Miller, Canfield, Paddock and Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing, Michigan TEL (517) FAX (517)

Transcription

1 Founded in 1852 by Sidney Davy Miller SHERRI A. WELLMAN TEL (517) FAX (517) Miller, Canfield, Paddock and Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing, Michigan 8933 TEL (517) FAX (517) MICHIGAN: Ann Arbor Detroit Grand Rapids Kalamazoo Lansing Troy FLORIDA: Tampa ILLINOIS: Chicago NEW YORK: New York OHIO: Cincinnati CANADA: Toronto Windsor CHINA: Shanghai MEXICO: Monterrey POLAND: Gdynia Warsaw Wrocław June 27, 2018 Ms. Kavita Kale Executive Secretary Michigan Public Service Commission 7109 W. Saginaw Hwy. Lansing, MI 8917 Re: SEMCO Energy Gas Company GCR Reconciliation MPSC Case No. U Dear Ms. Kale: Enclosed for electronic filing are the Application, Direct Testimony and Exhibits of Jay E. Skillman, Tamara L. Spencer, and James A. Van Sickle. Also enclosed is the Entry of Appearance in an Administrative Hearing of Sherri A. Wellman. Please be advised that a marked-up version of the Notice of Hearing has been ed to Angela Sanderson at sandersona2@michigan.gov. If you should have any questions, please kindly advise. Very truly yours, Miller, Canfield, Paddock and Stone, P.L.C. SAW/kf Enclosure(s) cc w/enc: Jennifer Dennis Walt Fitzgerald Jim Van Sickle Tamara L. Spencer Jay E. Skillman \ By: Sherri A. Wellman

2 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the application of ) SEMCO ENERGY GAS COMPANY ) for reconciliation of the gas cost recovery plan ) Case No. U (U-18157) for the -month period ending ) March 31, ) APPLICATION SEMCO ENERGY Gas Company, a division of SEMCO Energy, Inc., ( SEMCO Gas or the Company ) files this Application with the Michigan Public Service Commission ( Commission ) requesting approval of its Gas Cost Recovery ( GCR ) reconciliation for the -month period beginning April 1, 2017 and ending March 31, 2018, and approval of related reconciliation determinations relative to the -month period ending March 31, In support of this Application, SEMCO Gas represents to the Commission as follows: 1. SEMCO Gas, with its principal office located at 111 Third Street, Suite A, Port Huron, Michigan, is engaged as a public utility in the business of supplying natural gas to the public in its various service areas throughout the state of Michigan. 2. SEMCO Gas s retail natural gas sales and retail gas transportation business is subject to the jurisdiction of the Commission. 3. Pursuant to 1982 PA 30 ( Act 30 ) and Commission orders, SEMCO Gas is authorized to incorporate a GCR Clause in its rate schedules. See Case Nos. U-781, U-172, U-159 and U Pursuant to the Commission s September 15, 2017 Order Approving Settlement Agreement as issued in Case No. U-18157, the Commission (i) approved SEMCO Gas s 2017-

3 2018 GCR plan as amended, and (ii) authorized SEMCO Gas to charge a base GCR factor of $.193 per dekatherm ( Dth ) comprised of a Balancing and Demand Charge of $0.808 per Dth and a commodity cost of $ per Dth. The base GCR factor of $.193 per Dth was subject to adjustment under an approved GCR factor adjustment mechanism. The Balancing and Demand Charge was also applied to Gas Customer Choice ( GCC ) customers. 5. Pursuant to h() of Act 30, SEMCO Gas hereby files for, and requests approval of, a reconciliation of the revenues recorded pursuant to the authorized GCR factors with the costs of gas sold during the -month period beginning April 1, 2017 and ending March 31, SEMCO Gas is filing, as part of this Application, testimony and exhibits sufficient to allow reconciliation in accordance with h() through h(15) of Act 30.. Such testimony and exhibits indicate that SEMCO Gas has a cumulative GCR over-recovery of $88,757 as of March 31, 2018, inclusive of interest. This cumulative overrecovered balance reflects the roll-in of the prior year s GCR over-recovered amount as approved in Case No. U-1792-R. SEMCO Gas proposes to roll-in the GCR over-recovery of $88,757 into the beginning balance of its GCR costs. 7. The testimony and exhibits also reflect that SEMCO Gas has determined that it has a cumulative GCC Balancing and Demand over-recovery of $11,302 inclusive of interest, for the -month period ending March 31, The over-recovery reflects the prior year s over-recovery as approved in Case No. U-1792-R. SEMCO Gas proposes to roll-in the cumulative GCC Balancing and Demand over-recovery into the beginning balance of its GCC Balancing and Demand costs. 8. SEMCO Gas represents that the proposals contained in this Application are just, reasonable and in the public interest. 2

4 WHEREFORE, SEMCO Gas requests that the Commission: A. Establish an early time and place for hearing and give notice thereof; B. Approve the reconciliation of the -month gas costs and revenues, as well as the GCC Balancing and Demand charge costs and revenues, for the period April 1, 2017 through March 31, 2018, as presented by SEMCO Gas; C. Find and determine that SEMCO Gas s gas costs, and Balancing and Demand costs incurred during the period April 1, 2017 through March 31, 2018, were reasonably and prudently incurred; D. Authorize SEMCO Gas to roll-in the cumulative GCR over-recovery of $88,757 and the cumulative GCC Balancing and Demand over-recovery of $11,302 into the beginning balance of its period GCR and Balancing and Demand costs; and E. Grant SEMCO Gas such other and further authority as may be lawful and proper. Respectfully submitted, SEMCO ENERGY GAS COMPANY Dated: June 27, 2018 By: Its Attorney Sherri A. Wellman (P38989) MILLER, CANFIELD, PADDOCK AND STONE, P.L.C. One Michigan Avenue, Suite 900 Lansing, Michigan \

5 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the application of ) SEMCO ENERGY GAS COMPANY ) for reconciliation of the gas cost recovery plan ) Case No. U (U-18157) for the -month period ending ) March 31, ) DIRECT TESTIMONY AND EXHIBITS OF JAY E. SKILLMAN ON BEHALF OF SEMCO ENERGY GAS COMPANY

6 TESTIMONY OF JAY E. SKILLMAN ON BEHALF OF SEMCO ENERGY GAS COMPANY Q. Please state your name and business address. A. My name is Jay E. Skillman. My current business address is 111 Third Street, Suite A, Port Huron, Michigan 800. Q. Mr. Skillman, who are you employed and in what position? A. I am employed by SEMCO Energy Gas Company ( SEMCO Gas or the Company ). My present position is Manager of Gas Accounting. Q. What are your responsibilities as Manager of Gas Accounting? A. Under the supervision of the Controller, I have the responsibility of preparing and recording the Company s Cost of Gas calculation and the reconciliation of all related accounts. I am also responsible for the calculation and monitoring of unbilled revenue and lost and unaccounted for gas. At management s request I prepare financial analysis and projections covering cash flows, budgeting, etc. Other duties include the preparation of various regulatory filings both on the state and federal levels. Q. Please summarize your academic background. A. I graduated from Michigan State University in 1981 with a Bachelor degree in Business Administration with a major in accounting. Q. Please summarize your employment and professional experience. A. From December 1981 to July of 1985, I was employed in the public accounting field by a small regional accounting firm, as well as with PricewaterhouseCoopers, formerly known as Coopers & Lybrand. From 1985 to 1988, I was employed as an internal auditor by a Fortune 500 company, Alco Standard Corp., a conglomerate of diversified companies. In December of 1988, I joined SEMCO Gas as a Senior Internal Auditor. In April of 1991, I was promoted to Manager of Internal Audit. I served in this position until July of 1993 when I assumed the position of Supervisor of Gas Cost Accounting. From July 1997 to April 1999, I was employed by SEMCO Energy Services, Inc., the former unregulated marketing division 1

7 TESTIMONY OF JAY E. SKILLMAN ON BEHALF OF SEMCO ENERGY GAS COMPANY of SEMCO Energy, Inc., serving as Accounting Manager until assuming my current position of Manager of Gas Accounting in May Q. Have you previously testified before the Michigan Public Service Commission ( MPSC )? A. Yes, I have filed testimony in several of SEMCO Gas GCR reconciliation cases before the MPSC. Q. Mr. Skillman, what is the purpose of your testimony in this proceeding? A. The purpose of my testimony is to address SEMCO Gas s GCR and Gas Customer Choice ( GCC ) Balancing and Demand ( B&D ) over recoveries for the twelve month period ended March 31, Q. Will you please identify the exhibits which you are sponsoring? A. I am sponsoring the following exhibits: Exhibit A-1 Gas Cost Recovery Calculation GCR Costs Exhibit A-2 Gas Cost Recovery Calculation GCC B&D Costs Exhibit A-3 Purchased and Produced Dollars and Dekatherms Exhibit A- Interest Calculation for Months ended March 31, 2018 Exhibit A-5 GCR Calculation Pro-forma Actuals Exhibit A- Detail of Purchased and Produced Pro-forma Actual Dollars and Dekatherms Q. Were these exhibits prepared by you or under your supervision? A. Yes. Q. Please explain the components of the GCR Over/Under calculation on Exhibit A-1. A. Exhibit A-1 calculates the GCR over recovery for the twelve months ended March 31, The cumulative over-recovery for the twelve month period totaled $378,52, line 5, exclusive of accrued interest. This amount is determined by subtracting Total GCR Cost of Gas Sold, line 0, $,327,700 from the Total GCR revenue $11,518,377, line 50 and 2

8 TESTIMONY OF JAY E. SKILLMAN ON BEHALF OF SEMCO ENERGY GAS COMPANY adding the roll-in of the prior period s authorized GCR over recovery $1,187,88, line 5. Q. Explain the types of costs included in Exhibit A-1, line 2, Purchased and Produced - Commodity Costs, and line 27, Balancing and Demand costs. A. The majority of Purchased and Produced commodity costs are related to the purchase of physical gas volumes from various natural gas suppliers, as shown on Exhibit A-3, page 1 of 2, lines 2 to. In addition to the cost of purchased gas, commodity costs include variable pipeline and storage costs as well as imbalance charges or credits. Line 27, B&D costs pertain to the charges incurred to obtain capacity, necessary to transport and/or store the gas commodity, in accordance with the Company s GCR plan. The costs, reflected on Exhibit A-3, page 1 of 2, lines 2-30, are primarily fixed pipeline and storage demand charges, but will also include charges or credits related to holding capacity, such as capacity release credits. Q. What is the Total GCR Cost of Gas Sold on line 0 of Exhibit A-1? A. The Total Cost of Gas Sold, Exhibit A-1, line 0, totaled $,327,700 for the reconciliation period. To arrive at the Total Cost of Gas Sold, line 0, the Total Booked Cost of Gas Sold is adjusted for Company Use Gas, line 3, Lost and Unaccounted for Gas, line 37, and Gas in Kind credits, line 38 of Exhibit A-1. Q. How is the Total Booked Cost of Gas Sold determined? A. Referring to lines 2-31, the Total Booked Cost of Gas Sold was determined by summing the Company s Commodity Costs, B&D costs, Net (to) from storage, Transportation credits, less the GCC portion of the B&D and transport credits, to arrive at $11,839,907, shown on line 3. Q. Please explain Exhibit A-1, line 29, Transport Credits. A. Transportation Credits, line 29, are a result of the approved Settlement Agreements in Case Nos. U-120 and U-15. The Company will 3

