Hill Energy Services – Energy Intelligence Update April 8, 2009
www.Hill-Energy.com
• Crude oil, gasoline and diesel prices have been stuck in the
2008-09 Wholesale Crude Oil & Diesel Prices doldrums for the past two weeks, with nothing pushing prices
$80 $2.50 much in either direction. Diesel fuel has been costlier than
gasoline for most of the past two years. It’s recently been at par
$70
with gasoline, due to decreased commercial demand in both the
$2.00 US and foreign markets.
$60
• Natural gas prices continue to sink. As with oil, there’s nothing
$50 pushing prices up. Demand from industrial users and electric
$-Barrel Crude
$1.50
$-Gallon
power plants continues to be anemic. The University of
$40
Colorado’s Hurricane Center revised its prediction of tropical
` storm activity downwards. They are predicting an average
$1.00
$30
hurricane season this year, thereby denying energy traders a
reason to push prices higher.
$20
$0.50
• Maryland has been looking at ending or curtailing its deregulated
$10
electricity market. A bill that would have ended retail energy
choice for all but the largest customers failed to pass. Another bill
$- $0.00
that is still under consideration would require the state’s utilities to
v r r
c n b
No Ma Ap
De Ja Fe return to owning their generating plants, with electric rates set by
Crude Diesel Gasoline state regulators. Electricity prices for commercial customers in
Maryland rose 88 percent over the past 10 years. These moves
are a reaction to this, yet even proponents of the bills have
Natural Gas Price History acknowledged that re-regulating the electricity market would not
cut prices in the short-term. This is a case of trying to put the
$16.00
genie back in the bottle.
$14.00
Average Energy Costs – April 8, 2009
$12.00
This Week Last Month Last Year
$ per mmBtu
$10.00 Retail Diesel $2.27 /gal. $2.17/gal $4.02 /gal
Retail Gasoline $2.05/gal. $1.95/gal. $3.33/gal
$8.00
Crude Oil $ 49.13/bbl $47.02/bbl $108.91/ bbl
$6.00
Natural Gas $0.356/thm $0.387/thm $.970 /thm
$4.00 Sources: US Dept. of Energy, EIA; AAA/OPIS
$2.00
About Hill Energy Services
l
ar ct
r v
ay
n n c
g p
b Ju
Ap No
Ja Ju De
Fe Au Se O
M M We provide commercial and industrial customers with a full range of tools to help them
manage both their energy usage and costs. These services include strategic energy
2005 2006 2007 2008 2009
planning and procurement as well as making buildings systems and processes more
efficient.
Disclaimer: This information is provided for the convenience of our customers and potential customers. Hill Energy Services LLC assumes no responsibility or liability for the information in this document. Historical data was obtained from sources believed to be
reliable, but we do not guarantee its accuracy or completeness. It is not intended to provide advice or recommendation. This document may not be reproduced without the specific written permission of Hill Energy Services LLC.

Hill Energy Services – Energy Intelligence Update April 8, 2009
www.Hill-Energy.com
It’s not the numbers, but what you do with them
The drop in natural gas prices over the past nine months is reflected in the “forward
We recently reviewed a vendor’s proposal to one of our clients. The
price curve”, which shows the long-term futures prices at various points in time. The
proposal was for a purchased power agreement (PPA) for a solar
curve can be useful for trying to project prices forward. In areas like the Northeast
project. The gist of a PPA is that the vendor installs a photovoltaic
and Texas, where much electricity is generated by burning gas, it serves as a proxy
system on your roof at their cost, and sells you the power over a long-
for the relative price of electricity.
term contract (typically 15 to 20 years). PPA’s have their pros and
cons, but what struck me about this proposal was how much the
Forward Curve - Natural Gas Futures through 2012
benefits to my client varied, depending on the assumptions that were
$15.00
used.
The vendor used a regional average price for electricity to show the
savings and avoided costs. They also assumed that the price of
$13.00
electricity would increase by an average of 5 percent a year for 15
years. The table below shows how small changes in the baseline
assumptions can have an enormous impact on the project economics.
$11.00
Assumptions Estimated Savings
$9.00
Electric rate at % change in 15-year Average
$/mmBtu
project start electric prices term Annual
11.9 cents/kWh – 5% $508,500 $33,900
$7.00
regional avg
10.6 cents/kWh – 5% $340,000 $22,700
actual cost
$5.00
10.6 cents/kWh 2.7% $125,000 $ 8,300
10.6 cents/kWh 4.2% $260,000 $17,400
10.6 cents/kWh 8.2% $722,000 $48,100
$3.00
08 09 r-09 -09 -09 t-09 -09 -10 r-10 -10 -10 t-10 -10 -11 r-11 -11 -11 t-11 -11 -12 r-12 -12 -12 t-12 -12
c- e b - c c c c
n g b n g b n g b n g
c c c c
A p Ju A u A p Ju A u Ap Ju Ap Ju
De De De De De
Fe Fe Au Fe Au
O O O O
F
The vendor clearly should have used a different electric rate as the
Prompt Month Price
starting point of their proposal. The assumption regarding the rate at
Jan-08 May-08 Jul-08 Nov-08 Jan-09 Apr-09
which electricity rates will increase is less clear cut. All of these
.
numbers have some grounds in truth. In this particular state, average
Average Annual Price Increases
commercial electricity prices increased by:
Time Frame: 5 years 10 years 15 years • 2.7% per year over the past 15 years
California – Electricity 2.3% 2.9% 1.2% • 4.2% per year over the past 10 years
• 8.2% per year over the past 5 years
Massachusetts – Electricity 7.9% 6.2% 3.4%
New York– Electricity 4.9% 4.5% 2.3%
Anyone with a retirement plan knows that past results are not
Ohio – Electricity 3.6% 1.9% 1.2%
necessarily an accurate predictor of future performance. No one can
South Carolina – Electricity 4.3% 3.1% 2.0%
predict the future, but it is possible (and vital) to sift through the
Texas – Electricity 6.2% 5.0% 2.8%
underlying assumptions of a major project and identify how they affect
Crude Oil Spot Price 19.2% 21.3% 12.4% the desired outcome and what risks they may entail.
US Inflation (CPI) 2.7% 2.8% 2.5%
Electricity prices are average retail costs to commercial customers, per EIA
Disclaimer: This information is provided for the convenience of our customers and potential customers. Hill Energy Services LLC assumes no responsibility or liability for the information in this document. Historical data was obtained from sources believed to be
reliable, but we do not guarantee its accuracy or completeness. It is not intended to provide advice or recommendation. This document may not be reproduced without the specific written permission of Hill Energy Services LLC.