NORTHERN NOTES MARCH 2018 We are in business to serve our customers. Fairly. Efficiently. Reliably.

Transcription

1 Northern s headquarters in Omaha, Nebraska NORTHERN NOTES MARCH 2018 We are in business to serve our customers. Fairly. Efficiently. Reliably. In this issue Northern Ranks First Among all Interstate Pipelines in the Mastio & Company 2017 Customer Satisfaction Index Consistently Cold This Winter Modernization Update FERC Action Regarding Income Taxes New EG Option for Firm Deferred Delivery Service Market Area Expansion Update Field Area Expansion Update Have you met Northern and Employees Help the Disadvantaged with Their Energy Bills A Closing Note from Mark Hewett

2 Northern Ranks First Among all Interstate Pipelines in the Mastio & Company 2017 Customer Satisfaction Index Thanks to our customers ratings in the Mastio & Company s 22nd Edition customer satisfaction survey, Northern has received the No. 1 ranking among 37 interstate pipelines in the U.S. For the tenth consecutive year, Northern placed first in both the Mega Pipeline and Major Pipeline categories. Northern s affiliated pipeline, Kern River Gas Transmission Company, placed second. With these results, Northern and Kern River have been ranked first or second for the last nine years of the survey a remarkable demonstration of Berkshire Hathaway Energy s commitment to being the best in the industry and providing services that customers value. Northern provides excellent service, is responsive, understands its business and anticipates customer needs. (Quote from a Northern customer responding to the Mastio study) The entire company devotes a great deal of effort to make the business experience with Northern as positive and seamless as possible. This customer satisfaction rating is a result of every organizational group within Northern working with one common goal providing outstanding customer service, said Kent Miller, vice president of customer service and business development. The Mastio & Company survey consists of 29 questions that Mastio refers to as attributes. The following attributes are those on which Northern scored highest in the survey. Firm gas transportation is highly reliable Scheduled gas volumes are accurate Accuracy of invoices Financial stability of the pipeline Every year Northern sets new customer satisfaction goals that focus on meeting the specific needs of its customers, Miller said. While we will use the Mastio feedback to develop those goals, they are also based on the direct communication that we receive from our customers. The goal of providing outstanding customer service is never fully completed, and we will continue to find ways to add value to benefit our customers. Mastio & Company is an independent marketing and management consulting firm specializing in industrial consumer opinion research for a wide range of industries, including natural gas pipelines. The ranking from this customer survey process is the benchmark used by Northern to determine its customer satisfaction standing among its peers. Northern will continue its efforts to provide superior value to its customers. The graph above was supplied by Mastio and illustrates Northern s performance compared to its competitors. Consistently Cold This Winter For the second time in five years, each month in the winter season has averaged temperatures that are colder than normal. The table to the right shows, by month, the weighted system temperature variance as a percentage to normal for the heating seasons from through the winter season. NORTHERN NOTES PAGE 1

