Propane Supply and Logistics Overview

Pennsylvania Public Utility Commission Winter Meeting

November 09, 2006

Harry Hunter Hanger Jr.

Manager of Imports and Risk Management

Atlantic Energy Import Terminal

Chesapeake, VA

A UGI Energy Services Company

2

U.S. Propane Supply

¾Domestic propane supplies are sourced from:

50% Natural Gas Processing 50% Crude Oil Refining

¾10-15% of U.S. supply is Imported from:

Canada by rail or pipeline

Waterborne Import Terminals

¾Price Basis Locations:

Mount Belvieu, Texas (Gulf Coast)

Conway, Kansas (Mid-Continent)

¾Pricing have generally followed crude values during the spring and summer and then followed demand fundamentals during the winter peak

4

U. S. Propane Demand

Petrochemical Feedstock

¾Building blocks for plastics, fibers, and chemicals

Retail Market (Highly Seasonal)

¾Residential Customers

¾Commercial space heating

¾Industrial space heating and processes

¾Agricultural crop drying

¾Engine fuel (folk lifts)

Engine Fuel 6.2% Residential 48.2% Agricultural 6.9% Industrial 11.1% Commercial 22.9% Cylinder Refill 4.9%

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Retail Marketing Companies

¾ Fragmented Market with 4,000+ Companies in the U.S.

ƒLarge Multi-State Marketers

ƒRegional Independents

ƒSmall “Mom & Pop” companies

¾ Broad range of sophistication and operating philosophy

¾ Largest multi-state marketer has +/- 10% market share

¾ Retail segment sells around 11 billion gallons annually

Retail Marketers Portion of Sales

8

October 16-17, 2000 NPGA Boar d Meeting - Minneapolis, MN Sl ide 11

U.S. Propane Storage Capacities

131.58 5.35 12.36 _0.83 9.15 _1.69 111.25 0 20 40 60 80 100 120 140

Mill ion Barre ls 131.58 5.35 12.36 0.83 9.15 1.69 111.25

Under-ground (Pri mary) Above-ground (Pri mary)

Ra ilcars Tra nsports Deale r Bulk

(Secondary) Bobtai ls

Domestic Consum er

(Tertiary)

Distribution Logistics

Over 250 Distribution Supply Points across U.S. ¾ Major storage and pipeline terminal facilities

(Belvieu, Conway, Hattiesburg, Sarnia)

¾ Refineries

¾ Natural Gas Plants and Fractionation Facilities

¾ Pipeline Terminals

¾ Rail Terminals

¾ Waterborne Import Terminals

Truck transportation is required from these distribution supply points to the propane dealer’s local bulk plant and then again to the end user tanks.

UNITED STATES LPG DISTRIBUTION SYSTEM

MAJOR LPG PRODUCT PIPELINE

MAJOR LPG PRODUCT IMPORT TERMINALS

CN MAP CO MONT BELVIEU 1 Edmonton 3 CONWAY/HUTCHINSON 4 SARNIA 5 Hattiesburg 2 CN TEP TEP DIX TEP MAP MAP MAP KO MAP PH PH TEP RG KA KM KM CO 3 3 DIX MA PH LEGEND 5 CO 5

Transporting Propane

¾High seasonal heating demand for propane results in

competition for limited delivery capacity during the winter months. ¾ Demand ratios in PA area are 6 X 1 (winter vs. summer) with

pipeline delivery capacity of a little over 2 X 1 and refineries production is about 1 X 1

¾These ratios require supplemental supply sources (storage/rail) ¾Typical tank sizes for the various means of transportation:

„ Ocean Going Ships –--- 4 to 18 MG

„ Barges --- 420k to 1 MG

„ Railcars --- --- 30,000 gallons

„ Transport trucks --- 10,000 gallons

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Residential Storage

A residential home tank is sized based on propane appliances and types of usage (500 or 1,000 gallon tank)

Generally, residential customers will need a delivery every 30 days and should be able to go 45 days

assuming normal winter weather

Deliveries are typically scheduled by a computer program that projects usage factoring in customer appliances, usage history, and actual Degree Days

Pennsylvania Sources of Propane

¾ TEPPCO Pipeline (Dubois, Greensburg, Eagle)

¾ Refineries (Del City and NJ refineries)

¾ Storage Terminal (Schafferstown)

¾ Rail Cars directly to dealer bulk storage locations

¾ Rail Cars to Transshipment Terminals (6 locations)

¾ Import Terminals and Storage Facilities in surrounding states supplement supply in PA during peak demand

14 TEPPCO TERMINALS SHIPPER TERMINALS Arcadia Kingsland N. Little Rock Fontaine

Dexter Calvert City

Princeton Seymour Mt. Belvieu Lebanon, IN Griffin Rock Island Lemont/Joliet/Blue Island Todhunter Lima Coshocton Greensburg Sch'town/Sinking Spring Twin Oaks/ DuBois Watkins Glen Hartford Mills Oneonta Selkirk Providence Hastings W. Memphis Marcus Hook Eagle

Baytown Beaumont Marine

Lebanon Helena El Dorado Cape Girardeau Tyler Creal Springs CENTENNIAL PIPELINE

Truck Transportation Delivery Costs

Truck deliveries to retail dealer bulk plants are effected by: ¾ Distance from supply source

¾ Seasonal Demands

¾ Driver DOT on duty time limitations

¾ Customer faithfulness to a carrier during the slow season ¾ Road conditions

¾ Availability of loading space

¾ Performance of other trucks and rail transportation options

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Laid-In Location Differential

Costs to PA Supply Points

Effected by:

¾ Geographic area within state

¾ Method of delivery (pipeline, rail, refinery) ¾ Season (summer or peak winter—6X1 ratio) ¾ Demand (weather pattern/timing)

¾ Performance of other supply points

¾ Performance of truck and rail transportation

In general Location Differentials at PA primary supply points:

¾ Summer 6-12 CPG

Component Costs of Retail Price

of Propane in PA Market

¾ Basis Cost (current market value @ Mt. Belieu, TX)

PLUS

¾ Location Differential (cost to deliver to particular market area)

PLUS

¾ Transport Freight Cost (tractor trailer delivery to bulk plant)

PLUS

¾ Bobtail Delivery Cost (final delivery to customer)

PLUS

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Summary of Winter Propane Supply for PA

¾ U.S. overall inventory is at 2nd _{highest levels since 1993}

(72 million bb or over 3 billion gallons)

¾ PA inventories are at seasonal levels (proprietary information)

¾ TEPPCO has increase pump capacity to PA terminals by 300k gallons per day (an increase of +40% over last year)

¾ U.S. propane base value at MB has been very volatile and has ranged between 90.00 cpg and 1.15 cpg since last May

¾ Supply and transportation are positioned for normal weather patterns and demand

¾ Continued refinery propane production during peak demand is a crucial factor significantly influencing supply availability and pricing in this market

¾ Ultimately the most significant factor in the Mid-Atlantic propane market is the pattern and intensity of the cold weather