national fuel gas distribution corporation …on june 29, 2010 the commission approved the...

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TESTIMONY OF SHEILA SUAREZ IN BEHALF OF PGC Statement No. 6 NATIONAL FUEL GAS DISTRIBUTION CORPORATION PENNSYLVANIA PUBLIC UTILITY COMMISSION v. NATIONAL FUEL GAS DISTRIBUTION CORPORATION (PURCHASED GAS COSTS -- 66 PA.C.S. SECTION 1307(f)), DOCKET NO. R-2013-2341534

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Page 1: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

TESTIMONY OF SHEILA SUAREZ

IN BEHALF OF

PGC Statement No. 6

NATIONAL FUEL GAS DISTRIBUTION CORPORATION

PENNSYLVANIA PUBLIC UTILITY COMMISSION v.

NATIONAL FUEL GAS DISTRIBUTION CORPORATION (PURCHASED GAS COSTS -- 66 PA.C.S. SECTION 1307(f)),

DOCKET NO. R-2013-2341534

Page 2: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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DIRECT TESTIMONY OF SHEILA SUAREZ

State your name and business address.

My name is Sheila Suarez. My business address is 6363

Main Street, Williamsville, New York 14221.

By whom are you employed and in what capacity?

I am employed by National Fuel Gas Distribution

Corporation ("Distribution") as a Senior Rate Analyst

in Distribution's Rates and Regulatory Affairs

Department.

Describe briefly your educational background and

experience.

I graduated from Canisius College in 1986 with a

Bachelor of Science Degree in Accounting. In 1993 I

completed a Master of Business Administration Degree at

the State University of New York at Buffalo. In June

1986, National Fuel Gas Distribution Corporation

("Distribution") employed me as a Junior Rate Analyst

in the Valuation Department, which has since been

reorganized into the Rates and Regulatory Affairs

Department. I was promoted in March 1990 to Rate

Analyst II, in July 1993 I was promoted to Rate Analyst

III, in June 2001 I was promoted to Rate Analyst IV,

and in May 2010 I was promoted to Senior Rate Analyst

my present position.

What is the purpose of your testimony?

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Page 3: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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I am testifying in support of PGC Exhibit Nos. 2

(partial), 3 (partial), 13, 13A, 24A, 28, 29, 33, 34

and 35. I will also provide a general description of

the Company's rates for recovery of purchased gas costs

charged to transportation customers.

Please explain PGC Exhibit 2, Schedule 4 and PGC

Exhibit No. 3, Schedule 4.

PGC Exhibit No. 2, Schedule 4 reflects a projection of

the value of capacity releases of $3,158,581 for the

link period, the eight months ending July 31, 2013.

PGC Exhibit No. 3, Schedule 4 reflects a projection of

$4,541,690 for the rate year period, the twelve months

ending July 31, 2014. These values include releases by

Distribution of part of its EFT transportation and ESS

storage entitlements on Supply to the Small Aggregation

Transportation Supplier ("SATS") Service marketers, as

well as releases to others. The total value of such

capacity released to the SATS marketers is projected to

be $2,481,992 for the link period and $3,565,092 for

the rate period.

Please explain the rate structure changes included in

PGC Exhibit No. 13.

Distribution has implemented a system-wide customer

choice program in compliance with the Natural Gas

Choice and Competition Act ("Act") (66 Pa. CS. §§ 2201-

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Page 4: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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12). This program provides an opportunity to all of

Distribution's small volume customers (except those

served under the Low Income Residential Assistance Rate

Schedule) for aggregated transportation services.

On October 1, 1999 Distribution filed its

restructuring case in compliance with the Act (Docket

R-994785). On June 8, 2000 the Commission adopted an

Order in Distribution's restructuring case.

On June 29, 2010 the Commission approved the

Company's Purchase of Receivable program.

Under Distribution's system-wide choice program,

qualified natural gas suppliers ("NGSs") are able to

serve the aggregated gas supply requirements of their

customers. Customers receive transportation service

under Distribution's Small Aggregation Transportation

Customer Service Rate Schedule("Rate Schedule SATC").

