8% ) − L48 Production (+ 5.0% ) − LNG I mports (-58.3% )

• Competing sources of natural gas

reconfiguring the supply portfolio

Case (-16.2% )

32 Exports: 5.2 Bcf/ d LNG I mports: 0.1 Bcf/ d

reconfiguring the supply portfolio

( ) Percent change from reference case

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California Energy Commission

Common Cases: Supply Balance _______________________

Performance of Cases: Performance of Cases: California California

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California Energy Commission

Common Cases: Price Performance of Cases (Topock Hub) ___

8 00

Topock Hub Prices

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 2010$/Mcf New Hi Case New Ref Case New Low Case

• Orig. Hi Case
• Orig. Ref Case
• Orig. Low Case

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• I n general, prices behave as expected:

− High Price case produced highest prices − Low price case produced lowest prices

• The adjusted cases creates a larger “zone of uncertainty” for

California.

• Orig. Hi Case
• Orig. Ref Case
• Orig. Low Case

6/7/2013 18

California Energy Commission

Common Cases: California Supply Portfolio (2025)_________

• Calif. I mports (Malin):

2 67 Bcf/ d

Reference Case

2.67 Bcf/ d Southwest: Rocky Mountain: 1.22 Bcf/ d

• California Demand: End-use
• Demand satisfied by:

− I mports (Malin) − Rocky Mountain Supplies − Southwest Supplies − Local Production

35 California Production: 0.21 Bcf/ d Demand: 6.33 Bcf/ d 2.34 Bcf/ d

( ) Percent change from reference case

California Energy Commission

Common Cases: California Supply Portfolio (2025)_________

• Calif. I mports (Malin):

2 57 Bcf/ d

High Price/ Low Demand Case (+ 16.7% )

2.57 Bcf/ d Southwest: Rocky Mountain: 1.12 Bcf/ d

• California Demand: End-use (-8.2% )
• Demand satisfied by:

− I mports (Malin) (-3.7% ) − Rocky Mountain Supplies (-8.2% ) − Southwest Supplies (-11.5% ) − Local Production (-19.0% )

• Competing sources of natural gas

reconfiguring the supply portfolio

36 California Production: 0.17 Bcf/ d Demand: 5.81 Bcf/ d 2.07 Bcf/ d

( ) Percent change from reference case

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California Energy Commission

Common Cases: California Supply Portfolio (2025)_________

• Calif. I mports (Malin):

2 79 Bcf/ d

Low Price/ High Demand Case (-13.2% )

2.79 Bcf/ d Rocky Mountain: 1.32 Bcf/ d

• California Demand: End-use

(+ 10.6% )

• Demand satisfied by:

− I mports (Malin) (+ 4.5% ) − Rocky Mountain Supplies (+ 8.2% ) − Southwest Supplies (+ 16.7% ) − Local Production (+ 38.1% )

• Competing sources of natural gas

reconfiguring the supply portfolio

37 California Production: 0.29 Bcf/ d Demand: 7.00 Bcf/ d Southwest: 2.73 Bcf/ d

( ) Percent change from reference case

California Energy Commission

Summary:

_________________________________

• Work Ongoing with Cases
• Modeling I terative Process still ongoing
• More Stakeholders suggestions and comments

expected L Z f U t i t

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• Larger Zone of Uncertainty

6/7/2013 20

Assessing Uncertainty on Shale Production

39

California Energy Commission

Shale Production Uncertainty Cases: Shale Production Uncertainty Cases:

A Scenario Examination A Scenario Examination

Northwest Power and Conservation Council Northwest Power and Conservation Council Natural Gas Advisory Committee Meeting Natural Gas Advisory Committee Meeting June 07, 2013 June 07, 2013 Leon D. Leon D. Brathwaite Brathwaite Electricity Analysis Office Electricity Analysis Office Electricity Analysis Office Electricity Analysis Office Electricity Supply Analysis Division Electricity Supply Analysis Division California Energy Commission California Energy Commission leon.brathwaite@energy.ca.gov//916 leon.brathwaite@energy.ca.gov//916-

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California Energy Commission

Shale Production Uncertainty Scenario Cases: Brief Background_________________________

• I n the last ten years the development of natural

I n the last ten years the development of natural

• I n the last ten years, the development of natural

I n the last ten years, the development of natural gas resources from shale formations has gas resources from shale formations has generated much controversy: generated much controversy:

– The potential for groundwater contamination The potential for groundwater contamination – The possibility of increased seismic activity The possibility of increased seismic activity – The diversion of freshwater used in hydraulic The diversion of freshwater used in hydraulic fracturing fracturing

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fracturing fracturing – The possibility of added methane emissions. The possibility of added methane emissions.

