Direct Energy Business Monthly Webinar. Expressly for Channel Partners February 25, 2016

Direct Energy Business Monthly Webinar Expressly for Channel Partners February 25, 2016

Webinar Agenda Tim Bigler, Sr. Market Strategist Commodity Market Update Beau Gjerdingen, Meteorologist Spring weather outlook and its impact to the energy markets Chris Kallahar, Sr. Director, Government & Regulatory Affairs Q&A-NY PSC Announcement All Question & Answers

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Commodity Market Update Tim Bigler, Sr. Market Strategist

Gas/Power Themes NATURAL GAS Stable U.S. Gas Production? Basis Influences Will Demand Catch Up to Supply? POWER Lower Electricity Energy Costs Due to Lower Gas Prices/Efficiency Black Swan? Potential Coal Price Increases

$5.50 NYMEX Cal s 2017-2021 At/Near All-Time Lows $5.00 $4.50 $4.00 $3.50 $3.00 MARCELLUS BREAK EVEN? NG 2017 NG 2018 NG 2019 NG 2020 NG 2021 $2.50 Bcf/M JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 1/8/2014 2/8/2014 3/8/2014 4/8/2014 5/8/2014 6/8/2014 7/8/2014 8/8/2014 9/8/2014 10/8/2014 11/8/2014 Bloomberg Finance L.P.; FOR INFORMATIONAL PURPOSES ONLY 12/8/2014 1/8/2015 2/8/2015 3/8/2015 4/8/2015 5/8/2015 6/8/2015 7/8/2015 8/8/2015 9/8/2015 10/8/2015 11/8/2015 12/8/2015 1/8/2016 2/8/2016

$50.00 ERCOT Cal s 2017-2019 At All-Time Lows $45.00 $40.00 $35.00 $30.00 ERCOT ATC 2017 ERCOT ATC 2018 ERCOT ATC 2019 $25.00 $20.00 2/18/2014 3/18/2014 4/18/2014 5/18/2014 6/18/2014 7/18/2014 8/18/2014 9/18/2014 10/18/2014 11/18/2014 12/18/2014 1/18/2015 2/18/2015 3/18/2015 4/18/2015 Bcf/M JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 5/18/2015 6/18/2015 7/18/2015 8/18/2015 9/18/2015 10/18/2015 11/18/2015 12/18/2015 1/18/2016 Bloomberg Finance L.P.; FOR INFORMATIONAL PURPOSES ONLY

Sub-$3.50 Could SLOW Marcellus Production Bcf/M JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Range Resources

UNHEDGED Dry/Wet/Associated Gas Production P E R C E N T * H E D G E D At Risk in Sub $2.50 NG & $40 WTI Market GREATER 2016 GAS PRODUCTION DECLINING HEDGES IMPACT NG DRY GAS NGL WET GAS CRUDE OIL ASSOCIATED GAS ESTIMATED NG AT RISK 2 4 BCF PER DAY? Bcf/M JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC LESSER 2016 2017 2018

Northeast Pipeline Capacity Increases Production Sets Record 80 70 60 50 40 30 20 10 0 NORTHEAST PRODUCTION RECORD ~23.1 BCF/D 02/11/2016 ~4 Y-o-Y NE Dry U.S. Dry Bentek Energy LLC; FOR INFORMATIONAL PURPOSES ONLY

PA Shale - Large Well Backlog Supports Future Production? AT WHAT PRICE? Bloomberg

Will Sub-$3.50 NG Price = Flat NG Production? EIA

Flat NG Production Forecast? WHY? All-time low drilling/production costs Higher production volumes per dollars spent NGL/Oil price uplift (Not currently, but ) Long term pipeline commitments Increasing demand Share price concerns

NG Basis Pipeline/LNG Projects Impact DOMINION ATLANTIC COAST PIPELINE 1,500 DTH/D, LATE 2018 Columbia;Dominion; Bentek Energy LLC

NG Basis Pipeline/LNG Projects Impact DOMINION ATLANTIC COAST PIPELINE 1,500 DTH/D, LATE 2018? COVE POINT LNG LATE 2017 Targeted Start Date Columbia;Dominion; Bentek Energy LLC

Will U.S. Demand Catch Supply? If Yes, When? SUPPLY? DEMAND 2016 2017 2018 2019

U.S. Power Sector Off-peak Demand Shifts Up 40 35 30 25 20 15 U.S. Power Burn Bcf/day 2015 YTD +3.8 Bcf/day 10 5 Off-peak shift up implies higher Natural gas consumption ATC Bentek Energy LLC

4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5 U.S. to Mexico Pipeline Capacity Significant Expansions Proposed Mexican Exports Bcf/Day 12/29/2015 RECORD 3.552 Bcf FEB 2016 MTD Y-o-Y +1.2 Bcf Bcf/M JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Bentek Energy LLC

