GAS UTILITIESResearch Brief

Sustainable Industry Classification System™ (SICS™) #IF0102

Research Briefing Prepared by the

Sustainability Accounting Standards Board®

March 2016

www.sasb.org© 2016 SASB™

GAS UTILITIES

Research Brief SASB’s Industry Brief provides evidence for the disclosure topics in the Gas Utilities industry. The brief

opens with a summary of the industry, including relevant legislative and regulatory trends and

sustainability risks and opportunities. Following this, evidence for each disclosure topic (in the categories

of Environment, Social Capital, Human Capital, Business Model and Innovation, and Leadership and

Governance) is presented. SASB’s Industry Brief can be used to understand the data underlying SASB

Sustainability Accounting Standards. For accounting metrics and disclosure guidance, please see SASB’s

Sustainability Accounting Standards. For information about the legal basis for SASB and SASB’s

standards development process, please see the Conceptual Framework.

SASB identifies the minimum set of disclosure topics likely to constitute material information for

companies within a given industry. However, the final determination of materiality is the onus of the

company.

Related Documents

• Infrastructure Sustainability Accounting Standards

• Industry Working Group Participants

• SASB Conceptual Framework

INDUSTRY LEAD

Bryan Esterly

CONTRIBUTORS

Andrew Collins

Henrik Cotran

Anton Gorodniuk

Nashat Moin

Himani Phadke

Arturo Rodriguez

Jean Rogers

Levi Stewart

Quinn Underriner

Gabriella Vozza

SASB, Sustainability Accounting Standards Board, the SASB logo, SICS, Sustainable Industry

Classification System, Accounting for a Sustainable Future, and Materiality Map are trademarks and

service marks of the Sustainability Accounting Standards Board.

Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Industry Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Legislative and Regulatory Trends in the Gas Utilities Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Sustainability-Related Risks and Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Business Model and Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

End-Use Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Leadership and Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Operational Safety, Emergency Preparedness, and Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Appendix

Representative Companies : Appendix I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Evidence for Sustainability Disclosure Topics : Appendix IIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Evidence of Financial Impact for Sustainability Disclosure : Appendix IIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Sustainability Accounting Metrics : Appendix III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Analysis of SEC Disclosures : Appendix IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

References

I N D U S T R Y B R I E F | G A S U T I L I T I E S

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INTRODUCTION

The Gas Utilities industry’s primary function is to

build, maintain, and operate the natural gas

distribution system, ensuring safe, reliable delivery

to the end user. Companies in this industry

provide a vital service to their customers, as

natural gas is the main source of heat and

cooking energy for many people, as well as an

overall critical energy source for economic activity.

Companies in this industry must maintain strict

safety standards on their distribution networks

because natural gas leaks have the potential to

cause significant harm to human life and

property. While natural gas is a cleaner form of

energy than many other sources (e.g., coal),

resource efficiency is still a critical theme.

Companies in the industry may be able to work

with their customers and regulators to seek

greater usage efficiency while also being positively

economically impacted themselves. Furthermore,

as companies in the Gas Utilities industry promote

energy efficiency, they can have an impact on the

workings of the entire natural gas industry value

chain and play a role in the reduction of

greenhouse gas (GHG) emissions.

Management (or mismanagement) of certain

sustainability issues, therefore, has the potential

to affect company valuation through impacts on

profits, assets, liabilities, and cost of capital.

Investors would obtain a more holistic and

comparable view of performance with gas utilities

companies reporting metrics on the highly

significant sustainability risks and opportunities

that could affect value in the near and long term

in their regulatory filings. This would include both

positive and negative externalities, and the non-

financial forms of capital that the industry relies

on for value creation.

Specifically, performance on the following

sustainability issues will drive competitiveness in

the Gas Utilities industry:

• Promoting energy efficiency among

customers to decrease consumer costs

while positioning business models to

benefit from increases in efficiency; and

• Ensuring a strong accident and safety

management record, which is vital to

protecting human life and avoiding costly

negligence claims.

INDUSTRY SUMMARY

The Gas Utilities industry is made up of natural

gas distribution and marketing companies. Gas

distribution involves operating local low-pressure

pipelines. Gas utilities transport this gas to

residential, commercial, and industrial end users

after receiving it from larger, often interstate

transmission pipelines (entities included in the

SASB NR0102 Oil & Gas—Midstream industry).

