ITM 1.5

Electricity 101 and How to Buy Electricity

Cara Canovas Noble Energy Solutions [email protected]

832-483-3755 1

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Why Is This Important?

• There are significant costs associated with electricity that have bottom line impact - 28% of data centers total expenses is attributed to power costs • By purchasing electricity smarter, you can give your company a competitive edge and mitigate against commodity price risk • Looking at electricity from a portfolio perspective increases operational efficiency and maximizes expertise 3

Houston, We Have a Problem….

WA CA OR NV ID AZ UT MT WY CO NM

Retail electricity service Retail electricity and natural gas service Wholesale electricity delivery to C&I customers Retail natural gas service

ND SD NE KS OK MN IA MO AR WI IL MS IN MI OH WV ME NY VT NH MA CT RI PA VA NJ DC MD D E KY NC TN SC AL GA TX LA FL

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Electricity 101: The Basics

The price of electricity is calculated by heat rate x price of natural gas + other charges One Mwh equals 1,000 Kwh The price of natural gas is based on the prices for natural gas listed on the NYMEX for a specific trading point.

Other costs include are added to price of power. These include line losses, ancillary charges, ISO fees—costs incurred to move power and to maintain the power grids The price of power depends on the location, term, and time of use 5

$80 $70 $60 $50

What Are the Energy Cost Components to Focus On?

Risk in Billing Components Energy + Line losses Ancillaries ISO/QSE Fees Supplier Fee TDSP/Capacity Charges • Approximately 85% of the price of power is the power itself with 15-20% of the costs made up of ancillaries, ISO/QSE fees, and TDSP & capacity charges $40 $30 • There is a 2x risk factor associated with energy in most dereg markets $20 $10 • The wires companies will charge the transmission and distribution fees $ High Case Low Case Current Case 6

The Flow of Power

Generators power TDSP/EDC (Wires Company) Customers power Retail Electricity Provider 7

Case Study: Roll the Dice Or Take a More Impactful Approach…..

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What Does Roll the Dice Mean?

• Commercial and industrial users roll the dice when they purchase electricity 30/60/90 days out from contract expiration • At this point, they are in a price taker position — the power market through the retail provider, tells them what the price will be and the user will be forced to take that price since they need power 9

Hero or “Let’s not talk about it”…..depends on when you buy Assume 10 MW customer…..

$50.00 for $4.4 MM $44.66 for $4 MM $42.54 for $3.7 MM $40.18 for $3.5 MM $44.33 for $3.8 MM $39.64 for $3.4 MM 10

What Do You Need to Know

We sat down with our customers and asked them what they struggled with in deregulated electricity markets What we heard back was they are challenged with: 1. What their strategy should be?

2. When to enter markets to fulfill their strategy?

3. How long a term to purchase?

4. And lastly, measuring success… 11

Putting a Plan Into Place to Make Sense of Power

If you want to be successful at purchasing power, you need to have a plan to address: BUDGETARY RISK Are we protected from a potential run-up in the market?

OPPORTUNITY RISK CONSUMPTION RISK TERM RISK Are we positioned to benefit from price dips in the market?

Are we able to adapt to changes in consumption?

What term should we buy and why?

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Successful Companies Get Good at the Following:

Risk Assessment Strategy Development Market & Regulatory Analysis Strategy Execution Management Reporting 13

Risk Assessment

As energy managers, its important to know the risk and reward associated with each contemplated strategy 14

Strategy Development

It’s important to review a variety of strategies. Purchasing electricity is like buying insurance, you don’t want to have too much, and you don’t want to have too little coverage 15

Market & Regulatory Analysis

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Strategy Execution Tranche 1:

o All of the 2015 hedge

Tranche 2:

o Base layer of 30% for Cal 2016

Tranche 3:

o Remainder of 2016 hedge Base layer of 30% ATC for Cal

Tranche 4:

o Additional layer 30% ATC for 2017

Tranche 5:

o Final layer 2017 hedge

Index:

o All residual baseline volumes 17

Monthly Management Reporting

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Any questions?

“To raise new questions, new possibilities, to regard old problems from a new angle, requires creative imagination and marks real advance in science.” --Albert Einstein 19

3 Key Things You Have Learned During this Session

1. 30% of data centers operational costs are associated with power 2. Power costs can double year over year if unhedged 3. Buyers that contact within 60-90 days of current contract end introduce risk to the business 20

Thank you

For a more detailed conversation about your data center, here’s my contact information:

Cara Canovas [email protected]

832-483-3755 Noble Energy Solutions

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