BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION PREPARED DIRECT TESTIMONY OF JEFFREY S. NEHR VICE PRESIDENT, BUSINESS DEVELOPMENT PEOPLES TWP LLC

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1 BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION PENNSYLVANIA PUBLIC UTILITY COMMISSION PEOPLES TWP LLC Docket No. R PREPARED DIRECT TESTIMONY OF JEFFREY S. NEHR VICE PRESIDENT, BUSINESS DEVELOPMENT PEOPLES TWP LLC DATE SERVED: April DATE ADMITTED: 1,20

2 PREPARED DIRECT TESTIMONY OF JEFFREY S. NEHR 1 Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. 2 A. My name is Jeffrey S. Nehr. My business address is Peoples TWP LLC, 5 North 3 Shore Drive, Pittsburgh, Pennsylvania Q. BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY? A. I am employed by Peoples Natural Gas Company LLC ("Peoples") as Vice President, 7 Business Development. Pursuant to the Commission-approved affiliated interest 8 agreements between Peoples and Peoples Service Company LLC ("PSC") and between PSC and Peoples TWP LLC ("Peoples TWP" or the "Company"), I provide 10 the gas supply services for both Peoples TWP and Peoples. Effective December 17, 2013, Peoples merged with the former Equitable Gas Company ("EGC"), and as a 12 result, my services also cover the gas supply requirements for the former EGC 13 system. 15 Q. PLEASE DESCRIBE YOUR EDUCATION AND PROFESSIONAL EXPERIENCE. 17 A. I am a graduate of The Pennsylvania State University with a Bachelor of Science degree in Petroleum and Natural Gas Engineering, I began my career with The 1 Peoples Natural Gas Company in 188, starting in the Engineering Department. I 20 worked in engineering mapping for approximately four years before being assigned to 21 the Gas Supply Department with responsibility for transmission and supply planning. 1

3 There I remained for four years, progressing to Gas Supply Planning and Facility Specialist. In 17, I transferred to CNG Energy Services as a LDC Pool Manager with primary responsibility for managing all aspects of gas supply and hedging for their East Ohio pooling programs. Over the next two years, I worked for several marketing companies including DTE CoEnergy and GreenMountain.com with similar responsibilities, managing gas supply and hedging programs. In March 2000,1 was hired by Equitable Gas Company as a Market Planner responsible for managing gas supply, hedging, deal structuring, billing, and business planning for their Agency program. I was promoted to Manager of Gas Supply in 2005 with responsibilities for managing supply planning and supply purchasing. My career path changed in 2008, when I was promoted to Director, Gas Measurement EQT Midstream responsible for measurement engineering, field measurement, internal gas measurement, and measurement communications across four states. In 20, I rejoined Peoples as Manager, Gas Measurement focusing on unaccounted for gas ("UFG") analysis, gas 15 measurement, and producer services. In 2012, I was promoted to Director of Business Development, and my responsibilities in that position included business development opportunities related to producer and customer initiatives in addition to my continued work on UFG analysis and remediation. In 2013,1 took the position of Director, Commercial Operations, and my duties included business development, marketing, producer services, gas supply and UFG initiatives. In 20, I was promoted to Vice President, Commercial Operations. In 2015, my title changed to Vice President, Gas Supply and Business Development. In 20, my title changed to Vice President, Business Development. 2

4 1 Q. HAVE YOU TESTIFIED PREVIOUSLY IN ANY REGULATORY 2 PROCEEDINGS? 3 A. Yes. I have testified in a number of cases before the Pennsylvania Public Utility 4 Commission including Peoples TWP's 1307(f) filing at Docket No. R ; 5 Peoples 1307(f) filings at Docket Nos. R , R R , and R ; Peoples - Equitable Division 1307(f) filings at 7 Docket No. R and R ; and the proceeding approving the 8 Peoples and EGC merger at Docket No. A Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS CASE? A. I am the Company's gas supply witness. As the Company's gas supply witness, I will 12 address the following subjects: 13 I. Gas Procurement Policy and Supply Planning II. Supply Requirements 15 III. Interstate Pipeline Transportation and Storage Capacity Portfolio IV. Natural Gas Supply Portfolio 17 V. Purchases from Affiliates VI. Shut-In Practices and Policies 1 VII. Renegotiation of Contracts 20 VIII. Unaccounted For Gas 21 Throughout my testimony, I will refer to the "1307(f)-20 reconciliation period" and the "1307(f)-20 projected period," The "1307(f)-20 reconciliation 23 period" is the -month period of December 1, 20 through January 31, 20. That 3

5 1 same -month period was part of the projected period in Peoples TWP's 1307(f) proceeding. The projected period in this proceeding is the 20-month period of 3 February 1, 20 through September 30, 2017, which is the "1307(f)-20 projected 4 period." Obviously, Peoples TWP will have experienced a part of that projected 5 period before this case is over. 7 Q. WHY IS THE 1307(f)-20 RECONCILIATION PERIOD MONTHS? 8 A. As explained by Ms. Petrichevich in Peoples TWP Statement No. 1, the Commission approved Peoples TWP's request to move its annual Purchased Gas Cost filing from 10 February 1, 20, to April 1, 20, and to extend its reconciliation period by two months for this filing Q. WHICH COMPONENTS OF THE COMPANY'S 1307(f)-20 FILING ARE YOU SPONSORING? 15 A. I am sponsoring Filing Requirement Sections 53.4(c)(3), 53.4(c)(5), 53.4(c)(), 53.4(c)(7), 53.4(c)(10), 53.4(c)(), and I am also sponsoring or jointly 17 sponsoring Peoples TWP Exhibit Nos., 7, 8, and. 1 I. PEOPLES TWP'S GAS PROCUREMENT POLICY 20 AND SUPPLY PLANNING 21 Q. PLEASE DESCRIBE GENERALLY PEOPLES TWP'S NATURAL GAS 23 PROCUREMENT POLICY. 4

