Structuring and Financing Gas Pipeline Infrastructure

1. Structuring and Financing Gas Pipeline Infrastructure Pete Fuller NEPOOL Transmission Committee July 22, 2014

2. NRG’s Outlook • The interstate pipeline system in New England is stressed • The highways in Boston and other metro areas are also stressed, but we don’t jump to overbuild them beyond peak needs • The region should fully examine and optimize peak-period alternatives such as dual fuel capability and LNG • Natural gas will continue to be the foundational fuel for power generation for some decades, complementing increasing renewables and legacy coal and oil capacity, in addition to fueling new distributed technologies • On balance, some pipeline expansion will be needed

3. The Markets Context • In the 1990s, the New England region and much of the country committed to competitive wholesale electric markets to drive innovation and guide investment choices • Fuel and other infrastructure investments based on out-of-market revenues will necessarily distort market prices, affecting fuel choices and other investment decisions • The large centralized procurements and new quasi-governmental agencies to administer pipeline capacity releases under consideration* will likely maximize the cost and the market distortion * I.e., the “Incremental Gas for Electric Reliability” (IGER) proposal, at http://www.nescoe.com/uploads/LettertoNEPOOL_Gas-Electric_30April2014.pdf and http://www.nescoe.com/uploads/GasforElectricReliabilityGraphic_April2014.pdf

4. NRG’s Proposal - Structure • Solicit power generators and other shippers with an interest in incremental pipeline capacity to submit bids for the form and level of support needed from the states • Contrast with IGER, which would commit consumers to the full 20-year cost of pipeline expansion and then hope to recoup some market value • Individual parties should identify their own needs and take some of the risk associated with forward pipeline capacity valuation • This approach would calibrate the volume of expansion and the specific pipeline projects to identified needs, and would limit consumers’ exposure to pipeline costs

5. NRG’s Proposal - Financing • Collecting the costs of pipeline infrastructure through the ISO tariff will create an additional non-bypassable charge on end-use consumers, inhibiting customer choice • A better choice would be state green banks and/or financing authorities as the source of funding • Eg, CEFIA/Connecticut Green Bank; FAME; MassDevelopment; VEDA • All of these entities’ mission and capabilities are highly consistent with stated goals of the Governors: “expand economic development, promote job growth, improve the competitiveness of our industries, enhance system reliability, and protect and increase the quality of life of our citizens.”

7. Summary • Significant expansion of pipeline capacity is a major undertaking with long-lived consequences • Expansion should be calibrated to identified needs for incremental gas as well as the long-run role of gas in the region, to lower consumer cost and risk exposure • Customer choice is fundamental to competitive markets and should not be restricted by further tariff-based non-bypassable charges • State financing authorities are an appropriate vehicle for funding public policy infrastructure and do not require setting contentious new federal precedent

8. Thanks for your consideration.