BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

Transcription

1 BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION PENNSYLVANIA PUBLIC UTILITY COMMISSION PEOPLES NATURAL GAS COMPANY LLC v. Docket No. R-0- Docket No. R-0-0 PREPARED DIRECT TESTIMONY OF JEFFREY S. NEHR VICE PRESIDENT, BUSINESS DEVELOPMENT PEOPLES NATURAL GAS COMPANY LLC PEOPLES NATURAL GAS - PEOPLES DIVISION PEOPLES NATUAL GAS - EQUITABLE DIVISION DATE SERVED: April DATE ADMITTED: 1,0

2 PREPARED DIRECT TESTIMONY OF JEFFREY S. NEHR 1 Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. A. My name is Jeffrey S. Nehr. My business address is Peoples Natural Gas Company LLC, North 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" or "Company") as Vice President, Business Development. Pursuant to the Commission-approved 1 1 affiliated interest agreements between Peoples and Peoples Service Company LLC ("PSC") and between PSC and Peoples TWP LLC ("Peoples TWP" or the "Company"), I provide the gas supply services for both Peoples TWP and Peoples. Effective December, 01, Peoples merged with the former Equitable Gas Company ("EGC"), and as a result, my services also cover the gas supply requirements for the former EGC system. 1 0 Q. PLEASE DESCRIBE YOUR EDUCATION AND PROFESSIONAL EXPERIENCE. 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 Peoples Natural Gas Company in, starting in the Engineering Department. I worked in engineering mapping for approximately four years before being assigned to the Gas Supply Department with responsibility for transmission and supply planning. 1

3 1 1 There I remained for four years progressing to Gas Supply Planning and Facility Specialist. In, 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 000, I 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 00 with responsibilities for managing supply planning and supply purchasing. My career path changed in 00, 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 0, I rejoined Peoples as Manager, Gas Measurement focusing on unaccounted for gas ("UFG") analysis, gas measurement, and producer services. In 01, I was promoted to Director of 1 0 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 01,1 took the position of Director, Commercial Operations, and my duties included business development, marketing, producer services, gas supply and UFG initiatives. In 0, I was promoted to Vice President, Commercial Operations. In 0, my title changed to Vice President, Gas Supply and Business Development. In 0, my title changed to Vice President, Business Development.

4 HAVE YOU TESTIFIED PREVIOUSLY IN ANY REGULATORY PROCEEDINGS? Yes. I have testified in a number of cases before the Pennsylvania Public Utility Commission including Peoples' (f) filings at Docket Nos. R-01-0, R- 01-0, R-0-0, and R-0-; Peoples TWP's (f) filing at Docket No. R-01-0; Peoples - Equitable Division's (f) filings at Docket Nos. R-0-0 and R-0-; and the proceeding approving the Peoples and EGC merger at Docket No. A WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS CASE? I am the Company's gas supply witness. In this testimony, when I refer to the "Company" or to "Peoples", I am referring to the combined Peoples and Equitable Divisions of Peoples. I am doing this pursuant to the approval granted in last year's (f) proceedings for these divisions where the Commission approved the Peoples and Equitable Divisions' requests to merge their purchased gas cost ("PGC") rates and their gas supply operations. Where it is necessary to refer to an individual division, I will use "Peoples Division" or "Equitable Division" to do so. As the Company's gas supply witness, I will address the following subjects: I. Gas Procurement Policy and Supply Planning 0 II. Supply Requirements III. Interstate Pipeline Transportation and Storage Capacity Portfolio IV. Natural Gas Supply Portfolio V. Capacity Releases

5 1 1 VI. Off-System Sales VII. Purchases from Affiliates VIII. Shut-In Practices and Policies IX. Renegotiation of Contracts X. Unaccounted For Gas Throughout my testimony, I will refer to the "(f)-0 reconciliation period" and the "(f)-0 projected period." The "(f)-0 reconciliation period" is the 1-month period of February 1, 0 through Januaiy 1, 0. That same 1-month period was part of the projected period in Peoples' (f)-0 proceeding. The projected period in this proceeding is the 0-month period of February 1, 0 through September 0, 0, which is the "(f)-0 projected period." Obviously, Peoples will have experienced a part of that projected period before this case is over. WHICH COMPONENTS OF THE COMPANY'S (f)-0 FILING ARE YOU SPONSORING? 1 I am sponsoring Filing Requirement sections.(c)(),.(c)(),.(c)(),.(c)(),.(c)(),.(c)(), and.. I am also sponsoring or jointly sponsoring Peoples Exhibit Nos.,,, and. 0

6 I. PEOPLES' GAS PROCUREMENT POLICY AND SUPPLY PLANNING Q. PLEASE DESCRIBE GENERALLY PEOPLES' NATURAL GAS PROCUREMENT POLICY. A. It is Peoples' policy to secure long term reliable capacity and supply and to manage gas procurement so that it incurs the lowest overall gas costs. Peoples 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. Q. PLEASE EXPLAIN HOW PEOPLES HAS PURSUED ITS GOAL OF LEAST 1 COST RELIABLE SERVICE. 1 A. Peoples pursues its goal of least cost reliable service through a combination of local and interstate assets and supplies. The local assets are Peoples' on-system storage facilities and a gathering system, which have allowed Peoples to enhance the deliverability of local natural gas supplies produced in Pennsylvania and purchased by Peoples from Pennsylvania producers. 1 Peoples' interstate assets are comprised of a portfolio of transportation and storage services that Peoples has contracted for with various Federal Energy Regulatory 0 Commission ("FERC") regulated pipelines, specifically, Dominion Transmission, Inc. ("DTI"), Texas Eastern Transmission LP ("TETCO"), Equitrans L.P. ("Equitrans"), and National Fuel Gas Supply Corporation ("NFGS"). Those assets give Peoples access to a variety of locations at which it can receive gas supplies that are produced upstream of

