Eastern Gas Basis: Pipeline Pain or Gain? Takeaway capacity additions and their impact on basis prices.

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1 ? Eastern Gas Basis: Pipeline Pain or Gain? Takeaway capacity additions and their impact on basis prices. Morningstar Commodities Research 26 August 2014 Jordan Grimes Sr. Commodities Analyst, Power and Gas Executive Summary The Marcellus Shale gas revolution has ramped up production so quickly that pipelines have been unable to keep up. Most of the pipelines in the Marcellus and Utica were constructed to deliver gas from the Gulf of Mexico to demand regions of New York and Boston. The lack of takeaway capacity in the Marcellus has caused basis points there to be oversupplied and basis points less than 300 miles away to be supply constrained during cold winter months. Factories in Maine are closing because of historically high gas prices, while producers in the Marcellus complain about historically low prices. Producers financing pipelines to arbitrage the basis point spreads should solve this problem. Current projects lead us to be most bearish on TETCO-M3 and Transco Zone 6 (non-n.y.), which are positioned to receive more Marcellus supply, and most bullish on TGP Zone 4 and Transco-Leidy deep in the Marcellus. In total, we see an 8.2 bcf/day increase in takeaway capacity heading east or southeast, 8 bcf/day moving west or southwest, and 700 mmcf/day flowing north. Brownfield expansions and flow reversals will make up the majority of the increased takeaway capacity out of the Marcellus and Utica through Greenfield projects represent more than 10 bcf/day in increased takeaway capacity in We believe projects in New England have the greatest risk of being canceled based on consistently undersubscribed open seasons. Generators in New England have resisted bidding on firm gas transmission, causing projects like the Algonquin Incremental Market to ratchet down expansions. We don t see demand putting a strong bid on gas prices before the pipeline build-out is complete based on electric generator additions currently in the queue. After 2018, when more new generation has come on line and exports come into play, we could see more demand support to basis prices. Key Takeaways Bullish: Increased takeaway capacity near TGP Zone 4 and Transco-Leidy lines will give more pricing power to producers in the Marcellus and should put a bid on these basis points above current forwards. Bearish: TETCO-M3 and Transco Zone 6 (non-n.y.) have the most downside risk at current forwards because of their locations near the Marcellus and pipeline expansion projects. In 2017, these basis points will face significant downside pressure in winter with the completion of Atlantic Sunrise and NJR PennEast. Bullish front winter with regulatory uncertainty in winters : Front winter AGT and TGP Zone 6 will face similar constraints as last winter, but the oil program in ISO-New England puts a soft cap on gas prices at the price of oil. The Wright Interconnect Project will put bearish pressure on AGT in 2015 but will not solve the gas deliverability problem in the Algonquin system. Bullish red winter: Increased takeaway capacity from the TCO pool should add more winter seasonality to TCO and Dominion South, each currently trading at a discount to Henry Hub.

2 Page 2 of 31 Exhibit 1. Current Basis Forwards and Morningstar Forecasts TETCO M3 Winter Summer Winter Summer Winter Summer Winter Forwards $1.34 ($1.25) $0.98 ($0.99) $0.94 ($0.72) $1.00 Forecast Bearish Fair Bearish Fair Bearish Bearish Bearish Transco Zone 6 (Non-NY) Forwards $2.17 ($1.04) $1.45 ($0.88) $1.27 ($0.71) $1.35 Forecast Bullish Fair Bearish Fair Bearish Bearish Bearish Transco Zone 6 (NY) Forwards $4.10 ($1.16) $2.87 ($0.97) $2.29 ($0.81) $2.60 Forecast Bearish Fair Fair Fair Fair Fair Bearish Algonquin City Gates Forwards $10.54 ($0.28) $9.04 ($0.28) $6.85 ($0.10) $7.13 Forecast Fair Bearish Bearish Bearish Fair Bearish Fair Transco-Leidy Forwards ($1.51) ($1.65) ($1.42) ($1.38) ($1.27) ($1.15) ($1.13) Forecast Bullish Bullish Bullish Bullish Bullish Bullish Bullish TGP, Zone Leg Forwards ($2.15) ($1.70) ($2.06) ($1.43) ($1.91) ($1.20) ($1.77) Forecast Fair Bullish Bullish Bullish Bullish Bullish Bullish TGP Zone 6 Forwards $10.54 ($0.29) $9.04 ($0.29) $6.85 ($0.11) $7.13 Forecast Fair Fair Bearish Fair Fair Fair Fair Iroquois, Waddington Forwards $5.77 $0.11 $4.91 $0.11 $4.66 $0.10 $4.43 Forecast Fair Bearish Bearish Bearish Bearish Bearish Bearish Iroquois, Zone 2 Forwards $5.57 $0.15 $5.04 $0.15 $4.79 $0.14 $4.55 Forecast Fair Bearish Bearish Bearish Bearish Bearish Bearish TCO (Columbia Gas), Appalachia Forwards ($0.17) ($0.26) ($0.50) ($0.48) ($0.44) ($0.53) ($0.51) Forecast Fair Fair Bullish Fair Bullish Fair Bullish Dominion South Forwards ($1.12) ($0.26) ($0.50) ($0.48) ($0.44) ($0.53) ($0.51) Forecast Bullish Fair Bullish Fair Bullish Fair Bullish Data as of Aug. 25 Sources: EOX Live, Morningstar.

