STATE OF CONNECTICUT PUBLIC UTILITIES REGULATORY AUTHORITY. Docket No DIRECT TESTIMONY OF AMOS F. BARNES and BRIAN K.

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1 STATE OF CONNECTICUT PUBLIC UTILITIES REGULATORY AUTHORITY Docket No. -0- DIRECT TESTIMONY OF AMOS F. BARNES and BRIAN K. HAWLEY Capital Program and Gas Operations ON BEHALF OF THE SOUTHERN CONNECTICUT GAS COMPANY JUNE 0, 0

2 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley TABLE OF CONTENTS I. Introduction... II. Business Objectives and Capital Program Overview... III. Distribution Capital Plan Expenditures... A. Customer... B. Infrastructure Improvement and Replacement... C. System Operations and Business Effectiveness... IV. Distribution Gas Operations... A. Apprentice Helper Resource Plan... B. Customer Reconnect Fee Structure... C. Service on Customer Premises Program...

3 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley TESTIMONY OF AMOS F. BARNES and BRIAN K. HAWLEY I. Introduction Q. Mr. Barnes, please state your name and business address. A. My name is Amos F. Barnes. My business address is 0 Marsh Hill Road, Orange, Connecticut 0. Q. By whom are you employed and in what capacity? A. I am the Director of Gas Design and Delivery for The Southern Connecticut Gas Company ( SCG or the Company ) and Connecticut Natural Gas Corporation ( CNG ). 0 Q. What are your principal responsibilities in that position? A. My principal responsibilities include the management of SCG s gas distribution design and delivery engineering department. Q. Please describe your educational background and professional qualifications. A. I earned a Bachelor of Science in Civil Engineering from Worcester Polytechnic Institute. I joined the Company in and have held a number of positions of increasing responsibility in engineering and construction. I assumed my current position in 0. Prior to joining the Company, I worked for several years in the nuclear industry. Q. Have you testified previously before the Public Utilities Regulatory Authority? A. Yes, I have testified before the Public Utilities Regulatory Authority ( PURA or the Authority ) and other bodies on several occasions since, including utility siting dockets and SCG rate case proceedings. 0 Q. Mr. Hawley, please state your name and business address. A. My name is Brian K. Hawley. My business address is 0 Marsh Hill Road, Orange,

4 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley Connecticut 0. Q. By whom are you employed and in what capacity? A. I was recently named the Interim Director of Gas Operations for SCG and CNG. I am also the Director of Maine Natural Gas Corporation ( MNG ), which is an affiliate of SCG and CNG within the AVANGRID organization. 0 Q. What are your principal responsibilities in that position? A. As Interim Director of Gas Operations, I am responsible for SCG s gas operations, including oversight of SCG s distribution system maintenance and operations, citygate stations, service on customer premises, corrosion control, operator qualifications, gas control, and the Milford liquefied natural gas ( LNG ) vaporization facility. Prior to my appointment to this position, I have had similar responsibilities for MNG. 0 Q. Please describe your educational background and professional qualifications. A. I hold a bachelor s degree in Economics from Binghamton University and have worked for AVANGRID and its predecessor companies for the past years. Since 0, I have been responsible for the oversight of MNG s gas operations, including its engineering, construction, budgeting and planning, strategic planning, gas acquisition and capacity planning activities. Prior to assuming that position, I held various roles with New York State Electric & Gas Corporation ( NYSEG ), including Manager of Energy Supply where I was responsible for gas supply acquisition, natural gas pipeline and storage capacity contracting, retail access and transportation program policy, and the optimization of the transportation portfolio of assets for both NYSEG and Rochester Gas and Electric. I was previously a member and former chairman of the Northeast Gas Association s New York State Gas Utility Planning Committee and Supply Task Force.

5 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley 0 Q. Have you testified previously before any regulatory bodies? A. Yes. I have previously testified in regulatory proceedings on behalf of AVANGRID companies at the Federal Energy Regulatory Commission, the Maine Public Utilities Commission and the New York State Public Service Commission. I have not testified previously before PURA. Q. Mr. Barnes and Mr. Hawley, what is the purpose of your testimony? A. The purpose of our testimony is to provide an overview of the Company s gas distribution business and capital plan in support of SCG s rate application, including the capital program requirements for the rate years 0, 0 and 00. Our testimony describes the Company s major capital initiatives in this rate case, which include a proposal to accelerate work on leak-prone infrastructure to achieve a replacement cycle of 0 years, and a related proposal to implement a new Geographic Information System ( GIS ) at SCG to assist in the identification and location of potentially at risk pipe. Our testimony also describes several key proposals in the operations area, which include an initiative to hire Apprentice Helpers to be trained for skilled worker positions, as well as plans to update the customer reconnect fee and certain aspects of the Service on Customer Premises ( SOCP ) program. 0 Q. How is your testimony organized? A. Following this introductory section, Section II discusses the range of activities and key objectives of the Company s gas distribution business, including an overview of the proposed capital requirements to meet these objectives. Section III discusses each of the principal categories of the Company s capital plan for the rate years 0, 0 and 00, which are: Section III. A Customer Section III. B Infrastructure Improvement and Replacement Section III. C System Operations and Business Effectiveness

6 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley In Section IV, our testimony describes the Company s proposals in the Operations area, which include: Section IV. A Apprentice Helper Resource Plan Section IV. B Customer Reconnect Fee Structure Section IV. C SOCP Program II. Business Objectives and Capital Program Overview 0 0 Q. Would you please describe the SCG gas distribution system? A. As of year-end 0, SCG operates and maintains approximately,0 miles of distribution gas main and, service laterals. Of this total system, SCG has approximately miles of leak-prone main and, leak-prone service laterals. SCG has gate stations, heaters, odorizers and district regulator stations to serve approximately,000 customers. Q. Please describe some of the typical services and activities of SCG s gas distribution business. A. On a daily basis the Company performs a wide range of activities in order to provide safe, reliable and cost-efficient natural gas service to its customers. In the course of a year, SCG emergency responders are dispatched on approximately,00 gas odor calls, and are prepared to be called out at all times of the day and night. Each year SCG service technicians complete approximately 00,000 field visits for all types of meter activities, perform approximately,000 inspections (or attempted inspections) of inside meters and services, and respond to approximately,000 requests to locate facilities for construction projects. The Company takes a proactive approach to damage prevention, and in 0 performed over,00 inspections of its outside contractors, which resulted in a third-party damages per,000 mark-out rate of.. SCG performs leak surveys on a minimum of. percent of its

7 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley 0 service lines and 00 percent of its main line facilities each year. The Company connects approximately,00 new customers to gas services in a year, and replaces or relocates approximately,000 service lines, meters and headers. The Company s skilled employees maintain approximately 0 telemetering stations, calibrate approximately commercial/industrial meter instruments, and exchange approximately,00 distribution meters for accuracy and required testing. Each year, SCG employees engineer approximately,00 service and work orders, maintain all of the maps and records associated with the facilities covered by these work orders, and perform corrosion monitoring and corrective work on approximately,0 catholically protected piping sections. The Company has training programs in place for its employees, which include qualification skills assessments, as well as training on construction and safety practices on a regular basis. 0 Additionally, the Company performs thousands of mandated operating and maintenance inspections on its infrastructure. The Company s work includes protecting underground facilities in compliance with Code of Federal Regulations ( CFR ) Part, repairing leaks, and conducting gas network studies to correctly size facilities for replacements and load additions. The Company maintains system pressures and monitors district regulator stations. SCG coordinates deliveries from its gas control center with the interstate pipeline control centers, balances gas deliveries, coordinates with large customers, and maintains and operates the Milford LNG vaporization and liquefaction facility consistent with CFR Part. SCG maintains and produces all of the billing documents for all of these transactions, collects payments from customers, and provides SCG commodity and delivery service as required.

8 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley 0 Lastly, the Company routinely coordinates its activities with local fire departments, emergency management officials, municipalities, highway departments, regulatory agencies and jurisdictional and governing bodies. The Company strives to be a top emergency responder and a leader in proactive system safety performance, both statewide and nationally, and in 0 was successful in achieving a response rate of. percent. Q. How does the Company determine the capital requirements necessary to meet its business objectives? A. The Company utilizes an annual ten-year capital forecasting process to determine the levels of investment necessary to maintain safe and reliable operations, serve new customers and replace aging infrastructure. In developing its forecast, the Company assesses potential new customer connections, system upgrade needs and aging infrastructure replacement. The result is a comprehensive capital program that includes customer-related projects, infrastructure improvement and replacement, and general system operations programs. In addition, the Company s plan includes the capital investments needed to support core functions such as information technology, customer service and facilities. In support of the Company s rate application, Table below provides SCG s planned capital expenditures in each major category for 0 and the rate years 0 00: Table - SCG Capital Expenditures: 0-00 $ in thousands Customer $,0 $, $, $, Infrastructure Improvement and Replacement,,,,0 System Operations,0,,, Business Effectiveness,,0, $, $, $, $,

9 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley The key programs and projects within each of the capital program categories are described in more detail in Section III below. III. Distribution Capital Plan Expenditures A. Customer Q. What are SCG s projected capital investments in the Customer category? A. The capital investments in the Customer category are primarily for new business expenditures. The capital forecast for this category for 0 through 00 is shown in Table below. Table - Customer Capital Forecast: 0 00 $ in thousands New Business $, $,0 $, $,0 Meters and Regulators,,,, $,0 $, $, $, 0 Q. Please explain the spending level the Company is proposing for new business. A. New business capital expenditures represent the installation of new mains and services associated with the anticipated new customer additions to the Company s distribution system. Meters and regulators associated with connecting customers are also included in this category. The forecast includes regular customer connections that occur every year, as well as an increase in connections that are anticipated to fulfill the State of Connecticut s Comprehensive Energy Strategy. The Company s forecast in Table accounts for trends in current and projected oil prices in the number of new services and miles of gas main associated with new business.

10 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley B. Infrastructure Improvement and Replacement Q. Please describe the capital investments included in the category of Infrastructure Improvement and Replacement. A. The capital forecast for Infrastructure Improvement and Replacement for 0 through 00 is shown in Table below. Table - Infrastructure Improvement and Replacement Capital Forecast: 0-00 $ in thousands Cast Iron and Bare Steel Replacement $, $ 0, $,00 $,0 District Regulators and Gate Stations,0,,, Other Infrastructure Improvement and Replacement $, $, $, $,0 0 0 Q. Is the capital program for Cast Iron/Bare Steel replacement the main initiative in this category? A. Yes. The Company is proposing to increase expenditures for Cast Iron and Bare Steel ( CI/BS ) replacement to achieve a 0-year replacement cycle. The Company has been steadily increasing its spending on CI/BS replacement in recent years. Prior to the UIL- Iberdrola USA merger in 0, the Company had an annual target spend on CI/BS replacement and related service work that would meet an expected goal of total replacement in approximately 0 years. Pursuant to the settlement agreement in Docket No. -0-, the Company committed to increase spending to achieve a replacement cycle of 0 years. With this rate request, the Company is proposing to move more aggressively on its leakprone infrastructure by adjusting the total replacement cycle to 0 years. The 0-year replacement cycle is consistent with the CI/BS replacement program for CNG as approved in its 0 rate case. The capital forecast in Table represents the investment necessary to Docket No. -0-, Joint Application of Iberdrola, S.A., Iberdrola USA, Inc., Iberdrola USA Networks, Inc. Green Merger Sub, Inc. and UIL Holdings Corporation for Approval of a Change of Control, (Dec., 0).

11 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley 0 move SCG to a 0-year cycle beginning in 0. The Company s spending on CI/BS will gradually increase from approximately $ million in 0 to $ million in 00. Included in the aggregate cost for CI/BS replacement is the labor and materials associated with the installation of new gas mains and services, fitting work necessary to move meters outside, transfer of existing services to the new mains, abandonment of the old CI/BS facilities in place, and required restoration of streets and private property. Q. What are some of the factors driving the replacement of Cast Iron and Bare Steel infrastructure in the natural gas distribution business? A. Well into the 0 s, cast iron and bare steel pipes were commonly used for gas distribution systems. Over time, system operators found that the cracking of cast iron and corrosion of bare steel were becoming major sources of hazardous leaks. While there are many factors that contribute to cracking and corrosion, the most common cause for a cast iron main break is ground movement. Smaller diameter cast iron pipes (e.g., and inch) are most prone to breaking, but past incidents in the United States indicate that even larger diameter cast iron pipes can break and cause hazardous leaks. In addition, it is nearly impossible to predict the location of the next main break, so the common practice in the industry has become a systematic replacement program to address this potentially hazardous infrastructure. Modern materials, such as cathodically-protected and coated steel and plastic pipe, have been found to be much less prone to leaks. 0 The main directive for the replacement of CI/BS came in 00 when the Pipeline and Hazardous Materials Safety Administration issued rulings establishing integrity management requirements for gas distribution pipeline systems. Effective in February 00, natural gas distribution system operators were required to prepare a distribution integrity management program ( DIMP ) to be implemented by August 0. The standards required these plans

12 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley to identify, assess and measure risks from CI/BS, to identify and implement measures to mitigate these risks, to measure performance, and to periodically review and improve the program. The SCG DIMP plan was completed and implemented in May Q. Please describe SCG s current practices to address the risks associated with cast iron and bare steel pipe that remains on its gas distribution system. A. As of December, 0, the Company had miles of cast iron and miles of bare steel mains remaining on its system, which is a total of miles. The Company conducts annual leak surveys of all gas mains, and during winter months also conducts biweekly surveys of all cast iron mains to locate leaks. There currently is not a proven analytical method in the industry for determining where the next failure might occur, so most natural gas companies have accelerated the replacement of CI/BS to mitigate these risks. In addition, the Company is proposing to install a new GIS system to assist in the identification and location of potentially at risk pipe. The GIS initiative is further described in Section III.C below. Q. Is the Company s ability to achieve a 0-year replacement cycle dependent upon approval of a DIMP cost recovery mechanism? A. Yes. In order to achieve the 0-year cycle as proposed, the Company must gradually increase its spending in 0 to 00. The Company is proposing a DIMP cost recovery mechanism to fund this accelerated spending. The Company s DIMP mechanism is similar to the mechanism approved by PURA and currently in place for CNG. The DIMP mechanism is described in the testimony of Company witness Mr. Charles Goodwin. Q. Please describe the District Regulators and Gate Stations program that is included in the Infrastructure Improvement and Replacement category. A. The capital expenditures in this category are for building, replacing and refurbishing gate stations (including gas and UV fire detection systems and emergency generators), district regulator stations and priority valves. These investments are required to continue SCG s 0

13 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley 0 systematic program of replacing aging regulators with new equipment. This replacement program targets older regulators at the end of their useful life (e.g., 0 years). Included in this category is the expansion of the Stratford Gate station in 0. Q. What is the Company projecting for capital spending on Other Infrastructure Improvement and Replacement? A. Other Infrastructure Improvement and Replacement includes replacement work to maintain reliability on mains, as well as street and highway government replacement jobs not associated with the CI/BS replacement program. C. System Operations and Business Effectiveness Q. What is contained in SCG s capital forecast for System Operations? A. The capital forecast for System Operations by category from 0 through 00 is shown in Table below. Table - System Operations Capital Forecast: 0 00 $ in thousands Operations Equipment $ $ 0 $ $ Fleet 0,0 0 Facilities,,0,, $,0 $, $, $, Q. Please explain the Facilities program. A. Within the System Operations category, the Facilities program addresses the Company s general facilities structures and improvements, including operations center improvements, distribution structures and improvements, and security upgrades. The forecast for 0 through 00 includes the replacement of the roof and HVAC system at SCG s facility located at 0 Marsh Hill Road in Orange, Connecticut.

14 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley 0 Q. Please explain the Fleet investments. A. The capital expenditures in this category are for fleet and power-operated equipment based on the Company s fleet replacement program. Q. Please explain the Operations Equipment investments. A. The capital expenditures in this category consist of storeroom, garage and communication equipment used by SCG gas operations, such as shelving units, tilt hand trucks, barcode equipment, combustible gas indicators, drilling/tapping equipment, and supplied air respirators. Q. Does the capital forecast include capital investments for Business Effectiveness? A. Yes. The capital forecast for Business Effectiveness by category for 0 through 00 is shown in Table below. Table - Business Effectiveness Capital Forecast: 0 00 $ in thousands Information Technology $, $ $ $ Modernization - GIS,,0, - $, $,0 $, $ Q. Please describe the projects in the Business Effectiveness category. A. Business Effectiveness projects include technology-based investments at SCG that are targeted to improve the efficiency and execution of the Company s work activities. The projects are grouped into two main areas: Information Technology These capital expenditures are for information technology software and hardware, telephone equipment, and other capital office

15 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley 0 0 equipment such as printers and PCs. Additional expenditures are budgeted in 00 for the replacement of Mobile Data Terminals. GIS The GIS project is necessary to update and modernize the Company s system mapping. This project has both a capital component and an operating and maintenance ( O&M ) component. The capital component involves the purchase of base maps, and the development of software and software tools in 0 through 0. The O&M component covers the conversion of data to electronic formats from existing paper records in 0 and 0, at an expected total cost of approximately $. million. Q. Please explain why the proposed GIS system is necessary and will help to reduce risk on the distribution system. A. SCG currently operates with a paper records system, which entails literally thousands of paper records on the historic infrastructure found on the distribution system. Searching this data base is a cumbersome and time-consuming manual process. The Company relies on this system to identify the actual location of assets in the field, and this currently requires manually examining thousands of paper records, including records for leak-prone facilities. The GIS project is critically necessary to bring efficiencies to this process. The GIS will enable the Company to improve storm response and to more efficiently identify the location of at-risk pipe. In Docket No. -0-0, the Company was directed to be sufficiently prepared to restore service to its customers in a safe and reasonable manner during an Emergency Event. The proposed GIS will enable SCG to respond more effectively to gas emergencies. The advanced system will assist the Company in minimizing impacts and 0). Docket No. -0-0, PURA Establishment of Performance Standards for Electric and Gas Companies, (Nov., Docket No. -0-0, Appendix B, at.

16 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley expediting service restoration. It will enable SCG to more effectively perform valve isolation, identify affected customers and impacted locations. Additionally, the 0 SCG PURA Management Audit recommended the Company to evaluate the advantages of a GIS. In particular, recommendation.. stated as follows: 0 0 Accelerate the investments in GIS for SCG. As a first step, confirm the new data model or adapt from the existing CNG data model so it is clear what kind of asset attributes are important to capture. Develop other means for capturing the data that will ultimately be required for the SCG GIS system when implemented. Given the aggressive construction programs over the next five to ten years, we believe accelerating investments in GIS, including the planned upgrades to GIS for CNG, is in the best interests of CNG and SCG customers. The proposed GIS will create a robust asset inventory geographically depicted on updated base maps. This system will allow the Company to not only identify problems, but more importantly to identify the actual location of the at risk assets on the distribution system. The GIS will increase efficiency in managing the CI/BS replacement program by providing the ability track and document leak surveys, active leaks, and leak repairs more effectively than is allowed by the current manual system. The proposed GIS is a critical component to the advancement of the Company s DIMP program. The proposed GIS will be based on the same core system already in place for CNG and The United Illuminating Company ( UI ), with newer functionality and technological advancements since the CNG and UI systems were installed. IV. Distribution Gas Operations A. Apprentice Helper Resource Plan Q. Why is the Company proposing to establish an Apprentice Helper Resource Plan? A. The Company s current workforce is maturing, in that SCG expects Gas Operations employees will be age and eligible for retirement by the end of 0. By 00, current

17 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley employees will be age and eligible for retirement. Of those, the Company estimates that are likely to have retired by the end of 00. When these projected retirements occur, the Company will be facing a substantial gap in its skilled workforce. The Company is proposing the Apprentice Helper Resource Plan to establish a feeder pool of nine incremental Apprentice Helpers to move into skilled positions that are vacated over time by retirements. The plan will serve as an essential training and succession program to ensure an adequate staff of trainees to back fill positions in the Service Department of Gas Operations. The Service Department is the internal feeder pool for many positions within the Company. 0 Q. Why is SCG requesting an incremental nine Apprentice Helper positions for this program? A. SCG projects that 0 percent of the positions vacated by retirements by 00 (i.e., positions during the three-year rate period) will ultimately be filled by Apprentice Helpers from the program being proposed in this rate case. Once the initial nine Apprentice Helpers are hired, the Company will maintain the pool of nine and additional hires will be offset by an open position. Q. What is the purpose of the Apprentice Helper position? A. The Apprentice Helper position is the entry level position in the Service Department. The apprentices will ultimately be trained and qualified to perform the duties of first responders and to complete utility-related meter and maintenance work, as well as SOCP work. 0 Q. What is the primary job function of the Apprentice Helper position? A. The primary function of the Apprentice Helper is to serve as the second person on a Fitter crew and learn the Service Technician role, including emergency response functions. The Apprentice Helpers learn the installation, maintenance and repair of meter fits, pressure regulation and piping skills. They do not become independent workers until completing basic

18 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley 0 0 training and education while on the job, passing written exams, field training and evaluations, and hands-on testing. Q. How will SCG administer the Apprentice Helper pool over the rate years? A. As the Apprentice Helpers become fully trained and qualified, they will move to open skilled positions in the Service Department or may accept other open positions within the Company. As apprentices progress from the program, their positions will be back-filled to maintain a pool of nine Apprentice Helpers. If less than nine employees retire or fewer than nine skilled positions become open, the Company will not back-fill above the nine incumbent Apprentice Helpers. Q. Is the Apprentice Helper position part of SCG s Service Technician training program? A. Yes. SCG s Service Technician training program is registered and approved by the State of Connecticut Department of Labor apprenticeship department. This program is approved biennially, most recently in 0. Completion of the training program qualifies the employee to receive a Public Service Technician (Gas) Certificate, which is the requirement of the Department of Consumer Protection licensing division for all gas utility employees who perform work on the customer side of the meter. The Service Technician training program is designed to be years in duration and may be accelerated or lengthened if needed. Q. Is there a potential for safety and reliability risks if the incremental Apprentice Helper positions are not approved? A. Yes. These new Apprentice Helper positions will provide a program to ensure that SCG is properly staffed to provide first responders to gas emergences and to perform skilled tasks in Gas Operations. If the Apprentice Helper positions are not approved, there will be risks in terms having sufficient qualified personnel to perform these vital functions, resulting from delayed progression or availability of current employees or new hires.

19 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley 0 Q. Does SCG expect these Apprentice Helpers to be utilized in other departments? A. Yes. There are two ways that SCG envisions Apprentice Helpers will be utilized in other departments. First, Apprentice Helpers may be assigned periodically to other departments in Gas Operations for training or assistance during peak workload periods. The second is that the Apprentice Helper may be the senior qualified applicant for more skilled positions within the Service Department, construction and maintenance, or other areas within Gas Operations. The Company expects to continue to work with the USW Local 000 on building a flexible gas worker development program. B. Customer Reconnect Fee Structure Q. Please describe the Company s proposal to update the Customer Reconnect Fee. A. SCG is making an effort to standardize policies and procedures to be consistent with CNG where possible, including the fee structures to be consistent with the costs of providing service. In this case, SCG is proposing to adopt the CNG reconnect policy and to charge currently effective service rates for service restorations. The proposed change will apply to reconnections following meters removals or service disconnections due to non-payment; violations of Company rules and regulations; abuse, fraud or meter-tampering; or failure to grant access to SCG employees or agents. The Company will revise the reconnect policy in its rules and regulations to address this change. 0 Currently, the SCG Reconnect Fee per the Company s tariff is set at $.00 per connection, which is well below costs. The proposed change will increase the average charge for a reconnection to $.00 based on the SCG proposed SOCP rates filed for approval in May 0. The change is reflected in the proposed tariffs provided in Schedules E-.0 and E-., which are being sponsored as part of Mr. Goodwin s testimony..

20 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley Q. Please describe the proposed estimate for reconnection fees calculated in the rate years. A. The Company estimates that approximately 0, customers will be charged reconnect fees in 0, 0 and 00. Based on the projected average reconnect fee of $.00, the forecasted annual revenues associated with reconnect fees for the same period is $. million as shown in SFR Schedule C.A. The revenues are included with SOCP revenues as an offset to expense. 0 Q. Does SCG expect the change in Reconnect Fees to impact the number of customer disconnects it will complete each year? A. Yes, SCG expects the level of disconnections will be reduced by approximately 0 percent from prior years, because the higher reconnect fee will serve as a stronger disincentive to disconnection for nonpayment. Actual numbers and amounts will vary because not all reconnects will require the customer to pay a fee, specifically those associated with medical, hardship or new customers. C. Service on Customer Premises Program Q. What type of SOCP programs does SCG offer to customers? A. SCG offers several SOCP program options, which include annual service plans and billable, pay-as-you-go services. 0 Q. How many customers have SOCP service plans? A. SCG has a loyal clientele of approximately,000 customers who purchased approximately,000 service plans for a variety of SOCP services in 0. The 0 plan year ended April 0, 0. Q. Do the SOCP programs provide for a safer gas distribution system? A. Yes. The SOCP programs promote safety, because they result in a greater number of visits to

21 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley customer premises by trained service staff. These visits provide opportunities to inspect customer-owned gas equipment, appliances and Company-owned meter equipment on a more frequent basis. The program also increases the availability of SCG staff to serve as emergency first responders, because service personnel are typically the ones who respond to gas emergencies. As noted, SCG achieved a response rate of. percent within 0 minutes during normal hours, and minutes after-hours, in 0, consistent with the guidelines of the Authority s Gas Pipeline Safety Unit. 0 Q. Does SCG file annual cost studies for SOCP pursuant to the Authority s directives? A. Yes. Order No. in Docket No requires the Company to file annually a detailed report using actual data for the fiscal year which evaluates the SOCP cost study. Consistent with this order, SCG files a cost study on an annual basis. The most recent study was filed on March, 0. Q. Does SCG periodically update its SOCP rates to comply with Order No. from Docket No. -0-0? A. Yes. SCG most recently filed proposed increases to its charged service rates in May 0 to ensure that the rates do not subsidize service expenses with ratepayer dollars, and to remain competitive in the local market place for similar services provided by private contractors. 0 Q. Do SCG ratepayers benefit financially from the SOCP programs? A. Yes, SOCP program revenues are treated as an expense offset, which means that O&M expenses are reduced by the revenues generated by SCG s SOCP services. On an annual basis, the program is expected to generate approximately $0. million in 0, $0. million in 0 and $. million in 00. Within this amount, the Company is projecting a revenue increase of approximately $. million from the 0 test year to the first rate year. The $. million includes approximately $. million in reconnection fees, which the Company

22 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Amos F. Barnes and Brian K. Hawley is proposing to include with SOCP revenue as expense offset. This approach is consistent with that approved by PURA for CNG. The balance of the projected increase is largely due to an increase in non-contract service revenue, adjusted to account for warmer than normal weather in the test year and increased non-contract service rates. The balance of the increase is also due to an expected increase in the number of service contracts and increases in the contract fees. Q. Does this conclude your testimony? A. Yes. 0

23 STATE OF CONNECTICUT PUBLIC UTILITIES REGULATORY AUTHORITY Docket No. -0- DIRECT TESTIMONY OF ANN E. BULKLEY Return on Equity and Capital Structure ON BEHALF OF THE SOUTHERN CONNECTICUT GAS COMPANY JUNE 0, 0

24 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley TABLE OF CONTENTS I. Introduction... II. Purpose and Overview of Direct Testimony... III. Summary of Analysis and Conclusions... IV. Regulatory Guidelines... V. Capital Market Conditions...0 VI. Proxy Group Selection... VII. Cost of Equity Estimation... A. Constant Growth DCF Model... B. Flotation Costs... C. Discounted Cash Flow Model Results... D. CAPM Analysis... VIII. Regulatory and Business Risks... A. SCG s Capital Expenditure Plan... B. SCG s Regulatory Environment... IX. Capital Structure... X. Multi-Year Rate Plan... XI. Conclusions and Recommendation...

25 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley TESTIMONY OF ANN E. BULKLEY I. Introduction Q. Please state your name and business address. A. My name is Ann E. Bulkley. My business address is Boston Post Road West, Suite 00, Marlborough, Massachusetts 0. Q. What is your position with Concentric Energy Advisors, Inc. ( Concentric )? A. I am employed by Concentric as a Senior Vice President. 0 Q. On whose behalf are you submitting this Direct Testimony? A. I am submitting this Direct Testimony before the Public Utilities Regulatory Authority ( PURA or the Authority ) on behalf of the Southern Connecticut Gas Company. ( SCG or the Company ). SCG is a wholly-owned subsidiary of UIL Holdings Corporation, which is a wholly-owned subsidiary of AVANGRID, a diversified energy and utility company. AVANGRID was formed in 0 by a merger between Iberdrola USA and UIL Holdings Corporation. Iberdrola S.A., a worldwide leader in the energy industry, owns.% of AVANGRID. 0 Q. Please describe your education and experience. A. I hold a Bachelor s degree in Economics and Finance from Simmons College and a Master s degree in Economics from Boston University, with more than 0 years of experience consulting to the energy industry. I have advised numerous energy and utility clients on a wide range of financial and economic issues with primary Concentric Energy Advisors Pg.

26 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley concentrations in valuation and utility rate matters. Many of these assignments have included the determination of the cost of capital for valuation and ratemaking purposes. I have included my resume and a summary of testimony that I have filed in other proceedings as Attachment A. 0 Q. Please describe Concentric s activities in energy and utility engagements. A. Concentric provides financial and economic advisory services to many and various energy and utility clients across North America. Our regulatory, economic, and market analysis services include utility ratemaking and regulatory advisory services; energy market assessments; market entry and exit analysis; corporate and business unit strategy development; demand forecasting; resource planning; and energy contract negotiations. Our financial advisory activities include buy and sell-side merger, acquisition and divestiture assignments; due diligence and valuation assignments; project and corporate finance services; and transaction support services. In addition, we provide litigation support services on a wide range of financial and economic issues on behalf of clients throughout North America. Q. Have you testified before any regulatory authorities? A. Yes. A list of proceedings in which I have provided testimony is provided in Attachment A.

27 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley II. Purpose and Overview of Direct Testimony Q. What is the purpose of your Direct Testimony? A. The purpose of my Direct Testimony is to present evidence and provide a recommendation regarding the Company s return on equity ( ROE ) and to provide an assessment of the capital structure to be used for ratemaking purposes. My analyses and recommendations are supported by the data presented in Exhibits AEB- through AEB-, which were prepared by me or under my direction. 0 0 Q. Please provide a brief overview of the analyses that led to your ROE recommendation. A. As discussed in more detail in Section VII, in developing my ROE recommendation, I applied the Constant Growth Discounted Cash Flow ( DCF ) model, the Capital Asset Pricing Model ( CAPM ), and the Risk Premium approach. My recommendation also takes into consideration: () the Company s capital expenditure requirements; () the Company s proposed decoupling and infrastructure reconciliation mechanisms; and () the regulatory environment in which the Company operates. Finally, I considered the Company s proposed capital structure as compared to the capital structures of the proxy companies. While I did not make any specific adjustments to my ROE estimates for any of these factors, I did take them into consideration in aggregate when determining where the Company s ROE falls within the range of analytical results. Throughout my Direct Testimony, I interchangeably use the terms ROE and cost of equity.

28 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. What are your conclusions regarding the appropriate cost of equity for the Company? A. As shown in Chart, the mean Constant Growth DCF results are between. percent and 0.0 percent. My recommended ROE of. percent is within the range of results established by the DCF, CAPM and risk premium approaches and balances the interests of ratepayers and shareholders. 0 Q. How is the remainder of your Direct Testimony organized? A. Section III provides a summary of my analyses and conclusions. Section IV reviews the regulatory guidelines pertinent to the development of the cost of capital. Section V discusses current and projected capital market conditions and the effect of those conditions on the Company s cost of equity. Section VI explains my selection of a proxy group of natural gas distribution utilities. Section VII describes my analyses and the analytical basis for the recommendation of the appropriate ROE for SCG. Section VIII provides a discussion of specific regulatory, business, and financial risks that have a direct bearing on the ROE to be authorized for the Company in this case. Section IX discusses the capital structure of the Company as compared with the proxy group. Section X discusses projected ROEs for the multi-year rate period. Section XI presents my conclusions and recommendation for the market cost of equity. 0 III. Summary of Analysis and Conclusions Q. Please summarize the key factors considered in your analyses and upon which you base your recommended ROE. A. My analyses and recommendations considered the following:

29 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 The Hope and Bluefield decisions that established the standards for determining a fair and reasonable allowed ROE, including consistency of the allowed return with other businesses having similar risk, adequacy of the return to provide access to capital and support credit quality, and that result must lead to just and reasonable rates. The effect of current and projected capital market conditions on investors return requirements. The Company s regulatory, business, and financial risks relative to the proxy group of comparable companies and the implications of those risks in arriving at the appropriate ROE. Q. Please explain how you considered those factors. A. I have relied on several analytical approaches to estimate SCG s cost of equity based on a proxy group of publicly traded companies. As shown in Chart, those ROE estimation models produce a wide range of results. My conclusion as to where within that range of results SCG s ROE falls is based on SCG s business and financial risk relative to the proxy group. 0 Q. Please summarize the ROE estimation models that you considered to establish the range of ROEs for SCG. A. I considered the results of two DCF models: () Constant Growth DCF model using proxy group screens and methodology applied by the Authority in its most recent rate case decision for UI; and () Constant Growth DCF model developed using Value Line projected dividends and stock prices. In addition, I considered two risk premium approaches: the CAPM and a Bond Yield Plus Risk Premium methodology. Chart summarizes the range of results established using each of these estimation methodologies. Federal Power Commission v. Hope Natural Gas Co., 0 U.S. (); Bluefield Waterworks & Improvement Co., v. Public Service Commission of West Virginia, U.S. ().

30 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley CHART : SUMMARY OF COST OF EQUITY ANALYTICAL RESULTS As shown on Chart (and in Exhibit AEB-), the range of the DCF model results is wide, particularly in relation to the results of the other methodologies. While it is common to consider multiple models to estimate the cost of equity, it is particularly important when the range of results is wide. 0 The requested ROE is for the future rate period; therefore, the analyses supporting my recommendation rely on forward-looking inputs and assumptions (e.g., projected growth rates in the DCF model, forecasted risk-free rate and Market Risk Premium in the CAPM analysis, etc.) and takes into consideration the current high valuations of utility stocks and the market s expectation for higher interest rates. The use of historical inputs and assumptions would tend to understate the required ROE for SCG, when considering current and projected conditions in capital markets.

31 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley As discussed in more detail in Section VII, the DCF models are influenced by current market conditions that are not projected to be sustained in the long-term. Those conditions result in lower estimates of the ROE using the DCF model. As shown in Exhibit AEB-, the DCF model produces individual company results as low as. percent, which is well below the Company s embedded cost of long- term debt of. percent. Furthermore, the proxy group low Constant Growth DCF results (prior to exclusions for outliers) are below an acceptable range of returns for a gas distribution utility and are below any authorized ROE for a gas distribution utility company for at least the last years. Because, the low-end 0 results of the DCF range do not provide a sufficient risk premium to compensate equity investors for the residual risks of equity ownership, in accordance with Authority precedent, I have removed low individual ROEs as outliers based on the threshold relied on by the Authority in the most recent rate case for The United Illuminating Company ( UI ). In the UI case, as discussed in more detail in Section VII, the Authority established a benchmark of basis points above the comparably rated utility bond yield as the lower limit on the ROE results for the proxy companies. Even with the exclusion of low-end outliers, the low-end DCF results are still below any authorized ROE for a gas distribution utility See SFR Schedule D-.0 A, Average Rate of Return and Cost of Capital Summary (Rate Year Ending //0). Source: Regulatory Research Associates, Rate Case History (Natural Gas) January, 0 May, 0. Docket No. -0-0, Application of The United Illuminating Company To Increase Its Rates And Charges, (Dec., 0). Id. As of May, 0, the Moody s Baa utility bond index was. percent. Adding basis points to that yield resulted in a lower threshold of. percent. The Baa rating most closely approximates Southern Connecticut Gas Company s current credit ratings; the Company is rated Baa by Moody s, BBB+ by Fitch, and A- by Standard and Poor s.

32 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley company for the last years. 0 Q. What is your recommended ROE for SCG? A. In addition to the analytical results presented in Chart, I also considered the level of regulatory, business, and financial risk faced by the Company relative to the proxy group to establish the range of reasonable returns. Considering these factors, and recognizing the Authority s historical preference for the Constant Growth DCF model, I believe a range from. to 0. percent is reasonable. This recommendation reflects the range of results for the proxy group companies, the relative risk of SCG as compared to the proxy group, and current capital market conditions. Within that range, I recommend a return of. percent. IV. Regulatory Guidelines 0 Q. Please describe the guiding principles to be used in establishing the cost of capital for a regulated utility. A. The United States Supreme Court s precedent-setting Hope and Bluefield cases established the standards for determining the fairness or reasonableness of a utility s allowed ROE. Among the standards established by the Court in those cases are: () consistency with other businesses having similar or comparable risks; () adequacy of the return to support credit quality and access to capital; and () that the result, as opposed to the methodology employed, is the controlling factor in arriving at just and reasonable rates. Hope, 0 U.S. (); Bluefield, U.S. ().

33 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 Based on those recognized standards, the return authorized in this case should provide the Company with the opportunity to earn an ROE that is: Adequate to attract capital on reasonable terms, thereby enabling the Company to provide safe, reliable service; Sufficient to ensure the financial soundness of the Company s operations; and Commensurate with returns on investments in comparable risk enterprises. The allowed ROE should enable the Company to finance capital expenditures on reasonable terms and optimize its financial flexibility over the period during which rates are expected to remain in effect. Q. Has the Authority provided similar guidance in establishing the appropriate return on common equity? A. Yes, it has. In Docket No. -0-0, PURA quoted Connecticut General Statutes -e (a), which requires that: 0 [t]he level and structure of rates be sufficient, but no more than sufficient, to allow public service companies to cover their operating costs including, but not limited to, appropriate staffing levels, and capital costs, to attract needed capital and to maintain their financial integrity, and yet provide appropriate protection for the relevant public interest both existing and foreseeable. This guidance is in accordance with my view that an allowed rate of return must be sufficient to enable regulated companies, like SCG, the ability to attract capital on reasonable terms. Docket No. -0-0, Application of The Connecticut Light and Power Company to Amend Rate Schedules (Dec., 0).

34 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. Why is it important for a utility to be allowed the opportunity to earn an ROE that is adequate to attract capital at reasonable terms? A. An ROE that is adequate to attract capital at reasonable terms enables the Company to continue to provide safe, reliable gas distribution service while maintaining its financial integrity. To the extent the Company has the opportunity to earn its market-based cost of capital, neither customers nor shareholders are disadvantaged. 0 Q. What are your conclusions regarding regulatory guidelines and capital market expectations? A. It is important for the ROE authorized in this proceeding to take into consideration current and projected capital market conditions, as well as investors expectations and requirements for both risks and returns. Further, considering the Company s market and regulatory risks as noted below, it is important that SCG be afforded the opportunity to maintain a financial profile that will enable it to access the capital markets at reasonable rates. V. Capital Market Conditions 0 Q. Why is it important to analyze capital market conditions? A. The ROE estimation models rely on market data that are either specific to the proxy group, in the case of the DCF model, or to the expectations of market risk, in the case of the CAPM. The results of the ROE estimation models can be affected by prevailing market conditions at the time the analysis is performed. While the ROE that is established in a rate proceeding is intended to be forwardlooking, the analyst uses current and projected market data, specifically stock 0

35 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 prices, dividends, growth rates and interest rates in the ROE estimation models to estimate the required return for the subject company. As is discussed in the remainder of this section, analysts and regulatory commissions have concluded that current market conditions are anomalous and that these conditions have affected the results of the ROE estimation models. As a result, it is important to consider the effect of these conditions on the ROE estimation models when determining the appropriate range and recommended ROE for a future period. In this case, rates will be determined based on a calendar test year ending December, 0, and will be in effect for a three-year period, beginning January, 0. If investors do not expect current market conditions to be sustained in the future, it is possible that the ROE estimation models will not provide an accurate estimate of investors required return during that rate period. Therefore, it is very important to consider projected market data to estimate the return for that forward-looking period. 0 Q. What factors are affecting the cost of equity for regulated utilities in the current and prospective capital markets? A. The cost of equity for regulated utility companies is being affected by several factors in the current and prospective capital markets, including: () the current low interest rate environment and the corresponding effect on valuations and dividend yields of utility stocks relative to historical levels; and () the market s expectation for higher interest rates. In this section, I discuss each of these factors and how it affects the models used to estimate the cost of equity for regulated utilities.

36 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 Q. How has the Federal Reserve s monetary policy affected capital markets in recent years? A. Extraordinary and persistent federal intervention in capital markets artificially lowered government bond yields after the Great Recession of 00-00, as the Federal Open Market Committee ( FOMC ) used monetary policy (both reductions in short-term interest rates and purchases of Treasury bonds and mortgage-backed securities) to stimulate the U.S. economy. As a result of very low or zero returns on short-term government bonds, yield-seeking investors have been forced into longer-term instruments, bidding up prices and reducing yields on those investments. As investors have moved along the risk spectrum in search of yields that meet their return requirements, there has been increased demand for dividend-paying equities, such as gas and electric utility stocks. 0 Q. How has the period of abnormally low interest rates affected the valuations and dividend yields of utility shares? A. The Federal Reserve s accommodative monetary policy has caused investors to seek alternatives to the historically low interest rates available on Treasury bonds. A result of this search for higher yield is that the share prices for many common stocks, especially dividend-paying stocks such as utilities, have been driven higher while the dividend yields (which are computed by dividing the dividend payment by the stock price) have decreased to levels well below the historical average. As shown in Chart, Treasury bond yields in 00 were much higher when dividend yields for utilities were at similar levels as they are today.

37 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley CHART : DIVIDEND YIELDS FOR UTILITY STOCKS Source: Bloomberg data for all electric and gas distribution utilities covered by Value Line. Q. How are lower interest rates affecting the yields on utility stocks? A. To assess how low interest rates are affecting the dividend yields for utility stocks, I compared the Standard & Poor s ( S&P ) Utilities index to the yield on the 0-year Treasury bond since 00. As shown in Chart, the S&P Utilities index has increased steadily as yields on 0-year Treasury bonds have declined in response to federal monetary policy.

38 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley CHART : S&P UTILITIES AND U.S. TREASURY BOND YIELDS (00-0) 00 % 0 % 00 % S&P 00 Utilities Return 0 % 0y US T-Bond Yield 00 % 0 % 0 0% //00 //00 //00 //00 //0 //0 //0 //0 //0 //0 S&P 00 Utilities Return 0y US T-Bond Yield Source: SNL Interactive data 0 Q. What evidence is there that the Federal Reserve s accommodative monetary policy has created and continues to create anomalous conditions in capital markets? A. Members of the Federal Reserve have acknowledged that monetary policy has created abnormal capital market conditions. In September 0, the Federal Reserve announced its plan to normalize monetary policy by, among other things, reducing its portfolio to minimize the effect of its holdings on the allocation of credit across sectors of the economy. In March 0, Dr. Stanley Fischer, Vice Chair of the Federal Reserve, further acknowledged the abnormal economic conditions created by the actions of the Federal Reserve and recognized the intentions of the Federal Reserve to return to normal market dynamics: Federal Open Market Committee, Policy Normalization Principles and Plans, September, 0.

39 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 Beginning the normalization of policy will be a significant step toward the restoration of the economy s normal dynamics, allowing monetary policy to respond to shocks without recourse to unconventional tools. 0 Q. Is there evidence that the interest rate environment is shifting? A. Yes. Based on stronger conditions in employment markets, a relatively stable inflation rate, steady economic growth, and increased household spending, the Federal Reserve raised the short term borrowing rate by basis points at both the March and June 0 meetings. Since December 0, the Federal Reserve has increased interest rates four times, bringing the federal funds rate to the range of.00 percent to. percent. As the economy continues to expand, the Federal Reserve is expected to continue increasing short-term interest rates to sustain the desired balance between unemployment and consumer price inflation. The Federal Reserve has indicated that it intends to raise short-term interest rates gradually in basis point increments to the federal funds rate over time and in March 0, projected it would raise interest rates three times in 0 and three times again in 0. 0 Remarks by Stanley Fischer, Vice Chairman of the Board of Governors of the Federal Reserve at the Economics Club of New York, March, 0. Federal Open Market Committee, Federal Reserve press release, March, 0. FOMC, Federal Reserve press release, June, 0. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents under their individual assessments of projected appropriate monetary policy, March 0. Advance release of table of the Summary of Economic Projections to be released with FOMC minutes. For release at :00 p.m., EDT, March, 0.

