December 18, Columbia Gas Transmission, LLC, Docket No. RP Offer of Settlement and Petition for Approval of Settlement

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1 5151 San Felipe, Suite 2400 Houston, Texas Phone: Fax: Georgia Carter Senior Vice President and Deputy General Counsel Ms. Kimberly D. Bose, Secretary 888 First Street, N.E. Washington, DC Re: Columbia Gas Transmission, LLC, Docket No. RP Offer of Settlement and Petition for Approval of Settlement Dear Secretary Bose: Pursuant to Rules 207(a)(5) and 602 of the Federal Energy Regulatory Commission ( Commission or FERC ) Rules of Practice and Procedure, 1 Columbia Gas Transmission, LLC ( Columbia ) hereby submits for filing with, and approval by, the Commission the enclosed Stipulation and Agreement of Settlement ( Stipulation ) and related materials (collectively, the Modernization II Settlement or Settlement ). Columbia petitions for Commission approval of the Settlement as filed without modification or condition as expeditiously as possible, and preferably no later than March 31, 2016, to allow the Settling Parties to begin receiving the benefits of the Settlement, including rate relief and construction of modernization projects in 2016, without delay. Columbia respectfully requests that the Commission, consistent with Rule 602(f), establish a procedural schedule requiring comments to be submitted within 20 days from the date of this filing, and reply comments, if needed, to be submitted within 30 days from the date of this filing. The Settlement represents a collaborative resolution between Columbia and the vast majority of its shippers representing a diversity of interests and addresses numerous complex issues arising out of recent and anticipated changes in pipeline safety and environmental requirements, Columbia s ongoing efforts to enhance pipeline safety and reliability of service, and the age of Columbia s system C.F.R (a)(5), (2015).

2 Page 2 of 31 The Modernization II Settlement preserves and extends the core elements of the 2012 settlement between Columbia and its shippers that addressed modernization issues on Columbia s system ( Modernization I Settlement ), which the Commission approved in January Among other things, the Modernization II Settlement preserves the Modernization I Settlement s $60 million base rate reduction and extends for a new, Second Term the Capital Cost-Recovery Mechanism ( CCRM ) that allows Columbia to make annual limited filings under Section 4 of the Natural Gas Act ( NGA ) to charge an additive capital demand rate ( CCRM Rate ) to recover Columbia s revenue requirement related to certain eligible projects. 3 In addition, the Modernization II Settlement includes the following provisions: (1) an additional reduction in base rates equal to approximately $8.4 million annually effective as of January 1, 2016; (2) a further base rate reduction equal to approximately $12.2 million annually for a 6-year period also beginning January 1, 2016; (3) a reset of Columbia s base rates effective February 1, 2019, and a simultaneous reduction in those base rates equal to $7.5 million annually; (4) a one-time settlement payment of $5 million; (5) a revenue sharing mechanism, pursuant to which Columbia will share 50 percent of specified revenues in excess of an annual threshold; (6) a moratorium through January 31, 2022 to changes in Columbia s base rates applicable to Settling Party shippers; (7) and a reduction in the pre-tax return allowed under the CCRM from 12 percent under the Modernization I Settlement to percent under the Modernization II Settlement. Several of these benefits could only have been achieved through a consensus process, as opposed to litigation, in particular the early rate relief during the Modernization I Settlement rate moratorium ($20.6 million in annual reductions are implemented January 1, 2016, without interest), the rate case moratorium, and the revenue sharing mechanism. The Modernization II Settlement is designed to be consistent with, and in certain aspects to exceed, the criteria the Commission has set forth for implementation of modernization cost recovery mechanisms. Cost Recovery Mechanisms for Modernization of Natural Gas Facilities, 151 FERC 61,047, clarification denied, 152 FERC 61,046 (2015) ( Modernization Cost Recovery Policy Statement, or Policy Statement ). Moreover, the Modernization II Settlement is also consistent with the Commission s policy encouraging pre-negotiated settlements. The Commission has long recognized the benefits of encouraging pipelines and shippers to resolve issues before initiating potentially expensive, time-consuming proceedings. Specifically, the 2 Columbia Gas Transmission, LLC, 142 FERC 61,062 (2013) ( Modernization I Order ). 3 The facilities eligible for recovery under the Modernization II Settlement, referred to as Eligible Facilities, are described in a new Eligible Facilities Plan ( EFP II ) (attached hereto as Appendix E). The facilities eligible for recovery under the Modernization I Settlement are listed in the Eligible Facilities Plan ( EFP I ), which was attached as Appendix E to the Modernization I Settlement.