3 Basis ($/mmbtu) Basis ($/mmbtu) Morningstar Commodities Research 26 August 2014 Page 3 of 31 Exhibit 2. Bullish Basis Points (Current Forward Curve) TGP Zone 4 Transco-Leidy $0.50 -$0.50 -$1.50 Source: EOX Live -$2.50 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Exhibit 3. Bearish Basis Points (Current Forward Curve) Transco Z6 (Non NY) TETCO-M3 $6 $5 $4 $3 $2 $1 $0 -$1 -$2 Source: EOX Live -$3 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17

4 Page 4 of 31 Supply Analysis Marcellus and Utica shale production has ramped up from virtually nothing in 2005 to more than 15 bcf/day today. The Utica Shale alone accounts for 1,270 mmcf/day, up from under 200 mmcf/day in early Pipeline infrastructure that requires significant planning and capital investment has not been able to keep up. Many pipelines that were built to bring gas supply from the Gulf into the Northeast are now being reversed. Strong "not in my backyard" attitudes for many of these projects mean the U.S. Federal Energy Regulatory Commission is more likely to approve brownfield projects, but there are a few greenfield infrastructure projects being constructed as well. Marcellus Shale production now represents 32% of U.S. gas production east of the Mississippi River, and that share likely will grow to nearly 40% in the next few years (Exhibit 4). This regional supply surge and lack of takeaway capacity has caused extreme pricing differentials in gas basis prices. Henry Hub pricing is irrelevant to a producer in the Marcellus when it must sell $2/mmbtu gas at the Transco-Leidy basis point and also irrelevant for a power plant that must purchase $80/mmbtu gas at TETCO-M3 in the spot market on a cold winter day. Exhibit 4. Marcellus Production Share of U.S. Natural Gas Demand East of the Mississippi River Marcellus production share 50% 40% 30% 20% 10% Source: U.S. Energy Information Administration. 0% These examples represent extremes but also highlight the most important element to investment and trading decisions: gas basis pricing. As firms move through open seasons, FERC approvals, and land easements to expand pipeline takeaway capacity from the Marcellus and Utica shales, the most pressing question for producers, traders, and end users is: What is the impact on gas basis? Constraints and Utilization Average utilization rates on most of the Mid-Atlantic and Northeast pipelines are far below 100%, but this does not imply that there is additional capacity for use. Pipeline firms serve a seasonal market and will have much lower utilization rates in the summer and much higher in the winter, when heating

5 Page 5 of 31 demand peaks. In the winter, when gas pipelines are fully utilized, the gas basis price reflects not only the marginal cost of production but also the price the marginal buyer is willing to pay for delivery of the gas (on a constrained pipe). When pipelines are constrained, the congestion price for delivery is usually bid up by competing gas generators that do not own any firm transmission rights on the pipelines and must buy interruptible supply in the spot market to burn the fuel for electricity. Because gas demand and power demand are highly correlated, an arctic front can cause pipeline conditions to move from underutilized to constrained in a matter of days or even hours. Alternatively, lack of takeaway capacity combined with the increased production in the Marcellus has caused oversupplied conditions at certain gas basis points (Transco-Leidy, TGP Z4, TCO, Dom South). Gas producers have little if any pricing power when conditions are oversupplied and are forced to hit bids below their marginal cost in order to get the gas to flow. The pipeline build-out in the Marcellus and Utica is largely being financed in open seasons by producers that are eager to improve their pricing power in the region. New and proposed pipelines should increase takeaway capacity 18 bcf/day by 2018 from the oversupplied region and into higher-demand regions with higher prices. Thus, the build-out should put a bid on oversupplied basis points such as Transco-Leidy, TGP Z4, TCO, and Dom South and relieve the constrained forward basis prices farther away from the Marcellus and Utica. After supply and storage, pipeline transport capacity is the most important factor for setting market gas basis prices on the supply side. Absent delivery costs, congestion, or leakage, basis should price flat to Henry Hub. Constraints in New England Although less than 300 miles from abundant, cheap natural gas supply out of the Marcellus, New England has seen transmission constraints and prices increase over the past several years. There are many reasons for this problem. New England has poor soil composition and no depleted gas wells, so gas storage is not an option. The region also depends on exports not just from Canada but from Trinidad, Yemen, and Egypt. As gas prices have steadily risen in Europe over the past several years, ships now choose to dock at ports on the other side of the Atlantic. Although New England gas prices are often stronger than European ports in winter, it takes anywhere from five to 20 days for a ship to reach New England, so ships are not able to respond quick enough to pricing signals (Exhibit 5). Lastly, power plants are unwilling to firmly commit the capital toward pipelines, leaving only local distribution companies to finance pipeline projects.

6 Page 6 of 31 Exhibit 5. Travel Time to Ship Gas to New England by Vessel Source: Repsol. The New England States Committee on Electricity, in response to the New England governors initiative to build out infrastructure, has proposed to have electricity ratepayers subsidize the firm capacity for generators during winter constraints. All the details of the NESCOE initiative have not been resolved yet. New England Power Pool (NEPOOL) recently requested an extension to consider the proposal, but participants expect a vote and a FERC filing in September. ISO-NE will appoint a capacity manager who will administer the firm capacity to gas generators after ISO-NE procures it (Exhibit 6). NEPOOL recently suspended its review of NESCOE s proposed ISO-NE tariff measures because of a Massachusetts hydro power purchase bill, H. 4187, which if unsuccessful would probably derail NESCOE's proposal.

7 Page 7 of 31 Exhibit 6. NESCOE Proposed Flow of Payments for Firm Transmission Source: NESCOE. It is unclear the exact tenor and volume of the capacity would release to gas generators under the proposal, which is subject to FERC approval, but an auction would be held in which the generators compete to procure the firm transmission. The costs of the program would be rolled back to New England ratepayers based on their load-weighted profile in the ISO-NE. Electricity ratepayers financing the firm capacity would effectively create a subsidy for generators. FERC might view this subsidy as a necessary evil in order to lower gas prices in the region in the intermediate term, but FERC could also view this as an unfair subsidy that disadvantages other pipeline projects that have not received firm bids from electric ratepayers. There is some worry from Iroquois and NRG Energy that any market subsidy would have distorting and unintended long-term consequences. We agree that this effective subsidy could lead to oversupply conditions in the long term, but giving a portion of New England s electricity supply access to firm transmission would be an important step toward maintaining reliability in the region. Spectra also announced that a third expansion, in addition to AIM and Atlantic Bridge projects, will also depend on the ability of ISO-NE to procure firm transmission for gas generators in the region. In its current form, we believe FERC will reject this proposal in favor of a more market-based approach. Allowing generators to recoup fixed firm gas transmission costs in the ISO capacity markets may be a more logical and marketbased solution.