40 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. What is the financial market s perspective on the future path of interest rates? A. According to the May 0 issue of Blue Chip Financial Forecasts, 00 percent of those surveyed expect the Federal Reserve will raise short-term interest rates again at either the June or September 0 meetings. In response to the question regarding the amount of the additional increase in interest rates by the Federal Reserve in 0, percent of those surveyed expected an additional increase of basis points, percent expected an additional increase of 0 basis points, and percent expect an additional increase of basis points. In 0 response to the question regarding expected increases in interest rates in 0 by the Federal Reserve, percent of those surveyed expect an increase of 0 basis points, percent expect an increase of basis points, and percent expect an increase of 00 basis points. rate projections noted above. These responses are aligned with the FOMC target 0 Q. What effect do rising interest rates have on the cost of equity? A. As interest rates continue to increase, the cost of equity for the proxy companies using the DCF model is likely to be an overly conservative estimate of investors required returns because the proxy group average dividend yield reflects the increase in stock prices that resulted from substantially lower interest rates. As such, rising interest rates support the selection of a return toward the upper end of a reasonable range of ROE estimates that are based on current market data. Blue Chip Financial Forecasts, Vol., Issue No., May, 0. Id. Id.

41 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Alternatively, my CAPM analysis includes estimated returns based on both current and near-term projected interest rates. 0 Q. How have interest rates changed since the closure of the evidentiary record on ROE in the United Illuminating rate case in September 0? A. The data that was used in the determination of UI s ROE was as of September 0, 0. At that time, the 0-day moving average of the 0-year U.S. Treasury bond on October, 0 was. percent. As of May, 0, the same average is. percent, an increase of basis points. An ROE set at September 0, 0, without consideration of the forward-looking expectation of interest rates, would have understated the required ROE for the rate period based on today s data. 0 Q. What conclusions do you draw from your analysis of capital market conditions? A. The currently low interest rate environment has driven dividend yields to historically low levels for utility shares. The effect of accommodative monetary policy by the Federal Reserve is that the DCF model, which relies on unsustainably low dividend yields, is understating the forward-looking equity return requirements. As reflected in Chart, utility dividend yields tend to move in the same direction as interest rates, such that as interest rates rise, we would expect that dividend yields would also rise. Because of recent anomalous market conditions, it is important to also consider alternative financial models, such as the CAPM and Risk Premium analyses, together with the DCF results. In addition, the Federal Reserve increased short-term interest rates again in March 0 and has indicated its intention to continue tightening monetary policy

42 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley through the remainder of 0 and in 0. In summary, market participants and analysts are expecting a change from the recent low interest rate environment. As interest rates increase, it is reasonable to believe that the cost of equity for utilities such as SCG is also increasing. Further, because SCG will be setting rates for a three-year period, the use of forward-looking interest rates is consistent with the time-period for which rates will be in effect. VI. Proxy Group Selection 0 Q. Why have you used a group of proxy companies to estimate the cost of equity for SCG? A. In this proceeding, we are focused on estimating the cost of equity for a gas distribution company that is not itself publicly traded. Since the cost of equity is a market-based concept, and given that SCG does not make up the entirety of a publicly traded entity, it is necessary to establish a group of companies that is both publicly traded and comparable to SCG in certain fundamental business and financial respects to serve as its proxy in the ROE estimation process. 0 Even if SCG were a publicly-traded entity, it is possible that transitory events could bias its market value over a given period. A significant benefit of using a proxy group is that it moderates the effects of unusual events that may be associated with any one company. The proxy companies used in my analyses all possess a set of operating and risk characteristics that are substantially comparable to the Company, and thus provide a reasonable basis to derive and estimate the appropriate ROE for SCG.

43 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. Please provide a brief profile of SCG. A. SCG is a retail gas distribution company that is wholly-owned by UIL Holdings Corporation, which is ultimately owned by Avangrid Inc. The Company distributes natural gas to approximately,000 retail customers in its southeastern Connecticut service territory along the Connecticut coast, encompassing the cities of Bridgeport, New Haven and North Haven. As of December, 0, SCG represented approximately percent of the total rate base of AVANGRID s Networks division. In addition, SCG had revenues in 0 0 (the most current data available) of approximately $ million, made up of percent residential, percent commercial, percent industrial, and the remainder for interruptible and transport deliveries. SCG currently has an investment grade long-term rating of A- from Standard and Poor s, and Baa from Moody s. 0 Q. How did you select the companies included in your proxy group? A. In order to minimize the issues that are disputed, I applied screening criteria that are consistent with the criteria applied by the Authority in the Connecticut Natural Gas Corporation ( CNG ) 0 rate case. Specifically, I began with the group of 0 companies that Value Line classifies as natural gas distribution utilities and applied the following screening criteria to exclude companies that: AVANGRID, SEC Form 0-K for the fiscal year ended December, 0, at -. Id. FERC Form, The Southern Connecticut Gas Company, 0. 0 SNL Financial, April, 0. Docket No. -0-0, Application of Connecticut Natural Gas Corporation To Increase Its Rates And Charges, (Jan., 0).

44 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 Do not pay consistent quarterly cash dividends because such companies cannot be analyzed using the Constant Growth DCF model; Do not have investment grade long-term issuer ratings from both S&P and Moody s; or Were party to a merger or transformative transaction during the analytical period considered. Q. Did you eliminate any companies that otherwise met your proxy group screening criteria? A. Yes. I excluded UGI Corporation due to its low percentage of revenues attributable to regulated gas operations. According to its most recent 0-K Report, only. percent of total revenues were derived from regulated gas operations in 0. The application of my screening criteria and the companies that were eliminated, can be found at Exhibit AEB-. Q. Did you remove any other proxy companies that satisfied your screening criteria from your proxy group? A. No. Q. What is the composition of your proxy group? A. My proxy group consists of the companies shown in Table below. 0

45 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley TABLE : PROXY GROUP Company Atmos Energy Corporation Spire, Inc. New Jersey Resources Corporation NiSource Inc. Northwest Natural Gas Company One Gas, Inc. South Jersey Industries, Inc. Southwest Gas Corporation Ticker ATO SR NJR NI NWN OGS SJI SWX VII. Cost of Equity Estimation Q. Please briefly discuss the ROE in the context of the regulated rate of return. A. The overall rate of return for a regulated utility is based on its weighted average cost of capital, in which the cost rates of the individual sources of capital are weighted by their respective book values. While the costs of debt and preferred stock can be directly observed, the cost of equity is market-based and, therefore, must be estimated based on observable market data. 0 Q. How is the required ROE determined? A. The required ROE is estimated by using one or more analytical techniques that rely on market-based data to quantify investor expectations regarding required equity returns, adjusted for certain incremental costs and risks. Informed judgment is then applied to determine where the Company s cost of equity falls within the range of results. The key consideration in determining the cost of

46 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley equity is to ensure that the methodologies employed reasonably reflect investors views of the financial markets in general, as well as the subject company (in the context of the proxy group), in particular. Q. What methods did you use to determine the Company s ROE? A. I considered the results of the Constant Growth DCF models and the CAPM analysis, corroborated by the Bond Yield Plus Risk Premium methodology, which is discussed in detail in Section VII. As discussed in more detail below, a reasonable ROE estimate appropriately considers alternative methodologies and the reasonableness of their individual and collective results. 0 0 Q. Why is it important to use more than one analytical approach? A. Because the cost of equity is not directly observable, it must be estimated based on both quantitative and qualitative information. When faced with the task of estimating the cost of equity, analysts and investors are inclined to gather and evaluate as much relevant data as reasonably can be analyzed. Several models have been developed to estimate the cost of equity, and I use multiple approaches to estimate the cost of equity. As a practical matter, however, all of the models available for estimating the cost of equity are subject to limiting assumptions or other methodological constraints. Consequently, many well-regarded finance texts recommend using multiple approaches when estimating the cost of equity. For example, Copeland, Koller, and Murrin suggest using the CAPM Tom Copeland, Tim Koller and Jack Murrin, Valuation: Measuring and Managing the Value of Companies, rd Ed. (New York: McKinsey & Company, Inc., 000), at.

47 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley and Arbitrage Pricing Theory model, while Brigham and Gapenski recommend the CAPM, DCF, and Bond Yield Plus Risk Premium approaches. 0 0 Q. How are current market conditions affecting the results of the DCF model and CAPM? A. The U.S. economy is beginning to emerge from an unprecedented period of low interest rates. Low interest rates, and the effects of the investor flight to quality can be seen in high utility share valuations relative to historical levels and relative to the broader market. Higher utility stock valuations produce lower dividend yields and result in lower cost of equity estimates from a DCF analysis. Low interest rates also impact the CAPM in two ways: () the risk-free rate is lower, and () because the market risk premium is a function of interest rates, (i.e., it is the return on the broad stock market less the risk-free interest rate), the risk premium should move higher when interest rates are lower. Often, however, the estimate of the market risk premium may not be fully responsive to changes in interest rates. It is important in periods of abnormally low interest rates to rely on a market risk premium that is responsive to changes in the level of interest rates such as a forward-looking market risk premium. Market risk premiums based on long-term historical averages are unresponsive to movements in interest rates and would likely understate the market risk premium and, accordingly, the cost of equity. Generally, the long-term historical relationship between interest rates on Treasury Eugene Brigham, Louis Gapenski, Financial Management: Theory and Practice, th Ed. (Orlando: Dryden Press, ), at.

48 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley bonds and utility returns has been positive, suggesting that the expectation of rising interest rates would also result in an increase in the expected utility equity costs. Consequently, I have accounted for the likelihood of interest rates rising during the period when rates will be in effect in my CAPM analyses by calculating estimated returns based on projected interest rates for 0 through Q. How have recent market conditions affected the assumptions used in the DCF model? A. The currently high price-to-earnings ( P/E ) ratios for gas utility stocks have the effect of depressing the expected return in the DCF model. In its recent commentary on the natural gas distribution utilities, UBS notes that gas utilities are trading at much higher P/E s than expected, given the current level of interest rates, and are trading at premiums to electric utilities. UBS explains: 0 We refreshed our valuation analysis & Gas LDCs continue to trade at premiums to electric utes, S&P 00 & historical averages. Accelerated earnings growth supported by pipeline replacement, relatively low interest rates and the potential for continued industry consolidation supports premium valuations. That said, we continue to believe there is downside risk if interest rates continue to move higher. The Gas LDCs are trading at a P/E multiple of.x vs..x when the 0-Year was last yielding.%. Chart summarizes the average historical and projected P/E ratios for the proxy companies calculated using data from Bloomberg Professional and Value Line. As shown in Chart, the average P/E ratio for the proxy companies is higher in 0). Jennifer Hills, UBS, Gas Distribution: Valuation Refresh Still Trading at Premiums (March,

49 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 than any other time in the last seventeen years and is significantly higher than the average projected P/E ratio for the group for the period from All else equal, if P/E ratios for the proxy companies decline, as Value Line s projects, the ROE results from the DCF model would be higher. CHART : AVERAGE HISTORICAL PROXY GROUP P/E RATIOS 0 Q. Is there consensus in the industry that utility stock valuations are abnormally high and utility dividend yields are abnormally low? A. Yes, equity analysts have been commenting on both the higher valuation of utility stocks and the associated impact on utility dividend yields. Value Line recently commented on the low dividend yields and high valuations: We continue to believe that most equities in this industry are expensively priced. Historically, electric utility stocks have traded at a discount to the market because utilities generally don t grow fast. Last year, however, several stocks had

50 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley price-earnings ratios that were at or even above the broader market. And many of these issues have recent prices within their 00-0 Target Price Range. The industry s average dividend yield is.%. Equity analysts have also noted that gas distributors are experiencing the same high valuations and low dividend yields as compared to historical levels, as discussed in the UBS report: Gas LDCs continue to support high multiples even as interest rates have increased. The 0-yr Treasury is currently yielding.%, the last time rates were at this level was August 0 when the multiple [for gas LDCs] was.x vs..x today. We believe a higher multiple is supported by the mid to high single digit earnings growth expected that is supported by pipeline replacement, but think the multiple also includes a premium for the potential for additional M&A in the sector. *** Gas LDCs continue to trade at a higher average multiple than Electric Utilities and both are trading higher than their historical averages. We note that both are off their July 0 peaks when the 0-yr Treasury hit a near-term trough. Figure shows that on a NTM P/E basis, Gas LDCs historically trade.% above electric utilities, but are currently trading at a 0.% premium. Q. Value Line and UBS have observed that dividend yields for utility companies are low relative to historical standards. Why is this relevant in estimating the ROE in this case? A. The ROE that is established in this case is intended to be a forward-looking ROE that the Company will be authorized to earn over the future rate period. The analysis that is used to set that return is based on current data for the proxy Value Line Investment Survey, Electric Utility (East) Industry, February, 0, at. Jennifer Hills, UBS, Gas Distribution: Valuation Refresh Still Trading at Premiums (March, 0), at. Id., at.

51 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley companies. Relying on lower dividend yields in the DCF model will result in a lower estimated ROE from that model, holding all other assumptions constant. To the extent that low dividend yields are not expected to be representative of market conditions over the period that this ROE will be in effect, then the DCF model may be understating the market required ROE. 0 Q. Are you aware of regulators that consider the effectiveness of the traditional ROE estimation models based on market conditions? A. Yes, I am. The Surface Transportation Board ( STB ), which regulates the U.S. railroad industry, began evaluating the effectiveness of the Constant Growth DCF model in September 00. The STB instituted a broad rulemaking to obtain public comment on the most appropriate methodology to use for estimating the ROE for railroads. In January 00, the STB replaced the constant growth DCF model with the CAPM, with the expectation that the CAPM would produce more accurate estimates of the industry s cost of capital. In January 00, as a result of its exploration of the various forms of ROE estimation models and the review of public comments on the merits and shortcomings of each of the models, the STB issued a decision modifying its sole reliance on the CAPM to include an equal weighting of the CAPM and the multi-stage DCF results. In reaching this decision, the STB concluded that: 0 Indeed, if our exploration of this issue has revealed nothing else, it has shown that there is no single simple or correct way to estimate the cost of equity for the railroad industry, and countless reasonable options are available. Both the CAPM and the multi-stage DCF models we propose to use have strengths and weaknesses, and both take different paths to estimate the same illusory figure. By using an average of

52 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley the results produced by both models, we harness the strengths of both models while minimizing their respective weaknesses. In this decision, the STB recognizes that it is appropriate to consider the results of various financial models to estimate the cost of equity within the context of capital market conditions. Furthermore, the STB recognizes that the appropriate ROE estimation method(s) can evolve over time as market conditions change. 0 0 Q. Is it relevant that the STB does not regulate the energy industry? A. No. The STB decision is an opinion on the appropriate methodologies to consider in estimating the ROE, and therefore it is relevant regardless of the industry. The STB decision describes the rigorous analysis and the methodologies that a regulatory body used to review financial models and to select the most appropriate models in the context of capital market conditions to estimate the cost of equity. The STB decision reveals the importance of conducting multiple analyses to estimate ROE, since financial models may be influenced differently by the same set of market conditions. As the STB noted, by using an average of the results produced by different models, we benefit from the strengths of those models while minimizing their respective weaknesses. Accordingly, mechanical reliance on a single methodology such as the Constant Growth DCF, regardless of market conditions, may subject the ROE estimation analysis to a greater degree of bias. In summary, as the STB decision points out, the models used to estimate the ROE are used by the investment community for all types of investments, and Surface Transportation Board, Use of a multi-stage Discounted Cash Flow Model in Determining the Railroad Industry s Cost of Capital, Decision STB Ex Parte No. (Sub-No. ), released January, 00, at.

53 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley therefore it is not important that the STB does not regulate energy companies. Rather, what is important is that the methodologies used reflect what investors consider in establishing their return requirements. 0 Q. How have regulators in other jurisdictions recently responded to the historically low dividend yields for utility companies and the corresponding effect on the DCF model? A. Understanding the important role that dividend yields play in the DCF model, the Federal Energy Regulatory Commission ( FERC ) determined that anomalous capital market conditions have caused the DCF model to understate equity costs for regulated utilities at this time. In Opinion No., the FERC noted: 0 There is model risk associated with the excessive reliance or mechanical application of a model when the surrounding conditions are outside of the normal range. Model risk is the risk that a theoretical model that is used to value real world transactions fails to predict or represent the real phenomenon that is being modeled. In Opinion No., the FERC noted that the low interest rates and bond yields that persisted throughout the analytical period that was relied on (study period) resulted in anomalous market conditions and recognized the need to move away from the midpoint of the DCF analysis. In that case, the FERC relied on the CAPM and other risk premium methodologies to inform its judgment to set the return above the midpoint of the DCF results. In Opinion No., issued in September 0, the FERC recognized that those FERC Docket No. EL--00, Opinion No., fn. While Opinion No. was recently remanded to the FERC by the D.C. Circuit Court on other grounds, that decision did not question the finding by the FERC that capital market conditions were anomalous.

54 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley anomalous market conditions continued into the study period and again concluded that it was necessary to rely on ROE estimation methodologies other than the DCF model to set the appropriate ROE: Though the Commission noted certain economic conditions in Opinion No., the principle argument was based on low interest rates and bond yields, conditions that persisted throughout the study period. Consequently, we find that capital market conditions are still anomalous as described above 0 **** Because the evidence in this proceeding indicates that capital markets continue to reflect the type of unusual conditions that the Commission identified in Opinion No., we remain concerned that a mechanical application of the DCF methodology would result in a return inconsistent with Hope and Bluefield. **** As the Commission found in Opinion No., under these circumstances, we have less confidence that the midpoint of the zone of reasonableness in this proceeding accurately reflects the equity returns necessary to meet the Hope and Bluefield capital attraction standards. We therefore find it necessary and reasonable to consider additional record evidence, including evidence of alternative methodologies Q. What are your conclusions about the results of the DCF and CAPM models? A. The historical assumptions relied on to develop both models have been affected by market conditions and, therefore using historical assumptions in these models will underestimate the cost of equity that investors would require over the period that the rates in this case are to be in effect. Specifically, relying on the historical 0 FERC Docket No. EL--00, Opinion No., at. Id., at para. Id. 0

55 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley average of abnormally high stock prices results in low dividend yields that are not projected to continue over the period that the rates that are established in this proceeding will be in effect. Therefore, the use of these higher prices in the DCF model underestimates the ROE for the rate period. 0 The use of recent historical Treasury bond yields in the CAPM also tends to underestimate the projected cost of equity. Recent experience indicates that interest rates are increasing. The expectation that bond yields will not remain at currently low levels means that the expected cost of equity would be higher than is suggested by the CAPM using historical average yields. The use of projected yields on Treasury bonds results in CAPM estimates that are more reflective of the market conditions that investors expect during the period that the Company s rates will be in effect. A. Constant Growth DCF Model 0 Q. Are DCF models widely used to estimate the ROE for regulated utilities? A. Yes. DCF models are widely used in regulatory proceedings and have sound theoretical bases, although neither the DCF model nor any other model can be applied without considerable judgment in the selection of data and the interpretation of results. As discussed later in this section of my testimony, the currently high P/E ratios for utility companies, and the expectation that the P/E ratios of the proxy companies will decline in the near-term, raise concerns with the use of the DCF approach as the sole indicator of the cost of equity, at this time.

56 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. Please describe the DCF approach. A. The DCF approach is based on the theory that a stock s current price represents the present value of all expected future cash flows. In its most general form, the DCF model is expressed as follows: P 0 = D D + + k D k ( + k) ( ) ( ) [] Where P0 represents the current stock price, D D are all expected future dividends, and k is the discount rate, or required ROE. Equation [] is a standard present value calculation that can be simplified and rearranged into the following form: 0 ( + g) D0 k = + g P 0 [] Equation [] is often referred to as the Constant Growth DCF model in which the first term is the expected dividend yield and the second term is the expected long- term growth rate. Q. What assumptions are required for the Constant Growth DCF model? A. The Constant Growth DCF model requires the following four assumptions: () a constant growth rate for earnings and dividends; () a stable dividend payout ratio; () a constant price-to-earnings ratio; and () a discount rate greater than the expected growth rate. To the extent that any of these assumptions is violated, considered judgment and/or specific adjustments should be applied to the results.

57 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. What market data did you use to calculate the dividend yield in your Constant Growth DCF model? A. The dividend yield in my Constant Growth DCF model is based on the proxy companies current annualized dividend and average closing stock prices over the 0-, 0-, and 0-trading days ended May, 0. 0 Q. Why did you use 0-, 0-, and 0-day averaging periods? A. It is important to use an average of recent trading days to calculate the term P 0 in the DCF model to ensure that the ROE is not skewed by anomalous events that may affect stock prices on any given trading day. The averaging period should also be reasonably representative of expected capital market conditions over the long-term. In my view, the use of the 0-, 0-, and 0-day averaging periods reasonably balances those considerations. 0 Q. Did you make any adjustments to the dividend yield to account for periodic growth in dividends? A. Yes, I did. Since utility companies tend to increase their quarterly dividends at different times throughout the year, it is reasonable to assume that dividend increases will be evenly distributed over calendar quarters. Given that assumption, it is reasonable to apply one-half of the expected annual dividend growth rate for purposes of calculating the expected dividend yield component of the DCF model. This adjustment ensures that the expected first year dividend yield is, on average, representative of the coming twelve-month period, and does not overstate the aggregated dividends to be paid during that time.

58 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. Why is it important to select appropriate measures of long-term growth in applying the DCF model? A. In its Constant Growth form, the DCF model (i.e., Equation []) assumes a single growth estimate in perpetuity. In order to reduce the long-term growth rate to a single measure, one must assume a constant payout ratio, and that earnings per share, dividends per share and book value per share all grow at the same constant rate. Over the long run, however, dividend growth can only be sustained by earnings growth. Therefore, it is important to incorporate a variety of sources of long-term earnings growth rates into the Constant Growth DCF model. 0 Q. Which sources of long-term earnings growth rates did you use? A. My Constant Growth DCF model incorporates three sources of long-term earnings growth rates: () Zacks Investment Research; () Thomson First Call (provided by Yahoo! Finance); and () Value Line Investment Survey. 0 Q. Why have you not considered Reuters growth rates in the sources of longterm growth used in your DCF model? A. Reuters growth rates and the Thomson First Call growth rates provided by Yahoo! Finance are sourced by the same analysts and are generally identical. If I were to use the Reuters growth rates and the Thomson First Call growth rates, this essentially would double the weight of the Thomson First Call growth rates relative to the other sources. For example, as shown below, though Reuters has currently not published growth rates for NJR and SJI, however, the growth rates for each of the other proxy companies are identical to the Thomson growth rates.

59 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley TABLE : COMPARISON OF YAHOO! FINANCE AND REUTERS EARNINGS GROWTH RATES Company Yahoo! Finance Reuters Atmos Energy Corporation.00%.00% New Jersey Resources Corporation.00%.00% NiSource Inc..%.% Northwest Natural Gas Company.0%.0% One Gas, Inc..0%.0% South Jersey Industries, Inc..00% n/a Southwest Gas Corporation.00%.00% Spire, Inc..%.% 0 Q. Why are earnings growth rates the appropriate growth rates to be relied on in the DCF model? A. Earnings are the fundamental driver of a company s ability to pay dividends; therefore, earnings growth is the appropriate measure of a company s long-term growth. In contrast, changes in a company s dividend payments are based on management decisions related to cash management and other factors. For example, a company may decide to retain earnings rather than pay out a portion of those earnings to shareholders through dividends. Therefore, dividend growth rates are less likely than earnings growth rates to reflect accurately investor perceptions of a company s growth prospects. Q. Is there support for the use of analysts earnings growth estimates in the DCF model? A. Yes, there is significant academic support for the use of analyst growth rates. In addition, the majority of the data that are publicly available to investors sets forth analysts projections of earnings growth rates.

60 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 Q. Please summarize the academic research on growth rates and stock valuation. A. The relationship between various growth rates and stock valuation metrics has been the subject of much academic research. Many published articles specifically support the use of analysts earnings growth projections in the DCF model in general, as well as for a method of calculating the expected market risk premium, in particular. Dr. Robert Harris, for example, demonstrated that financial analysts earnings forecasts (referred to in the article as FAF ) in a Constant Growth DCF formula are an appropriate method of calculating the expected market risk premium. Dr. Harris made the following observations: 0 [ ] a growing body of knowledge shows that analysts earnings forecasts are indeed reflected in stock prices. Such studies typically employ a consensus measure of FAF calculated as a simple average of forecasts by individual analysts. *** Given the demonstrated relationship of FAF to equity prices and the direct theoretical appeal of expectational data, it is no surprise that FAF have been used in conjunction with DCF models to estimate equity return requirements. Professors Carleton and Vander Weide also performed a study to determine whether projected earnings growth rates are superior to historical measures of growth in the implementation of the DCF model. Although the purpose of that study was to investigate what growth expectation is embodied in the firm s Robert S. Harris, Using Analysts Growth Forecasts to Estimate Shareholder Required Rates of Return, Financial Management, Spring, at. Id., at. Id., at 0. James H. Vander Weide, Willard T. Carleton, Investor growth expectations: Analysts vs. history, The Journal of Portfolio Management, Spring,.

61 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley current stock price, the authors clearly indicate the importance of earnings projections in the context of the DCF model. Professors Carleton and Vander Weide concluded that: 0 [ ] our studies affirm the superiority of analysts forecasts over simple historical growth extrapolations in the stock price formation process. Indirectly, this finding lends support to the use of valuation models whose input includes expected growth rates. Similarly, Harris and Marston presented estimates of shareholder required rates of return and risk premia which are derived using forward-looking analysts growth forecasts. that, In addition to other findings, Harris and Marston reported 0 [ ] in addition to fitting the theoretical requirement of being forward-looking, the utilization of analysts forecasts in estimating return requirements provides reasonable empirical results that can be useful in practical applications. 0 The Carleton and Vander Weide study was updated to determine whether the finding that analysts earnings growth forecasts are relevant in the stock valuation process still holds. The results of that updated study continued to demonstrate the importance of analysts earnings forecasts, including the application of those forecasts to utility companies. Similarly, Brigham, Shome and Vinson noted that evidence in the current literature indicates that () analysts forecasts are superior to forecasts based solely on time series data; and () investors do rely on Id., at. Id., at. Robert S. Harris, Felicia C. Marston, Estimating Shareholder Risk Premia Using Analysts Growth Forecasts, Financial Management, Summer,. 0 Id., at. Advanced Research Center, Investor Growth Expectations, Summer, 00.

62 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley analysts forecasts. More recently, Dr. Roger Morin summarizes the wealth of empirical research on this topic in his book New Regulatory Finance, concluding that [analyst growth rate] forecasts are statistically more accurate than forecasts based solely on historical earnings, dividends, book value equity and the like. 0 Q. Do you rely on dividend per share ( DPS ) and book value per share ( BVPS ) growth rates? A. No, I do not. There are several reasons why reliance on Value Line projections of DPS growth and BVPS growth are not appropriate. First, as discussed above, the use of dividend and book value growth rates ignores the academic research demonstrating that earnings growth rates are most relevant in stock price valuation. Second, projections of dividend growth are entirely dependent on dividend policy, only measuring a portion of the growth experienced by the company, whereas estimates of book value growth are also highly influenced by dividend policy and how earnings are invested between assets and liabilities. Investing earnings in assets or paying down debt will both increase BVPS (all else equal), but paying dividends will decrease BVPS. Therefore, projections of earnings growth provide a more robust estimate of total company growth and is not influenced by the effects of subsequent investment and dividend payment policies as is the case with both DPS and BVPS growth rates. The Risk Premium Approach to Measuring a Utility s Cost of Equity, Financial Management, Spring,. Dr. Roger A. Morin, New Regulatory Finance, Public Utilities Reports, Inc. (00) pp. -0.

63 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley B. Flotation Costs Q. What are flotation costs? A. Flotation costs are the costs associated with the sale of new issues of common stock. These costs include out-of-pocket expenditures for preparation, filing, underwriting, and other issuance costs. 0 Q. Why is it important to consider flotation costs in the allowed ROE? A. A regulated utility must have the opportunity to earn an ROE that is both competitive and compensatory to attract and retain new investors. To the extent that a company is denied the opportunity to recover prudently incurred flotation costs, actual returns will fall short of expected (or required) returns, thereby diluting equity share value. 0 Q. Are flotation costs part of the utility s invested costs or part of the utility s expenses? A. Flotation costs are part of the invested costs of the utility, which are properly reflected on the balance sheet under paid in capital. They are not current expenses, and, therefore, are not reflected on the income statement. Rather, like investments in rate base or the issuance costs of long-term debt, flotation costs are incurred over time. As a result, the great majority of a utility s flotation cost is incurred prior to the test year, but remains part of the cost structure that exists during the test year and beyond, and as such, should be recognized for ratemaking purposes. Therefore, whether an issuance occurs during the test year, or is planned for the test year, is irrelevant, because failure to allow recovery of past

64 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley flotation costs may deny SCG the opportunity to earn its required ROR in the future. 0 Q. Is the need to consider flotation costs eliminated because SCG is a whollyowned subsidiary of AVANGRID? A. No. Although SCG is a wholly-owned subsidiary of AVANGRID, it is appropriate to consider flotation costs for two reasons. First, a substantial portion of SCG s paid-in equity is the result of prior public issuances of common stock made by UIL before it was combined in the merger that formed AVANGRID, at a time when UIL was itself a publicly traded entity. Those costs remain embedded in UIL s balance sheet in the form of a permanent reduction of equity capital. Second, wholly-owned subsidiaries receive equity capital from their parent and provide returns on the capital that roll up to the parent, which is designated to attract and raise capital based upon the returns of those subsidiaries. To deny recovery of issuance costs associated with the capital that is invested in the subsidiaries ultimately penalizes the investors that fund the utility operations and inhibits the utility s ability to obtain new equity capital at a reasonable cost. 0 Q. Has UIL issued common equity? A. Yes. Just prior to its merger with AVANGRID, SCG s parent, UIL Holdings had two large equity issuances. As shown in Exhibit AEB-, UIL closed on equity issuances of approximately $ million and $ million (for a total of million shares of common stock) in September 00 and September 0, respectively. 0

65 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. Is the need to consider flotation costs recognized by the academic and financial communities? A. Yes. The need to reimburse shareholders for the lost returns associated with equity issuance costs is recognized by the academic and financial communities in the same spirit that investors are reimbursed for the costs of issuing debt. This treatment is consistent with the philosophy of a fair ROR. According to Dr. Shannon Pratt: 0 0 Flotation costs occur when new issues of stock or debt are sold to the public. The firm usually incurs several kinds of flotation or transaction costs, which reduce the actual proceeds received by the firm. Some of these are direct outof-pocket outlays, such as fees paid to underwriters, legal expenses, and prospectus preparation costs. Because of this reduction in proceeds, the firm s required returns on these proceeds equate to a higher return to compensate for the additional costs. Flotation costs can be accounted for either by amortizing the cost, thus reducing the cash flow to discount, or by incorporating the cost into the cost of capital. Because flotation costs are not typically applied to operating cash flow, one must incorporate them into the cost of capital. Q. Has the Authority found that flotation cost adjustments for the recovery of equity issuance costs are appropriate? A. Yes, the Authority has allowed flotation costs in many recent cases. In its June 0 rate case decision for Yankee Gas Services company, PURA (which was then named the Department of Public Utility Control) examined in detail the issue of whether flotation cost adjustments were appropriate. The Authority identified two primary methods of recovering flotation costs: () to expense them and recover them in the cost of service; and () to recover them as a perpetual adder to Shannon P. Pratt, Cost of Capital Estimation and Applications, Second Edition, at 0-.

66 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley the ROE. The Authority determined that equity issuance costs should be recovered through a perpetual adder to ROE, calculated by multiplying the dividend yield by the actual flotation cost percentage. Specifically, the Authority stated: 0 0 The Department recognizes that flotation costs are real. Therefore, it must be recognized for a utility that issues common stock or from a parent that issues common stock and then infuses those dollars as a capital contribution to a utility subsidiary. The Department allows issuance costs for debt offerings of utilities and expenses these costs over the life of the bond. The Department reasons that the costs of a common stock issuance should be included for as long as the stock is outstanding, which is permanently. Therefore, flotation costs should be recognized through a perpetual adder to the ROE. Q. Did the Authority recently allow CNG to include an adjustment for flotation costs to account for the costs incurred related to raising capital? A. Yes, it did. Though the Authority has allowed recovery of flotation costs on a case by case basis, it has generally allowed recovery when equity issuances have occurred at the parent company (which are used to infuse equity to the subsidiary), or when the utility operating company has issued its own equity. In CNG s last rate case, the Authority allowed an adjustment for flotation costs of basis points because UIL s equity offering was issued to fund the purchase of CNG, SCG, and Berkshire Gas from Iberdrola USA in 00. Since a portion of UIL s equity issuance was also made to finance the acquisition of SCG, it is also appropriate to allow recovery of flotation costs through SCG s allowed ROE. As Docket No. 0--0, Application of Yankee Gas Services Company For Amended Rate Schedules (June, 0) at.

67 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley shown in Table, below, the Authority has allowed the recovery of flotation costs in every gas and electric utility proceeding since its detailed review of flotation costs in its 0 Yankee Gas decision. TABLE : SUMMARY OF RECENT FLOTATION COST DECISIONS Company Final Decision Date Docket No. Flotation Adjustment (basis points) UI //0-0-0 CL&P //0-0-0 CNG //0-0-0 UI // YGS // Q. How did you calculate the flotation costs for SCG? A. My flotation cost calculation is based on the costs of issuing equity that were incurred by UIL in its two most recent common equity issuances. Those issuance costs were applied to my proxy group. Based on the issuance costs provided in Exhibit AEB-, flotation costs for SCG are approximately 0. percent (i.e., basis points). C. Discounted Cash Flow Model Results Q. Please summarize the results of your DCF analyses. A. Table (see also Exhibits AEB- and AEB-, columns, and ) presents the results of the eight proxy companies developed from my proxy group screen. As shown in Exhibit AEB-, the mean ROE result for all DCF results reported

68 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley (all averaging periods, all growth scenarios) of. percent, excludes the results for certain proxy companies based on the threshold applied by the Authority in the recent UI case. In its most recent decision for UI, the Authority added basis points to the Mergent Bond Yield to develop a low end to screen individual DCF estimates. Applying that threshold to the DCF result for the proxy companies, excludes the low-end DCF results for of my proxy companies, and excludes the mean results of of my proxy companies. The Constant Growth DCF model produces a range of mean results from. percent to 0. percent, including the flotation cost adjustment. 0 TABLE : DISCOUNTED CASH FLOW RESULTS Constant Growth DCF Mean Low Mean Mean High 0-Day Average Price.%.% 0.% 0-Day Average Price.%.0% 0.% 0-Day Average Price.%.%.0% Average.%.% 0.% Average All Mean Results.% The Moody s Baa index is.% as of May, 0..% + basis points provides a lowend screen of. percent. This range is established by averaging the results for the 0, 0 and 0 day DCF scenarios. Includes flotation cost adjustment.

69 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. How did you calculate the range of results for the Constant Growth DCF Model? A. I calculated the low result for my DCF models using the minimum growth rate (i.e., the lowest of the First Call, Zacks, and Value Line earnings growth rates) for each of the proxy group companies. Thus, the low result reflects the minimum DCF result for the updated proxy group. I used a similar approach to calculate the high results, using the highest growth rate for each proxy group company. The mean results were calculated using the average growth rates from all three sources. 0 Q. Have you considered the results of any other DCF analyses? A. Yes, I have considered the results of a projected Constant Growth DCF model. This DCF analysis relies on Value Line s projected average prices and projected dividends for the period from 0-00 and the five-year projected EPS growth rates that cover this time-period. As shown in Exhibit AEB-, the use of Value Line projected assumptions in the DCF model results increases the ROE by 0 basis points (i.e.,. percent vs.. percent shown in Exhibit AEB-) in the return on equity for the Proxy Group. D. CAPM Analysis 0 Q. Please briefly describe the Capital Asset Pricing Model. A. The CAPM is a risk premium approach that estimates the cost of equity for a given security as a function of a risk-free return plus a risk premium to compensate investors for the non-diversifiable or systematic risk of that

70 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley security. This second component is the product of the market risk premium and the Beta coefficient, which measures the relative riskiness of the security being evaluated. The CAPM is defined by four components, each of which must theoretically be a forward-looking estimate: Where: K e = r + β f ( r r ) m f [] K e = the required market ROE; β = Beta coefficient of an individual security; 0 r f = the risk-free rate of return; and r m = the required return on the market. In this specification, the term (r m r f ) represents the market risk premium. According to the theory underlying the CAPM, since unsystematic risk can be diversified away, investors should only be concerned with systematic or non- diversifiable risk. Non-diversifiable risk is measured by Beta, which is defined as: β = Covariance(r e, r m ) [] Variance(r m ) The variance of the market return (i.e., Variance (r m )) is a measure of the uncertainty of the general market, and the covariance between the return on a

71 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley specific security and the general market (i.e., Covariance (r e, r m )) reflects the extent to which the return on that security will respond to a given change in the general market return. Thus, Beta represents the risk of the security relative to the general market. 0 Q. What risk-free rate did you use in your CAPM analysis? A. I relied on three sources for my estimate of the risk-free rate: () the current 0- day average yield on 0-year U.S. Treasury bonds (i.e.,. percent); () the average projected 0-year U.S. Treasury bond yield for Q 0 through Q 0 of. percent; 0 and () the average projected 0-year U.S. Treasury bond yield for 0 through 00 of. percent. 0 Q. Why did you consider the current average yield on 0-year Treasury bonds as well as the projected Treasury bond yields? A. As discussed previously, the estimation of the cost of equity in this case should be forward looking since it is the return that investors would receive over the future rate period. Therefore, the inputs and assumptions used in the CAPM analysis should reflect the expectations of the market at that time. As discussed in Section V of my Direct Testimony, leading economists surveyed by Blue Chip are expecting an increase in long-term interest rates over the next five years. This is an important consideration for equity investors as they assess their return requirements. A CAPM analysis based entirely on the current average risk-free 0 Bloomberg Professional, as of May, 0. Blue Chip Financial Forecasts, Vol., No., June, 0, at. Blue Chip Financial Forecasts, Vol., No., June, 0, at.

72 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley rate of. percent fails to take into consideration the effect of the market s expectations for interest rate increases on the cost of equity. For that reason, I have used the projected yields on 0-year Treasury bonds over the near-term horizon of 0 00, the period that rates will be in effect, as the risk-free rate. Q. What Beta coefficients did you use in your CAPM analysis? A. As shown on Exhibit AEB-, I used the average Beta coefficients for the proxy group companies as reported by Value Line. Value Line s calculation is based on five years of weekly returns relative to the New York Stock Exchange Composite Index. My average Beta coefficient for the proxy group was Q. How did you estimate the market risk premium in the CAPM? A. I estimated the market risk premium based on the expected return on S&P 00 Index less the yield on the 0-year Treasury bond. I calculate the expected return on the S&P 00 Index companies for which dividend yields and long-term earnings projections are available using the Constant Growth DCF model discussed earlier in my Direct Testimony. Based on an estimated market capitalization-weighted dividend yield of.0 percent and a weighted long-term growth rate of. percent, the estimated required market return for the S&P 00 Index is. percent. As shown in Exhibit AEB-, the implied market risk premium over the current 0-day average of the 0-year U.S. Treasury bond yield, and projected yields on the 0-year U.S. Treasury bond, range from. percent to 0. percent.

73 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. Are there regulatory agencies that have supported the methodology you use to estimate the market risk premium? A. Yes. My approach to conducting a market risk premium analysis is consistent with the approach that was accepted by the FERC in Order. In that decision, the FERC concluded that the use of a Constant Growth DCF model and the -year earnings growth projections were appropriate for estimating the market return and the market risk premium: We are also unpersuaded that the growth rate projection in the NETOs CAPM study was skewed by the NETOs reliance on analysts projections of non-utility companies medium-term earnings growth, or that the study failed to consider that those analysts estimates reflect unsustainable short-term stock repurchase programs and are not long-term projections. As explained above, the NETOs based their growth rate input on data from IBES, which the Commission has found to be a reliable source of such data. Thus, the time periods used for the growth rate projections in the NETOs CAPM study are the time periods over which IBES forecasts earnings growth. Petitioners arguments against the time period on which the NETOs CAPM analysis is based are, in effect, arguments that IBES data are insufficient in a CAPM study. *** While an individual company cannot be expected to sustain high short term growth rates in perpetuity, the same cannot be said for a stock index like the S&P 00 that is regularly updated to contain only companies with high market capitalization, and the record in this proceeding does not indicate that the growth rate of the S&P 00 stock index is unsustainable. 0 FERC,, Docket Nos. EL--00, Opinion No. -B, at para.. While Opinion No. was recently remanded to the FERC by the D.C. Circuit Court, that decision did not question the finding by the FERC that capital market conditions were anomalous. Id., at para..

74 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. Have other regulators accepted the approach of deriving the market risk premium from the estimated forward looking market return? A. Yes. In New York, the Commission Staff relies on a similar approach that derives the market risk premium by subtracting the risk-free rate from Merrill Lynch s two forward-looking returns on the market, a required return and an implied return. The Commission has consistently applied and implemented that risk premium methodology since. In a recent rate case decision for Corning Natural Gas, Commission Staff justified its approach for using a forward-looking market risk premium ( MRP ). They state: 0 0 the application of the historical market risk premium method is problematic because ex-post MRPs are based on the faulty premise that past performance is a valid proxy for expectations regarding future results. In addition, the historical approach is highly sensitive to the actual time period selected to calculate the premium. The Commission went on to affirm its preference for relying on forward-looking MRP analyses as opposed to ex-post analyses, where it stated that its approach goes back to Case -G-0, where the Commission stated the Judge s market return calculation based on Merrill Lynch data is a reasonable method of deriving a risk premium; and it avoids the problem of stale data in the Ibbotson estimate. New York State Public Service Commission, In the Matter of Corning Natural Gas Corporation Case -G-0 (October 0) at -0. Id. 0

75 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 Q. Why is a forward-looking market risk premium more appropriate than a historical market risk premium? A. The historical market risk premium fails to consider the inverse relationship between interest rates and the market risk premium. As shown in my Bond Yield Plus Risk Premium analysis, as interest rates decrease, the market risk premium increases. The historical market risk premium that can be derived from the Morningstar data is based on an income only return on government bonds of.00 percent (which is significantly higher than the current yield on government bonds) subtracted from the long-term return on large company stocks of.00 percent. Therefore, the historical market risk premium of approximately.00 percent is under-stated in the context of current or near-term projected interest rates. As such, it is more appropriate to use a forward-looking market risk premium that reflects projected total returns for the S&P 00 less the current and projected yield on Treasury securities. 0 Q. Do you agree with Morningstar s methodology for calculating the MRP? A. The Market Risk Premium measures the incremental return over the risk-free rate that investors expect to assume equity risk. Therefore, I agree with Morningstar that the MRP is measured at a point in time based on the relationship between these two data points; the market return or the expected market return and the expected risk-free rate. As such, consistent with the Morningstar calculation, I have estimated the projected MRP as the difference between the project market -. Duff & Phelps, Valuation Handbook 0 U.S. Guide to Cost of Capital (-0), at - and

76 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley return and the projected risk-free rate, as measured by the return on the 0-year Treasury bonds. Q. What are the results of your CAPM analyses? A. As shown in Table (see also Exhibit AEB-), my CAPM analysis produces a range of returns from 0. percent to 0. percent. VIII. Value Line Beta Current Risk-Free Rate (.%) TABLE : CAPM RESULTS Q 0-Q 0 Projected Risk-Free Rate (.%) 0-00 Projected Risk-Free Rate (.%) Mean Result 0.% 0.0% 0.% 0.% Regulatory and Business Risks 0 Q. Is it reasonable to rely exclusively on the mean DCF, CAPM and Risk Premium results for the proxy group to provide an appropriate estimate of the cost of equity for SCG? A. No. These results provide only a range of the appropriate estimate of the Company s cost of equity. There are several additional factors that must be taken into consideration when determining where the Company s cost of equity falls within the range of results. These factors, which are discussed below, should be considered with respect to their overall effect on the Company s risk profile.