California Energy Commission

Shale Production Uncertainty Scenario Cases: Brief Background (cont’d)____________________________________

Decision makers are re examining policies related to the

• Decision-makers are re-examining policies related to the

development of these resources: – Some jurisdictions such as New York have delayed the development of its shale resources – Others have instituted environmental impact fees – Others are tightening regulation of hydraulic fracturing

• Technological innovation has accelerated in the natural gas

industry

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y

• Natural gas from shale formations occupy larger share of total

Lower 48 production – I n April 2013, shale formations produced 30.6 bcf/ d – Production represents about 40% market share.

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California Energy Commission

Shale Production Uncertainty Scenario Cases: What are the Shale Production Uncertainty Cases?______

• The development of shale formations is

The development of shale formations is transforming the natural market transforming the natural market

• Four Scenario Cases will explore impact:

Four Scenario Cases will explore impact:

− Shale Abundance Shale Abundance − Shale Reconsidered Shale Reconsidered

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− Shale Expensive Shale Expensive − Shale Deferred Shale Deferred

California Energy Commission

Shale Production Uncertainty Scenario Cases: Key Variables___________________________________

• Variations in four key variables:

Variations in four key variables: Ch i th l t Ch i th l t − Changes in the supply cost curves Changes in the supply cost curves − Changes in the time of availability of some Changes in the time of availability of some resources resources − Changes in environmental impact fees Changes in environmental impact fees

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− Changes in the rate of growth of technological Changes in the rate of growth of technological innovation innovation

• Changes relative to the reference case.

Changes relative to the reference case.

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California Energy Commission

Shale Production Uncertainty Scenario Cases: Shale Abundance________________________________

• Shale Abundance:

Shale Abundance:

Begins with the Reference Case Begins with the Reference Case – Begins with the Reference Case Begins with the Reference Case – Supply Cost Curves ~ Supply Cost Curves ~

• Expanded resource base

Expanded resource base

• All known shale formations developed

All known shale formations developed

• Current estimates 15% low; lead to upward adjustment of curves

Current estimates 15% low; lead to upward adjustment of curves

– Availability ~ No delay in production hook Availability ~ No delay in production hook-

• ups

ups

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– Environmental I mpact Fees/ O &M ~ I mpact fees and Environmental I mpact Fees/ O &M ~ I mpact fees and water handling cost at low end of range: $0.30/ water handling cost at low end of range: $0.30/ Mcf Mcf – Technology & I nnovation ~ Technology grows at 2.5% . Technology & I nnovation ~ Technology grows at 2.5% .

California Energy Commission

Shale Production Uncertainty Scenario Cases: Shale Reconsidered______________________________

• Shale Reconsidered:

Shale Reconsidered:

− Begins with the Reference Case Begins with the Reference Case Begins with the Reference Case Begins with the Reference Case − Supply Cost Curves ~ Supply Cost Curves ~

• Concerns about hydraulic fracturing delay further development of

Concerns about hydraulic fracturing delay further development of shale formations shale formations

• Targeted moratorium on new drilling into shale formations

Targeted moratorium on new drilling into shale formations

• Resource base shrinks by 15%

Resource base shrinks by 15%

− Availability ~ Hookup of new production faces significant Availability ~ Hookup of new production faces significant

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environmental challenges; delays run about 3 years environmental challenges; delays run about 3 years − Environmental I mpact Fees/ O &M ~ I mpact fees and Environmental I mpact Fees/ O &M ~ I mpact fees and water handling cost at high end of range: $0.55/ water handling cost at high end of range: $0.55/ Mcf Mcf − Technology & I nnovation ~ Technology grows at 1.0% . Technology & I nnovation ~ Technology grows at 1.0% .

