1. Dominion East Ohio Merchant Function Exit Transition Plan Working Draft

2. 2 Plan Outline Fundamental Issues Transition Approach Operational Features

3. Fundamental Issues

4. 4 Why exit the merchant function? What are the objectives? What are the “guiding principles”? How should we approach the task? What does the end state look like? What issues do we need to address: Up front At some point

5. 5 Why Exit The Merchant Function? Groundwork for an exit has been laid by a successful transition out of the GCR business for nearly 60% of DEO’s 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

6. 6 Objectives Foster a competitive market in which customers can make informed choices among expanded alternatives while ensuring reliable commodity service by suppliers Address the commodity service needs of those customers that cannot or will not choose among those alternatives without disrupting the competitive marketplace

7. 7 “Guiding Principles” Leave no one worse off than before Promote competitive yet reliable commodity service Minimize customer confusion Avoid damage to Energy Choice program Minimize duplicative capacity costs Appropriately allocate assets and costs Support end state objectives Make it “workable,” not theoretical

8. 8 General Approach Take a methodical and incremental approach that: Builds on successful features of the current program Identifies and resolves up front those issues that are absolutely essential to a merchant function exit Doesn’t try to address every conceivable end state issue before implementation Phases I and II - Described in considerable detail Phase III - Provides direction with fewer details End State - Outlined in intentionally broad terms Keeps objectives and “guiding principles” in mind, yet recognizes that trade-offs may be needed Strives for stakeholder consensus where possible

9. 9 Ideal End State A highly competitive market attracts suppliers that offer a wide range of pricing and service options Customers experience no degradation of reliability DEO’s only regulated commodity service role is to act as short-term back-up for default All existing LDC services that can be unbundled are unbundled and offered competitively The class of customers that cannot or will not choose is nonexistent or extremely small Customers understand their options, the implications of their choices and the consumer protections that are available

10. 10 Issues To Be Addressed: UP FRONT How to maintain reliable commodity service Transition from GCR to Standard Service Offer Implications of disappearing GCR class Nonpayment of unregulated commodity service Customer communications AT SOME POINT Eliminating/minimizing “default customer” class Revenue cycle services (metering, billing, A/R risk, …) Expanded unbundling beyond revenue cycle services

11. 11 Customer Communications Intend to make use of lessons learned from Energy Choice expansion Involve Staff and OCC up-front Conduct market research Review materials in draft form Extensive employee training (call centers critical) Key topics: Communicate nature and rationale for change Address safety and service concerns Assist customer decision-making process Refer to PUCO and OCC resources

12. Transition Approach

13. 13 Provider-of-Last-Resort Timeline Discussed at 3/30/04 Meeting HourlyDaily<1 CycleMonthly<2 Cycles Intra-Day Balancing Daily Balancing Multi-Day Underdelivery Single-Day Underdelivery Supplier Default Monthly Balancing DEO RESPONSIBILITIES STANDARD SERVICE OFFER >2 Cycles Interim Commodity Service

14. 14 Incremental Transition Approach Discussed at 3/30/04 Meeting 1.Less insulation of GCR customers from market prices 2.Implement MBSSO for returning customers (EGC?) 3.Change handling of delinquent Choice customers – disconnect for nonpayment of supplier $ and return to prior supplier 4.Customer communication - Educate and motivate 1.CBP for initial service offer (fixed or variable rate) and MBSSO (*) (variable rate only) 2.Wholesale relationship between supplier & customer 3.Implement as 12 or 24-month pilot with intent to make permanent 4.Customer communication – Educate, motivate and comfort (*) DEO for < 2 cycles? Single or multiple supplier? 1.CBP for more limited group (*) and MBSSO 2.Retail relationship between supplier & customer 3.Make transition permanent 4.Customer communication – Educate, comfort, consequences (*) Intent may be to minimize pool size Phase IPhase IIPhase III

15. 15 Transitional Issues Discussed at 3/30/04 Meeting Standard Service Offer Needed or not Which customers qualify for it Retail or wholesale relationship Single or multiple supplier Transition: Timing Period Type Approach Higher migration % “nice” or critical Shorter transition period or longer Pilot program or permanent change Incremental or immediate Customer CommunicationTransparent or highly visible change Customer Exposure to Market Volatility Minimize or maximize customer exposure to volatile gas prices