7 the Peoples' system. The interstate storage assets allow Peoples to use its upstream assets more efficiently, mitigate the effects of price swings in the natural gas market and enhance the deliverability of Peoples' interstate natural gas supplies during periods of peak demand. Peoples' interstate supplies are primarily EQT Energy and other Appalachian-produced gas that it purchases from suppliers upstream of the Peoples' system for delivery into various receipt points of the interstate pipelines and occasionally purchases on a delivered-to-the-city gate basis WHAT SPECIFIC ACTIVITIES ARE INVOLVED IN PEOPLES' PURSUIT OF ITS GAS SUPPLY GOAL? Peoples' goal of achieving least cost gas supply consistent with the provision of reliable 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 onsystem storage field, fixed assets that Peoples 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' 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 Q. IN GENERAL, HOW DOES PEOPLES SELECT AMONG THE VARIOUS SERVICES AND SUPPLIES AVAILABLE TO IT? A. Peoples prepares a supply plan as the point of departure. The plan includes forecasts for requirements of its own supply (i.e., sales) customers on a monthly basis 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 purchase their natural gas supplies from natural gas suppliers ("NGSs"), will require 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 is acquiring the least costly blend of gas that is feasible. 1 Q. IS THERE ANY GUIDING PRINCIPLE THAT PEOPLES USES IN 1 PREPARING ITS GAS SUPPLY PLAN? A. Yes. It is to maximize reliability while minimizing its gas costs. In general, Peoples 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 limits that it faces. 1 Q. HOW DOES PEOPLES FORMULATE ITS GAS SUPPLY PLAN ON AN 0 ANNUAL BASIS? A. Each year, Peoples reevaluates its total system requirements and available sources of supply. On the requirements side of the analysis, Peoples develops throughput

9 1 1 projections. To these, monthly projections for company use and lost and 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, there are portions of Peoples Division's service territory that are not physically interconnected with the main portion of Peoples' facilities, particularly in the Grove City area. As a result, the Company needs to project specifically the requirements that it will have in the Grove City area in order to assure that it will have supplies available from the particular sources of supply that it is able to call on to serve that area. Similarly, there are portions of Equitable Division's service territory that require support from specific interstate pipeline delivery points at times of high demand. Consequently, the Company needs to project specifically the requirements that it will have in those areas in order to assure that it will have supplies available from the particular sources of supply that it is able to call on to serve those areas. Although Peoples does not sell gas when its customers buy supplies from NGSs, it is also necessary to project the level of Peoples' delivery service that those customers will use, because the level of movement of customer-owned gas has an impact on the manner in which Peoples must plan to acquire gas for its own supply customers. 1 0 WHAT DOES PEOPLES DO ON THE SUPPLY SIDE OF THE ANALYSIS? Peoples uses an economic dispatch approach that takes into account operational, reliability and contractual constraints. Under that approach, Peoples reviews the cost of its various sources of supply and plans to use those that are least costly. The Company starts with the existing pipeline supply assets and existing gas supply agreements. These

10 include the firm transportation and storage service agreements with interstate pipelines and the long-term gas supply agreement with EQT Energy. A component of the supply planning process is the need to factor in the portion of Allegheny Valley Connector ("AVC") storage gas used for balancing service that will be made available for purchase by NGSs serving Non-Priority 1 ("NP-1"), or nonessential human needs, customers. Peoples maintains access to and manages the injections and withdrawals of gas associated with the balancing storage capacity on the AVC system. Peoples' Gas Supply Plan now reflects that NGSs purchase balancing services from Peoples throughout the winter using AVC storage for NP-1 balancing purposes PLEASE DESCRIBE HOW PEOPLES HAS IMPLEMENTED THE ECONOMIC DISPATCH APPROACH IN FORMULATING ITS GAS SUPPLY PLAN FOR THE TIME PERIODS THAT ARE RELEVANT TO THIS PROCEEDING. Peoples formulates its supply plan each year for a 0-month period that corresponds to the projected period in its annual (f) filings. Peoples formulated the supply plan that included the (f)-0 reconciliation period - as part of the then 0-month (f)-0 projected period - in early 0 and the supply plan for the (f)-0 projected period in early 0. Peoples used the same analysis in formulating both supply plans. The threshold determination that Peoples was required to make in formulating both plans was whether it would continue its historic practice of "base loading" local