NGSs are required to qualify for service under SATS.

Under the SATS tariff, Distribution is the

Supplier of Last Resort ("SOLR") . In order to promote

competition without compromising reliability and system

operational integrity, Distribution retains upstream

capacity necessary ·for operational purposes.

Distribution releases to NGSs sufficient pipeline

capacity to meet the requirements of customers that

have chosen to be served by the NGSs.

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Page 5: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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The total capacity requirements of the NGSs are

calculated based on 62 heating degree days during the

rate year. The 62 degree day factor was determined by

deducting the 12 degree days associated with capacity

retained for temperature swing/peaking from the extreme

design peak day degree day level of 74 degree days.

The costs of retained capacity are recovered from NGSs

through SATC rates.

Are the gas costs incurred in order to provide this

service reflected in this filing?

Yes, the proposed SATS and SATC rates provide for

recovery of gas costs incurred in order to support the

system-wide customer choice service. Distribution has

retained a portion of storage capacity and associated

transmission capacity based on 12 degree days for its

small volume aggregation customers in order to maintain

reliability and meet operational and flexibility needs.

The capacity is needed for all small volume customers

regardless of whether the customers receive service

under a Distribution tariffed sales rate schedule or

receive gas supply service from another supplier. The

capacity retained and included in the SATC rate

includes a portion of the EFT capacity from National

Fuel Gas Supply Corporation ("Supply"). Because the

retained capacity is required by both sales and SATC

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Page 6: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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customers, the costs of capacity are recovered through

both sales and SATC customer delivery rates.

Has Distribution proposed to modify the mix of capacity

allocated to SATS service based on capacity changes

anticipated in the rate year?

Yes, changes in capacity contracts during the rate year

have caused distribution to update the SATS capacity

allocations. The reasons for these changes are

addressed in Mr. Michalski's testimony. The allocation

projections effective for the rate year are as follows:

Percent of Peak Day Met by Upstream Capacity

1. 60%

2 • 40%

3. 0%

Capacity

Supply storage and associated transmission released to NGSs

Mandatory release of capacity upstream of Supply

Capacity retained by Distribution and included in SATC rates

Do the rates proposed by Distribution in this

proceeding reflect the system-wide customer choice

program filed by Distribution and approved by the

Commission in compliance with the Act?

Yes. The rates filed by Distribution in this

proceeding are consistent with Distribution's system-

wide customer choice program under the Act, as updated

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Page 7: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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for capacity modifications effective during the rate

year.

What amount is included in SATC rates for the recovery

of such retained capacity?

PGC Exhibit No. 13A provides the calculation of the

distribution charge demand cost rates ("Demand-De

rates") for SATC service on or after August 1, 2013.

Sheet 1 of PGC Exhibit No. 13A provides the calculation

of the Demand-De rate included in SATC rates of $0.2618

per Mcf. The pipeline demand rates summarized on PGC

Exhibit No. 13A are the costs of upstream pipeline

capacity retained by Distribution in order to preserve

reliability and for the management of temperature

swing/peaking requirements based upon 12 degree days.

The EFT Capacity and ESS Delivery and Capacity includes

an allocated amount of contingency capacity.

The total Demand-De charge included in SATC rates

reflects an amount associated with undercollected gas

costs from previous periods. PGC Exhibit 21, Schedule

1, Sheet 3 provides total demand cost of gas recovered

through SATC rates of $0.2648 per Mcf.

Please provide a general description of the Company's

rates charged to customers to recover purchased gas

costs.

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Page 8: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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The Company recovers its purchased gas costs through

the purchase gas cost rates it charges sales and

transportation customers. Total purchase gas costs

projected to be incurred for the twelve months ending

July 2014 are forecasted. Projected sales and

transportation volumes for the twelve months ending

July 2014 are used to determine forecasted gas costs.

For purposes of the forecast of sales and

transportation total requirements, a .31% system wide

lost and unaccounted for ("LAUF") gas factor is used.