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California Energy Commission

Shale Production Uncertainty Scenario Cases: Shale Expensive_________________________________

• Shale Expensive:

Shale Expensive:

− Begins with the Reference Case Begins with the Reference Case Begins with the Reference Case Begins with the Reference Case − Supply Cost Curves Supply Cost Curves

• Resource base unchanged from the reference case

Resource base unchanged from the reference case

− Availability ~ Hookup of new production faces significant Availability ~ Hookup of new production faces significant environmental challenges; delays run about 3 years environmental challenges; delays run about 3 years − Environmental I mpact Fees/ O &M ~ Environmental Environmental I mpact Fees/ O &M ~ Environmental i t f i j i di ti 20% hi h th i t f i j i di ti 20% hi h th

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impact fees in many jurisdictions are 20% higher than impact fees in many jurisdictions are 20% higher than high end cost, reaching $0.67/ high end cost, reaching $0.67/ Mcf Mcf − Technology & I nnovation ~ Technology grows at 0.5% . Technology & I nnovation ~ Technology grows at 0.5% .

California Energy Commission

Shale Production Uncertainty Scenario Cases: Shale Deferred__________________________________

• Shale Deferred:

Shale Deferred:

− Begins with the Reference Case Begins with the Reference Case Begins with the Reference Case Begins with the Reference Case − Supply Cost Curves ~ Supply Cost Curves ~

• Resource base unchanged from the reference case

Resource base unchanged from the reference case

− Availability ~ Hookup of new production faces significant Availability ~ Hookup of new production faces significant environmental challenges; delays run 3 environmental challenges; delays run 3 -

• 5 years

5 years − Environmental I mpact Fees/ O &M ~ I mpact fees and Environmental I mpact Fees/ O &M ~ I mpact fees and t h dli t t hi h d f t $0 55/ t h dli t t hi h d f t $0 55/ M f M f

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water handling cost at high end of range at $0.55/ water handling cost at high end of range at $0.55/ Mcf Mcf − Technology & I nnovation ~ Technology grows at 1.0% . Technology & I nnovation ~ Technology grows at 1.0% .

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California Energy Commission

Shale Production Uncertainty Scenario Cases: Final__________________________________________

Questions & Comments Questions & Comments

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CO2 Co sts (dra ft)

• CO2 Cost is incorporated in estimates of the retail
• CO2 Cost is incorporated in estimates of the retail

rates costs that consumers see.

• CO2 costs are also incorporated in calculation of

wholesale electricity prices.

• CO2 costs are also incorporated in resource

selection process in Council’s Portfolio model.

• Steve Simmons will talk about range of CO2 costs.

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Curre nt Assumptio ns (sub je c t to c ha ng e )

60.00 70.00 80.00

$

Who le sa le Pric e F

• re c a st a t Mid C

10.00 20.00 30.00 40.00 50.00 60.00

$/ MWh 2012 Re al $

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0.00 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2032 2032 2032

Ye ar

De la ye d F e de ra l CO2 No F e de ra l CO2 So c ial Co st CO2 So c ial Co st CO2 Pha se d I n

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Straw Man Proposal for Preliminary Seventh Plan Forecast of Prices

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Ba c kg ro und

• In the past three years we have seen major changes:
• In the 2011 update, we lowered our long-term forecast of natural gas

prices to reflect structural changes in the natural gas supply picture (due to technological changes such as hydraulic fracturing , horizontal drilling, and natural gas from shale formations.)

• In 2012, we provided a lower short-term price forecast for the

2012-2015 period while maintaining long-term price forecast for 2016-2030 3

• In this year’s forecast we raised short-term price forecast and

narrowed the forecast range.

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14.00 16.00 18.00

He nr y Hub Monthly Pr ic e s Constant 2012 dollar s

4.00 6.00 8.00 10.00 12.00 55 0.00 2.00

Ja n-89 Se p-89 Ma y-90 Ja n-91 Se p-91 Ma y-92 Ja n-93 Se p-93 Ma y-94 Ja n-95 Se p-95 Ma y-96 Ja n-97 Se p-97 Ma y-98 Ja n-99 Se p-99 Ma y-00 Ja n-01 Se p-01 Ma y-02 Ja n-03 Se p-03 Ma y-04 Ja n-05 Se p-05 Ma y-06 Ja n-07 Se p-07 Ma y-08 Ja n-09 Se p-09 Ma y-10 Ja n-11 Se p-11 Ma y-12

Wha t a diffe re nc e a ye a r c a n ma ke . June 11, 2012 : pric e s in lo w $2 ra ng e

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By April 2013 pric e s we re o ve r $4.

