Summer 2015 Business Update
July 2015
Topics
•
•
•
•
•
Business Update
Gas/Electric Market Coordination Update
Growing to Meet Market Demand
Winter Recap
Operational Excellence
– Gas Quality
– Fuel Management
– Project Update
• Other
1
Berkshire Hathaway Energy
• 11.5 million customers
worldwide
• 21,000 employees
worldwide
• $82.3 billion of assets
• $17.3 billion of revenue
• 32,600 miles of
transmission lines
• 16,400 miles of natural
gas pipeline
• More than 33,000 MW of
owned and contracted
generation capacity
• 33% of owned and
contracted generation
capacity is renewable or
noncarbon
2
Customer Commitment
Vision Statement
• To be the preferred provider of natural gas transportation and storage services
based on our integrity, operational excellence, financial strength and
environmental responsibility
Mission Statement
• We are in business to serve our customers. Fairly. Efficiently. Reliably.
These statements mean that
• You will get what we promise on time
• We will share the purpose behind our actions
• We will commit to making it easy to do business with us
• We will negotiate and perform in good faith
• We will continue to invest in the pipeline in order to provide you highly
reliable service and to meet your future growth needs
3
Core Principles
Employee
Customer
Commitment
Regulatory
Integrity
Service
BALANCED OUTCOMES
Operational
Environmental
Respect
Financial
Strength
4
Excellence
Permanent Partners
The attitude of permanent partnership impacts our relationship
with our customers
•
Long after all of us in this room are retired, our companies will still be business
partners
What does this mean?
•
Mutually beneficial relationships based on our
core principles, not quarter over quarter profits
•
Do necessary due-diligence, but maintain an
attitude of partnership
•
No surprises either way
•
Frank, candid discussions
•
Seek balanced outcomes
5
Northern’s Preferred Approach to Business Issues
•
Consistent with our Core Principles and our view of customers as Permanent Partners, Northern’s
preferred approach to business issues includes:
– A belief that business decisions are best handled through business discussion with
commercial counterparts
– Candid evaluation of the issue
– A desire for active engagement of the customer in the issue
– Solicitation of candid feedback in both directions
– Transparency – information, rationale, communication
•
This means:
– Out of respect for our customers, we try to get to a balanced outcome quickly and with
minimal iterations
– We prefer not to employ the used car salesman approach with lots of smoke and a wide
bid/offer
6
Mastio Results
Northern and Kern River ranked
in the Top 2 of 41 pipelines.
Northern ranked first in the
following areas:
1. Value received for money paid
2. Flexibility of gas pooling and
aggregation services
3. Financial stability
4. Accuracy of gas metering
systems
What must we do now to earn a
“10” later this year?
7
Customer Satisfaction Rankings
No issue is worth jeopardizing our credibility and the goodwill Northern and its customers have built
over the last several years
8
Addressing Future Capital Costs
•
Northern has more than $1 billion of investment for maintenance capital and modernization in the
next 10 years
•
Northern appreciates customers’ consideration of alternatives. Based on the feedback received,
Northern is preparing for rate cases going forward
– A 2016 rate case is possible, however, the most likely timing is shown below
•
Are there specific service changes customers would like to see in a rate case?
2017 and 2018 Rate Case Timeline
9
Gas/Electric Market Coordination Update
•
Recall from last year:
•
Proposals to start the gas day at 4:00 a.m., 6:00 a.m., 7:00 a.m., or leave it alone
•
Single Energy Day or East/West Energy Days
•
Three, four or 24 intraday cycles
10
Final Outcome – Reason Prevailed
On April 16, 2015, the Federal Energy Regulatory Commission issued a
final order concerning the Coordination of the Scheduling Processes of
Interstate Natural Gas Pipelines and Public Utilities. Highlights of the
final order are:
• No change to the start of the gas day, retaining the 9:00 a.m. Central
Clock Time (CCT) start time
• Adoption of the NAESB nomination schedules, which included
moving the nomination deadline for the timely cycle from 11:30 a.m.