8 Page 8 of 31 Demand The abundant supply and low cost of gas in the Marcellus have caused generators to switch from coal to gas and to build gas generators to replace retiring coal plants. The flexibility of merchant generators to turn to gas as a fuel source now accounts for the fastest-growing proportion of gas demand. Last August, gas demand from generators reached an all-time high of 84% of all gas demand in the Northeast from Ohio to Maine (Exhibit 7). Exhibit 7. Mid-Atlantic and Northeast Gas Burn Proportion of Total Gas Demand Share of electric generator gas demand 90% 80% 70% 60% 50% 40% 30% 20% 10% Source: EIA 0% Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Based on ISO and parent company statements, we see gas demand from generators increasing 2,649 mmcf/day (assuming a 7.5 heat rate and peak demand capacity factors) through 2017 in PJM, NYISO, and ISO-NE (Exhibit 8). The majority of this new gas draw comes from PJM generators, with 1,817 mmcf/day through With approximately 7,200 mmcf/day of increased takeaway capacity into the PJM region by 2017, we expect PJM to be flush with gas for these plants.

9 Page 9 of 31 Exhibit 8. Morningstar Forecast Gas Burn for Generators PJM New Natural Gas Generation (MW) Incremental Gas Burn 1 (mmcf/day) NYISO New Natural Gas Generation (MW) Incremental Gas Burn 1 (mmcf/day) ISO-NE New Natural Gas Generation (MW) Incremental Gas Burn 1 (mmcf/day) , , , , , Total 11,221 1,818 Total 4, Total 1, Grand Total (PJM, NYISO, ISO-NE) New natural gas generation: 17,280 MW Incremental Gas Burn 1 : 2,650 mmcf/day 1 Assumes 7.5 mmbtu/mwh heat rate Source: PJM, NYISO, ISO-NE, Parent Company Reports and Morningstar. Gas Basis Forecasts Exhibit 9. Eastern U.S. Pipeline Map Source: Morningstar. TETCO-M3 Platts Texas Eastern Market Zone 3 is a daily and monthly survey of all deliveries from Westmoreland County, Pennsylvania, to Morris County, New Jersey, along Spectra s Texas Eastern pipeline. Current max capacity in zone: 3,250 mmcf/day in Gloucester, N.J. Brownfield/greenfield expansion: Brownfield Team mmcf/day, Greenfield NJR PennEast 1,000 mmcf/day.

10 Page 10 of 31 When: TEAM 2014 in November 2014, NJR PennEast November Current forwards and forecast Winter Summer Winter Summer Winter Summer TETCO-M Forwards $1.34 ($1.25) $0.98 ($0.99) $0.94 ($0.72) Forecast Bearish Fair Bearish Fair Bearish Bearish Transco Zone 6 (Non-New York) Platts Transco Zone 6 (Non-N.Y.) is a daily and monthly survey of all deliveries along Williams Transcontinental pipeline beginning at the Virginia/Maryland border to Linden, N.J., and also to Wharton, Pennsylvania. This does not include PSEG deliveries. Current max capacity in zone: 2,917 mmcf/day in Warren County, N.J. Brownfield/greenfield expansion: Greenfield Transco Rockaway, 627 mmcf/day. Brownfield Leidy- Southeast, 525 mmcf/day. Greenfield Atlantic Sunrise, 1,700 mmcf/day. Greenfield NJR PennEast 1,000 mmcf/day. When: Rockaway Lateral, November Leidy-Southeast, December Atlantic Sunrise, July NJR PennEast November Current forwards and forecast Winter Summer Winter Summer Winter Summer Transco Zone 6 (Non-N.Y.) Forwards $2.17 ($1.04) $1.45 ($0.88) $1.27 ($0.71) Forecast Bullish Fair Bearish Fair Bearish Bearish Transco Zone 6 (New York) Platts Transco Zone 6 (New York) is a daily and monthly survey of all deliveries downstream of Linden, N.J., for all New York-area distributers. Current max capacity in zone: 1,327 mmcf/day in New York City. Brownfield/greenfield expansion: Greenfield Transco Rockaway Lateral, 627 mmcf/day. Atlantic Sunrise, 1,700 mmcf/day. When: Rockaway Lateral, November Atlantic Sunrise, July Current forwards and forecast Winter Summer Winter Summer Winter Summer Transco Zone 6 (N.Y.) Forwards $4.10 ($1.16) $2.87 ($0.97) $2.29 ($0.81) Forecast Bearish Fair Fair Fair Fair Fair Algonquin City-Gates Platts AGT City-Gates daily and monthly survey of all distribution company city-gates in Connecticut, Massachusetts, and Rhode Island on Algonquin Gas transmission. Current max capacity in zone: 1,475 in Rockland County, New York. Brownfield/greenfield expansion: Wright Interconnect (Constitution), 650 mmcf/day. AIM, 342 mmcf/day. When: Wright Interconnect (Constitution), March AIM, November Atlantic Bridge, November 2017.