6 It is Peoples TWP's policy to secure long term reliable capacity and supply and to manage gas procurement so that it incurs the lowest overall gas costs. Peoples TWP pursues that policy within the limitations of its existing facilities and its existing contracts. It also pursues that policy with the recognition that it must balance the goals of least cost and long-term reliable supply PLEASE EXPLAIN HOW PEOPLES TWP HAS PURSUED ITS GOAL OF LEAST COST RELIABLE SERVICE. Peoples TWP pursues its goal of least cost reliable service through a combination of local and interstate assets and supplies. The local assets consist of gas purchase agreements for Local Pennsylvania Gas produced directly into the Company's pipeline system ("Local Pennsylvania Gas") and company owned on-system storage fields. The Local Pennsylvania Gas represents a significant portion of the annual supply needs of the system, while the on-system storage has limited supply capacity and is, therefore, utilized more for meeting the system's short-term peak requirements. Peoples TWP's interstate assets are comprised of a portfolio of transportation and storage services that Peoples TWP has contracted for with various Federal Energy Regulatory Commission ("FERC")-regulated pipelines, including Dominion Transmission, Inc. ("DTI"), Texas Eastern Transmission LP ("TETCO"), Columbia Gas Transmission, LLC ("TCO") and Equitrans L.P. ("Equitrans"). The Company also has interconnects with Tennessee Gas Pipeline Company, LLC ("TGP"), but does not currently contract for either transportation or storage services on TGP. 5

7 Those assets give Peoples TWP access to a variety of locations at which it can receive gas supplies that are produced upstream of the Peoples TWP system. The interstate storage assets allow Peoples TWP to use its upstream assets more efficiently, mitigate the effects of price swings in the natural gas market and enhance the deliverability of Peoples TWP's interstate natural gas supplies during periods of peak demand. Peoples TWP's interstate supplies are gas that it purchases from suppliers upstream of the Peoples TWP system for delivery into various receipt points of the interstate pipelines WHAT SPECIFIC ACTIVITIES ARE INVOLVED IN PEOPLES TWP'S PURSUIT OF ITS GAS SUPPLY GOAL? Peoples TWP's goal of achieving least cost consistent with the provision of reliable 13 service involves two distinct activities. The first activity is the assembly of a portfolio of supply assets, including storage and transportation services, an activity that generally involves either contractual commitments longer than a year or, in the case of its on-system storage fields, fixed assets that Peoples TWP owns. The second activity is the purchase and usage of natural gas supplies to satisfy the demands of its customers. The time horizon for this activity obviously is shorter than that for portfolio planning. The point here is to make gas acquisition choices that minimize Peoples TWP's gas costs, taking into account the projected range of gas requirements, the uncertainty of future gas prices, and all of the operational and contractual characteristics of the components of its existing gas supply portfolio and distribution system.

8 1 Q. IN GENERAL, HOW DOES PEOPLES TWP SELECT AMONG THE 2 VARIOUS SERVICES AND SUPPLIES AVAILABLE TO IT? 3 A, Peoples TWP prepares a supply plan as the point of departure. The plan includes 4 forecasts for requirements of its own supply (i.e., sales) customers on a monthly basis 5 and the sources from which those requirements will be filled on a monthly basis. The plan also includes an estimate of services that its transportation customers, those who 7 purchase their natural gas supplies from natural gas suppliers ("NGSs"), will require 8 on a monthly basis. As the Company prepares to acquire gas each month, it "fine tunes" the plan to take into account actual operational and market conditions so that it 10 is acquiring the least costly blend of gas that is feasible. 12 Q. IS THERE ANY GUIDING PRINCIPLE THAT PEOPLES TWP USES IN 13 PREPARING ITS GAS SUPPLY PLAN? A. Yes. It is to maximize reliability while minimizing its gas costs. In general, Peoples 15 TWP does that through the "economic dispatch" of supplies - that is, by using its least costly source of supply first, within the operational, reliability and contractual 17 limits that it faces. 1 Q. HOW DOES PEOPLES TWP FORMULATE ITS GAS SUPPLY PLAN ON AN 20 ANNUAL BASIS? 21 A. Each year, Peoples TWP reevaluates its total system requirements and available sources of supply. On the requirements side of the analysis, Peoples TWP develops 23 throughput projections. To these, monthly projections for company use and lost and 7

9 unaccounted for gas are added to arrive at total projected system requirements on a monthly basis. Certain operational considerations play a role in the requirements analysis. For example, Peoples TWP takes into account the radically different load profiles of the weather-sensitive (generally residential and small and medium commercial) and non-weather-sensitive (generally large volume industrial) customer classes, the geographic location of its principal customer markets, and the physical design and related operational capacity limitations inherent in its pipeline system and the sources of supply available at various times during the year PLEASE BRIEFLY DESCRIBE THE PEOPLES TWP PIPELINE SYSTEM. In general, the pipeline system consists of two categories: "Smaller Volume Pipelines" and "Larger Volume Pipelines". The vast majority of the pipeline system is characterized by small diameter pipelines (2 to 4-inch) operating at low pressures (on average 40 psig) to accommodate the receipt and delivery of Local Pennsylvania Gas production from shallow conventional wells. I will refer to these pipelines as the "Smaller Volume Pipelines". The other category of pipelines makes up less than 350 miles (about 12%) of the pipeline system and consists of larger diameter (8 to - inch) pipelines operating at higher operating pressures averaging 125 psig, which is still considered a lower pressure system by industry standards. I will refer to these pipelines as the "Larger Volume Pipelines". 8