to 1 p.m. CCT and the addition of another intraday cycle
• Multi-party transportation contracts
• Implementation deadline of April 1, 2016
• FERC Findings:
• Limited evidence that the 9:00 a.m. start time results in
natural gas-fired generators de-rating during the morning
ramp due to exhausting nominated natural gas transportation
• Not clear that Benefits>Costs
• It is a regional issue
• Potential employee safety risk
• Increased cost and lack of adequate resources available for
system changes
11
Meeting Market Expansion Needs
• Northern works with its customers to provide effective services and processes to meet firm service
needs
• Increased natural gas demand generally requires pipeline construction, which is subject to FERC
regulation and approval by appropriate government agencies
• FERC has granted blanket authority for projects up to the following levels
– Automatic Blanket – up to $11.4 million; may not be used for mainline expansions
– Prior-Notice Filing – more than $11.4 million up to $32.4 million; agency approvals can
range from 30 days to six months, while authorization generally occurs within 60-70 days
• Projects costing more than $32.4 million require Section 7 application – Six months prior to filing
the Section 7 application, a request to use FERC’s pre-filing process is filed. Authorization from
FERC may take six to eight months from the Section 7 application filing
• FERC should consider the following project approval improvements
– Expand scope of the blanket authorizations to include mainline facilities, MAOP increases
– Increase the cost-limit for blanket authorizations
– Identify measures to shorten review time for Section 7 applications
– Initiate consultation with agencies that typically will not formally consult on blanket projects
without FERC’s formal initiation
12
Northern Expansions Since 2007
•
Northern has invested approximately $489 million,
and added approximately 957,000 Dth/day of
incremental capacity to meet customer demand in its
Market Area
Market since
2007
•
956,622 Dth/Day
Northern has invested approximately $80 million in
its Field Area
$489 million
•
Field Area supply interconnects have been
expanded resulting in approximately 1.475
Storage since 2007
Bcf/day of incremental capacity
8,000,000 Dth/Day
•
$52 million
Northern has also expanded its Permian area to
provide approximately 510,000 Dth/day of
incremental capacity
•
Field since 2007
Northern has invested approximately $52 million to
expand its storage capacity by 8 Bcf/day
1,985,000 Dth/Day
$80 million
13
Recently Completed Expansions
•
Permian Area Expansion I
– Open season held November 22, 2013 through January 9, 2014
– 158,000 Dth/day total incremental capacity
– In-service November 1, 2014
•
St. Cloud Branch Line Expansion
– Open season was held from January 14, 2014 through January 31, 2014
– 8,781 Dth/day
– In-service November 1, 2014
•
Mason City Branch Line Expansion
– Open season was held from January 29, 2014 through February 18, 2014
– 1,905 Dth/day
– In-service November 1, 2014
•
West Leg 2014 Expansion
– Open season was held from October 18, 2012 through November 7, 2012
– 88,430 Dth/day
– In-service November 1, 2014
14
West Leg 2014 Expansion
Facility Requirements:
•
Homer, Nebraska greenfield
compressor station (9,500-HP)
•
Fremont, Nebraska compressor
station (4,700-HP)
•
1.17-mile extension of 24-inch
line
•
5.51 miles of 20-inch greenfield
branch line
•
0.38-mile 20-inch tie-over line
•
Meter station
15
Market Update – West Leg 2014 Expansion
• The Homer compressor station was the last facility to be placed in-service November 26, 2014
• The two compressor stations were completed within 1% and 3% of the final project forecast
• Northern effectively managed a number of schedule delays – specifically a 1-month delay in the
FERC approval process and record rainfall that more than doubled historic averages
• In addition to providing 88,430 Dth/day of incremental capacity, this project will increase the
reliability and operational flexibility of Northern’s current system
16
West Leg 2014 Expansion - Facilities
17
Current Expansions
•
Zone EF 2014-2016 Expansion – Northern Lights
– Open season was held March 19, 2014 through May 1, 2014
– 64,813 Dth/day (Peak winter MDQ)
– Construction in progress
•
West Leg 2015/Zone ABC 2014-15 Expansions
– Open seasons were held between June 2, 2014 and August 8, 2014
– 65,100 Dth/day (Peak winter MDQ)
• West Leg: 31,550 Dth/day
• Zone ABC: 33,550 Dth/day
– Regulatory approval for West Leg 2015 project in May 2015
– Construction in progress
•
Willmar Branch Line Expansion
– Open season was held October 14, 2014 through October 21, 2014
– 1,856 Dth/day (Peak Winter MDQ)
– Construction in progress
18
Current Expansions (cont.)
