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An Update on Financial Reform and other Legislative/Regulatory Actions Impacting Public Gas Systems Interstate Municipal Gas AgencyAnnual MeetingApril 12, 2011Dave SchryverAmerican Public Gas Association

the voice and choice of public gasthe voice and choice of public gas1APGAThe national trade association for publically-owned natural gas utilities~1000 community-owned gas systems 36 states >5M Customers ~21,000 Employees ~120,000 Miles of MainMeters: 12 to ~500,000Largest : Philadelphia, San Antonio, Indianapolis, Memphis, Omaha, Long BeachSmallest: Freedom, OK (12 meters)the voice and choice of public gas2Priority #1The Safe and Reliable Delivery of Affordable Natural Gas at Just & Reasonable Rates

the voice and choice of public gas3Our committees and staff have distilled the mission statement into what we call Our Number One PriorityTo unpack this statement could take hours, but in short:Safety is always number one: for our customers and our employees. Reliability of supply can be impacted by factors both upstream and downstream of the city gateUpstream of the city gate, reliability of supply can be impacted by statutory and regulatory policies, as well as the operational integrity of the pipelines that deliver natural gas from the production areas to the consuming areasDownstream of the city gate factors can be operational and distribution y an operational Our solution:Affordable natural gas requires a supply/demand balance that brings prices back into an affordable range. What is an affordable range? We know it when we see it.A diverse portfolio of energy sources for electric generation (more nukes, some more nuke, and a few more nukes, as well as developing renewables such as wind)Improve market transparency so whatever price our customers pay, it is a price that is driven by supply/demand factors and not by non-supply/demand factorsEnsure just & reasonable transportation and storage rates. Yes, there are still monoplies in America. Yes, American consumers must be protected. APGA is ever vigilant in this advocacy area and serves all public gas systems, whether they are members or non-members, with an effective voice in Washington, D.C.Much is packed into this statement, but it does succinctly describe our priority.One now might ask: How does APGA move forward on its mission and achieving its priority?The quick answer is: It is in this area where we focus all of our assets.

APGA TodayPrimary Committees:- Government Relations - Operations and Safety- Marketing and Sales- Gas SupplyComplementary Organizations- APGA Insurance Group- APGA Research Foundation- APGA Security and Integrity Foundationthe voice and choice of public gas4

Goal: Restore public confidence in the pricing of natural gasAPGA supported greater transparency in 2005Public gas systems use market instruments to manage price volatility Our transactions do not pose systemic riskAPGA legislative goal was to ensure transparency without removing hedging tools

Financial Markets Reformthe voice and choice of public gasOverview of Dodd-FrankDoddFrank Wall Street Reform and Consumer Protection Act signed into law in July, 2010Dramatic Change to Financial RegulationGoals of the ActMitigate Systemic RiskTransparencyCustomer Protection

the voice and choice of public gasDodd-Frank ActGoals mean new requirementsMandatory Clearing Mandatory ReportingRegistration of DealersNew Duties to Customers

Law provides the framework, many of the details will be addressed by CFTC rulemakingsthe voice and choice of public gasDodd-Frank ActWho is affected by the Act?Swap DealersMajor Swap DealersEnd-usersSpecial Entities the voice and choice of public gasDodd-Frank ActA Swap Dealer is an entity that:Routinely enters into swaps with counterparties as an ordinary course of business for its own accountMakes a market in swapsA dealer or market maker in swapsCFTC will make ultimate determination Exclusions for insured depository institution, if hedging on own account and not as part of regular businessDe minimis exception to be defined by CFTC the voice and choice of public gasDodd-Frank ActA Major Swap Participant is an entity that:Is not a Swap Dealer;Maintains a substantial position in swaps;Positions create substantial counterparty exposure that may cause systemic riskA highly leveraged financial entityCFTC will determine what a substantial position isthe voice and choice of public gasDodd-Frank ActRequirements on Swap Dealers and Major Swap Participants:Registration;New rules related to fraud, manipulation and other market abuses;Position limits; andPrinciples in fair dealing and good faiththe voice and choice of public gasDodd-Frank ActAn End-User is:A party that is not a financial entityUsing swaps to hedge or mitigate commercial riskMust communicate to the CFTC how it meets its financial obligations for un-cleared transactions the voice and choice of public gasDodd-Frank ActA Special Entity is:A governmental entity including public gas and power systemsA Pension PlanAn EndowmentThe Act places a higher standard of care on swap dealers and MSPs when dealing with special entitiesthe voice and choice of public gasDodd-Frank ActRequirements when dealing with Special EntitiesWhen acting as advisor must:Act in the best interest of the Special EntityReasonable efforts to obtain the information needed to make a recommendationWhen acting as a counterparty must:Have a reasonable basis to believe that the Special Entity has an independent representative to review and approve transactionthe voice and choice of public gasDodd-Frank ActWhat is a swap?A transaction, agreement or contract that is a put, call, cap, floor, collar or similar option for the purchase or sale or an interest rate, commodity, currencies, security, etcProposed to include options on physical commoditiesthe voice and choice of public gasDodd-Frank ActA swap does not include:Contract sales for future deliverySales of nonfinancial commodities for deferred shipment if intended to be physically settled