3 NORTHERN NOTES PAGE 2 (Consistently Cold This Winter Continued from Pg. 1) The cold weather began in earnest on Christmas Day 2017, and was followed by 17 out of the next 23 days with temperatures at 0 degrees Fahrenheit or below. Northern s average Market Area deliveries during this time period were approximately 4.6 Bcf/day. The coldest month of the heating season was February, when temperatures were 14% colder than normal, or approximately 7 degrees colder than normal, with average market deliveries of approximately 3.9 Bcf/ day. The graph to the right recaps the colder than normal heating season market area deliveries compared to the previous two heating seasons. Northern recorded its top two highest market area peak delivery days in December On December 26, 2017, the market area delivery averaged Bcf. On December 27, 2017, the market area delivery averaged Bcf. The previous highest recorded market area peak delivery was January 18, 2016, with an average of Bcf. On December 31, 2017, the market area delivery averaged Bcf and on January 1, 2018, market area deliveries averaged Bcf, making this the first time Northern has recorded deliveries of four 5.0 Bcf days in a heating season. Northern delivered 4.0 Bcf/day or more to its market area on 35 days during the heating season. This compares to 20 days of market area deliveries of 4.0 Bcf/day or more during the heating season. The graph to the left shows Northern s systemweighted average temperature and loads for the heating season. Reliable performance by both customers and Northern were the hallmark this winter. On the recordsetting peak day of December 26, 2017, customer systems performed reliably and Northern s compressor fleet provided 10.5 million horsepower-hours of compression service, meeting all firm transportation volume requirements. Throughout this challenging winter, the combined efforts of Northern and its customers resulted in reliable service to the markets. We will continue to invest in the pipeline in order to provide you highly reliable service and to meet your future growth needs. Modernization Update Northern s efforts to modernize its system proved beneficial during this cold weather period. A new compressor unit that replaced an older unit at Beatrice, Nebraska, performed flawlessly and enhanced reliability to Northern s compressor fleet. Additionally, capacity replacement projects for the original A-line have allowed Northern to lower pressures on this originally mechanically coupled pipeline, resulting in improved pipeline reliability. Northern has numerous pipeline projects planned for this year to continue toward its long-term goal of eventually abandoning more than 900 miles of Northern s original mainline. Northern is managing a $918 million asset modernization program over the next ten years. A significant portion of the program is focused on abandoning its 1930 s vintage A-mainline. Approximately $475 million is committed to abandoning the A-mainline and replacing the associated capacity. The program, which will improve long-term system reliability, began in 2016, and is scheduled for completion in 2026.

4 NORTHERN NOTES PAGE 3 (Modernization Update Continued from Pg. 2) In 2016 and 2017, Northern executed a number of projects to facilitate significant pressure reduction on its A- mainline. The projects included the installation of more than 16 miles of 20-, 30- and 36-inch-diameter pipeline in Iowa and Minnesota. Northern s A-mainline replacement project under construction In 2018, Northern is executing a series of projects to prepare an A-mainline segment from Palmyra, Nebraska, to Ogden, Iowa, for abandonment. The abandonment requires Northern to file a Section 7(b) filing with the Federal Energy Regulatory Commission; the filing is scheduled for submission July 2018, with construction scheduled during summer The project team is in the process of engaging landowners and environmental permitting agencies in preparation for the federal filing. Abandoning this segment involves $15.1 million in capital expenditures. The projects are on track for timely completion. As Northern continues to invest close to $1 billion in the reliability and infrastructure modernization of its system, we have communicated that our existing rates are insufficient to cover these incremental costs, and some form of rate action would be necessary. However, the recently passed federal tax reform is expected to allow Northern to delay the rate action in the near term, and to possibly accelerate infrastructure modernization investments, further improving the reliability of Northern s system to the benefit of Northern s customers. Northern will continue to communicate with customers regarding modernization results and the need for future rate actions to cover these costs, as conditions dictate. FERC Action Regarding Income Taxes On March 15, 2018, the Federal Energy Regulatory Commission issued two orders to address the impacts of the Tax Cuts and Jobs Act of A notice of inquiry (FERC Docket No. RM18-12) seeks comment on accumulated deferred income taxes and the exclusion of bonus depreciation under the new law. A notice of proposed rulemaking (Docket No. RM18-11) would require all interstate natural gas pipelines to file a one-time informational report showing a calculation of the impact of the new tax law. In addition to the report, interstate pipelines have four options: (1) take no action; (2) file a statement explaining why a rate adjustment is not needed; (3) file a Natural Gas Act limited Section 4 filing to reduce rates; or (4) make a commitment to file a general Section 4 rate case in the near future. Also, the Commission, in PL17-1, said it will no longer allow pipelines owned by master limited partnerships (MLPs) to recover an income tax allowance in cost of service rates. In response to a court remand, the Commission determined that granting an income tax allowance, while also using the discounted cash flow methodology, which includes income tax expenses to set a return on equity, results in double recovery of income taxes by an MLP. For the informational filing proposed in Docket No. RM18-11, pipelines owned by MLPs may not include a tax allowance. Northern is a corporation; therefore, it is not impacted by this decision. The Commission proposed a staggered schedule for pipelines to file the informational report, and Northern is listed in the first group of pipelines; its report is due 28 days after the rulemaking is final. Pipelines are encouraged to communicate with customers in advance of making any proposals to change rates based on the tax law changes. Any company that files a Section 4 rate case or a pre-packaged uncontested settlement before the deadline for the informational report will be exempt from filing the informational report. Each report will be docketed, and interested parties will be able to file comments for the Commission to consider. For pipelines that do not file a limited Section 4 rate case or commit to file a Section 4 rate case in the future, the Commission will consider whether to initiate a Section 5 rate case. Since 2015, Northern has been communicating to customers regarding the need to modernize its infrastructure, which will ultimately require a rate increase. However, Northern s customers will benefit from tax reform through deferral of a rate case as a reduction in tax costs will partially offset the cost of modernization. Northern will readily comply with the Commission s requirements and will explain and document for the Commission the benefits of tax reform to Northern s customers through the expected deferral of a rate increase. We are committed to making it easy to do business with us.

