September 25, 2001 Maryland Public Service Commission Retail Gas Market Conference Timothy S. Sherwood Department Head, Energy Acquisition

2 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

3 Price Outlook

4 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

5 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

6 Supply Portfolio

7 Winter Load Curve

8 Storage Inventory Curve

9 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

10 Gas Choice Programs Recent supplier initiatives –Supplier enrollment options: telephone, Internet or wet signatures –Customer list available to suppliers with customer opt-out provision

11 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

12 Defaulting Gas Suppliers Supplier Issues –Reasonable rules of regulation –Streamline supplier licensing process –Simplify customer enrollment process –Customer contact regarding contract rescission or renewal

13 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

14 Supply Hedging Plan

15 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

16 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)

17 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

18 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

19 Thank You