Natural Gas

Please see General Disclaimers on the last page of this report.
Current Environment ............................................................................................ 1

Industry Profile .................................................................................................... 17
Industry Trends ................................................................................................... 18
How the Industry Operates ............................................................................... 32
Key Industry Ratios and Statistics ................................................................... 42
How to Analyze a Natural Gas Company ........................................................ 43
Glossary ................................................................................................................ 49
Industry References ........................................................................................... 52
Comparative Company Analysis ...................................................................... 54
This issue updates the one dated October 2013.
The next update of this Survey is scheduled for July 2014.

Industry Surveys
Natural Gas Distribution
Christopher B. Muir, Independent Power Producers, Natural Gas
& Multi-Utilities Equity Analyst

JANUARY 2014
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INDUSTRY SURVEYS NATURAL GAS DISTRIBUTION / JANUARY 2014 1
CURRENT ENVIRONMENT
Natural gas prices still volatile
Henry Hub spot prices of natural gas have exhibited high levels of volatility over the past decade, with
multiple price spikes. Based on data from the Energy Information Administration (EIA), a statistical agency
within the US Department of Energy, natural gas prices fell to a 2009 low of $1.83 per million British
thermal units (MMBtu, Henry Hub spot price) on September 4, 2009. Prices quickly rebounded to a high of
$7.51 per MMBtu on January 7, 2010, before falling 50% to $3.72 on April 1, 2010. Following that last
date, prices in 2010 traded within a wide range, from a closing high of $5.17 on June 18 to a closing low of
$3.18 on October 25.
Although volatility declined in 2011 compared with the previous decade, prices remained volatile on a
percentage-change basis. In 2011, prices ranged from a high of $4.92 on June 9, to a closing low of $2.84
on November 23, and varied widely within that high-low range for the year. In 2012, prices were still
volatile, although the high-low variation was more muted: prices ranged from a closing high of $3.77 on
November 27, to a closing low of $1.82 on April 20. However, prices in 2012 were generally at lower levels
than those seen in 2011. In 2013, the range between high and low prices narrowed further, with a closing
high of $4.52 during cold weather on December 23 and a closing low of $3.08 on January 10.
The reduced volatility has hurt some
utilities that have natural gas storage
operations due to lower spreads between
winter withdrawal prices and summer
injection prices. However, many utilities
are also benefitting from renewed
industrial demand for natural gas. Prior
to the September 2009 low, natural gas
prices had declined precipitously from a
price-spike peak of $13.31 on July 2,
2008. Prior to that peak, prices had risen
quickly from a pre-spike low of $5.30 per
MMBtu in September 2007.
In 2009, Henry Hub average bid-week
prices (a blend of spot and contract prices
in the last week of every month, which is
when the largest volume of trading
occurs) averaged 56% lower than in
2008. In 2010, bid-week prices were 12%
higher than 2009, but average prices
dropped each quarter after the first
quarter. In 2011, bid-week prices were
9% lower than in the prior year, and such
prices in the fourth quarter were down
nearly 13% from the same period in
2010. In 2012, bid-week prices continued
their slide, falling 31% from the average
in 2011. For 2013 and 2014, Standard &
Poors Economics (which operates
separately from S&P Capital IQ) expects
bid-week prices to rise, but not quite
enough to reach their 2011 levels; for
Chart H02:
HENRY HUB
NATURAL
GAS PRICE
0
2
4
6
8
10
12
14
16
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2009 2010 2011 2012 2013
HENRY HUB NATURAL GAS PRICE
(Dollars per million Btu)
First trading day of month
Btu-British thermal units.
Source: US Energy Information Administration; Commodity Research
Bureau.
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Daily
2010 2011
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
2009 2010 2011 2012 2013
HENRY HUB NATURAL GAS PRICE
(Dollars per million Btu)
First trading day of month
Source: US Energy Information Administration; Commodity Research Bureau.
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
Daily
2013

2 NATURAL GAS DISTRIBUTION / JANUARY 2014 INDUSTRY SURVEYS
2015, it sees such prices continuing to rise and hitting $4.11 per MMBtu, which would be 2.9% above
2011 prices.
Between 2000 and 2010, natural gas prices were very volatile, with four separate spikes over $10 per
MMBtu. The first such spike barely brushed past the $10 mark, peaking at $10.49 on December 21, 2000,
due to cold weather. The next spike, to $18.48, occurred on February 25, 2003, also due to cold weather.
On September 22, 2005, prices reached $14.84, followed by a second spike on December 13, 2005, to
$15.39, according to EIA data, related to production cuts caused by Hurricane Katrina. Prices rose
throughout late 2007 and early 2008, reaching a peak of $13.31 on July 2, 2008, which we think was due
in part to large speculative positions taken by relatively short-term traders. We think that volatility will
continue, but that extreme price spikes will occur less frequently, given the additional supplies coming into
the market.
According to the EIA, annual average 2012 wellhead prices fell to $2.65 per MMBtu from $3.95 per
MMBtu in 2011, $4.48 in 2010, and $3.58 per MMBtu in 2009. Wellhead prices were still well below the
record $7.80 set in 2008, which was aided by the high Henry Hub spot prices. Wellhead prices averaged
$6.12 per MMBtu in 2007, which was a relatively tame year. Henry Hub spot prices peaked on December
13, 2005, helping to raise the annual average wellhead price for 2005 to what was then an all-time high of
$7.15 per MMBtu. In 2006, the annual average wellhead price declined to $6.25 per MMBtuwith
gradually declining prices throughout the year, but still substantially above the pre-Katrina 10-year average
annual price of around $3.20 per MMBtu.
Barring any weather-driven catastrophe or a dramatic decline in inventories, Standard & Poors Economics
believes that annual average Henry Hub bid-week prices will remain below the 10-year average through at
least 2015, with some volatility, but less than that seen in 2008. As of September 18, 2013 (the latest change),
its projection for Henry Hub bid-week price was $3.61 in 2013 (compared with $2.75 in 2012), $3.86 in
2014, and $4.11 in 2015.
Currency issues also have an effect on natural gas prices in the US. For example, should the value of the US
dollar weaken against the Canadian dollar, the costs of Canadian natural gas could rise, which would put
upward pressure on prices. This could increase the attractiveness of regions where production is more
expensive, thus allowing additional supplies to enter the market and potentially limiting how high prices
could go. Conversely, a significant strengthening of the US dollar against major worldwide currencies could
make the US more attractive for Canadian natural gas and cargoes of liquefied natural gas (LNG); the
increased supply would put downward pressure on prices.
LNG shipments to the US were down sharply from late 2007 through late 2008, as shipments headed to
other countries where prices were higher. However, there was a recovery in LNG cargoes entering the US in
late 2008 through early 2010. We believe a stronger dollar during the winter months of late 2008 and early
2009, despite falling US natural gas prices, helped to attract cargoes. However, late in 2009, LNG cargoes
to the US continued to grow despite a falling dollar and volatile, but relatively low, natural gas prices. We
think this was due to new LNG supply terminals entering service and low demand overseas. A rising dollar
in early 2010 again may have helped deliveries, but by the second and third quarters, continued increases in
US natural gas production, low prices, and a weakening dollar may have caused imports to fall off rapidly.
LNG cargoes to the US fell by 29%, year over year, in the second quarter of 2010 and 22% in the third
quarter, despite strong demand for natural gas by end users. LNG imports declined 19.0% in 2011, much
higher than the 4.6% decline in 2010. In 2012, the year-over-year decline in LNG imports was a drastic
49.9%, due to rising domestic production in the US, natural gas storage levels reaching new records, and
lower demand because of warmer-than-usual winters. Through September 2013, LNG imports declined
35.5% compared with the prior-year period.
WINTER HEATING SEASON BELOW NORMAL IN 201213
In the 201213 season (October 2012 through March 2013), US heating degree days were 3.5% below
normal (using the population-weighted gas home heating data), but 16.8% higher than the winter season in

201112. The winter heating season was 17.3% warmer than normal in the 201112 season and 1.4%
warmer than normal in the 201011 season.
US heating degree days totaled 4,069 in the 201213 winter season, up 16.8% from 3,484 in the 201112
winter season, which was down 18.5% from the 201011 season. Heating degree days totaled 4,275 in the
201011 season (up 1.1%) and 4,230 in the 200910 season (up 0.5%). [One heating degree day is counted
for every degree by which the daily average temperature falls below 65 degrees Fahrenheit.]
The winter season heating degree days in calendar 2012 dropped by 501 (3,556 total), a decline of 12.3%
from 2011, according to the National Weather Services Climate Prediction Center (CPC). Further, data
from the CPC shows that the heating degree days deviation from normal for 2012 totaled 662, which is a
15.7% decline from normal. In its December 10, 2013, Short-Term Energy Outlook, the EIA forecast that the
heating degree days during the winter heating season in 201314 would total 3,724 days, up 1.3% from the
winter heating season in 201213, and 2.0% above the average for the winter heating season in the preceding
10 years.
Summer cooling season above normal in 2010, 2011, 2012, and 2013
According to CPC data, summer cooling degree days (April through September) in 2010 climbed 21.5%
from a relatively normal year in 2009. The summer heat continued in 2011 and 2012, with cooling degree
days dropping only 0.5% in 2011 and 1.4% in 2012 (which was 22.6% above normal for the period).
Cooling degree days in 2013 were down 10.3% from the same period in 2012, but still 10.4% warmer than
normal. During April to September 2010, electric power consumption of natural gas was up 9.1%
compared with the same period a year earlier, also due to the hot weather in that year. In 2011, electric
power consumption of gas rose 1.5% during the summer cooling season. However, due to extremely low
natural gas prices in the summer of 2012 leading to higher electricity production from natural gasfired
power plants, as well as the hot weather, electric power consumption of gas rose 22.9% during the 2012
summer cooling season.
According to EIA data, electric power consumption of natural gas dropped 15.6% from April through
September 2013 (latest available data), due to milder weather, and higher natural gas prices that made the
fuel slightly less competitive with coal. In late 2011 and 2012, the amount of gas used for electric power
production rose dramatically in response to low gas prices. In November and December 2011, electric
power consumption of natural gas was 8.9% higher than in the same two-month period in 2010; in 2012,
electric power consumption of natural gas increased by 21% over 2011. In 2012, 42% of natural gas
consumption by electric power occurred from June through September (with 23% in July and August
alone); cooling degree days from June through September were 19% above normal.
In its December 2013 Short-Term Energy Outlook, the EIA stated that it expects cooling degree days for
2014 will drop 1.1% from the summer of 2013, but thats still 9.2% higher than normal. It also predicts
that US residential electricity sales will decline 0.3% from the summer of 2013. Further, as a result of
increasing natural gas prices and the cooler summer weather, the EIA expects just a 1.6% increase in electric
power consumption of natural gas in the summer of 2014 and a 0.7% drop for the entire year.
Higher consumption seen in 2013, lower in 2014
According to the EIA, total natural gas consumption in 2012 was up 4.6% from the prior year. The EIA said
that natural gas consumption in 2012 averaged 69.7 billion cubic feet per day (Bcf/d), up 4.3% from 2011.
Further, in its September 2013 Short-Term Energy Outlook, it projected that total natural gas consumption
would increase by 0.6% in 2013, but then drop by 0.7% in 2014. These projected growth rates in total
consumption for 2013 and 2014 are much lower than the 1.3% 50-year compound annual growth rate
(CAGR), the 1.6% 25-year rate, and the 1.0% 10-year rate. Despite a return to colder winter temperatures
from the extremely warm 2012, the EIA believes that a slowdown in consumption of gas for electric power
due to higher gas prices and cooler summer temperatures will mostly offset the increase in gas demand related
to space heating.
In its December 10, 2013, Short-Term Energy Outlook, the EIA said it expects end-use demand (i.e., total
demand less lease and plant fuel, pipeline use, and distribution use) to increase by 1.3% in 2013. Driving

this gain is a 15.2% increase in combined residential and commercial demand, partly offset by a drop of
11.1% in electric power demand due to higher natural gas prices. In 2014, the EIA expects a 1.5% rise in
industrial demand, offset by a combined
6.2% decrease in residential and commercial
demand and a 0.7% drop in electric power
fuel demand, to drive a 1.9% decrease in end-
use consumption.
In 2012, end-use natural gas consumption
rose by 4.5%, driven by a 20.6% increase in
electric power fuel consumption and a 3.4%
rise in industrial consumption. However,
residential consumption declined 11.3%, and
commercial consumption was down 7.8%.
Residential consumption took a hit due to a
large decline in 2012 heating degree days,
while electric power fuel demand was helped
by a second consecutive year of hot summer
weather and low natural gas prices. Industrial demand, up 3.4% (versus a rise of 1.2% in 2011), was aided by
improving economic conditions.
Growth in residential consumption has been markedly slowing over the past 50-, 25-, and 10-year periods,
with compound annual growth rates of 0.4%, 0.1%, and 1.6%, respectively, according to data from the
EIA. Residential consumption declined over the past 10 years, partly due to increasing appliance efficiencies.
Because the residential market provides most of the profit for natural gas distributors, ongoing slow growth
in consumption combined with conservation efforts due to economic pressures are likely to continue to
pressure earnings growth for distributors that do not have revenue decoupling rate orders in place.
Natural gas usage by electric power
generators has grown 4.9% annually for
the past 10 years, more than offsetting a
0.5% average annual decline for
industrial users. Demand declines in the
commercial segment have averaged 0.8%
annually for the past 10 years. Of natural
gas delivered to end users in 2012, power
generation accounted for 39.1%;
industrial, 30.5%; residential, 17.9%;
commercial, 12.4%; and vehicle fuel,
0.1%.
From a policy perspective, some energy
industry participants question the
wisdom of using natural gas for electric
power generation: efficiency rates range
from 30% to 60%, depending on the
type of power plant. Steam generation
and gas turbines have ranges in the low
end, while combined-cycle plants have
ranges near the high end. In contrast,
modern home furnaces can achieve
efficiencies of up to 96%, water heaters up to 90%, and clothes dryers up to 80%. As a result, these people
ask whether limited natural gas resources should be squandered on generating electricity when other
inexpensive methods of generating power exist.
Chart H08 projected
US Energy Demand
0
5
10
15
20
25
30
35
40
45
1980 85 90 95 00 05 10 15 20 25 30 35 2040
Liquid fuels Natural gas
Coal Nuclear power
Hydropower Other energy
PROJECTED US ENERGY DEMAND
(Quadrillion Btu)
Source: US Energy Information Administration.
Chart H07: US
Natural Gas
Consumption
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2010 2011 2012 2013
US NATURAL GAS CONSUMPTIONMONTHLY
(Trillion cubic feet)

The bottom line for the natural gas industry is that, as overall energy demand continues to rise,
consumption of other forms of energy has also been rising to fill the gap, but the future is uncertain. In the
late 1990s, many forecasters had predicted strong increases in natural gas demandwith total usage going
up to 25 trillion30 trillion cubic feet (Tcf) per year. Current EIA predictions for 2030 (27.6 Tcf) are now in
the middle of that range, but in 2008, the EIA expected gas consumption of 22.7 Tcf in 2030not even
reaching the low end of that estimate. With the development of oil and natural gas from shale formations, it
now appears that natural gas production in the US is set to continue to grow and could supply some or all
of the total energy demand growth in the US during the forecast period.
The EIA, in its Annual Energy Outlook 2013 (April 15, 2013), now expects gas demand to grow slowly,
rising from 25.5 Tcf in 2012 to 29.5 Tcf in 2040, a cumulative annual growth rate of just 0.5%. The EIA
forecasts that the increase through 2040 will be driven by the following factors: industrial demand rising 0.5%
annually, or 0.76 Tcf in total, to 7.90 Tcf; transportation fuel demand rising 13.1% annually, or 1.00 Tcf in
total, to 1.04 Tcf; and commercial consumption rising by 0.8% annually, or 0.69 Tcf in total, to 3.6 Tcf.
These forecasts are sharply higher than those made in early 2008. The EIA projects demand to rise in all
categories between 2012 and 2040, except residential (0.04% annual decline).
Industrial demand grew moderately in 2012
Weather is only one variable affecting natural gas consumption patterns; price and the strength of the
economy are also important. The relatively high prices in some recent yearsa period that saw the advent
of oil priced higher than $100 per barrel and natural gas prices above $10 per MMBtuhave hurt demand
by encouraging industrial users, which have the option, to switch between natural gas and other fuels.
However, despite the relatively tame natural gas prices, industrial usage in 2009 was 7.6% below such
usage in 2008 and 2007, which were nearly the same. While high prices may have slightly affected industrial
usage growth earlier in 2008, the recession took its toll in the latter part of 2008 and in 2009. In 2010,
industrial demand had a healthy rebound of 5.7%, and then rose 3.9% in 2011 and 3.1% in 2012. S&P
Capital IQ believes that industrial consumption will grow steadily as the economy strengthens and as new
chemical plants are placed into service starting in 2015.
In the longer term, several supply-side factorsincluding increased production and more pipeline capacity
may maintain downward pressure on prices, thus leading to increased industrial use. (See the Industry
Trends section of this Survey for more details on these issues.) These factors may also generate increased
demand for gas if they improve the reliability of supply and eliminate periodic shortages on the distribution
end. Some large chemical companies have said that they are considering adding new capacity in the US to
plants that use natural gas as a feedstock because of low natural gas pricing in the US and expanding
availability.
US NATURAL GAS PRODUCTION INCREASING
In 2012, total dry natural gas production increased 5.1%, following gains of 7.4% in 2011, 3.4% in 2010,
2.3% in 2009, and 4.6% in 2008, according to the EIA. [Dry natural gas is defined as the natural gas that
remains after liquefiable hydrocarbons (propane, butane, etc.) and sufficient contaminant gases (carbon
dioxide, hydrogen sulfide, etc.) have been removed.] The EIA also measures natural gas gross withdrawals,
a figure that includes gas produced from gas and oil wells before various processing steps (including
repressuring and the removal of non-hydrocarbon gas) take place. The total dry natural gas production
figure is calculated after the extraction loss is deducted from the marketed production figure.
Dry gas production totaled 24.1 Tcf in 2012, up from 22.9 Tcf in 2011 and exceeding by 10.7% the 1973
record (that held until 2011) production level of 21.7 Tcf. From 1970 through 1974, annual production
exceeded 21.0 Tcf in each year. In fact, production levels since 2008 represent the first time since 1974 that
dry gas production exceeded 20 Tcf; it was also the highest level since a more recent peak of 19.6 Tcf in
2001. In its Annual Energy Outlook 2013 (released April 15, 2013), the EIA expected dry gas production to
climb steadily from 2012 through 2040 to 33.1 Tcf, a total increase of 44.1%, or a compound annual
growth rate (CAGR) of 1.2%.

According to the EIA Annual Energy Outlook 2013, dry gas production is estimated to remain nearly flat in
2013, but then fall 0.6% to 23.9 Tcf in 2014. Beyond that, the EIA expects dry gas production to rise at a
fairly steady pace through 2040. The
EIA forecast for 2013 is lower than
the 5.1% growth in dry gas
production in 2012 largely because it
expects a drop in new drilling projects
due to low prices. We believe that
production in 2013 will be slightly
higher than the EIAs forecast because
oil drilling in areas with associated gas
remains high. Through September
2013, dry gas production increased
0.6% over the same period last year.
However, according to Baker Hughes
Inc., an oilfield services company, total
US oil and gas rig counts declined
0.6% to 1,751 as of January 3, 2014,
from 1,762 on January 4, 2013.
Moreover, the ratio of oil rigs-to-total
rigs further shifted to 78.7% from
74.8% over that period. Both of these ratios represent significant increases from a recent trough ratio of
10.5% on June 10, 2005. The initial shift occurred due to rising and sustained high oil prices. More
recently, lower gas prices, along with continued high oil prices, have accelerated the shift.
Gas rig counts lower
US annual average gas rig counts increased steadily from 691 in 2002 to 1,491 in 2008, according to data
from Baker Hughes. The five-year average rig count also increased over the same period. US gas rig counts
reached a peak of 1,606 rigs in late August 2008, a level that was 25.7% above the preceding five-year
average. From that point until mid-July 2009, US gas rig counts quickly dwindled to 665, or 51.5% below
the preceding five-year average. US gas rig counts bounced up to 992 in mid-August 2010, but were still
22.5% below the preceding five-year average. Since that time, US gas rig counts fell steadily to a May 10,
2013, level of 350, which was a substantial 41.5% below the same week of the prior year, 62.2% below the
preceding five-year average (200812), 67.0% below the preceding 10-year average (200312), and 78.2%
below the all-time high of 1,606 rigs on August 29, 2008. Since May, rig levels appear to have stabilized, with
gas rig levels of 372 on January 3, 2014.
North American (US and Canada) average gas rig counts, according to data gathered from Baker Hughes,
followed similar trends. Annual average rig counts increased from 876 rigs in 2002 to an earlier peak of
1,733 in 2006, and then a near-peak average of 1,710 rigs in 2008. North American gas rig count reached
an all-time peak of 1,923 in mid-February 2006, 50% above the preceding five-year average. From that date
until the end of 2008, North American gas rig counts ranged between 1,474 and 1,892. In 2009, North
American gas rig counts dropped to 724 in mid-June, 51.7% below the preceding five-year average. Counts
then rebounded to 1,148 in September 2010, 25.6% below the preceding five-year average, before falling
off to a June 21, 2013, count of 399 rigs, which was 31.7% below the same week of the prior year, 59.7%
below the preceding five-year average, and 66.5% below the preceding 10-year average. As of January 3,
2014, North American rig counts had increased to 502. Increasing rig productivity and increasing gas
production from oil wells since 2009 may have accounted for the relatively steady production despite a
falloff in gas rig counts.
Using horizontal and directional drilling techniques, operators are now able to drill several wells per rig.
According to a report from energy information provider Platts (which, like S&P Capital IQ, is a unit of
McGraw Hill Financial), the average number of wells per rig increased to 1.5 in early 2009, from 1.0 in
2005. Data from Baker Hughes indicate that in the third quarter of 2013, the average number of wells per
each land-based rig was 5.4, up 14% from 4.7 in the first quarter of 2012. The EIA attributes the continued
Chart H04:
US Natural
Gas Supply
0
5
10
15
20
25
30
1984 86 88 90 92 94 96 98 00 02 04 06 08 10 2012
US NATURAL GAS SUPPLY
Net imports
Domestic dry gas production
Imports as a % of production

strong production since 2009 to new supplies from unconventional gas fields, such as shale plays, and a
return of some Gulf of Mexico production that was shut in due to damage from Hurricanes Gustav and Ike
in 2008, as well as the production of associated gas (i.e., gas that is captured from an oil well).
and some companies reconsider drilling plans
With strong US natural gas production and low storage withdrawals during the 201112 winter heating
season resulting in a glut and declining natural gas prices, some producers have announced plans to curtail
production. For instance, in its 2012 fourth-quarter earnings call in January 2013, Energen Corp. said that
its net income in 2012 declined 18.9%, year on year, primarily due to a 30% decline in realized natural gas
prices. The gas price used to calculate the companys year-end reserves fell to $2.76 per Mcf in 2012 from
$4.12 per Mcf in 2011, resulting in a significant downward revision of the companys gas reserves. The
company said it plans to invest only $25 million in its traditional gas basins in 2013. Most of these
investments will be directed towards recompletions in the San Juan Basin, which it expects to be fairly
economical even at low gas prices. Further, the company seems to be shifting its focus to oil drilling, with a
planned capital expenditure of $875 million in 2013. This investment will be used mainly for exploring and
developing assets in the Permian Basin, including drilling 299 oil wells. In the first half of 2013, Energen
Corp.s natural gas production declined 5.9% compared with the prior-year period.
Similarly, National Fuel Gas Co. said in its fiscal 2012 first-quarter earnings call in February 2012 that it
will revisit its growth plans in the Marcellus Shale and will probably cut down on the capital allocation,
given the current state of natural gas prices. In the fiscal second quarter (ended March 2012), the company
reduced the scope of its Marcellus program from a six-rig program, as planned originally, to a three-rig
program. Further, in the earnings call for the first quarter of fiscal 2013, the company said it released two of
the three laid-down rigs as they were beyond their initial contract term. The third rig, which is under
contract through the summer of 2014, is currently not in use and the company continues to pay a reduced
day rate for it. Once gas prices improve, the company plans to reactivate the rig.
even as gas production from oil-producing shale wells is picking up in a big way
Advances in US science and engineeringin seismic, horizontal drilling, and hydraulic fracturing (or
fracking)are enabling the exploitation of new sources of unconventional gas resources (such as tight
gas, shale gas, and coal bed methane, or CBM) in North America. In many cases, the costs are below
conventional resources, as well as unconventional sources of oil (such as shale oil, deepwater oil, and heavy
oil). If these US-based engineering technologies can be applied to unconventional resources worldwide
(including large gas deposits in Europe and Asia), the implications for the recoverable global resource base
would be enormousa game-changer.
This concept got a big endorsement by ExxonMobil when it purchased XTO Energy Inc. in June 2010 to
provide a complementary platform to expand its unconventional oil and gas production technologies
worldwide. Likewise, Chevron Corp. merged with Atlas Energy Inc. in February 2011 to acquire its
unconventional Marcellus Shale gas holdings in the Appalachian Basin of the US. In August 2011, BHP
Billiton also jumped on the unconventional gas bandwagon by acquiring Petrohawk Energy, a major
operator in the Eagle Ford Shale play. In another significant development, Kinder Morgan Inc. acquired El
Paso Corp. in May 2012. The combined entity owns the largest natural gas pipeline network in the US. In
May 2013, Kansas-based Inergy Midstream LP and Texas-based Crestwood Midstream Partners LP agreed
to merge to form a new company worth $7 billion. The deal was completed on October 7, 2013. The
combined company, Crestwood Midstream Partners LP, has a diverse platform of midstream assets to
provide a broad range of services in the shale gas regions in North America.
New shale production to help some utilities
Many new areas of gas production are beginning to ramp up operations. In the West, well gas has typically
been considered wet gasgas that needs to be processed to remove natural gas liquids, such as butane or
propane, before the gas is sent into a standard natural gas transmission pipeline. These wells typically connect
to natural gas gathering pipeline systems that direct the gas to a central processing facility. Operators of the
gas gathering and processing plant can face certain commodity price risks, depending on the kind of
contract that they sign with the wet gas provider. As a result, companies associated more with oil and gas

exploration and production or natural gas pipeline companies more typically own these gas-gathering
systems, rather than distribution utilities. Nonetheless, several distribution utilities have ownership stakes in
gas gathering businesses.
However, in the East, the Marcellus Shale could benefit local utilities more directly. The gas in the
Marcellus Shale in northern Pennsylvania and southern New York needs no processing, as it is already
relatively dry. As a result, several utilities have plans to build or are building the infrastructure required to
move the gas directly from the wells into pipelines, and are building additional pipeline extensions to get the
gas to end markets more efficiently.
One estimate exists that says the Marcellus shale might contain more than 500 Tcf. However, more recent
estimates are much lower. In its Annual Energy Outlook 2011, the EIA had estimated unproved technically
recoverable reserves of 410 Tcf, but in the Annual Energy Outlook 2012, it lowered that estimate to 141
Tcf. (No update was given in the Annual Energy Outlook 2013.) This is still higher than the 84 Tcf estimated
by the US Geological Survey in October 2012. Other shale basins also contain significant quantities of gas,
including the Greater Green River Basin (84 Tcf) in Wyoming and the Utica Basin (38 Tcf) in the
Appalachian region. S&P Capital IQ believes that gas utilities and pipelines that operate in the Marcellus
shale region will benefit from increasing shale production. All northeastern utilities are likely to benefit from
having a large nearby source of natural gas present that will help to keep pressure on gas prices, thereby
helping to reduce the impact of one of the factors that has led to conservation in the past decade.
LNG: WILL US CHANGE FROM IMPORTER TO EXPORTER?
In the early- to mid-2000s, it was widely held that the US was going to need to import liquefied natural gas
(LNG) in increasing amounts to meet the countrys future energy needs. Far more LNG import terminals
were built and proposed than would be needed in this century. Yet now, many companies are building and
proposing LNG export terminals.
In 2008, imports of LNG averaged 0.96 billion cubic feet per day (Bcf/d), the lowest level since 2002 and
down 54% from 2007. LNG imports rose 28.5% to 1.24 Bcf/d in 2009, but were still 41% below 2007
levels. In 2010, LNG imports fell once again, dropping 4.6% to 1.18 Bcf/d, while in 2011 they fell by as
much as 19.0% to 0.96 Bcf/d. In 2012, LNG imports fell even faster, at a 50% pace, to 0.48 Bcf/d.
In its December 2013 Short-Term Energy Outlook, the EIA predicted US LNG imports would remain at
minimal levels of around 0.3 Bcf/d in 2013 and 0.2 Bcf/d in 2014. According to the EIA, the US has become
a market of last resort for a majority of LNG exporters, given the lower LNG prices in the US. Further,
most LNG imports are due to fulfillment of long-term obligations or temporarily high local prices due to
cold snaps and supply disruptions. Reasons for the EIAs expectations for a low level of LNG imports
include high domestic production and inventories, and low gas prices in the US relative to Asian and
European countries. In Asia, Japanese LNG demand increased to fuel electric power production following the
loss of nuclear capacity as a result of the destruction of the Fukushima nuclear plant in March 2011 and the
subsequent closings of other nuclear plants as a result of a change in Japans energy policy. (For more details
about new LNG facilities, see the LNG expansion discussion in the Industry Trends section of this Survey.)
First LNG export terminal approved by FERC
On April 16, 2012, the Federal Energy Regulatory Commission (FERC) approved the construction of the
first-ever LNG export facility to be built in the US. Cheniere Energy Inc., which will build the facility in
Louisiana for around $10 billion, will become the only large-scale exporter of LNG operating in the US.
The export facilities will be built at the presently operating Sabine Pass LNG import terminal. The FERC
has allowed Cheniere to export LNG for 20 years and the company has already signed contracts with
leading oil and gas companies such as BG Group, Gas Natural Fenosa, GAIL (India), and Korea Gas Corp.
The proposed facility will be constructed and operated by Chenieres subsidiaries, Sabine Pass Liquefaction
and Sabine Pass LNG, and will have the capacity to liquefy and export around 2.2 billion cubic feet (bcf), or
16 million tons per annum (mtpa), of natural gas.

