energy outlook

North Texas Commission WebinarJune 22, 2016

Agenda• Introduction: Review of the current market

– Summer outlook: Emergence of La Nina and its potential impact• Market Fundamentals: Short & Long Term

– How do we balance an oversupplied market?– What new demand can we expect by 2020?

• Natural Gas Price Trends– NYMEX rebounds from 17-year lows: Up a dollar since March lows– Gas to power correlation in ERCOT: Higher NYMEX prices will likely

translate into higher power prices in Texas

2 © 2016 Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC, Constellation NewEnergy, Inc., Constellation Energy Services - Natural Gas, LLC, Constellation Energy Services, Inc. or Constellation Energy Services of New York, Inc., affiliates of each other and ultimate subsidiaries of Exelon Corporation. Brand names and product names are trademarks or service marks of their respective holders. All rights reserved. Errors and omissions excepted.

Constellation: Who, What and Where we Serve

Natural GasMore than 700

Bcfload in C&I markets^

Retail PowerMore than 130

TWh C&I load under

contract^

Energy Efficiency 190,600MWh

conserved by customers in 2014

Solar275 MW

customer sited, completed or under

construction

Distributed Generation 165MW

customer sited, completed or under

construction

about 1.7 million unique residential customers.

We serve approximately2 million customers,

including 2/3 of the Fortune 100,more than 220,000 Business &

andPublic Sector customers,

We serve Power & Natural Gas across all competitive markets:

*2015 data


Exelon’s Generation FootprintThe Exelon Family of companies provides service and expertise across the

United States.


*As of 2015

Exelon Generation in Texas


Handley Generating Station

Wolf Hollow Generating Station

Mountain Creek Generating Station

Handley Generating Station is a 3-unit, 1,265 MW fossil power plant located in Fort

Worth that provides electricity to customers in

ERCOT when needed.

When Unit 1 was built, it was the first outdoor steam electric fossil power plant of

its type in the industry.

Wolf Hollow is a three unit, 704 MW fossil power plant

located in Granbury.

Wolf Hollow went in to commercial operation in

2003. Exelon purchased the facility in 2011 and is

currently constructing an additional 1,072 MW of new combined cycle capacity. Expected to be online in

2017.

Mountain Creek Generating Station is a 3-unit, 825 MW fossil power plant located in

Dallas.

It provides electricity to customers in ERCOT during periods of peak demand. Its

first hydrogen-cooled natural gas unit was built in 1945 and generates 33 MW of electricity. The original

air-cooled generator, which was built in 1938, produced 34.5 MW but is now retired.

Weather: Summer Outlook and La Nina

June So Far

• Realized temperatures along with + 15 day forecast for the rest of the month yields the map to the left.

• Widespread above normal temperatures throughout the nation, with the exception of Texas and the Northeast.

• Population weighted cooling degree days (a measure of weather-related demand) are expected to come in around 262.

• The heavy rains this spring have raised soil moisture levels in TX and this provides a natural cooling effect.


Customer Takeaway: Realized temperatures thru June 19th along with forecasts thru 30th now place June 2016 around the 8th warmest since 1950, right behind June 2015 (263 CDD). The recent heat has been important for boosting gas fired generation demand. . Data Source:

EIA

La Nina and What it Means for Summer

• The equatorial Pacific water temperatures have cooled to an anomaly of -0.2 degrees C.• This is within the neutral category (between +0.5 and -0.5). Forecast models show La Nina

conditions sometime in June.• Developing La Nina summers start to trend warmer in July, however the East may struggle at

times. • The years included in the maps to the right are 1983, 1998 and 2007 and how their heat

averaged out each month.


Customer Takeaway: The strongest heat during developing La Nina summers tend to happen in August, however rain risks may keep Texas closer to normal. Strong heat in August could help manage storage injections and provide price support to NYMEX.

Data Source: CWG and EarthSat

Supply & Demand FundamentalsKey National and Texas Drivers

ERCOT Gas to Power Relationship


Customer Takeaway: Gas-fired generation demand is lower the last several weeks below year-ago levels. In the short -term, gas could face renewed competition from Powder River Basin (PRB) coal as Henry Hub cash has rallied to $2.30/MMBtu in early June, making coal more competitive.

