Page 1 Presented to: National Association of Regulatory Utility Commissioners Staff Subcommittee on Accounting and Finance Spring 2008 Meeting New Orleans, Lousiana April 1, 2008 Presented by: Richard G. Smead Director, Energy Major New U.S. Pipeline Projects Reasons and Implications

Page 2 Gas Pipeline Infrastructure—What’s the Big Deal? Physical—Can Enough Gas Get to Market? —Shifting Supply Patterns —Power Demand in the Northeast —LNG OK with Existing Infrastructure—You Can Pick Your Spot —Not So with New Domestic Production  Rockies  Shale Plays Economic—Basis Blowout = Inadequate Infrastructure —Not enough into market, becomes a seller’s market —Not enough out of supply area, becomes a buyer’s market —Either one means unconstrained price fly-up or fly-down

Page 3 The Impact of Inadequate Infrastructure—New York’s Basis Blowout

Page 4 The Same Kind of Impact for Producers—The Rockies Last Year

Page 5 A Massive US Pipeline Infrastructure, Moving 66 Bcfd to Market

Page 6 The Market Is Reacting with Pipe Solutions Rockies Express —2 Bcfd, Wyoming to Ohio —Multiple other takeaway pipes emerging —Intersects most major south-to-north long-lines Maritimes —Nova Scotia to Boston —Not New, but filling it would be new —Relieves the Power Gen Capacity Issue in New England Big Shale Plays, and the Pipes that Love Them —Barnett Shale—CenterPoint’s Carthage-Perryville Pipelin —Oklahoma Shale—MEP, Gulf Crossing, with Feeder Pipes Rockies to California —Spectra’s Bronco —El Paso’s Ruby

Page 7 U.S. Natural Gas Flow Through Producing and Consuming Regions

Page 8

Page 9 Rockies Express—A 2 Bcfd “Rifle Shot” to the Market

Page 10 Rockies Express—Multiple Opportunities for Short-Hauls to Market

Page 11 Filling Maritimes—Does More for New England than Another Pipe

Page 12 New Domestic Supply—Big Pipes out of the Shale Plays

Page 13 Rockies to California—Ruby or Bronco

Page 14 Nothing Affects Prices as Much as Infrastucture Adequacy Each constraint creates trading chaos But new capacity can destroy basis, making project underwriters look stupid So it’s a continuing balancing act —Don’t allow chronic inadequacy —Don’t promote significant excess capacity Each big new pipeline totally reorients the market —“After ReX, the world will never be the same.” Porter Bennett, Bentek —“Build it and they will come.” Shoeless Joe in Field of Dreams — “Don’t do anything stupid.” My old boss.