The project will be executed in two stages, each including two LNG process trains capable of liquefying 4.0
mtpa of natural gas. The process trains will be equipped with gas treatment facilities, gas turbinedriven
refrigerant compressors, cold boxes, and heat exchangers for cooling and liquefying natural gas, and waste
heat recovery systems, along with other facilities. The FERC order mandates that the proposed facilities be
fully functional within five years of the date of the order. Cheniere will finance the project with $4.0 billion
of debt and $2.0 billion of equity. The equity portion will be raised from a private placement of units with
Blackstone Energy Partners and Blackstone Capital Partners.
In its second-quarter 2013 results, Cheniere LNG International announced that it is ahead of schedule with
the construction of the export terminal and expects to start production by late 2015. Cheniere, which is
required to submit a monthly progress update to the FERC, has offered a bonus incentive to the engineering
firm Bechtel Oil, Gas and Chemicals Inc. if it completes construction before the planned timelines.
LNG operators request export permits
According to a Forbes article dated December 6, 2012, companies looking to export LNG have filed for
permits amounting to 60% of domestic consumption and have firm plans to move ahead with the approval
process.
Dominion Resources. In early 2011, Dominion Resources Inc. announced its plans to build LNG export
facilities at its existing import terminal at Cove Point, Maryland. In September 2013, the company received
approval from the US Department of Energy (DOE) to export LNG to nonfree trade agreement (FTA)
countries. FERC approval for exports from the terminal was granted on September 11, 2013. The company
will begin constructing the export facility in 2014, and will make it ready for operation by 2017. The facility
is expected to have the capacity to liquefy 0.750 Bcf/d. Further, in March 2012, the company had entered
into agreements with two companies, one of which was Sumitomo Corp., a leading Japanese energy company.
Dominion would provide liquefaction, storage, and loading services for the companies, but would not own or
directly export the LNG.
Golden Pass LNG. In January 2012, Golden Pass LNG Terminal LLC also announced its plans to file for
permission to start re-export services at its LNG terminal in Sabine Pass, Louisiana, through a $10 billion
export project. The terminal company, owned 70% by Qatar Petroleum, 17.6% by Exxon Mobil, and
12.4% by Total S.A., plans to store the LNG it receives for re-export to other countries. Further, given the
design of the plant, any alterations or changes would not be required at the plant, though the operating
design and procedures would need some modifications. Currently, the terminal has the capacity to receive
around 15.6 mtpa of LNG. Given the current trend in the industry, it is likely that the terminal plans to
export domestically produced LNG in place of re-exporting imported LNG.
On October 4, 2012, the US Department of Energy (DOE) granted permission to Golden Pass to export
LNG to countries having free-trade agreements with the US. Golden Pass then filed an application for long-
term authorization to export LNG to nonfree-trade agreement countries. The DOE will make case-by-case
decisions on the 21 pending export applications filed by various companies.
Freeport LNG. In January 2012, Freeport LNG Development L.P., which is jointly owned by Cheniere,
Dow Chemical, Osaka Gas, and ConocoPhillips, applied for an export permit and was planning to expand
the liquefaction capacity at its terminal in Freeport, Texas, by 1.8 billion cubic feet a day. In May 2013,
Freeport LNG received DOE approval for exporting LNG to non-FTA countries.
Sempra Energy. On January 17, 2012, Cameron LNG (owned by Sempra Energy) received approval
from the US Department of Energy (DOE) to export up to 12 mtpa (or 1.7 Bcf/d) of LNG. The company
plans to begin construction by 2014 of a natural gas liquefaction export facility (comprising three
liquefaction trains) at its terminal in Hackberry, Louisiana, and get the terminal serving the international
LNG markets in 2017.
In May 2013, GDF SUEZ S.A., Mitsubishi Corp., and Mitsui & Co. Ltd. signed a joint-venture agreement
and a 20-year tolling capacity agreement with Sempra Energy. According to the agreement, each company
will acquire a 16.6% stake in existing facilities and the liquefaction project, while providing Sempra with

financial support and backing for the development and construction of the LNG terminal in Hackberry,
Louisiana. Under the tolling agreement, the companies will pay Sempra for use of the facilities, even if they
are not actually used, allowing Sempra to maintain a constant revenue stream from the facilities throughout
the contracts life. However, both agreements are subject to conditions such as permit authorizations, final
investment decisions, and receiving financing commitments that are expected by early 2014.
Earlier, in April 2012, Sempra had signed commercial development agreements with Mitsubishi Corp. and
Mitsui & Co. Ltd., under which both companies will be required to fund the expenses related to the
permitting and construction of the export facility. Further, the companies signed up to receive 8.0 mtpa of
LNG exported from the plant. In early May, Sempra had signed a commercial development agreement with
GDF Suez, a French electric utility company, for the remaining 4.0 mtpa of LNG exported from the terminal.
but are LNG exports a good idea?
While there has been some controversy surrounding the export of natural gas from the US, we think
approvals are likely to continue being granted. Some fear that natural gas prices in the US would rise if gas
were widely exported. In response to these concerns, the DOE commissioned a study by NERA Economic
Consulting, a global business consulting firm. The study, entitled Macroeconomic Impacts of LNG Exports
from the United States, analyzed the expected levels of US LNG exports under several scenarios for global
natural gas supply and demand, and evaluated whether LNG exports would result in net export benefits,
even if they led to higher domestic gas prices. The results of the study appeared to be positive news for the
various players that have already applied for export licenses or are in line to do so, since it concluded that
any increase in domestic gas prices, for the most part, would not be caused by LNG exports.
Looking at the studys conclusions, we dont see any major benefits for the country by exporting natural
gas. The study concluded in one of its scenarios that the export of natural gas would benefit total GDP by
0.26% at most, though most of the scenarios put the benefit at less than 0.10%. It also noted that some
industries would be hurt by higher natural gas prices. The study concluded that, under the best scenario, US
economic welfare would improve by 0.0291%, which is not substantial. Under nearly 70% of the scenarios,
the benefit to the economic welfare was less than half of that. Perhaps, the economic welfare of future
generations would be higher by a wider margin if the gas that might have been exported were left in the
ground for them.
INVENTORY LEVELS IN 2013 START TO DECLINE FROM RECORD LEVELS
Early in 2010, natural gas inventories had fallen back toward the 10-year average, but started quickly rising
again due to strong inventory additions and low withdrawals from mid-March until late April. During the
summer months, inventory additions were relatively weak, as hot summer weather increased gas usage by
power generators, and stocks declined against their 10-year average during this period. Strong inventory
additions from early September and weak
early inventory withdrawals caused stocks to
rise against the 10-year average.
By the end of the heating season, stocks had
been depleted due to cold weather in late
December 2010 and January 2011. A warmer
February and March resulted in an end-of-
season stockpile level of 1,579 Bcf, 21.5%
above the preceding 10-year average. During
the summer months in 2011, the inventory in
storage was lower compared with the previous
year. Nevertheless, such inventory reached a
new record high of 3,852 Bcf as of November
18, 2011.
A warm fourth quarter in 2011 and first
quarter in 2012 led to very low winter month
Chart H05:
Seasonal Variations
in Underground
Working Natural
Gas in Storage
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
SEASONAL VARIATIONS IN WORKING NATURAL GAS
UNDERGROUND STORAGE VOLUMES

withdrawals from storage, resulting in a post-withdrawal inventory of 2,369 Bcf on March 9, 2012, two
weeks earlier than the end of a typical withdrawal season (November through March). The March 9 inventory
levels exceeded the prior end of withdrawal season records for 2010 and 2011 by a huge margin and, at the
typical end of a heating season on March 30, 2012, was 79% above the 10-year average. Since then, while still
way above normal, a large increase in electric power consumption of gas led to a slower increase in inventories
during the spring and summer months. Inventory levels still rose to set an all-time weekly record of 3,929 Bcf
on November 2, 2012, ending the injection season one week earlier than normal at 12.2% above the 10-year
average. Another relatively warm winter in 201213, but a cool period in late March and early April, led
stocks to decline relatively slowly to 1,673 Bcf as of April 5, 2013, (a two-week-late end to the withdrawal
season), 13.9% above the preceding 10-year average, but 31.8% lower than the record level set in the same
period last year.
The EIA predicted in its September 2013 Short-Term Energy Outlook that working gas in storage would
reach a near record level of 3,820 Bcf at the end of October 2013 (the end of the April through October
storage injection season). The actual level of 3,834 Bcf in storage at the end of October 2013 was just
slightly higher than the EIA predicted level, but slightly lower than in 2012, and 7.5% above the 10-year
average. Lower demand from electric power producers over the summer reduced withdrawals somewhat,
preventing storage levels from declining further. However, an early cold snap reduced storage levels to
2,974 Bcf as of December 27, 2.4% below the 10-year average.
In its short-term forecast, the EIA predicted working gas in storage at the end of the 201314 withdrawal
season to be 1,750 Bcf, 11% above the 10-year end of withdrawal season average and 5% above the level
on April 5, 2013. Further, it predicted a near-record inventory of working gas in storage of 3,875 Bcf at the
end of October 2014, 7% higher than the 10-year end of injection season average. In our view, this forecast
is high because of the relatively high levels of storage expected to be present at the beginning of the injection
season and the high levels of production. The EIA expects that working gas storage will increase by 2,125
Bcf during the 2014 injection season.
We think that continued high storage levels driven by strong production and our expectations for more
normal summer weather and lower electric power demand for gas due to slightly higher gas prices in the US
could cause injections to exceed EIAs expectations in 2014. Should this occur, we expect that continued very
high natural gas storage levels could cause prices to remain relatively low through 2014, though prices for
2014 are likely to be dependent on the winter weather in late 2013 and early 2014.
RATE CASES SO FAR IN 2013
Year to date through December 5, 2013, 24 rate cases had been completed (a total of 41 rate cases were
completed in 2012), according to Regulatory Research Associates (RRA), a regulatory consulting firm that
is a division of SNL Financial. There are 31 rate cases currently pending before various utility authorities.
RRA expects 13 of these cases to be completed before the end of 2013 and 15 in 2014. RRA has not made
an estimate on the completion dates for the remaining three, although S&P Capital IQ believes it is possible
that one of these cases could be completed before the end of 2013. The five-year average for rate cases
completed is 39 per year; the 10-year average is 36 per year.
The average requested return on equity (ROE) for pending rate cases is 10.51%, with an average requested
equity to total capitalization (equity component) of 51.51% and an average requested return on rate base
(RORB) of 7.85%. The 10-year averages for completed rate cases include granted ROE of 10.31% (versus
11.37% requested), granted equity component of 49.10% (versus 50.02% requested), and granted RORB
of 8.26% (versus 8.87% requested). In observable rate cases from 2003 to 2012, granted rate base was
$2.79 billion (or 2.2%) lower than requested rate base. The five-year average ROE of 10.13% (versus
11.12% requested) and RORB of 8.13% (versus 8.70% requested) is lower, but the granted equity
component of 49.89% (versus 50.64% requested) is higher. In observable rate cases from 2008 to 2012,
granted rate base was $1.72 billion (or 2.3%) lower than requested rate base.
Holding the amount of a rate case increase steady, regulators can raise the allowed return on equity by
lowering the equity component. Likewise, granting a smaller rate increase and lowering the equity

component simultaneously can allow regulators to keep an allowed ROE higher than it would otherwise be
had the equity component remained the same. Additionally, regulators routinely lower the requested rate
base, which also would have a positive effect on RORB, holding other items equal; however, this likely
would have a negative effect on rates.
Rate case ROEs lower in 2012 and 2013
During 2012, completed rate cases (41 total) had an ROE of 9.94%, an RORB of 7.98%, and an equity
component of 51.13%, versus requested amounts of 10.79%, 8.43%, and 51.51%, respectively. For these
cases, the granted rate base was $320 million (or 2.56%) lower than requested, though $273.2 million of
the shortfall was from five companies: Peoples Gas Light & Coke Co. ($113.7 million), Northwest Natural
Gas Co. ($97.5 million), Puget Sound Energy Inc. ($24.8 million), Bay State Gas Co. ($21.5 million), and
Mountaineer Gas Co. ($15.7 million). Through December 5, 2013, initial rate case metrics seemed weaker
compared with 2012, since the allowed ROE and RORB were lower, but these were partly offset by a lower
equity component, leading to an ROE that was not as low as it otherwise would have been. Granted ROE
was 9.64% (versus 10.48% requested), granted RORB was 7.26% (versus 7.88% requested), and granted
equity component was 50.22% (versus 51.35% requested). Granted rate base was $13.5 billion (3.31%)
lower than requested. (See the How the Industry Operates section of this Survey for further discussion of
rate-setting mechanisms.)
Table B07:
Pending rate
cases
PENDING RATE CASES
(As of November 2013)
STATE COMPANY FILING DATE
RATE
INCREASE
(MIL.$)
RETURN
ON
RATE
BASE
(%)
RETURN
ON
EQUITY
(%)
COMMON
EQUITY TO
TOTAL
CAP. (%)
RATE
BASE
(MIL.$)
ACTION
LIKELY BY
Arkansas SourceGas Arkansas Inc 9/9/2013 18.7 6.2 10.3 43.1 275.7 7/9/2014
Calif ornia Pacific Gas and Electric Co. 11/15/2012 451.5 NA NA NA 3,758.7 3/15/2014
Calif ornia Southwest Gas Corp. 12/20/2012 2.8 8.6 10.7 57.0 23.7 1/31/2014
Colorado Atmos Energy Corp. 5/8/2013 10.5 8.5 10.5 55.7 138.5 NA
Colorado Public Service Co. of CO 12/12/2012 151.3 7.8 10.3 56.0 1,452.6 12/31/2013
Connecticut CT Natural Gas Corp. 7/8/2013 20.1 8.4 10.3 52.5 432.9 12/31/2013
Illinois Ameren Illinois 1/25/2013 47.2 8.6 10.4 51.8 1,061.5 12/18/2013
Kentucky Atmos Energy Corp. 5/13/2013 13.4 8.5 10.7 51.8 252.9 1/23/2014
Kentucky Columbia Gas of Kentucky Inc 5/29/2013 16.6 8.6 11.3 52.4 203.3 12/29/2013
Maryland Baltimore Gas and Electric Co. 5/17/2013 24.2 7.8 10.4 51.1 1,048.7 12/13/2013
Maryland Baltimore Gas and Electric Co. 8/2/2013 34.1 NA NA NA 131.2 2/14/2014
Maryland Columbia Gas of Maryland Inc 8/5/2013 1.2 NA NA NA 8.8 2/14/2014
Maryland Washington Gas Light Co. 11/7/2013 18.1 NA NA NA 109.0 6/7/2014
Massachusetts Bay State Gas Company 4/16/2013 30.1 8.9 11.5 53.7 479.4 2/28/2014
Michigan Consumers Energy Co. 2/1/2013 48.9 6.5 10.5 41.0 3,237.8 NA
Minnesota CenterPoint Energy Resources 8/2/2013 44.3 7.8 10.3 52.6 702.4 6/1/2014
Minnesota Minnesota Energy Resources 9/30/2013 14.2 8.0 10.8 50.3 198.3 7/30/2014
Missouri Missouri Gas Energy 9/16/2013 23.4 7.1 9.7 51.6 565.2 7/14/2014
Nevada Sierra Pacific Power Co. 6/3/2013 6.0 5.4 10.4 46.9 208.6 12/31/2013
New Hampshire Northern Utilities Inc. 4/15/2013 5.2 8.5 10.0 51.8 84.6 4/30/2014
New Jersey South Jersey Gas Co. 11/29/2013 65.6 8.0 11.0 54.6 1,333.6 8/29/2014
New York Consolidated Edison Co. of NY 1/25/2013 25.9 7.6 10.1 50.1 3,532.4 12/31/2013
New York National Fuel Gas Dist Corp. NA NA NA NA NA NA NA
North Carolina Piedmont Natural Gas Co. 5/31/2013 79.8 8.2 11.3 50.7 1,912.0 12/31/2013
North Dakota MDU Resources Group Inc. 9/18/2013 6.8 7.9 10.0 50.3 79.2 4/30/2014
Oregon Avista Corp. 8/15/2013 9.5 7.8 10.1 50.0 176.2 6/15/2014
Pennsylvania Peoples TWP LLC 4/30/2013 18.7 8.0 11.3 50.0 210.1 1/29/2014
Utah Questar Gas Co. 7/1/2013 19.0 7.9 10.4 52.1 1,008.4 3/1/2014
Wisconsin Northern States Power Co - WI 5/31/2013 0.0 NA 10.4 NA NA 12/31/2013
NA-Not available.
Source: Regulatory Research Associates.

Notable rate cases completed in 2012 included Peoples Gas Light & Coke, which filed for a $112.6 million
rate case in Illinois, premised upon a 10.85% ROE, an 8.11% RORB, and an equity-to-capitalization ratio
of 56.0%. The company received a $57.8 million increase based on a 9.45% ROE, a 6.94% RORB, and a
49.0% equity-to-capitalization ratio. DTE Gas filed for a $76.7 million increase in Michigan based on an
11.0% ROE, a 6.48% RORB, and an equity-to-capitalization ratio of 38.32%. It received a $19.9 million
increase based on a 10.5% ROE (the other metrics were not available). Northwest Natural Gas requested a
$43.7 million increase in Oregon based on a 10.30% ROE, an 8.28% RORB, and a 50.0% equity-to-
capitalization ratio. It was granted just an $8.7 million increase based on a 9.50% ROE, a 7.78% RORB,
and a 50.0% equity-to-capitalization ratio. Pacific Gas & Electric filed for a $23.0 million rate reduction in
California, based on an 11.00% ROE, an 8.45% RORB, and an equity-to-capitalization ratio of 52.0%.
The company received a $55.8 million cut with a 10.40% ROE, an 8.06% RORB, and the equity
component as requested.
The largest rate case completed through December 5, 2013, was Southern California Gas Co. The company
filed for a $239.0 million rate increase, which included a rate base of $3.62 billion. The company was granted
an $84.8 million increase based on a rate base of $3.44 billion. Other notable cases included Peoples Gas
Light & Coke, which requested a $97.8 million increase and received a $57.2 million increase, and Columbia
Gas of Pennsylvania, which requested a $77.3 million increase and received a $55.3 million increase.
Notable pending rate cases include a $451 million rate case (revised down from $486 million) filed by Pacific
Gas & Electric, a $151.3 million case filed by the Public Service Co. of Colorado, a $79.8 million case filed by
the Piedmont Natural Gas Co., and a $65.6 million rate case filed by South Jersey Gas. SNL Financial expects
the Piedmont and Colorado cases to be completed in 2013, and the other two in 2014.
RECENT MERGER ACTIVITY
There was very little significant merger and acquisition activity among key gas utility companies in 2007,
2008, and 2009. However, transaction activity picked up slightly in 2010 and 2011. In 2010, two deals
were announced involving foreign utilities and one deal late in the year between two US companies. In
2011, more US utility deals were announced, many of which included gas distribution systems as part or all
of the assets involved. In one deal, a foreign company that is focusing more on electric distribution in its US
operations sold small electric and gas utilities that it considered noncore. In 2012 and through November
2013, various gas utility deals took place, continuing the momentum built in the previous two years. An
emerging trend to form publicly traded master limited partnerships using natural gas gathering, processing,
transportation, and storage assets has also led to some merger activity.
ONEOK to spin off its utility business to shareholders. On July 25, 2013, ONEOK Inc. announced that
it would separate its natural gas utility business into a new publicly traded company called ONE Gas Inc.
Upon closing (which is expected to take place in the first quarter of 2014), existing shareholders will receive
0.25 share of ONE Gas for each share of ONEOK held. ONE Gas plans to issue debt of $1.1 million to
$1.2 million in order to make a cash distribution to ONEOK of the same amount in exchange for the
distributed assets.
TECO EnergyNew Mexico Gas. On May 28, 2013, TECO Energy agreed to acquire New Mexico Gas
Co. for $950 million (including $200 million in assumed debt). New Mexico Gas Co. serves around
509,000 customers in New Mexico. After the acquisition, TECO Energys customer base will expand to 1.5
million in Florida and New Mexico. TECO Energy expects the acquisition to close in the first quarter of
2014 (subject to regulatory approvals) and the transaction to be accretive to earnings in 2015.
Laclede Group to acquire a second Southern Union utility. On December 14, 2012, Laclede Group Inc.,
a utility holding company, entered into an agreement with Southern Union Co. (which had been acquired by
Energy Transfer Equity earlier in 2012; see below for details) to acquire New England Gas Co. and
Missouri Gas Energy for a combined $1.04 billion (including $20 million to assume debt). The two utilities
had combined revenues of around $517 million for the twelve months ended September 30, 2012, and
would double Lacledes customer base to 1.2 million. In September 2013, Laclede Group closed the

acquisition of Missouri Gas Energy for $975 million. S&P Capital IQ expects the acquisition of New
England Gas Co. to be completed by the end of the first quarter of 2014.
PNG Companies acquires gas utility company. On December 19, 2012, PNG Companies LLC, the
parent company of Peoples Natural Gas Co., entered into an agreement to acquire Equitable Gas Co. LLC
from Distribution Holdco LLC, a wholly owned subsidiary of EQT Corp. PNG agreed to pay around $720
million in cash and transfer certain midstream assets to EQT. The transaction closed in December 2013.
Energy Transfer EquitySouthern Union. On March 26, 2012, Energy Transfer Equity LP completed the
acquisition of Southern Union Co., the parent company of Missouri Gas Energy and New England Gas.
Missouri Gas Energy serves 501,000 customers, while New England Gas serves 50,000. The purchase price
of $7.9 billion included $4.2 billion in equity and $3.7 billion in debt.
ExelonConstellation Energy. On April 28, 2011, Exelon Corp. announced that it had reached an
agreement to purchase Constellation Energy, the parent company of Baltimore Gas & Electric, based on
0.93 Exelon share for each Constellation share (worth $7.9 billion on the day before the announcement).
The companies completed the transaction on March 12, 2012. Further, the transaction is expected to be
accretive to earnings by more than 5% in 2013. Exelon, which provides electric service to 5.4 million
customers in Illinois and Pennsylvania, and gas service to 490,000 customers in Pennsylvania, will add 1.24
million electric and 650,000 gas customers in and around Baltimore.
Duke EnergyProgress Energy. On January 8, 2011, Duke Energy agreed to purchase Progress Energy for
2.6125 Duke shares per each Progress share (worth $13.7 billion on the day before the announcement). The
transaction closed on July 2, 2012. Duke serves four million electric customers in the Carolinas, Indiana,
Ohio, and Kentucky, and 500,000 gas customers in Kentucky and Ohio. Progress Energy serves 1.5 million
electric customers in the Carolinas and 1.6 million electric customers in Florida.
AGL ResourcesNicor. On December 7, 2010, AGL Resources Inc. agreed to purchase Nicor Inc. for
$1.36 billion in stock and about $1.0 billion in cash. AGL, based in Atlanta, serves 2.3 million customers in
six states, primarily in Georgia and most of the other East Coast states. It also has a wholesale marketing
and asset management business, a gas storage business, and a retail business that markets natural gas to
customers in Georgia. Nicor serves 2.2 million customers in areas surrounding Chicago and has wholesale,
storage, and retail energy marketing businesses. AGL says that the acquisition will further diversify its gas
utility business and provide wider market opportunities for its unregulated businesses. The transaction is
notable, in our view, for its relatively high deal multiple: 15.9X our 2011 earnings per share (EPS) estimate
of $3.20 for Nicor. The transaction closed on December 9, 2011, following receipt of regulatory approvals.
International deals
Liberty Energy. On February 11, 2013, Liberty Energy Utilities Co., a subsidiary of Toronto-based
Algonquin Power & Utilities Corp., entered into an agreement with Laclede Group to acquire New England
Gas Co. for $74 million (including $19.5 million to assume debt). The transaction closed in December
2013.
In August 2012, Liberty Energy purchased Atmos Energys regulated natural gas distribution systems
covering 84,000 customers in Missouri, Iowa, and Illinois, for $124 million. Atmos Energy retained
distribution utilities in nine other states. In July 2012, Liberty Energy closed on a deal to purchase the
43,000-customer Granite State Electric Co. and the 83,000-customer EnergyNorth Natural Gas Inc. from
National Grid USA (the US arm of the National Grid Group) for around $290 million.
FortisCH Energy Group. On February 21, 2012, Fortis Inc., a distribution utility based in Canada,
agreed to acquire CH Energy Group Inc. for around US$1.5 billion, consisting of US$65 per share in cash
and the assumption of debt worth US$500 million. The purchase price reflects a premium of around 10.5%
over the closing price of the CH Energy shares prior to the announcement of the merger agreement. The
transaction closed in June 2013, upon receiving regulatory approvals from the New York Public Service
Commission and the Federal Energy Regulatory Commission. The acquisition will help Fortis enter the US-
regulated electric and gas distribution industry and expand its customer base by adding CH Energys

residential and commercial customers. The transaction is expected to be accretive to Fortiss earnings per
share just after it is completed.
AltaGasSEMCO Energy. On February 1, 2012, AltaGas Ltd. entered into an agreement to purchase
from Continental Energy Systems LLC its SEMCO Holding Corp. unit for around US$1.14 billion,
including US$355 million in assumed debt. SEMCO Holding owns SEMCO Energy Inc., a regulated public
utility company in Michigan, and ENSTAR Natural Gas Co., a regulated natural gas distribution utility in
Alaska, as well as other natural gas holdings. The transaction closed on August 30, 2012. AltaGas hopes the
transaction will help it establish a strong presence in the US in areas with growth potential that are near
AltaGass current operations. Prior to the merger, AltaGas served over 110,000 customers in Alberta, Nova
Scotia, and British Columbia, and owned a midstream gas business and a power generation business.
NATURAL GAS DISTRIBUTION OUTLOOK: NEUTRAL
Gas distribution companies generally have seen slow growth since 2007. As of late-December 2013, our
fundamental outlook for the natural gas utilities sub-industry for the next 12 months was neutral. For 2013,
we estimate double-digit EPS growth, on average. Recent rate increases for many utilities should help mute
the effect of reduced customer growth during the economic slowdown, in our view. Additionally, extremely
mild weather hurt earnings in 2012, a factor we dont see in 2013. Many utilities face increased
maintenance spending to replace old distribution piping, and are seeking rate increases to offset the cost.
Regular rate increase requests have become more common recently. In 2014, we expect slightly colder
weather to result in mid-single-digit EPS growth.
Temperatures were close to normal in 2008 through 2010, but reduced economic activity constrained gas
usage. Following a cold start, 2011 finished with mild temperatures, which continued through much of the
2012 heating season, though increased gas-fired electric generation helped boost gas usage. We think
continued high storage levels and strong production are likely to keep gas prices in check. We see revenue
decoupling mechanisms, which help a utility replace lost revenue due to customer conservation, continuing
to gain acceptance. Also, we see accelerated investment and recovery programs becoming more commonplace,
where utilities accelerate capital spending on pipeline replacements and are allowed to recover their
investments through riders before their next scheduled rate case.
Vertically integrated natural gas distribution companies with unregulated midstream and upstream
operations enjoyed record profits in 2008, benefiting from high commodity prices, but now face the reality
of lower prices. While oil prices remain relatively high, natural gas prices have tumbled and are now in the
mid- to upper $3 range. This has taken a toll on earnings at utilities that have exposure to natural gas
exploration and production. As some of these utilities have shifted their strategies to focus more on liquids
production, we expect earnings growth in 2013 to benefit. We also see volume gains as companies drill in
various shales. Much longer term, we think an improving regulatory environment will increase access to
public lands for drilling and pipeline expansion and will expedite permit procedures, providing for steady
long-term production gains. We expect lower production-related costs at utilities E&P operations.
The EIA expects US demand for natural gas in 2013 and 2014 to remain relatively unchanged from 2012.
According to EIA data, end-use US natural gas consumption climbed 4.5% in 2012. In its Short-Term
Energy Outlook published on September 10, 2013, the EIA forecast end-use consumption to grow 0.3% in
2013 and then to decline by 0.9% in 2014. End-use consumption climbed 1.1% in 2011, which was lower
than the 5.5% rise in 2010 (2011 and 2012 were helped by hot summer weather and 2010 was helped by
cold winter weather). End-use consumption fell 2.1% in 2009, and rose 0.7% in 2008 (with 2008 and 2009
being hurt by the economic downturn). S&P Capital IQ believes that end-use consumption will exceed
EIAs 2013 forecast, given the 22.8% increase in residential and 16.3% increase in commercial demand
related to space heating partly offset by a 15.5% drop in consumption by power generators in 2013s first
half, assuming weather in the second half that is similar to 2012s.
A return to continued historically high natural gas prices could hurt gas companies. In September 2013 (the
last forecast change), Standard & Poors Economics forecast that Henry Hub bid-week prices would
average $3.61 in 2013 and $3.86 in 2014. Current gas prices are relatively low compared with recent

history. Lower prices tend to attract more new customers to gas (especially when oil prices remain high) and
encourage switching from other fuels. Many utilities in the Northeast have discussed how residential
customers that switch to natural gas from other fuels for heating are boosting customer growth.
Additionally, current high prices for some competing fuels have made gas the more attractive alternative.
Low gas prices could decrease the scrutiny that regulators apply to utilities requests for gas supply
reimbursement or for higher distribution rates.
Of course, economic, natural, political, and geopolitical events could derail the natural gas price and volume
forecasts. The slowdown in world economic growth and the strengthening of the US dollar from the summer
of 2008 through early 2009, for example, led to oil prices falling from their record highs. From March 2009
until November 2009, the US dollar weakened significantly, adding to upward pressure on oil prices. Then,
from November 2009 through June 2010, the US dollar strengthened, but global oil supply and demand
factors kept the price of oil climbing steadily. During this period, it appears that changes in the dollars
value had some impact on oil prices, but to a far lesser extent than in the weaker economy encountered in
2008 and 2009. From June 2010 through early June 2011, the dollar slid, helping to keep oil prices
relatively high.
So far, these developments have not translated into drastically higher natural gas prices, due to offsetting
factors such as high storage levels, relatively weak demand, strong production, and the potential for
additional LNG cargoes. Continued relatively slow growth in both the US and global economies could
continue to curb gas demand growth. Continued shale development could introduce large quantities of gas
at points much closer to Northeastern end users than the Rockies or the Gulf. Additionally, new pipelines
stretching from the Rocky Mountains eastward could reduce price volatility in the Northeast, putting a
limited amount of downward pressure on prices. However, on May 26, 2011, the general partner of the
Rockies Express Pipeline said that the flow could be reversed in the future to bring Marcellus Shale gas to
other parts of the country.
Other developments, however, could increase upward pressure on prices. Increasing US LNG liquefaction
capacity may eventually lead to more LNG exports, adding new demand to the US markets. We believe that
starting in 201617, enough export capability could come on line to put upward pressure on US natural gas
prices. Faster-than-expected economic growth could cause natural gas demand to drain some of the gas in
storage, leading to an environment that could favor higher prices. At any point, the federal government
could limit or discourage investment in US gas drilling through measures that would raise the cost of drilling
in the US, making LNG and Canadian pipeline imports more attractive. Possible tensions between the US
and oil-producing nations could lead to higher oil prices, which may also cause upward pressure on natural
gas prices: end users with the capability to switch fuels could increase the demand for gas if it is relatively
less expensive than oil. Likewise, a significant increase in coal prices could also put upward pressure on
natural gas prices, as electric generators might favor burning gas in combined-cycle plants over burning coal
in smaller, less efficient coal plants.

