The Auction & the SSO

What It Means for Columbia and Its Customers

Ken Stammen

April 13, 2010

What are we auctioning, anyway?

• Auction probably not the best name

• NOT about selling the company, or assets or customers

• We won’t make money

• Marketers bid on the right to supply Columbia Gas of Ohio with the gas it needs to serve its sales customers

• Lowest bidders win

What is the SSO?

• The Standard Service Offer

• Replaced Gas Cost Recovery (GCR) charge

• It’s the price COH charges its sales customers for natural gas

• Adjusted monthly, based on market price

• Just like the GCR, it’s a dollar-for-dollar pass through of gas costs at zero profit to COH

What changes for customers?

• Very little

• If you’re a sales customer, you’ll automatically become an SSO customer

• If you have a contract with a CHOICE® marketer, you’re not affected

• If you’re part of your community’s aggregation pool, you’re not affected

SSO Price = Market Price + Retail Price Adjustment

Market Price

• Changes monthly

• Covers cost of the gas commodity

• Based on New York Mercantile Exchange monthly closing price

Retail Price Adjustment

• Set once a year by the auction

• Covers marketer’s non-gas costs– Interstate pipeline transmission &

storage– Administrative costs– Marketer profit

Will the bill look different?

• If you’re a sales customer, the term Standard Service Offer (SSO) will appear on bill

• The bill will still come from Columbia

• Customer won’t see a marketer’s name on the bill

Are customers still free to choose?

• YES. All options remain for customers

• SSO customers may choose to sign up for a CHOICE® plan with a marketer

• CHOICE® customers may switch to the SSO

• Aggregation customers may opt out of their community’s plan and become SSO customers, or sign up for a CHOICE® plan

What will this mean for prices?

• April SSO Rate = $0.58 per 100 cubic feet (Ccf)

• SSO = market rate ($0.384) + Retail Price Adjustment ($0.193)

• Comparisons with GCR are not apples-to-apples

• Recent GCRs (Jan-Feb-Mar) historically low

• July 2005-December 2008: 35 of 42 GCRs were over $1 per Ccf

• April 2009 -- $0.77; April 2008 -- $1.21; April 2006 -- $1.08

What will this mean for prices?

• Longer-term: Very difficult to predict

• Prices will be tied more directly to the market

• Could attract more marketers to Columbia’s service territory

• Increased competition and options could lead to better prices

• PUCO will monitor the process closely, as it has with the GCR

What’s the impact on Columbia?

• The process we use to acquire and price the gas we provide to our sales customers has changed

• Safe, reliable gas delivery remains our core business

• COH still builds and maintains the distribution system, responds to emergencies, reads meters, issues bills, offers payment plans and answers customer calls

Why is COH making this change?

• We’re being responsive to the PUCO and the Ohio Consumers’ Counsel, which support it

• Dominion East Ohio Gas and Vectren Energy Delivery of Ohio have already done so

• It’s a less-complicated, easier-to-explain price which more directly reflects the market

Timeline

• February 23 – Gas Supply Auction

• April 1 – Gas flows under SSO system

• April 1, 2010 – March 31, 2011: First SSO period

• February 2011 – Second Gas Supply Auction

• April 1, 2011 – March 31, 2012: Second SSO period

What’s Next? The SCO

• SCO = Standard Choice Offer

• SCO Auction tentatively scheduled for February 2012

• Similar to SSO, but winning SCO bidders are assigned to specific customers

• Customer will see the SCO marketer’s name on the bill

• All SCO customers pay the same, regulated gas price regardless of which marketer is assigned to serve them

• SCO customers will pay state sales tax at their county’s prevailing rate