Hedging Alternatives and Natural Gas Price Stabilization Mechanisms
The Colorado Office of Consumer Counsel retained McFadden Consulting to assist it in a proceeding established by the Public Utilities Commission of Colorado to determine whether price stability is an appropriate goal for local distribution companies in their gas procurement practices and to examine options for achieving more stable gas prices.  Mr. McFadden prepared a paper on various hedging alternatives and price stabilization mechanisms and assisted in the preparing the OCC’s comments in response to the Commission order.  Comments of other parties have been reviewed and various options for stabilizing prices have been discussed with other parties to the proceeding.  The Commission held a roundtable discussion on this matter at which Mr. McFadden testified on behalf of the OCC.

Review and Assessment of Long Term Gas Supply Contracts
McFadden Consulting assisted Kansas Gas Service Company, a division of ONEOK in evaluating several long-term gas supply contracts.  The contracts were entered into in connection with the settlement of a regulatory proceeding a number of years ago.  The company requested Kansas Corporation Commission authorization to assign the contracts to a gas marketing affiliate.  McFadden Consulting assisted the company in evaluating the qualitative and quantitative impacts the proposed assignment would have on its customers.  The quantitative evaluation used a strategic decision model developed by McFadden Consulting.  Mr. McFadden testified at a hearing before the Kansas Corporation Commission on this matter.

Evaluation of Gas Supply Planning and Procurement Functions of Arkansas Western Gas Company
McFadden Consulting was retained by Arkansas Western Gas Company (AWG), Arkansas Public Service Commission, Arkansas Attorney General’s Office, and the Northwest Arkansas Gas Consumers to conduct an extensive evaluation of AWG’s gas supply management, planning, and procurement activities.  The evaluation was conducted pursuant to a joint stipulation reached by the parties that settled six proceeding dating back to the early 1990s involving AWG.  The purpose of the evaluation was to evaluate AWG’s gas supply planning and procurement activities, assess AWG’s ability and options to meet foreseeable system demand, including the diversity of available gas supplies, and make recommendations for bidding process changes and/or physical system improvements to ensure adequate and reliable supplies at the lowest possible cost.  A significant issue was AWG’s reliance on supplies purchased from its affiliate companies.

Development of a Plan to Exit the Merchant Function
Dominion East Ohio Gas Company retained McFadden Consulting to assist a collaborative group, which included the company, the Public Utilities Commission of Ohio, and the Ohio Consumers’ Counsel, in resolving several gas supply planning issues and developing a plan that would permit the Company to exit the merchant function.  The issues included developing a strategy for re-contracting with upstream pipeline companies for transportation and storage services that were being provided pursuant to contracts that were expiring.  McFadden Consulting assisted in developing a re-contracting strategy that considered Dominion East Ohio’s customer choice program in which more than 40% of its residential and small commercial customers received gas from alternate suppliers and the potential that the company may exit the merchant function.  Other issues included determining the company’s role as supplier of last resort, system operations and balancing requirements, and comparable capacity requirements for alternate suppliers in the customer choice environment and in the event the company exited the merchant function.

Consideration of Various Gas Price Hedging Proposals
As part of an integrated resource planning proceeding, McFadden Consulting assisted the Utah Committee of Consumer Services in considering various natural gas price-hedging alternatives designed to stabilize gas prices to consumers.  In response to the volatile natural gas prices experienced in 2000 and 2001, the company considered various alternatives for stabilizing prices, including financial instruments and longer-term pricing provision in gas supply contracts.  A significant factor in Questar’s pricing decisions is that more than 50% of Questar gas supplies are obtained from company-owned production, which is priced on a cost of service basis.  A settlement agreement was reached that would permit recovery of various price stabilization mechanisms through gas cost recovery mechanisms. 

Review of Questar Gas Company Response to Declining BTU Content of Gas Supplies
McFadden Consulting was retained by the Utah Committee of Consumer Services to review Questar Gas Company’s response to the declining BTU content of gas supplies in its service territory.  As part of its response to the problem, Questar constructed a CO₂ extraction plant costing approximately $20 million, with a revenue requirement impact of approximately $7.5 million and requested that the costs be included in their gas cost recovery mechanism.  The coal seam gas processed by the plant was not purchased by Questar, but rather was contractually transported by Questar Pipeline to markets outside of Utah.  Mr. McFadden testified on behalf of the Committee at a hearing held in June 1999.  The Commission decided the costs associated with the CO₂ plant should not be recovered through the Company’s gas cost adjustment, but that they could be considered in a general rate case filing. 