5 NORTHERN NOTES PAGE 4 New EG Option for Firm Deferred Delivery Service Northern is finalizing system application changes and performing system testing for implementation of the new EG option for FDD service starting June 1, Under this service option, customers may elect up to 10 Bcf of the currently contracted 65.1 Bcf of FDD annual cycle quantity for the EG option. In an open season held last year, customers elected Bcf of the 10 Bcf of FDD annual cycle quantity as the EG option. Northern has approximately 739,000 Dth of remaining EG option posted as available for election to begin with the June 1, 2018, annual storage cycle. The EG option was developed from a collaborative customer discussion focused on providing firm storage flexibility targeted for gas-fired electric generation facilities. The option offers enhanced firm daily injection and withdrawal rights and provides firm daily rights in May. Traditional FDD inventory parameters for minimum and maximum period levels and the annual rollover fee are replaced with mandatory monthly minimum and maximum inventory limits with the EG option. Market Area Expansion Update 2007 through 2017 Northern will continue to invest in the pipeline in order to meet the growth needs of our customers. Since 2007, Northern has invested approximately $570 million, and added approximately 1.2 Bcf/day of pipeline capacity to serve our customers growth needs in the Market Area. In 2017, Northern constructed the Northern Lights 2017 Expansion project, and placed into service 76,000 Dth/day of capacity in the Market Area. Northern invested $70 million in the project. The project included approximately 4.8 miles of 8-inch-diameter and 12-inch-diameter pipeline loop extensions in Sherburne and Isanti counties, Minnesota, and a 15,900-horsepower compressor unit at Northern s existing Faribault compressor station in Rice County, Minnesota. The new facilities and associated firm capacity resulted from Northern s open season for Northern Lights 2017 Expansion Ventura North In 2018, Northern will construct a new 15,900-horsepower compressor station, at a cost of $33 million, near Lake Mills, Iowa, to serve the growth requirements of 53,000 Dth/day requested for Rochester, Minnesota. On March 15, 2017, Northern submitted a prior notice filing with FERC seeking approval to construct the new compressor station. Additionally, in 2019 Northern will construct approximately 12 miles of new 16-inch-diameter greenfield pipeline, at a cost of $25 million, to support the Rochester growth requirements. Northern also will construct two new compressor units totaling 2,840 horsepower, two new measurement stations, and other minor branch line modifications to serve a new industrial customer that requested firm capacity in the open season for the 2019 Marquette Branch Line Expansion. Northern will invest $24 million to construct the new facilities to serve the 25,000 Dth/day incremental capacity in the Market Area. Separately, in 2019, Northern will install a new measurement station near Hallam, Nebraska, to serve the initial needs of a new industrial customer that participated in the open season for the Sheldon Branch Line Expansion held in Ongoing Growth 2019 Forward The momentum is not slowing down. Northern continues to work with new and existing customers to complete costeffective expansions of its system. Northern recently held an expansion open season to accommodate anticipated growth for firm capacity north of Ventura, Iowa, with service starting November 1, The open season resulted in more than 120,000 Dth/day of volume. Project authorization will require approval of a FERC Section 7(c) application, a case-specific application required when expansion capital costs exceed $33 million. Northern is working with customers to finalize the scope of the project. Northern also recently completed an expansion open season for the West Leg of its Market Area. The open season resulted in more than 30,000 Dth/day of expansion requests. Northern is currently working with the bidders to define the scope of the project, which is expected to be in-service on or after November 1, 2018.

