1 NAESB Standards Request R04016 Summary of Strawman Proposal of The New Jersey Companies January 24-25, 2005

2 Introduction R04016 joint sponsors seek development of a standard energy day for both the gas and electric industries set on a midnight to midnight central time model. Intent is to facilitate the coordination of scheduling between electric generation and natural gas deliveries.

3 Recommended Principles of The New Jersey Companies 1. Maintain status quo for the North American natural gas and regional electric days. 2. Pursue enhanced communication standards under NAESB standard development R Develop an electric business practice standard to ensure electric industry prices can accurately reflect natural gas pricing.

4 Electric Market Considerations Existing Electric Day accommodates: – Regional differences – Peak and Off-Peak product definitions – Arbitrage New England ISO analysis of 2004 Cold Snap recommends better coordination of gas and electric operations and markets. – Provides no support for a standard energy day

5 Electric Market Considerations cont. Starting and ending points of Electric Day and Gas Day are essentially irrelevant to the functioning of the industries. Focus instead on when, relative to the gas nomination deadline, a generator is notified that it has been selected in the day ahead market.

6 Electric Market Considerations cont. The disconnect in regional electric closing times is intentional, encourages arbitrage, and aids market efficiency. ISONE Market Monitor determined that energy markets worked efficiently to allocate natural gas during the 2004 Cold Snap.

7 Electric Market Considerations cont. Ensure that wholesale electricity prices can reflect the price of gas at all relevant times. Using R04021, formalize timely communications among: – Natural gas suppliers – Pipeline system operators – Electric generators – Electric transmission system operators

8 Natural Gas Market Considerations Current Gas Day model has served the gas industry admirably for years. NAESB should focus on matters better lending themselves to standardization. Retain what works well absent a compelling case for change.

9 Nat. Gas Market Considerations cont. Stakeholders have made good-faith commitments that might now be stranded in favor of costly, uncalled-for restructuring. – Increased personnel and operating costs incurred with no commensurate benefits. – Cost allocations have not been addressed. – Generators should acquire a portfolio of gas services to support their needs. The current model simply works!

10 Nat. Gas Market Considerations cont. An energy day starting outside of normal business hours would prevent normal daytime personnel from fully using pipeline flexibility, and would also contribute to increased system imbalances. – Start of any Gas Day must follow at least 3 hours of a normal business day

11 Nat. Gas Market Considerations cont. Forcing industries as different as gas and electric to operate on timelines that fail to recognize their operational differences could create system stresses and inefficiencies that could harm reliability. Market liquidity could be harmed through energy day consequences on: – Capacity release – Electric and gas trading

12 Summary The New Jersey Companies support the coordination of the gas and electric industries whenever possible. Creating a uniform energy day does not appear to be a goal consistent with the unique requirements of the electric or gas industries. Recommend adoption of the following three principles:

13 Recommended Principles of The New Jersey Companies 1. Maintain status quo for the North American natural gas and regional electric days. 2. Pursue enhanced communication standards under NAESB standard development R Develop an electric business practice standard to ensure electric industry prices can accurately reflect natural gas pricing.