STATE OF VERMONT PUBLIC UTILITY COMMISSION ) ) ) ) PREFILED TESTIMONY OF TODD LAWLISS ON BEHALF OF VERMONT GAS SYSTEMS, INC.

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1 STATE OF VERMONT PUBLIC UTILITY COMMISSION Petition of Vermont Gas Systems, Inc for change in rates, and for use of the System Reliability and Expansion Fund in connection therewith ) ) ) ) Case No. PREFILED TESTIMONY OF TODD LAWLISS ON BEHALF OF VERMONT GAS SYSTEMS, INC. SUMMARY OF TESTIMONY Mr. Lawliss describes projected gas costs for the Rate Year and sponsors the following Exhibits: Exhibit Petitioner TL- - Determination of Revenue and Gas Costs Exhibit Petitioner TL- - Determination of Natural Gas Charge

2 PREFILED TESTIMONY OF TODD LAWLISS ON BEHALF OF VERMONT GAS SYSTEMS, INC. Prefiled Testimony of Todd Lawliss Case No. Page of Q. Please state your name, occupation, and business address. A. My name is Todd Lawliss. I am the Manager of Gas Supply and Gas Control at Vermont Gas Systems, Inc. ( VGS, Vermont Gas or the Company ). Q. Please describe your educational background and pertinent professional experience. A. I have a B.S. in Engineering Management from the University of Vermont () and an Associate in Science Degree in Computer Programming from Champlain College (000). I have been at Vermont Gas since in positions of increasing authority. In February 0, I was promoted to my current position. Q. Have you previously testified before the Vermont Public Utility Commission ( Commission )? A. Yes. I testified in Vermont Gas 0 rate case, Case No. --INV. 0 Q. What is the purpose of your testimony? A. I describe projected customer sales revenue and gas costs for the Rate Year (October, 0 September 0, 0). Projected customer sales are necessary to develop the billing determinants and associated cost of gas supply used in the cost of service ( COS ) presented by Ms. Hammer. It should be noted that the percent change in gas costs will ultimately be calculated from the gas costs in effect pursuant to the Purchase Gas Adjustment ( PGA ) component of

3 Page of Vermont Gas Alternative Regulation Plan ( ARP ) immediately preceding this rate reduction. However, for purposes of a complete COS and explaining to customers and stakeholders the overall impact of this filing on rates, it is necessary to develop projected Rate Year gas costs and compare them to current gas costs. Further, projected revenue is needed to develop the percentage rate change from current rates resulting from the proposed COS, which is necessary for determining the proposed tariffs. 0 Q. Please explain the methods used to develop the projections of customer sales and revenue. A. The underlying methodologies utilized to calculate customer sales and revenue are relatively unchanged from those historically used in VGS s PGA, Integrated Resource Plan, and prior COS filings and is explained below. Firm Sales and Revenue A projection of customers, associated sales volume and revenue is required to determine what revenue is expected to be available in the Rate Year to cover operating costs. We determine firm sales by projecting the number of customers who will be using natural gas during the Rate Year and how much natural gas customers in each rate class will use. The number of customers is determined by using the actual number of customers at the end of December 0, and adding customers that will begin utilizing service between January 0 through September 0, plus normalizing for customers who came on-line during 0 but did not have a full year of sales in the historic test year (HTY), the twelve-months ending December, 0. These new service turn-ons are based on customers Vermont Gas is planning to add throughout the existing

4 Page of 0 distribution networks - referred to as in-filling - as well as new distribution mains in Franklin, Chittenden and Addison counties. These plans are based on VGS s substantial experience with prior distribution extensions and customer additions along existing distribution network mains. In order to forecast how much natural gas these customers will use, Vermont Gas uses historical usage data by rate class. Because customer usage is driven both by weather and how energy efficient customers homes are, we forecast how much natural gas will be used by customers based on normal weather (calculated based on the -year average heating degree days as of December, 0) and adjust that amount to reflect investments in energy efficiency. Using this methodology, the projected firm sales for the Rate Year are approximately % above the calendar HTY 0 level due primarily to adjusting for normal degree days. For reference, the -year normal degree days were while the degree days in the HTY were. This is shown on Schedule to Exhibit Petitioner LH- accompanying Ms. Hammer s testimony. The firm revenues reflect these Rate Year firm customer sales at VGS s current rates. Interruptible Sales and Revenue Interruptible sales and revenues are based on a similar methodology. The sales per customer are based on HTY sales and are adjusted for the same -year normal weather. Interruptible requirements are also adjusted for projected curtailments based on normal weather, firm customer growth and the availability of supply. Based on the above methodology, the projected Rate Year interruptible sales are approximately.% above the HTY level, primarily due to colder weather in the Rate Year versus the HTY. This is shown on Schedule to Exhibit A degree day is defined as the difference between the actual daily average temperature and degrees Fahrenheit. For example a day where the average temperature was degrees would be a degree day.

