1. Natural Gas Tutorial MIC Meeting March 2010

2. Discussion Topics Analogies. Electric vs. Gas day. Trading & Scheduling. Operating Constraints.

3. Contributors Bill Casey (PGE) Ernie Crawford (PNM) Justin Thompson (APS) Kent Price (SRP) Moe Sakkijha (APS) Paul Goldstein (Sempra Generation) Steve Maestas (PNM) Timothy Carter (xcelenergy)

4. Electric vs. Gas Analogies Kent Price

5. Industry Parallels - Electric vs. Gas Transmission vs. Transportation Speed of light vs. miles per hour Electric vs. Gas day Preschedule vs. Day Ahead Real time vs. Intraday Schedule vs. nomination Immediate vs. Storage

6. Electric vs. Gas Day Steve Maestas

7. Standard Power Flow Day VS Gas Flow Day Power volumes are split into two components: Heavy Load – Hours Ending 7:00 PPT through 22:00 PPT Light Load – Hours Ending 1:00 PPT through 6:00 PPT & Hours Ending 23:00 PPT and 24:00 PPT Hourly scheduling Daily Gas is purchased in MMBtu/Day flowing from 7:00 PPT and ending 6:59 PPT next day Hourly flow is 1/24 th of daily nomination Power Heavy Load Daily Gas Pwr LL Hours In ( Pacific Prevailing Time ) 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 01 02 03 04 05 06 07 08 Power Light Load

8. Standard Trading Schedules For WECC Power VS Gas Monday Wednesday = Power & Gas Trade Next Day 0000/24 00 Power Gas Power Std. Trading Time 06:00 8:00 Gas Std. Trading Time 05:00 6:30 Power Flow Day Midnight to Midnight Gas Flow Day 7:00 to 6:59 PPT Thursday = Power Trades (Friday / Saturday) & Gas Trades (Friday) 0000/24 00 Power Gas Friday = Power Trades (Sunday / Monday) & Gas Trades (Saturday to Monday) 0000/24 00 Power Gas Monday Tuesday Wednesday Thursday Friday Saturday Friday Saturday Sunday Monday Tuesday Tuesday Wednesday Thursday Wednesday Thursday Friday

9. Trading Calendar ICE – Coordinates with larger players & New York Mercantile Exchange calendar WECC – Subcommittee East trades weekend (Sat-Mon) on Friday WECC trades 2+2 for weekends

10. Weekend Gas Burn Pattern

11. Trade Transactions InterContinental Exchange (ICE) Broker Bilateral vs. Direct Electric vs. gas customer types

12. Electric vs. Gas Scheduling Paul Goldstein

13. Electric vs. Gas Scheduling – Day Ahead (PPT) Gas Trading typically finished in the West by 6:30 am Cycle 1 nomination deadline for next gas day due at 9:30 am Cycle 2 nomination deadline for next gas day due at 4:00 pm Power - Non CAISO Trading typically finished in the West by 6:00 am Power physically scheduled no later than 3:00 pm 00/24 Power Gas 00/24 Preschedule Ends Cycle 1 Ends Cycle 2 Ends 00/24

14. Electric vs. Gas Scheduling – Day Ahead (PPT) Gas Trading typically finished in the West by 6:30 am Cycle 1 nomination deadline for next gas day due at 9:30 am Cycle 2 deadline for next gas day due by 4:00 pm Power - CAISO Energy Bids/Schedules submitted to CAISO no later than 10:00 am Market results typically received no later than 1:00 pm 00/24 Power Gas 00/24 Market Results Cycle 1 Ends Cycle 2 Ends 00/24

15. Electric vs. Gas Scheduling – Intra Day (PPT) Electric 1. Real time hourly adjustments Gas 1. Cycle 3 deadline for same gas day – 8:00 am Bi-lateral power trades for day-ahead include last 7 hours of the current gas day. If trading is finished at 6:00 am, there are two hours to trade and schedule gas. Cycle 3 has traditionally been the most liquid of C2-C4

16. Electric vs. Gas Scheduling – Intra Day (PPT) – Contd Gas – Cont. 2. Cycle 4 deadline for same gas day – 3:00 pm CAISO day-ahead market awards received at 1:00 pm (leaves 3 hours to trade and schedule the gas needs for the last 7 hours of the current gas day). Since the gas day lasts through 7:00 am the next day there are usually no nomination changes for 15 hours of actual gas day.