11 Page 11 of 31 Current forwards and forecast Winter Summer Winter Summer Winter Summer Algonquin City-Gates Forwards $10.54 ($0.28) $9.04 ($0.28) $6.85 ($0.10) Forecast Fair Bearish Bearish Bearish Fair Bearish Transco-Leidy Platts Transco Leidy Line daily and monthly survey of deliveries downstream of the Leidy/Wharton storage facilities in Clinton and Potter counties, Pennsylvania, to Hunterdon County, N.J. Current takeaway capacity from Leidy: 250 mmcf/day in Clinton, Pa. Brownfield/greenfield expansion: Greenfield Constitution pipeline, 650 mmcf/day. Brownfield Leidy- Southeast, 525 mmcf/day. Greenfield Atlantic Sunrise, 1,700 mmcf/day. When: Constitution Pipeline, March Leidy-Southeast, December Atlantic Sunrise, July Current forwards and forecast Winter Summer Winter Summer Winter Summer Transco-Leidy Forwards ($1.51) ($1.65) ($1.42) ($1.38) ($1.27) ($1.15) Forecast Bullish Bullish Bullish Bullish Bullish Bullish TETCO-M2 Platts TETCO Market Zone 2 daily and monthly survey of all receipts from the Illinois-Indiana state line to Lewisville, Ohio, and from the Tennessee-Kentucky state line Westmoreland County, Pa., on Texas Eastern Pipeline. Current max takeaway capacity in zone: 3,340 in Marshall County, West Virginia Brownfield/greenfield expansion: Brownfield TETCO Uniontown to Gas City, 425 mmcf/day. Brownfield TETCO Ohio Pipeline Energy Network, 550 mmcf/day. When: TETCO U2GC and OPEN, fourth-quarter Current forwards and forecast: No liquid pricing available, but we are bullish TETCO-M2 because of increased takeaway capacity along this pricing zone. Dominion South Platts Dominion South daily and monthly survey of deliveries into Dominion Transmission main lines. One line from Warren County, Ohio, merging with the second line northeast of Pittsburgh, Pa. The second line from Buchanan County, Virginia, on the Virginia/West Virginia border north to Armstrong County, Pa. Current max takeaway capacity in zone: 800 mmcf/day in Greene County, Pa. Brownfield/greenfield expansion: Brownfield REX West to East Expansion. Brownfield TETCO Uniontown to Gas City, 425 mmcf/day. Brownfield TETCO Ohio Pipeline Energy Network, 550 mmcf/day. When: REX West to East Expansion, July 2015.TETCO U2GC and OPEN, fourth-quarter Current forwards and forecast Winter Summer Winter Summer Winter Summer Dominion South Forwards ($1.12) ($0.26) ($0.50) ($0.48) ($0.44) ($0.53) Forecast Bullish Fair Bullish Fair Bullish Fair

12 Page 12 of 31 TGP, Zone Leg Platts Tennessee Gas Transmission Zone leg daily and monthly survey of all deliveries Tioga County, Pa., to Susquehanna County, Pa. Current max takeaway capacity in zone: 1,420 mmcf/day in Bradford County, Pa. Brownfield/greenfield expansion: Greenfield Constitution Pipeline, 650 mmcf/day. Empire Northern Access, 350 mmcf/day. Greenfield TGP Pipeline Expansion, 2,200 mmcf/day. When: Constitution Pipeline, March Empire Northern Access, November TGP Expansion, November Current forwards and forecast Winter Summer Winter Summer Winter Summer TGP, Zone Leg Forwards ($2.15) ($1.70) ($2.06) ($1.43) ($1.91) ($1.20) Forecast Fair Bullish Bullish Bullish Bullish Bullish TGP, Zone 6 Platts Tennessee Gas Pipeline on the 200 leg in Connecticut, Massachusetts, Rhode Island, and New Hampshire. Current max takeaway capacity in zone: 1,169 mmcf/day in Berkshire County, Massachusetts. Brownfield/greenfield expansion: Greenfield TGP Pipeline Expansion, 2,200 mmcf/day. When: TGP Expansion, November Current forwards and forecast Winter Summer Winter Summer Winter Summer TGP, Zone Forwards $10.54 ($0.29) $9.04 ($0.29) $6.85 ($0.11) Forecast Fair Fair Bearish Fair Fair Fair Iroquois, Waddington receipts Platts Iroquois daily and monthly survey of receipts at the U.S.-Canada border at the Waddington interconnects with TransCanada Pipelines. Current max takeaway capacity at receipt: 1,150 mmcf/day in St. Lawrence County, N.Y. Brownfield/greenfield expansion: Greenfield Wright Interconnect (Constitution Pipeline), 650mmcf/day. Empire Brownfield Iroquois SoNo project, 350 mmcf/day. When: Wright Interconnect, March Iroquois SoNo, November 2016 Current forwards and forecast Winter Summer Winter Summer Winter Summer Iroquois, Waddington receipts Forwards $5.77 $0.11 $4.91 $0.11 $4.66 $0.10 Forecast Fair Bearish Bearish Bearish Bearish Bearish Iroquois Zone 2 Platts Iroquois Zone 2 daily and monthly survey of deliveries from Iroquois Gas Transmission System starting at the Athens, N.Y., power plant downstream to Hunts Point and South Commack. Current max capacity in zone: 866 mmcf/day in Litchfield, Connecticut.