11 gas; that is, using its supplies of local gas first. Peoples decided that it would be economic to do so. Having made this determination concerning its use of local gas, Peoples then estimated the local gas volumes it will receive, and formulated a plan for purchasing the balance of its projected requirements from other sources in its portfolio, again using an economic dispatch approach. To do this, Peoples will utilize its 1 1 Equitrans transportation capacity and EQT Energy supply contracts to deliver the supply needed at Peoples' city-gates and on Equitrans, which serves a large portion of the Peoples requirements. Then, Peoples will review projected spot market prices and pipeline transportation rates to evaluate service options for portions of the system that are isolated and cannot be served by Equitrans or where the service from Equitrans needs to be supplemented. Peoples considered various combinations of delivery routes for gas from Appalachia, as well as various operational and contractual constraints and limits. Taking all of those factors and the need for reliability into consideration, Peoples selected the lowest cost blend of gas from all of the sources in its portfolio, on a monthly basis. II. PEOPLES' SUPPLY REQUIREMENTS 1 0 WHAT ARE THE COMPONENTS OF PEOPLES' SUPPLY REQUIREMENTS? They consist of (a) supply service to those Peoples' customers who purchase their supplies from Peoples; (b) standby service to those Peoples' customers who purchase their supplies from NGSs and who either are required to or elect to subscribe to Peoples' standby service; (c) balancing services to those Peoples' customers who purchase their

12 supplies from NGSs, but who are entitled to balancing services under the Commission's regulations and Peoples' tariff; and (d) gas that is used in company operations or is lost or unaccounted for. Q. WHAT ARE THE TIMEFRAMES USED TO DETERMINE PEOPLES' CUSTOMERS' REQUIREMENTS? A. Peoples uses two timeframes when determining customers' requirements. The first is a "design peak day", which is a hour period that is based on extreme weather conditions, and the second is a forecast of customers' day-to-day usage throughout the year. 1 Q. WHAT HAS PEOPLES USED AS ITS CUSTOMERS' REQUIREMENTS ON A 1 DESIGN PEAK DAY FOR PURPOSES OF THIS CASE? A. The Company used 1,,00 Mcf/day as the combined design day requirements of the Peoples and Equitable Divisions, as discussed in the direct testimony of Peoples' witness Lynda Petrichevich (Peoples Statement No. 1). 1 Q. WILL PEOPLES SUPPLY THE ENTIRETY OF THAT 1, MMCF FOR ITS CUSTOMERS? 0 A. No. Peoples will supply MMcf of the Company's customers' design day requirements of 1, MMcf. The supply of MMcf per day includes the following components:

13 Projected local gas volumes of MMcf. This volume is based on a projection of the amount of local gas under contract to Peoples and available on a design day; The on-system storage design day supply of MMcf reflects the maximum volume of supplies available from the Company's Dice on-system storage field; Interstate delivered gas of MMcf projected to be received fiom Equitrans, DTI, Tennessee Gas Pipeline Company, LLC ("Tennessee"), TETCO and NFGS. Q. WHY DOESN'T PEOPLES HAVE TO BE PREPARED TO SUPPLY ALL OF ITS CUSTOMERS' DESIGN DAY REQUIREMENTS? A. Many of Peoples' customers, generally also its largest customers, that purchase their supplies from NGSs - customers whom the Company refers to as Non-Priority 1 or NP are responsible for acquiring their own design day assets at a level sufficient to 1 deliver their average daily usage during that month. The Company expects those customers to deliver to the system. MMcf on a design day during the (f)-0 projected period. Q. HOW DO THE DESIGN DAY REQUIREMENTS OF PEOPLES' SMALLER 1 CUSTOMERS WHO PURCHASE THEIR SUPPLIES FROM NGSs FIT INTO PEOPLES' SUPPLY PORTFOLIO? 0 A. Ever since a substantial alternative supply market for those smaller Priority 1 ("P-l"), or essential human needs, customers first began to develop on Peoples' system in, Peoples has addressed the design day requirements of those customers under a program of mandatory capacity assignment. Both Peoples Division's and Peoples Equitable 1

14 Division's tariffs require that the P-l customers acquire their design day capacity requirements from Peoples by means of mandatory assignment of capacity and that the P-l customers must pay the costs of that assigned capacity through the capacity charge. The P-l NGSs are expected to utilize the assigned capacity to deliver to the system sufficient supplies to meet the projected total usage for their P-l customers on a design day during the (f)-0 projected period. Q. IN ADDITION TO ITS CUSTOMERS' DESIGN DAY CAPACITY REQUIREMENTS, WHAT OTHER CUSTOMER REQUIREMENTS MUST PEOPLES' GAS SUPPLY PORTFOLIO SATISFY? A. Peoples must also satisfy the day-to-day supply requirements of Peoples' customers who 1 purchase supplies from Peoples and the requirements for gas that either will be used in 1 Peoples' operations, a/k/a company-use gas, or that will be "lost or unaccounted for" because of various reasons. Q. DOES PEOPLES USE ITS CONSUMPTION PROJECTIONS FOR THOSE CUSTOMERS WHO LIKELY WILL BUY THEIR SUPPLIES FROM NGSs 1 FOR ANY PURPOSE IN THIS PROCEEDING? A. Yes. Although those customers'requirements are measured strictly by the demands that 0 they will place on Peoples' system on a design peak day, Peoples traditionally has recovered the costs of meeting those requirements through each Mcf that Peoples delivers to those customers throughout the year. In the case of P-l customers, Peoples 1

