Ten Years After Gas & Power in Perspective

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1 Regional Market Trends Forum Ten Years After Gas & Power in Perspective Richard Levitan, May 1, 2014

2 Agenda 2014 Polar Vortex v Cold Snap Northeast Gas & Power 10 Years After Gas Markets and Infrastructure: Then and Now Northeast P/L Infrastructure & Sources of Supply Gas-Electric Interface Issues Lessons Learned Unresolved Issues 1

3 2 Cold Snap v. Polar Vortex: Heating Degree Days Normal HDDs Jan-14 HDDs Jan-04 HDDs 1,020 1,134 1,203 1,008 1,123 1,213 1,333 1,520 1,377 1,104 1,159 1,373 Source: National Weather Service Climate Prediction Center

4 Cold Snap: January 14-16, 2004 Northeast Gas & Power 10 Years After Near design day criteria in January 2004 Higher HDDs in Jan 04 v. Jan 14 Lower HDDs in Winter 03/04 v. 13/14 Capacity limitations on P/L s serving New England and downstate New York High generating plant outages due to deliverability constraints Oil deep-in-merit bulk power security Oil inventory management concerns, incl. refill ISO-NE pushed to the limit, OP4 on 1/14 3

5 2004 Cold Snap Observations ISO-NE experienced difficulties forecasting unit availabilities due to gas delivery restrictions Limited coordination between ISOs and P/L s / LDCs Additional fuel diversity and dual-fuel capability needed Non-firm transportation held by generators at the root of availability problems, i.e., wholesale market design Market efficiency objectives subject to debate 4

6 Polar Vortex: January 2014 Extreme, sustained cold blanketing the Eastern Interconnect Constraints on P/L deliverability, incl. force majeure High LDC sendout, high electricity demand High generating plant outages, incl. gas, coal, wind, hydro Historic draw-down from conventional storage fields 5

7 Winter Observations Northeast Gas & Power 10 Years After Frequent gas price super spikes Oil often deep-in-merit high levels of economic scheduling and dispatch of oil-fired generation Most oil-fired generation was capable of being replenished by barge / truck Extreme challenges beginning January 24 th due to 7+ consecutive days of cold weather conditions Direct-connect generators w/ confirmed gas noms largely successful operating on gas, incl. during System Alerts and OFOs Local dual fuel capable units operated on oil 6

8 Winter Observations (cont d) Northeast Gas & Power 10 Years After P/L OFOs required daily balancing during cold snaps Ratable take requirements constrained flexible gas plant scheduling LDCs OFOs reduced daily balancing flexibility and limited hourly takes during cold snaps Limited curtailments / interruptions as oil capable units induced to switch 7

9 Cold Snap v. Polar Vortex: Gas Market Peak Day Prices ($/MMBtu) LNG Imports (Bcf/month) January 2014 (Highest Avg. Daily Price) January 2004 (Highest Daily Close) Transco Z6 NY $ (1/21/14) $70 (1/14/04) AGT Citygates $75.48 (1/22/14) $60 (1/14/04) Tetco M3 $74.05 (1/22/14) $65 (1/14/04) Everett Cove Point Canaport January N/A January Source: Bloomberg, DOE Office of Fossil Energy

10 9 Interstate Pipelines Operating in the Northeast

11 10 Cold Snap v. Polar Vortex: Gas Prices /1 1/2 1/3 1/4 1/5 1/6 1/7 1/8 1/9 1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 1/20 1/21 1/22 1/23 1/24 1/25 1/26 1/27 1/28 1/29 1/30 1/31 Transco Z6 NY ($/Dth) 0 1/1 1/2 1/3 1/4 1/5 1/6 1/7 1/8 1/9 1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 1/20 1/21 1/22 1/23 1/24 1/25 1/26 1/27 1/28 1/29 1/30 1/31 Algonquin Citygates ($/Dth) /1 1/2 1/3 1/4 1/5 1/6 1/7 1/8 1/9 1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 1/20 1/21 1/22 1/23 1/24 1/25 1/26 1/27 1/28 1/29 1/30 1/31 Dominion South Point ($/Dth) /1 1/2 1/3 1/4 1/5 1/6 1/7 1/8 1/9 1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 1/20 1/21 1/22 1/23 1/24 1/25 1/26 1/27 1/28 1/29 1/30 1/31 TZ6NY - AGT CG ($/Dth) Source: Bloomberg

12 11 Next Day Strip Prices, January 2014 (High, Low, Weighted Average) Transco Z6 (NY) Algonquin Citygates /2 1/3 1/4 1/5 1/6 1/7 1/8 1/9 1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 1/20 1/21 1/22 1/23 1/24 1/25 1/26 1/27 1/28 1/29 1/30 1/31 Price ($/MMBtu) Dominion South /2 1/3 1/4 1/5 1/6 1/7 1/8 1/9 1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 1/20 1/21 1/22 1/23 1/24 1/25 1/26 1/27 1/28 1/29 1/30 1/31 Price ($/MMBtu) 1/2 1/3 1/4 1/5 1/6 1/7 1/8 1/9 1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 1/20 1/21 1/22 1/23 1/24 1/25 1/26 1/27 1/28 1/29 1/30 1/31 Price ($/MMBtu) Source: ICE

