Natural Gas 101. MISO ENGCTF February 14, 2013

Transcription

1 Natural Gas 101 MISO ENGCTF February 14, 2013

2 AGENDA Natural Gas 101 Topic List 1. Overview of U.S Natural Gas Regulation; Regulatory Comparison 2. How pipeline builds are developed; the internal and jurisdictional processes and timelines 3. Time is of the essence planning for reliable Gas Fired Generation 4. What information is needed from current and future CT and CCGT owners in order to assess required pipeline capacity 5. Why the gas industry has not evolved into a centrally planned industry 6. What information is transparent and what is not 7. Clear understanding of the types of services necessary to keep the units supplied with fuel even under short supply situations 8. What is parking in contrast with storage, cost differences, contractual differences 9. Gas industry is evolving the physics of molecules MISO: Electric Industry Comparisons 2

3 Interstate Natural Gas Transmission Network 300,000 + miles Source: EIA 3

4 Overview of U.S. Natural Gas Regulation Natural gas distribution was unregulated when the industry was born in the mid 1800s Most natural gas was obtained using coal gasification States began forming commissions in early 1900 s to regulate intrastate transport but couldn t exercise interstate jurisdiction Bundled commodity/transport was common Natural Gas Act of 1938 FPC could regulate interstate sales and must approve new pipeline construction No FPC authority over wellhead to pipeline sales Phillips Petroleum Co. v. Wisconsin (347 U.S. 672 (1954)) Supreme Court defined NGA s natural gas companies to include producers selling into interstate pipelines giving FPC oversight of many wellhead prices FPC began setting artificially low price ceilings and regional prices which led to high demands and low supplies 4

5 Overview of U.S. Natural Gas Regulation Natural Gas Policy Act of 1978 FERC took over regulation from FPC Price ceilings were raised for new wells, but existing well prices were not changed LDCs and other customers rushed to take or pay contracts to secure supply, but customer demand fell sharply with rising prices FERC Order No. 436 (1985) Pipelines could voluntarily unbundle to sell transport service Price floors and ceilings were set with pipelines and customers allowed to find the proper price Natural Gas Wellhead Decontrol Act (1989) Eliminated grandfathered price ceilings left in place by NGPA FERC Order No. 636 (1992) Required pipelines to unbundle into transportation and storage only service 5 Pipelines could no longer sell natural gas

6 Regulatory Comparison FERC Basic Comparison of Regulatory Authority between Electricity and Natural Gas NERC (& RRO's) ISO's/RTO's Electricity Regulates wholesale sales of electricity and transmission of electricity in interstate commerce Establishes rates (market-based or cost-of-servicebased) Oversees mandatory reliability standards for the bulk power system Does not site or approve electric generation, transmission, or distribution facilities - no "upstream" authority for generators or their fuel suppliers Ensures reliability of bulk power system by establishing and enforcing standards FERC-derived authority to operate efficient, reliable wholesale electric grid for transmission of electricity in interstate commerce Natural Gas Regulates natural gas transportation in interstate commerce (Pipelines) Establishes rates (market-based or cost-of-servicebased) Siting and approval for pipeline, storage and LNG terminal construction, operation and abandonment No authority No authority State Commission Regulates retail sales of electricity Regulates retail sales of natural gas (LDCs) Establishes retail rates Establishes retail rates Siting and approval of electric generation, transmission, and distribution facilities 6

7 How pipeline builds are developed; the internal and jurisdictional processes and timelines Natural Gas Pipeline Development and Expansion Timing and Steps for a New Project: An interstate natural gas pipeline construction or expansion project takes an average of about three years from the time it is first announced until the new pipe is placed in service. The project can take longer if it encounters major environmental obstacles or public opposition. Pipeline development or expansion involves several steps: Determining demand/market interest, Publicly announcing the project, Obtaining regulatory approval, Construction and testing, To gauge the level of market interest, an Open Season is held for 1 2 months, giving potential customers an opportunity to enter into a nonbinding agreement to sign up for a portion of the capacity rights that will be available. If enough interest is shown during the open season, the sponsors will develop a preliminary project design and move forward. If not enough interest is evident, the project will most likely be dropped or placed on indefinite hold. Options for creating additional pipeline capacity include: Building an entirely new pipeline, Converting an oil or product pipeline to a natural gas pipeline, Adding a parallel pipeline along a segment of pipeline, called looping, Installing a lateral or extension off the existing mainline, Upgrading and expanding facilities, such as compressor stations, along an existing route (usually the quickest, least expensive, and has the least environmental impacts). Obtaining Construction Approval Developing the final project design and obtaining first financial commitments from potential customers may take from three to six months. Then, the project specifications are filed with the appropriate regulatory agency. Pipeline construction is supported by underlying firm contracts Cost recovery at risk if overbuilt or lack market support Source: EIA 7

