May 2016 Powerlines

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Powerlines May 2016 | Volume 29 • Number 5 | www.powersouth.com/powerlines | info@powersouth.com Maintaining a stable cost of service is one of PowerSouth's core values and a top strategic initiative. To meet those goals, PowerSouth secured five long-term natural gas purchases at fixed pricing, ensuring stable natural gas prices for terms ranging from five to 10 years. Fuel hedge contracts allow PowerSouth to mitigate exposure to volatile fuel markets by securing the cost of a portion of expected fuel needs. With fuel costs representing about 35 percent of PowerSouth's costs to generate power last year, these hedges help provide rate stability for distribution members. "These contracts are different from our customary financial hedges," said Fuels Manager Branson Williams. "These are physical hedges, meaning we buy the natural gas at a set price from a producer with a good credit rating. It's a purchase of a specified volume of natural gas per day." PowerSouth projects to burn 322 billion cubic feet of natural gas for generation over the next decade. These physical gas hedges represent approximately 27 percent of the total natural gas burn. Less than 10 years ago, there was rising concern about a decreasing supply of natural gas. Today, increased quantity of natural gas production positions the U.S. to be more self-sufficient. "Terminals built for importing natural gas from foreign countries are now being used for export," Williams said. In the past six months alone, recoverable natural gas supply increased 50 percent in the U.S. due to improved technology and economics. "We're living in the time of mature shale gas production, and it has caused a surplus in supply that led to the historically low pricing we are currently experiencing," Williams said. "It makes financial sense to take advantage of this market because natural gas pricing is very volatile." PowerSouth's hedging program was established in 2001 to help rein in the effects of unpredictable gas prices and provide rate stability as distribution members plan their budgets and set rates. g Prefer to read an electronic version of Powerlines? Visit www.powersouth.com/powerlines to access our e-newsletter. Hedging program brings rate stability to members Natural Gas 68.9% Coal 26.9% Renewables 0.4% Hydro 3.8% 2015 Energy Sources

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