INDUSTRY PROFILE
A regulated industry confronts volatile prices
Natural gas distribution utilities include several kinds of operations: regulated, investor-owned companies;
municipal gas distribution systems owned by cities and counties; and special utility districts. This Survey
covers investor-owned gas distribution companies only; it does not cover interstate pipelines or natural gas
production companies, nor does it cover any issues related specifically to municipally-owned gas
distribution utilities.
Local distribution companies (LDCs) served 72.2 million customers in 2012, up only slightly from 71.4
million customers in 2011, according to the Energy Information Administration (EIA), a statistical agency
within the US Department of Energy. Of this total, 66.6 million were residential accounts using gas mostly
for home and water heating and cooking. The remaining customers were commercial (5.4 million),
industrial (0.2 million), and power generators. (See the How the Industry Operates section of this Survey
for details.)
A series of regulatory reforms from 1978 (when regulations that set natural gas prices at the wellhead were
first loosened) to 2005 (when the repeal of the Public Utilities Holding Company Act, or PUHCA, dropped
federal restrictions on utility mergers) have created a vastly different operating environment than that which
prevailed 35 years ago. Natural gas prices are generally higher and more volatile, energy markets are more
competitive, and corporate mergers have created huge, diversified energy companies with trading capabilities
across several different energy sources. These developments have generated new risksas well as new
potential rewardsfor gas distribution utilities.
Responding to this environment over the past decades, previously independent gas utilities have combined
with other regulated utilities, as well as with new, unregulated energy-related businesses, to manage these
new risks and profit from new opportunities. As a result, todays LDCs are usually part of a holding
company that operates several different businesses. In some instances, LDC operations are the holding
companys primary business. Secondary operations may include wholesale gas marketing, unregulated
power generation, oil and gas exploration and production, interstate pipelines and storage, or even non
energy-related businesses such as timber or containerized shipping. In many other cases, LDCs are relatively
small parts of large multi-utility or multi-industry companies.
Table B08 Gas Utilities
Own More Than LDCS
GAS UTILITIES OWN MORE THAN LDCs
% OF 2012 OPER. REGULATED ELECTRIC WHOLESALE
INC. FROM GAS LDC GAS ELECTRIC POWER GAS PIPELINE &
OPERATIONS UTILITY UTILITY GENERATION MARKETING E&P STORAGE OTHER
GAS UTILITIES
AGL Resources 86
Energen Corp. 20
National Fuel Gas 26
Oneok Inc. 20
Questar Corp. 25
WGL Holdings Inc. 81
MULTI- UTILITIES
Alliant Energy 11
MDU Resources Group Inc. 27
Nisource Inc. 38
Scana Corp. 7
E&P-Exploration & production. Oneok is in the process of spinning its utility, to be named ONEGas, to shareholders.
Source: Company reports.

INDUSTRY TRENDS
Several important trends in US energy markets are having a powerful influence on todays natural gas
distributors. US natural gas prices were among the highest and most volatile in the world, due to the
combination of rising gas demand and, until recently, a lack of domestic production growth. On occasion,
however, local events overseas, such as the shutdown of nuclear plants in Japan on more than one occasion
and its using natural gasfired plants to compensate, can lead to even higher prices there. US gas demand
had been increasingly met by imports, but recently it seems that production growth is helping to minimize the
need for imports of gas. Additionally, higher prices overseas could lead to fewer LNG imports and potentially
the export of gas.
A trend among state regulatorsto unbundle an LDCs supply function from its delivery function and
thereby introduce retail competition into the supply of natural gashas generated little interest in serving
residential customers. Competitive suppliers are able to make substantially more money serving large
commercial and industrial customers. However, there have been a few recent signs that suppliers are
beginning to come back to the New Jersey residential market after a long absence. At the same time, LDCs
are likely to remain rate-regulated businesses, with limited opportunities for growth within their service
areas. Many LDCs have taken advantage of industry deregulation to acquire other kinds of businesses in
hopes that diversification will drive stronger profit growth.
HIGHER AND MORE VOLATILE NATURAL GAS PRICES
The natural gas industry has undergone substantial changes in recent decades. Since regulatory reforms to the
long-distance pipeline industry began in 1984, market forces have created a much more efficient supply system
than existed previously. In the initial years of pipeline deregulation, increased efficiencies reduced
transportation charges and inflation-adjusted gas prices. Lower and more transparent market prices fueled
demand growth, while the elimination of structural constraints allowed natural gas supplies to be more fully
developed, thus reducing levels of untapped capacity. Demand expanded to meet the limits of available supply.
With long-term forecasts for slowly increasing demand, growing production from more expensive wells, and
steady domestic production, natural gas prices have been trending higher. Increasing summertime usage by
power generators had reduced or eliminated storage additions during the summer months; this, combined
with constrained natural gas pipeline and storage capacity in certain regions, has led to much more volatile
natural gas prices.
This phenomenon has complicated the short-term operations and long-term investment planning for the entire
natural gas industry, including regulated LDCs. Since December 2000, when cold weather blanketed the eastern
United States and exhausted available gas supplies in some areas, natural gas prices have become noticeably more
volatile; prices surged again to near-record levels during two subsequent winters. From 2000 until 2009, when
prices slipped briefly below the $2 mark per million British thermal units (MMBtu), natural gas prices have
been sustained throughout the year at higher levels than had been experienced in the past. However, peak
fall storage levels have been climbing steadily higher as new storage caverns are built. Record storage levels
in the past three years have had a dampening effect on natural gas prices. Despite this development, the
increasing costs of getting gas out of the ground appear to be keeping average gas prices in the $3.00$4.00
per MMBtu range.
Price spikes
Since 2000, US natural gas prices have experienced severe spikes caused by cold winter weather, as well as
one caused by hurricane damage to offshore production platforms and a spike that began toward the end of
the 2008 heating season and culminated with an unusual mid-summer peak.
Cold weather spikes early in the 2000s. In December 2000, cold weather blanketed demand centers in
the eastern and Midwestern United States, causing demand to spike and gas inventories to decline. By the
end of that month, gas in storage was 10% less than the previous record low recorded in 1976. After
averaging what was (at the time) an outstandingly high price of $4.50 per million British thermal units

(MMBtu) in early November 2000, natural gas for delivery at the Henry Hub (the national benchmark) in
Louisiana more than doubled in December, reaching a then-record $10.49 per MMBtu on the New York
Mercantile Exchange (NYMEX) on December 21.
Prices for gas delivered at the city gate (which is where LDCs take delivery from interstate pipelines) rose
much more. With all available gas being committed to the frozen North, there was precious little to send to
other demand centers. On December 11, 2000, the price for natural gas delivered to the southern California
border reached a previously unimaginable $68 per MMBtu. At the time, the Energy Information
Administration (EIA), a statistical agency within the US Department of Energy, estimated that the average
residential heating bill would rise by 70% for the winterthe biggest season-to-season gain since 1975.
After a relatively mild winter in 200102, another spike occurred when a cold snap hit in February 2003,
driving the Henry Hub spot price on February 25 to $18.48 per MMBtunearly twice the level in 2000.
However, prices dropped back to less than $6.00 per MMBtu the following week. Later that year, a blast of
cold weather in December 2003 drove futures prices on the NYMEX up by 50% in two weeks, even though
storage levels were above their five-year average and demand was running well short of peak levels. More
cold air in the winter of 200304 pushed futures prices to $8.75 per MMBtu in February 2004, while gas
delivered to New York City reached $40 per MMBtu.
Hurricane-related spike in 2005. A sharp spike in prices occurred in September 2005, when two massive
hurricanes, Katrina and Rita, struck a direct blow to the Gulf of Mexicos oil and gas industry over a four-
week period beginning in late August. Together, the storms destroyed 115 offshore production platforms
and damaged 52 other platforms and 183 pipelines. Damage was so severe that half of the Gulfs output,
which provides about 25% of the US gas supply, was still out of operation two months later. The loss of
supply drove gas futures prices above their previous record, set in December 2000, to $15.38 per MMBtu in
December 2005.
Oil pricerelated spike. Another longer-lasting price spike occurred initially in concert with record high
oil prices, with prices starting their spike upwards after a short-term low of $5.30 per MMBtu (Henry Hub)
on September 4, 2007. However, the upward run of prices paused during the last two months of 2007 in
the $7.00 range. From the start of 2008 until the market peak of $13.31 per MMBtu on July 2, 2008, gas
prices rose dizzyingly fast, even though inventory levels were only 3% below their five-year average. (In
fact, inventory levels were likely lower than the average as a direct result of the high gas prices.) Following
the July peak, natural gas prices plunged even faster than they went up and faster than oil prices fell,
reaching a low of $1.83 per MMBtu by September 4, 2009.
Cold weather spike in 2010. In early 2010, prices hit a high of $7.51 per MMBtu (Henry Hub) on
January 7 due to cold weather, before generally retreating into a range between $3.00 and $5.00 per MMBtu.
What do these price spikes mean?
These price spikes made national headlines and caused considerable anxiety among regulators, politicians,
and LDCs, and spawned at least one Senate committee hearing. Were suppliers gouging consumers? Had
speculators driven up prices unnecessarily? Was there a gas crisis? The Commodity Futures Trading
Commission, a government agency, investigated some of the spikes and found no evidence of market
manipulation. Another investigation in the wake of the hurricanes had similar findings. However, a
congressional committee investigating high energy prices in the summer of 2008 heard testimony that
blamed the 2008 oil price spike on foreign currency changes and to substantially increased participation of
speculative funds in the oil markets.
High gas prices are an area of concern for gas utilitieseven though their earnings are not tied directly to
gas prices in the way that those of the exploration and production companies arebecause they spur
customers to conserve energy or search for other, cheaper sources of energy. Higher gas prices also invite
closer regulatory scrutiny of gas purchases that, in hindsight, may be occasionally difficult to justify. A
study on price volatility released in 2003 by the American Gas Foundation, an industry research group, said
that volatility has become the most significant issue facing the natural gas industry and its companies.

WILL THE SUPPLY/DEMAND BALANCE IMPROVE IN THE FUTURE?
In the recent past, a supply/demand imbalance appeared to be building, with demand exceeding production
and availability of Canadian pipeline imports being called into question. This led to an expansion of LNG
capacity that would allow the US to receive overseas imports. However, new demand and production
forecasts from the EIA suggest that there is plentiful supply and raise the question: how much gas will be
exported? According to EIA forecasts, all of the total 2040 consumption (29.7 Tcf) will be met by gas
produced in the US. In addition, the EIA expects the US to export gas via pipelines and LNG (3.6 Tcf). But
for 2013, the EIA predicts that 93.3% (24.1 Tcf) of total consumption (25.3 Tcf) will be produced in the
US. LNG imports (0.1 Tcf) are expected to account for only 0.7%. S&P Capital IQ believes that there are
ample and growing supplies of natural gas and, if supplies continue to grow, then the possibility of the US
becoming a natural gas exporter could become reality.
Tighter supply/demand balance in the 2000s
While the spikes in prices alarmed gas consumers, they were all relatively short-lived. More worrisome,
however, was a parallel development of sustained increases in average annual gas prices occurring for most
of the past decade. Between 2000 and 2010, average US natural gas prices rose in every year except 2002,
2006, and 2009.
Behind the previous rise was a fundamental tightening of the gas supply/demand balance. For the past
several years, natural gas production in the US has been stagnantdue, in large part, to declining output
from the nations largest and cheapest gas fields, and producers growing reluctance to invest in expensive
new production.
During 1998 and 1999, slumping global demand in the wake of the Asian economic meltdown in 1997
depressed oil and gas prices. The losses suffered by many large producers from the drop in prices left them
extremely cautious about making new investments to expand production. The fact that they were becoming
increasingly reliant on gas produced from risky and more expensive, deepwater wells, each of which cost
hundreds of millions of dollars to drill, only added to the caution.
Moreover, through 2008 the average rig count had nearly doubled since 2000, indicating that newer wells
are producing at only a fraction of the rate for older wells. Adding to this, the relatively modest declines in
2009 total demand led to a dramatic drop in rig count in summer 2009. However, by year-end 2010, North
American gas rig counts rebounded to 64% of average 2008 levels, 12% higher than at year-end 2009, as
production started to increase, helped by more widespread use of new drilling techniques. However, North
American gas rig counts are declining, with the average count for 2011 dropping 11% from 2010 and that
for 2012 sliding a steep 43% from 2011. As of January 3, 2014, North American gas rig counts seemed to
be stabilizing. Despite the lower gas rig counts, the EIA expects dry gas production to increase by 1.6% in
2013 and 1.3% in 2014, according to its December 10, 2013, Short-Term Energy Outlook. Production now
is increasing largely due to associated gas being produced from oil wells. We think continued development
of oil wells will lead to more associated gas being produced and think gas production could increase more
than the EIA expects.
but domestic supplies are growing quickly
Natural gas supplies have ballooned in recent quarters as companies tap vast reserves in shale formations.
According to the EIA, the lower 48 states and Gulf of Mexico produced a monthly record 67.0 billion cubic
feet per day of dry gas in July 2013. According to a June 2, 2012, article in The Economist, the share of
shale gas in overall US gas production has risen from only 4% in 2005 to 24%. According to the EIA, shale
gas accounted for 39% of all dry gas produced in 2012. Further, between 2005 and 2010, the shale-gas
industry in the US grew at a staggering 45% per year. The production of natural gas from shale rock has
been made possible through the use of a technology known as hydraulic fracturing (or fracking), whereby
the shale rock is subjected to pressure with water and chemicals. A number of players have resorted to
fracking to produce gas from modestly productive oil shale formations.
With this trend picking up, the natural gas supply in the US is growing at a solid rate, leading to a domestic
glut and a decline in LNG imports. High production and supply, coupled with weak demand due to mild

winter weather, have led to a steep fall in natural gas prices. As of month-end January 2012, natural gas
spot prices were hovering near a decade low of $2.50 per thousand cubic feet (Mcf), from which they fell
further to $1.84 per Mcf in the second half of April. In June 2012, prices, though slightly higher, remained
at a low level of around $2.32 per Mcf, from which they rose to $3.44 at the end of 2012. In April 2013,
the prices reached a high of $4.38 per Mcf, before falling to $3.27 in August 2013, then hovering in the
upper $3 range until December 2013 when a cold spell across portions of the US drove prices into the low
to mid-$4 range.
Higher prices and greater volatility have brought increased attention to risk management techniques that
can help prevent sudden and temporary natural gas price spikes from raising residential heating bills. LDCs
can sign long-term (12 months or longer) supply contracts and use futures contracts as a financial hedge.
When prices are much higher than now, LDCs are wary of signing longer-term contracts, lest prices move
lower and regulators rule such contracts imprudent. This has happened in the past. After the relatively mild
winter of 200102, which followed the record high prices reached the previous winter, many gas utilities
were forced to explain why they had hedged their fuel cost at higher prices.
Substantial amounts of associated gas is being flared. Gas flaring is a process in which natural gas that is
released from an oil well is burned off because it cannot be collected and transported economically. Flaring
was extremely common in the oil industry for decades, but in the past few decades, efforts have been made
to capture natural gas from oil wells and sell it in the market. However, in new oil fields where no
economically feasible infrastructure exists to capture the released gas, it is burned to reduce atmospheric
damage. With increasing well density, there is also increasing likelihood that the gas would eventually be
captured.
According to Ceres, a coalition of investors and advocacy groups that promotes sustainability leadership,
gas flaring has increased considerably because of low natural gas prices, the substantial time required to
build the pipeline network, and the shale gas boom in the US. North Dakota flared about 29% (266,000
Mcf per day) of extracted natural gas in May 2013, up 2.5 times of 106,000 Mcf per day in May 2011.
This amounts to a loss in revenue of around $3.6 million a day or $100 million per month due to flaring.
Although oil production continues to remain a lucrative business versus natural gas, natural gas production
is expected to double by 2025, leading to an increase in flaring, according to projections by state officials in
North Dakota.
Gas demand from power generators falling in 2013
Since the mid-1990s, demand for gas from electric power generators has increased, as environmental
regulations and high electricity prices encouraged the development of new power-generation capacity fueled
by natural gas. According to EIA data, the amount of gas used to generate electricity in 2012 had risen by
125% since 1997, when the Department of Energy first started tracking this statistic, or a 5.5% compound
annual growth rate.
The rise in gas-fired generation capacity has not only kept the overall demand for gas from falling
dramatically, thus tightening the supply/demand balance, but has also made demand more volatile. Much of
the gas-fired generation capacity that was built is peaking capacityused only for short periods of time
when electric power demand is highest. These plants, which are cheaper and faster to build and more
responsive to demand changes than coal-fired or nuclear power plants, are designed to be started and
stopped on very short notice, thereby producing sudden increases and decreases in gas consumption.
In 2010, natural gas use by generators increased 7.4% due to cold weather and relatively low gas prices that
made it more advantageous for power producers to run natural gas plants rather than some of their lower-
efficiency coal plants. However, in 2011, the consumption of natural gas by electric power consumers
increased at a slower 2.5%. In 2012, gas used for electric power generation increased 20.6% compared with
2011. However, in its December 2013 Short-Term Energy Outlook, the EIA said that it expected
consumption of natural gas in the electric power sector to decline 11.6% in 2013 and another 0.9% in
2014. The EIA forecast is due to a much milder summer in 2013 combined with slightly higher natural gas
prices. According to the National Weather Services Climate Prediction Center, in the 2013 summer season

(April to August), cooling degree days declined 10.3% compared with 2012, but were still 10.4% higher
than normal. S&P Capital IQ believes that the amount of gas used for power production is likely to decline
more than estimated by the EIA in 2013, based on the 15.6% decline through September 2013 and summer
weather that was cooler than last year. However, we expect gas usage by generators to rise over time.
Demand forecasts increased slightly
In the Annual Energy Outlook 2012, the EIA had forecast electric power usage of natural gas to remain
between 7.8 Tcf and 8.1 Tcf from 2012 to 2028, before rising steadily to 8.9 Tcf in 2035. It expected
annual industrial demand to rise slowly to 7.1 Tcf in 2020 before falling to 7.0 Tcf in 2035, generally
staying within a very tight range. EIAs residential forecast called for a steady decline from 5.0 Tcf in 2012
to 4.6 Tcf in 2035. The EIA forecasted commercial demand to steadily rise from 3.3 Tcf in 2011 to 3.6 Tcf
in 2035. Due to the higher electric power, industrial and commercial demand forecasts and relatively steady
demand in other areas, the EIA expected total end use demand to remain relatively stagnant at about 23.3
Tcf to 23.4 Tcf through 2026, before climbing gradually to 24.4 Tcf in 2035.
In its Annual Energy Outlook 2013, the EIA raised its forecast of electric power usage of natural gas to a
range of 8.1 Tcf to 8.3 Tcf between 2012 and 2023, followed by a steady rise to 9.4 Tcf in 2035 and 9.5 Tcf
in 2040, a 6% increase from its 2012 forecast. It expects annual industrial demand for natural gas to slowly
rise to 7.8 Tcf in 2022, remain flat until 2032, then rise slowly to 7.9 Tcf in 2040, also higher than its 2012
forecast. EIA lowered its long-term demand forecast for residential and kept its commercial consumption
forecast. The EIA now sees residential demand declining steadily from 4.8 Tcf in 2013 to 4.2 Tcf in 2035
and 4.1 Tcf in 2040. Commercial demand would rise slowly from 3.3 Tcf in 2013 to 3.5 Tcf in 2035 and
3.6 Tcf in 2040.
Demand for natural gas as a transportation fuel is forecast to increase from 0.05 Tcf in 2013 to 1.0 Tcf in
2040. Due to higher electric power demand and relatively steadily increasing demand in areas other than
residential, total end-use demand is now expected to rise steadily from 23.4 Tcf in 2012 to 26.2 Tcf in 2035
and 26.9 Tcf in 2040. Total consumption is forecast to rise to 29.5 Tcf in 2040.
Is production set to start rising
The EIA also made a dramatic change to its long-term domestic dry gas production forecasts. In its Annual
Energy Outlook 2008, it predicted that production would rise gradually from 19.0 Tcf in 2007, reaching a
plateau of 20.0 Tcf in 2021 and 2022, before gradually declining to 19.4 Tcf (85.5% of forecast total
consumption) in 2030. In its Annual Energy Outlook 2013, however, the EIA now expects a steady rise in
dry gas production from 24.1 Tcf in 2012 to 31.3 Tcf (109% of forecast total consumption) in 2035 and
Chart H03 CHANGES
IN NATURAL GAS
CONSUMPTION
FORRECASTS
0
1
2
3
4
5
6
7
8
9
10
2010 2015 2020 2025 2030 2035 2040
CHANGES IN NATURAL GAS CONSUMPTION FORECASTS
(Trillions of cubic feet)
2013 CONSUMPTION FORECAST
-0.60
-0.45
-0.30
-0.15
0.00
0.15
0.30
0.45
0.60
0.75
0.90
2010 2015 2020 2025 2030 2035
Residential Commercial Industrial Electric Power Transportation
CHANGE FROM 2012 FORECAST

33.1 Tcf (112% of forecast total consumption) in 2040. S&P Capital IQ believes increased shale gas and
associated gas production estimates are responsible for much of the increase in total production estimates.
This dramatic turn of events means that the US will have excess natural gas supplies starting as early as
2020, though it forecasts gas going to storage every year.
and imports to turn into exports?
US natural gas utilities had been relying increasingly on imported natural gas to meet growth in demand, a
trend that is losing momentum. Since the early 1970s, when long-term growth in US natural gas production
ended, importsmostly from Canada, but also in the form of liquefied natural gas (LNG) from Africa and
the Caribbeanhave increased steadily, both in overall terms and as a percentage of US supply, until 2007.
Between 1973 and 2007, net imports of natural gas nearly quadrupled in volume, growing by a cumulative
average annual rate of about 4.1%. In 1973, net import volumes were 4.3% of total gas consumption; by
2007, that share had risen to 16.4%. A combination of a weak economy, high storage levels, and increasing
production led net imports to fall quickly to 11.0% of total consumption by 2010. In 2011, net imports fell
even further, to 8.0% of total consumption. In 2012, imports fell to 6.0% of total consumption.
In its Annual Energy Outlook 2008, the EIA estimated that net imported natural gas would represent about
16.9% of US gas consumption in 2009, but shrink to 14.0% by 2030. However, in the Annual Energy
Outlook 2010 forecast, the EIA expected net imports to fall to 10.9% of total consumption by 2014 and
then rising temporarily to 11.7% of consumption by 2017, before continuing its fall to 5.9% of total
consumption by 2035. In its Annual Energy Outlook 2011, the EIA sees net imports falling from 2.7 Tcf in
2010 to 0.2 Tcf in 2035, or just 0.5% of total consumption. In an even more dramatic change, in the
Annual Energy Outlook 2013, net imports fall to near zero Tcf and the US would become a net exporter by
2020. The net exports are expected to increase steadily from 0.1 Tcf in 2020 to 2.1 Tcf in 2030 and 3.6 Tcf
in 2040. The EIA expects the US to export LNG starting in 2016.
While oil imports can easily be increased to accommodate rising demand, the same is not true for natural
gas. Transportation is a major cost component of natural gas, whereas it is generally incidental to the cost
of oil. As a result, the favored source of gas is domestic production. However, transportation of liquefied
natural gas has made natural gas transportation far more economical than in the past as liquefied natural
gas is far more compact than natural gas. While this is not as important for imports due to the new
resurgence in production, it could become important to US exports of natural gas.
Canadian import growth slowing
During the period from 1985 until 1995, increased net imports from Canada served to fill most of the
supply gap left by stagnating US production, rising at a compound average growth rate (CAGR) of 11.7%,
versus a CAGR of 1.3% for production. Imports from Canada rose every year from 1987 to 2002 and
accounted for about 16% of total US consumption in 2007.
From 1995 to 2005, however, Canadian net import growth slowed to a cumulative average growth rate of
1.8% for the period. Net imports actually fell 8.2% in 2008 and 15.2% in 2009; in 2009, Canadian net
imports were at their lowest level since 1994. Net imports of Canadian natural gas dropped 1.1% in 2010
and then fell another 14.2% in 2011. In 2012, Canadian gas net imports declined by 8.8%. The falling
imports are all likely related to strong production, weak economic conditions, and high storage levels.
Moreover, growth in Canadas domestic demand is beginning to erode the nations export capacity. In
2003, gross natural gas exports to the United States fell by 9.2%, the first annual decline since 1986.
Imports rose again in 2004 and in 2005, but did not regain the level reached in 2002. In 2006, imports from
Canada declined 3.0% from 2005, as less natural gas was available for export, despite a slight rise in
production. In 2007, levels rose 5.4%, approaching the imports seen in 2002.
As was the case in the US, most of Canadas gas fields are mature. Forecasts show that production growth
in Canada will fail to keep pace with higher consumption in the decades ahead, leaving less gas available to
export. According to the latest available data from Canadas National Energy Board (NEB), 68% of
Canadas 2011 natural gas production came from Alberta, down from 74% in 2010 as production from
British Columbia increases. There is growing local demand for natural gas in Alberta to power development

of the massive oil sands deposits. (In this process, natural gas is used to make steam, which is then used to
separate the heavy oil deposits from the sands.) In July 2013, a report on Canadas Oil Sands: Opportunities
and Challenges to 2015, the NEB said it expects development of the oil sands to consume between 1.4
Bcf/d and 1.6 Bcf/d by 2015, up from 0.6 Bcf/d in 2003. Total 2011 Canadian natural gas production was
14.5 Bcf/d, or 5.3 Tcf, up 7.3% from 2010. In 2012, marketable natural gas production stood at 14.0 Bcf/d,
down about 5% from 2011. Further, the NEB forecasts total natural gas production to decline further to
13.1 Bcf/d in 2014, but increase to 18.0 Bcf/d in 2035. Project developers continue to look for alternative
fuels, such as bitumen gasification, according to the NEB.
In its International Energy Outlook 2013, the EIA estimated that Canadian natural gas demand would rise
at a CAGR of 1.7% by 2040 from 2010, while Canadian total natural gas production would rise at a
CAGR of 1.1%. While Canadians are using more gas, which makes less gas available for export over time,
increases in US production are also reducing demand for natural gas from Canada.
LNG TERMINALS BEGIN CONVERSIONS FOR EXPORTS
Despite Federal Energy Commission approvals to build five LNG import terminals, none are under
construction at this point due to higher North American production and storage levels, resulting in less need
for imported gas. In the recent past, LNG facilities had been able to contract their capacity for decades. This
meant that after the facility was built, the owner/operator of the facility would be paid whether or not any
LNG was processed back into natural gas. The new EIA forecasts represent a major shift in its outlook, in
our view, and if the economy has a strong recovery, the new forecasts might have to be revised to
incorporate higher-than-expected economic activity.
With older forecasts showing that Canadian exports were unlikely to meet growing US demand for gas,
many companies determined that they could meet the demand imbalance by increasing imports of LNG by
tanker. Many companiesranging from holding companies that own LDCs to energy giantswere vying to
take part in the growing LNG import industry. So far, most LNG plants that have been built in North
America have multi-decade contracts for a majority of the output from the plants.
The US imported a record 771 Bcf of LNG in 2007, which was 32% higher than the 584 Bcf received in
2006, 22% higher than the 631 Bcf in 2005, and 18% higher than the prior peak of 652 Bcf in 2004.
However, LNG imports in 2008 were down 54% from year-earlier levels to 352 Bcf, seemingly ending the
upward trend. Imports increased 29% to 452 Bcf in 2009, but in 2010, imports dropped by 4.6% to 431
Bcf, but were still 23% higher than in 2008. The drop in imports continued at an even steeper 19.0% in
2011 to 349 Bcf; the slide escalated further in 2012, with LNG imports falling by a drastic 49.9% to 175
Bcf from 349 Bcf in 2011. The trend continued through September 2013, with imports at 86 Bcf, down
36% from 133 Bcf in the year-earlier period.
Although global liquefaction capacity has increased considerably since 2005as the result of capacity
additions in Egypt, Trinidad and Tobago, Nigeria, Qatar, and Yemen, among other countriesmaintenance
delays and lack of available feedstock gas caused LNG production to grow at a lower rate, according to the
EIA. In recent years, there has also been strong demand for LNG in other countries, including Spain, France,
Belgium, and the United Kingdom. In 2008, for example, LNG traders with options to deliver to multiple
destinations found higher prices and more attractive markets in Europe and Asia. The EIA had expected
that limited natural gas storage in those countries should allow the US to attract cargoes during the storage
injection season (typically April through September) and that new liquefaction capacity may only have the
opportunity to go to the US.
Several terminals in the US have applied for re-export permits, which would allow the facilities to essentially
act as LNG storage during periods of low demand overseas and re-export the cargoes received in months
when prices overseas are higher. The EIA forecasts that LNG imports to the United States will remain very
low until 2015, after which LNG begins to be exported, rising to 1.5 Tcf exported in 2030, where it
remains steady through 2040, according to its Annual Energy Outlook 2013.