10 Q. HOW IS THIS SYSTEM UTILIZED TO PROVIDE GAS TO PEOPLES TWP'S RATEPAYERS? A. Historically, gas produced from shallow conventional gas wells, located primarily on the eastern side of the pipeline system, is transported through the Smaller Volume Pipelines to the Larger Volume Pipelines for ultimate delivery into the distribution facilities serving ratepayers, most of whom are located in Butler County and the Allegheny River Valley areas. During periods of peak demand, gas from the interstate pipelines is also injected into the Large Volume Pipelines and delivered to the same distribution facilities Q. DOES THE PIPELINE SYSTEM HAVE ANY CONSTRAINTS? A. Yes. As discussed in the Filing Requirements, the Peoples TWP pipeline system that is used to move Local Pennsylvania Gas to the main distribution facilities serving ratepayers is constrained by capacity and operating pressure. These capacity and pressure constraints impact the ability to rely on Local Pennsylvania Gas during the Heating Season (i.e., November through March) when Peoples TWP experiences its periods of peak demand. During periods of peak demand, gas usage by the weathersensitive residential and small commercial ratepayers increases substantially, so much so that the Peoples TWP pipeline system cannot deliver enough Local Pennsylvania Gas to satisfy their requirements. Accordingly, large volumes of higher pressure interstate gas from Peoples TWP's interconnections with interstate pipelines are utilized during such periods to supplement the Local Pennsylvania Gas supplies. These interconnections are strategically located to serve Peoples TWP's major market

11 1 areas. Once the ratepayers' high usage peak demand subsides, Peoples TWP can 2 reduce reliance on the interstate, primarily storage, gas and resume relying upon 3 Local Pennsylvania Gas for most of its ratepayers' load requirements. In short, 4 Peoples TWP's pipeline system is designed to operate at relatively low pressures to 5 facilitate the flow of gas from the over 2,000 conventional Local Pennsylvania Gas meters providing the base system load, and to supplement that Local Pennsylvania 7 Gas in the Heating Seasons with interstate pipeline deliveries that are primarily 8 sourced from storage service. 10 Q. WHAT DOES PEOPLES TWP DO ON THE SUPPLY SIDE OF THE ANALYSIS? 12 A. Peoples TWP uses an economic dispatch approach that takes into account operational, 13 reliability and contractual constraints. Under that approach, Peoples TWP reviews the cost of its various sources of supply and plans to use those that are least costly. 15 The Company starts with the existing pipeline supply assets and existing gas supply agreements. 17 Q. PLEASE DESCRIBE HOW PEOPLES TWP HAS IMPLEMENTED THE 1 ECONOMIC DISPATCH APPROACH IN FORMULATING ITS GAS 20 SUPPLY PLAN FOR THE TIME PERIODS THAT ARE RELEVANT TO 21 THIS PROCEEDING. A. Peoples TWP formulates its supply plan each year for a 20-month period that 23 corresponds to the projected period in its annual 1307(f) filings. Peoples TWP 10

12 formulated the supply plan that included the 1307(f)-20 reconciliation period - as part of the then 20-month 1307(f)-2015 projected period - in late 20 and the supply plan for the 1307(f)-20 projected period in early 20. Peoples TWP used the same analysis in formulating both supply plans. Peoples TWP uses a two-step planning process to review and establish the natural gas supply requirements of the Company's distribution system. The first step involves a review of the system Design Peak Day requirements. The second step involves using the system flow model to determine where gas must be sourced into the system to satisfy both supply and pressure requirements. Each of these steps is required to develop a reliable capacity and supply portfolio. Please refer to Statement No. 1, the Direct Testimony of Lynda W. Petrichevich, for further discussion of the first step related to the Design Day study. I will address the second step II. PEOPLES TWP'S SUPPLY REQUIREMENTS WHAT ARE THE COMPONENTS OF PEOPLES TWP'S CUSTOMERS' REQUIREMENTS? They consist of (a) supply service to those Peoples TWP customers who purchase their supplies from Peoples TWP; (b) balancing service to those Peoples TWP customers who purchase their supplies from NGSs, but who are entitled to balancing service under the Commission's regulations and Peoples TWP's tariff; and (c) gas that is used in company operations or is lost or unaccounted for. 23

13 Q. WHAT ARE THE TIMEFRAMES USED TO DETERMINE PEOPLES TWP'S CUSTOMERS' REQUIREMENTS? A. Peoples TWP uses two timeframes when determining customers' requirements. The first is a "design peak day", which is a 24 hour period that is based on extreme weather conditions, and the second is a forecast of customers' day-to-day usage throughout the year Q. WHAT HAS PEOPLES TWP USED AS ITS CUSTOMERS' REQUIREMENTS ON A DESIGN PEAK DAY FOR PURPOSES OF THIS CASE? A. The Company has used 2,700 Mcf/day as the design day requirements as discussed in the direct testimony of Peoples TWP witness Lynda Petrichevich (Peoples TWP Statement No. 1) Q. WILL PEOPLES TWP SUPPLY THE ENTIRETY OF THAT 2.7 MMCF FOR ITS CUSTOMERS? A. No. Peoples TWP will supply 7.5 MMcf of its customers' design day requirements 1 of 2,7 MMcf. components: The supply of 7.5 MMcf per day includes the following Projected local gas volumes of 8.0 MMcf. This volume is based on a projection of the amount of local gas under contract to Peoples TWP and available on a design day; 12

14 1 The on-system storage design day supply of 1.80 MMcf reflects the maximum 2 volume of supplies available from the Company's on-system storage fields; 3 Interstate delivered gas of 8. MMcf projected to be received from Equitrans, 4 DTI, TCO and TETCO. 5 Q. WHY DOESN'T PEOPLES TWP HAVE TO BE PREPARED TO SUPPLY 7 ALL OF ITS CUSTOMERS' DESIGN DAY REQUIREMENTS? 8 A. Many of Peoples TWP's customers, generally also its largest customers, that purchase their supplies from NGSs - customers whom the Company refers to as Non-Priority 1 10 or NP-1 - are responsible for acquiring their own design day assets at a level sufficient to deliver their average daily usage during that month. Peoples TWP 12 expects those customers to deliver to the system 50.1 MMcf on a design day during 13 the 1307(f)-20 projected period. 15 Q. HOW DO THE DESIGN DAY REQUIREMENTS OF PEOPLES TWP'S SMALLER CUSTOMERS WHO PURCHASE THEIR SUPPLIES FROM 17 NGSs FIT INTO PEOPLES TWP'S SUPPLY PORTFOLIO? A. The Retail Choice market in Peoples TWP's service territory is still developing, and 1 few smaller, Priority 1 ("P-l"), or essential human needs, customers have selected a 20 Retail Choice supplier. Nevertheless, the Peoples TWP customer choice program has 21 addressed the design day requirements of those customers under a system of mandatory capacity assignment. Under that system, Peoples TWP's tariff requires 23 that the P-l customers must acquire their design day capacity requirements from 13