Gas marketing companies are gas brokers that

aggregate natural gas into quantities that fit the

needs of their different clients (generally

enterprise or industrial customers) and then

facilitate its transport to their customers through

SUSTAINABILITY DISCLOSURE TOPICS

BUSINESS MODEL AND INNOVATION

• End-Use Efficiency

LEADERSHIP AND GOVERNANCE

• Operational Safety, Emergency Preparedness, and Response

WATCH LIST

• Distribution Network Cybersecurity

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other companies’ transmission and distribution

lines.1 A relatively smaller portion of this industry

is involved in propane gas distribution. Natural

gas is commonly used for heating, cooking, and

other energy needs by residential, commercial,

and industrial customers.I

Natural gas is made up primarily of methane, a

highly potent GHG. When it is extracted from the

ground by exploration and production companies

(entities included in the SASB NR0101 Oil & Gas—

Exploration & Production industry), natural gas is

made up primarily of methane, along with

ethane, butane, and propane. Propane is most

often used by rural customers who do not have

natural gas pipelines leading to their homes or

businesses. This gas is often delivered by bobtail

or rack trucks.2

In general, natural gas utilities do not own the

actual gas wells but rather operate, expand, and

maintain the roughly 2 million miles of

distribution pipelines in the U.S.3 Municipally

owned gas utilities exist as well, but these tend to

be clustered in rural areas where there was

historically not a large-enough financial incentive

to attract private investment.4 Roughly 75 percent

of the U.S. population is served by an investor-

owned utility.5

Market structure

Broadly speaking, a utility is a natural monopoly—

something that has been determined to be both a

vital public good and a service that would be

inefficient for society to fully leave up to a

competitive market. It is a logical distinction.

Consider distribution pipelines: It would be

wasteful to have multiple companies operate

them in the same community; this would be akin

to allowing multiple owners of private roadway

I Industry composition is based on the mapping of the Sustainable Industry Classification System (SICSTM) to the Bloomberg Industry

systems to develop competing road networks

through communities.

States strictly regulate gas utility companies so

each company’s structure and operations may

significantly vary, depending on where it is

located. In regulated industry structures,

companies in this industry buy gas from multiple

suppliers to sell to their customers. In this

situation, companies do both distribution and

marketing in their allotted geographic area, so

there is no competition. In deregulated states,

distribution and marketing are legally separated.

These “natural gas choice” programs give

consumers the ability to choose between different

natural gas providers.6 The utility, in exchange for

a continued monopoly over gas distribution, is

legally required to transmit all gas equitably along

its pipelines for a fixed fee.7

Twenty-four states, plus the District of Columbia

(D.C.), are currently deregulated to some degree.8

Nationally, only roughly 18 percent of eligible

customers, or around 7 million, participate in

these natural gas choice programs.9

The inherent monopoly in the distribution

segment of this industry, where only one

Classification System (BICS). A list of representative companies appears in Appendix I.

Note on Industry Structure

This brief does not include gas transmission operations. These operations involve long-distance and generally interstate transport of highly pressurized natural gas from the wellhead. Companies in this industry that also operate in that space should see SASB Standard NR0102 Oil & Gas—Midstream for disclosure guidance. Furthermore, this brief does not address electric utilities. Separate SASB standards are available for electric utilities (IF0101) and should be used to the extent that gas utilities also operate electric utilities.

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company can own distribution pipelines in an

allotted area, means that there are strict

regulations on pricing and the rate of return for

investors (discussed further in the “Legislative and

Regulatory Trends” section, below). Each state

has its own utilities commission, often called a

public utilities commission (PUC) or a public

service commission (PSC), which regulates

portions of the gas market in the state (among

other goods and/or services).

Broadly speaking, utilities commissions are in

charge of approving the rate that gas utilities can

charge for their services; deciding what types and

amounts of costs can be passed on to ratepayers,

and in what rate structures; and determining the

“reasonable rate of return” that should be

allotted for capital providers.10

Regulated companies in this industry must

anticipate and articulate their current and future

infrastructure needs to utilities commissions so

that the costs can be passed on to ratepayers.

Depending on the operation and the type of

project, this approval may occur before the utility

begins a new project.

Traditionally, however, such capital-project

approval does not come until after the project is

completed, giving rise to regulatory risks

associated with project approval, as well as

regulatory lag. As a result, utilities may naturally

gravitate toward capital expenditures and capital

raises associated with projects that they have a

high level of confidence in being approved by

their regulators. These regulatory risks and

obstacles can limit how proactively gas utilities

respond to certain infrastructure issues, as it

depends on the sentiment of their regulators.