•
Permian Area Expansion II
– Open season held September 4, 2014 through September 30, 2014
– 112,000 Dth/day
– Construction in progress
•
Permian Area Expansion IIA
– Open season held November 12, 2014 through December 12, 2014
– 30,000 Dth/day
– Construction in progress
•
Permian III Expansion
– Open season held January 26, 2015 through February 2, 2015
– 210,000 Dth/day
– Construction in progress
19
Zone EF Expansion 2014-2016
Capital Expenditure: $16.5 million
Facility Requirements
•
•
•
2014 Projects
–
Dooley’s #3 (new station)
–
Galesville TBS Mods
–
Montevideo TBS Mods
–
LaCrosse/Tomah Mods
•
Plainview MN TBS Mods
•
Coon Valley #2 TBS Mods
2015 Projects
–
Willmar 24-inch D-line Loop
–
Willmar 12-inch C-line Loop Extension
–
North Branch Header Mods
–
St Paul 1T TBS Upgrade
–
St Cloud TBS Mods
–
Forest Lake 1A TBS Mods
–
Stacy TBS Mods
–
Minneapolis 1R TBS Rebuild
–
Anoka TBS Upgrade
–
Blaine 1A TBS Mods
–
St Michael TBS Upgrade
–
St Bonifacius TBS Rebuild
–
Sartell TBS Regulator Mods
Associated Operation’s Projects
–
Marshall MN TBS Mods (2014)
–
Forest Lake TBS Mods (2015)
20
West Leg 2015 Expansion
Capital Expenditure: $17.8 million
Facility Requirements:
•
Willow Lake, South Dakota
greenfield compressor station
(1,590-HP)
•
Hazel, South Dakota interconnect
•
Paullina compressor station
modifications
•
TBS modifications:
–
–
–
–
–
–
–
Ida Grove
Baltic
Dell Rapids
Beresford
Elk Point
Vermillion
Rock Valley
21
West Leg 2015 Expansion - Facilities
22
Upcoming Expansion Open Seasons
•
Zone D
– Open season has been deferred until Fall 2015
•
Zone EF
– Open season expected during 2015 for 2017 in-service
•
LaCrosse/Tomah and Rochester branch lines
– Open season expected during 2015 for 2016 or 2017 in-service
23
Supply Additions to Northern’s Field Area
• Shale development is supportive of gas
demand due to low supply prices
• Northern continues to expand access to
additional unconventional supply from the
Granite Wash tight sands and Wolfberry
shale plays
• Incremental supplies of 1,775,000 Dth/day
are being attached from Granite Wash tight
sands and Wolfberry shale plays
24
Northern Supply Options
25
Winter 2014/2015: More Records, Less Mayhem
•
No Polar Vortex, no Parade of Clippers, no external chaos, just strong loads without all of the
fuss of early 2014
•
A smattering of statistics
– Three of the top five and six of the top ten market area peak loads occurred during Winter
2014/2015 despite it being significantly less cold than the year before
– Northern set new Market Area peak daily delivery records for the months of November,
December, February and March
– On January 7, 2015, Northern achieved its second highest peak Market Area delivery of
5.097 Bcf
– In February 2015, Northern set an all time average monthly throughput record averaging
4.083 Bcf/day
– First ever 4 Bcf delivery day in the month of November
November
December
January
February
March
Heating Season
10-11
3%
8%
5%
6%
9%
5%
11-12
12%
16%
16%
12%
47%
19%
Warmer than Normal
Colder than Normal
26
12-13
4%
6%
1%
6%
29%
4%
13-14
15%
21%
21%
33%
30%
24%
14-15
40%
8%
2%
29%
3%
9%
Winter Operations Review
Northern Natural Gas 2014-2015 Heating Season
Market Load
Actual System Temperature
6.000
Normal System Temperature
60
50
5.000
Market Load (Bcf)
4.000
30
3.000
20
10
2.000
0
1.000
-10
0.000
-20
27
System Temperature (F)
40
Misconceptions about Flow Limitations
•
SOLs and Critical Days are used to maintain system integrity and protect shippers by helping to
ensure the system is in balance (receipts equal deliveries)
•
SOLs and Critical Days do not in any way limit interruptible or alternate firm utilization
•
Allocations may occur that limit flows to delivery locations
HOWEVER,
