PNUCC System Planning Committee

Resource Planning P ocess O e ieProcess Overview

Randy FriedmanDi t G S lDirector, Gas Supply

April 13, 2012p ,

Planning Overview

Basics of the Physical System

How We Buy Gas

Hot Topics (besides Power Generation)Hot Topics (besides Power Generation)– Fracking, LNG Exports, NGVs

Planning for Uncertainty

2

33

Gas Markets are Interconnected

15% of U.S. gas supplies come from

Canada

NWN gets 60% of its60% of its

gas supplies from Canada

4

Source: NWGA 2010 Gas Outlook

Components

of the

N t l GNatural Gas

SystemSystem

5

Source: NWGA website

Dth/day Therms/day

Designing our Supply Portfolio

800,000

1,000,000Dth/day

8,000,000

10,000,000Therms/day

Total Resources

600,000 6,000,000

Firm Sales

200,000

400,000

2,000,000

4,000,000

InjectionsI j ti

Pipeline ContractsPeaking

Resources

0Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

0

jInjections

Mist Production Long-term Contracts Winter Contracts

6

Station 215%

NW N t l WCSB WCSB

29%

NW NaturalAverage Winter Day

SumasAECo

2%27%

Flowing Supplies

Underground Storage

Stanfield

Rocky Rocky MountainMountain

NWN

27%

Avg. Day Winter Supply Volumes (Therms)

British Columbia (Stn 2) 580,000

Underground Storage

Malin

Opal

Mountain Mountain BasinBasinAlberta 1,150,000

Rockies 1,100,000

Jackson Prairie 100,000

Mist Storage 1 070 000

San JuanSan JuanBasinBasin

27%Mist Storage 1,070,000

Portland LNG 0

Newport LNG 0

Plymouth LNG 0

Topock PermianPermianBasinBasin

Total 4,000,000

Assumes that storage is 100% full on Nov 1.

7

Design Peak Day Supply

8

Managing Price Volatility

UnhedgedUnhedged25%

Gas Reserves Financial

Mist Prod.2%

Gas Reserves3% Hedges

51%

Storage2% Storage19%

Financial Hedges = Swaps and Options9

Shale Gas is (almost) Everywhere

10

The “Fracking” Controversy

1111

The “Fracking” Controversy

Proper Well ConstructionConstruction

Layers of Separation

Safe Disposal ofSafe Disposal of Drilling Fluids

12

NGV MarketsGM Chrysler Ford look to cashGM, Chrysler, Ford look to cash in on natural gas boomClean Energy, one of the largest U.S. providers of CNG for vehicles, says its customers Monday paid an average $2.59 for CNG equal to a gallon of gasoline. Motorists paid an average $3 79 for a gallon of regular gasolineaverage $3.79 for a gallon of regular gasoline, according to the U.S. Energy Information Administration weekly survey out Monday.

- USA Today, March 6, 2012

13

14

Planning for Uncertainty

A Black Swan Event is a Surprise to the Observer

A Black Swan Event has a major Impact

After the fact, the event is rationalized by hindsight

These Outliers may be rare These Outliers may be rare but play massive roles

15

Examples of Black Swan Events

16

Recent Black Swan Events

17

The Latest Black Swan Event?

18

Black Swan Implications

Plans need more robustness

Options have more value than you might think

Opportunities abound to Opportunities abound to those not blinded by the bell curve

Thanksgiving Day is only a Black Swan Event for the Turkey

19

Thanksgiving Day is only a Black Swan Event for the Turkey