8 Natural Gas Pipeline Development and Expansion (Con t) Pre filing Review Process If the proposed project involves an interstate pipeline that falls under the jurisdiction of the Federal Energy Regulatory Commission (FERC), the project sponsor has the option of either: requesting that a National Environmental Policy Act (NEPA) pre filing review be initiated during the early states of project design, or waiting until later and filing with FERC under the traditional application review process. The pre filing process is designed to facilitate and expedite the review of natural gas pipeline projects that would normally require FERC to prepare an environmental assessment or a historic preservation review as part of the traditional review process. The project sponsor must notify and request that the various regulatory agencies be involved in evaluating the project if a pre filing review from NEPA is filed. In this case, FERC staff will take the lead in scheduling and coordinating the approval steps. Approval of the Regulating Authority Effective January 1, 2013 through December 31, 2013, the project cost limits for facilities to be constructed under its Blanket Certificate pursuant to automatic authorization is $11 million and under prior notice is $31.4 million. Projects that exceed $31.4 million must be certificated via a traditional Section 7(c) FERC certificate filing. For a Section 7 (c) filing, a FERC review of an interstate pipeline project takes from 5 18 months, with an average time of 15 months. No data are available on the average time for obtaining approval from an individual State agency. Usually, approval by the regulating authority is conditional, but most often the conditions do not constitute a significant impediment. The project sponsor must then either accept or reject the conditions or reapply with an alternative plan. Construction Pipeline construction is usually completed within 18 months and sometimes in as little as 6 months. Construction can be delayed because additional time may be needed to acquire local permits from towns and land use agencies located along the proposed construction route. Commissioning and Testing Commissioning and testing the completed pipeline project usually takes about one to three weeks. This process involves subjecting the new segments of the pipeline to hydrostatic testing (water fill under high pressure) or other tests of the line in place. Line packing, which involves filling the line with the initial baseload volume of natural gas, is usually needed only on a new pipeline or on larger expansion projects. Source: EIA 8

9 Time is of the essence planning for reliable Gas Fired Generation Electric Transmission: can take a decade to build so long range planning has been required to keep up with growth and costs tend to be shared; model future growth & requirements. MISO determines which plants are firm for reliability Plants then contract for firm fuels, back up options, et al. Engage Producers, Pipelines, Marketers and LDC s for firm gas transportation, storage & supply solutions MISO planning should be seasonal Winter is projected to be the initial problem MISO could have a 11,700 MW reserves shortfall in the winter period of 2016 and a 3,500 MW summer shortfall, Per Claire Moeller, Platt s Megawatt Daily 2/5/13 with smaller electric winter loads, all plants don t need to be firm. 9

10 Interstate pipelines: are funded directly from the contracts signed by shippers (customers) for service on the pipeline; Shippers are willing to sign contracts for several reasons: need firm natural gas to support firm load at the delivery point; price spreads between a receipt and delivery point are large enough to justify the cost of the firm contract. Localized pipeline improvements can usually be made within 1 3 years and FERC has a long history of approving projects that customers are willing to pay for. For electric and gas utilities: cost of these pipeline contracts are usually fully recoverable through fuel recovery clauses regulated by state regulators 10

11 What information is needed from current and future CT and CCGT owners in order to assess required pipeline capacity In Service Date Plant Location Load Profile Seasonality Pressure Gas Quality Odorization Contract Dates Transportation Route Maximum Daily Quantity Maximum Hourly Quantity Future Expansion 11

