Maryland Public Service Commission
Retail Gas Market Conference
September 25, 2001
Timothy S. Sherwood
Department Head, Energy Acquisition
Natural Gas Industry Review
• Wholesale production capability has
increased
• “Cool” summer weather has decreased
demand
• Storage injections are ahead of schedule,
inventories are near normal
• Market prices have moderated
2
Price Outlook
Forward Curve Analysis
$4.500
$4.250
$4.000
$3.500
$3.250
$3.000
$2.750
$2.500
$2.250
Apr-04
Feb-04
Dec-03
Oct-03
Aug-03
Jun-03
Apr-03
Feb-03
Dec-02
Oct-02
Aug-02
Jun-02
Apr-02
Feb-02
Dec-01
$2.000
Oct-01
Futures Price
$3.750
Trading Month
Current Strip 09/06/01
Strip for 06/25/01
3
Supply Reliability
• Plan for extreme weather conditions
• Contract for firm pipeline capacity and firm
natural gas supply
• Utilize market area storage
• Operate on-system resources
• Maintain mutual aid arrangements
4
Supply Portfolio Changes
• Firm Delivery Service Program suppliers are
required to balance daily
• Firm Delivery Service Program suppliers
have been assigned storage and peak
shaving resources
• Reserve margin has been increased to
account for uncertainty due to greater
supplier load responsibility in the winter
5
Supply Portfolio
2000-2001 2001-2002
Design
Design
Day
Day
(kdths)
(kdths)
Load Estimate
2001-2002
Design
Winter
(BCF)
1,481
1,532
117.8
Firm Transportation and Storage
841
901
90.3
Firm Peaking
622
614
6.0
FDS (net of Marketer cap assign)
129
176
23.9
Total
1,592
1,691
120.2
Reserve Margin
111
6.9%
159
10.4%
6
Winter Load Curve
Winter 2001-2002 Firm Sendout and Resources
10
5
Typical Normal @ 3,316 HDDs
Most Severe @ 4,065 HDDs
15
1,800
20
1,600
40
1,000
45
800
50
600
TEMPERATURE
25
30
35
1,200
60
55
400
65
200
Firm Transport
WG Retained Storage
Normal Firm Load
Third Party Transport Delivery
Third Party Assigned Peaking
151
141
131
121
111
101
91
81
71
61
51
41
31
21
11
0
1
Sendout in KDth - Dry
1,400
Third Party Assigned Storage
WG Retained Peaking
Most Severe Load
7
Storage Inventory Curve
35,000
30,000
kdths
25,000
High
Actual
Low
20,000
15,000
10,000
5,000
0
Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr01
01
01
01
01
01
01
01
01
02
02
02 02
8
Customer Communications
• Focus on helping customers manage their
natural gas utility bill payment
– Eliminate or reduce their existing arrearage
– Encourage use of Budget Plan
– Education aimed at energy efficiency
9
Gas Choice Programs
• Recent supplier initiatives
– Supplier enrollment options: telephone,
Internet or wet signatures
– Customer list available to suppliers with
customer opt-out provision
10
Defaulting Gas Suppliers
• Suppliers exit Delivery Service Program
– Economic Exit: sale of customers to
another supplier or customers choose new
supplier
– Bankruptcy: customers return to Utility firm
sales service
11
Defaulting Gas Suppliers
• Supplier Issues
– Reasonable rules of regulation
– Streamline supplier licensing process
– Simplify customer enrollment process
– Customer contact regarding contract
rescission or renewal
12
Supply Hedging Plan
• Increase the stability of gas costs and reduce
exposure to price spikes for firm customers
• Limited to three products: Price Cap, Price
Band and Fixed Price
• Limited to must-flow volumes, no speculating
• Internal controls and external reporting
13
Supply Hedging Plan
Hedging Analysis for Winter 2001-2002
$4.5000
$4.2500
$4.15
$3.7500
Price Cap Max Gas Cost $3.85 + Adder
$3.5000
$3.2500
$3.0000
Fixed Price $3.0418
$2.7500
$2.5000
$2.2500
Mar-02
Feb-02
Jan-02
Price Band Floor Min Gas Cost $2.20
Dec-01
$2.0000
Nov-01
Trading Price
$4.0000
Price Band Ceiling Max Gas Cost $4.15
NYMEX Futures Contract Month
Current Trading Price 09/05/01
Winter Strip Price
Cap Price Protection
Price Band Ceiling Price
Price Band Floor Price
14
Pipeline Capacity Issues
• Increasing native customer demand
• Increasing demand from electric power
generation
• Limited incremental interstate pipeline
capacity and market area storage available
• Time-lag in the construction of new capacity
– Federal regulatory hurdles for new construction
15
WG Capacity Plan
• Pipeline Open Seasons (Long Term)
• LNG Options (Short and Long Term)
– Litigation to protect safety and service issues
• Market Services (Short Term)
16
Pipeline Capacity Issues
• Migration of released capacity outside of the
immediate market area
– Capacity unavailable for customers returning to
firm sales service
• Reluctance of Delivery Service Program
marketers to acquire long-term capacity
17
Pipeline Capacity Issues
• Delivery Service Program enrollment volatility
• Pipeline capacity contracting uncertainty
– Recovery of stranded costs
• Supplier of last resort obligation
• Possible mandatory assignment of assets
18
Thank You
19