HOPE GAS, INC., dba DOMINION HOPE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA Case No G-42T DIRECT TESTIMONY ROBEN D.

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1 HOPE GAS, INC., dba DOMINION HOPE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA Case No G-T DIRECT TESTIMONY OF ROBEN D. RANDOLPH Q. Please state your name and business address? A. My name is Roben D. Randolph and my business address is 00 Davisson Run Road, P. O. Box, Clarksburg, West Virginia 0-. Q. By whom are you employed and in what capacity? A. I am employed by Dominion Hope as an Account Manager. Q. What is your educational background and work experience? A. I was graduated from West Virginia University in May with a Bachelor of Science degree in Business Administration with an emphasis in Marketing. I began employment with CNG Transmission Corporation (now Dominion Transmission, Inc.) in December of 1. In August of, I moved to the Marketing Department of Hope Gas, Inc. (now dba Dominion Hope). While at Dominion Hope I have been employed in the industrial sales and marketing area in various capacities. Before joining CNG Transmission Corporation, I was employed by Chess King Company, San Diego, California as a Manager of a chain men s retail clothing store. Q. Have you previously testified before this Commission? A. No

2 Q. What is the purpose of your direct testimony in this case? A. The purpose of my testimony is to detail competitive pressures within Dominion Hope's large volume marketplace and explain what actions Dominion Hope has taken to retain and/or add load on its system. Q. Please describe Dominion Hope's large volume markets? A. Dominion Hope s large volume market is very diverse and is comprised of customers in the chemicals, plastics, petroleum products, metals (both ferrous and nonferrous), wood products, glass, concrete/asphalt, power generation as well as many other business segments. Competition within Dominion Hope s large volume customer base comes from many areas including: (1) competing fuels such as coal, oil, propane, electricity, wood, tail gas and waste products; () interstate pipelines including Columbia Transmission, Texas Eastern Transmission, and Dominion Transmission; () intrastate pipelines/local production such as Eastern American Energy, Petroleum Development Corporation, Triad Energy,, Equitable Production, and customer owned production; and () other local distribution companies such as Equitable and Allegheny Power s Mountaineer Gas and WV Power Gas subsidiaries. Dominion Hope s large volume customers have more competitive options than ever before and competition in this market segment is as intense as I have seen in my years with the Company. Furthermore, restructuring of the electric industry has resulted in energy being marketed on a BTU basis regardless of form and this has heightened the competitive pressure on natural gas. All of these factors combine to provide Dominion Hope s large volume customers with numerous options for securing their energy requirements. Dominion Hope s customers are sophisticated energy buyers that know how energy is transmitted and distributed and the various cost components 0.1

3 associated with transmission and distribution. If a customer feels it is not receiving competitive energy prices and sourcing options, it will not hesitate to look for other options. Approximately.% of Dominion Hope s throughput for calendar year 00, or roughly Bcf is subject to the competitive forces described above. Q. Can you provide some examples where Dominion Hope has had to respond to competitive pressures? A. Yes. Dominion Hope has had to address competitive threats at Fenton Art Glass Company, AFG Industries, General Electric, Alcan Aluminum,, United Hospital Center, Paul Wissmach Glass, Ames Company, Cytec Industries, Crompton Corporation, Ormet, PPG Industries and Bayer, to name a few. Q. What actions has Hope taken to respond to these competitive pressures? A. Dominion Hope believes its various customer classes should pay rates that represent the actual cost of providing service. In its last several rate cases, significant strides have been made to eliminate cross-class subsidies that existed in Hope s rates. For example, in Dominion Hope's general rate case -- Case No G-T -- it introduced Rate Schedule LCI Direct Service (LCI-DS) in a further attempt to align its industrial rates with the class cost of service. This move, along with the ability to respond to individual customer circumstances by means of special contracts, has proved to be a sufficient competitive response for most of the customers where Dominion Hope has minimal facilities involved in providing service. However, it also created additional competitive pressure on customers served from Dominion Hope s distribution system because Rate Schedule LCI Distribution (LCI-D) rates went up. This increase in LCI-D rates is being repeated in Dominion Hope s current filing and because many LCI-D customers also have 0.1

4 competitive alternatives, Dominion Hope will more than likely have to respond to additional competitive alternatives available to these customers. Q. Under what circumstances is a customer eligible for a discounted rate offered pursuant to special contract? A. There are only two situations where Dominion Hope is willing to offer a customer transportation service at reduced rates. The first is for load retention where rates must be flexed down in order to keep existing load on the system. The old adage that it is easier to keep a customer than get a new one, or recapture one, definitely applies here. The second situation is where Dominion Hope flexes its margin in an attempt to attract new load to its system. This applies to new business or industry looking to locate in Dominion Hope s service territory, or to recapture load that Dominion Hope has already lost, such as the Venco plant located near Moundsville, WV, due to a direct connection the customer made with Texas Eastern Pipeline. In no circumstance has, or will, Dominion Hope flex its rate below the incremental cost of providing service to the customer. Q. Have the addition of the LCI-DS rate and the ability to flex margins enabled Hope to retain its industrial load? A. The actions taken in Case No G-T have helped but competitive pressures have continued to increase over the last few years. In particular, we have seen the emergence of customer energy managers that specialize in encouraging their clients to bypass LDCs. Their job is to show their clients how to save energy dollars and they are willing to accomplish this goal any way they can. Dominion Hope has vigorously fought bypasses in its service territory and it will continue to do so. However, even successful bypass battles have a cost in the form of lower margins. 0.1

5 Q. What must Dominion Hope do to compete effectively in its large volume markets? Dominion Hope must strive to keep its rates as cost based as possible. Customers with competitive options do not want to pay subsidies to other customer classes. Additionally, the introduction of Rate Schedule LCI-DS was of significant benefit to most direct service customers but it did nothing to help address the concerns of industrial customers served from Dominion Hope s distribution system, LCI-D customers. It has become increasingly apparent in today s dynamic environment that the best way to meet the needs of customers with competitive options is through the continued use of special contracts. This way Dominion Hope can tailor specific responses to unique competitive circumstances while maintaining as much margin as possible. Hopefully, the continued use of special contracts will allow Dominion Hope to profitability retain the majority of its existing large volume throughput. In Dominion Hope's current filing, like our last case, No G-T, we have identified all customers having competitive options and projected a reasonable level of revenues they will generate under special contracts. With just a few exceptions, these customers include all of those presently paying LCI-DS rates and many who would otherwise pay LCI-D rates. This approach will allow us to meet the individual needs of LCI customers through competitive, market-based rates. Q. Please summarize your testimony? A. Dominion Hope's large volume market is extremely competitive with most customers having one or more options for securing their energy requirements. We must also continue to have the flexibility to respond to unique competitive situations by means of special contracts so that customer specific responses can be tailored to meet the competition. When all else fails, we must rely on this Commission to exert its jurisdiction 0.1

6 over bypasses within the State of West Virginia and to provide a fair and impartial forum to resolve bypasses pursuant to General Order. Q. Does this complete your prepared direct testimony? A. Yes, it does. 0.1

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