77 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley A. SCG s Capital Expenditure Plan Q. Please summarize the Company s capital expenditure requirements. A. The Company s current projections for 0 through 0 include approximately $. million in capital investments for the period. Based on the Company s net utility plant as of December, 0 of approximately $. million, the $. million anticipated capital expenditures represents. percent of SCG s net utility plant as of December, 0. 0 Q. How is the Company s risk profile affected by its substantial capital expenditure requirements? A. As with any utility faced with substantial capital expenditure requirements, the Company s risk profile may be adversely affected in two significant and related ways: () the heightened level of investment increases the risk of under recovery or delayed recovery of the invested capital; and () an inadequate return would put downward pressure on key credit metrics. 0 Q. Do credit rating agencies recognize the risks associated with elevated levels of capital expenditures? A. Yes, they do. From a credit perspective, the additional pressure on cash flows associated with high levels of capital expenditures exerts corresponding pressure on credit metrics and, therefore, credit ratings. To that point, S&P explains the importance of regulatory support for large capital projects: 0. Data provided by SCG for Capital Expenditures 0-0. The Southern Connecticut Gas Company, FERC Form for the year ended December, 0, at

78 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 0 When applicable, a jurisdiction s willingness to support large capital projects with cash during construction is an important aspect of our analysis. This is especially true when the project represents a major addition to rate base and entails long lead times and technological risks that make it susceptible to construction delays. Broad support for all capital spending is the most credit-sustaining. Support for only specific types of capital spending, such as specific environmental projects or system integrity plans, is less so, but still favorable for creditors. Allowance of a cash return on construction work-in-progress or similar ratemaking methods historically were extraordinary measures for use in unusual circumstances, but when construction costs are rising, cash flow support could be crucial to maintain credit quality through the spending program. Even more favorable are those jurisdictions that present an opportunity for a higher return on capital projects as an incentive to investors. Therefore, to the extent that SCG s rates do not permit the opportunity to recover its full cost of doing business, the Company will face increased recovery risk and thus increased pressure on its credit metrics. Q. What initiatives require the greatest need for capital over the next years? A. The Company s cast iron and bare steel replacement program is the Company s most capital intensive initiative making up approximately percent of its entire capital expenditure budget over the forecast period. The capital investment associated with connecting new residential and commercial customers makes up roughly percent of SCG s four-year budget. Both areas are projected to increase dramatically over the forecast period. S&P Global Ratings, Assessing U.S. Investor-Owned Utility Regulatory Environments, August 0, 0, at.

79 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 Q. How do SCG s capital expenditure requirements compare to those of the proxy group companies? A. As shown at Exhibit AEB-, SCG s capital expenditure program falls just below the proxy group median, or roughly at the 0 th percentile. This indicates moderate risk relative to the proxy group for attracting the necessary capital. However, significant programs that drive capital expenditure requirements generally receive cost recovery through infrastructure and capital trackers. As shown in Exhibit AEB-, percent of the proxy group utilities recover costs through capital tracking mechanisms. If SCG were not allowed to recover its cast iron and bare steel investment through a capital tracking mechanism, its risk relative to the proxy group would be significantly increased. Q. What are your conclusions regarding the effect of the Company s capital spending requirements on its risk profile and cost of capital? A. The Company s capital expenditure requirements as a percentage of net utility plant are escalating over the next few years. As such, the risk posed by these elevated capital expenditure requirements indicates that SCG should be afforded the opportunity to earn an ROE sufficient to attract the necessary capital to fund those requirements. B. SCG s Regulatory Environment 0 Q. Please explain how the regulatory environment affects investors risk assessments. A. The ratemaking process is premised on the principle that, for investors and companies to commit the capital needed to provide safe and reliable utility

80 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley service, the subject utility must have the opportunity to recover the return of, and the market-required return on, invested capital. Regulatory authorities recognize that because utility operations are capital intensive, regulatory decisions should enable the utility to attract capital at reasonable terms; doing so balances the longterm interests of investors and customers. SCG is no exception. It must finance its operations and requires the opportunity to earn a reasonable return on its invested capital in order to maintain its financial profile. In that respect, the regulatory environment is one of the most important factors considered in both debt and equity investors risk assessments. 0 From the perspective of debt investors, the authorized return should enable the Company to generate the cash flow needed to meet its near-term financial obligations, make the capital investments needed to maintain and expand its system, and maintain sufficient levels of liquidity to fund unexpected events. This financial liquidity must be derived not only from internally generated funds, but also by efficient access to capital markets. Moreover, because fixed income investors have many investment alternatives, even within a given market sector, the Company s financial profile must be adequate on a relative basis to ensure its ability to attract capital under a variety of economic and financial market conditions. 0 Equity investors require that the authorized return be adequate to provide a risk- comparable return on the equity portion of the Company s capital investments. Because equity investors are the residual claimants on the Company s cash flows

81 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley (which is to say that the equity return is subordinate to interest payments), they are particularly concerned with the strength of regulatory support and its effect on future cash flows. 0 Q. Please explain how credit rating agencies consider regulatory risk in establishing a company s credit rating. A. While both S&P and Moody s consider regulatory risk in establishing credit ratings, Moody s has published a report quantifying the importance of this metric. Moody s establishes credit ratings based on four key factors: () regulatory framework; () the ability to recover costs and earn returns; () diversification; and () financial strength, liquidity and key financial metrics. Of these criteria, regulatory framework and the ability to recover costs and earn returns are each given a broad rating factor of.0 percent. Therefore, Moody s assigns regulatory risk a 0.0 percent weighting in the overall assessment of business and financial risk for regulated utilities. 0 In its assessment of U.S. utility regulatory environments, S&P noted that the regulatory advantage is the most heavily weighted factor in the analysis of a regulated utility s business risk profile. The regulatory environment is one factor in that analysis. 0 Moody s Investors Service, Rating Methodology: Regulated Electric and Gas Utilities, December, 0, at. Standard & Poor s, Assessing U.S. Utility Regulatory Environments, January, 0, at.

82 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 Q. How does the regulatory environment in which a utility operates affect its access to and cost of capital? A. The regulatory environment can significantly affect both the access to, and cost of capital in several ways. First, the proportion and cost of debt capital available to utility companies are influenced by the rating agencies assessment of the regulatory environment. As noted by Moody s, [f]or rate regulated utilities, which typically operate as a monopoly, the regulatory environment and how the utility adapts to that environment are the most important credit considerations. Moody s further highlighted the relevance of a stable and predictable regulatory environment to a utility s credit quality, noting: [b]roadly speaking, the Regulatory Framework is the foundation for how all the decisions that affect utilities are made (including the setting of rates), as well as the predictability and consistency of decision-making provided by that foundation. Q. What are the credit rating agencies views of SCG s business risk and regulatory environment? A. The rating agencies are looking positively on SCG s outlook from a credit rating perspective. Moody s cites its expectation that the Company will secure a decoupling mechanism and infrastructure trackers in this rate case that are available to gas distribution utilities in Connecticut. Moody s also expects that 0 the credit supportiveness of its regulator will remain strong. The rating agencies have historically considered Connecticut s political and regulatory environment to Moody s Investors Service, Rating Methodology: Regulated Electric and Gas Utilities, December, 0, at. Id. Moody s Investor Service, Southern Connecticut Gas Company, A Connecticut-based Natural Gas Local Distribution Company (May, 0).

83 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley be challenging for investor-owned utilities. Moody s notes that the Connecticut regulatory environment is subject to heightened political intervention and that the PURA has historically granted allowed returns on equity well below prevailing industry averages. However, Moody s notes that with the passage of Public Act - that provides for gas expansion in the state and decoupling mechanisms and infrastructure trackers for timely cost recovery, points to an improving and political and regulatory environment in the state. S&P also characterizes Connecticut s regulatory framework as somewhat improving, though at times challenging. Moody s notes that a more contentious or less credit supportive 0 regulatory environment or deterioration in the Company s financial metrics could lead to a downgrade. Fitch notes that although the regulatory environment overseen by PURA is relatively balanced, SCG s currently-allowed return is below the national average for natural gas distribution utilities. Fitch also notes that an adverse regulatory decision that meaningfully reduces the stability and predictability of earnings and cash flows could result in a negative rating action. 0 Id. Id. S&P Global Ratings Research Update: UIL Holdings Corp. Upgraded to A- from BBB+ On Implemented Insulation Measures; Outlook Stable (September, 0). Moody s Investor Service, Southern Connecticut Gas Company, A Connecticut-based Natural Gas Local Distribution Company (May, 0). FitchRatings, The Southern Connecticut Gas Company, Subsidiary of AVANGRID, Inc. Full Rating Report (April, 0). 0 Id.

84 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 Q. Is SCG proposing a decoupling mechanism and infrastructure tracking mechanism in this rate proceeding? A. Yes. The Company is proposing both a decoupling mechanism and an infrastructure tracking mechanism for its cast iron bare steel replacement program. The decoupling mechanism is a revenue-based mechanism that will true-up actual collected distribution revenue with the approved revenue targets for each rate year resulting from the rate case for 0, 0, and 00. The proposed infrastructure tracker will allow for recovery of projected annual budgeted revenue requirements, and will include a true-up of the prior period revenue requirement for its cast iron bare steel replacement program, the Distribution Integrity Management Program ( DIMP ). These mechanisms mirror those mechanisms which have already been allowed by PURA to SCG s affiliated company, CNG. 0 Q. If SCG is granted its proposed decoupling mechanism and infrastructure tracker, will these mechanisms reduce the Company s regulatory risk relative to the proxy companies and cause a reduction in its allowed ROE? A. The proposed recovery mechanisms will provide more stable and certain cash flows and will reduce the Company s risk around cost recovery and regulatory lag. However, the analysis of the appropriate ROE relies on a proxy group of similar companies. Therefore, the appropriate risk analysis compares SCG s risk with the adjustment mechanisms to the proxy group. As shown in Exhibit AEB-, percent of the proxy group companies have revenue stabilization measures, including rate stabilization tariffs, straight-fixed variable rate design, or full decoupling mechanisms (all essentially accomplishing the same purpose of fixed 0

85 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley cost recovery and revenue stability); and percent of the operating companies in the proxy group are noted to have infrastructure cost recovery mechanisms. Since the proxy group companies have already implemented similar risk mitigation measures, SCG would not have less risk than the benchmark group as a result of its proposals. Furthermore, to the extent that SCG is not granted its proposed decoupling mechanism or infrastructure recovery mechanism in this rate case, its risk would be substantially elevated, relative to the proxy group. 0 0 Q. Have you conducted any analysis of the regulatory environment in Connecticut relative to the jurisdictions in which the companies in your proxy group operate? A. Yes. S&P classifies each regulatory jurisdiction into five categories ranging from Strong to Weak based on the level of credit supportiveness. Within each category, regulatory jurisdictions are ranked according to their credit supportiveness from most credit supportive to least credit supportive. For my analysis of the credit supportiveness of the regulatory jurisdictions in which the proxy companies operate, I assigned a numerical ranking to each jurisdiction ranked by S&P, from most credit supportive ( ) to least credit supportive ( ). As shown in Exhibit AEB-0, the proxy group average ranking was., which would be classified as Strong/Adequate and rank as average for credit supportiveness, while the Connecticut jurisdictional ranking was, which is quite below average in credit supportiveness. AGA s most recent review of Innovative Rates, Non-Volumetric Rates, and Tracking Mechanisms, published in December 0.

86 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley Q. Do any other publications rank the regulatory environment of utility jurisdictions? A. Yes. Regulatory Research Associates assigns a rating of Below Average to Connecticut. This rating suggests above average regulatory risk for SCG s utility operations. 0 0 Q. What are your conclusions regarding the perceived risks related to the Connecticut regulatory environment? A. As discussed throughout this section of my testimony, both Moody s and S&P have identified the supportiveness of the regulatory environment as an important consideration in developing their overall credit ratings for regulated utilities. The S&P credit supportiveness ranking for Connecticut indicates greater risk than the average for the proxy companies, though I acknowledge that provisions allowing for gas expansion, decoupling mechanisms and infrastructure trackers are an improvement (as was also noted by the rating agencies). My ROE recommendation is based on the assumption that SCG s proposed regulatory mechanisms will be approved. With the approval of the Company s proposed decoupling and infrastructure recovery mechanisms, SCG will be more closely aligned with its proxy group companies. Without these proposed mechanisms, SCG would clearly be among the riskiest of the companies evaluated and would warrant either an explicit risk adjustment relative to the proxy group results or an ROE at the upper end of the range of results. Regulatory Ratings Associates notes that Over the past several years, the regulatory climate in Connecticut has been particularly restrictive from an investor perspective. Authorized equity returns have been well below the average of returns accorded energy utilities nationwide at the time established. RRA Evaluation, as of May, 0.

87 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley IX. Capital Structure 0 Q. Is the capital structure of the Company an important consideration in the determination of the appropriate return on equity? A. Yes, it is. Assuming other factors equal, a higher debt ratio increases the risk to investors. For debt holders, higher debt ratios result in a greater portion of the available cash flow being required to meet debt service, thereby increasing the risk associated with the payments on debt. The result of increased risk is a higher interest rate. The incremental risk of a higher debt ratio is more significant for common equity shareholders. Common shareholders are the residual claimants on the cash flow of the Company. Therefore, the greater the debt service requirement, the less cash flow available for common equity holders. Q. What is SCG s proposed capital structure? A. The Company s test year capital structure at December, 0 was. percent. SCG is proposing a capital structure consisting of. percent common equity for its first year under the Rate Plan, (ending December, 0);.0 percent for the second year of its Rate Plan, (ending December, 0); and. percent for the third year of its Rate Plan, (ending December, 00). 0 Q. Did you conduct any analysis to determine if this requested equity ratio was reasonable? A. Yes, I did. I reviewed the capital structures of the utility holding companies and their operating subsidiaries of the proxy companies. Since the return on equity is set based on the return that is derived from the risk-comparable proxy group, it is

88 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley reasonable to look to the proxy group average capital structure to benchmark the equity ratio for the Company. Q. Please discuss your analysis of the capital structures of the proxy group companies. A. My analysis of the proxy group companies actual capital structures is provided in Exhibit AEB-. As shown in that exhibit, I examined the authorized equity ratios of each of the utility operating subsidiaries in the proxy group, noting that the operating subsidiaries had equity ratios ranging from. percent to.0 percent, with an average of. percent. Since I am using stock information 0 from the parent holding companies, it is also appropriate to review the holding companies capital structures. For each holding company, I calculated the proportions of common equity, preferred equity, long-term debt and short-term debt over the most recent year. The proxy group holding company equity ratios ranged from. percent to. percent, with an average of. percent. The Company s proposed common equity ratios of. percent for the first year of the Plan,.0 percent for the second year of the Plan, and. percent for the third year of the Plan, are below the mean of the proxy group operating subsidiaries of. percent and within the range established by the proxy group holding companies. Source: SNL Financial and FERC Form annual reports.

89 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 Q. Please explain why the parent holding company capital structure can be different than the operating utilities? A. The holding company capital structure reflects the financing of all operating subsidiaries, regulated and unregulated. It may reflect higher leverage attributable to unregulated affiliate companies that have no bearing on the financing of regulated utility assets. For natural gas holding companies in particular, the capital structure may be subject to write downs and impairments on unregulated assets such as gas production wells, gas reserves or midstream assets. These changes in the parent company capital structure do not affect the capital structure of the utility operating subsidiary. For these reasons, it is often the case that the capital structure of a gas distribution utility can differ from the capital structure of the parent holding companies. 0 Q. Is it appropriate to include short-term debt in the Company s capital structure? A. The capital structure should match the nature of the Company s investment in plant and equipment. The Company s gas distribution system assets are long-lived assets that are financed with long-term debt and common equity. Therefore, while short-term debt may be used to meet seasonal working capital requirements, the permanent capital that is used to finance the rate base generally does not include short-term debt. Therefore, it may be appropriate to include short term debt in the capital structure when it is used to finance long-lived assets, but generally shortterm debt is used to finance net working capital (by definition assets to be consumed within one year) and accordingly is excluded from the ratemaking capital structure.

90 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0 Q. What is your conclusion regarding an appropriate capital structure for SCG? A. Considering the actual capital structures of the proxy group s holding companies and operating companies, I believe that SCG s proposed common equity ratios of. in rate year one,.0 percent in rate year two, and. percent in rate year three are within the range of the parent utility holding company and allowed subsidiary utility operating company capital structures. They are above the mean holding company equity ratio by roughly percent and are below the utility operating company mean equity ratio by roughly and a half percent. As such, the proposed equity ratios appear reasonable and would be adequate to support capital attraction on reasonable terms. X. Multi-Year Rate Plan Q. Are you aware that the Company is filing a multi-year rate plan? A. Yes, I am aware that the Company is proposing a three-year rate plan. 0 Q. Does a multi-year rate plan create additional risk for the Company? A. Yes. As noted earlier in my testimony, Treasury yields and allowed ROEs are at or near all-time lows largely as the result of the combined effects of the Federal Reserve s monetary policy and a relatively slow economic recovery. Analysts consensus forecasts expect that interest rates will be increasing in the 0-00 period during which the Company s rate plan will be in effect. While the current 0-day average yield on the 0-year U.S. Treasury bond as of May, 0 was. percent, the latest Blue Chip Consensus Forecast shows an expected increase to. percent by 00, an increase of 0 basis points. If interest rates were to

91 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley increase as predicted, an ROE established based on economic conditions in mid- 0 would be lower than investor s return expectations during the term of a multi-year rate plan. 0 Q. Have you conducted any analysis as to the expected return on equity over the period that the Company is proposing for its multi-year rate plan? A. Yes. As discussed in Section VII of my testimony, I developed the Constant Growth DCF analysis using Value Line s projections of the average annualized prices and dividends for 0 through 00. As shown in Exhibit AEB- that analysis demonstrates that using projected assumptions, the average ROE for the proxy group is. percent including flotation costs. This is basis points higher than the expected ROE based on current 0-day average dividend yields of.00 percent (before removal of low end outliers), and basis points higher with the outliers removed. 0 Q. Are there other methodologies that can be used to estimate the ROE over the multi-year rate period? A. Yes. The CAPM analysis shown in Exhibit AEB- estimates the projected yields on 0-year Treasury bonds over the period from 0-00 as the risk-free rate and results in an estimated cost of equity of 0. percent. In addition, it is possible to use the Bond Yield Plus Risk Premium analysis to estimate the historical relationship between bond yields and the market risk premium. Q. Please describe the Bond Yield Plus Risk Premium approach. A. In general terms, this approach is based on the fundamental principle that equity investors bear the residual risk associated with equity ownership and therefore

92 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley require a premium over the return they would have earned as a bondholder. That is, since returns to equity holders have greater risk than returns to bondholders, equity investors must be compensated to bear that risk. Risk premium approaches, therefore, estimate the cost of equity as the sum of the equity risk premium and the yield on a particular class of bonds. In my analysis, I used actual authorized returns for gas utilities as the historical measure of the cost of equity to determine the risk premium. 0 Q. Are there other considerations that should be addressed in conducting this analysis? A. Yes. It is important to recognize both academic literature and market evidence indicating that the equity risk premium (as used in this approach) is inversely related to the level of interest rates. That is, as interest rates increase (decrease), the equity risk premium decreases (increases). Consequently, it is important to develop an analysis that: () reflects the inverse relationship between interest rates and the equity risk premium; and () relies on recent and expected market conditions. Such an analysis can be developed based on a regression of the risk premium as a function of U.S. Treasury bond yields. If we let authorized ROEs for gas utilities serve as the measure of required equity returns and define the yield on the long-term U.S. Treasury bond as the relevant measure of interest

93 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley rates, the risk premium simply would be the difference between those two points. 0 Q. Is the Bond Yield Plus Risk Premium analysis relevant to investors? A. Yes. Investors are aware of ROE awards in other jurisdictions, and they consider those awards as a benchmark for a reasonable level of equity returns for utilities of comparable risk operating in other jurisdictions. Since my Bond Yield Plus Risk Premium analysis is based on authorized ROEs for gas utilities relative to corresponding Treasury yields, it provides relevant information to assess the return expectations of investors. However, I have relied on this analysis to corroborate the reasonableness of my DCF and CAPM results and to inform my ultimate ROE recommendation, not as the primary basis for my recommendation. Q. What did your Bond Yield Plus Risk Premium analysis reveal? A. As shown on Chart, from through May 0, there was a strong negative relationship between risk premia and interest rates. To estimate that relationship, I conducted a regression analysis using the following equation: Where: ( T ) RP = a + b [] RP = Risk Premium (difference between allowed ROEs and the yield on See e.g., S. Keith Berry, Interest Rate Risk and Utility Risk Premia during -, Managerial and Decision Economics, Vol., No. (March, ), in which the author used a methodology similar to the regression approach described below, including using allowed ROEs as the relevant data source, and came to similar conclusions regarding the inverse relationship between risk premia and interest rates. See also Robert S. Harris, Using Analysts Growth Forecasts to Estimate Shareholders Required Rates of Return, Financial Management, Spring, at.

94 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley 0-year U.S. Treasury bonds) a = intercept term b = slope term T = 0-year U.S. Treasury bond yield Data regarding allowed ROEs were derived from rate cases from through May 0 as reported by Regulatory Research Associates. This equation s coefficients were statistically significant at the.0 percent level. CHART : RISK PREMIUM RESULTS 0 As shown on Exhibit AEB-, based on the current 0-day average of the 0-year U.S. Treasury bond yield (i.e.,. percent), the risk premium would be. percent, resulting in an estimated ROE of. percent. Based on the near-term This analysis began with a total of 0 cases and was screened to eliminate limited issue rider cases and transmission-only cases. After applying those screening criteria, the analysis was based on data for cases. 0

95 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley (0-0) projections of the 0-year U.S. Treasury bond yield (i.e.,. percent), the risk premium would be. percent, resulting in an estimated ROE of. percent. Based on longer-term (0-00) projections of the 0-year U.S. Treasury bond yield (i.e.,. percent), the risk premium would be.0 percent, resulting in an estimated ROE of 0.0 percent. These results are also shown in Table below. 0 Q. What are the implications of this analysis for projected ROEs? A. The regression equation indicates that for every 00 basis point change in the yield on 0-year treasury bonds, the risk premium moves in an opposite direction by about basis points. This relationship implies that for every 00 basis point change in Treasury rates, the ROE will change in the same direction by about (00-) basis points. Using the regressions equation in that analysis and the average projected yield on the 0-year Treasury bonds for the 0-00 period, the estimated cost of equity is 0.0 percent, which is basis points higher than the near-term blue chip forecast yield ROE based on quarterly forecasts from Q 0 through Q 0. 0 The forward-looking Constant Growth DCF analysis using Value Line s projections of the average annualized prices and dividends for 0-00 results in an estimated ROE of. percent. If the Authority adopts SCG s proposed multi-year rate plan, the Authority should adopt an ROE which is based on the Value Line s projected dividends and prices are the average expected prices for the period from 0-00.

96 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley use of forward looking data to ensure the Company can attract capital over the multi-year period. My ROE recommendation of. percent is reasonable based on the current expectation of interest rates during the rate period. XI. Conclusions and Recommendation 0 Q. What is your conclusion regarding a fair ROE for SCG? A. Based on the quantitative and qualitative analyses presented in my Direct Testimony, and in light of the business and financial risks of SCG compared to the proxy group, it is my view that an ROE of. percent on equity ranging from. percent to. percent, during the three-year rate period, would fairly balance the interests of customers and shareholders. This ROE would enable the Company to maintain its financial integrity and therefore its ability to attract capital at reasonable rates under a variety of economic and financial market conditions, while continuing to provide safe, reliable and affordable gas utility service to customers in Connecticut.

97 The Southern Connecticut Gas Company Docket No. -0- June 0, 0 Testimony of Ann E. Bulkley TABLE : SUMMARY OF ANALYTICAL RESULTS Constant Growth DCF (including flotation cost) Mean Low Mean Mean High 0-Day Average Price.%.% 0.% 0-Day Average Price.%.0% 0.% 0-Day Average Price.%.%.0% Projected Constant Growth DCF (including flotation cost) Value Line Div. Yld. Projections.%.%.% Capital Asset Pricing Model Current Risk-Free Rate (.%) Q 0 Q 0 Projected Risk-Free Rate (.%) 0-00 Projected Risk-Free Rate (.%) Value Line Beta 0.% 0.0% 0.% Bond Yield Plus Risk Premium Current Risk-Free Rate (.%) Q 0-Q 0 Projected Risk-Free Rate (.%) 0-00 Projected Risk-Free Rate (.%) Bond Yield Plus Risk Premium.%.% 0.0% Q. Does this conclude your Direct Testimony? A. Yes, it does. The 0-day mean low result does not meet the minimum threshold established by the Authority, calculated as basis points above the Moody s Baa Utility Bond Index of.% (.+.=.%).

98 THE SOUTHERN CONNECTICUT GAS COMPANY DOCKET NO. -0- ATTACHMENT A RESUME OF ANN E. BULKLEY Ann E. Bulkley Senior Vice President Ms. Bulkley more than two decades of management and economic consulting experience in the energy industry. Ms. Bulkley has extensive state and federal regulatory experience on both electric and natural gas issues including rate of return, cost of equity and capital structure issues. Ms. Bulkley has advised clients seeking to acquire utility assets, providing valuation services including an understanding of regulation, market expected returns, and the assessment of utility risk factors. Ms. Bulkley has assisted clients with valuations of public utility and industrial properties for ratemaking, purchase and sale considerations, ad valorem tax assessments, and accounting and financial purposes. In addition, Ms. Bulkley has experience in the areas of contract and business unit valuation, strategic alliances, market restructuring and regulatory and litigation support. REPRESENTATIVE PROJECT EXPERIENCE Regulatory Analysis and Ratemaking Ms. Bulkley has provided a range of advisory services relating to regulatory policy analysis and many aspects of utility ratemaking. Specific services have included: cost of capital and return on equity testimony, cost of service and rate design analysis and testimony, development of ratemaking strategies; development of merchant function exit strategies; analysis and program development to address residual energy supply and/or provider of last resort obligations; stranded costs assessment and recovery; performance-based ratemaking analysis and design; and many aspects of traditional utility ratemaking (e.g., rate design, rate base valuation). Cost of Capital Ms. Bulkley has provided expert testimony on the cost of capital testimony before several state regulatory commissions. In addition, Ms. Bulkley has prepared and provided supporting analysis for at least forty Federal and State regulatory proceedings over the past seven years. Ms. Bulkley s expert testimony experience includes: Northern States Power Company: Before the North Dakota Public Service Commission, provided expert testimony on the cost of capital for the company s North Dakota electric utility operations. WE Energies: Before the Michigan Public Service Commission, provided expert testimony in support of the company s cost of capital for its electric utility operations. Concentric Energy Advisors Pg.

99 THE SOUTHERN CONNECTICUT GAS COMPANY DOCKET NO. -0- ATTACHMENT A RESUME OF ANN E. BULKLEY Atmos Energy: Provided expert testimony in support of the company s return on equity and capital structure before the Public Utilities Commission for the State of Colorado. UNS Electric: Provided expert testimony in support of the company s return on equity and capital structure before the Arizona Corporation Commission. Portland Natural Gas Transmission: Provided testimony strategy as well as analytical support for cost of capital testimony before the Federal Energy Regulatory Commission. In addition to the specific cases listed above, Ms. Bulkley has provided testimony strategy as well as analytical support on cost of capital in several cases in the following states: Arizona, Colorado, Connecticut, Massachusetts, Minnesota, New Mexico, New York, North Carolina, South Carolina, South Dakota, Virginia, and Utah. Valuation Ms. Bulkley has provided valuation services to utility clients, unregulated generators and private equity clients for a variety of purposes including ratemaking, fair value, ad valorem tax, litigation and damages, and acquisition. Ms. Bulkley s appraisal practices are consistent with the national standards established by the Uniform Standards of Professional Appraisal Practice. In addition, Ms. Bulkley has relied on other simulation based valuation methodologies. Representative projects/clients have included: Northern Indiana Fuel and Light: Provided expert testimony regarding the fair value of the company s natural gas distribution system assets. Valuation relied on cost approach. Kokomo Gas: Provided expert testimony regarding the fair value of the company s natural gas distribution system assets. Valuation relied on cost approach. Prepared fair value rate base analyses for Northern Indiana Public Service Company for several electric rate proceedings. Valuation approaches used in this project included income, cost and comparable sales approaches. Confidential Utility Client: Prepared valuation of fossil and nuclear generation assets for financing purposes for regulated utility client. Prepared a valuation of a portfolio of generation assets for a large energy utility to be used for strategic planning purposes. Valuation approach included an income approach, a real options analysis and a risk analysis. Assisted clients in the restructuring of NUG contracts through the valuation of the underlying assets. Performed analysis to determine the option value of a plant in a competitively priced electricity market following the settlement of the NUG contract. Concentric Energy Advisors Pg.

100 THE SOUTHERN CONNECTICUT GAS COMPANY DOCKET NO. -0- ATTACHMENT A RESUME OF ANN E. BULKLEY Prepared market valuations of several purchase power contracts for large electric utilities in the sale of purchase power contracts. Assignment included an assessment of the regional power market, analysis of the underlying purchase power contracts, a traditional discounted cash flow valuation approach, as well as a risk analysis. Analyzed bids from potential acquirers using income and risk analysis approached. Prepared an assessment of the credit issues and value at risk for the selling utility. Prepared appraisal of a portfolio of generating facilities for a large electric utility to be used for financing purposes. Prepared an appraisal of a fleet of fossil generating assets for a large electric utility to establish the value of assets transferred from utility property. Conducted due diligence on an electric transmission and distribution system as part of a buy-side due diligence team. Provided analytical support for and prepared appraisal reports of generation assets to be used in ad valorem tax disputes. Provided analytical support and prepared testimony regarding the valuation of electric distribution system assets in five communities in a condemnation proceeding. Valued purchase power agreements in the transfer of assets to a deregulated electric market. Ratemaking Ms. Bulkley has assisted several clients with analysis to support investor-owned and municipal utility clients in the preparation of rate cases. Sample engagements include: Assisted several investor-owned and municipal clients on cost allocation and rate design issues including the development of expert testimony supporting recommended rate alternatives. Worked with Canadian regulatory staff to establish filing requirements for a rate review of a newly regulated electric utility. Analyzed and evaluated rate application. Attended hearings and conducted investigation of rate application for regulatory staff. Prepared, supported and defended recommendations for revenue requirements and rates for the company. Developed rates for gas utility for transportation program and ancillary services. Strategic and Financial Advisory Services Ms. Bulkley has assisted several clients across North America with analytically based strategic planning, due diligence and financial advisory services. Representative projects include: Concentric Energy Advisors Pg.

101 THE SOUTHERN CONNECTICUT GAS COMPANY DOCKET NO. -0- ATTACHMENT A RESUME OF ANN E. BULKLEY Preparation of feasibility studies for bond issuances for municipal and district steam clients. Assisted in the development of a generation strategy for an electric utility. Analyzed various NERC regions to identify potential market entry points. Evaluated potential competitors and alliance partners. Assisted in the development of gas and electric price forecasts. Developed a framework for the implementation of a risk management program. Assisted clients in identifying potential joint venture opportunities and alliance partners. Contacted interviewed, and evaluated potential alliance candidates based on company-established criteria for several LDCs and marketing companies. Worked with several LDCs and unregulated marketing companies to establish alliances to enter into the retail energy market. Prepared testimony in support of several merger cases and participated in the regulatory process to obtain approval for these mergers. Assisted clients in several buy-side due diligence efforts, providing regulatory insight and developing valuation recommendations for acquisitions of both electric and gas properties. PROFESSIONAL HISTORY Concentric Energy Advisors, Inc. (00 Present) Senior Vice President Vice President Assistant Vice President Project Manager Navigant Consulting, Inc. ( 00) Project Manager Cahners Publishing Company () Economist EDUCATION M.A., Economics, Boston University, B.A., Economics and Finance, Simmons College, Certified General Appraiser licensed in the Commonwealth of Massachusetts Concentric Energy Advisors Pg.

102 THE SOUTHERN CONNECTICUT GAS COMPANY DOCKET NO. -0- ATTACHMENT A EXPERT TESTIMONY OF ANN E. BULKLEY Sponsor Date Case/Applicant Docket /Case No. Subject Arizona Corporation Commission Tucson Electric / Tucson Electric Power Company Docket No. E-0A-- Return on Equity Power Company 0 UNS Electric / UNS Electric Docket No. E-00A-- Return on Equity 00 UNS Electric 0/ UNS Electric Docket No. E-00A-- 0 Return on Equity Arkansas Public Service Commission Arkansas 0/ Arkansas Oklahoma Gas Oklahoma Gas Corporation Corporation Docket No. -0-U Return on Equity Colorado Public Utilities Commission Atmos Energy 0/ Atmos Energy Corporation Docket No. AL-0G Return on Equity Corporation Atmos Energy 0/ Atmos Energy Corporation Docket No. AL-000G Return on Equity Corporation Atmos Energy 0/ Atmos Energy Corporation Docket No. AL-0G Return on Equity Corporation Connecticut Public Utilities Regulatory Authority The United 0/ The United Illuminating Illuminating Company Company Docket No Return on Equity Concentric Energy Advisors Pg.

103 THE SOUTHERN CONNECTICUT GAS COMPANY DOCKET NO. -0- ATTACHMENT A EXPERT TESTIMONY OF ANN E. BULKLEY Sponsor Date Case/Applicant Docket /Case No. Subject Federal Energy Regulatory Commission Tallgrass 0/ Tallgrass Interstate Gas RP- Return on Equity Interstate Gas Transmission Transmission Indiana Utility Regulatory Commission Indianapolis Power and Light Company Indianapolis Power and Light Company Kokomo Gas and Fuel Company Northern Indiana Fuel and Light Company, Inc. Northern Indiana Public Service Company 0/ Indianapolis Power and Light Company / Indianapolis Power and Light Company Cause No. Cause No. 0 Cause No. Fair Value Fair Value 0/0 Kokomo Gas and Fuel Company Cause No. Fair Value 0/0 Northern Indiana Fuel and Light Company, Inc. 0/ Northern Indiana Public Service Company Cause No. Cause No. Fair Value Fair Value Kansas Corporation Commission Atmos Energy 0/ Atmos Energy Corporation Docket No. -ATMG-0- Corporation RTS Return on Equity Concentric Energy Advisors Pg.

104 THE SOUTHERN CONNECTICUT GAS COMPANY DOCKET NO. -0- ATTACHMENT A EXPERT TESTIMONY OF ANN E. BULKLEY Sponsor Date Case/Applicant Docket /Case No. Subject Massachusetts Department of Public Utilities Unitil Corporation 0/0 Fitchburg Gas and Electric DTE 0- Integrated Resource Plan; Gas Demand Forecast Michigan Public Service Commission Wisconsin / Wisconsin Electric Power Electric Power Company Company Case No. U-0 Return on Equity Michigan Tax Tribunal Covert Township 0/ New Covert Generating Co., LLC. Docket No. Valuation of Electric Generation Assets New Mexico Public Regulation Commission Southwestern Public Service Company Southwestern Public Service Company Southwestern Public Service Company 0/ Southwestern Public Service Company 0/ Southwestern Public Service Company / Southwestern Public Service Company Case No UT Case No UT Case No. -00-UT Return on Equity Return on Equity Return on Equity Concentric Energy Advisors Pg.

105 THE SOUTHERN CONNECTICUT GAS COMPANY DOCKET NO. -0- ATTACHMENT A EXPERT TESTIMONY OF ANN E. BULKLEY Sponsor Date Case/Applicant Docket /Case No. Subject New York State Department of Public Service Corning Natural 0/ Corning Natural Gas Corporation Case No. -G-0 Return on Equity Gas Corporation KeySpan Energy 0/ KeySpan Energy Delivery Case No. -G-00 Return on Equity Delivery National Fuel Gas Company 0/ National Fuel Gas Company Case No. -G-0 Return on Equity New York State Electric and Gas Company 0/ New York State Electric and Gas Company Case No. -G-0 Return on Equity North Dakota Public Service Commission Northern States /0 Northern States Power Company C-PU-0- Return on Equity Power Company Northern States / Northern States Power Company C-PU-- Return on Equity Power Company Oklahoma Corporation Commission Arkansas 0/ Arkansas Oklahoma Gas Oklahoma Gas Corporation Corporation Cause No. PUD 000 Return on Equity Public Utility Commission of Texas Southwestern 0/ Southwestern Public Service Public Service Company Company Docket No. 00 Return on Equity Concentric Energy Advisors Pg.

106 Sponsor Date Case/Applicant Docket /Case No. Subject THE SOUTHERN CONNECTICUT GAS COMPANY DOCKET NO. -0- ATTACHMENT A EXPERT TESTIMONY OF ANN E. BULKLEY South Dakota Public Utilities Commission Northern States 0/ Northern States Power Company Docket No. EL-0 Return on Equity Power Company Concentric Energy Advisors Pg.

107 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of SUMMARY OF ROE ANALYSES RESULTS Constant Growth DCF -- All Proxy Group (includes flotation cost adj.) Mean Low Mean Mean High 0-Day Average.%.00% 0.% 0-Day Average.%.0% 0.% 0-Day Average.%.%.0% Constant Growth Average.%.0% 0.% Constant Growth DCF -- with Exclusion (Includes flotation cost adj.) Mean Low Mean Mean High 0-Day Average.%.% 0.% 0-Day Average.%.0% 0.% 0-Day Average.%.%.0% Constant Growth Average.%.% 0.% Average of All Constant Growth DCF-- with Exclusion Projected DCF (Includes flotation cost adj.).% Mean Low Mean Mean High All Proxy Group.%.%.% With Exclusion.%.%.% Overall DCF with Exclusion (includes flotation cost adj.) Overall DCF Average.%.0%.% CAPM Low Median High CAPM 0.% 0.0% 0.% CAPM Mean Result 0.% Treasury Yield Plus Risk Premium Current 0-day Average Treasury Bond Yield Near-Term Blue Chip Forecast Yield Long-Term Blue Chip Forecast Yield Risk Premium Analysis.%.% 0.0% Risk Premium Mean Result.% Average of Results Average Low Results Average Mean Results Average High Results All Methods.0%.% 0.% CAPM and Risk Premium 0.0% 0.% 0.%

108 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of PROXY GROUP SCREENING DATA AND RESULTS - FINAL PROXY GROUP Company Ticker Dividends [] [] [] S&P Credit Rating Between BBBand AAA Announced Merger within 0 days from //0 Atmos Energy Corporation ATO Yes A No New Jersey Resources Corporation NJR Yes A No NiSource Inc. NI Yes BBB+ No Northwest Natural Gas Company NWN Yes A+ No ONE Gas Inc. OGS Yes A- No South Jersey Industries, Inc. SJI Yes BBB+ No Southwest Gas Corporation SWX Yes BBB+ No Spire, Inc. SR Yes A- No Notes: [] Source: Bloomberg Professional [] Source: SNL Financial [] Source: SNL Financial News Releases

109 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of FLOTATION COST ADJUSTMENT Company Date [i] Shares Issued (000) Offering Price Underwriting Discount [ii] Offering Expense ($000) Net Proceeds Per Share Total Flotation Costs ($000) Equity Issue Before Costs ($000) Net Proceeds ($000) Flotation Cost Percentage UIL Holdings Corporation //00 0, $..0 $ $. $,0 $, $ 0,0.% UIL Holdings Corporation //0,0 $..0 $ 0 $.0 $, $, $ 0,.% $ 0, $, $ 0,0.% Notes: [i] Offering Completion Date [ii] Underwriting discount was calculated as the market price minus the offering price when not explicitly given in the prospectus. The flotation cost adjustment is derived by dividing the dividend yield by F (where F = flotation costs expressed in percentage terms), or by 0., and adding that result to the constant growth rate to determine the cost of equity. Using the formulas shown previously in my testimony, the Constant Growth DCF calculation is modified as follows to accommodate an adjustment for flotation costs: ( + 0.g) ( F ) D k = + g P [] [] [] [] [] [] [] [] [] [0] [] Company Ticker Annualized Dividend Stock Price Dividend Yield Expected Dividend Yield Expected Dividend Yield Adjusted for Flotation Costs Value Line Earnings Growth Yahoo! Finance Earnings Growth Zacks Earnings Growth Average Earnings Growth ROE ROE Adjusted for Flotation Costs Atmos Energy Corporation ATO $.0 $..%.%.%.00%.00%.00%.%.%.0% New Jersey Resources Corporation NJR $.0 $0..%.%.%.00%.00%.00%.00%.%.% NiSource Inc. NI $0.0 $..%.%.0%.0%.%.0%.%.%.% Northwest Natural Gas Company NWN $. $..%.%.%.00%.0%.0%.%.%.% ONE Gas Inc. OGS $. $.0.%.%.%.0%.0%.0%.%.%.% South Jersey Industries, Inc. SJI $.0 $..00%.0%.%.0%.00% 0.00%.0%.0%.% Southwest Gas Corporation SWX $. $.0.%.%.%.0%.00%.00%.%.%.% Spire, Inc. SR $.0 $.0.0%.%.%.00%.%.0%.%.%.% Mean.%.00% Flotation Cost Adjustment [] 0.% Notes: [] Source: Bloomberg Professional [] Source: Bloomberg Professional, equals 0-day average as of May, 0 [] Equals [] / [] [] Equals [] x ( + []) [] Equals [] / ( Flotation Cost) [] Source: Value Line [] Source: Yahoo! Finance [] Source: Zacks [] Equals Average ([], [], []) [0] Equals [] + [] [] Equals [] + [] [] Equals Average ([]) Average ([0])

110 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of Company Ticker 0-DAY CONSTANT GROWTH DCF -- SCG PROXY GROUP All Proxy Group With Exclusions [] [] [] [] [] [] [] [] [] [0] [] [] [] [] Yahoo! Expected Value Line Finance Zacks Average Annualized Stock Dividend Dividend Earnings Earnings Earnings Growth Dividend Price Yield Yield Growth Growth Growth Rate Low ROE Mean ROE High ROE Low ROE Mean ROE High ROE Atmos Energy Corporation ATO $.0 $..%.%.00%.00%.00%.%.%.%.%.%.%.% New Jersey Resources Corporation NJR $.0 $0..%.%.00%.00%.00%.00%.%.%.%.% NiSource Inc. NI $0.0 $..%.%.0%.%.0%.%.%.%.%.%.%.% Northwest Natural Gas Company NWN $. $..%.%.00%.0%.0%.%.%.% 0.%.% 0.% ONE Gas Inc. OGS $. $.0.%.%.0%.0%.0%.%.00%.%.0%.00%.%.0% South Jersey Industries, Inc. SJI $.0 $..00%.0%.0%.00% 0.00%.0%.%.0%.%.0%.% Southwest Gas Corporation SWX $. $.0.%.%.0%.00%.00%.%.0%.% 0.0%.% 0.0% Spire, Inc. SR $.0 $.0.0%.%.00%.%.0%.%.0%.%.%.%.% Mean.0%.%.%.%.0%.0%.%.% 0.%.%.0% 0.% Flotation Cost 0.% 0.% 0.% 0.% 0.% 0.% Flotation Cost Adjusted DCF Result.%.00% 0.%.%.% 0.% Notes: [] Source: Bloomberg Professional [] Source: Bloomberg Professional, equals 0-day average as of May, 0 [] Equals [] / [] [] Equals [] x ( x []) [] Source: Value Line [] Source: Yahoo! Finance [] Source: Zacks [] Equals Average ([], [], []) [] Equals [] x ( x Minimum ([], [], []) + Minimum ([], [], []) [0] Equals [] + [] [] Equals [] x ( x Maximum ([], [], []) + Maximum ([], [], []) [] - [] Excludes companies with ROEs less than the Authority's authorized minimum basis point threshold. Calculated here as the Moody's Utility Bond Baa-Rated Index as of May 0 plus basis points. [.% + =.%]

