Summit Natural Gas of Maine, Inc.

Transcription

1 Summit Natural Gas of Maine, Inc. Response To Towns of Cumberland, Falmouth and Yarmouth NATURAL GAS PIPELINE AND UTILITY SERVICE REQUEST FOR PROPOSALS January 25, 2013

2 Towns of Cumberland, Yarmouth, and Falmouth January 25, 2013 Re: Proposal for Natural Gas Distribution Pipeline and Utility Service Dear Members of the Selection Committee: Summit Natural Gas of Maine, Inc. ( SNG ) appreciates the opportunity to respond to the Request for Proposals for Natural Gas Distribution Pipeline & Utility Service issued by the Towns of Cumberland, Falmouth, and Yarmouth (the Towns ). SNG is proud to present a successful track record of providing safe, reliable natural gas transmission and distribution customer to approximately 36,000 customers in two states. SNG is also licensed in Maine as a natural gas utility able to serve customers in the state. The enclosed proposal summarizes why Summit Natural Gas of Maine, Inc. is best suited to serve the communities of Cumberland, Yarmouth, and Falmouth. Previous Experience - SNG has developed large projects in challenging terrains and rural and suburban areas of Colorado and Missouri. Saturation Plan - SNG s affiliates, Colorado Natural Gas, Inc. and Summit Natural Gas of Missouri, Inc. historically have experienced -- at minimum -- 90% penetration by the third year of service averaged over all service territories. Pricing Structure - SNG has established, with the Maine Public Utilities Commission, just and reasonable rates that allow for maximum saturation. The combination of experience and pricing supports the ability to reach the saturation percentages that your communities are seeking and makes SNG the optimum choice to construct this project. We look forward to working with the Towns of Cumberland, Falmouth, and Yarmouth in the near future. Please feel free to contact me with any questions. Sincerely, Timothy Johnston Summit Natural Gas of Maine, Inc. Executive Vice President and Chief Strategy Officer 45 Memorial Circle, 3 rd Floor Phone: (720) Augusta, ME tjohnston@summitutilitiesinc.com 2

3 Table of Contents I. Company Information and Statement of Qualifications... 4 A. Corporate Structure... 4 B. Location of Office and Maintenance Facilities in Maine... 7 C. Key Officers of Primary and Secondary Businesses... 7 D. Experience... 8 i. CONSTRUCTION EXPERIENCE... 8 ii. EXPERIENCE WITH SIMILAR COMMUNITIES... 9 iii. SATURATION EXPERIENCE iv. SAFETY EXPERIENCE v. STRONG HISTORY OF RELIABILITY vi. CAPACITY TO SERVE vii. CUSTOMER SERVICE EXPERIENCE viii. EXPERIENCE WITH MARITIMES & NORTHEAST PIPELINE F. Approval to Serve from Maine Public Utilities Commission i. EXISTING AND PENDING APPROVALS ii. APPROVAL TO SERVE CUMBERLAND, FALMOUTH, AND YARMOUTH II. Description of Proposed Project A. Location of Proposed Pipeline, Distribution Lines, and Substations B. Saturation Goals and Proposed Timeline i. PROJECT TIMELINE ii. SATURATION PLAN III. Pricing Structure A. DELIVERY RATES AND CUSTOMER CLASSES B. CIAC C. Residential Customer Conversion Incentive Program D. Tax implications/tifs E. Economic Impact and Customer Savings IV. Regulatory Requirements V. Public Outreach

4 As set forth in the proposal below, Summit Natural Gas of Maine, Inc. proposes to design, install, own, and operate a natural gas pipeline system within the Towns of Falmouth, Cumberland, and Yarmouth that we expect will provide service to at least 80% of the homes and businesses of the Towns within five years. Under our proposal, SNG would work in partnership with the Towns as well as its residents and businesses -- to achieve these goals. The details of our proposal are set forth below. I. Company Information and Statement of Qualifications A. Corporate Structure Summit Utilities, Inc. ( Summit ) is a leader in the natural gas utility industry through its strategy of expanding natural gas distribution service to previously unserved areas. Summit manages approximately $260 million in assets through its subsidiaries in Colorado, Missouri, and Maine. Summit Natural Gas of Maine ( SNG or SNG Maine ) is a wholly-owned subsidiary of Summit Utilities, Inc. (formerly CNG Holdings, Inc.), which was formed in 2004 to be the holding company for operating utilities and related companies. Summit is a privately held company with the principal business of natural gas transmission and distribution. State authority to provide gas utility service. SNG is a Maine foreign business corporation. SNG has been active in Maine since early In the time since, Summit has invested nearly $1.6 million into SNG Maine s operation. In June 2012, SNG Maine filed a petition for approval to operate as a Maine gas utility under Sections 2102 and 2104 of Title 35- A. In Maine Public Utilities Commission ( Commission or Maine PUC ) Docket No , Summit worked closely with Commission Staff and the intervening parties to obtain 4

