Regional Natural Gas Supply & Deliverability Presentation to: Massachusetts Electric Restructuring Roundtable

1. Boston, MA May 21, 2004 Regional Natural Gas Supply & Deliverability Presentation to: Massachusetts Electric Restructuring Roundtable Stephen Leahy Northeast Gas Association

2. Topics • New England market overview • Gas & power generation • Winter of 2003-04 • Supply needs – and options • Regulatory interest

3. NGA Members • LDCs serving New England, New York, and now part of New Jersey • Several interstate pipeline companies (Tennessee, Algonquin, Iroquois, PNGTS, M&NE, TransCanada) • LNG importer (Distrigas) and 3 LNG trucking companies • Over 250 “associate member” companies, from industry suppliers and contractors to NPCC and ISO-NE ME VT NH NY MA RI CT NJ

5. Northeast Market Snapshot Sources: NGA, AGA, EIA, NYSERDA, U.S. Census

6. NE Projected Demand Growth EIA projects 1.6% annual growth in New England over the next 20+ years Annual Growth Rate: Residential: 1.0% Commercial: 1.2% Industrial: 2.1% Electric: 1.9% Source: U.S. Energy Information Administration, “2004 Annual Energy Outlook,” 1/04

7. New England’s ChangingElectric Generation Fuel Mix 2003: Gas was 30% of mix, with Gas/Oil another 10% Source: ISO New England

8. Recent New England Gas Power Plants Androscoggin Energy, Jay, 155 MW Additions since 1998. Winter unit ratings. Source: ISO-NE, “2004 CELT Report” Maine Independence, Veazie, 540 MW ME Rumford Power, 270 MW NH Bucksport Energy, 193 MW VT AES Granite Ridge, 792 MW West Springfield, 96 MW Westbrook Power, 562 MW Exelon Mystic 8 &9, 1600 MW Berkshire Power, Agawam, 257 MW Newington, 535 MWs Kendall Repowering, 168 MW ANP Bellingham, 497 MW Millennium, Charlton, 386 MW MA Exelon, Weymouth, 831 MW Calpine, Dighton, 180 MW Wallingford Power, 247 MW RI CT ANP, Blackstone, 504 MW Bridgeport, 527 MW Lake Road, 811 MW Hope Energy, Johnston, 575 MW Tiverton, 279 MW

9. New England Natural Gas Transmission System Maritimes & Northeast PNGTS Iroquois Tennessee Pipeline capacity has increased strongly since 1990 Greater source diversity Algonquin Prepared by Northeast Gas Association, 1-04

10. LNG • LNG provides about 15% of NE’s annual gas supply, and nearly 30% of peak day • Distrigas recently increased installed vaporization capacity from 0.435 to 0.700/day on average • Last spring, Distrigas began serving nearby power plant, ~ 1600 MW LNG Imports, DOMAC Source: U.S. Dept. of Energy

11. Jan. of ’04: How Cold Was It? Top 5 Coldest Januarys, Boston Rank 1 2 3 4 5 Years 1875 1888 2004 1893 1918 1920 1912 1981 1904 Jan. Avg. 20.1 20.1 20.7 20.7 21 21 21.4 21.4 21.5 Source: WSI

12. NE LDCs: New Peak Day Sendout, 1-15-04 Peak Sendout Data for New England LDCs For January 15, 2004, sendout was 3% above this winter’s design conditions, and 12% above previous regional LDC peak day of Jan. 2000

13. Gas System Performance • Intense cold, high demand = high gas sendouts • As noted, new LDC system peak within this period • Distrigas, LNG importer, reported top 10 sendout days recorded in Jan. 2004 • One major pipeline set new sendout record; others recorded higher sendouts earlier (Dec.)/later in winter (late Jan.) • During period of Jan. 13-16, NGA convened Gas Supply Task Force via conference call to monitor system status • Industry consensus - conditions challenging but manageable • Cooperation among all industry segments • interstate pipelines, LDCs, LNG, etc. • Firm obligations met, as designed

14. Meeting Firm Commitments • FERC Study, 12-03: • “The adequacy of the natural gas infrastructure is based on its ability to fulfill its contractual obligations. Natural gas may be contracted on a firm or interruptible basis. Interruptible contracts are typically less expensive because capacity is only paid for if used, and the supplier or transporter may interrupt service. The natural gas infrastructure is considered adequate if firm commitments are met and terms of the interruptible contracts are satisfied.”