15 1 Peoples TWP via capacity assignment and pay for the capacity through Peoples 2 TWP's Rate RS-T Capacity Charge (also referred to in the tariff as Demand Charge). 3 The P-l NGSs are expected to utilize the assigned capacity to deliver to the system 4 sufficient supplies to meet the projected total usage for their customers on a design 5 day during the 1307(f)-20 projected period. 7 Q. IN ADDITION TO ITS CUSTOMERS' DESIGN DAY CAPACITY 8 REQUIREMENTS, WHAT OTHER CUSTOMER REQUIREMENTS MUST PEOPLES TWP'S GAS SUPPLY PORTFOLIO SATISFY? 10 A. Peoples TWP must also satisfy the day-to-day supply requirements of Peoples TWP's customers who purchase supplies from Peoples TWP and the requirements for gas 12 that either will be used in Peoples TWP's operations, a/k/a company-use gas, or that 13 will be "unaccounted for" because of various reasons. 15 Q. DOES PEOPLES TWP USE ITS CONSUMPTION PROJECTIONS FOR THOSE CUSTOMERS WHO LIKELY WILL BUY THEIR SUPPLIES FROM 17 NGSs FOR ANY PURPOSE IN THIS PROCEEDING? A. Yes. Although those customers' requirements are measured strictly by the demands 1 that they will place on Peoples TWP's system on a design peak day, Peoples TWP 20 traditionally has recovered the costs of meeting those requirements through each Mcf 21 that Peoples TWP delivers to those customers throughout the year. In the case of P-l customers, Peoples TWP recovers the costs through a capacity charge. In the case of 23 NP-1 customers, the recovery is through balancing charges.

16 1 Q. HOW DO THE DESIGN DAY SUPPLY ASSETS COMPARE TO THE 2 PROJECTED DESIGN DAY REQUIREMENTS? 3 A. As set forth on Peoples TWP Exhibit No.2, the Company is projecting a design day 4 supply surplus of 4. MMcf for Winter after the release of certain capacity 5 to Peoples. 7 Q. WHAT CAPACITY IS PROPOSED TO BE RELEASED TO PEOPLES? 8 A. Peoples TWP is proposing to assign via capacity release to Peoples 10,000 Dths of design day deliverability. This would be done by the release for a one year period of ,455 Dths of Equitrans storage capacity and 10,000 Dths of related Equitrans firm transportation capacity. I will discuss these actions in more detail later in my Direct 12 Testimony. 13 Q. CAN YOU IDENTIFY AND DESCRIBE THE DOCUMENTS THAT HAVE 15 BEEN MARKED AS PEOPLES TWP EXHIBIT NOS. 7 AND 8? A. Yes. Peoples TWP Exhibit Nos. 7 and 8 were prepared jointly by the Peoples'Gas 17 Supply and Rates and Regulatory Affairs Departments and illustrate monthly allocations of volumes by the sources of supply, including storage, that Peoples TWP 1 expects to meet the supply requirements of those of its customers who likely will buy 20 their supplies from Peoples TWP during the 1307(f)-20 projected period extending 21 from February 1, 20 through September 30, 2017, and a summary of the natural gas costs associated with those volumes. The allocation displayed there reflects the 23 application of the economic dispatch approach that I have described. In his direct 15

17 1 testimony (Peoples TWP Statement No. 3), Peoples TWP's witness, Anthony Caldro, 2 reflects the results of the volume and price projections that I provided. 3 4 Q. CAN YOU IDENTIFY AND DESCRIBE THE DOCUMENT THAT HAS BEEN 5 MARKED AS PEOPLES TWP EXHIBIT NO.? A. Yes. Peoples TWP Exhibit No. is a document, also prepared jointly by Peoples' 7 Gas Supply and Rates and Regulatory Affairs Departments, that illustrates monthly 8 allocations of volumes by the sources of supply, including storage, that Peoples TWP used to meet the supply requirements of those of its customers who bought their 10 supplies from Peoples TWP during the 1307(f)-20 reconciliation period of December 1, 20 through January 31, 20, and a summary of the natural gas costs 12 associated with those volumes. 13 Q. PLEASE EXPLAIN THE FILING REQUIREMENTS IMPOSED BY 15 SECTION 1317(c) OF THE PUBLIC UTILITY CODE. A. Section 1317(c) requires Peoples TWP to file both a reliability plan and a supply plan 17 for the 1307(f) projected period. 1 Q. HAS PEOPLES TWP DONE SO? 20 A. Yes. Peoples TWP Exhibit Nos. 1, 7, and 8, as well as the testimony in support of 21 those exhibits, provide the required information.

18 1 III. INTERSTATE PIPELINE TRANSPORTATION 2 AND STORAGE CAPACITY PORTFOLIO 3 4 Q. WHAT COMPOSES PEOPLES TWP'S INTERSTATE CAPACITY 5 PORTFOLIO? A. Over the 1307(f)-20 reconciliation period, Peoples TWP's natural gas capacity 7 portfolio included: (1) interstate pipeline transportation and storage services from 8 Equitrans; (2) interstate pipeline transportation and storage services from DTI; (3) interstate pipeline transportation service from TETCO; and (4) interstate pipeline 10 transportation and storage services from TCO. 12 Q. DOES PEOPLES TWP ANTICIPATE THAT IT WILL HAVE THE SAME 13 PORTFOLIO THROUGHOUT THE 1307(f)-20 PROJECTED PERIOD? A. In large part, yes. The capacity portfolio is projected to remain the same, subject to 15 the one-year capacity release with Peoples for 10,000 Dths/day of Equitrans firm storage service and related firm transportation service. 17 EQUITRANS 1 Q. PLEASE DESCRIBE THE SERVICES THAT EQUITRANS PROVIDES 20 PEOPLES TWP. 21 A. On December 10, 2013, as set forth in the application proceeding at Docket Nos. A , A and A and approved by Order 23 entered November, 2013 ("Equitable Acquisition"), the Company entered into a 24 firm storage agreement under Equitrans Rate Schedule 0SS and a no-notice firm 17