However, because the returns that regulated

utilities earn are generally calculated on the rate

base (generally, the level of approved capital

investment), they have a conflicting incentive to

invest heavily, so long as there is a high likelihood

of such projects being approved.

Companies also need to manage projects

efficiently, as company shareholders are often

liable for projects that go over the budget allowed

by the utilities commission. Gas utilities may be

able to recover costs from unforeseen events or

accidents, unless they are found to be negligent,

in which case the resulting fines and/or loss of

revenue may be borne by the shareholders.

Historically, a utility’s revenue was directly

proportional to the amount of gas it sold (i.e.,

volumetric ratemaking). However, in recent years,

utilities and regulators in more than a dozen

states have put in place varying “decoupling”

strategies. Under decoupling, a utility’s revenue is

no longer directly tied to the volume of gas sold,

thereby removing a theoretical disincentive for

utilities to promote energy efficiency (this concept

is discussed in greater detail in the End-Use

Efficiency disclosure topic).11 There are a myriad

of different regulatory mechanisms that can fall

under the category of decoupling, but generally

they set up a system of revenue recovery to

counterbalance variables—such as weather

fluctuations—that can have a significant effect on

customers’ gas demand.12

Revenue drivers

As of January 27, 2016, the Gas Utilities industry

had approximate global annual revenues of

$294.4 billion for the most recent fiscal years (FY)

reported by companies.13 Natural gas distribution

accounted for $250.6 billion of this revenue, gas

marketing accounted for $43.7 billion gas

marketing accounted for $43.7 billion, and

propane gas distribution accounted for $20.9

billion.14 The five companies that best represent

this industry are NiSource, Atmos Energy, AGL

Resources, UGI Corporation, and Questar

Corporation. The FY2014 median net income

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margin for companies in this industry is 7.26