13 Page 13 of 31 Brownfield/greenfield expansion: Greenfield Wright Interconnect (Constitution Pipeline), 650 mmcf/day. Brownfield Iroquois SoNo project, 350 mmcf/day. When: Wright Interconnect, March Iroquois SoNo, November 2016 Current forwards and forecast Winter Summer Winter Summer Winter Summer Iroquois Zone Forwards $5.57 $0.15 $5.04 $0.15 $4.79 $0.14 Forecast Fair Bearish Bearish Bearish Bearish Bearish TCO (Columbia Gas), Appalachia Platts Columbia Gas Transmission daily and monthly survey of deliveries in eastern Kentucky, eastern Ohio, West Virginia, Pennsylvania, northern Virginia, and western New York. Current max capacity in zone: 2,162 mmcf/day in Wayne County, West Virginia. Brownfield/greenfield expansion: Brownfield Columbia Expansion, 444 mmcf/day. Greenfield Nexus Gas Transmission, 1,000 mmcf/day. Greenfield Energy Transfer Partners, up to 3,200 mmcf/day. When: Columbia West Expansion, November Nexus Gas Transmission, June ETP, July Current forwards and forecast Winter Summer Winter Summer Winter Summer TCO (Columbia Gas), Appalachia Forwards ($0.17) ($0.26) ($0.50) ($0.48) ($0.44) ($0.53) Forecast Fair Fair Bullish Fair Bullish Fair

14 Page 14 of 31 Announced Pipeline Projects Exhibit 10. Pipeline Projects Pipeline Project In Service Max Expansion Capacity (MMcf/d) Bearish Bullish Brownfield / Greenfield TETCO TEAM 2014 Nov TETCO M3 B E Transco Rockaway Nov Transco Z6 (NY) Transco Z6 (Non NY) G E Columbia West Expansion Nov Dominion South and TCO B W Constitution Pipeline Mar Algonquin\Iroquois Transco-Leidy and TGP Z4 G E Wright Interconnect Mar Algonquin\Iroquois N/A Rockies Express Reversal Expansion Jul-15 1,200 Chicago City Gates Dominion South and TETCO-M2 B W Transco-Leidy Southeast Dec Transco Z6 (Non NY) Trasco-Leidy B E TETCO Uniontown to Gas City Dec TETCO M2 B W TETCO OPEN Nov TETCO M2 B W Ohio Valley Connector Jul-16 1,200 TETCO M2 B W Algonquin Incremental Nov Algonquin B E Iroquois SoNo Nov Iroquois B N Empire Northern Access Nov TGP Z4 B N Nexus Gas Transmission Jun-17 1,000 Dawn Hub TCO G W NJR PennEast Nov-17 1,000 Tetco M3 and Transco Z6 (Non-NY) Transco-Leidy and TGP Z4 G E Atlantic Bridge Project Nov Algonquin BG E ETP ROVER Jul-17 3,200 Dawn Hub TCO G W Atlantic Sunrise Jul-17 1,700 Transco Z6 (Non NY and NY) Trasco-Leidy G E Northeast Energy Direct Nov-18 2,200 TGP Z6 TGP Z4 G E Direction Source: Parent Company Reports Spectra TEAM 2014 (November 2014) The build-out of Texas Eastern from Fayette County, Pennsylvania, to Lambertville, New Jersey, will allow access to more than 9.9 bcf/day of supply in the region, putting direct bearish pressure on M3 and indirect downward prices on Algonquin. We think forward prices for M3 winter remain overvalued and still price in too much fear of extreme dailies. The large amount of gas supply relative to pipeline takeaway capacity still carries upside risk to TETCO- M3 prices in winter. A majority of gas-fired power plants buying gas along Texas Eastern Transmission do not have firm transmission rights and will still be caught in a bidding war on very cold days. LS Power s new 738-megawatt West Deptford power plant will add about 123 mmcf/day in increased demand along Texas Eastern pipeline, but that is the only significant new build along the M3 segment of Texas Eastern in Spectra s Texas Eastern Transmission 10,000-mile pipeline was built to transport gas from supply regions in Texas and Louisiana to demand regions in the Northeast. With the Marcellus discovery and increased production, the pipeline segment from Fayette County to Lambertville has become increasingly important. Current production along this segment and within the Appalachian shale supply interconnects is 3 bcf/day from virtually zero in The TEAM 2014 project (Exhibit 10) would increase capacity along this segment 600 mmcf/day, allowing more production and storage to reach demand regions along the East Coast.

15 Page 15 of 31 In 2014, 22 projects connect production to Texas Eastern transmission, representing 9.9 bcf/day. This would bring the total interconnected supply to Texas Eastern to almost 13 bcf/day. Including 2014 projects in progress, 64 projects representing 21.4 bcf/day in additional supply interconnects have been submitted. The Oakford, Accident, Steckman Ridge, and Leidy storage facilities along this route could see increased injection/withdrawal rates with the additional capacity (Exhibit 11). The depleted gas wells represent an aggregate of 75 bcf/day in storage capacity (Exhibit 12). Exhibit 11. Texas Eastern Pipeline Expansion Source: Spectra Energy. Exhibit 12. Storage Facilities Near Texas Eastern Source: Spectra Energy.

16 Page 16 of 31 Williams' Rockaway Lateral Project (November 2014) The 627 mmcf/day of additional capacity into the Brooklyn and Queens National Grid distribution system will be bearish Transco Z6 (N.Y.) and converge with Transco Z6 (non-n.y.). The impact will be comparable to the N.J.-N.Y. Expansion Project under the Hudson River completed last November. That project helped relieve gas constraints in New York City during the 2014 winter polar vortex. The incremental gas flowing underneath the Hudson pulled on Texas Eastern and Algonquin Pipeline but was not a large contributor to the extreme prices along TETCO M3 and Algonquin last winter. The Rockaway Lateral Project is a 26-inch pipe being laid across Rockaway Beach and then underneath New York Bay to connect with an existing Transco lateral pipeline (Exhibit 13). We don t believe this project will flood Brooklyn and Queens with gas, since National Grid has several low-pressure systems waiting to draw on the new influx of gas into the region. Many buildings currently burning heating oil will be able to switch to cheaper gas, adding incremental demand to the boroughs. The Williams' Northeast Connector Project will uprate compressor stations in York County, Pa., and Mercer and Middlesex counties in New Jersey (Exhibit 14), adding 100 mmcf/day of the 627 mmcf/day of increased supply in the region. Currently, the Transco pipeline can transport 1,368 mmcf/day from New Jersey to New York City. Exhibit 13. The Transco-Rockaway Lateral Expansion Into Brooklyn Source: Williams.