The calculation of 0.31% for LAUF is explained in Ms.

Zablonski's testimony. The portion of purchased gas

costs incurred to support transportation services is

assigned to transportation service rates with the

remaining purchase gas costs recovered through rates to

sales customers.

Historic purchase gas costs for the twelve months

ending July 2013 are reconciled with purchase gas cost

revenues from sales and transportation customers for

the twelve months ending July 2013. Any over or under

collection of purchased gas costs is either credited or

surcharged to sales customers through the gas

adjustment charge rate ("GAC") included in purchase gas

cost rates. In limited circumstances the GAC is also

charged to transportation customers. Such

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Page 9: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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circumstances occur when a sales customer migrates to

transportation service. Under the Company's existing

tariff, customers that migrate to transportation

service are charged the currently effective GAC rate

for a twelve month period.

Please explain PGC Exhibit No. 24.

PGC Exhibit No. 24 is a summary of data and

calculations which support Distribution's Monthly

Metered Transportation ("MMT") and Daily Metered

Transportation ("DMT") service rates. Information on

the design peak day included in PGC Exhibit No. 24 will

be provided in Mr. Michalski's testimony.

Please provide a general description of Distribution's

existing MMT and DMT rates.

MMT rates include a purchased gas cost component

designed to recover the costs of balancing the

difference between MMT customers' daily deliveries and

daily usage. As the MMT service name implies,

customers receiving service under the MMT rate schedule

have their meters read on a monthly basis. Since MMT

customers' meters are read monthly, actual daily

consumption data for MMT customers are not available.

Therefore, an estimate of peak day transportation usage

and deliveries is used to calculate the costs of

providing balancing service to MMT customers.

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Page 10: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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Purchased gas costs are excluded from the DMT unit

transportation rate. To be a DMT customer, it is

necessary for daily metering and communications

equipment to be installed not only at the customer's

premises, where it receives service from Distribution,

but also at the point of delivery of the customer's gas

supplies into Distribution's system. Since DMT

customer deliveries and usage are monitored on a daily

basis, the purchased gas costs associated with

balancing for DMT services are recovered through the

overdelivery and sales rates charged to the DMT

customer based upon the customer's actual daily usage

of the sales and overdelivery services.

What are the purchased gas capacity costs that

Distribution expects to incur to provide transportation

services?

PGC Exhibit No. 24A provides a calculation of the

purchased gas capacity costs Distribution expects

transportation customers to cause it to incur. Tables

I through V of Appendix I of PGC Exhibit No. 24A

provide an estimate of purchased gas capacity costs

expected to be incurred to provide transportation

customers with service.

How does Distribution recover these costs from

transportation customers?

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Page 11: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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As explained in PGC Exhibit No. 24, the purchased gas

costs associated with providing service to

transportation customers are recovered from MMT

transportation customers through the MMT charges.

At page 6 of PGC Exhibit No. 24, it is explained that

the design peak day deficiency of DMT customers has

been excluded from the storage delivery calculation

because a DMT customer's access to peak day storage

deliverability is, in effect, interruptible. Please

explain why such access to storage deliverability is

effectively interruptible.

The DMT service tariff includes an Operational Flow

Order provision whereby Distribution may restrict the

daily metered customers' access to banked gas supplies.

This provision is in place to ensure that adequate

supplies of gas are delivered to Distribution by DMT

customers. The restriction of the DMT customers'

access to banked supplies allows Distribution to

restrict the DMT customers' use of storage

deliverability so that such storage deliverability can

be used for the benefit of sales customers.

What is the proposed charge to recover purchased gas

costs associated with transportation service included

in the MMT rate schedule?

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Page 12: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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The transportation rates for MMT service include a

component for the recovery of purchased gas capacity

costs. The unit cost as shown in PGC Exhibit No. 24A,

is $0.2568 per Mcf. The Company is proposing to

decrease the MMT rate from $0.2700 per Mcf to $0.2600

per Mcf.

