~ PEOPLES ~ Formerly EQJ) I TABLE GAS

Transcription

1 ~ PEOPLES ~ Formerly EQJ) I TABLE GAS

2 BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION PENNSYLVANIA PUBLIC UTILITY COMMISSION v. Docket No. R PEOPLES NATURAL GAS COMPANY LLC - EQUITABLE DIVISION PREPARED DIRECT TESTIMONY OF JOSEPH A. GREGORINI, VICE PRESIDENT, RATES AND REGULATORY AFFAIRS PEOPLES NATURAL GAS COMPANY LLC EQUITABLE DIVSIION DATE SERVED: April 1, 2014 DATEADMITTED: Peoples-Equitable Division Statement No.1

3 PREPARED DIRECT TESTIMONY OF JOSEPH A. GREGORINI 1 Q. 2 A. 3 PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. My name is Joseph A. Gregorini, and my business address is 375 North Shore Drive, Suite 600, Pittsburgh, Pennsylvania Q. 6 A. BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY? I am employed as Vice President, Rates and Regulatory Affairs for Peoples Natural Gas LLC 7 ("Peoples", or the "Company"). Pursuant to the Commission approved affiliated interest agreements between Peoples and Peoples Service Company LLC ("PSC") and between PSC and Peoples TWP LLC ("PTWP"), I oversee rates and regulatory affairs services for Peoples (including the Equitable Division), PTWP, Peoples Gas WV LLC, and Peoples Gas KY LLC Q A BRIEFLY STATE YOUR EDUCATION BACKGROUND AND EMPLOYMENT EXPERIENCE. I graduated from The Pennsylvania State University in November 1982 with a Bachelor of Science Degree in Mineral Economics. In January 1983, I began full-time employment with the Federal Energy Regulatory Commission ("FERC") as an Economist in the Allocation and Rate 17 Design Branch of the Office of Pipeline and Producer Regulation. While at the FERC, I participated as a member of the FERC staff in various proceedings, including base rate and certificate proceedings. In July 1986, I joined Equitable Gas Company ("Equitable") as an 20 Energy Planner in Equitable's Energy Planning Department. In that position, my primary 21 '2 responsibility included the analysis of rate filings of Equitable's direct and indirect pipeline suppliers. In August 1987, I joined Peoples' predecessor, The Peoples Natural Gas Company, as I Peoples-Equitable Division Statement No.1

4 1 2 a Rate Analyst and was promoted to Senior Rate Analyst in March In these positions, my responsibilities have included the preparation and coordination of rate case components and 3 other filings, and the preparation of Peoples' cost of service and rate design studies. In December 1997, I was promoted to the position of Supervisor, Rates and Regulatory Affairs. In 1999, my position was reclassified to Manager, Pricing and Regulatory Affairs. In April 2010, I was promoted to Vice President, Rates and Regulatory Affairs, the position that I currently hold. In that capacity, I am responsible for directing the Rates, Regulatory and Government Affairs functions for Peoples, Peoples TWP, Peoples Gas WV LLC, and Peoples Gas KY LLC f Q. A. Q. A. WHAT IS THE PURPOSE OF YOUR TESTIMONY? I am the witness with general responsibility for the information presented in support of Peoples Equitable Division's ("EGC" or "the Company") (f) ("PGC-2014") Purchased Gas Cost Adjustment. In addition, my testimony will discuss: The identification of other Equitable's witnesses and their case responsibilities; A general overview of the recent acquisition of Equitable Gas Company ("EGC") by PNG Companies LLC and its merger into Peoples and the new gas supply agreement with EQT Energy and the ability of Peoples to provide access to services under these agreement to Equitable natural gas suppliers serving Firm Delivery Service ("FDS") customers; The potential to blend gas cost rates for the Peoples and Equitable Divisions; and A discussion of certain proposed tariff revisions that are set forth in the Peoples-Equitable Division's Filing at 53.64(a) Section II. WILL YOU BE SUPPORTING ANY EXHIBITS? No. 2 Peoples-Equitable Division Statement No.1

5 1 2 GENERAL WITNESS RESPONSIBILITIES Q. A. PLEASE INTRODUCE PEOPLES' WITNESSES. Jeffrey S. Nehr is the Company's primary gas supply witness and, through Peoples-Equitable Division Statement No.2, will support the gas procurement policies and portfolio, support supply planning, provide insights into the projected period procurement plans and address Lost 8 and Unaccounted For Gas ("LUFG"). Jason Dalton through Peoples-Equitable Division Statement No.3 will provide additional support on the Company's gas supply portfolio as well as providing information on updated balancing and standby service studies, actual system unaccounted-for gas and fuel levels, retainage levels, and the system average BTU factor. Carol Luniewski sponsors Peoples-Equitable Division Statement No.4 and provides support of the EGC purchased gas cost rates, presents the proposed October 1, 2104 tariff sheets and provides evidence regarding certain negotiated gas cost related charges applicable to EGC's transportation customers EQUITABLE GAS ACQUISITION AND RELATED GAS SUPPLY AGREEMENTS i Q. A. PLEASE BEGIN BY PROVIDING A GENERAL OVERVIEW QF THE ACQUISITION OF EGC AND ITS MERGER INTQ PEOPLES ("TRANSACTION"). On March 19, 2013, Peoples, Peoples TWP, and EGC filed a Joint Application with the Commission requesting various necessary approvals, some of which included: (1) the transfer of 100% of the membership interests in EGC to PNG Companies LLC, Peoples' direct parent and an indirect subsidiary of SteelRiver Infrastructure Fund North America LP; (2) the merger of 3 Peoples-Equitable Division Statement No.1