13 Cold Snap v. Polar Vortex: Electric Market Northeast Gas & Power 10 Years After Highest Real Time Price ($/MWh) January 2014 January 2004 ISO-NE $1,117 (1/28/14) $920 (1/14/04) NYISO (NYC) $2,064 (1/7/14) $988 (1/15/04) Peak Electric Demand (MW) ISO-NE NYISO January ,818 (1/15/04) 25,262 (1/15/04) January ,293 (1/7/14) 25,738 (1/7/14) 12 Source: NYISO, ISO-NE

14 13 Cold Snap v. Polar Vortex: DAM Electricity Prices /1 1/2 1/3 1/4 1/5 1/6 1/7 1/8 1/9 1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 1/20 1/21 1/22 1/23 1/24 1/25 1/26 1/27 1/28 1/29 1/30 1/31 NYISO - NYC ($/MWh) /1 1/2 1/3 1/4 1/5 1/6 1/7 1/8 1/9 1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1/19 1/20 1/21 1/22 1/23 1/24 1/25 1/26 1/27 1/28 1/29 1/30 1/31 ISO-NE ($/MWh) Source: NYISO, ISO-NE

15 14 Northeast Gas & Electricity Prices (Monthly Averages) Natural Gas Price $/MMBTU Electricity Price $/MWH Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Average of AGT CG Average of TZ6 NY Average of HH Average of MassHub Average of NY Zone J Source: Bloomberg

16 ISO-NE Winter Reliability Program Tariff revisions implemented prior to winter 2013/14 Northeast Gas & Power 10 Years After Established oil inventory provisions for oil and dual-fuel capable units Competitive bidding process secured ~ 2 million MWh (oil capable units) Program weighed down energy prices (~25% GWh oilfired) Regional basis differentials sharply inverted (despite +1 Bcf/d of new delivery capacity into NYC) 15

17 16 New England Supply Diversity Source: Pipeline EBBs

18 17 Then v. Now: Post-Shale Gas Flow Patterns

19 Then v. Now: Radical Change in Traditional Flows 2004 Strategic Solution: Increased LNG Imports Shale gas has upended conventional wisdom Long haul transportation from WCSB obsolete Marcellus gas has supplanted gas from GoM and Canada 12 Declining Sable Island production, uncertainty around Deep Panuke Reversal of flow through New York / Ontario LNG imports limited to contract quantities, periodic arbitrage Flexible cargoes to EU or Asia Marcellus Production (Bcf/d) Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Source: Bentek Energy 18

20 Pending Regional Pipeline Expansion Projects Northeast Gas & Power 10 Years After 19 Source: Northeast Gas Association

21 20 LNG Imports to New England Source: DOE Office of Fossil Energy, NEB

22 21 Distrigas Sendout to Algonquin and Tennessee Source: Pipeline EBBs

23 22 Canaport Sendout to M&N Source: M&N EBB

24 23 Atlantic Canada Production Source: CNSOPB, M&N EBB

25 24 Algonquin Boundary Flow into New England Source: Algonquin EBB

26 25 Deliveries to Manhattan via new Spectra P/L Source: Texas Eastern EBB

27 Then v. Now: Gas-Electric Interface Issues Coordination among ISOs, P/L / LDCs has greatly improved Improved generator flexibility thru gas/electric scheduling changes Loss of New England s P/L portfolio diversity heightens risk exposure High basis and volatility here to stay until pipeline enhancements alleviate congestion NYISO benefited by supply push P/L improvements ISO-NE not benefited to date by demand pull projects 26

28 Then v. Now: Gas-Electric Interface Issues Northeast Gas & Power 10 Years After Existing ISO wholesale market design does not induce genco commitments for FT Threshold pipeline credit requirements further complicate the financial / market challenge Bulk power security hinges on oil At-risk units for retirement Environmental concerns Restrictive operating limits when units are scheduled on oil 27

29 Band-aids v. Surgery? Northeast Gas & Power 10 Years After Band-aids include: Improved communication and coordination NAESB reforms to promote gas/electric scheduling alignment Improved understanding thru technical study Greater nom / scheduling flexibility to accommodate genco dispatch Socializing the cost of oil and/or LNG inventory management Surgery includes: Regional solutions, i.e., substantial new P/L facilities into New England Substantial changes to the existing penalty structure for fuel-related non-performance Socializing the cost of new P/L facilities 28

30 29 Final thoughts What would Doc Brown, say? What would TR say?

AEE New England New England Energy Update 1/6/2016. Tim Bigler Senior Market Strategist

AEE New England New England Energy Update 1/6/2016 Tim Bigler Senior Market Strategist Agenda NYMEX NG/Oil Prices New England NG/Electric Prices Future Gas Produc:on Influences New England NG Pipeline