3 Page 3 of 31 Commission has provided that parties in such situations should file settlement agreements pursuant to Rule 207(a)(5) of the Commission s Rules of Practice and Procedure. However, the Commission has since approved settlements, including contested settlements, filed pursuant to both sections (a)(5) and Accordingly, Columbia files this Settlement pursuant to both sections (a)(5) and Appendix A to the Stipulation reflects the parties that Columbia understands either support or do not oppose the Settlement. These parties represent approximately 97 percent of Columbia s firm shipper base (by percentage of firm capacity holdings). No party has advised Columbia, as of the date of this filing, that it is or will be contesting the Settlement. 4 To the extent there are parties that protest or otherwise oppose the Settlement, Columbia respectfully requests that the Commission approve the Settlement, as provided for in Article IX of the Stipulation. I. Request for Comment Schedule Columbia respectfully requests that the Commission establish a comment schedule setting a single date for all initial comments and protests regarding the Settlement and setting another date for all responses, if necessary, to initial comments and protests. This will help streamline the pleading process and is consistent with the Commission s handling of the Modernization I Settlement and Commission precedent. 5 Columbia requests that the Commission establish, consistent with Rule 602 of the Commission s Rules of Practice and Procedure, a procedural schedule requiring: (1) comments, interventions, and protests regarding this filing and initial comments on the Settlement to be submitted within 20 days from the date of this filing, and (2) reply comments, if needed, to be submitted within 30 days from the date of this filing. Contents of Submission In accordance with Rule 602(c) of the Commission s Rules of Practice and Procedure, this submission includes: 4 Columbia has solicited feedback regarding the Stipulation from firm shippers through multiple means of communications, including in-person meetings, telephone conferences, and communications. As of the date of this filing, no firm shipper has stated that they intend to oppose the Settlement. 5 Notice of Offer of Settlement, Columbia Gas Transmission, LLC, Docket No. RP (Sept. 11, 2012) (setting one date for all interventions and comments, and making all reply comments due 10 days later); See also Notice of Joint Application and Offer of Settlement, Carolina Gas Transmission Corp., Docket Nos. CP06-71 et al. (Mar. 3, 2006) (setting one comment schedule for a settlement filing and a request for a certificate of public convenience and necessity, where initial comments and protests were due on the same day and all parties reply comments were due 10 days later).

4 Page 4 of 31 This Transmittal Letter, which includes a separate Explanatory Statement and a Petition for Approval of the Settlement; 6 A Stipulation and Agreement of Settlement including appendices reflecting the parties supporting or not opposing the Settlement; an illustrative allocation of the $5 million settlement payment; the derivation of the reduced Settlement Base Rates; the pro forma tariff sections to implement the base rate reduction, CCRM and other required conforming miscellaneous tariff revisions; the EFP II; a schedule illustrating (i) the changes in the capital demand rate applied under the CCRM (pre-tax) and (ii) percentage adjustments to the Settlement Base Rates, corresponding to changes to the U.S. Federal Corporate Income Tax rate; the method for allocation of discounted revenues to the CCRM; and an illustrative presentation of the anticipated benefits to system flexibility and reliability for a given year of modernization projects; and, Affidavits Supporting Approval of the Settlement. Within 30 days after issuance of a Final Order approving the Stipulation, Columbia will file actual tariff sections consistent with the pro forma tariff sections attached at Appendix D to the Stipulation and the assorted workpapers deriving the rates attached at Appendix C to the Stipulation. All materials are being served on all affected customers of Columbia and interested state commissions. II. Background A. The Columbia Modernization Program Columbia is in the midst of a long-term modernization effort, through which it is making substantial capital investments to modernize its interstate gas transmission system infrastructure, enhancing the system s reliability, safety and regulatory compliance (the Modernization Program or Program ). 7 Columbia s Modernization Program is described in detail in the affidavit of Mr. David Roy, attached hereto as Exhibit No. TCO-2. 8 Columbia s Modernization Program was initiated in response to shipper expectations for increased firm service reliability as well as to respond to new 6 This Transmittal Letter is intended to reflect the Stipulation without changing any of its terms. Any inconsistencies between this Transmittal Letter and the Stipulation will be resolved by using the language of the Stipulation. 7 The Modernization Program does not include Columbia s gathering lines. An additional description of Columbia s Modernization Program is included in the affidavit of Mr. Chad Zamarin that accompanied the Modernization I Settlement. 8 Affidavit of David Roy on Behalf of Columbia Gas Transmission, LLC, Exhibit No. TCO-2 ( Roy Affidavit ).

5 Page 5 of 31 regulatory and policy initiatives that underscore the need for aggressive pipeline safety and integrity management programs. 9 Specifically, Columbia and its shippers recognized that the age of the Columbia transmission system could adversely impact the system s ability to continue providing reliable firm service. Moreover, pipeline legislation that was signed into law in January 2012 requires the U.S. Department of Transportation s Pipeline and Hazardous Materials Safety Administration ( PHMSA ) to promulgate numerous additional requirements, as well as to study the expansion of existing regulatory programs. In that regard, PHMSA is currently in the process of drafting regulations that will further strengthen its pipeline integrity management programs. 10 Created by the Modernization I Settlement, the CCRM provides a tariff-based mechanism for Columbia to recover the revenue requirements related to specified modernization projects. The Modernization I Settlement identified specific replacement and upgrade projects that Columbia intended to undertake from 2013 to 2017, the Modernization Program s First Term, with a focus on replacing, rehabilitating and/or rebuilding critical pipeline infrastructure and ensuring the safety and reliability of Columbia s gas transmission system.. Columbia is in the process of modernizing its 12,000-mile interstate pipeline system (which includes nearly 11,000 miles of PHMSAregulated interstate transmission pipeline) by replacing aging transmission infrastructure that serves communities in eleven states and the District of Columbia. The Modernization I Settlement has already yielded substantial benefits. Columbia has substantially enhanced its system s safety, flexibility, integrity, reliability, and efficiency through modernization projects. Since the implementation of the Modernization I Settlement in 2013, Columbia has invested $937 million in Eligible Facilities, which are recoverable through the CCRM, in addition to $340 million in capital maintenance expenditure level ( CML ) expenditures, which are not recoverable through the CCRM. Columbia s CML expenditures during the first three years under the Modernization I Settlement have exceeded, by $40 million, the $100 million annual CML threshold under the Modernization I Settlement. 11 During this period, Columbia has placed 108 modernization projects into service, and has provided customers with transparency and input on the Eligible Facilities. Columbia has retired 132 miles of bare steel and wrought iron facilities, and installed over 117 miles of new pipe, thereby reducing risks inherent in these legacy facilities. Further, Columbia has installed or 9 Id. at 4-7, Id. at For narrative descriptions of the modernization work Columbia has performed to date, see Columbia s Annual Capital Cost Recovery Mechanism Rate Filings: RP (Dec. 30, 2014); and RP14-31 (Dec. 31, 2013). Columbia will file its annual filing for projects constructed in 2015 by December 31, 2015.