111 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of Company 0-DAY CONSTANT GROWTH DCF -- SCG PROXY GROUP All Proxy Group With Exclusions [] [] [] [] [] [] [] [] [] [0] [] [] [] [] Yahoo! Expected Value Line Finance Zacks Average Annualized Stock Dividend Dividend Earnings Earnings Earnings Growth Dividend Price Yield Yield Growth Growth Growth Rate Low ROE Mean ROE High ROE Low ROE Mean ROE High ROE Atmos Energy Corporation ATO $.0 $..%.%.00%.00%.00%.%.%.0%.%.%.0%.% New Jersey Resources Corporation NJR $.0 $..%.%.00%.00%.00%.00%.%.%.%.%.% NiSource Inc. NI $0.0 $..%.0%.0%.%.0%.%.%.%.%.%.%.% Northwest Natural Gas Company NWN $. $..%.%.00%.0%.0%.%.%.% 0.%.% 0.% ONE Gas Inc. OGS $. $..%.0%.0%.0%.0%.%.0%.%.%.0%.%.% South Jersey Industries, Inc. SJI $.0 $.0.%.%.0%.00% 0.00%.0%.%.%.%.%.% Southwest Gas Corporation SWX $. $..%.%.0%.00%.00%.%.%.% 0.00%.% 0.00% Spire, Inc. SR $.0 $..%.%.00%.%.0%.%.%.%.%.%.% Mean.%.%.%.%.0%.0%.%.% 0.0%.%.% 0.0% Flotation Cost 0.% 0.% 0.% 0.% 0.% 0.% Flotation Cost Adjusted DCF Result.%.0% 0.%.%.0% 0.% Notes: [] Source: Bloomberg Professional [] Source: Bloomberg Professional, equals 0-day average as of May, 0 [] Equals [] / [] [] Equals [] x ( x []) [] Source: Value Line [] Source: Yahoo! Finance [] Source: Zacks [] Equals Average ([], [], []) [] Equals [] x ( x Minimum ([], [], []) + Minimum ([], [], []) [0] Equals [] + [] [] Equals [] x ( x Maximum ([], [], []) + Maximum ([], [], []) [] - [] Excludes companies with ROEs less than the Authority's authorized minimum basis point threshold. Calculated here as the Moody's Utility Bond Baa-Rated Index as of May 0 plus basis points. [.% + =.%]

112 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of Company 0-DAY CONSTANT GROWTH DCF -- SCG PROXY GROUP All Proxy Group With Exclusions [] [] [] [] [] [] [] [] [] [0] [] [] [] [] Yahoo! Expected Value Line Finance Zacks Average Annualized Stock Dividend Dividend Earnings Earnings Earnings Growth Dividend Price Yield Yield Growth Growth Growth Rate Low ROE Mean ROE High ROE Low ROE Mean ROE High ROE Atmos Energy Corporation ATO $.0 $.00.%.%.00%.00%.00%.%.%.%.%.%.%.% New Jersey Resources Corporation NJR $.0 $..%.%.00%.00%.00%.00%.%.%.%.%.% NiSource Inc. NI $0.0 $..0%.%.0%.%.0%.%.%.%.%.%.%.% Northwest Natural Gas Company NWN $. $.0.%.%.00%.0%.0%.%.%.% 0.0%.% 0.0% ONE Gas Inc. OGS $. $..%.%.0%.0%.0%.%.%.%.%.%.%.% South Jersey Industries, Inc. SJI $.0 $.0.%.0%.0%.00% 0.00%.0%.%.0%.%.0%.% Southwest Gas Corporation SWX $. $..%.%.0%.00%.00%.%.%.0% 0.%.0% 0.% Spire, Inc. SR $.0 $.0.%.%.00%.%.0%.%.0%.%.%.%.% Mean.%.%.%.%.0%.0%.%.0% 0.%.%.0% 0.% Flotation Cost 0.% 0.% 0.% 0.% 0.% 0.% Flotation Cost Adjusted DCF Result.%.%.0%.%.%.0% Notes: [] Source: Bloomberg Professional [] Source: Bloomberg Professional, equals 0-day average as of May, 0 [] Equals [] / [] [] Equals [] x ( x []) [] Source: Value Line [] Source: Yahoo! Finance [] Source: Zacks [] Equals Average ([], [], []) [] Equals [] x ( x Minimum ([], [], []) + Minimum ([], [], []) [0] Equals [] + [] [] Equals [] x ( x Maximum ([], [], []) + Maximum ([], [], []) [] - [] Excludes companies with ROEs less than the Authority's authorized minimum basis point threshold. Calculated here as the Moody's Utility Bond Baa-Rated Index as of May 0 plus basis points. [.% + =.%]

113 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of Stock Price (0-00) Annualized Dividend Company Ticker (0-00) High Low Mean PROJECTED CONSTANT GROWTH DCF -- SCG PROXY GROUP All Proxy Group With Exclusions [] [] [] [] [] [] [] [] [] [0] [] [] [] [] [] [] Dividend Yield Expected Dividend Yield Atmos Energy Corporation ATO $. $.00 $.00 $0.00.0%.0%.00%.00%.00%.%.0%.%.0%.0%.%.0% New Jersey Resources Corporation NJR $.0 $.00 $.00 $0.00.0%.%.00%.00%.00%.00%.%.%.%.%.% NiSource Inc. NI $0. $0.00 $.00 $.0.%.%.0%.%.0%.%.% 0.%.0%.% 0.%.0% Northwest Natural Gas Company NWN $. $0.00 $0.00 $.00.%.%.00%.0%.0%.%.%.0% 0.%.%.0% 0.% ONE Gas Inc. OGS $. $.00 $.00 $00.00.%.%.0%.0%.0%.%.%.0%.%.%.0%.% South Jersey Industries, Inc. SJI $. $.00 $.00 $0.00.0%.%.0%.00% 0.00%.0%.% 0.%.%.% 0.%.% Southwest Gas Corporation SWX $. $0.00 $0.00 $.00.0%.%.0%.00%.00%.%.%.% 0.%.%.% 0.% Spire, Inc. SR $. $.00 $.00 $.00.%.%.00%.%.0%.%.%.%.%.%.% Mean.%.%.%.%.0%.0%.%.%.%.%.%.% Flotation Cost 0.% 0.% 0.% 0.% 0.% 0.% Flotation Cost Adjusted DCF Result.%.%.%.%.%.% Value Line Earnings Growth Yahoo! Finance Earnings Growth Zacks Earnings Growth Average Growth Rate Low ROE Mean ROE High ROE Low ROE Mean ROE High ROE Notes: [] Source: Value Line dated June, 0, average of 0 and 00 projections [] Source: Value Line, dated June, 0, 00 target price [] Source: Value Line, dated June, 0, 00 target price [] Equals Average ([], []) [] Equals [] / [] [] Equals [] x ( x [0]) [] Source: Value Line [] Source: Yahoo! Finance [] Source: Zacks [0] Equals Average ([], [], []) [] Equals [] x ( x Minimum ([], [], []) + Minimum ([], [], []) [] Equals [] + [0] [] Equals [] x ( x Maximum ([], [], []) + Maximum ([], [], []) [] - [] Excludes companies with ROEs less than the Authority's authorized minimum basis point threshold. Calculated here as the Moody's Utility Bond Baa-Rated Index as of May 0 plus basis points. [.% + =.%]

114 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of BETA AS OF June, 0 Proxy Group [] Value Line Atmos Energy Corporation ATO 0.0 New Jersey Resources Corporation NJR 0.0 NiSource Inc. NI 0. Northwest Natural Gas Company NWN 0. ONE Gas Inc. OGS 0.0 South Jersey Industries, Inc. SJI 0.0 Southwest Gas Corporation SWX 0. Spire, Inc. SR 0.0 Mean 0. Notes: [] Source: Value Line; dated June, 0

115 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of CAPITAL ASSET PRICING MODEL [] [] [] [] [] Market PROXY GROUP Risk-Free Market Risk Rate Beta Return Premium ROE (Rf) (β) (Rm) (Rm Rf) (K) Current 0-day average of 0-year U.S. Treasury bond yield [].% 0..% 0.% 0.% Near-term projected 0-year U.S. Treasury bond yield (Q 0 - Q 0) [].% 0..%.% 0.0% Projected 0-year U.S. Treasury bond yield (0-00) [].% 0..%.% 0.% MEAN 0.% Notes: [] Source: Bloomberg Professional as of May, 0 [] Source: Blue Chip Financial Forecasts, Vol., No., June, 0, at [] Source: Blue Chip Financial Forecasts, Vol., No., June, 0, at [] See Notes [], [], and [] [] Source: Exhibit AEB- [] Source: Exhibit AEB-, at [] Equals [] - [] [] Equals [] + ([] x [])

116 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of MARKET RISK PREMIUM DERIVED FROM ANALYSTS LONG-TERM GROWTH ESTIMATES [] Estimated Weighted Average Dividend Yield.0% [] Estimated Weighted Average Long-Term Growth Rate.% [0] S&P 00 Estimated Required Market Return.% [] Risk-Free Rate.%.%.% [] Implied Market Risk Premium 0.%.%.% STANDARD AND POOR'S 00 INDEX [] [] [] [] [] Cap-Weighted Weight in Estimated Cap-Weighted Long-Term Long-Term Name Ticker Index Dividend Yield Dividend Yield Growth Est. Growth Est. LyondellBasell Industries NV LYB 0.%.% 0.0%.0% 0.0% American Express Co AXP 0.%.% 0.0%.% 0.0% Verizon Communications Inc VZ 0.%.% 0.0%.% 0.0% Broadcom Ltd AVGO 0.%.0% 0.0%.% 0.0% Boeing Co/The BA 0.%.0% 0.0%.% 0.0% Caterpillar Inc CAT 0.%.% 0.0%.% 0.0% JPMorgan Chase & Co JPM.%.% 0.0%.% 0.% Chevron Corp CVX 0.%.% 0.0%.% 0.% Coca-Cola Co/The KO 0.0%.% 0.0%.% 0.0% AbbVie Inc ABBV 0.%.% 0.0% 0.% 0.0% Walt Disney Co/The DIS 0.%.% 0.0%.0% 0.0% Extra Space Storage Inc EXR 0.0%.0% 0.00%.% 0.00% EI du Pont de Nemours & Co DD 0.%.% 0.0%.0% 0.0% Exxon Mobil Corp XOM.%.% 0.0% 0.0% 0.% Phillips PSX 0.%.% 0.0%.% 0.0% General Electric Co GE.0%.% 0.0% 0.0% 0.% HP Inc HPQ 0.%.% 0.00%.% 0.00% Home Depot Inc/The HD 0.%.% 0.0%.% 0.% International Business Machines Corp IBM 0.%.% 0.0%.0% 0.0% Concho Resources Inc CXO 0.0% n/a n/a -.% 0.00% Johnson & Johnson JNJ.0%.% 0.0%.% 0.0% McDonald's Corp MCD 0.%.% 0.0%.% 0.0% Merck & Co Inc MRK 0.%.% 0.0%.% 0.0% M Co MMM 0.%.0% 0.0%.% 0.0% American Water Works Co Inc AWK 0.0%.% 0.00%.00% 0.00% Bank of America Corp BAC.0%.% 0.0%.% 0.% CSRA Inc CSRA 0.0%.% 0.00%.0% 0.00% Pfizer Inc PFE 0.0%.% 0.0%.00% 0.0% Procter & Gamble Co/The PG.0%.% 0.0%.0% 0.0% AT&T Inc T.0%.0% 0.0%.0% 0.0% Travelers Cos Inc/The TRV 0.%.% 0.00%.% 0.0% United Technologies Corp UTX 0.%.% 0.0%.% 0.0% Analog Devices Inc ADI 0.%.0% 0.00%.% 0.0% Wal-Mart Stores Inc WMT.%.0% 0.0%.% 0.0% Cisco Systems Inc CSCO 0.%.% 0.0%.% 0.0% Intel Corp INTC 0.%.0% 0.0%.% 0.0% General Motors Co GM 0.%.% 0.0% 0.% 0.0% Microsoft Corp MSFT.0%.% 0.0% 0.% 0.% Dollar General Corp DG 0.0%.% 0.00%.0% 0.0% Kinder Morgan Inc/DE KMI 0.%.% 0.0%.% 0.0% Citigroup Inc C 0.%.0% 0.0%.% 0.0% American International Group Inc AIG 0.%.0% 0.0%.00% 0.0% Honeywell International Inc HON 0.%.00% 0.0%.0% 0.0% Altria Group Inc MO 0.%.% 0.0%.% 0.0% HCA Healthcare Inc HCA 0.% n/a n/a.% 0.0% Under Armour Inc UAA 0.0% n/a n/a.% 0.00% International Paper Co IP 0.0%.0% 0.00%.00% 0.0% Hewlett Packard Enterprise Co HPE 0.%.% 0.00% -.% 0.00% Abbott Laboratories ABT 0.%.% 0.0% 0.% 0.0% Aflac Inc AFL 0.%.% 0.00%.0% 0.00% Air Products & Chemicals Inc APD 0.%.% 0.00%.% 0.0% Royal Caribbean Cruises Ltd RCL 0.%.% 0.00%.% 0.0% American Electric Power Co Inc AEP 0.%.% 0.0%.00% 0.0% Hess Corp HES 0.0%.% 0.00% -.% -0.0% Anadarko Petroleum Corp APC 0.% 0.0% 0.00% -.% 0.00% Aon PLC AON 0.%.0% 0.00%.0% 0.0% Apache Corp APA 0.0%.% 0.00% -.% -0.0% Archer-Daniels-Midland Co ADM 0.%.0% 0.00% 0.00% 0.0% Automatic Data Processing Inc ADP 0.%.% 0.00%.0% 0.0% Verisk Analytics Inc VRSK 0.0% n/a n/a.% 0.0% AutoZone Inc AZO 0.0% n/a n/a.0% 0.0% Avery Dennison Corp AVY 0.0%.% 0.00%.0% 0.00% Baker Hughes Inc BHI 0.%.% 0.00%.00% 0.0% Ball Corp BLL 0.0% 0.% 0.00%.00% 0.0% Bank of New York Mellon Corp/The BK 0.%.% 0.00%.% 0.0% CR Bard Inc BCR 0.0% 0.% 0.00%.0% 0.0% Baxter International Inc BAX 0.%.0% 0.00%.0% 0.0% Becton Dickinson and Co BDX 0.0%.% 0.00% 0.% 0.0% Berkshire Hathaway Inc BRK/B.0% n/a n/a n/a n/a Best Buy Co Inc BBY 0.0%.% 0.00%.% 0.0% H&R Block Inc HRB 0.0%.% 0.00%.00% 0.00% Boston Scientific Corp BSX 0.% n/a n/a 0.% 0.0% Bristol-Myers Squibb Co BMY 0.%.% 0.0%.0% 0.0% Fortune Brands Home & Security Inc FBHS 0.0%.% 0.00%.% 0.0% Brown-Forman Corp BF/B 0.0%.% 0.00%.% 0.00% Cabot Oil & Gas Corp COG 0.0% 0.0% 0.00% 0.% 0.0%

117 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of STANDARD AND POOR'S 00 INDEX [] [] [] [] [] Cap-Weighted Weight in Estimated Cap-Weighted Long-Term Long-Term Name Ticker Index Dividend Yield Dividend Yield Growth Est. Growth Est. Campbell Soup Co CPB 0.0%.% 0.00%.% 0.00% Kansas City Southern KSU 0.0%.% 0.00%.0% 0.0% Advanced Micro Devices Inc AMD 0.0% n/a n/a.00% 0.00% Carnival Corp CCL 0.%.0% 0.00%.% 0.0% Qorvo Inc QRVO 0.0% n/a n/a.% 0.0% CenturyLink Inc CTL 0.0%.% 0.0% 0.% 0.00% Cigna Corp CI 0.% 0.0% 0.00%.% 0.0% UDR Inc UDR 0.0%.% 0.00%.% 0.00% Clorox Co/The CLX 0.0%.% 0.00%.% 0.0% CMS Energy Corp CMS 0.0%.% 0.00%.% 0.00% Colgate-Palmolive Co CL 0.%.0% 0.0%.0% 0.0% Comerica Inc CMA 0.0%.% 0.00% 0.% 0.0% CA Inc CA 0.0%.% 0.00%.0% 0.00% Conagra Brands Inc CAG 0.0%.0% 0.00%.% 0.0% Consolidated Edison Inc ED 0.%.% 0.00%.% 0.0% SL Green Realty Corp SLG 0.0%.0% 0.00% 0.% 0.00% Corning Inc GLW 0.%.% 0.00%.% 0.0% Cummins Inc CMI 0.%.0% 0.00% 0.0% 0.0% Danaher Corp DHR 0.% 0.% 0.00%.% 0.0% Target Corp TGT 0.%.% 0.0% -.% 0.00% Deere & Co DE 0.%.% 0.00%.0% 0.0% Dominion Energy Inc D 0.%.% 0.0%.% 0.0% Dover Corp DOV 0.0%.% 0.00%.% 0.0% CBOE Holdings Inc CBOE 0.0%.% 0.00% 0.00% 0.0% Dow Chemical Co/The DOW 0.%.% 0.0%.% 0.0% Duke Energy Corp DUK 0.%.% 0.0%.% 0.0% Eaton Corp PLC ETN 0.%.0% 0.00% 0.0% 0.0% Ecolab Inc ECL 0.%.% 0.00%.% 0.0% PerkinElmer Inc PKI 0.0% 0.% 0.00%.0% 0.00% Emerson Electric Co EMR 0.%.% 0.0%.0% 0.0% EOG Resources Inc EOG 0.% 0.% 0.00% -.% -0.0% Entergy Corp ETR 0.0%.0% 0.00% -.% 0.00% Equifax Inc EFX 0.0%.% 0.00%.00% 0.0% EQT Corp EQT 0.0% 0.% 0.00% n/a n/a XL Group Ltd XL 0.0%.0% 0.00%.00% 0.00% Gartner Inc IT 0.0% n/a n/a.% 0.0% FedEx Corp FDX 0.% 0.% 0.00%.% 0.0% Macy's Inc M 0.0%.% 0.00% 0.% 0.00% FMC Corp FMC 0.0% 0.% 0.00%.00% 0.0% Ford Motor Co F 0.0%.0% 0.0%.% 0.0% NextEra Energy Inc NEE 0.%.% 0.0%.% 0.0% Franklin Resources Inc BEN 0.%.% 0.00% 0.00% 0.0% Freeport-McMoRan Inc FCX 0.0% n/a n/a.% 0.0% TEGNA Inc TGNA 0.0%.% 0.00%.0% 0.00% Gap Inc/The GPS 0.0%.0% 0.00%.0% 0.00% General Dynamics Corp GD 0.%.% 0.00%.0% 0.0% General Mills Inc GIS 0.%.% 0.0%.% 0.0% Genuine Parts Co GPC 0.0%.% 0.00% 0.% 0.0% WW Grainger Inc GWW 0.0%.% 0.00%.% 0.0% Halliburton Co HAL 0.%.% 0.00% n/a n/a Harley-Davidson Inc HOG 0.0%.% 0.00%.0% 0.00% Harris Corp HRS 0.0%.% 0.00% n/a n/a HCP Inc HCP 0.0%.% 0.00% -.% 0.00% Helmerich & Payne Inc HP 0.0%.% 0.00% -.0% 0.00% Fortive Corp FTV 0.0% 0.% 0.00%.0% 0.0% Hershey Co/The HSY 0.0%.% 0.00%.% 0.0% Synchrony Financial SYF 0.0%.% 0.00%.0% 0.0% Hormel Foods Corp HRL 0.0%.0% 0.00%.0% 0.00% Arthur J Gallagher & Co AJG 0.0%.% 0.00%.% 0.00% Mondelez International Inc MDLZ 0.%.% 0.0% 0.% 0.0% CenterPoint Energy Inc CNP 0.0%.% 0.00%.% 0.00% Humana Inc HUM 0.% 0.% 0.00%.% 0.0% Willis Towers Watson PLC WLTW 0.0%.% 0.00%.% 0.0% Illinois Tool Works Inc ITW 0.%.% 0.00%.0% 0.0% Ingersoll-Rand PLC IR 0.%.% 0.00% 0.% 0.0% Foot Locker Inc FL 0.0%.0% 0.00%.% 0.00% Interpublic Group of Cos Inc/The IPG 0.0%.% 0.00%.% 0.00% International Flavors & Fragrances Inc IFF 0.0%.% 0.00%.0% 0.00% Jacobs Engineering Group Inc JEC 0.0%.% 0.00% 0.% 0.00% Hanesbrands Inc HBI 0.0%.% 0.00%.0% 0.00% Kellogg Co K 0.%.% 0.00%.% 0.0% Perrigo Co PLC PRGO 0.0% 0.% 0.00%.% 0.00% Kimberly-Clark Corp KMB 0.%.% 0.0%.% 0.0% Kimco Realty Corp KIM 0.0%.% 0.00%.% 0.00% Kohl's Corp KSS 0.0%.% 0.00%.% 0.00% Oracle Corp ORCL 0.%.% 0.0%.0% 0.0% Kroger Co/The KR 0.%.% 0.00%.0% 0.0% Leggett & Platt Inc LEG 0.0%.% 0.00%.00% 0.0% Lennar Corp LEN 0.0% 0.% 0.00% 0.0% 0.00% Leucadia National Corp LUK 0.0%.0% 0.00%.00% 0.0% Eli Lilly & Co LLY 0.%.% 0.0%.% 0.0% L Brands Inc LB 0.0%.% 0.00%.% 0.00% Charter Communications Inc CHTR 0.% n/a n/a.0% 0.0% Lincoln National Corp LNC 0.0%.% 0.00%.% 0.0% Loews Corp L 0.0% 0.% 0.00% n/a n/a Lowe's Cos Inc LOW 0.%.% 0.0%.% 0.0% Host Hotels & Resorts Inc HST 0.0%.% 0.00%.% 0.00% Marsh & McLennan Cos Inc MMC 0.%.% 0.00%.% 0.0% Masco Corp MAS 0.0%.0% 0.00%.% 0.0% Mattel Inc MAT 0.0%.% 0.00%.00% 0.00%

118 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of STANDARD AND POOR'S 00 INDEX [] [] [] [] [] Cap-Weighted Weight in Estimated Cap-Weighted Long-Term Long-Term Name Ticker Index Dividend Yield Dividend Yield Growth Est. Growth Est. S&P Global Inc SPGI 0.%.% 0.00% 0.00% 0.0% Medtronic PLC MDT 0.%.0% 0.0%.% 0.0% CVS Health Corp CVS 0.%.0% 0.0%.% 0.0% Micron Technology Inc MU 0.% n/a n/a 0.00% 0.0% Motorola Solutions Inc MSI 0.0%.% 0.00%.0% 0.00% Murphy Oil Corp MUR 0.0%.0% 0.00% n/a n/a Mylan NV MYL 0.0% n/a n/a.00% 0.0% Laboratory Corp of America Holdings LH 0.0% n/a n/a 0.0% 0.0% Newell Brands Inc NWL 0.%.% 0.00%.% 0.0% Newmont Mining Corp NEM 0.0% 0.% 0.00% -.% -0.0% Twenty-First Century Fox Inc FOXA 0.%.% 0.00%.0% 0.0% NIKE Inc NKE 0.%.% 0.00%.% 0.0% NiSource Inc NI 0.0%.% 0.00%.% 0.00% Noble Energy Inc NBL 0.0%.% 0.00% 0.% 0.0% Norfolk Southern Corp NSC 0.%.% 0.00%.% 0.0% Eversource Energy ES 0.0%.0% 0.00%.0% 0.0% Northrop Grumman Corp NOC 0.%.% 0.00%.% 0.0% Wells Fargo & Co WFC.%.% 0.0%.% 0.% Nucor Corp NUE 0.0%.0% 0.00%.% 0.00% PVH Corp PVH 0.0% 0.% 0.00%.% 0.00% Occidental Petroleum Corp OXY 0.%.% 0.0% -.% -0.0% Omnicom Group Inc OMC 0.0%.% 0.00%.% 0.0% ONEOK Inc OKE 0.0%.% 0.00%.0% 0.0% Raymond James Financial Inc RJF 0.0%.% 0.00%.00% 0.0% PG&E Corp PCG 0.%.0% 0.0%.0% 0.0% Parker-Hannifin Corp PH 0.0%.% 0.00% 0.% 0.0% PPL Corp PPL 0.%.% 0.00%.0% 0.00% PepsiCo Inc PEP 0.%.% 0.0%.0% 0.0% Exelon Corp EXC 0.%.% 0.0%.00% 0.0% ConocoPhillips COP 0.%.% 0.0%.00% 0.0% PulteGroup Inc PHM 0.0%.% 0.00%.0% 0.0% Pinnacle West Capital Corp PNW 0.0%.% 0.00%.0% 0.00% PNC Financial Services Group Inc/The PNC 0.%.% 0.00%.% 0.0% PPG Industries Inc PPG 0.%.0% 0.00%.% 0.0% Praxair Inc PX 0.%.% 0.00%.0% 0.0% Progressive Corp/The PGR 0.%.0% 0.00%.0% 0.0% Public Service Enterprise Group Inc PEG 0.%.% 0.00%.0% 0.00% Raytheon Co RTN 0.%.% 0.00%.% 0.0% Robert Half International Inc RHI 0.0%.0% 0.00%.00% 0.00% Ryder System Inc R 0.0%.% 0.00%.00% 0.00% SCANA Corp SCG 0.0%.% 0.00%.00% 0.00% Edison International EIX 0.%.% 0.00%.% 0.0% Schlumberger Ltd SLB 0.%.% 0.0%.% 0.0% Charles Schwab Corp/The SCHW 0.% 0.% 0.00% 0.% 0.0% Sherwin-Williams Co/The SHW 0.%.0% 0.00% 0.% 0.0% JM Smucker Co/The SJM 0.0%.% 0.00%.0% 0.00% Snap-on Inc SNA 0.0%.% 0.00%.% 0.00% AMETEK Inc AME 0.0% 0.% 0.00%.% 0.0% Southern Co/The SO 0.%.% 0.0%.% 0.0% BB&T Corp BBT 0.%.% 0.00%.% 0.0% Southwest Airlines Co LUV 0.% 0.% 0.00%.% 0.0% Stanley Black & Decker Inc SWK 0.0%.% 0.00%.00% 0.0% Public Storage PSA 0.%.% 0.0%.% 0.0% SunTrust Banks Inc STI 0.%.% 0.00%.0% 0.0% Sysco Corp SYY 0.%.% 0.00%.% 0.0% Tesoro Corp TSO 0.0%.% 0.00%.0% 0.0% Texas Instruments Inc TXN 0.%.% 0.0% 0.% 0.0% Textron Inc TXT 0.0% 0.% 0.00%.% 0.0% Thermo Fisher Scientific Inc TMO 0.% 0.% 0.00%.% 0.0% Tiffany & Co TIF 0.0%.0% 0.00%.0% 0.00% TJX Cos Inc/The TJX 0.%.% 0.00%.0% 0.0% Torchmark Corp TMK 0.0% 0.% 0.00%.% 0.00% Total System Services Inc TSS 0.0% 0.% 0.00%.00% 0.0% Johnson Controls International plc JCI 0.%.% 0.00%.% 0.0% Ulta Beauty Inc ULTA 0.0% n/a n/a.% 0.0% Union Pacific Corp UNP 0.%.% 0.0%.% 0.0% UnitedHealth Group Inc UNH 0.%.% 0.0%.% 0.0% Unum Group UNM 0.0%.0% 0.00%.% 0.00% Marathon Oil Corp MRO 0.0%.% 0.00%.0% 0.00% Varian Medical Systems Inc VAR 0.0% n/a n/a.00% 0.00% Ventas Inc VTR 0.%.% 0.0%.0% 0.00% VF Corp VFC 0.0%.% 0.00%.% 0.0% Vornado Realty Trust VNO 0.0%.0% 0.00%.% 0.00% Vulcan Materials Co VMC 0.0% 0.0% 0.00%.% 0.0% Weyerhaeuser Co WY 0.%.% 0.00%.0% 0.0% Whirlpool Corp WHR 0.0%.% 0.00%.% 0.0% Williams Cos Inc/The WMB 0.%.0% 0.00%.0% 0.0% WEC Energy Group Inc WEC 0.0%.% 0.00%.0% 0.0% Xerox Corp XRX 0.0%.% 0.00%.0% 0.00% Adobe Systems Inc ADBE 0.% n/a n/a.% 0.0% AES Corp/VA AES 0.0%.% 0.00%.0% 0.00% Amgen Inc AMGN 0.%.% 0.0%.% 0.0% Apple Inc AAPL.0%.% 0.0% 0.% 0.% Autodesk Inc ADSK 0.% n/a n/a.% 0.0% Cintas Corp CTAS 0.0%.0% 0.00%.0% 0.0% Comcast Corp CMCSA 0.%.% 0.0% 0.% 0.0% Molson Coors Brewing Co TAP 0.0%.% 0.00%.0% 0.0% KLA-Tencor Corp KLAC 0.0%.0% 0.00%.0% 0.00% Marriott International Inc/MD MAR 0.%.% 0.00%.% 0.0% McCormick & Co Inc/MD MKC 0.0%.% 0.00% n/a n/a

119 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of STANDARD AND POOR'S 00 INDEX [] [] [] [] [] Cap-Weighted Weight in Estimated Cap-Weighted Long-Term Long-Term Name Ticker Index Dividend Yield Dividend Yield Growth Est. Growth Est. Nordstrom Inc JWN 0.0%.% 0.00%.% 0.00% PACCAR Inc PCAR 0.0%.% 0.00%.% 0.0% Costco Wholesale Corp COST 0.%.% 0.00% 0.% 0.0% Stryker Corp SYK 0.%.% 0.00%.0% 0.0% Tyson Foods Inc TSN 0.0%.% 0.00%.0% 0.0% Applied Materials Inc AMAT 0.% 0.% 0.00%.% 0.0% Time Warner Inc TWX 0.%.% 0.0%.0% 0.0% Bed Bath & Beyond Inc BBBY 0.0%.% 0.00%.% 0.00% American Airlines Group Inc AAL 0.% 0.% 0.00% 0.% 0.00% Cardinal Health Inc CAH 0.%.% 0.00%.% 0.0% Celgene Corp CELG 0.% n/a n/a 0.% 0.0% Cerner Corp CERN 0.0% n/a n/a.% 0.0% Cincinnati Financial Corp CINF 0.0%.% 0.00% n/a n/a DR Horton Inc DHI 0.0%.% 0.00%.% 0.0% Flowserve Corp FLS 0.0%.% 0.00%.% 0.00% Electronic Arts Inc EA 0.% n/a n/a.0% 0.0% Express Scripts Holding Co ESRX 0.% n/a n/a.% 0.0% Expeditors International of Washington Inc EXPD 0.0%.% 0.00%.0% 0.00% Fastenal Co FAST 0.0%.% 0.00%.% 0.0% M&T Bank Corp MTB 0.%.% 0.00%.% 0.0% Fiserv Inc FISV 0.% n/a n/a 0.% 0.0% Fifth Third Bancorp FITB 0.0%.% 0.00%.0% 0.00% Gilead Sciences Inc GILD 0.%.% 0.0% -.% -0.0% Hasbro Inc HAS 0.0%.% 0.00%.% 0.0% Huntington Bancshares Inc/OH HBAN 0.0%.% 0.00% 0.% 0.0% Welltower Inc HCN 0.%.0% 0.0%.% 0.0% Biogen Inc BIIB 0.% n/a n/a.0% 0.0% Range Resources Corp RRC 0.0% 0.% 0.00% -.% 0.00% Northern Trust Corp NTRS 0.0%.% 0.00%.% 0.0% Paychex Inc PAYX 0.0%.% 0.00%.00% 0.0% People's United Financial Inc PBCT 0.0%.% 0.00%.00% 0.00% Patterson Cos Inc PDCO 0.0%.% 0.00%.% 0.00% QUALCOMM Inc QCOM 0.%.% 0.0%.0% 0.0% Roper Technologies Inc ROP 0.% 0.% 0.00%.% 0.0% Ross Stores Inc ROST 0.%.00% 0.00%.% 0.0% IDEXX Laboratories Inc IDXX 0.0% n/a n/a 0.% 0.0% AutoNation Inc AN 0.0% n/a n/a.% 0.00% Starbucks Corp SBUX 0.%.% 0.0%.0% 0.0% KeyCorp KEY 0.0%.% 0.00%.% 0.0% Staples Inc SPLS 0.0%.% 0.00%.% 0.00% State Street Corp STT 0.%.% 0.00%.% 0.0% US Bancorp USB 0.0%.0% 0.0%.% 0.0% Symantec Corp SYMC 0.0% 0.% 0.00%.% 0.0% T Rowe Price Group Inc TROW 0.0%.% 0.00%.% 0.0% Waste Management Inc WM 0.%.% 0.00% 0.% 0.0% CBS Corp CBS 0.0%.% 0.00%.% 0.0% Allergan PLC AGN 0.%.% 0.00%.0% 0.0% Whole Foods Market Inc WFM 0.0%.0% 0.00%.% 0.00% Constellation Brands Inc STZ 0.%.% 0.00%.% 0.0% Xilinx Inc XLNX 0.0%.0% 0.00%.% 0.0% DENTSPLY SIRONA Inc XRAY 0.0% 0.% 0.00%.% 0.0% Zions Bancorporation ZION 0.0% 0.0% 0.00%.00% 0.00% Alaska Air Group Inc ALK 0.0%.% 0.00%.% 0.0% Invesco Ltd IVZ 0.0%.% 0.00%.% 0.0% Intuit Inc INTU 0.% 0.% 0.00%.0% 0.0% Morgan Stanley MS 0.%.% 0.0%.0% 0.0% Microchip Technology Inc MCHP 0.0%.% 0.00%.0% 0.0% Chubb Ltd CB 0.%.% 0.0% 0.% 0.0% Hologic Inc HOLX 0.0% n/a n/a 0.% 0.0% Chesapeake Energy Corp CHK 0.0% n/a n/a -.% 0.00% Citizens Financial Group Inc CFG 0.0%.% 0.00%.% 0.0% O'Reilly Automotive Inc ORLY 0.0% n/a n/a.% 0.0% Allstate Corp/The ALL 0.%.% 0.00% 0.0% 0.0% FLIR Systems Inc FLIR 0.0%.% 0.00% n/a n/a Equity Residential EQR 0.%.0% 0.00%.0% 0.0% BorgWarner Inc BWA 0.0%.% 0.00%.% 0.00% Newfield Exploration Co NFX 0.0% n/a n/a.% 0.0% Incyte Corp INCY 0.% n/a n/a.% 0.0% Simon Property Group Inc SPG 0.%.% 0.0%.% 0.0% Eastman Chemical Co EMN 0.0%.% 0.00%.% 0.00% AvalonBay Communities Inc AVB 0.%.% 0.00%.% 0.0% Prudential Financial Inc PRU 0.%.% 0.0%.0% 0.0% United Parcel Service Inc UPS 0.%.% 0.0%.0% 0.0% Apartment Investment & Management Co AIV 0.0%.% 0.00%.% 0.00% Walgreens Boots Alliance Inc WBA 0.%.% 0.0%.00% 0.0% McKesson Corp MCK 0.% 0.% 0.00%.0% 0.0% Lockheed Martin Corp LMT 0.%.% 0.0%.% 0.0% AmerisourceBergen Corp ABC 0.0%.% 0.00%.% 0.0% Capital One Financial Corp COF 0.%.0% 0.00%.% 0.0% Waters Corp WAT 0.0% n/a n/a.% 0.0% Dollar Tree Inc DLTR 0.0% n/a n/a.0% 0.0% Darden Restaurants Inc DRI 0.0%.% 0.00%.% 0.00% NetApp Inc NTAP 0.0%.% 0.00%.% 0.00% Citrix Systems Inc CTXS 0.0% n/a n/a.% 0.0% Goodyear Tire & Rubber Co/The GT 0.0%.% 0.00% n/a n/a DXC Technology Co DXC 0.0% 0.% 0.00% n/a n/a DaVita Inc DVA 0.0% n/a n/a.0% 0.00% Hartford Financial Services Group Inc/The HIG 0.0%.% 0.00%.0% 0.0% Iron Mountain Inc IRM 0.0%.0% 0.00%.0% 0.0% Estee Lauder Cos Inc/The EL 0.0%.% 0.00% 0.% 0.0%

120 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of STANDARD AND POOR'S 00 INDEX [] [] [] [] [] Cap-Weighted Weight in Estimated Cap-Weighted Long-Term Long-Term Name Ticker Index Dividend Yield Dividend Yield Growth Est. Growth Est. Yahoo! Inc YHOO 0.% n/a n/a 0.% 0.0% Principal Financial Group Inc PFG 0.0%.% 0.00%.% 0.0% Stericycle Inc SRCL 0.0% n/a n/a.% 0.00% Universal Health Services Inc UHS 0.0% 0.% 0.00%.% 0.00% E*TRADE Financial Corp ETFC 0.0% n/a n/a.% 0.0% Skyworks Solutions Inc SWKS 0.0%.0% 0.00%.% 0.0% National Oilwell Varco Inc NOV 0.0% 0.% 0.00% n/a n/a Quest Diagnostics Inc DGX 0.0%.% 0.00%.% 0.0% Activision Blizzard Inc ATVI 0.% 0.% 0.00% 0.% 0.0% Rockwell Automation Inc ROK 0.0%.% 0.00%.% 0.0% Kraft Heinz Co/The KHC 0.%.0% 0.0%.% 0.0% American Tower Corp AMT 0.%.% 0.00%.% 0.0% Regeneron Pharmaceuticals Inc REGN 0.% n/a n/a.% 0.0% Amazon.com Inc AMZN.% n/a n/a.0% 0.% Ralph Lauren Corp RL 0.0%.% 0.00%.% 0.00% Boston Properties Inc BXP 0.0%.% 0.00%.0% 0.0% Amphenol Corp APH 0.% 0.% 0.00% 0.0% 0.0% Arconic Inc ARNC 0.0% 0.% 0.00%.0% 0.0% Pioneer Natural Resources Co PXD 0.% 0.0% 0.00%.00% 0.0% Valero Energy Corp VLO 0.%.% 0.0%.% 0.0% Synopsys Inc SNPS 0.0% n/a n/a.0% 0.00% L Technologies Inc LLL 0.0%.% 0.00%.% 0.00% Western Union Co/The WU 0.0%.% 0.00%.% 0.00% CH Robinson Worldwide Inc CHRW 0.0%.% 0.00%.% 0.00% Accenture PLC ACN 0.%.% 0.0% 0.0% 0.0% TransDigm Group Inc TDG 0.0% n/a n/a.% 0.0% Yum! Brands Inc YUM 0.%.% 0.00%.% 0.0% Prologis Inc PLD 0.%.% 0.00%.% 0.0% FirstEnergy Corp FE 0.0%.% 0.00% -0.0% 0.00% VeriSign Inc VRSN 0.0% n/a n/a.0% 0.00% Quanta Services Inc PWR 0.0% n/a n/a.0% 0.00% Henry Schein Inc HSIC 0.0% n/a n/a 0.% 0.0% Ameren Corp AEE 0.0%.0% 0.00%.0% 0.00% Scripps Networks Interactive Inc SNI 0.0%.% 0.00%.% 0.00% NVIDIA Corp NVDA 0.0% 0.% 0.00%.% 0.0% Sealed Air Corp SEE 0.0%.% 0.00%.% 0.00% Cognizant Technology Solutions Corp CTSH 0.% 0.0% 0.00%.0% 0.0% Intuitive Surgical Inc ISRG 0.% n/a n/a.% 0.0% Aetna Inc AET 0.%.% 0.00%.% 0.0% Affiliated Managers Group Inc AMG 0.0% 0.% 0.00%.% 0.0% Republic Services Inc RSG 0.0%.0% 0.00%.% 0.0% ebay Inc EBAY 0.% n/a n/a.% 0.0% Goldman Sachs Group Inc/The GS 0.%.% 0.0%.% 0.0% Sempra Energy SRE 0.%.% 0.00%.% 0.0% Moody's Corp MCO 0.%.% 0.00%.00% 0.0% Priceline Group Inc/The PCLN 0.% n/a n/a.% 0.0% F Networks Inc FFIV 0.0% n/a n/a.% 0.00% Akamai Technologies Inc AKAM 0.0% n/a n/a.% 0.0% Reynolds American Inc RAI 0.%.0% 0.0%.% 0.0% Devon Energy Corp DVN 0.0% 0.% 0.00%.% 0.0% Alphabet Inc GOOGL.% n/a n/a.% 0.% Red Hat Inc RHT 0.0% n/a n/a.% 0.0% Netflix Inc NFLX 0.% n/a n/a.0% 0.% Allegion PLC ALLE 0.0% 0.% 0.00%.0% 0.00% Agilent Technologies Inc A 0.0% 0.% 0.00% 0.0% 0.0% Anthem Inc ANTM 0.%.% 0.00%.% 0.0% CME Group Inc CME 0.%.% 0.00%.% 0.0% Juniper Networks Inc JNPR 0.0%.% 0.00%.% 0.00% BlackRock Inc BLK 0.%.% 0.0%.% 0.0% DTE Energy Co DTE 0.0%.0% 0.00%.00% 0.0% Nasdaq Inc NDAQ 0.0%.% 0.00%.% 0.00% Philip Morris International Inc PM 0.%.% 0.0%.% 0.0% salesforce.com Inc CRM 0.0% n/a n/a.0% 0.0% MetLife Inc MET 0.%.% 0.0%.% 0.0% Monsanto Co MON 0.%.% 0.00% 0.0% 0.0% Under Armour Inc UA 0.0% n/a n/a.% 0.00% Coach Inc COH 0.0%.% 0.00%.0% 0.0% Fluor Corp FLR 0.0%.% 0.00%.0% 0.0% CSX Corp CSX 0.%.% 0.00%.0% 0.0% Edwards Lifesciences Corp EW 0.% n/a n/a.% 0.0% Ameriprise Financial Inc AMP 0.0%.% 0.00%.0% 0.0% Xcel Energy Inc XEL 0.%.0% 0.00%.0% 0.0% Rockwell Collins Inc COL 0.0%.% 0.00%.0% 0.0% TechnipFMC PLC FTI 0.0% n/a n/a.0% 0.00% Zimmer Biomet Holdings Inc ZBH 0.% 0.% 0.00%.% 0.0% CBRE Group Inc CBG 0.0% n/a n/a 0.% 0.0% Signet Jewelers Ltd SIG 0.0%.% 0.00%.% 0.00% Mastercard Inc MA 0.0% 0.% 0.00%.0% 0.0% CarMax Inc KMX 0.0% n/a n/a.% 0.0% Intercontinental Exchange Inc ICE 0.%.% 0.00%.0% 0.0% Fidelity National Information Services Inc FIS 0.%.% 0.00%.0% 0.0% Chipotle Mexican Grill Inc CMG 0.0% n/a n/a.% 0.0% Wynn Resorts Ltd WYNN 0.0%.% 0.00%.0% 0.0% Assurant Inc AIZ 0.0%.% 0.00%.% 0.0% NRG Energy Inc NRG 0.0% 0.% 0.00% -.0% 0.00% Monster Beverage Corp MNST 0.% n/a n/a 0.0% 0.0% Regions Financial Corp RF 0.0%.0% 0.00%.% 0.0% Teradata Corp TDC 0.0% n/a n/a.% 0.00% Mosaic Co/The MOS 0.0%.% 0.00%.% 0.0% Expedia Inc EXPE 0.0% 0.% 0.00%.% 0.0%