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Na tura l Ga s Stra wma n Pro po sa l c o mpa re d to sho rt-te rm pric e s fro m SNL Annua l Strip( a s o f Ma y 1, 2013 )

Natur al Gas Pr ic e He nr y Hub

2011 2012 2013 2014 2015 2016 2017 2018 2019

• 1.0

2.0 3.0 4.0 5.0 6.0

2012$/ MMBT U

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2011 2012 2013 2014 2015 2016 2017 2018 2019 Co unc il L 4.0 2.7 3.7 3.8 3.9 3.9 4.0 4.0 4.0 Co unc il M 4.0 2.7 3.9 4.1 4.2 4.4 4.5 4.6 4.7 Co unc il H 4.0 2.7 4.1 4.3 4.6 4.8 5.0 5.3 5.5 SNL 4.05 2.66 4.37 4.26 4.14 4.08 4.08 4.14 4.28

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Pre limina ry L

• ng te rm Na tura l

L

• ng -te rm Na tura l

Ga s Pric e F

• re c a st

fo r use in the Co unc il’ s Se ve nth Pla n

Range of L

• w Price Forecast Range of Medium Price ForecRange of High Price Forec

Mi i A M Mi i A M Mi i A M

Re sults o f NGAC Po ll

Minimum Average Max Minimum Average Max Minimum Average Max 2015 2.14 3.19 4.15 2.86 3.87 4.58 4.19 4.70 5.25 2020 2.06 3.46 4.17 3.03 4.45 5.10 4.17 5.53 7.28 2025 2.02 3.64 4.43 3.19 4.67 5.53 4.23 5.85 8.30 2030 2.03 3.66 4.89 3.14 4.66 5.84 4.07 6.06 8.76 2035 2.03 3.66 5.04 3.07 4.70 6.31 4.02 6.24 9.46

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2035 2.03 3.66 5.04 3.07 4.70 6.31 4.02 6.24 9.46

Amo ng the re spo nde nts the re is a wide ra ng e o f e xpe c ta tio ns

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Proposed Henry Hub Price Forecasts $2012/MMBTU Average values from NGAC Poll in 2012$/MMBTU Council L Council M Council H Poll- LOW Poll- Medium Poll-High 2011 4.0 4.0 4.0 2012 2.7 2.7 2.7 2013 3.7 3.9 4.1 2014 3.8 4.1 4.3 2015 3.9 4.2 4.6 3.3 3.9 4.7 2020 4 0 4 8 3 4 6 6 2020 4.0 4.8 5.7 3.7 4.6 5.6 2025 4.1 5.3 6.6 3.9 4.8 5.9 2030 4.2 5.8 7.2 3.9 4.8 6.2 2035 4.3 6.4 8.0 3.9 4.9 6.3 Average 2015-2035 4.1 5.3 6.4 3.7 4.6 5.8

Annual Growth rate 2015-2020 0.7% 2.5% 4.6% 2.5% 3.3% 3.6% 2020-2025 0.5% 2.0% 2.8% 1.0% 1.1% 1.3% 2025-2030 0.5% 2.0% 2.0% 0.1% 0.0% 0.8% 2030 2035 0 4% 2 0% 2 0% 0 0% 0 3% 0 4%

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Co unc il’ s fo re c a st o f 2012 HH pric e s wa s 2.6 $/ MMBT U, Ac tua l HH pric e fo r 2012 wa s 2.7 $/ MMBT U

2030-2035 0.4% 2.0% 2.0% 0.0% 0.3% 0.4% 2012-2035 2.1% 3.9% 4.9% 1.6% 2.6% 3.7%

Co mpa riso n o f 2012 a nd 2013 fo re c a sts (2012$/ MMBT

U)

10 0 12.0

2012 Counc il L

2 0 4.0 6.0 8.0 10.0

2012 Counc il M 2012 Counc il H 2013 Pr

• pose d Counc il L

62

• 2.0

2013 Pr

• pose d Counc il M

2013 Pr

• pose d Counc il H

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Co mpa riso n to o the r fo re c a sts

• AEO 2013 Reference case
• CEC 2013 (preliminary)
• IHS_Global Insight
• Natural Gas Week quarterly Analysts
• Idaho Power IRP
• Poll of NGAC members
• SNL (short-term 2013-2014)

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Va rio us L

• ng -te rm fo re c a sts

(2012$/ MMBT U)

8 0 9.0 10.0

Co unc il L Co unc il M Co unc il H O 20 3 f

3.0 4.0 5.0 6.0 7.0 8.0

AE O 2013-Re fe re nc e AE O Hig h g ro wth AE O L

• w g ro wth

CE C Pre limina ry L

• w

CE C Pre limina ry ME D CE C Pre limina ry Hig h I DP- L OW I DP- ME D I DP- HI GH