6 EGC with Peoples and the operation of the former EGC properties and business as an operating division of Peoples; (3) the transfer of certain storage and transmission assets of Peoples to EQT; and (4) the associated gas capacity, storage, and supply service agreements among Peoples, Peoples TWP, EGC, arid/or EQT. The Joint Application was docketed at Docket Nos. A , A , and A (the "Acquisition Proceeding") and referred to 6 the Office of Administrative Law Judges for hearing. The active parties in the case filed ~ testimony, and before hearings were held, these parties were able to reach an agreement resolving all issues in the case. A Joint Petition for Settlement was submitted to the presiding Administrative Law Judge, who entered an Initial Decision on November 1,2013, approving the Joint Petition for Settlement. On November, 14, 2013, the Commission entered an Order approving the Initial Decision and thereby approving the Joint Petition for Settlement of all issues in the Acquisition Proceeding. By this Order, the Commission approved the merger of EGC with Peoples; the transfer of certain storage and transmission assets of Peoples to affiliates of EQT; and the execution of certain agreements for storage and transportation services between EGC and Equitrans and a gas supply agreement between EGC and EQT Energy, LLC ("EQT Energy"). On December 17, 2013, the Transaction was closed between the parties that allowed for the transfer of the EGC natural gas distribution business and its merger into Peoples \ Q. A. PLEASE DESCRIBE THE GAS SUPPLY RELATED AGREEMENTS THAT WERE APPROVED BY THE COMMISSION IN THE ACQUISITION PROCEEDING. I will provide a general overview of these agreements and explain Peoples' proposals to make the capacity and gas supplies under those agreements available to natural gas suppliers ("NGSs") serving FDS customers on the EGC system. As part of the EGC acquisition proceeding the 4 Peoples-Equitable Division Statement No.1

7 1 Commission approved the extension of the pre-existing firm capacity contracts in place with 2 Equitrans and a new agreement with EQT Energy for gas commodity supplies. 3 EGC has in place four firm service capacity agreements with Equitrans that are used to 4 meet the seasonal and peak day needs of its customers. These agreements include two storage 5 service agreements, a no-notice transportation service agreement and a firm transportation 6 service agreement. The first storage service agreement -- 60SS Service -- provides storage 7 peaking services up to 137,010 Dth per day. The second storage service agreement - 115SS 8 Service - provides for a base load storage service with Equitrans for 50,536 Dth of daily 9 capacity. EGC also has in place a no-notice transportation (''NOFT'') service agreement with 10 Equitrans that provides 79,545 Dth of NOFT daily capacity. The last of these service 11 agreements is an FT transportation agreement that provides for firm transportation rights on 12 Equitrans of up to 164,935 Dth per day. The FT contract of 164,935 Dth per day will be used in 13 conjunction with the new NAESB agreement discussed immediately below. The contract terms 14 for all four of these agreements were extended to March 31, 2034 at the capacity levels set forth 15 in the pre-existing agreements. These contract extensions were reviewed and approved by the 16 Commission in the EGC acquisition proceeding. 17 On December 19, 2012, Peoples and EQT Energy entered into a base NAESB contract 18 for the sale of natural gas by EQT Energy to EGC. On December 17, 2013, Peoples and EQT 19 Energy executed a transaction confirmation under the 12/19/12 base NAESB contract with an 20 effective date of April 1, Under this agreement EQT Energy will sell to EGC an annual 21 volume of20 MMDth, with EGC having the right to call up to 164,935 Dth per Day. During any 22 month of the year, EGC can purchase gas supplies under a First of the Month Call Option at the 23 Inside FERC DTI Appalachian Index. During the winter period, EGC can purchase gas supplies 1 at a varying daily quantity under an Intra-Month Call Option at Gas Daily Midpoint, 5 Peoples-Equitable Division Statement No.1

8 Appalachian Dominion South Point prices. The Intra-Month Call Option allows EGC to call on commodity supplies of up to 164,935 Dth per Day on 24 hours' notice throughout the winter. In exchange for the right to call on significant volumes of gas on a daily basis throughout the winter, EGC will pay a winter-only daily demand charge equal to $ Dth. As I will describe later in my testimony, EGC is proposing to create a newly designed 1307(f) capacity cost charge that will recover a portion of these demand costs from Rate FDS transportation 7 customers. EQT Energy will deliver gas under this agreement to certain receipt points on 8 9 Equitrans' Sunrise and Mainline systems from which it will be delivered to EGC under the FTS firm transportation agreement with Equitrans i Q. A. WILL THE CAPACITY UNDER THE FOUR EQUITRANS SERVICE AGREMENTS AND THE GAS SUPPLIES UNDER THE NEW SUPPLY AGREEMENT WITH EQT ENERGY BE MADE AVAILABLE TO NATURAL GAS SUPPLIERS SERVING EGC'S SHOPPING CUSTOMERS? Yes. The terms of the existing Firm Pooling Service ("FPS") Rate Schedule, allows for the prorata assignment of Equitrans pipeline capacity to natural gas suppliers that are serving FDS customers. However, EGC does not assign the capacity covered by its No-Notice transportation service agreement. This capacity is retained by the Company for system and transportation balancing purposes. The Company proposes to continue the assignment of the Equitrans storage (60SS and 115SS) and FT capacity to FPS suppliers. As part of this proceeding and in order to encourage customer choice, the Company is proposing a tariff change that will provide FPS suppliers with an option to purchase from EGC 23 the gas supplies available to the Company under the EQT Energy NAESB contract. This 4 purchase option will be available to the extent that a FPS supplier also receives an assignment 6 Peoples-Equitable Division Statement No.1