12 Why the gas industry has not evolved into a centrally planned industry Interdependencies of electric grid vs. gas pipeline network Electric line failure cascades across region affecting millions Electric system operates regionally requiring regional planning and construction Need for single operator to monitor & control regional electric grid A pipeline outage unlikely to significantly impact other pipelines in region Unbundling of electric industry resulted in disincentive to build needed transmission infrastructure causing reliability concerns Unbundling of gas industry did not slow infrastructure development because pipelines continued to earn a return on investment through shipper contracts Pipeline infrastructure remains efficient and reliable, which provides for a competitive gas market 12

13 What information is transparent and what is not Reporting Requirements for Interstate Pipelines (FERC Regulation ) Transactional Postings Firm, Interruptible & Capacity Releases On its Internet web site for at least 90 days Shipper, ID & Contract #, Rate Charged, Duration, Receipt & Delivery points or segments, Volumes, special provisions, prior to first nomination Index of Customers For firm transportation & storage customers Capacity and Flow Information Available Capacity (pipeline, release, design, scheduled) Informational Posting: All planned and actual service outages or capacity reductions; Critical and Non Critical notices; OFO s; Gas Quality Annually file Interstate pipelines estimated peak day design Standards of Conduct (FERC Regulation 358) Treat all customers on a not unduly discriminatory basis and without undue preference; function independently from marketing function; not be a conduit to disclose non public information; and provide equal access to non public information. Source: Reporting Requirements see INGAA comments Appendix A in Docket No. AD12 12 referencing 18 CFR

14 Informational Posting Capacity (point and segment) Gas Quality Index of Customers Notices Standards of Conduct Tariff Transactional Posting Pipeline Web Site 14

15 Billing Example Field to Market FTS March '13 Transportation Cost FTS Rate 1/ MDQ Amount Due Reservation Charge $ ,000 $ 91,800 Commodity (100% LF) $ ,000 $ 4,526 Fuel/GLU 2.49% $ ,916 $ 58 ACA $ ,000 $ 558 $ 96,942 9% Facility Cost Reservation Charge 10,000 $ Gas Cost Field Price MMBtu Natural Gas $ ,000 $ 983,320 Fuel $ ,916 $ 25, ,916 $ 1,008,430 91% Total Transport, Facility and Gas Cost $ 1,105,372 Billing Example is for illustrative purposes only 1/ Transportation Cost based upon NGPL's currently effective maximum tariff rates from Midcontinent receipt zone to the Market delivery zone. 2/8/13 NYMEX HH Price Basis Gas Cost 13-Mar $ $0.100 $

16 Computing a Facility CAPEX transportation unit rate Unit Rate = (Capital Cost) * % Risk Return (365 days) * (Volume MCF ) + Fuel Assumptions: Gas Price $ / Mcf Market # days Basis Regional CAPEX Cost $ Volume Mcf/day Fuel % NOTE: Basis represents the regional gas supply price differential from Henry Hub, LA Firm or interruptible, long or short term Gas Supply is separately contracted for Factors affecting Gas Supply & Price may include: Weather, Demand, Supply Constraints, Delivery Constraints, Regulations, Storage Inventory Levels, LNG, Alternative Fuels, Maintenance 16

17 Clear understanding of the types of services necessary to keep the units supplied with fuel even under short supply situations General Pipeline Services offered: Transportation: Firm, secondary firm, interruptible Firm transportation is the primary service needed to maintain supply. If there is any thought that the plant needs to be run, gas needs to be delivered to the plant on a firm basis under peak conditions. Secondary services that can be important are storage and no notice service With storage you can move gas to plant in advance and then easily move it away if you don t need it; No notice helps you manage imbalances and normally needs storage to go with it. Firm & Interruptible Storage. No notice (balance swing up/swing down after the fact w/ storage) Communicate expected burn in advance Secure portfolio of supply, transportation & storage services to capture variability Excesses may be restricted due to non ratable takes beyond service rights Nominate transportation receipt & deliveries according to NAESB scheduling Secure Firm &/or interruptible gas supply with swing optionality Definitions: 1 Dth = 1,000,000 BTUs 1 Mscf = 1000 ft 3 1 ft 3 of gas is from BTU HHV 1,000 Mscf = 1 MMscf = 1,000 Dth 500 MW Power plant uses ~90 MMscf per day over a 24 hour period or 90,000 Dth Non ratable hourly takes is anything more than 1/24 th of the maximum daily quantity (MDQ) 17