According to a report titled The LNG Industry
in 2012 released by The International Group
of Liquefied Natural Gas Importers on March
25, 2013, liquefaction capacity was 282 million
tons per year in 2012, and regasification
capacity was 668 million tons per year. This
leads to a global regasification-to-liquefaction
ratio of 2.37. There were 378 vessels in the
tanker fleet at the end of 2012, with 78 vessels
on order. While the report tells of many
liquefaction plants slated to be built over the
next decade, it also detailed many more
regasification plants to be built worldwide. It
also listed two new LNG tankers that were
delivered in 2012, down from 16 in 2011, 25 in
2010, 40 in 2009, and 48 in 2008.
US LNG import infrastructure has grown
Dozens of new projects to increase LNG
supplies to the US through expanded import
infrastructure had been proposed through 2011.
Eleven LNG import terminals with a combined
sendout capacity of 18.5 Bcf/d (6.8 Tcf
annually) were operating in the US as of
September 12, 2013. Additionally, there were
three operating terminals in Mexico, with a
combined sendout capacity of 2.2 Bcf/d (0.8 Tcf
annually), and one in Canada with a sendout
capacity of 1.0 Bcf/d (0.4 Tcf a year). The
Federal Energy Regulatory Commission (FERC)
has approved plans for one new terminal and
one expansion project, with a combined
capacity of approximately 4.0 Bcf/d.
The MARAD/Coast Guard authorities
approved three offshore terminals with a total
capacity of 3.6 Bcf/d. (MARAD is the Maritime
Administration, which operates as part of the
US Department of Transportation.) Mexican
and Canadian officials have approved a total of
three terminals with a capacity of 2.5 Bcf/d.
Applications for another three onshore
terminals with a capacity of 1.4 Bcf/d are
pending FERC review. There are many
proposed projects and previously approved
projects that appear to have met their demise.
We believe more cancellations will occur in the
future and we dont think any more import
terminals will be built in North America in the
near future. There was even one operating
project, the Gulf Gateway, decommissioned in
2012 due to a lack of demand. The low capital
cost of that facility made it easier for the owner
to redeploy its resources.
Table B04
North American
LNG terminals
NORTH AMERICAN LNG TERMINALS
CAPACITY
OWNER LOCATION (BCF/DAY)
CONSTRUCTED
Cheniere Energy Inc. Sabine, LA 4.00
Southern Union Co. Lake Charles, LA 2.10
ExxonMobil Sabine, TX (Phase I) 2.00
Dominion Cove Point, MD 1.80
Sempra Energy Hackberry, LA 1.80
El Paso Corp., Southern LNG Elba Island, GA 1.60
Cheniere Energy Inc.,
private investor group Freeport, TX 1.50
El Paso Corp., Sonangol,
private investors Pascagoula, MS 1.50
Suez LNG North America Everett, MA 1.04
Sempra Energy Baja Calif ornia 1.00
Irving Oil, Repsol St. John, New Brunswick 1.00
Excelerate Energy of f shore Boston 0.80
Shell Gas B.V., Total SA,
Mitsui & Co. Ltd. Altamira, Tamulipas 0.70
KMS GNL de Manzanillo Manzanillo, Mexico 0.50
GDF Suez, Neptune LNG of f shore Boston 0.40
EXPORT TERMINALS
UNDER CONSTRUCTION
Cheniere/Sabine Pass LNG Sabine, LA 2.20
PROPOSED TO FERC
Southern Union/Trunkline LNG Lake Charles, LA 2.40
Cheniere/Corpus Christi LNG Corpus Christi, TX 2.10
ExxonMobil Golden Pass Sabine Pass, TX 2.10
Freeport LNG Dev/Freeport LNG
Expansion/FLNG Liquef action Freeport, TX 1.80
Sempra/Cameron LNG Hackberry, LA 1.70
Excelerate Liquef action Lavaca Bay, TX 1.38
Oregon LNG Astoria, OR 1.25
Sabine Pass Liquef action Sabine Pass; LA 1.30
CE FLNG Plaquemines Parish, LA 1.07
Magnolia LNG Lake Charles, LA 1.07
Jordan Cove Energy Project Coos Bay, OR 0.90
Dominion/Cove Point LNG Cove Point, MD 0.82
Southern LNG Company Elba Island, GA 0.35
PROPOSED CANADA
LNG Canada Kitimat, BC 3.23
Apache Canada Ltd. Kitimat, BC 0.70
BC LNG Export Cooperative Douglas Island, BC 0.25
POTENTIAL EXPORT SITES IDENTIFIED BY PROJECT SPONSORS
US SITES
Main Pass/Freeport-McMoran Gulf of Mexico 3.22
Eos LNG/Barca LNG Brownsville, TX 3.20
Gulf Coast LNG Export Brownsville, TX 2.80
Delf in LNG Gulf of Mexico 1.80
Gulf LNG Liquef action Pascagoula, MS 1.50
Pangea LNG North America Ingleside, TX 1.09
Venture Global Cameron Parish, LA 0.67
Annova LNG Brownsville, TX 0.30
Gasf in Development Cameron Parish, LA 0.20
Waller LNG Services Cameron Parish, LA 0.16
CANADIAN SITES
BG Group Prince Rupert Island, BC 4.20
ExxonMobil/Imperial Prince Rupert Island, BC 3.80
Pacif ic Northwest Energy Prince Rupert Island, BC 2.50
H-Energy Melf ord, NS 1.80
Pieridae Energy Canada Goldboro, NS 0.67
Triton LNG Kitimat/Prince Rupert Island, BC 0.30
Woodf ibre LNG Export Squamish, BC 0.27
LNG-Liquef ied natural gas. Bcf -Billion cubic f eet.
Source: Federal Energy Regulatory Commission (FERC).

Despite the large amount of existing, approved, and applied-for North American capacity (total of 33.2
Bcf/d), the three LNG terminals that have been proposed are unlikely to be built. Unapproved US plants
face a host of obstacles beyond federal approval, including local opposition and lack of demand for so many
projects. For that matter, even the existing facilities with a total capacity of 7.9 Tcf per year face a lack of
demand.
but now we see export capacity being added
With idle import capacity, near-record amounts of natural gas in storage, production from various shale
plays increasing, and natural gas prices at relatively low levels, several companies have decided to add
export capability to existing facilities. Because we think that more companies will add export capability to
their existing LNG import facilities, we see the potential for the creation of a glut of export capacity. If
natural gas prices eventually rise enough due to gas exports and other factors, even export capacity could
potentially sit idle.
Cheniere Energy Inc. is adding export capability to its LNG terminal in Louisiana (operated by Sabine Pass
LNG) and has applied to the FERC to add export capability to its Texas terminal (operated by Freeport
LNG). The company got approval from the US Department of Energy (DOE) in May 2011. FERC approved
Chenieres Louisiana export terminal on April 16, 2012. The company expects exports through these
terminals to start in 2017. Once operational, these plants would be the US mainlands first export plants.
North American export capacity would increase by 4.7 Bcf/d.
Companies are seeking approval for 13 other export terminals. Five of these terminals are located in
Louisiana (two in Lake Charles, and one each in Hackberry, Plaquemines Parish, and Sabine Pass), four in
Texas (one each in Corpus Christi, Freeport, Sabine Pass, and Lavaca Bay), two in Oregon (Astoria and
Coos Bay), one in Maryland (Cove Point), and one in Georgia (Elba Island). Together, they would have a
sendout capacity of 18.2 Bcf/d, bringing the total capacity to 20.8 Bcf/d in the US, if all are approved and
built. In addition, three LNG terminals, all of them located in British Columbia, have announced plans to
build export terminals with a capacity of 4.18 Bcf/d.
Eight more LNG export terminals have been announced, but are not yet seeking formal FERC or MARAD
approval. These eight projects, would add an additional 12.84 Bcf/d in export capacity. Four Canadian
export terminals in British Columbia and two in Nova Scotia also have been announced as potential new
export sites, with export capacity of 13.24 Bcf/d. If all announced potential projects are built, North
American export capacity would reach 51.1 Bcf/d (18.7 Tcfmore than two-thirds of actual 2012 natural
gas produced in the US).
OTHER NEW SOURCES OF GAS SUPPLY
As LNGs share of US natural gas imports may change, so too can the composition of domestic onshore gas
production. LDCs must consider this fact as they formulate their views on future market conditions and prices.
With gas output from traditional oil and gas wells declining, producers are increasing their investment in new,
unconventional sources of supply: gas found in oil shale, coal beds, and tight sands gasgeologic
formations that hold low concentrations of gas. These new sources have somewhat different production
characteristics than traditional wells, as each well produces lower daily volumes but has a longer lifetime.
One shale in particular is worthy of mention. The Marcellus Shale is located in Pennsylvania, West Virginia,
New York, and Ohio. One recent estimate by a University of Pennsylvania professor said that the Marcellus
shale could contain more than 500 Tcf of gas, according to an article on Geology.com. According to the
article, use of horizontal drilling and hydraulic fracturing techniques could make about 10%, or 50 Tcf, of
that gas accessible. Additionally, the United States Geological Survey said in October 2012 that
undiscovered technically recoverable natural gas in the shale is around 206 Tcf, given current technology.
However, in its Annual Energy Outlook 2013, the EIA said that as of January 1, 2011, the US possessed
2,327 Tcf of proved and unproved natural gas resources, 25% (543 Tcf) of which is shale gas.
According to the Annual Energy Outlook 2013, shale gas accounted for 14% of total US gas production in
2009, 23% in 2010, and 30% in 2011. It projects that it will be 42% in 2020, and then slowly grow to

48% by 2030 and 50% by 2040. In addition, the EIA projects that shale gas will be the only source to see
significantly increased production over this time period. The forecast also calls for onshore non-associated
conventional gas production to fall from 16% of total domestic production in 2011 to 6% in 2040.
Even including the new sources, total US dry gas production is expected to increase by an important but still
weak average annual rate of 1.2% between 2012 and 2040. This low growth rate has led to calls from a
variety of sourcesincluding both energy-producing and energy-consuming groupsfor the United States
to open up more of the country for exploration and production. However, we believe that this push will be
unsuccessful in the near future due to the record oil spill in the Gulf and the current price environment.
Additionally, those calls will likely be made for oil drilling rather than for gas, given the increase in shale
gas production. Calls for additional natural gas drilling have quieted with the development of shale drilling.
PIPELINE CAPACITY EXPANSION SLOWING
From 1996 through 2011, interstate pipeline capacity for natural gas expanded by an average of 1,707
miles per year and intrastate pipeline capacity expanded by an average of 378 miles per year, in part to
bring gas to the northeastern US, based on EIA data. The average annual cost of these pipelines was $4.2
billion. Some of the new pipelines allow expected LNG imports to move from LNG terminals to major gas
pipelines, while others help to move new gas discoveries in the western and mid-continent US supply regions
to distributors and end users in the Northeast and on the West Coast. These new pipelines could have
helped to reduce city-gate price volatility in the Northeast, but now, shale gas from the Marcellus Shale has
reduced the need to transport gas to the Northeast from other areas.
According to data from the EIA, only 368 miles of interstate and 135 miles of intrastate pipelines were
completed in 2012; in 2013 (through the end of the third quarter), just 154 interstate and 105 intrastate
pipeline miles were completed. The pipelines entering service in 2012 cost $1.9 billion and those entering
MAP:
RECOVERABLE
SHALE GAS
RESOURCES
RECOVERABLE SHALE GAS RESOURCES
(Trillions of cubic feet)
Source: US Geological Survey.
Denver Basin
0.98
Michigan
Basin
7.48
Anadarko
Basin
22.82
Permian
Basin
35.13
Gulf Coast
Basin
124.89
Fort Worth Basin
26.23
Arkoma
Basin
26.67
Appalachian
Basin
88.07
Illinois
Basin
3.79
TOTAL :
388 trillion cubic feet
Alaska North
Slope
42.01
Paradox Basin
11.42

service so far in 2013 cost just $449 million. The EIA data show that just 112 miles are set to be completed
in the fourth quarter, with most of the $2.2 billion cost representing compression additions.
The sharp drop-off in pipeline projects appears set to continue through 2016. In 2014, only 194 interstate
miles and 66 intrastate miles were expected to be completed, partly due to the 500-mile interstate Pony
Express pipeline being taken out of gas service to be converted to an oil pipeline. The EIA data show that
408 interstate miles and 6 intrastate miles are expected to be completed in 2015.
In 2016, 1,084 interstate miles and 125 intrastate miles are expected to be completed. Announced projects
scheduled for 2016 completion include a 400-mile North Dakota and Montana pipeline announced by
MDU Resources Group, and a 250-mile pipeline through Ohio, Michigan, and Canada, and a 230-mile
Alabama and Georgia pipelineboth announced by Spectra Energy.
FERC approvals are a good indicator of near-term pipeline construction activity and also show a drop off in
activity in recent years. New pipeline projects approved by FERC include 2,782 miles of new pipeline in
2007, 2,084 in 2008, 1,133 in 2009, 1,551 in 2010, 305 in 2011, and 189 in 2012. Of the 35 projects that
were approved in 2007, only 11 were longer than 100 miles. In 2008, nine projects were approved, of
which five were in excess of 100 miles. In 2009, only seven projects were approved, with half of them over
100 miles. There was a slight rebound in 2010, with 19 projects approved, of which five were longer than
100 miles. However, in 2011, of the 14 projects approved, only one was longer than 100 miles; and, in
2012, of the 14 projects approved, none was longer than 100 miles (the longest being 79.3 miles). Shorter
projects include smaller new pipeline projects, expansions, extensions, interconnections, and laterals to
reach new LNG or storage facilities or other pipelines, as well as compressor additions. There are ten
projects pending before the FERC that include one project of 0.1 miles applied for in 2011, 150 miles of
projects in 2012, and one project of 3.2 miles in 2013, as of February 2013 (latest available data).
The FERC said that there were an additional 1,822 miles of pipeline projects on the horizon as of
February 2013 (latest available data). However, as of February 13, 2013, no projects had been approved by
the FERC so far this year. The most recent major pipeline projects (over 500 miles) are detailed below.
Rockies Express Pipeline. Jointly owned by Kinder Morgan Energy Partners, Sempra Energy, and
Conoco Phillips, the Rockies Express Pipeline is a 1,679-mile, 1.8 Bcf/d natural gas pipeline system that
runs from Rio Blanco County, Colorado, to Monroe County, Ohio. The Rockies ExpressWest portion
(713 miles) was approved in April 2007 and was placed in service on May 20, 2008. The Rockies Express
East part (638 miles) was approved in May 2008 and entered full service in November 2009, after several
weather-related delays. The Entrega (328 miles) segment of the Rockies Express Pipeline was fully
operational by February 2007.
Midcontinent Express Pipeline. Jointly owned by Kinder Morgan Energy Partners and Energy Transfer
Partners, the Midcontinent Express Pipeline is a 507-mile, 1.5 Bcf/d natural gas pipeline system that runs
from the southeast corner of Oklahoma across northeast Texas, northern Louisiana, and central Mississippi
into Alabama. The pipeline was approved in July 2008 and entered full service in August 2009.
Bison Pipeline. TransCanada Corp.s Bison project, with a capacity of 0.5 Bcf/d, will extend 302 miles
from Gillette, Wyoming, into North Dakota, where it will connect with the NBPL, which can carry gas to
the Midwest. The Bison pipeline, which received FERC approval on April 9, 2010, commenced operations
in January 2011.
Florida Gas Transmission Extension Project. Owned by Southern Unions Panhandle Energy subsidiary,
this pipeline expansion project added 483.2 miles of new pipelines, with 365.8 miles built next to the existing
pipeline. The new pipe adds about 820,000 MMBtu/d of new capacity and entered service in April 2011.
Ruby Pipeline. This project, owned jointly by El Paso and Global Infrastructure Partners, is a 678-mile,
1.5 Bcf/d natural gas pipeline system that starts at the Opal Hub in Wyoming and terminates at the Malin,
Oregon, interconnect near Californias northern border. The FERC application was filed on January 27,

2009, and approved on April 5, 2010. Ruby received FERC permission to begin construction in August and
the pipeline was placed in service in July 2011.
Pre-filings with FERC include no major pipelines
The number of pipelines slated for expansion has been on a decline this year. According to the May 2013
pre-filings report by the FERC for the 2013 fiscal year, the number of pre-filings for pipeline capacity
expansion in 2013 was down substantially versus 2012. The FERC received only 13 pre-filings covering
about 233 miles of pipeline in 2013, compared with 20 pre-filings covering 855 miles in 2012. Moreover,
none of this years pre-filings exceeded 50 miles in expansion.
CUSTOMER CHOICE PROGRAMS FALL FLAT
The drive to introduce competition to the utility industry during the 1990s led several states to order their
LDCs to unbundle (formally separate) their supply function from their distribution function in order to
allow other independent suppliers to enter the market and retail competition to develop. The idea was that
customers would end up paying less for their natural gas supply if they were allowed to shop among
different suppliers for the best price, rather than simply buying from the distribution utility at the utilitys
cost. While the idea seemed logical in theory, in many cases it is clear that, at the residential level, retail
unbundling has failed to generate the competition and related advantages that regulators expected.
Except for the largest gas consumersindustrial companies and power generators for whom natural gas is a
major expensecustomer interest in switching suppliers has been disappointingly low. Even more discouraging
for the proponents of retail-level gas supply competition, the number of active retail suppliers competing for
customers had been shrinking through 2005, rather than expanding as they had expected. However, in 2009
(latest available data), the number of active suppliers increased meaningfully for the third year in a row,
seemingly reversing this trend.
Across the US, about 35 million gas customers in 21 states and the District of Columbiajust over half the
US totalare able to switch suppliers, but only 14.7% of those eligible for customer choice programs were
participating in the programs in 2009, according to the latest available data from the EIA. Just three states
Georgia, Ohio, and New Yorknow account for 74% of the customers who have switched suppliers.
The number of gas customers buying their gas from a source other than their LDC increased by 327,000 in
2006, 459,000 in 2007, 49,000 in 2008, and 445,000 in 2009 (latest available data). The tepid response to
customer choice programs led the EIA to stop publishing data.
COMPANIES CHANGE COURSE
In recent years, several utility companies have changed course on ownership of nonutility businesses. In
many cases, these businesses had high capital requirements due to required collateral postings. Some have
sold these businesses outright, one scaled back its operations while trying to sell, and one placed its business
into a joint venture in an effort to reduce risk and refocus the companies on their core equity businesses. In
most cases, the companies have used the cash from asset sales for share repurchases and dividend hikes. In
some cases, companies have paid down debt, but in others, the business risk of the overall company has
dropped, allowing them to increase their debt load.
Merger activity
There was very little significant merger and acquisition activity among key gas utility companies in 2007,
2008, and 2009. In 2007, some deals took longer than expected to close, while others were cancelled. In
addition, companies divested exploration and production (E&P) businesses. In 2008, only two significant
transactions took shape. Activity likely slowed due to stock price weakness (companies often use stock as
currency in acquisitions) at the same time that companies cut capital spending plans, borrowing costs rose,
and access to capital became more difficult.
On October 1, 2008, Sempra Energy completed its purchase of EnergySouth for $510 million in cash. In
addition to a small distribution utility in Alabama (93,000 customers), Sempra gained two large, high-cycle

underground natural gas storage facilities that, when fully developed, will have capacity of 57 Bcf. At the
time of the deals closing, only 11.4 Bcf of storage was operational; more came into service during 2010 and
the rest was slated for future years.
A $970 million deal in 2007 for the sale of two natural gas utilities owned by Dominion Resources was
cancelled in 2008 after resistance from the Federal Trade Commission on antitrust grounds. On July 2, 2008,
a private equity fund agreed to purchase the same assets for $910 million. However, regulatory issues forced
the sale of one of the utilities to be cancelled. The other sale was completed in February 2010 for $737 million.
Transaction activity picked up slightly in 2010, 2011, and 2012, but fell again in 2013, when no major
deals were announced. In 2010, AGL Resources announced its intent to take over Nicor Inc. In 2011, Duke
Energy, which owns gas distribution systems in the Midwest, announced it would buy Progress Energy;
Exelon Corp. announced it would buy Constellation Energy, the owner of Baltimore Gas & Electric; and
Energy Transfer Equity announced an agreement to buy Southern Union Co., the parent company of
Missouri Gas Energy and New England Gas. All of these deals have closed. In 2013, the volume and value of
merger deals declined in the first half by about 29%, according to a mid-year report by Deloitte. (For more
details, see the Current Environment section of this Survey.)
Should gas prices return and remain at high levels, we think that a resumption of industry consolidation
could occur. For a utility with no or very small non-utility businesses, we believe that growth through
merger savings could be their only viable option to achieve higher-than-industry-average earnings per share
(EPS) growth. Recent moves by international owners of US utilities to exit the US have led to several recent
deals. There also have been some discussions of spinning off utility businesses from companies whose
unregulated E&P businesses now dwarf their utility operations.
Cross-border deals
In August 2007, National Grid PLC acquired KeySpan (with 2.6 million gas customers in New York,
Massachusetts, and New Hampshire) for $7.3 billion in cash. In September 2008, Spanish firm Iberdrola SA
purchased Energy East Corp. (with 1.8 million electricity customers and 900,000 natural gas customers in
New York, Maine, and Connecticut) for $4.5 billion. These deals are of particular interest because they may
augur similar deals in which large foreign utility companies seek to diversify through the acquisition of US
utility businesses. Iberdrola has stated that it viewed the US as one of its best opportunities for growth, but
we believe the company is more interested in electric companies than gas, which has led the company to sell
the three gas utilities that were acquired in its Energy East acquisition.
In February 2012, Fortis Inc., a distribution utility based in Canada, agreed to acquire CH Energy Group
Inc. for around US$1.5 billion. The transaction closed in June 2013. In August 2012, AltaGas, a gas utility
serving consumers in Alberta, Nova Scotia, and British Columbia, purchased SEMCO Holding Corp. from
Continental Energy Systems LLC for around US$1.14 billion. Also in August 2012, Liberty Energy Utilities
purchased Atmos Energys regulated natural gas distribution systems in Missouri, Iowa, and Illinois for
$124 million. In July 2012, Liberty purchased Granite State Electric Co. and EnergyNorth Natural Gas Inc.
from National Grid USA (the US arm of the National Grid Group) for around $290 million.
More recently, in February 2013, Liberty Energy Utilities Co., a subsidiary of Toronto-based Algonquin
Power & Utilities Corp., agreed to purchase New England Gas Co. for $74 million, including $19.5 million
to assume debt. The transaction closed in December 2013.
S&P Capital IQ believes that European cross-border deals are not likely in the near future due to a
challenging economic environment. However, we believe more international utility acquisitions will be
announced in the event of an economic recovery. We also see a longer-term potential for a decline in the
value of the US dollar against other currencies if European countries are able to implement austerity
measures while maintaining economic health. A strengthening euro may make US utilities cheaper to buy,
but earnings from the US purchases would decline over time given continued weakening of the dollar.
Foreign acquisitions have the potential to spur domestic consolidation: local companies may combine to
avoid becoming takeover targets for larger foreign utilities. More recently, economic strength in Canada has

buoyed the strength of the Canadian dollar, which has encouraged some buying of US companies, such as
the deals mentioned above.
LDCs slow diversification efforts
Because their returns are regulated and their industry mature, natural gas distribution utilities traditionally have
had severely limited growth prospects. Historically, earnings for US LDCs have grown with the help of only
population growth and rate increases. As a result, share prices have tended to lag shifts in the larger market.
Until the 1990s, there was little that executives of LDC companies could do to raise their growth rates and
boost shareholder returns, and investors usually held their shares for current income rather than growth.
That changed, however, during the latter half of that decade, when regulatory reforms began allowing
LDCs to form holding companies that could invest in other, unrelated businesses offering stronger growth
prospectsaccompanied by greater risks.
For several years, gas and power utilities embarked on a campaign of often-indiscriminate spending,
negotiating mergers, building and buying new unregulated, merchant energy power-generation assets,
acquiring overseas operations, and establishing (and funding) trading desks, as well as expanding into novel
areas such as telecommunications, construction, and even healthcare. This strategy of diversification proved
to be far less profitable than originally envisioned, however, forcing many companies to sell or even
abandon recently purchased assets in order to reduce their crippling debt loads.
The frenzied corporate realignment of the 1990s came to a halt in 2001, when the bankruptcy of Enron
Corp. and the power crisis in California undermined investor confidence in the benefits of asset
diversification. During 1998 and 1999, companies announced a total of 18 mergers involving US LDCs;
between 2000 and 2004, there were only six.
This wave of activity changed the face of the natural gas industry, but no dominant business model has
emerged. Large multi-industry companies or multi-utility companies, such as Dominion Resources, Sempra
Energy, Equitable Resources, and MDU Resources Group, own many gas distribution companies. These
companies have a broadly diversified asset base, which includes regulated gas and electricity distribution
utilities (domestic and foreign), unregulated power generation assets, exploration and production
operations, long-distance pipelines and storage, LNG import terminals, and even construction materials
supply. Another groupwhich includes Nicor Inc., AGL Resources (which has agreed to acquire Nicor),
and WGL Holdings Inc.is more gas-focused, combining regulated gas distribution utilities with long-
distance pipelines and unregulated businesses of varying sizes.
In recent years, several companies have exited some of their nonutility businesses in an effort to refocus on
their utility operations. We believe these moves indicate a realization among executives that many of these
businesses were using capital that could otherwise be redeployed within the companies for growth in the
utility businesses or to fund dividends and/or share repurchases.
In April 2010, Questar Corp. announced a move similar to Duke Energy Corp.s 2007 spin-off of its Field
Services unit into Spectra Energy Corp. In July 2010, Questar separated its Questar E&P Company, Questar
Gas Management, and Questar Energy Trading units into a separate publicly traded company, but retained
its utility business and Wexpro (an E&P company that serves its utility). In July 2013, ONEOK announced
plans to spin off its utility business into a new publicly traded company called ONE Gas Inc. This action
would effectively separate the unregulated businesses from the LDC. We believe that other utilities such as
AGL Resources, Energen, and National Fuel Gas could eventually complete similar transactions, either
separating their exploration and production businesses, or their pipelines and storage businesses.
In 2007, Dominion Resources Inc. completed a corporate restructuring that included the divestiture of its
non-Appalachian exploration and production (E&P) assets for roughly $13.9 billion in several transactions.
The company is using the proceeds for share repurchases, debt reduction, and general corporate purposes.
Similarly, in August 2007, Integrys Energy Group Inc. sold Peoples Energy Production Co., an oil and
natural gas exploration business included in its acquisition of Peoples Energy, to El Paso Corp. for $875
million. Integrys also announced in late 2008 that it was planning to sell or shut down its nonutility energy

