1. Federal Energy Regulatory Commission Winter Energy Market Assessment 2005 – 2006 Item No.: A-3 October 20, 2005

2. Tight Supplies Mean Small Changes Can Magnify Price Effects

3. FERC Staff Will Rigorously Review: Supply Adequacy Supply Adequacy Trading Trading Infrastructure Infrastructure Electric Markets Electric Markets

4. Supply Concerns Drive Gas Prices

5. Sources: Staff analyses of 10/18/05 NYMEX futures data, Bloomberg and Platts. 0 5 10 15 20 25 30 35 1/1/037/1/031/1/047/1/041/1/057/1/051/1/06 New York Delivered Prices ($/MMBtu) Natural Gas Transco Z6 No. 6 Fuel Oil No. 2 Fuel Oil Futures Prices 10/20/05

6. Summer Demand and Hurricanes Have Reduced the Storage Surplus

8. Natural Gas Production Outlook is Uncertain

9. Sources: Staff derivation from CERA, Monthly Gas Briefing: A Band of Uncertainty, September 19, 2005; CERA, Here We Go Again: Hurricane Rita Adds to Hurricane Katrina’s Supply Shock, September 23, 2005; EIA Short-Term Energy Outlook, October 12, 2005; Lehman Brothers Q205 Nat Gas Production/Supply Overview, August 31, 2005 and Baker Hughes. EIACERALehmanGas Rig Count 10 12 14 16 18 20 22 1990199119921993199419951996199719981999200020012002200320042005 Yearly Dry Gas Production (Tcf) 0 200 400 600 800 1,000 1,200 1,400 Average Annual Rotary Rig Count 2005 figures are estimates and adjusted for shut-in production

10. Greater LNG Imports Expected Projected to increase 0.6 – 1.0 Bcf/d over last winter Projected to increase 0.6 – 1.0 Bcf/d over last winter Will depend on netbacks, global supplies, and competing demands Will depend on netbacks, global supplies, and competing demands Biggest increases expected at Lake Charles Biggest increases expected at Lake Charles

11. Sources: Staff analyses of U.S. Waterborne LNG Report, September 29, 2005 and October 12, 2005; CERA, If the Price is Right: The Potential for Additional U.S. LNG Imports in the Aftermath of Hurricane Katrina, September 20, 2005, Rising U.S. LNG Needs for Winter Heating Season Face Limited Supply Availability, October 11, 2005, North American Natural Gas Outlook, September 20, 2005; and Energy and Environmental Analysis, Natural Gas Domestic Production and Demand Forecast, October, 2005.

12. Anticipated Year-on- Year Changes Chart assumes 2 Bcf/d of shut-in supply this winter Chart assumes 2 Bcf/d of shut-in supply this winter Colder weather and/or greater supply losses would increase already high prices and further erode demand Colder weather and/or greater supply losses would increase already high prices and further erode demand

13. (0.80) (0.60) (0.40) (0.20) 0.00 0.20 0.40 0.60 (Tcf) Sources: Staff derivation from CERA, Monthly Gas Briefing: A Band of Uncertainty, September 19, 2005; CERA, Here We Go Again: Hurricane Rita Adds to Hurricane Katrina’s Supply Shock, September 23, 2005 and EIA Short-Term Energy Outlook, October 12, 2005. Production Pipeline Imports LNG Imports Storage Total Supply Total Demand 10% Colder Demand 10% Warmer Demand

14. High Northeast Prices Expected Due to Capacity Constraints

16. Electricity Prices are Rising With Higher Fuel Costs Wholesale prices for this winter are about double last winter’s actual prices. Wholesale prices for this winter are about double last winter’s actual prices. Fraction of electricity from gas in 2004Fraction of electricity from gas in 2004 Contract prices for December 2005, January 2006, and February 2006 as of 9/23/05Contract prices for December 2005, January 2006, and February 2006 as of 9/23/05 Averages of day-ahead contract prices in past two wintersAverages of day-ahead contract prices in past two winters

18. Other Electric Winter Issues Reliability of electric supply under gas scarcity conditions. Reliability of electric supply under gas scarcity conditions. ISO-NE’s cold-weather proceduresISO-NE’s cold-weather procedures

19. Behavior of RTO and other markets during gas price spikes Behavior of RTO and other markets during gas price spikes Scarcity gas price effectsScarcity gas price effects Penalties when pipelines restrict takesPenalties when pipelines restrict takes Availability and prices of other fuels (coal, oil) Availability and prices of other fuels (coal, oil)

20. FERC Staff Will Closely Monitor Winter Markets Establish Threshold Price Levels for Request of Transactional Level Data Establish Threshold Price Levels for Request of Transactional Level Data PricesPrices Basis RelationshipsBasis Relationships Monitor Storage Levels and Information Monitor Storage Levels and Information

21. Establish Threshold Price Levels for Request of Transactional Level Data Establish Threshold Price Levels for Request of Transactional Level Data PricesPrices Basis RelationshipsBasis Relationships Monitor Storage Levels and Information Monitor Storage Levels and Information Watch Pipeline Utilization Watch Pipeline Utilization Critical NoticesCritical Notices TolerancesTolerances

22. Obtain Timely Market and Operational Data Obtain Timely Market and Operational Data Respond to Complaints Respond to Complaints HotlineHotline Industry TipsIndustry Tips

23. This presentation can be found on the Calendar of Events for today’s Commission Meeting entry on www.ferc.gov