16. 16 Transitional Issue Decisions(*) Standard Service Offer Needed Which customers qualify for it Retail or wholesale relationship Multiple suppliers Transition: Timing Period Type Approach Higher migration % “nice” Shorter transition period Pilot program or permanent change Incremental Customer CommunicationVisible change Customer Exposure to Market Volatility Minimize or maximize customer exposure to volatile gas prices (*) Bold-faced type reflect preliminary decisions

17. 17 Rationale for Transition Decisions Standard Service Offer Many of DEO’s remaining 500,000 GCR customers won’t act even if given every reason to do so # of Suppliers Multiple suppliers lessen risk and impact of default by single player Transition Timing Near-60% migration provides adequate point of departure, no need to wait for more Transition Period Once decision is made and steps are taken to inform customers/suppliers, delays or prolonged transitions serve no purpose and might even be harmful Transition Approach Incremental approach serves best interest of customers and lessens implementation risk Customer Communication Customers should be well-informed about the upcoming changes

18. 18 Transitional Issue Thoughts SSO Customer Qualifications No fundamental reason to treat PIPP customers as separate pool (could be continued if desired) GCR customers that don’t choose should be included Need to minimize reversion of Energy Choice customers still under contract to a marketer Traditional transportation customers should only be provided access to a market-based SSO (MBSSO) Customer qualifications may also depend on the nature of SSO service to be offered

19. 19 Transitional Issue Thoughts Pilot Program or Permanent Change DEO prefers to make transition as a permanent change but recognizes that other stakeholders may prefer a pilot approach DEO willing to conduct program as a pilot – preferably lasting no more than 2 years - with expectation that it be made permanent In other words, DEO would approach a pilot as if it were exiting the merchant function on a permanent basis If transition is undertaken as a pilot, a decision about permanency must be made in second year of a 2-year pilot DEO will perform a review in the second year to determine what additional changes may be warranted and will file that report Decisions about specifics of Phase III approach will have to await the review of Phase II results Unlikely to reach consensus about thresholds that must be reached before advancing to next phase

20. 20 Standard Service Offer Structure Presents the biggest challenge of all No strong preference regarding wholesale or retail approach, but want multiple suppliers in either case Wholesale: Supply responsibilities for SSO customers outsourced via an RFP or auction process, DEO still shown as the commodity provider on the bill (similar to PIPP) Retail: Customers are provided SSO by supplier(s) identified on the bill who obtain random customers in bulk (i.e., not one at a time) via an RFP or auction process Major Objective: Ensuring a smooth transition

21. 21 Desired SSO Attributes Must be highly reliable service backed by 100% comparable capacity throughout entire year Primary role is to replace GCR service, not compete with Choice supplier offers Price must be market based, uniformly applied and initially subject to PUCO approval: If Fixed: Reflect NYMEX strip and basis at time (*) If Variable: Tied to relevant and verifiable index Must anticipate inaction by large # of customers Returning customers not necessarily entitled to receive fixed price SSO (if offered) unless determined otherwise Must be clearly communicated in advance of asking customers to choose (*) Could be fixed for quarterly, seasonal or annual period

22. 22 Wholesale vs. Retail Approach Wholesale Comparable to PIP outsourcing, but on larger scale Minimizes change from GCR service Could be used as a stepping stone to retail approach May not diminish size of SSO pool by much Continues Gross Receipts Tax vs. Sales Tax disparity Retail Gets closer to end state result by minimizing size of SSO pool Moves customers more effectively to “full retail mode” Some form of opt-out process could be used to address concerns about allocation of customers Less chance of damage to Energy Choice program May entice more suppliers Desired SSO attributes could be achieved by either approach, although in different ways

23. 23 DEO vs. SSO Responsibilities DEO is responsible for: System dispatching and balancing Back-up POLR service lasting less than two billing cycles using operational balancing assets: Defaulting supplier’s on-system storage allocation also available Curtailment plan execution (no fundamental changes needed) Standard Service Offer is: Treated much like any other Energy Choice pool Responsible for deliveries into constrained areas (e.g., Cochranton, Woodsfield/Powhatan Point) Subjected to 100% comparable capacity requirements all year Will not count capacity if released on unrecallable basis Provided by several suppliers through RFP or auction Provided for an entire billing cycle