5 Page of Petitioner LH- accompanying Ms. Hammer s testimony. Interruptible revenue is based on tariff formulas and the forecasted gas market prices. 0 Q. Please describe the change in projected Rate Year gas costs from the HTY. A. Supply pricing, and upstream transportation are calculated using the methodology contained in the current PGA. The gas costs consist of demand-related costs and commodity costs. The demand-related costs are associated with delivery of natural gas to the U.S. border (the point of interconnection between the VGS pipeline system and the TransCanada Pipeline ( TCPL ) system) and storage services. Commodity-related costs include things such as compressor fuel, and costs associated with obtaining the physical supply for VGS s firm and interruptible customers. Each of these components is discussed below. Demand Costs Demand costs generally reflect costs associated with moving natural gas from supply hubs to the market area and are usually incurred on a fixed basis, regardless of the volume of gas moved. For Vermont Gas, they include the fixed tolls for firm transportation, and storage services on the Union Gas Limited ( Union ) and TCPL pipeline systems. VGS s TCPL transportation contracts have a receipt point of Parkway, Ontario, and a delivery point at VGS s point of interconnection at Philipsburg, Quebec, and Highgate, Vermont. VGS s Union contracts have a receipt point of Dawn, (where VGS s storage services are located) and a delivery point of Parkway. Both Dawn and Parkway are liquid points on the Union system, and nearly 0% of VGS s supply is purchased at one of these two market supply points. The Rate Year demand charges for the TCPL tolls reflect the current National Energy

6 Page of 0 Board (the Canadian regulatory body that oversees TCPL tolls) approved tolls effective January 0. Similarly, the Union tolls included in the Rate Year reflect current Union tolls as approved by the Ontario Energy Board (the Canadian regulatory body that oversees Union tolls). The gas costs assume there is no further change in either TCPL or Union tolls for the Rate Year. Demand charges also include the fixed costs associated with storage. Vermont Gas stores natural gas during the spring and summer months and withdraws it to meet customer demand during the colder months. VGS s current storage service is with Tenaska Marketing Ventures, which was renewed beginning April 0 and will be in place through the Rate Year. Commodity Costs Commodity costs reflect the cost of the molecule of natural gas itself and are a function of the wholesale market price of natural gas and the volume of natural gas sold. The firm market supply requirements, transported under the TCPL Parkway contracts, are reflected in the Rate Year at a NYMEX-based market price determined as follows: NYMEX Henry Hub, Louisiana strip prices adjusted for (i) location basis differential between Parkway, Ontario (Canada) and Henry Hub, (ii) applicable TCPL fuel, and (iii) heating value adjustment. In addition, VGS systematically hedges its firm commodity supply to reduce the volatility associated with fluctuations in the wholesale price of natural gas. Under VGS s systematic hedging, every two months VGS locks approximately / of the annual firm purchases for the year beginning three months ahead. The Rate Year reflects the current value of existing hedge positions that will be in effect during the Rate Year. Additional systematic hedges affecting Rate Year volumes will be executed between now and the Rate Year. The firm commodity unit costs described above are applied to firm market requirements

7 Page of 0 that have been normalized for weather and customer growth through September 0, 0 as described above, excluding firm market requirements met by storage withdrawals or peaking resources from the propane-air plant. These costs are also grossed up by.0% for unaccountedfor gas. VGS purchases gas for its interruptible market from various suppliers on the wholesale spot market. The Rate Year reflects market-based wholesale pricing for these customers. For both firm and interruptible commodity costs, the market-based pricing is based on the average NYMEX strip for the Rate Year as of the five days ending February, 0. Basis differential and foreign exchange rates were based on the same five-day period. Gas withdrawn from storage for use by VGS's customers is priced at the weighted-average cost of gas in storage inventory. Based on current projections, storage inventory is expected to be $./MMBtu at the beginning of the Rate Year. Vermont Gas also operates a propane-air plant ( PAP) in Colchester, Vermont. The PAP is used to meet peak customer demand in lieu of incurring incremental costs of additional pipeline capacity. This is sometimes referred to as peak-shaving. VGS annually incurs operation and maintenance expenses, and maintains an inventory of propane gas to operate its PAP. Only the cost of propane used in the operation of the PAP is included in the cost of gas calculation. The on-going maintenance and operation expenses are included in the Company s COS as an operating expense. See Schedule to Exhibit Petitioner LH-. The detailed gas cost and revenue determination is provided as Exhibit Petitioner TL-.

8 Page of Q. Once the overall gas costs for the Rate Year have been established, how is the natural gas charge component of rates determined? A. Consistent with the current PGA, total natural gas costs from Exhibit Petitioner TL- are reduced by total interruptible revenue, the effect of which is to ensure that sales to interruptible customers fully accrue to the benefit of firm customers. Further, gas costs are adjusted by the current balance of the gas cost deferral as of December, 0 and the projected weather normalization balance as of September 0, 0 based on previous PGA filings. The resulting net gas costs are then divided by Rate Year firm sales to determine the average natural gas rate per Mcf. For the Rate Year, this is an average cost of gas of $./Mcf compared to a current average cost of gas of $.0/Mcf., a decrease of.%. The existing natural gas charge for each firm rate class is adjusted by the same overall percentage reduction. The determination of the resulting natural gas charge is provided as Exhibit Petitioner TL-. It should be noted that between now and the beginning of the Rate Year, additional purchase gas adjustments will be filed. Q. Does this conclude your testimony? A. Yes.