121 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of STANDARD AND POOR'S 00 INDEX [] [] [] [] [] Cap-Weighted Weight in Estimated Cap-Weighted Long-Term Long-Term Name Ticker Index Dividend Yield Dividend Yield Growth Est. Growth Est. Discovery Communications Inc DISCA 0.0% n/a n/a.0% 0.00% CF Industries Holdings Inc CF 0.0%.% 0.00%.00% 0.00% Viacom Inc VIAB 0.0%.0% 0.00%.% 0.00% Alphabet Inc GOOG.% n/a n/a.% 0.% Wyndham Worldwide Corp WYN 0.0%.0% 0.00%.0% 0.0% Mead Johnson Nutrition Co MJN 0.0%.% 0.00%.% 0.00% TE Connectivity Ltd TEL 0.%.0% 0.00%.% 0.0% Cooper Cos Inc/The COO 0.0% 0.0% 0.00%.00% 0.0% Discover Financial Services DFS 0.0%.0% 0.00%.0% 0.0% TripAdvisor Inc TRIP 0.0% n/a n/a.% 0.00% Dr Pepper Snapple Group Inc DPS 0.0%.0% 0.00%.% 0.0% Visa Inc V 0.% 0.% 0.0%.00% 0.% Mid-America Apartment Communities Inc MAA 0.0%.% 0.00% n/a n/a Xylem Inc/NY XYL 0.0%.% 0.00%.0% 0.0% Marathon Petroleum Corp MPC 0.%.% 0.00% 0.00% 0.0% Tractor Supply Co TSCO 0.0%.% 0.00%.0% 0.00% Level Communications Inc LVLT 0.0% n/a n/a.00% 0.00% Mettler-Toledo International Inc MTD 0.0% n/a n/a.% 0.0% Albemarle Corp ALB 0.0%.% 0.00%.0% 0.0% Transocean Ltd RIG 0.0% n/a n/a -.0% 0.00% Essex Property Trust Inc ESS 0.0%.% 0.00%.% 0.0% GGP Inc GGP 0.0%.% 0.00%.0% 0.0% Realty Income Corp O 0.0%.% 0.00%.0% 0.00% Seagate Technology PLC STX 0.0%.% 0.00%.% 0.0% WestRock Co WRK 0.0%.% 0.00%.% 0.0% Western Digital Corp WDC 0.%.% 0.00%.% 0.0% Church & Dwight Co Inc CHD 0.0%.% 0.00%.% 0.0% Federal Realty Investment Trust FRT 0.0%.% 0.00%.% 0.00% Twenty-First Century Fox Inc FOX 0.0%.% 0.00%.0% 0.0% Alliant Energy Corp LNT 0.0%.0% 0.00%.% 0.00% JB Hunt Transport Services Inc JBHT 0.0%.0% 0.00%.% 0.0% Lam Research Corp LRCX 0.%.% 0.00% 0.% 0.0% Mohawk Industries Inc MHK 0.0% n/a n/a.0% 0.0% Pentair PLC PNR 0.0%.0% 0.00%.% 0.00% Vertex Pharmaceuticals Inc VRTX 0.% n/a n/a.0% 0.0% Facebook Inc FB.% n/a n/a.% 0.% United Rentals Inc URI 0.0% n/a n/a.% 0.0% Alexandria Real Estate Equities Inc ARE 0.0%.% 0.00%.0% 0.00% United Continental Holdings Inc UAL 0.% n/a n/a.% 0.00% Navient Corp NAVI 0.0%.% 0.00%.00% 0.00% Delta Air Lines Inc DAL 0.%.% 0.00%.% 0.0% Mallinckrodt PLC MNK 0.0% n/a n/a.0% 0.00% News Corp NWS 0.0%.% 0.00%.0% 0.00% Centene Corp CNC 0.0% n/a n/a.% 0.0% Regency Centers Corp REG 0.0%.% 0.00%.0% 0.00% Macerich Co/The MAC 0.0%.% 0.00%.% 0.00% Martin Marietta Materials Inc MLM 0.0% 0.% 0.00%.% 0.0% Envision Healthcare Corp EVHC 0.0% n/a n/a.0% 0.00% PayPal Holdings Inc PYPL 0.% n/a n/a.% 0.0% Coty Inc COTY 0.0%.% 0.00%.0% 0.00% DISH Network Corp DISH 0.0% n/a n/a -.% 0.00% Alexion Pharmaceuticals Inc ALXN 0.0% n/a n/a 0.% 0.0% News Corp NWSA 0.0%.% 0.00%.0% 0.00% Global Payments Inc GPN 0.0% 0.0% 0.00%.00% 0.0% Crown Castle International Corp CCI 0.%.% 0.0%.% 0.0% Delphi Automotive PLC DLPH 0.%.% 0.00%.% 0.0% Advance Auto Parts Inc AAP 0.0% 0.% 0.00%.% 0.0% Michael Kors Holdings Ltd KORS 0.0% n/a n/a.0% 0.00% Illumina Inc ILMN 0.% n/a n/a.% 0.0% Acuity Brands Inc AYI 0.0% 0.% 0.00% 0.00% 0.0% Alliance Data Systems Corp ADS 0.0% 0.% 0.00%.0% 0.0% LKQ Corp LKQ 0.0% n/a n/a.0% 0.0% Nielsen Holdings PLC NLSN 0.0%.% 0.00% 0.00% 0.0% Garmin Ltd GRMN 0.0%.% 0.00%.0% 0.00% Cimarex Energy Co XEC 0.0% 0.0% 0.00%.0% 0.0% Zoetis Inc ZTS 0.% 0.% 0.00%.% 0.0% Equinix Inc EQIX 0.%.% 0.00% 0.% 0.0% Digital Realty Trust Inc DLR 0.0%.% 0.00%.% 0.00% Discovery Communications Inc DISCK 0.0% n/a n/a.0% 0.00% Notes: [] Equals sum of Col. [] [] Equals sum of Col. [] [0] Equals ([] x ( + (0. x []))) + [] [] Source: Exhibit AEB-, at [] Equals [0] [] [] Equals weight in S&P 00 based on market capitalization [] Source: Bloomberg Professional, as of May, 0 [] Equals [] x [] [] Source: Bloomberg Professional, as of May, 0 [] Equals [] x []

122 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of 0-0 CAPITAL EXPENDITURES AS A PERCENT OF 0 NET PLANT ($ Millions) [] [] [] [] [] [] 0- Cap. Ex. / Net Plant Atmos Energy Corporation ATO Capital Spending per Share $. $.0 $. $. Common Shares Outstanding Capital Expenditures $,. $,. $,0.0 $,0.0.% Net Plant $,0. New Jersey Resources Corporation NJR Capital Spending per Share $.0 $.0 $.0 $.0 Common Shares Outstanding Capital Expenditures $. $. $0. $0..% Net Plant $,0. NiSource Inc. NI Capital Spending per Share $.0 $. $. $. Common Shares Outstanding Capital Expenditures $,. $,. $,. $,..% Net Plant $,0.0 Northwest Natural Gas Company NWN Capital Spending per Share $. $.0 $. $. Common Shares Outstanding Capital Expenditures $0. $0. $0. $0..% Net Plant $,0. ONE Gas Inc. OGS Capital Spending per Share $.0 $. $. $. Common Shares Outstanding Capital Expenditures $. $. $. $..0% Net Plant $,. South Jersey Industries, Inc. SJI Capital Spending per Share $.0 $. $. $. Common Shares Outstanding Capital Expenditures $. $. $. $. 0.0% Net Plant $,. Southwest Gas Corporation SWX Capital Spending per Share $. $. $. $. Common Shares Outstanding Capital Expenditures $. $. $. $..% Net Plant $,.0 Spire, Inc. SR Capital Spending per Share $.0 $.00 $.0 $.0 Common Shares Outstanding Capital Expenditures $. $. $.0 $.0.0% Net Plant $,00. Southern Connecticut Gas SCG Capital Expenditures [] $. $.0 $. $..% Net Plant []. SCG CapEx Total (0-0) $. SCG CapEx Annual Average $. Proxy Group Median.% SCG Percentile of Proxy Group 0. Notes: [] - [] Source: Value Line, dated June, 0 [] Equals (Column [] + [] + [] + []) / Column [] [] Data provided by SCG [] SCG FERC Form 0 (Updated //0)

123 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of 0-0 CAPITAL EXPENDITURES AS A PERCENT OF 0 NET PLANT 00.00% 0.00% 0.00% 0.00% Proxy Group Median =.% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% NJR NWN OGS SCG SR NI SJI SWX ATO Projected CAPEX / 0 Net Plant Company 0-0 New Jersey Resources Corporation NJR.% Northwest Natural Gas Company NWN.% ONE Gas Inc. OGS.0% Southern Connecticut Gas SCG.% Spire, Inc. SR.0% NiSource Inc. NI.% South Jersey Industries, Inc. SJI 0.0% Southwest Gas Corporation SWX.% Atmos Energy Corporation ATO.% Proxy Group Median.% SCG/Proxy Group 0. Notes: Source: AEB- page col. []

124 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of NON-VOLUMETRIC RATE DESIGN & CAPITAL TRACKING MECHANISMS [] [] [] [] [] Rate Revenue Straight Non-Volumetric Capital Stabilization Decoupling Fixed-Variable Rate Tracking Proxy Group Company Ticker Utility State Tariff Mechanism Rate Design Design Mechanism Atmos Energy Corporation ATO Atmos Energy Corporation CO N N N N Y Atmos Energy Corporation KS N N N N Y Atmos Energy Corporation KY N N N N Y Atmos Energy Corporation LA Y N N Y N Atmos Energy Corporation MS Y N N Y Y Atmos Energy Corporation TN Y N N Y Y Atmos Energy Corporation TX Y N N Y Y Atmos Energy Corporation VA N N N N Y New Jersey Resources Corporation NJR New Jersey Natural Gas Company NJ N Y N Y Y NiSource Inc. NI Northern Indiana Public Service Company IN N N N N Y Columbia Gas of Kentucky KY N N N N Y Columbia Gas of Maryland MD N Y N Y Y Bay State Gas Company d/b/a Columbia Gas of Massachusetts MA N Y N Y Y Columbia Gas of Ohio OH N N Y Y Y Columbia Gas of Pennsylvania PA N N N N Y Columbia Gas of Virginia VA N Y N Y Y Northwest Natural Gas Company NWN Northwest Natural Gas Company OR N Y N Y Y Northwest Natural Gas Company WA N N N N Y One Gas, Inc. OGS Oklahoma Natural Gas Company OK Y N Y Y N Kansas Gas Service Company KS N N N N Y Texas Gas Service Company TX N N Y Y Y South Jersey Industries, Inc. SJI South Jersey Gas Company NJ N Y N Y Y Southwest Gas Corporation SWX Southwest Gas Corporation AZ N Y N Y N Southwest Gas Corporation CA N Y N Y Y Southwest Gas Corporation NV N Y N Y Y Spire, Inc. SR Alabama Gas Corporation AL Y N N Y Y Missouri Gas Energy MO N N Y Y Y Laclede Gas MO N N Y Y Y Mobile Gas AL Y N N Y Y Wilmut Gas MS N N N N N Total Number of Jurisdictions (Y) 0 Total Number of Jurisdictions 0 0 Percent of Jurisdictions.%.% Notes: [] Source: American Gas Association, Innovative Rates, Non-Volumetric Rates, and Tracking Mechanisms: Current List, December 0. [] Source: American Gas Association, Innovative Rates, Non-Volumetric Rates, and Tracking Mechanisms: Current List, December 0. [] Source: American Gas Association, Innovative Rates, Non-Volumetric Rates, and Tracking Mechanisms: Current List, December 0. [] Identifies companies with either a formula rate plan, revenue decoupling mechanism or straight fixed-variable rate design. [] Source: American Gas Association, Innovative Rates, Non-Volumetric Rates, and Tracking Mechanisms: Current List, December 0. Non-Volumetric Rate Design

125 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB-0 Page of PROXY GROUP COMPANIES AND JURISDICTIONAL RANKINGS [] [] S&P Operation State Rank Numeric Rank Atmos Energy Corporation Colorado Strong (0) 0 Kansas Strong/Adequate () Kentucky Strong () Louisiana Strong/Adequate () Mississippi Adequate () Tennessee Strong/Adequate () Texas (RRC) Strong/Adequate () Virginia Strong/Adequate () New Jersey Resources Corporation New Jersey Strong/Adequate () NiSource Inc. Indiana Strong/Adequate () Kentucky Strong () Maryland Strong/Adequate () Massachusetts Strong/Adequate () Ohio Strong/Adequate () Pennsylvania Strong/Adequate () Virginia Strong/Adequate () Northwest Natural Gas Company Oregon Strong/Adequate (0) 0 Washington Strong/Adequate () One Gas, Inc. Oklahoma Strong/Adequate () Kansas Strong/Adequate () Texas (RRC) Strong/Adequate () South Jersey Industries, Inc. New Jersey Strong/Adequate () Southwest Gas Corporation Arizona Strong/Adequate (0) 0 California Strong/Adequate () Nevada Strong/Adequate () Spire, Inc. Alabama Strong () Missouri Strong/Adequate () Mississippi Adequate () Proxy Group Average Strong/Adequate (). Southern Connecticut Gas Connecticut Strong/Adequate () Notes [] Source: Utility Regulatory Assessments for U.S. Investor-Owned Utilities, Standard and Poor's Ratings Service, dated January, 0

126 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of CAPITAL STRUCTURE ANALYSIS COMMON EQUITY RATIO - Weighted Operating Subsidiaries LONG-TERM DEBT RATIO - Weighted Operating Subsidiaries Proxy Group Ticker 0 0 MRY Proxy Group Ticker 0 0 MRY Atmos Energy Corporation ATO.%.%.% Atmos Energy Corporation ATO.%.%.% New Jersey Resources Corporation NJR.0%.0% New Jersey Resources Corporation NJR.%.% NiSource Inc. NI.0%.%.0% NiSource Inc. NI.%.%.% Northwest Natural Gas Company NWN.%.%.% Northwest Natural Gas Company NWN.%.%.% One Gas, Inc. OGS.0% 0.0%.0% One Gas, Inc. OGS.%.0%.% South Jersey Industries, Inc. SJI.%.% South Jersey Industries, Inc. SJI.%.% Southwest Gas Corporation SWX.%.%.% Southwest Gas Corporation SWX.%.%.% Spire, Inc. SR.%.0%.% Spire, Inc. SR.0%.0%.0% MEAN.%.%.% MEAN.% 0.0%.% LOW.%.%.% LOW.%.0%.% HIGH.0% 0.0%.0% HIGH.%.%.% COMMON EQUITY RATIO - Natural Gas Utility Operating Companies LONG-TERM DEBT RATIO - Natural Gas Utility Operating Companies Company Name Ticker 0 0 MRY Company Name Ticker 0 0 MRY Atmos Energy Corporation ATO.%.%.% Atmos Energy Corporation ATO.%.%.% New Jersey Natural Gas Company NJR.0%.0% New Jersey Natural Gas Company NJR.%.% Bay State Gas Company NI.%.% Bay State Gas Company NI.%.% Columbia Gas of Kentucky, Incorporated NI.%.%.% Columbia Gas of Kentucky, Incorporated NI.%.%.% Columbia Gas of Maryland, Incorporated NI.%.%.% Columbia Gas of Maryland, Incorporated NI.%.%.% Columbia Gas of Ohio, Incorporated NI.%.% Columbia Gas of Ohio, Incorporated NI.%.% Columbia Gas of Pennsylvania, Inc. NI.%.% Columbia Gas of Pennsylvania, Inc. NI.%.% Columbia Gas of Virginia, Incorporated NI.0%.0% Columbia Gas of Virginia, Incorporated NI.0%.0% Northern Indiana Public Service Company NI.%.%.% Northern Indiana Public Service Company NI.%.%.% Northwest Natural Gas Company NWN.%.%.% Northwest Natural Gas Company NWN.%.%.% Kansas Gas Service Company OGS 00.00% 00.00% Kansas Gas Service Company OGS 0.00% 0.00% Oklahoma Natural Gas Company OGS 0.0% 0.0% Oklahoma Natural Gas Company OGS.0%.0% Texas Gas Service Company OGS.0% 00.00%.0% Texas Gas Service Company OGS.% 0.00%.% South Jersey Gas Company SJI.%.% South Jersey Gas Company SJI.%.% Southwest Gas Corporation SWX.%.%.% Southwest Gas Corporation SWX.%.%.% Alabama Gas Corporation SR.%.% Alabama Gas Corporation SR.%.% Laclede Gas Company SR.%.%.% Laclede Gas Company SR.0%.%.0% Missouri Gas Energy SR.%.%.% Missouri Gas Energy SR.0%.%.0% Mobile Gas Service Corporation SR.%.% Mobile Gas Service Corporation SR.%.% Willmut Gas & Oil Company SR.%.% Willmut Gas & Oil Company SR.0%.0% Notes: Natural Gas and Electric Operating Subsidiaries with data listed as N/A from SNL Financial have been excluded from the analysis.

127 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of CAPITAL STRUCTURE ANALYSIS - HOLDING COMPANIES FY 0 ($000) Preferred Common Short-term Debt and Current Longterm Non-current Long-term Total Mezzanine Total Caitalization, at Proxy Group Ticker Equity % Equity % Debt % Debt % Items % book value Atmos Energy Corporation ATO $ % $,,0.% $,0,.0% $,,.% $ % $,, New Jersey Resources Corporation NJR $ % $,,.% $,.% $,0,0.% $ % $,0, NiSource Inc. NI $ % $,0,00.% $,,00.% $,0,00 0.% $ % $,0,00 Northwest Natural Gas Company NWN $ % $ 0,.% $,.% $,.% $ % $,, ONE Gas, Inc. OGS $ % $,,0.% $,00.0% $,,.% $ % $,, South Jersey Industries, Inc. SJI $ % $,,0.% $,00 0.% $ 0,00 0.% $ % $,, Southwest Gas Holdings, Inc. SWX $ % $,, 0.% $ 0,0.% $,,.0% $,0 0.% $,, Spire Inc. SR $ % $,,00.% $,00.% $,0,00.% $ % $,,00 MEAN 0.00%.% 0.% 0.% 0.0% LOW 0.00%.%.% 0.% 0.00% HIGH 0.00%.% 0.% 0.% 0.% FY 0 ($000) Preferred Common Short-term Debt and Current Longterm Non-current Long-term Total Mezzanine Total Caitalization, at Proxy Group Ticker Equity % Equity % Debt % Debt % Items % book value Atmos Energy Corporation ATO $ % $,,.% $,.% $,, 0.0% $ % $,00, New Jersey Resources Corporation NJR $ % $,0,.% $,.% $,.0% $ % $,0,0 NiSource Inc. NI $ % $,,00.% $,00,00.% $,,00.% $ % $ 0,,00 Northwest Natural Gas Company NWN $ % $ 0,.% $,.% $,0.0% $ % $,, ONE Gas, Inc. OGS $ % $,, 0.% $,0 0.% $,,0.% $ % $,0, South Jersey Industries, Inc. SJI $ % $,0,.% $,.% $,.% $ % $,,0 Southwest Gas Holdings, Inc. SWX $ % $,,.% $,.% $,,0.% $,0 0.0% $,, Spire Inc. SR $ % $,,00.% $,000.% $,,00.0% $ % $,,00 MEAN 0.00%.%.%.% 0.0% LOW 0.00%.% 0.%.0% 0.00% HIGH 0.00% 0.%.%.% 0.0% Notes: [] Source: SNL Financial; Southwest Gas Holdings, Inc's common equity is adjsuted for noncontrolling interests

128 The Southern Connecticut Gas Company Docket No. -0- Exhibit AEB- Page of BOND YIELD PLUS RISK PREMIUM [] [] [] Average Authorized Natural Gas ROE 0-year U.S. Treasury Bond Risk Premium..%.%.%..%.%.0%..%.%.%..%.%.0%..%.0%.%..%.%.%..%.%.%..%.%.%..%.%.%. 0.%.%.%. 0.%.%.%..%.%.%..00%.%.%..0%.%.0%..%.%.%..%.%.0% SUMMARY OUTPUT. 0.%.%.%..%.00%.% Regression Statistics..%.%.% Multiple R 0.0..%.0%.% R Square %.%.% Adjusted R Square %.%.% Standard Error %.0%.% Observations..%.%.%..%.%.0% ANOVA..%.%.% df SS MS F Significance F. 0.%.%.% Regression E-..%.%.% Residual 0.00.E-0. 0.%.%.0% Total %.%.0% %.%.0% Coefficients Standard Error t Stat P-value Lower % Upper % Lower.0% Upper.0% 000..%.%.% Intercept E %.%.% 0-year U.S. Treasury Bond E %.%.% %.%.% %.%.% %.%.% [] [] [] 00..%.%.0% U.S. Govt %.%.% 0-year Risk 00..0%.%.0% Treasury Premium ROE 00..%.%.% 00..%.%.0% Current 0-Day Average [].%.%.% %.%.% Blue Chip Consensus Forecast (Q 0-Q 0) [].%.%.% %.%.% Blue Chip Consensus Forecast (0-00) [].%.0% 0.0% 00..0%.%.0% AVERAGE.% %.%.% %.0%.% %.%.% Notes: %.%.% [] Source: Regulatory Research Associates, accessed May, %.%.% [] Source: Bloomberg Professional, quarterly bond yields are the average of the last trading day of each month in the quarter %.%.0% [] Equals Column [] Column [] %.%.% [] Source: See AEB- at %.%.% [] Source: See AEB- at %.%.% [] Source: See AEB- at %.0%.% [] See notes [], [] & [] %.0%.% [] Equals (-0.0 x Column []) %.%.% [] Equals Column [] + Column [] %.%.% %.%.% %.%.% %.%.0% %.%.0% %.%.% %.%.% %.%.% %.%.% 00..%.%.0% %.%.% %.%.% 00..%.0%.% %.%.0% %.%.% %.%.% 0..%.%.% 0..%.%.% 0..%.0%.% 0..%.%.% 0..%.%.00% 0..%.%.0% %.%.% 0..%.%.% 0..%.%.% 0..0%.%.% 0..%.%.0% 0..%.%.% 0..%.%.% 0..%.0%.% 0. 0.%.0%.% 0..%.%.0% 0..%.%.% 0..%.%.% 0..%.%.% 0..%.%.% 0..%.%.% 0..%.%.% 0..%.%.% 0..0%.0%.% 0..%.%.% AVERAGE 0.%.%.% MEDIAN 0.%.%.% Risk Premium.00%.00%.00%.00%.00%.00% y = -0.x R² = %.%.%.%.%.%.%.% U.S. Government 0-year Treasury Yield

129 STATE OF CONNECTICUT PUBLIC UTILITIES REGULATORY AUTHORITY Docket No. -0- DIRECT TESTIMONY OF DANIEL S. DANE Lead-Lag Study and Cash Working Capital ON BEHALF OF THE SOUTHERN CONNECTICUT GAS COMPANY June 0, 0

130 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane TABLE OF CONTENTS I. Introduction and Witness Qualifications... II. Purpose and Scope... III. Summary of the Company s Cash Working Capital Analysis...

131 The Southern Connecticut Gas Company Docket No June 0, 0 Testimony of Daniel S. Dane TESTIMONY OF DANIEL S. DANE I. Introduction and Witness Qualifications Q. Please state your name and business address. A. My name is Daniel S. Dane. My business address is Boston Post Road West, Suite 00, Marlborough, Massachusetts 0. Q. By whom are you employed and in what position? A. I am a Vice President with Concentric Energy Advisors, Inc. ( Concentric ), and the Financial and Operations Principal of CE Capital, Inc., a FINRA-member subsidiary of Concentric. 0 Q. Please describe Concentric. A. Concentric provides financial and economic advisory services to many and various energy and utility clients across North America. Our regulatory, economic, and market analysis services include utility ratemaking and regulatory advisory services; energy market assessments; market entry and exit analysis; corporate and business unit strategy development; demand forecasting; resource planning; and energy contract negotiations. Our financial advisory activities include buy and sell-side merger, acquisition and divestiture assignments; due diligence and valuation assignments; project and corporate finance services; and transaction support services. In addition, we provide litigation support services on a wide range of financial and economic issues on behalf of clients throughout North America.

132 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane Q. What are your responsibilities in your current position? A. As a consultant, my responsibilities include assisting clients in identifying and addressing business issues. My primary areas of focus have been regulatory, financial and accounting related issues. Q. Please describe your education and professional licenses. A. I have an MBA from Boston College in Chestnut Hill, Massachusetts, and a BA in Economics from Colgate University in Hamilton, New York. I am a certified public accountant, and a licensed securities professional (FINRA series,,,, and licenses). 0 II. Purpose and Scope Q. What is the purpose of your direct testimony? A. I am providing testimony on behalf of The Southern Connecticut Gas Company ( SCG or the Company ) to present the results of the lead-lag study prepared by Concentric for this rate case. The lead-lag study was used to develop SCG s cash working capital ( CWC ) factors and CWC requirement. Q. What is a cash working capital requirement? A. A cash working capital requirement is the amount of funds the Company needs to keep on hand to finance its day-to-day operations. 0 Q. What is a lead-lag study? A. A lead-lag study measures the funds needed due to net timing differences between when a utility expends cash for the costs required to provide utility service and when it receives payment from customers for that service. Specifically, a lead-lag study measures

133 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane revenue lags, which are the number of days between when a utility provides services and when its customers pay for those services; and expense leads, which are the number of days between when a utility incurs expenses and when it must pay for those expenses. The net of the revenue lags and expense leads, when multiplied by the Company s average daily rate year expenses, results in the cash working capital requirement. 0 Q. How should the results of the cash working capital analysis be treated for ratemaking purposes? A. The cash working capital requirement should be included as part of SCG s rate base for ratemaking purposes. Q. Are you sponsoring exhibits in this proceeding? A. Yes. My testimony includes Exhibits DSD- through DSD-. Specifically, Exhibits DSD- through DSD- show the revenue lags and expense leads that resulted from the Concentric lead-lag study, as well as SCG s requested level of cash working capital for each of the rate years. The expense amounts to which the revenue lags and expense leads are applied have been provided in the pre-filed testimony of Company witness James E. Earley. My schedules and work papers are provided in Exhibit DSD-. III. Summary of the Company s Cash Working Capital Requirement 0 Q. Please provide an overview of your approach to determining the Company s cash working capital requirement. A. Concentric analyzed the significant cash inflows and outflows of the Company to develop lead-lag factors for SCG s overall revenues and expenses and to derive the CWC allowance.

134 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane Q. For what period was the lead-lag study performed? A. The lead-lag study analyzed the Company s cash transactions and invoices for the twelve months ended December, 0. The calculated revenue lag and expense leads were then applied to forecasted expense levels for each rate year (i.e., 0, 0, and 00). 0 Q. Is it appropriate to apply the revenue lag and expense leads calculated based upon an historical period to forecasted expense levels? A. Yes, it is appropriate to utilize historical revenue lags and expense leads and apply those factors to forecasted rate year expense levels, particularly where there are no known and measurable changes to the processes related to the existing billing, collection and remittance processes. In preparing the lead-lag study, I carefully examined the Company s existing processes to determine if any changes were being made. For instance, in mid-0 certain SCG employees that were previously paid on a weekly basis were switched to a bi-weekly payroll cycle, affecting the expense lead for that portion of payroll expense. My analysis of payroll expense leads was adjusted to reflect that change. 0 Q. What are the various leads and lags that should be considered in a cash working capital analysis? A. Two broad categories of leads and lags should be considered: () lag times associated with the collection of revenues owed to a company (i.e., revenue lags); and () lead times associated with the payments for goods and services received by the Company (i.e., expense leads).

135 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane Q. What is a revenue lag? A. A revenue lag refers to the elapsed time between the delivery of a company s service (e.g., gas distribution) and its ability to use the funds received as payment for the delivery of the service. Q. What is an expense lead? A. The expense lead refers to the elapsed time from when a good or service is provided to a company to the point in time when the company pays for the good or service and the funds are no longer available to the company. 0 Q. What was the source of information you used to determine the leads and lags in your cash working capital analysis? A. SCG provided the accounting and financial data necessary for Concentric to complete the study. The information provided by the Company, together with analytical procedures performed in the study, led to the determination of the appropriate number of lead-lag days for SCG. 0 A. Revenue Lag Q. How is the revenue lag determined? A. The distribution revenue lag measures the number of days from the date service was rendered by the Company until the date payment was received from customers and such funds were deposited and available to the Company. In my analysis, the revenue lag was divided into four distinct components: () service lag; () billing lag; () collections lag; and () payment processing lag. Considered together, these components of the Company s distribution revenue lag totaled. lag days. An explanation of each component of the revenue lag follows.

136 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane Q. What is meant by service lag? A. The service lag refers to the number of days from the mid-point of the service period to the meter reading date for that service period. Using the mid-point methodology, the average lag associated with the provisioning of service by SCG was. days ( days in the year divided by months divided by ). 0 Q. What is meant by billing lag? A. Billing lag refers to the average number of days from the date on which the meter was read until the customer was billed. This lag reflects the time needed to send and process meter reading data in the Company s Enterprise Resource Planning system (i.e., SAP), and prepare and deliver invoices. The billing lag was determined to be. days. Q. What is meant by collections lag? A. The collections lag refers to the average amount of time from the date when the customer received a bill to the date that the Company received payment from its customers. Q. How did you calculate SCG s collection lag for purposes of this proceeding? A. My analysis calculated the collection lag by dividing the Company s billed retail revenues for the year, adjusted for uncollectible revenues, by the average accounts receivable balance. This produced a receivable turnover rate of. days. The number of days in the year was then divided by the receivable turnover rate, resulting in a collection lag of. days. 0 Q. Why did you adjust the collection lag for uncollectible revenues? A. Billed retail revenues (i.e., the numerator in the receivable turnover calculation) are not adjusted for uncollectible revenues, while the accounts receivable balance (i.e., the

137 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane denominator in the receivable turnover calculation) is reduced by uncollectible write-offs. That overstates the receivable turnover and thus understates the collection lag. Q. Please describe the adjustment. A. To correct for the understatement described above, my analysis adjusted billed retail revenues by dividing them by a factor equal to one plus the Company s uncollectible factor of.%. That adjustment is consistent with PURA s order in Docket No Q. What is meant by payment lag? A. Payment lag refers to the elapsed time between the Company s receipt of the customer s payment and its transmittal to the bank for collection from the customer s account. Q. What factors can influence the payment lag? A. The Company receives payments from its customers from a variety of different sources. Considering the lag time associated with the various payment methods, the average payment lag was determined to be 0. days. Docket No. -0-0, Application of Connecticut Natural Gas Corporation To Increase Its Rates And Charges, January, 0, at.

138 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane Q. Please summarize the calculation of distribution revenue lag days. A. The calculation of the overall distribution revenue lag, by lag component, is summarized below in Figure. 0 Figure : Revenue Lag by Component Component Lag Days Service Lag. Billing Lag. Collections Lag. Payment Lag 0. Total Revenue Lag. B. Expense Leads Q. What were the expense leads considered in the lead-lag analysis? A. Lead times associated with the following broad expense categories were considered in the lead-lag study: () O&M expenses; () cost of gas; () depreciation, amortization and deferred taxes; () taxes; and () interest, dividends and net income. Q. What expense items are included in O&M expenses? A. O&M expenses are the costs to SCG of providing service to customers and administering the Company. Those expenses include: () costs related to employee payroll and benefits; () intercompany charges for shared services; () regulatory commission expense; () other operations and maintenance expenses (i.e., Other O&M ), which includes costs paid to outside vendors and other parties for items such as the purchase of products and services, materials and inventory purchased from outside vendors, postage, and utilities/fuel; and () uncollectible expense. The lead-lag study also considered payments received by the Company for Service on Customer Premises ( SOCP ).

139 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane 0 Q. Provide an explanation of the expense leads associated with the Company s payroll expenses. A. Payroll lead days were determined by calculating the nominal and weighted lead time by pay period and weighting the resulting lead days by the amounts paid out by the Company to cover its payroll obligations. Because SCG uses an outside service provider (i.e., ADP) for payroll services, the expense lead for each payroll run was measured from the midpoint of the pay period to the date funds were transferred to ADP. As discussed above, in mid-0 certain SCG employees that were previously paid on a weekly basis were switched to a bi-weekly payroll cycle, affecting the expense lead for that portion of payroll expense. My analysis of payroll expense leads was adjusted to reflect that change. The resulting total expense lead on a dollar-weighted basis was. days. The payroll expense lead was also applied to payroll taxes (FICA, federal and state withholdings, and federal and state unemployment taxes) since those expenses are typically remitted concurrently with or soon after the issuance of payroll. 0 Q. What types of leads associated with the Company s employee benefit programs were considered in the analysis? A. The lead times associated with the Company s contributions to the following major categories of the Company s employee benefit programs were considered: () healthcare (including medical, dental, and vision insurance); () worker s compensation insurance; () contributions to the Company s pension plan; and () 0k costs. The dollarweighted lead time for this category of expenses was (.) days for the twelve months ended December, 0.

140 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane 0 Q. What is included in the O&M category labeled as intercompany charges for shared services? A. As described in the testimony of Mr. Earley, UIL Holdings Corporation ( UIL ), SCG s parent company, provides a number of shared services to its operating companies, including SCG. Those services include information technology, finance and related services, human resources, legal services and other administrative functions. UIL also incurs costs such as Board of Directors fees, investor relations and shareholder-related costs. UIL issues a monthly invoice to SCG reflecting the costs associated with the services provided. Payment for such services is made the same day as the invoice is issued. Based on information from the twelve months ended December, 0, Concentric determined the expense lead associated with affiliate and corporate charges to be. days. Q. Provide an explanation of the expense lead associated with the Company s regulatory assessment charges. A. SCG is charged an assessment for PURA expenses that is billed in four quarterly installments for the current fiscal year. My analysis reflects that pattern of installment payments, resulting in an expense lead of (.) days. 0 Q. Please describe your analysis of Other O&M. A. To calculate the expense lead for those payments that were not included in the categories discussed above (such as payroll and benefits), Concentric analyzed a sample of invoices from third parties, including information regarding when the invoice was paid and the payment method (i.e., electronic payment versus check). The sample size was based on the total population of cash payments to third parties, and was designed to provide me with sufficient confidence that the results of the analysis were representative of the 0

141 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane overall population s average expense lead. Payments by check were assigned an additional expense lead of. days based on my analysis of the average time between when checks are issued by the Company and when they are cashed by recipients. The resulting expense lead for all payments (electronic and check) was. days. Q. What expense lead have you applied to uncollectibles expenses? A. In Docket Nos and -0-0, PURA found that the expense lead for uncollectibles expense should reflect the amount of time receivables, that are eventually written off as uncollectible, remain in the receivable balance. Consistent with PURA s 0 findings in those cases, the lead-lag study analyzed the typical number of days that elapse between when an invoice is rendered by SCG and when a delinquent account is written off, for both non-hardship and hardship accounts. The Company s process for writing off delinquent accounts results in approximately days between when a customer is billed and when a delinquent account is written off. Hardship accounts are also provided a moratorium from shutoff during the period November to May, delaying the write-off of those accounts, on average, by 0 days (i.e., one-half of the 0-day moratorium period). Based on a weighting of approximately % non-hardship accounts and % hardship accounts, the study calculated an expense lead of. days for uncollectibles expense. Docket No. 0--0, Application of The Southern Connecticut Gas Company for a Rate Increase, July, 00, at. See also, Docket No. -0-0, at.

142 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane 0 Q. Please describe what is included in Service on Customer Premise ( SOCP ) Revenue. A. The Company also derives revenue from service work it performs on customer premises. Service contracts are for an annual period from May to April 0 of the following year, and customers can pay either annually, at the beginning of the service period, or monthly. All charges for SOCP are included on customers regular bills. As such, the lead associated with monthly payments was estimated to be the same as the overall revenue lag discussed earlier in my testimony. For that portion of SOCP revenue that is paid for annually, the lead was estimated to be.0 days, which is equal to. days (i.e., half a year, under the assumption that service is provided evenly over the course of the year) less the revenue lag of. days. I then weighted the monthly and annual expense leads by the proportion of SOCP revenues that are received monthly (i.e., approximately %) versus annually (i.e., approximately %) to derive a weighted average expense lead of (.) days. Q. What is the expense lead time associated with the Company s purchases of natural gas? A. Based on an examination of invoices from commodity and pipeline suppliers to the Company, a dollar-weighted expense lead time of. days was determined.

143 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane 0 Q. Did you also include depreciation, deferred taxes and amortization expense in the lead-lag study? A. Yes. PURA-jurisdictional utilities, including SCG, have historically been authorized to apply an expense lead to non-cash items such as depreciation, deferred taxes and amortization expense. For example, in Docket No. -0-0, PURA found that: When these expenses reduce rate base, the Company is deprived of the return that investment in rate base affords. If there is a lag between the reduction in rate base and the receipt of revenues recovering the expense, a carrying cost is incurred by the Company for the time of the lag. As such, it is appropriate for these noncash expenses to be part of a working capital allowance. The expense lead authorized by PURA reflects the timing difference between when service is assumed rendered ( th of the month) and when rate case deductions are made (end of the month). The lead-lag study for SCG reflects a continuation of that practice, 0 and includes depreciation, deferred taxes and amortization expenses with an expense lag of. days (i.e., based on the mid-month convention). Q. How did your study address federal income taxes? A. The expense lead attributable to SCG s federal income tax liability was calculated based on quarterly payment dates of April, June, September, and December for calendar year taxes. Based on those payment dates, the study calculated an expense lead of.0 days. See, Docket No. 0--0, at 0. The Connecticut Natural Gas Corporation, in its most recent rate case, was also authorized to apply a -day expense lead to non-cash expenses (see, Docket No. -0-0, at -). See, e.g., Docket No. -0-0, Application of the Connecticut Light and Power Company to Amend Rate Schedules, December, 0, at. Docket No , Application of the Connecticut Light and Power Company to Amend its Rate Schedules, December, 00, at.

144 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane Q. How did the study address state income taxes? A. The expense lead attributable to SCG s state income tax liability was calculated based on payment dates of March (0% due), June (0% due), September (0% due), and December (0% due) for calendar year taxes. Based on those payment dates and percentages due, the study calculated an expense lead of. days. 0 Q. What other taxes were considered in your analysis? A. My analysis also considered: (a) Connecticut Gross Earnings Tax (. lead days); (b) Connecticut Sales and Use Tax (. lead days); and (c) property taxes ((.0) lead days). The Company also incurs payroll-related taxes, and therefore the study applied the same expense lead that we calculated for payroll to those taxes. Q. Provide a description of how lead times associated with the Company s interest expenses were addressed by the study. A. The Company made semi-annual interest payments on its long-term notes and bonds during 0, resulting in an expense lead of. days. Q. What is the expense lead associated with external dividends and retained earnings? A. The study applied a. day lead for the common stock dividend portion and a. day lead for the retained earnings portion of net income. 0 Q. Based upon the results of the lead lag study and the level of expenses described in the testimony of Mr. Earley, what level of cash working capital requirements should be included in SCG s rate base? A. As shown on Exhibits DSD- through DSD-, applying the revenue lag and expense leads that I have calculated to the expense levels provided by Mr. Earley, the following cash working capital requirements, summarized in Figure below, should be included in the Company s rate base, by rate year.

145 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of Daniel S. Dane Figure : CWC Requirements Summary Exhibit DSD- Exhibit DSD- Exhibit DSD- CWC Requirement $0. million $. million $0. million Q. Does this conclude your pre-filed direct testimony? A. Yes, it does.