services business. The company subsequently decided to retain a selected portion of its Energy Services retail
natural gas and electric marketing businesses with a focus on the northeastern quadrant of the US. On April
1, 2008, Sempra Energy, in a risk-reducing move, placed its commodity trading into a joint venture with a
partner that had a stronger credit profile, so that it could use about $1 billion in returned collateral to
repurchase shares.
CAP & TRADE LEGISLATION SIDELINED FOR NOW
On May 12, 2010, the US Senate introduced S. 1733the Clean Energy Jobs and American Power Acta
bill that is similar to, but shorter than, the Waxman-Markey bill that was passed by the US House of
Representatives on June 26, 2009. Strong opposition to the bill meant that the Senate never introduced the
bill to the floor for a vote.
Among other things, the bill would have established a cap-and-trade system for carbon dioxide and carbon
dioxide equivalents. As emissions are produced, an emissions source surrenders the allowances equal to its
emissions. Coal plants produce large quantities of carbon dioxide; thus, a cap-and-trade system would likely
result in a shift away from coal-fired power production toward renewable energy and natural gasfired power
production. The bill would have provided 85% of allowances at no charge and auctioned the remainder.
However, due to the sharp decline in the number of allowances allowed by the bill over the years, S&P
Capital IQ (S&P) believes emission allowance limits would have eventually made it unprofitable to produce
electricity from natural gas, use natural gas for manufacturing purposes, and prohibitively expensive to use
natural gas for space heating. Passage of such a bill could have thrown the gas industry for a loop. S&P
believes problems would have likely started much sooner, if not immediately, as scarcity of allowances
would have drastically increased energy prices, in our view.
S&P believes that the bills failure was good for the natural gas industry over the long term. The bills
passage could have initially benefited gas utilities, as power generators would likely have shifted their fuel to
natural gas from coal. However, as the number of available allowances would have continued to decline under
provisions within the bill, prices of traded and auctioned credits would have skyrocketed due to competition
between use of allowances for natural gas, coal, and industrial purposes, in our view. The increased use of
natural gas by power generators would also have likely put upward pressure on natural gas prices.
Over the longer term, increasing and then soaring energy prices would have likely lead to extreme
conservation efforts, thus decreasing throughput on natural gas utility distribution systems, in S&Ps
opinion. From a commercial standpoint, S&P believes businesses that could not have purchased enough
allowances to manufacture their products might have shifted production overseas, especially for goods that
would have been exported from the US, further reducing natural gas throughput on distribution systems.
Standard & Poors believes that, over time, the result would have been much lower demand for natural gas
as it becomes much more expensive to use.
S&P believes that it is unlikely that Congress will introduce a similar bill again in the near future. However,
the EPA had threatened to take action on its own if no legislation were passed. The EPA declared that
carbon dioxide is a pollutanta move that it believes will enable it to regulate emissions in the future.
However, even if a rule were proposed in the near future, S&P believes it will take some time before any
such rule could be implemented. Until these issues are settled, uncertainty will continue to prevail in
business planning, corporate investment decisions, and ownership investment decisions.
HOW THE INDUSTRY OPERATES
Natural gas is a colorless, odorless fuel composed primarily of methane and ethane. It burns more cleanly
than many other fossil fuelsemitting less carbon dioxide than coal or oil, and little sulfur or particulates
making it one of the most popular sources of energy today. According to estimates by the Energy
Information Administration (EIA), part of the US Department of Energy, natural gas provided about 27.3%

of the US net energy supply in 2012, a share that the EIA expects to rise to 27.7% by 2040, following a
relatively flat period through 2027.
THE NATURAL GAS SUPPLY CHAIN
The natural gas supply chain comprises three distinct segments: upstream, midstream, and downstream.
Parts of the chain include wells, processing plants, pipelines, liquefied natural gas (LNG) facilities, storage
facilities, and distribution facilities.
E&P: the upstream segment
Exploration and production (E&P) companies search for gas underground and bring it to the surface
through wells. The supply of natural gas in the United States comes chiefly from domestic E&P operations.
Domestic dry gas production accounted for 94.1%, or 24.1 trillion cubic feet (Tcf), of total US gas supply in
2012, according to the EIA, while net imports via pipeline contributed 5.4%, or 1.4 Tcf. Net LNG imports
made up the remaining 0.6%.
Within the US, natural dry gas is produced in 32 different states, but just five (Texas, Wyoming, Oklahoma,
Louisiana, and Colorado), plus federal Gulf of Mexico production, accounted for 71% of total dry gas
production in 2011 (latest available data), according to the EIA. In addition to supplying the domestic
market, US natural gas producers also export small amounts of gas to Canada and Mexico via pipeline, and
to Brazil, India, Japan, South Korea, Mexico, Spain, and the UK as LNG.
Companies typically move raw gas from underground reservoirs through a series of feeder (gas gathering)
pipes to processing plants that remove impurities and natural gas liquids (NGLssuch as propane or butane).
The propane and butane can be stored and sold on site or moved through NGL pipelines to other locations.
Processing plants then send the almost pure methane gas that resultsknown as pipeline gasto long-
distance transmission pipelines. In some cases, the gas withdrawn from the ground is considered pipeline gas
and can be moved directly from gas gathering pipes into pipelines without the need for processing.
Pipelines: the midstream
The midstream segment comprises interstate pipeline, or transmission, companies, which build and
operate pipelines to transport gas from producing regions to demand centers. The Federal Energy Regulatory
Commission (FERC), which has jurisdiction over interstate commerce in natural gas, regulates transmission
companies. The EIA estimated there were 217,306 miles of interstate pipelines in the lower 48 states at the
end of 2008 (latest available data as of September 2013) and an additional 88,648 miles of intrastate pipelines.
Attached to the pipeline systems are many natural gas storage facilities, which store gas during periods of
nonpeak demand in order to be able to maintain supply during peak demand times. As of September 2013
(latest available data), there were 419 storage facilities with 9.2 Tcf of total storage capacity, and 4.7 Tcf of
working gas capacity, according to the EIA. Working gas capacity is total gas minus base gas capacity. Base
gas capacity is an amount of gas needed to maintain adequate pressure in a storage reservoir during the
withdraw season.
Although US gas storage capacity is located in 30 states, eight states (Michigan, Illinois, Texas,
Pennsylvania, Louisiana, Ohio, California, and West Virginia) account for more than two-thirds of the
total. Numerous gas storage projects are in the works to accommodate increased gas usage and to improve
reliability. The added storage capacity is likely to result in additional gas purchases during off-peak months
to refill the storage fields in advance of the winter season, thus helping to smooth seasonal price fluctuations
by increasing nonpeak demand and decreasing peak demand.
LNG terminals and ships: another piece of the midstream
LNG is simply gas that has been cooled to 260 degrees below zero on the Fahrenheit scale; at this temperature,
it condenses into a liquid from a gas. Liquefaction facilities condense the gas in countries that export the
gas. Once condensed, the liquid takes up about 1/600 the space of the gas at atmospheric pressure.

Specially made ships transport the LNG from the exporting facility to the importing facility. Small amounts
of the liquefied gas stored on the ships boils, returning to a gaseous form. The ships propulsion plant or the
LNG cooling system on board the ship uses the boiled gas for fuel. At the end of its journey, in most cases,
the LNG is transferred to a regasification facility, where the gas is warmed (and thus returned to a gaseous
state) and then either stored in storage facilities or put directly into gas pipelines for transportation to other
markets. Some ships regasify the LNG on board and transfer the gas directly to pipelines via undersea risers.
In recent years, companies have proposed the construction of numerous LNG terminals (which include
regasification facilities). Many proposed for locations outside of the Gulf states have run into local
opposition and may not be built. A few are under construction; however, others are not likely to be built in
the near future, in our view.
International competition for LNG is strong, with the ships serving the highest-priced markets first.
However, most US LNG regasification facilities have long-term contracts that guarantee payment to the
facilities owners whether the facility is used or not.
LDCs: the downstream segment
Local distribution companies (LDCs) occupy the downstream segment of the gas industry, taking gas from
interstate pipelines and distributing it to a broad range of customers, including residential, commercial,
industrial, and power generation. They perform this service under a monopoly concession and are subject to
rate regulation.
Companies sometimes run LDCs as stand-alone operations, but independent LDCs have become
increasingly rare in recent years. Following regulatory reforms that eased restrictions on mergers by gas and
other utilities, most LDCs are now owned by larger holding companies that also own other businesses,
including other regulated gas and electric utilities, as well as unregulated businesses that may or may not be
related to energy.
It is important to remember that LDCs perform two related, but distinct, services: the delivery of gas, as
well as the procurement and sale of gas to the customer. LDCs deliver gas to customers through pipeline
networks they build and maintain, and attempt to earn a profit for providing that service. In addition, they
procure gas and sell it to customers at cost, a service for which no profit is earned. In both cases, state
officials regulate the rates that LDCs can charge, and they have no guarantee that state regulators will allow
them to recover fully the cost of gas sold to customers.
REGULATION: A PART OF DOING BUSINESS
LDCs operate under monopolies that are granted by a state or municipality and cover a particular service
area. State utility commissions regulate just about every aspect of an LDCs activities, including what it can
charge for delivery and for gas supply. Often known as public utility commissions (PUCs) or public service
commissions (PSCs), state regulators are responsible for ensuring the safe and reliable access to gas on an
equitable basis and, in some cases, for promoting competition.
State utility commissions usually consist of a board of three or more members appointed by the states
governor and confirmed by the legislature. (Some states elect utility commissioners by popular vote.) The
commissions often employ a large staff, including attorneys and accountants, to evaluate information filed
by utilities regarding potential rate changes and to assist commissioners in making decisions. Utility
commissions may regulate one or more natural gas utilities as well as other businesses, such as electric and
water utilities, telecommunications providers, and cable television operators.
In addition to setting rates of service, a state utility commission issues regulations covering other important
aspects of an LDCs operations. It oversees environmental performance, monitors the LDCs operations to
ensure that it complies with relevant laws, and enforces universal service obligations. It has authority to
approve or deny corporate mergers, the sale of facilities from one party to another, and even such financing
activities as bond issues or intracompany fund transfers.

Ratemaking
The greatest power that state utility commissions hold over LDCs is the ability to set the rates that LDCs
charge for delivery and for gas supply. As a practical matter, the delivery charge is the more complex to set,
since it must allow the LDC to earn a profit. Gas supply charges, while not free of controversy, are more an
issue of reimbursement, though disputes can and often do arise over whether a gas supply charge was
prudently incurred. In 2007, most states created rate frameworks that seek to minimize disagreements and
allow customer charges to reflect volatile natural gas prices more closely.
A natural gas utilitys rates for its delivery service are mostly set on a cost of service basis; that is, rates
are calculated to generate enough revenue for the utility to recover its operating costs and earn a fair return
for shareholders. This makes the relationship between a utility and its regulatory commission an important
determinant of both its current profitability and its long-term growth prospects.
In general, the ratemaking process begins with a regulated utilitys request for a change in rates when the
current rate schedule expires. The process of deciding a utilitys allowed rates is known as a rate case. In
addition to the change in rates requested, there may be simultaneous negotiations between the company and
the commission on any other issues that one or both sides want to address, such as customer complaints,
infrastructure investment, environmental issues, or reliability problems.
The first step in the rate case is determining the cost to maintain and operate the distribution system as well
as the cost of any needed capital improvements. Companies calculate this amount by totaling their operating
and maintenance expenses, asset depreciation, and taxes over a hypothetical period known as a test year
that has been normalized to eliminate any unusual or one-time incidents. The commission must decide
whether to allow each expense item submitted by the LDC. If the commission denies an item, its cost must
be borne by the utilitys shareholders. Disputes often arise over whether ratepayers should or should not
reimburse a particular cost.
Setting a utilitys rate of return
Once the utilitys expenses have been determined, the utilitys management and regulators must then
negotiate an appropriate rate of return for the utility, a rate that will provide an adequate incentive for
investors to own equity in the LDC and thus ensure it is adequately capitalized to provide acceptable
service. Deciding what level of return the company should receive is often the most controversial part of the
rate caseand a process that is as much art as it is science.
For investor-owned utilities, the return is usually calculated as the percentage of the utilitys assets used to
deliver service that is needed to cover the utilitys cost of capital. Cost of capital is defined as the sum of the
cost of debt service, preferred stock dividends, and a fair return for common stockholders. While the cost of
debt service and preferred stock dividends is easy to establish, the appropriate return for common
stockholders is more difficult to ascertain. Commissions use such methods as comparable company analysis,
discounted cash flow, and risk premium analysis (such as the capital asset pricing model) to determine an
appropriate return on common equity. In some instances, a utility commission may desire to set a rate of
return that is not equivalent to the utilitys cost of capital, as either a reward or punishment for
management decisions and operating performance.
It is important to remember that in setting the rate of return, the utility commission does not guarantee that
the LDC will actually earn that rate, but instead gives the LDC the opportunity to earn that rate. Achieving
the allowed rate of return requires sound management and operating skill, and poor decisions can leave the
realized rate of return significantly below the allowed rate.
Once the utilitys full revenue requirement (costs, plus a fair return) has been identified, that sum must then
be allocated among the different classes of gas consumer: industrial, residential, commercial, and power
generators. Industrial rates tend to be the lowest, because industrial customers are high-volume users and
are easier to service than residential accounts. Allocations can be controversial, since one customer group
may argue that it is being forced to subsidize another.

After it has been determined how much each class of customer will pay in total, the structure of the charges is
determined in a process known as rate design. Rate designs vary considerably and can include fixed per-
customer charges, minimum bills, charges per therm (a unit of heating value), or some combination of these.
Alternatives to cost-of-service ratemaking
Cost-of-servicebased ratemaking has several important disadvantages when it comes to the incentives it
offers for efficient utility performance. Just determining the actual cost of service is cumbersome, time-
consuming, and adversarial, and is complicated by the fact that many investor-owned utilities operate more
than one LDCthus raising issues about what costs should be allocated to what operation. Furthermore,
cost-of-service ratemaking provides a strong incentive for a utility to inflate the size of its asset base by so-
called gold plating: overinvesting in assets that are either unnecessarily expensive or redundant, because the
larger the rate base, the higher the return.
To counter this problem, some states have begun to experiment with incentive-based rates that seek to
promote efficiency, either through rewards for the attainment of performance goals or through punishments
for the failure to achieve expected standards. Various kinds of performance-based structures exist, each with
unique advantages and disadvantages.
Regulatory lag. One of the simplest ways to create more incentives for improved performance is known
as regulatory lag, or the extension of the minimum time between rate changes. This produces a strong
incentive to cut costs, because utilities will keep 100% of any cost savings made during the period; they also
would bear 100% of any additional costs incurred.
Price cap. Another kind of incentive-based ratemaking formula is the price cap, in which the charge for
distribution is set through a formula that adjusts the previous charge according to inflation (usually based
on the consumer price index) and also according to expected gains in productivity. This has the effect of
forcing a utility to make productivity gainsbecause prices already are calculated to reflect them. Further
gains, however, would increase the utilitys return, providing a strong incentive to increase productivity
beyond the set target. The success of this formula depends on the correct setting of the expected
productivity gain factor in determining future prices. A factor set too low would allow the utility to earn
above-normal profits, while a factor set too high might prevent it from fully recovering its costs. Price caps
are more common outside the United States.
Revenue cap. An alternative to the price cap is the revenue cap, which can take the form of either an
absolute revenue cap or a revenue-per-customer cap. With revenues fixed, companies can increase profits
only by cutting costs.
Earnings sharing. Another kind of incentive-based rate that has gained popularity in recent years is
earnings sharing. When regulators determine a utilitys rate of return for a given period, the specified
return is actually a target return that the rate schedule is designed to produce.
Because actual events may lead to a different return, regulators may designate an allowed rate of return
band that includes an acceptable variation from the target. If actual returns fall below that band, the utility
may be allowed to petition for a rate change. If returns are above the target band, companies share the
excess earnings, in part or in whole, with customers in the form of future rebates. This protects the utility
from unexpectedly low returns and lets customers benefit from improved efficiency.
Each of these alternatives has potential drawbacks, and studies examining alternative regulatory regimes
have found it difficult to determine their overall effects. Because incentive-based rate designs do not offer a
clear opportunity to enhance returns and usually entail some risk, some utilities have preferred to remain
under traditional regulation.
Helping utilities to encourage efficiency
Some states have acknowledged that increasing efficiency in appliances that use natural gas has led to
declining consumption of gas per customer over time. As a result, the fixed-cost component of a utilitys
expenses has been increasing over time relative to its revenues. Since rates typically are largely tied to

utilities throughput, utilities have been having a harder time recovering the fixed investments that they
make in distribution pipeline and service connections. Therefore, a utility with rates mostly tied to variable
usage is averse to helping customers to conserve gas.
As a result, some states have implemented revenue-decoupling mechanisms that increase the fixed charges
on customers bills. In exchange for this concession, utilities that have revenue decoupling mechanisms in
their rates have agreed to invest in programs that may give rebates to customers for installing more efficient,
but more expensive appliances, thus encouraging conservation. The higher fixed charges on customers bills
are designed to allow utilities with this rate mechanism to collect enough for maintenance costs, new
connections, and a fair return on fixed plant investment.
WEATHER INFLUENCES EARNINGS
With delivery rates typically tied to the volume of gas delivered, and costs that are mostly fixed, LDCs
earnings traditionally have been highly sensitive to changes in the weather. Colder-than-normal winter
weather has the effect of increasing volume (and therefore, sales), while warmer-than-normal weather can
cut volumes significantly, eroding profitability.
In setting rates, regulators assume a particular level of demand and gas distribution volumes. Unusual
weather patterns can make this assumption either too high, leaving the utility with a revenue shortfall, or
too low, giving the utility a revenue windfall. To smooth these peaks and valleys, many states have started
to include weather normalization clauses that serve to reduce weather-related effects and redress earnings
volatility. A shift in weather patterns that causes a greater- or less-than-expected number of degree days (a
measure of the variation of the mean daily temperature from a reference temperature) triggers a surcharge
(in the case of unusually warm weather) or credit (when the weather is cold), applied to customer bills to
offset the effect of weather. A more recent option for utilities seeking to minimize the effects of weather on
earnings is to use weather-based financial derivatives.
Because revenues are tied to delivered volumes, LDCs have a strong incentive to discourage energy efficiency
and conservation, something state regulators would like to change as natural gas prices rise. In recent years
in some states, a new conservation tariff has been used that decouples an LDCs revenue from its delivery
volumes by protecting profit margins in the event that delivery volumes decline. This is accomplished by
mechanisms that change the price of gas delivered according to actual volumes delivered, or by deferral
accounts that keep track of the impact of conservation measures and provide for deferred collections or
refunds at set times.
MANAGING GAS SUPPLY
In addition to maintaining a pipeline network, an LDC is responsible for managing the supply of gas
moving through its network, in order to maintain adequate pressure in the system and meet the full
requirements of customers during times of peak demand. LDCs are responsible for delivering gas that
customers have purchased from an independent competitive supplier, as well as supplying gas to customers
that are either unable to choose a competitive supplier or fail to do so. When supplying gas directly to
customers, an LDC must purchase the gas itself, as well as pay for transportation of the gas to the LDCs
network (and possibly for storage as well).
Deregulation creates choices
Before 1984, when deregulation of the interstate pipeline industry first began, LDCs were forced to buy their
gas directly from the transmission pipeline company that served their area as part of a package that included
both the gas itself and pipeline transportation to the LDCs city gate. LDCs made these purchases under long-
term contracts that obliged them to pay for a certain amount of gas even if the LDC did not need the gas.
In 1984, FERCs Order 380 freed LDCs of those take-or-pay contractual obligations, thereby allowing them
to start buying gas directly from producers on the spot market, once their take-or-pay obligations were satisfied.
The FERC went on to issue a series of orders dismantling pipeline regulations. This process culminated in 1992

with Order 636, known as The Restructuring Rule, which required pipelines to offer transportation service as
a separate service on terms equal to those given customers buying gas from the pipeline.
Since that time, a wholesale market for natural gas has developed in the United States; it allows LDCs to
purchase gas on a variety of terms and from a variety of different sources. A new class of independent gas
marketer sprang up to compete with gas producers and pipelines by offering different products that allow
LDCs to create their own supply portfolios, reflecting each LDCs individual circumstances and needs. LDCs
have taken advantage of the shift to diversify their sources of supply away from pipeline companies; now
they source a significant amount of their supply either directly from a producer, a producers marketing
affiliate, or from an independent marketer.
According to an American Gas Association (AGA) survey of its members on hedging and supply
procurement practices in the winter season of 200506, most LDCs now buy the majority of their supply
directly from the marketing affiliate of a gas producer or from an independent marketer. Of the 29
companies responding to a question about their source of gas supply during their peak day of consumption,
just two reported buying any portion of their supply directly from a pipeline company, while seven said they
purchased from the marketing affiliate of a pipeline company. In both cases, only one company reported
purchasing more than 25% of its peak day supply from a pipeline company or its marketing affiliate. Only
four respondents said they did not purchase any supply from an independent marketer, and just six said
they had no dealings at all with a producer.
Supply contract options
LDCs purchase natural gas using a number of different kinds of contractual arrangements, the terms of
which can have a significant impact on the ultimate cost of the gas paid by customers. LDCs can enter
supply contracts for different durations: long-term contracts stretching for a year or longer, mid-term
contracts of more than a month but less than a year, or monthly or even daily periods. For their peak-
month supplies, LDCs tend to rely primarily on mid-term contracts (one to 12 months), though more than
half of the respondents to the AGA survey reported using long-term contracts for as much as 50% of their
peak-month supply.
In addition to differing timeframes, gas supply contracts can include one of several different pricing
mechanisms, including a fixed price for the contracts duration, a weekly average price, a daily price, a first-
of-the-month index, a three-day average, or the price of futures contracts traded on the New York
Mercantile Exchange (NYMEX). The AGA survey showed that 20 of 22 LDC survey respondents used first-
of-the-month pricing for their long-term contracts, and only a few used other pricing mechanisms. For mid-
term contracts, first-of-the-month pricing was still the most common, though LDCs also used fixed, daily,
and NYMEX-based pricing mechanisms.
In addition to their physical supply contracts, LDCs often will use financial derivatives to hedge the cost of
gas for their customers. These financial instrumentsfutures, options, and swapsare available through an
organized, regulated exchange (such as NYMEX), as well as in the over-the-counter market, from trading
desks at various commercial banks, investment banks, marketers, and other natural gas intermediaries.
The type of regulatory regime under which an LDC operates often heavily influences how an LDC purchases
its supply, and whether it uses financial futures to hedge risk. LDCs must convince regulators that their gas
purchases were prudent and reasonable, or the commission may not grant full reimbursement to the LDC.
Recovering gas supply costs
LDCs supply natural gas to customers who have not arranged to buy gas from an independent marketer.
While recovering the cost of gas appears simple enough in theory, in practice it can be quite complicated.
Gas prices fluctuate from day to day and from month to month, whereas rates may be set for years into the
future. This timing mismatch creates a risk that utilities may not fully recover the cost of gas purchased if
what they collect for gas supplied is insufficient to cover their costs. Even more worrisome is the fact that
regulators may not allow utilities to collect the full cost of gas if their initial cost estimates prove unreliable.

States have widely varying procedures in place for LDCs to recover the cost of gas supplied to customers.
Some have automatic pass-through mechanisms linking customer prices to gas price indices that change
prices monthly. In other states, however, LDCs must wait until the season is over and then apply to
regulators to recoup undercharges. They then run the risk that regulators will not permit full recovery of
their gas procurement costs in the next rate case. During times of high gas prices, even delayed recovery of
gas supply costs can hurt an LDCs liquidity, forcing it to increase its borrowings (thus raising its interest
expense); in extreme cases, this can hurt its credit rating.
Transportation
The physical properties of natural gas make it difficult to transport by any means except a dedicated pipeline.
While a few LDCs have their own gas production that can be used to supply customers, long-distance
pipelines are the only realistic way for most LDCs to secure enough supply to satisfy full customer demand.
Until the mid-1980s, LDCs purchased their gas directly from the transmission pipeline serving their area,
paying a single price for the gas together with any additional charges for transportation and storage. While
this arrangement worked well in assuring stability of supply, it was inefficient, as it required LDCs to
contract enough gas to meet their peak demand levels throughout the year, even if the pipeline capacity
went unused. LDCs passed these costs along to gas customers.
The regulatory reforms that began in 1984 and finished in 1992 allowed LDCs to shop around for their gas
from producers, instead of forcing LDCs to buy from pipeline companies. The reforms also permitted LDCs to
sell unused pipeline transportation capacity to others in what is known as a capacity release market. As a
result, LDCs now use a range of options to meet their transportation requirements, including gas released from
storage, short-term firm transportation rights, interruptible transportation, released capacity, and gray
market services (capacity repackaged with supply or other services by LDCs or independent marketers).
The AGAs survey found that most LDCs still used firm transportation for the majority of their peak-month
supply: 16 of 31 responding companies said that they buy between 50% and 75% of their peak-month
supplies via firm transportation. Only two of 30 companies reported purchasing peak-month supplies via
interruptible transportation, and then for less than 25% of their supply.
Storage
Natural gas is bulky and expensive to transport. Because pipelines cannot increase transportation capacity to
large demand centers on short notice, gas storage facilities play an important role in LDCs efforts to secure
supply. In particular, storage is most important during times of peak demand, when demand exceeds pipeline
transmission capacity. About 20% of the gas used during winter months comes from storage, according to the
AGA, while 50% or more of the gas burned on an extremely cold day may come from storage.
For these reasons, gas storage facilities have become extremely important to LDCs. Gas can be stored in one
of several types of facilities, including salt caverns, disused mines, aquifers, hard rock caverns, or depleted
gas reservoirs. LNG also can be stored in specially constructed insulated containers near regasification
terminals. Small volumes of compressed gas can be stored in tanks commonly referred to as gas holders.
LDCs use such storage facilities for shipments to or from areas where pipelines are not available.
Owning or controlling storage reservoirs allows LDCs to guarantee future deliveries and to manage inventories
actively against fluctuating natural gas prices. Control or ownership also reduces the reliance on transmission
pipeline capacity and limits the potential effect of a pipeline outage. Owners can manage inventory by purchasing
gas during times of weak demand, when prices are low, and storing it for use during periods of peak
consumption. Storage owners can also lease capacity to third parties, providing an additional source of revenue.
Because US natural gas consumption peaks in the winter, producers store gas during the months when
temperatures and demand are moderate (April through October) and withdraw gas during the heating
season (November through March). The US government, commodity traders, and LDCs track storage levels
extremely closely to determine demand levels, supply availability, and likely future price trends.