19 1 2 transportation agreement under Equitrans Rate Schedule NOFT. These agreements provide Peoples TWP with firm storage and related transportation capacity to replace 3 expired and existing pipeline capacity under contract with TCO and DTI. The capacity under these Equitrans contracts will ramp-up to coincide with the expiration of various TCO and DTI agreements which expired, would have expired, or will expire on April 1, 20, April 1, 2015, April 1, 20 and April 1, 20. Both Equitrans agreements have a 20-year term that commenced on April 1, 20. The rates for both the storage and firm transportation service are negotiated rates that are less than the Equitrans recourse rates for the services and less than the current cost for 10 this same capacity under the existing TCO and DTI agreements. Through the Commission Order referenced above, Peoples TWP received approval of the Equitrans storage and transportation agreements pursuant to Section 04(e)(4) of the Public Utility Code, Pa.C.S. 04(e)(4). The Equitrans contracts provided peak demand period daily deliverability of 27,500 Dth and storage capacity of 1,500,000 Dth for the storage withdrawal period of November 1, 20, through March 31, The deliverability under these 17 contracts increased to 33,17 Dth and storage capacity increased to 1,850,000 Dth for the withdrawal period of November 1, 2015, through March 31, DID THE COMMISSION APPROVE PEOPLES TWP'S ARRANGEMENTS WITH EQUITRANS IN PEOPLES TWP'S 1307(f)-2015 PROCEEDING? These arrangements were originally approved in the Equitable Acquisition proceeding. In addition, in Peoples TWP's 1307(f)-2015 proceeding, Peoples TWP

20 described the various service arrangements that would be in effect between Peoples TWP and Equitrans over what is now the 1307(f)-20 reconciliation period, and the costs associated with them. In its final order in that proceeding, the Commission approved rates for the collection of Peoples TWP's natural gas costs that included the costs associated with the Equitrans service arrangements over what is now the 1307(f)-20 reconciliation period DOES PEOPLES TWP INTEND TO USE THE SAME EQUITRANS SERVICES DURING THE PROJECTED PERIOD THAT PEOPLES TWP USED DURING THE RECONCILIATION PERIOD? Yes, with one exception. Peoples TWP is proposing for the projected period to assign to Peoples via capacity release 10,000 Dths/day of Equitrans services for a one-year 13 period. These services would be a portion of the storage and related firm transportation services that Peoples TWP currently has under contract with Equitrans, and the assignment would consist of 545,455Dths of storage capacity under Rate GSS, 10,000 Dths/day of storage deliverability, and 10,000 dths/day of firm transportation under Rate FTS. Peoples TWP would release this capacity to Peoples at the same rates that Peoples TWP pays for the services. Proceeds from this release would not be included in Peoples TWP's capacity release sharing mechanism WHY DOES PEOPLES TWP PROPOSE TO ASSIGN PART OF ITS EQUITRANS SERVICES? 1

21 Based on the design day analyses for the Projected Period sponsored by Ms. Petrichevich in both this proceeding and in Peoples' 1307(f)-20 proceeding, Peoples' design day requirements exceed its design day supplies while Peoples TWP's design day requirements are less than its available design day supply. However, Peoples TWP is not committing at this time to a long-term capacity release. In fact, the on-going availability of locally produced gas on both systems is so dynamic that it would be very difficult to project what the long-term, available supplies would be on either system. Long-term customer requirements and the future expiration of other capacity contracts also would need to be considered. The capacity release process between Peoples TWP and Peoples provides a very cost effective means to adjust available supplies between the companies over a short-term without having to make new off-system, contractual commitments. Peoples TWP proposes to release the Equitrans storage capacity to Peoples for several reasons. First, the delivery point serves both Peoples TWP and Peoples, and delivery during the winter will be reliable. Second, the short-term release to Peoples will not impair Peoples TWP's service or its ability to acquire least cost gas supplies. Third, the delivery point fits Peoples' requirements very well, and Peoples has plenty of take away capacity on its system to receive gas from Equitrans at this point and move it to where it is needed on the Peoples system PLEASE DESCRIBE THE CAPACITY RELEASE PROCESS. Peoples TWP is proposing a release for a term of one year. Peoples TWP posted the availability of the capacity on the Equitrans bulletin board in accord with FERC and 20

22 Equitrans procedures, and Peoples was the only party to bid on the capacity. The Company has moved ahead with the capacity release because the storage injection season commences April 1 st, and putting the capacity into Peoples' control for storage injections creates a much cleaner process for pricing the release and the gas injected into storage, relative to waiting for a final decision in this case and, assuming approval, then assigning the capacity to Peoples for less than a full year and transferring in place the gas that has been injected into storage. That said, in the event that the capacity release would be disapproved in this proceeding, Peoples TWP has the right to recall the capacity, and Peoples TWP and Peoples would unwind the release under terms that would put each of them back into the same economic position they would have been in had the release not occurred DTI PLEASE DESCRIBE PEOPLES TWP'S CONTRACTUAL ARRANGEMENTS WITH DTI OVER THE 1307(f)-20 RECONCILIATION AND PROJECTED PERIODS. For the 1307(f)-20 reconciliation period, Peoples TWP had 10,000 Dths/day of FT firm transportation service, 35,000 Dths/day of FT-GSS firm transportation service, 45,000 Dths/day of GSS firm storage service under contract from DTI DID THE COMMISSION APPROVE PEOPLES TWP'S ARRANGEMENTS WITH DTI IN PEOPLES TWP'S 1307(f)-2015 PROCEEDING? 21

23 In Peoples TWP'S 1307(f)-2015 proceeding, Peoples TWP described the various service arrangements that would be in effect between Peoples TWP and DTI over what is now the 1307(f)-20 reconciliation period, and the costs associated with them. Under the Settlement, the Parties agreed that the Commission should approve the Company's gas supply, pipeline and storage capacity contracts. In its final order in that proceeding, the Commission approved the settlement including the rates for the collection of Peoples TWP's natural gas costs that included the costs associated with the DTI service arrangements over what is now the 1307(f)-20 reconciliation period TETCO PLEASE DESCRIBE THE SERVICES THAT TETCO PROVIDES TO PEOPLES TWP. TETCO provides Peoples TWP with firm transportation service of 10,000 Dths/day under Rate Schedule FT-1. Peoples TWP purchases gas on TETCO's market zone M-2 and moves it over TETCO's facilities to an interconnection at Delmont, 17 Westmoreland County. This negotiated rate agreement which commenced on November 1, 2105 and expires on October 31, 2030, allows the Company to purchase gas in a very liquid and competitively low-priced commodity market and deliver it to the southern part of the Peoples TWP system to support service to the Allegheny Valley.

