Addressing Rising Energy Costs

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Addressing RisingEnergy Costs

• Mark Schmidt
• Illinois Municipal Gas Agency
• Auburn, Illinois

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Youve All Read the Headlines

• Oil Prices Hit All-Time High
• Natural Gas Price Hikes Drive Heating Costs
  Higher
• Gasoline Prices Jump 25 Cents Overnight

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Prices are Skyrocketing Across the Energy Sector
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Prices are Skyrocketing Across the Energy Sector
CRUDE
Source Future Source
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Prices are Skyrocketing Across the Energy Sector
HEATING
Source Future Source
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Prices are Skyrocketing Across the Energy Sector
GAS
Source Future Source
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Prices are Skyrocketing Across the Energy
SectorGASOLINE
Source Future Source
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Prices are Skyrocketing Across the Energy Sector
PROPANE
Source Future Source
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Prices are Skyrocketing Across the Energy Sector
ELECTRIC
Source Future Source
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In Addition, Prices are VOLATILE!
Source NYMEX
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What is Causing Energy Prices to Rise?
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What is Causing Energy Prices to Rise?

• There is no one factor, but a complicated array
  of economic, geopolitical and climatic reasons.

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Increased World Energy Demand
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Increased World Energy Demand
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Increased World Energy Demand
Source BP
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Increased World Energy Demand
Source BP
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Demand / Supply Imbalances
Source BP
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Demand / Supply Imbalances

• Geopolitical Instability
• Middle East / Iran
• Africa
• Venezuela
• Russia / Eastern Europe

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Demand / Supply Imbalances
Source NYMEX
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Demand / Supply Imbalances
Source NYMEX
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Climate Challenges
Source NYMEX
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Climate Challenges
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Climate Challenges
Source NYMEX
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Climate Challenges
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How Can Local Governments Deal With This Triple
Threat?
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How Can Local Governments Deal With This Triple
Threat?

• While the factors driving energy prices higher
  may be out of your control, the responses arent!

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Local Responses to High Energy Prices
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Local Responses to High Energy Prices

• Communicate clearly and effectively. Use
  inoculation theory to your advantage.

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Local Responses to High Energy Prices

• Communicate clearly and effectively. Use
  inoculation theory to your advantage.
• Practice and promote conservation.

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Energy Conservation
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Energy Conservation
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Energy Conservation
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Energy Conservation
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Local Responses to High Energy Prices

• Communicate clearly and effectively. Use
  inoculation theory to your advantage.
• Practice and promote conservation.
• Pool purchases for greater leverage in the
  marketplace.

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The IMGA Story

• Created by the General Assembly in 1990.

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The IMGA Story

• Created by the General Assembly in 1990.
• Goal To allow municipal gas utilities to pool
  their purchases to achieve market strength.

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The IMGA Story

• Created by the General Assembly in 1990.
• Goal To allow municipal gas utilities to pool
  their purchases to achieve market strength.
• Nonprofit unit of local government.

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The IMGA Story

• Created by the General Assembly in 1990.
• Goal To allow municipal gas utilities to pool
  their purchases to achieve market strength.
• Nonprofit unit of local government.
• 3.5 bcf of gas in 2006.

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Local Responses to High Energy Prices

• Communicate clearly and effectively. Use
  inoculation theory to your advantage.
• Practice and promote conservation.
• Pool purchases for greater leverage in the
  marketplace.
• Hedge to decrease market volatility.

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Its Called Risk Management

• Goal Decreased Volatility, Improved
  Predictability.

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Its Called Risk Management

• Goal Decreased Volatility, Improved
  Predictability.
• Futures Purchases NG Winter Strip 10.75/dt.
  Year Strip 9.00.

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Its Called Risk Management

• Goal Decreased Volatility, Improved
  Predictability.
• Futures Purchases NG Winter Strip 9.75/dt.
  Year Strip 9.00.
• Financial Contracts 50 Swap allows communities
  to set ceiling price, and ride the market down.

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Keys to Effective Risk Management

• View risk management as an insurance policy.

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Keys to Effective Risk Management

• View risk management as an insurance policy.
• Learn as much as you can or have a source you
  can trust.

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Keys to Effective Risk Management

• View risk management as an insurance policy.
• Learn as much as you can or have a source you
  can trust.
• Be assertive in seeking your price or deal.

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Keys to Effective Risk Management

• View risk management as an insurance policy.
• Learn as much as you can or have a source you
  can trust.
• Be assertive in seeking your price or deal.
• Dont seek the bottom.

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The Legend of Sysiphus