17 Page 17 of 31 Exhibit 14. Transco Upgrades Near New York City Sources: FERC and Williams. Columbia West Expansion Project (November 2014) This expansion will add takeaway capacity to the TCO pool and help support the depressed TCO and Dominion South basis. Columbia Pipeline Group s west-side expansion project includes two separate initiatives: Increase takeaway capacity from the TCO system and expand the Columbia Pipeline from Leach, Kentucky, to Rayne, Louisiana, to allow for bidirectional flow. The Gulf bidirectional flow project was completed in 2013, allowing the gas to flow south to Louisiana. The second phase of the pipeline is the Smithfield III project, which will transport up to 444 mmcf/day of TCO gas in Waynesburg, Pennsylvania, and Smithfield, West Virginia, to Leach (Exhibit 15). The project includes the construction of a new 9,400-horsepower compressor station in Washington County, Pa., and a 15,600-HP compressor station in Gilmer County, W.Va. Like many of the pipelines in the region, the pipeline's original purpose was to move gas to demand regions in the Northeast from supply regions in Texas and Louisiana. The Marcellus changed the market, and the goal now is to deliver the gas either west or east of the Marcellus. Columbia recently waived shippers' limits on storage at TCO to encourage injections after the recent cold winter. Once the Smithfield III project is complete in November, the increase in takeaway capacity will help draw on the storage in the system and move it south. Currently there is only 75 mmcf/day flowing into Martin County, Ky., so the 444 mmcf/day represents a large expansion into the region.

18 Page 18 of 31 Exhibit 15. Columbia Expansion to Increase Utica and Marcellus Takeaway Source: Columbia Pipeline Group. Williams' Constitution Pipeline and Iroquois Wright Interconnect Project (March 2015) This project is bullish on TGP Zone 4 and Leidy basis and bearish on Iroquois and AGT basis. Algonquin has still not expanded takeaway capacity on its system, but because of the extreme premium on the AGT forward curve, we believe this project should put significant bearish pressure on basis. Once completed, the 120-mile Constitution pipeline will connect the Iroquois and Tennessee Gas pipeline system (Exhibit 16). The pipeline will transport 500 mmcf/day of Marcellus production northeast to Canada and New England. This project, along with the completed Laser northeast gathering system and Springville pipeline, will form a large interstate pipeline system known as the Susquehanna Supply Hub that will be capable of transporting more than 3 bcf/day to demand in the Northeast. The Wright Interconnect will connect the Iroquois and Algonquin systems to the cheaper Leidy and TGP Z4 gas and will put downward pressure on Iroquois and Algonquin basis. Although the interconnect is bearish Algonquin, it will not solve the physical deliverability problem in New England. The project is designed to get the cheaper gas to the Algonquin system, but the takeaway capacity in the New England transmission system will remain significantly constrained in winter. The Algonquin Incremental Market aims to help with the deliverability of the gas to power plants on the system, but this will not be completed until Power plants do not own any firm transmission rights along Algonquin, and we expect gas plants to still have high gas-related outage rates until capacity is increased and firm rights are passed along to gas generators. The retirement of Vermont Yankee and Salem plants in 2014 will exacerbate this problem, and we expect Algonquin basis relative to other basis points in the region to remain constrained.

19 Page 19 of 31 Platts Algonquin's daily survey prices deliveries from Texas Eastern interconnect in Lambertville, N.J., from Transcontinental Gas Pipeline interconnect in Centerville, N.J., and from the Millennium Pipeline interconnect in Hanover, N.J. The deliveries extend to Ramapo, N.Y., north into New York and east across the state, terminating near Albany, Troy, and Schenectady, N.Y. Exhibit 16. Proposed Constitution Pipeline Route and Interconnect in Wright, N.Y. Source: Iroquois. Rockies Express West (REX) to East Expansion (2015) This project will expand on the west-to-east flow brownfield Seneca Lateral that was completed in late June. Sempra s REX pipeline is a 1,700-mile pipeline built to deliver gas from Wyoming and Colorado to the demand region in the East (Exhibit 17). Once Marcellus production ramped up, utilization rates plummeted on the pipeline, making it apparent that a reversal of flow was in order. This project, like the Seneca Lateral, is bullish Dominion South and TETCO-M2 as producers that were selling gas into those basis points can now flow the gas west toward higher-priced basis points. The gas from this expansion will also make its way north to Chicago and therefore bearish Chicago citygates basis. Sempra plans to have an additional 1,200 mmcf/day flowing on this line by the second half of next year.

20 Page 20 of 31 Exhibit 17. Path of the REX Pipeline Reversal Source: Tallgrass Energy. Leidy Southeast Expansion (Fourth-Quarter 2015) We believe this expansion along the Transcontinental Gas Pipeline in Pennsylvania and New Jersey will place bearish pressure on Transco Zone 6 (non-n.y.) basis prices along the curve in The project will add 30 miles of pipe segments, or loops, to the Transcontinental Gas Pipeline network, increasing transmission capacity 525 mmcf/day. The loops and modifications will be installed along the segment of Transco from Luzerne County, Pa., to Mercer County, N.J. (Exhibit 18). The Transco-Leidy line transports only 250 mmcf/day into Transco Zone 6, so this expansion will triple capacity and dump the much cheaper Leidy gas into Transco Z6 (non-n.y.) in New Jersey. The Platts Zone 6 (non-n.y.) daily and monthly surveys prices at delivery points beginning at the Virginia/Maryland border to the Linden, N.J., compressor station and to the Wharton, Pa., station. The draw from the new Rockaway Lateral does give this basis point some upside in winter months, but this project is net bearish overall.

