Natural Gas Transportation Markets: Contracting Trends and Challenges

1. Natural Gas Transportation Markets: Contracting Trends and Challenges INGAA Regulatory Policy Committee February 10, 2000

2. Three FERC Data Series • Index of Customers • Discount Reports • Capacity Release data

3. 25 Pipelines =____% of Interstate Deliveries

4. Transmission Capacity Held on 25 Study Pipelines by Customer TypeJuly 1, 1999 Index of Customers

5. More Capacity Has To Be Sold Every Year • The amount of capacity that pipelines will have to sell in 2000 increased 56% between ‘96 and ‘98 • 51% of total pipeline capacity under contract as of July 1, 1999 will expire in the next five years • 33 % of pipeline capacity under contract as of July 1, 1999 will expire by January 1, 2003 • an additional 18 % will expire by January 1, 2005

6. Capacity Release Market • Capacity release transactions constitute a significant portion -16%- of the transportation market • IT has shrunk from a high of 87% in 1987 to 11% in 1997. • Gray market remains uncounted

7. Transmission Capacity Under Contract All Study PipelinesJuly 1, 1999 Index of Customers

8. Sellers Commonly Discount • Most capacity release transactions sell at a discount • 54% of all capacity release transactions volumes are discounted • 57% of short term capacity release transactions volumes are discounted • On average, capacity release sells for 59% of max rate ($0.59 per $1.00 max rate) • 54% of max rate for short term releases

9. Pipeline Discount Transactions • Between 7/1/98 and 6/30/99, the 25 study pipelines reported 48,693 discount transactions • Conservatively 21% to 31% of firm capacity was discounted • The average discounted transaction sold at 43% of max rate

10. Comparison of PipelineDiscounts and Capacity Release DataAll Pipelines

11. Pipeline Marketing Affiliates • Discount transactions for pipeline affiliated marketers relative to non-affiliated marketers were examined for all pipelines • the 25 pipelines grouped into 16 pipeline ownership families • a marketer affiliated to any pipeline in a pipeline family was considered to be an affiliate on all of the pipelines in the pipeline family

12. Pipeline Affiliate Activity • Affiliated marketers hold 8.5% of the total pipeline capacity under contract on the 25 pipelines • contracts held by affiliated marketers on their “own” pipelines account for only 3.4% of the total contracted capacity on the study pipelines • contracts held by affiliated marketers on their “own” pipelines account for only 13% of the total contracted capacity held by all marketers on the 25 pipelines • Only 6% of discounted transactions were given by pipelines to affiliated marketers. The remaining 94% were given to customers other than affiliated marketers

13. Affiliated vs. Non-Affiliated Discounted Transactions • For the study group as a whole, we have found no compelling evidence that affiliated marketers receive larger discounts than other non-affiliated marketers

14. Comparison of Pipeline Discounts and Short-Term Capacity Release DataAll Pipelines