5 approval. In early January, after successful settlement negotiations between diverse parties, including SNG, the Office of the Public Advocate, the Efficiency Maine Trust, and the Town of Farmingdale; SNG Maine submitted a Stipulation for the Commission s review and approval. Among the elements of the Stipulation was a multiyear Rate Plan and SNG Maine s Terms and Conditions for providing gas service, and authorization to serve in 17 municipalities in the Kennebec Valley region of Maine. At the Commissioners deliberations on January 10, 2013, the Commission approved the Stipulation, approving SNG as a Maine gas utility and effectively determining, among other things, that SNG has the technical and financial qualifications to construct and operate natural gas systems, as well as the capability to provide safe and reliable service at just and reasonable rates to Maine customers. The Maine PUC s issuance of a written order is pending and expected imminently. Experience serving communities with limited access to natural gas. Summit and its subsidiaries have successfully developed and executed a business model specializing in serving communities with limited or difficult access to natural gas. SNG is currently developing a major natural gas distribution system in the Kennebec Valley region of Maine that is expected to serve 17,000 customers in 17 communities within four years. In its 15 years of operation, Summit has designed and constructed 13 projects in Colorado and seven in Missouri totaling 400 miles of high pressure steel main lines, approximately 1,500 miles of polyethylene gas main lines, and has also installed service lines to over 33,400 residential, commercial and industrial customers. Summit will typically bring natural gas service to over 90% of the residences and commercial establishments within in its service territories. Summit is able to reach this high level of 5

6 customer penetration through strategic marketing initiatives that involve reaching out to customers individually, and providing education on the benefits of natural gas. Corporate structure. Summit currently operates five subsidiaries in three states: (1) Colorado Natural Gas Inc., (2) Summit Natural Gas of Missouri, Inc., (3) Summit Natural Gas of Maine, Inc., (4) Summit Utilities Management Services, LLC, a Colorado-based construction management and operations company providing service to natural gas distribution utilities, and (5) Wolf Creek Energy LLC, a natural gas reseller located in Colorado. Please reference Figure 1, a corporate organization chart identifying the holding company and its subsidiaries. Figure 1: Summit Utilities, Inc. EIN: Summit Utilities Management Services, LLC Summit Natural Gas of Maine, Inc. Colorado Natural Gas, Inc. Summit Natural Gas of Missouri, Inc. Wolf Creek Energy, LLC In 2007, JP Morgan Infrastructure Investment Fund ( IIF or the Fund ) acquired a controlling interest in Summit Utilities, Inc., and in 2010 increased that to a 100% ownership interest. Conclusion. Summit has extensive experience in building and operating safe, reliable natural gas pipelines in Colorado and Missouri, and has an excellent reputation with consumers and state regulators in those two states. In Maine, SNG has been working with experienced engineers and contractors to design, install, and ultimately operate a natural gas distribution system in the Kennebec Valley area as well as other potential locations around the State. Moreover, this project highlights the core competencies of the Summit team which include 6

7 system engineering and design, construction and project management, marketing and regulatory management. B. Location of Office and Maintenance Facilities in Maine SNG currently has an office in Augusta, ME, that serves as its State Headquarters. As SNG expands throughout the Kennebec Valley and in Cumberland, Falmouth, and Yarmouth, the Company will have local offices in various districts. Each office will contain a District Manager and technicians. The Company plans to open a district office for the Cumberland, Falmouth, and Yarmouth project; the exact location has not yet been identified. C. Key Officers of Primary and Secondary Businesses The Summit Executive Management Team boasts nearly 100 years of combined experience in the natural gas industry and consists of five officers, including: Michael Earnest, President and Chief Executive Officer; Timothy Johnston, Executive Vice President and Chief Strategic Officer; Eric Earnest, Vice President and Chief Operations Officer; Rick Lawler, Chief Financial Officer; and Kenneth Wolfe, Vice President and General Counsel. Under the oversight of the Executive Management team, Summit has a diverse and successful track record of identifying, marketing, constructing, and operating new natural gas transmission and distribution systems. In addition to the Summit Executive Management Team, SNG will have a subsidiary-level Management Team in Maine that will include, at a minimum, a State Operations Manager, State Business Development Director, and a State Regulatory Manager, as well as a workforce responsible for the operation and maintenance of its gas infrastructure in Maine. 7

8 In late 2012, SNG hired the former Economic Development Director for the City of Augusta, Michael Duguay, as its Director of Business Development. On legal and regulatory efforts, SNG Maine works with attorneys at the Portland firm of Verrill Dana, LLP. Jim Cohen of Verrill Dana is one of the primary attorneys advising SNG Maine on legal and legislative work. D. Experience i. CONSTRUCTION EXPERIENCE Summit s construction experience includes installing systems in dolomite, limestone, and granite, as well as other rock and mixed soils, at elevations up to 11,000 feet with construction seasons as short as five months. The Company has successfully completed horizontal directional drilling ( HDD ) installations along highways, under rivers and lakes, and under multiple railroad crossings. This experience is directly relevant to the type of construction activities anticipated for developing a natural gas distribution system within the Towns. In Maine, SNG is currently engineering a significant gas distribution system in the Kennebec Valley. That system includes 12 high-pressure steel transmission mainline, as well as lower-pressure plastic transmission and distribution lines to serve individual customers throughout the Valley. In 2010, Summit completed construction of a 50-mile, 8 steel pipeline to serve the tourist destination of Branson, Missouri. This line was constructed through limestone and dolomite rock, and the project required several major directional bores, the longest of which ran 4,500 feet under Lake Taneycomo, near Branson. 8