Storage facilities may be classified as either seasonal supply reservoirs or high-deliverability sites. Seasonal
supply sites are designed to be filled during the 214-day nonheating season and to be drawn down slowly
during the 151-day heating season. In comparison, high-deliverability sites are situated to provide a rapid
drawdown or rebuilding of inventory to respond to such needs as volatile peaking demands, emergency
backup, and/or system load balancing. High-deliverability sites can be drawn down in 20 days or less and
refilled in 40 days or less.
Gas storage capacity is an important tool for LDCs to manage price volatility. A report by the FERC in
October 2004 said that improving storage infrastructure was the best way to manage volatile prices. The
FERC concluded that existing storage capacity was adequate, but that the industry would benefit from
additional capacity because it would help smooth price spikes by increasing the amount of supply close to
demand centers. The further a demand center is removed from supply sources, the more that storage will
help, the FERC report concluded.
END MARKETS
Residential, commercial, and industrial customers, as well as electric power plants, use natural gas for a
variety of purposes, including heat, power generation, and as the raw material for products such as
chemicals and fertilizer. Each group displays markedly different responses to changing weather patterns,
price levels, and economic activity. Before the gas even reaches these customers, however, some is used for
other purposes: processors used 5.5% for lease and plant fuel in gas processing plants, and pipelines used
2.8% for fuel to power compressors used to move the gas in 2012. Thus, of the 25.5 Tcf of gas consumed in
the US during 2012, 91.7% (or 23.4 Tcf) reached the end markets.
LDCs classify their customers as either firm or interruptible. Industrial customers, as well as some
commercial customers, have the option of choosing firm gas supply, regardless of their level of demand, for
a correspondingly higher price. For customers that can accommodate temporary interruptions or switch to
alternative fuels, interruptible service and its corresponding price advantage may be preferable. Residential
customers always receive firm service.
Electricity generation
In 2012, electric power generators were the largest class of natural gas customer, with relatively few
customers accounting for about 39.1% of US gas delivered to consumers. Gas-fired power generation
capacity has grown rapidly in the United States in recent years, for several reasons. Shorter construction
times and lower capital investment requirements than other types of power plants made gas-fired power
plants an attractive investment during a time of rising electricity prices. New combined cycle technology has
increased the efficiency of gas-fired generation, and concern over the environmental impact of coal-fired and
nuclear generation has encouraged more gas-fired plants.
Power generators are even more sensitive to changing natural gas prices than industrial users, operating only
when electricity prices are high enough to make burning gas for power profitable. Gas consumption by
power generators fell by almost 10% in 2003, when rising gas prices made it less profitable to burn as a fuel
for generating power. However, generator consumption of natural gas rose by 6.4% in 2004, 7.4% in
2005, 6.0% in 2006, and 10% in 2007even though prices were still highdue both to increasing power
prices and new gas-fueled generation capacity. However, in 2008, consumption fell by 2.5%, reflecting a
cooler summer than in 2007. Consumption rose by 3.3% in 2009 and by 7.4% in 2010, due to hotter
summer weather in 2010, followed by a 2.9% increase in 2011. Low natural gas prices and hot summer
temperatures combined to drive demand by electric producers up by 20.6% in 2012.
The EIA data indicate that gas-fueled power plant additions provided an additional 3.8 gigawatts (GW) of
net summer capacity in 2009, 5.8 GW in 2010, and 8.1 GW in 2011, according to the latest available data.
However, for the 2007 to 2009 period, new non-hydro renewable capacity increased more than any other
type, adding 6.0 GW of capacity in 2007, 8.4 GW in 2008, and 10.1 GW in 2009. The vast majority of that
new capacity came from wind turbines. The 2007 increase in non-hydro renewable generation represents
the first time ever that this happened. In both 2010 and 2011, the increases in renewable non-hydro
capacity nearly matched the increases in natural gas capacity (5.8 GW of natural gas capacity added in 2010

and 8.2GW in 2011). However, these increases were dwarfed by the 59.7 GW of natural gasfired capacity
that was added in 2001.
Several factors other than price can affect short-term natural gas demand patterns for electric power
generators. Weather-related eventsas well as other developments, such as plant outages, that can raise or
lower electricity pricescan cause sudden spikes in gas demand. The rising share of gas demand from
electric power producers has created a new summer peak in demand, as gas-fired power generators
increase their use during periods of hot weather to meet higher power demand for air conditioning.
The industrial market
Industrial consumers were a very close second largest source of demand for natural gas in 2012, accounting
for about 30.5% of the total consumer volumes. In 2011 (latest available), about 189,097 different
industrial customers used natural gas as fuel to produce heat and steam, or as feedstock for chemicals and
fertilizer. Chemical makers are the largest group of industrial gas users, with feedstock use of gas accounting
for about 6.4% of total 2011 US industrial demand, according to data from the American Chemistry
Council and the EIA. In addition, that data indicated that the chemical industry use of natural gas for on-
site power and heating applications used an additional 19.5% of total US industrial gas demand in 2011.
Makers of paper, steel, and building materials are also large gas consumers.
Consumption by industrial users tends to be more sensitive than commercial or residential demand to changes
in economic activity and price, because industrial customers have greater abilityand incentiveto alter their
consumption as market forces dictate. Because demand per customer is much larger than it is for commercial
or residential users, one industrial customers decision will have a larger impact on total demand.
The residential market
Residential gas users numbered about 65.9 million in 2011 (latest available) and accounted for about
17.9% of gas volumes delivered to customers in 2012. While residential customers are more expensive to
supply because of the billing and customer service infrastructure required, they pay substantially higher
prices than industrial or commercial customers and thus supply the lions share of utility profits. Based on
data from the EIA, the 2012 yearly average for residential natural gas prices was about $10.68 per thousand
cubic feet (Mcf)31.3% higher than commercial prices ($8.13/Mcf), 176% above average industrial prices
($3.87/Mcf), and 203% above prices
paid by electric power generators
($3.52/Mcf).
A little over two-thirds of residential
natural gas demand is for space
heating, though that demand is
confined mainly to winter months.
Residential consumers also use gas to
power home appliances such as water
heaters, stoves, clothes dryers, and
fireplaces. Although residential
customers overall natural gas demand
rises and falls with the severity of
winter weather, and is subject to other
factors, such as population growth and
housing trends, the use of natural gas
per residential customer is in a long-
term decline.
From 1978 through 2011, natural gas demand per residential customer has exhibited a 1.4% annual
compound average shrink rate, according to calculations using data from the EIA. S&P Capital IQ believes
demand per customer is likely to continue to drop by about 1.0% each year through 2020, assuming
normal weather patterns, due mainly to continuing penetration of efficient gas furnaces and appliances.
Chart H09: THE US
RESIDENTIAL
NATURAL GAS
MARKET
0
1
2
3
4
5
6
7
0
20
40
60
80
100
120
140
1976 80 84 88 92 96 00 04 08 2012
Total residential consumption (Bil. Btu, right scale)
Customers (Millions, left scale)
Average use (Million Btu, left scale)
THE US RESIDENTIAL NATURAL GAS MARKET
Source: US Energy Information Administration; S&P Capital IQ estimates.

The commercial market
Commercial customers comprise nonmanufacturing businesses such as hotels, restaurants, wholesalers,
retailers, and other service-oriented businesses. Natural gas used by state and federal agencies for
nonmanufacturing purposes is also counted as commercial demand. The commercial market, with about 5.3
million customers in 2011 (latest available), is smaller than the industrial, residential, or power generation
markets; it accounted for 12.4% of total consumer demand in 2012.
Gas demand is somewhat less seasonal for commercial customers than for residential customers. Slightly
more than half of all commercially consumed gas is used for space heating, with the remainder used for
water heating, cooking, and a variety of other purposes. Between 1987 and 2012, commercial customers
compound annual growth rate was 0.7%, though per-customer usage fell 0.6% annually during that period.
More efficient space- and water-heating appliances accounted for most of the decline; gas customers
switching to electricity for cooling purposes also contributed. Change in energy intensity of commercial
businesses as new businesses emerge and others close down can also account for some fluctuation.
Other uses
Small amounts of natural gas (0.14% in 2012) are used as vehicle fuel and as a component of fuel cell
technology. Many decades from now, these markets could become significant consumers of natural gas. The
number of natural gas vehicles in use in the United States has been rising, helped by technological advances
in natural gasfired engines. Since 1997 (the first year this category was tracked by the EIA), the compound
annual growth rate for other gas usage has been 9.6%. Natural gas vehicles may provide a bridge to the fuel
cell vehicle of the future, which has the potential to create enormous demand for natural gas. Natural gas
contains high concentrations of hydrogen and already is supported by a vast distribution system.
KEY INDUSTRY RATIOS AND STATISTICS
Heating and cooling degree days. Natural gas is consumed in proportion to extremes in temperature.
Residential, commercial, and industrial markets typically use gas for heating enclosed spaces (space heating).
In the United States, the heating season generally is considered to last from November through March,
though its somewhat longer in the northern part of the country and somewhat shorter in the South.
Cooling degree days occur during the warm summer months when customers run air conditioning units.
This measure also is gaining importance as a barometer of natural gas consumption because electric utilities
are increasingly operating gas-fired power plants.
Space heating accounts for approximately two-thirds of residential gas demand and half of commercial use.
Consequently, shifts in the relative severity of weather during the heating season affect year-to-year changes
in natural gas consumption in these sectors.
When analysts make projections of future gas demand, they assume normal weather, quantified in terms
of heating and/or cooling degree days. A degree day is a measure of the relative warmth or coldness of the
air, based on how far the daily mean temperature falls above or below a reference temperature, usually 65
degrees Fahrenheit. For example, a day with a mean outdoor temperature of 35 degrees Fahrenheit would
be counted as a 30-degree heating day. The National Oceanic and Atmospheric Administration (NOAA), an
agency of the US Department of Commerce, calculates reference temperatures on a monthly basis. Given the
variability of the weather, natural gas demand always will be subject to some unpredictable volatility.
Real gross domestic product (GDP). Although weather is the main cause of swings in gas consumption,
weather-normalized gas demand historically has tended to follow the overall economy. Average annual
growth in US natural gas demand has typically run at a pace of slightly less than three-quarters of real GDP
growth. Real GDP is the market value of the nations output of goods and services, adjusted for inflation;
the Department of Commerce reports the figure quarterly.
The economy affects all three sectors of the gas market. In the residential sector, economic conditions
influence the number of housing starts. For commercial and industrial customers, an increase in business

activity translates into greater energy consumption, despite increasingly energy-efficient equipment. For an
individual utility or energy merchant, demand growth depends heavily on economic trends within its
geographic region. These can vary somewhat from GDP trends.
Housing starts. The residential market offers the widest margins and the lions share of profits for natural
gas distributors. For this reason, housing startsthe number of residences on which construction has begun
in a given periodare significant for the natural gas industry. These figures, reported as seasonally adjusted
annualized rates (SAAR), are available from the Department of Commerce on a monthly basis.
The residential market accounted for almost two-thirds of natural gas utility profits. It is characterized by a
larger number of customers who individually consume much less fuel than is the case in industrial and
commercial markets. Accordingly, residential customers pay more on a per-unit basis than industrial and
commercial customers do.
The most important factors contributing to changes in demand in the residential market are new housing,
conversions from alternate fuel heating to natural gas, and weather. Growth in space heating installations is
not the only benefit of a robust housing market. The gas industry also benefits from the increase in
appliance shipments. However, appliance design improvements have reduced per-unit natural gas
consumption over time.
Interest rates. The regulated and capital-intensive nature of the utility industry makes a utilitys financial
performance very sensitive to the level of interest rates and available returns. State regulatory agencies
determine utility rates based on operating costs, capital investments, and the cost of capital. Changes in
overall interest rates affect utility rates via the allowed cost of debt and the allowed return on equity (ROE).
When interest rates drop substantially, the rates that utilities are allowed to charge are likely to be lowered
as financing cost savings are passed on to customers.
Income-oriented investors are sensitive to interest rates when they evaluate a utility companys shares. If
interest rates are rising, investors can receive comparable returns elsewhere. To invest in a utility, income-
oriented investors look for a large dividend yield or consistently growing dividend distributions to compensate
for the risk of owning stock versus a fixed-income security. The dividend tax cut of 2003 makes dividends
more attractive relative to fixed-income securities and other investment alternatives.
HOW TO ANALYZE A NATURAL GAS COMPANY
The performance of natural gas companies depends heavily on the mix of their operations. The owners of
local distribution companies (LDCs) typically have other operationsboth regulated (long-distance
pipelines and electricity distribution) and unregulated (merchant energy power generation assets and
wholesale gas marketing desks). Each of these businesses has a unique competitive position, financial
condition, and exposure to changing market prices and regulatory regimes.
The earnings streams from unregulated generation and trading businesses are much more volatile, as they
can be subject to wild swings in commodity prices. Pipelines are more similar to LDCs, but they are more
loosely regulated and subject to more competition. Analytical considerations for LDCs, merchant energy
assets, and pipelines are described separately following.
LOCAL DISTRIBUTION COMPANIES
In analyzing an individual LDC, it is important to consider a number of issues related to energy markets and
company management.
Competitive position
To assess where an LDC stands competitively, first compare the rates it charges its customers with those of
neighboring utilities and the national average. Favorable comparisons generally indicate a companys focus
on cost controls. Traditional utility regulation (versus performance-based ratemaking) does not allow an

LDC to profit from cost-savings initiatives associated with pass-through ratepayer expenses. However, low
rates can engender healthy relationships with regulators and help fend off competitive threats.
Regulatory reforms have made it vital to track competitive threats. Independent gas marketers have
proliferated, making inroads into the utilities service areas by competing for large gas customers.
Increasingly, interstate pipeline companies are trying to bypass the LDCs by distributing gas directly to
large-volume industrial users.
Note how an LDC faces these challenges. Has it secured at-risk customers through long-term contracts or
flexible pricing agreements? Does it offer bundled services? Has it formed its own marketing arm to
compete directly with gas marketers? Has it obtained performance-based regulation (PBR) mechanisms that
permit an LDC to share efficiencies between shareholders and ratepayers?
Location and customer mix
Demand growth occurs in several ways: an increase in customers in a companys service area, increased
consumption by existing customers, or both. An expanding economy and above-average population growth
within an LDCs service territory are generally favorable characteristics.
Customer growth does not necessarily translate into greater total volumes delivered, however, because the
rate of gas consumption per household has been declining for years due to energy-efficient appliances. If
state regulatory commissions do not compensate LDCs appropriately for declining consumption patterns, it
could slow the capital investment a company needs to make to provide gas utility connections to a growing
population.
It is important to note the proportion of an LDCs residential customers to total customers in a service
territory. A greater percentage of residential customers will yield a more stable and predictable revenue
stream. Industrial customers and electric utilities that use gas tend to be more price-sensitive. It is also
preferable for an LDC to limit the percentage of its business that comes from any single large customer. If
one customer accounts for a significant portion of a utilitys sales, the analysis must focus on that
customers stability and the utilitys competitive position in retaining its business.
While a greater proportion of residential customers generally confers stability, excessive residential exposure
has its drawbacks. Residential customers are full-service customers, meaning that the LDC must always
fulfill all customer demand, however great or small. This creates both inventory management and
commodity price risks for the LDC. If an LDC has excess gas after the heating season, it must store or sell
the excess, which can reduce earnings.
A further complication is that residential demand tends to be greatest when gas prices are high (during a
very cold winter, for example). State public utility commissions often subject the commodity pass-through
expenses incurred by LDCs to prudency reviews. If regulators find an LDCs gas procurement strategy to
be insufficiently judicious, the company can be required to absorb some commodity costs. In addition,
residential bad-debt expense tends to increase when higher commodity prices and increased consumption
drive up monthly bills. Analysts can gauge an LDCs susceptibility to inventory management and
commodity price risks by evaluating its gas procurement and price hedging strategy, its relationship with
regulators, and its management of bad debt.
The penetration rate for residential gas heating in a utilitys service territory is important. For example, in
many older communities in the Northeast, the conversion of customers from oil to gas heating has boosted
revenue growth.
Regulatory environment
LDCs are subject to rate of return regulations controlled by state utility commissions. Thus, it is important
to study trends at the regulatory commission(s) with jurisdiction over an LDCs service territories. Compare
authorized rates of return with the rates allowed industry peers. Are there automatic true-up mechanisms
that allow LDCs to pass pension, bad debt, and other costs through to ratepayers automatically? When will

the next rate filing take place? Has the state utility commission approved performance-based regulation, or
could they approve it?
Timing requests for rate reviews are important. Even if an LDC seeks higher rates based on reasonable
capital expenditures, if interest rates are low (affecting the allowed return on equity) and commodity costs
are high (affecting ratepayer pocketbooks), regulators may be unwilling to grant relief.
Diversified utility companies must consider regulatory issues affecting other utility operations, such as
electric or water. The impact that the 200001 power crisis had on Californias diversified utilities
exemplifies this.
Gas supply and demand
To determine its need for gas supply and transportation capacity, an LDC must decide how much gas to
contract on a firm basis. Conversely, how much should it buy on the spot market, and how much capacity
should be interruptible? How much storage capacity does it need to meet demand on peak days?
A well-run LDC is likely to obtain gas from various producers or marketers, from different gas basins in the
United States and Canada, and/or from different pipeline routes. It generally will have firm purchase
contractspreferably for an intermediate termwith minimal take-or-pay provisions (which require it to
purchase specified quantities of natural gas whether needed or not). A distribution company must carefully
manage its storage requirements, as well as its gas supply and transportation arrangements. If it is not
successful in these regards, an LDC faces a greater risk of hindsight prudence reviews by regulators and
potential disallowance of its purchased gas and transportation costs.
Storage
An LDCs access to storage capacity helps it control both the supply and cost of its gas. Storage helps it to
meet increased demand on peak days and allows it to purchase gas during off-season months, when prices
are lower.
Whether the LDC owns or leases storage space is another consideration. While the creation of storage
operations represents a major capital commitment, an LDC that owns storage facilities can lease any
unneeded capacity to others. In contrast, an LDC that does not own storage facilities must continually ask
how much gas it needs and how much it should pay for the gas. The problems associated with not owning
storage facilities can lead to unstable costs. Thus, it is not surprising that larger gas utilities, with more
customers and volume demand, tend to take greater advantage of the storage option.
Unregulated activities
To remain viable in a market-driven environment, an LDCs management team must develop strategies to
address competitive pressures. These strategies could involve the introduction of wholesale trading and
marketing operations, investment in competitive retail distribution, or the development of natural gas
exploration and production operations.
Every foray into unregulated activities carries greater potential for risks and rewards than do regulated
utility operations. The risks are even higher, however, when utility managers move into business lines in
which they have little experience. Investments in unregulated operations may put undue strains on a utilitys
credit and could dissuade state regulators from approving mergers, new performance-based regulations, or
other utility initiatives.
Looking at the income statement
Due to the vagaries of weather and the constraints of regulation, two common profitability measuresnet
income and earnings per share (EPS)are not as important in analyzing a utility as in analyzing some other
companies. For a better gauge of value and performance, analysts look at how a company manages its
financial resources and at its overall health. The three most important items to examine in analyzing a gas
distribution companys income statement are net revenues, operating expenses, and interest expense.

Net revenues. For utilities, growth in net revenue (revenues, less fuel expense) is somewhat predictable
because of the regulatory constraints on rates. Nonetheless, past sales trends should be evaluated. Did
growth come from a rate increase? An improving economy? Rising weather-related demand? Expectations
for the future also should be considered.
Operating expenses. As competition among gas utilities grows, cost-containment and productivity efforts
are crucial to earnings performance. Because fuel costs fluctuate widely, the analyst should pay close
attention to nonfuel operating and maintenance costs. Changes in expenses from one period to the next
should be noted, along with whether expenses are trending up or down as a percentage of net revenues. The
number of customers served per employee is an effective means of tracking trends in operating efficiency.
Interest expense. The utility industry is extremely capital-intensive, so interest payments are a utilitys
most significant nonoperating expense. Analysts calculate the pretax interest coverage ratio, which indicates
how much of the companys pretax income is needed to meet interest payments. This measure becomes
increasingly important as a company engages in greater levels of unregulated operations, due to the
uncertainty of earnings derived from such activities.
Evaluating the balance sheet
When looking at an LDCs balance sheet, pay close attention to the companys capitalization ratio: long-
term debt as a percentage of total capital.
Because public utilities require a substantial investment in long-term assets, they traditionally have had
significantly more long-term debt on their balance sheets than companies in other industries. Investors
usually have accepted these higher debt levels because of the regulated nature of the industry (which ensures
income that largely covers the cost of the debt) and utilities relatively stable earnings (which consistently
provided sufficient funds to cover interest payments). Greater exposure to unregulated activities, however,
increases the risk associated with heavy indebtedness.
It is important to compare an LDCs capitalization ratio with its own historic levels, as well as with those of
its peers. These findings then should be analyzed in the context of changes in the LDCs mix of regulated
and unregulated operations.
Assessing cash flow
A review of cash flow trends often can give clues to a utilitys health. The company should generate
sufficient cash to meet all ongoing expenses. It also needs cash to fund business expansion and, in most
cases, to pay dividends.
A firms ability to tap capital markets on an ongoing basis must be considered. Therefore, it is important to
look at the companys cash flow relative to its debt. A positive and growing cash flow lets the utility finance
more of its expansion internally and reduces its dependence on the capital markets.
PERFORMANCE AND VALUATION MEASURES
These measures include return on equity, return on assets, the ratio of earnings to fixed charges, the price-
to-book ratio, the price/earnings ratio, and dividend payments.
Return on equity (ROE). This performance measure reveals how well a company invests its capital. It is
calculated by dividing net income (less preferred dividend requirements) by average shareholders equity.
Return on assets (ROA). This performance measure shows how efficiently a company uses its assets. It is
calculated by dividing utility operating income by total plant assets less accumulated depreciation.
The ratio of earnings to fixed charges. This calculation reveals a companys ability to cover fixed charges
(amortization and interest expense) with pretax earnings.

Price-to-book (P/B) ratio. Comparing the market price of the companys shares with its book value
indicates how much investors are willing to pay for the companys assets. LDCs usually do not have high
levels of goodwill. In selected cases, though, growth-oriented LDCs that have made significant acquisitions
may appear to have disproportionately higher book values (and lower P/B multiples) than their peers, due to
their goodwill balances.
Price/earnings (P/E) ratio. Another way to evaluate the current market price of the utilitys shares is to
look at the P/E ratio. Compare companys current P/E (based on both trailing and future estimated earnings)
with that of its industry peers and with its own historical range. Given their lower EPS growth rates, utility
stocks normally trade at a discount to the overall market P/E. When making comparisons of companies
within the utility sector, investors tend to pay a higher P/E for, and accept a lower dividend yield from,
shares of a utility company with above-average earnings growth potential.
A useful related measure is the P/E to growth (PEG) ratio: the stocks P/E, divided by the present (or future)
earnings growth rate. Is the PEG ratio higher than, lower than, or equal to the industry overall? How does it
compare with the companys historical PEG ratios?
Dividend payments. In general, most utility shareholders do not view a utility stock as a high-growth
investment; rather, they are most interested in the stocks total return potentialits share appreciation
combined with its dividend yield. Dividend yield is a larger component of total expected return on a utility
stock than for the typical industrial company stock. Consequently, a utilitys ability to pay a dividendand
to provide steady dividend increasesis of paramount importance. To determine if a dividend is secure, the
analyst should check the payout ratio (the annual dividend divided by earnings per share). A utility that is
paying out too high a percentage of its earnings may need to cut future payments if earnings weaken.
When looking at an individual company, it is important to determine the utilitys dividend policy. As many
utilities began investing in unregulated activities, they sought to reduce their payout ratios by either
immediately cutting the dividend or holding it constant as earnings rose over time. In cases where the
dividend payout ratio is falling, investors must analyze the potential returns from growth-oriented
unregulated investments versus the value of the forgone dividend stream.
MERCHANT ENERGY OPERATIONS
Unregulated power generation, wholesale gas marketing, and other merchant energy operations need a
stronger balance sheet than LDC businesses. Energy marketing and trading activities demand high levels of
financial security in order to assure both trading counterparties and credit rating agencies that a company
can survive volatile swings in the energy markets. In contrast to regulated utilities, the value of unregulated
assets owned by energy merchants can fluctuate wildly, exposing otherwise healthy balance sheets to asset
write-downs during bad times. To safeguard against such volatility, many companies have attempted to lock
in favorable prices with long-term customer contracts.
An analyst must evaluate the proportion of merchant energy business that is exposed to short-term market
risk and the ability of the companys liquidity and balance sheet to persevere through industry downturns.
Furthermore, one also must evaluate the credit profile of a companys major contractual counterparties.
Hedging unregulated assets through long-term contracts with weak counterparties may provide very limited
protection against a cyclical downturn.
The volatility of merchant energy operations has cast a light on company growth initiatives as well. Business
plans that require years of capital spending far in excess of operating cash flows can become a liability during
an industry downturn, when financial liquidity takes on increased importance. An analyst must evaluate the
quality of a companys new merchant energy investments and the flexibility of capital spending commitments.
It is important to evaluate the energy merchants risk management control. This concept covers asset
management, trading limits and monitoring, and debt management. Only recently have merchant energy
managers begun to develop consistent industry-wide reporting practices. Disclosure and transparency have
increased with the backlash against the sector in recent periods. An analyst must make use of these

disclosures (including value-at-risk measures, proportion of hedges, credit exposure, debt maturity
schedules, and the like) to evaluate the true risk/reward opportunities presented by each unregulated
merchant energy business.
PIPELINES
Interstate pipelines have both utility and merchant energy characteristics. They are similar to monopoly
utilities in that they require significant capital expenditures, involve a permitting process, and are subject to
price controls. However, an interstate pipeline company can expand its service territory through new
permitting and construction, whereas this is not usually the case for LDCs. Pipelines and LDCs are subject
to competition from other pipelines that are built close enough to contend for institutional customers.
Pipelines differ from LDCs in that their business generally relies on a limited number of large institutional
customers (including wholesale marketers, exploration and production companies, LDCs, and large industrial
companies). Such high customer concentration increases the risks associated with bad debt expense. When
evaluating a pipeline company, an analyst must investigate demand and supply growth along a pipelines
footprint, opportunities for pipeline expansion, applications for competitive pipeline developments, and the
growth prospects and credit quality of shippers along the pipelines system.
The location of natural gas supply sources and shifts in consumption patterns affect pipeline capacity
utilization. A change in source means new pipelines are needed to transmit gas from growing production
centers (such as the Rockies). The use of LNG imported or exported via tanker also affects the need for and
utilization of pipeline assets.
The demand side of the equation is subject to potential secular shifts. For example, growth in the number of
gas-fired electric generating plants has had a major impact on geographical demand patterns. The analyst
must be aware of longer-term supply and demand trends that could increase or decrease the value of
pipeline assets.
Many pipeline companies historically have engaged in various unregulated merchant energy activities
through subsidiary operations. Thus, the analyst must be careful not to assume that a company has a low-
risk profile just because it owns substantial regulated pipeline assets.
A number of pure-play pipeline businesses are owned by master limited partnerships (MLPs). MLPs trade
on exchanges just like common stocks, but the businesses avoid income taxation by paying out nearly all
free cash flows to shareholders. These income-oriented investments generally trade based on their yield,
distribution growth potential, and volatility of cash flows.
Because MLPs cannot use operating cash flows for growth-oriented capital expenditures, they depend on the
ability to raise fresh debt and equity capital to fund new investment. Unlike other pipeline companies, pension
funds generally cannot hold MLPs due to current tax obligations generated from their partnership structure.
Accordingly, shares of publicly traded MLPs generally are held by smaller retail investors.
The general partners (GPs) for MLPs often have performance participation awards that provide the GPs
with larger and larger interests in MLP distributions as the MLP raises its dividend. An analyst needs to
evaluate an MLPs capacity to raise distributions in light of growth opportunities, access to capital markets,
and GP performance participation awards.

GLOSSARY
Adjustment clauseA provision in a utility tariff that provides for changes in gas rates charged to a customer in the event of
increases or decreases in certain costs incurred by the seller. These include purchased gas cost, transportation costs, and
advance payments made for gas.
Base loadThe minimum constant level of natural gas or power required in a given time period by a utility or power company.
Bid-week prices A blend of spot and contract prices in the last week of every month, which is when the largest volume of
trading occurs.
British thermal unit (Btu)The amount of heat required to increase the temperature of a pound of water by one degree
Fahrenheit; about equal to the energy of a kitchen match. Used as a common measure of heating value for different fuels; one
Btu equals 252 calories or 0.293 watt hours. A commonly used multiple is MMBtu (one million British thermal units).
BurnertipRefers to the ultimate point of consumption: customers gas-fueled equipment.
BypassThe direct sale of natural gas to end users by producers or pipelines, avoiding the local distribution company.
City gateThe physical connection between an interstate pipeline and a local gas utilitys pipes.
Class of serviceA utilitys sales categories: residential, commercial, industrial, and gas for resale.
Combined cycleThe utilization of waste heat from large gas turbines to generate steam for conventional steam turbines,
thus extracting the maximum amount of useful work from fuel combustion.
Compressor stationAny permanent combination of facilities that supplies the energy to move gas at increased pressure from
fields, in transmission lines, or into storage.
Cooling seasonThe period from May through September. The term sometimes includes April and October, but when these
months are excluded, they are regarded as transition or shoulder months between the heating and cooling season.
Cost of serviceIn public utility regulation, the dollar amount required to supply any total utility service. It includes: operation
and maintenance expenses; other necessary costs not covered by ordinary maintenance, such as taxes, depreciation, depletion,
and amortization of property; and a fair return to maintain the utilitys financial integrity, attract new capital, and compensate its
owners for the risks involved. Cost of service is the chief determinant of allowed rate of return.
Cubic footThe amount of gas required to fill a volume of one cubic foot at standard atmospheric pressure and 60 degrees
Fahrenheit; the most common measurement of gas volume. One cubic foot of natural gas contains about 965.9 Btu of energy.
Commonly used multiples are Mcf (one thousand cubic feet), MMcf (one million cubic feet), Bcf (one billion cubic feet), and Tcf
(one trillion cubic feet).
CurtailmentReducing the amount of natural gas delivered to customers in response to supply shortfalls. May require certain
customers to cut back or eliminate their gas intake, depending on their type of service (firm or interruptible) and the severity of
the shortfall.
Degree dayA measure of the variation of the mean daily temperature from a reference temperature, usually 65 degrees
Fahrenheit. Mean temperatures less than 65 degrees Fahrenheit result in heating degree days; mean temperatures higher than
65 degrees Fahrenheit result in cooling degree days. Each degree above or below the benchmark equals one degree day; thus, a
day on which the mean temperature was 55 degrees is considered a 10-degree heating day.
DeliverabilityThe volume of gas that a well, field, pipeline, storage reservoir, or distribution system can supply in a given
period of time.
DistributionThe movement of gas from a city gate or plant to consumers. Alternatively, the part of a utility plant used for
delivering gas from the city gate or plant to consumers. Can also refer to expenses related to the operation and maintenance of a
distribution plant.