24 DID THE COMMISSION APPROVE PEOPLES TWP'S ARRANGEMENTS WITH TETCO IN PEOPLES TWP'S 1307(f)-2015 PROCEEDING? In Peoples TWP's 1307(f)-2015 proceeding, Peoples TWP described what was at that time a proposed service arrangement with TETCO that would be in effect over what is now the 1307(f)-20 reconciliation period. Peoples TWP also described the reasons why Peoples TWP proposed to enter into that service arrangement and the 7 costs associated with it. Under the Settlement, the Parties agreed that the 8 Commission should approve the Company's gas supply, pipeline and storage capacity contracts and did not oppose the Company's plan to negotiate a long term FT capacity 10 agreement with TETCO. approved the settlement. In its final order in that proceeding, the Commission Under the Settlement, the Parties also agreed that Peoples TWP would apprise the other settlement parties of the negotiations to acquire the TETCO firm transportation capacity and upon conclusion, Peoples TWP would file a petition under Section 04(e)(4) of the Public Utility Code, Pa.C.S. 04(e)(4), for approval of the TETCO contract. Peoples TWP filed such a petition at Docket No. P which the Commission approved by order entered November 5, TCP PLEASE DESCRIBE PEOPLES TWP'S CONTRACTUAL ARRANGEMENTS WITH TCO OVER THE 1307(f)-20 RECONCILIATION AND PROJECTED PERIODS. 23

25 For the 1307(f)-20 reconciliation period, TCO provided Peoples TWP firm transportation service under Rate FTS of up to 3,257 Dth/day. TCO also provided firm storage service under Rate GSS and related firm transportation service under Rate SST of up to 10,807 Dth/day with a total storage capacity of 0,827 Dth DID THE COMMISSION APPROVE PEOPLES TWP'S ARRANGEMENTS WITH TCO IN PEOPLES TWP'S 1307(f)-2015 PROCEEDING? In Peoples TWP's 1307(f)-2015 proceeding, Peoples TWP described the various service arrangements that would be in effect between Peoples TWP and TCO over what is now the 1307(f)-20 reconciliation period. Peoples TWP described the reasons to extend the 3,257 Dth/day Rate FTS firm transportation agreement through October 31, Peoples TWP also described the reasons to extend the storage service agreements and related firm transportation agreements for up to five years. In the Settlement, the Parties did not oppose Peoples TWP's request for approval of the renewal of capacity and the negotiation of the capacity contracts. In its final order in that proceeding, the Commission approved the settlement including the rates for the collection of Peoples TWP's natural gas costs that included the estimated costs associated with the TCO service agreements over what is now the 1307(f)-20 reconciliation period. Peoples TWP filed petitions under Section 04(e)(4) of the Public Utility Code, Pa.C.S. 04(e)(4), for approval of the TCO contracts which were docketed at Docket Nos. P and Docket No. P The Commission approved the petitions, approving the extension of the 3,257 Dth/day 24

26 1 Rate FTS firm transportation agreement through October 31, 2017, and approving the 2 extension of the 10,807 Dth/day firm storage service agreements under Rate GSS and 3 related firm transportation service agreements under Rate SST through March 31, ACTUAL AND PROJECTED COSTS INCURRED 7 Q. WHAT COSTS DID PEOPLES TWP INCUR FOR SUPPLIES DELIVERED 8 FROM INTERSTATE PIPELINES DURING THE 1307(f)-20 RECONCILIATION PERIOD? 10 A. Peoples TWP incurred the costs that are set forth on Peoples Exhibit TWP No., as described by Mr. Caldro Q. WHAT COSTS WILL PEOPLES TWP INCUR FOR SUPPLIES DELIVERED FROM INTERSTATE PIPELINES DURING THE 1307(f)-20 PROJECTED 15 PERIOD? A. Peoples TWP projects to incur the costs that are set forth on Peoples TWP Exhibit 17 Nos. 7 and 8, which Mr. Caldro will identify and describe. The projected commodity costs set forth on Peoples TWP Exhibit Nos. 7 and 8 will vary with the actual 1 purchases that Peoples TWP will make to meet the actual requirements of Peoples 20 TWP's customers. Amounts shown on Peoples TWP Exhibit Nos. 7 and 8 are the 21 best estimate of Peoples TWP's projected purchases that it can make at this time, based on the assumptions that Peoples TWP's system will experience "normal" 23 weather customer requirements and system balancing requirements. 25

27 1 ON-SYSTEM STORAGE 2 Q. PLEASE DESCRIBE PEOPLES TWP'S ON-SYSTEM STORAGE 3 FACILITIES. 4 A. Peoples TWP currently owns and operates four storage fields which have 57,000 5 Mcf of combined storage capacity and 1,800 Mcf of maximum daily withdrawal capacity. 7 8 Q. WHAT PURCHASED GAS COSTS DID PEOPLES TWP INCUR FOR ITS ON-SYSTEM STORAGE FACILITIES OVER THE 1307(f) RECONCILIATION PERIOD? A. There are two categories of natural gas costs that Peoples TWP incurs to own and 12 operate its on-system storage facilities. The first of those categories is the portion of 13 Peoples TWP's requirements for company use and lost and unaccounted for gas that was attributable to those facilities. The second is the weighted average cost that 15 Peoples TWP assigns to each Mcf that is injected into and withdrawn from its on- system (and interstate) storage facilities that it has recovered as part of its 1307(f) 17 natural gas costs. For the 1307(f)-20 reconciliation period, the weighted average cost reflected the cost of all supplies that Peoples TWP acquired over the injection 1 season of calendar year The total weighted average costs that Peoples TWP 20 assigned to injections into and withdrawals from storage over the reconciliation 21 period are those set forth on Peoples TWP Exhibit No., as described by Mr. Caldro. 23 2