9 In 2009, Summit constructed a 45-mile, 6 steel line to serve Warsaw, Missouri. This line interconnects with Southern Star Central Gas Pipeline system, and currently operates at 350 psig. The line was designed to be operated at 1440 psig and to eventually provide service to the Lake of the Ozarks region in Central Missouri. This line was successfully designed and constructed in four months. In 1998, Summit constructed a 28-mile, 6 high-pressure steel line to serve the mountain area of Cripple Creek, Colorado. This line extends from a meter station on a line owned by Black Hills Corporation, and operates at a pressure of 600 psi. Much of this line was constructed through granite and over challenging terrain. The pipeline route gains 3,000 feet in elevation over its course and includes several slopes approaching 35 degrees. ii. EXPERIENCE WITH SIMILAR COMMUNITIES Summit has designed and built several pipeline projects similar to the project proposed for Cumberland, Falmouth, and Yarmouth. Customer base SNG s sister companies partner with and serve primarily residential communities and small towns in both Colorado and Missouri. Most of these communities have local commercial businesses, but minimal industrial load. In these locations, we have consistently achieved residential saturation rates in excess of 80% and commercial saturation rates of over 95%. Our utilities work hand-in-hand with the communities to provide residents with safe, reliable, and affordable natural gas service. Geography As mentioned above, Summit has completed projects in a wide range of conditions. Summit has experience building through rocky conditions 9

10 common in Maine, including drilling and blasting through granite and dolomite as well as significant experience building around and boring under lakes and rivers, with its largest completed bore over one mile long. This experience is important given the lakes, rivers, and coastal areas of the Cumberland, Falmouth, and Yarmouth area. iii. SATURATION EXPERIENCE Summit s business model is designed to serve as many customers as possible within the communities we serve. We have the same model for SNG Maine. SNG s affiliates, Colorado Natural Gas, Inc. and Summit Natural Gas of Missouri, Inc. historically have experienced -- at minimum -- 90% penetration by the third year of service averaged over all service territories and customer classes. By way of example, Colorado Natural Gas, Inc. completed construction and began operation of a natural gas system in Fairplay, Colorado in November of The Company identified 970 potential customers prior to system construction and, just months after completing the main lines, the Fairplay expansion now serves 967 customers, or 99.7% penetration. In particular, the Company has experienced significant customer growth in the past five years, as is shown in Figure 2. 10

11 Figure 2. Summit Utilities, Inc. Total Customer Growth and Throughput 60, , ,000 30,000 20,000 10, Throughput in BCF Total Customers Throughput in BCF - < * 2014* 0.0 iv. SAFETY EXPERIENCE Summit and its subsidiaries complete all projects in accordance with the U.S. Department of Transportation s Title 49, Parts 191 and 192 of the Code of Federal Regulations and state commission rules regulating safety, construction, and operations. Safety is taken very seriously at SNG, as it is at all Summit subsidiaries. The Company has developed multiple inhouse programs that ensure all employees are prepared for work in the field. Summit provides in-house OSHA 10-Hour and OSHA 30-Hour training courses for all employees. The Company overall maintains a total recordable incident rate ( TRIR ) of 1.39, 11

12 whereas the industry average is currently In addition, all Summit subsidiaries combined had no OSHA-reportable incidents in 2011 and only three in As part of its standard operating procedure, all employees in the field are provided with and trained to adhere to the following policies and procedures: (1) Summit Operating and Maintenance Manual, (2) Summit Safety Manual, and (3) Summit Emergency Procedure Manual. These manuals were developed internally with input from the Colorado Public Utilities Commission Safety Staff as well as the Missouri Public Service Commission Safety Staff. The Company provides updated manuals to the various regulating entities as updated versions are produced. Summit is currently working with the Maine PUC Safety Staff to develop Mainespecific manuals and procedures, and all will be provided to the Commission at minimum two weeks prior to commencing any construction in Maine. SNG will implement an Operator Qualification ( OQ ) program in Maine, similar to that in place for Summit s Colorado and Missouri affiliates. The OQ program contracts with a thirdparty to develop position-specific testing to ensure that operating personnel are qualified to safely operate the natural gas system in both normal and emergency situations. Employees are required as a condition of employment to pass all applicable tests every three years, to ensure employees stay knowledgeable on existing and emerging procedures. These tests ensure that any personnel in the field have the necessary tools and knowledge to complete their job in a safe, reliable manner. In addition to employees, all contractors working on SNG pipelines must also pass job-specific tests through the OQ program

13 v. STRONG HISTORY OF RELIABILITY Summit has an excellent track record of system reliability. In its 15 year history, Colorado Natural Gas, Inc. has experienced only two outages of 600 customers or less, both of which were repaired within hours of the occurrence, and service was quickly restored to customers. In addition, the Company has successfully managed natural disasters, including blizzards and forest fires without noticeable impact to customers. Missouri Natural Gas, Inc. has only experienced one minor outage, which was the result of a tornado that hit the Branson service territory in Technicians in the area responded quickly to the emergency thereby ensuring customers were safe and taking inventory of the damage. After the tornado, customers to whom service could be restored were back online within 24 hours of contacting the Company. vi. CAPACITY TO SERVE SNG Maine has more than sufficient capacity to serve Cumberland, Falmouth, and Yarmouth. With respect to gas supply, Summit employs a consultant to manage its natural gas for all subsidiaries. SNG Maine will work closely with our consultant, suppliers, and state regulators to calculate peak-day loads, and purchase both firm and spot deliveries of natural gas to Cumberland, Falmouth, and Yarmouth to ensure customers will have gas flowing every moment of every day. Consistent with this requirement, we also strive to keep the cost of that gas as low as possible. With regard to staffing, SNG will have a full staff of management, sales, and operations personnel. SNG also is able to draw upon the assistance and expertise of personnel with its 13