146 APPENDIX A RÉSUMÉ OF DANIEL S. DANE Daniel S. Dane, CPA Vice President Daniel S. Dane has over years of experience in the energy and financial services industries providing advisory services to power companies, natural gas pipelines, and local gas distribution companies in the areas of regulation and ratemaking, litigation support, generating asset divestitures, valuation, financial statement audits and analysis, and the examination of financial reporting systems and controls. Mr. Dane has also provided expert testimony on regulated ratemaking matters for investor- and provincially-owned utilities, including on the cost of capital, capital structure, lead-lag studies/cash working capital, and rate base development. Mr. Dane has an MBA from Boston College in Chestnut Hill, Massachusetts and a BA in Economics from Colgate University in Hamilton, New York. Mr. Dane is a certified public accountant, and is a licensed securities professional (Series,,,, and ). Mr. Dane also serves as the Financial and Operations Principal of CE Capital Advisors, a FINRA-Member firm and a subsidiary of Concentric. REPRESENTATIVE PROJECT EXPERIENCE Ratemaking and Utility Regulation Assignments Expert Testimony Submitted expert testimony on behalf of regulated utilities regarding the results of lead-lag studies prepared by Concentric that were used to develop cash working capital factors and ultimately to calculate cash working capital requirements: o On behalf of El Paso Electric Company in Public Utility Commission of Texas Docket o No. (0). On behalf of the United Illuminating Company in Connecticut Public Utilities Regulatory Authority Docket No (0). Co-sponsored expert testimony on behalf of Liberty Utilities (EnergyNorth Natural Gas) regarding the revenue requirement for a natural gas local distribution company and temporary rates in New Hampshire Public Utilities Commission Docket No. DG -0 (0). Co-authored and provided oral testimony regarding an independent expert report on behalf of Ontario Power Generation ( OPG ) as to whether the application of the cost of capital approved by the Ontario Energy Board in OPG s prior rate case was an appropriate basis for setting OPG s nuclear and hydroelectric payment amounts in OPG s rate application in Docket EB-0-0 (0-0). Submitted expert direct testimony on behalf of Northern States Power, a wholly-owned subsidiary of Xcel Energy Inc., to present evidence and provide an opinion regarding the company s proposed ROE in South Dakota Public Utilities Commission Docket No. EL-0 (0). Submitted expert direct and rebuttal testimony on behalf of Ameren s Illinois utilities regarding ratemaking policy issues specifically related to regulated rate base (Illinois Commerce Commission Docket No through 0-0 (Cons.)) (00). CONCENTRIC ENERGY ADVISORS A-

147 APPENDIX A RÉSUMÉ OF DANIEL S. DANE Regulatory Support Provided financial modeling, development of expert reports, and preparation of multiple rounds of testimony on behalf of U.S. and Canadian investor-owned electric and natural gas utilities related to multiple aspects of the ratemaking process, including: cost of capital; ring fencing; revenue requirements and lead-lag studies/cash working capital; decoupling; prudence and cost recovery; capital tracker tariff mechanisms; cost allocation and shared services; merger approval; and ratemaking policy. Consulting assignments have included utility clients across the U.S. and Canada. Financial Advisory Assignments Competitive Solicitations & Asset Divestitures Sell-side support provided for approximately $ billion in generating asset transactions, including nuclear, natural gas, and coal generating facilities. Buy-side due diligence support for U.S. and international investors in electric and natural gas LDC utility operations, wind generation and natural gas pipeline facilities. Valuation Services Developed Fairness Opinions issued by CE Capital Advisors, Inc. to Boards of Directors of companies entering into asset purchases and sales. Led valuation modeling on multiple energy-related valuation assignments using the Income Approach, Cost Approach, and Sales Comparison Approach. Litigation Advisory Assignments Prepared economic and financial analyses and expert reports in proceedings related to contract disputes, takings claims, and bankruptcy proceedings. Clients include international diversified energy companies, regulated utilities, and bondholders. Management and Operations Consulting Assignments Prudence reviews, including contracting strategy reviews and assessments of project controls and oversight for developers of nuclear generating capacity uprates and new nuclear facilities. PRESENTATIONS Regulatory Treatment of Timing Differences Related to Pension and OPEB Costs. Presented to the Ontario Energy Board, July 0 (Docket No. EB-0-000). Increasing Shareholder Value through the Capital Markets. University of Idaho Utility Executive Course, June 0, June 0, and June 0. A Comparative Analysis of Return on Equity of Natural Gas Utilities (with Jim Coyne and Julie Lieberman), presented to the Ontario Energy Association, June, 00. CONCENTRIC ENERGY ADVISORS A-

148 APPENDIX A RÉSUMÉ OF DANIEL S. DANE PROFESSIONAL HISTORY Concentric Energy Advisors, Inc. (00 Present) CE Capital Advisors, Inc. Vice President (Concentric) Financial and Operations Principal (CE Capital) Ernst & Young (000 00, 00 00) Staff Auditor and Database Management Associate ZIA Information Analysis Group ( 000) EDUCATION AND CERTIFICATIONS M.B.A., Boston College, 00 B.A., Economics, Colgate University, Licensed Securities Professional: NASD Series,,, and Licenses DESIGNATIONS AND PROFESSIONAL AFFILIATIONS Certified Public Accountant, 00 Massachusetts Society of Certified Public Accountants, 00 American Institute of Certified Public Accountants, 0 CONCENTRIC ENERGY ADVISORS A-

149 APPENDIX A EXPERT TESTIMONY LISTING OF DANIEL S. DANE SPONSOR DATE CASE/APPLICANT DOCKET /CASE NO. SUBJECT Connecticut Public Utilities Regulatory Authority The United Illuminating Company 0/ The United Illuminating Company Docket No Lead-lag Study Cash Working Capital Illinois Commerce Commission The Ameren Illinois Utilities 0/0 Central Illinois Light Company; Central Illinois Public Service Company; Illinois Power Company Docket Nos thru 0-0 (cons.) Rate Base Adjustments Earnings Attrition New Hampshire Public Utilities Commission Liberty Utilities (EnergyNorth Natural Gas) Corp. Liberty Utilities (EnergyNorth Natural Gas) Corp. 0/ Liberty Utilities (EnergyNorth Natural Gas) Corp. 0/ Liberty Utilities (EnergyNorth Natural Gas) Corp. Docket No. DG -0 Docket No. DG -0 Temporary Rates Revenue Requirement Public Utility Commission of Texas El Paso Electric Company 0/ El Paso Electric Company Docket No. Lead-lag Study Cash Working Capital South Dakota Public Service Commission Northern States Power Company-MN 0/ Northern States Power Company-MN EL -0 Return on Equity CONCENTRIC ENERGY ADVISORS A-

150 APPENDIX A SPONSOR DATE CASE/APPLICANT DOCKET /CASE NO. SUBJECT Ontario Energy Board Ontario Power Generation 0/ Ontario Power Generation EB 0-0 Capital Structure CONCENTRIC ENERGY ADVISORS A-

151 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD- Page of Exhibit DSD- Lead Lag Study Rate Year Ended December, 0 (Thousands of Dollars) Line No. Category O&M Expenses ($000s) Daily Expense (O&M Expenses/) ($000s) Revenue Lag Expense Lead Net Lag/(Lead) Cash Working Capital ($000s) (A) (B) (C)=(B)/ (D) (E) (F)=(D)-(E) (G)=(C)x(F) Operation & Maintenance Expenses: Compensation $, $... $, Benefits,. (.).0, Affiliate & Corporate Charges,...,00 Regulatory Assessment,0. (.). Other O&M,.. 0.0,0 Uncollectible Accounts,.. (0.) (,) Service on Customer Premise Revenue (0,) () - - (.), Subtotal O&M Expenses $,0 $ $, 0 Fuel Costs: Natural Gas $, $.. 0. $,0 Subtotal Fuel Costs $, $ $,0 Depreciation, Amortization, and Deferred Taxes Depreciation $ 0, $... $, Amortization (,0) ()... () Deferred Taxes,..., Subtotal Depreciation, Amortization, and Deferred Taxes $,0 $ 0 $, 0 Taxes Payroll Taxes $, $... $ Federal Income Tax,..0. Connecticut Income Tax () (0)... () Gross Earnings Tax,0.. (.) () CT Sales and Use Tax 0... Property Taxes 0,. (.0)., Subtotal Taxes $,0 $ $,

152 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD- Page of Exhibit DSD- Lead Lag Study Rate Year Ended December, 0 (Thousands of Dollars) Line No. Category O&M Expenses ($000s) Daily Expense (O&M Expenses/) ($000s) Revenue Lag Expense Lead Net Lag/(Lead) Cash Working Capital ($000s) (A) (B) (C)=(B)/ (D) (E) (F)=(D)-(E) (G)=(C)x(F) 0 Interest, Dividends, Net Income Interest $,0 0.. (.) (0) Net Income - External Dividend,000...,0 Net Income - Retained,00.. (.0) (,0) Subtotal Interest, Dividends, Net Income $, $ $ (,) Subtotal Working Capital Rev Req. $, $,0 Total Working Capital $ 0, Factor.%

153 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD- Page of Exhibit DSD- Lead Lag Study Rate Year Ended December, 0 (Thousands of Dollars) Line No. Category O&M Expenses ($000s) Daily Expense (O&M Expenses/) ($000s) Revenue Lag Expense Lead Net Lag/(Lead) Cash Working Capital ($000s) (A) (B) (C)=(B)/ (D) (E) (F)=(D)-(E) (G)=(C)x(F) Operation & Maintenance Expenses: Compensation $, $... $, Benefits,. (.).0, Affiliate & Corporate Charges,..., Regulatory Assessment,0. (.). Other O&M, , Uncollectible Accounts,.. (0.) (,) Service on Customer Premise Revenue (0,) (0) - - (.), Subtotal O&M Expenses $, $ $ 0, 0 Fuel Costs: Natural Gas $, $.. 0. $, Subtotal Fuel Costs $, $ $, Depreciation, Amortization, and Deferred Taxes Depreciation $, $... $, Amortization (,) ()... () Deferred Taxes,..., Subtotal Depreciation, Amortization, and Deferred Taxes $,0 $ $, 0 Taxes Payroll Taxes $, $... $ Federal Income Tax,..0. Connecticut Income Tax () ()... () Gross Earnings Tax,.. (.) () CT Sales and Use Tax 0... Property Taxes,. (.0)., Subtotal Taxes $, $ $,

154 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD- Page of Exhibit DSD- Lead Lag Study Rate Year Ended December, 0 (Thousands of Dollars) Line No. Category O&M Expenses ($000s) Daily Expense (O&M Expenses/) ($000s) Revenue Lag Expense Lead Net Lag/(Lead) Cash Working Capital ($000s) (A) (B) (C)=(B)/ (D) (E) (F)=(D)-(E) (G)=(C)x(F) 0 Interest, Dividends, Net Income Interest $, 0.. (.) (0) Net Income - External Dividend, Net Income - Retained,0.. (.0) (,) Subtotal Interest, Dividends, Net Income $,0 $ $ (,) Subtotal Working Capital Rev Req. $, Total Working Capital $,0 Factor.%

155 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD- Page of Exhibit DSD- Lead Lag Study Rate Year Ended December, 00 (Thousands of Dollars) Line No. Category O&M Expenses ($000s) Daily Expense (O&M Expenses/) ($000s) Revenue Lag Expense Lead Net Lag/(Lead) Cash Working Capital ($000s) (A) (B) (C)=(B)/ (D) (E) (F)=(D)-(E) (G)=(C)x(F) Operation & Maintenance Expenses: Compensation $, $... $, Benefits,. (.).0, Affiliate & Corporate Charges,...,0 Regulatory Assessment,. (.). Other O&M, ,0 Uncollectible Accounts,.. (0.) (,) Service on Customer Premise Revenue (,0) (0) - - (.), Subtotal O&M Expenses $, $ $, 0 Fuel Costs: Natural Gas $, $.. 0. $, Subtotal Fuel Costs $, $ $, Depreciation, Amortization, and Deferred Taxes Depreciation $, $... $,0 Amortization (,) ()... (0) Deferred Taxes,..., Subtotal Depreciation, Amortization, and Deferred Taxes $, $ $,0 0 Taxes Payroll Taxes $, $... $ Federal Income Tax,..0. Connecticut Income Tax () ()... () Gross Earnings Tax,.. (.) () CT Sales and Use Tax 0... Property Taxes,. (.0)., Subtotal Taxes $,0 $ $,

156 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD- Page of Exhibit DSD- Lead Lag Study Rate Year Ended December, 00 (Thousands of Dollars) Line No. Category O&M Expenses ($000s) Daily Expense (O&M Expenses/) ($000s) Revenue Lag Expense Lead Net Lag/(Lead) Cash Working Capital ($000s) (A) (B) (C)=(B)/ (D) (E) (F)=(D)-(E) (G)=(C)x(F) 0 Interest, Dividends, Net Income Interest $,0.. (.) () Net Income - External Dividend,000...,0 Net Income - Retained,.. (.0) (,) Subtotal Interest, Dividends, Net Income $ 0, $ $ (,) Subtotal Working Capital Rev Req. $ 0,00 Total Working Capital $ 0, Factor.%

157 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (revenue lag) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY REVENUE LAG Summary Lag Revenue Lag. Line No. Revenue Lag Lead (days) Service Lag. Billing Lag. Collection Lag. Payment Processing Lag 0. Total - Revenue Lag. Billing Lead Detail Elapsed Hrs. Days Meter reads delivered to FTP site by am following scheduled meter read day - Meter Read Orders filled for billing by pm Billing process starts at pm.0 Data to Kubra by pm.0 Bills are available from Kubra by am.0 Bills are reviewed and released for printing by am.0 Invoices prepared and delivered to post office by pm.0 Total Billing Lead.0.

158 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (revenue lag) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY REVENUE LAG Summary Lag Revenue Lag. Line No. Collections Lead Month Accounts Receivable Balance January- $,, 0 February-,0, March-,0, April-,, May-,, June-,0, July-,0, August-,,0 September-,0, October-,, November-,0, 0 December-,, Average Receivable Balance $,, Billed Retail Revenue for Year $,,0 Uncollectible Factor.% Billed Retail Revenue for Year (adjusted for Uncollectible Factor) $ 0,, Average Receivable Balance $,, 0 Receivable Turnover. Average Age of Receivable - Days.

159 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (revenue lag) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY REVENUE LAG Summary Lag Revenue Lag. Line No. Payment Processing Lag Category Payment Type Percent Lag Days Weighted Lag Century Bank CHECKS.%.0 0. Kubra CC.% - - Kubra ACH.% Bank of America ACH.% - - Other CHECKS.% Wires ACH.% - - Coll Agency ACH 0.0% - - Energy Asst CHECKS.% Total 00.00% 0.

160 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (payroll) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY PAYROLL Weighted Line No. Description Amount Expense Lead Weighting Factor Expense Lead Days (A) (B) (C) (D) (E) Gross Regular Payroll $,,..%. Incentive Comp,.0.%. $,, 00%.

161 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP a (payroll) Page of EXHIBIT DSD-, WORK PAPER A LEAD LAG STUDY PAYROLL Line No. Payroll Code Pay Period Pay Period Beginning Pay Period End Service Midpoint Funds Submitted to ADP Unweighted Lead Time (Days) Payment Amount Weighting Factor Weighted Lead Time (Days) (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) BW //0 //0 //0 //0.0 $,.% 0. BW OC /0/0 //0 //0 //0.0,0 0.0% 0.0 BW /0/0 //0 //0 //0.0,.% 0. BW //0 //0 /0/0 //0.0 0,.% 0. BW //0 /0/0 //0 // ,0.% 0. BW //0 //0 //0 //0.0 0,.0% 0. BW //0 //0 //0 //0.0 0,0.% 0. BW /0/0 //0 //0 //0.0,0.% 0. BW //0 //0 //0 //0.0,.% 0. 0 BW //0 /0/0 //0 //0.0 00,.% 0. BW 0 //0 //0 //0 //0.0,.% 0. BW //0 //0 //0 //0 0.0,0.% 0. BW //0 //0 //0 //0.0 0,0.% 0. BW //0 //0 //0 //0.0 0,.% 0. BW //0 //0 //0 //0.0,0.0% 0. BW /0/0 //0 //0 //0.0,.0% 0. BW //0 //0 /0/0 //0.0,00.0% 0. BW //0 /0/0 //0 //0.0,0.% 0. BW //0 //0 //0 //0 0.0,.0% 0. 0 BW //0 //0 /0/0 /0/0.0 0,.0% 0. BW 0 //0 0//0 //0 0//0.0,.0% 0. BW 0//0 0//0 0//0 0//0.0,.0% 0. BW 0//0 0//0 0//0 //0.0,.% 0. BW 0/0/0 //0 //0 //0.0,.0% 0. BW //0 //0 //0 //0.0,.% 0. BW //0 /0/0 //0 //0.0,.% 0. BW OC //0 //0 //0 //0.0,0 0.% 0.0 BW //0 //0 //0 //0 0.0,.% 0. CB //0 //0 //0 //0.0,0.% 0. 0 CB /0/0 //0 //0 //0.0,.% 0. CB //0 //0 /0/0 //0.0,.% 0. CB //0 /0/0 //0 //0.0,.% 0. CB OC //0 //0 //0 //0.00, 0.0% 0.0 CB //0 //0 //0 //0.0,0.% 0. CB OC //0 //0 //0 //0.0, 0.0% 0.0

162 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP a (payroll) Page of EXHIBIT DSD-, WORK PAPER A LEAD LAG STUDY PAYROLL Line No. Payroll Code Pay Period Pay Period Beginning Pay Period End Service Midpoint Funds Submitted to ADP Unweighted Lead Time (Days) Payment Amount Weighting Factor Weighted Lead Time (Days) (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) CB //0 //0 /0/0 /0/0.0,.% 0. CB OC //0 //0 //0 //0.00, 0.0% 0.0 CB 0 //0 0//0 //0 0//0.0,.% 0. CB 0//0 0//0 0//0 0//0.0,.% 0. 0 CB 0//0 0//0 0//0 //0.0,0.% 0. CB OC 0/0/0 //0 //0 // % 0.0 CB 0/0/0 //0 //0 //0.0 0,.% 0. CB OC //0 //0 //0 // % 0.0 CB //0 //0 //0 //0.0 0,.0% 0. CB //0 /0/0 //0 //0.0,.% 0. CB //0 //0 //0 //0.0,.% 0. Total $,, 00.0%. Note: the Company moved all employees to bi-weekly payroll as of July, 0. Therefore, only bi-weekly payroll payments were considered in this analysis.

163 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP b (payroll) Page of EXHIBIT DSD-, WORK PAPER B LEAD LAG STUDY PAYROLL Line No. Type Mid Year Check Date Unweighted Lead Time Transaction Amount Weighting Factor Weighted Lead Time (A) (B) (C) (D) (E) (F) (G) Incentive Compensation MIC - AT //0 /0/0.0 $,.%. MIC - Management //0 /0/0.0 0,.%. Total $, 00.0%.0

164 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (benefits) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY EMPLOYEE BENEFITS Weighted Line No. Description Amount Expense Lead Weighting Factor Expense Lead Days (A) (B) (C) (D) (E) Medical (CIGNA) $,, (.).% (.) Medical (Steelworkers H&W Fund),, (.).% (.) Medical (Steelworkers H&W Fund, retirees), (.).% (0.) Medical (United Healthcare), (.) 0.% (0.) Medical HSA (Wepawaug) 0, % 0.0 RightOpt 0,..% 0. Dental (Delta Dental), (.).% (0.) Vision (EyeMed, Union), (.) 0.% (0.0) Vision (EyeMed, Non-Union), (.0) 0.% (0.0) 0 Long-term Disability, AD&D, and Life Insurance 0,..0%. Worker's Compensation Claims 0,0..%. Worker's Compensation Fees, (.) 0.% (0.0) Pension Contributions,00,000 (.).% (.) 0K Costs,..00%. $,0, 00.00% (.)

165 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP a (benefits) Page of EXHIBIT DSD-, WORK PAPER A LEAD LAG STUDY EMPLOYEE BENEFITS Line No. Provider Service Provided Service Start Date Service End Date Service MidPoint Payment Date Unweighted Lead Time Payment Amount Weighting Factor (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) Medical (CIGNA) CIGNA Medical Insurance //0 //0 //0 //0 (.0) $,.% (0.) CIGNA Medical Insurance //0 //0 //0 //0 (.0) $,0.0% (0.) CIGNA Medical Insurance //0 //0 //0 //0 (.0) $,00.% (0.) CIGNA Medical Insurance //0 /0/0 //0 //0 (.) $,.% (0.) CIGNA Medical Insurance //0 //0 //0 //0.0 $,.% 0. CIGNA Medical Insurance //0 /0/0 //0 //0. $ 0,.% 0. CIGNA Medical Insurance //0 //0 //0 //0 (.0) $,.% (0.) CIGNA Medical Insurance //0 //0 //0 //0 (.0) $,.0% (0.) 0 CIGNA Medical Insurance //0 /0/0 //0 //0. $,.% 0. CIGNA Medical Insurance 0//0 0//0 0//0 0//0 (.0) $,.% (0.) CIGNA Medical Insurance //0 /0/0 //0 /0/0 (.) $,.% (0.) CIGNA Medical Insurance //0 //0 //0 //0 (.0) $ 0,.% (0.) $,, 00.00% (.) Steelworkers H&W Fund (active union) Steelworkers H&W Fund Health Insurance //0 //0 //0 //0.0 $,.0%. Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (.0) $,.% (0.) Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (.0) $,.% (.0) Steelworkers H&W Fund Health Insurance //0 /0/0 //0 //0 (.) $,.% (0.) 0 Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (.0) $,.% (.) Steelworkers H&W Fund Health Insurance //0 /0/0 //0 //0 (.) $,.% (0.) Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (0.0) $,.% (0.) Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (.0) $,.% (0.) Steelworkers H&W Fund Health Insurance //0 /0/0 //0 //0 (.) $,.% (0.) Steelworkers H&W Fund Health Insurance 0//0 0//0 0//0 0//0 (0.0) $,.% (0.) Steelworkers H&W Fund Health Insurance //0 /0/0 //0 //0 (.) $,.% (.) Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (.0) $,0.% (.) $,, 00.00% (.) Weighted Lead Time

166 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP a (benefits) Page of EXHIBIT DSD-, WORK PAPER A LEAD LAG STUDY EMPLOYEE BENEFITS Line No. Provider Service Provided Service Start Date Service End Date Service MidPoint Payment Date Unweighted Lead Time Payment Amount Weighting Factor (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) Steelworkers H&W Fund (retirees) 0 Steelworkers H&W Fund Health Insurance //0 //0 //0 //0.0 $,.%. Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (.0) $,.% (0.) Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (.0) $,0 0.% (0.) Steelworkers H&W Fund Health Insurance //0 /0/0 //0 //0 (.) $, 0.% (.) Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (.0) $,.% (.) Steelworkers H&W Fund Health Insurance //0 /0/0 //0 //0 (.) $,0.% (0.) Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (0.0) $,.% (.) Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (.0) $ 0,0.% (0.) Steelworkers H&W Fund Health Insurance //0 /0/0 //0 //0 (.) $,.% (0.) Steelworkers H&W Fund Health Insurance 0//0 0//0 0//0 0//0 (0.0) $,.% (0.) 0 Steelworkers H&W Fund Health Insurance //0 /0/0 //0 //0 (.) $,.% (.0) Steelworkers H&W Fund Health Insurance //0 //0 //0 //0 (.0) $,.% (.) $, 00.00% (.) United Healthcare United Healthcare Health Insurance //0 //0 //0 //0 (.0) $,.0% (0.) United Healthcare Health Insurance //0 //0 //0 //0 (0.0) $,0.% (0.) United Healthcare Health Insurance //0 //0 //0 //0 (.0) $,0.% (.) United Healthcare Health Insurance //0 /0/0 //0 //0 (.) $,.% (0.) United Healthcare Health Insurance //0 //0 //0 //0 (.0) $,.% (0.) United Healthcare Health Insurance //0 /0/0 //0 //0 (.) $,.% (0.) 0 United Healthcare Health Insurance //0 //0 //0 //0 (0.0) $,.% (0.) United Healthcare Health Insurance //0 //0 //0 //0 (.0) $,.% (.0) United Healthcare Health Insurance //0 /0/0 //0 //0 (.) $,0.% (0.) United Healthcare Health Insurance 0//0 0//0 0//0 0//0 (.0) $,.% (.) United Healthcare Health Insurance //0 /0/0 //0 //0 (.) $,.% (0.) United Healthcare Health Insurance //0 //0 //0 //0 (.0) $,.% (.0) $, 00.00% (.) Weighted Lead Time

167 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP a (benefits) Page of EXHIBIT DSD-, WORK PAPER A LEAD LAG STUDY EMPLOYEE BENEFITS Line No. Provider Service Provided Service Start Date Service End Date Service MidPoint Payment Date Unweighted Lead Time Payment Amount Weighting Factor (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) Wepawaug HSA Wepawaug HSA //0 //0 //0 //0 0. $,.% 0. Wepawaug HSA /0/0 //0 //0 //0. $,.% 0. 0 Wepawaug HSA //0 //0 /0/0 /0/0 0. $,.% 0. Wepawaug HSA //0 /0/0 //0 //0 0. $,.% 0. Wepawaug HSA //0 //0 //0 //0 0. $,.% 0. Wepawaug HSA //0 //0 //0 //0 0. $,.% 0. Wepawaug HSA /0/0 //0 //0 //0 0. $,.% 0. Wepawaug HSA //0 //0 //0 /0/0 0. $,.% 0. Wepawaug HSA //0 /0/0 //0 //0 0. $,.% 0. Wepawaug HSA //0 //0 //0 //0 0. $,.% 0. Wepawaug HSA //0 //0 //0 //0. $,.% 0. Wepawaug HSA //0 //0 //0 //0 0. $,.% 0. 0 Wepawaug HSA //0 //0 //0 //0 0. $,.% 0. Wepawaug HSA //0 //0 //0 //0 0. $,.% 0. Wepawaug HSA /0/0 //0 //0 //0. $,.% 0. Wepawaug HSA //0 //0 /0/0 /0/0 0. $,.% 0. Wepawaug HSA //0 /0/0 //0 //0. $,.% 0. Wepawaug HSA //0 //0 //0 //0. $,.% 0. Wepawaug HSA //0 //0 /0/0 //0 0. $,.% 0. Wepawaug HSA //0 0//0 //0 0//0 0. $,.% 0. Wepawaug HSA 0//0 0//0 0//0 0//0 0. $,.% 0. Wepawaug HSA 0//0 0//0 0//0 //0 0. $,.% 0. 0 Wepawaug HSA 0/0/0 //0 //0 //0 (.) $,.% (0.) Wepawaug HSA //0 //0 //0 //0. $,.% 0. Wepawaug HSA //0 /0/0 //0 //0. $,.% 0. Wepawaug HSA //0 //0 //0 //0 0. $,.% 0. $, % 0. Weighted Lead Time

168 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP a (benefits) Page of EXHIBIT DSD-, WORK PAPER A LEAD LAG STUDY EMPLOYEE BENEFITS Line No. Provider Service Provided Service Start Date Service End Date Service MidPoint Payment Date Unweighted Lead Time Payment Amount Weighting Factor (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) RightOpt RightOpt Medical //0 //0 //0 //0.0 $, 0.% 0.0 RightOpt Medical //0 //0 //0 //0.0 $ 0,.0% 0. RightOpt Medical //0 //0 //0 //0.0 $, 0.% 0.0 RightOpt Medical //0 //0 //0 //0.0 $,0 0.% RightOpt Medical //0 //0 //0 //0.0 $,0 0.% 0.0 RightOpt Medical //0 //0 //0 //0 - $,.00% - RightOpt Medical //0 //0 //0 //0.0 $,.0% 0.0 RightOpt Medical //0 //0 //0 //0.0 $,.% 0.0 RightOpt Medical //0 //0 //0 //0.0 $,.% 0. RightOpt Medical //0 //0 //0 //0.0 $,0.% 0.0 RightOpt Medical //0 //0 //0 //0.0 $,.% 0.0 RightOpt Medical //0 //0 //0 //0.0 $,.0% 0.0 RightOpt Medical //0 //0 //0 /0/0.0 $,0.% 0.0 RightOpt Medical //0 //0 //0 //0.0 $,.0% RightOpt Medical //0 //0 //0 //0.0 $,.% 0. 0 RightOpt Medical //0 //0 //0 /0/0.0 $,.% RightOpt Medical //0 //0 //0 //0.0 $,.% 0. 0 RightOpt Medical //0 //0 //0 //0.0 $,0.% 0. 0 RightOpt Medical /0/0 /0/0 /0/0 //0.0 $,.% 0. 0 RightOpt Medical //0 //0 //0 //0.0 $,0.% 0. 0 RightOpt Medical //0 //0 //0 //0.0 $,0.% RightOpt Medical //0 //0 //0 //0.0 $,.00% RightOpt Medical //0 //0 //0 //0.0 $ 0,0.% RightOpt Medical //0 //0 //0 //0.0 $,.0% 0. 0 RightOpt Medical //0 //0 //0 //0.0 $,.% 0. RightOpt Medical //0 //0 //0 //0.0 $, 0.% 0.0 RightOpt Medical //0 //0 //0 //0.0 $,.% 0.0 RightOpt Medical //0 //0 //0 //0.0 $,0 0.% 0.0 RightOpt Medical //0 //0 //0 //0.0 $,.0% 0.0 RightOpt Medical //0 //0 //0 //0.0 $,.% 0. RightOpt Medical //0 //0 //0 //0.0 $,.% 0. RightOpt Medical //0 //0 //0 //0.0 $ 0,00.% 0. RightOpt Medical //0 //0 //0 //0.0 $,.% 0. RightOpt Medical //0 //0 //0 //0.0 $,.% 0. 0 RightOpt Medical /0/0 /0/0 /0/0 //0.0 $,.% 0. RightOpt Medical //0 //0 //0 //0.0 $,.% 0. RightOpt Medical //0 //0 //0 //0.0 $,.0% 0. RightOpt Medical /0/0 /0/0 /0/0 //0.0 $, 0.% 0. RightOpt Medical //0 //0 //0 //0.0 $, 0.% 0.0 Weighted Lead Time

169 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP a (benefits) Page of EXHIBIT DSD-, WORK PAPER A LEAD LAG STUDY EMPLOYEE BENEFITS Line No. Provider Service Provided Service Start Date Service End Date Service MidPoint Payment Date Unweighted Lead Time Payment Amount Weighting Factor (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) RightOpt Medical 0//0 0//0 0//0 0/0/0.0 $ 0,.% 0. RightOpt Medical 0//0 0//0 0//0 0//0.0 $,.% 0. RightOpt Medical 0//0 0//0 0//0 0//0.0 $,.% 0. RightOpt Medical 0//0 0//0 0//0 //0.0 $,.0% 0. RightOpt Medical //0 //0 //0 //0.0 $, 0.% 0. 0 RightOpt Medical //0 //0 //0 //0.0 $,.% 0. RightOpt Medical //0 //0 //0 //0.0 $,0.0% 0. RightOpt Medical //0 //0 //0 /0/0.0 $,0.% 0. RightOpt Medical //0 //0 //0 /0/0.0 $,00.% 0.0 RightOpt Medical //0 //0 //0 //0.0 $,.% 0. RightOpt Medical //0 //0 //0 //0.0 $,.% 0. RightOpt Medical /0/0 /0/0 /0/0 //0.0 $,0.% 0.0 $ 0, 00.00%. Dental (Delta Dental) Delta Dental Dental Insurance //0 //0 //0 //0 (.0) $ 0,.0% (0.) 0 Delta Dental Dental Insurance //0 //0 //0 //0 (.0) $ 0,.% (0.) Delta Dental Dental Insurance //0 //0 //0 //0 (.0) $,0.0% (0.) Delta Dental Dental Insurance //0 /0/0 //0 //0 (.) $,0.0% (0.) Delta Dental Dental Insurance //0 //0 //0 //0.0 $,.% 0. Delta Dental Dental Insurance //0 /0/0 //0 //0. $,.% 0. Delta Dental Dental Insurance //0 //0 //0 //0 (.0) $,.% (0.) Delta Dental Dental Insurance //0 //0 //0 //0 (.0) $,0.% (0.) Delta Dental Dental Insurance //0 /0/0 //0 //0. $,.% 0. Delta Dental Dental Insurance 0//0 0//0 0//0 0//0 (.0) $,.% (0.) Delta Dental Dental Insurance //0 /0/0 //0 /0/0 (.) $,.% (0.) 0 Delta Dental Dental Insurance //0 //0 //0 //0 (.0) $,.% (0.) $, 00.00% (.) Weighted Lead Time

170 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP a (benefits) Page of EXHIBIT DSD-, WORK PAPER A LEAD LAG STUDY EMPLOYEE BENEFITS Line No. Provider Service Provided Service Start Date Service End Date Service MidPoint Payment Date Unweighted Lead Time Payment Amount Weighting Factor (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) Vision (EyeMed, Union) EyeMed Vision Insurance //0 //0 //0 //0 (.0) $,.0% (0.) EyeMed Vision Insurance //0 //0 //0 //0 (.0) $,.% (0.) EyeMed Vision Insurance //0 //0 //0 //0 (.0) $,.% (0.) EyeMed Vision Insurance //0 /0/0 //0 //0 (.) $,.% (0.) EyeMed Vision Insurance //0 //0 //0 //0.0 $,0.0% 0. EyeMed Vision Insurance //0 /0/0 //0 //0. $,.% 0. EyeMed Vision Insurance //0 //0 //0 //0 (.0) $,.% (0.) 0 EyeMed Vision Insurance //0 //0 //0 //0 (.0) $,.% (0.) EyeMed Vision Insurance //0 /0/0 //0 //0. $,.% 0. EyeMed Vision Insurance 0//0 0//0 0//0 0//0 (.0) $,0.% (0.) EyeMed Vision Insurance //0 /0/0 //0 /0/0 (.) $,.% (0.) EyeMed Vision Insurance //0 //0 //0 //0 (.0) $,.% (0.) $, 00.00% (.) Vision (EyeMed, Non-Union) EyeMed Vision Care Premiums //0 //0 //0 /0/0.0 $,0.0% 0. EyeMed Vision Care Premiums //0 //0 //0 //0.0 $,.0% 0. EyeMed Vision Care Premiums //0 //0 //0 //0 (.0) $,.% (0.) 0 EyeMed Vision Care Premiums //0 /0/0 //0 //0 (.) $,.% (0.) EyeMed Vision Care Premiums //0 //0 //0 //0 (.0) $, 0.% (0.) EyeMed Vision Care Premiums //0 /0/0 //0 /0/0. $,.% 0. EyeMed Vision Care Premiums //0 //0 //0 //0 (.0) $,.% (0.) EyeMed Vision Care Premiums //0 //0 //0 //0 (.0) $,.% (0.) EyeMed Vision Care Premiums //0 /0/0 //0 //0 (.) $,0.% (0.) EyeMed Vision Care Premiums 0//0 0//0 0//0 0//0 (.0) $,0.% (0.) EyeMed Vision Care Premiums //0 /0/0 //0 //0. $,0.% 0. EyeMed Vision Care Premiums //0 //0 //0 //0 - $,0.% - $, 00.00% (.0) Weighted Lead Time

171 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP a (benefits) Page of EXHIBIT DSD-, WORK PAPER A LEAD LAG STUDY EMPLOYEE BENEFITS Line No. Provider Service Provided Service Start Date Service End Date Service MidPoint Payment Date Unweighted Lead Time Payment Amount Weighting Factor (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) 0 Long-term Disability, AD&D, and Life Insurance Multiple Providers Insurance Premiums //0 //0 //0 //0. $,.0%. Multiple Providers Insurance Premiums //0 //0 //0 //0. $,00.%. Multiple Providers Insurance Premiums //0 //0 //0 //0.0 $,00.%. Multiple Providers Insurance Premiums //0 /0/0 //0 /0/0. $,.%. Multiple Providers Insurance Premiums //0 //0 //0 //0. $,00.%. Multiple Providers Insurance Premiums //0 /0/0 //0 //0 0. $,00.%. Multiple Providers Insurance Premiums //0 //0 //0 //0. $,.%. Multiple Providers Insurance Premiums //0 //0 //0 0//0.0 $,.%. Multiple Providers Insurance Premiums //0 /0/0 //0 0//0.0 $,00.%. 0 Multiple Providers Insurance Premiums 0//0 0//0 0//0 //0. $,.0%. Multiple Providers Insurance Premiums //0 /0/0 //0 //0. $,.0%. Multiple Providers Insurance Premiums //0 //0 //0 //0. $,.0%. $ 0, 00.00%. Worker's Compensation (HMA) HMA Worker's Compensation Fees //0 //0 0//0 //0 (.0) $,.% (.) HMA Worker's Compensation Fees //0 //0 0//0 //0 (.0) $,.% (.) HMA Worker's Compensation Fees //0 //0 0//0 //0 (.0) $,.% (0.) HMA Worker's Compensation Fees //0 //0 0//0 //0 (.0) $,.% (.) HMA Worker's Compensation Fees //0 //0 0//0 //0 (.0) $,.% (.) 00 HMA Worker's Compensation Fees //0 //0 0//0 //0 (0.0) $,.% (.) 0 HMA Worker's Compensation Fees //0 //0 0//0 0//0 - $,.% - 0 HMA Worker's Compensation Fees //0 //0 0//0 //0.0 $,.%. 0 HMA Worker's Compensation Fees //0 //0 0//0 //0.0 $,.%. 0 HMA Worker's Compensation Fees //0 //0 0//0 //0.0 $,.%. 0 HMA Worker's Compensation Fees //0 //0 0//0 //0.0 $,.% 0. 0 HMA Worker's Compensation Fees //0 //0 0//0 //0.0 $,.%. 0 $, 00.00% (.) 0 Pension Contribution 0 Pension Contribution //0 //0 //0 //0 (0.) $,00,000.% (.) 0 Pension Contribution //0 //0 //0 //0 (.) $,00,000.% (.) Pension Contribution //0 //0 //0 //0. $,00,000.%. $,00, % (.) Weighted Lead Time

172 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP a (benefits) Page of EXHIBIT DSD-, WORK PAPER A LEAD LAG STUDY EMPLOYEE BENEFITS Line No. Provider Service Provided Service Start Date Service End Date Service MidPoint Payment Date Unweighted Lead Time Payment Amount Weighting Factor (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) 0K Contributions 0K Contribution //0 //0 //0 /0/0..% 0. 0K Contribution /0/0 //0 //0 //0..% 0. 0K Contribution //0 //0 /0/0 //0..% 0. 0K Contribution //0 /0/0 //0 //0..% 0. 0K Contribution //0 //0 //0 //0..% 0. 0K Contribution //0 //0 //0 /0/0..% K Contribution /0/0 //0 //0 //0..% 0. 0K Contribution //0 //0 //0 //0..% 0. 0K Contribution //0 /0/0 //0 //0..% 0. 0K Contribution //0 //0 //0 //0..% 0. 0K Contribution //0 //0 //0 //0..% 0. 0K Contribution //0 //0 //0 //0..% 0. 0K Contribution //0 //0 //0 //0..% 0. 0K Contribution //0 //0 //0 /0/0..% 0. 0K Contribution /0/0 //0 //0 //0..% 0. 0K Contribution //0 //0 /0/0 //0..% K Contribution //0 /0/0 //0 //0..% 0. 0K Contribution //0 //0 //0 //0..% 0. 0K Contribution //0 //0 /0/0 /0/0..% 0. 0K Contribution //0 0//0 //0 0//0..% 0. 0K Contribution 0//0 0//0 0//0 0//0..% 0. 0K Contribution 0//0 0//0 0//0 //0..% 0. 0K Contribution 0/0/0 //0 //0 //0..% 0. 0K Contribution //0 //0 //0 //0..% 0. 0K Contribution //0 /0/0 //0 //0..% 0. 0K Contribution //0 //0 //0 //0..% 0. 0 $ %. Weighted Lead Time

173 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (affiliate charges) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY AFFILIATE CHARGES Service Lag Payment Lag Total Lag Days..0. Notes - Per the Company, affiliate charges are settled on or about the th of each month in 0 for the preceding month.

174 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (regulatory) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY REGULATORY EXPENSE Summary Expense Lead Amount Weighting Factor Weighted Lead Time PURA (.) $,0, 00.00% (.) Line No. Description Service Period Beginning Service Period Ending Service MidPoint Payment Date Unweighted Lead Time Amount of Invoice Weighting Factor Weighted Lead Time (A) (B) (C) (D) (E) (F) (G) (H) (I) Connecticut Department of Energy and Environmental Protection Public Service Company Assessments //0 /0/0 /0/0 //0. $,.%. Public Service Company Assessments //0 /0/0 /0/0 //0 (.0) $,.0% (.) Public Service Company Assessments //0 /0/0 /0/0 //0 (.0) $,.% (.) Public Service Company Assessments //0 /0/0 /0/0 //0 (.0) $,0.% (.) $,0, 00.00% (.)

175 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (uncollectibles) Page of Summary Lead Time Uncollectible Expense. EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY UNCOLLECTIBLES EXPENSE In Docket Nos and -0-0, PURA found that accounts that are ultimately written off as uncollectible are part of the accounts receivable balance until they are written off, and that the Company is thus granted a return on uncollectible expense through the working capital adjustment until written off. To account for this, PURA adjusted the uncollectible expense lag, using a calculation similar to that presented below. Line No. Description Days Note Weighting Factor [] Weighted Days (A) (B) (C) (D) (E) Non-hardship Accounts: Second bill generated 0.0 Days after bill remains unpaid Shutoff notice.0 Days after invoice reminder Disconnect order created.0 Customer is subject to field disconnection Customer is disconnected.0 Day after disconnect order generated Final bill generated.0 Days after disconnection Account balance is charged off days after final bill is generated Non-hardship Accounts charge off.0.%. Hardship Accounts:.0 0 Plus: moratorium period 0.0 (Six months x 0 days) / Hardship Accounts charge off.0.%.. [] Based on average of rate years' breakdown between non-hardship and hardship accounts, per Schedule WP C-.0 A - C.

176 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (other O&M) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY OTHER O&M Line No. Account Description Vendor Invoice Number Invoice Date Payment Cleared Date Payment Type Service Period Begin Service Period End Service Period MidPoint Lead Days Check Float Total Lead Time Total Distribution (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES VALLEY SAND & GRAVEL CORP //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA00 //0 //0 ACH/Wire /0/0 //0 // , CONTRACTORS-OUTSIDE CONTRACTORS ATRIA INC //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 0 //0 //0 Check //0 //0 //0.0.. GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO //0 //0 Check //0 //0 //0..., MATERIALS EXPENSES - NON-STOCK LF POWERS CO INC IN //0 //0 Check //0 //0 // , 0 CONTRACTORS-LOCATING SERVICES CALL BEFORE YOU DIG INC /0/0 //0 ACH/Wire //0 //0 // , CONTRACTORS-FACILITY SERVICES SERVICE MANAGEMENT GROUP LLC 00 //0 //0 ACH/Wire //0 //0 // ,0 CONTRACTORS-OUTSIDE CONTRACTORS ALL AMERICAN WASTE LLC 00 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 /0/0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 /0/0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 /0/0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 /0/0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 /0/0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 //0 ACH/Wire //0 //0 //0. -.,00 CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES ELM CITY MATERIALS INC 0 //0 //0 ACH/Wire //0 //0 // , 0 MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC //0 //0 Check //0 //0 //0.0.. CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA00 //0 //0 ACH/Wire //0 //0 // GENERAL - FUEL - OTHER EAST RIVER ENERGY //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OUTSIDE PROFESSIONAL SERVICES CONNECTICUT TANK REMOVAL INC 0 //0 //0 ACH/Wire /0/0 /0/0 /0/ ,0 CONTRACTORS-OTHER NEW ENGLAND TRUCK SALES & SVS INC //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OUTSIDE PROFESSIONAL SERVICES NLR INC //0 //0 Check //0 //0 //0.0.. CONTRACTORS-OTHER THE GOODYEAR TIRE & RUBBER CO 0 //0 //0 Check //0 //0 //0.0.. GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY 0 //0 //0 ACH/Wire //0 //0 // , CONTRACTORS-OTHER TORELLO TIRE CO //0 /0/0 Check //0 //0 //0.0.. MATERIALS EXPENSES - NON-STOCK C F CONNOLLY DISTRIBUTING CO 0 0//0 /0/0 ACH/Wire 0//0 0//0 0// MATERIALS EXPENSES - NON-STOCK C F CONNOLLY DISTRIBUTING CO 0 //0 /0/0 ACH/Wire //0 //0 // CONTRACTORS-OUTSIDE CONTRACTORS ALL AMERICAN WASTE LLC 0 //0 /0/0 ACH/Wire //0 //0 //0. -., CONTRACTORS-FLAGGING TOWN OF HAMDEN //0 //0 Check /0/0 //0 /0/0... MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA00 //0 //0 ACH/Wire //0 //0 /0/0. -. CONTRACTORS-OUTSIDE CONTRACTORS CALVERT SAFE & LOCK LTD //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS - FREIGHT CHARGES INNER-TITE CORP 0 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC /0/0 //0 Check /0/0 /00 /0/ GENERAL-LICENSES / PERMITS TREASURER STATE OF CONNECTICUT RG0-0 0//0 //0 n/a 0//0 0//0 0// MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // GENERAL - UTILITIES (WATER, GAS, ELEC) EVERSOURCE //0 //0 Check //0 //0 //0.0.. CONTRACTORS-OUTSIDE PROFESSIONAL SERVICES IRON MOUNTAIN MFE //0 //0 Check //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO //0 //0 Check //0 //0 /0/ CONTRACTORS-OUTSIDE CONTRACTORS TRINITY ELECTRIC INC 0 //0 //0 ACH/Wire //0 /0/0 //0. -.,0 0 GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO //0 //0 Check //0 /0/0 // GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO //0 //0 Check //0 /0/0 // GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO //0 //0 Check //0 /0/0 // CONTRACTORS-FACILITY SERVICES ALL AMERICAN WASTE LLC 0 //0 //0 ACH/Wire //0 //0 //0 (.0) - (.0) CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA00 //0 //0 ACH/Wire //0 //0 // ,0

177 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (other O&M) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY OTHER O&M Line No. Account Description Vendor Invoice Number Invoice Date Payment Cleared Date Payment Type Service Period Begin Service Period End Service Period MidPoint Lead Days Check Float Total Lead Time Total Distribution (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA00 //0 //0 ACH/Wire //0 //0 // , CONTRACTORS-OUTSIDE PROFESSIONAL SERVICES PHOENIX ENVIRONMENTAL LAB INC //0 //0 ACH/Wire //0 //0 // GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY 0 //0 //0 ACH/Wire //0 //0 // GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY //0 //0 ACH/Wire //0 //0 // , MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC //0 //0 Check //0 //0 // MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 00 //0 //0 Check //0 //0 // GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY 0 /0/0 //0 ACH/Wire /0/0 /0/0 /0/ , GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY //0 //0 ACH/Wire //0 //0 // GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY //0 //0 ACH/Wire //0 //0 // , CONTRACTORS-OTHER THE GOODYEAR TIRE & RUBBER CO //0 //0 Check //0 //0 //0.0.., CONTRACTORS-OUTSIDE CONTRACTORS HUNTINGTON POWER EQUIPMENT //0 //0 ACH/Wire //0 //0 // GENERAL-LICENSES / PERMITS Jan R Slauson //0 //0 n/a //0 //0 // CONTRACTORS-OTHER NEW ENGLAND TRUCK SALES & SVS INC C000 /0/0 //0 ACH/Wire /0/0 /0/0 /0/ MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA00 //0 //0 ACH/Wire //0 //0 /0/0. -., MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 00 //0 //0 Check //0 //0 // MATERIALS EXPENSES - NON-STOCK THE GOODYEAR TIRE & RUBBER CO //0 //0 ACH/Wire //0 //0 // GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO 0 //0 //0 Check //0 //0 //0.0.. MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC //0 //0 Check //0 //0 //0.0.. CONTRACTORS-OTHER THE GOODYEAR TIRE & RUBBER CO 00 //0 /0/0 ACH/Wire //0 //0 // GENERAL - OTHER EXPENSES KUBRA DATA TRANSFER LTD 0 //0 //0 ACH/Wire //0 //0 // , MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 00 //0 //0 Check //0 //0 //0.0.. MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 00 //0 //0 Check //0 //0 //0.0.. MATERIALS EXPENSES - NON-STOCK UPSCO INC IN //0 //0 ACH/Wire //0 //0 // , 0 MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK C F CONNOLLY DISTRIBUTING CO 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-FACILITY SERVICES ALL AMERICAN WASTE LLC 0 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 0 //0 //0 Check //0 //0 //0.0.. MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 0 //0 //0 Check //0 //0 //0.0.. MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 0 /0/0 //0 Check /0/0 /0/0 /0/ CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA00 //0 //0 ACH/Wire //0 //0 //0. -.,00 CONTRACTORS-OUTSIDE CONTRACTORS RED THREAD SPACES LLC 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 0 //0 //0 ACH/Wire //0 //0 // , CONTRACTORS-OUTSIDE CONTRACTORS ENVIRONMENTAL ENGINEERING INC 0//0 //0 Check 0//0 0//0 //0 (.0).., 0 CONTRACTORS-OTHER WILLIAM LAYDON CONSTRUCTION 0 //0 //0 ACH/Wire //0 //0 // ,00 CONTRACTORS-FACILITY SERVICES SERVICE MANAGEMENT GROUP LLC 00 //0 //0 ACH/Wire //0 /0/0 //0 (.) - (.),0 CONTRACTORS-OUTSIDE CONTRACTORS WALSH FENCE LLC //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OUTSIDE PROFESSIONAL SERVICES GHD SERVICES INC 0 //0 //0 ACH/Wire //0 //0 // , CONTRACTORS-FACILITY SERVICES AIRGAS USA LLC //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 00 //0 //0 Check //0 //0 //0.0.. GENERAL - BANK SERVICE FEES SOFTGATE SYSTEMS INC M00 //0 //0 Check //0 //0 //0.0.., CONTRACTORS-FLAGGING TOWN OF FAIRFIELD //0 //0 Check //0 //0 //0.0.., GENERAL - OTHER EXPENSES ROBIN HOOD CLEANERS 0 //0 //0 Check //0 //0 // CONTRACTORS-OTHER ROBERTS SERVICE CENTER INC //0 //0 Check //0 //0 // GENERAL - UTILITIES (WATER, GAS, ELEC) EVERSOURCE //0 //0 Check //0 //0 // GENERAL-LICENSES / PERMITS CITY OF WEST HAVEN EMERGGASLK //0 //0 Check //0 //0 // CONTRACTORS-OUTSIDE CONTRACTORS CONNECTICUT TANK REMOVAL INC //0 //0 ACH/Wire //0 //0 //0. -., 0 CONTRACTORS-OTHER ROBERTS SERVICE CENTER INC //0 //0 Check //0 //0 // CONTRACTORS-OTHER LF POWERS CO INC IN //0 //0 ACH/Wire //0 //0 // CONTRACTORS-FLAGGING NEW ENGLAND FLAGGER SERVICES /0/0 //0 ACH/Wire //0 //0 // GENERAL-LICENSES / PERMITS CITY OF MILFORD //0 //0 Check //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA00 //0 //0 ACH/Wire //0 //0 // , 0 MATERIALS EXPENSES - NON-STOCK INNER-TITE CORP //0 //0 ACH/Wire /0/0 /0/0 /0/ ,00