Data Source: EIA

• There is a high correlation of forward gas prices to power prices in ERCOT (+95%), as gas prices are the largest fuel input price in ERCOT for power generation.

Storage: Filling below Year Ago Levels but Still High

• The EIA reported that storage injections totaled 69 Bcf for the week ending June 10th; within expectations, but representing the sixth straight week that injections have come in below year ago and 5 year avg levels.

• Current underground storage stands at 3,041 Bcf, as the surplus falls to 651 Bcf (26%), down from 1,004 Bcf in the first week of April.

• The July contract has rallied 61 cents or 29% since becoming the prompt month contract on May 27th at $2.14/MMBtu on higher gas-fired generation demand and slightly lower production levels year over year.


Customer Takeaway: Cumulative net injections for the 2016 refill season have lagged for the last six weeks (573 vs. 935 Bcf average). Despite this, working gas stocks remain near record-highs for this time of year and could still top 4 Tcf by early October.

Data Source: EIA

Production Holds Y-o-Y Gains, but Outlook Mixed

• U.S. natural gas fell below its year-to-date average of 72.5 Bcf/d last week, but rebounded over the weekend.

• Any sustained pullback in output would take pressure off of gas prices by alleviating the need to work off the storage surplus this spring solely through price-induced coal-to-gas switching.

• Total production remains higher than year-ago levels, but third-party production forecasts show a mixed outlook.

• One unknown is just how much production could come online via the backlog of drilled, but uncompleted wells.


Customer Takeaway: The market continues to watch production flows on a daily basis for signs that output could begin to decline due to plunging rig counts and low prices over the past year. Any output decline would be supportive of gas prices, but steady production this summer could provide downside risks to forward prices. Data Source:

EIA

E&P Bankruptcies and Debt: Consolidation Continues


Customer Takeaway: E&P companies continue to seek bankruptcy court protection amid the shakeout in the oil and gas industry. Further consolidation is likely but a rebound in oil to $60/bbl level could help stabilize some companies.

Data Source: Haynes & Boone, LLP

• Haynes & Boone LLP reports a total of 81 bankruptcies of oil and gas producers since Jan 2015, with 41 in Texas as of May 31st. There have been 38 bankruptcies since January 1st nationally, 21 of which were in Texas.

• Texas has seen $24.3 billion in secured and unsecured debt obligations since January 2015. Regionally, this is the largest amount, followed by Delaware at $14.3 billion dollars.

Coal Being Displaced by Gas


Customer Takeaway: Gas fired generation has displaced coal so far YTD in 2016 by approximately 6%. This has been crucial to managing storage injections since April. Yet with spot gas prices for Henry Hub above $2.40/MMBtu, the ability of some coal generation to regain market share could limit gains by gas fired generation. Data Source: EIA,

Spring Rock

• Coal burns had been lagging year ago levels all year but are finally approaching year ago levels at 14 million tons as of the other week. Burns have been strongest in the Southwest as record heat has moved in.

• Gas burns set a new record burn levels in 2015 and YTD in 2016 is higher by 2 Bcf/d or 8.5% according to EIA. Recent heat this week is pushing power burns above 30 Bcf/d to a 9 month high of 33 Bcf/d.

• EIA’s latest Short Term Energy Outlook per July is calling for power generation demand to grow 4% in 2016.

17 Bcf/d of Incremental Demand Growth 2015-2020


Customer Takeaway: There is expected to be up to 17 Bcf/d of new demand, growing to +90 Bcf/d from a baseline of 74 Bcf/d in 2015. Over half the new demand will come from LNG and exports to Mexico. Power generation grew by +4 Bcf/d from 2014-2015.

Data Source: Constellation

• Of new demand growth in gas from 2014-2020, 77% will come from LNG exports (33%), net exports to Mexico (21%) and new power generation demand (23%).

