Gas-Electric Coordination Can New Services Bridge the Divide? Michael E. Novak – National Fuel Gas Distribution Corporation AGA’s 7th Annual Energy Market Regulation Conference October 8, 2014

Gas-Electric Coordination Can New Services Bridge the Divide? AD12-12 Technical Conference Outcomes Operational Communications/RM13-7 Alignment of Gas & Electric Scheduling/RM14-2 Market Issues Capacity Issues New Infrastructure Improvements to Secondary Market 10/8/2014 AGA's 7th Annual Energy Market Regulation Conference

Gas-Electric Coordination Can New Services Bridge the Divide? What does the electric industry want from the wholesale gas market and interstate pipelines? Liquid, transparent and more granular trading, particularly on weekends and during intraday nomination cycles. Non-Ratable services that address electric reliability in a dynamic wholesale electric market paradigm. Availability of Primary to Primary flow throughout the day Flexible Primary Delivery Points Hourly nominations across the pipeline grid. 10/8/2014 AGA's 7th Annual Energy Market Regulation Conference

Gas-Electric Coordination Can New Services Bridge the Divide? Enhanced Non-Ratable Firm Transportation Service (ENRFT) Proposal:  Without degradation to the flexibility provided under existing firm services… Develop a new no-notice firm service designed to provide a maximum hourly flow quantity (MHFQ) for a shipper defined duration (or number of hours) as well as a Maximum Daily Quantity (MDQ).  Shippers could call upon this service by nominating a delivery on one hour’s notice at a flow controlled point or take service at will for a direct connect without flow control.  The Shipper would be expected to stay within a specified contract imbalance quantity (CIQ) ideally matching receipt and delivery quantities over the gas day period but without the requirement that receipt flows and delivery flows match on an hourly ratable basis. 10/8/2014 AGA's 7th Annual Energy Market Regulation Conference

Gas-Electric Coordination Can New Services Bridge the Divide? Enhanced Non-Ratable Firm Transportation Service (ENRFT) An ENRFT shipper could call upon delivery service without scheduling receipts so long as the ending imbalance position was within the CIQ. An ENRFT shipper could receive gas into its contract without scheduling a delivery to pay back a negative imbalance (imbalance due pipeline) or build a positive imbalance (imbalance due shipper) without scheduling a delivery. The ENRFT delivery would generally operate independent of the nomination/scheduling timeline; i.e., it could be called upon to provide gas deliveries if a plant was dispatched on in response to another plant’s de-rate. In other words, that gas day would be no more than an accounting event. 10/8/2014 AGA's 7th Annual Energy Market Regulation Conference

Gas-Electric Coordination Can New Services Bridge the Divide? Enhanced Non-Ratable Firm Transportation Service (ENRFT) Because ENRFT would be no-notice, bumping rules as they pertain to deliveries to the primary delivery point would not apply and further, the service itself would be no-bump. Because of the imbalance structure built into the CIQ logic, generators could time their purchases to occur at the most liquid trading periods. For example, if an ENRFT shipper starts taking deliveries after the last intraday nomination deadline, it can schedule its payback receipts to the pipeline during the next gas day. 10/8/2014 AGA's 7th Annual Energy Market Regulation Conference

Gas-Electric Coordination Can New Services Bridge the Divide? Enhanced Non-Ratable Firm Transportation Service (ENRFT) CIQs would be negotiable and could be as large as several days of MDQ. The negative imbalance CIQ need not be the same as the positive imbalance CIQ. Use of the contract capacity for deliveries to secondary points may be restricted based upon physical limitations of the resources used to provide service. 10/8/2014 AGA's 7th Annual Energy Market Regulation Conference

Gas-Electric Coordination Can New Services Bridge the Divide? Enhanced Non-Ratable Firm Transportation Service (ENRFT) Because pipelines would hold the capacity in reserve, the rates would be designed for the pipeline to recover its costs whether the ENRFT capacity was used or not. Traditional rate design, however, could be replaced with a cost structure that corresponded to electric market pricing. Rather than being simply a one part commodity rate or a two-part FT rate, an hourly rate structure could be negotiated as a compliment to /replacement for daily or monthly charges. 10/8/2014 AGA's 7th Annual Energy Market Regulation Conference

Gas-Electric Coordination Can New Services Bridge the Divide? Enhanced Non-Ratable Firm Transportation Service (ENRFT) What changes to FERC gas regulations might be complimentary? Multi-Party Transportation Contracts? Limited/Case-Specific Shipper-Must-Have-Title Waivers? Who would become ENRFT Shippers? What are the regulatory impediments to ENRFT in organized electric markets? 10/8/2014 AGA's 7th Annual Energy Market Regulation Conference

Gas-Electric Coordination Can New Services Bridge the Divide? Can the Gas Day Change be deferred? Could the combination of gas nomination/ scheduling timeline changes combined with corresponding revisions to electric industry day ahead scheduling be sufficient to drive a beneficial market response without a change to the Gas Day? Could the “right” service design make the start of the Gas Day irrelevant to the electric industry? 10/8/2014 AGA's 7th Annual Energy Market Regulation Conference