1. Natural Gas and Energy Reform Legislation Steve Crout Managing Director, Government Affairs American Gas Association

2. Overview Background Sector Information Transportation Supply and Demand Price Regulatory Structure Legislative Issues

3. Background

4. Natural Gas Accounts for Roughly One-Fourth of U.S. Primary Energy Consumption Source: Dept. of Energy, Energy Information Administration

5. ParticipantsMiles of PipeRegulatory Regime in 2003 Producers 5,000 Independents 0 Phased price deregulation 15 MajorsBegun in 1979, completed in 1989 Pipelines 177259,000 Federal Energy Regulatory Commission (FERC) Natural Gas Marketers 2500Unregulated Local Gas Utilities 335840,000State Utility Commissions End Users Residential 60 million 0 Unregulated Commercial 5 million Industrial 200 thousand Electric Utilities 500 0 Interstate - FERC Intrastate - State Commissions The U. S. Natural Gas Industry At A Glance Source: Dept. of Energy, Energy Information Administration, AGA Investor-Owned Municipal 860300,000Local Governments

6. Sector Information

7. Natural Gas Deliveries – 2000 Trillion Cubic Feet (Tcf) Producers Pipelines Distributors Electric Utility Industry Commercial Residential 5.0 3.2 5.5 1.0 0.4 3.6 1.6 0.3 Exports Imports 3.8 0.2 14.7 16.3 Source: Dept. of Energy, Energy Information Administration

8. U.S. Natural Gas Consumption Increased by 16 Percent from 1991 through 2001 Source: Dept. of Energy, Energy Information Administration Electric Utility

9. U.S. Natural Gas Consumption Expected to Increase by 49 Percent from 2000 through 2025 Source:U.S. Dept. of Energy, Energy Information Administration Electric Utility

10. Transportation

11. Producing Wells Gathering Lines Transmission Lines Processing Plant Compressor Stations Underground Storage Large Volume Customer Regulator/Meter City Gate (Regulators/Meters) LNG or Propane/Air Plant Natural Gas Transportation System Residential Customer Commercial Customer Distribution Mains (Lines)

12. The Natural Gas Utility Industry Will Require Capital Investments of at Least $123 Billion Through 2020 Costs result from infrastructure replacement and additions to meet increased demand Transmission pipeline miles will increase 15% (38,000 miles) Distribution main miles will increase 27% (255,000 miles) Storage facilities working gas capacity will increase 25% Investment estimate excludes exploration and production SOURCE:National Petroleum Council

13. US Natural Gas Pipeline Capacity ---Estimated--- Source: Dept. of Energy, Energy Information Administration

14. Natural Gas Pipeline Construction Expenditures Source: Gas Facts 2001, AGA

15. Gas Distribution Construction Expenditures Source: Gas Facts 2001, AGA

16. Supply

17. THE GAS RESOURCE BASE CONTINUES TO “GROW”

18. More Than One-Fourth of All U.S. Lower-48 Natural Gas Resources Are Subject to Access Restrictions * Approximately 29 TCF Of The Rockies Gas Resources Are Closed To Development And 108 TCF Are Available With Restrictions. 31 TCF 346 43 TCF TCF TCF 21 Restricted Percentage 40% 100% 100% 56% SOURCE:National Petroleum Council

19. Lower - 48 Decline Rate From Existing Wells -30% -25% -20% -15% -10% -5% 0% 19921994199619982000 The Rate of Production Decline is Increasing

20. BASIN EXHAUSTION IS BEING OBSERVED ON THE GULF OF MEXICO SHELF Production & Wells Spud (<1000 Ft Water Depth) Source: NRG Associates, APC

21. THE DEEPWATER GULF SHOWS GROWTH POTENTIAL Production & Wells Spud (>1000 Ft Water Depth) Source: I.H.S. Energy & Anadarko Petroleum

22. Liquefied Natural Gas

23. Annual Global Consumption < 2% of World Proved Reserves Worldwide Natural Gas Resources Are Vast Global LNG Supply Facilities Existing Under Construction Proposed

24. U.S. LNG Import Terminals

25. LNG Imports Are Needed, But Face Obstacles Projected Imports BCFD 0 2 4 6 8 10 12 14 16 200020052010 2015 20202025 Existing & Expansions New – Reactive Path New – Balanced Future Import Terminals Existing Potential

26. Natural Gas Prices

27. NYMEX Henry Hub Futures Daily Settlement Prices Jan/99-Feb/03 NYMEX Henry Hub Futures Daily Settlement Prices Jan/99-Feb/03

28. Natural Gas Prices and T&D Costs Source: AGA; Based on data provided by the Energy Information Administration. NOTE: Average end-use is the sum of average wellhead and average T&D cost.

29. Natural Gas Production Infrastructure Is Responsive to Market Price SOURCE: U.S. Dept. of Energy, Energy Information Administration

30. Average Annual Residential Gas Bill

31. Regulatory Structure Federal –Federal Energy Regulatory Commission (FERC) –Department of Transportation –Department of Energy –Congress State –Public Service Commissions –Legislatures –NARUC

32. Pipeline Rate Determination Rate of return regulated by FERC –Traditional contracts with set rates –Capacity release market Types of contracts/services –Firm –Interruptible –Released capacity –No-notice Factors impacting returns –Demand - weather –Competition from other pipelines –Types of contracts

33. Potential Energy Legislation Accelerated depreciation Improved access to gas reserves Enhanced energy R&D LIHEAP funding Tax credits for system expansion and R&D

34. Status of Energy Reform Legislation House Passes H.R. 6 April 11, 2003 Senate debates S. 14, passes H.R. 6 (Bingaman) on July 31, 2003 House approves conference report November 18, 2003 Senate cloture vote fails (57-40) November 21, 2003

35. Sources of Natural Gas Industry Information American Gas Association –Web site (www.aga.org) –Fueling the Future Web site (www.fuelingthefuture.org) –Subscription service –American Gas Magazine Energy Information Administration –Web site (www.eia.doe.gov) –Monthly Energy Review –Natural Gas Monthly Industry Associations –INGAA –NGSA –GTI –Regional associations