Smart Modernization: Infrastructure Replacement & Expansion Update Maryland-District of Columbia Utilities Association 2016 Annual Fall Conference

Natural Gas Records in 2015 Domestic Annual Production – 27.1 Tcf Proved Reserves – 368 Tcf (dry) Undiscovered Gas Resources – more than 2,500 Tcf Domestic Natural Gas Consumption – 27.4 Tcf Natural Gas Consumed for Power Gen – 9.4 Tcf Working Gas in Underground Storage – 4,009 Bcf Sources: Bentek Energy, Energy Information Administration, Potential Gas Committee

Safely transported Across the Country Natural gas pipelines, are an essential part of the nation’s infrastructure. Transportation by pipeline is the safest form of energy delivery in the country. Natural gas utilities spend $22 billion annually to help enhance the safety of natural gas distribution and transmission systems. Interstate Pipelines Intrastate Pipelines

Regulatory Oversight AGA supports continuous improvements to the safe delivery of natural gas through: There is significant oversight and regulation focused on the natural gas industry to help ensure public safety. The U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) establishes federal safety standards for pipelines, and PHMSA partners with state pipeline safety agencies on inspections and enforcement of intrastate pipelines. Individual states can regulate intrastate pipeline systems above and beyond federal requirements, and there are hundreds of state-specific pipeline safety regulations currently in place. Information sharing among emergency responders and the public that effectively informs and enhances pipeline safety Research and development of safety-enhancing technologies Collaboration with key stakeholders Advocating for the effective enforcement of “Call 811” Conducting forums for the industry that facilitate the sharing of leading practices

Pipeline Safety Regulations PHMSA’s Other Initiatives: DOT Pipeline Safety & Hazardous Materials Administration (PHMSA) Regulates gas utilities under 49 C.F.R. Part 192 Significant number of new requirements on the way More than 80 mandates from Congress and recommendations from NTSB, GAO, and the OIG 2016 PIPES Act PHMSA’s Proposed Transmission Rule Transmission Integrity Management Program (TRIMP) Distribution Integrity Management Program (DIMP) Control Room Management Damage Prevention Land Use Planning Public Awareness Emergency Preparedness Pipeline safety regulated and overseen by PHMSA. There are a significant number of programs underway and new rules and requirements are on the way.

Infrastructure Investments For Economic Renewal America’s natural gas utilities invest billions in our nation’s natural gas 2.4 million miles of pipeline infrastructure — the most extensive, integrated, safe and reliable in the world — which provides access to homes and businesses across the nation. Working with governors, legislators and state regulators around the country, utilities are developing innovative models for making these capital investments possible. Natural gas utilities spend more than $22 billion annually to help enhance the safety of natural gas distribution and transmission systems and to upgrade systems and expand service so more Americans can access this foundation fuel.

States with Accelerated Infrastructure Replacement Programs The overall trend is positive States address this issue differently The basis for these decisions is always just and reasonable rates for consumers There is a growing effort underway to accelerate the replacement of pipelines no longer fit for service, and AGA and its members are committed to that effort; That work is being facilitated by regulatory and legislative policies that establish innovative rate mechanisms which allow for accelerated replacement and modernization of natural gas pipelines. 40 states and the District of Columbia have some sort of accelerated infrastructure program (trackers, surcharges, etc.). According to DOT’s website, over the last 10 years, 10,000 miles of main and 33,000 services of cast iron have been replaced. The numbers are 19,000 miles of main and 2.2 million services for bare steel. A rate stabilization mechanism allows utilities to recover whatever costs they incurred in the previous year in current rates.  In doing so, utilities can choose the speed in which they replace their pipe (within reason) and recover any costs associated with that replacement.  When we circulated the presentation, a number of members indicated that they’d accelerated their replacement schedules and recovered their costs through these mechanisms.

Remaining Materials in States without Mechanisms Idaho and Vermont have finished replacing their cast iron and bare steel.  Wisconsin has finished replacing its cast iron and bare steel main and has a limited quantity of bare steel services remaining. Other companies/states on this list are on the verge of completing their cast iron and bare steel replacement. State Main -Steel Unprotected Bare (Miles) Main - Cast/Wrought Iron (Miles) Estimated Miles of Services -Steel Unprotected Bare Estimated Miles of Services - Cast/Wrought Iron AK 7.5 0.00 DE 6.18 76.3 8.13 HI 101.8 83.27 ID MT 3.34 0.63 ND 0.14 NM 5 0.55 0.0 SD 0.068 1.92 VT WI 0.04  Totals 123.888 117.19 Source: DOT Data

System Modernization Has Been a Decades Long Process and Will Continue Source: Department of Transportation

“Smart Modernization” Infrastructure replacement programs, if designed and coupled properly, provide the opportunity to put new technology in the ground which could allow for greater pipeline capacity and pressure in a given area. With greater capacity, utilities are better positioned to expand to serve more customers.

States with Infrastructure Expansion Programs 39 states presently have or are considering an innovative infrastructure expansion program or policy States with Infrastructure Expansion Programs

As a Result, Emissions Have Declined Even as the System Grows Today, emissions off the distribution system are 0.1% as a percentage of total natural gas production. Source: AGA Analysis based on Department of Transportation data and EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks 1990-2012 *Excludes Reductions from Voluntary Programs

Key Takeaways There is a record and flexible supply of natural gas in the U.S. Significant modernization and expansion efforts are underway. The industry has always considered safety and reliability its top priority. Working collaboratively with NARUC and individual commissions, state legislators and governors. LDCs have been modernizing pipelines at a record pace. This work has now extended to a concerted effort to expand infrastructure into unserved and underserved areas. Investing in the infrastructure makes sense given the critical role natural gas plays today and in the future in providing safe, reliable, low-cost and environmentally friendly energy to the consumer.

Find Us Online Lori Staffin Traweek Chief Operating Officer www.aga.org www.truebluenaturalgas.org http://twitter.com/AGA_naturalgas www.facebook.com/naturalgas www.linkedin.com/company/50905?trk=tyah Lori Staffin Traweek Chief Operating Officer ltraweek@aga.org (202) 824-7330