Office of Enforcement's 2013 State of the Markets Report. Item No: A-3.

AD06-3-000 Slide 1 2013 State of the Markets Item No: A-3 March 20, 2014 Good morning Madam Chairman and Commissioners. We are pleased to present the Office of Enforcements 2013 State of the Markets Report. The State of the Markets Report is staffs annual opportunity to share our assessment on natural gas, electric, and other energy markets. This report does not necessarily reflect the view of the Commission or any Commissioner. Page 1 of 18 Slide 3 Regional NG Prices Rise Algonquin NW Sumas AECO Citygate $3.58 $3.09 Chicago 63% 30% Citygate $6.93 PG&E $3.86 75% Citygate CIG $3.98 $3.62 NGPL 35% 28% 39% TX-OKLA Columbia Transco $3.69 Z6 NY SoCal El Paso 36% TCO $5.05 Border $3.73 $3.85 Permian 34% 58% $3.62 31% 37% FGT-Z3 Houston Henry $3.78 Hub Ship Channel 37% $3.73 29% Pricing Point $3.70 $ = Average 2013 Spot Price 36% Green = % increase from 2012 Source: Derived from ICE data During 2013, most natural gas hubs across the U.S. traded 30 to 40 percent higher than the historically low prices of 2012. Regionally, the highest prices occurred in the Northeast, which occasionally spiked into the $20 to $30 per MMBtu range during high demand periods due to pipeline constraints and low liquefied natural gas (LNG) imports. Prices over the rest of the country generally traded within a narrow range, indicating a well- supplied market with few pipeline constraints. The lowest prices in North America occurred at AECO, in Alberta, which occasionally traded below $2 per MMBtu, as Canadian gas producers lost market share to growing U.S. production. Sub-$2 prices also occurred in Appalachia, as takeaway infrastructure struggled to keep pace with growing Marcellus gas production. Page 3 of 18 Slide 4 NG Demand Reaches New High 80 Power Burn Residential / Commercial Industrial Other 70 NG Demand (Bcfd) 60 50 40 30 20 10 Source: Derived from Bentek 0 Energy data. 2005 2006 2007 2008 2009 2010 2011 2012 2013 The recovery in U.S. natural gas prices was demand driven. Overall demand for natural gas increased 2.3 percent in 2013 to 70 Bcfd, the highest on record. Colder than normal weather in the first quarter helped drive residential and commercial demand up 16 percent in 2013. Industrial sector natural gas demand grew 1.8 percent, supported by new natural gas- intensive industrial projects in mining, manufacturing, and petrochemicals. Natural gas demand from the power generation sector declined 10 percent as the increase in natural gas prices reduced natural gas competitiveness with coal as a generation fuel. Coal use for power generation rose almost 5 percent over 2012. Page 4 of 18 Slide 5 NG Supply Hits New Record 90 Big 6 Shales LNG Imports 80 NG Supply (Bcfd) Canadian Imports Offshore 70 Onshore 60 50 40 30 20 10 - 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Derived from Bentek Energy data. Note: Big 6 Shales include - Barnett, Woodford, Haynesville, Fayetteville, Eagle Ford, and Marcellus While dem