Natural Gas Forecast

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Natural Gas Forecast
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Objectives of natural gas commodity model

• To produce a 20-year avoided cost forecast for
  gas delivered for core customers
• To produce a 20-year avoided cost forecast for
  gas delivered for electricity generation
• Natural gas TD avoided costs estimated as part
  of TD model

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E3 methodology for forecasting gas commodity cost
at city gate

• Use market data where available NYMEX futures
  prices available for 72 months
• Adjust for location using NYMEX OTC basis swap
  prices where available (up to 36 months),
  econometric analysis for subsequent period
• Transition to CEC forecast for long term

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NYMEX Natural Gas Futures

• Delivery Location Henry Hub (Louisiana)
• Open Interest settled daily based on
  mark-to-market
• Trading stats from 9/15 session, Oct. delivery
• Volume 273 TBtu (1.3 billion)
• Open Interest 514 TBtu (2.4 billion)
• Daily trading volumes drop off after 1 year out,
  Open Interest after 3 years out

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Basis Difference Analysis

• 1996-2003 average, excluding crisis period
  (6/00-7/01)
• SoCal Gas -6
• PGE 2
• Forward swap prices less than 20 trending
  towards zero
• Econometric analysis finds no persistent basis
  differential
• Assume zero for out years

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Long-term natural gas commodity price forecast
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Local distribution system avoided cost adders

• For electric generators, add tariff rate for
  transportation across intrastate LDC systems
• For LDCs, add avoidable localdistribution
  upgrade costs