Gas Infrastructure and Deliverability in New England

Understanding Our Energy Distribution Systems: Gas Infrastructure and Deliverability in New England Richard Levitan, rll@levitan.com March 5, 2014

Understanding Our Energy Distribution Systems Agenda Price Discovery During the Polar Vortex New England s P/L Infrastructure Marcellus shale E&P impact on supply / deliverability Decline in gas portfolio diversity -- pipeline economic obsolescence Reduced LNG Imports Potential infrastructure expansion efforts 1

Understanding Our Energy Distribution Systems Next Day Strip Prices, January 2014 Price ($/MMBtu) Price ($/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 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 ($/MMBtu) Price ($/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 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 (High, Low, Weighted Average) 150 Algonquin Citygates 150 Chicago Citygates 125 125 100 100 75 75 50 50 25 25 0 0 150 TETCO-M3 150 Dominion-South 125 125 100 100 75 75 50 50 25 25 0 0 3 Source: ICE

Understanding Our Energy Distribution Systems Chokepoints Across the Supply Chain into the NYFS January 6-7, January 21-23, 2014 Force majeure, 1/7 4 Source: Pipeline EBB Critical Notice postings

Understanding Our Energy Distribution Systems Pre-Shale and Post-Shale Gas Flow Patterns Pre-Shale Flow Patterns Post-Shale Flow Patterns 5

Understanding Our Energy Distribution Systems Wet and dry shale gas production Major Dry Gas Production Area Major Wet Gas Production Area 6 Sources: EIA, Pennsylvania State University Marcellus Center, Dominion Resources, Pennsylvania Department of Conservation and Natural Resources

Understanding Our Energy Distribution Systems 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 Marcellus Production (Bcf/d) Radical Change in Traditional Flows Shale gas fundamentally altering traditional flows Long haul transportation from WCSB obsolete Marcellus gas supplanting gas from GoM and Canada Declining Sable Island production, uncertainty around 12 Deep Panuke Reversal of flow through New York / Ontario LNG imports limited to contract quantities, periodic arbitrage Flexible cargoes to EU or Asia 10 8 6 4 2 0 Source: Bentek Energy 7

Understanding Our Energy Distribution Systems Interstate Pipelines Operating in New England Algonquin Granite State Iroquois M&N PNGTS M&N/PNGTS Joint Facilities Tennessee Interstate-Served Generator LNG-Served Generator LDC-Served Generator 8

Understanding Our Energy Distribution Systems Interstate Pipelines Operating in New York Algonquin CNYOG Columbia Dominion Empire Iroquois Millennium NFG Tennessee Texas Eastern Transco Bluestone Gathering Laser Gathering Interstate-Served Generator Intrastate-Served Generator LDC-Served Generator 9

Understanding Our Energy Distribution Systems LNG Import Terminals in New England Mystic 8&9 Boston Algonquin M&N Tennessee LNG-Served Generator LNG Import Terminal National Grid Service Territory 10

Understanding Our Energy Distribution Systems Northeast LNG Imports LNG Imports (Bcf) 25 Distrigas Canaport 20 15 10 5 11 0 2007 2008 2009 2010 2011 2012 2013 Source: DOE Office of Fossil Energy, NEB

Understanding Our Energy Distribution Systems Decline in East-End Supplies Distrigas Sendout to Algonquin (MDth/d) LNG Imports (Bcf) 400 350 300 250 Distrigas LNG Imports Distrigas Sendout to Algonquin Algonquin Receipts from M&N 50 45 40 35 30 200 25 150 100 50 20 15 10 5 12 0 2007 2008 2009 2010 2011 2012 2013 Source: DOE Office of Fossil Energy, Spectra Energy 0

Understanding Our Energy Distribution Systems Constraints on West-End Supplies Natural Gas Volume (MDth/d) 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 Jan-14 Algonquin Southeast Compressor Station (NY/CT Border) 1,600 1,400 1,200 1,000 800 600 400 Capacity Throughput 200 0 13 Source: Spectra Energy

Understanding Our Energy Distribution Systems LNG Facilities in New England Augusta Concord Boston Portland Algonquin Granite State Iroquois M&N PNGTS M&N/PNGTS Joint Facilities Tennessee LNG Import Terminal LNG Satellite Tank Springfield Hartford Providence New Haven 14

Understanding Our Energy Distribution Systems LDCs Serving New England Generators Algonquin Granite State Iroquois M&N PNGTS M&N/PNGTS Joint Facilities Tennessee Bangor Gas Berkshire Gas Columbia Gas of MA Connecticut Natural Gas Maine Natural Gas National Grid (Boston Gas) National Grid (Colonial Gas) National Grid (Narragansett) Southern Connecticut Gas Yankee Gas LDC-Served Generator 15

Understanding Our Energy Distribution Systems M&N Pipeline Facilities Maine New Hampshire Algonquin Granite State M&N PNGTS M&N/PNGTS Joint Facilities Tennessee Compressor Station Interstate-Served Generator 16

Understanding Our Energy Distribution Systems Tennessee Pipeline Facilities in New England Algonquin Tennessee Granite State Compressor Station Iroquois Interstate-Served Generator M&N M&N / PNGTS Joint Facilities 17

Understanding Our Energy Distribution Systems Concluding Thoughts Loss of New England s P/L portfolio diversity heightens economic and operational risks High basis and volatile gas prices likely here to stay until pipeline enhancements alleviate congestion along traditional pathways into the region Existing ISO wholesale market design does not induce genco commitments for firm transportation Bulk power security during the winter is derived largely from oil Many oil generation plants at the local level are at-risk for retirement Combined cycle, gas turbine, and steam turbine generators on oil cannot sustain the provision of ancillary services 18

Electric Grid Structures NESEA BuildingEnergy 14 Understanding Our Energy Distribution Systems March 5, 2014 Paul Peterson www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved.