28 1 Q. DID THE COMMISSION APPROVE THE USE OF PEOPLES TWP'S ON- 2 SYSTEM STORAGE FACILITIES AND THE COSTS ASSOCIATED WITH 3 THEM IN PEOPLES TWP'S 1307(f)-2015 PROCEEDING? 4 A. In Peoples TWP'S 1307(f)-2015 proceeding, Peoples TWP set forth projections 5 regarding the use of on-system storage over what is now the 1307(f)-20 reconciliation period. In that proceeding, Peoples TWP described the projected 7 weighted average costs assigned to the supplies that Peoples TWP anticipated 8 injecting into and withdrawing from its on-system and interstate storage facilities over that same period. In its final order in that proceeding, the Commission approved 10 rates for the collection of Peoples TWP's natural gas costs that included the weighted average costs of supplies that Peoples TWP anticipated injecting into and 12 withdrawing from storage over what is now the 1307(1)- 20 reconciliation period. 13 The rates approved by the Commission also included the cost of Peoples TWP's projected requirements for company use and lost or unaccounted for gas, including 15 the portion of those requirements attributable to its on-system storage facilities. 17 Q. WHAT COSTS WILL PEOPLES TWP INCUR FOR THE USE OF ITS ON- SYSTEM STORAGE FACILITIES OVER THE 1307(f)-20 PROJECTED 1 PERIOD? 20 A. Peoples TWP projects to incur the weighted average costs of supplies injected into 21 and withdrawn from storage that are set forth on Peoples TWP Exhibit No. 8, which Mr. Caldro will identify and describe. While Peoples TWP has done its best to 23 anticipate what those weighted average costs will be, when the Company looks back 27

29 1 2 3 next year, the weighted average costs almost certainly will be different than what Peoples TWP is projecting here, again because of the inability to predict the exact price of market-priced supplies. 4 5 IV. PEOPLES TWP'S GAS SUPPLY PORTFOLIO EXCHANGE AGREEMENT WITH PEOPLES NATURAL GAS COMPANY LLC Q. PLEASE EXPLAIN THE GAS EXCHANGE AGREEMENT BETWEEN PEOPLES TWP AND PEOPLES. A. The gas exchange agreement provides for an exchange of equivalent volumes between Peoples and Peoples TWP where the receipt of gas from the other party would provide for more efficient operation of the recipient's system and will improve service reliability for both companies. Under the exchange arrangement, Peoples TWP receives gas from Peoples at interconnections located in Mars, PA and Arnold, PA. In exchange, Peoples receives equivalent volumes of gas from Peoples TWP at various interconnections On September 28, 20, Peoples TWP and Peoples made a filing requesting Commission approval of their agreement for the exchange of gas. The filing was designated Docket No. G and was ultimately approved by the Commission on March 15, In addition, Peoples TWP and Peoples filed three subsequent amendments to this agreement. The first two amendments, which were approved on July 13, 2012, and January 2, 2013, respectively, added new interconnection points. The third amendment was filed on November 21, 2013, when the Companies filed an Amended and Restated Gas Exchange Agreement (the "A&R 28

30 1 GEA"). The A&R GEA is intended to accommodate the ongoing long-term 2 infrastructure improvement plans of the Companies. With geographically overlapping distribution systems and a goal of avoiding pipeline replacement where there is a more efficient means of continuing service to customers, the Companies anticipate additional opportunities for new interconnection points and gas exchanges that enhance efficient operation. The A&R GEA permits the Companies to install up 7 to 15 new interconnection points, per calendar year, without filing for further 8 approval, provided that, among other things, each new interconnection point does not exceed $250,000 in costs and each new interconnection point results in projected cost 10 savings to the installing Company. This third amendment was approved by Secretarial Letter issued on May 27, 20. In addition, Peoples TWP received approval of an affiliated interest agreement between Peoples and Peoples TWP on December, 20 at Docket No. G , regarding the intercompany exchange of gas and gas supply interconnections in support of the Companies' Long Term Infrastructure Improvement Plans ("LTIIP"). As part of this agreement, gas supplies will flow between Peoples and Peoples TWP through low-pressure interconnections made in support of the replacement of higher-risk pipelines in the overlapping area of the Companies. In these situations, which were done in order to avoid the replacement of duplicative pipelines, the customer(s) of one Company would receive gas supplies delivered from the pipeline facilities of the other Company. Peoples TWP has agreed to provide reports in its 1307(f) filings showing the daily and monthly volumes delivered at each of the interconnections, the cost of gas 2

31 1 delivered at each interconnection, and any impacts on gas costs as a result of any 2 imbalance created by the exchange. Peoples TWP Exhibit No. provides the 3 required report showing the volumes and cost impacts of the exchange during the 4 reconciliation period. There are no exchange agreement costs projected for the (f)-20 projected period. 7 LOCAL GAS SUPPLIES 8 Q. PLEASE DESCRIBE PEOPLES TWP'S USE OF LOCAL GAS SUPPLIES. A. Peoples TWP has traditionally used gas produced locally in Pennsylvania as the 10 source of supply for base system supply requirements. This is due in large part to the operating characteristics of the Peoples TWP system, which I have already described, 12 where gas produced from shallow conventional gas wells, located primarily on the 13 eastern side of the pipeline system, is transported across the Peoples TWP system at a relatively constant flow into the distribution facilities serving ratepayers. The 15 delivery of shallow gas is then supplemented during periods of peak demand by interstate pipeline gas that is delivered into the Company's Large Volume Pipelines 17 and delivered to the same distribution facilities. 1 Q. UNDER WHAT TYPES OF CONTRACTUAL ARRANGEMENTS DOES 20 PEOPLES TWP ACQUIRE GAS FROM LOCAL PRODUCERS? 21 A. The two types of local production contracts that the Company enters into are either Dedicated or Non-Dedicated contracts. 30

