Arizona Corporation Commission Natural Gas Workshop September 8, 2005 Presented by David Hutchens,...

Arizona Corporation CommissionNatural Gas Workshop

September 8, 2005

Presented byDavid Hutchens, General Manager, Fuels and Wholesale Power

Joe Salkowski, Director, Corporate Communications

Tucson Electric Power

1999 Settlement capped rates through 2008 TEP hedges its summer gas and purchased power

exposure on a three-year forward basis (similar to UNS Gas)

Minimal need for winter gas and purchased power to serve retail and long-term firm customers

No mechanism to pass through fuel cost to customers Gas cost increases will not be passed through to

customers before the end of 2008

UNS Electric

Power supplied through fixed-price, full requirements contract with PWCC through May 2008

Changes in gas cost don’t affect the price of this contract UNS Electric incurs minimal natural gas costs for

Valencia substation, which is used only for emergency load restoration or economic dispatch by PWCC

UNS Gas

Winter gas commodity prices are currently projected to be in the $1.00/therm range ($10/mmBtu)

UNS Gas has ~45% of total expected gas consumption hedge for the 2005/2006 Winter (Oct – Mar)

Fixed price hedges ~$0.59/therm Average price for winter gas commodity could be

in the $0.80/therm range (including hedges)

UNS GasPrice Stabilization Policy Part of UNS Wide Risk Control Policies

Timeframe – next 3 years in varying %’s Target fixed price hedges = 45% Utilizes “trigger dates” and “discretionary” purchases Discretionary purchases must be approved by Risk Management

Committee Includes purchases made before trigger dates Includes purchases over 45%

Products used Physical gas Options evaluated but not currently used

Remainder of gas is purchased at First Of Month and Gas Daily index

UNS GasCurrent Hedges

UNS Gas

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Sep-0

5

Oct-05

Nov-0

5

Dec-0

5

Jan-

06

Feb-0

6

Mar

-06

Apr-0

6

May

-06

Jun-

06

Jul-0

6

Aug-0

6

Sep-0

6

Oct-06

Nov-0

6

Dec-0

6

Jan-

07

Feb-0

7

Mar

-07

Apr-0

7

May

-07

Jun-

07

Jul-0

7

Aug-0

7

Sep-0

7

Oct-07

Nov-0

7

Dec-0

7

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

%

Current HedgedPercentage

UNS GasValue of Current Hedges

UNS Gas Purchases vs Market

$0.000

$2.000

$4.000

$6.000

$8.000

$10.000

$12.000

Sep-0

5

Oct-05

Nov-0

5

Dec-0

5

Jan-

06

Feb-0

6

Mar

-06

Apr-0

6

May

-06

Jun-

06

Jul-0

6

Aug-0

6

Sep-0

6

Oct-06

Nov-0

6

Dec-0

6

Jan-

07

Feb-0

7

Mar

-07

Apr-0

7

May

-07

Jun-

07

Jul-0

7

Aug-0

7

Sep-0

7

Oct-07

Nov-0

7

Dec-0

7

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

AveragePurchasePrice

San JuanMarket

UNS Gas Cost OutreachGoals Provide customers with specific information

about gas cost increases for this winter. Explain issues that have driven those costs Help customers make their winter bills more

manageable through conservation, budget billing and low-income assistance programs

UNS Gas Cost OutreachMethods Meetings with local government leaders Bill Inserts Press Releases Direct Advertising Proposed press conferences with ACC,

local government representatives

UNS Gas Cost OutreachJune 2005 Bill inserts announcing

UES’ expectation of higher gas prices this winter (at right)

UES press release announcing volunteer weatherization campaign in Northern Arizona calls attention to benefits of weatherizing homes, directs readers to weatherization resources

UNS Gas Cost OutreachJuly 2005 Press Release July 5: “UES

Urges Customers to Prepare for Higher Winter Gas Bills”

Bill inserts promoting Budget Billing program as a way to make winter costs more manageable (at right)

UNS Gas Cost OutreachAugust 2005 Bill inserts promoting

CARES low income program (as they were in March and May)

Print and radio advertising campaign promoting CARES program in UES gas markets (at right)