9 1 2 3 from EGC of Equitrans FT pipeline capacity. Any of this gas sold by EGC to FPS natural gas suppliers will be at the same prices paid by the Company under the EQT Energy NAESB contract Q. A. BESIDES THE EQUITRANS CAPACITY, WILL THE COMPANY MAKE AVAILABLE TO SUPPLIERS ANY OTHER PIPELINE CAPACITY? Yes. As discussed in the direct testimony of EGC witness Jeffrey Nehr, the Company has recently entered into a firm storage service agreement and a corresponding no-notice firm 9 transportation service agreement with Dominion Transmission Inc. ("DTI"). The storage agreement under Rate Schedule GSS provides for 4,600,000 Dth of storage capacity and up to 40,000 Dth/day of deliverability. The firm transportation agreement under Rate Schedule FTNN provides for no-notice transportation of up to 40,000 Dth/day. These services were required to address a supply reliability need for gas feeding the Equitrans Line H152. The Company is proposing to revise the terms of its Rate FPS to also allow for the assignment of this DTI capacity to FPS suppliers. The addition of this capacity to the EGC gas supply portfolio will not only address a critical gas supply need but will also provide another upstream capacity option and add market liquidity and storage capacity for FPS natural gas supplies on the system BLENDING OF RATES FOR PEOPLES AND EOUITABLE Q. A. WAS THE ISSUE OF BLENDING THE EXISTING RATES FOR EQUITABLE AND PEOPLES ADDRESSED IN THE ACQUISITION PROCEEDING? Yes. In the filed application, Peoples proposed that the blending of rates not be addressed in the ~ Acquisition Proceeding. Peoples proposed and received Commission approval to initially 7 Peoples-Equitable Division Statement No.1

10 operate EGC as a separate operating division for accounting purposes and maintain separate rates and tariffs. Peoples agreed to keep separate sets of accounting records for both Peoples and EGC until such time in the future that the Peoples and EGC tariffs are merged. In the Acquisition Proceeding, Peoples agreed to a rate case stay-out that would not allow Peoples to revise or merge the Peoples or EGC non-gas base rates prior to January 1,2018. This rate case stay-out provision would not allow Peoples to seek to merge the existing tariffs or base rates until January 1, l Q. A. Q. A. Q. A. DO THE REQUIREMENTS TO MAINTAIN SEPARATE ACCOUNTING AND NOT MERGE TARIFFS OR NON-GAS BASE RATES RESTRICT PEOPLES ABILITY TO SEEK APPROVAL TO MERGE 1307(F) GAS COST RATES? No, they do not. IS PEOPLES PROPOSING TO MERGE GAS COST RATES IN THE CURRENT ANNUAL 1307(F) FILINGS OF PEOPLES AND EQUITABLE? No, not at this time. However, Peoples is taking steps now to align gas cost rates for EGC and Peoples. These steps are designed to support the concept of blending the gas cost rates of Peoples and EGC in the near future. PLEASE EXPLAIN THOSE STEPS. As described earlier in my testimony, EGC and EQT Energy recently entered into a base NAESB contract for the sale of natural gas by EQT Energy to EGC. This contract allows the Company to purchase commodity gas supplies of 20,000,000 Dth annually at DTI South Point market index prices. These supplies will be delivered to EGC by using the firm transportation capacity under 8 Peoples-Equitable Division Statement No.1

11 contract with Equitrans. Also, as part of the Acquisition Proceeding, Peoples received Commission approval to enter into a similarly structured NAESB contract with EQT Energy. These NAESB contracts became effective on December 17, Like EGC, this contract allows Peoples to purchase commodity gas supplies of 15,000,000 Dth annually at DTI South Point market prices and these supplies will be delivered to Peoples through the firm 6 transportation capacity it has under contract with Equitrans. Moreover, as discussed and supported in the direct testimony of witness Jeffrey Nehr filed in this proceeding and in the separately docketed Peoples 1307(f)-2014 proceeding, both Peoples and EGC have entered into storage contracts with DTI. Gas acquired by EGC and Peoples to fill this storage will also be purchased at DTI market prices. As a result of the NAESB gas purchase and the DTI storage contracts, the gas to be acquired by both divisions -- other than locally produced gas and some minor amounts of gas to be purchased by Peoples and delivered through other pipeline contracts - will be purchased at the same market prices (DTI Appalachian Index) t Q. A. YOU JUST DESCRIBED HOW THE GAS PURCHASED AND DELIVERED INTO INTERSTATE PIPELINE CONTRACTS BY EQUITABLE AND PEOPLES WILL BE SIMILARLY PRICED. DO THE EXISTING LOCAL GAS PURCHASE CONTRACTS IN PLACE AT EQUITABLE AND PEOPLES FOR GAS THAT IS PRODUCED DIRECTLY INTO THEIR RESPECTIVE SYSTEMS CONTAIN SIMILAR PRICING TERMS? Currently, no. However, we are still evaluating the differences and plan to revise the local gas contracts at EGC to match, where we can, the standard local price formula that is in place at Peoples. 9 Peoples-Equitable Division Statement No.1

12 Since 1996, Peoples has purchased the vast majority of local gas at prices based on the DTI Appalachian market index. This pricing strategy was designed to align the price for local gas with the prices paid for gas purchased and delivered via interstate pipelines. As discussed in the direct testimony of EGC witness Jason Dalton, EGC purchases directly delivered local gas supplies under various index based contracts. Peoples' Gas Supply Department is currently performing a detailed review of the numerous EGC local gas purchase contracts. This review is being performed in order to determine our ability to either revise these contracts or enter into new contracts so that a more simplified, consistent, and current market-based monthly local gas purchase price can be put in place. It is our goal to modify the market based local gas purchase contracts in place at EGC so that they match the same standard DTI Appalachian market-based pricing terms contained in the Peoples' local gas contracts. This review and evaluation is currently ongoing and is expected to be completed in the coming months. Following that review/evaluation and where permitted under the contracts, it is Peoples' intention to notify affected producers and begin implementation of the pricing changes. Once the evaluation and implementation of local gas pricing changes occurs later this year, essentially all or a very significant portion of the gas commodity supplies acquired by EGC and Peoples will be purchased under the same pricing terms Q. A. ARE THERE MEASURES UNDERWAY THAT SUPPORT BRINGING THE UNDERLYING PURCHASE GAS COSTS TOGETHER? Yes. We have begun taking steps to increase the ability for gas to move more freely to and from both systems. Upon closing of the Acquisition, Peoples merged the operations and management of Peoples and EGC into a single operations unit. This was done to allow Peoples to eliminate the redundancies and inefficiencies that existed under separate ownership. As an initial step in 10 Peoples-Equitable Division Statement No.1