• Base demand averaged 78 Bcf/d in 2015 and should grow to 98 Bcf/d by 2020. A recovery in oil prices that would raise LNG prices in Asia are required to likely bring additional LNG projects beyond the existing five.

Key ERCOT DriversShort and Long Term

ERCOT’s Changing Generation Mix


Customer Takeaway: Coal stockpiles continue to give market share to gas and renewables. Wind production topped 14 GW on Feb 18th and an extension of the federal production tax credit (PTC) for wind in 2015 may lead to further wind development.

Data Source: ERCOT, EIA

• Per the latest Demand and Energy report from ERCOT, total energy for the month of April came in at 25.1 TWh, up 0.74 TWh from the month prior and up 0.45 TWh from the same time last year.

• Natural gas accounted for 48% of total generation in the month of April, down from 51% a year ago.

• The largest year-over-year decrease comes from coal generation, which was down 0.94 TWh (-17%).

• Wind is generally the strongest in winter months in overnight hours and weakest during peak summer hours.

ERCOT

Texas Gas Storage and Production


Customer Takeaway: South Central storage continues to fill at a strong clip and will likely exceed last years 1,351 Bcf. Texas production is still lower year-over-year by -1.5 Bcf/d but that will likely narrow over the course of the summer. Data Source:

EIA

• South Central storage stands at 1,253 Bcf (30%) above year-ago levels and 42% above the five-year average. South Central maximum working volume is 1,477 Bcf and working design capacity is 1,521 Bcf.

• Texas production has rebounded in early June to 18.6 Bcf/d, +122 mmcf/d higher over May.

• A rebound in oil prices to $50/bbl could stabilize of oil and gas production as producers look to complete drilled but uncompleted wells (DUCs).

• TX rig count stands at 178 rigs, up recently but still down 185 rigs (-51%) from year ago levels.

ORDC : Not a Significant Impact, Yet


Customer Takeaway: For 2015, ORDC only provided an average of $1.41/MWh to incremental revenue to generators, the largest month being August 2015 when ERCOT set a new all-time record load on August 10th at 69,877 MWh. Prices did not go to the price cap of $9,000/MWh in August 2015. Data Source: ERCOT State of Market

Report 2015

• Operating Reserve Demand Curve (ORDC) was implemented in mid-2014 as a means of addressing a scarcity pricing in the absence of a capacity market.

• It is an incremental charge on top of LMP and reflected in the Settlement Point Price (SPP) when 30 min generation reserve decline below 5,000 MW.

ERCOT Sets New Load Record 8/10/15

ERCOT State of Market Report 2015


Customer Takeaway: Between 2016-’20, existing gas & coal fired generation could face pressure to mothball or retire and new generation builds could be at risk due to low returns offered by current prices. Data Source: ERCOT State of Market

Report 2015

Potomac Economics, ERCOT’s Independent Market Monitor released an updated 2015 State of the Market Report on June 7th.1. The ERCOT-wide load-weighted average real-time energy price was

$26.77/MWh in 2015, reflecting a -34% decrease from 2014, driven by -41% decline in gas prices.

2. Energy use across ERCOT regions grew 2.2% in 2015. 3. ERCOT forecasts a reserve margin of 16.50% for 2016, above NERC (North

American Electric Reliability Corporation) recommended threshold of 13.75%. – Approximately, 3.5 GW of new gas fired generation that will come online

between 2016-’19 but has additional projects in the Capacity & Demand Report (CDR) that have not received financing.

4. Coal and nuclear units face challenging economics:– Generation weighted price paid to ERCOT’s four nuclear units was

$24.56/MWh in 2015 below estimated operating costs of $27.53/MWh by Nuclear Energy Institute.

– Generation weighted price paid to coal units was $25.94/MWh signaling tight economics. Generation economics are closer to $30/MWh based on coal costs.

– EPA rules (Clean Power Plan & Regional Haze) if implemented could force up to 7,000 MW to retire by 2030 of coal and gas.