32 Dedicated contracts consist of "Vintage" contracts and contracts tied to market prices and for the most part, have a term equal to the productive life of the related gas wells. The vintage contracts consist of two types: (1) traditional vintage contracts, which contain a fixed price ("vintage price contract") per Mcf; and (2) 5 revised larger volume vintage contracts, which converted traditional fixed price vintage contracts into contracts that contain a percent of market pricing mechanism ("standard local field price contract") as approved in the PGC-200 (Docket No. R ) and PGC-2007 (Docket No. R-00011) settlements. As the term indicates, "Vintage" contracts are old contracts between Peoples TWP and producers that contain very low, fixed price terms. These wells have been connected to the Peoples TWP system and producing gas for many years. The Settlement in 1307(f)-20 allowed Peoples TWP to offer to release certain meter stations from the fixed-price and dedicated supply contract terms. The meter stations must have had less than 10 Mcf per day of gas measured over a consecutive 12-month period and been under contracts with an initial term of 25 years or longer. If the release offer was accepted, as consideration, the producer agreed to sell the gas to Peoples TWP at an initially discounted rate for the first year and the standard local purchase price for the second year. Specifically, effective August 1, 20, the repriced rate per Mcf price was 80% of the then-standard price the Company pays for Local Pennsylvania Gas for an initial 12 consecutive month term, and the rate was then adjusted for another 12-month term at 100% of the Company's then-standard local purchase price. Thereafter, the production would be released from the vintage contract, 31

33 1 Effective March 1, 20, the standard field purchase price was changed to 2 better align the Company's standard contract Local Pennsylvania Gas purchase price 3 with today's gas marketplace. The revised gas purchase price is now Inside 4 F.E.R.C.'s Gas Market Report, "Price of Spot Gas Delivered to Pipelines," for 5 deliveries of Appalachian production into DTI's dry transmission system for first of the month. This index is also known as Dominion South Point. This revision yields a 7 simplified, more current market-based monthly Pennsylvania gas purchase price. 8 These same changes were made in Peoples TWP's contract forms for new supplies of Pennsylvania natural gas, effective on the same date. This applies to the Dedicated 10 Contracts, Non-Dedicated Contracts and the revised larger volume contracts. 12 Q. WHAT COSTS DID PEOPLES TWP INCUR FOR LOCAL GAS SUPPLIES 13 OVER THE 1307(f)-20 RECONCILIATION PERIOD? A. Peoples TWP incurred the costs that are set forth on Peoples TWP Exhibit No., as 15 described by Mr. Caldro. 17 Q. DID THE COMMISSION APPROVE PEOPLES TWP'S ARRANGEMENTS WITH LOCAL GAS SUPPLIERS IN PEOPLES TWP'S PRIOR 1307(f) 1 PROCEEDING? 20 A. In Peoples TWP's 1307(f)-2015 proceeding, Peoples TWP described its contracts for 21 local gas supplies that would be in effect over what was the 1307(f)-2015 projected period and the costs associated with them. Under the Settlement, the Parties agreed 23 that the Commission should approve the Company's gas supply, pipeline and storage 32

34 capacity contracts. In its Final Order in that proceeding, the Commission approved the settlement including the rates for the collection of Peoples TWP's natural gas costs that included the costs associated with the local gas contracts over what is now the 1307(f)-20 reconciliation period Q. DID PEOPLES TWP'S LOCAL GAS SUPPLY CONTRACTS CHANGE DURING THE 1307(f)-20 RECONCILIATION PERIOD? A. Yes, the second year price adjustment for those PTWP vintage agreements which were revised pursuant to the settlement in 1307(f)-20 was effective August 1, The price for these meters was increased to 100% the Dominion South Point Index, and there were 31 meters affected by the price increase Q. WHAT ABOUT THE 1307(f)-20 PROJECTED PERIOD? A. I do not expect any material changes to the current local gas supply contracts during the projected period Q. WHAT COSTS WILL PEOPLES TWP INCUR FOR LOCAL GAS SUPPLIES OVER THE 1307(f)-20 PROJECTED PERIOD? A. Peoples TWP will incur the costs that are set forth on Peoples TWP Exhibit No, 8, which Mr. Caldro will identify and describe. The costs set forth on Peoples TWP Exhibit No. 8 are based on projections that I provided to Mr. Caldro and will vary with the actual use that Peoples TWP makes of local gas supplies in response to the actual requirements of Peoples TWP's customers, with certain operational factors that 33

35 1 I have identified and, to the extent the pricing is market based, with operation of the 2 market. 3 4 Q. DOES THE CURRENT PEOPLES TWP LOCAL GAS PRICING PROGRAM 5 REASONABLY SERVE PEOPLES TWP'S AND ITS CUSTOMERS NEEDS? A. Generally, yes, but the program would be improved if Peoples TWP could incentivize 7 local production in certain discrete areas of its service territory. I am, therefore, 8 proposing a new pricing option to accomplish this. 10 Q. WHY DOES PEOPLES TWP DESIRE TO INCENTIVIZE LOCAL PRODUCTION IN CERTAIN AREAS OF ITS SERVICE TERRITORY? 12 A. As a general rule, the delivery of gas to a distribution system from multiple directions 13 is more reliable than delivery from a single source. However, some distribution pockets in Peoples TWP's service territory receive gas from a single source line, and 15 reliable service is, therefore, dependent on the continuous operation of that single line. Typical options to increase reliability include looping the line - connecting it to 17 other distribution lines so that if the line is breached, the flow of gas can be reversed and service continued - or finding an off-system source of gas and constructing a new 1 interconnection to receive gas from this source. Where these options are unavailable 20 or are very expensive, another option would be to receive more local gas delivered 21 directly into the line at operationally favorable locations. Peoples TWP proposes to offer price incentives to producers who can deliver new volumes of local gas at 23 locations identified by Peoples TWP as preferred gas receipt points. 34