Pennsylvania Public Utility CommissionWinter MeetingNovember 09, 2006

Harry Hunter Hanger Jr.Manager of Imports and Risk Management

Atlantic Energy Import TerminalChesapeake, VA

A UGI Energy Services Company

Propane Supply and Logistics Overview

2

U.S. Propane SupplyDomestic propane supplies are sourced from:

50% Natural Gas Processing50% Crude Oil Refining

10-15% of U.S. supply is Imported from: Canada by rail or pipelineWaterborne Import Terminals

Price Basis Locations:Mount Belvieu, Texas (Gulf Coast)Conway, Kansas (Mid-Continent)

Pricing have generally followed crude values during the spring and summer and then followed demand fundamentals during the winter peak demand season (pricing increasingly more volatile)

3

Propane Value Relationship to Crude and NG

4

U. S. Propane Demand

Petrochemical Feedstock Building blocks for plastics, fibers, and chemicals

Retail Market (Highly Seasonal)

Residential Customers

Commercial space heating

Industrial space heating and processes

Agricultural crop drying

Engine fuel (folk lifts)

Grill Cylinders

5

Engine Fuel6.2%

Residential48.2%

Agricultural 6.9%

Industrial 11.1%

Commercial22.9%

Cylinder Refill 4.9%

Retail Market End Users

6

Retail Marketing Companies

Fragmented Market with 4,000+ Companies in the U.S.Large Multi-State Marketers

Regional Independents

Small “Mom & Pop” companies

Broad range of sophistication and operating philosophy

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

Retail segment sells around 11 billion gallons annually

50% of annual sales are made during 4 winter months

7

Retail Marketers Portion of Sales (2003)

56%

6%9%11%

6%

4%

3%

2%1%1%

1%

AmeriGas

Ferrellgas

Suburban

Cenex

Heritage

Cornerstone

Star Gas

Inergy

MFA

Southern States

Independent Marketers

8October 16-17, 2000 NPGA Board Meeting - Minneapolis, MN 11Slide

U.S. Propane Storage Capacities

131.58

5.35 12.360.83 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

(Primary)

Above-ground

(Primary)Ra ilcars Transports Dealer Bulk

(Secondary) Bobtai lsDomestic Consumer (Tertiary)

Million Barrels

9

Distribution Logistics

Over 250 Distribution Supply Points across U.S.Major storage and pipeline terminal facilities (Belvieu, Conway, Hattiesburg, Sarnia)

Refineries

Natural Gas Plants and Fractionation Facilities

Pipeline Terminals

Rail Terminals

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 BELVIEU1

Edmonton3

CONWAY/HUTCHINSON4

SARNIA5

Hattiesburg2

CN

TEP

TEP

DIX

TEP

MAPMAP

MAP

KO

MAP

PH

PH

TEP

RG

KA

KM KMCO

33

DIX

MA

PH

LEGEND

5CO5

11

Transporting PropaneHigh seasonal heating demand for propane results in

competition for limited delivery capacity during the winter months.

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

These ratios require supplemental supply sources (storage/rail)

Typical tank sizes for the various means of transportation:

Ocean Going Ships –----------- 4 to 18 MGBarges ----------------------------- 420k to 1 MGRailcars --------- -------------------- 30,000 gallonsTransport trucks ---------------- 10,000 gallonsDelivery Bobtails ---------------- 3,000 gallons

12

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

13

Pennsylvania Sources of PropaneRetail Demand of Around 350 Million Gallons per Year

TEPPCO Pipeline (Dubois, Greensburg, Eagle)

Refineries (Del City and NJ refineries)

Storage Terminal (Schafferstown)

Rail Cars directly to dealer bulk storage locations

Rail Cars to Transshipment Terminals (6 locations)

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

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TEPPCO TERMINALS

SHIPPER TERMINALS

Arcadia

KingslandN. Little Rock

FontaineDexter

Calvert City

PrincetonSeymour

Mt. Belvieu

Lebanon, IN

Griffin

Rock Island

Lemont/Joliet/Blue Island

Todhunter

Lima

CoshoctonGreensburg

Sch'town/Sinking Spring

Twin Oaks/

DuBois

Watkins Glen

Hartford Mills

OneontaSelkirk

Providence

Hastings

W. Memphis

Marcus Hook

Eagle

Baytown Beaumont Marine

Lebanon

Helena

El Dorado

Cape Girardeau

Tyler

Creal Springs

CENTENNIAL PIPELINE

TEPPCO System Overview

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Truck Transportation Delivery Costs

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

Seasonal Demands

Driver DOT on duty time limitations

Customer faithfulness to a carrier during the slow season

Road conditions

Availability of loading space

Performance of other trucks and rail transportation options

In general, the Truck transportation Differential in PA is 4-8 CPG

16

Laid-In Location Differential Costs to PA Supply Points

Effected by:

Geographic area within state

Method of delivery (pipeline, rail, refinery)

Season (summer or peak winter—6X1 ratio)

Demand (weather pattern/timing)

Performance of other supply points

Performance of truck and rail transportation

In general Location Differentials at PA primary supply points:

Summer 6-12 CPG

Winter 14-25+ CPG

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Component Costs of Retail Price of Propane in PA Market

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

PLUS

Location Differential (cost to deliver to particular market area)

PLUS

Transport Freight Cost (tractor trailer delivery to bulk plant)

PLUS

Bobtail Delivery Cost (final delivery to customer)

PLUS

Dealer margin to cover operating costs, etc.

18

Summary of Winter Propane Supply for PA

U.S. overall inventory is at 2nd highest levels since 1993 (72 million bb or over 3 billion gallons)

PA inventories are at seasonal levels (proprietary information)

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

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

Supply and transportation are positioned for normal weather patterns and demand

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

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