13 the combined operation of both systems, we have begun to review and identify areas of the systems where redundant pipelines exist. In those areas, we will find situations where it will make more economic sense to attach customers on one system to the pipeline facilities of the other system as Peoples moves forward with pipeline replacement or repair projects. As a matter of fact, Peoples will be filing in the coming months a new combined Peoples/EGC Long Term Infrastructure Improvement Plan ("L TIIP") that will specifically address the effects of the acquisition including how redundant facilities of the Peoples and EGC Divisions will be handled. Peoples' future pipeline replacement plans as set forth in the upcoming combined LTIIP will include the evaluation of optimizing the redundant and overlapping distribution assets between both systems. Further, Peoples is looking for opportunities to create interconnections between EGC and Peoples to increase the operational flexibilities on both systems and maximize the opportunities to use local gas supplies to serve customers Q. A. WHAT IS THE COMPANY PROPOSING IN THIS CASE REGARDING THE ACTUAL BLENDING OF GAS COSTS RATES OF PEOPLES AND EQUITABLE? The Company is not offering a proposal in this case to blend gas costs rates. However, as described above we are taking steps to align the underlying gas costs of EGC and Peoples in order to support our efforts to create a more fungible flow of gas between both systems. We believe that once we are able to further assess the ability to align the local purchase gas costs prices on EGC with those on Peoples and have a better idea as to the extent of operationally efficient system interconnections, we will be able to provide a definitive proposal for combing the gas cost rates of Peoples and EGC. I expect that the Company will present such a proposal in the (t) filings of both Peoples and EGC. 11 Peoples-Equitable Division Statement No.1

14 1 2 TARIFF REVISIONS Q. A. PEOPLES-EQUITABLE DIVISION'S WITNESS CAROL LUNIEWSKI PRESENTS CERTAIN TARIFF MODIFCATIONS TO RATE FDS - FIRM DELIVERY SERVICE AND RATE FPS - FIRM POOLING SERVICE. PLEASE PROVIDE AN EXPLANATION OF THE PROPOSED TARIFF MODIFICATIONS CONTAINED IN THESE RATE SCHEDULES. The proposed tariff modifications, which are shown in Item 53.64(a) of the filing on tariff pages 51 and 59-61a, are designed to improve and simplify EGC's small customer transportation program and will encourage suppliers to participate in the small customer choice program on EGC. The modifications include: 1. A revision to Rate FDS -;- Firm Delivery Service (Section 3.1; Page 51) to modify the recovery of gas supply related demand costs from essential human needs transportation and other small transportation customers; 2. Modifications to Rate FPS - Firm Pooling Service (Section 3.1; Pages 59-60) to reflect an update to the pipeline capacity that will be available for assignment and to simplify the capacity assignment options available to NGSs; 3. Modification to Rate FPS - Firm Pooling Service (Section 3.1; Page 61) to provide FPS suppliers with the option to purchase certain gas supplies from the Company; and 4. Modification to Rate FPS - Firm Pooling Service (Section 3.4; Page 62) regarding Contract Durations. These proposed tariff revisions, which are described in more detail below, are intended to improve and simplify certain features of the EGC small customer choice program. 12 Peoples-Equitable Division Statement No. 1

15 1 2 3 Q. BEFORE YOU DESCRIBE THESE MODIFICATIONS, CAN YOU DESCRIBE THE GENERAL FEATURES OF CURRENT RATE FDS AND RATE FPS? 4 A. Yes. Rate FDS - Firm Delivery Service is the rate schedule under which EGC provides transportation services to its small "Choice" customers. The customers eligible for service under Rate FDS include any essential human needs customers as well as any customer that uses 300 Mcf per year or less. EGC's Rate FPS - Firm Pooling Service is the rate schedule that governs pooling aggregation services for NGSs that serve Rate FDS customers. Currently, under the terms of Rate FPS, there is a two-tiered approach for the assignment of pipeline capacity to NGSs. The first tier requires that no capacity will be assigned to any NGS with a combined Maximum Daily Quantity ("MDQ") of less than 1,000 Mcf per day. The second tier requires that NGSs with an MDQ that equals 1,000 Mcf per day or greater be assigned firm pipeline 13 transportation and storage capacity. Moreover, under the rates set forth in Rate FDS, the Company does not currently recover from shopping customers the costs of any pipeline capacity assigned to NGSs. Currently, any NGS that receives an assignment of capacity is responsible for paying the interstate pipelines for such capacity and the NGS is responsible for recovering the cost of any assigned capacity directly from FDS customers Q. A. PLEASE ELABORATE ON THE PROPOSED REVISION TO RATE FDS? Rate FDS - Firm Delivery Service (page 51) - Currently, Rate FDS includes a Balancing Charge that recovers the Equitrans capacity costs incurred by the Company for providing balancing services to its FDS customers. EGC utilizes the services under its no-notice firm transportation ("NOFT") with Equitrans in order to provide balancing services to its transportation customers. Accordingly, the current Balancing Charge under Rate FDS only includes NOFT capacity costs. 13 Peoples-Equitable Division Statement No.1