21 Page 21 of 31 Exhibit 18. Path of Leidy Southeast From Pennsylvania to New Jersey Sources: FERC and Williams. Texas Eastern Uniontown to Gas City (Third-Quarter 2015) Spectra's pipeline expansion, known as U2GC, will be somewhat of a draw on TETCO-M2, and we lean slightly bullish on TETCO-M2 basis from this project. With production and takeaway capacity increasing significantly, we still view TETCO-M2 as net bearish because of the Ohio Pipeline Energy Network that will be completed soon after. U2GC will move gas west from Uniontown, Pa., to the existing interconnect with the Panhandle Eastern Pipeline system near Gas City, Indiana (Exhibit 19). This project was delayed to ensure the REX reversal and NiSource were completed. This backhaul project was also increased to 425 mmcf/day and is designed to provide shippers with an alternate route to move supply from the Utica and Marcellus. Anchor shippers include Consol Energy, East Resources, EQT, Range Resources, and Rice Energy.

22 Page 22 of 31 Exhibit 19. Map of the Expansion From Uniontown to Gas City Source: Spectra Energy. TETCO Ohio Pipeline Energy Network (November 2015) We believe this project will be net bearish on TETCO-M2 basis. The project is a reversal designed to access the Utica Shale but also will transport gas from the Marcellus via the Texas Eastern pipeline. The new 76-mile, 30-inch pipeline will draw on Clarington supply and transport up to 550 mmcf/day west toward Lebanon, Ohio, and southwest toward Louisiana (Exhibit 20). The anchor shippers on this project are Chesapeake Energy (350 mmcf/day), Consol, Total Gas and Power, and Rice Drilling. The Platts Texas Eastern M-2 contract extends from the Illinois-Indiana state line to the suction side of the Bern compressor station in Lewisville, Ohio, and down to the suction side of the Delmont station in Westmoreland, Pa. Exhibit 20. Map of the Texas Eastern Expansion Into Ohio Source: Spectra Energy.

23 Page 23 of 31 Algonquin Incremental Market (November 2016) We think AIM will be bearish for Algonquin and Algonquin City-Gates basis points, but an increase of at least 1 bcf/day of pipeline capacity is needed to significantly reduce the current basis premium The lack of capacity will be even more of a concern after the 748-megawatt Salem coal/oil (retired) and the Vermont Yankee plants retire in We expect new gas generation to fill the power supply gap. Footprint Power, the 700-megawatt combined-cycle plant set to come on line in late 2016, will add 115 mmcf/day of gas demand in the region. The first phase of the Algonquin Incremental Market expands capacity in the region by 342 mmcf/day. Current capacity on Algonquin ranges from 705 mmcf/day in New England to 1,475 mmcf/day in New Jersey (Exhibit 21). Spectra management has said the region needs a much larger expansion to relieve winter gas constraints, but we don't think that's likely unless power generators commit to buying firm capacity. The Millennium Pipeline and Wright Interconnect will help deliver the cheap Marcellus gas to New England. But with increasing takeaway capacity to customers on the Algonquin system, large gas outages and extreme pricing volatility will remain a concern. Exhibit 21. AIM Expansion Will Add 342 mmcf/day of Gas Capacity in New England Source: Spectra Energy.

24 Page 24 of 31 Empire Northern Access (November 2016) This project will be bullish on the TGP Zone leg in the Marcellus and bearish on the TGP Zone leg. Empire and National Fuel Gas Supply will lay greenfield and brownfield pipeline to bring Marcellus supply in McKean County, Pa., north to interconnect with the TransCanada pipeline system (Exhibit 22). The pipeline will also connect with the Tennessee Gas Pipeline on the 200 leg and make its way to New England. Capacity along the current Empire pipeline is 350 mmcf/day in Pennsylvania and 655 mmcf/day from Ontario to New York. Exhibit 22. Planned Route for the Empire Northern Pipeline Source: Empire.

25 Page 25 of 31 Nexus Gas Transmission (2017) Despite the production growth around the Utica, this pipeline is still fairly bullish on TCO basis. With falling gas supplies in Canada, there are firm bids daily to get the gas north, and we expect this pipeline to support TCO (Columbia Gas) basis. If the pipeline does interconnect the Dominion pipeline near TCO, it will give some support to Dominion South basis as well. The cheaper gas moving to Michcon and Dawn will be bearish on those points. The Nexus Gas Transmission project will be a large 250-mile interstate pipeline designed to transport more than 1,000 mmcf/day of gas from the Utica Shale to growing demand in Ohio, Michigan, and Toronto markets as well as access to DTE, Tecumseh, and Dawn storage (Exhibit 23). This greenfield project will serve local distribution companies, industrial users, and gas-fired generators in the region. The project is being developed in partnership between DTE Energy, Enbridge, and Spectra Energy. Average daily demand in Michigan and Ontario markets is more than 6 bcf/day, and there is significant summer demand because of storage injections of 660 bcf in Michigan and 276 bcf in Ontario. Exhibit 23. Utica and Marcellus Supplies Move North to Ontario Storage Source: Nexus Gas Transmission.