9 TESTIMONY OF JAY E. SKILLMAN ON BEHALF OF SEMCO ENERGY GAS COMPANY charge to its large volume transportation customers, when applicable, balancing charges, capacity improvement charges, and penalties. These transportation costs are considered B&D costs and, therefore, the transportation charge revenues are reflected as a reduction to Total B&D costs. Q. Explain lines 30 and 31 of Exhibit A-1, GCC portion of B&D Costs and GCC portion of Transport Credits. A. As shown on Exhibit A-1 the Company incurred $32,27,175 of B&D costs, line 27 and $(979,2) of Transportation credits, line 29, during the reconciliation period. A portion of these costs/credits are allocated to GCC customers and recovered through the GCC B&D cost reconciliation as shown on Exhibit A-2. The B&D costs and Transportation credits are allocated to GCC customers based on their respective percentage of billed sales, based the monthly B&D billing rate. The allocation percentage for GCC costs/credits for the year ended March 31, 2018, was 8.50%, of total B&D costs, as shown in Exhibit A-2, page 2 of 2, line 28. Total GCC allocated amounts were ($2,773,39) of B&D costs and $83,23 of Transportation credits, Exhibit A-1, line 30 and 31 respectively. Q. How is the cost of Company Use Gas, Lost and Unaccounted for Gas, and Gas in Kind, Exhibit A-1, lines 3-38 calculated? A. The cost of Company Use Gas, Lost and Unaccounted for Gas, and Gas in Kind is calculated by multiplying the volumes of Company Use, Lost and Unaccounted for Gas, and Gas in Kind, lines -8 of Exhibit A-1, by the average cost of gas for the reconciliation period. The average cost of gas for the reconciliation period is $3.30 per Dth and was calculated by dividing the sum of: the purchased Gas Commodity costs, line 2, B&D costs, line 27, Net (to)from storage, line 28 and the GCC portion of Demand costs, line 30, by Total Supply (DTH), line. Q. Explain the Company s Total GCR Revenue on Exhibit A-1, line 50.

10 TESTIMONY OF JAY E. SKILLMAN ON BEHALF OF SEMCO ENERGY GAS COMPANY A. Total GCR Revenue for the year ended March 31, 2018 was $11,518,377. Total GCR Revenues is the sum of Billed GCR Revenue, line, and the net of Unbilled GCR Revenue, Prior and Current, lines 7 and 8. Rate Schedule Sales, line 15, of Exhibit A-1, is multiplied by the GCR factor in effect for the billing month, line 5, of Exhibit A-1, to arrive at Billed GCR Revenue, line. Unbilled GCR Revenues Current Month, line 8 is calculated by multiplying the Unbilled GCR Volumes Current Month, line 18, of Exhibit A-1, by the GCR factor of the subsequent month. The previous month s Unbilled GCR Revenues Prior Month, line 7 is reversed to arrive at Total GCR Revenue of $11,518,377, line 50, of Exhibit A-1. Q. Please explain the roll-in of the Prior Year over recovery, Exhibit A-1, line 5. A. On March 15, 2018, the Company received authorization in Case No. U R to roll into SEMCO Gas s GCR reconciliation the GCR over recovery of $1,187,88. Q. Referring to Exhibit A-2, what was the over/under recovery for the GCC B&D costs for the year ended March 31, 2018? A. Exhibit A-2 calculates the GCC B&D over recovery for the twelve months ended March 31, The cumulative over recovery for the period was $11,91, exclusive of interest, as shown on line 3 of Exhibit A-2, page 1 of 2. Q. Please explain the components of the GCC B&D Over/Under calculation shown on Exhibit A-2, page 1 of 2. A. Similar to the GCR over/under recovery calculation, the over/under recovery amount is determined by subtracting Total Allocated B&D costs, line 1, from Total GCC B&D billed revenue, line 2, to arrive at the over recovery shown on line 30. The approved prior-year over recovery of $11,911 (U-1792-R), is added to line 30 to arrive at the Total GCC B&D over recovery of $11,91, line 3. 5

11 TESTIMONY OF JAY E. SKILLMAN ON BEHALF OF SEMCO ENERGY GAS COMPANY Q. Please explain Exhibit A-2, page 1, line 11, Allocated GCC B&D 8.50% and line, Allocated GCC B&D Transport 8.50%. A. Allocated GCC B&D costs and Allocated Transportation credits are the GCC portion of GCR B&D costs and transport costs as previously discussed on page, lines 8-19 of my testimony. The transport credits as discussed on page 3, lines and page, lines 1-5 of this testimony, are considered B&D costs and, as a B&D cost, they are allocated between GCR and GCC customers in the same manner, previously discussed. Allocated GCC B&D costs and Allocated GCC B&D transport costs were $2,773,39 and $(83,23) as shown on Exhibit A-2, page 1 of 2, lines 11 and. These amounts are also reflected as deductions to the GCR cost of gas, Exhibit A-1, lines 30 and 31. Q. Please explain the GCC B&D roll-in of the Prior Year over recovery, Exhibit A-2, page 1 of 2, line 32. A. On March 15, 2018, the Company received authorization in Case No. U R to roll into SEMCO Gas s GCR reconciliation the GCC B&D over recovery of $11,911, line 32. Q. Explain the calculation of B&D allocation percentage of 8.50% from Exhibit A-2, page 2 of 2. A. The allocation of B&D cost between GCR and GCC customers is based on the pro-rata allocation of GCR/GCC billed B&D costs to total billed B&D costs (GCR & GCC). For the year ended March 31, 2018 GCR and GCC customers were allocated 91.50% and 8.50% of B&D costs respectively, based on the calculation shown on Exhibit A-2, page 2 of 2, lines B&D billed costs for the year totaled $31,8,531, Exhibit A-2, page 2 of 2, line 30. This amount was comprised of GCR billed B&D of $28,958,322, Exhibit A-2, page 2 of 2, line 29, and GCC billed B&D of $2,90,209, Exhibit A-2, line 28. Q. Explain how the Total GCR billed B&D Costs of $28,958,322 was determined.

12 TESTIMONY OF JAY E. SKILLMAN ON BEHALF OF SEMCO ENERGY GAS COMPANY A. The Total GCR billed B&D costs were calculated in the same manner as Total GCR Revenue, Exhibit A-1, line 50, which is explained in this testimony on page 5, line The Total GCR B&D revenue calculation uses the effective B&D factor whereas the Total GCR revenue from Exhibit A-1 uses the total GCR rate (Commodity factor + B&D factor). Q. Explain the Company s Total GCC billed B&D costs, Exhibit A-2, line 28, page 2 of 2 A. Total GCC B&D Billed Revenue for the year ended March 31, 2018, was $2,90,209, Exhibit A-2, page 2 of 2, line 28. Total GCC billed B&D costs the sum of GCC B&D billed to customers, line 23, and the net of Unbilled GCC B&D revenues, lines 2 and 25, Exhibit A-2, page 2 of 2. Similar to GCR Revenue, GCC Rate Schedule Sales, line 3, are multiplied by the B&D charge in effect, line 21, to arrive at GCC B&D Billed to Customers, line 23. Unbilled GCC B&D Current Month, line 25, is calculated by multiplying the Unbilled GCC Volumes Current Month, line 5, by the GCC B&D factor of the subsequent month. The previous month s Unbilled GCC B&D Revenues Prior Month, line 2, is reversed to arrive at Total GCC B&D Billed Revenue, line 2. Q. Please explain the components of Exhibit A-3. A. Exhibit A-3, Purchased and Produced, presents the booked costs and quantities of purchased gas during the GCR -month period. The schedule consists of purchases from suppliers, demand and transportation costs, imbalances, and other costs incurred in the purchase and delivery of the Company s supply during the GCR year. Total gas Commodity and B&D costs are recorded separately and are reflected on Exhibit A-3, page 1, lines 22 and 32, respectively, and support amounts shown on Exhibit A-1, line 2, and 27. Purchased and Produced volumes are reflected on Exhibit A-3, page 2, line 22, and support the volumes shown on Exhibit A-1, line 1. Q. Have you calculated interest on the accrued over/under recoveries? 7

13 TESTIMONY OF JAY E. SKILLMAN ON BEHALF OF SEMCO ENERGY GAS COMPANY A. Yes. The Company prepares two reconciliations, a GCR over recovery reconciliation based on activity reflected in Exhibit A-1, and a GCC B&D over recovery reconciliation, based on activity from Exhibit A-2. Accordingly, Exhibit A- presents two independent interest calculations: 1) a GCR interest calculation, lines 3-21, and 2) a GCC B&D interest calculation, lines For the twelve month period ended March 31, 2018, the Company incurred interest expense on the GCR over/under recovery of $110,231, Exhibit A-, line 17. Net interest income of $(59) was accrued on the GCC B&D over/under recovery, Exhibit A-, line 7. Q. How are interest rates determined? A. For months having a net over recovery, interest is accrued at the Company s authorized return on equity of 10.35%. For months when there is a net average under recovery, interest accrues at the Company s short term borrowing rate in effect for that month. Interest is calculated based upon 35 days in the year and the actual number of days in the month. Q. What is the net over recovery for the GCR period? A. The GCR over recovery, including interest, for the GCR plan year ended March 31, 2018, was $88,757, Exhibit A-, line 21. The GCC B&D over recovery at March 31, 2018, was, inclusive of interest, $11,302, Exhibit A-, line 51. Q. Please explain the purpose of Exhibit A-5 and Exhibit A-. A. Exhibits A-5 and A- are a result of the Settlement Agreement in Case No. U-1322-R which requires the Company to provide exhibits similar to Exhibit A-1 and Exhibit A-3, with actual monthly data, for the relevant - month GCR reconciliation period. Q. What are the primary differences between Exhibits A-1 through A-3 and Exhibits A-5 and A-? 8