178 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (other O&M) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY OTHER O&M Line No. Account Description Vendor Invoice Number Invoice Date Payment Cleared Date Payment Type Service Period Begin Service Period End Service Period MidPoint Lead Days Check Float Total Lead Time Total Distribution (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) 0 GENERAL-LICENSES / PERMITS Alan K Comer //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OUTSIDE CONTRACTORS ADVANCE SECURITY INTEGRATION LLC S //0 //0 ACH/Wire //0 //0 //0 (.) - (.) CONTRACTORS-OUTSIDE CONTRACTORS TRINITY ELECTRIC INC 0 //0 //0 ACH/Wire //0 //0 // GENERAL - OTHER EXPENSES ROBIN HOOD CLEANERS //0 //0 Check //0 //0 //0... CONTRACTORS-OUTSIDE CONTRACTORS TRUE BLUE ENVIRONMENTAL SVCS INC 000 //0 //0 ACH/Wire //0 //0 // ,0 GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO 000 //0 //0 Check //0 //0 //0... CONTRACTORS-OUTSIDE CONTRACTORS CINTAS CORP 0 //0 //0 Check //0 //0 //0... CONTRACTORS-OUTSIDE CONTRACTORS EXECUTIVE LANDSCAPING INC 0 //0 //0 ACH/Wire //0 //0 // LEASES/RENTAL - OTHER BASCOM-TURNER INSTRUMENTS INC //0 //0 ACH/Wire //0 //0 // , GENERAL - TELEPHONE Robert J Lazarski //0 //0 ACH/Wire //0 //0 /0/0. -. GENERAL - OTHER EXPENSES EVERSOURCE //0 //0 Check //0 //0 // GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY //0 //0 ACH/Wire //0 //0 // , GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY 00 //0 //0 ACH/Wire //0 //0 // ,0 MATERIALS EXPENSES - NON-STOCK S DEVELOPMENT CORP //0 //0 ACH/Wire //0 //0 // , MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 /0/0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 /0/0 ACH/Wire //0 //0 // , MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 /0/0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 /0/0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OTHER CERTIFIED LANGUAGES INTERNATIONAL UILSCG00 /0/0 //0 ACH/Wire /0/0 /0/0 /0/ , MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S //0 //0 ACH/Wire //0 //0 // GENERAL - OTHER EXPENSES ROBIN HOOD CLEANERS //0 //0 Check //0 //0 //0... MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 0 //0 //0 Check //0 //0 // MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 0 //0 //0 Check //0 //0 //0.0.. CONTRACTORS-OUTSIDE CONTRACTORS ENVIRONMENTAL ENGINEERING INC 0 //0 /0/0 ACH/Wire //0 /0/0 // CONTRACTORS-OUTSIDE CONTRACTORS ENVIRONMENTAL ENGINEERING INC //0 /0/0 ACH/Wire //0 /0/0 //0. -., CONTRACTORS-OUTSIDE CONTRACTORS SHRED-IT USA LLC 0 /0/0 //0 ACH/Wire //0 //0 // , GENERAL - OTHER EXPENSES KUBRA DATA TRANSFER LTD /0/0 //0 ACH/Wire /0/0 /0/0 /0/ MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // GENERAL - SAFETY APPAREL SAF-GARD SAFETY SHOE 0 //0 //0 ACH/Wire //0 //0 // TRAINING - JOB SPECIFIC EMGC TRAINING INC 0 //0 //0 Check //0 //0 //0 0...,0 CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 000 //0 //0 Check //0 //0 // GENERAL - OTHER CONS AND/OR LOAD MGT EASTERN CONNECTICUT STATE 0QSCG //0 //0 Check //0 /0/0 // , GENERAL-LICENSES / PERMITS TOWN OF BRANFORD //0 /0/0 Check //0 //0 /0/ MATERIALS EXPENSES - NON-STOCK C F CONNOLLY DISTRIBUTING CO 0 //0 //0 ACH/Wire //0 //0 // GENERAL - SAFETY APPAREL AUSTIN PHILLIPS SHOE CO INC 0 //0 //0 ACH/Wire //0 //0 // GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO //0 /0/0 Check //0 //0 //0... CONTRACTORS-OTHER THE GOODYEAR TIRE & RUBBER CO 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OUTSIDE CONTRACTORS THUNDERBIRD ENVIRONMENTAL LLC 00 //0 //0 ACH/Wire //0 //0 // , CONTRACTORS-OUTSIDE CONTRACTORS SERVICE MANAGEMENT GROUP LLC 00 //0 //0 ACH/Wire //0 /0/0 //0. -., CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 00 //0 //0 ACH/Wire /0/0 /0/0 /0/ , MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO 000 //0 //0 Check /0/0 //0 // MATERIALS EXPENSES - NON-STOCK MCDERMOTT CHEVROLET 0C //0 //0 Check //0 //0 //0.0.. MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OUTSIDE PROFESSIONAL SERVICES CLEAN HARBORS INC 00 //0 //0 Check /0/0 /0/0 /0/0.0.., MATERIALS EXPENSES - REG/METER STOCK DRESSER INC 0A //0 /0/0 ACH/Wire //0 //0 // ,0 MATERIALS EXPENSES - NON-STOCK C F CONNOLLY DISTRIBUTING CO 0 //0 //0 ACH/Wire //0 //0 //

179 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (other O&M) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY OTHER O&M Line No. Account Description Vendor Invoice Number Invoice Date Payment Cleared Date Payment Type Service Period Begin Service Period End Service Period MidPoint Lead Days Check Float Total Lead Time Total Distribution (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) CONTRACTORS-OUTSIDE CONTRACTORS ATRIA INC 0R //0 //0 ACH/Wire //0 //0 //0. -. CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA00 //0 //0 ACH/Wire //0 /0/0 // ,0 GENERAL - EQUIPMENT MAINTENANCE SARGIS ASSOCIATES INC SA00 //0 //0 ACH/Wire //0 //0 // ,0 MATERIALS EXPENSES - NON-STOCK NORTHLAND INDUSTRIAL TRUCK CO INC H /0/0 //0 Check /0/0 /0/0 /0/ CONTRACTORS-FACILITY SERVICES EXECUTIVE LANDSCAPING INC 0 //0 //0 ACH/Wire //0 /0/0 //0. -. CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES UIL ONE TIME 0 //0 //0 Check //0 //0 // ,00 MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC //0 //0 Check //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 0 //0 //0 Check //0 //0 //0.0.. GENERAL - UTILITIES (WATER, GAS, ELEC) EVERSOURCE //0 //0 Check //0 /0/0 //0... GENERAL-COMMUNICATION EXPENSES UTILITY COMMUNICATIONS INC 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 00 //0 //0 ACH/Wire //0 //0 // GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO //0 //0 Check //0 //0 /0/ GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO //0 //0 Check //0 //0 /0/ GENERAL - UTILITIES (WATER, GAS, ELEC) REGIONAL WATER AUTHORITY //0 //0 Check //0 //0 /0/0 (.). (.) 0 CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES BC SAND & GRAVEL INC //0 //0 ACH/Wire //0 //0 // GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO 000 //0 //0 Check //0 //0 //0.0.., GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO 00 //0 //0 Check //0 //0 /0/ GENERAL-LICENSES / PERMITS TOWN OF STRATFORD CT 0 //0 /0/0 Check //0 //0 //0.0.. GENERAL-LICENSES / PERMITS TOWN OF FAIRFIELD 0 //0 /0/0 Check //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 /0/0 ACH/Wire /0/0 //0 // , CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 /0/0 ACH/Wire //0 //0 // , CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 /0/0 ACH/Wire //0 //0 //0. -., CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 00 //0 //0 ACH/Wire //0 //0 // GENERAL - SAFETY APPAREL SAF-GARD SAFETY SHOE 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OUTSIDE CONTRACTORS ENVIRONMENTAL ENGINEERING INC /0/0 //0 ACH/Wire /0/0 /0/0 /0/ , GENERAL - CORPORATE DUES NORTHEAST GAS ASSOCIATION 0 //0 //0 Check //0 //0 //0..., MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 /0/0 //0 ACH/Wire /0/0 /0/0 /0/ GENERAL - SAFETY APPAREL AUSTIN PHILLIPS SHOE CO INC 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-FACILITY SERVICES EXECUTIVE LANDSCAPING INC 0 //0 //0 ACH/Wire //0 //0 // MATERIALS - FREIGHT CHARGES INNER-TITE CORP //0 //0 ACH/Wire //0 //0 // CONTRACTORS-FACILITY SERVICES AIRGAS USA LLC /0/0 //0 ACH/Wire //0 /0/0 //0. -. CONTRACTORS-FACILITY SERVICES ALL AMERICAN WASTE LLC 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 0 //0 //0 ACH/Wire //0 //0 // , CONTRACTORS-FLAGGING TOWN OF HAMDEN //0 //0 Check /0/0 //0 //0.0.., CONTRACTORS-OUTSIDE CONTRACTORS SERVICE MANAGEMENT GROUP LLC 000 /0/0 //0 ACH/Wire /0/0 /0/0 /0/ CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 000 //0 //0 ACH/Wire /0/0 /0/0 /0/ GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO 000 //0 //0 Check //0 //0 // GENERAL - UTILITIES (WATER, GAS, ELEC) EVERSOURCE //0 //0 Check //0 //0 // CONTRACTORS-OUTSIDE CONTRACTORS SERVICE MANAGEMENT GROUP LLC 000 //0 //0 ACH/Wire //0 //0 // , 0 CONTRACTORS-LOCATING SERVICES CALL BEFORE YOU DIG INC 0 /0/0 //0 ACH/Wire //0 //0 //0 (.0) - (.0), 0 GENERAL - OTHER EXPENSES KUBRA DATA TRANSFER LTD 00 //0 //0 ACH/Wire //0 //0 // , 0 MATERIALS EXPENSES - NON-STOCK NEW ENGLAND TRUCK SALES & SVS INC C000 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OTHER TORELLO TIRE CO //0 //0 Check //0 //0 // MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 0 //0 //0 Check //0 //0 // GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO 0 //0 //0 Check //0 //0 // GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY //0 //0 ACH/Wire //0 //0 // , 0 GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY 0 //0 //0 ACH/Wire //0 //0 // GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY 0 //0 //0 ACH/Wire //0 //0 // , GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY //0 //0 ACH/Wire //0 //0 // ,0 GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY //0 //0 ACH/Wire //0 //0 // ,0 MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 00 //0 //0 Check //0 //0 // MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC //0 //0 Check //0 //0 //0.0.. GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY //0 //0 ACH/Wire //0 //0 //

180 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (other O&M) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY OTHER O&M Line No. Account Description Vendor Invoice Number Invoice Date Payment Cleared Date Payment Type Service Period Begin Service Period End Service Period MidPoint Lead Days Check Float Total Lead Time Total Distribution (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) GENERAL - UTILITIES (WATER, GAS, ELEC) EVERSOURCE 0SCA //0 //0 Check //0 //0 //0.0.. LEASES/RENTAL - OTHER METRO-NORTH COMMUTER RAILROAD T0000 //0 //0 Check //0 //0 /0/0 (.0). (.) 0 GENERAL - SAFETY APPAREL SAF-GARD SAFETY SHOE 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 00 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES VALLEY SAND & GRAVEL CORP 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OUTSIDE PROFESSIONAL SERVICES PHOENIX ENVIRONMENTAL LAB INC 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES BC SAND & GRAVEL INC //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NEW ENGLAND CP INC 0 //0 //0 ACH/Wire //0 //0 // , CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 00 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OUTSIDE PROFESSIONAL SERVICES HALEY & ALDRICH INC IN0000 //0 //0 Check //0 //0 /0/ , CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-OUTSIDE PROFESSIONAL SERVICES HALEY & ALDRICH INC IN0000 //0 //0 Check //0 //0 /0/ ,0 GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY //0 //0 ACH/Wire //0 //0 // CONTRACTORS-FLAGGING TOWN OF NORTH BRANFORD PVU //0 //0 Check /0/0 /0/0 /0/0.0.. MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 //0 ACH/Wire //0 //0 // GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO //0 //0 Check //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 /0/0 ACH/Wire //0 //0 // CONTRACTORS-OTHER CERTIFIED LANGUAGES INTERNATIONAL UILSCG0 //0 /0/0 ACH/Wire //0 //0 // , CONTRACTORS-LOCATING SERVICES CALL BEFORE YOU DIG INC 00 /0/0 //0 ACH/Wire //0 /0/0 //0. -., MATERIALS EXPENSES - NON-STOCK C F CONNOLLY DISTRIBUTING CO 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 //0 ACH/Wire //0 //0 // , CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 //0 ACH/Wire //0 //0 /0/0. -.,0 0 CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 //0 ACH/Wire //0 //0 //0. -., CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 //0 ACH/Wire //0 //0 //0. -., CONTRACTORS-OTHER ROBIN HOOD CLEANERS //0 //0 Check //0 //0 //0... GENERAL - UTILITIES (WATER, GAS, ELEC) THE UNITED ILLUMINATING CO 0 //0 //0 Check //0 //0 //0... MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 //0 ACH/Wire //0 //0 /0/ , CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES BC SAND & GRAVEL INC //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC //0 //0 Check //0 //0 //0.0.. MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC //0 //0 Check //0 //0 //0.0.. 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181 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (other O&M) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY OTHER O&M Line No. Account Description Vendor Invoice Number Invoice Date Payment Cleared Date Payment Type Service Period Begin Service Period End Service Period MidPoint Lead Days Check Float Total Lead Time Total Distribution (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) MATERIALS EXPENSES - NON-STOCK BASCOM-TURNER INSTRUMENTS INC //0 0//0 ACH/Wire //0 //0 // ,0 MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC //0 0//0 Check //0 //0 //0.0.. MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 0//0 ACH/Wire //0 //0 // GENERAL - FUEL - DIESEL FOR VEHICLES EAST RIVER ENERGY 0 //0 0//0 ACH/Wire //0 //0 // CONTRACTORS-FACILITY SERVICES AIRGAS USA LLC 0 /0/0 0//0 ACH/Wire //0 /0/0 //0. -. 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182 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (other O&M) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY OTHER O&M Line No. Account Description Vendor Invoice Number Invoice Date Payment Cleared Date Payment Type Service Period Begin Service Period End Service Period MidPoint Lead Days Check Float Total Lead Time Total Distribution (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 00 //0 /0/0 ACH/Wire //0 //0 // , MATERIALS EXPENSES - NON-STOCK C F CONNOLLY DISTRIBUTING CO 0//0 //0 ACH/Wire 0//0 0//0 0// MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 0//0 //0 ACH/Wire 0//0 0//0 0// CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES ELM CITY MATERIALS INC //0 //0 ACH/Wire //0 //0 // , CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES BC SAND & GRAVEL INC 0 //0 //0 ACH/Wire 0//0 /0/0 0/0/ MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S //0 //0 ACH/Wire 0//0 0//0 0// MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S00000 //0 //0 ACH/Wire //0 //0 // GENERAL-LICENSES / PERMITS CITY OF MILFORD //0 //0 Check //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 0 //0 //0 Check //0 //0 //0.0.. CONTRACTORS-FLAGGING TOWN OF HAMDEN /0/0 //0 Check //0 //0 //0 0..., MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 0//0 //0 Check 0//0 0//0 0//0.0.. MATERIALS EXPENSES - NON-STOCK NORTHLAND INDUSTRIAL TRUCK CO INC 00 //0 //0 Check //0 //0 // MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC 0 //0 //0 Check //0 //0 //0.0.. MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S //0 //0 ACH/Wire 0//0 0//0 0// MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC //0 //0 Check //0 //0 // MATERIALS EXPENSES - NON-STOCK NORTHLAND INDUSTRIAL TRUCK CO INC //0 //0 Check //0 //0 //0.0.. GENERAL - COLLECTIONS -GAS DEBTNEXT SOLUTION LLC S //0 //0 Check 0//0 0//0 0//0.0.., MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 //0 ACH/Wire 0//0 0//0 0// CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 //0 ACH/Wire //0 //0 // ,0 MATERIALS EXPENSES - NON-STOCK PARTS PLACE INC //0 //0 Check //0 //0 //0.0.. CONTRACTORS-FACILITY SERVICES AIRGAS USA LLC 0 /0/0 //0 ACH/Wire //0 /0/0 // MATERIALS EXPENSES - NON-STOCK C F CONNOLLY DISTRIBUTING CO 0 //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NPL CONSTRUCTION CO 0 //0 //0 ACH/Wire //0 //0 // GENERAL -OFFICE SUPPLIES & EXPENSES CINTAS CORP 0000 //0 //0 Check //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 //0 ACH/Wire //0 //0 // , CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES NEW ENGLAND CP INC 0 //0 //0 ACH/Wire //0 //0 0// , EMPLOYEE - MILEAGE Sandy J Cabezas //0 //0 ACH/Wire //0 //0 // GENERAL-RECOVERABLE CUSTOMER INCENTIVES REBATES 0PJWJ //0 //0 Check //0 //0 //0... CONTRACTORS-FACILITY SERVICES COLONESE CONSTRUCTION CO //0 //0 Check //0 //0 //0.0.., CONTRACTORS-OUTSIDE CONTRACTORS ENVIRONMENTAL ENGINEERING INC //0 //0 ACH/Wire //0 //0 // , MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S0000 //0 //0 ACH/Wire //0 //0 // MATERIALS EXPENSES - NON-STOCK JOHNSTONE SUPPLY S //0 //0 ACH/Wire //0 //0 // CONTRACTORS-GAS CONSTRUCTION AND MAINT SERVICES SARGIS ASSOCIATES INC SA0 //0 //0 ACH/Wire //0 //0 // ,. $,

183 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (fuel) Page of 0 EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY FUEL Summary Expense Lead Amount Weighting Factor Weighted Lag Time Natural Gas. $,, %. Line No. Vendor Number Vendor Name Beginning of Delivery Period End of Delivery Period Mid-Point of Service Days Payment Date (Lead)/Lag Amount Weighting Factor Weighted Days (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) 0000 TransContinental //0 //0 //0 //0.00, 0.0% Dominion Transmission //0 //0 //0 //0.00, 0.% Vector Pipeline CAD //0 //0 //0 //0 0.00, 0.0% Vector Pipeline L.P. US //0 //0 //0 //0 0.00, 0.0% Algonquin Gas Trans. //0 //0 //0 //0.00, 0.% 0. 0 Dominion Transmission //0 //0 //0 //0.00,0 0.0% Iroquois //0 //0 //0 /0/0.00 0, 0.% BP Canada Energy Company //0 //0 //0 //0 0.00, 0.% BP Canada Energy Marketing //0 //0 //0 //0 0.00,0,0 0.% Cabot Oil & Gas //0 //0 //0 //0 0.00, 0.% Cargill Limited (Canadian) //0 //0 //0 //0 0.00, 0.% Chesapeake Energy Marketing //0 //0 //0 //0 0.00, 0.% Chevron Texaco //0 //0 //0 //0 0.00,0,.% CNE Peaking //0 //0 //0 //0 0.00,0 0.% Distrigas of Mass /SUEZ //0 //0 //0 //0 0.00, 0.% Range Resources //0 //0 //0 //0 0.00, 0.% 0. 0 Repsol Energy //0 //0 //0 // ,0 0.% Shell Energy NA (CAN)(physical) //0 //0 //0 //0.00,0 0.% TransContinental //0 //0 //0 /0/0.00, 0.0% Dominion Transmission //0 //0 //0 //0.00, 0.% Vector Pipeline CAD //0 //0 //0 //0 0.00, 0.0% Vector Pipeline L.P. US //0 //0 //0 //0 0.00,0 0.0% Alberta Northeast 0th //0 //0 //0 //0.00, 0.% Algonquin Gas Trans. //0 //0 //0 //0.00,0 0.% Washington 0 Storage //0 //0 //0 //0.00, 0.% Tennessee //0 //0 //0 //0.00,,0.0% Texas Eastern //0 //0 //0 //0.00, 0.% TransContinental //0 //0 //0 // % ANR Pipeline Company //0 //0 //0 //0 0.00, 0.0% 0.0

184 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (fuel) Page of 0 EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY FUEL Summary Expense Lead Amount Weighting Factor Weighted Lag Time Natural Gas. $,, %. Line No. Vendor Number Vendor Name Beginning of Delivery Period End of Delivery Period Mid-Point of Service Days Payment Date (Lead)/Lag Amount Weighting Factor Weighted Days (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) BP Canada Energy Company //0 //0 //0 //0 0.00,0 0.% BP Canada Energy Marketing //0 //0 //0 //0 0.00,,0 0.% Cabot Oil & Gas //0 //0 //0 //0 0.00, 0.% Cargill Limited (Canadian) //0 //0 //0 //0 0.00,0 0.% Chesapeake Energy Marketing //0 //0 //0 //0 0.00, 0.% Chevron Texaco //0 //0 //0 //0 0.00,,.% CNE Peaking //0 //0 //0 //0 0.00, 0.% Distrigas of Mass /SUEZ //0 //0 //0 // ,00 0.% EQT //0 //0 //0 //0 0.00,0 0.% Freepoint //0 //0 //0 //0 0.00,0, 0.% Range Resources //0 //0 //0 // ,0 0.% 0. 0 Repsol Energy //0 //0 //0 // ,0 0.% Shell Energy NA (CAN)(physical) //0 //0 //0 //0 0.00, 0.% TransContinental //0 //0 //0 /0/0.00, 0.0% Dominion Transmission //0 //0 //0 //0.00, 0.% Dominion Transmission //0 //0 //0 //0.00, 0.0% Vector Pipeline CAD //0 //0 //0 //0.00,0 0.0% Vector Pipeline L.P. US //0 //0 //0 //0.00,0 0.0% Alberta Northeast 0th //0 //0 //0 //0.00, 0.% Washington 0 Storage //0 //0 //0 //0.00, 0.% Algonquin Gas Trans. //0 //0 //0 //0.00,0 0.% Iroquois //0 //0 //0 //0.00, 0.% Tennessee //0 //0 //0 //0.00,,00.0% Texas Eastern //0 //0 //0 //0.00, 0.% TransContinental //0 //0 //0 // % BP Canada Energy Company //0 //0 //0 //0.00, 0.% BP Canada Energy Marketing //0 //0 //0 //0.00,00, 0.% Cabot Oil & Gas //0 //0 //0 //0.00,0 0.% Cargill Limited (Canadian) //0 //0 //0 //0.00, 0.% 0.

185 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (fuel) Page of 0 EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY FUEL Summary Expense Lead Amount Weighting Factor Weighted Lag Time Natural Gas. $,, %. Line No. Vendor Number Vendor Name Beginning of Delivery Period End of Delivery Period Mid-Point of Service Days Payment Date (Lead)/Lag Amount Weighting Factor Weighted Days (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) 000 Chesapeake Energy Marketing //0 //0 //0 //0.00, 0.% Chevron Texaco //0 //0 //0 //0.00,,.% CNE Peaking //0 //0 //0 //0.00,,0.% Conoco Phillips Company //0 //0 //0 //0.00, 0.0% Distrigas of Mass /SUEZ //0 //0 //0 //0.00, 0.% EQT //0 //0 //0 //0.00,00 0.% Freepoint //0 //0 //0 //0.00,,0 0.% OEMI //0 //0 //0 //0.00, 0.% Range Resources //0 //0 //0 //0.00 0, 0.% 0. 0 Repsol Energy //0 //0 //0 //0.00, 0.% Shell Energy NA (CAN)(physical) //0 //0 //0 //0.00 0, 0.% Dominion Transmission //0 //0 //0 //0.00, 0.% TransContinental //0 //0 //0 //0.00, 0.0% Dominion Transmission //0 //0 //0 //0 0.00, 0.0% Vector Pipeline CAD //0 //0 //0 //0.00, 0.0% Vector Pipeline L.P. US //0 //0 //0 //0.00, 0.0% Alberta Northeast 0th //0 //0 //0 //0.00, 0.% Algonquin Gas Trans. //0 //0 //0 //0.00 0,0 0.% Iroquois //0 //0 //0 /0/0.00, 0.% Texas Eastern //0 //0 //0 /0/0.00,0 0.% TransContinental //0 //0 //0 /0/ % Washington 0 Storage //0 //0 //0 /0/0.00, 0.% Tennessee //0 //0 //0 //0.00,,0.0% Anadarko //0 //0 //0 // , 0.0% BP Canada Energy Company //0 //0 //0 //0 0.00, 0.% Cabot Oil & Gas //0 //0 //0 //0 0.00,0 0.% Chesapeake Energy Marketing //0 //0 //0 // , 0.% Chevron Texaco //0 //0 //0 //0 0.00,0,.% CNE Peaking //0 //0 //0 //0 0.00, 0.% 0.

186 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (fuel) Page of 0 EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY FUEL Summary Expense Lead Amount Weighting Factor Weighted Lag Time Natural Gas. $,, %. Line No. Vendor Number Vendor Name Beginning of Delivery Period End of Delivery Period Mid-Point of Service Days Payment Date (Lead)/Lag Amount Weighting Factor Weighted Days (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) 00 Distrigas of Mass /SUEZ //0 //0 //0 //0 0.00,0 0.% EQT //0 //0 //0 //0 0.00, 0.% Freepoint //0 //0 //0 //0 0.00, 0.% Range Resources //0 //0 //0 //0 0.00, 0.% 0. 0 Repsol Energy //0 //0 //0 //0 0.00, 0.% Sequent //0 //0 //0 //0 0.00, 0.0% TransContinental //0 /0/0 //0 /0/0.0,0 0.0% Dominion Transmission //0 /0/0 //0 //0.0, 0.% Transgas //0 /0/0 //0 //0.0, 0.0% Dominion Transmission //0 /0/0 //0 //0 0.0, 0.0% Alberta Northeast 0th //0 /0/0 //0 //0.0,00, 0.% Algonquin Gas Trans. //0 /0/0 //0 //0.0,0 0.% Iroquois //0 /0/0 //0 /0/0.0, 0.% Texas Eastern //0 /0/0 //0 /0/0.0, 0.% TransContinental //0 /0/0 //0 /0/ % Washington 0 Storage //0 /0/0 //0 /0/0.0, 0.% Tennessee //0 /0/0 //0 //0.0,0,.0% Anadarko //0 /0/0 //0 //0.0 0, % BP Canada Energy Company //0 /0/0 //0 //0.0, 0.% Cabot Oil & Gas //0 /0/0 //0 //0.0 0, 0.% Chesapeake Energy Marketing //0 /0/0 //0 //0.0 0, 0.% Chevron Texaco //0 /0/0 //0 //0.0,,.% CNE Peaking //0 /0/0 //0 //0.0 0, 0.% Distrigas of Mass /SUEZ //0 /0/0 //0 //0.0 0, 0.% DTE Energy Trading //0 /0/0 //0 //0.0 0,00 0.% EQT //0 /0/0 //0 //0.0, 0.0% Freepoint //0 /0/0 //0 //0.0, 0.% SWN Energy Services Company, LLC //0 /0/0 //0 //0.0,0 0.% Emera Energy //0 /0/0 //0 //0 0.0,00 0.% 0.0

187 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (fuel) Page of 0 EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY FUEL Summary Expense Lead Amount Weighting Factor Weighted Lag Time Natural Gas. $,, %. Line No. Vendor Number Vendor Name Beginning of Delivery Period End of Delivery Period Mid-Point of Service Days Payment Date (Lead)/Lag Amount Weighting Factor Weighted Days (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) 00 Transgas //0 //0 //0 //0.00, 0.0% TransContinental //0 //0 //0 /0/0.00, 0.0% Dominion Transmission //0 //0 //0 //0.00, 0.% Dominion Transmission //0 //0 //0 //0.00, 0.0% Alberta Northeast 0th //0 //0 //0 //0.00, 0.% Algonquin Gas Trans. //0 //0 //0 /0/0.00,0 0.% Iroquois //0 //0 //0 /0/0.00 0,0 0.% Tennessee //0 //0 //0 /0/0.00,0, 0.% Texas Eastern //0 //0 //0 /0/0.00,0 0.% TransContinental //0 //0 //0 /0/ % Transgas //0 //0 //0 /0/0.00, 0.0% Washington 0 Storage //0 //0 //0 /0/0.00, 0.% BP Canada Energy Company //0 //0 //0 //0.00, 0.% Chesapeake Energy Marketing //0 //0 //0 //0.00,0 0.% Anadarko //0 //0 //0 //0.00, 0.0% BP Energy //0 //0 //0 //0.00, 0.% Cabot Oil & Gas //0 //0 //0 //0.00 0,0 0.% CNE Peaking //0 //0 //0 //0.00, 0.% Engie Gas & LNG/formely Distrigas //0 //0 //0 //0.00, 0.% DTE Energy Trading //0 //0 //0 //0.00, 0.% Freepoint //0 //0 //0 //0.00 0, 0.% Sequent //0 //0 //0 //0.00,0 0.% Shell Energy NA (CAN)(physical) //0 //0 //0 //0.00, 0.% Shell Energy NA (CAN)(physical) //0 //0 //0 //0.00, 0.0% SWN Energy Services Company, LLC //0 //0 //0 //0.00 0,00 0.% 0. 0 Dominion Transmission //0 /0/0 //0 //0.0 0, 0.% TransContinental //0 /0/0 //0 //0.0,0 0.0% Transgas //0 /0/0 //0 //0.0, 0.0% Transgas //0 /0/0 //0 //0.0, 0.0% 0.0

188 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (fuel) Page of 0 EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY FUEL Summary Expense Lead Amount Weighting Factor Weighted Lag Time Natural Gas. $,, %. Line No. Vendor Number Vendor Name Beginning of Delivery Period End of Delivery Period Mid-Point of Service Days Payment Date (Lead)/Lag Amount Weighting Factor Weighted Days (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) 00 Transgas //0 /0/0 //0 //0.0, 0.0% Transgas //0 /0/0 //0 //0.0, 0.0% Dominion Transmission //0 /0/0 //0 //0.0, 0.0% Alberta Northeast 0th //0 /0/0 //0 //0.0, 0.% Algonquin Gas Trans. //0 /0/0 //0 //0.0, 0.% Iroquois //0 /0/0 //0 /0/0.0 0, 0.% Texas Eastern //0 /0/0 //0 /0/0.0,0 0.% TransContinental //0 /0/0 //0 /0/ % Washington 0 Storage //0 /0/0 //0 /0/0.0, 0.% Anadarko //0 /0/0 //0 //0.0, 0.0% BP Canada Energy Company //0 /0/0 //0 //0.0, 0.% Cabot Oil & Gas //0 /0/0 //0 //0.0, 0.% Chesapeake Energy Marketing //0 /0/0 //0 //0.0,0 0.0% Chevron Texaco //0 /0/0 //0 //0.0, 0.% CNE Peaking //0 /0/0 //0 //0.0,0 0.% Engie Gas & LNG/formely Distrigas //0 /0/0 //0 //0.0,0 0.% DTE Energy Trading //0 /0/0 //0 //0.0,0 0.% Freepoint //0 /0/0 //0 //0.0, 0.% Sequent //0 /0/0 //0 //0.0, 0.% SWN Energy Services Company, LLC //0 /0/0 //0 //0.0,00 0.% Tennessee //0 /0/0 //0 //0.0,0,0 0.% Transgas //0 /0/0 //0 //0.0,0 0.0% TransContinental //0 //0 //0 /0/0.00, 0.0% Dominion Transmission //0 //0 //0 //0.00, 0.% Transgas //0 //0 //0 //0.00, 0.0% Transgas //0 //0 //0 //0.00 0,0 0.0% Transgas //0 //0 //0 //0.00, 0.0% Transgas //0 //0 //0 //0.00, 0.0% Transgas //0 //0 //0 //0 (.00), 0.0% (0.0)

189 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (fuel) Page of 0 EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY FUEL Summary Expense Lead Amount Weighting Factor Weighted Lag Time Natural Gas. $,, %. Line No. Vendor Number Vendor Name Beginning of Delivery Period End of Delivery Period Mid-Point of Service Days Payment Date (Lead)/Lag Amount Weighting Factor Weighted Days (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) 00 Transgas //0 //0 //0 //0 (.00),0 0.0% (0.0) 00 Transgas //0 //0 //0 //0 (.00), 0.0% (0.0) 0 Dominion Transmission //0 //0 //0 //0 0.00, 0.0% Alberta Northeast 0th //0 //0 //0 //0.00,0 0.% Algonquin Gas Trans. //0 //0 //0 //0.00, 0.% TransContinental //0 //0 //0 // % Washington 0 Storage //0 //0 //0 //0.00, 0.% Iroquois //0 //0 //0 //0.00, 0.% Tennessee //0 //0 //0 //0.00, 0.% Texas Eastern //0 //0 //0 //0.00, 0.% Anadarko //0 //0 //0 //0 0.00, 0.% BP Canada Energy Company //0 //0 //0 //0 0.00,,.% Cabot Oil & Gas //0 //0 //0 //0 0.00, 0.% Chevron Texaco //0 //0 //0 //0 0.00,0, 0.% CNE Peaking //0 //0 //0 // , 0.% Engie Gas & LNG/formely Distrigas //0 //0 //0 // , 0.% DTE Energy Trading //0 //0 //0 //0 0.00,,0.% Sequent //0 //0 //0 //0 0.00, 0.% Shell Energy NA (CAN)(physical) //0 //0 //0 //0 0.00,0 0.% SWN Energy Services Company, LLC //0 //0 //0 //0 0.00, 0.% Transgas //0 //0 //0 //0 0.00, 0.0% Dominion Transmission //0 //0 //0 //0.00, 0.% TransContinental //0 //0 //0 //0.00, 0.0% Dominion Transmission //0 //0 //0 //0.00,0 0.0% Alberta Northeast 0th //0 //0 //0 //0.00,0 0.% Algonquin Gas Trans. //0 //0 //0 //0.00, 0.% Transgas //0 //0 //0 //0.00, 0.0% Iroquois //0 //0 //0 /0/0.00 0, 0.% Texas Eastern //0 //0 //0 /0/0.00, 0.% 0.

190 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (fuel) Page of 0 EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY FUEL Summary Expense Lead Amount Weighting Factor Weighted Lag Time Natural Gas. $,, %. Line No. Vendor Number Vendor Name Beginning of Delivery Period End of Delivery Period Mid-Point of Service Days Payment Date (Lead)/Lag Amount Weighting Factor Weighted Days (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) TransContinental //0 //0 //0 /0/ % Washington 0 Storage //0 //0 //0 /0/0.00, 0.% Tennessee //0 //0 //0 //0.00, 0.% Anadarko //0 //0 //0 //0.00, 0.0% BP Canada Energy Company //0 //0 //0 //0.00,, 0.% BP Canada Energy Marketing //0 //0 //0 //0.00,0 0.% Cabot Oil & Gas //0 //0 //0 //0.00,0 0.% Chevron Texaco //0 //0 //0 //0.00,0,0 0.% CNE Peaking //0 //0 //0 //0.00 0,0 0.% Engie Gas & LNG/formely Distrigas //0 //0 //0 //0.00, 0.% DTE Energy Trading //0 //0 //0 //0.00, 0.% Sequent //0 //0 //0 //0.00 0, 0.% Shell Energy NA (CAN)(physical) //0 //0 //0 //0.00, 0.% SWN Energy Services Company, LLC //0 //0 //0 //0.00 0, 0.% TransContinental //0 /0/0 //0 0//0.0,0 0.0% Dominion Transmission //0 /0/0 //0 0//0.0, 0.% Dominion Transmission //0 /0/0 //0 0//0.0, 0.0% Alberta Northeast 0th //0 /0/0 //0 0//0.0, 0.% Algonquin Gas Trans. //0 /0/0 //0 0//0.0, 0.% Iroquois //0 /0/0 //0 0/0/0.0,0 0.% Texas Eastern //0 /0/0 //0 0/0/0.0,0 0.% TransContinental //0 /0/0 //0 0/0/ % Washington 0 Storage //0 /0/0 //0 0/0/0.0, 0.% Tennessee //0 /0/0 //0 0//0.0 0, 0.% Anadarko //0 /0/0 //0 0//0.0,0 0.0% BP Canada Energy Company //0 /0/0 //0 0//0.0,0,0 0.% Cabot Oil & Gas //0 /0/0 //0 0//0.0,0 0.% Chevron Texaco //0 /0/0 //0 0//0.0, 0.% CNE Peaking //0 /0/0 //0 0//0.0,0 0.% 0.

191 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (fuel) Page of 0 EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY FUEL Summary Expense Lead Amount Weighting Factor Weighted Lag Time Natural Gas. $,, %. Line No. Vendor Number Vendor Name Beginning of Delivery Period End of Delivery Period Mid-Point of Service Days Payment Date (Lead)/Lag Amount Weighting Factor Weighted Days (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) 00 Engie Gas & LNG/formely Distrigas //0 /0/0 //0 0//0.0 0, 0.% DTE Energy Trading //0 /0/0 //0 0//0.0, 0.% Sequent //0 /0/0 //0 0//0.0, 0.% SWN Energy Services Company, LLC //0 /0/0 //0 0//0.0, 0.% TransContinental 0//0 0//0 0//0 /0/0.00, 0.0% Transgas 0//0 0//0 0//0 /0/0.00,00 0.0% Transgas 0//0 0//0 0//0 /0/0.00, 0.0% Dominion Transmission 0//0 0//0 0//0 //0.00, 0.% Dominion Transmission 0//0 0//0 0//0 //0.00,0 0.0% Alberta Northeast 0th 0//0 0//0 0//0 //0.00, 0.% Washington 0 Storage 0//0 0//0 0//0 //0.00, 0.% Algonquin Gas Trans. 0//0 0//0 0//0 //0.00 0, 0.% Iroquois 0//0 0//0 0//0 //0.00, 0.% Tennessee 0//0 0//0 0//0 //0.00,, 0.% Texas Eastern 0//0 0//0 0//0 //0.00 0,0 0.% TransContinental 0//0 0//0 0//0 // % Anadarko 0//0 0//0 0//0 //0 0.00,0 0.0% BP Canada Energy Company 0//0 0//0 0//0 //0 0.00, 0.% Cabot Oil & Gas 0//0 0//0 0//0 //0 0.00,0 0.% Chesapeake Energy Marketing 0//0 0//0 0//0 //0 0.00,0 0.% Chevron Texaco 0//0 0//0 0//0 //0 0.00, 0.% CNE Peaking 0//0 0//0 0//0 //0 0.00,0 0.% Engie Gas & LNG/formely Distrigas 0//0 0//0 0//0 // ,0 0.% DTE Energy Trading 0//0 0//0 0//0 // , 0.% Mercuria Energy Gas Trading LLC 0//0 0//0 0//0 //0 0.00,0 0.0% Sequent 0//0 0//0 0//0 //0 0.00,0 0.% SWN Energy Services Company, LLC 0//0 0//0 0//0 //0 0.00,0 0.% Transgas 0//0 0//0 0//0 //0 0.00, 0.0% Transgas 0//0 0//0 0//0 //0 0.00, 0.0% 0.0

192 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (fuel) Page 0 of 0 EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY FUEL Summary Expense Lead Amount Weighting Factor Weighted Lag Time Natural Gas. $,, %. Line No. Vendor Number Vendor Name Beginning of Delivery Period End of Delivery Period Mid-Point of Service Days Payment Date (Lead)/Lag Amount Weighting Factor Weighted Days (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) 0 Dominion Transmission //0 /0/0 //0 //0.0, 0.% TransContinental //0 /0/0 //0 //0.0,0 0.0% Vector Pipeline CAD //0 /0/0 //0 //0 0.0, 0.0% Vector Pipeline L.P. US //0 /0/0 //0 //0 0.0, 0.0% Washington 0 Storage //0 /0/0 //0 //0 0.0, 0.% Alberta Northeast 0th //0 /0/0 //0 //0.0, 0.% Algonquin Gas Trans. //0 /0/0 //0 //0.0, 0.% Tennessee //0 /0/0 //0 //0.0,,.0% Iroquois //0 /0/0 //0 /0/0.0, 0.% Texas Eastern //0 /0/0 //0 /0/0.0,0 0.% TransContinental //0 /0/0 //0 /0/ % Anadarko //0 /0/0 //0 //0.0, 0.0% BP Canada Energy Company //0 /0/0 //0 //0.0 0, 0.% Cabot Oil & Gas //0 /0/0 //0 //0.0,,.0% Chevron Texaco //0 /0/0 //0 //0.0,00,.% CNE Peaking //0 /0/0 //0 //0.0,, 0.% Engie Gas & LNG/formely Distrigas //0 /0/0 //0 //0.0, 0.% DTE Energy Trading //0 /0/0 //0 //0.0,0 0.% EQT //0 /0/0 //0 //0.0,,.0% Freepoint //0 /0/0 //0 //0.0, 0.% Sequent //0 /0/0 //0 //0.0, 0.% Shell Energy NA (CAN)(physical) //0 /0/0 //0 //0.0, 0.0% 0.0 $,,00.

193 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (taxes) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY TAXES Weighted Lead Summary Time Federal Income Tax.0 CT Income Tax. CT Gross Earnings Tax. CT Sales & Use Tax. Property Tax (.0) Line No. (A) (B) (C) (D) (E) (F) (G) (H) (I) Federal Income Tax Description Period Beginning Period Ending Service Midpoint Date Paid Payment Lead Time Payment Amount (%) Weighting Factor Weighted Lead Income Tax //0 //0 //0 //0 (.).00%.00% (.) Income Tax //0 //0 //0 //0 (.).00%.00% (.) Income Tax //0 //0 //0 //0..00%.00%. Income Tax //0 //0 //0 //0..00%.00%. TOTAL 00.00% 00.00%.0 CT Income Tax Description Period Beginning Period Ending Service Midpoint Date Paid Payment Lead Time Payment Amount (%) Weighting Factor Weighted Lead 0 Income Tax //0 //0 //0 // % 0.00%. Income Tax //0 /0/0 //0 // % 0.00%.0 Income Tax //0 /0/0 //0 // % 0.00%. Income Tax 0//0 //0 //0 // % 0.00%. TOTAL 00.00% 00.00%. CT Gross Earnings Tax Description Period Beginning Period Ending Service Midpoint Date Paid Payment Lead Time Payment Amount Weighting Factor Weighted Lead Gross Earnings Tax //0 //0 //0 /0/0.0 $,0,.0%. Gross Earnings Tax //0 /0/0 //0 0//0.0 $,0,.0%. Gross Earnings Tax //0 /0/0 //0 0//0. $,0,.%. 0 Gross Earnings Tax 0//0 //0 //0 /0/0. $,,.0%. TOTAL $,, 00.00%.