16 The Company is proposing to maintain the current recovery ofnoft capacity costs used for balancing from Rate FDS customers. However, we are proposing to expand this charge to also include other pipeline and gas supply related demand/capacity costs associated with the gas supply assets made available to NGSs under Rate FPS that are serving FDS customers. Since EGC makes available, for assignment to FPS suppliers, capacity under Equitrans storage contracts (60SS and 115SS) and FT contracts and will be making available the newly acquired DTI storage capacity, it is proposing to include the demand costs associated with these contracts 8 in a new "Capacity and Balancing Charge" set forth in Rate FDS. Further, as described previously in my testimony, the Company is also proposing to provide FPS supplies with an option to purchase firm gas supplies from EGC acquired under the NAESB agreement with EQT Energy. Accordingly, we are proposing that the newly designed Capacity and Balancing Charge also include the demand costs associated with the NAESB agreement. This proposed rate recovery mechanism is consistent with the long-standing method at Peoples under which all demand related costs for its gas supply contracts are assessed to all retail customers and small choice transportation (priority One) customers. This change will also simplify the recovery mechanism for suppliers and create a consistent price-to-compare charge assessed by suppliers that will only include the cost of commodity supplies. As discussed later in my testimony, the Company is also proposing that capacity will be released to suppliers at a zero cost basis Q. A. ARE YOU PROPOSING THAT THE NEW CAPACITY AND BALANCING CHARGE MECHANISM UNDER RATE FDS BECOME EFFECTIVE ON OCTOBER 1, 2014? No. The Company proposes that the change to a new recovery mechanism that will include all gas supply demand/capacity costs be implemented on April 1, We are however proposing that the existing Balancing Charge, that becomes effective on October 1, 2014, should be 14 Peoples-Equitable Division Statement No.1

17 expanded to include the demand costs associated with the EQT Energy contract. It is appropriate to include the EQT Energy demand costs in the October 1, 2014 rate because the Company is proposing to permit FPS suppliers to purchase a portion of the gas supplies available to EGC under the EQT Energy NAESB agreement Q. WHY ARE YOU PROPOSING TO DELAY THE FULL IMPLEMENTATION OF THE NEW CAPACITY AND BALANCING CHARGE MECHANISM UNTIL APRIL 1,2015. Today, there is only one FPS supplier that is providing services to FDS customers on the EGC 9 system. Consistent with the current recovery mechanism, this supplier (Dominion Energy Solutions) currently is assessing to its FDS customers a supply charge that includes upstream capacity demand costs associated with the capacity assigned to it. In anticipation of the proposed FDS recovery mechanism, the Company has been in direct contact with this supplier to 1.3 coordinate the proper time to convert to this revised recovery mechanism. Based on this discussion and in order to allow for a proper transition for customers and the lone FPS supplier to the new rate mechanism, the Company is proposing that the revised charge mechanism become effective April 1, This will allow the current FPS supplier to reflect the revised supplier pricing provision in its new customer contracts and will avoid a transition to the new method in the middle of a storage season Q. A. PLEASE DESCRIBE THE SECOND PROPOSED MODIFICATION ABOVE THAT WILL REVISE RATE FPS - FIRM POOLING SERVICE TO REFLECT CHANGES IN CAPACITY ASSIGNMENT RULES. The first change on Page 59 of Rate FPS reflects the addition of the new DTI storage service to EGC's gas supply portfolio. The first set of changes shown on Page 59 of Rate FPS is to allow 15 Peoples-Equitable Division Statement No.1

18 J for the assignment of capacity under the new DTI storage contract. There is also a change to remove the reference to Texas Eastern capacity which is no longer held by the Company. The second set of changes on Page 59 of Rate FPS are designed to streamline the provisions of the FPS service by eliminating the provision of the current rate schedule that requires that no capacity be assigned to any supplier with a combined Maximum Daily Quantity ("MDQ") ofless than 1,000 Mcfper day. The Company is proposing that any FPS, regardless of size, will receive an assignment of pipeline capacity. The final change here, which is shown at the top of Page 61 of Rate FPS, will allow EGC to release pipeline capacity to FPS suppliers at zero cost. This will avoid the administrative steps needed to release pipeline capacity at maximum rates and the subsequent reimbursement to FPS suppliers by the Company so they can in tum pay the pipelines for assigned capacity. Since this change is tied to the proposal to revise the pipeline capacity recovery mechanism, it too should be implemented effective April 1, Q. A. PLEASE DESCRIBE THE THIRD PROPOSED MODIFICATION THAT WILL PROVIDE FPS SUPPLIERS WITH THE OPTION TO PURCHASE CERTAIN PURCHASE GAS SUPPLIES FROM THE COMPANY. The Company is proposing to add a provision to Page 61 and 61 a of Rate FPS to provide FPS suppliers with an option to purchase supplies from EGC under the EQT Energy NAESB. This will simplify supply options for NGSs and will encourage customer choice. This purchase option will be available to the extent that an FPS supplier also receives an assignment of Equitrans FT pipeline capacity. Any of this gas sold by EGC to FPS suppliers will be at the same favorable Dominion South Point index prices paid by the Company under the EQT Energy NAESB contract. 16 Peoples-Equitable Division Statement No.1

19 1 2 Q. PLEASE DESCRIBE THE FOURTH PROPOSED MODIFICATION THAT WILL 3 REVISE THE CONTRACT DURATION PROVISION OF RATE FPS (SECTION 3.4, 4 PAGE 62). 5 A. The Company has proposed a modification to section 3.4 Contract Duration as found on page 62 of 6 the tariff. The sentence we are proposing to delete refers to FPS suppliers whose customers 7 maintain contracts that are not annual in nature. Under the FPS program, all customers within 8 the pool will be treated the same, regardless of their contractual agreements with the NOS Q. DOES THAT CONCLUDE YOUR TESTIMONY? 11 A. Yes. I reserve the right to submit supplemental testimony if other issues arise during the course 12 of the proceeding. Thank you. 17 Peoples-Equitable Division Statement No.1