Why Gas Basis is IMPORTANT 2016 Northeast Summer Delivered Gas Below Coal in DOM S/TCO/TETCO M3 NEGATIVE BASIS NYMEX Gas>Coal COAL Gas=Coal

Energy MWh Price Set by Natural Gas Example: Need to generate 100,000 MW Everyone gets paid $40 / MWh Fuel Options Natural Gas 13,000 MW Last Unit available can generate 5,000 MW Cost = $40 / MWh Coal 51,000 MW Cost = $30 / MWh Nuclear 36,000 MW Cost = $20 / MWh

New NG Power Plant Efficiency Lowers Electric Energy Prices Gas Plant Heat Rate Btu/kWh 12,000 10,000 8,000 Assumption: $2/MMBtu Gas Input U.S. GAS RECORD $24 U.S. OIL 28Y HIGH $20 $16 U.S. RECORD 1990 s 2000-2010 2011 - XXXX

New NG Power Plant Efficiency Gas Plant Raises Coal to Gas Floor Heat Rate Btu/kWh 8,000 10,000 12,000 Assumption: Coal $24/MWh U.S. GAS RECORD U.S. OIL 28Y HIGH $2.00 $2.40 $3.00 U.S. RECORD 1990 s 2000-2010 2011 - XXXX

$4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 New NG Power Plant Efficiency Mar-16 Jun-16 Sep-16 Raises Coal to Gas Floor Dec-16 Mar-17 Jun-17 Sep-17 U.S. GAS RECORD U.S. OIL 28Y HIGH Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 $10.00 $5.00 $0.00 -$5.00 U.S. -$10.00RECORD -$15.00 -$20.00 CSX Coal MMBtu TETM3Fixed Coal-M3 Bloomberg Finance L.P.; FOR INFORMATIONAL PURPOSES ONLY

$90.00 PJM Electric Pricing It s More Than ENERGY Costs PJM Market Perspective Wholesale Cost of Load Increases in Capacity Markets/RPM, Market Risk Premiums, Ancillary Services Costs, & Growing Renewable Energy Requirements $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $32 $31 $30 $33 $37 Capacity Load Following Ancillaries Risk Premiums Renewables $20.00 $10.00 $42 $45 $39 $34 $34 PPL Zone ATC Energy Price $- 2013 2014 2015 2016 2017 Energy Non-Energy Price Components ILLUSTRATIVE PRICES FOR INFORMATIONAL PURPOSES ONLY

ISO-NE Electric Pricing It s More Than ENERGY Costs ISO-NE Capacity Cost of a 50% Load Factor Customer - /KWh 5.00 4.50 4.00 4.51 3.60 3.88 4.34 3.60 3.50 3.00 2.63 2.63 2.72 2.88 2.88 2.70 2.70 2.50 2.00 1.50 1.00 0.50 1.85 1.21 1.21 1.21 1.21 1.08 1.08 1.16 0.00 2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 Rest of Pool NEMA SEMA/RI CT ILLUSTRATIVE PRICES FOR INFORMATIONAL PURPOSES ONLY

Aliso Canyon Storage Cavern Update Posted 02/19/16 on DEB Website Bcf/M JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Bloomberg New Energy Finance; FOR INFORMATIONAL PURPOSES ONLY

CAISO Power Prices Near New England in Lower Demand Periods Bcf/M JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC CAISO; FOR INFORMATIONAL PURPOSES ONLY

Gas/Power Summary PRODUCTION Double Digit Growth - How much longer? Economics Unhedged gas is unprofitable NG PRICING Commodity Stagnant gas production may imply higher $$$ Basis Producers moving gas to higher priced markets Budget Fixed or Managed Approach MW PRICING Gas/Electric Prices Highly correlated Electric costs More than ENERGY Budget Fixed or Managed Approach

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Spring Weather Outlook Beau Gjerdingen, Meteorologist

Winter So Far (Temperatures) Tied With 2001/02 For Warmest On Record 31

32 Winter So Far (Precipitation)

Current/Forecast State of El Niño Weak 0.5-1.0 Moderate 1.0-2.0 Strong >2 Strong Moderate Weak Neutral Nina 33

34 Analogs For Spring Precipitation

35 Analogs for Spring Temperatures

36 A Look At Global Sea Surface Temperatures

Early Thoughts On Summer El Nino will dissipate, leaving neutral ENSO conditions for summer More active than normal hurricane season seems likely Other teleconnections (Sea Surface Temperatures, Soil Moisture) still can change much before Summer, too soon to use Market is generally bullish on summer heat based on a La Nina assumption (a bad assumption) No skill in summer weather forecasts at this range 37

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Thank you for attending today s Webinar! Today s slide presentation can be found at: http://www.business.directenergy.com/market-update-webinar