Strategic Priorities for Natural Gas Utilities in a Challenging Marketplace

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• Strategic Priorities for Natural Gas Utilities in
  a Challenging Marketplace
• Thomas E. Skains
• Chairman, President CEO
• Piedmont Natural Gas
• July 21, 2008
• LaJolla, CA

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Piedmont Natural Gas

• We are a regulated public utility engaged in the
  local distribution of natural gas and
  headquartered in Charlotte, NC
• We serve over one million natural gas utility
  customers in North Carolina, South Carolina and
  Tennessee and deliver over 200 million dekatherms
  annually
• We are one of the fastest growing natural gas
  utilities in the country
• We have complementary joint venture
  energy-related business investments in the
  Southeast

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Natural Gas Utilities Are Confronted With A
Challenging Marketplace

• High Wholesale Costs of Natural Gas
• Restricted Access to New Sources of Natural Gas
  Supply
• Continued Demand Growth for Power Generation
• A Slowing Economy and A Drop In New Construction
  Starts
• Public Policy Issues Around Energy and the
  Environment

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NYMEX Closing Prices
Future Prices as of July 1, 2008
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Strategic Priorities For Natural Gas Utilities

• DEMAND SIDE
• Communicate the benefits of natural gas as a
  clean and efficient energy resource
• Encourage the direct use of natural gas as the
  best and most efficient use of our product
• Pursue energy efficiency programs on a
  comprehensive, multi-fuel and total fuel cycle
  basis
• Align the interests of energy utilities and
  consumers on energy efficiency and conservation
• Promote power generation fuel diversity

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Strategic Priorities For Natural Gas Utilities

• Communicate the Benefits of Natural Gas as a
  Clean and Efficient Energy Resource
• Natural gas is the cleanest of all fossil fuels,
  emitting 40 less carbon dioxide than coal, 28
  less than oil, and 14 less than propane
• Natural Gas. Comfortable. Responsible.

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Strategic Priorities For Natural Gas Utilities

• Encourage the Direct Use of Natural Gas as the
  Best and Most Efficient Use of Our Product
• Assuming that 7 of total electric load served by
  electric RC applications is shifted to be served
  by natural gas, The American Gas Foundations May
  2008 Direct Use Study found
• The increased use of natural gas will - -
• Decrease energy consumption
• Reduce overall energy cost
• Reduce CO2 emissions
• American Gas Foundation Study, Direct Use of
  Natural Gas Implications for Power Generation,
  Energy Efficiency, and Carbon Emissions

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American Gas Foundation Direct Use StudyMay 2008

• By 2030, This Increased Direct Use of Natural Gas
  Would
• Reduce total energy consumption by 1.25 to 2.00
  quadrillion Btu
• Avoid incremental generation capacity of 63 80
  GW
• Avoid incremental investment costs of 49B to
  122B
• Reduce total energy costs by 12B to 29B
• Reduce CO2 emissions by 60 to 200 million tons

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Strategic Priorities For Natural Gas Utilities

• Pursue Energy Efficiency Programs on a
  Comprehensive, Multi-Fuel and Total Fuel Cycle
  Basis
• Energy efficiency should be measured from the
  source of energy production to the site of its
  use (source to site) and through the appliances
  that consume it (total fuel cycle efficiency)
• Energy efficiency should also be evaluated
  comprehensively in the context of alternative
  sources of energy that are available to meet the
  needs of consumers
• Natural gas retains about 90 of its energy value
  through the source to site delivery to energy
  consumers, whereas the process of converting
  natural gas to electricity for delivery to energy
  consumers retains less than 30 of the same
  energy value

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Strategic Priorities For Natural Gas Utilities

• Align the Interests of Energy Utilities and
  Consumers on Energy Efficiency and Conservation
• Joint Statement of AGA and NRDC May 08
• Decoupling
• Remove disincentives for utilities to promote
  energy efficiency and reduce GHG, and unite to
  achieve increased savings through programs and
  standards
• Incentives
• Develop performance-based incentives for
  utilities to promote energy efficiency and
  reduced GHG
• Direct Use
• Recognize the potential contributions of
  efficient natural gas use in promoting reduced GHG

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Sector Changes in U.S. Natural Gas Consumption
and Natural Gas Prices Source EIA
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States with Non-Volumetric Rate Designs for
Natural Gas As of May 2008
WA
ME
MT
ND
MN
OR
VT
NH
WI
ID
NY
SD
MA
WY
CT
MI
RI
NJ
PA
IA
NV
NE
OH
IN
DE
IL
UT
MD
CO
WV
CA
KS
VA
MO
KY
NC
TN
OK
AZ
AR
NM
SC
GA
MS
AL
LA
TX
FL
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Strategic Priorities For Natural Gas Utilities

• Promote power generation fuel diversity
• Nuclear
• Clean Coal Technology
• Renewables
• Natural Gas
• Energy Efficiency and Conservation

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Strategic Priorities For Natural Gas Utilities

• SUPPLY SIDE
• Domestic and Imported Supply Diversity
• Storage and Infrastructure Development
• OCS Access

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Piedmont Gas Supply Sources
Piedmont Gas Supply Sources
Transco Storage Tennessee Storage Texas
Eastern Columbia Gulf Columbia Gas Storage East
Tennessee Midwestern Dominion Storage Hardy
Storage Pine Needle LNG Piedmont LNG
Cove Point, MD
OCS 37 TCF 100 No Access
Elba Island, GA
Barnett Shale
Transco Station 85
OCS 21 TCF 76 No Access
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Pew Research June 2008Publics Energy
Priorities Shift as Prices Skyrocket
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Strategic Priorities For Natural Gas Utilities

• More LIHEAP Funding is Needed to Assist Low
  Income Energy Consumers
• Authorized funding is 5.1 billion yet only 2.1
  billion on average has been appropriated since
  2005
• For the typical household that would qualify for
  LIHEAP assistance, 15 of family income is spent
  on essential energy needs
• Only 15 of the thirty million low-income
  families that need financial assistance to heat
  and cool their homes receive any LIHEAP assistance

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Strategic Priorities For Natural Gas Utilities

• Climate Change Initiatives Should Recognize the
  Role That Small Natural Gas Consumers Play in GHG
  Emissions
• Natural gas is used to meet essential human needs
  for residential customers
• Residential and commercial natural gas customers
  emit only 6 of total U.S. CO2
• While the number of residential natural gas users
  has increased by 70 since 1970, GHG emissions
  are already at 1970 levels due to tighter
  structures and more efficient appliances
• Small natural gas customers should not be
  penalized by even higher energy costs when their
  usage has declined and the direct use of natural
  gas is better for the environment than other
  energy alternatives

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Strategic Priorities For Natural Gas Utilities

• Climate Change Regulations Should Cover Small
  Natural Gas Consumers but Not Under a Cap and
  Trade Program
• Large GHG emitters should be the initial focus of
  a cap and trade program
• Address GHG emissions from small natural gas
  consumers through energy efficiency efforts,
  appliance standards, and building codes
• EIA assessment by 2020 of progress made by small
  consumers and review of energy markets and prices
• EIA recommendation at that time whether LDCs
  should be regulated entity for residential and
  commercial consumers under cap and trade program