Explain the DMT rate schedule.

The DMT rate schedule is available to transportation

customers that transport volumes to Distribution,

either directly or by displacement, on a firm or

interruptible basis. Customers under the DMT rate

schedule will not be charged the current $0.2700 per

Mcf which is charged MMT customers. Excess deliveries

for DMT customers, however, are charged a greater

amount than MMT customers, as explained in further

detail below. The DMT customer's deliveries and usage

must be metered on a daily basis. If, in any day, the

DMT customer uses more gas from Distribution than the

sum of any overdelivery volumes at the beginning of the

day, the volume of gas, after line losses, delivered to

Distribution for the customer's account on that day,

and two percent of the total daily usage, such use in

excess of the volume of gas available for

transportation service is a sale of gas by Distribution

to the DMT customer under the applicable sales rate

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Page 13: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

DIRECT TESTIMONY OF SHEILA SUAREZ

1 schedule and shall not be recharacterized as

2 transportation service under any circumstances.

3 Q. Please explain the charges for overdeliveries under the

4 DMT rate schedule.

5 A. The overdelivery charges for DMT customers are based on

6 the maximum cumulative daily overdelivery for DMT

7 customers. For a maximum cumulative overdelivery

8 volume between 2% and 37% of the volume of DMT service

9 gas transported by Distribution to the customer in the

10 billing month, the charge for overdeliveries is $0.6351

11 per Mcf. For overdeliveries equal to or more than 37%

12 of the volume of DMT service gas transported to the

13 customer by Distribution during the billing month, the

14 charge for such overdeliveries shall be $0.7624 per

15 Mcf.

16 Q. If a transportation service customer reverts back to

17 sales service and, as a result, Distribution does not

18 recover capacity costs from the transportation service .

19 customer, would an underrecovery of purchased gas costs

20 result?

21 A. No. Customers are free to switch back and forth

22 between sales and transportation service when

23 Distribution has sufficient gas supply and pipeline

24 transmission capacity to accommodate the return of

25 transportation customers to sales service. If a

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Page 14: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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present transportation customer decides to switch back

to sales service, the result would be simply that the

same customer would contribute to recovery of purchased

gas costs through payment of rates for sales service

instead of through payment of transportation service

rates.

Why has the Company proposed no change in retention

rates for transportation service in this case?

The Company reviewed its current MMT and DMT service

rates to determine whether the current recovery of

purchased gas cost rates and the current .31% charged

transportation customers to compensate for line losses

and company usage ("transportation retention rate")

continue to be appropriate. This review concluded that

current purchased gas cost rates included in charges to

MMT customers should be decreased from the current rate

of $0.27 per Mcf to $0.26 per Mcf, while the imbalance

service rates charged transportation customers and the

currently effective line loss retention rates should

not be changed. This proposal for services provided to

transportation customers reasonably balances the

purchased gas cost recovery obligation of sales and

transportation customers.

What issues did the Company consider when making its

proposal for MMT and DMT transportation service rates?

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Page 15: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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The Company considers the issues of the appropriate

purchase gas cost ("PGC") rates to be charged

transportation customers, the appropriate balancing

rates to be charged transportation customers, and the

appropriate retention rates to be charged

transportation customers for line loss to be matters of

rate design. Given that this is largely a rate design

issue, the Company utilized the appropriate criteria in

designing utility rates in analyzing the reasonableness

of existing transportation PGC, balancing, and

retention rates.

PGC Exhibit No. 33, Schedule 1 provides a summary

of the criteria of a sound rate structure. The Company

believes that its existing and proposed charges to

transportation customers are consistent with these

criteria.

Is there any evidence that the current and past rates

charged MMT and DMT customers, including retainage

rates, have been an impediment to transportation

service on the Company's system?

No, the evidence is clearly contrary to any suggestion

that the Company's MMT and DMT rates and the retainage

rates charged transportation customers have been an

impediment to transportation service. Transportation

service over the past 29 years has grown to 56% of

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Page 16: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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total system throughput. Nearly all industrial and

public authority customers have migrated from sales

service to transportation service.