14 parent company, and has relationships with local contractors, legal, and other relevant service providers. vii. CUSTOMER SERVICE EXPERIENCE SNG is working with the Commission to ensure the Company s Customer Service Department meets the requirements of the Maine law. Summit employs a robust Customer Service Department that offers one-call resolutions and handles customer questions and concerns, billing, payments, 24-hour phone availability for emergencies, and any other customer needs. Customers can reach the Customer Service Department via phone during normal business hours (Eastern Time) or via the website. Summit offers multiple payments options including traditional mail-in payments, internet payments, and the ability to pay over the phone with a Customer Service Representative free of charge. The Summit Customer Service Department fully trains all representatives and offers the ability for all customers to talk directly to a company representative regarding concerns. viii. EXPERIENCE WITH MARITIMES & NORTHEAST PIPELINE SNG has been working with Maritimes & Northeast ( M&NE ), the interstate gas pipeline that serves the Greater Portland area, since early We are currently in discussions to reach agreement on tap locations for both the Kennebec Valley system as well as the Cumberland, Falmouth, and Yarmouth system. 14

15 F. Approval to Serve from Maine Public Utilities Commission i. EXISTING AND PENDING APPROVALS As described above, the Maine PUC orally granted SNG unconditional approval to serve the Kennebec Valley at the Commissioners deliberations on January 10, 2013, including approval of the Company s Rate Plan and Terms and Conditions. ii. APPROVAL TO SERVE CUMBERLAND, FALMOUTH, AND YARMOUTH Under Maine law, once SNG has gas flowing to customers in an approved service territory, SNG has the ability to serve any community not currently being served by another local gas distribution company ( LDC ) without seeking additional Maine PUC approvals. In the event, however, that any other Maine LDC is serving the town, the new LDC would require approval as a second utility under 35-A M.R.S.A To the extent this Section 2105 approval is required because one or more of the three Towns is already served by another LDC, SNG is confident that PUC approval for SNG to serve all three towns will be provided within a few months of the request. This is consistent with the Commission s policy of allowing competition among natural gas utilities, and the historical timeframes for Commission approval of other applications by gas utilities for second utility status in Maine. II. Description of Proposed Project SNG intends to develop a high-pressure steel natural gas line to serve as the backbone supply line, along with lower pressure polyethylene distribution systems, to serve Cumberland, Falmouth, and Yarmouth. SNG intends to invest $9.5 million in steel and large diameter polyethylene pipe, and an additional $63 million in distribution and service lines within the three Towns. By completion of the third year of operation, SNG expects to serve approximately 15

16 6,000 residential and commercial customers throughout the Towns, with an annual throughput of approximately 566,000 dekatherms ( Dth ) of natural gas per year (exclusive of industrial load). In this way, natural gas service can be brought to the greatest geographic area and the largest number of retail customers. SNG s proposal is that SNG will construct, own, operate, and maintain the line. The project consists of a high pressure steel pipeline (operating at pressure ranges between 650 psig and 270 psig) and distribution pipelines (operating at intermediate pressures of up to 60 psig). For any proposed project, SNG develops a feasibility study that includes direct costs inclusive of materials, direct labor, contract labor, and contingencies. In the feasibility study, material costs are broken out in detail based on engineering specifications. The feasibility study also takes into account projected Operations and Maintenance ( O&M ) costs and identifies the capitalization schedules of the appropriate costs. In addition to costs, SNG includes assumptions in the feasibility study. These include construction, scheduling, growth, usage, customer class, tax, and regulatory assumptions. The combination of cost and assumption inputs allows SNG to calculate the competitive advantage of natural gas over alternative heating options, such as heating oil, propane, and liquefied natural gas. In developing the assumptions underlying SNG s feasibility study for service to Cumberland, Falmouth, and Yarmouth, Summit s engineering staff began by collecting the Towns Global Positioning System ( GPS ) technology to identify potential customer loads. SNG used this information and various software systems to determine how to serve maximum customers with minimum cost and land disturbance. The design that flows from this analysis 16

