Dominion East Ohio Merchant Function Exit Update

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Dominion East Ohio Merchant Function Exit
Update
OGA Sales/Marketing Seminar July 19, 2006

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Topics

• Whats in the Rearview Mirror
• How did we get here?
• Whats in the Windshield
• What did the PUCO approve?
• Whats Down the Road
• Where does Phase 1 go next?

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Whats in the Rearview Mirror (How did
we get here?)
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Energy Choice Enrollments
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Energy Choice Market Shares 7/06
Other 12
E
D
Aggregation (35)
C
B
A
Energy Choice Participation Rates
Residential 70 Nonresidential 67
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Non-Choice Pooling Market Shares 2005
Other 28 ()
DPS/GPS/FRPS Pool Volumes
A
G
F
B
E
C
D
() No other marketers have over 3.5 share
Total Volumes Delivered Through Pools 76 Bcf
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Why Exit The Merchant Function?
From Road Map materials discussed with Staff,
OCC and others prior to filing

• Groundwork for an exit has been laid by a
  successful transition out of the GCR business for
  nearly 60 of DEOs customers
• Although it has responded well to unpredictable
  market erosion thus far, DEO would prefer to exit
  its remaining GCR business in an orderly manner
• GCR rates that are affected by large unrecovered
  gas cost distort the competitive market
• By law, DEO cannot make a profit on its GCR
  service
• Why remain in a business that at best breaks
  even?
• Strategically, DEO recognizes that its
  fundamental role is to provide distribution
  service, not commodity service

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High Level Chronology
2000 Energy Choice Expanded System-wide
2002 Governmental Aggregation Begins
2004 DEO Begins Discussing Merchant Function Exit
2005 DEO Files to Restructure Its Commodity
Service
2006 PUCO Approves Phase 1 Pilot Program
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Key Issues To Be Addressed

• Gas Supply
• Supply reliability for Choice and Sales customers
• Provider of last resort in event of supplier
  default
• LDC and Marketer Economics
• Receivable risk (uncollectible expense rider)
• Stranded cost (voluntary vs. mandatory capacity
  assignment)
• Cost recovery (customer education, operational
  balancing, etc.)
• Transition to Competition
• Phased-in approach vs. immediate All Out
  Competition
• Choice vs. Sales rates (Distortion from
  unrecovered gas cost)
• Customer education about Phase 1 and Phase 2

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Whats in the Windshield (What did the PUCO
approve?)
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Public Hearing Handout
What Changes
What Stays the Same

• Dominion buys its gas from suppliers through a
  bidding process subject to PUCO approval
• Gas Cost Recovery (GCR) rate is replaced by a
  Standard Service Offer rate
• Unrecovered gas costs go away
• Sales and Energy Choice transportation rates are
  identical
• Easier for customers to compare offers
• Improved competition and more supplier offers are
  expected

• Rate for Dominion-supplied gas continues to
  changes monthly
• Dominion still makes no profit on the sale of gas
• Dominion continues to
• Read the meter
• Respond to emergencies
• Bill customers
• Handle customer inquiries
• Customers can still buy gas from Dominion or
  another supplier

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Transition Plan Major Components

• Phase 1 approved as Pilot through 8/08 (PUCO can
  order DEO to revert to GCR if circumstances
  warrant)
• GCR replaced with standard service offer (SSO)
  supply acquired through descending clock auction
• Auction results subject to PUCO approval
• DEO remains Provider of Last Resort in event of
  supplier default
• DEO sales rate market-clearing auction price
  (i.e., no unrecovered gas cost)
• Stakeholder Group provides input for Phase 2
  design
• Phase 2 intended to place all eligible customers
  into direct retail relationship with suppliers

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Energy Choice Program Changes

• Comparable capacity assessment period expanded
  from Nov-Mar to Oct-Apr
• Capacity and supply plan may be required if
  supplier fails to demonstrate comparable capacity
• On-system storage injection and withdrawal
  schedule updated from periodic to first-of-month
• DEO able to post targets on daily basis and
  adjust forecasting methodology if needed
• Annual reconciliation option eliminated
• Default thresholds tightened

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Whats Down the Road (Where does
Phase 1 go next?)
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SSO Auction Process

• Supply volume, not actual customers, being bid
  out
• Expect to bid out 12 tranches of 5 Bcf/year each
• Utilizes descending clock auction process
• Bids expressed as of tranches to be supplied at
  the Going Price
• Going Price gradually reduced until just enough
  tranches are bid
• Max share per supplier is for one-third of total
• Bid specified as fixed Retail Price Adjustment
  adder to NYMEX settlement price for prompt month
• DEO to hire auctioneer (Energy Gateway), Staff to
  secure consultant to monitor auction process
  (CRA)
• Awards subject to PUCO approval

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Possible Auction Process Timing
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Nature of Service

• Term of wholesale supply agreement(s)
• October 1, 2006 to August 31, 2008
• Full requirements obligation to provide a portion
  of the gas supply needed to serve DEOs PIPP and
  SSO customers, which will change due to
• Migration to and from Energy Choice
• New customer additions
• Termination/restoration of service
• Income eligibility of PIPP customers
• Weather and usage equation updates
• In most respects, operations and fees are
  identical to those of the Energy Choice pooling
  program

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Energy Choice Pool Operations

• FEATURES APPLICABLE TO SSO SUPPLIERS
• Target volumes posted 2-4 days in advance (unless
  in OFO)
• Usage factors updated at least twice each year in
  May October
• Monthly imbalances can be traded, put in storage
  or cashed out
• On-system storage capacity rights follow customer
  load
• FEATURES NOT APPLICABLE TO SSO SUPPLIERS
• No mandatory assignment of upstream pipeline
  capacity
• SSO suppliers must take a release of capacity
• Comparable capacity assessment in Oct-Apr (91.75
  of peak)
• SSO suppliers must have comparable capacity in
  Jan-Dec
• No need to deliver to constrained areas outside
  West Ohio
• SSO suppliers must schedule gas to such areas

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Next Steps

• Wrap up remaining auction issues
• Conduct successful auction
• Receive PUCO approval for results
• Begin Phase 1
• Continue stakeholder process
• Assess Phase 1 results
• Plan Phase 2 design

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Contacts

• For more information contact
• Jeffrey A. Murphy
• 216-736-6376
• jeff_murphy_at_dom.com