Technical Analysis & Pricing Trends

NYMEX Rallies to 9 Month Highs


Customer Takeaway: NYMEX July contract started trading as the prompt month last week at $2.145/MMBtu and rallied to an intraday high of $2.75/MMBtu by June 20th on a combination of higher power generation burns nationally, warm weather in the upper Midwest and slightly lower production. Data Source: Constellation; Prices as of COB

2/24/2016

NYMEX Forward Curve


Customer Takeaway: NYMEX forward curve has shifted up since lows in March but is still below year ago levels due to storage at record highs (+3,000 Bcf) for this time of year. Key drivers to watch this summer will be power generation demand and gas production levels (do cuts accelerate ?).

• The NYMEX forward curve has shifted up since prompt month hit a 17-year low in early March at $1.61/MMBtu on a narrowing of the year-over-year storage surplus, slightly lower production, higher power burns and weather in June driving cooling demand in the West and Mid-Continent.

Data Source: Constellation; Prices as of COB 2/24/2016

Terms Current vs Yr Ago Current vs. 3/4/16Bal '16 -13% 23%2017 -7% 15%2018 -9% 13%2019 -11% 11%2020 -13% 10%

ERCOT North Zone Forwards


Customer Takeaway: ERCOT North Zone calendar strips are closely tracking movements in calendar NYMEX strip prices.

Data Source: Constellation; Prices as of COB 2/24/2016

ERCOT Index: Monthly Averages


Data Source: Constellation

ERCOT - Historical Monthly Average

Date HUB_HOUSTON HUB_NORTH HUB_SOUTH HUB_WEST HOUSTON_LZ NORTH_LZ SOUTH_LZ WEST_LZ6/1/2015 $22.78 $22.77 $22.72 $22.85 $22.78 $23.09 $24.38 $26.177/1/2015 $27.74 $26.93 $27.03 $26.86 $28.52 $27.27 $27.62 $30.948/1/2015 $33.05 $32.85 $32.94 $33.06 $33.71 $33.42 $33.17 $33.829/1/2015 $22.96 $23.35 $22.95 $23.27 $23.07 $23.85 $24.99 $24.9510/1/2015 $20.37 $20.02 $21.74 $20.04 $20.40 $20.27 $25.15 $20.3911/1/2015 $19.23 $18.87 $19.17 $17.36 $19.31 $18.86 $19.37 $17.3012/1/2015 $19.50 $15.47 $17.32 $15.67 $19.78 $15.54 $17.78 $16.051/1/2016 $18.32 $18.08 $17.92 $17.87 $18.32 $18.15 $19.80 $18.122/1/2016 $14.85 $14.83 $14.73 $14.18 $14.85 $15.19 $15.74 $14.143/1/2016 $18.77 $17.69 $18.54 $16.73 $18.86 $18.43 $23.05 $16.824/1/2016 $18.05 $17.92 $17.46 $14.84 $18.53 $19.38 $18.68 $15.915/1/2016 $18.00 $16.91 $17.09 $16.12 $19.67 $17.23 $20.11 $16.25

12 Mo Avg $21.13 $20.48 $20.80 $19.90 $21.48 $20.89 $22.49 $20.90

HUB Avg Load Zone Avg

Developing an Energy Procurement Strategy

A Better Approach to Fixed Price: Extend Your View

By thinking and acting long term, you can have the security of a fixed price and the flexibility to respond to market conditions over time.

Pric

e

Time

Graph is for illustrative purposes only, not based on real dataFixed Point-in-Time Purchasing

Regular Market VolatilitySmoothed, Blended Purchasing Strategy

Percentages of load are purchased at regular intervals over a longer time horizon to smooth the curve and manage to the mean.


A Balanced, Long-Term View

A proactive, long-term approach can give you the budget security your company is looking for:• Achieves greater long-term budget predictability while allowing you to take

advantage of market opportunities• Leverages a dollar-cost averaging approach to manage your energy costs over

time• Provides a stronger balance between volatility and opportunity risks


MarketWatch

MarketWatch serves as an additional resource for monitoring market activity specific to your target price and power purchasing goals, whether you are looking to make incremental purchases for a blended strategy or lock in a future term at a fully fixed price.