percent.15

This industry’s largest consumer base is residential

households, followed by industrial and

commercial customers.16 On a macro level,

customer demand for natural gas generally

follows economic and population growth. New

home builds have a significant effect on natural

gas demand, as consumers can choose to install

natural gas appliances. Weather also has a major

impact on company revenue, especially in states

without any decoupling, as natural gas is often

used for heating.17 Indeed, it is common practice

for companies in this industry to list average

temperatures, or weather-normalized financial

results, in their Form 10-Ks and other regulatory

filings, as that can help explain a significant

portion of revenue volatility.18

This industry has also benefited from the relatively

lower GHG emissions of natural gas, compared

with those of other fossil fuels used in electricity

production, making natural gas a more attractive

option for businesses and individuals looking to

lower their carbon footprint.19

The rise of hydraulic fracturing (“fracking”) in the

U.S. has driven down the domestic price of

natural gas significantly through an expansion of

supply. The average cost in the U.S. between

2005 and 2010 was 47 percent higher than the

average cost between January 2011 and

December 2015 (as measured by the Henry Hub

Natural Gas Spot Price).20

Costs and barriers to entry

Generally, in a regulated environment, these cost

fluctuations are allowed to be passed on directly

to customers. In unregulated environments,

however, decreasing gas prices result in lower

costs for the utility. Even if the utility is not

directly affected by gas prices, it will be affected

by the resulting shifts in demand. However, the

current climate of lower prices generally raises

demand for natural gas, which, in the medium to

long term, increases demand for more natural gas

infrastructure that gas utilities can then get a

return on.21 On average, the purchase of natural

gas accounts for 57 percent of the industry’s total

revenue, distribution-related operating costs

account for approximately 20 percent, and

depreciation represents 4.3 percent of the

average company’s revenue, as pipeline upgrades

require massive capital expenditures. Wages make

up a relatively low percentage of revenue—an

average of 4 percent.22 The industry requires—

and currently is facing a shortage of—some highly

skilled engineers and pipeline technicians.23

This industry exhibits a relatively low level of

national concentration. Generally, companies

focus on local and regional operations, as the

regulatory environment can make operating

across state lines difficult. Recently, there has

been a trend toward consolidation in regional

markets, but no firm has a significantly large

national position.24

Gas distribution, especially in the regulated

segment, has a prohibitively high barrier to entry,

as regulation nearly guarantees a company a

continued monopoly in its assigned area. The high

costs of infrastructure investment and safety and

environmental compliance also make local

competition extremely difficult.25

Generally, 60 percent of the price residential

customers pay for natural gas is based on the cost

of the gas itself, and 40 percent is based on

distribution-related costs. The U.S. has significant

regional pricing differences based on the market

structure and the proximity to natural gas

deposits.26

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Company valuation

Traditionally, investors have viewed utilities as

low-risk investments. They are also prized for their

steady dividend yields. This means that investment

in this industry generally has an inverse

relationship to the interest rate, as investors seek

predictable, low-risk returns. When treasury

bonds have low yields, utility stocks generally

benefit. To value a company in this industry,

analysts will typically examine its five-year plan for

capital expenditures, the company’s cost of debt

(as reflected in its corporate bond rate), its current

and potential new customer growth rate, and the

rate structures, as well as the equity ratio and

return on equity that is allowed by regulation in

its service area.

Apart from the financial drivers mentioned above,

investors examine the local regulatory

environment, as it can vary substantially at the

state level (which is discussed further in the

“Legislative and Regulatory Trends” section,

below). State politics directly impact the

regulations, as the state governor usually

nominates the public utility commissioners, who

generally serve staggered, six-year terms. This

gives the political party in power a large influence

over the policies of the state utilities commission.

Analysis of a regulated utility’s financial

performance and its future risks and opportunities

should be conducted in conjunction with an

understanding of a utility’s rate structure. While

rate structures and ratemaking are extremely

complex topics that vary widely by state and

utility, investors who deepen their understanding

of a utility’s views and objectives on ratemaking—

including past rate cases and expected future rate

cases—as well as company performance relative

to specific rate structures, will provide further

II This section does not purport to contain a comprehensive review of all regulations related to this industry, but is intended to

context to assessing the risk-return profile of

utilities in an environment where increasing

resource efficiency and GHG mitigation is

paramount.

LEGISLATIVE AND REGULATORY TRENDS IN THE GAS UTILITIES INDUSTRY

Regulations in the U.S. and abroad represent the

formal boundaries of companies’ operations and

are often designed to address the social and

environmental externalities that businesses can

create. Beyond formal regulation, industry

practices and self-regulatory efforts act as quasi-

regulation and also form part of the social

contract between business and society. In this

section, SASB provides a brief summary of key

regulations and legislative efforts related to this

industry, focusing on social and environmental

factors. SASB also describes self-regulatory efforts

on the part of the industry, which could serve to

pre-empt further regulation.II

The natural monopoly that characterizes the Gas

Utilities industry is accompanied by heavy and

direct regulation. The potential environmental and

safety hazards that accompany natural gas

distribution lead to significant state and federal

legislation to protect the public. Regulations that

affect the demand and supply of natural gas and

related products also have a direct impact on this

industry, since it plays a supporting role to the

broader natural gas sector.

The prices and services of regulated utilities are

highly regulated by state utilities commissions.

Regulated gas utilities submit rate proposals to

utilities commissions in the form of rate cases,

which are then taken into consideration when the

highlight some ways in which regulatory trends are impacting the industry.

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utilities commission establishes the rates and rate

structures. Many costs, such as fluctuating natural

gas prices, can be directly passed on to

customers.

State utilities commissions also stipulate the

“allowed rate of return” for these projects. It is

important to note that this return is not

guaranteed, as the utility still needs to ensure that

it keeps its costs within its estimates and that it

avoids fines. Rather, the utility is in a position

where it has a reasonable opportunity to earn the

agreed-upon rate of return. If events occur that

create what the utility believes to be an

unavoidable cost, it can often make a case to the

utilities commission to pass those costs on to

customers.27

Twenty-five states have utilities that use a form of

decoupling.28 Decoupled rate structures attempt

to remove the linear relationship between the

amount of gas a utility sells and the company’s

revenues. Typically, decoupling mechanisms tie

company margins to the number of customers it

has and/or set up a system of revenue recovery to

counterbalance variables—such as weather and

efficiency fluctuations—that can have a significant

effect on customer demand for gas.29 For

example, South Carolina’s Piedmont Natural Gas

is allowed to adjust rates depending on weather

patterns.30 This helps smooth out revenue.

However, there is a cap, so that if the weather is

abnormally cold or warm, the utility is not

completely protected from the fluctuations.31

Utilities are often in favor of decoupling because

it may reduce the volatility of revenues and

returns. In many places decoupling also has

strong political and public support, as it addresses

the disincentive for energy conservation in

traditional pricing systems.32 Some states also

provide performance incentives for companies

that achieve consumption-reduction targets

among their customers.