26 Page 26 of 31 Atlantic Bridge Project (November 2017) Spectra and Maritimes and Northeast Pipeline are planning to expand the pipeline by 100 mmcf/day to 600 mmcf/day (Exhibit 24). The project will be bearish on AGT winter if the build-out is able to expand the Algonquin by more than 300 mmcf/day. This project is unique because the firm commitments in the project depend on the current firm bidding initiative by NESCOE that was put into action by the New England governors, whose constituents face rising costs from natural gas and electricity in the winter. In the winter, gas outage rates approached 70% on the coldest days and prices increased substantially since the winter. Exhibit 24. Proposed Expansion in New England Source: Spectra. Iroquois SoNo Project (November 2016) This project is neutral Iroquois basis as the pipeline sits between two extremely constrained regions. Either way the gas flows, north or south, the pipeline will be at full capacity in the winter. However, the bearish flows from Constitution and Dominion pipelines will put downward pressure on basis in the region. The Iroquois south-to-north reversal project will reverse the flow of the current pipeline to move gas north toward Waddington, N.Y., and into Ottawa, Ontario, Canada (Exhibit 25). As Canadian supplies have fallen and Marcellus gas has ramped up over the past five years, Iroquois made the logical move to reverse the flow on this pipeline. Now that Iroquois will have direct and indirect interconnects to the Marcellus shale through Dominion pipeline and Constitution pipeline cheaper gas should be able to flow north to more supply-constrained Ottawa. However, the SoNo reversal will only be able to move 350 mmcf/day north to Ottawa of the 1,350 mmcf/day that other pipeline expansions will connect with Iroquois. The Constitution pipeline will carry 650 mmcf/day to the Wright, N.Y., interconnects; the Dominion pipeline will carry 250 mmcf/day to the Canajarie, N.Y., interconnects; and the existing interconnect at Algonquin will provide 450 mmcf/day

27 Page 27 of 31 after the AIM expansion. Current capacity on the pipeline flowing south is 866 mmcf/day in New York and 520 mmcf/day in Connecticut. Exhibit 25. Iroquois SoNo Project Source: Iroquois. Atlantic Sunrise Project (July 2017) Combined with the draw of the Millennium Pipeline that will already be shipping gas by the time the Atlantic Sunrise Project goes into service, the increased takeaway capacity should be enough to cut the winter basis discount in half. The large project will add bullish support to Leidy basis as the pipeline will draw on the Transco-Leidy line and move the gas south into Mid-Atlantic. The build-out from this project is large enough that it will be bearish almost all basis points east of Susquehanna County, Pa., as this region is becoming more interconnected. Transco Zone 6 (non-n.y. and N.Y.), TGP Zone 6, Algonquin and Iroquois are all bearish its current winter premium. The build-out will also place downward pressure on Transco Zone 6 basis as the new supply flows bidirectionally toward Baltimore and Philadelphia. Williams' Atlantic Sunrise project is designed to add 1,700 mmcf/day of pipeline capacity to the Transcontinental system it already operates. The pipeline adds another route from the Marcellus supply to the Mid-Atlantic regions and bidirectional flow south through the Carolinas and Georgia. The 178 miles of greenfield pipeline will start in Susquehanna County, Pa., connecting with the Constitution Pipeline (the new Susquehanna Hub interconnect) and move gas into Station 517 in Columbia County, Pa. From

28 Page 28 of 31 there, the pipeline will move gas south until interconnecting with the Transco pipeline between Baltimore and Philadelphia (Exhibit 26). Exhibit 26. Proposed Route for the Large 1,700 mmcf/day Transco Greenfield Project Sources: FERC and Williams. Energy Transfer Partners Rover Project (Second-Quarter 2017) Similar to the Nexus Gas Transmission project, this project will be bullish TCO basis and bearish Michcon and Dawn basis. Energy Transfer Partners will construct a large pipeline with the capacity to flow 2,200 mmcf/day to 3,200 mmcf/day. The project will enable the flow of gas supplies in the Marcellus and Utica shale to move west to interconnect with the current Panhandle Eastern Pipeline and another pipeline near Defiance, Ohio. Additionally, ETP will construct a 195-mile segment from Defiance, Ohio, through Michigan and into Union Gas Dawn Hub. The three largest shippers on the project will be American Energy, Antero Resources, and Range Resources. NJR PennEast Project (November 2017) New Jersey Resources will construct this 30-inch, 1,000 mmcf/day greenfield pipeline originating in Luzern County, Pa., and ending at Transco s Trenton-Woodbury interconnection in New Jersey (Exhibit 27). This project will improve takeaway capacities near the Leidy hub and improve pricing power for suppliers in the region supporting Transco-Leidy and TGP-Zone 4 basis. Most importantly, this project will add significant bearish pressure to winter TETCO-M3 and Transco Zone 6 (non-n.y.). This pipeline also interconnects with Algonquin and moves some of the supply into New England. This project and the Atlantic Sunrise project will converge the western and eastern Marcellus gas basis prices.

29 Page 29 of 31 Exhibit 27. Projected Path to Move Marcellus Supplies to the Constrained Texas Eastern and Transco Pipelines Source: NJR Resources. TGP Northeast Direct Project (November 2018) Kinder Morgan has proposed a large expansion project in New England that will be sized from 600 mmcf/day up to 2,200 mmcf/day. Open seasons were completed March 28, and the project generated significant interest from local gas distribution companies, generators, producers, and industrial end users. While we expect the project to be financed on the lower end of the estimates, a 600 mmcf/day expansion of the current pipeline would still be very bearish for Tennessee Zone 6 basis and bullish for Tennessee Zone 4 basis. The proposal would consist of a 117-mile greenfield pipeline constructed into Wright, N.Y., where it would interconnect with the existing TGP pipeline. Another greenfield pipeline would cut across Massachusetts from New York into Dracut, Massachusetts, adding a new route for supplies into the constrained Boston region (Exhibit 28). Brownfield projects would expand the current pipeline by adding loops and laterals along the TGP 200 and 300 lines. This project will also be allowed to participate in NESCOE's initiative to allow the ISO-NE to bid on firm gas capacity to supply electric generators. We believe this is the reason for the wide range of potential capacity expansion (600 mmcf/day to 2,200 mmcf/day) as Kinder Morgan is waiting to see the outcome from the governors initiative from FERC.

30 Page 30 of 31 Exhibit 28. Proposed Route for Northeast Direct Pipeline in New England Sources: FERC and Kinder Morgan. Other Potential Projects Dominion Southern Reliability Project Spectra Marcellus to North Carolina Eastern Long Island Project Columbia Transmission Leach Xpress Project Transco Diamond East Project K

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