Set a target

price for contract

execution

Set Soft Trigg

er

Set Hard Trigg

er

Regular reporting monitors market activity

Once the target price is met, Hard Trigger will automatically execute a power contract at that

price.

A notification will be sent on Soft Trigger when the target price has been met,

a contract can be manually executed.

OR

MarketWatch

Daily Reports let your team and the Constellation team

actively watch market activity in

reference to a designated Strike Price . The Latest Price is

highlighted when the strike price has been

met and is immediately executable.Sample data for illustrative purposes only


Minimize Volatile Pricing (MVPe)


Price

Time

Graph is for illustrative purposes only, not based on real dataFixed Point-in-Time Purchasing

Smoothed, MVPe Program

Minimize Volatile Pricing (MVPe) is an algorithmic method for making Flexible Index Solutions (FIS) Purchases. Percentages of your load are purchased at regular intervals through an algorithmic approach.

With MVPe, customers pre-determine purchasing criteria, and the program makes these purchases through an algorithmic approach based on current and historical market data.• Structured based on cost-averaging methods to smooth curves over time • Customers can stop the program at any time to put a certain percentage or the

remaining percentage of load on a fixed price or a manual process.• A programmatic approach that eases resource constraints and helps build consensus

across multiple decision makers

Conclusion


1. Weather is a key driver: Will the emergence of La Nina bring a hot August to the Midwest & East? How does Texas dry out?

2. Production: Will Texas and Northeast production continue to trend lower over balance of year?

3. Market will correct itself: Year-over-year storage deficit narrowing and production is lower, but will rebound in price bring reprieve?

4. Long-term demand: Headlines in the news are about oversupply, but ~20 Bcf/d coming online by 2020, half of it in Texas and Louisiana.

5. Gas remains tied to power: Spot and forward power prices remain tied to trends in gas prices.

Review procurement strategy: Trying to time market bottoms for point-in-time purchases is difficult; look to diversify and seize on bearish driven weather events. In ERCOT, power market volatility most likely to occur in high demand periods during summer (Jun-Aug) and winter months (Jan&Feb).

Appendix

La Nina and Winter

• Long-range models show a wide range of La Nina intensities during the late autumn and winter months.

• Most of the European ensemble forecasts show a weak La Nina (cool waters along the equatorial Pacific), combined with a positive Pacific Decadal Oscillation (PDO) (warm waters off the U.S. coast and down through Hawaii).

• The combination of a La Nina and positive PDO is quite rare, with only a handful of instances over the past 70 years.

• The combination of a weak La Nina and a positive PDO can result in a cold signal for most of the U.S.– If La Nina strengthens to moderate or strong, warmer risks start to show up.34 © 2016 Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC,

Constellation NewEnergy, Inc., Constellation Energy Services - Natural Gas, LLC, Constellation Energy Services, Inc. or Constellation Energy Services of New York, Inc., affiliates of each other and ultimate subsidiaries of Exelon Corporation. Brand names and product names are trademarks or service marks of their respective holders. All rights reserved. Errors and omissions excepted.

Data Source: CWG and EarthSat

Texas Economic Survey

• Factory activity in Texas contracted after a two-month rebound, dropping from 5.8 to -13.1 for May. New orders, a key metric also contracted in May (-14.9) as well as capacity and utilization fell to -11, a one year low.

• The Service Sector continued to show expansion in May but the revenue index, a key metric, moved to its lowest level in a year, dropping from 10.6 to 5.8 in May.

Customer Takeaway: While oil prices have rebounded to $50/bbl, and this may help stabilize the Texas economy in second half of 2016, current conditions remain weak for manufacturing. Data Source: Dallas

Fed


First U.S. LNG Export Cargos Leave Sabine Pass


Customer Takeaway: The growth of U.S. LNG exports may provide a major upside risk for long-term natural gas and power prices, especially if rising oil prices shift the economics back in favor of new export projects. Data Source: Constellation, FERC,

Bentek, EIA

• 10 cargoes have left Sabine Pass since February, many going to South America.

• Sabine Pass has its first two of six LNG trains operational at 0.55 Bcf/d.