6 Page 6 of 31 upgraded approximately 117,000 horsepower of compression, and provided for 78,900 horsepower of compression available for standby, preventing approximately 10,000 hours of unplanned outages per year. Columbia has implemented real-time controls for 316 units, thereby increasing system safety, reliability and efficiencies. Additionally, Columbia has installed 162 new control panels, facilitating safe and efficient operations at compressor stations. Columbia also has installed launchers and receivers to allow portions of its system to accommodate in-line inspection and restoring approximately 80,000 Dth/d of transportation capacity. Columbia has prudently determined that the continued modernization of critical portions of its transmission and storage facilities is appropriate to provide for the continued integrity, safety, and reliability of its system. Even after completing the modernization work described above, Columbia has over 1,000 miles of critical pipeline infrastructure in need of replacement or upgrade. To determine which system upgrades to undertake under the Modernization Program, Columbia conducted an assessment process prioritizing potential safety concerns resulting from aging transmission infrastructure. A detailed description of the issues related to Columbia s aging gas transmission infrastructure is contained in the Roy Affidavit at pages Approximately half of the PHMSA-regulated interstate transmission pipeline facilities on Columbia s system are over 50 years old. 12 Also, approximately 50 percent of Columbia s compressor units were installed prior to Columbia has also determined that it is prudent to restore the late-season deliverability of several storage facilities, which has declined due to the age and/or condition of the facilities. Over time, gas in certain storage wells has tended to migrate toward the lower-pressure sections of the reservoirs, creating obstacles in recovering and utilizing the stored gas at previously experienced deliverability rates late in the storage withdrawal season. The late-season deliverability decline is also attributable to injected debris (scale, compressor oils, pipeline debris) restricting flow from the reservoir into the well bore and/or the loss of proppant pack from previous fracture stimulation treatments during high withdrawal rates. Storage deliverability restoration work will improve the efficiency, flexibility, safety, and long-term reliability of Columbia s system. Columbia s Storage Modernization Program is described in detail in the affidavit of Mr. John Shelton, attached hereto as Exhibit No. TCO Under the Modernization II Settlement, Columbia will focus on modernization of its transmission and storage infrastructure. The Modernization II Settlement allows Columbia to recover its revenue requirement associated with approximately $ Roy Affidavit at Id. at Affidavit of John Shelton on Behalf of Columbia Gas Transmission, LLC, Exhibit No. TCO-3 ( Shelton Affidavit ).

7 Page 7 of 31 billion in transmission and storage projects over a three-year period, subject to annual cost limits and tolerances. In addition, the Modernization II Settlement includes an increased CML spending threshold of $115 million per year. For transmission, Columbia intends to construct over the three-year period approximately $1.05 billion of transmission Eligible Facilities projects that focus on reliability, pipeline integrity, and pipeline efficiency. Projects will include bare steel and cast/wrought iron pipe replacements, replacement of high-priority pipelines with significant integrity issues, compression projects, and adding in-line inspection or pigging capabilities to areas of the system to ensure compliance with present and anticipated integrity management guidelines and requirements. With respect to storage modernization, Columbia plans to spend approximately $125 million on Eligible Facilities projects during the term of the Modernization II Settlement to improve storage integrity and reliability, primarily aiming to restore lateseason deliverability of existing storage facilities. 15 This represents approximately 5 percent of the aggregate expenditures on Eligible Facilities under both the Modernization I and Modernization II Settlement. Through improvements to well performance reliability and storage facility reliability, Columbia is seeking to restore a projected net total of 546 MMcf/d of withdrawal capability. Projects will include capital upgrades and replacements of specified wellheads and downhole tubulars, well treatments to restore or gain late-season deliverability and injectability to counter losses resulting from damage and deterioration of facilities, drilling of new wells in existing storage fields to restore late-season deliverability and improve degraded performance, and other specified storage facility reliability projects. The Modernization II Settlement, like the Modernization I Settlement, provides for a mechanism through which Columbia can recover, on an annual basis, its revenue requirement associated with projects needed to modernize its system. Columbia and its customers have entered into the Modernization II Settlement at this time in recognition of the fact that Columbia typically requires approximately months from the inception to the construction of a modernization project. Prompt approval of the Settlement will allow Columbia to begin taking steps to plan and to seek necessary authorizations for the 2018 modernization projects. As with the Modernization I Settlement, the Commission s approval of the Modernization II Settlement will not constitute approval of any specific modernization project. Separate Commission authorization of individual projects is still required through the procedures set out in the Commission s regulations Columbia also committed to a minimum of $25 million in CML expenditures for storage in C.F.R. Part 157.