the voice and choice of public gasDodd-Frank ActThe Act places new requirements on swapsMandatory clearing of swapsSwaps will have to go through a Derivatives Clearing organization, collateral and margin must be postedAPGA worked with others towards successfully getting an exception for end-users from mandatory clearingthe voice and choice of public gasDodd-Frank ActAct required 193 RulemakingsThe vast majority of these must be in place by July 16th, 2011CFTC has held 12 Open Meetings on Proposed RulesAPGA responding to rulemakings that have biggest impact on public gas systems

the voice and choice of public gasDodd-Frank ActKey Rulemakings:Standards of ConductEnd-User ExceptionDefinition of Eligible Contract ParticipantRegistration of Municipal AdvisorsPosition LimitsCapital and Margin RequirementsAgricultural Commodity Definition

the voice and choice of public gasDodd-Frank ActNext StepsFundingLegislation introduced to delay implementation of the ActRegulations go into effect in July

the voice and choice of public gas

Environmental Protection Agency

2001-20082008-Nowthe voice and choice of public gasGlobal Warming RulesEPA has taken 3 actions that could significantly affect utility operations-Final rule on reporting greenhouse gases (GHG)-Proposed rule on reporting fugitive emissions of methane from utility operations-Final rule tailoring the Clean air Act to make sense when GHGs are concerned

the voice and choice of public gas22Reporting CO2EPA requires utilities to report on behalf of their customersOther industries get 25,000 metric ton threshold (~460 MMcf/yr) not LDCsAPGA sued EPA over exemptionAPGA and DOJ signed a settlement applying threshold to utilities8/11/10 EPA proposed a rule setting the LDC threshold at 460 Million cf/yr

the voice and choice of public gas23Reporting CO2For those utilities delivering > ~460 MMcf/yr:By March, 2010, prepare written GHG Monitoring Plan (APGA has a model plan)By January 31, 2011, submit a Certificate of RepresentationOriginal deadline March 31st, new deadline to be set for this summerthe voice and choice of public gas24Reporting CO2Gas received at city gate station(s)Gas placed into on-system storageGas withdrawn from on-system storageGas from vaporized LNGGas from local productionGas delivered to other LDCs or pipesGas delivered to customers > 460MMcf/yGas delivered to residential, commercial, industrial and electric generationthe voice and choice of public gas25Reporting Fugitive MethaneUtilities must report fugitive emissions of methaneProposed rule would allow estimation rather than direct measurement25,000 mt threshold is applied to LDCs, exempts most public gas systems

the voice and choice of public gas26Tailoring RuleEPA is regulating GHG under the CAA, butEPA says applying the CAA as written results in absurd resultsCAA says major source is potential to emit > 250 tons per yearEPA changed to 100,000 tpyExpect many legal challengesThe good news: 100,000 tpy exempts most LDCs and LDC customers

the voice and choice of public gas27Other IssuesPipeline SafetyNatural Gas VehiclesEnergy Bill/Section 5 ReformLIHEAP FundingUS Export of LNG

the voice and choice of public gasQuestions?www.apga.org

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