6 Field Area Expansion Update NORTHERN NOTES PAGE 5 Northern continues its series of expansion projects to increase the volume of transportation services on the south end of its Field Area system. These projects will provide approximately 760,000 Dth/day of incremental long-term transportation capacity in the Permian area of Northern s system. The most recent expansion is the Bakersfield expansion project. This project will provide additional transportation capacity for associated natural gas produced from Permian s Midland basin shale oil play, to a new interconnect with Oasis Pipeline. Bakersfield compressor station The project will provide an incremental capacity of 200,000 Dth/day and is scheduled to be placed in-service in May The project includes the installation of a new 11,152- horsepower compressor station, approximately 1.5 miles of 20-inch-diameter pipeline lateral with appurtenances, and a new interconnect with Oasis Pipeline. Northern is investing approximately $28 million of capital for this expansion. Have you met Northern is pleased to announce the following organizational changes Joe Jessen accepted the position of director, Central region, effective January 15, 2018, replacing the previous director, Angela Brooks. In his new role, Joe is responsible for Northern s operations in Iowa, Nebraska, Kansas, Wisconsin and Illinois. Joe began his career in the U.S. Army with a heavy emphasis on logistics. After an eight-year career in the U.S. Army, Joe was a small-business owner, owning a residential construction business for 12 years. Joe began working at Northern in 2009 as a contract construction coordinator and a project manager. In 2013, he accepted a position with Northern as director, right of way. Joe has a Bachelor of Science in construction management from the University of Nebraska-Lincoln. Joe Jessen, director, Central region Frank Rozmus, director, gas control and facility planning Frank Rozmus has accepted the position of director, gas control and facility planning, effective March 24, He will hold overall responsibility for gas control, the operations communication center, SCADA, and facility planning. Frank has been with Northern since 2011, working in the facility planning department emphasizing system modeling and expansion assistance. He has a Bachelor of Science in chemical engineering from the University of Nebraska Lincoln, and is currently pursuing a Master of Business Administration at Bellevue University. Frank previously worked for MidAmerican Energy Company at the Walter Scott Jr. Energy Center. Away from work, Frank enjoys spending time with his three children, camping in the Pacific Northwest, and volunteering his time as a professional ambassador to the University of Nebraska chemical engineering department. Frank replaces Jodie Floyd, who has accepted the position of operations manager, Spraberry, Texas. Jodie will be relocating to Midland, Texas.

7 NORTHERN NOTES PAGE 6 (Have You Met Continued from Pg. 5) Vonn Milks started as manager, gas control in November He began his career at Northern in 2007 in the facility planning department and was the lead facility planner for the Ventura North expansion project. Vonn graduated with a Bachelor of Science in chemical engineering from the University of Nebraska-Lincoln and a Master of Business Administration from the University of Nebraska at Omaha. Vonn enjoys playing with his three children and working in his greenhouse, and selling plants and vegetables at local farmer s markets. Vonn Milks, manager, gas control Northern and Employees Help the Disadvantaged with Their Energy Bills Northern employees from the Omaha headquarters participated in the Heat the Streets Run and Walk for Warmth event held March 3, Northern was a cosponsor of the event, which benefits local energy assistance programs administered by the American Red Cross, The Salvation Army, and the United Way of the Midlands. The proceeds from the event will help these agencies assist seniors, people with disabilities, and low-income families with their utility bills. Of the twenty participants from Northern Natural Gas, eight entered the event s timed 5-K run. The others completed the one-mile walking course. Employees from Northern Natural Gas gather for the annual Heat the Streets/Walk for Warmth event March 3, 2018 A Closing Note from Mark Hewett Commercially, there is no better way to repay the trust of our customers than by providing the best possible customer service. Judging from the results of the Mastio Survey on customer satisfaction, I am proud of the way that our employees have responded to that challenge. For nine consecutive years, Northern has been ranked either No. 1 or No. 2 in the survey, an achievement that we truly value. Mark Hewett, president and CEO, BHE Pipeline From a personal standpoint, I am grateful for the relationships between Northern and its customers. Together, we have formed productive partnerships by taking the time to communicate and understand our collective business needs. I want to amplify the voices of our employees, who have done well in expressing appreciation for your business. To that end, thank you for your trust in Northern and for the ways we have worked together to meet the needs of our respective customers.