Evaluation of Columbia Gas of Ohio’s Gas Planning & Procurement Functions, including Hedging and Customer Choice Programs
The Public Utilities Commission of Ohio retained McFadden Consulting to evaluate the gas supply planning and procurement functions of Columbia Gas of Ohio.  As part of the review, McFadden Consulting assessed a hedging program instituted by the company after the price volatility experienced during the 1995-96 and the 1996-97 heating seasons.  The company used a formula based approach that established trigger points, which permitted the company to lock in up to 50% of its winter time flowing gas requirements. Another issue was the impact the company’s customer choice program had on gas supply procurement, as well as its need for upstream transmission and storage capacity.  In addition, the role the company would fulfill if it remained in the merchant function was also reviewed. 

Review of Arkansas Oklahoma Gas Corporation Gas Procurements Practices
The Arkansas Public Service Commission retained McFadden Consulting to review and analyze Arkansas Oklahoma Gas Corporation’s natural gas purchasing procedures and practices.  A main issue is the company’s compliance with Arkansas’ statutes requiring them to purchase gas supplies from the lowest or most advantageous markets.  McFadden Consulting has reviewed the company’s responses to numerous data requests and has interviewed key company personnel.  The analysis is continuing and a report will be prepared when the analysis has been completed. 

Review of Price Volatility and Gas Cost Adjustment Mechanisms
McFadden Consulting was retained by the Colorado Office of Consumer Counsel to review a Public Service Company of Colorado gas cost adjustment filing.  The company filed a revision that would increase its revenues by approximately $87.5 million.  The increase was requested two months after the company had requested an $18.9 million reduction in the gas cost adjustment.  The purpose of the review was to determine the appropriateness of the request and to identify steps that might mitigate future swings in the gas cost adjustment.  As part of this project, Mr. McFadden reviewed proposed gas cost adjustment rules promulgated by the Colorado Commission.  The proposed rules were intended to streamline the Commission’s review process of the annual gas cost adjustment filings made by all gas companies under its jurisdiction.  Mr. McFadden testified before the Commission on this matter. 

Evaluation of Impacts of Customer Choice Program on CG&E’s Gas Supply Planning & Procurement Functions
McFadden Consulting evaluated Cincinnati Gas & Electric Company’s gas planning and procurement practices and procedures. The purpose of the evaluation was to assess the company's effectiveness in gas supply procurement and planning to achieve an adequate and reliable supply of gas at minimum cost.  A key factor was the potential impacts of a recently-approved customer choice program on long and short term supply planning, gas and capacity procurement, storage utilization, and demand forecasting. 

Analysis of Gas Planning and Procurement Functions
Mr. McFadden was retained to review the management of Public Service Company of Colorado’s gas planning and procurement practices.  The review was part of an annual prudence review as required by the Company’s gas cost adjustment mechanism.  The main focus of the review was on the consideration of various portfolio options, the use of index versus longer term pricing terms, the determination of upstream transmission and storage capacity requirements, use of hedging mechanisms, and capacity release transactions.

Evaluation of East Ohio Gas Company’s Gas Planning and Procurement Practices
The Public Utilities Commission of Ohio retained McFadden Consulting to evaluate the gas supply planning and procurement functions of Columbia Gas of Ohio.  As part of the review, McFadden Consulting assessed a hedging program instituted by the company after the price volatility experienced during the 1995-96 and the 1996-97 heating seasons.  The company used a formula based approach that established trigger points, which permitted the company to lock in up to 50% of its winter time flowing gas requirements. Another issue was the impact the company’s customer choice program had on gas supply procurement, as well as its need for upstream transmission and storage capacity.  In addition, the role the company would fulfill if it remained in the merchant function was also reviewed. 

Gas Supply and Capacity Planning and Procurement
McFadden Consulting was retained by the City of Fort Morgan, Colorado to review its gas supply and capacity portfolio. The purpose of the analysis was to develop the optimum supply and capacity portfolio to ensure that the City has an adequate and reliable supply of gas at the lowest cost possible for its customers. All gas supply, gathering, transportation and storage agreements were reviewed. Transportation alternatives were considered and assistance was provided in negotiating the renewal of transportation agreement with the City’s pipeline supplier. This transportation agreement provides the City with maximum flexibility in transporting supplies to the City’s service territory. We analyzed sources of alternative gas supplies and identified the opportunity to reduce the City’s gas costs by almost 25%.  Assistance was provided in implementing our recommendations.  Finally, assistance was provided in negotiating a transportation agreement with the City’s second largest customer.

Evaluation of Gas Columbia Gas of Ohio’s Planning and Procurement Practices
Participated in evaluating Columbia of Ohio, Inc.'s gas planning and procurement practices and procedures. The purpose of the evaluation was to assess the company's effectiveness in fuel procurement and planning to achieve an adequate and reliable supply of gas at minimum cost. Reviewed the organizational structure and overall management of the gas supply and planning function of the company. In addition, the long-term planning activities associated with gas supply acquisition were analyzed.