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Book III UGI CENTRAL PENN GAS, INC. BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION Information Submitted Pursuant To Section 53.51 et seq of the Commission’s Regulations CPG STATEMENT NO. 1 – ROBERT F. BEARD CPG EXHIBIT NO. 1 – RFB-1 CPG STATEMENT NO. 2 – DONALD E. BROWN CPG STATEMENT NO. 3 – PAUL R. MOUL CPG EXHIBIT NO. 3 – PRM APPENDICES A THROUGH I CPG STATEMENT NO. 4 – PAUL J. SZYKMAN CPG EXHIBIT NO. 4 – PJS-1 THROUGH PJS-2 CPG STATEMENT NO. 5 – DAVID E. LAHOFF CPG EXHIBIT NO. 5 – DEL-1 THROUGH DEL-4 CPG STATEMENT NO. 6 – JOHN F. WIEDMAYER ORIGINAL TARIFF CPG GAS – PA P.U.C. NO. 4 DOCKET NO. R-2010-2214415 Issued January 14, 2011 Effective March 15, 2011 CPG STATEMENT NO. 1 – ROBERT F. BEARD BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION PENNSYLVANIA PUBLIC UTILITY : COMMISSION, : : v. : Docket No. R-2010-2214415 : UGI CENTRAL PENN GAS, INC. : : ________________________________ DIRECT TESTMONY OF ROBERT F. BEARD, JR. P.E. ________________________________ CPG Statement No. 1 Rate Filing Overview Gas Operations, System Safety and Reliability, Customer Service, Integration of CPG into UGI, and Large Commercial & Industrial Throughput 1 I. INTRODUCTION AND QUALIFICATIONS 2 Q. Please state your full name and business address. 3 A. My name is Robert F. Beard, Jr. My business address is 2525 N. 12th Street, 4 Suite 360 Reading, Pennsylvania 19612. 5 6 Q. By whom are you employed and in what capacity? 7 A. I am employed by UGI Utilities, Inc. (“UGI”). I am Vice President of Marketing, 8 Rates and Gas Supply. 9 10 Q. What is your educational background? 11 A. I received a Bachelor of Science degree in petroleum and natural gas 12 engineering, and a master’s degree in management from the Pennsylvania State 13 University. I am a registered Professional Engineer in Pennsylvania. 14 15 Q. Please describe your professional experience. 16 A. I have more than twenty years of experience in the natural gas industry. I was 17 initially employed by Cabot Oil & Gas Company as an engineer responsible for 18 drilling and natural gas production. After approximately one year in this position, 19 I was employed by Penn Fuel Gas, Inc., which later became PPL Gas Utilities 20 Corporation (“PPL Gas”). During my employment with Penn Fuel Gas, Inc. and 21 PPL Gas, I was responsible for engineering and technical services, storage, 22 transmission and distribution operations, gas control, marketing, safety and 23 training. 1 1 When PPL Gas was acquired by UGI on October 1, 2008, I became Vice 2 President of the Southern Region. In this role, I was responsible for all 3 distribution operations, construction and maintenance for the Region. 4 In my current role, I oversee all activity related to UGI’s activities in the areas of 5 marketing, rates and gas supply. 6 7 Q. Mr. Beard, are you sponsoring any exhibits in this proceeding? 8 A. Yes. I am sponsoring the following Exhibits: CPG Exhibit RFB-1 (a map of the 9 Company’s service territory). I am also sponsoring certain responses to the 10 Commission’s filing requirements. Each response identifies the witness 11 sponsoring it. 12 13 Q. Please describe the purpose of your testimony. 14 A. My testimony serves several purposes. First, I will give a brief overview of the 15 Company's need for rate relief in this case as well as an outline of the testimony 16 being offered by the other UGI witnesses in this case (Part II). Second, I will 17 generally discuss CPG’s gas operations (Part III). Third, I will discuss CPG's 18 safety record (Part IV). Fourth, I will describe CPG’s customer service 19 performance (Part V). Fifth, I will discuss the integration of CPG into UGI since 20 CPG was acquired by UGI on October 1, 2008 (Part VI). Sixth, I will provide an 21 overview of the adjustments to CPG’s Large Commercial and Industrial (“Large 22 C&I”) throughput, including the potential threat of bypass related to Marcellus 23 Shale gas production (Part VII). 2 1 2 II. OVERVIEW OF THE NEED FOR RATE RELIEF 3 Q. Please discuss the rate relief that CPG is requesting through this filing. 4 A. CPG is seeking an increase in its annual base rate operating revenues of $16.46 5 million, or 15.4 percent, on a total revenue basis, with a proposed effective date 6 of March 15, 2011. The Company is also seeking authorization to make 7 substantial changes to its existing tariff in order to harmonize CPG’s tariff with 8 those previously approved by the Commission for UGI and PNG. The Company 9 also is proposing a significant new energy conservation program, the Energy 10 Efficiency and Conservation Plan (“EECP”). Finally, the Company is proposing 11 an incentive program to encourage the use of vehicles fueled by natural gas. 12 13 Q. Why is CPG seeking a rate increase at this time? 14 A. CPG's current rates do not provide it with a reasonable opportunity to earn its 15 cost of capital. Since its last rate case in 2009, CPG's plant in service has 16 increased by 5 percent, through investments in new and replacement gas plant. 