• Two projects in Texas, Corpus Christi and Freeport LNG, are currently under construction and will be online by 2018.

Marcellus/Utica gas flowing south to meet new LNG

demand

8 Bcf/d from 5 projects currently under construction

LNG prices in Asia decline by -50% y-

o-y

More Texas Gas Headed to Mexico


Customer Takeaway: Mexico will continue to need U.S. gas to supply a growing power generation demand to offset retirement in Mexico of older oil units and LNG imports. Exports could reach a net level of 6-7 Bcf/d by 2020. Data Source: EIA

• Exports to Mexico have averaged 3.44 Bcf/d year-to-date and are higher by 0.9 Bcf/d as Mexico passes reforms to its energy sector that allow for new foreign infrastructure investments.

• Later this month, Phase II of Los Ramones pipeline is expected to begin service, increasing export capacity on the pipeline by 1.4 Bcf/d or ~ 20%.

• Exports to Mexico are expected to continue to rise due to declines in production by state oil and gas company PEMEX, which reported last week production was lower by -10% year-over-year.

The MVPe Algorithm

3 Target Factor Amount

PurchaseHedge

Amount

The minimum purchase takes place when prices are high. The purchase amount will never exceed 25% of the open load except for the final purchase.

0% 100%

20% 40% 60% 80%

Current

Forward

PriceHistorically Low Prices

Historically High Prices

Forward Curve Prices2 Year Historical Price Norms*Forward Curve Prices do not reflect current market

conditions

1 Around the 5th of each month, the current forward energy price is compared to historical lows & highs

The analysis results in a percentile: the lower the price relative to historic norms, the lower the percentile.

2

0%

100%

20%

40%

80%

60%

Target Purchase Amount

Perc

enti

le

3.0 * MIN

1.4 * MIN

MIN

1.8 * MIN2.2 * MIN2.6 * MIN

Minimum purchase


DisclaimerThe information contained herein has been obtained from sources which Constellation NewEnergy, Inc. (“CNE”) believes to be reliable. CNE does not represent or warrant as to its accuracy or completeness. All representations and estimates included herein constitute CNE’s judgment as of the date of the presentation and may be subject to change without notice. This material has been prepared solely for informational purposes. CNE does not make and expressly disclaims, any express or implied guaranty, representation or warranty regarding any opinions or statements set forth herein. CNE shall not be responsible for any reliance upon any information, opinions, or statements contained herein or for any omission or error of fact.

“Constellation “ trademark and associated logo for marketing and advertising purposes only. No obligation on the part of any Constellation Entity should be deemed to arise through the use of such names or marks and nothing in this material is intended to override the legal separateness of each of the Constellation Entities. Statements made may reflect the combined experience or offerings of one or more of the Constellation Entities and not necessarily each or any specific Constellation Entity. Nothing in these materials constitutes an offer to sell or purchase regulated products or services by any Constellation Entity in any jurisdiction in which the purchase or sale of such regulated products or services by such entity is prohibited. No claim is made that the electricity supplied in any transaction described or proposed was generated from a specific or renewable resource.

By Receiving this information and data, you acknowledge and agree that:

1) you are receiving no guaranty, representation or warranty of any kind from CNE;2) CNE is not acting as your consultant or advisor for any purpose, and you will not construe or rely upon any information provided or

statements made by CNE, including without limitation as to the advantages or disadvantages of any specific product or service, predictions about future energy prices, or any other statements, information or data, as advice or representations of any sort;

3) you are making your own decisions based solely upon your own analysis and the advice of your own advisors, if any, and are not relying on CNE in any way in making any decision or taking any other action in response to the information and data or statements contained herein;

4) some of the information and data being provided to you is proprietary and may be confidential and you agree to maintain such information and data in strict confidence; and

5) CNE is not providing advice regarding the value or advisability of trading in “commodity interests” as defined in the Commodity Exchange Act, 7 U.S.C.§§ 1-25, et seq., as amended (the “CEA”), including futures contracts and commodity options or any other activity which would cause CNE or any of its affiliates to be considered a commodity trading advisor under the CEA


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