8 Page 8 of 31 B. The Settlement Process Given the significant expenditures that Columbia will continue to make under its Modernization Program and absent the continuation of a cost recovery mechanism such as the CCRM provided by the Modernization II Settlement, Columbia and its shippers would be faced with the likelihood of dealing with numerous consecutive rate cases filed over the term of the Settlement under the traditional rate-making and cost recovery process. Such a traditional, pancaked rate case approach would likely result in unpredictable, fluctuating rates, and would not be a good fit for the size, scope, and duration of the Modernization Program. In addition, Columbia is required under the Modernization I Settlement to file a rate case by February 1, 2019, absent a settlement among the settling parties thereto. To avoid a lengthy and costly rate case and the pancaked rate cases that would likely follow, Columbia entered into a dialogue with its shippers to extend the CCRM and related provisions from the Modernization I Settlement to benefit all stakeholders while allowing Columbia to fund the needed modernization work without resorting to the more traditional rate case approach. The resulting Settlement is the product of extensive discussions and negotiations between Columbia and its firm shippers. During the spring and summer of 2015, Columbia held multiple in-person meetings with its customers to discuss potential modernization projects. As part of the planning of the continuation of the Modernization Program, Columbia provided customers and their consultants with substantial cost and revenue data. Columbia hosted a data warehouse in which customers could access Columbia s financial information, and the parties engaged in a discovery process during which Columbia responded to numerous data requests submitted by customers and their consultants. In November 2015, Columbia provided shippers with an initial written proposal. Through additional negotiations, which included sessions between Columbia and a customer drafting committee, Columbia and its customers negotiated the terms of the Modernization II Settlement and exchanged several drafts to arrive at a final settlement. As indicated above, the vast majority of Columbia s primary firm shippers either support or do not oppose the comprehensive Settlement that is the subject of this filing See Appendix A to the Stipulation and Agreement of Settlement included herein for a list of all parties either supporting or not opposing the Settlement. Prior to making this filing, Columbia circulated the Stipulation to all of its firm shippers letting them know that silence/no response would be treated as acceptance of the Settlement consistent with Section 9.1 of the Stipulation. Accordingly, the parties listed on Appendix A either affirmatively expressed their support of the Settlement, indicated that they do not oppose the Settlement, or otherwise, after receipt of notice of the pending filing, elected not to respond.

9 Page 9 of 31 III. Explanatory Statement of Settlement Terms 18 The Settlement represents an agreement by the Settling Parties to continue the Modernization Program, which has allowed Columbia to recover its revenue requirement for the significant capital investments that have enhanced the safety, flexibility, integrity, reliability, and efficiency of Columbia s system, while maintaining competitive rates. The Modernization II Settlement preserves and extends the core elements of the Modernization I Settlement, including the CCRM and the prior $60 million base rate reduction. In addition, the Modernization II Settlement provides the following substantial benefits to Columbia and/or its customers: (1) an additional reduction in base rates equal to approximately $8.4 million annually effective as of January 1, 2016; (2) a further base rate reduction equal to approximately $12.2 million annually for a 6- year period also beginning January 1, 2016; (3) a reset of Columbia s base rates effective February 1, 2019, without the need for a rate case, and a simultaneous reduction in those base rates equal to $7.5 million annually; (4) a one-time settlement payment of $5 million; (5) a revenue sharing mechanism, pursuant to which Columbia will share 50 percent of specified revenues in excess of an annual threshold; (6) a moratorium through January 31, 2022 to changes in Columbia s base rates applicable to Settling Party; (7) additional related items enumerated below; and (8) a reduction in the pre-tax return allowed under the CCRM from 12 percent under the Modernization I Settlement to percent under the Modernization II Settlement. The Settlement also provides several other benefits to shippers, as explained more fully in the supporting affidavit of Mr. James R. Downs attached hereto as Exhibit No. TCO A. Settlement Payment Pursuant to Article II of the Stipulation, Columbia has agreed to provide a settlement payment amount of $5 million to be paid upon issuance of a Commission order addressing Columbia s CCRM Rate filing for the 5th year of the initial CCRM term of the Modernization I Settlement. The payment installments will be provided to Settling Parties (defined in Section 9.1(i) of the Stipulation) paying the full, then currently-effective CCRM rate that are holders of primary firm transportation contracts under Rate Schedules FTS, NTS, NTS-S, TPS, SST, OPT, and GTS. 20 Payments will be allocated based on the Settling Parties most recently available 12-month firm maximum daily quantity ( MDQ ) history. 18 This Explanatory Statement is provided consistent with Rule 602(c) of the Commission s Rules of Practice and Procedure. 18 C.F.R (c). 19 Affidavit of James R. Downs on Behalf of Columbia Gas Transmission, LLC, Exhibit No. TCO-1 ( Downs Affidavit ). See also Article I of the Stipulation. 20 Contesting Parties (as defined in Section 9.1 of the Stipulation) will not be entitled to the settlement payment unless they become Settling Parties in accordance with Section 9.3 of the Stipulation. However, Settling Parties are entitled only to the settlement payment installments that are issued after the date that they obtained Settling Party status.