•
Northern does not allocate primary firm receipt to primary firm delivery nominations except in a
force majeure or curtailment event
•
Capacity allocations can occur at a specific point or at a group level:
– Allocate specific receipt or delivery points – alternate firm and interruptible nominations,
along with primary firm nominations, are in excess of Northern’s physical capacity
• Only the shipper’s nomination type (primary, alternate or interruptible) at the point is
considered (e.g., during a receipts point allocation only the nominated receipts are
reviewed for priority without consideration to the downstream path or delivery point
associated with that nomination)
– Allocate group – nominated transportation activity exceeds the available physical pipeline
capacity entering or exiting a defined group of points
• Allocation groups have been created to minimize the impact of an allocation so that only
the smallest area is affected
28
Allocation History
•
In most cases, allocation impacts to deliveries in the Market Area are the result of mainline group constraints
(Oakland, Farmington North, for example) and not branch-line or delivery point constraints.
– When mainline constraints occurs, shippers can normally find alternate receipt points that are not subject to
the mainline group constraints to serve loads
ALLOCATION HISTORY
Season
Mainline Path Delivery Pt Zone Level Del Branchline Del
Summer 2010
62
0
0
0
Winter 2010-11
1
0
0
0
Summer 2011
0
0
0
0
Winter 2011-12
0
0
0
0
Summer 2012
0
0
0
0
Winter 2012-13
0
20
0
0
Summer 2013
0
1
0
0
Winter 2013-14
45
0
4
18
Summer 2014
0
0
0
0
Winter 2014-15
17
0
0
0
-Delivery point allocations in winter 2012/13 were primarily at Viking interconnects
-Branch-line delivery allocations in winter 2013/14 all occurred on the St. Cloud branch line
-Table does not include points where interruptible flows are managed directly by the point operator
29
Gas Quality, Fuel Management and Project Updates
30
Gas Quality - Northern Tariff Requirements
•
The gas shall be commercially free from objectionable odors, solid matter, dust, gums
and gum-forming constituents, or any other substance which might interfere with the
merchantability of the gas, or cause injury to or interference with proper operation of
the lines, meters, regulators, or other appliances through which it flows
•
Oxygen - less than or equal to 0.2% by volume
•
Hydrogen sulfide - less than or equal to 1/4 grain/Ccf
•
Total Sulphur - less than or equal to 20 grains/Ccf
•
Carbon Dioxide - less than or equal to 2.0% by volume
•
Water - less than or equal to 6 pounds/MMcf
•
Heating Value - greater than or equal to 950 Btu/Cubic Foot
•
The temperature shall be less than or equal to 120 degrees Fahrenheit
•
If any gas received by Northern shall fail at any time to conform to the specifications
set forth above, Northern may refuse to accept delivery pending correction by the other
party. Northern may, on a basis that is not unduly discriminatory, elect to accept gas
which fails to meet specifications
31
Recent FERC Filings
•
2004 Gas Quality Tariff Filing - Docket No. RP04-155-000
– Filed January 30, 2004
• Decrease oxygen tolerance level from 0.2% to 0.02%
• Decrease carbon dioxide tolerance level from less than or equal to 2% by volume to
less than or equal to 1% by volume
– Reasons for filing
• To minimize pipeline corrosion in response to industry research
• Response to an advisory issued by the Office of Pipeline Safety
– Opposition stated the Northern’s proposal was too speculative
• Corrosion concerns were unsubstantiated and costs exaggerated
• Northern’s proposal would harm customers (producers)
– Rejected July 29, 2004
32
Recent FERC Filings (cont.)