18 Nomination Schedule Gas Day runs from 9 am to 9 am All Times are Central Clock Time (CCT) Chart Time Evening Nomination Intra day Cycle 1 Intra day Cycle 2 Nomination Deadline 11:30 AM 6:00 PM 10:00 AM 5:00 PM Initial Volumes Available 12:15 PM 6:45 PM 10:45 AM 5:45 PM Confirmation Deadline 3:30 PM 9:00 PM 1:00 PM 8:00 PM Scheduled Volumes Available 4:30 PM 10:00 PM 2:00 PM 9:00 PM Effective Time 9:00 AM (next day) 9:00 AM (next day) 5:00 PM (current day) 9:00 PM (current day) 18

19 What is parking in contrast with storage, cost, contractual differences Parking and Lending Interruptible Usually short term in nature Utilizes pipeline system line pack Rates Park or Lend Balance Daily Park or Lend Activity No Fuel Charge Storage Firm and Interruptible Ratcheted and Unratcheted Seasonal and Annual Deliverability Flexibility Rates Reservation Charges on Firm Daily Charges on Interruptible Fuel Charged 19

20 Natural Gas Storage Meeting peak demands Leveling cost Providing Flexibility Mitigating Penalties Pricing Opportunities Firm Storage Interruptible: Park n Loan, Line Pack and Balancing 20

21 2012 Record Storage Inventory Working Gas in underground storage (red) with the 5 year high and lows Storage may peak at record 4 trillion cubic feet in 2012 Source: Form EIA 912, "Weekly Underground Natural Gas Storage Report." The dashed vertical lines indicate current and year ago weekly periods 21

22 Gas Industry is evolving physics of molecules Interesting facts: speed of gas in a pipeline ~20 mph speed of electricity ~700 million mph Travel time from Wellhead to Market can be measured in days depending on location Natural gas is compressible and can be stored temporarily in the pipeline when the pipeline is not full What we have in common is the gas molecule, like the electron, a customer purchases may not be the same molecule/electron that is delivered but the net effect is the same The lower the delivered pressure the greater the pipeline capacity 22

23 Gas Industry is evolving Shale Gas Impact Growing Shale gas drives changes 23

24 Natural Gas Market Centers Transmission Corridors 2013: flow reversals, new market hubs Source: Energy Information Administration, Office of Oil and Gas, Natural Gas Division, Natural Gas Market Hubs Database, as of April

25 Power Residential Source: EIA 25

26 Seasonal Natural Gas Demand Source: EIA 26

27 Conclusion Natural gas pipelines are highly reliable and committed to meeting their customers contractual requirements There is an active secondary market available to meet the needs of many power generators The natural gas industry is interested in working with the power industry and willing to create services and or build infrastructure to meet contractual market needs Advanced Planning is required especially for long term Capacity additions 27

28 Questions for MISO How much firm fuel transport and storage capacities do the power generators hold? After completing $5.8 Billion investment to move Wind (west to east), what regional Transmission upgrades are expected to reliably increase gas fired generation? How are long term Energy & Capacity additions being addressed by MISO? MISO position statement at FERC Technical Conference, Washington, D.C. 2/13/2013? 28

29 Presentation Contacts MISO & Task Force Leadership John Lawhorn & J.T. Smith; Tessa Haagenson, Engineer NIPSCO Frank Shambo, VP Regulatory Affairs Alliant Energy Manager Gas Trading & Dispatch TransCanada Dir Commercial Services Kinder Morgan Dir Business Development, System Design Eng.,

30 Cautionary Statement Regarding Forward looking Statements This presentation includes forward looking statements and projections, made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of Pipeline presenters have made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this presentation, including, without limitation, our ability to successfully contract, build and operate the pipeline projects described in this presentation; changes in supply of natural gas; general economic and weather conditions in geographic regions or markets served by Pipelines and its affiliates, or where operations of the Pipelines and its affiliates are located; the uncertainties associated with governmental regulation; competition, and other factors described in the company s (and its affiliates ) Securities and Exchange Commission filings. While the company makes these statements and projections in good faith, neither the company nor its management can guarantee that anticipated future results will be achieved. Reference must be made to those filings for additional important factors that may affect actual results. The company assumes no obligation to publicly update or revise any forward looking statements made herein or any other forwardlooking statements made by the company, whether as a result of new information, future events, or otherwise. 30