10 Page 10 of 31 B. Resetting of Base Rates, Base Rate Reductions, and Refund Floor Article III of the Stipulation provides for three separate reductions of Columbia s currently effective transportation base rates under Rate Schedules FTS, ITS, NTS, NTS- S, TPS, SST, OPT, and GTS ( Base Rates ), and the resetting of Base Rates. Columbia s first two Base Rate reductions will be effective January 1, 2016, with no interest component. 21 On that date, Columbia s obligations regarding Post Retirement Benefits Other Than Pensions ( PBOP ) described in Columbia s last general NGA Section 4(e) rate case settlement in Docket No. RP95-408, will be terminated, and Columbia will amortize, over a six-year period, the associated PBOP regulatory liability, estimated at $73.6 million. To reflect the termination of Columbia s obligations associated with the PBOP, Columbia will reduce its Base Rates by $8,367,554 annually. Additionally, to reflect the amortization of the PBOP regulatory liability, Columbia will reduce its Base Rates by approximately $12.2 million annually. 22 Effective February 1, 2019, Columbia will reset its Base Rates by adding the Base Rates and CCRM rate in effect as of January 31, 2019 ( Reset Base Rates ). The CCRM rate that becomes effective February 1, 2019 shall reflect both Eligible Facilities placed in service by October 31, 2018 and the additional investment in Eligible Facilities. Simultaneously with the resetting of Base Rates, Columbia will reduce the Reset Base Rates by $7.5 million annually. The CCRM Rate associated with the Eligible Facilities expenditures under the Stipulation will not be part of the base rate that constitutes the refund floor described below. The refund floor in Columbia s next general NGA Section 4(e) proceeding 23 shall be the sum of (i) the transportation and storage rates in effect on February 1, 2015, and (ii) the CCRM rate in effect on February 1, All cost and revenue components of Columbia s rates will be considered to be black-box in nature, with the exception of depreciation and negative salvage rates, which are stated in Article IV of the Stipulation. The Stipulation sets Columbia s transmission depreciation rate at 1.5 percent, its storage depreciation rate at Appendix C to the Stipulation shows the derivation of these two Base Rate reductions. Because there is no interest component to the early rate relief, timely Commission approval of the Settlement will facilitate customer receipt of the full benefit of the rate reductions. 22 Pursuant to Section 3.1 of the Stipulation, Contesting Parties are not entitled to the Base Rate reduction for transportation contracts that are in existence as of the date that the Stipulation is filed. In addition, under Article III of the Stipulation, the Base Rate reduction does not apply to incrementally-priced projects, negotiated rate agreements, or storage service contracts. 23 Excepting any NGA Section 4(e) filing made by Columbia with respect to any Contesting Parties.

11 Page 11 of 31 percent, and a negative salvage rate of 0.0 percent. Columbia will support, and make no attempt to increase, the transmission depreciation and negative salvage rates through December 31, 2024, and Columbia will make no attempt to increase the storage depreciation rates through the effective date of the rates in Columbia s next general NGA Section 4(e) rate case proceeding. Columbia will not seek to establish an Asset Retirement Obligation mechanism for transmission plant with an effective date prior to December 31, C. Base Rate Moratorium and Rate Case Filing Commitment Article V of the Stipulation provides for a moratorium on changes to the Settlement Base Rates through January 31, 2022, such that no new NGA Section 4(e) or any NGA Section 5 Base Rate change proposed by either Columbia or the Settling Parties, respectively, may become effective prior to February 1, 2022, subject to the following two exceptions: (1) Columbia may file a general NGA Section 4(e) rate case to be effective no earlier than February 1, 2021 in the event that new legislation, regulations, or issuance by the Commission take effect during the term of this Stipulation and impose new integrity, safety, efficiency, or environmental requirements such that Columbia must make incremental capital expenditures not contemplated in the EFP II; 24 and (2) Columbia may make a Section 4(e) filing with respect to any Contesting Parties. Article VI of the Stipulation provides that, absent Columbia s exercise of the option to file a rate case to become effective no earlier than February 1, 2021 as described in Article V, a Commission-approved agreement to continue the CCRM beyond the Second Term, or some other Commission-approved agreement reached among the Settling Parties, and excepting any NGA Section 4(e) filing made by Columbia with respect to any Contesting Parties, Columbia will file a general NGA Section 4(e) rate application no later than February 1, D. Amendment and Extension of the CCRM Article VII provides that the CCRM will be extended for the Second Term, allowing Columbia to recover the revenue requirement associated with Eligible Facilities that have been placed in and remain in service. The CCRM will continue to apply to Columbia s transportation shippers, except as otherwise specified in the Stipulation. Section 7.4 provides that the Second Term shall commence February 1, 2019, and extend until the effective date of Columbia s next general Section 4(e) rate filing (excepting any such filing made with respect to a Contesting Party) which will become effective between February 1, 2021 and February 1, 2022, subject to exceptions provided in Article VI. Section 7.1 provides for Columbia s recovery of $1.130 billion in investments during the 24 Columbia shall meet and confer with its customers before making such filing.