17 results in the cost and assumption inputs for the feasibility study that include total materials, contractor and capital costs, analysis of annual operations expenses, tax predictions, and financial outputs. A. Location of Proposed Pipeline, Distribution Lines, and Substations The steel pipeline will be located along the continuous corridor that is Blanchard Road/Tuttle Road/Kings Highway from the M&NE pipeline adjacent to Route 9 to the intersection of Kings Highway and Foreside Road. Careful consideration will be given to the location of existing utilities and maintaining safe distances during construction; as such, the alignment may switch between the north and south sides of Blanchard Road/Tuttle Road/Kings Highway, but is proposed to be primarily located along the north side from its departure from the M&NE pipeline corridor to Cumberland Center, and then primarily located along the south side to its point of terminus at Foreside Road. Please reference Appendix A for a map of the location of the steel pipe. These proposed locations were determined based on provided alignments for existing sewer and water lines. Also essential to the integrity of the pipeline system are three 8 High Density Polyethylene ( HDPE ) distribution loops that will serve the majority of the customer base. Please reference Appendix B for a system map of the HDPE mainline alignments. These loops tie into the 6 steel mainline but traverse primarily through the communities of Yarmouth and Falmouth. The Yarmouth loop begins at the Cumberland East regulator station and extends north along Middle Road and Elm Street until it turns to the east along Main Street, eventually tying 17

18 into Route 88 and continuing back to the south along Route 88 to the Cumberland Foreside regulator station. Please reference Appendix C for a system flow diagram. The Falmouth Foreside loop begins at the Cumberland Foreside regulator station and proceeds south down Route 88 until it turns west on Depot Road, terminating at Route 9 where it will tie into the Falmouth loop. The Falmouth loop begins at the Cumberland East regulator station and extends south down Route 9 to Falmouth Road where it runs southwest then northwest along Falmouth Road to Winn Road where it will proceed to the north until its intersection with Route 9 where the M&NE regulator station will be located. The buried pipeline is proposed to be on the edge, but completely within, city rights-ofway, and no real estate acquisition will be required. However, permanent easements will need to be acquired for the above-ground stations identified in Figures 3, 4, and 5 which represent Cumberland, Falmouth, and Yarmouth respectively. Using the basic system design noted above, SNG will be able to serve all of the current and anticipated residential and commercial customers in the Towns, from the busy Route 1 corridor the smaller residential streets of the three communities. 18

19 Figure 3. Cumberland Easement Detail CUMBERLAND Station Type/Pipeline General Location Proposed Site Location Estimated Easement and Construction Cost 6 Pig Launcher M&NE Tap SE corner of the intersection of Blanchard Rd and the M&NE corridor $50,000 2 Regulator Station M&NE Tap SE corner of the intersection of Blanchard Rd and the M&NE corridor $20,000 2 Regulator Station Blanchard Rd & Highway 9 North side of Blanchard Rd approximately 250 feet west of Highway 9 $22,500 6 Block Valve Tuttle Rd & Crossing Brook Rd South side of Tuttle Rd directly across from Crossing Brook Rd $17,500 2 Regulator Station Tuttle Rd & Middle Rd SW corner of the intersection of Tuttle Rd and Middle Rd $22,500 2 Regulator Station Kings Highway & Foreside Rd SW corner of the intersection of Tuttle Rd and Foreside Rd $20,000 6 Pig Receiver Kings Highway & Foreside Rd SW corner of the intersection of Tuttle Rd and Foreside Rd $50,000 6 Steel Pipe Along Blanchard Rd & Tuttle Rd N/A $460,000 8 HDPE Pipe N/A N/A $488,000 4 HDPE Pipe N/A N/A $127,000 2 HDPE Pipe N/A N/A $254,000 19

20 Figure 4. Falmouth Easement Detail FALMOUTH Pipeline General Location Proposed Site Location Estimated Easement and Construction Cost 8 HDPE Pipe N/A N/A $724,000 6 HDPE Pipe N/A N/A $215,000 4 HDPE Pipe N/A N/A $234,000 2 HDPE Pipe N/A N/A $396,000 Figure 5. Yarmouth Easement Detail YARMOUTH Pipeline General Location Proposed Site Location Estimated Easement and Construction Cost 8 HDPE Pipe N/A N/A $290,000 6 HDPE Pipe N/A N/A $73,000 4 HDPE Pipe N/A N/A $104,000 2 HDPE Pipe N/A N/A $197,000 Note: The high density polyethylene ( HDPE ) distribution alignments will be generally located within city roadways and will be primarily free and clear of the need to acquire private easements. Due to the vast extents of the HDPE distribution networks, please refer to the GIS mapping provided in Appendix B. i. PROJECT TIMELINE B. Saturation Goals and Proposed Timeline The timeline for the proposed system is as follows: Benchmark Engineering and Design Q1, Q Applications for permits Q Expected Timing 20

21 Tap from M&NE complete Q Break Ground for Mainline Q Begin Gas Flow in Cumberland Q Begin Gas Flow in Yarmouth Q Begin Gas Flow in Falmouth Q % Saturation Complete in Cumberland Q % Saturation Complete in Yarmouth Q % Saturation Complete in Falmouth Q Mainline Construction Complete Q ii. SATURATION PLAN As discussed above, Summit s subsidiaries have a track record of at least 80% saturation in its existing service territories. With the additional savings achieved by conversion from heating oil to natural gas, SNG expects to achieve 12% penetration in Year 1, 38% penetration in Year 2, 63% penetration in Year 3, and 80% saturation for all customers by the fifth year in Cumberland, Falmouth, and Yarmouth. This is shown in greater visual detail in the build-out plan attached as Appendix B, and in Figure 6 below. SNG hopes to establish a partnership with the Towns and work together to reach and convert the highest number of customers. By working in partnership with the Towns, customers can gain the most education on natural gas and the benefits it has to offer. SNG will work with the Towns to establish public meetings, ensure that customers are fully aware of available incentives for conversion, and work quickly and safely to get the natural gas lines constructed. We also look forward to the opportunity to serve the Town buildings themselves, including each of the Town offices and all other municipal buildings. 21