The Federal Energy Regulatory Commission (FERC)

is the federal regulatory body that oversees

interstate natural gas trade. While it does not

directly affect members of this industry, its laws

still can have major effects on the operations of

gas distribution utilities. One of its most

important rulings is FERC Order No. 636, often

called the Final Restructuring Rule, as it was the

culmination of decades of utility deregulation

when it was passed, in 1992. The order

necessitated the separation of the transmission

and the sale of natural gas. It allowed many larger

customers to sidestep distribution services and

buy their gas directly from suppliers. In response,

many state utilities commissions either

encouraged or required similarly open access for

their distribution lines, giving customers a choice

in their gas provider.33

The U.S. Department of Transportation’s Pipeline

and Hazardous Materials Safety Administration

(PHMSA) establishes national policy, sets and

enforces standards, and conducts research to

prevent incidents related to hazardous materials

transportation.34 The PHMSA sets minimum

federal safety standards, but distribution pipelines

are also governed by their state utilities

commissions. A 2013 survey by the National

Association of Pipeline Safety Representatives

(NAPSR) found 1,361 state regulations, orders, or

legislation provisions that went above the

minimum federal requirements, and many of

these focus on reporting and safety.35

Fugitive emissions or leaks from natural gas

pipelines are currently not directly regulated at

the state or federal level, although regulation is

expected to be forthcoming. President Barack

Obama’s 2013 Climate Action Plan called on the

U.S. Environmental Protection Agency (EPA), as

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well as other federal agencies, to address

methane leakage.36 Current estimates of the gas

utilities’ contribution to U.S. GHG emissions are

low. The EPA found that in 2013, 0.4 percent of

the total U.S. GHG emissions came from the

industry.37 However, this is still a concern, as

methane, the industry’s main emission, has a

global warming potential that is 28 times greater

than carbon dioxide’s over a 100-year period.38

The natural gas sector as a whole produces a

quarter of all U.S. methane emissions (which

themselves are 10 percent of total U.S. GHG

emissions). Natural gas distribution specifically

accounts for 5 percent of the total from the

natural gas sector.39 Although by affecting

demand, gas utilities can play a significant role in

emissions reduction (as discussed later in the End-

Use Efficiency issue). The EPA has a voluntary

program called Natural Gas STAR that helps

utilities reduce their methane emissions and

improve their operational efficiency.40

Utilities generally must monitor and report leaks

to their utilities commission on a yearly basis.

Specific laws differ by state. For example, in New

York, natural gas leaks that do not pose an

immediate physical danger to those near them

and that are detected more than five feet from a

building are generally considered non-

hazardous.41 Utilities must report a list of these

leaks to the utilities commission, but their repair

may not be a legal priority. On the other hand,

California has some of the strictest laws

nationwide. For example, California’s 2014 Senate

Bill 1371 requires utilities to routinely check,

measure, and fix all methane leaks.42

SUSTAINABILITY-RELATED RISKS AND OPPORTUNITIES

Industry drivers and recent regulations suggest

that traditional value drivers will continue to

impact financial performance. However,

intangible assets such as social, human, and

environmental capitals, company leadership and

governance, and the company’s ability to innovate

to address these issues are likely to increasingly

contribute to financial and business value.

Broad industry trends and characteristics are

driving the importance of sustainability

performance in the Gas Utilities industry:

• Environmental externalities of

operations: Gas utilities, given the

proper regulatory climate, have a

significant role to play in ensuring the

most efficient use of natural gas by their

customers, reducing both house utility

bills and household emissions, as well as

reducing risk for the utility.

• Social license to operate: Gas utilities

are allowed to operate as a monopoly and

in so doing have a significant license to

operate. They risk losing this license if

they are not vigilant regarding safety and

emergency preparedness, as pipelines run

throughout communities. This industry

has faced increased scrutiny over high-

profile accidents that have resulted in a

loss of human life, increasing the

importance of proper safety procedures.

As described above, the regulatory and legislative

environment surrounding the Gas Utilities industry

emphasizes the importance of sustainability

management and performance. Specifically,

recent trends suggest a regulatory emphasis on

energy efficiency, which will serve to align the

interests of society with those of investors.

The following section provides a brief description

of each sustainability issue that is likely to have

material financial implications for companies in

the Gas Utilities industry. This includes an

explanation of how the issue could impact

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valuation and evidence of actual financial impact.