24. 24 Capacity Contracting Implications To date, DEO has decontracted aggressively to eliminate stranded cost Cannot sacrifice future reliability by premature/excessive decontracting or by leaving SSO supplier(s) ill-equipped to serve customers ROFR issues important where capacity can be readily sold into other markets Recommended Approach: Recontract as if DEO were to remain in merchant function for remaining GCR customers and release capacity not needed for operational balancing to SSO supplier(s) at point of transition: Reduces ROFR-related risks DEO experience with capacity provides greater assurance of performance Maintains ability to serve isolated areas (may need modification in Phase III) Lack of on-system storage means reserve margin may be needed at West Ohio

25. 25 Revenue Cycle Issues Enrollment sequence, file transfer process and billing options remain largely unchanged DEO will establish marketer sub-group to address those issues, no changes required at transition point Remittance of $ to suppliers to occur closer to bill due date than bill issue date DEO considering prorated calendar month billing to accelerate enrollment process and synchronize billing & supply periods Supplier consolidated billing issue put in “parking lot” DEO given waiver to shut-off for non-payment of supplier commodity $ (No change in payment priority needed) Marketer has option to take back customer under prior contract terms, otherwise customer must be reacquired as new enrollment DEO continues to purchase A/R 1% receivable discount revisited in light of shut-off option and bad debt tracker

26. 26 3-Tier Wholesale Approach Initial Service Offer (fixed or variable price) provided by several suppliers selected via RFP and offered only to GCR customers (*) at the point of transition, price includes unrecovered gas cost (UGC) No minimum stay obligation or true-up to actual price If fixed, price will be adjusted at beginning of year 2 ISO MBSSO POLR Market-Based Standard Service Offer (variable price based on first-of-month DTI-IF index + basis) offered by one or more suppliers and offered only to returning customers, with no UGC MBSSO customers at beginning of year 2 can migrate to ISO Provider of Last Resort for customers of defaulting supplier MBSSO supplier(s) given option to serve immediately, with DEO as back-up for current and next billing cycle only using predetermined index-based pricing method (*) New customers could be served by ISO or MBSSO

27. 27 2-Tier Wholesale Approach MBSSO POLR Market-Based Standard Service Offer (variable price only) offered by several suppliers to: GCR customers at the point of transition, price includes unrecovered gas cost (UGC) Returning customers, with no UGC New customers, with no UGC Pricing likely to reflect value of storage for transitioning GCR customers due to greater certainty of requirements (unlike uncertainty associated with new and returning customers) No true-up to actual price Provider of Last Resort for customers of defaulting supplier MBSSO supplier(s) given option to serve immediately, with DEO as back-up for current and next billing cycle only using predetermined index-based pricing method

28. 28 Retail Variant Initial Service Offer (fixed or variable price) provided by several suppliers that successfully bid for GCR customers (*) at the point of transition, price includes unrecovered gas cost (UGC) Customers provided opportunity to opt-out of service from selected supplier and receive MBSSO service instead No minimum stay obligation or true-up to actual price ISO MBSSO POLR Market-Based Standard Service Offer (variable price only) offered on wholesale basis by one or more suppliers to: GCR customers opting out of ISO, with UGC Returning customers, with no UGC Provider of Last Resort for customers of defaulting supplier MBSSO supplier(s) given option to serve immediately, with DEO as back-up for current and next billing cycle only using predetermined index-based pricing method (*) New customers could be served by ISO or MBSSO

29. 29 Recommendation: Wholesale vs. Retail If stakeholders prefer incremental approach, wholesale model minimizes change from existing GCR service Should recognize that retail model gets us closer to desired end state where suppliers have the customer, not merely the load If wholesale model chosen, plan must include a date certain for the transition to a retail model Avoids leaving the market with impression that GCR is simply being replaced with another LDC-supplied commodity service 2-year time frame for wholesale approach preferred Permits “tweaking” after year 1 prior to next transition phase Gives suppliers greater certainty about progress toward end state Retail variant could serve as potential Phase III approach if MBSSO pool doesn’t appreciably shrink by that time