22 Figure 6. Expected Saturation Plan for Combined Cumberland, Falmouth and Yarmouth SNG has established rates to allow for growth and expansion by establishing realistic construction allowances. The construction allowance is the expense that is allowed under a utility s rates structure to reach the next customer. In Summit subsidiaries, including SNG, the rate structures allow for expansion of the system until customer densities reach an average of 400 feet of main pipeline per customer. Using the feasibility study and taking into account all costs, SNG was able to set just and reasonable rates that allow for a construction allowance of $6,684. The average distance per customer in the Cumberland, Falmouth, Yarmouth areas is approximately 200 feet per customer based on the population densities indentified in the GIS data provided by the Towns; as a result, the construction allowance within SNG s rate structure should allow the Company to reach all residential and commercial customers within the Towns without asking for customers to separately finance (through a charge known as contributionin-aid-of-construction or CIAC ) the construction of gas lines to serve their home or business. 22

23 In addition, SNG has established under its Rate Plan a customer incentive program, discussed later in this proposal, that will assist customers with the cost of conversion. Most gas utilities, including all gas utilities in Maine, charge customers for the cost of extending gas lines to serve them the CIAC charge noted above. These costs typically run in the thousands or tens of thousands of dollars and have been a barrier to expansion of gas service. The fact that gas service generally does not exist in Cumberland, Falmouth or Yarmouth, as well as parts of Portland provides clear evidence that the current pricing structure of Maine s other gas utilities does not support growth and expansion. By contrast, SNG has a very different pricing model that enables expansion to serve customers. By including the cost of expansion the CIAC charges -- within our rates, we are able to expand to serve customers without having those customers pay separately for construction of lines to serve them. Moreover, our rates include a generous allowance actual cash rebates -- to help customers pay for the cost of converting to natural gas. Our model is unique, but it is the basis for our high penetration rates. Other utilities may have lower rates, but their rates do not permit expansion. A low rate is of no value to customers who cannot obtain gas service. SNG s rate structure is geared toward getting lines built to serve customers. With respect to commercial customers, SNG does not provide conversion rebates. However, in our experience, rebates are not required to enable such customers to connect to our gas lines. Commercial customers tend to be along major roads, making them accessible as soon as the larger diameter polyethylene distribution system lines are constructed. The smaller diameter distribution lines that serve residential areas cannot be constructed until these larger 23

24 lines are in place to feed into them. In addition, commercial customers will see a larger payoff and may have different cash flows that allow them to convert quickly. In addition to its rate structure, SNG works to enhance its saturation percentage through its public outreach program -- discussed further in the Public Outreach section. SNG utilizes a door-to-door sales and marketing approach in which SNG personnel will meet one-onone with all potential customers not only to explain the benefits and character of natural gas, but also to discuss conversions based on specific appliances in the home and educate new customers on safety and what can be expected with pipeline natural gas. Finally, SNG has begun discussions with Maine HVAC companies to discuss what is needed to staff the impending conversions from heating oil to natural gas. By working with the contractors in the area, SNG believes that the local contractors will be ready to support the conversion load. This will aid SNG in achieving higher saturation numbers when pipeline construction is complete. III. Pricing Structure A. DELIVERY RATES AND CUSTOMER CLASSES Included in the Stipulation approved at the Maine PUC s deliberations on January 10 is SNG s Rate Plan. (The Rate Plan is Exhibit A to the Stipulation that was filed on January 7, 2013, in Maine PUC Docket No , and that was approved orally on January 10, 2013.) The Rate Plan will be in effect until December 31, The Rate Plan includes, among other things, delivery rates (as indicated in Figure 7, below), a capped Annual Adjustment, a provision to recover the Cost of Gas, and a customer incentive plan. The Delivery Rates are designed to recover SNG s cost of delivering gas to the customer, and consist of both volumetric and 24

25 monthly charges that apply to sales customers of the company. (These delivery rates are the same as those approved for the entire Kennebec Valley.) Figure 7: Delivery Rates Rate Class Rate Units Monthly Charge Residential $0.850 Therms $20.00 Small Commercial (a commercial sales customer with annual consumption of less than 1,500 Dth) $0.750 Therms $33.00 Large Commercial (a commercial sales customer with annual consumption of 1500 Dth or more) Firm Transportation Interruptible Transportation $0.550 Therms $ Rate to be determined by Special Rate Agreement with the customer Rate to be determined by Special Rate Agreement with the customer Further, Small Commercial and Large Commercial customers may elect to take transportationonly service at the same delivery rate as for sales customers in those rate classes. As shown in the table above, SNG s delivery customer classes include Residential, Small Commercial, and Large Commercial customers. Please note that SNG Maine does not distinguish between Institutional and Commercial customers for purposes of locating the customer within a nonresidential customer class. Rather, customers are considered to be either residential or commercial, and the small versus large commercial customer class is based on the level of the customer s consumption. 25