15 recovers the costs through a capacity charge. In the case of NP-1 customers, the recovery is through balancing charges. Q. HOW DO THE DESIGN DAY SUPPLY ASSETS COMPARE TO THE PROJECTED DESIGN DAY REQUIREMENTS? A. As shown on Peoples Exhibit No. 1, the Company is projecting that its design day supply assets will be within 0. MMcf of its design day requirements, after taking into account the following, proposed supply acquisition transactions. Peoples proposes to take assignment via capacity release from Peoples TWP of,000 Dths of design day deliverability. This would be done by the release for a one year period of, Dths of Equitrans storage capacity and,000 Dths of related 1 Equitrans firm transportation capacity. This transaction is reflected in Peoples Exhibit 1 No. 1 as "Capacity Released from PTWP" and is shown as. MMcf. Peoples is also proposing a revision to its local gas purchasing program to provide an incentive for local gas producers to produce gas into discrete parts of our system, but since it would take some time to implement this proposal and to see results, Peoples has not reflected any change in Supply Assets as a result. I will discuss each of these actions in more detail 1 later in my Direct Testimony. 0 Q. CAN YOU IDENTIFY AND DESCRIBE THE DOCUMENTS THAT HAVE BEEN MARKED AS PEOPLES EXHIBIT NOS. and? A. Yes. Peoples Exhibit Nos. and, prepared jointly by the Peoples' Gas Supply and Rates and Regulatory Affairs Departments, illustrate monthly allocations of volumes by

16 the sources of supply, including storage, that Peoples expects to meet the supply requirements of those of its customers who likely will buy their supplies from Peoples during that part of the (f)-0 projected period extending from February 1, 0 through September 0, 0, and a summary of the natural gas costs associated with those volumes. The allocation displayed there reflects the application of the economic dispatch approach that I have described. In her direct testimony (Peoples Statement No. ), Peoples' witness, Carol A. Scanlon, explains the pricing of the volumes that appear on this Exhibit, based, in part, on price projections that I provided ARE THE PROJECTIONS OF MONTHLY ALLOCATIONS OF VOLUMES BY SUPPLIER THAT ARE SET FORTH ON PEOPLES EXHIBIT NOS. AND LIKELY TO CHANGE? Yes. The projections contained on Peoples Exhibit Nos. and are Peoples' best estimate of what the future holds in the way of gas prices and conditions that affect its ability to acquire gas and, accordingly, are Peoples' best estimate of the lowest cost supply mix consistent with its need for reliability. However, because projections are based on factors that change over time, including prices and customers' requirements, each month Peoples fine tunes the plan as it prepares to acquire gas for the following month to take into account actual operational and market conditions and to assure that its acquisition of gas supplies is based on the most current information. The Company then makes further daily adjustments as necessary during each month.

17 Q. CAN YOU IDENTIFY AND DESCRIBE THE DOCUMENT THAT HAS BEEN MARKED AS PEOPLES EXHIBIT NO.? A. Yes. Peoples Exhibit No. is a document, also prepared jointly by Peoples' Gas Supply and Rates and Regulatory Affairs Departments, that illustrates monthly allocations of volumes by the sources of supply, including storage, that Peoples used to meet the supply requirements of those of its customers who bought their supplies from Peoples during the (f)-0 reconciliation period of February 1, 0 through January 1,0, and a summary of the natural gas costs associated with those volumes. Q. PLEASE EXPLAIN THE FILING REQUIREMENTS IMPOSED BY SECTION (c) OF THE PUBLIC UTILITY CODE. 1 A. Section (c) requires Peoples to file both a reliability plan and a supply plan for the 1 (f) projected period. Q. HAS PEOPLES DONE SO? A. Yes. Peoples Exhibit Nos. 1,, and, as well as the testimony in support of those exhibits, provide the required information. 1 III. INTERSTATE PIPELINE TRANSPORTATION 0 AND STORAGE CAPACITY PORTFOLIO Q. WHAT COMPRISES PEOPLES' INTERSTATE CAPACITY PORTFOLIO? A. Over the (f)-0 reconciliation period, Peoples' natural gas capacity portfolio included: (1) interstate pipeline transportation and storage services from Equitrans; ()

18 interstate pipeline transportation and storage services from DTI; () interstate pipeline transportation service from TETCO; and () interstate pipeline transportation and storage services from NFGS. In addition, Peoples purchases winter-only firm city-gate delivered supply via Tennessee and winter-only firm city-gate delivered supply via TETCO which, though being gas purchase arrangements, Peoples treats the same as interstate capacity since Peoples requires deliveries at the respective delivery points and, therefore, would pursue firm capacity at these points if firm city-gate delivered supply was not available. 1 1 DOES PEOPLES ANTICIPATE THAT IT WILL HAVE THE SAME PORTFOLIO THROUGHOUT THE (f)-0 PROJECTED PERIOD? In large part, yes, but as mentioned earlier and as I describe later in my testimony, Peoples proposes to accept a one-year release of firm storage transportation capacity from Peoples TWP. I also recommend that Peoples enter into a delivered supply arrangement that will provide for deliveries of up to,000 Dth per day from TETCO at the Company's Rockwood delivery point. 1 0 EOUITRANS PLEASE DESCRIBE THE SERVICES THAT EQUITRANS PROVIDES PEOPLES. Equitrans provides Peoples firm transportation and firm storage services. These services vary with the facilities used to provide them. As further explanation, there are three parts to the Equitrans system: the Mainline system, which is Equitrans' traditional