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• 1.0

2.0

Po ll- L OW Po ll- Me dium Po ll-Hig h I HSGI

• L
• w

I HSGI

• Me dium

I HSGI

• Hig h

6/7/2013 33

L

• w Ra ng e o f the F
• re c a sts

(2012$/ MMBT U)

6.0 7.0

Co unc il L

2.0 3.0 4.0 5.0 6.0

AE O L

• w g ro wth

CE C Pre limina ry L

• w

I DP- L OW P ll L OW

65

• 1.0

Po ll- L OW I HSGI

• L
• w

Me dium Ra ng e o f F

• re c a st

(2012$/ MMBT U)

7.0 8.0

Co unc il M

2 0 3.0 4.0 5.0 6.0 7.0

AE O 2013- Re fe re nc e CE C Pre limina ry ME D I DP- ME D Po ll- Me dium

66

• 1.0

2.0

Po ll Me dium I HSGI

• Me dium

6/7/2013 34

Hig h Ra ng e o f F

• re c a st

(2012$/ MMBT U)

9.0 10.0

Co unc il H

3.0 4.0 5.0 6.0 7.0 8.0

AE O Hig h g ro wth CE C Pre limina ry Hig h I DP- HI GH Po ll-Hig h

67

• 1.0

2.0

Po ll Hig h I HSGI

• Hig h

Co mpa riso n o f 6th a nd pro po se d Pre limina ry 7th Po we r Pla n F

• re c a st o f

Na tura l Ga s Pric e s (2012$/ MMBT U)

14.0 4.0 6.0 8.0 10.0 12.0

6th Pla n L

• w

6th Pla n Me dium 6th Pla n Hig h Pro po se d 7th Pla n L

• w

68

• 2.0

Pro po se d 7th Pla n M Pro po se d 7th Pla n H

6/7/2013 35

Wo uld yo u re c o mme nd

• For 2013-2014 we use SNL market data?
• For 2015-2035 use a blend of strawman

proposal and the poll results?

• Lower growth rate in long-term (post 2025

prices)?

69

F ue l Pric e s F uture s in Co unc il’ s Po rtfo lio Mo de l

“Futures are how the Portfolio Model stress-tests resource strategies”

• Dr. Mic ha e l Sc hilmo e lle r

70

6/7/2013 36

So urc e s o f Unc e rta inty

• Fifth Pow er Plan

 S

ixth Po we r Plan

– Load requirem ents – Gas price – Hydrogeneration – Electricity price – Forced outage rates – Alum inum price – Carbon allow ance cost

 Po we r plant c o nstruc tio n

c o sts

 T

e c hno lo gy availability

 Co nse rvatio n c o sts and

pe rfo rmanc e – Production tax credits – Renew able Energy Credit (Green tag value)

Diffe re nt K ind o f Risk Mo de ling

• Imperfect foresight and use of decision

Imperfect foresight and use of decision criteria for capacity additions

• Adaptive plans that respond to futures

– Primarily options to construction power plants or to take other action – May include policies for particular resources

72

May include policies for particular resources

• “Scenario analysis on steroids”

– 750 futures, strategic uncertainty – Frequency that corresponds to likelihood

Planning Principles

6/7/2013 37

Ob se rva tio ns

• Stress-testing means

– Using extreme and unlikely futures

(Don’t predict! Test!)

– Looking at unusual relationships

(Remember the Mortgage Crisis!)

– Thinking in terms of effect and categories of Thinking in terms of effect and categories of uncertainty , rather than detailed causes

(Remember Boardman and Centralia!)

73

E xa mple risk tre a tme nt – na tura l g a s pric e s

14 00 16.00 4.00 6.00 8.00 10.00 12.00 14.00 2004 Dollars Per MMBtu

74

0.00 2.00 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 Quarters 2

6/7/2013 38

Na tura l Ga s Pric e s

30.00

0% 10% 20%

5.00 10.00 15.00 20.00 25.00 2004 $/MMBTU

20% 30% 40% 50% 60% 70% 75

0.00 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19 Sep-21

80% 90% 100%

Ra ng e o f F

• re c a st Na tura l Ga s Pric e De live re d to

E le c tric Utilitie s PNW E a st &De c ile s use d in RPM (2006$/ mmBT U)

12 00 14.00 16.00

10

6.00 8.00 10.00 12.00

20 30 40 50 60 70 80 90 F

• re c a st-L
• w

0.00 2.00 4.00

3 7 111519232731353943475155596367717579

F

• re c a st-Me dium L
• w

F

• re c a st-Me dium

F

• re c a st-Me dium Hig h

F

• re c a st-hig h

Qua rte rly pric e s - 2010-2029

76

For illustration only

6/7/2013 39

Ne xt Ste ps

• Create the proposed fuel price forecasts for the

Create the proposed fuel price forecasts for the Seventh Power Plan.