It is clear from this evidence that the

transportation service and retainage rates have fairly

balanced the interests of transportation service

customers.

Does the Company's proposal in this proceeding fairly

allocate costs incurred by the Company to provide

service to transportation service customers?

Yes, the proper allocation of purchased gas costs to

transportation customers has been an issue in the

Company's purchased gas cost proceedings since the

implementation of Order 636 which was issued by the

Federal Energy Regulatory Commission in 1993. See PGC

Exhibit No. 24, starting at line 10 of page 1 for the

list of 1307(f) cases where this issue was addressed.

In order to support transportation services, the

Company incurs costs in the way of capacity costs,

principally on its affiliated pipeline, Supply. The

precise measurement of these costs is impossible since

a precise measurement would require daily measurement

on all transportation customers as well as all gas

receipt points into the Company's system, including

local gas production meters (see PGC Exhibit No. 24,

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Page 17: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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1 starting at line 15 of page 4). Therefore, the

2 calculation relies on estimates. Any attempt to

3 determine the exact cost of servicing transportation

4 customers would require resolving a number of ancillary

5 issues including, for example, previous period

6 reconciliation, that only add to the overall complexity

7 and cost of determining and administering any mechanism

8 designed to precisely quantify and recover those costs.

9 It is useful to place the overall magnitude of

10 purchase gas cost recovery rates for sales and

11 transportation customers and actual sales and

12 transportation volumes into context. Table SS-1

13 demonstrates that, from the perspective of overall gas

14 cost recovery, gas cost revenues associated with

15 transportation service represent a small fraction of

16 overall gas costs.

Table SS-1 Volumes Gas Cost

Mcf % $ % Sales 18,335,882 44.4 122,842,597 97.8 MMT 8,373,598 20.3 2,177,135 1.7 SATC 2,385,520 5.8 624,529 0.5 DMT 12,197,486 29.5 0 0.0 Total 41,292,486 100.0 125,644,261 100.0

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18 While one can argue about the allocation of gas

19 costs to transportation services, the overall impact on

20 natural gas energy bills charged by the Company to

21 customers is not likely to be significant (i.e.,

22 overall changes in gas cost allocation, even if capable

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Page 18: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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of being precisely measured, are likely to be around

2% of overall gas cost).

Why is the Company proposing to maintain existing

transportation overdelivery rates?

Transportation overdelivery.rates present a unique

issue associated with transportation services.

Transportation overdeliveries, the rates charged for

those over deliveries, and the costs incurred by the

Company due to those over deliveries cannot be

reconciled in a traditional cost based rate perspective

because transportation over and under delivery rates

are not designed solely to recover specific

identifiable costs incurred by transportation

customers. Instead, the over and under delivery rates

on the Company's system are designed for the additional

purpose of providing an incentive to transportation

customers and their suppliers to deliver sufficient

supplies to meet their customers' daily requirements so

that the reliability of gas supply service of the

overall distribution system is maintained. As

mentioned starting at line 22 of page 11 of PGC Exhibit

No. 24, imbalance rates were not designed to provide

transportation customers with storage service.

Instead, they are designed to provide sufficient

incentive for transportation customers and their

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Page 19: NATIONAL FUEL GAS DISTRIBUTION CORPORATION …On June 29, 2010 the Commission approved the Company's Purchase of Receivable program. Under Distribution's system-wide choice program,

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natural gas suppliers to remain in balance. Existing

overdelivery rates have been sufficient to provide such

incentive.

Because costs of providing transportation service

cannot be quantified precisely and because they are

designed also to create incentives, reasonable judgment

is required to establish reasonable transportation

rates that are fair to all customers on the system

including sales and transportation customers.

Distribution believes that its proposal for MMT and DMT

rates achieve this objective.

Please describe PGC Exhibit No. 28.

Exhibit No. 28 is the Company's proposed tariff. The

normal rate changes are in Supplement No. 139

associated with changes in gas cost.