30. 30 Recommendation: 2-Tier vs. 3-Tier 2-Tier approach preferred over 3-Tier Reduces complexity of transition for customers Does not introduce another competitor into market Single MBSSO less disruptive to Choice market Smoother transition from GCR/EGC pricing Issues/Challenges of single MBSSO approach Consistency of CBP bids Could use 1 st of Month DTI Appalachian price as reference price No fixed “price to compare” Exposure to market volatility No different than today’s GCR

31. 31 Possible RFP Process Process could be similar to that used to outsource PIPP supply for last four years: RFP terms and conditions developed in conjunction with Staff and OCC Bid term could be for both one and two years RFPs sent to both Choice and non-Choice marketers DEO reserves right to reject any and all bids Bids provided to Staff and OCC along with DEO recommendation Selection of supplier(s) subject to PUCO approval Electric CBP rules provide good starting point If 2-tier wholesale approach taken, there would be no fixed-price offer

32. 32 Possible Auction Process DEO considering combination of PIPP Supply RFP and NJ BGS Auction processes as follows: Use single-round PIPP-style RFP to solicit bids for full requirements slices or “tranches” of MBSSO load (EOG & WOG) PIPP load - 10 Bcf (break into 2 tranches of 5 Bcf each) GCR load - 80 Bcf (break into 16 tranches of 5 Bcf each) Cap # of tranches awarded any one supplier (one-third of total or 6) No need to treat PIPP class separately, but could award bid for first 10 Bcf to lowest price supplier(s) if desired Could bid out half of load for 1-year term and other half for 2-year term to spread pricing risk Specify reference index price and request bids in form of index-to- burner-tip basis with no true-up Refresh bid for half of load prior to second year Award in form of X% of remaining SSO load Uniform price set at the market-clearing level Migration and pricing risk borne entirely by supplier

33. 33 Background Information: New Jersey Auction Process NJ “reverse clock” auction for basic generation service (BGS) cited as possible approach for DEO exit process Pre-qualified bidders compete to sell slices of full requirements SSO load or “tranches” Maximum # of tranches per supplier specified in advance Multiple-round auction begins at high end of price range as specified by regulator As the price descends in subsequent rounds, # of tranches bid by suppliers decline (the lower the price, the lower the # of tranches bidders are willing to supply) Auction ends when there are just enough bids remaining to supply entire SSO market at the going price for that round Uniform price paid by SSO customers equals the final market- clearing price

34. 34 Rates and Charges Current operational balancing capacity cost $0.08-$0.10/Mcf Compares to $0.099/Mcf for non-Choice transport Offset by 91.75% comparable capacity requirement Retention of year-round FTNN to make firm injections would increase rate by $0.02-$0.03/Mcf Will have to reinstate Transportation Migration Rider at $0.021 level for estimated 12-24 months to cover customer education, computer system modifications and other costs Will charge standard service offer supplier(s) $0.035/Mcf pooling fee and $5 switching fee after initial “switch” like other Energy Choice suppliers Uncertain coverage of operational balancing inventory cost by cash outs, storage sales, etc. makes it impossible to estimate additional cost – net figure could be a credit after those offsets

35. 35 Cost Recovery Issues ComponentCurrent RecoveryCurrent RateFuture RecoveryFuture Rate Operational Balancing Capacity Transportation Migration Rider (TMR) $0.08-$0.10/McfSameIncrease $0.02- $0.03/Mcf Operational Balancing Inventory GCR & ECPS storage sales LIFO rate (GCR), DTI index-based rate (ECPS) Off-system sales, cash outs, ECPS storage sales DTI index-based rate UFGGCR and fuel retention % 3.1%Fuel retention % plus tracker No impact on rate from exit UGCAA/BA/RA & TMR for 12 months Varies with each GCR filing Fixed rate for 12 months to former GCR customers Capped at +/- $1.00, reconcile after 12 months Cash Outs$ credited to GCRDTI index-based rate $ credited to oper. balancing Same Storage Migration GCR & balancing rates 1.2 Bcf per yearTreat as company use in UFG No impact on rate from exit