26 SNG adjusts its delivery rates annually in accordance with the terms of the Rate Plan. Annual adjustments will take effect on June 1 of each year of the Rate Plan. The annual adjustments will be limited to inflation adjustments (for 75% of inflation), extraordinary costs, new government-mandated costs, costs resulting from extraordinary weather events, and profit-sharing. The annual adjustment may not result in a rate change in excess of 4% in a year. The price of gas will be based on the actual cost of gas supply. The price of gas will be set and annually adjusted pursuant to Chapter 430 of the Commission s Rules and the Company s Terms and Conditions on file with the Commission. This pricing structure provides immediate savings over fuel oil. By converting from heating oil to natural gas the customer will not only benefit from a lower cost fuel, but also by the savings attributed to converting to a high efficiency natural gas appliances. B. CIAC As describe above, SNG s rates allow for a construction allowance of $6,684 which, based on the population densities indentified in the GIS data provided by the Towns. This allowance appears sufficient to allow the Company to reach all residential and commercial customers within the Towns without asking for a contribution-in-aid-of-construction, or CIAC, from the customers to support construction of SNG s lines C. Residential Customer Conversion Incentive Program In its Terms and Conditions, pending written approval from the Commission, SNG offers a conversion rebate program for residential customers to help reduce the cost to homeowners for converting or replacing home heating and other equipment to enable the homes to use natural gas. The rebate is available on a one-time basis for customers and will cover the 26

27 reasonable cost of purchasing and installing or converting equipment that will use natural gas, including a furnace, water heater, dryer, stove, or oven. Equipment that is more energy efficient will qualify for higher rebate amounts according to a schedule on file with the Maine PUC. The maximum rebate will be 75% of conversion costs, up to $1,500. Low-income residential customers approved for LIHEAP assistance are eligible for a maximum rebate of 100% of conversion costs, up to $4,000, regardless of whether they live in a community with a qualifying TIF. All residential customers are eligible for additional rebates on home energy audits or weather sealing provided by Efficiency Maine. D. Tax implications/tifs SNG Maine does not require a tax increment financing plan, or TIF, to construction a gas pipeline or gas distribution lines anywhere in Maine, including in Cumberland, Falmouth, or Yarmouth. SNG is, however, willing to work with Cumberland, Falmouth, and Yarmouth regarding establishing a TIF district related to the pipeline if such a strategy were of value to the communities. For example, SNG s Terms and Conditions offer additional rebates (beyond those described above) for residential customer conversion for communities who adopt TIFs to assist in development of the pipeline. This may be of advantage to communities to the extent that higher rebates contribute to additional growth of the system which in turn means taxable value to the communities. E. Economic Impact and Customer Savings SNG s proposed project will provide the towns of Cumberland, Falmouth, and Yarmouth with an annual economic stimulus of an estimated $ 20.6 million based on natural gas savings, long term jobs, and property tax revenue, as indicated in Figures 8, 9 and 10. Natural gas 27

28 savings based on current prices, heating oil and propane usage, customer count and efficiency improvements would be approximately $19.6 million. SNG will employ six people full time in the local area to support its operations. The local communities will also receive approximately $645,000 in additional property tax revenue, which includes a proposed 15 year TIF. The need for HVAC conversions will provide job growth for the local area as well providing an income boost of around $42.4 million. Figure 8. Economic Impact Natural Gas Savings Residential Sm Comm Large Comm Average Usage in mmbtu Customer Count Natural Gas Commodity Price $5.50 $5.50 $5.50 Distribution Costs $8.50 $7.50 $5.50 Deliveried Costs $14.00 $13.00 $11.00 Heating Oil Price ($/gallon) $ 3.75 $ 3.75 $ 3.75 Price per mmbtu $ $ $ Equipment Efficiency Savings Savings $ $1,689 $2,566 $26,244 Savings % % of Users 73% 76% 84% NG Savings to HO 93% $13,317,851 $2,453,128 $2,904,459 Propane Price ($/gallon) $ 2.70 $ 2.70 $ 2.70 Price per mmbtu $ $ $ Savings $ $1,083 $1,674 $18,009 Savings % % of Users 43% 45% 53% NG Savings to LP 7% $642,588 $120,480 $150,017 Total NG Savings $ 13,960,439 $ 2,573,608 $ 3,054,476 28

29 Figure 9. Economic Impact Added Jobs in Community Construction Number 6 Total Salary and Benefits $ 417,375 Long Term Number 6 Total Salary and Benefits $ 371,658 HVAC Conversion Revenue Number 8,478 Revenue per Conversion $ 5,000 Total $ 42,390,000 Property Tax Revenue Cumberland Falmouth Yarmouth Taxable Value $ 20,537,894 $ 35,048,511 $ 16,139,358 Property Tax 1.80% $ 369,682 $ 630,873 $ 290,508 TIF allowance 50% 50% 50% Net Property Tax Revenue $ 184,841 $ 315,437 $ 145,254 Figure 10. Economic Stimulus to Cumberland, Falmouth and Yarmouth Natural Gas Savings $ 19,588,523 Added Long Term Jobs $ 371,658 Property Tax Revenue $ 645,532 Total Annual Economic Impact $ 20,605,713 HVAC Conversion Revenue $ 42,390,000 IV. Regulatory Requirements The Maine PUC has a longstanding policy in favor of gas utility competition and does not grant exclusive gas franchise territories. As described above, under Maine law, once SNG has gas flowing to customers in an approved service territory, SNG has the ability to serve any community not currently being served by another local gas distribution company ( LDC ) without seeking additional Maine PUC approvals. In the event, however, that any other Maine LDC is serving a town, SNG Maine would require the Commission s approval as a second utility under 35-A M.R.S.A 2105 to serve the town. To the extent this Section 2105 approval 29