194 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP (taxes) Page of EXHIBIT DSD-, WORK PAPER LEAD LAG STUDY TAXES Weighted Lead Summary Time Federal Income Tax.0 CT Income Tax. CT Gross Earnings Tax. CT Sales & Use Tax. Property Tax (.0) Line No. (A) (B) (C) (D) (E) (F) (G) (H) (I) CT Sales & Use Tax Service Payment Lead Payment Description Period Beginning Period Ending Midpoint Date Paid Time Amount Weighting Facto Weighted Lead Sales & Use Tax //0 //0 //0 //0.0 $,,.%. Sales & Use Tax //0 //0 //0 //0.0 $,0,.%. Sales & Use Tax //0 //0 //0 //0.0 $,0,.0%.0 Sales & Use Tax //0 /0/0 //0 //0. $,,.0%. Sales & Use Tax //0 //0 //0 //0.0 $,,.%. Sales & Use Tax //0 /0/0 //0 //0. $,0,.%. 0 Sales & Use Tax //0 //0 //0 /0/0.0 $,,.%. Sales & Use Tax //0 //0 //0 /0/0.0 $,0,.0%. Sales & Use Tax //0 /0/0 //0 0//0. $,,.%. Sales & Use Tax 0//0 0//0 0//0 /0/0.0 $,,.0%. Sales & Use Tax //0 /0/0 //0 /0/0. $,,0.0%. Sales & Use Tax //0 //0 //0 //0.0 $,,.%. TOTAL $,, 00.00%. Property Tax Description Period Beginning Period Ending Service Midpoint Date Paid Payment Lead Time Payment Amount Weighting Factor Weighted Lead Towns & Tax Districts - Payment //0 //0 //0 //0 (.) $,, 0.% (.) 0 Towns & Tax Districts - Payment //0 //0 //0 //0. $,,.%. Towns - Payment //0 //0 //0 //0 (.) $,.% (.) Towns - Payment //0 //0 //0 //0 (.) $, 0.% (0.) Towns - Payment //0 //0 //0 //0. $,.% 0. Towns - Payment //0 //0 //0 0//0 0. $0, 0.% 0. TOTAL $,0, 00.00% (.0)

195 The Southern Connecticut Gas Company Docket No. -0- Exhibit DSD-, WP 0 (interest) Page of EXHIBIT DSD-, WORK PAPER 0 LEAD LAG STUDY INTEREST EXPENSE Summary Lead Amount Weighting Factor Weighted Lead Time SCG Debt. $,, %. Line No. SCG - Notes Interest Payment Date Midpoint of Service Period Unweighted Lead Time Interest Payment Weighting Factor Weighted Lead Time (A) (B) (C) (D) (E) (F) (G) 0 - Mortgage Indenture //0 //0. $,,000.0%. 0 - Mortgage Indenture //0 //0.,,000.0%. 0 - Mortgage Indenture //0 /0/0.,0.0%. 0 - Mortgage Indenture //0 //0.,0.0%. 0 - Mortgage Indenture //0 //0.,0.%. 0 - Mortgage Indenture //0 //0.,0.%. 0 - Mortgage Indenture //0 //0.,00.0%. 0 - Mortgage Indenture //0 //0.,00.0%. 0 - Mortgage Indenture //0 //0.,00.% Mortgage Indenture //0 //0.,00.%. 0 - Mortgage Indenture //0 //0.,,000.%. 0 - Mortgage Indenture //0 //0.,,000.%. 0 - Mortgage Indenture //0 //0.,000.%. 0 - Mortgage Indenture //0 //0.,000.%. 0 - Mortgage Indenture //0 //0.,0.0%. 0 - Mortgage Indenture //0 //0.,0.0%. $,, %.

196 STATE OF CONNECTICUT PUBLIC UTILITIES REGULATORY AUTHORITY Docket No. -0- DIRECT TESTIMONY OF JAMES E. EARLEY Revenue Requirement Analysis and Accounting Issues ON BEHALF OF THE SOUTHERN CONNECTICUT GAS COMPANY JUNE 0, 0

197 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley TABLE OF CONTENTS I. Introduction... II. Overview of the Company s Three-Year Rate Request... III. Regulatory Assets and Liabilities... IV. Budgeting Process and Cost Allocation Methodology... V. Operations and Maintenance Expense Summary... A. Compensation... 0 B. Benefits.... Pension and OPEB.... Medical and Dental Coverage Expenses.... 0(k) Plan.... Incentive Compensation... C. Outside Services... D. Uncollectible Expense... E. Shared Services... F. Corporate Capital Charge... G. Service Revenues... 0 H. Conservation Expense... 0 I. Transportation Expense... 0 J. Bank Service Fees... K. Property Tax Expense... L. Income Tax Expense... VI. Depreciation... VII. Working Capital...

198 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley TESTIMONY OF JAMES E. EARLEY I. Introduction Q. Please state your full name and business address. A. My name is James E. Earley. My business address is 0 Marsh Hill Road, Orange, CT 0. Q. By whom are you employed and in what capacity? A. My title is Assistant Controller for UIL Holdings Corporation ( UIL ), which is the parent Company of The Southern Connecticut Gas Company ( SCG or the Company ). 0 Q. Please summarize your educational background and professional qualifications. A. I received a B.S. in Accounting from Quinnipiac University in and an MBA in Finance from the University of New Haven in. I became a Certified Management Accountant in. I was hired by SCG in as Assistant Controller. I was previously employed by Aquarion Water Company of Connecticut for years, having various responsibilities in accounting, planning and rates & regulatory affairs. 0 Q. What are your principal responsibilities in your current position? A. My areas of responsibility include accounting, planning and regulatory reporting functions at both SCG and Connecticut Natural Gas Corporation ( CNG ), its corporate affiliate.

199 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley Q. Have you previously testified before the Public Utilities Regulatory Authority or other regulatory agencies? A. Yes. I have testified in a number of proceedings before the Public Utilities Regulatory Authority ( PURA or the Authority ), including each of SCG s and CNG s rate cases since. I have also testified at PURA in numerous other dockets on behalf of SCG and CNG related to accounting and other financial matters. 0 Q. What is the purpose of your testimony? A. The purpose of my testimony is to present the Company s revenue requirement analysis and to calculate the revenue deficiency based on a test year ending December, 0, for the rate years 0, 0, and 00. My testimony will cover various accounting issues and processes that underlie the development of the Company s revenue requirements calculation including the principal adjustments to SCG s operations and maintenance ( O&M ) expenses and other costs of service. 0 Q. How is your testimony organized? A. Following this introductory section, Section II provides an overview of the Company s rate request. Section III discusses the Company s regulatory assets and liabilities. Section IV discusses SCG s budgeting process and cost allocation methodology. Section V provides a summary of the Company s major categories of O&M expenses, property taxes and income taxes. Section VI presents on overview of the results of the Company s depreciation study for purposes of the revenue requirement calculation. Section VII provides an overview of the results

200 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley of the working capital analysis for purposes of the revenue requirement calculation. Q. Please describe the exhibits you are sponsoring in this proceeding. A. I am sponsoring all Company standard filing requirement ( SFR ) schedules with the exception of the SFRs sponsored by Company witness Mr. Charles Goodwin as outlined in his testimony. II. Overview of the Company s Three-Year Rate Request 0 Q. Please provide an overview of SCG s rate request. A. SCG is proposing a three-year rate plan to establish rates for 0 ( RY ), 0 ( RY ), and 00 ( RY ), with each rate year corresponding to the calendar year. SCG s request is necessary to recover an increase in revenue requirements of $. million in 0, an incremental $. million in 0, and an incremental $.0 million in 00, compared to total revenues that would otherwise be recovered under current rate schedules. The Company s rate request incorporates the current sales forecast for its distribution rate component. A summary of the rate request is shown in Table below:

201 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley Q. What is the Company s return on equity and capital structure underlying its rate application? A. The SFRs reflect a. percent return on equity ( ROE ) for all three rate years, and a ratemaking capital structure of approximately percent equity and percent debt. The Company s proposed ROE and capital structure are supported by current market data and various analytic methods as provided in the testimony of Ms. Ann E. Bulkley of Concentric Energy Advisors, Inc., which is included with SCG s application Q. What are the basic elements of the Company s rate request? A. The basic elements of the rate request are as follows: Rates are established for each rate year separately, in accordance with the ratemaking principles of Connecticut General Statutes -e, based upon the costs, revenues and capital structure set forth in the SFRs for each rate year. Rates reflect the implementation of a decoupling mechanism, which operates to true up actual revenues (up or down) to approved revenues, thereby assuring that the revenue approved in the rate case will be the amount realized, no more and no less. Rates also reflect the implementation of a Distribution Integrity Management Program ( DIMP ) to enable the timely recovery of, among other things, an accelerated cast iron / bare steel replacement program. The DIMP program was proposed by CNG in its last rate case application and approved by the Authority in Docket No Rates also reflect an updated System Expansion Rate ( SER ) to recover increased capital spending from new business expansion associated with the Department of Energy and Environmental Protection s ( DEEP ) 0 Comprehensive Energy Strategy program. Q. Please describe the principal elements of the Company s revenue deficiency. A. The principal elements of the Company s revenue deficiency based on the test year ending December, 0 are shown in Table below:

202 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley 0 SCG has not filed for a rate increase for over eight years, since January 00 in Docket No As shown in the table above, the need for new rates in 0 is driven by () higher operating expense as explained in detail below; () a return on equity of. percent in the rate years compared to the Company s actual return on equity of.0 percent in the test year; and () increased rate base, depreciation expense and property taxes due to the Company s continued capital expenditures for distribution infrastructure and system reliability. The depreciation rates resulting from the current depreciation study are higher as compared to the rates currently allowed from the 00 rate case, and are also a primary driver of the higher depreciation expense in 0. These increases are partially offset by several items, including: () lower amortization expense as explained in detail below and () higher net operating margins from customer

203 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley growth and a warmer than normal test year. In addition, the incremental proposed rate increases (revenue requirement deficiency) shown above in 0 and 00 are primarily driven by higher rate base, depreciation expense and property taxes due to the Company s capital expenditures for distribution infrastructure and system reliability. A full discussion of the Company s capital investment plan is included in the joint testimony of Company witnesses Mr. Brian Hawley and Mr. Amos Barnes. 0 0 Q. Please describe the O&M expense elements of the Company s revenue deficiency. A. The Company s rate request is attributable in part to O&M expenses that are higher in 0 as compared to the 0 test year, primarily in the following areas: () Compensation and Employee Benefits costs associated with base pay and promotional increases, an increase in headcount, medical premium increases, and higher qualified pension plan expense; () Outside Services costs due to a Geographic Information System ( GIS ) data conversion project as discussed in more detail in the direct testimony of Mr. Hawley and Mr. Barnes; () Uncollectible expense resulting from a warmer than normal test year and higher operating revenues in the rate years; and () Shared Services costs primarily due to higher costs related to the corporate capital charge for shared capital assets and higher shared services employee compensation and benefits expense. The O&M increase in RY is due primarily to higher compensation, outside services and shared services costs. The decrease in RY is primarily due to lower anticipated

204 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley expenses for qualified pension expense and outside services related to GIS data conversion costs. The corporate capital charge is the result of the calculated revenue requirement of UIL capital expenditures, primarily UIL s IT software and hardware expenditures. The associated revenue requirement for the corporate capital charge, representing the return of and on the applicable rate base, is allocated to SCG as O&M per the Massachusetts Formula. The revenue requirement for the corporate capital 0 charge also includes depreciation expense, interest expense, property taxes and an equity return. The allocation to SCG per the Massachusetts Formula factor is based on SCG s portion of consolidated UIL net plant plus construction work in progress, payroll and revenues in the rate years. The remainder is allocated to CNG, The United Illuminating Company ( UI ), and Berkshire Gas Company ( BGC ). The Company s O&M expenses are discussed further in Section V, below. III. Regulatory Assets and Liabilities 0 Q. Please describe the amortization expense elements of the Company s revenue deficiency related to Regulatory Assets and Liabilities. A. As explained above, SCG has not filed a rate case since 00. The amortization expense levels that were approved in SCG s rate case Docket No have been in place since August 0 with the approval by PURA of the Settlement Agreement in Docket No. 0--0RE0. The current allowed annual amortization expense associated with The Massachusetts Formula approach uses three factors (revenues less the commodity, payroll, and net plant in service plus construction work in progress) to calculate the percentage of allocable costs to each of the UIL operating companies. The dollar amounts used in the calculation are based on the prior year and are updated if significant changes in business activity occur.

205 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley the hardship customer programs (accounts receivable write-offs and matching payment program) have been higher than the annual costs incurred for the programs, therefore resulting in the 00 pro forma regulatory asset of the matching payment program turning into the current regulatory liability position. The Company is proposing to return to customers the net regulatory liability position associated with the hardship programs over a year period, consistent with the length of time over which the amortization expense has been collected in current rates. A summary and complete details of the amortization expense proposed in this rate case application are provided in Schedule C-.. 0 Q. Is the Company seeking to continue deferral treatment of hardship customer costs in excess of the allowed annual costs? A. Yes. SCG seeks Authority approval for continued deferral and recovery in a subsequent rate case proceeding of any hardship net write-offs and Matching Payment Program expense in excess of the approved on-going annual expense in the rate years (specifically, approved ongoing expense shown on WPC-.0 A C page line $, and WPC-. A C page line $,). 0 Q. Does the Company s amortization expense also include environmental remediation expenditures? A. Yes, as shown on WPC-. A-C page. In September 0, the Company s former manufactured gas plant ( MGP ) property at Chapel Street in New Haven, CT was determined to be the source of coal tar contamination in the Mill River, which adjoins the Company s property. The Company determined that a failure of the underground storm water pipes allowed coal tar to enter the pipes, thus discharging this hazardous material through an outfall into the Mill River.

206 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley SCG contained further coal tar migration into the Mill River by plugging the underground lines. SCG also placed absorbent booms near the outfall to absorb and prevent the migration of oil. An environmental contractor currently maintains these booms at a cost of $,000 per year. 0 On October, 0, the Connecticut Department of Environmental Protection ( DEEP ) issued a draft Consent Order requiring characterization and remediation of the site. On March, 0, DEEP issued a revised draft requiring a more involved characterization of the river sediments. SCG submitted a revised approach to DEEP on June, 0 in order to finalize the Consent Order language. As of this date, a final Consent Order has not yet been issued by DEEP. Based on current data and the scope of the current Consent Order language, the cost of environmental remediation to clean-up this MGP site is estimated to be approximately $0 million over a ten year period. 0 Q. What ratemaking treatment is SCG proposing in this proceeding for prior period and future period deferred environmental remediation costs? A. The Company is proposing to amortize the prior and future period deferred costs over an amortization period of 0 years. Also, as allowed in the Company s last rate case, SCG is proposing to include the unamortized balance of these deferrals in its rate base calculation. Schedule WPC-. A C page provides the calculation of the proposed amortization expense for rate years Q. How has the Authority treated coal tar related remediation costs in the past? A. The Authority has consistently approved recovery of remediation costs related to coal tar contamination. On page in the decision from Docket No. -0-, Application of

207 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley 0 The Connecticut Light and Power Company for Approval of New and Amended Rate Schedules, the Authority allowed pro forma expenses for coal tar remediation and indicated that ratepayers would be responsible for the cost. On page in the decision from Docket No. -0-0, Application of Connecticut Natural Gas Corporation to Amend its Rate Schedules, the Authority allowed for the creation of a deferred regulatory asset for the remediation of coal tar costs. In Docket No. 0-0-PH0, Application of The Southern Connecticut Gas Company for a Rate Increase Revenue Requirements, the Authority allowed for the deferral and recovery of coal tar remediation costs related to the Company s former MGP facility in Bridgeport, CT. Also, the Authority allowed Yankee Gas Company to recover its coal tar remediation costs in rate case decisions from 00, 00, and 00. See Docket No. 0-0-PH0, Application of Yankee Gas Services Company for a Rate Increase, January 0, 00 Decision at ; Docket No , Application of Yankee Gas Services Company for a Rate Increase, December, 00 Decision at ; Docket No. 0--0PH0, Application of Yankee Gas Services Company for a Rate Increase Revenue Requirement, June, 00 Decision at. 0 Q. How is SCG proposing to recover its rate case costs? A. Rate case costs reflect incremental costs incurred to develop and support the Company s rate case application along with consultant costs incurred by the Office of Consumer Counsel and potentially the Authority and the Attorney General. The Company has projected $. million for these costs and is proposing to amortize them over the three year rate period as shown on WPC-. A-C page. 0

208 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley Q. Please provide a description of the Accumulated Deferred Income Tax ( ADIT ) regulatory liability shown on WPC-. A-C page that the Company is proposing to return to customers. A. The ADIT regulatory liability relates primarily to a tax deduction on certain accrued employee benefit costs that predates the 00 SCG rate case and was not included in customer rates. 0 Q. Why was the tax deduction not included in customer rates? A. Prior to the 00 SCG rate case, PURA authorized the Company to treat the underlying items as flow-through for tax purposes. Under flow-through tax treatment, tax benefits are recognized when funded (and cash realized). Because the underlying costs were being accrued, the tax benefit was not recognized at the time for accounting or ratemaking purposes under the flow-through tax treatment. 0 Q. How did the 00 rate case deal with this item? A. In the 00 rate case, for new and similar costs, SCG received approval to switch from flow-through tax treatment to normalization, therefore allowing the Company to include the related tax benefits immediately in rates (i.e., when the underlying costs were accrued). However, the 00 rate case did not address the tax treatment of the accumulated flow-through benefit accrued prior to the 00 rate case and not previously included in rates. For this reason, SCG now proposes to amortize this ADIT regulatory liability and return to customers over a period of ten years. Q. Why did the Company chose a ten year amortization period? A. The largest component of the ADIT regulatory liability is qualified pension plan related. The Company proposes amortizing the ADIT regulatory liability balance consistent with

209 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley the average remaining service life of SCG s qualified pension plan participants which is approximately ten years. 0 Q. Are the regulatory amortization periods proposed by SCG for the hardship deferral, ADIT regulatory liability and environmental remediation regulatory asset interrelated? A. Yes. As noted above, SCG is proposing a six year amortization period for the net hardship deferred regulatory liability and ten year amortization periods for the ADIT regulatory liability and environmental regulatory asset. However, the Chapel Street environmental remediation expenditures will actually result in a twenty year recovery period because the Company is proposing to amortize expected annual expenditures over a ten year period. Thus, environmental remediation expenditures in RY will be recovered over years 0. Expenditures in RY will be recovered over years and so on. SCG currently anticipates that the approximate $0 million cost to remediate the Chapel Street property will be incurred over a ten year period pending receipt of a final Consent Order. As a result, full recovery of the environmental remediation expenditures will take twenty years. 0 SCG has proposed these amortization periods in order to balance the interests of customers while recognizing the cash flow implications to the Company. However, if the Company receives a Consent Order which requires accelerated environmental remediation expenditures, then a shorter amortization period for the environmental deferral asset would be appropriate in order to avoid building up a large regulatory asset during the same time the Company is returning to customers the net hardship and ADIT regulatory liabilities.

210 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley Q. Please explain the amortization expense adjustment related to Schedule WPC-. A C page, tropical storm Sandy costs. A. The Company incurred incremental costs in its response to Tropical Storm Sandy in November 0. The Company petitioned and the Authority approved the establishment of a regulatory asset related to these costs. CNG incurred similar costs related to tropical storm Sandy for which it received full recovery from the Authority in its 0 rate case application. SCG proposes to amortize these deferred costs over a three year period. IV. Budgeting Process and Cost Allocation Methodology 0 Q. Please describe the SCG budgeting process underlying the preparation of the Company s rate request. A. SCG s annual budget process (also known as the Original Budget process) forms the basis for the development of data for the Company s rate filing. The process typically starts in the summer with the issuance of budget guidelines by the Business Performance & Analysis group. The guidelines include the budget due dates, monthly payroll calendar, guidelines on how to budget costs, and appendices with the account classifications. 0 The Original Budget process is iterative in nature. Managers first develop their budgets for the upcoming year based on current estimates, business knowledge of the type of work being performed and historical amounts for similar projects. The proposed budgets are then sent to the executive in charge of the business area and are reviewed for reasonableness and accuracy. These budgets form the basis of the executive budget for the business area. Questions that arise during this process are addressed within the business area. The executive budget is revised to reflect necessary updates and changes, and is then sent to senior management for

211 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley review. At the senior management level, the Company s overall capital and O&M expense budget is prepared and reviewed. Questions or issues that may arise at this stage are addressed and budgets are revised as appropriate. After the final executive approval, the overall capital and O&M expense budget is then presented to the Board of Directors for approval, usually at the December meeting. Once approved by the Board of Directors, the Original Budget is thereby established and remains in place for the year, and actual results are compared to Original Budget on a monthly basis. 0 Q. Is this the budgeting process that is reflected in the Company s rate filing? A. Yes. This filing reflects the test year (0) and the rate years (0, 0 and 00) on a calendar year basis (January through December ). The process described above was utilized in developing and validating the rate case data. 0 Q. How does SCG record charges to and from UIL and its subsidiaries? A. SCG employs a similar methodology as in prior years to ensure that affiliate charges are properly classified. Payroll and other expenses are charged to UIL and its affiliated companies, including SCG, based upon UIL s Cost Accounting Methodology Manual ( CAMM ), as filed with the Authority under Section - a-0(a) of the Regulations of Connecticut State Agencies (i.e., the Gas Code of Conduct Regulation). As detailed in the CAMM, there are three general categories of charges: direct charges, indirect charges and shared services overhead costs.

212 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley Direct charges are utilized for goods and services that are directly attributable to SCG or are solely for the benefit of SCG. Direct charges are further specified to properly charge the appropriate rate component by way of direct charging of projects. In cases where it is impractical to administer and track costs directly, such costs are indirectly assigned based on business activity. A cost distribution methodology is assigned based on historical trends or expected costs based on the type of service. 0 UIL provides shared services for all of its operating companies, including SCG. Such services include information technology, finance and related services, human resources, legal services and other administrative functions. The percentage methodology is calculated based on each operating Company s prorata weighted average share of total revenue less the commodity (i.e., excluding generation services charge revenues for UI and Purchased Gas Adjustment revenues for CNG, SCG and BGC), payroll and net plant-in-service plus construction work in progress (as described earlier, this is the three-factor or Massachusetts Formula). In the rate years, SCG s percentage of such costs is approximately. percent compared to the test year percentage of.0 percent. 0 Q. How is UIL capital charged to SCG? A. UIL capital is primarily related to computer software systems, with the SAP Enterprise Resource Planning ( ERP ) system being the most significant. These assets are recorded as UIL assets, as these systems benefit all of the UIL affiliates. A capital charge is developed based primarily upon the annual depreciation incurred by UIL on these assets plus a return based upon the weighted-average

213 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley allowed return for all of the UIL operating companies (see SFR Schedule WP C-.a A-C). This total charge is then allocated to the operating companies based upon the three-factor formula. SCG s portion of the UIL capital charge for the rate years 0, 0 and 00 are $.0 million, $. million and $. million, respectively. 0 0 Q. Please describe the cost allocation process utilized in developing this rate request. A. Similar to the method in CNG s and UI s most recent rate cases, cost allocations for SCG generally fall into three broad categories: Allocated costs related to shared services; Avangrid charges and other corporate costs; and Allocated costs related to shared capital assets. A discussion of each of these types of costs is provided below. For purposes of the Company s revenue requirement analysis, the Company has assumed that the costs incurred by SCG prior to the merger, and the methodology used to allocate corporate charges (i.e., when UIL was a 00 percent shareholder-owned Company) are the same costs required for SCG to run its business, and are representative of the types of costs in the future, regardless of the corporate entity that may provide them. As such, these costs are appropriate for setting rates for the three-year rate plan. Q. Please describe the category of allocated costs related to Shared Services. A. In this category, shared services are those costs performed for the organization as a whole, to the benefit of each of the operating companies. Such costs include accounting and finance, human resources, information technology, legal and other

214 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley centralized functions. In the test year and in 0, these functions continue to be largely performed by the same UIL personnel who performed them prior to the merger. These are necessary services that SCG needs to run its business, whether or not provided as they are now or by a yet-to-be-determined centralized service Company at some future date. The shared service costs included in each of the rate years are reflective of the current cost of those services as currently provided, including inflation, allocated using the Massachusetts Formula. 0 Q. Please describe the category of Avangrid charges and other corporate costs. A. Avangrid charges and other corporate costs are comprised of board costs, public Company costs, investor relations, directors and officers insurance and other costs incurred to operate a public Company. It also includes common executive management across the operating companies, such as a CEO, CFO and Chief Counsel. As with shared service costs, these are necessary costs that will be incurred by the operating companies whether charged directly or allocated from corporate through the Massachusetts Formula. While UIL is no longer a public Company and does not directly incur its own board costs and investor relations costs, it receives an allocated share of corporate costs within the Avangrid structure. 0 Q. Was the SCG cost allocation process modified as a result of the merger with Avangrid? A. Yes, the Company made one modification. The cost allocation methodology has been modified to include limited Avangrid corporate charges. For example, the Avangrid CEO and CFO costs which originate on UIL s SAP accounting system

215 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley are fully allocated to the Avangrid Service Company ( ASC ). The ASC corporate costs, including the Avangrid CEO and CFO costs plus incurred board of directors costs and external audit costs, are charged to all Avangrid companies including UIL. The allocation of the ASC corporate costs and existing UIL shared services costs, described below, is similar to the pre-merger allocations and utilizes the Massachusetts Formula. 0 Q. Please describe the category of allocated costs related to shared capital assets. A. Shared capital asset costs are primarily for software that is utilized by all of the operating companies. The best example of this is the cost of SAP, which is administered at the UIL level for the benefit of all of the operating units, including SCG. This cost allocation is on a revenue requirements basis and provides SCG with its share of depreciation and a return on investment via the Massachusetts Formula. The test year and rate years do not include any shared assets at any level above the UIL level. This is consistent with the methodology utilized in previous rate cases for CNG and UI. 0 Q. Does the Massachusetts Formula produce a representative allocation of shared costs to SCG as compared to other allocation methods? A. Yes. From an accounting perspective, the first level of cost application is to direct charge an expense where possible to the operating Company that incurred the expense. When a cost cannot be directly charged to an operating unit, but is tied to an activity or a metric, the cost would be allocated on that basis as an indirect cost. For example, building and maintenance costs are charged based upon square footage utilized by the Company. Another example is fleet costs, which are

216 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley allocated to the Company as a loader to payroll hours in the fleet utilization cost centers. Similarly, the plant accounting costs are allocated ratably to each Company s capital program. Only those costs that cannot be charged either directly or indirectly are subject to allocation based on the Massachusetts Formula. 0 There are a variety of considerations to the use of any allocation methodology, but the ultimate goal is for the allocated cost to be as close to the cost causation as reasonably possible. The Massachusetts Formula assumes that the relative utilization of any shared cost that is not directly charged or indirectly allocated is tied to the relative size of each entity. Although other methods exist, the Massachusetts Formula has been utilized by many utilities, including the other Avangrid Networks regulated utilities, and has been accepted as a reasonable basis for the allocation of shared costs by regulators for many years. UI and CNG utilized the Massachusetts Formula in their most recent rate cases, Docket No and Docket No. -0-0, respectively. In both cases, PURA accepted the companies continued use of the Massachusetts Formula. 0 V. Operations and Maintenance Expense Summary Q. Please compare total O&M expense in the test year to O&M expense in the rate years. A. A comparison of the test year to the three rate years is summarized in Table below:

217 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley Q. Please discuss major O&M adjustments for each of the summary line items in Table. A. The following subsections of my testimony discuss the expense categories shown in Table. 0 A. Compensation Q. Please describe the principal elements of compensation expense. A. O&M compensation includes expenses for base payroll for existing full time equivalents ( FTEs ) utilizing the last known and measurable FTE count as of December, 0, plus the base payroll associated with incremental net new hires, a payroll escalation, a vacancy rate offset, overtime and an offset for the capitalized overhead portion (see SFR Schedule WP C-. A-C). The vacancy rate offset recognizes that, at any given time, some positions are not filled due to the timing of the hiring and replacement process. The payroll escalation is included at percent per year for non-union employees consistent with market 0

218 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley 0 data and the Company s total compensation philosophy to pay at or near market. SCG s union base pay escalations are based upon the provisions of the current union contract. Q. How did SCG develop its compensation expense projection? A. The amounts shown on SFR Schedule WP C-. A-C represent the O&M compensation expense. Test year actual data was utilized to determine the FTEs associated with each cost category (O&M or capital). Projected overtime, premium pay, an offset for capitalized overheads and other labor movements were added to the schedule based upon a combination of the projected workload over the periods and historical trends to produce the projected compensation expense shown on line. 0 Q. What are the primary reasons for the change in compensation expense? A. There are two primary reasons for the increase in compensation expense. First, the rate years O&M expense reflects the impact of hiring an additional sixteen FTEs (seven FTEs in 0 and nine FTEs in 0). Nine of these sixteen positions represent Apprentice Helpers to be hired in the Service department. The other seven positions are necessary for the gas operations and engineering departments. The Apprentice Helper program is described in more detail in the testimony of Mr. Hawley and Mr. Barnes. Second, test year compensation dollars have been increased by two years of normal base escalation related to merit increases (%) and promotional increases (%) for both union and nonunion employees. This impacts the underlying base and overtime amounts. The

219 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley increase in payroll is partially offset by increased amounts charged to capital, loaders and other labor movements from other non-scg components. B. Benefits Q. Please describe the principal elements of benefits expense. A. Employee benefit O&M cost details are provided in SFR Schedules WP C-. A-C. The benefits expense consists primarily of pension costs, postretirement benefits ( OPEB"), major medical & dental, workers compensation, incentive compensation and 0(k) as shown in Table below: 0. Pension and OPEB Q. Please explain how the pension and OPEB costs were developed. A. Pension and OPEB costs are determined in accordance with Accounting Standards Codification ( ASC ). These costs were developed on a calendar year basis, which aligns with the SCG pension and OPEB plan years. These costs are developed annually with the Company s outside actuaries and include a

220 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley review of all of the key assumptions. In gross dollars (total SCG plan), pension and OPEB costs are summarized in Table below: 0 The amounts included in the Company s O&M expense are the gross costs, reduced by () amounts allocated to capital; () amounts allocated to other subsidiaries; and () the unrecognized gain amortization associated with purchase accounting from the 000 Energy East Corporation acquisition. Q. How does qualified pension expenses in the rate years compare to the test year? A. Qualified pension expense in RY is higher than the 0 test year. This is due primarily to several factors, including a decrease in the expected return on assets

221 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley assumption from. percent to.0 percent based on capital market expectations; a decrease in the market-related value of assets as past losses are recognized; the aging of the active employee population, which results in a decrease in Average Future Service and an associated increase in the loss amortization; and a significant actuarial loss during 0 due primarily to experience different than expected. 0 In addition, the higher pension expense is also caused by a change in the Accounting Standards Codification ( ASC ) accounting rules effective January, 0, where only the service cost of total pension expense is allowed to be capitalized (Accounting Standards Update 0-0). Lastly, the Company s pension expense increase in 0 is also due to the expiration in 0 of the unrecognized gain amortization associated with purchase accounting from the 000 Energy East Corporation acquisition (see Table above). However, qualified pension expense is projected to decrease from 0 through 00 primarily due to reductions to active participants, asset increases due to contributions and returns in excess of benefits paid and reductions to amortizations on past liability and asset losses. 0 Q. How does OPEB expense in the rate years compare to the test year? A. OPEB expense decreases each year from 0 through 00. This is primarily due to reductions of plan participants and expiration of the amortization of prior service cost.

222 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley Q. Does SCG expect to update the assumptions and asset values during the rate case proceeding? A. Yes. The assumptions for the rate years are largely set as of the previous year end, which in this case is December, 0. As in prior cases, SCG will update the rate year expense to reflect more current discount rates and asset values and include them in the rate case update. 0. Medical and Dental Coverage Expenses Q. How were medical expenses determined for the rate year? A. Medical expenses were developed on Schedule WP C-.a A-C by determining test year costs, after employee contributions, on a per employee basis. This per employee amount was multiplied by the projected headcount to determine base medical expense. The base was then increased by the projected annual premium increases to determine gross expense for each rate year. This amount was then reduced by amounts charged to capital and other non-scg components. 0 Q. Please explain the driver of the increase in medical costs from the test year to the rate years? A. The primary driver of increases in medical costs is claims costs which are reflected in the premiums. Premiums were flat from 0 to 0 due to lower claims in 0. However, medical plan costs escalate, so the standard trend of. percent was applied to capture these costs. The Company s benefit consultants have estimated ongoing increases of approximately.0 percent per year, with the remainder of the increase due to higher headcount levels.

223 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley Q. Were dental coverage costs calculated in the same manner? A. Yes. Schedule WP C-.b A-C provides the detail calculation. As with medical costs, the primary driver of increases in dental costs is claims, reflected in projected premium increases. 0. 0(k) Plan Q. How do test year 0(k) plan costs compare to the rate years? A. This line item includes the cost of 0(k) matching contributions plus the pension replacement contributions for the gas controllers hired on or after May, 0, the billing and call center employees hired on or after August, 0, and the Local 000 union employees hired on or after April, 0 who are not in the defined benefit pension plan. Details of these costs are as follows in Table : The increase in the 0(k) employer match from the test year to the rate years is due to the increases in headcount and compensation as a result of merit and promotional increases over this period. For SCG union employees (other than the gas controllers and the billing and call center employees hired prior to August, 0) hired on or after April, 00, the match increased by contract from % on up to % (maximum.%) for 0 and will increase to 0% on up to %

224 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley (maximum %) for 0. The percentage match remains unchanged for all other employees, at a % maximum (0% on up to % match) for the test year and rate year. The 0(k) cost for new SCG union plan participants is increasing as headcount increases, since all new union employees receive either the higher match, or in the case of the gas controllers, a % of pay Company contribution (to replace the pension plan) plus an additional $,00 per year in lieu of postretirement (medical) coverage. 0. Incentive Compensation Q. Why does incentive compensation show an increase from the test year to the rate years? A. Incentive compensation is budgeted each year at target levels of achievement. The increases in the rate years compared to the test year are due to the increase in normal annual merit increases to base payroll, as the incentive pay is based upon a percentage of base payroll as well as the increase in FTEs. The incentive compensation program combined with base pay and benefits represents the total compensation package provided to Company employees in order to remain competitive in the market place. 0 C. Outside Services Q. What is driving the increase in outside services from the test year 0 to the rate year 0? A. Besides the normal inflationary increases projected in each rate year, the primary reason for the increase in outside services is due to the implementation of a new GIS and the data conversion involved with this new system. The cost of the data conversion is estimated at approximately $. million. According to generally

225 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley accepted accounting principles, data conversion costs are to be expensed as incurred and are not allowed to be capitalized as part of the new software program. Of this total, $. million is expected to be incurred in 0 and $. million in 0. Please refer to the testimony of Mr. Hawley and Mr. Barnes for additional information about the GIS system implementation. 0 D. Uncollectible Expense Q. Please explain the increase in uncollectible expense from the test year to the rate year 0. A. Uncollectible expense consists of hardship and non-hardship account write-offs as shown below in Table. The rate year uncollectible expense associated with hardship accounts is based on a three year average (0-0) of net hardship account write-offs. The rate year uncollectible expense associated with non-hardship accounts is based on an uncollectible rate of. percent multiplied by non-hardship revenues for each rate year. The non-hardship uncollectible rate was developed using a three year historical average (.% for 0,.0% for 0, 0.% for 0) of net nonhardship account write-offs to non-hardship revenues. The three-year average methodology was approved by the Authority in the CNG 0 rate case, Docket

226 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley No Test year expense for non-hardship accounts is unusually low due to the exceptionally warm weather in calendar year 0 which was percent warmer than normal. Operating revenues as identified on Schedule C-. A-C are projected to be $0 million higher in the rate year compared to the test year due to the warmer than normal test year, customer growth in the post test year periods and higher gas costs. Higher operating revenues will in turn cause higher uncollectible expense. 0 E. Shared Services Q. Please explain the increase in shared service costs allocated to SCG. A. Excluding the impact of the corporate capital charge, shared service costs increased from the test year to the rate years primarily due to cost increases in both payroll and benefit costs. 0 F. Corporate Capital Charge Q. Please describe the corporate capital charge and explain why it is increasing compared to the test year. A. As noted previously, the corporate capital charge is the result of the calculated revenue requirement of the UIL capital expenditures, primarily UIL s IT software and hardware expenditures. The associated revenue requirement for the corporate capital charge, representing the return of and on the applicable rate base, is allocated to SCG as O&M per the Massachusetts Formula. The increase from the test year is primarily due to upgrades and improvements to SAP to provide better data and efficiencies for customers and employees, along with customer service projects to enhance the customer experience while using the digital or call center technology.

227 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley 0 G. Service Revenues Q. Please describe the service revenues and explain why they are increasing compared to the test year. A. Service revenues consist of two components: () revenues from customers who purchase annual service repair contracts; and () revenues from customers without an annual service repair contract who are charged for time and material. The $. million increase in service revenue from the test year to the rate year is primarily related to a change in the customer reconnect fee as shown on Schedule C. A-C. For additional information pertaining to this change in the reconnection fee, please refer to the testimony of Mr. Hawley and Mr. Barnes. H. Conservation Expense Q. Please explain the increase in conservation expense in rate year 0 as compared to the test year. A. Conservation expense as shown for the test year and three rate years represent the conservation programs provided to the Company s customers. This expense is recovered through the Conservation Adjustment Mechanism and is therefore also included in the test year and each rate year revenue line. Please refer to operating revenues schedule C-. A C. 0 I. Transportation Expense Q. Please explain the increase in transportation expense in RY as compared to the test year. A. The primary reason for the increase in transportation expense in RY as compared to the test year is due to a proposed increase in the depreciation rate assigned to plant account, transportation equipment. Please refer to Table in the 0

228 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley depreciation study provided as Exhibit JFW- to the testimony of Mr. John Wiedmayer of Gannett Fleming, Inc. 0 J. Bank Service Fees Q. Is the Company proposing deferral treatment for customer credit card fees incurred above or below the annual expense allowed in rates? A. Yes. As explained in the Customer Service testimony of Mr. Reis, the Company is seeking recovery of an annual expense amount of $0 thousand in RY, $ thousand in RY, and $ thousand in RY for customer credit fees. Due to the potential for high volatility in the level of annual expense related to this method of customer gas bill payment option (as shown in Graph in the testimony of Mr. Reis), the Company is proposing to defer any expense over or under the annual amount allowed in rates. 0 K. Property Tax Expense Q. How did the Company determine its projected cost for property taxes? A. SCG determined its projected property taxes utilizing known and measurable mill rates and applying them to the existing asset base, and including additional taxes based upon planned capital additions in the rate years. Q. What are the main reasons why property taxes have increased from the test year to the rate years? A. Property taxes have increased for two reasons. First, given SCG s capital spending over the last few years, the asset base subject to such taxes has increased significantly. As noted earlier in this testimony, due to capital expenditures forecasted by the Company for investment in distribution infrastructure and system reliability, net utility plant in service is increasing approximately $

229 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley 0 0 million from the test year to rate year 0. Second, mill rates are also going up as municipalities are looking to generate additional financial resources to support local budgets. Property tax expense for the test year consists of 0 mill rates for the first half of the year and 0 mill rates for the second half of the year. From 0 through 0, the weighted average mill rate has increased from. to. (Schedule WP C-.0a A-C). Q. Does the Company plan to update the property tax expense for the rate years? A. Yes. The Company expects that 0 mill rates will be available during the rate case proceeding for the property taxes that are due and payable on July, 0. At that time the Company will update its property tax expense based on these most current mill rates. L. Income Tax Expense Q. Is the Company proposing any changes to the way it calculates its income tax expense in the rate years versus the test year? A. Yes. The Company proposes to fully normalize its deferred taxes. Q. Did you state earlier that the Authority approved normalization accounting for income taxes in the Company s 00 rate case in Docket No. 0--0? A. Yes, but as noted in the 00 rate case, SCG received approval to normalize many but not all of its temporary tax timing differences. Q. What temporary differences are not normalized? A. The Company continues to flow-through $. million of hardship amortization costs and actual plant removal costs.

230 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley 0 Q. What is the benefit to customers of normalizing these tax impacts? A. Normalization is generally superior to flow-through for three reasons. First, normalization recognizes tax effects in the same period the underlying pre-tax item is recognized. This is consistent with basic General Accepted Accounting Principles ( GAAP ) and therefore more intuitive. For example, if $00 of accrued removal costs were flowed through, current rates would initially include only the pre-tax expense in the accrual period and not the approximately $0 related tax benefit. When the Company spends the removal costs, it would then include the $0 tax benefit in a period separate and apart from when the underlying pre-tax expense was recognized. Second, by recognizing the tax and pre-tax impacts together, current customers receive the true net of tax cost, rather than current customers receiving a pre-tax cost and future customers receiving the tax effect (for which they did not pay the underlying cost). Lastly, normalization provides both transparency and simplicity, enhancing tax reporting efficiency. 0 Q. What are the income tax implications of normalizing the hardship and removal costs? A. The impact of switching to normalization is not material. SCG s operating Effective Tax Rate ( ETR ) for its 0 test year assuming flow-through is.%. If SCG had normalized these tax items, its operating ETR would have been.% for a difference of approximately $,000 in income tax expense. Q. Are there any other reasons that the Authority should approve SCG s normalization proposal? A. Yes, SCG s customer rates currently include a tax benefit on both the accrued (normalized) and expended removal costs (flowed-through). Since only one benefit truly

231 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley exists, customer rates should include one or the other. PURA s approval of this full normalization proposal will normalize the expended removal costs and accomplish the appropriate outcome, which is the single tax benefit outcome. Absent this change, a customer liability to the Company will build up for the duplicative tax benefit. VI. Depreciation 0 Q. Did SCG have an updated depreciation study performed in support of this application? A. Yes. SCG s application includes a new comprehensive depreciation study. The new study uses historical data through the test year December, 0. The study is presented as Exhibit JFW- to Mr. Wiedmayer s testimony. The depreciation rates were calculated based on the study parameters (average service lives and net salvage factors) using the most recent data through December, 0. The Company s prior depreciation study was dated as of December, 00. Please refer to Mr. Wiedmayer s testimony for a complete description of the depreciation study. 0 Q. Does the depreciation study result in updated depreciation rates? A. Yes. As provided in Table of the study, the proposed composite annual depreciation rate for total depreciable plant in service as of December, 0 is. percent. The composite annual depreciation rate currently allowed in rates is. percent. The study supports this proposed basis point increase in the composite annual depreciation rate which will increase depreciation expense by $. million when applied to December, 0 plant in service balances. The

232 The Southern Connecticut Gas Company June 0, 0 Docket No. -0- Testimony of James E. Earley change in depreciation expense is primarily related to changes in service life and net salvage estimates for certain plant accounts. VII. Working Capital Q. Did the Company obtain a lead-lag study in support of its rate application? A. Yes. A lead-lag study was performed by Mr. Daniel S. Dane of Concentric Energy Advisors, Inc. and is presented in Mr. Dane s direct testimony. The results of the lead-lag study are contained in Exhibits DSD-, DSD- and DSD-. 0 Q. Does the Company s revenue requirement reflect an increase to working capital based on the lead-lag analysis for the rate years? A. Yes. Table below shows the results of the lead-lag study for each of the rate years. Q. Does this complete your testimony? A. Yes.