19 system in West Virginia and Pennsylvania that has historically served Equitable Gas Company, among other firm customers; the Sunrise Pipeline system, which is a newer pipeline extending from northern West Virginia to Waynesburg, Greene County, Pennsylvania, that was developed in order to transport new gas production, primarily Marcellus Shale production, to market; and the Allegheny Valley Connector, or AVC, which consists of the midstream assets - transmission lines and storage fields - that were transferred by Peoples to EQT as part of the Equitable acquisition. Equitrans has provided the Equitable Division a menu of unbundled transportation and storage service on the Mainline System since FERC's promulgation of Order in the 0's. These services include firm transportation service under Equitrans' Rate Schedule FTS. Under this rate schedule, the customer transports gas up to the maximum daily quantity stated in the customer's contract. Equitrans assesses a transportation usage charge for the actual quantities that are delivered to the customer during the month. In addition, Equitrans assesses a seasonal demand charge that is different for the winter period (November 1 through March 1) than it is for the summer period (April 1 through October 1). Both charges are calculated by multiplying the appropriate seasonal demand charge by its respective maximum daily contract quantity. Equitrans also assesses a Pipeline Safety Cost Rate to recover costs incurred by Equitrans under the federal Pipeline Safety Improvement Act of 00, The Pipeline Safety Cost Rate has both a usage and demand charge. Equitrans also provides no-notice firm transportation service under Equitrans' Rate Schedule NOFT. No-notice firm transportation allows the Company to receive or deliver gas on demand up to its firm entitlement on a daily basis without incurring 1

20 daily balancing and scheduling penalties. For this service, Equitrans assesses a transportation usage charge for the actual quantities it delivers to Equitable during the month. As with Rate Schedule FTS service, there are winter and summer demand charges associated with this contract that are calculated in a similar fashion. In addition to the firm pipeline transportation and the no-notice firm transportation services, Equitrans also provides a base load storage service and a peaking storage service. The base load storage service is provided under the Equitrans 1-SS Rate Schedule. This rate schedule provides for a 1 day storage service, with a maximum daily withdrawal quantity ("MDWQ") of 0% of 1/1 of the total annual storage quantity, subject to ratchets as explained below. This service also permits the Company to withdraw and inject gas year-round on a best efforts basis. The peaking storage service is provided under the Equitrans 0-SS Rate Schedule. The MDWQ is based on 0% of 1/0 of the total annual storage quantity, subject to ratchets as also explained below. This service also permits the Company to withdraw and inject gas year-round on a best efforts basis. For each storage service, Equitrans assesses four charges which are applicable the entire year. These charges consist of the storage demand charge, the storage space charge, the storage injection charge and the storage withdrawal charge. The storage demand charge is equal to the storage demand rate multiplied by the maximum daily withdrawal quantity. The storage space charge is equal to the storage space rate multiplied by the total annual storage quantity. The storage withdrawal and injection charges are variable charges which are assessed on the actual volumes withdrawn or injected during the month.

21 Beginning December, 01, when the acquisition of Equitable closed, Equitrans began providing firm transportation and firm storage services from Equitrans' AVC to the Peoples Division. The AVC services consist of transportation service under Rate Schedule FTS, no-notice transportation service under Rate Schedule FTSS, and Storage Service under Rate Schedule GSS. The FTSS and GSS service agreements provide Peoples and its customers with access to AVC storage capacity of. MMDth annually and maximum deliverability of 00,000 Dth per day. The FTS service agreement provides Peoples and its customers up to,00 Dth per day of firm transportation capacity. These service agreements provide for a total of 1,00 Dth per day of film capacity on the AVC system. Beginning April 1, 0, Equitrans began providing the Peoples Division firm transportation service under Rate Schedule FTS from Equitrans' Sunrise and Mainline systems. This firm capacity replaced,00 Dth per day of firm transportation and storage capacity previously provided by DTI under service agreements that expired March 1, 0. Gas transported under this agreement is sourced from receipt points on the Sunrise and Mainline systems and delivered to Equitrans' Ginger Hill station, which is the point of interconnection between Equitrans' Mainline and AVC systems. The capacity is seasonal, and the maximum daily quantity is,00 Dth during November through March and,000 Dth during April through October. 0 DID THE COMMISSION APPROVE PEOPLES' ARRANGEMENTS WITH EQUITRANS IN PEOPLES' (f)-0 PROCEEDING? 0

22 A. These arrangements were originally approved in various proceedings over the years. In addition, in Peoples' (f)-0 proceeding, Peoples described the various service arrangements that would be in effect between Peoples and Equitrans and the costs associated with them over what is now the (f)-0 reconciliation period. In its final order in that proceeding, the Commission approved rates for the collection of Peoples' natural gas costs that included the costs associated with the Equitrans service arrangements over what is now the (f)-0 reconciliation period. Q. DOES PEOPLES INTEND TO USE THE SAME EQUITRANS SERVICES DURING THE PROJECTED PERIOD THAT PEOPLES USED DURING THE RECONCILIATION PERIOD? 1 A. Yes, but in addition to the Equitrans services used during the reconciliation period, 1 Peoples is proposing for the projected period to acquire additional Equitrans services for a one-year period. These services would be the Equitrans storage service that Peoples TWP currently has under contract with Equitrans which consist of, Dths of storage capacity under Rate GSS,,000 Dths/day of storage deliverability, and,000 dths/day of firm transportation under Rate FTS. Peoples proposes to acquire the service 1 by capacity release from Peoples TWP at the same rates that Peoples TWP pays for the services. 0 Q. WHY DOES PEOPLES PROPOSE TO ACQUIRE THE ADDITIONAL EQUITRANS SERVICES?