20 BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION PENNSYLVANIA PUBLIC UTILITY COMMISSION v. Docket No. R PEOPLES NATURAL GAS COMPANY LLC - EQUITABLE DIVISION PREPARED DIRECT TESTIMONY OF JEFFREY S. NEHR, DIRECTOR, COMMERCIAL OPERATIONS PEOPLES NATURAL GAS COMPANY LLC EQUITABLE DIVISION DATE SERVED: April 1, 2014 DATE ADMITTED: Peoples-Equitable Division Statement No.2

21 PREPARED DIRECT TESTIMONY OF JEFFREY S. NEHR 1 Q. 2 A. 3 PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. My name is Jeffrey S. Nehr. My business address is Peoples Natural Gas Company LLC, 375 North Shore Drive, Pittsburgh, Pennsylvania Q. 6 A BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY? I am employed by Peoples Natural Gas Company LLC ("Peoples") as Director, Commercial Operations. Pursuant to the Commission approved affiliated interest agreements between Peoples Natural Gas Company LLC ("Peoples") and Peoples Service Company LLC ("PSC") and between PSC and Peoples TWP, I provide the gas supply services for both Peoples TWP and Peoples. Effective December 17, 2013, Peoples merged with the former Equitable Gas Company ("Equitable"), and as a result, my services also cover the gas supply requirements for the former Equitable system Q A. PLEASE DESCRIBE YOUR EDUCATION AND PROFESSIONAL EXPERIENCE. I am a graduate of The Pennsylvania State University with a Bachelor of Science 18 degree in Petroleum and Natural Gas Engineering. I began my career with The Peoples Natural Gas Company in 1988, starting in the Engineering Department. I worked in engineering mapping for approximately four years before being assigned to the Gas Supply Department with responsibility for transmission and supply planning. 1 Peoples-Equitable Division Statement No.2

22 1 There I remained for four years progressing to Gas Supply Planning and Facility 2 Specialist. In 1997, I transferred to the CNG Energy Services as a LDC Pool 3 Manager with primary responsibility for managing all aspects of gas supply and 4 hedging for their East Ohio pooling programs. Over the next two years, I worked for 5 several marketing companies including DTE CoEnergy and GreenMountain.com with 6 similar responsibilities, managing gas supply and hedging programs. In March 2000, 7 I was hired by Equitable Gas Company as a Market Planner responsible for managing 8 gas supply, hedging, deal structuring, billing, and business planning for their Agency 9 program. I was promoted to Manager of Gas Supply in 2005 with responsibilities for 10 managing supply planning and supply purchasing. My career path changed in 2008, 11 when I was promoted to Director, Gas Measurement EQT Midstream responsible for 12 measurement engineering, field measurement, internal gas measurement, and 13 measurement communications across four states. In 2011, I rejoined Peoples as 14 Manager, Gas Measurement focusing on unaccounted for gas analysis, gas 15 measurement, and producer services. In 2012, I was promoted to Director of Business Development, and my responsibilities in that position included business development opportunities related to producer and customer initiatives in addition to my continued work on UFG analysis and remediation. In 2013, I took my current position of Director, Commercial Operations, and my duties include business development, marketing, producer services, gas supply and UFG initiatives Peoples-Equitable Division Statement No.2

23 Q. A. Q. A. HAVE YOU TESTIFIED PREVIOUSLY IN ANY REGULATORY PROCEEDINGS? Yes. I have testified in a number of cases before the Pennsylvania Public Utility Commission including Peoples 1307(0 filings at Docket Nos. R and R , Peoples TWP 1307(0 filing at Docket No. R , and the joint application proceeding involving the Peoples and Equitable merger at Docket No. A WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS CASE? I am the Company's primary gas supply witness. I should make clear at the outset of this testimony that even though Equitable was merged into Peoples in December 2013, we maintain separate records and accounts for the former Equitable Gas and refer to it as the Equitable Division of Peoples. A reference to Equitable or the Company in my testimony is to the Equitable Division. Peoples has filed a separate 1307(0 tariff filing for the Peoples' operations other than the Equitable Division. As the Company's primary gas supply witness, I will address the following subjects: I. An Overview of the Changes In Equitable's Gas Procurement Portfolio Resulting From The Merger II. III. IV. Gas Procurement Policy and Supply Planning Interstate Pipeline Transportation and Storage Capacity Portfolio Purchases from Affiliates 23 V. Shut-In Practices and Policies 3 Peoples-Equitable Division Statement No.2

24 1 VI. Renegotiation of Contracts VII. Lost and Unaccounted For Gas Throughout my testimony, I will refer to the "1307(f)-2014 reconciliation period" and the "1307(f)-2014 projected period." The "1307(f)-2014 reconciliation period" is the 12-month period of January 1,2013 through December 31,2013. That same 12-month period was part of the projected period in Equitable's 1307(f)-2013 proceeding. The projected period in this proceeding is the 21-month period of January 1, 2014 through September 30, 2015, which is the "1307(f)-2014 projected period." Obviously, we will have experienced a part of that projected period before this case is over Q. WHICH COMPONENTS OF THE COMPANY'S 1307(f)-2014 FILING ARE YOU SPONSORING? A. Q. The specific sections of the filing which I am sponsoring are listed on Peoples Exhibit JSN-l attached to my testimony. The information in the majority of these sections is self-explanatory and will not be addressed specifically in my testimony. However, I will answer any questions which may arise during the course of this proceeding concerning these sections. I. CHANGES IN EQUITABLE'S GAS PROCUREMENT PORTFOLIO RESULTING FROM THE MERGER PLEASE PROVIDE A GENERAL OVERVIEW OF THE ACQUISITION OF EQUITABLE AND ITS MERGER INTO PEOPLES. 4 Peoples-Equitable Division Statement No.2

