State of Ohio Natural Gas Program /
Natural Gas 101
Ohio Natural Gas Program and Industry Terminology
September 2009
Introduction of The E Group
Ohio Natural Gas Program and Industry Terminology
September 2009
The E Group
A National Provider of Energy Management Services
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Information management
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Energy consulting, procurement and rate audits
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Risk management
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Supply and demand-side energy management strategies
September 2009
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Organizational Chart
FirstEnergy Corp. (NYSE: FE)
A Public Utility Holding Company
$12B Market Cap
$34B Assets
FirstEnergy
Generation
FirstEnergy Utilities
Competitive Unit of FE
FirstEnergy Solutions
The E Group
September 2009
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Natural Gas 101
Ohio Natural Gas Program and Industry Terminology
September 2009
What is Natural Gas?
•Created by organic matter decaying over millions of
years, creating hydrocarbons.
•Hydrocarbons existed between sand and porous
rock, eventually forming natural gas and liquid
petroleum.
•Primary component is Methane (CH4).
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Gas Measurements
•CCF - abbreviation for one hundred cubic feet of gas
•MCF - abbreviation for one thousand cubic feet of gas
•BCF - abbreviation for billion cubic feet of gas
•Decatherm (Dth) - ten therms or one million btu, the
approximate heat content of one thousand cubic feet of gas;
(1 therm is equal to 100,000 Btu)
•MMBtu - Million British Thermal Units; (1MMBtu = 1 Dth)
September 2009
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MCF versus DTH - Conversion
Price
Dth x Btu = MCF
MCF / Btu = Dth
Volume
Dth / Btu = MCF
MCF x Btu = Dth
September 2009
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Roles in the Marketplace
•Producer - one who owns or leases wells producing oil or gas
•Transmission Pipeline – pipeline installed to transmit gas from a source or
sources of supply to one or more distribution companies.
•Interstate Pipeline - a company that transports natural gas across state lines.
Governed by Federal Energy Regulatory Commission (FERC)
•Intrastate Pipeline - a company that transports gas within one state’s
boundaries
•Distribution Pipeline - LDC - a natural gas utility that sells gas directly to
consumers under jurisdiction of a state regulatory commission
•Local Distribution Company (LDC) - a company that buys gas, then distributes
and resells it to residential, commercial, and industrial customers.
•Marketer - a company involved in the business of purchasing and reselling gas
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Industry Terms
•Wellhead – point where gas is extracted and measured
•Gathering Lines- pipelines that connect wells or meters to a
transmission line
•City Gate - the site where a distribution utility company receives
and measures gas from a pipeline company.
•Transportation - the movement of gas for third parties through
pipeline facilities for a fee
•Fuel Loss / Fuel Inverse / Retainage - a small percentage of
gas kept by the transporter for use primarily as compressor fuel.
•GCR – Gas Cost Recovery Rate - the cost of gas that a LDC
buys to serve its customers.
September 2009
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Natural Gas Futures
Energy Related Futures Exchanges:
•The “New York Mercantile Exchange” (“NYMEX”) Natural Gas @ Henry Hub
• A NYMEX Natural Gas Contract Unit is 10,000 MMBtu
delivered over a monthly period
•Delivery Point is Henry Hub, LA. Seller moves
gas through hub & pays hub fee.
•The NYMEX is trading through 2020 although
there is not a lot of liquidity beyond three years at
this point
•Trading terminates 3 business days prior to the
deliver month
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Basis
Basis - the differential that exists any time between the
futures or forward price for a given commodity and the
comparable cash or spot price for the commodity.
Basis can reflect different time periods, product
qualities, or locations.
September 2009
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Burner Tip Cost Components
Example – September 2009 Gas
Component
Commodity (NYMEX LTDS)
Basis
Local Distribution
Total
Burnertip Price Components
Per DTH
$ 2.843
$ 1.250
$ 2.500
$ 6.593
Commodity (NYMEX
LTDS)
Basis
Local Distribution
September 2009
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State of Ohio Natural Gas Program
Ohio Natural Gas Program and Industry Terminology
September 2009
Overview