14 TESTIMONY OF JAY E. SKILLMAN ON BEHALF OF SEMCO ENERGY GAS COMPANY A. Exhibits A-1 through A-3 reflect booked dollars and volumes based on monthly estimated activity, adjusted for the prior month estimate to actual adjustments. Prior month estimate to actual adjustments are normal recurring adjustments resulting from the lack of availability of actual financial and volumetric data at each month-end. Exhibits A-5 and A- are pro-forma schedules representing dollars and quantities based on actual activity, in the month incurred. Exhibit A-5 and Exhibit A- essentially reflect prior period adjustments in the month of origination rather than in the month recorded. These schedules are included for analysis purposes only and are not meant to represent an adjusted or corrected GCR over/ under recovery. Q. How does the Company plan to recover, from its customers, the net plan year GCR and GCC B&D over recoveries? A. The Company proposes to roll-in the net GCR and GCC B&D over recoveries, of $88,757 and $11,302 Exhibit A-, lines 21 and 51, respectively, into the GCR plan year reconciliation for GCR and GCC B&D costs. Q. Does this complete your prefiled direct testimony at this time? A. Yes. 9

15 Exhibit A-1 CASE NO: U SEMCO Energy Gas Company - MPSC DIVISION Gas Cost Recovery Calculation - GCR Costs Months Ended March 31, LINE APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH TOTAL SOURCES OF GAS 1 Purchased and Produced - DTH 3,21,782 3,2,18 2,87,907 2,718,109 2,899,978 2,792,53 3,831,89 2,907,9,32,823 3,71,805 3,053,710 2,08,31 37,808,58 2 Net (To) From Storage (828,95) (1,5,70) (2,08,7) (1,9,0) (2,139,350) (1,839,390) (1,90,228) 1,1,7 2,,71 3,03,082 2,891,39 3,515,79 1,515,510 3 Total Supply 2,592,817 1,785,98 788, ,989 70,28 953,173 1,927,,39,710,789,58 7,07,887 5,95,19 5,58,310 39,32,09 5 Adjust Volumes For: Company Use Gas (18,578) (1,500) (2,808) (11,30) (9,7) (19,19) (8,99) (,03) (,950) (19,000) (21,50) (19,97) (220,98) 7 Lost And Unaccounted For Gas (11,570) (8,708) (5,597) (5,381) (5,92) 1,7 37,313 53,151 97,35 (21,11) (8,59) (8,233),888 8 Gas In Kind 22,3 17,013 1,839 1,29 13,57 15,772 17,22 18,57 21,51 23,20 2,959 22,07 227, Total Supplies 2,585,103 1,777,753 77,7 79,7 758,22 9,50 1,973,722,37,03,81,95 7,057,80 5,939,909 5,578,710 39,58,82 13 SALES - DTH 1 15 Rate Schedule Sales (Billed),79,780 2,53,53 1,33, ,879 79,238 89,20 988,15 2,3,78,877,729 7,52,0,38,972,029,58 39,38, Unbilled - Prior Month (3,91,218) (1,8,51) (1,107,1) (8,75) (372,32) (31,708) (32,008) (1,17,57) (3,51,80) (5,525,2) (5,021,00) (,521,997) (28,578,313) 18 Unbilled - Current Month 1,8,51 1,107,1 8,75 372,32 31,708 32,008 1,17,57 3,51,80 5,525,2 5,021,00,521,997,071,09 28,88, Rate Schedule Sales (Unbilled) (2,09,77) (758,900) (58,885) (7,32) (10,1) 70, ,5 2,,28 1,983,7 (50,5) (99,03) (50,98) 109, Total Sales -Dth 2,585,103 1,777,753 77,7 79,7 758,22 9,50 1,973,722,37,03,81,95 7,057,80 5,939,909 5,578,710 39,58, COST OF GAS SOLD ($) 25 2 Purchased and Produced - Commodity Costs $ 10,251,117 $ 10,002,359 $ 8,759,78 $ 7,882,923 $ 8,8,995 $ 7,871,993 $ 10,87,325 $ 7,513,15 $,952,189 $ 9,,59 $ 10,00,92 $ 5,153,305 $ 109,250,0 27 Balancing and Demand (B&D) costs 1,979,053 2,087,77 1,81,389 1,977,038 2,030,79 2,031,595 2,0,721 3,8,03 3,88,23 3,57,2 3,723,5 3,79,37 32,27, Net (To) From Storage (2,1,953) (,837,00) (,0,58) (5,88,138) (,03,757) (5,208,919) (5,205,759),188,9 7,031,51 10,272,028 8,188,931 9,989,29 3,31, 29 Transport Credits (7,) (10,799) (,0) (5,8) (,00) (,583) (101,582) (8,775) (75,313) (,209) (117,31) (73,71) (979,2) 30 GCC portion of Demand Costs (18,225) (177,1) (158,223) (18,053) (172,13) (172,91) (175,77) (32,801) (313,5) (310,891) (31,513) (3,75) (2,773,39) 31 GCC portion of Transport Credits,98 8,908 5, 3,882 3,791 3,790 8,35 5,8,02 13,788 9,982,270 83, Booked Cost Of Gas Sold $ 9,377,0 $,979, $ 3,93,7 $ 3,91,983 $ 3,902,95 $,81,185 $ 7,079,2 $ 15,15,92 $ 23,289,52 $ 23,11,735 $ 22,089,0 $ 18,1,719 $ 11,839, Less Cost Of Gas For 3 Company Use Gas (7,33) (59,891) (90,0) (1,88) (35,01) (9,578) (30,89) (15,982) (170,1) (8,95) (78,18) (72,500) (800,38) 37 Lost And Unaccounted For Gas (1,99) (31,08) (20,31) (19,532) (21,510) 53, ,3 192,92 353,33 (78,2) (31,30) (29,88) 0,59 38 Gas In Kind 81,29 1,753 1,1 51,793 9,25 57,28 2,58 7,2 78,097 8,22 90,59 82, , Total GCR Cost Of Gas Sold $9,39,0 $,99,98 $3,91,35 $3,952,75 $3,895,21 $,522, $7,2,833 $15,01,330 $23,550,50 $23,053,552 $22,070,0 $18,21,393 $,327, REVENUES ($) 3 Maximum Factor Permitted $.193 $.193 $.193 $.193 $.193 $.193 $.193 $.193 $.193 $.193 $.193 $.193 $ Factor Billed To Customers $ $.1500 $.1500 $.1500 $.1500 $.1500 $ $ $3.900 $ $ $3.500 $3.500 Billed GCR Revenue 18,017,153 10,527,110 5,99,21 3,27,398 3,192,338 3,711,09 3,92,72 9,227,85 17,023,27 25,332,85 21,570,55 20,802,320,723,97 7 Unbilled GCR Revenues - Prior Month (15,250,89) (7,7,15) (,59,710) (1,82,337) (1,55,15) (1,501,088) (1,723,7) (5,5,0) (,31,091) (18,510,87) (1,820,551) (15,00,890) (103,175,325) 8 Unbilled GCR Revenues - Current Month 7,7,15,59,710 1,82,337 1,55,15 1,501,088 1,723,7 5,5,0,31,091 18,510,87 1,820,551 15,00,890 1,05, ,99, Total GCR Revenue $10,5,09 $7,377,75 $3,21,88 $3,110,20 $3,18,281 $3,933,720 $7,875,150 $15,932,83 $23,173,030 $23,2,558 $20,350,895 $19,2,59 $11,518, (Under) Over Recovery $1,13,55 $27,977 ($99,57) ($82,550) ($7,933) ($588,72) $28,317 $531,50 ($377,530) $589,00 ($1,719,55) $825,15 ($809,323) 53 5 Roll-in of Prior Year Over Recovery (U-1792-R) 1,187,88 $1,187, Cumulative GCR (Under) Over Recovery $2,351,13 $2,779,390 $2,079,823 $1,237,273 $90,30 ($98,38) $529,933 $1,01,39 $83,909 $1,272,915 ($,30) $378,52 $378,52

16 SEMCO Energy Gas Company Gas Cost Recovery Calculation - GCC Balancing and Demand Costs Months Ended March 31, 2018 Exhibit A-2 CASE NO: U Page 1 of LINE APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH TOTAL SOURCES OF GAS 1 GCC SALES - DTH 2 3 Rate Schedule Sales (Billed) 0,7 219,85 7,507 80,220 7,93 83,77 92,8 227,029 7, ,10 59,975 58,837 3,1,759 Unbilled - Prior Month (38,8) (,237) (9,005) (39,91) (3,15) (35,2) (37,333) (132,910) (37,82) (28,732) (7,83) (17,82) (2,758,90) 5 Unbilled - Current Month,237 9,005 39,91 3, ,732 7,83 17,82 370,559 2,781,337 Rate Schedule Sales (Unbilled) (185,891) (,232) (5,091) (3,79) (1,03) 2,211 95,577 21, ,050 (151,89) (58,99) (7,283) 22,31 7 Total Sales -Dth 220,75 153,33 71,1 7,71 73,50 85,88 188,225 1,801 78,771 5,2 535, ,55 3,, Balance and Demand Costs ($) Allocated GCC B&D 8.50% 18, ,1 158,223 18, ,13 172,91 175,77 32, ,5 310,891 31,513 3,75 2,773,39 Allocated GCC Transportation (,98) (8,908) (5,) (3,882) (3,791) (3,790) (8,35) (5,8) (,02) (13,788) (9,982) (,270) (83,23) 13 1 Total Allocated GCC B&D costs 11,727 18, ,779 1,172 18,822 18,901 17,02 320, , ,103 30,531 30,8 2,90, REVENUES ($) Maximum Factor Permitted $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $ Factor Billed To Customers $ $ $0.700 $ $ $ $ $ $ $ $0.800 $0.500 $ GCR B&D Billed To Customers 28,53 175,892 9,905,17 59,75,782 73, ,083 30,15 517,01 0,583 35,7 2,3,970 2 Unbilled GCR B&D Revenue - prior month (23,90) (9,790) (72,9) (31,931) (28,932) (28,098) (29,93) (103,70) (27,715) (52,87) (32,28) (271,597) (1,98,815) 25 Unbilled GCR B&D Revenue - current month 9,790 72,9 31,931 28,932 28,098 29,93 103,70 27,715 52,87 32,28 271,597 29,929 2,038,05 2 Total GCR B&D Billed Costs (Billed+Unbilled) $170,753 $119,0 $55,873 $1,177 $58,920 $8,177 $17,39 $31,8 $55,117 $388,22 $351,932 $382,07 $2,90, (Under) over Recovery - GCC B&D costs $9,02 ($9,7) ($9,90) ($102,995) ($109,902) ($100,72) ($19,73) $20,173 $238,007 $91,520 $5,01 $75,590 $ Roll-in of Prior Year over Recovery (U-1792-R) 11,911 $11, Total (Under) Over Recovery - GCC B&D costs $3,937 $7,70 ($22,3) ($5,31) ($235,333) ($33,057) ($355,730) ($335,557) ($97,550) ($,030) $39,371 $11,91 $11,91