• Review and approval by Council- July
• Prepare report on updated price forecast - July
• Incorporate forecast fuel prices in:

– Demand Forecast October 2013 – Electricity price forecast November 2013 – Council’s Portfolio Model 2014

77

F e e db a c k o n this ye a r’ s fo rma t

• Does holding the meeting right after

NWNGA l f k? NWNGA annual conference work?

• Does the early start suit you.
• Any other comments???

78

6/7/2013 40

Thank you for your participation

Pro po se d F

• re c a st o f Re fine rs Ac q uisitio n

Co st (2012$/ b a rre l) fo r use in Co unc il’ s Se ve nth Po we r Pla n

140 0 160.0 60.0 80.0 100.0 120.0 140.0

Ac tual L

• w

Me dium low Me dium Me dium High 80

• 20.0

40.0 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033

High

6/7/2013 41

Pro po se d F

• re c a st o f Re fine rs Ac q uisitio n Co st

(2012$/ b a rre l) fo r use in Co unc il’ s Se ve nth Po we r Pla n

160.0 60.0 80.0 100.0 120.0 140.0

L

• w

Me dium

81

• 20.0

40.0 60.0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

High

Co mpa riso n o f RAQ Co st 2012$/ Ba rre l

200.0 250.0

Pro po se d L

• w

Pro po se d Me dium P d Hi h

100.0 150.0

Pro po se d Hig h Po ll-L

• w

Po ll Me dium Po ll Hig h I HSGlo bal-L

• w

I HSGlo bal-Me dium

82

• 50.0

I HSGlo bal-Hig h AE O-L

• w

AE O-Me dium AE O-Hig h

6/7/2013 42

Pro po se d Oil Pric e F

• re c a st fo r

Co unc il’ s Se ve nth Po we r Pla n

Refiners Acquisition Cost $2012 dollars per Barrel Refiners Acquisition Cost $dollars per Barrel Low Medium High Low Medium High 2015 81 96 116 2015 85 101 122 2020 77 100 122 2020 88 114 139 2025 73 104 128 2025 91 128 159 2030 70 108 135 2030 94 145 182

83

2035 66 112 141 2035 98 165 209

Co mpa riso n o f PRB Co a l Pric e F

• re c a sts

2012$/ MMBT U

1 4 1.6 1.8

Pro po se d L

• w

0 4 0.6 0.8 1.0 1.2 1.4

p Pro po se d Me dium Pro po se d Hig h AE O2013 L OW AE O2013 Re fe re nc e

84

• 0.2

0.4

AE O2013 Hig h SNL

6/7/2013 43

Histo ric a l a nd Pro po se d F

• re c a st o f PRB Co a l

Pric e s (2012$/ MMBT U) fo r Use in Co unc il’ s Se ve nth Po we r Pla n

1.20 1.40 0.40 0.60 0.80 1.00

85

• 0.20

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

Ac tua l L

• w

ME D-lo w Me dium Me dium Hig h Hig h

2012 is the last year for actual prices Co mpa riso n o f 6th a nd pro po se d 7th Po we r Pla n F

• re c a st o f Re fine rs Ac q uisitio n Co st (2012$/ Ba rre l)

140.0 160.0 40.0 60.0 80.0 100.0 120.0

6th Pla n L

• w

6th Pla n Me dium 6th Pla n Hig h Pro po se d 7th Pla n L

• w

Pro po se d 7th Pla n Me dium Pro po se d 7th Pla n Hig h

86

• 20.0

0.0

6/7/2013 44

Pro po se d PRB pric e F

• re c a st

2012$/ MMBT U

Year Low Medium High Year Low Medium High 2015

0.77 0.79 0.81

2020

0.75 0.81 0.86

2025

0.73 0.83 0.91

2030

0.71 0.85 0.97

87

2035

0.70 0.88 1.03

Thank you for your participation