•
Commission Reasoning on the 2004 Gas Quality Filing
–
–
–
Northern has inadequately delineated the extent and causes of corrosion in its storage fields
• Only one storage well provided as evidence of corrosion and this well lacked basic corrosion
protection – production tubing
• No evidence provided of any down-hole corrosion and no detailed study conducted by Northern
Northern has inadequately shown that proposed tolerance levels for CO2 and O2 would resolve
any corrosion problems
Northern has inadequately shown that there are not lower cost alternatives to address existing
corrosion which would have less adverse impact on the development of new supplies
• Commission offered methods to control corrosion and extend pipeline life
–
–
–
–
Coatings & linings
Inhibitors
Cleaning pigs
• Economically wasteful to require that large sums of money be spent on gas treatment facilities
without first researching the affect of installing tubing liners or coating
Northern’s proposed revised standards are inconsistent with those of the majority of interstate
pipelines, including those interconnected with Northern
• Raises the possibility that interconnecting upstream pipelines would be forced to adopt equal
standards
• May impair the Commission’s policy of fostering a national energy market and hinder
development of Rocky Mountain gas supply, contrary to public interest
33
Recent FERC Filings (cont.)
•
2007 Gas Quality Tariff Filing - Docket No. RP07-425-000
– Filed May 1, 2007
• Proposed oxygen and CO2 levels, plus new gas quality and interchangeability
(maximum inerts, maximum C4+ levels, maximum hydrocarbon dewpoints, Wobbe
factor & max heating content) levels
– Reasons for filing
• Northern proposed changes to its tariff specifications to minimize corrosion, and
support the guidelines provided by the Natural Gas Council Plus (NGC+), filed with
the Commission on February 28, 2005
– Opposition stated the Northern proposal was too speculative
• Corrosion concerns were unsubstantiated and costs exaggerated
• Northern’s proposal would harm customers (producers) by causing price distortions
• NGC+ guidelines were not needed on Northern’s system – no new LNG or gas
sources
– Rejected October 31, 2007
34
Recent FERC Filings (cont.)
•
Commission Reasoning on the 2007 Gas Quality Filing
– Northern has not provided sufficient evidence of corrosion or operational issues
– The proposed standards would not address MIC (microbiological induced corrosion),
chlorine, and hydrogen sulfide
– No proof of LNG facilities being shut in or causing a safety or reliability issue
– Inerts thresholds could adversely impact Kansas producers, who have been active for
over 40 years without problems
– The flow-weighted average BTU content has been relatively stable
– Northern’s proposal references general concerns of potential operational problems, but
fails to identify a connection with actual problems on its system
– The commission found insufficient evidence of problems with liquids drop-out on
Northern’s system and no new supply sources that would have caused excessive drop-out
35
36
37
BTU Trends
•
Generally, heating content has increased due to higher ethane and propane content,
not because of an increase in heavier hydrocarbons
– Producers are finding it more profitable to sell the Btu’s in the gas stream than
to strip out the heavier hydrocarbons for sale to plastics and refinery operations
•
Because ethane (C2) and propane (C3) are lighter hydrocarbon molecules, the
higher heating content resulting from the increased presence of these components
does not mean an increased risk of hydrocarbon liquids problems
•
There may be some impact to delivery customers, typically with
engines/compressors
– Typically, very few engines are derated
– Most equipment can be adjusted for the higher BTU gas and still maintain
normal operations
•
Gas control monitors generic high and high-high alarm values of 1075 and 1100
BTU/scf for most of the system
38
BTU Trends (cont.)