17 SEMCO Energy Gas Company Gas Cost Recovery Calculation - GCC Balancing and Demand Costs Months Ended March 31, 2018 Exhibit A-2 CASE NO: U Page 2 of APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH TOTAL 1 Rate Schedule Sales (Billed),79,780 2,53,53 1,33, ,879 79,238 89,20 988,15 2,3,78,877,729 7,52,0,38,972,029,58 39,38, Unbilled - Prior Month (3,91,218) (1,8,51) (1,107,1) (8,75) (372,32) (31,708) (32,008) (1,17,57) (3,51,80) (5,525,2) (5,021,00) (,521,997) (28,578,313) Unbilled - Current Month 1,8,51 1,107,1 8,75 372,32 31,708 32,008 1,17,57 3,51,80 5,525,2 5,021,00,521,997,071,09 28,88,1 5 Net Unbilled Sales (2,09,77) (758,900) (58,885) (7,32) (10,1) 70, ,5 2,,28 1,983,7 (50,5) (99,03) (50,98) 109, Total GCR Sales -Dth 2,585,103 1,777,753 77,7 79,7 758,22 9,50 1,973,722,37,03,81,95 7,057,80 5,939,909 5,578,710 39,58, REVENUES ($) 1 15 Maximum Factor Permitted $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $0.808 $ Factor Billed To Customers $ $ $0.700 $ $ $ $ $ $ $ $0.800 $0.500 $ GCC B&D Billed To Customers 3,275,8 2,029,322 1,089,500 0,703 15, , ,3 1,803,93 3,755,851 5,,73,378,501 3,919,278 28,9,03 19 Unbilled GCC B&D Revenue - prior month (2,772,853) (1,93,233) (81,807) (359,005) (297,859) (289,3) (31,28) (1,105,708) (2,727,232) (3,978,51) (3,1,321) (2,939,298) (20,50,19) 20 Unbilled GCC B&D Revenue - current month 1,93,233 81, , , ,3 31,28 1,105,708 2,727,232 3,978,51 3,1,321 2,939,298 3,22,132 21,09,98 21 Total GCC B&D Billed Costs (Billed+Unbilled) $1,99,22 $1,377,897 $0,97 $599,558 $0,898 $77,3 $1,55,05 $3,25,8 $5,007,070 $,880,53 $3,903,78 $,22,111 $28,958, DTH % 28 GCC Billed B&D costs (page 1, line 2) 2,90, % 29 GCR Billed B&D costs (line 21) 28,958, % 30 Total 31,8, %

18 SEMCO ENERGY GAS COMPANY - MPSC DIVISION PURCHASED AND PRODUCED - DOLLARS MONTHS ENDED MARCH 31,2018 Exhibit A-3 PAGE 1 of 2 CASE NO: U COST OF GAS w/p 2017 LINE BY SOURCE ($) Ref APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH TOTAL 1 Current Month Estimate/Rev wp-jes-1 5,270,01 253,51 (0,792) (979,91) 22,17 (202,31) 2,578,310 (3,05,30),5,197 (3,55,077) 95,52 (,831,9),39 2 Supplier B wp-jes-2 $531,809 $97,555 $2,289,27 $3,031,02 $2,719,032 $1,895,87 $2,2,805 $2,325,198 $2,2,337 $1,915,930 $2,319,883 $1,3,989 2,1,25 3 Supplier O wp-jes-3 3,953 2,5,5 2,0,27 1,231,92 2,38,01 1,95,30 2,95,559 1,903,53 1,258,25 2,788,08 2,7,90 3,30,599 25,198,231 Supplier F wp-jes- 79,272 31,79 83,523 8,90 322,88 1,009,2 0 1,09,55 1,07, , ,20,0 7,91,03 5 Supplier A wp-jes , ,17 1,070,52 802,01 1,0,527 33,995 1,000,83 20,055 1,19,79 78,8 01,772 7,87,3 Supplier C wp-jes- 852,0 1,531,25 1,771,37 1,22,531 5,531 1,308, ,98 2,071,32 1,9,838 1,2,302 1,957,9 1,789,91 1,352,8 7 Supplier E wp-jes-7 355,85 1,0,98 97,30 1,070, ,51,2 8 Supplier I wp-jes-8 80,51 91,021 32,917 52,28 398,21 832, ,225 80,1 1,998,331 9,318 51,180 8,522,229 9 Supplier C wp-jes , ,839,1 1,172,25 3,531,00 1,1,213 85,58 9,080, Supplier J wp-jes , ,025, ,550,53 11 Other Suppliers wp-jes-11 1,017 93, ,78 0 8, , ,359,825 Local Production wp-jes- 11,988 20,1 18,825 18,52 13,050 15,37 1,82 1,955 1,11 10,13,022 1,80 183, BTU/Fuel Alternate Del Points wp-jes Optimization Credits wp-jes-1 (5,182) (19,357) (3,93) (7,255) (1,255) (15,9) (5,31) (77,358) (11,221) (10,850) (,102) (9,755) (323,37) 15 NNG Imbalance wp-jes- 15 2,03 108,11 232,07 8, (18,51) 0 59,07 0 1,3 1 Other Imbalances wp-jes-1 7,871,503 5,1 (3,819) (1,51) (53) (19,152) 5,052 13,0 (3,890) (23,793) (87,079) (8,235) 17 End User Imbalances wp-jes-17 (55,575) 37,707 23,709 (17,97) (,093) (2,20) 9,59 (183,35) 5,71 (9,705) 9,737 90,231 (91,188) 18 End-User Cash Outs wp-jes-18 17,57 32,9 8,225 (2,27) (55) 0 0 (32,518) 0 0 1,053 13,302 93,31 19 Customer Choice Imbalances wp-jes-19 91,733 3,977 21,81 (15,201) (8,811),983 0 (33,993) (192,927) 3,00 29,90 20,178 01, Other wp-jes-20 0 (2,982) (1,81) (8) 0 (2,903) (2,50) (5,55) (10,377) (75,0) 21 Trans/Storage Variable Costs wp-jes-21 0,75 99, ,520 91,5 87,28 92,1 87,727 0, ,293 15, ,8 5,751 1,3, Commodity Costs $10,251,117 $10,002,359 $8,759,78 $7,882,923 $8,8,995 $7,871,993 $10,87,325 $7,513,15 $,952,189 $9,,59 $10,00,92 $5,153,305 $109,250, Demand Cost Estimate (BD) wp-jes-22 (1,582,511) 0 (9,179) (28,310) ,000 1,92,281 0 (33,78),72 1,23 9,311 2 GLGT Demand Costs (B&D) wp-jes ,113 57,800 57,800 57,5 57,800 57,800 57,800 57,800 33, 313, , ,819 2,023,92 27 NNG Demand Costs (B&D) wp-jes-2 710,57 233,7 182, ,2 292, , , ,59 821,030 82, ,89 829,585 5,902, PEPL Demand Costs (B&D) wp-jes ,87 218,273 28,097 29,218 2,18 28,115 25,725 28,30 2,31 232,3 22,579 22,10 2,83, ANR Demand Costs (B&D) wp-jes-2 1,38,79 930,039 8,28 810,13 838,32 838,73 851, ,355 1,39,58 1,39,58 1,39,587 1,355,103,855, Other Demand Costs (B&D) wp-jes-27 9,739 7, , , , , ,530 51,259 98,7 98,519 98,519 98,519 8,993, Balancing and Demand Costs 1,979,053 2,087,77 1,81,389 1,977,038 2,030,79 2,031,595 2,0,721 3,8,03 3,88,23 3,57,2 3,723,5 3,79,37 32,27, Total Purchased and Produced,230,170,089,837 10,21,157 9,859,91 10,159,7 9,903,588,55,0 11,357,78 1,0,51 13,30,018 1,32,92 8,832,73 11,877,815

19 Exhibit A-3 PAGE 2 of 2 CASE NO: U SEMCO ENERGY GAS COMPANY PURCHASED AND PRODUCED - DEKATHERMS MONTHS ENDED MARCH 31,2018 SUPPLY OF GAS 2017 DEKATHERMS APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH TOTAL 1 Current Month Estimate/Rev wp-jes-1 1,50,252 19,335 (35,8) (182,003) 159,719 (70,58) 1,011,17 (950,197) 1,111,72 (913,288) (09,53) (770,08) 83,1 2 Supplier B wp-jes-2 202,30 335,1 773,3 1,017,2 952,28 9,5 803, , ,23 2, ,8 505,57 8,,118 3 Supplier O wp-jes-3 17, , ,80 05,23 839,7 7,883 1,077, ,1 81,8 9, 920, ,83 8,82,1 Supplier F wp-jes- 337,201 2, ,000 27,72 0,52 358,88 0 1,178 2,52 18, ,37 2,9,375 5 Supplier A wp-jes , ,1 335,070 25,877 3, ,50 3,239 89, , ,03 1,028 2,17,23 Supplier C wp-jes- 313, ,37,98 27, ,37 7,73 18,17 780,0 59, ,822 88,31 5,51 5,5,170 7 Supplier E wp-jes-7 17,250 03,19 35,01 33, ,29,7 8 Supplier C wp-jes , ,23,99 1,21,1 38, ,99 3,278,03 9 Supplier I wp-jes-9 325,22 322,99 10,3 152,130 13, , , ,000 52, ,052 19,203 2,959,8 10 Supplier J wp-jes , , , Other Suppliers wp-jes-11 23,15 311, , , , ,19,53 Local Production wp-jes-,83,738,29,030,53 5,551,022 5,58,2 3,10,0,9, NNG Imbalance wp-jes- 15 8,817 3,0 78,753 3, (,81) 0 11, ,817 1 Other Imbalances wp-jes-1 15,957 1,501 1,91 (1,273) (,87) (181) (,38) 21,8,38 (11,30) (7,931) (25,15) (,257) 15 End User Imbalances wp-jes-17 (18,525),59 7,903 (5,899) (22,031) (8,10) 23,183 (1,115) 18,238 (23,235) 1,579 30,077 (30,39) 1 BTU/Fuel Alternate Del Points wp-jes-28 (,973) (358) (152) (870) (992) (992) (90) (90) (1,927) (2,53) (5,901) (,91) (25,1) 17 Fuel to Storage wp-jes-29 (32) (8,83) (,528) (15,90) (19,852) (2,027) (17,877) (18,500) (2) (98) (523) (50) (118,731) 18 Other wp-jes , , End-User Cash Outs wp-jes-18 11,51 20,23 27,305 (1,057) (11,7) 0 0 3,01 3,958 5, Customer Choice Imbalances wp-jes-19 13,911 1,59 7,287 (52,07) (25,53) 1,1 0 (11,331) (,309) 2,15 108,18,72 151, TOTAL DTH 3,21,782 3,2,19 2,87,907 2,718,109 2,899,978 2,792,53 3,831,89 2,907,9,32,822 3,71,805 3,053,710 2,08,31 37,808,585