12 Page 12 of 31 Second Term, subject to an annual 15 percent tolerance. Columbia may recover up to $390 million ($335 million for transmission and $55 million for storage) in Eligible Facilities investment during 2018, 25 and $370 million per year ($335 million for transmission and $35 million for storage) in Eligible Facilities investment during 2019 and 2020, subject to 15 percent annual tolerances. Section 7.3 of the Stipulation describes the facilities and costs that are excluded from Eligible Facilities, and provides that Columbia shall maintain a CML level of $115 million for transmission and storage functions during calendar years 2018, 2019, and Columbia does not recover through the CCRM the revenue requirement associated with the CML, but may seek recovery of CML expenses in its next rate case. To the extent Columbia exceeds the maximum allowable expenditures beyond the 15 percent annual tolerances, Columbia shall treat such excess as CML expenses. Parties have the right to challenge Columbia s CCRM filings on grounds specified in Section Eligible Facilities Columbia will recalculate annually and implement, through limited annual filings under NGA Section 4(e), the CCRM Rate for recovery of the revenue requirement associated with designated Eligible Facilities that have been placed in and remain in service. 27 Eligible Facilities for the Second Term of the CCRM are identified in the EFP II attached as Appendix E to the Stipulation. Section 7.2 of the Stipulation allows for sufficient project flexibility and customer input as needed when Columbia determines that it is prudent to add, remove, substitute, or modify an Eligible Facility throughout the Second Term of the CCRM. Section 7.2 provides Columbia with the discretion to unilaterally perform additional bare steel replacement projects, to address issues Columbia reasonably believes could lead to imminent unsafe conditions, and to include the revenue requirements associated with such projects in the CCRM, provided that several specific conditions are met. Columbia also has the discretion to shift the timing or sequence of the projects in the Eligible Facilities Plan, subject to certain cost limits. Section 7.2 also provides that Columbia may unilaterally undertake projects that it reasonably determines to provide a more costeffective way to construct part or all of an Eligible Facility project, subject to cost limitations. 25 This includes storage projects constructed in 2016 and 2017 that will be eligible for recovery through the CCRM effective February 1, This includes a minimum of $15 million of annual CML for storage projects in 2018, 2019, and 2020, and a minimum of $25 million for storage projects in Columbia also agrees to spend no less than $15 million in CML on storage in 2016 and CML expenditures shall not be considered Eligible Facilities expenditures. 27 See Article VII of the Stipulation.

13 Page 13 of Recovery Periods Under Section 7.4 of the Stipulation, the CCRM shall remain in place for the Second Term, provided, however, that the CCRM shall allow for recovery of the revenue requirements of EFP II projects constructed during Each annual CCRM Rate filing will have an effective date of February 1, and shall include revenue requirements related to Eligible Facilities placed in service during the prior November 1 through October 31 period. 28 The CCRM Rate shall only include revenue requirements for Eligible Facilities placed into service from January 1, 2018 through December 31, 2020, except with respect to the additional investments in EFP II projects and subject to contingencies provided in Section 7.4. The CCRM does not recover the revenue requirement associated with Columbia s annual capital maintenance level CML expenditures. That amount is not recoverable by Columbia until the next rate case. 3. Calculation of the CCRM Rate Article VII provides that for the Second Term, the CCRM shall consist of (i) a total multiplier of percent, which is comprised of a pre-tax rate of return of percent (which is a reduction from the Modernization I Settlement s pre-tax return of 12 percent) and a Taxes Other than Income Taxes ( TOIT ) rate of 2.5 percent, 29 that shall be multiplied by the net investment associated with Eligible Facilities; and (ii) Columbia s transmission depreciation rate will be 1.5 percent and shall be multiplied by the gross plant associated with Eligible Facilities ( revenue requirement ). The revenue requirement will be allocated annually across a level of billing determinants for each CCRM Rate filing to derive the CCRM Rate on a per unit basis. Pursuant to Section 7.6 of the Stipulation, in order to provide rate stability and safeguard shippers against losses in billing determinants, Columbia will calculate the annual CCRM Rate utilizing the greater of: (i) for each CCRM period, actual annual billing determinants for all system customers, including Contesting Parties and nonincremental negotiated rate contracts, 30 and adjusted for discounted contracts, but exclusive of contracts for capacity on incrementally-priced projects (other than the 28 However, if the CCRM remains in place for the full Second Term the final CCRM Rate shall additionally include the revenue requirements related to Eligible Facilities placed in service during November and December of Section 7.10 provides that during the Second Term, the difference between (i) TOIT costs and (ii) TOIT costs recovered in rates will be recorded as a regulatory asset (Account 182.3) or liability (Account 254) until Columbia s next general rate case, where such assets or liabilities may be amortized and reflected in future rates. Any such asset or liability shall be capped at $27 million. 30 For purposes of this calculation, a non-incremental negotiated rate contract is an agreement for capacity that would otherwise be subject to the system-wide recourse rate.