25 A. Q. A. On March 19,2013, Peoples, Peoples TWP, and EGC, filed a Joint Application with the Commission requesting various necessary approvals related to the merger of EGC with Peoples. As part of this application, the Joint Applicants also requested approval of the transfer of certain storage and transmission assets of Peoples to EQT; approval of certain transportation and storage service agreements between each of Peoples, Peoples TWP and Equitable, on the one hand, and Equitrans, L.P. ("Equitrans"), on the other hand; and approval of certain gas supply agreements between each of Peoples, Peoples TWP, and Equitable, on the one hand, and EQT Energy, LLC ("EQT Energy"), on the other hand. On November, 14, 2013, the Commission approved, among other things, the merger of Equitable with Peoples; the transfer of the storage and transmission assets of Peoples to affiliates of EQT; the transportation and storage service agreements between Peoples, Peoples TWP and Equitable, on the one hand, and Equitrans, on the other hand; and the gas supply contracts between Peoples, Peoples TWP, and Equitable, on the one hand, and EQT Energy, on the other hand. On December 17,2013, the Transaction was closed between the parties, and Equitable was then merged into Peoples. PLEASE DESCRIBE THE STORAGE AND TRANSMISSION CONTACTS AND THE NEW GAS SUPPLY CONTRACTS. As part of the consideration for the Merger Transaction, on December 10, 2013, Equitable and Equitrans entered into a 20-year extension of the existing transportation service agreements under Equitrans Rate Schedules NOFT, FTS and FTSS, and storage 22 service agreements under Equitrans Rate Schedule 60SS and 115SS. Under these 5 Peoples-Equitable Division Statement No.2

26 1 2 service agreements, Equitrans will provide year-round firm transportation and storage services to Equitable using the Equitrans Mainline system As I will discuss in greater detail later in my testimony, the Commission also approved a new, related gas supply agreement with EQT Energy for gas commodity supplies. 6 7 II. EQUITABLE'S GAS PROCUREMENT POLICY AND SUPPLY PLANNING Q. A. Q. A. PLEASE DESCRIBE GENERALLY EQUITABLE DIVISION'S NATURAL GAS PROCUREMENT POLICY. It is Peoples' policy to secure long term reliable capacity and supply and to manage gas procurement so that it incurs low overall gas costs, and we will follow this same policy with respect to the Equitable Division. Peoples pursues that policy within the limitations of its existing facilities and its existing contracts. It also pursues that policy with the recognition that the goals it must balance of low gas costs and long-term reliable supply can conflict with one another. PLEASE EXPLAIN HOW EQUITABLE HAS PURSUED THE GOAL OF LOW COST RELIABLE SERVICE. Equitable witness Jason Dalton addresses Equitable's historical gas supply portfolio in 21 his direct testimony (Peoples-Equitable Division Statement No.2). I will address Equitable's gas supply portfolio during the 1307(t)-2014 projected period. Equitable has pursued and will continue to pursue its goal of low cost reliable service through a 6 Peoples-Equitable Division Statement No.2

27 combination of local and interstate assets and supplies. The local assets are a gathering system that allows Equitable to directly access local supplies. The local supplies are gas produced in Pennsylvania and purchased by Equitable from Pennsylvania producers. Equitable's interstate assets are comprised of a portfolio of transportation and storage services that the Company has contracted for with Equitrans and Dominion Transmission, Inc. ("DTI"), both of which are Federal Energy Regulatory Commission ("FERC")-regulated interstate pipelines. Those assets give Equitable access to a variety of locations at which it can receive gas supplies that are produced upstream of the Equitable system. The interstate storage assets allow Equitable to use its upstream assets more efficiently, mitigate the effects of price swings in the natural gas market and enhance the deliverability of Equitable's interstate natural gas supplies during periods of peak demand. Equitable's interstate supplies are primarily Appalachian produced gas that it purchases from suppliers upstream of the Equitable system for delivery into various receipt points of the interstate pipelines Q. A. WHAT SPECIFIC ACTIVITIES ARE INVOLVED IN EQUITABLE'S PURSUIT OF ITS GAS SUPPLY GOAL? Equitable's goal of achieving the lowest overall gas cost consistent with the provision of reliable service involves two distinct activities. The first activity is the assembly of a portfolio of supply assets, including storage and transportation services and firm gas supply commitments, an activity that generally involves longer-term contractual commitments. The second activity is the purchase and usage of natural gas supplies to satisfy the demands of its customers. The time horizon for this activity obviously is 7 Peoples-Equitable Division Statement No.2

28 shorter than that for portfolio planning. The point here is to make gas acquisition choices that minimize Equitable's gas costs, taking into account the projected range of gas requirements, the uncertainty of future gas prices, and all of the operational and contractual characteristics of the components of its existing gas supply portfolio and distribution system Q. A. Q. A. IN GENERAL, HOW WILL EQUITABLE SELECT AMONG THE VARIOUS SERVICES AND SUPPLIES AVAILABLE TO IT? It initially prepares a supply plan. The plan includes forecasts for requirements of its own supply (i.e., sales) customers on a monthly basis and the sources from which those requirements will be filled on a monthly basis. The plan also includes an estimate of services that its transportation customers, those who purchase their natural gas supplies from natural gas suppliers (''NGSs''), will require on a monthly basis. As we prepare to acquire gas each month, we "fine tune" the plan to take into account actual operational and market conditions so that we are acquiring the least costly blend of gas that is feasible. IS THERE ANY GUIDING PRINCIPLE THAT EQUITABLE USES IN PREPARING ITS GAS SUPPLY PLAN? Yes. It is maximizing reliability and minimizing its gas costs. In general, Equitable will do that through the "economic dispatch" of supplies - that is, by using its least costly source of supply first, within the operational, reliability and contractual limits that it faces. 8 Peoples-Equitable Division Statement No.2