36. 36 Operationally Oriented Timeline (*) 2004-Q2 Complete development of “road map” Commence consumer benefit study 2004-Q3 Complete consumer benefit study Perform operational studies as needed Assess implementation hurdles/capabilities Obtain “road map” feedback and make filing at PUCO Perform customer communication market research 2004-Q4 Complete outstanding implementation requirements Finalize customer communication and choice plan Obtain Commission Order Finalize and issue RFP 2005-Q1 Receive, evaluate and request approval of RFP results Implement customer communication and choice plan 2005-Q2 Exit merchant function (*) Process could be stretched out until 2005-Q4 at the latest

37. 37 Communications Oriented Timeline (*) 2004-Q2 Complete development of “road map” Commence consumer benefit study 2004-Q3 Complete consumer benefit study Perform operational studies as needed Assess implementation hurdles/capabilities Obtain “road map” feedback and make filing at PUCO Perform customer communication market research 2004-Q4 Complete outstanding implementation requirements Finalize customer communication and choice plan 2005-Q1 Obtain Commission Order Finalize and issue RFP 2005-Q2 Receive, evaluate and request approval of RFP results Implement customer communication and choice plan 2005-Q3 Exit merchant function (*) Process could be stretched out until 2005-Q4 at the latest

38. 38 Timing Issues Operationally oriented timeline would target April 1 exit to coincide with beginning of storage injection season Communications oriented timeline would consider ability of call centers to handle customer inquiries Would avoid customer communications during winter months, leading to Q2 or Q3 communications effort prior to actual exit 90-120 days later Recommend communications oriented timeline to ensure ability to handle customer inquiries Storage issues can be addressed in same manner as done for system-wide expansion of Energy Choice that occurred in 2000 Q4

39. Operational Features

40. 40 Operational Issues Current State Summary Future State Issues Proposed Operation

41. Current State Summary

42. 42 Current State - Supply Timing Monthly enrollment deadline is 14 th Customer confirmation file posted next day Comparable capacity requirements e-mailed following day Comparable capacity assessed last few days of Oct-Feb (for Nov-Mar period) Supply targets posted 2-4 days before 1 st of next month (standard time frame) Bills rendered beginning with Cycle 1 of the month following supply Imbalance trading occurs 15-17 th of following month

43. 43 Current State - Supply Sources Interstate No mandatory assignment, option if available ANR, DTI, NCGT, PEPL, TCO, TGP, TETCO Constrained points allocated based on MDQ No point-specific noms required Ohio Production Nominated “real time” with lagged true-up Btu conversion applied to determine pool mcfs No derating for comparable capacity Storage Assignment at no cost to supplier based on MDQ Demand ratchets based on inventory level Follows customer (buy/sell inventory if needed) Other Pools Limited to other Choice pools, storage inventory transfers and Local Production Pooling Service

44. 44 Current State - Comparable Capacity DEO verifies 91.75% comparable capacity Assessed monthly during Nov-Mar period Adjusted each month based on supplier’s enrollments Sources include: Interstate (DEO primary delivery point) Only examine DEO city gate capacity Non-recallable releases or FT-backed supply Storage (ECPS allocation + any purchased) Adjusted based on storage inventory Local production (Dedicated or LPPS)

45. 45 Current State - Balancing Choice pools are daily balanced Targets posted 2-4 days in advance, less if OFOs Targets based on equations developed for each pool’s customers DEO open to supplier forecasting suggestions Annual true-up if comparing supply to billed use Monthly true-up available using “unbilled volumes” Long/short positions available for imbalance trading with ECPS and FRPS pools Adjust storage inventory within contractual limits Cash out using DTI South Point plus variable cost

46. 46 Current State - Cost Recovery Unrecovered Gas Cost Recovered or passed-back over first 12 months Fuel Retention Recovered through annually adjusted fuel % and through GCR Operational Balancing Capacity cost thru rider, inventory sold to GCR customers, interest cost thru GCR Cash Outs Set up as neutral (storage buy/sell) or beneficial to GCR class (daily) Choice Program Cost Collected via rider (currently set at $0.000/Mcf) Storage Migration Funded through balancing service rates and monthly charge to GCR

47. 47 Current State - Default Protection DEO does not retain a reserve margin in anticipation of potential default DEO’s on-system storage enables it to quickly react to supply shortfalls, but within limits In event of supplier default, DEO can utilize: On-system storage assigned to that supplier Operational balancing capacity held for that supplier’s customers Operational balancing capacity held for other pools/customers Idle GCR capacity (if any) DEO views OFO as measure of last resort