17. Electric vs. Gas Scheduling – Intra Day (PPT) – Contd Gas – Cont. 3. Pro-rata examples If new gas/transport is nominated on later cycles, full volume Depending on the pipeline, if a shipper wants to move gas from one delivery point to another, not all volume can be re-directed Cycle 3 – 66% Cycle 4 – 50% Other scenarios if you have already moved some or if the Cycle 3 nomination is new and you want to move some for Cycle 4

18. Electric vs. Gas Scheduling – Intra Day (PPT) – Contd Gas – Cont. 4. Other options to balance gas needs (some or all are not available at many locations) Storage No-notice services Flow Day Diversion (Redirect)

19. Electric vs. Gas Scheduling – Intra Day (PPT) – Contd Power Real time hourly changes either bi-lateral or through CAISO awards

20. Electric vs. Gas Scheduling – Intra Day (PPT) Electric Real time hourly adjustments Gas Cycle 3 deadline for same gas day – 8:00 am Cycle 4 deadline for same gas day – 3:00 pm After Cycle 4 ability to change gas quantities/schedules are limited Power Heavy Load Daily Gas Hours In ( Pacific Prevailing Time ) 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 01 02 03 04 05 06 07 08 Power Light Load Pwr LL Cycle 3Cycle 4

21. Electric vs. Gas Trading Disconnect WECC only NERC region that trades Saturday electricity in advance of gas. Similar disconnect occurs due to holidays and first of the month. Electric-gas market disconnect can range from one to several days. Market disconnect results in pricing of electricity before gas price is known.

22. Electric vs. Gas Trading Disconnect – Cont. Gas price uncertainty presents risk, likely reflected in electricity prices. Gas price uncertainty may result in generation being withheld from market. Better alignment of electric-gas markets results in proper valuing of electricity and heat rate options.

23. Electric vs. Gas Operations Justin Thompson

24. Analogy: Inadvertent Flow Electricity Generated electricity on the grid must be consumed immediately, i.e., there is no electricity storage on the grid Inadvertent Flow the difference between the actual and scheduled flows between two power grids (also know as unscheduled flows and loop flows)

25. Gas Pipeline Operation Fundamentals What is Line Pack - The ability of a natural gas pipeline to effectively "store" small quantities of gas on a short-term basis by increasing the operating pressure of the pipe. Most pipelines use line pack as a resource to help manage the load fluctuations on their systems, building up line pack during periods of decreased demand and drawing it down during periods of increased demand. If the pipeline pressure gets too low it may collapse If the pipeline pressure gets too high it may cause leaks or ruptures

26. Gas Pipeline Operation Fundamentals – Cont. Gas pipelines must operate with a line pack within a certain range, similar to a voltage range for a transmission line Receipts (input) of gas need to match Deliveries (burn) to keep line pack in balance When Deliveries exceed Receipts line pack goes down When Receipts exceed Deliveries line pack goes up To incent correct behavior – pipelines impose penalties when shippers dont balance Receipts and Deliveries

27. Gas Pipeline Operation Fundamentals – Cont.

28. Analogy: Imbalance Gas Natural Gas Most pipelines have gas storage attached to the system Transporter must contract for firm storage service or rely on interruptible storage Some pipelines offer a park and loan (pack or draft) service at an extra cost Subject to availability, interruptible

29. Analogy: Imbalance Gas – Cont. Natural Gas A shipper on the pipeline may leave some gas on the pipe as line pack (pack the pipe) Most pipelines discourage this practice & will penalize excessive behavior All major pipelines can provide extra gas beyond what is actually scheduled by a shipper by taking gas out of line pack (draft the pipe) As above, excessive behavior will incur penalties, possible interruption.

30. Emergency Conditions Strained and Critical Operating Conditions (SOC & COC) Declared by pipelines for extreme or emergency conditions Either high or low line pack If emergency is severe enough then pipelines can Flow control deliveries off the pipeline or restrict receipts into the pipeline if shipper is not in balance Either may limit supply to a generator

31. Penalties Deliveries in excess of reserved capacity (excessive drafting the pipeline) Deliveries excessively more than actual take/burn (excessive packing the pipeline) Deliveries above hourly limits Deliveries or Receipts in the wrong direction when in an SOC or COC Magnitude can be severe and up to 300% of the current gas price

32. Electric Vs. Gas Operating Issues Contingency Response Power – instantaneous balancing required – gas generators main source of contingency reserves during most hours in southern portion of WECC Gas – some ability to pull on pipeline in real time (burn more gas) but not infinite supply Important for shippers to stay in balance Penalties and Flow Control curtail excessive Deliveries

33. Electric Vs. Gas Operating Issues Curtailments & redispatch Power Line overloads Unscheduled flow mitigation Gas Freezing temperatures in the gas producing areas causing wellheads to freeze Pipeline flowing gas schedules approaching or exceeding capacity limits During pipeline/compressor station maintenance outages

34. Issues the Industry is Facing Gas delivery flexibility. Gas fueled resources to integrate high penetration of variable generation. Are there valid reliability concern due to electric-gas industry interdependency? Competition for gas supply during weather extremes?

35. Discussion and questions. Direction from MIC.