Further information on the nature of the value

impact, based on SASB’s research and analysis, is

provided in Appendix IIA and IIB.

Appendix IIA also provides a summary of the

evidence of investor interest in the issues. This is

based on a systematic analysis of companies’ 10-K

and 20-F filings, shareholder resolutions, and

other public documents, which highlights the

frequency with which each topic is discussed in

these documents. The evidence of interest is also

based on the results of consultation with experts

participating in an industry working group (IWG)

convened by SASB. The IWG results represent the

perspective of a balanced group of stakeholders,

including corporations, investors or market

participants, and public interest intermediaries.

The industry-specific sustainability disclosure

topics and metrics identified in this brief are the

result of a year-long standards development

process, which takes into account the

aforementioned evidence of interest, evidence of

financial impact discussed in detail in this brief,

inputs from a 90-day public comment period, and

additional inputs from conversations with industry

or issue experts.

A summary of the recommended disclosure

framework and accounting metrics appears in

Appendix III. The complete SASB standards for the

industry, including technical protocols, can be

downloaded from www.sasb.org. Finally,

Appendix IV provides an analysis of the quality of

current disclosure on these issues in SEC filings by

the leading companies in the industry.

BUSINESS MODEL AND INNOVATION

This dimension of sustainability is concerned with

the impact of environmental and social factors on

innovation and business models. It addresses the

integration of environmental and social factors in

the value-creation process of companies,

including resource efficiency and other innovation

in the production process. It also includes product

innovation and efficiency and responsibility in the

design, use-phase, and disposal of products. It

includes management of environmental and social

impacts on tangible and financial assets—either a

company’s own or those it manages as the

fiduciary for others.

The business protections allowed to companies in

this industry come with certain societal

expectations that are important to meet for

companies to retain their social license to operate.

In some regions the regulatory climate is pushing

for utilities to be partners in end-customer

resource efficiency, creating direct and indirect

rewards for companies that can achieve these

goals.

End-Use Efficiency

Natural gas produces fewer GHG emissions than

other fossil fuels do, making its proliferation a key

strategy for many governments and regulators

striving to reduce these emissions. While

displacing more emissions-intensive energy

sources could contribute to significant net

reductions of GHGs in the economy, the natural

gas value chain does still produce meaningful

levels of GHGs. This indicates that as policymakers

and regulators look to address climate change,

efficient consumption of natural gas will be an

important theme over the long term, despite the

favorable emissions profile of natural gas when

compared to the profiles of some other forms of

energy (e.g., coal). This industry, through efforts

to increase end-user efficiency, can reduce overall

natural gas emissions.

Gas utilities can partake in a wide range of

activities to promote energy efficiency among

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their customers, while potentially seeing financial

benefits themselves. If successful, these activities

result in overall efficiency increases or demand

decreases, which can meaningfully reduce GHG

emissions from the sector as a whole. Such

activities may include, proposing rate structures

that incentivize efficient consumption while

rewarding companies for increasing end-use

efficiency, providing low-interest loans to

purchase more energy efficient appliances,

creating and disseminating information and tools

to help customers become more aware of ways to

reduce their energy bills, and assisting with the

weatherization of customers’ homes.43 How a gas

utility stands to gain or lose from this trend

toward GHG mitigation is significantly predicated

on its regulatory environment.

As mentioned earlier in the “Legislative and

Regulatory Trends” section, some utilities,

regulators, and states are pursuing alternative

ratemaking that promotes efficiency or at least

removes utilities’ potential disincentives to

promote efficiency. While the specifics of such

rate structures and programs vary widely by state

and utility, “decoupling” measures generally

remove the disincentive for utilities to work with

their customers on efficiency efforts, through

delinking utility revenues from their customers’

consumption.

The resulting rate structure indicates that utilities

can proceed with encouraging end-customer

efficiency (or at the very least, not discouraging

efficiency), without jeopardizing revenues—and

potentially even growing revenues from reduced

customer consumption through a variety of other

related programs, such as performance incentives

tied to energy efficiency. Overall, such rate

structures designed to promote efficiency are

generally seen as reducing the risk profile of

utilities, while potentially providing financial

incentives for effectively promoting end-use

efficiency.

Company performance in this area can be

analyzed in a cost-beneficial way through the

following direct or indirect performance metrics

(see Appendix III for metrics with their full detail):

• Customer gas savings from efficiency

measures by market.