48. 48 Current State - Balancing Assets Customer Class Storage Source Basis for Allocation Volume (MDt/d) Traditional Transport On-SystemBase Rates180 GSS/FSSMigration Rider90 Energy Choice (*) On-SystemBase Rates50 GSS/FSSMigration Rider150 Total470 (*) 15.5% of design day usage, 25% on-system/75% GSS/FSS Potential storage overrun commitment equals 110 MDt/d

49. Future State Issues

50. 50 Operational Issues How do we maintain system reliability with DEO no longer in the GCR business? What capacity does DEO need to retain in its role as system operator? Is a reserve margin needed? Does anything change in Energy Choice? How does DEO recover the costs it incurs as system operator? Operational balancing capacity, Storage inventory, UFG, Unrecovered gas costs, Cash outs

51. 51 Future State – Lack of GCR Class No system-supply assets to redeploy if pools don’t nom gas to right locations in right quantities at the right time (e.g., Cochranton) GCR class cannot act as “sponge” to absorb daily imbalances beyond operational balancing capabilities No GCR class available to “fund” certain activities: Unrecovered gas cost remaining from prior periods Procurement of operational balancing inventory Purchases/sales of storage-in-place, cash outs Difference between estimated and actual UFG Storage migration

52. 52 Future State - Balancing Assets Customer Class Storage Source Basis for Allocation Volume (MDt/d) Traditional Transport On-SystemBase Rates180 GSS/FSSMigration Rider90 Energy Choice (*) On-SystemBase Rates90 GSS/FSSMigration Rider260 Total620 (*) 15.5% of design day usage, 25% on-system/75% GSS/FSS Potential storage overrun commitment equals 180 MDt/d

53. 53 What Can Stay The Same Supply Timing and Balancing Customer enrollment and initial supply timing May need to stagger deliveries for large enrollments Use of individual pool usage equations DEO still open to supplier forecasting suggestions Daily balancing to target with monthly true-up Opportunity for daily/monthly imbalance trading Including monthly true-up options

54. 54 What Can Stay The Same Supply Sources and Comparable Capacity “No fee” access to on-system storage Operating parameters will be updated Ohio production nom & true-up procedure 6-week production period issue has been addressed Interaction with other pools Comparable capacity approach Linked to operational balancing capacity DEO concerned about Apr/Oct and lack of pre-winter assessment of heating season capacity

55. 55 What Can Stay The Same Default Protection and Cost Recovery Ability to access on-system storage assigned to defaulting supplier Ability to access operational balancing capacity in event of default OFO viewed only as last resort Continued collection of Choice program cost via rider New customer communication costs will be incurred Other implementation costs are highly likely Primarily billing and EBB systems

56. 56 What Might Have To Change Supply Timing and Balancing 2-4 day lead-time for posting targets Can DEO afford such a long lead-time? Should a rolling temperature true-up feature be added? Annual true-up if comparing to billed volumes Can imbalances be carried for 12 months?

57. 57 What Might Have To Change Supply Sources and Comparable Capacity Lack of point-specific nom requirements Can DEO continue to rely on “requests?” Would a default provider have the assets needed to avoid such requirements? Allocation of constrained points Will current or future changes in base load usage require changes to % allocations? Comparable capacity evaluations Should the months or % be changed? Should DEO require a winter capacity plan?

58. 58 What Might Have To Change Default Protection and Cost Recovery Does DEO need to consider maintaining a reserve margin since it won’t have as many assets to back-stop a potential supplier default? Should we use another method to address remaining unrecovered gas cost if DEO exits the merchant function entirely?

59. 59 What Has To Change On-system storage operating parameters need to be adjusted because flexibility provided by GCR class is no longer available Cost recovery mechanisms must change to reflect elimination of GCR class, e.g. Fuel retention Operational balancing inventory cost, including interest Cash outs (including storage buy/sell) Storage migration

60. Proposed Operation

61. 61 Provider-of-Last-Resort Timeline HourlyDaily<1 CycleMonthly<2 Cycles Intra-Day Balancing Daily Balancing Multi-Day Underdelivery Single-Day Underdelivery Supplier Default Monthly Balancing DEO RESPONSIBILITIES STANDARD SERVICE OFFER >2 Cycles Interim Commodity Service