23 1 1 1 Based on the design day analyses for the Projected Period sponsored by Ms. Petrichevich in both this proceeding and in Peoples TWP's (f)-0 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 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 and Peoples TWP 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 proposes to acquire the Equitrans storage capacity via release by Peoples TWP 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. 0 PLEASE DESCRIBE THE PROPOSED CAPACITY RELEASE PROCESS. Peoples 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

24 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' CONTRACTUAL ARRANGEMENTS WITH DTI OVER THE (f)-0 RECONCILIATION AND PROJECTED PERIODS. DTI provides service to Peoples under four service agreements and three rate schedules. DTI provides year-round Rate FTNN no-notice transportation service at 0,000 Dth/day, Rate FT firm transportation service of 0,000 Dth/day, and Rate GSS storage service under two separate service agreements, one with capacity of. MMDth annually and maximum deliverability of 0,000 Dth/day and the other with capacity. MMDth annually and up to 0,000 Dth/day of deliverability. These agreements promote service

25 reliability in parts of the Peoples distribution system that are particularly well suited for gas deliveries from DTI. Q. DID THE COMMISSION APPROVE PEOPLES' ARRANGEMENTS WITH DTI IN PEOPLES' (f)-0 PROCEEDING? A. In Peoples' (f)-0 proceeding, Peoples described the various service arrangements that would be in effect between Peoples and DTI and the costs associated with them over what is now the (f)-0 reconciliation period. 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' 1 natural gas costs that included the costs associated with the DTI service arrangements 1 over what is now the (f)-0 reconciliation period. TETCO Q. PLEASE DESCRIBE THE SERVICES THAT TETCO PROVIDES TO PEOPLES. 1 A. TETCO provides Peoples with firm transportation service under rates set by the FERC. Peoples requires deliveries of gas at Ebensburg, Claysburg and Rockwood, in the 0 eastern portion of its seivice territory. TETCO is the only pipeline that physically interconnects with those three receipt points. Peoples purchases gas on TETCO and moves it over TETCO's facilities to the Claysburg and Ebensburg delivery points where it is needed. In prior years, Peoples has contracted for firm delivered-to-peoples supply

26 arrangements (described in a later section) to meet its needs from the TETCO system at the Rockwood delivery point. TETCO also provides an operational balancing agreement that helps Peoples to manage the unanticipated swings in demand at its physical interconnections with TETCO. Q. PLEASE DESCRIBE PEOPLES' CONTRACTUAL ARRANGEMENTS WITH TETCO OVER THE (f)-0 RECONCILIATION AND PROJECTED PERIODS. A. Peoples had,0 Dths/day of FT-1 firm transportation service under contract from TETCO for the entire (f)-0 reconciliation period. These same contract quantities are in place for the (f)-0 projected period. Gas supplies under this 1 transportation contract, which expires on April 0, 0, are delivered by TETCO at 1 Peoples' Ebensburg delivery point. Q. ARE THE FIRM DELIVERIES OF,0 DTHS/DAY UNDER THIS CONTRACT SUFFICIENT TO MEET THE PEAK DAY SYSTEM NEEDS IN THE EASTERN PORTION OF THE PEOPLES' SERVICE TERRITORY? 1 A. No. The 01-0 and 0-0 colder-than-normal winters tested the Company's system and gas supply capabilities, and for the most part, the system and gas supply 0 portfolio performed well in meeting the near-design day needs of the Company's customers. However, the 0-0 winter was unique and insightful because the Company experienced the coldest weather conditions, which were some of the coldest in recent history, later in the winter season, during mid-february. The heating degree days

27 ("HDDs") on February th, th, and 0 th were HDDs, HDDs and HDDs, respectively. The particular challenge with meeting design day or near design day conditions this late in the winter season is that the deliverability provided by the Company's pipeline storage contracts is reduced because as physical storage inventories are depleted, the daily storage withdrawal quantities under the pipeline storage tariffs are correspondingly reduced. In this specific situation, the gas supply needs on the eastern portion of the Company's service territory are supported by storage withdrawals under the Equitrans AVC storage service contract and by the firm transportation deliveries from TETCO, in particular, to the Ebensburg delivery point. During these near-peak February 0 days, the combined available supplies from the Equitrans AVC storage and TETCO FT contracts were insufficient to meet customers' requirements in this part of the system, necessitating the purchase of additional supplies. The most operationally and cost effective option was to purchase gas supplies on the TETCO system for delivery at Ebensburg. During the coldest days of February th, th, and 0 th, 0, Peoples purchased and had delivered to the Ebensburg delivery point,000 Dth per day of supplies in addition to the firm supplies from TETCO to the Rockwood and Ebensburg points under existing supply agreements. The Company has been fortunate in recent years to be able to get supplies when needed on the spot market. However, this is not firm supply and thus cannot be relied upon to be available when needed and furthermore may not even be available for purchase in future winters. For these reasons the Company proposed in (f)-0 to put in place an arrangement for additional firm