15. Pipeline Scheduling • Schedule maximum volume nominated while maintaining system integrity & operating flexibility such that the pipeline can: • Satisfy firm obligations and deliver confirmed volumes (firm and interruptible) for the day • Stand ready to satisfy nominations from firm shippers for delivery on subsequent days • Allocate capacity to nominations up to operational capacity • Priority – firm vs. interruptible Source: Duke Energy Gas Transmission

16. Key Issue: Market Design • Ensuring a market structure that sends appropriate incentives to power generators to ensure electric system reliability. • A central issue is the difference between firm and non-firm transportation contracts • LDCs generally rely upon firm transportation in their gas resource portfolio • Many generators opt for secondary or non-firm arrangements • Generators do not have an “obligation to serve” like the LDC • ISO-NE, NEPOOL, gas industry, regulators, other stakeholders, through “Cold Snap Task Force” looking at many related issues • Considering near-term and longer-term recommendations

17. Key Issue: Communications • Needs to be greater understanding and mutual education among electric and gas system operators • NGA working to strengthen communication protocols with ISO-NE, NECPUC, NEGC • NGA workshop for regulators held last week • Gas industry and ISO-NE coordinating joint efforts for operators, communications protocols, etc.

18. Key Issue: Infrastructure • Continuing to enhance gas infrastructure is a necessary part of process • Numerous proposals for pipeline enhancements, NE & NY • Numerous proposals for new LNG import terminals, from NJ to Eastern Canada • New England, and Northeast, need more gas infrastructure to meet market needs

19. FERC Study on New England Gas Market • FERC/DOE study released 12-17-03 • Conclusions: • There is adequate natural gas infrastructure to meet demand through 2005 • Additional infrastructure will be needed to meet region’s demand for gas through 2010 • Proposed pipeline and LNG projects should maintain the status quo • Recently constructed efficient gas-fired electric generation will help to moderate increased gas demand while meeting New England’s electric demand • As supply areas in eastern Canada are further developed or additional LNG terminals are constructed, additional natural gas pipelines will be built to supply the New York City area.

20. Mass. Governor’s Task Force on Electric Reliability • March 2004 report; sections on electricity, gas, telecom sectors; online at: www.mass.gov/dte/ • Gas sector recommendations: • “Massachusetts and the gas industry should promote continued increases in pipeline capacity and deliverability to bring new supplies into and within Massachusetts and New England to meet market demand, which will enhance overall energy system security and reliability. Additional LNG supplies may represent an important part of this supply mix.” • “Massachusetts and the gas industry should encourage continued diversity of supply sources to enhance reliability.” • “Electric and natural gas system operators should work to create greater communication and coordination in the region, which will help to ensure quick responses to emergency situations in either the gas or electric systems.” • “Massachusetts and the gas industry should continue to encourage natural gas-related efficiency measures.”

21. FERC Conference, June 3 • June 3, New York City, on Northeast Energy Infrastructure • Topic areas: • New York City: “As demand grows, there will be a need for new capacity – gas and electric – later in this decade.” [FERC notice, 5-14-04] • New England: “There are gas transmission constraints in New England from all geographic directions, effectively isolating the region and calling for more pipeline capacity or reliance on Liquefied Natural Gas (LNG) import terminals, which often face local opposition. Further, New England has seen considerable construction of gas-fired electric generation without a corresponding addition of electric transmission capacity to get this energy to markets.” [FERC notice, 5-14-04]

22. NGA Actions • Continued liaison with ISO-NE • Pipelines are coordinating with ISO on EBBs, maintenance schedules, etc. • NGA to work with ISO on improving communications protocols • Continued liaison with state regulators, NEGC • NGA increasing integration of NY and NE gas control and gas supply representatives • Developing common supply contact manual, conducting joint emergency drill, etc. • NGA will hold annual gas power plant workshop this fall • NGA updating communications plan • Member companies continuing system enhancements

23. Summary • Region’s gas delivery network has grown reliably over the past decade, with increased diversity of supply sources • This past winter, at a time of new electric peaks (in NE and NY), region’s gas industry recorded new peak, met firm commitments • Need for better coordination of electric and gas markets – work underway • Further gas capacity and infrastructure growth in region needed • LNG and pipeline projects proposed; development needed

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