20 SEMCO Energy Gas Company Months Ended March 31, 2018 Interest Calculation Exhibit A- CASE NO: U GCR Gas Over/Under Recovery Interest Calculation Beginning Current Current Balance Balance Over(Under) Month Subject to Over(Under) Recovery Average Interest Interest Monthly 1 MONTH Recovery (Exhibit A-1 (JES-1) (Current Mo. X.5) (Beg Bal + Cur Mo. Ave. Rate Interest 2 3 Beginning Balance 1,187,88 April 2017 $ 1,187,88 $ 1,13,55 $ 581,783 $ 1,79, % $ 15,05 5 May 2,351,13 $ 27, ,989 2,55, % 22,551 June 2,779,390 $ (99,57) (39,78) 2,29, % 20,8 7 July 2,079,823 $ (82,550) (21,275) 1,58, % 1,579 8 August 1,237,273 $ (7,933) (373,7) 83, % 7,593 9 September 90,30 $ (588,72) (29,32) 195, % 1,7 10 October (98,38) $ 28,317 31, , % 1, November 529,933 $ 531,50 25, , %,79 December 1,01,39 $ (377,530) (188,75) 872, % 7,71 13 January ,909 $ 589,00 29, , 10.35% 8,01 1 February 1,272,915 $ (1,719,55) (859,773) 13, % 3, March (,30) $ 825,15,578 (3,052) 3.3% (99) 1 17 Total $ 378,52 $ 110, Total GCR over recovery $88, GCC Balance and Demand Charge Over/Under Recovery Interest Calculation 2 27 BEGINNING CURRENT BALANCE 28 BALANCE CURRENT MONTH SUBJECT TO 29 OVER(UNDER) OVER(UNDER) AVERAGE INTEREST INTEREST MONTHLY 30 MONTH RECOVERY RECOVERY (Current Mo. X.5) (Beg Bal + Cur Mo. Ave.) RATE INTEREST 31 (a) (b) (c) (d) (e) (f) (g) Beginning Balance 11,911 3 April ,911 9,02, , % $ 1,01 35 May 3,937 (9,7) (2,73) 99, % June 7,70 (9,90) (8,53) 2, % July (22,3) (102,995) (51,98) (73,93) 2.2% (15) 38 August (5,31) (109,902) (5,951) (180,382) 2.2% (01) 39 September (235,333) (100,72) (50,32) (285,95) 2.2% (15) 0 October (33,057) (19,73) (9,837) (35,89) 2.85% (837) 1 November (355,730) 20,173 10,087 (35,) 2.85% (810) 2 December (335,557) 238, ,00 (21,55) 3.2% (00) 3 January 2018 (97,550) 91,520 5,70 (51,790) 3.3% (151) February (,030) 5,01 22,701 1, % March 39,371 75,590 37,795 77, % 78 7 Total $ 11,91 $ (59) Total GCR B&D over recovery $11,302

21 Exhibit A-5 CASE NO: U SEMCO ENERGY GAS COMPANY - MPSC DIVISION GAS COST RECOVERY CALCULATION - ACTUALS MONTHS ENDED MARCH 31, LINE APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH TOTAL SOURCES OF GAS 1 PURCHASED AND PRODUCED 3,293,08 3,231,771 2,900,1 2,70,259 2,83,111 2,820,720 3,858,11 3,213,097,385,093 3,3,2 2,839,239 2,15,50 37,953,39 2 NET (TO) FROM STORAGE (828,95) (1,5,70) (2,08,7) (1,9,0) (2,139,350) (1,839,390) (1,90,228) 1,1,7 2,,71 3,03,082 2,891,39 3,515,79 1,515,510 3 TOTAL SUPPLY 2,,119 1,575, ,38 77, ,71 981,330 1,953,933,7,83,89,85 7,2,32 5,730,78 5,1,185 39,8,90 5 ADJUST VOLUMES FOR COMPANY USE GAS (18,578) (1,500) (2,808) (11,30) (9,7) (19,19) (8,99) (,03) (,950) (19,000) (21,50) (19,97) (220,98) 7 LOST AND UNACCOUNTED FOR GAS (11,570) (8,708) (5,597) (5,381) (5,92) 1,7 37,313 53,151 97,35 (21,11) (8,59) (8,233),888 8 GAS IN KIND 15,305 13,0,232 11,72 1,070 1,15 18,5 18,858 20,25 23,957 22,07 21, , TOTAL SUPPLIES 2,9,27 1,53, ,25 79, , ,090 2,001,291,72,9,920,503 7,29,72 5,722,555 5,5,058 39,582,3 13 SALES whaaa? 1 15 RATE SCHEDULE SALES (BILLED),79,780 2,53,53 1,33, ,879 79,238 89,20 988,15 2,3,78,877,729 7,52,0,38,972,029,58 39,38, UNBILLED - PRIOR MONTH (3,91,218) (1,730,71) (757,218) (118,931) (2,) (15,) (11,0) (1,7,17) (3,55,88) (5,599,22) (5,287,28) (,570,831) (2,901,093) 18 - CURRENT MONTH 1,730,71 757, ,931 2, 15, 11,0 1,7,17 3,55,88 5,599,22 5,287,28,570,831,195,231 27,135, RATE SCHEDULE SALES (UNBILLED) (2,230,50) (973,9) (38,287) (5,789) (,980) 98,850 1,013,135 2,29,701 2,02,77 (3,37) (71,17) (375,00) 23, TOTAL SALES 2,9,27 1,53, ,25 79, , ,090 2,001,291,72,9,920,503 7,29,72 5,722,555 5,5,058 39,582, 23 2 COST OF GAS SOLD ($) PURCHASED AND PRODUCED 11,83,295 11,297,8 10,88,18 9,935,527 10,10,020 9,950,73,720,097,175,25 1,882,773 13,82,58 13,2,88 8,9,897,22,37 27 NET (TO) FROM STORAGE (2,1,953) (,837,00) (,0,58) (5,88,138) (,03,757) (5,208,919) (5,205,759),188,9 7,031,51 10,272,028 8,188,931 9,989,29 3,31, 28 Transport Credits (7,) (10,799) (,0) (5,8) (,00) (,583) (101,582) (8,775) (75,313) (,209) (117,31) (73,71) (979,2) 29 GCC portion of Demand Costs (18,225) (177,1) (158,223) (18,053) (172,13) (172,91) (175,77) (32,801) (313,5) (310,891) (31,513) (3,75) (2,773,39) 30 GCC portion of Transport Credits,98 8,908 5, 3,882 3,791 3,790 8,35 5,8,02 13,788 9,982,270 83, BOOKED COST OF GAS SOLD 8,983,170,18,73,210,705,037,59 3,88,80,528,333 7,25,713 15,97,8 23,531,8 23,37,285 21,27,85 18,573,93 $,18,0 3 LESS COST OF GAS FOR 35 COMPANY USE GAS (,927) (59,1) (89,371) (1,17) (3,753) (9,05) (30,18) (15,82) (19,137) (8,7) (77,598) (71,95) (79,32) 3 LOST AND UNACCOUNTED FOR GAS (1,81) (31,371) (20,13) (19,385) (21,38) 53,187 13,20 191,7 350,85 (77,853) (31,19) (29,59) 57,11 37 GAS IN KIND 55,13 7,03,0 2,373 50,87 58,23,805 7,93 72,95 8,305 79,529 75,91 77,00 38 PRIOR YEAR OVERRECOVERY (U-183/-R) (1,187,88) (1,187,88) 39 0 TOTAL COST OF GAS SOLD $7,71,850 $,,987 $,15,237 $,019,31 $3,83,2 $,570,98 $7,1,320 $1,218,018 $23,78,377 $23,577,290 $21,398,591 $18,58,29 $11,08,2 1 2 REVENUES ($) 3 MAXIMUM FACTOR PERMITTED $.193 $.193 $.193 $.193 $.193 $.193 $.193 $.193 $.193 $.193 $.193 $.193 $ FACTOR BILLED TO CUSTOMERS $ $.1500 $.1500 $.1500 $.1500 $.1500 $ $ $3.900 $ $ $3.500 $3.500 BILLED GCR REVENUE $18,017,153 $10,527,110 $5,99,21 $3,27,398 $3,192,338 $3,711,09 $3,92,72 $9,227,85 $17,023,27 $25,332,85 $21,570,55 $20,802,320 $,723,97 7 UNBILLED GCR REVENUES - PRIOR MONTH (15,250,89) (7,182,3) (3,,55) (93,5) (257,889) (2,922) (5,908) (,97,317) (,13,00) (18,758,73) (17,7,281) (15,79,37) (95,995,989) 8 UNBILLED GCR REVENUES - CURRENT MONTH 7,182,3 3,,55 93,5 257,889 2,922 5,908,97,317,13,00 18,758,73 17,7,281 15,79,37 1,73,57 95,218, TOTAL GCR REVENUE $9,98,927 $,87,102 $3,300,350 $3,191,723 $2,997,371 $,103,082 $7,985,151 $17,13,98 $23,38,08 $2,28,01 $19,27,2 $19,50,500 $11,9, (UNDER) OVER RECOVERY $2,207,077 $3,115 ($8,887) ($827,39) ($8,055) ($7,1) $58,831 $925,929 ($17,78) $709,111 ($1,770,99) $958,231 $538, CUMMULATIVE (UNDER) OVER RECOVERY $2,207,077 $2,551,192 $1,70,305 $878,7 $32,11 ($35,005) $133,827 $1,059,75 $1,987 $1,351,099 ($19,850) $538,381 $538,381