28 gas deliveries of up to,000 Dth per Day to the Company's Ebensburg delivery point for the 0-0 winter period. Q. WHAT WAS THE COMPANY'S RECOMMENDATION IN LAST YEAR'S (f) CASE FOR THE ADDITIONAL TETCO SUPPLIES OF,000 DTH PER DAY? A. The Company recommended issuance of RFPs to potential suppliers to sell to Peoples a firm delivered gas supply for up to,000 Dths per day at Peoples' Ebensburg delivery point on TETCO while also requesting alternative proposals for non-recallable release of capacity from TETCO's market zone M- to Peoples' Ebensburg delivery point in zone M-. This recommendation was also included in the settlement agreement that was 1 approved by the Commission. 1 Q. DID THE COMPANY ISSUE THE RFPS AS RECOMMENDED? A. Yes. RFPs were issued, and Peoples received three responsive proposals. The Company accepted two of the proposals and entered into agreements, one for up to 1,000 Dth/day and the other for up to,000 Dth/day. Comparing the two agreements, 1 the former has a purchase price equal to Gas Daily's M- index price and also has a reservation fee of $ 0/month. The latter has no reservation fee but carries a premium 0 to the index price when gas is actually purchased. Q. DID THE COMMISSION APPROVE PEOPLES' ARRANGEMENTS WITH TETCO AND FIRM SUPPLIERS IN PEOPLES' (f)-0 PROCEEDING?

29 A. In Peoples' (f)-0 proceeding, Peoples described its service arrangements with TETCO and firm suppliers that would be in effect over what is now the (f)-0 reconciliation period. 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' natural gas costs that included the costs associated with the TETCO service arrangements. Q. PLEASE DESCRIBE PEOPLES' CONTRACTUAL ARRANGEMENTS FOR FIRM DELIVERED GAS ON TETCO OVER THE (f)-0 PROJECTED PERIOD. 1 A. In the coming weeks, the Company will issue another RFP for firm delivered supply on 1 TETCO of up to,000 Dth/day that will provide for delivery of natural gas on a firm basis at the same TETCO delivery point as the previous year's agreement for the winter period November 0 through March 0. FIRM CITY-GATE DELIVERED SUPPLY 1 VIA TENNESSEE Q. PLEASE DESCRIBE THE SERVICES THAT PEOPLES RECEIVES FROM 0 TENNESSEE. A. Prior to the winter of 0-0, Peoples had contracted for firm transportation capacity on Tennessee. Beginning that winter, Peoples has continuously pursued a RFP process and contracted for firm city-gate delivered gas supply as a replacement for

30 the firm transportation service that Peoples had been purchasing from Tennessee on a year-to-year basis. The delivered supply agreements required the supplier to utilize Tennessee pipeline delivery points directly into Peoples at Pittsburgh Terminal and Pulaski. In addition, the agreements also required deliveries into the Columbia Gas of Pennsylvania ("CPA") natural gas distribution system at New Castle, PA. This supply supports an exchange agreement under which CPA delivers gas into the Grove City area of Peoples' service territory, an area that is not physically integrated with the rest of the Peoples' system PLEASE DESCRIBE PEOPLES' CONTRACTUAL ARRANGEMENTS FOR FIRM DELIVERED GAS ON TENNESSEE OVER THE (f)-0 RECONCILIATION AND PROJECTED PERIODS. During the (f)-0 reconciliation period, following the RFP process, Peoples entered into a firm delivered supply agreement with South Jersey Resources. The contract provided for up to,000 Dth/day of firm supply delivered to Peoples with 0 -,000 Dth/day delivered to Pittsburgh Terminal and Pulaski. The remaining 0 -,000 Dth/day of supply delivered to CPA's system at New Castle, to support the CPA exchange agreement. Like TETCO, Tennessee also provides Peoples with an 0 operational balancing agreement to manage unanticipated swings in demands at the Tennessee/ Peoples physical interconnections. In the coming weeks the Company will issue another RFP for firm delivered supply on Tennessee that will provide for delivery of natural gas on a firm basis at the

31 same quantities and same Tennessee delivery points as previous years' agreements for the winter periods of November 0 through March 0 and November 0 through March 01. Q. DID THE COMMISSION APPROVE PEOPLES' ARRANGEMENTS FOR FIRM DELIVERED GAS ON TENNESSEE IN PEOPLES' (I)-0 PROCEEDING? A. In Peoples' (f)-0 proceeding, Peoples described its intention to request proposals for firm delivered service arrangements on Tennessee that would be in effect over what is now the (f)-0 reconciliation period of February 1, 0 through January 1, 0. Peoples also included estimated costs for these arrangements and 1 described the reasons why Peoples entered into those firm supply arrangements. Under 1 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' natural gas costs that included the costs associated with this arrangement over what is now the (f)-0 reconciliation period. 1 NFGS 0 Q. PLEASE DESCRIBE THE SERVICES THAT NFGS PROVIDES PEOPLES. A. NFGS provides Peoples with no-notice storage service and firm transportation service under rates approved by the FERC. Peoples uses NFGS' services primarily to serve the isolated Grove City area of its seivice territory. Like its other storage assets, Peoples 0