Synapse Energy Economics Consulting firm in Cambridge Massachusetts with a staff of 30 people Issues Electric industry restructuring & utility rate cases Wholesale markets, ISOs, and RTOs System Planning and resource development Environmental impacts of power industry Clients State Consumer Advocates and Utility Commissions Public Interest and Environmental groups EPA and DOE RTO stakeholders www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 20

1949 = 1.00 Trends Relative US Energy & GDP Growth since 1949 18 16 14 12 10 8 6 4 2 0 1949 1959 1969 1979 1989 1999 2009 Electricity GDP All Energy Energy (Non-Elec) Population www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 22

All Energy kbtu/$ Electricity MWh/M$ Declining energy intensity US Historic Energy Intensity 20 18 16 14 12 10 8 6 4 2 0 1949 1959 1969 1979 1989 1999 2009 400 360 320 280 240 200 160 120 80 40 0 All Energy/GDP Electricity/GDP www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 23

Three elements to power system Supply (resources) Demand (loads) Wires (T&D systems) Electric machines Inter-connected electric systems are the largest machines ever engineered 24/7 balancing of supply and demand Cascading effect of disruptions Controls for local systems www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 24

Peak Load Summer: MW needed for summer peak day Winter: MW needed for winter peak day Daily: MW needed for each daily peak Energy MWH needed to meet total annual demand Reliability Needs Planning issues Resource adequacy (thermal loads on wires) Security dispatch (voltage, stability and daily operation) www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 28

System operations Energy to meet forecast load in each hour Day Ahead, adjusted by a reliability review Real Time Reserves to be available for contingencies 10 minute 30 minute Dispatch instructions to fine tune/balance Voltage Regulation to fine tune the balance Capacity to meet annual peak load www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 29

Traditional operation of power grids Day-ahead forecast of hourly loads (weather) Day-ahead commitment of generation New England grid Real-time management of generation by operators Evolving operation of power grids Day-ahead offers by Supply and Load Day-ahead dispatch schedule includes instructions to both Supply and Load Real-time balancing based on offers Supply and load are variable/manageable www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 30

Net Energy for Load, GWH Energy load (1980-2009) New England Weather Normal Net Energy for Load 140000 130000 120000 110000 100000 90000 80000 1980 1985 1990 1995 2000 2005 2010 Weather Normal Net Energy for Load www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 31

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Net Energy for Load, GWh Declining slope to flat 140000 New England Weather Normal Net Energy for Load, 1981-2010, Excluding 1991-1993 and 2008-2009 Recession Years 130000 561 GWh 120000 2344 GWh 110000 100000 3481 GWh 90000 80000 www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 32

GWh Northeast Energy Efficiency Partnerships 2005 estimate of EE potential Existing and New EE Strategies Can Offset ISO Forecasted Energy Requirements (GWH) and Beyond 150,000 145,000 ISO GWh Forecast (w/out DSM) 1.2% Avg. Annual Increase at 140,000 135,000 Addt'l EE Can Offset Growth 130,000 125,000 Actual Energy Requirement (2003) 120,000 115,000 110,000 105,000 100,000 Total Achievable Energy Savings Potential -1.38% Avg. Annual Reduction 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total EE Potential in 2013 Can Reduce Energy Req. to 1993 Level www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 34

ISO New England DG forecast Interim forecast for 2014 System Plan DG forecast working group (DGFWG) Focus on solar PV Developing state inventories Complete forecast for 2015 System Plan Other DG, including CHP Refinement to solar PV Operational issues are a concern www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 38

2013 New England market changes Change timing of Day Ahead Market (gas) Expand use of daily reoffer period Winter 2013-2014 fuel purchases (gas) Increase quantity of operating reserves Increase frequency of higher reserve prices Update shortage event trigger (30 min) Refer non-performing generators to FERC FCA-8 retirements and scarcity FCA-9 design changes (proposed) www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. FERC December 17, 2013 40

Interconnected Grid with more DG Enhanced reliability Greater efficiency Lower cost Completely distributed grid? Role of storage? Net-zero energy buildings? Carbon policy? Future structure EPRI, The Integrated Grid, February 2014, for background www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 44

Reliability the grid will be unstable if... Economics unnecessary costs will be imposed if... Fairness Elements of persuasion these resources/customers will be harmed if... Policy the public interest will be ignored if... All four = success www.synapse-energy.com 2013 Synapse Energy Economics, Inc. All rights reserved. NESEA BuildingEnergy 14 45