DownstreamRefers to the distribution of natural gas to end users. Downstream is always understood to include local
distribution companies and often includes interstate pipeline transmission.
Dry natural gasThe natural gas that remains after liquefiable hydrocarbons (propane, butane, etc.) and sufficient
contaminant gases (carbon dioxide, hydrogen sulfide, etc.) have been removed.
Heating seasonAccording to the American Gas Association, the winter heating season officially begins on November 1 and
ends on March 31 of the following year.
HedgingThe process of using physical resources or contracts to mitigate financial exposures. For example, utilities may hedge
commitments to deliver gas through storage, bilateral contracts, and derivative instruments.
HubA pipeline interchange used as a standard delivery point for figuring natural gas futures contracts. There are four major
hubs: the Henry Hub in Southern Louisiana, the Katy Hub near Houston, the Waha Hub in West Texas, and the Midwest
Exchange Hub near Chicago.
Incentive regulationA method of determining a utilitys rates, based on its costs and/or quality of service compared with
some predefined expectation; also known as performance-based regulation (PBR).
Independent power producer (IPP)A nonutility power generator that produces electricity for sale in the wholesale market.
Industrial fuel switchingThe practice by industrial customers of switching between fuelsfor example, from natural gas to
oil, or vice versamotivated primarily by the fuels relative prices.
Integrated gas companyA company that does everything necessary to bring gas to the consumer. Such a firm explores for
and produces gas, transports it over long distances, and distributes it directly to customers.
Interruptible serviceLow-cost gas service offered to users under contracts that permit interruption on short notice, generally
in peak-load season, so as to supply firm customers and high-priority users. Unlike off-peak service, it is available year-round.
Local distribution company (LDC)A utility that owns and operates a natural gas distribution system for the delivery of gas
supplies from interstate pipelines at the city gate to the customer; also known as a gas utility.
Market-based rateA form of regulatory pricing for pipeline transportation services. The price is based on the pipelines
assessment of market forces, in order to achieve an allowed rate of return. The Federal Energy Regulatory Commission (FERC)
will not approve market-based rate plans for pipeline companies that have excessive market power.
Marketing and tradingThe process of acquiring control or ownership of gas, electricity, or other commodities, and selling
them to third parties.
MethaneThe first of the paraffin series of hydrocarbons, methane is the chief component of natural gas. Pure methane has a
heating value of 1,012 Btu per cubic foot.
MidstreamThe gathering of natural gas after exploration and productionthat is, its processing and storage for later
transmission and distribution. The term is sometimes meant to include pipeline transmission services, which supply LDCs and
large industrial customers.
Natural gasA naturally occurring mixture of gases found in porous geological formations beneath the Earths surface, often in
association with petroleum. Its principal component is methane.
NormalizationFor ratemaking purposes, adjustments to historic test-year sales, revenues, and expenses to reflect differences
from expected normal weather patterns.
Off-peak serviceGas service made available to some customers on special schedules or contracts, for specified periods of
weak demand.
Peak loadThe greatest demand on a pipeline or distribution system during a specified period.

PipelineThe physical facilities through which gas is transported, including pipes, compressor units, metering stations,
regulator stations, delivery stations, holders, and fabricated assemblies.
Public utility commission (PUC)A state regulatory authority set up to monitor the monopolies granted to intrastate and
local natural gas pipelines; it regulates the rates charged by privately owned utilities involved in intrastate commerce; sometimes
called a public service commission (PSC).
Rate baseThe value, established by a regulatory authority, upon which a utility is permitted to earn a specified rate of return.
The rate base may provide for the inclusion of cash, working capital, and materials and supplies, as well as deductions for
accumulated provisions for depreciation, contributions in aid of construction, accumulated deferred income taxes, and
accumulated deferred investment tax credits. In short, the rate base consists of the total net investment (in dollars) in the
facilities that the utility needs to provide service.
Rate caseThe process through which a utilitys regulated natural gas billing rates are negotiated with a PUC.
Rate of return (ROR)The return that regulators allow a utility enterprise to earn, including interest, preferred dividends, and
return on common equity. Calculated as a percentage of the rate base, ROR is regulated by state PUCs.
Spot marketShort-term contract sales of natural gas, crude oil, refined petroleum products, liquid petroleum gas, or electricity.
Storage, localStorage facilities (not underground) that are an integral part of a distribution system. Whether for manufactured,
mixed, natural, liquefied petroleum, or liquefied natural gas, these facilities are on the distribution side of the city gate.
Storage, undergroundSubsurface facilities for storing gas that has been transferred from its original location for purposes of
load balancing. Such facilities usually consist of natural geological reservoirs, such as depleted oil or gas fields or water-bearing
sands, sealed on the top by an impermeable cap rock. They also may include manmade or natural caverns.
Straight fixed variable (SFV) rate designA rate design in which LDCs pay pipeline companies fixed transportation charges
that are not adjusted for volume levels.
Take-or-pay clauseIn gas supply contracts, a clause providing that a purchaser must pay for a specified minimum quantity of
gas for a specific time period, whether it takes delivery or not. Some contracts let the buyer take later delivery without penalty.
TariffA schedule of rates or charges permitted for a common carrier, utility, or pipeline.
Test yearThe 12-month base period selected for presenting data in a case or hearing before a regulatory agency.
ThermA unit of heating value equivalent to 100,000 Btu.
ThroughputThe total of all gas volumes delivered in a certain period.
Transmission company, gasA firm that delivers natural gas across longer distances than does a distribution company and
classifies the majority of its mains (other than service pipes) for transmission or storage; also known as a pipeline company.
UnbundlingThe process of separating the supply of the natural gas or power commodity from the delivery function provided
by utilities.
UpstreamRefers to the exploration and production of natural gas and other fossil fuels.
UtilityIn the US, a government-sanctioned monopoly business that has the exclusive right (and obligation) to deliver natural
gas, electricity, or water to homes using pipes and wires installed along public rights of way. A combination utility (or multi-
utility) provides more than one commodity delivery service.
WellheadThe point of origin in the gas supply process. Refers to the valves and controls at the well containing the natural
gas reservoir.
Wellhead priceThe price that a pipeline company pays for natural gas or petroleum at the well; also known as the field price.

INDUSTRY REFERENCES
PERIODICALS
Inside FERC
Gas Daily
LNG Daily
http://www.platts.com
Inside FERC is a weekly newsletter providing an
authoritative source of information on the workings of the
Federal Energy Regulatory Commission (FERC) and its
impact on the regulated industry and industry news. Gas
Daily provides detailed daily coverage of natural gas prices,
and LNG Daily delivers expert and respected benchmark
price assessments for the global LNG market. (Platts is a
unit of McGraw Hill Financial.)
Natural Gas Week
http://www.energyintel.com
Weekly newsletter; covers industry news.
Public Utilities Fortnightly
http://www.fortnightly.com
Monthly magazine; covers the electric and gas utility
industries.
The Waterborne LNG Report
http://www.waterbornelng.com
A twice-a-month report; gives data and estimates of
liquefied natural gas (LNG) import and export volumes to
the US and Europe.
TRADE ASSOCIATIONS
American Gas Association (AGA)
http://www.aga.org
Natural gas industry association that conducts technical
research, compiles authoritative statistics, and helps create
standards for industry equipment and products.
American Public Gas Association (APGA)
http://www.apga.org
Represents municipal gas systems.
Center for Liquefied Natural Gas
http://www.lngfacts.org
Represents LNG asset owners and operators, gas
transporters, and natural gas end users.
Gas Technology Institute (GTI)
http://www.gastechnology.org
Not-for-profit technology organization that conducts
research, development, and commercialization programs
for the natural gas industry.
Industrial Energy Consumers of America
http://www.ieca-us.com
Represents energy-intensive manufacturing industries.
Interstate Natural Gas Association of America
(INGAA)
http://www.ingaa.org
Advocates regulatory and legislative positions for the North
American natural gas pipeline industry.
National Association of Regulatory Utility
Commissioners (NARUC)
http://www.naruc.org
Represents individual states viewpoints on regulation.
The Natural Gas Supply Association
http://www.ngsa.org
Represents US natural gas producers.
CONSULTANTS
Baker Hughes Inc.
http://www.bakerhughes.com
Firm providing various oil and gas industry consulting
services to its clients. It is also considered to be the
authority on rig count data and publishes weekly and
monthly rig count information.
IHS Inc.
http://www.ihs.com/products/global-insight
Research firm providing economic data, forecasts, analysis,
and consulting. Among its many publications is the Monthly
Natural Gas Price Outlook.
Platts
http://www.platts.com
Strategic energy information, consulting, and publishing
firm. Platts is a unit of McGraw Hill Financial.
SNL Financial
http://www.SNL.com
Research firm providing regulatory, financial, market, and
M&A data on several industries, including energy.

GOVERNMENTAL AND REGULATORY BODIES
Energy Information Administration (EIA)
http://www.eia.doe.gov
Agency within the US Department of Energy; supplies
publications and statistics on the natural gas industry, as
well as on power, coal, and a variety of other energy areas,
including supply, consumption, and transportation issues.
Federal Energy Regulatory Commission (FERC)
http://www.ferc.gov
Agency within the US Department of Energy that exercises
regulatory control over the electric power and natural gas
industries. It also regulates producer sales of natural gas in
interstate commerce and, for each of several categories of
natural gas, establishes uniform ceiling prices that apply to
all sales nationwide.
Federal Trade Commission (FTC)
http://www.ftc.gov
Independent agency reporting to the US Congress, the FTC
is charged with maintaining competition and safeguarding
consumers interests. Reviews proposed mergers involving
electric and gas utility companies; may analyze regulatory
or legislative proposals affecting energy market
competition or the efficiency of resource allocation.
National Energy Board (NEB)
http://www.neb-one.gc.ca
Independent federal agency established in 1959 by the
Parliament of Canada to regulate international and
interprovincial aspects of the oil, gas and electric utility
industries in Canada.
US Department of Energy (DOE)
http://www.energy.gov
Federal science and technology agency whose research
supports the nations energy security, national security, and
environmental quality. Introduced to the US Cabinet in
1977, the DOE includes the Office of the Secretary of
Energy, the FERC, and other agencies.

COMPARATIVE COMPANY ANALYSIS
Operating Revenues
Million $ CAGR (%) Index Basis (2002 = 100)
Ticker Company Yr. End 2012 2011 2010 2009 2008 2007 2002 10-Yr. 5-Yr. 1-Yr. 2012 2011 2010 2009 2008
GAS UTILITIES
GAS [] AGL RESOURCES INC DEC 3,922.0 F 2,338.0 F 2,373.0 F 2,317.0 F 2,800.0 F 2,494.0 F 868.9 F 16.3 9.5 67.8 451 269 273 267 322
ATO ATMOS ENERGY CORP SEP 3,438.5 D,F 4,347.6 D,F 4,789.7 F 4,969.1 F 7,221.3 F 5,898.4 F 950.8 F 13.7 (10.2) (20.9) 362 457 504 523 759
LG LACLEDE GROUP INC SEP 1,125.5 F 1,603.3 F 1,735.0 F 1,895.2 F 2,209.0 D,F 2,021.6 F 755.2 A,F 4.1 (11.1) (29.8) 149 212 230 251 292
NFG NATIONAL FUEL GAS CO SEP 1,626.9 F 1,778.8 F 1,760.5 D,F 2,057.9 A,F 2,400.4 F 2,039.6 D,F 1,464.5 F 1.1 (4.4) (8.5) 111 121 120 141 164
NJR NEW JERSEY RESOURCES CORP SEP 2,248.9 F 3,009.2 F 2,639.3 F 2,592.5 F 3,816.2 F 3,021.8 F 1,830.8 F 2.1 (5.7) (25.3) 123 164 144 142 208
NWN NORTHWEST NATURAL GAS CO DEC 730.6 F 848.8 F 812.1 F 1,012.7 F 1,037.9 F 1,033.2 F 641.4 F 1.3 (6.7) (13.9) 114 132 127 158 162
OKE [] ONEOK INC DEC 12,632.6 D,F 14,805.8 D,F 13,030.1 F 11,111.7 F 16,157.4 F 13,477.4 F 2,104.3 D,F 19.6 (1.3) (14.7) 600 704 619 528 768
PNY PIEDMONT NATURAL GAS CO OCT 1,122.8 1,433.9 1,552.3 1,638.1 2,089.1 1,711.3 832.0 3.0 (8.1) (21.7) 135 172 187 197 251
STR QUESTAR CORP DEC 1,098.9 1,194.4 1,123.6 D 3,038.0 3,465.1 2,726.6 1,200.7 C (0.9) (16.6) (8.0) 92 99 94 253 289
SJI SOUTH JERSEY INDUSTRIES INC DEC 706.3 F 828.6 F 925.1 D,F 845.4 D,F 962.0 D,F 956.4 D,F 505.1 D,F 3.4 (5.9) (14.8) 140 164 183 167 190
SWX SOUTHWEST GAS CORP DEC 1,927.8 F 1,887.2 F 1,830.4 F 1,893.8 F 2,144.7 F 2,152.1 F 1,320.9 F 3.9 (2.2) 2.2 146 143 139 143 162
UGI UGI CORP SEP 6,519.2 A,F 6,091.3 F 5,591.4 F 5,737.8 F 6,648.2 F 5,476.9 F 2,213.7 F 11.4 3.5 7.0 294 275 253 259 300
WGL WGL HOLDINGS INC SEP 2,425.3 F 2,751.5 F 2,708.9 F 2,706.9 F 2,628.2 F 2,646.0 F 925.1 10.1 (1.7) (11.9) 262 297 293 293 284
MULTI-UTILITIES
LNT ALLIANT ENERGY CORP DEC 3,094.5 D,F 3,665.3 F 3,416.1 D,F 3,432.8 F 3,681.7 F 3,437.6 D,F 2,608.8 D,F 1.7 (2.1) (15.6) 119 140 131 132 141
AEE [] AMEREN CORP DEC 6,828.0 7,531.0 7,638.0 7,090.0 7,839.0 7,546.0 3,841.0 F 5.9 (2.0) (9.3) 178 196 199 185 204
AVA AVISTA CORP DEC 1,547.0 F 1,619.8 A,F 1,558.7 F 1,512.6 F 1,676.8 A,F 1,417.8 F 980.4 D,F 4.7 1.8 (4.5) 158 165 159 154 171
BKH BLACK HILLS CORP DEC 1,173.9 F 1,272.2 D,F 1,307.3 A,F 1,269.6 D,F 1,005.8 A,C 695.9 D,F 423.9 C,D 10.7 11.0 (7.7) 277 300 308 299 237
CNP [] CENTERPOINT ENERGY INC DEC 7,452.0 F 8,450.0 F 8,785.0 F 8,281.0 F 11,322.0 F 9,623.0 F 7,922.5 D,F (0.6) (5.0) (11.8) 94 107 111 105 143
CMS [] CMS ENERGY CORP DEC 6,312.0 D,F 6,503.0 D,F 6,432.0 D,F 6,205.0 D,F 6,821.0 F 6,464.0 D,F 8,687.0 C,D (3.1) (0.5) (2.9) 73 75 74 71 79
ED [] CONSOLIDATED EDISON INC DEC 12,188.0 F 12,938.0 F 13,325.0 F 13,032.0 F 13,583.0 F 13,120.0 D,F 8,481.9 C,F 3.7 (1.5) (5.8) 144 153 157 154 160
D [] DOMINION RESOURCES INC DEC 13,093.0 D,F 14,379.0 F 15,197.0 D,F 15,131.0 F 16,290.0 D,F 15,674.0 D,F 10,218.0 A,F 2.5 (3.5) (8.9) 128 141 149 148 159
DTE [] DTE ENERGY CO DEC 8,791.0 D,F 8,897.0 F 8,557.0 F 8,014.0 F 9,329.0 D,F 8,506.0 D,F 6,749.0 F 2.7 0.7 (1.2) 130 132 127 119 138
TEG [] INTEGRYS ENERGY GROUP INC DEC 4,212.4 D,F 4,708.7 A,F 5,203.2 F 7,499.8 F 14,047.8 D,F 10,292.4 A,C 2,674.9 A,F 4.6 (16.4) (10.5) 157 176 195 280 525
MDU MDU RESOURCES GROUP INC DEC 4,075.4 A,F 4,050.5 F 3,909.7 F 4,176.5 F 5,003.3 F 4,247.9 D,F 2,004.1 A,F 7.4 (0.8) 0.6 203 202 195 208 250
NI [] NISOURCE INC DEC 5,061.2 D,F 6,019.1 F 6,422.0 D,F 6,649.4 D,F 8,874.2 D,F 7,973.3 D,F 6,492.3 D,F (2.5) (8.7) (15.9) 78 93 99 102 137
NWE NORTHWESTERN CORP DEC 1,070.3 F 1,117.3 F 1,110.7 F 1,141.9 F 1,260.8 F 1,200.1 A,F 1,991.5 A,C (6.0) (2.3) (4.2) 54 56 56 57 63
PCG [] PG&E CORP DEC 15,040.0 14,956.0 13,841.0 13,399.0 14,628.0 D 13,237.0 12,495.0 C,D 1.9 2.6 0.6 120 120 111 107 117
PEG [] PUBLIC SERVICE ENTRP GRP INC DEC 9,781.0 F 11,343.0 F 11,793.0 D,F 12,406.0 F 13,807.0 D,F 12,853.0 D,F 8,390.0 A,C 1.5 (5.3) (13.8) 117 135 141 148 165
SCG [] SCANA CORP DEC 4,176.0 F 4,409.0 F 4,601.0 F 4,237.0 F 5,319.0 F 4,621.0 F 2,954.0 C,F 3.5 (2.0) (5.3) 141 149 156 143 180
SRE [] SEMPRA ENERGY DEC 9,647.0 F 10,036.0 F 9,003.0 F 8,106.0 F 10,758.0 F 11,438.0 D,F 6,020.0 F 4.8 (3.3) (3.9) 160 167 150 135 179
TE [] TECO ENERGY INC DEC 2,996.6 D,F 3,343.4 F 3,487.9 F 3,310.5 F 3,375.3 F 3,536.1 D,F 2,675.8 D,F 1.1 (3.3) (10.4) 112 125 130 124 126
VVC VECTREN CORP DEC 2,232.8 F 2,325.2 F 2,129.5 F 2,088.9 F 2,484.7 F 2,281.9 F 1,804.3 C,F 2.2 (0.4) (4.0) 124 129 118 116 138
WEC [] WISCONSIN ENERGY CORP DEC 4,246.4 F 4,486.4 F 4,202.5 D,F 4,127.9 D,F 4,431.0 F 4,237.8 D,F 3,736.2 F 1.3 0.0 (5.3) 114 120 112 110 119
INDEPENDENT POWER PRODUCERS & ENERGY TRADE
AES [] AES CORP DEC 18,046.0 D 17,274.0 A,C 16,647.0 D 14,119.0 D 16,102.0 D 13,588.0 D 8,632.0 D 7.7 5.8 4.5 209 200 193 164 187
NRG [] NRG ENERGY INC DEC 8,422.0 A,F 9,079.0 A,F 8,849.0 A,F 8,952.0 A,F 6,885.0 D,F 5,989.0 D,F 2,212.2 D,F 14.3 7.1 (7.2) 381 410 400 405 311
OTHER COMPANIES WITH SIGNIFICANT NATURAL GAS OPERATIONS
TRP TRANSCANADA CORP DEC 8,040.8 8,988.0 8,056.7 8,570.9 7,041.7 A 8,934.3 A 3,300.0 9.3 (2.1) (10.5) 244 272 244 260 213
Note: Data as originally reported. CAGR-Compound annual growth rate. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year.
**Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change.
D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.

Net Income
Million $ CAGR (%) Index Basis (2002 = 100)
Ticker Company Yr. End 2012 2011 2010 2009 2008 2007 2002 10-Yr. 5-Yr. 1-Yr. 2012 2011 2010 2009 2008
GAS UTILITIES
GAS [] AGL RESOURCES INC DEC 271.0 172.0 234.0 222.0 217.0 211.0 103.0 10.2 5.1 57.6 263 167 227 216 211
ATO ATMOS ENERGY CORP SEP 192.2 198.9 205.8 191.0 180.3 168.5 59.7 12.4 2.7 (3.4) 322 333 345 320 302
LG LACLEDE GROUP INC SEP 62.6 63.8 54.0 64.3 57.6 49.8 22.4 10.8 4.7 (1.9) 280 285 241 287 257
NFG NATIONAL FUEL GAS CO SEP 220.1 258.4 219.1 100.7 268.7 201.7 117.7 6.5 1.8 (14.8) 187 220 186 86 228
NJR NEW JERSEY RESOURCES CORP SEP 92.9 101.3 117.5 27.2 113.9 65.3 56.8 5.0 7.3 (8.3) 163 178 207 48 200
NWN NORTHWEST NATURAL GAS CO DEC 59.9 63.9 72.7 75.1 69.5 74.5 43.8 3.2 (4.3) (6.3) 137 146 166 172 159
OKE [] ONEOK INC DEC 346.3 358.4 334.6 305.5 311.9 304.9 156.0 8.3 2.6 (3.4) 222 230 215 196 200
PNY PIEDMONT NATURAL GAS CO OCT 119.8 113.6 142.0 122.8 110.0 104.4 62.2 6.8 2.8 5.5 193 183 228 197 177
STR QUESTAR CORP DEC 212.0 207.9 192.3 393.3 683.8 507.4 170.9 2.2 (16.0) 2.0 124 122 113 230 400
SJI SOUTH JERSEY INDUSTRIES INC DEC 92.8 89.9 67.3 58.5 77.2 62.7 29.4 12.2 8.2 3.2 315 306 229 199 262
SWX SOUTHWEST GAS CORP DEC 133.3 112.3 103.9 87.5 61.0 83.2 44.0 11.7 9.9 18.7 303 255 236 199 139
UGI UGI CORP SEP 199.4 232.9 261.0 258.5 215.5 204.3 77.1 10.0 (0.5) (14.4) 259 302 339 335 280
WGL WGL HOLDINGS INC SEP 141.1 118.4 111.2 121.7 117.8 109.2 40.4 13.3 5.3 19.2 349 293 275 301 291
MULTI-UTILITIES
LNT ALLIANT ENERGY CORP DEC 340.8 320.6 308.0 129.4 298.7 443.4 82.4 15.2 (5.1) 6.3 413 389 374 157 362
AEE [] AMEREN CORP DEC (974.0) 519.0 139.0 612.0 615.0 629.0 393.0 NM NM NM (248) 132 35 156 156
AVA AVISTA CORP DEC 78.2 100.2 92.4 87.1 73.6 38.5 34.3 8.6 15.2 (22.0) 228 292 269 254 215
BKH BLACK HILLS CORP DEC 88.5 40.4 68.7 78.8 (52.2) 100.1 63.2 3.4 (2.4) 119.3 140 64 109 125 (83)
CNP [] CENTERPOINT ENERGY INC DEC 417.0 770.0 442.0 372.0 447.0 399.0 386.3 0.8 0.9 (45.8) 108 199 114 96 116
CMS [] CMS ENERGY CORP DEC 375.0 413.0 363.0 209.0 300.0 (124.0) (414.0) NM NM (9.2) NM NM NM NM NM
ED [] CONSOLIDATED EDISON INC DEC 1,141.0 1,062.0 1,003.0 879.0 933.0 936.0 680.6 5.3 4.0 7.4 168 156 147 129 137
D [] DOMINION RESOURCES INC DEC 324.0 1,408.0 2,963.0 1,287.0 1,853.0 2,721.0 1,362.0 (13.4) (34.7) (77.0) 24 103 218 94 136
DTE [] DTE ENERGY CO DEC 666.0 711.0 630.0 532.0 526.0 787.0 632.0 0.5 (3.3) (6.3) 105 113 100 84 83
TEG [] INTEGRYS ENERGY GROUP INC DEC 294.2 230.9 223.8 (70.6) 124.8 181.1 112.5 10.1 10.2 27.4 262 205 199 (63) 111
MDU MDU RESOURCES GROUP INC DEC (14.3) 226.0 244.0 (123.3) 293.7 322.8 148.4 NM NM NM (10) 152 164 (83) 198
NI [] NISOURCE INC DEC 410.6 303.8 294.6 231.2 369.8 312.0 432.5 (0.5) 5.6 35.2 95 70 68 53 86
NWE NORTHWESTERN CORP DEC 98.4 92.6 77.4 73.4 67.6 53.2 (777.5) NM 13.1 6.3 NM NM NM NM NM
PCG [] PG&E CORP DEC 830.0 858.0 1,113.0 1,234.0 1,184.0 1,006.0 (32.0) NM (3.8) (3.3) NM NM NM NM NM
PEG [] PUBLIC SERVICE ENTRP GRP INC DEC 1,275.0 1,407.0 1,557.0 1,592.0 987.0 1,323.0 416.0 11.9 (0.7) (9.4) 306 338 374 383 237
SCG [] SCANA CORP DEC 420.0 387.0 376.0 357.0 353.0 327.0 95.0 16.0 5.1 8.5 442 407 396 376 372
SRE [] SEMPRA ENERGY DEC 865.0 1,365.0 749.0 1,129.0 1,123.0 1,135.0 586.0 4.0 (5.3) (36.6) 148 233 128 193 192
TE [] TECO ENERGY INC DEC 246.0 272.6 239.0 213.9 162.4 398.9 298.2 (1.9) (9.2) (9.8) 82 91 80 72 54
VVC VECTREN CORP DEC 159.0 141.6 133.7 133.1 129.0 143.1 114.0 3.4 2.1 12.3 139 124 117 117 113
WEC [] WISCONSIN ENERGY CORP DEC 546.3 512.8 454.4 377.2 358.6 336.5 168.2 12.5 10.2 6.5 325 305 270 224 213
AES [] AES CORP DEC (915.0) 458.0 (86.0) 729.0 1,216.0 495.0 (2,590.0) NM NM NM NM NM NM NM NM
NRG [] NRG ENERGY INC DEC 559.0 197.0 477.0 942.0 1,016.0 569.0 (2,907.7) NM (0.4) 183.8 NM NM NM NM NM
TRP TRANSCANADA CORP DEC 1,359.7 1,577.5 1,292.8 1,340.2 1,194.4 1,260.0 509.5 10.3 1.5 (13.8) 267 310 254 263 234
Note: Data as originally reported. CAGR-Compound annual growth rate. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600.
#Of the following calendar year. **Not calculated; data for base year or end year not available.

Return on Revenues (%) Return on Assets (%) Return on Equity (%)
Ticker Company Yr. End 2012 2011 2010 2009 2008 2012 2011 2010 2009 2008 2012 2011 2010 2009 2008
GAS UTILITIES
GAS [] AGL RESOURCES INC DEC 6.9 7.4 9.9 9.6 7.8 1.9 1.6 3.2 3.2 3.3 8.1 6.7 13.0 12.9 13.1
ATO ATMOS ENERGY CORP SEP 5.6 4.6 4.3 3.8 2.5 2.6 2.8 3.1 3.0 2.9 8.3 9.0 9.5 9.0 9.0
LG LACLEDE GROUP INC SEP 5.6 4.0 3.1 3.4 2.6 3.4 3.5 3.0 3.6 3.4 10.7 11.5 10.3 12.8 12.6
NFG NATIONAL FUEL GAS CO SEP 13.5 14.5 12.4 4.9 11.2 3.9 5.0 4.4 2.3 6.7 11.4 14.2 13.1 6.3 16.6
NJR NEW JERSEY RESOURCES CORP SEP 4.1 3.4 4.5 1.1 3.0 3.4 3.9 4.8 1.1 4.7 11.7 13.5 16.6 3.8 16.6
NWN NORTHWEST NATURAL GAS CO DEC 8.2 7.5 8.9 7.4 6.7 2.2 2.4 2.9 3.1 3.2 8.3 9.1 10.7 11.7 11.4
OKE [] ONEOK INC DEC 2.7 2.4 2.6 2.7 1.9 2.3 2.7 2.6 2.4 2.6 15.9 15.3 14.4 14.2 15.4
PNY PIEDMONT NATURAL GAS CO OCT 10.7 7.9 9.1 7.5 5.3 3.4 3.6 4.6 4.0 3.7 11.8 11.6 15.0 13.5 12.5
STR QUESTAR CORP DEC 19.3 17.4 17.1 12.9 19.7 5.8 6.0 3.1 4.5 9.4 20.5 20.1 8.5 11.4 22.8
SJI SOUTH JERSEY INDUSTRIES INC DEC 13.1 10.8 7.3 6.9 8.0 3.8 4.2 3.5 3.3 4.6 13.6 15.0 12.1 11.1 15.5
SWX SOUTHWEST GAS CORP DEC 6.9 5.9 5.7 4.6 2.8 3.0 2.7 2.6 2.3 1.6 10.5 9.4 9.2 8.2 6.0
UGI UGI CORP SEP 3.1 3.8 4.7 4.5 3.2 2.4 3.6 4.2 4.4 3.9 9.5 12.3 15.3 17.2 15.7
WGL WGL HOLDINGS INC SEP 5.8 4.3 4.1 4.5 4.5 3.5 3.1 3.1 3.7 3.7 11.3 9.9 9.8 11.2 11.5
MULTI-UTILITIES
LNT ALLIANT ENERGY CORP DEC 11.0 8.7 9.0 3.8 8.1 3.2 3.2 3.2 1.3 3.6 10.6 10.2 10.2 4.0 10.2
AEE [] AMEREN CORP DEC NM 6.9 1.8 8.6 7.8 NM 2.2 0.6 2.6 2.8 NM 6.6 1.8 8.3 8.8
AVA AVISTA CORP DEC 5.1 6.2 5.9 5.8 4.4 1.8 2.5 2.4 2.4 2.2 6.4 8.7 8.5 8.5 7.7
BKH BLACK HILLS CORP DEC 7.5 3.2 5.3 6.2 NM 2.3 1.0 2.0 2.4 NM 7.2 3.5 6.3 7.4 NM
CNP [] CENTERPOINT ENERGY INC DEC 5.6 9.1 5.0 4.5 3.9 1.9 3.7 2.2 1.9 2.4 9.8 20.8 15.1 15.9 23.2
CMS [] CMS ENERGY CORP DEC 5.9 6.4 5.6 3.4 4.4 2.2 2.6 2.2 1.3 2.0 12.1 14.2 12.9 7.8 12.6
ED [] CONSOLIDATED EDISON INC DEC 9.4 8.2 7.5 6.7 6.9 2.8 2.8 2.8 2.6 3.0 9.8 9.3 9.3 8.7 9.8
D [] DOMINION RESOURCES INC DEC 2.5 9.8 19.5 8.5 11.4 0.7 3.2 6.9 3.0 4.5 2.9 12.0 25.6 12.1 18.8
DTE [] DTE ENERGY CO DEC 7.6 8.0 7.4 6.6 5.6 2.5 2.8 2.6 2.2 2.2 9.3 10.4 9.7 8.7 8.9
TEG [] INTEGRYS ENERGY GROUP INC DEC 7.0 4.9 4.3 NM 0.9 2.9 2.3 2.0 NM 1.0 9.7 7.8 7.7 NM 3.8
MDU MDU RESOURCES GROUP INC DEC NM 5.6 6.2 NM 5.9 NM 3.5 4.0 NM 4.8 NM 8.3 9.3 NM 11.1
NI [] NISOURCE INC DEC 8.1 5.0 4.6 3.5 4.2 1.9 1.5 1.5 1.2 1.9 7.8 6.1 6.0 4.8 7.5
NWE NORTHWESTERN CORP DEC 9.2 8.3 7.0 6.4 5.4 2.9 3.0 2.7 2.6 2.5 11.0 11.0 9.6 9.5 8.5
PCG [] PG&E CORP DEC 5.5 5.7 8.0 9.2 8.1 1.6 1.8 2.5 2.9 3.1 6.5 7.2 10.2 12.4 13.2
PEG [] PUBLIC SERVICE ENTRP GRP INC DEC 13.0 12.4 13.2 12.8 7.1 4.1 4.7 5.3 5.5 3.4 12.1 14.1 16.9 19.2 13.0
SCG [] SCANA CORP DEC 10.1 8.8 8.2 8.4 6.6 3.0 2.9 3.0 2.9 3.2 10.4 10.2 10.6 10.8 11.5
SRE [] SEMPRA ENERGY DEC 9.0 13.6 8.3 13.9 10.4 2.5 4.3 2.5 4.1 3.9 8.5 14.4 8.2 13.2 13.6
TE [] TECO ENERGY INC DEC 8.2 8.2 6.9 6.5 4.8 3.4 3.8 3.3 3.0 2.3 10.8 12.3 11.2 10.5 8.1
VVC VECTREN CORP DEC 7.1 6.1 6.3 6.4 5.2 3.2 2.9 2.8 2.9 2.9 10.6 9.8 9.4 9.7 10.0
WEC [] WISCONSIN ENERGY CORP DEC 12.9 11.4 10.8 9.1 8.1 3.9 3.8 3.5 3.0 2.9 13.5 13.2 12.3 10.9 11.1
AES [] AES CORP DEC NM 2.7 NM 5.2 7.6 NM 1.1 NM 2.0 3.5 NM 7.4 NM 17.5 35.6
NRG [] NRG ENERGY INC DEC 6.6 2.2 5.4 10.5 14.8 1.8 0.7 1.9 3.8 4.4 6.3 2.4 6.0 13.2 17.7
TRP TRANSCANADA CORP DEC 16.9 17.6 16.0 15.6 17.0 2.7 3.2 2.8 3.5 3.7 8.3 9.6 8.2 10.5 11.5
Note: Data as originally reported. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year.