32 uses its storage service from NFGS as a no-notice balancing service to manage supply for uncertain demand and as a way to reduce natural gas costs, by buying supplies when they generally are cheaper during the summer months and injecting them into storage, and to enhance reliability, by withdrawing the volumes from storage during the winter when demand is highest. Peoples utilizes its firm transportation service from NFGS both to support the NFGS storage service and for deliveries from other supply sources PLEASE DESCRIBE PEOPLES' CONTRACTUAL ARRANGEMENTS WITH NFGS OVER THE (f)-0 RECONCILIATION AND PROJECTED PERIODS. During the entire (f)-0 reconciliation period and for the first two months of the (f)-0 projected period, NFGS provided, Dth/day of no-notice storage service to Peoples under its Rate ESS and, Dth/day of firm transportation service to Peoples under its Rate EFT. Peoples entered into both of those contracts in the mid- 0s and the primary terms of those contracts expired on March 1, 00; however, each of the contracts contain a one-year notice of termination provision so that if neither party give the other one year's notice of termination, the contracts automatically renewed for another year. Because of Peoples' need for the NFGS capacity to meet its system balancing and load requirements, the Company has not given NFGS notice of termination, so the contracts automatically renewed on April 1 of each year since 00, and will renew again, effective April 1, 0. As a result, the NFGS contracts will be in effect throughout the (f)-0 projected period. 1

33 Q. DID THE COMMISSION APPROVE PEOPLES' ARRANGEMENTS WITH NFGS IN PEOPLES' (f)-0 PROCEEDING? A. In Peoples' (f)-0 proceeding, Peoples described the arrangements between Peoples and NFGS that would be in effect over what is now the (f)-0 reconciliation period. Peoples also described the reasons why Peoples entered into those arrangements 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' natural gas costs that included the costs associated with the NFGS service arrangements over what is now the (f)-0 reconciliation period. 1 1 TETCO M- Q. PLEASE DESCRIBE THE MARKET ZONE ("M-") SERVICES THAT TETCO PROVIDES TO PEOPLES. A. Peoples requires up to,000 Dth/day at its Rockwood interconnection with TETCO in TETCO's market zone M-. Prior to 00, Peoples satisfied this requirement with 1 TETCO firm transportation capacity, but the M- firm transportation capacity was not renewed upon its March 1, 00 expiration. Peoples then entered into a series of 0 annual agreements for either firm delivered supply or for the purchase of released capacity that Peoples then matched with spot purchases that extended through the 01 0 winter period. Since then, Peoples has satisfied its needs at this delivery point with spot market purchases.

34 Q. HOW DOES PEOPLES INTEND TO SATISFY ITS REQUIREMENTS FOR TETCO M- DELIVERIES DURING THE (f)-0 PROJECTED PERIOD? A. Peoples proposes to firm up its deliveries at Rockwood and will issue an RFP to potential suppliers to sell to Peoples a firm delivered gas supply for up to,000 Dths per day at Peoples' Rockwood delivery point on TETCO for the winter period November 0 through March ACTUAL AND PROJECTED COSTS INCURRED Q. WHAT COSTS DID PEOPLES INCUR FOR SUPPLIES DELIVERED FROM INTERSTATE PIPELINES DURING THE (f)-0 RECONCILIATION PERIOD? A. Peoples incurred the costs that are set forth on Peoples Exhibit No., as described by Ms. Scanlon. 1 0 Q. WERE THESE THE SAME COSTS THAT PEOPLES PROJECTED TO INCUR DURING THE (f))-0 PROJECTED PERIOD? A. Generally, yes. While the actual rates charged for interstate pipeline services may have varied slightly from projections due to rate changes during the period, the services used were the same of those projected to be used during the (f)-0 projected period with one exception. The one exception involves authorized overrun services provided by DTI and Equitrans. Even though Peoples utilized authorized service from Equitrans during the (f)-0 reconciliation period, Peoples did not project the use of such

35 1 1 services for the (f)-0 projected period and so did not include any projected costs for such services. During the (f)-0 reconciliation period of February 0 through January 0, Peoples incurred $,000 in authorized overrun service charges from DTI and $1,00,000 in authorized overrun service charges from Equitrans on AVC. In the settlement of last year's (f) proceeding Peoples was permitted recovery of these charges from (f) retail customers and from choice and non-choice shopping customers. In last year's case Peoples explained that these authorized overrun services were required as a result of a number of events including: colder-than-normal weather early in 0; reduced AVC daily contract capacity during the April - October period; the unavailability of Dice storage from June 0 - October 0, and the lack of daily measurement on some of the demarcation points between the AVC and Peoples' systems. Peoples also explained that going forward, the Company anticipated continued use of the authorized overrun services but not at the same volumetric levels experienced during the (f)-0 reconciliation period. In fact, during the (f) reconciliation period, Peoples used,000 Dths of authorized overrun service from DTI and incurred $, of authorized overrun charges associated with this service. Also during the (f)-0 reconciliation period, Peoples used,0 Dths of authorized overrun service from Equitrans and incurred $, of authorized overrun charges associated with this service. Authorized overrun services are part of the menu of interruptible services offered by pipelines to enhance flexibility for shippers on their systems. Peoples takes advantage of these offerings in situations when system demands