Is the Company proposing to make changes in how

pipeline refunds may be passed back to customers?

Yes, the Company is proposing under Rider A changes to

the period in which refunds are passed back. Currently

supplier refunds are refunded in the E-factor. Refunds

and interest will be included in the C-factor of the

first available filing (Annual or Quarterly) after such

refund is received if the amount of the refund is

material, i.e., exceeds $10,000. This represents a

more timely passback of material refunds received. If

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the amount of the refund is immaterial or less than

$10,000, the Company will reflect it in the E-factor in

the next Annual filing because this level of refund

will not significantly affect the C-factor, and this

will reduce administrative burdens on the Company.

6 Q. Is the Company proposing to modify how it calculates

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the rate impact of changes in C-Factor costs included

in its quarterly gas cost filings?

Yes, the Company is proposing to calculate the November

and February quarterly filings using remaining sales

volumes. For the May quarterly filing, the Company will

continue to use the remaining projected volumes from

the February quarterly filing. The Company is

proposing this change to adjust for changes in gas

costs in a more timely fashion and therefore passing

back or collecting costs more closely to the period in

which they occur. This will also mitigate the

over/undercollections of gas cost for the next twelve

month period. The Company will use the remaining

projected volumes from the February filing in the May

filing to mitigate volitity of the rate. Refer to PGC

Exhibit No. 34 for an example of the calculation. The

example provided reflects changes to the Commodity

component, the change would apply to the Demand-NGS and

Demand-De components as well.

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DIRECT TESTIMONY OF SHEILA SUAREZ

Please explain PGC Exhibit No. 29.

PGC Exhibit No. 29 provides the calculation of the

weighted average demand cost of upstream capacity and

the demand transfer rate ("DTR") associated with the

SATS rate schedule.

The weighted average demand cost of upstream

capacity provides an alternative to SATS suppliers for

capacity release that would consolidate upstream

transmission capacity that would be priced at the same

effective cost as if the Supplier was allocated a pro

rata share of every segment of transmission capacity

held by the Company.

Please explain the DTR.

The DTR is utilized to recover from NGSs the costs of

capacity incurred by sales customers prior to the

conversion of the sales customer to transportation

service. Under the SATS rate schedule, NGSs receive a

transfer of gas in storage for all customers that

convert to transportation service after the month of

April. The DTR is designed to remove any incentive for

the NGS to convert sales customers after the summer

period to avoid the assignment of upstream capacity

during the summer period when sales volumes are low.

Absent the DTR, NGSs could avoid capacity costs during

the summer period when sales volumes and associated

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DIRECT TESTIMONY OF SHEILA SUAREZ

revenues are low and only incur such capacity costs by

converting customers after the summer period where

sales volumes and associated revenues are high. The

DTR eliminates any such incentive and protects the

remaining sales customers from paying costs that are

incurred for the benefit of transportation customers.

Please explain PGC Exhibit No. 35.

The Company is proposing a change in the methodology

for calculating its Priority Standby ("PSB") Service

rates and Standby ("SB") Service rates. PGC Exhibit

No. 35 calculates these rates using the new methodology

and proposes to gradually increase the rate by 50% of

the change created by this new calculation.

The new methodology is calculated directly on the

amount of capacity held in reserve in order to meet the

obligations of PSB and SB customers. Since this change

in method will result in a significant increase in the

rates to PSB customers, the Company proposing a more

gradual increase equal to 50% of the difference between

current rates and rates that would be calculated under

the proposed method without mitigation.

The Company has seen a large uptick in the growth

in the number of PSB customers over the last 13 years.

Page 2 of PGC Exhibit No. 35 provides a graph of the

number of PSB customers since February, 1999. The

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DIRECT TESTIMONY OF SHEILA SUAREZ

Company is concerned that the current PSB rate is

priced below its cost and therefore is not providing

the proper price signal regarding the cost to serve PSB

customers.

Does this complete your testimony?

Yes, at this time.

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