Debt as a % of
Current Ratio Debt / Capital Ratio (%) Net Working Capital
GAS UTILITIES
GAS [] AGL RESOURCES INC DEC 0.8 0.9 0.9 1.1 1.0 39.8 42.6 39.2 44.2 42.5 NM NM NM 865.8 NM
ATO ATMOS ENERGY CORP SEP 0.6 1.2 0.8 1.1 1.1 45.3 49.4 45.4 49.9 50.8 NM NM NM NM NM
LG LACLEDE GROUP INC SEP 1.4 1.6 1.2 1.2 1.2 26.1 29.0 30.5 33.4 35.3 373.4 265.6 453.8 558.9 470.6
NFG NATIONAL FUEL GAS CO SEP 0.5 0.7 1.5 2.4 1.3 27.5 24.0 29.1 35.6 30.8 NM NM 417.8 272.4 799.8
NJR NEW JERSEY RESOURCES CORP SEP 1.0 1.0 1.1 1.2 1.2 30.9 27.8 29.8 32.6 31.8 NM NM 541.5 355.8 211.0
NWN NORTHWEST NATURAL GAS CO DEC 0.8 0.8 0.7 0.8 0.9 48.5 47.3 46.1 47.7 44.9 NM NM NM NM NM
OKE [] ONEOK INC DEC 1.0 0.7 0.8 0.8 0.8 75.4 66.9 60.1 66.3 56.5 NM NM NM NM NM
PNY PIEDMONT NATURAL GAS CO OCT 0.5 0.5 0.7 0.9 0.9 37.5 30.9 32.5 35.9 39.9 NM NM NM NM NM
STR QUESTAR CORP DEC 0.6 0.6 0.6 0.9 1.0 41.0 39.3 37.3 30.1 30.3 NM NM NM NM NM
SJI SOUTH JERSEY INDUSTRIES INC DEC 0.6 0.6 0.7 0.8 0.9 37.8 32.7 29.1 29.1 32.1 NM NM NM NM NM
SWX SOUTHWEST GAS CORP DEC 0.9 0.5 0.7 0.9 0.9 49.2 43.2 49.1 53.5 55.3 NM NM NM NM NM
UGI UGI CORP SEP 1.0 1.2 0.7 1.1 1.1 51.3 43.9 37.1 49.2 48.9 NM 924.8 NM NM NM
WGL WGL HOLDINGS INC SEP 1.1 1.3 1.3 1.1 1.0 23.3 24.9 26.3 27.8 30.8 777.9 396.8 342.3 NM NM
MULTI-UTILITIES
LNT ALLIANT ENERGY CORP DEC 1.0 1.0 1.3 1.3 1.4 48.4 45.7 46.3 44.4 36.3 NM NM NM 793.0 429.1
AEE [] AMEREN CORP DEC 1.4 1.3 1.5 1.7 0.8 40.8 36.8 40.3 42.6 41.1 987.5 NM 726.9 702.3 NM
AVA AVISTA CORP DEC 0.9 1.0 1.0 0.8 0.7 50.7 50.3 50.6 50.0 48.1 NM NM NM NM NM
BKH BLACK HILLS CORP DEC 0.6 0.9 0.9 1.0 0.6 43.2 51.4 51.9 48.4 32.3 NM NM NM NM NM
CNP [] CENTERPOINT ENERGY INC DEC 0.8 0.9 1.0 1.0 1.1 66.0 67.2 59.4 62.7 68.6 NM NM NM NM NM
CMS [] CMS ENERGY CORP DEC 1.3 1.1 1.4 1.4 1.5 61.5 59.9 66.6 65.8 68.3 NM NM 899.2 773.1 647.6
ED [] CONSOLIDATED EDISON INC DEC 0.9 1.2 1.5 1.1 1.0 33.2 34.6 37.4 38.1 38.3 NM NM 935.8 NM NM
D [] DOMINION RESOURCES INC DEC 0.7 0.8 0.9 1.0 1.0 60.9 59.8 56.3 57.5 59.1 NM NM NM NM NM
DTE [] DTE ENERGY CO DEC 1.1 1.2 1.2 1.1 1.1 39.8 41.4 42.9 46.6 48.9 NM NM NM NM NM
TEG [] INTEGRYS ENERGY GROUP INC DEC 0.9 1.1 1.2 1.1 1.0 30.8 31.2 35.9 39.9 38.7 NM NM 550.6 656.8 NM
MDU MDU RESOURCES GROUP INC DEC 1.3 1.3 1.5 1.6 1.3 37.8 31.7 34.7 36.6 36.2 579.5 434.4 359.3 376.9 514.6
NI [] NISOURCE INC DEC 0.7 0.6 0.7 0.7 0.7 44.4 45.3 45.3 46.3 48.4 NM NM NM NM NM
NWE NORTHWESTERN CORP DEC 0.7 0.6 1.0 0.9 0.5 53.8 52.2 57.2 56.4 46.8 NM NM NM NM NM
PCG [] PG&E CORP DEC 0.8 0.8 0.8 0.8 0.8 48.4 48.8 49.6 51.4 44.5 NM NM NM NM NM
PEG [] PUBLIC SERVICE ENTRP GRP INC DEC 1.0 1.3 1.4 1.1 1.2 27.9 32.2 44.8 46.3 50.5 NM 782.1 499.3 NM NM
SCG [] SCANA CORP DEC 0.8 0.9 0.9 1.2 1.6 45.9 45.8 44.6 49.1 50.5 NM NM NM NM 640.4
SRE [] SEMPRA ENERGY DEC 0.9 0.6 0.9 0.6 0.7 48.1 46.6 45.4 41.4 41.4 NM NM NM NM NM
TE [] TECO ENERGY INC DEC 1.4 0.8 1.0 0.8 1.0 53.5 52.5 59.2 60.6 61.5 NM NM NM NM NM
VVC VECTREN CORP DEC 0.9 0.9 0.8 0.8 0.7 41.8 43.3 42.3 45.3 42.2 NM NM NM NM NM
WEC [] WISCONSIN ENERGY CORP DEC 0.9 1.0 0.8 0.8 1.0 51.7 53.6 43.9 45.4 49.1 NM NM NM NM NM
AES [] AES CORP DEC 1.0 1.1 1.2 1.3 1.4 75.9 73.2 69.2 75.5 67.3 NM NM NM 828.4 788.9
NRG [] NRG ENERGY INC DEC 1.7 1.3 1.7 1.7 1.3 60.4 51.6 49.4 44.7 47.4 479.8 506.0 344.5 320.8 403.1
TRP TRANSCANADA CORP DEC 0.5 0.6 0.6 0.6 0.7 47.7 47.5 48.1 48.6 53.3 NM NM NM NM NM

Price / Earnings Ratio (High-Low) Dividend Payout Ratio (%) Dividend Yield (High-Low, %)
Ticker Company Yr. End 2012 2011 2010 2009 2008 2012 2011 2010 2009 2008
GAS UTILITIES
GAS [] AGL RESOURCES INC DEC 18 - 16 20 - 16 13 - 11 13 - 8 14 - 8 75 89 58 60 59 4.8 - 4.1 5.6 - 4.3 5.1 - 4.4 7.2 - 4.6 7.0 - 4.3
ATO ATMOS ENERGY CORP SEP 18 - 14 16 - 13 14 - 12 14 - 10 15 - 10 65 62 60 63 64 4.5 - 3.7 4.8 - 3.8 5.2 - 4.2 6.6 - 4.4 6.6 - 4.4
LG LACLEDE GROUP INC SEP 16 - 13 15 - 11 16 - 13 16 - 10 21 - 12 59 56 65 53 56 4.5 - 3.8 4.9 - 3.8 5.1 - 4.2 5.3 - 3.2 4.7 - 2.7
NFG NATIONAL FUEL GAS CO SEP 21 - 16 24 - 14 25 - 16 41 - 21 19 - 8 54 45 50 105 39 3.5 - 2.5 3.1 - 1.8 3.2 - 2.0 4.9 - 2.5 4.7 - 2.0
NJR NEW JERSEY RESOURCES CORP SEP 22 - 17 21 - 16 16 - 12 65 - 46 15 - 8 69 59 48 191 41 4.0 - 3.1 3.6 - 2.9 4.1 - 3.1 4.1 - 2.9 5.1 - 2.7
NWN NORTHWEST NATURAL GAS CO DEC 23 - 18 20 - 17 19 - 15 16 - 13 21 - 14 80 73 62 57 58 4.4 - 3.5 4.4 - 3.6 4.1 - 3.3 4.2 - 3.4 4.2 - 2.8
OKE [] ONEOK INC DEC 30 - 23 25 - 16 18 - 9 16 - 6 17 - 7 76 63 58 57 52 3.2 - 2.6 4.0 - 2.5 6.2 - 3.2 9.1 - 3.6 7.2 - 3.0
PNY PIEDMONT NATURAL GAS CO OCT 21 - 17 22 - 16 15 - 12 19 - 12 24 - 14 71 73 57 64 69 4.2 - 3.4 4.4 - 3.3 4.7 - 3.7 5.2 - 3.3 5.0 - 2.9
STR QUESTAR CORP DEC 18 - 14 17 - 14 48 - 14 19 - 11 19 - 5 55 53 50 22 12 3.9 - 3.1 3.8 - 3.1 3.6 - 1.0 2.0 - 1.2 2.4 - 0.7
SJI SOUTH JERSEY INDUSTRIES INC DEC 19 - 15 19 - 14 24 - 17 21 - 16 16 - 10 55 50 60 62 43 3.6 - 2.8 3.5 - 2.6 3.6 - 2.5 3.8 - 3.0 4.4 - 2.7
SWX SOUTHWEST GAS CORP DEC 16 - 13 18 - 13 16 - 11 15 - 9 24 - 15 40 43 43 48 64 2.9 - 2.5 3.3 - 2.4 3.8 - 2.7 5.5 - 3.2 4.2 - 2.7
UGI UGI CORP SEP 19 - 15 16 - 12 14 - 10 12 - 9 14 - 9 60 49 38 33 38 4.1 - 3.2 4.2 - 3.0 3.8 - 2.8 3.7 - 2.9 4.0 - 2.6
WGL WGL HOLDINGS INC SEP 17 - 13 20 - 15 18 - 14 15 - 12 16 - 10 58 67 69 60 59 4.4 - 3.5 4.4 - 3.4 4.8 - 3.7 5.1 - 4.1 6.2 - 3.8
MULTI-UTILITIES
LNT ALLIANT ENERGY CORP DEC 16 - 14 16 - 12 14 - 11 31 - 20 17 - 9 61 62 60 149 55 4.3 - 3.8 5.0 - 3.8 5.4 - 4.2 7.4 - 4.8 6.1 - 3.3
AEE [] AMEREN CORP DEC NM - NM 16 - 12 52 - 40 13 - 7 19 - 9 NM 72 266 55 88 5.6 - 4.5 6.1 - 4.6 6.7 - 5.2 7.9 - 4.4 10.0 - 4.7
AVA AVISTA CORP DEC 21 - 17 15 - 12 14 - 11 14 - 8 17 - 11 88 64 60 51 50 5.1 - 4.1 5.2 - 4.1 5.4 - 4.4 6.4 - 3.6 4.4 - 2.9
BKH BLACK HILLS CORP DEC 18 - 15 35 - 26 20 - 15 14 - 7 NM - NM 73 145 82 70 NM 4.9 - 4.0 5.7 - 4.2 5.6 - 4.2 9.8 - 5.1 6.4 - 3.2
CNP [] CENTERPOINT ENERGY INC DEC 22 - 18 12 - 8 16 - 5 15 - 8 13 - 6 83 44 72 75 55 4.5 - 3.7 5.2 - 3.7 13.8 - 4.6 8.8 - 5.1 8.6 - 4.2
CMS [] CMS ENERGY CORP DEC 17 - 15 14 - 10 13 - 9 19 - 11 14 - 6 67 51 44 57 28 4.5 - 3.8 5.0 - 3.8 4.7 - 3.4 5.0 - 3.1 4.3 - 2.1
ED [] CONSOLIDATED EDISON INC DEC 17 - 14 17 - 14 15 - 12 15 - 10 15 - 10 62 67 68 75 69 4.5 - 3.7 4.9 - 3.8 5.7 - 4.7 7.2 - 5.1 6.9 - 4.7
D [] DOMINION RESOURCES INC DEC 98 - 86 22 - 17 9 - 7 18 - 13 15 - 10 370 80 36 81 50 4.3 - 3.8 4.7 - 3.7 5.1 - 4.1 6.4 - 4.4 5.1 - 3.3
DTE [] DTE ENERGY CO DEC 16 - 13 13 - 10 13 - 11 14 - 7 14 - 9 62 55 58 65 65 4.6 - 3.9 5.4 - 4.2 5.3 - 4.4 9.1 - 4.7 7.6 - 4.7
TEG [] INTEGRYS ENERGY GROUP INC DEC 17 - 14 19 - 15 19 - 14 NM - NM 34 - 23 74 94 95 NM 169 5.4 - 4.4 6.4 - 5.0 6.7 - 5.0 14.0 - 6.0 7.3 - 5.0
MDU MDU RESOURCES GROUP INC DEC NM - NM 20 - 15 19 - 13 NM - NM 22 - 10 NM 55 49 NM 38 3.4 - 2.9 3.6 - 2.7 3.7 - 2.6 4.9 - 2.6 3.9 - 1.7
NI [] NISOURCE INC DEC 19 - 16 22 - 16 17 - 13 19 - 9 15 - 8 67 85 87 110 68 4.2 - 3.6 5.2 - 3.8 6.5 - 5.1 11.8 - 5.8 8.9 - 4.6
NWE NORTHWESTERN CORP DEC 14 - 12 14 - 11 14 - 11 13 - 9 17 - 9 55 56 64 66 74 4.5 - 3.9 5.3 - 3.9 5.7 - 4.4 7.3 - 5.0 8.0 - 4.4
PCG [] PG&E CORP DEC 24 - 21 23 - 18 17 - 12 14 - 10 14 - 8 95 87 63 51 47 4.6 - 3.9 4.9 - 3.8 5.2 - 3.7 4.9 - 3.7 5.8 - 3.4
PEG [] PUBLIC SERVICE ENTRP GRP INC DEC 14 - 11 13 - 10 11 - 9 11 - 8 27 - 11 56 49 44 42 66 4.9 - 4.2 4.9 - 3.9 4.7 - 3.9 5.6 - 3.9 5.8 - 2.5
SCG [] SCANA CORP DEC 16 - 14 15 - 12 14 - 11 14 - 9 15 - 9 62 64 64 66 62 4.6 - 3.9 5.6 - 4.3 5.6 - 4.5 7.2 - 4.9 6.6 - 4.2
SRE [] SEMPRA ENERGY DEC 20 - 15 10 - 8 19 - 15 12 - 8 14 - 8 67 34 52 34 30 4.4 - 3.3 4.3 - 3.4 3.6 - 2.8 4.3 - 2.7 4.0 - 2.2
TE [] TECO ENERGY INC DEC 17 - 14 15 - 12 16 - 13 17 - 8 29 - 14 77 67 73 80 103 5.5 - 4.5 5.4 - 4.3 5.6 - 4.5 9.5 - 4.8 7.6 - 3.6
VVC VECTREN CORP DEC 16 - 14 18 - 14 17 - 13 16 - 11 20 - 12 72 80 83 82 79 5.1 - 4.6 5.9 - 4.5 6.3 - 4.9 7.4 - 5.0 6.7 - 4.1
WEC [] WISCONSIN ENERGY CORP DEC 18 - 14 16 - 12 16 - 12 16 - 11 16 - 11 51 47 41 42 35 3.6 - 2.9 3.9 - 2.9 3.4 - 2.6 3.7 - 2.7 3.1 - 2.2
AES [] AES CORP DEC NM - NM 23 - 15 NM - NM 14 - 4 12 - 3 NM 0 NM 0 0 0.4 - 0.3 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
NRG [] NRG ENERGY INC DEC 10 - 6 33 - 22 14 - 10 8 - 4 11 - 4 8 0 0 0 0 1.3 - 0.8 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
TRP TRANSCANADA CORP DEC 26 - 21 21 - 17 22 - 14 17 - 10 20 - 11 95 78 88 67 65 4.4 - 3.7 4.6 - 3.7 6.1 - 4.1 6.7 - 3.9 5.7 - 3.3
2008 2012 2011 2010 2009

Earnings per Share ($) Tangible Book Value per Share ($) Share Price (High-Low, $)
GAS UTILITIES
GAS [] AGL RESOURCES INC DEC 2.32 2.14 3.02 2.89 2.85 12.56 11.97 17.88 17.57 16.05 42.88 - 36.59 43.69 - 34.08 40.08 - 34.21 37.52 - 24.02 39.13 - 24.02
ATO ATMOS ENERGY CORP SEP 2.12 2.18 2.22 2.10 2.02 17.93 16.78 15.95 15.52 14.46 37.33 - 30.39 35.55 - 28.51 31.99 - 25.86 30.32 - 20.07 29.29 - 19.68
LG LACLEDE GROUP INC SEP 2.80 2.87 2.43 2.93 2.66 26.69 25.56 24.02 23.32 22.12 44.04 - 36.53 42.81 - 32.90 37.82 - 30.81 48.33 - 29.26 55.81 - 31.86
NFG NATIONAL FUEL GAS CO SEP 2.65 3.13 2.70 1.26 3.27 23.46 22.78 21.19 19.41 19.87 56.97 - 41.57 75.98 - 44.51 66.52 - 42.83 52.00 - 26.67 63.71 - 26.83
NJR NEW JERSEY RESOURCES CORP SEP 2.24 2.45 2.84 0.65 2.72 19.55 18.74 17.62 16.59 17.29 50.28 - 38.51 50.48 - 39.60 44.10 - 33.49 42.37 - 29.95 41.13 - 21.90
NWN NORTHWEST NATURAL GAS CO DEC 2.23 2.39 2.73 2.83 2.63 27.23 26.70 25.99 24.88 23.71 50.80 - 41.01 48.98 - 39.63 50.86 - 41.05 46.47 - 37.71 55.23 - 36.61
OKE [] ONEOK INC DEC 1.68 1.71 1.58 1.45 1.50 5.53 5.93 6.67 5.56 5.01 49.79 - 39.32 43.59 - 27.26 28.05 - 14.78 22.49 - 9.05 25.67 - 10.78
PNY PIEDMONT NATURAL GAS CO OCT 1.67 1.58 1.96 1.68 1.50 13.54 13.11 12.67 12.00 11.45 34.63 - 28.51 34.74 - 25.86 30.10 - 23.87 31.98 - 20.68 35.29 - 20.52
STR QUESTAR CORP DEC 1.20 1.17 1.09 2.26 3.96 5.86 5.75 5.81 19.66 19.29 21.47 - 17.20 20.06 - 16.36 52.55 - 14.86 43.46 - 24.85 74.86 - 20.66
SJI SOUTH JERSEY INDUSTRIES INC DEC 3.02 3.00 2.25 1.97 2.60 23.26 J 20.66 J 19.08 J 18.24 J 17.33 J 57.99 - 45.81 58.03 - 42.85 54.24 - 37.19 40.78 - 31.98 40.58 - 25.19
SWX SOUTHWEST GAS CORP DEC 2.89 2.45 2.29 1.95 1.40 28.39 26.68 25.60 24.44 23.48 46.08 - 39.01 43.20 - 32.12 37.25 - 26.28 29.48 - 17.08 33.29 - 21.11
UGI UGI CORP SEP 1.77 2.09 2.38 2.38 2.01 (11.04) 2.39 1.01 (1.44) (2.10) 33.58 - 26.01 33.53 - 24.07 32.49 - 23.83 27.38 - 21.14 28.87 - 18.69
WGL WGL HOLDINGS INC SEP 2.71 2.29 2.17 2.40 2.35 24.60 23.42 22.63 21.89 20.99 44.97 - 35.96 44.99 - 34.71 40.00 - 31.00 35.52 - 28.59 37.08 - 22.40
MULTI-UTILITIES
LNT ALLIANT ENERGY CORP DEC 2.93 2.73 2.62 1.01 2.54 28.25 27.14 26.07 25.03 25.54 47.65 - 41.86 44.49 - 33.91 37.65 - 29.20 31.53 - 20.31 42.37 - 22.80
AEE [] AMEREN CORP DEC (4.01) 2.15 0.58 2.78 2.88 25.51 30.92 30.42 29.04 28.10 35.30 - 28.43 34.10 - 25.55 29.89 - 23.09 35.35 - 19.51 54.29 - 25.51
AVA AVISTA CORP DEC 1.32 1.73 1.66 1.59 1.37 19.01 19.03 18.90 18.36 17.58 28.05 - 22.78 26.53 - 21.13 22.81 - 18.46 22.44 - 12.67 23.58 - 15.53
BKH BLACK HILLS CORP DEC 2.02 1.01 1.76 2.04 (1.37) 19.80 19.40 18.88 18.65 17.76 37.00 - 30.29 34.85 - 25.83 34.49 - 25.65 27.98 - 14.54 43.98 - 21.73
CNP [] CENTERPOINT ENERGY INC DEC 0.98 1.81 1.08 1.02 1.33 6.62 5.93 3.53 2.41 0.99 21.81 - 18.07 21.47 - 15.09 17.00 - 5.67 14.87 - 8.66 17.35 - 8.48
CMS [] CMS ENERGY CORP DEC 1.43 1.65 1.50 0.87 1.29 12.10 11.92 11.19 11.42 10.88 24.98 - 21.12 22.37 - 16.96 19.25 - 14.09 16.13 - 9.98 17.47 - 8.33
ED [] CONSOLIDATED EDISON INC DEC 3.88 3.59 3.49 3.16 3.37 39.05 37.57 36.45 34.96 33.91 65.98 - 53.63 62.74 - 48.55 51.03 - 41.52 46.35 - 32.56 49.30 - 34.11
D [] DOMINION RESOURCES INC DEC 0.57 2.46 5.03 2.17 3.17 11.98 13.45 14.14 11.92 10.05 55.62 - 48.87 53.59 - 42.06 45.12 - 36.12 39.79 - 27.15 48.50 - 31.26
DTE [] DTE ENERGY CO DEC 3.89 4.19 3.75 3.24 3.24 30.29 29.05 27.36 25.39 23.85 62.56 - 52.46 55.28 - 43.22 49.06 - 41.25 44.96 - 23.32 45.34 - 27.82
TEG [] INTEGRYS ENERGY GROUP INC DEC 3.70 2.90 2.85 (0.96) 1.59 29.89 28.98 28.92 28.65 28.22 61.92 - 50.80 54.61 - 42.76 54.45 - 40.53 45.10 - 19.44 53.92 - 36.91
MDU MDU RESOURCES GROUP INC DEC (0.08) 1.19 1.29 (0.67) 1.60 10.49 11.15 10.71 10.10 11.44 23.21 - 19.59 24.05 - 18.00 24.15 - 17.11 24.22 - 12.79 35.34 - 15.50
NI [] NISOURCE INC DEC 1.41 1.08 1.06 0.84 1.35 5.13 3.63 3.36 3.10 2.63 26.15 - 22.32 23.97 - 17.71 17.96 - 14.13 15.82 - 7.79 19.82 - 10.35
NWE NORTHWESTERN CORP DEC 2.67 2.55 2.14 2.03 1.78 15.55 13.89 12.84 12.00 11.37 37.96 - 32.98 36.61 - 27.38 30.60 - 23.77 26.85 - 18.48 29.70 - 16.47
PCG [] PG&E CORP DEC 1.92 2.10 2.88 3.32 3.32 30.21 29.20 28.37 27.64 25.71 47.03 - 39.40 47.99 - 36.84 48.63 - 34.95 45.79 - 34.50 45.68 - 26.67
PEG [] PUBLIC SERVICE ENTRP GRP INC DEC 2.52 2.78 3.08 3.15 1.94 21.21 20.01 18.74 17.09 15.22 34.07 - 28.92 35.48 - 27.97 34.93 - 29.01 34.14 - 23.65 52.30 - 22.09
SCG [] SCANA CORP DEC 3.20 3.01 2.99 2.85 2.95 31.47 29.92 29.15 27.71 25.81 50.34 - 43.32 45.48 - 34.64 41.97 - 34.23 38.64 - 26.01 44.06 - 27.75
SRE [] SEMPRA ENERGY DEC 3.56 5.66 3.02 4.60 4.50 36.04 34.82 35.30 34.41 30.54 72.87 - 54.69 55.97 - 44.78 56.61 - 43.91 57.18 - 36.43 63.00 - 34.29
TE [] TECO ENERGY INC DEC 1.14 1.27 1.12 1.00 0.77 10.58 10.25 9.84 9.47 9.15 19.41 - 16.12 19.66 - 15.82 18.11 - 14.46 16.71 - 8.41 21.99 - 10.50
VVC VECTREN CORP DEC 1.94 1.73 1.65 1.65 1.65 15.37 14.69 14.65 14.24 13.72 30.75 - 27.46 30.65 - 23.65 27.85 - 21.66 26.90 - 18.08 32.20 - 19.48
WEC [] WISCONSIN ENERGY CORP DEC 2.37 2.20 1.95 1.62 1.53 16.12 15.28 14.37 13.37 12.38 41.48 - 33.62 35.38 - 27.00 30.51 - 23.42 25.31 - 18.16 24.81 - 17.44
AES [] AES CORP DEC (1.21) 0.59 (0.11) 1.09 1.82 2.88 2.15 5.95 4.29 2.64 14.01 - 9.52 13.50 - 9.00 14.24 - 8.82 15.44 - 4.80 22.48 - 5.80
NRG [] NRG ENERGY INC DEC 2.37 0.78 1.86 3.70 4.09 21.26 18.38 17.84 15.91 15.89 23.78 - 14.29 25.66 - 17.47 25.70 - 18.22 29.26 - 15.19 45.78 - 14.39
TRP TRANSCANADA CORP DEC 1.85 2.14 1.78 2.02 2.07 17.41 17.40 17.12 16.00 11.27 47.78 - 39.74 45.09 - 36.12 38.59 - 25.80 34.59 - 20.01 41.53 - 23.52
J-This amount includes intangibles that cannot be identified.
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Current Environment ............................................................................................ 1

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