A procurement initiative that takes advantage of the
buying power of many state accounts in order to save
money on gas bills
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Deregulation allows purchasing gas from third-party
suppliers
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State program in place since mid-1990’s
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Administered through DAS
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The E Group began administering the program in May
2003
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Successes!
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Over $27 million saved FY 2004 through 2008.
Average savings of 11% of spend compared to
applicable utility rates
Over $50 million annual spend
Over 4,400,000 mcf/yr.
There are many large, reputable suppliers seeking the
State’s gas business!
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Current Enrollment
 149 Entities
o 21 State Agencies
o 128 Coops
(NOTE: Many more individual sites since most entities are made
up of several different locations)
 1,229 Accounts
o 178 Transport
o 1,051 Choice
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Coverage

Work behind the 5 major utilities in Ohio
o
o
o
o
o
Columbia Gas of Ohio (“COH”)
Dominion East Ohio Gas (“DEO”)
Dominion West Ohio Gas (“DWO”)
Duke Energy (“Duke”)
Vectren Energy Delivery of Ohio (“VEDO”)
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Process - What We Do

Determine best utility delivery rate schedule
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Enroll facility in program
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Select suppliers through Request for Proposal (“RFP”)
process
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Procure gas
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Pay the bills
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Audit monthly supplier invoices
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Calculate savings
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Market the program
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Selecting Suppliers
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RFP language
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Project pool volumes
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Supplier analysis
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Negotiate contracts
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Offer Analysis
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Provide analyses and recommendations to State

Select suppliers
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Gas Procurement / Risk Strategy

Purchasing basis through RFP process
o Fuel, shrink, supplier adders
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Setting commodity price
o Follow risk strategy
o Trigger volumes in layers (not buying all at once)
o Driven by NYMEX
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Local utility still involved for gas delivery and customer
service
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Managing Price Volatility
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Market monitoring and forecasting
o Follow natural gas fundamentals, including amount of natural gas
in storage, number of operating natural gas rigs (rig count) and
weather forecasts.
o Analyze price chart technicals and determine support and
resistance levels.
o Follow the NYMEX strip prices and individual monthly prices.
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12-Month NYMEX Strip Prices
September 2009
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State Price Structures Per “Pool”
General Transportation Services (“GTS”) refers to large consuming sites.
Choice refers to small consuming sites.
COH GTS = Layered NYMEX Pricing
COH Choice = Layered NYMEX Pricing
DEO GTS = Layered NYMEX Pricing
DEO Choice = Guaranteed Savings Offer
DWO GTS = Layered NYMEX Pricing
DWO Choice = No Program Available at This Time
Duke GTS = Layered NYMEX Pricing
Duke Choice = No Program Available at This Time
VEDO GTS = Layered NYMEX Pricing
VEDO Choice = Guaranteed Savings Offer
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Bill Payment
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Bills paid through central agent – utility bill payment
system
Transport Accts: 2 invoices - 1) utility, 2) supplier
Process
o
o
o
o
o
o
Setup of account in bill payment system
Bill received at central agent
Bill data keyed into system
Bill validated (run through various criteria) prior to payment
Check issued for payment to vendor
Funding request to customer made via EDI or ACH/wire transfer
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Bill Payment Site View Screen
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Data, payment info, and bill image posted on bill payment
website
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Bill Payment (continued)
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Benefits
o Eliminates vendor late fees
o Eliminates paper invoices and costs associated with
processing them (estimated at $40 per invoice)
o Funding requests made electronically
o Web access to all natural gas bill information
o Bill validation
o Natural development of database for auditing, strategy and
procurement activities
o Enables users to quickly produce reports or graphs on
historic usage or dollar spend
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Criteria for Joining State Program

Must be served by DEO, DWO, COH, Duke, or VEDO
systems
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Current third party supply contracts must be terminated
before joining the program
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Coop membership
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Enrollment

Enrollment Inquiry Form
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Most Recent Bill Copies
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Memorandum of Understanding (MOU)
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Annual renewals
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No fee to join
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All program costs are included in the cost of natural gas
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Program Benefits!

Could save 5% to 30% on gas bills compared to
applicable utility rates (historical results)
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Allows you to outsource your gas management and
concentrate on your core business
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Electronic bill payment reduces paperwork and utility
late fees

Trained, skilled personnel available to answer questions
and act as liaison between end user and Supplier and/or
utility
September 2009
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State of Ohio Natural Gas Program Team
Jim Hunley - DAS, Procurement Supervisor
Nikki Erb – DAS, Administration
Eileen Mikkelsen - The E Group, Director
Dave Miles – The E Group, Account Manager
Stephanie Everhart - The E Group, Gas Management
Rich Mason - The E Group, Bill Payment
Ohio Natural Gas Program and Industry Terminology
September 2009