22 SEMCO ENERGY GAS COMPANY - MPSC DIVISION PURCHASED AND PRODUCED - DOLLARS MONTHS ENDED MARCH 31,2018 Exhibit A- PAGE 1 of 2 CASE NO: U COST OF GAS w/p LINE BY SOURCE ($) Ref APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH TOTAL 1 wp-jes-1 2 Supplier B wp-jes-2 $97,555 $2,289,27 $3,031,02 $2,719,032 $1,895,87 $2,2,805 $2,325,198 $2,2,337 $1,915,930 $2,319,883 $1,3,989 $07,288 2,239,733 3 Supplier O wp-jes-3 $2,5,5 $2,0,27 $1,231,92 $2,38,01 $1,95,30 $2,95,559 $1,903,53 $1,258,25 $2,788,08 $2,7,90 $3,30,599 1,20,99 2,253,777 Supplier F wp-jes- $31,79 $83,523 $8,90 $322,88 $1,009,2 $0 $1,09,55 $1,07,597 $521,782 $0 $1,20,0 13,771 7,310,52 5 Supplier A wp-jes-5 $52,885 $537,17 $1,070,52 $802,01 $1,0,527 $33,995 $1,000,83 $20,055 $1,19,79 $78,8 $01, ,25 8,1,81 Supplier C wp-jes- $1,531,25 $1,771,37 $1,22,531 $5,531 $1,308,581 $532,98 $2,071,32 $1,9,838 $1,2,302 $1,957,9 $1,789,91 910,878 1,11,02 7 Supplier E wp-jes-7 $1,0,98 $97,30 $1,070,29 $0 $0 $0 $0 $0 $0 $0 $0 0 3,158,58 8 Supplier I wp-jes-8 $91,021 $32,917 $52,28 $398,21 $832,050 $0 $57,225 $80,1 $1,998,331 $9,318 $51,180 3,017 8,30,705 9 Supplier C wp-jes-9 $0 $51,5 $0 $0 $0 $0 $1,839,1 $1,172,25 $3,531,00 $1,1,213 $85,58 22,93 9,322,33 10 Supplier J wp-jes-10 $52,759 $0 $0 $0 $0 $1,025,95 $0 $0 $0 $0 $0 0 1,550,53 11 Other Suppliers wp-jes-11 $93,852 $0 $0 $822,78 $0 $8,771 $0 $227,00 $0 $0 $0 75,119 3,52,927 Local Production wp-jes- $20,1 $18,825 $18,52 $13,050 $15,37 $1,82 $1,955 $1,11 $10,13 $,022 $1,80 11, , BTU/Fuel Alternate Del Points wp-jes-13 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $ Optimization Credits wp-jes-1 ($19,357) ($3,93) ($7,255) ($1,255) ($15,9) ($5,31) ($77,358) ($11,221) ($10,850) ($,102) ($9,755) (9,939) (288,39) 15 NNG Imbalance wp-jes- 15 $108,11 $232,07 $8,391 $0 $0 $0 $0 ($18,51) $0 $59,07 $0 81,808 71,80 1 Other Imbalances wp-jes-1 $,503 $5,1 ($3,819) ($1,51) ($53) ($19,152) $5,052 $13,0 ($3,890) ($23,793) ($87,079) 3,18 27,02 17 End User Imbalances wp-jes-17 $37,707 $23,709 ($17,97) ($,093) ($2,20) $9,59 ($183,35) $5,71 ($9,705) $9,737 $90,231 35,00 (09) 18 End-User Cash Outs wp-jes-18 $32,9 $8,225 ($2,27) ($55) $0 $0 ($32,518) $0 $0 $1,053 $13, ,8 19 Customer Choice Imbalances wp-jes-19 $3,977 $21,81 ($15,201) ($8,811) $,983 $0 ($33,993) ($192,927) $3,00 $29,90 $20,178 (27,) (3,357) 20 Other wp-jes-20 ($2,982) $0 $0 $0 ($1,81) ($8) $0 ($2,903) ($2,50) ($5,55) ($10,377) (118) (75,722) 21 Trans/Storage Variable Costs wp-jes-21 $99,181 $100,520 $91,5 $87,28 $92,1 $87,727 $0,973 $115,293 $15,701 $159,8 $5,751 9,28 1,355,32 22 Commodity Costs $9,78,818 $9,3,50 $8,82,838 $7,90,88 $8,07,25 $7,909,015 $10,57,775 $8,8,991 $13,191,71 $10,105,7 $9,98,75 $5,03,77 $109,0, GLGT Demand Costs (B&D) wp-jes-22 57,800 57,800 57,5 57,800 57,800 57,800 57,800 33, 313, , , ,331 2,023, NNG Demand Costs (B&D) wp-jes ,7 182, ,2 292, , , ,59 821,030 82, ,89 829, ,721,015,1 31 PEPL Demand Costs (B&D) wp-jes-2 218,273 28,097 29,218 2,18 28,115 25,725 28,30 2,31 232,3 22,579 22,10 20,507 2,818,5 32 ANR Demand Costs (B&D) wp-jes ,039 8,28 810,13 838,32 838,73 851, ,355 1,39,58 1,39,58 1,39,587 1,355,103 1,22,03,730, Other Demand Costs (B&D) wp-jes-2 7, , , , , ,530 51,259 98,7 98,519 98,519 98,519 98,519 9,029,28 3 wp-jes Balancing and Demand Costs $ 2,087,77 $ 1,930,58 $ 2,005,38 $ 2,030,79 $ 2,031,595 $ 2,01,721 $ 2,152,322 $ 3,88,23 $ 3,91,102 $ 3,719,09 $ 3,78,132 $ 3,51,1 $ 32,17, Total Purchased and Produced $ 11,83,295 $ 11,297,8 $ 10,88,18 $ 9,935,527 $ 10,10,020 $ 9,950,73 $,720,097 $,175,25 $ 1,882,773 $ 13,82,58 $ 13,2,88 $ 8,9,897 $,22,37

23 Exhibit A- PAGE 2 of 2 CASE NO: U SEMCO ENERGY GAS COMPANY PURCHASED AND PRODUCED - DEKATHERMS MONTHS ENDED MARCH 31,2018 SUPPLY OF GAS w/p DEKATHERMS Ref APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH TOTAL 1 0 wp-jes-1 2 Supplier B wp-jes-2 335,1 773,3 1,017,2 952,28 9,5 803, , ,23 2, ,8 505,57 259,183 8,520,871 3 Supplier O wp-jes-3 851, ,80 05,23 839,7 7,883 1,077, ,1 81,8 9, 920, ,83 595,795 9,272,709 Supplier F wp-jes- 2, ,000 27,72 0,52 358,88 0 1,178 2,52 18, ,37 18,005 2,53,179 5 Supplier A wp-jes-5 17, ,1 335,070 25,877 3, ,50 3,239 89, , ,03 1,028 3,997 2,71,231 Supplier C wp-jes- 529,37,98 27, ,37 7,73 18,17 780,0 59, ,822 88,31 5,51 3,285 5,70,570 7 Supplier E wp-jes-7 03,19 35,01 33, ,2,9 8 Supplier C wp-jes , ,23,99 1,21,1 38, ,99 99,75 3,377,808 9 Supplier I wp-jes-9 322,99 10,3 152,130 13, , , ,000 52, ,052 19,203 21,579 2,87, Supplier J wp-jes-10 17, , , Other Suppliers wp-jes , , , , ,553 1,219,01 Local Production wp-jes-,738,29,030,53 5,551,022 5,58,2 3,10,0,9,855,2 13 NNG Imbalance wp-jes- 15 3,0 78,753 3, (,81) 0 11, ,50 152,50 1 Other Imbalances wp-jes-1 1,501 1,91 (1,273) (,87) (181) (,38) 21,8,38 (11,30) (7,931) (25,15) 1,05,82 15 End User Imbalances wp-jes-17,59 7,903 (5,899) (22,031) (8,10) 23,183 (1,115) 18,238 (23,235) 1,579 30,077 11,8 (203) 1 BTU/Fuel Alternate Del Points wp-jes-28 (358) (152) (870) (992) (992) (90) (90) (1,927) (2,53) (5,901) (,91) (5,10) (25,59) 17 Fuel to Storage wp-jes-29 (8,83) (,528) (15,90) (19,852) (2,027) (17,877) (18,500) (2) (98) (523) (50) (197) (118,0) 18 Other wp-jes , , End-User Cash Outs wp-jes-18 20,23 27,305 (1,057) (11,7) 0 0 3,01 3, , Customer Choice Imbalances wp-jes-19 1,59 7,287 (52,07) (25,53) 1,1 0 (11,331) (,309) 2,15 108,18,72 (92,18) (10,71) TOTAL DTH 3,293,08 3,231,771 2,900,1 2,70,259 2,83,111 2,820,720 3,858,11 3,213,097,385,093 3,3,2 2,839,239 2,15,50 37,953,

24 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the application of ) SEMCO ENERGY GAS COMPANY for ) reconciliation of the gas cost recovery ) Case No. U plan (U-18157) for the -month period ) ending March 31, ) ) DIRECT TESTIMONY AND EXHIBITS OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY

25 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY Q. Please state your name, business address, and identify the company for which you work and your present position with the company. A. My name is Tamara L. Spencer. My business address is 111 Third Street, Suite A, Port Huron, MI, 800. I am employed by SEMCO Energy Gas Company ( SEMCO Gas or the Company ), a division of SEMCO Energy, Inc., as its Manager of Gas Supply. Q. Please state your utility experience. A. In September of 1987, I was hired by Southeastern Michigan Gas Enterprises, SEMCO, 9 Inc. s predecessor, as a clerk in the Rates and Gas Supply Department. In July of , I became the Company s Supply Acquisition Administrator, responsible for the procurement and scheduling of gas supply, and the daily monitoring of storage activity. In addition, I was involved in the monthly planning of gas supply purchasing and storage utilization. These responsibilities continued, and my involvement increased, through my years as Senior Volume Analyst and Scheduler, and promotion to Supervisor Gas Supply Acquisition in October In 1998, I was promoted to my current position as Manager of Gas Supply. Q. What are your primary responsibilities as Manager of Gas Supply? A. Under the direction of the Director of Gas Supply, I am responsible for the implementation of the Company s Gas Cost Recovery ( GCR ) plan, including the management of the monthly and annual storage plan, the purchase of the Company s gas supply requirements, and the development of the fixed price purchase program. In addition, I have the responsibility of managing the activities of the Company s Gas Customer Choice ( GCC ) program, and providing testimony as necessary in filings with the Michigan Public Service Commission ( MPSC ). 1

26 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY Q. Have you previously testified before the MPSC? A. Yes. I have testified in the Company s GCR reconciliation cases from the GCR period through the present, in addition to submitting testimony in the Company s GCR plan cases and a general rate case. Q. What is the purpose of your testimony in this proceeding? A. The purpose of this testimony is to support the reasonableness and prudence of gas purchase, storage, and transportation decisions made by the Company during the April 1, 2017 March 31, 2018 ( ) GCR period. Q. Are you sponsoring any exhibits in this proceeding? A. Yes. I am sponsoring the following exhibits: 11 Exhibit A-7 Summary of Term Purchases Exhibit A-8 Fixed Price Purchase ( FPP ) Guidelines U Exhibit A-9 Exhibit A-10 Exhibit A-11 Exhibit A- Exhibit A-13 Exhibit A FPP Plan Purchase Summary GCR Period Storage Activity Plan vs. Actual Capacity Release/AMA Credits Bid Summary GCR Period Summary of Applicable NYMEX & Index Prices Q. Were these exhibits prepared by you or under your direction or supervision? A. Yes SUMMARY OF SUPPLY PORTFOLIO Q. Please summarize SEMCO Gas s gas supply portfolio. 2

