Natural Gas Portfolio UpdateNatural Gas Portfolio UpdateWinter 2007-2008Winter 2007-2008

Presentation to Presentation to Washington Utilities & Transportation CommissionWashington Utilities & Transportation Commission

David MillsDavid MillsDirector, Energy Supply & Director, Energy Supply & PlanningPlanning

October 10, 2007October 10, 2007

2

Monthly Sumas Gas Prices (Historical and Forecast)

$0

$2

$4

$6

$8

$10

$12

$/m

mb

tu

Sumas ($/mmbtu)

Underlying trend of higher price Underlying trend of higher price continues…continues…

3

National gas storage data through the National gas storage data through the 3939thth week show similar pattern as last week show similar pattern as last year with inventories above the 5-yr year with inventories above the 5-yr averageaverage EIA Weekly Storage

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

3,000

3,250

3,500

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Week

Bcf

2006 EIA

2007 EIA

5 Year Avg

4

Natural gas prices are showing Natural gas prices are showing strength heading into next yearstrength heading into next year

Current NYMEX prices for Jan & Feb 2008 in the $8.25 range.

Summer strip (Apr 08 – Oct 08) NYMEX prices average $7.85.

Market showing upside risk

5

Short-term fundamental driven Short-term fundamental driven primarily by storage levels and primarily by storage levels and hurricane concernshurricane concernsBullish IndicatorsBullish Indicators

Threat of hurricanesThreat of hurricanes Very Active conditions especiallyVery Active conditions especially inside the Gulf of Mexico, but inside the Gulf of Mexico, but

few named storms few named storms

Slow to arrive LNGSlow to arrive LNG

Rockies Express PipelineRockies Express Pipeline - will tighten West basis- will tighten West basis

Increased demand for Increased demand for power generationpower generation

Bearish indicatorsBearish indicators US gas storage

inventory keeping pace with last year

Record level of drilling in Rockies & GoM

6

Price risk contours – next 12 Price risk contours – next 12 monthsmonths

$5.00

$5.50

$6.00

$6.50

$7.00

$7.50

$8.00

$8.50

$9.00

$9.50

$10.00

Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08

Base Case September risk Fall risk Winter risk Spring risk Summer risk Hurricane risk

Risks to the base Risks to the base case can be case can be separated into ‘risk separated into ‘risk contours’ so as to contours’ so as to separate individual separate individual weather events, weather events, hurricanes and oil hurricanes and oil price shocks.price shocks.

Source: Wood MackenzieSource: Wood Mackenzie

7

Medium term outlook: 2007 thru 2012Medium term outlook: 2007 thru 2012

Contracts and construction lead time inform Contracts and construction lead time inform assumptions:assumptions: LNG developments LNG developments Power generation capacityPower generation capacity Unprecedented wave of pipeline and storage projectsUnprecedented wave of pipeline and storage projects

Period of “Facilitated Growth” in Gas Markets:Period of “Facilitated Growth” in Gas Markets: Gas demand for power is clearly growing: too soon for Gas demand for power is clearly growing: too soon for

coal, nuclear and renewablescoal, nuclear and renewables Carbon legislation not likely to swing in near-termCarbon legislation not likely to swing in near-term Supply is coming online to meet growing demandSupply is coming online to meet growing demand

8

Flow of gas to the east will tighten Flow of gas to the east will tighten basisbasis

(669)

665

198

-

46 (213)

(72)

(1,248)

1,179

(51)

(167)

(135)

(1,052)

1,042 142

195

(1,645)

(1,630)

6

34

72

547

(59)

(612)

(2)

(21)

(0)

21

(181)

1,634

(118)

146

(39)

63

89

(804)

17

4

(301)

106

(62)LNG

475

415

301

1,800

-

1,279 1,221

(662)

(51)

417

(5)

73

(22) 111

(173)

Change In Flow - 2007 to 2012Arctic

Source: Wood Mackenzie

9

Current PSE storage inventories are Current PSE storage inventories are on scheduleon schedule

Jackson PrairieJackson Prairie 100 % Full (8.7 Bcf)100 % Full (8.7 Bcf) Average Price = $5.51/Dth Average Price = $5.51/Dth PSE Withdrawal Capacity = 350,000 PSE Withdrawal Capacity = 350,000

Dth/dayDth/day

Clay BasinClay Basin 86% Full (5.9 Bcf)86% Full (5.9 Bcf) Average Price = $5.32/DthAverage Price = $5.32/Dth PSE Withdrawal Capacity = 45,000 PSE Withdrawal Capacity = 45,000

Dth/dayDth/day

(PSE has purposely lagged storage injections at Clay Basin in order to take advantage of potentially cheap fall gas prices. Some injections in October are < $2/MMBtu)

10

Malin

Sumas

Topock

Stanfield

Station 2

AECo

Opal

PermianPermianBasinBasin

San JuanSan JuanBasinBasin

Rocky Rocky Mountain Mountain BasinBasin

WCSB WCSB

Starr Road (GTN & NWP)

Kingsgate (ANG & GTN)

ABC (NOVA & ANG)

27%

16%

PSE14%

31% 12%

Puget Sound Energy2006/07 Winter Supplies(Average Winter Day)

Firm Flowing Supplies

Storage

Avg. Day Winter Supply Volumes (MMBtu):

British Columbia 105,000

AECo 60,000

Rockies 120,000

Jackson Prairie 55,000

Clay Basin 45,000

Total 385,000

Assumes that storage is 100% full on Nov 1, and that it is ratably emptied in its entirety by Mar 31, 2008.

11

PSE Core Gas Portfolio Winter 2007/08 Peak Day (as of 10/1/07)

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Dth

Remaining TF-1 Transport

PGSS Call

Sw arr Propane

Plymouth LNG + TF-2

JP + TF-2

Clay Basin

Firm Supply Contracts

Peak Day Projection= 934,000 Dth(includes Deferred Exchange)

Excess TF-1 transport remaining = 64,200Dth

Assumed Peak Day is in January with an average daily temperature of 13 degrees Fahrenheit

Molecules to buy = 115,800 MMBtu

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QuestionsQuestions