8 NORTHERN NOTES PAGE 7 We are in business to serve our customers. Fairly. Efficiently. Reliably. About Us Northern Natural Gas is based in Omaha, Nebraska, and operates the largest interstate natural gas pipeline system in the United States, extending from the Permian Basin in Texas to the Upper Midwest. Northern provides transportation and storage services to approximately 81 utilities and numerous end-use customers in the Upper Midwest. Northern provides cross-haul and grid transportation between other interstate and intrastate pipelines in the Permian, Anadarko, Hugoton and Midwest areas. Northern also operates three underground natural gas storage facilities and two liquefied natural gas peaking units. These storage facilities are fully contracted and are central to meeting Northern s customers' peak-day system requirements. Northern accesses supply from every major Mid-Continent basin, as well as the Rocky Mountain and Western Canadian basins. This supply is ultimately delivered to end-use customers in Minnesota, Iowa, Nebraska, South Dakota, Wisconsin, Illinois and the Upper Peninsula of Michigan. Northern s Principles Northern s principles define and shape the way we do business. We are committed to an unwavering focus on these principles that shape our business. At the top of the list is Customer Service, followed by five other interrelated principles that are key to providing the service that customers expect: Customer Service We are focused on delivering reliability, dependability, fair prices and exceptional service to our customers. Employee Commitment We equip employees with the resources and support they need to be successful. We encourage teamwork and provide a safe, rewarding work environment. We make no compromise when it comes to safety. Environmental Respect Natural resources are essential for the production of energy. We are committed to using these resources wisely and protecting our environment for the benefit of future generations. Our Environmental RESPECT Policy details this commitment in the areas of Responsibility, Efficiency, Stewardship, Performance, Evaluation, Communication and Training. Regulatory Integrity We adhere to a policy of strict regulatory compliance and pursue frequent, open communication with regulators regarding our business performance. Operational Excellence Together with our employees, we pride ourselves on excellence in every aspect of our work. Our high standards for operations and system maintenance enable us to meet and exceed our customers' expectations, perform our work safely, and preserve our assets. Financial Strength We are excellent stewards of our substantial financial resources. Backed by Berkshire Hathaway, we invest in hard assets and focus on long-term opportunities that will contribute to the future strength of the company. Customer Commitment Northern s Vision Statement To be the preferred provider of natural gas transportation and storage services based on our integrity, operational excellence, financial strength and environmental responsibility Northern s Mission Statement We are in business to serve our customers. Fairly. Efficiently. Reliably. These statements mean that We will deliver on time what we promise We will share the purpose behind our actions We will commit to making it easy to do business with us We will negotiate and perform in good faith We will continue to invest in the pipeline in order to provide you highly reliable service and to meet your future growth needs Helping You Manage Your Business Northern offers many services and has access to a wide range of supply basins to help you manage your business easily and efficiently. Many of Northern s systems and procedures have been streamlined to make the business Northern does and the information Northern shares timely and accurate. For technical inquiries or information nng.helpdesk@nngco.com Local to Omaha: Out of Area: Questions or comments If you have questions or comments, contact us at nngcustomerservice@nngco.com Feedback and Suggestions To provide feedback about Northern Notes, or suggestions of newsworthy topics to cover in this electronic publication, contact Steve Gilbert at Steve.Gilbert@nngco.com Northern Natural Gas 1111 South 103rd Street Omaha, NE 68124