27 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY A. The Company strives to attain its goal to purchase reliable, reasonably priced gas supply for its GCR customers. The Company s portfolio focuses on the utilization of diversity in supply location, pricing mechanisms, and timing of purchases and consists of: (1) term, monthly and daily supply purchases, (2) withdrawals from on-system and leased storage facilities, and (3) Peaking Supply. The Company purchases the majority of its supply to utilize the capacity of its firm transportation contracts with various interstate pipelines that connect with a variety of supply basins in the southeast, southwest, Canada, and Chicago, in addition to purchasing local production supply in Michigan, to provide diversity in gas supply sourcing. The interstate pipelines serving the Company s Lower Peninsula service territories include (i) ANR Pipeline ( ANR ), (ii) Panhandle Eastern Pipeline Company ( PEPL ), (iii) and Great Lakes Gas Transmission ( GLGT ). The Company s Lower Peninsula is also served with intrastate firm transportation agreements with (i) Consumers Energy Company ( Consumers ), (ii) Michigan Consolidated Gas Company ( MichCon), (iii) Jackson Pipeline ( JPL ), (iv) and Eaton Rapids Pipeline. In the Upper Peninsula service territory, the Company holds firm interstate pipeline transportation capacity with Northern Natural Gas Pipeline ( NNG ) and also utilizes a portion of the GLGT capacity for delivery of gas to NNG for the UPWest service territory, as well as utilizing GLGT to supply the UPEast service territory. In addition, the Company holds firm interstate pipeline transportation capacity for delivery of storage withdrawals from leased storage accounts to the Company s city gates in the Lower and Upper Peninsulas. SEMCO Gas s gas supply portfolio in the GCR period included Term supply and monthly spot market purchases ( Monthly Supply ) utilizing the Company s 3

28 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY firm pipeline transportation agreements. When necessary, purchases were made in the daily spot market, i.e. intra-month supply. Intra-month supply does not flow for the entire month, for example, it may be purchased to flow for five days in the middle of the month. In addition, the Company contracted for Peaking Supply with various receipt and delivery points for the months of January, February, and March of Both on-system and offsystem storage assets were also utilized during the GCR period. Q. What is the basis for the Company s pricing methodology. A. The Company s pricing methodology focuses on diversity in supply purchasing. To achieve such diversity, purchases utilize various types of supply, including Monthly Supply which is purchased in the spot market and is based on the First of the Month ( FOM ) Index and NYMEX settlement, and Term supply purchases which cover more than one month. The Company also provides its customers with pricing diversity by purchasing gas supply with various pricing structures. For example, the supply may be tied to the monthly NYMEX settlement, tied to the FOM Index, purchased at a fixed price, or priced at the Gas Daily daily ( GDD ) price. The Company believes that providing a reasonable and prudent supply portfolio includes pricing variety, as well as diversity of the source. In the GCR period, the Company s supply portfolio consisted of approximately 9% FOM Index based supply, 5.2% NYMEX settlement, 5.5% fixed price, and less than 1% at daily cash prices. Q. Did the Company have Term gas supply in place during the GCR period? A. Yes. Exhibit A-7 is a list of the Term gas supply agreements in place during the GCR Period.

29 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY Q. Did the Company have Term gas supply agreements that extended past one year in length during the GCR period? A. Yes. Referring to Exhibit A-7, lines 3- are local production contracts which are evergreen agreements, meaning the contracts continue until cancelled by either party FPP PROGRAM Q. Please discuss the FPP Guidelines applicable to the GCR period. A. The FPP Guidelines, reflected in Exhibit A-8, apply the MARSI Method of identifying fixed price buying opportunities, which was initially approved in the Order dated June 20, 2015 in the Company s GCR Plan Case U The MARSI Method utilizes several indicators of buy opportunities: The ten day moving average ( 10 DMA ); twenty day moving average ( 20 DMA ); forty day moving 13 average ( 0 DMA ); and the relative strength index ( RSI ). Price targets are determined based on standard deviations from the mean value of the applicable summer or winter NYMEX futures price strip occurring during the four month period prior to the applicable FPP purchase period. There are two Price Targets: 3 rd Standard Deviation and the th Standard Deviation. Q. What must occur for the Company to make purchases under its FPP Guidelines? A. As identified in Exhibit A-8, the following must occur: The applicable NYMEX strip price must be below the 3 rd or th Standard Deviation Price Target; Applicable NYMEX strip price must be less than the 10 DMA, 20 DMA and 0 DMA; The10 DMA must be less than the 20 DMA; 20 DMA less than the 0 DMA; and 5

30 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY RSI-1 day index value must cross below 30. Q. What was the annual FPP quantity applicable to the GCR period? A. Exhibit A-9 is the Fixed Price Purchase Plan as reflected on page 1 of Exhibit A-15, filed and approved in Case No. U Exhibit A-9, line 22, reflects an annual FPP quantity of 7,81,500 Dth for the GCR period. Q. What was the Summer FPP quantity applicable during the Summer FPP purchase period? A. The applicable Summer FPP quantity is reflected on Exhibit A-9, column F, line 22, and totals 5,350,000 Dth. Q. What was the Winter FPP quantity applicable to the GCR period? A. The Winter FPP quantity for the GCR period is reflected on Exhibit A-9, column G, line 22, and totals 2,91,500 Dth. Q. Did the Company acquire any supply using FPP for the GCR period? A. Yes. The Company acquired one layer of Summer FPP. Q. Did the acquired FPP layer utilize the Company s firm transportation capacity? A. Yes. Q. Please discuss the Summer FPP acquired for the GCR period. A. The purchase period for Summer FPP began October 1, 201 and ran through March 20, The 3 rd Price Target was established at $2.8727/Dth; the th Price Target was set at $2.8238/Dth. During the seven day period February 13-21, 2017, the 2017 NYMEX summer strip fell $.308 and on February 21 it settled at $2.879, $.00 above the 3 rd Price Target. The remaining requirements for acquiring fixed priced supply were also met. The Company issued a request for proposal ( RFP ) to acquire the supply on February 22, During the course of trading, the market fluctuated above and below

31 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY the 3 rd Price Target. With the $.308 drop in the market, the Company determined it was prudent to purchase a layer of summer FPP and secured a NYMEX price of $ The first layer of Summer FPP, which equated to 1,28,000 Dth, was purchased at a fixed price of $2.55/Dth. The supply was purchased at the GLGT Emerson receipt point for April 2017-October 31, Q. Did the Company acquire any Winter FPP? A. No. FPP purchase parameters allowing for the acquisition of Winter FPP were not met during the applicable purchase period MONTHLY GAS SUPPLY PURCHASES Q. Please discuss the Company s monthly supply activity. A. In addition to the term supply agreements noted on Exhibit A-7, the Company acquired monthly base load spot supply, monthly swing supply and, when necessary, daily spot market supply. Base load spot supply flows at the Maximum Daily Quantity ( MDQ ) each day of the month for which it was purchased. In contrast, swing supply flows only on the days for which it is called upon by the Company. As a swing supply, the supply utilization can range from zero to the full MDQ, and typically has no minimum take requirements. There may be a demand charge associated with swing supply. Demand charges applicable to swing supply during the period are reflected on Exhibit A-10. Q. Please discuss the Company s monthly supply purchase strategy. A. The Company purchases its Monthly Supply by utilizing its firm transportation to access various supply basins. In addition, the price of the Monthly Supply is based on the NYMEX settlement, the FOM Index and/or a fixed price if applicable. As there is no 7

32 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY definitive way to know which pricing option will yield the lowest cost supply, the Company purchases gas supply using multiple pricing options to provide a reasonable cost of supply. Q. Please explain the Company s purchase process. A. The Company uses a RFP process. The Company solicits bids from qualified suppliers with which it has an executed North American Energy Standards Board ( NAESB ) base contract for the sale and purchase of natural gas. If the Company is in the process of executing a NAESB base contract with a potential new supplier, they may be included on the RFP for indicative pricing purposes. The RFP includes the required receipt point of the supply, the quantity, flow period, and deadline for submitting offers. Q. Does the Company always purchase the gas supply with the lowest bid? A. While the Company attempts to secure the gas supply at the lowest bid received, it is not always possible. The offers received from the Company s suppliers are subject to revision due to continually changing market conditions. Typically suppliers indicate that supply offers are subject to market refresh. If a supplier is contacted and the bid is no longer valid, the Company may attempt to contact the supplier with the next lowest bid. Other reasons why the Company may not select the lowest bid include the offer is from a new supplier with which SEMCO Gas does not yet have a NAESB base contract, credit limit thresholds, the need for supplier diversity, or the inability to contact the supplier at the time of purchase. Q. Please explain Exhibit A-10. A. Exhibit A-10 is a summary of the Company s supply purchases for the GCR period. The summary reflects all purchases which flowed during each month of the GCR period: Monthly base load spot supply, and Intra-month, Swing and Peaking supply if 8

33 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY applicable. Exhibit A-10 denotes the pipeline on which the supply flowed, the quantity, the type of pricing, and the actual price/dth of the supply. In the case of Intra-month or Peaking Supply, Exhibit A-10 reflects the specific days during the month on which the supply flowed. The type of pricing is stated as Index if priced at the applicable FOM Index, NYMEX if priced relative to the settlement price of the applicable NYMEX contract, GDD if priced relative to the Gas Daily-Daily price, or fixed price. Q. Did the Company purchase Swing Gas Supply during the GCR period? A. Yes. The Company contracted for Swing Gas Supply for the months of April, May and October 2017 to manage the wide range of demand that can accompany shoulder month weather. INTRA-MONTH PURCHASES Q. Did the Company purchase Intra-month supply during the GCR period? A. Yes. Intra-month supply was purchased in the months of May and November 2017, and February and March Q. Please discuss the circumstances which necessitated Intra-month gas supply purchases in May A. Intra-month supply was purchased to serve demand related to colder than normal ( CTN ) weather occurring during the May 5-8 weekend. Forecasted demand during the May 5-8 period averaged approximately 10,000 Dth/day above that of planned May demand on an average day. Due to the CTN temperatures, it was necessary to arrange for additional supply in the Holland Operational area utilizing the Consumers interconnect at Overisel. The Company acquired 5,093 Dth/day for the May 5-8 period at $3.0/Dth. The price was $.0 less than the FOM Consumers Index price of $3.10/Dth. 9

34 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY Q. Referring to Exhibit A-10, page, the Company purchased intra-month supply at multiple receipt points and pipelines in November Please explain why such purchases were necessary. A. Weather during the first two weeks of November was significantly colder than normal resulting in sales approximately 00,000 Dth above plan through November 19. The increased demand had been met through increased storage withdrawals from both onsystem and leased storage assets. Through November 19, the storage inventory variance was approximately 85,300 Dth below planned levels. Intra-month supply was purchased to allow for a stabilization in the storage inventory variance through the remainder of the month of November. The Company recalled available pipeline capacity in addition to purchasing city gate supply as necessary. As reflected on Exhibit A-11, page 1, column K, line 39, the storage inventory variance at November 30 was 31,2 Dth below plan, even with intra-month purchases of approximately 00,000 Dth made for the last half of the month. Q. Please discuss the intra-month purchases on NNG in February A. The weather during the first two weeks of February were colder than normal and the Company drew on CTN inventory in NNG storage to meet the increased demand. In addition to drawing on the storage inventory, the cumulative monthly variance on NNG was increasing each day and was approximately 0,000 Dth through February. Storage withdrawals could not be increased to mitigate the monthly imbalance without compromising deliverability from storage. Forecasted moderating temperatures brought a decrease in prices from FOM levels and the Company acquired intra-month supply to assist in reducing withdrawals from storage, as well as reducing the cumulative monthly imbalance. As reflected on Exhibit A-10, page, lines 22-23, the intra-month supply 10

