Natural Gas from the Utility Regulator’s Perspective

1. Natural Gas from the Utility Regulator’s Perspective 3rd Annual Rockies Gas and Oil Comments of Ron Binz, Chairman Colorado Public Utilities Commission April 16, 2009

2. Outline of this presentation • Brief introduction to the Colorado PUC • The role of gas-fired electric generation in the new energy economy • base load applications • peak load applications • connection to renewable generation • CAES • Environmental considerations • concerns about global warming • implications for water use and quality • impacts on air quality • Economic considerations • residential uses • supply adequacy • price levels and volatility • Natural gas and energy efficiency

3. Caveat • I am one of three equal commissioners • My positions are my own • I am confused by many things and have not made up my mind on much at all • I don’t even agree with some of the things I say • Good advice: don’t believe everything you think

4. The Colorado PUC The Public Utilities Commission's mission is to achieve a flexible regulatory environment that provides safe, reliable and quality services to utility customers on just and reasonable terms, while managing the transition to effective competition where appropriate. • Independent agency, created in the constitution • Three Commissioners, appointed by the Governor • Four year terms • Partly judicial, partly legislative • Ninety-member staff is an agency within the Department of Regulatory Agencies

5. Colorado Commissioners Matt Baker Ron Binz Jim Tarpey

6. What do we regulate? 60% • Investor-owned electric utilities • Investor-owned natural gas utilities • Intrastate natural gas pipelines----------------------------------------------- • Some telecommunications carriers & services • Passenger transportation • Railroad crossings • Investor-owned water utilities • Pipeline safety • Colorado Relay for the hearing impaired 15% 1% 10% 10% 4%

7. How Colorado Uses Natural Gas

8. Outline of this presentation • Brief introduction to the Colorado PUC • The role of gas-fired electric generation in the new energy economy • base load applications • peak load applications • connection to renewable generation • CAES • Environmental considerations • concerns about global warming • implications for water use and quality • impacts on air quality • Economic considerations • residential uses • supply adequacy • price levels and volatility • Natural gas and energy efficiency

9. Electricity Generation Fuels in Colorado (2008)

10. Generation Fuels in Colorado

11. Colorado Regulatory Process -- Resource Planning -- New Rule Prior Rule • Resource Planning • Least Cost Planning • Fuel Neutrality • Clean Energy Preference • Independent Evaluator • Utility models new portfolio • Optional Post-bid Review • Utility selects bid resources • New DSM emphasis

12. PUC’s ERP Decision for Public Service Company of Colorado Major Decision Items • Closure of two coal plants • 50% CCS requirement for new coal plant • CO2 price assumed in modeling ($20/ton + 7% growth) • Continued growth of wind • Likely approval of large solar projects (200 - 600 MW) • Competitive bidding for new resources

13. Integrating Gas Generation with Wind

14. Compressed Air Energy Storage (CAES)

15. CAES Characteristics • CAES turbine has heat rate that is only about 50% of conventional gas turbine (~4000 BTU/kWh) • CAES has a relatively high round-trip efficiency • Eastern Colorado appears to have suitable sites • EPRI studies underway

16. Outline of this presentation • Brief introduction to the Colorado PUC • The role of gas-fired electric generation in the new energy economy • base load applications • peak load applications • connection to renewable generation • CAES • Environmental considerations • concerns about global warming • implications for water use and quality • impacts on air quality • Economic considerations • residential uses • supply adequacy • price levels and volatility • Natural gas and energy efficiency

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21. EPRI Prism Analysis (2008)

22. Federal Legislative Proposals

25. What about China, India?

28. Outline of this presentation • Brief introduction to the Colorado PUC • The role of gas-fired electric generation in the new energy economy • base load applications • peak load applications • connection to renewable generation • CAES • Environmental considerations • concerns about global warming • implications for water use and quality • impacts on air quality • Economic considerations • residential uses • supply adequacy • price levels and volatility • Natural gas and energy efficiency

29. Residential Gas Use • For Public Service Company of Colorado, residential gas use per capita has been dropping at 2.8% per year for ten years • Factors affecting residential gas use • Retrofit weatherization • Utility DSM programs • Building codes for new construction • Hot water: in-line tankless, solar thermal

30. Supply Adequacy

31. Price Levels and Volatility 4.9 to 1.0

32. Outline of this presentation • Brief introduction to the Colorado PUC • The role of gas-fired electric generation in the new energy economy • base load applications • peak load applications • connection to renewable generation • CAES • Environmental considerations • concerns about global warming • implications for water use and quality • impacts on air quality • Economic considerations • residential uses • supply adequacy • price levels and volatility • Natural gas and energy efficiency

33. Colorado’s Energy Efficiency Commitment • DSM goals in legislation (HB 1037) • Commission rules • Expedited cost recovery • Bonus mechanism • Tie-in to utility electric resource planning • Requirement of a recent CPCN for gas turbines • Demand response solicitation • Expanding residential AC program • Significant weatherizaton and EE activity expected from ARRA funding

34. Conclusions • NG appears to have a secure future in Colorado’s energy economy • Direct use: residential demand • Generation: climate concerns • System: renewable integration, CAES • Possible fly in the ointment: price levels and continued price volatility

35. Thanks for the invitation. I look forward to your questions.