Evolving Roles and Responsibilities of Gas Utilities in Today’s Markets

1. Evolving Roles and Responsibilities of Gas Utilities in Today’s Markets Dominion East Ohio November 13, 2007

2. Dominion East Ohio’s Merchant Function Exit • Dominion East Ohio Background • Ohio Gas Choice Program Structure • Merchant Function Exit – Phase 1 • Merchant Function Exit – Phase 2

3. Dominion East Ohio Background

4. Dominion East Ohio Background • Cleveland, Ohio based DEO serves 1.2 million customers with annual throughput of over 250 Bcf • DEO is relatively unique in that it owns gathering, transmission and storage assets in addition to the traditional distribution assets • Gathering: DEO moves over 55 Bcf/year from over 20,000 wells (no company-owned production) • Storage: DEO owns and operates roughly 55 Bcf of storage capable of delivering 1.1 Bcf/day • Transmission: DEO has numerous high-pressure transmission pipelines receiving gas from 6 interstate pipelines and 1 intrastate pipeline • DEO’s system is highly integrated and has relatively few isolated delivery areas

5. DEO Gas Transportation Programs 1970s Self-Help Programs for Ohio-Produce Gas 1980s Interstate Transportation Basic Gas Pooling Service 1990s Expanded Pooling Service Offerings Energy Choice Pilot Program 2000s Energy Choice System-Wide Expansion Merchant Function Exit?

6. Energy Choice Enrollments

7. Energy Choice Market Shares – 11/07 Other 12 E D Aggregation (35%) C B A Energy Choice Participation Rate: > 70% of Eligible Customers

8. Ohio Gas Choice Program Structure

9. Major Features of Ohio’s Natural Gas Choice Programs • No requirement for mandatory assignment of upstream pipeline capacity contracts (DEO assigns on-system storage capacity) • LDCs required to purchase supplier receivables (may be at a discount) • Billing for 3rd party suppliers typically consolidated with LDC bill • LDCs permitted to shut off for non-payment of amounts billed on behalf of suppliers • Suppliers required to comply with minimum service standards (enrollment procedures, early termination fees, etc.) • Ohio Commission has adopted monthly PGAs to send proper price signals • Ohio Commission and Ohio Consumers’ Counsel have ‘apples-to-apples’ comparisons of supplier prices to LDC sales rate • Governmental aggregation authorized on opt-in and opt-out basis

10. Merchant Function Exit – Phase 1

11. From 2004 “Road Map” materials discussed with stakeholders prior to filing 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

12. Primary Phase 1 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.

13. Phase 1 Transition Plan Approved in 5/06 • Phase 1 was approved as a Pilot through 8/08 • DEO remains Provider of Last Resort if a supplier defaults • PUCO can order DEO to revert back to GCR • Supply volume, not actual customers, was bid out on 8/29/06 • Sales market divided into 12 tranches of 5 Bcf each • Term of supply agreement was 10/06 to 8/08 • Utilized descending clock internet auction process • Going Price (specified as adder to NYMEX) was gradually reduced until just enough tranches were bid • Maximum share per supplier was for one-third of total • 12 suppliers participated in first round – 6 suppliers ultimately were awarded tranches at a price of $1.44 after 15 rounds

14. Pre-SSO (9/06) to Today (11/07) (*) Following WPS/Peoples merger

15. Merchant Function Exit – Phase 2

16. Phase 2 Process INTENT Place remaining eligible sales customers into a direct retail relationship with a supplier • DEO has been meeting with stakeholders to identify issues, objectives and alternatives for Phase 2 • DEO will remain supplier for PIPP customers and use a descending clock auction to acquire its wholesale supply • Suppliers assert that a retail auction for customers creates more value than a wholesale auction because it allows suppliers to avoid customer acquisition costs • DEO will hold its first retail auction in 2008 to be followed by a second retail auction and final exit in April 2010 • Phase 2 application will be filed within the next two months

17. Phase 2 Auction Objectives Customer Perspectives • Identical pricing for those sales customers transitioning to Choice • Ensure PIPP price < price paid by customers moving to Choice Market Structure Perspectives • Avoid disruption of existing Energy Choice market • Support continued viability of aggregation programs • Avoid over-concentration of market shares Operational Perspectives • Have customer tranches large enough to attract qualified bidders • Maintain attractive features of initial auction Auction Structure Perspectives • Avoid making the auction process overly complicated • Provide for a subsequent retail auction

18. Phase 2 Auction Process • Conduct descending clock auction for tranches of PIPP load to establish wholesale price • Conduct descending clock auction for tranches of remaining sales customers • If market clears at or above PIPP price, auction closes • If market is over-subscribed at PIPP price, suppliers bid under an ascending auction for the right to serve customers at the PIPP price • File application seeking approval of auction results • Amounts received under the ascending auction will be paid to DEO and returned in full to customers through the Transportation Migration Rider

19. Contacts • For more information contact: Jeffrey A. Murphy 216-736-6376 jeff.murphy@dom.com