29 Q. A. Q. HOW WILL EQUITABLE FORMULATE ITS GAS SUPPLY PLAN ON AN ANNUAL BASIS? Once each year Equitable will reevaluate our total system requirements and available sources of supply. On the requirements side of the analysis, Equitable will develop throughput projections. To these, monthly projections for company used and lost and unaccounted for gas are added to arrive at total projected system requirements on a monthly basis. Certain operational considerations playa role in the requirements analysis. For example, during this year's colder than normal winter, we learned there are portions of Equitable's service territory that require support from specific interstate pipeline delivery points at times of high demand. As a result, we need to project specifically the requirements that we will have in those areas in order to assure that we will have supplies available from the particular sources of supply that we are able to call on to serve those areas. Similarly, although Equitable does not sell gas when its customers buy supplies from NGSs, it is necessary to project the level of Equitable's delivery service that those customers will use, because the level of movement of customer-owned gas has an impact on the manner in which Equitable must plan to acquire gas for its own supply customers. PLEASE DESCRIBE HOW EQUITABLE HAS FORMULATED ITS GAS SUPPLY PLAN FOR THE 1307(1)-2014 PROJECTED PERIOD. 9 Peoples-Equitable Division Statement No.2

30 A. In formulating its supply plan for a 21-month period that corresponds to the 1307(t) projected period, Equitable began with the throughput projections that resulted from the analyses discussed in Mr. Dalton's direct testimony (peoples-equitable Division Statement No.3). On the supply side, we started with the existing pipeline supply assets and a new gas supply agreement that was approved as part of the EGC acquisition case. These include the firm transportation and storage service agreements with Equitrans and a new long-term gas supply agreement with EQT Energy. These transportation and storage services are the same services that Equitable has received from Equitrans since FERC's unbundling of pipeline services pursuant to Order No The EQT Energy gas supply service matches a firm source of supply with the Equitrans transportation capacity and ensures a long-term, market-priced, firm supply of locally produced natural gas. It continues the EGC strategy of shifting from reliance on gas produced in the southwest and mid-continent production basins and substituting gas produced in the Appalachian Basin. The threshold determination that Equitable was required to make in formulating its plan was whether it would "base load" the direct feed local gas; that is, using its 18 supplies of local gas first. Equitable decided that it would be economic to do so Having made this determination concerning its use of local gas, Equitable then estimated the direct feed local gas volumes it will receive, and planned for purchasing the balance of its projected requirements under the EQT Energy supply agreement. Mr. Dalton explains in his direct testimony that this resulted in approximately 22% of the Company's projected gas supply being sourced from direct feed local gas (''Equitable- 10 Peoples-Equitable Division Statement No.2

31 1 2 Appalachian" supply) and 78% being sourced from Appalachian gas delivered into Equitrans (''Equitrans - Appalachian" supply) Q. A. PLEASE DESCRIBE THE TERMS UNDER WHICH EQUITABLE ACQUIRES THE EQUITABLE - APPALACHIAN SUPPLIES. The contract tenns for these local purchases vary greatly in both pricing and contract length tenns. Some are fixed price contracts, some index, and some are index plus or minus a price factor. Some are life-of-the-well contract tenns, some fixed tenn, and 9 some month-to-month. We intend to inventory all of the Equitable - Appalachian purchase contracts and develop an implementation plan to convert them, where price advantageous to do so and the contract tenns pennit, to a consistent pricing policy based upon the market price of gas in the region, similar to the current Peoples local gas purchase model and to what Peoples TWP has proposed in its 1307(f)-2014 case. Also, in this case the Company is proposing to revise the purchase price of some local gas contracts associated with low volume wells in order to maintain production from these wells. This proposal to revise the pricing for low volume wells is consistent with what Peoples has implemented and Peoples TWP has proposed to implement in its currently pending 1307(f) case Q. WHAT IS YOUR PROPOSAL RELATED TO CHANGING THE PRICE PAID FOR GAS FROM LOW VOLUME WELLS SUBJECT TO VINTAGE PRICE CONTRACTS? 11 Peoples-Equitable Division Statement No.2

32 A. The Company is requesting approval to release older, low-producing, wells that are subject to fixed-price, vintage gas purchase contracts from their lifetime dedication to the utility. At various times, producers have asserted that the low-producing wells under these fixed-price vintage contracts are uneconomic for continued gas 5 production and may be shut-in, plugged and abandoned. This proposal is also consistent with one of the terms of a recently approved settlement. In the Equitable Acquisition proceeding, the Company committed to seek approval through the 1307(f) process to permit the release of older low-producing wells under the same 9 conditions previously approved for Peoples. More specifically the Company committed to the following language: "Peoples and Peoples TWP agree after Closing: (i) that Peoples will seek approval through the 1307(f) process to apply to the Peoples TWP and Equitable systems the PES agreement provisions permitting the release of older low-producing wells (Section 4.04.a.,b. & c. and Section 4.05, as applicable)." Specifically we are asking the Commission to allow Equitable to release from the fixed-price and dedicated supply contract terms those meter stations at which less than 10 Mcf/day of gas is measured over a consecutive twelve-month period under contracts having an initial term of 25 years or longer. If the release offer is accepted, as consideration, the producer would have to agree to sell the gas to Equitable beginning effective October 1, 2014, at an initially discounted rate equal to 80% of DTI index based market price for the first year and a standard DTI index based market purchase price for the second year. Thereafter, the production would be eligible to be released from the dedicated supply contract. However, based on our 12 Peoples-Equitable Division Statement No.2