•
Northern also uses specific limits on alarm set points for some receipts when the
gas composition and operating history warrant it
•
Northern monitors C6+ content (heavy hydrocarbons) and cricondentherm values
(hydrocarbon dewpoint) for possible liquids drop-out
•
Great Lakes receipts at Carlton, Minnesota have given Northern gas the last two
winters that contained heavier hydrocarbons, which did result in hydrocarbon
condensates forming in some farm taps and large pressure cut stations. It also
caused process problems at the Wrenshall LNG facility
•
Northern is continuously monitoring the gas quality from Great Lakes, modifying
regulators, adding heaters, and adding process equipment at Wrenshall to mitigate
the impact of this gas on the system
•
C6+ values below 0.10% or a cricondentherm hydrocarbon dewpoint (CHDP)
below 0 degrees are considered dry with a low probability of condensate dropout
39
40
41
42
Fuel Management
•
Over the last ten years, Northern has implemented changes to its system that have resulted in over
4 Bcf of fuel savings
•
This benefit accrues directly to the customer through the annual PRA filing resulting in lower fuel
rates for customers
Northern Natural Gas Historical Fuel Savings
Year
Annual Fuel Savings (Dth)
2005
184,084
2006
1,295,160
2007
705,719
2008
347,488
Sale of Gathering Assets
2009
421,324
2010
262,931
2011
158,855
2012
248,770
2013
229,266
2014
287,607
43
Methods to Achieve Fuel Savings
•
Maintaining strict compressor unit fuel efficiency
– Daily operational checks
– Unit analysis and condition monitoring
– Prompt maintenance if unit fuel efficiency declines
– Extensive annual unit maintenance
– Annual turbine inspections/maintenance
– Robust overhaul program
•
Seasonal and situational system optimization
– Utilizing Field Operating Guidelines
– System monitoring to make situational changes for fuel savings
• During outages
• During low flow conditions
• While optimizing high pressure interconnects
• For seasonal adjustments in customer pressure guarantees
– Idling facilities when not required
– Managing compressor unit start/stop
– Selecting the most efficient unit if a choice exists
– Minimizing unit/station recycling of gas
44
Methods to Achieve Fuel Savings (cont.)
•
Implementing Fuel Savings Projects
– Station automation
– Unit automation
– High pressure fuel injection systems
– Centrifugal compressor re-wheels
• Brownfield
• Seminole
• Ventura
• Owatonna
– Improving measurement facilities
45
In-Line-Inspection Tool Launch on the Palmyra to
Oakland B Pipeline
46
Receiving Marquette 20-Inch-Diameter Inspection Tool
47
Natural Gas Fire Training Norfolk, Nebraska
48
Mole Sieve Vessel Refurbishment Garner, Iowa
49
LNG Off-Load Facilities at Garner, Iowa
50
Field Area Allocation Modifications
considered for November 1, 2015
•
Field Area Mainline Delivery Allocation Groups
– Field to Demarc
– Beaver North (New)
– Brownfield North (New)
•
Field Area Bi-Directional Allocation Groups (Modified to become Delivery Allocation Groups)
– Beaver C and Beaver System South (Group 177)
– Brownfield South (Group 998)
•
Considerations prior to implementation
– Scenario testing
– Modify nomination requirements between field area pooling points and the associated
storage point
• Tariff filing in August
• MPS contract amendments upon FERC approval
51
Kansas Storage Property Tax Update
•
2004 - Kansas first tried to implement the gas storage ad valorem tax. Northern attempted to
challenge the tax directly but was not allowed to do so
•
2007 - The tax was repealed after the Kansas Supreme Court upheld the Kansas Board of Tax
Appeal decision that customers did not control and hold the gas for resale and therefore were not
public utilities. The gas was held to be exempt from taxation as merchant inventory
•
2009 - The Kansas legislature again instituted a revised version of the tax by changing the
definition of public utilities. A new lawsuit was brought challenging the tax statute.
•
2013 - On December 6, the Kansas Supreme Court ruled that natural gas marketers and brokers
and out-of-state municipal utilities were not public utilities as defined in the Kansas Constitution
and, therefore, the gas storage tax was unconstitutional as applied to those entities.
•
2014 - A writ of certiorari was filed in April with the United States Supreme Court seeking
review of the Kansas Supreme Court’s decision. In October, the United States Supreme Court
declined to take up the case.
•
Generally, Northern expects the Kansas Division of Property Valuation to exempt marketers,
brokers and out-of-state municipal utilities from this tax. Customers, along with their legal
counsel, should review the categorization of their reported entity.
52