35 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY was purchased at Demarc at a price of $2./Dth versus FOM of $3., and the intramonth supply at Ventura was purchased at a price of $2.55/Dth versus FOM of $.91/Dth. Q. The Company made intra-month purchases of approximately 2,000 Dth/day for the March period. Why was the additional supply necessary? A. Withdrawals from storage were approximately 37,000 Dth/day above planned due to CTN weather experienced the first 13 days of March and the temperatures were forecasted to remain consistently colder than normal. Above planned withdrawals from BWGS, ERGSS and ANR Deward were being relied upon to meet the increased demand through the first half of the month, however due to ratchets and low inventory levels, additional base load supply was going to be required to allow for reduced storage withdrawals and to continue to meet the higher level of demand. The Company purchased approximately 2,000 Dth/day to flow March 17-31, the majority of which was priced below FOM levels, and below the cost of storage inventory PEAKING Q. Please discuss the Peaking Supply the Company acquired to meet Design Peak demand during the winter period. A. As approved in the GCR Plan filing, Case No. U-18157, the Company contracted for total Peaking Supply MDQ of approximately 78,000 Dth with a total available Peaking Supply of approximately,00 Dth for the January 2018-March 2018 period. The Peaking Supply was purchased at receipt points which allowed for flow on the Company s contracted firm pipeline capacity. The commodity price of the 11

36 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY supply was based on the GDD pricing for the day on which the supply was utilized, and the total demand costs were approximately $9,378. Q. Did the Company utilize any Peaking Supply during the winter period? A. Yes, in March Referring to Exhibit A-10, page, lines 5-5, the Company utilized peaking supply totaling approximately 31,09 Dth STORAGE UTILIZATION Q. Please discuss Exhibit A-11. A. Exhibit A-11 is a summary of the Company s storage activity for on-system and offsystem storage assets during the GCR period. Exhibit A-11, page 1, shows the planned month end inventory compared to the actual month end inventory for each storage field and in total for all storage assets. Page 2 of Exhibit A-11, reflects the planned versus actual storage injection activity and page 3 reflects planned versus actual storage withdrawals. Q. What was the Company s ending storage inventory? A. As shown on Exhibit A-11 page 1, column O, line 38, the end of season storage inventory was approximately 1.75 Bcf, a variance from plan of approximately (90,11) Dth. Q. Please discuss what steps the Company took to manage the effects of weather on the storage inventory variance throughout the winter period. A. Each month the Company develops its monthly storage and supply plans, which takes place prior to bid week. The Company assesses the storage inventory levels at that time and, taking into account weather forecasts and average storage activity thus far in the

37 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY current month, estimates the month end inventory levels. Actual month end inventory levels are not known until after the start of the month for which purchases have been made. Based on the estimates, the Company determines what adjustments will be made to the purchase and storage withdrawal plans to facilitate returning storage inventory to planned levels. Q. Please continue. A. During the winter period, the Company adjusted its supply purchases/storage withdrawal activity each month with the goal of meeting planned inventory levels if reasonable, while ensuring future deliverability and sufficient levels of flowing supply to meet a Design Day if one occurred. CTN weather in November and December resulted in month end inventory levels approximately 30,000 Dth and 53,000 Dth below plan respectively. Adjustments were made to planned withdrawals heading into January to allow for the inventory to reach levels closer to plan. By the end of January, the inventory variance had been reduced to approximately 290,000 Dth below plan. Q. Were adjustments made to the planned withdrawals for February 2018? A. Yes. During the time of preparing the February storage and supply plans, the estimated storage variance at the end of January was approximately 53,000 Dth below planned levels. Planned storage withdrawals for February 2018 were subsequently decreased by 53,000 Dth. Warmer than normal weather during the last half of February resulted in an inventory variance of approximately 08,000 Dth above plan. Q. Did the Company adjust planned withdrawals for March 2018 due to the above planned inventory at the end of February? A. Yes, the Company increased planned withdrawals for March by approximately 29,000 Dth. The March storage plan was developed in mid-february and was, therefore, based 13

38 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY on estimated end of February storage inventory levels using the most recent demand forecast available. The significantly warmer than normal weather which was actually experienced through the remainder of the month resulted in end of February excess storage inventory above what was estimated in mid-february. The additional inventory was utilized during the CTN weather throughout March and mitigated the level of intramonth supply purchased during the month CAPACITY MANAGEMENT Q. The Company had an Asset Management Agreement ( AMA ) in place during the GCR period. Please discuss. A. The Company had an AMA agreement in place with BP Canada Energy Marketing ( BP ) for the GCR period, which continues through March 31, The AMA with BP allows for the optimization of the Company s flowing supply. The Company purchases gas supply from various suppliers, during the course of normal operations, and communicates to BP the quantity it is purchasing and flowing on each pipeline contract. BP may then, if the opportunity arises, choose to take the flowing supply to an alternate delivery point and replace the supply to the Company at one of its city gates in Michigan. For example, the Company may purchase supply at the ANR SW wellhead with the intent of delivering 5,000 Dth to its city gate. BP may opt to deliver the ANR SW wellhead supply to another market, and deliver 5,000 Dth of ANR ML7 supply to the Company s city gates. Any savings generated through this process falls under a contracted sharing mechanism. The Company s portion is then credited to the cost of gas. 1

39 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY Q. What is done with the Company s capacity which is not utilized during the month? A. Once the Company has determined what capacity it has available for release each month, if any, it is posted on each pipeline s website or electronic bulletin board for offers by other parties. Interested shippers bid on the capacity and the interstate pipeline performs the process of accepting and awarding bids in accordance with the interstate pipeline s FERC approved gas tariff, and the capacity is awarded to the highest bidder. Through the terms of the AMA, the Company receives 100% of any capacity release revenues realized, which is then credited to the cost of gas. Q. What was the total optimization credit received under the AMA during the GCR period? A. Referring to Exhibit A-, line 10, the AMA yielded optimization credits in the amount of $288, Q. What was the total credit received through the capacity release process? A. The Company received capacity release credits of $702,3.29 for the GCR period, reflected on Exhibit A-, line 5. Q. Please explain Exhibit A-13. A. Exhibit A-13 is a compilation of bid documentation for supply purchases made in GCR period. Included on Exhibit A-13 is information about each bid received, i.e. supplier, pipeline, quantity offered and the offer accepted. Exhibit A-13 also reflects the price offered, including the Basis applied to the NYMEX or the factor applied to the FOM Index. The basis applied to an offered, or purchased, supply package is defined as the price difference between the cost of a futures contract at the Henry Hub and the cash 15

40 TESTIMONY OF TAMARA L. SPENCER ON BEHALF OF SEMCO ENERGY GAS COMPANY price at the delivery point. The deal date of the purchases is also reflected on the exhibit. Q. Please explain Exhibit A-1. A. Exhibit A-1 is a summary of the NYMEX and FOM Index prices applicable to the period. Q. Were the gas purchase, transportation and storage utilization decisions made by the Company during the GCR period reasonable and prudent? A. Yes. The Company managed gas supply, storage, and pipeline transportation assets to ensure reliable service to its customers throughout the period, and the AMA in place during the GCR period yielded $991, in optimization and capacity 11 release credits. Peaking supply was acquired to meet not only a Design Day if it occurred, but to assist in mitigating colder than normal weather that was experienced at the end of March. In addition, the Company took advantage of the opportunity to acquire at least one layer of FPP for the summer period. The Company adjusted monthly storage activity to manage the inventory, but also allowed for storage to be utilized efficiently. Q. Does this conclude your pre-filed direct testimony at this time? A. Yes. 1

41 Exhibit A-7 Case No. U A B D E F G H I J K L SEMCO ENERGY GAS COMPANY Summary of Term Purchases GCR Plan Period April March 2018 Total Wellhead MARSI Line Quantity Effective Expiration Receipt NYMEX Purchase No. Supplier (Dth) Date Date Location Pipeline Date NYMEX/Index Basis Price/Dth Indicator 1 G 1,825,000 /1/2017 3/31/2018 Rex Shelbyville ANR 3/17/2017 ANR Rex Zone3 Index $ N/A N/A 2 B 1,28,000 /1/ /31/2017 Emerson GLGT 2/22/2017 $ $ (0.350) $ rd Price Target 3 B* 730,000 9/1/2001 Evergreen Klinger Local Prod FOM MichCon Index $ (0.0800) N/A N/A P* 730,000 /1/2010 Evergreen Rapley Local Prod FOM MichCon Index $ (0.0800) N/A N/A * Actual production quantities vary.

42 Exhibit A-8 Case No. U Fixed Price Purchase Guidelines The program provides a mechanism, referred to as the Moving Average Relative Strength Index ( MARSI ) Method, for the purchase of winter and summer fixed price supply based on the use of technical indicators as a signal for an opportune time to purchase designated levels of winter and summer flowing supply requirements. For purposes of the Fixed Price Purchases ( FPP ) made under these guidelines, a gas commodity purchase is deemed to have a fixed price if the price has been fixed or set as a stated amount in dollars and cents per Dth; the NYMEX natural gas price strip ( Price Strip ) and applicable basis price components are both set as stated amounts in dollars and cents per Dth. The Purchase Periods will apply to FPP for the upcoming GCR Period. For purposes of the example below, the April 2015-March 201 GCR Period is applicable. a) Summer FPP The FPP purchase period for the April 2015-October 2015 summer period will be the prior six month period; i.e. October March 20, b) Winter FPP The FPP purchase period for the November 2015-March 201 winter period will be the prior six month period; i.e. May 1, 2015-October 20, MARSI Method for Fixed Price Purchases The MARSI methodology applies four technical indicators which assist in identifying the existence of a favorable natural gas buying environment and a buying opportunity. In addition to the use of moving averages and relative strength of the market, the Company will utilize FPP price targets based on the 3 rd and th standard deviations from a defined mean Price Strip. Moving Averages The moving average of a Price Strip is a trend following mechanism. Its purpose is to identify when a new trend has begun or that an old trend has ended or reversed. It also tracks the progress of a trend. The ten day moving average ( 10 DMA ), twenty day moving average ( 20 DMA ) and the forty day moving average ( 0 DMA ) are the simple averages of the prior ten, twenty, and forty trading days of closing prices for an applicable Price Strip. The 10 DMA, 20 DMA and 0 DMA are updated each trading day of the NYMEX by replacing the oldest closing price with the most recent closing price and recalculating the simple average. The moving averages indicate a rising or falling trend of an applicable winter or summer Price Strip. For example, if the 10 DMA becomes less than the 20 DMA, the futures Price Strip is trending toward a falling market environment. When the 20 DMA becomes less than the 0 DMA, the falling trend of the futures Price Strip is becoming more entrenched.