Update on American Gas Association Issues and Activities

1
Update on American Gas Association Issues and
Activities

• Jay Copan
• Senior Vice President
• AUSA Meeting
• New Glarus, WI
• August 4, 2006

2
Lower-48 Dry Gas Production Vs. Dry Gas
Productive Capacity
Source Energy and Environmental Analysis, Inc.
3
Shut-In Federal Offshore Gulf Natural Gas
Production(EIA, April 2006)
Bcf/d
/Mcf
Forecast
Henry Hub Price (right axis)
Shut In Production (left axis)
Trading on Henry Hub suspended from 9/23
10/6 Bcf/d Billion cubic feet per day, /Mcf
Dollars per thousand cubic feet
4
Electricity Generation Mix 1995-2020
AGA Supports Direct Use and Fuel Diversity
5
Maturing Resource Base
6
Major Portions of the Gas Resource Base Are Not
Accessible
Approximately 29 trillion cubic feet (TCF) of the
Rockies gas resources are closed to development
and 108 TCF are available with restrictions
7
Supply Outlook
8
What Can We Do?Longer Term Options

• Natural gas is plentiful in America
• Encourage a reasonable balance between economic
  and environmental values with regard to land
  access
• Encourage Alaskan supply
• Encourage LNG supply
• Encourage diversity among electricity generation
  options

9
Why Innovative Rate Design?

• Flat demand growth
• Discourage increased sales and encourage
  conservation.
• Break the link between volumes of gas delivered
  and recovery of fixed costs.
• Innovative rates are less volumetric

10
Types of Demand Reduction Mitigation Strategies

• Weather Normalization Clauses
• Decoupling Tariffs
• Return Stabilization Mechanisms
• Fixed Variable Rate Design
• Increased Customer Charge
• Conservation Riders

11
Decoupling Tariffs

• Approved
• CA Southwest Gas
• MD Baltimore Gas and Electric, Washington Gas
• NC - Piedmont
• OR NW Natural Gas
• Pending
• IN Citizens Gas Light and Coke, Vectren Indiana
• NJ NJ Natural, South Jersey
• OH Vectren Ohio
• UT Questar

12
Fixed Variable Rate Design and Variants

• Approved
• GA Atlanta Gas
• ND Xcel All fixed costs are recovered in
  fixed monthly charge - 15.69
• OK ONEOK Customers are provided a choice --
  customers can select high demand charges/low
  delivery charges or low demand charges/high
  delivery charges with the company proposing to
  make the initial rate design allocation among its
  residential customers.
• MO Laclede Uses a modified first block of the
  rate to recover more of the fixed costs in this
  block

13
Fixed Variable Rate Design and Variants

• Straight Fixed Variable
• GA Atlanta Gas
• Recovers the utilitys fixed costs based on each
  individual customers demand on the system.
  Recovery is not based on weather.
• Demand charge is calculated based on past usage
  patterns, size of residence, number of gas
  appliances.
• The demand charge is recalculated each year.
• The demand charge is now sculpted and recovers
  more of the fixed charges in winter than in
  summer.

14
AGA 2006 Survey of Customer Charges

• Median monthly customer charge is approx. 8
• Range of customer charges is 3 to 15.69.
• The increase in monthly customer charge since
  1980 tracks inflation.
• The median 8 customer charge is approx. one
  third of median fixed costs.
• Thus, a customer charge that reflects true cost
  of service costs would be approx. 24-25.

15
Key Industry Issues Going Forward

• Federal Legislative Issues
• Supply Access/Ability to Match Consumption
• Increased LIHEAP Funding
• Reauthorization of Pipeline Safety Act
• Climate Change

16
Key Industry Issues Going Forward

• Federal Regulatory Issues
• DOT
• Integrity Management Programs
• FERC
• Gas Quality Issues

17
Key Industry Issues Going Forward

• State Regulatory Issues
• Increasing number of rate cases
• Rate design issues/Alternative ratemaking
  mechanisms
• Return on equity decisions
• Changing nature of regulatory commissions/entrench
  ed staff

18
Key Industry Issues Going Forward

• Corporate Issues
• Continuation of back to basics, or is it time to
  crank up the growth model?
• Corporate Size
• Next Round of MA

19
Update on American Gas Association Issues and
Activities

• Jay Copan
• Senior Vice President
• AUSA Meeting
• New Glarus, WI
• August 4, 2006