62. 62 DEO vs. SSO Responsibilities DEO is responsible for: System dispatching and balancing Back-up POLR service lasting less than two billing cycles using operational balancing assets: Defaulting supplier’s on-system storage allocation also available Curtailment plan execution (no fundamental changes needed) Standard Service Offer is: Treated much like any other Energy Choice pool Responsible for deliveries into constrained areas (e.g., Cochranton, Woodsfield/Powhatan Point) Subjected to 100% comparable capacity requirements all year Will not count capacity if released on unrecallable basis Provided by several suppliers through RFP or auction Provided for an entire billing cycle

63. 63 Features Retained With Minor Changes 91.75% comparable capacity requirement for Nov-Mar period Linked to operational balancing capacity Will add pre-winter review for Nov-Mar period Will add April and October assessments 2-4 day lead-time for posting targets Will consider updating targets on weekends No point-specific noms required outside West Ohio May need modification in Phase III

64. 64 Features Requiring Further Review Lack of any reserve margin Linked to operational balancing capacity None contemplated for East Ohio at this time Will consider need at West Ohio Operational balancing requirements Constrained point allocation On-system storage injection/withdrawal operation Injection limitations Inventory levels (summer & winter) Ratchet provisions

65. 65 Supply-Related Changes Require pro rata deliveries in first month following large enrollment (>10,000 customers) Require monthly true-up once imbalance exceeds a predetermined level (>100,000 Mcf)

66. 66 Storage-Related Changes Update parameters (e.g., 35% ratchet point) Eliminate flexibility to buy/sell within range Sell to DEO only to high-end of range (*) Buy from DEO only to low-end (*) Summer-period operation Require purchase-in-place if new interim targets not met (1 st of month DTI S. Point + variable cost) Winter-period operation Introduce 11/30 required inventory range Provide for operational sales of storage * Exceeded only at DEO’s discretion

67. 67 Cost Recovery Changes Unrecovered Gas Cost Continue same approach (i.e., bill for 1 st 12 months) upon transition to SSO Bill at fixed rate based on remaining balance and estimated 12 month volumes at point of transition No GCR means no quarterly adjustments to UGC Cap UGC rate ($1.00 max?) and bill/credit remaining balance 12 months after transition to entire SSO/Choice class through Transportation Migration Rider

68. 68 Cost Recovery Changes Fuel Retention Establish tracking mechanism like interstate pipelines: 1. Adjust UFG % - affects cost of supplies 2. Surcharge - affects cost of transportation 3. Fixed UFG % + reconciliation mechanism Last option preferred because it provides greater certainty for supplier operations while ensuring adequate cost recovery Update rate prior to issuing RFP for SSO Consider differentiating rate by class

69. 69 Cost Recovery Changes Operational Balancing Capacity Continue to collect capacity cost via rider Expand rider coverage to include inventory- related cost Inventory cost collection must recognize carrying cost currently recovered via GCR Offset cost of purchases with ECPS storage sales, cash-out proceeds and operational sales of storage inventory (subject to audit)

70. 70 Cost Recovery Changes Storage Migration Establish tracking mechanism to recognize changing volume and price associated with storage migration 1. Implement storage fuel retention % to recover storage compression and migration 2. Include proportionate amount in: Operational balancing cost rider Fuel retention treatment (as company use) Prefer last option until full unbundling since storage migration is similar in nature to company use

71. 71 Summary: Possible Operational Changes Features Retained With Minor Changes Comparable capacity assessment Target posting timing and process Nom flexibility Features Requiring Further Review Reserve margin Operational balancing requirements Constrained point allocation On-system storage requirements

72. 72 Summary: Required Operational Changes Supply-Related Pro rata deliveries after large enrollments Monthly true-up if large imbalance Storage-Related Update parameters Less buy/sell flexibility Summer/winter inventory targets Operational sales option

73. 73 Summary: Required Cost Recovery Changes Unrecovered Gas Cost 12-month billing at fixed rate Bill out remainder to SSO/Choice class Fuel Retention Fixed UFG + reconciliation mechanism Operational Balancing Capacity Include inventory and cash out related costs Storage Migration Treat as company use

74. 74 Contacts For more information contact: Jeffrey A. Murphy 216-736-6376 jeff_murphy@dom.com