17 Further, CPG has granted its employees modest annual wage and salary 18 adjustments and will continue to do so. Although CPG has been exercising cost 19 containment measures and has made substantial progress toward integrating the 20 operations of CPG with UGI Utilities and UGI PNG, those factors, along with 21 experienced and anticipated declines in per customer usage, have caused CPG 22 to be unable to earn a far rate of return on its investment, at present rate levels. 23 3 1 Specifically, as reflected in CPG Exhibit A (Future), Schedule A-1, CPG’s 2 operations are projected to produce an overall return on rate base of 5.02%, and 3 a return on common equity of only 3.95%, for the twelve months ending 4 September 30, 2011. As CPG witness Paul R. Moul discusses in his testimony 5 (CPG St. 3), those returns are not adequate based on applicable financial data 6 and the risks confronted by CPG. Unless CPG receives the proposed rate relief, 7 those returns will continue to decline and potentially jeopardize its ability to make 8 needed system investments to enhance the capacity of its distribution system 9 and to replace older, obsolete facilities, each of which is needed to ensure 10 continued system reliability and customer service performance and to better deal 11 with the effects of the ongoing economic downturn. The drilling and production 12 activity in the Marcellus Shale will bring about both opportunities and challenges 13 for CPG. As more Marcellus production becomes available, our customers 14 should benefit from lower cost gas. One challenge for the Company will be to 15 balance the benefit of locally produced gas with the capital investments required 16 to bring this gas into the CPG system. Also, the availability of cheaper, locally 17 produced gas will likely expose the company to the risk of by-pass by some of 18 larger customers. 19 20 Q. Why is the Company proposing an energy conservation program? 21 A. The Energy Efficiency Conservation Plan (EECP) will provide customers with a 22 financial incentive to install higher efficiency gas burning appliances and 23 equipment. This reduction in consumption will provide savings to customers who 4 1 take advantage of the program and will place downward pressure on natural gas 2 prices to the benefit of all customers. A more detailed discussion of this program 3 is provided in the testimony of Mr. Fitzpatrick and others. 4 5 Q. Please identify the other witnesses providing direct testimony on behalf of CPG 6 in this proceeding and the subject matter of their testimony. 7 A In addition to me, the following witnesses are providing testimony in support of 8 the CPG's rate request: 9 Donald E. Brown (CPG St. 2) serves as the Vice President — Finance 10 and Chief Financial Officer at UGI Utilities, Inc. Mr. Brown addresses 11 CPG’s accounting and budgeting processes. Mr. Brown also presents 12 CPG's overall future test year revenue requirement, including all rate base 13 claims, operating expense claims, and certain pro forma adjustments. Mr. 14 Brown also presents CPG's historic year results of operations and rate 15 base with adjustments to place them on a ratemaking basis. 16 17 Paul R. Moul (CPG St. 3) is the Managing Consultant of P. Moul & 18 Associates, Inc. Mr. Moul presents expert testimony concerning the 19 overall rate of return that CPG should be afforded a reasonable 20 opportunity to earn on its rate base investment. Mr. Moul also supports 21 the Company's claimed capital structure, its embedded cost of debt as 22 well as its requested return on common equity. Schedules and work 23 papers supporting Mr. Moul's findings are set forth in Exhibit B. 5 1 2 Paul J. Szykman (CPG St. 4) serves as Vice President — Rates. Mr. 3 Szykman is responsible for all areas of CPG's rate design and revenue 4 allocation. Mr. Szykman also addresses and sponsors related exhibits 5 showing the proof of revenues and proposed rate design. Finally, Mr. 6 Szykman also is responsible for CPG's pro forma future test year 7 operating revenue claim, including related adjustments to the future test 8 year budget. 9 10 David Lahoff (CPG St. 5) is the Manager – Special Projects for UGI. Mr. 11 Lahoff is sponsoring Exhibit F, which is Supplement Original Tariff – Gas 12 Pa.

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