14 Page 14 of 31 contracts that are subject to the CCRM as described below); or (2) a floor of 99,376,664 Dth. Section 7.7 of the Stipulation provides that each CCRM Rate calculation will include an annual true-up so that any over- or under-recovery of revenue requirements from the previous year shall be recovered in the next succeeding CCRM Rate filing, calculated each year (subject to the annual and overall CCRM caps) by comparing the actual revenue requirements to the revenues received during the recovery period. Under Section 7.5 of the Stipulation, the billing determinants associated with contracts for capacity on incrementally-priced projects generally will not be included in the CCRM unless and until they are eligible for rolled-in rate treatment (i.e., at the time the base system-wide recourse rate plus the CCRM Rate is equal to or greater than the incremental recourse rate). However, Section 7.5 explains the separate treatment of incrementally-priced expansion projects that directly utilize Eligible Facilities. 31 Contracts for expansion projects for which the Commission has accepted a system-wide recourse rate rather than an incremental rate will pay the full CCRM Rate. Section 7.9 of the Stipulation provides that Columbia will allocate a portion of the revenues derived from discount rate agreements to its calculation of actual revenues derived by the CCRM. Appendix G to the Stipulation illustrates the method for allocating such discount rate agreement revenues used in the calculation of actual revenues derived by the CCRM, and the calculation is further described in Mr. Downs affidavit. 32 Non-incremental negotiated rate agreement billing determinants will be imputed at the maximum CCRM Rate. However, negotiated rate volumes utilizing incrementally-priced facilities will not be included in the CCRM. 4. CCRM Expiration Columbia and the Parties will meet prior to the end of the Second Term to discuss the potential extension of the CCRM, and if agreement to extend is not reached and approved by the Commission, the CCRM will expire at the end of the Second Term, in accordance with Section 11.3 of the Stipulation. Section 7.4 of the Stipulation provides that the CCRM will expire in the event that Columbia files a general rate increase pursuant to the rate case filing commitment or if Columbia files a general rate following 31 An incrementally-priced expansion project directly utilizes an Eligible Facility if the construction of the Eligible Facilities project and the expansion project concurrently results in a lower overall cost for the combined projects than constructing each project on a stand-alone basis, or if, in the absence of an Eligible Facility project, the incrementally-priced expansion project would have required the installation of additional facilities in order to meet the project s needs. 32 Downs Affidavit at

15 Page 15 of 31 new legislation, regulations, or issuance by the Commission that takes effect during the Second Term that imposes new integrity, safety, efficiency, or environmental requirements such that Columbia must make incremental capital expenditures not contemplated in the EFP II. In the event that Columbia terminates the CCRM by filing a general NGA Section 4(e) rate increase, the CCRM will expire on the date that new rates become effective. At such time, the CCRM Rate will be zero and Columbia will file to remove all references to the CCRM from its tariff. 5. Procedures for Involvement of the Settling Parties As part of the Settlement, Columbia agreed to continue the process that allows the Parties to provide meaningful input. Columbia will continue to meet with customers at least once a year to discuss any customer concerns in advance of its annual filing to implement the CCRM Rate, and to conduct a review of the revenue requirement that will be used to calculate the upcoming CCRM Rate, and address any questions regarding the upcoming year s Eligible Facilities projects. More specifically, under Section 7.2 of the Stipulation, Columbia will hold one annual meeting, to which all of the Parties are invited, no later than October 30 of each year to discuss upcoming Eligible Facilities projects; Eligible Facilities projects from the prior year; proposed additions, removals, or substitutions of Eligible Facilities; and anticipated outages resulting from Eligible Facilities projects. 33 Under Section 8.12 of the Stipulation, Columbia will provide detailed information to the Parties annually during the term of the CCRM. The Parties may request an order from the Commission requiring Columbia to provide additional information not described in Section 8.12, and Columbia may object to such requests. In addition, the Parties and Columbia will meet prior to the end of the Second Term to discuss the potential extension of the CCRM, as described above. Section 7.1 of the Stipulation also expressly preserves the Parties ability to challenge Columbia s CCRM filings. E. Revenue Sharing Mechanism Section 7.8 of the Stipulation implements an annual Revenue Sharing Mechanism ( RSM ), pursuant to which, effective January 1, 2019, Columbia will share with the Parties 50 percent of Columbia s base system revenues to the extent they are above the sum of $750 million and (ii) the actual 5th-year CCRM revenue requirement 33 Columbia also will meet and confer with its customers before filing any general rate increase in response to legal or regulatory changes imposing new requirements such that Columbia must make incremental capital expenditures not contemplated in the EFP II. Columbia also has agreed to meet with its customers to discuss improvements in Columbia s ability to accommodate storage injections via deliveries to customers to the customers city gate delivery points.