30 is required because any customer in one or more of Cumberland, Falmouth, or Yarmouth is already served by another LDC; SNG is confident that Maine PUC approval for SNG to serve all three towns would be provided within a few months of the request. Further, SNG affirms that the proposal meets or is capable of meeting all necessary environmental, safety, licensing, and other standards as may be required by federal or state law or municipal ordinance, and further affirms and agrees that SNG is responsible for identifying any such requirement and achieving approval or compliance. V. Public Outreach SNG will employ an extensive public outreach approach that includes public meetings, door-to-door marketing, and distribution of printed materials. Outreach is critical to ensuring opportunities for residential, commercial, and institutional customers to connect to the system and to ensure the safety of the public. SNG believes strongly in becoming a member of the community, and as such invests significant time and resources into business groups, chambers of commerce, and neighborhood and citizens groups. SNG is currently member of the Maine State Chamber of Commerce, the Portland Regional Chamber, the Mid-Maine Chamber, and the Kennebec Valley Chamber of Commerce. Our technicians will live in the communities we serve, which provides a constant resource for communities, but also pride and community ownership in the pipeline and distribution system. SNG personnel will work with customers to explain how a conversion to natural gas will impact their appliances, what a typical bill will include, and safety regarding their new fuel. As 30

31 part of the partnership SNG envisions with the Towns, SNG will work collectively with the Towns to share information about programs available to aid in conversion costs and how to contact Dig Safe. As residential and commercial customers sign-up for natural gas, an SNG representative with work with each household to understand what appliances the homeowners have and provide education on the benefits of natural gas as well as costs of conversion and monthly usage, and what type of service can be expected. SNG plans to hold public forums that will allow the public to have a voice throughout the process. We will plan to work with the Towns to coordinate such meetings. All Summit subsidiaries, including SNG, are members of the Pipeline Association for Public Awareness (PAPA) and comply with all requirements of the US Department of Transportation s Pipeline and Hazardous Material Safety Administration ( PHMSA ) requirements for public awareness. In accordance with these regulations, the company takes special measures to inform and educate four specific stakeholder groups: namely, affected public, emergency responders, public officials, and excavators, in areas surrounding the pipeline. This is done primarily through direct mailings completed twice annually, and distribution of printed materials through community organizations. In addition, SNG will provide education information and training on the facilities and their locations, for emergency response personnel and public officials. SNG looks forward to building a strong partnership with the emergency responders and public officials in all communities. Further, as part of its Rate Plan, SNG will be preparing materials used to inform prospective customers of all cost components with respect to installing and using gas. The 31

32 materials will include information about the possible range of natural gas and heating oil prices over the next ten-year period, using independent third-party forecasts

33 CUMBERLAND, FALMOUTH, YARMOUTH - MAINLINE Mainline Alignment M&NE TAP 2" REGUKATOR STATION 6" PIG LAUNCHER PRELIMINARY DESIGN ¹! 8" HDPE MAINLINE LOOP Legend BLANCHARD RD & HWY 9 2" REGULATOR STATION ¹! TUTTLE RD & CROSSING BROOK RD 6" BLOCK VALVE Æ è Block Valve ¹! Reg Station 8" HDPE Æ è 6" Steel TUTTLE RD & MIDDLE RD 2" REGULATOR STATION ¹! ¹! KINGS HWY & FORESIDE RD 2" REGULATOR STATION 6 PIG RECEIVER Miles 1 inch equals 5,000 feet 1:60,000 8" HDPE MAINLINE LOOP Sources: Esri, DeLorme, TomTom, USGS, Esri Japan, Esri China (Hong Kong), Source: Esri, i-cubed, USDA, USGS, AEX, GeoEye, Getmapping, Aerogrid, IGN, IGP, and the GIS User Community Map Created by Graham Christy Additional Data Downloaded From ESRI Published January 22, 2013

34 CUMBERLAND, FALMOUTH, YARMOUTH - PE DISTRIBUTION Pipeline Alignments YARMOUTH CUMBERLAND CENTER PRELIMINARY DESIGN Legend Commercial Cust 2" HDPE 4" HDPE 6" HDPE 8" HDPE Miles 1 inch equals 6,000 feet 1:72,000 Grand Totals 2" HDPE: 941,381' 4" HDPE: 148,832' 6" HDPE: 48,643' 8" HDPE: 153,944 Total HDPE Pipe: 1,292,800' FALMOUTH Sources: Esri, DeLorme, TomTom, USGS, Esri Japan, Esri China (Hong Kong), Source: Esri, i-cubed, USDA, USGS, AEX, GeoEye, Getmapping, Aerogrid, IGN, IGP, and the GIS User Community Map Created by Graham Christy Additional Data Downloaded From ESRI Published January 22, 2013

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