TENNESSEE REGULATORY AUTHORITY

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TENNESSEE REGULATORY AUTHORITY

• Natural Gas Symposium
• Nashville, Tennessee
• August 19, 2003

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Ben Andrews

• General Manager, Oak Ridge Utility District
• 12,000 Customers -- Mostly Residential
• Chair Elect, American Public Gas Association
• 594 Members -- 36 States

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My Opinions

• No Inconsistencies with ORUD or APGA
• But still just my opinions

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HISTORY LESSION

• FERC Order 636
• NYMEX Natural Gas Trading
• Experienced Gas Men and Women Acting As Amateur
  Commodity Traders
• Slow Learning Curve
• Not A Good Place For Trial and Error

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The Current Problem

• Electric Generation with Natural Gas
• Lack of Accurate Market Information
• Limiting Regulations/Legislation

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ELECTRIC GENERATION WITH NATURAL GAS

• Duke Energy North America
• North Georgia Plant supplied from East Tennessee
  Natural Gas Pipeline has the capability of taking
  217,460 Dth/Day
• TVA
• Gallatin from Columbia Gulf Transmission
• New Johnsonville from TGP

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Overall Use of Natural Gas for Electric Generation

• Large, Base Load Plants MUST Not Be Fueled With
  Natural Gas
• Peaking Plants MUST be Dual-Fueled
• Small, On-Site Generation Is Not A Problem

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LACK OF ACCURATE MARKET INFORMATION

• Enron and everything that brought with it.

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Market Integrity

• APGA testified December 12, 2000
• No Congressional Action To Date
• Index Accuracy
• FERC Has Taken Initial Action
• A Test to see if industry submitted plan will
  work

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LIMITING REGULATIONS AND LEGISLATION

• Environmental Issues
• Slow Reactions To Changing Conditions
• Section 5 Amendment to Natural Gas Act

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ENVIRONMENTAL ISSUES

• The conflict between meeting environmental
  compliance and prudent use of natural gas.

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SLOW REACTION TO CHANGING CONDITIONS

• Example
• IRS investigation of the use of tax-exempt debt
  to pre-purchase natural gas supply
• Review August 25, 1999
• Hearing January 12, 2000
• All Previous Transactions Cleared Feb. 2002
• Clarifying Rule Issued August 1, 2003

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AMENDMENT TO SECTION FIVE OF NATURAL GAS ACT

• Pipelines have no incentive to keep rates just
  and reasonable.
• Section 5 of NGA should mirror Section 206 of
  Federal Power Act.

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CONCLUSIONS

• It Is Not The Fault Of
• FERC
• CONGRESS
• STATE COMMISSIONS
• OR THE INDUSTRY
• Electric or Gas
• But It Is Going To Take All Of Us Working
  Together To Solve the Problem.