16 Page 16 of 31 from the Modernization I Settlement (estimated at approximately $183.5 million). 34 Columbia shall retain the remaining 50 percent of revenues above the base system revenue threshold. Columbia will annually, by May 1, provide the Parties with a report detailing the total base system revenues and detailing whether or not the threshold for revenue sharing has been met. The revenue payments will be paid to the Parties that were charged and paid the CCRM Rate during the relevant prior period, and allocated based on their most recently available 12-month primary firm maximum daily quantity history. Columbia will describe whether or not the threshold for revenue sharing was met and, if so, will provide details regarding the revenue sharing amount and shipper allocations by May 1 of the following year in a filing submitted to the Commission. F. Storage Deliverability Targets, Reservation of Storage Capacity, and Toleration of Imbalances. Section 7.11 of the Stipulation provides for projected annual milestones in storage deliverability increases from committed CML and Eligibility Projects during the Second Term. Section 7.11 further provides that Columbia will reserve an unsubscribed Maximum Daily Storage Quantity of 133,962 Dth/day for operational purposes, effective on the date of a Final Order approving the Stipulation and continuing through April 1, Section 7.11 further provides that Columbia will describe its progress in attaining the projected storage deliverability increase milestones in its annual meetings with customers, and Section 7.12 provides that Columbia will meet with firm storage customers to discuss improvements in its ability to accommodate customers storage injections via deliveries to customers city gate delivery points that create imbalances. G. CCRM Filing Requirements Consistent with commitments Columbia made following its filing of the Modernization I Settlement, Section 7.13 provides that Columbia will include the following information in its annual CCRM filings: i. a narrative explanation of Eligible Facilities projects that are included in the computation of the Capital Revenue Requirement to be recovered in that filing, setting forth the rationale for each project based on the criteria 34 The RSM is derived from transmission and storage revenues, and excludes revenues associated with contracts for capacity on incrementally-priced projects, the CCRM, ACA, and Columbia s other surcharges.

17 Page 17 of 31 contained in EFP II; ii. supporting workpapers that separately identify all amounts included in the Capital Review Requirement with attribution to (1) the applicable account under the Uniform System of Accounts and (2) the specific project in EFP II to which the amount relates; iii. an explanation for any changes to the timing of any Eligible Facilities project under the modernization program from the schedule set forth in Appendix E to the Stipulation; iv. for each Eligible Facilities project that will result in increased capacity, an indication of whether such capacity will be reserved for system flexibility; and v. an overview of incrementally-priced expansion projects placed into service during the immediately prior year or projected to be placed into service during the preceding year, with a calculation of any Capital Revenue Requirement attributed to that facility, or if no capital revenue was attributed, an explanation for that treatment. H. Additional Terms In order to facilitate agreement between the parties, Columbia agreed to several additional items that will benefit the Settling Parties. Section 8.1 of the Stipulation imposes a moratorium on modification to Columbia s Master List of Interconnections ( MLIs ) until the earlier of the effective date of the rate case required to be submitted pursuant to Article VI of the Stipulation, or the expiration date of the Initial Term of the CCRM, subject to certain exceptions. Section 8.2 of the Stipulation provides that Columbia will not propose marketbased rates for any new storage expansions on its system through the term of the Settlement Base Rate moratorium. Section 8.3 of the Stipulation states that Columbia will adjust its Base Rates and its CCRM Rate upon the effectiveness of any new U.S. Federal Corporate Income Tax rate that becomes effective during the Second Term of the CCRM. Section 8.4 of the Stipulation states that Columbia will extend its existing Operational Transactions Rate Adjustment ( OTRA ) mechanism through March 31, Section 8.5 of the Stipulation provides that Columbia will maintain the operational capacity identified during the course of the EFP I and EFP II implementation as system flexibility and reliability, unless otherwise agreed by

18 Page 18 of 31 the Consensus 35 of the Parties. In addition, Columbia will include in the annual information provided a presentation that describes the benefits to system flexibility and reliability that are anticipated to result from the current year s Eligible Facilities projects and a presentation of the benefits of Eligible Facilities placed into service during the prior year. Appendix H to the Stipulation provides a discussion of such annual information. Section 8.6 of the Stipulation imposes a moratorium on new tracker mechanisms while the CCRM is in effect, subject to certain exceptions. Section 8.7 of the Stipulation explains that Columbia will retain legal and regulatory responsibility for the design, construction, installation, operation and maintenance of its own facilities. This Section also sets forth provisions addressing indemnification of the Parties. Section 8.8 of the Stipulation explains that the Stipulation is specifically designed to apply to the unique physical, operational, and other circumstances of the Columbia system as it currently exists, and should not be regarded as applicable to, or as a precedent for, any other pipeline systems or the Columbia system in a subsequent period. Section 8.9 of the Stipulation states that, to the extent modernization of Columbia s system will allow, and to the extent operationally feasible, Columbia will make available greater shipper flexibility and allow primary point change requests, with the exception of the storage deliverability capacity reserved for operational purposes pursuant to Section 8.5. Section 8.10 of the Stipulation states that no party has waived its rights to advocate any position it deems warranted in any blanket prior notice filing or in an application under an NGA Section 7(c) by Columbia for a certificate of public convenience and necessity applicable to any potential CCRM Eligible Facility. Failure to protest a NGA Section 7(c) certificate filing does not waive any Party s right to challenge recovery of revenue requirements attributable to that project in the CCRM. Section 8.11 of the Stipulation states that the Stipulation will not supersede any contractual arrangement between releasing and replacement shippers regarding entitlement to refunds provided under the Stipulation. Section 8.12 of the Stipulation describes in detail the information to be provided to the Parties annually during the term of the CCRM. Section 8.13 of the Stipulation provides that all refunds and payments under the Stipulation will be provided as a bill credit if practicable, or as a direct payment to the shipper in certain circumstances. 35 Consensus is defined in Section 7.2 of the Stipulation as at least 75 percent of the billing determinants paying the CCRM Rate... that support or do not oppose the proposed change as determined at the meeting required by Section 7.2(ii).