UNS Gas Cost OutreachAugust 2005 (continued) Press Release August 17: “Higher Natural Gas

Costs force UES to Seek New Surcharge” UESAZ.com web site updated with further

information about surcharge, gas cost issues Meetings and telephone conversations with local

officials in Kingman, Lake Havasu City, Williams, Flagstaff, Prescott, Prescott Valley, Chino Valley and Santa Cruz County to discuss winter gas costs and pending PGA Surcharge filing

UNS Gas Cost OutreachSeptember 2005

Advertising campaign advising customers of higher winter gas prices and promoting budget billing (Note: example at right is not the final ad)

Bill insert notifying customers of PGA Surcharge Request, hearing date

UNS Gas Cost OutreachOctober 2005 Bill inserts

promoting energy efficiency distributed to all customers (note: example at right is not final insert)

UNS Gas Cost OutreachNovember 2005 Bill insert promoting CARES program Bill insert announcing updated winter gas cost

projections and average bill impacts Advertising campaign advising customers of higher

winter gas prices – including the final impact of any adopted PGA surcharge – and suggested responses, including conservation, low income assistance and Budget Billing

Possible joint press conferences with ACC, local officials calling attention to higher winter heating costs

UNS Gas Cost OutreachDecember 2005 Bill inserts

promoting energy efficiency distributed to all customers (note: example at right is not final insert)

UNS Gas Cost OutreachOngoing Customer Care Representatives offer energy

saving tips, promote Budget Billing and billing programs to customers who call for assistance

UESAZ.com Web site offers energy saving tips, interactive UES Energy Advisor and up to date information on gas cost issues and company programs

Printed brochures available on request to promote Budget Billing, CARES and other programs

UNS Gas Cost AssistanceBudget Billing Eliminates seasonal swings in gas costs by

allowing customers to pay a fixed monthly amount based on an estimate of their annual gas usage

Customers can sign up at any time Budget Billing amount adjusted periodically to

account for actual usage and gas cost changes

Easiest way for any customer to make winter gas costs more manageable

9,700

9,800

9,900

10,000

10,100

10,200

10,300

2003 2004 2005

UNS Gas Cost AssistanceBudget Billing Participation

UNS Gas Cost AssistanceCARES CARES (Customer Assistance Residential

Energy Support) provides a 15 cent-per-therm discount for up to 100 therms of usage per month from November through April

Customers whose household income does not exceed 150 percent of the federal poverty level are eligible to apply

This winter, a family of four with a monthly income of less than $2,420 qualifies for CARES

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2003 2004 2005

UNS Gas Cost AssistanceCARES Program Participation

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

2003 2004 2005

UNS Gas Cost AssistanceTotal CARES Discounts

UNS Gas Cost AssistanceWarm Spirit Provides low-income customers with emergency

bill payment assistance from funds provided through voluntary customer contributions and company funds

UES will match customer contributions dollar for dollar in 2005; contribution will be timed to make funds available for winter months

Program administered by local community agencies

UNS Gas Cost AssistanceCustomer Support of Warm Spirit

$22,000

$22,500

$23,000

$23,500

$24,000

$24,500

$25,000

2003 2004 2005

UNS Gas Cost AssistanceLow-Income Weatherization Supports the efforts of local service agencies to help low-

income customers make their homes more energy efficient Elderly and disabled receive priority for funding Provides up to $2,000 per home for increased insulation,

weather stripping, furnace replacement and other improvements

Program Funding Increased from $25,000 in 2003 to $75,000 in 2004, 2005

Augmented by volunteer weatherization efforts of UNS Gas Community Action Team (Five homes in 2005)

0

10

20

30

40

50

60

2003 2004 2005

UNS Gas Cost AssistanceHomes Weatherized with UES Funds*, Volunteer Efforts

* Figures represent best estimates based on community group invoices

UniSource Energy Summary Higher gas costs will not affect customers of

TEP or UNS Electric this winter Impact of higher wholesale prices on UNS Gas

customers has been mitigated somewhat by price stabilization policy for gas purchases

UNS Gas is making proactive, continuous efforts to communicate with customers about gas costs and inform them of programs that can make their home heating bills more manageable