Evidence

Roughly 66 percent of the natural gas in the U.S.

is used by customers of this industry; the rest is

mainly used for electricity generation.44 The

natural gas industry as a whole is responsible for

roughly 2.5 percent of U.S. anthropogenic GHG

emissions. The White House has set a goal to cut

nationwide methane emissions by 40 to 45

percent by 2025, compared to 2012 levels, and

this industry has an integral role to play.45 This

makes continued regulatory emphasis on this

issue likely in the coming decade.

According to a survey from the American Gas

Association (AGA), natural gas utilities invested

$1.27 billion in efficiency programs in 2014,

which helped customers save 175 trillion Btus of

energy (1.75 billion therms), amounting to a

reduction in carbon dioxide emissions of 9.1

million metric tons. The proposed budget for

2015 increased to more than $1.46 billion. This

represents a 356 percent rise from 2007, when

the national investment hovered around $320

million.46 In 2014 these programs helped reduce

gas consumption by 18 percent for participating

households and reduced their annual natural gas

bill by $137.47 Expenditures on these efforts vary

significantly between states. For example,

California (a state with decoupling) spent $311

million on these efforts in 2014 and budgeted

nearly $370 million for 2015, while Texas (a state

I N D U S T R Y B R I E F | G A S U T I L I T I E S | 10

without decoupling) spent $2.9 million in 2014

and budgeted $4.4 million in 2015.48

On the company level, Peoples Gas, a Chicago-

based regulated utility, reported spending $19

million in 2013—roughly $25 per residential

customer—on natural gas efficiency programs.

That year, the utility reported savings of 7.77

million therms, or 0.71 percent of its retail sales.49

In addition to supporting public policy objectives

around resource efficiency and GHG mitigation,

these efficiency programs function well for gas

utilities with alternative rate structures (e.g.,

decoupled rate structures), as utilities can obtain

economic incentives for the successful

implementation of efficiency programs and, at the

very least, are not penalized financially when

customer efficiency efforts are successful. Within

these mechanisms, which can be requested by the

utility (although decoupling can also come from

state-level efficiency initiatives), decoupling is

explicitly tied to energy efficiency. For example, in

Michigan, natural gas utilities are allowed to

request a decoupling mechanism, as long as they

are spending at least 0.5 percent of their total

revenue on energy efficiency programs.50 Of

course, it should be noted that gas utilities

ultimately do not have control over their rate

structure and whether they are eligible for

decoupling.

Twenty-seven states have programs that provide

economic incentives for investor-owned utilities

that reach and/or exceed energy efficiency

performance targets. Analysis by the American

Council for an Energy-Efficient Economy shows

that these generally fall into three categories:

performance target incentives (bonuses based on

hitting certain targets), shared savings (utilities

receiving a percentage of the net savings), and

rate-of-return incentives (an increased return on

equity).51 While the amounts vary by regulatory

environment, they can be significant; California’s

Pacific Gas and Electric (PG&E) reported that for

its energy efficiency efforts (including both gas

and electric operations) between 2012 and 2014,

it was awarded roughly $60 million.52

Furthermore, eight states have monetary penalties

for failing to meet state energy efficiency

standards; penalties vary by state and the size of

the utility. For example, a large utility in Illinois

could be penalized $665,000.53

AGL Resources, an Atlanta-based gas utility,

disclosed in its FY2014 Form 10-K, “Three of our

utilities have decoupled regulatory mechanisms in

place that encourage conservation. We believe

that separating, or decoupling, the recoverable

amount of these fixed costs from the customer

throughput volumes, or amounts of natural gas

used by our customers, allows us to encourage

our customers’ energy conservation and ensures a

more stable recovery of our fixed costs.”54

While the topic of implementing alternative

ratemaking that performs well from the

perspective of all stakeholders is extremely

complex, the overall theme of the importance of

rate design to shareholders in assessing company

value is increasingly critical in an environment

where growing resource efficiency and GHG

mitigation are public policy and consumer

objectives.

The American Gas Foundation also recognizes the

need for modernization of rate design related to

efficiency needs among other drivers. In a paper

produced in conjunction with an executive forum,

“Rethinking Natural Gas Utility Rate Design,” the

organization stated, “Investors are giving a

premium to companies with rate designs such as

SFV [straight fixed-variable], decoupling, and bad-

debt recovery through tracking mechanisms,

believing that regulators and LDCs [local

distribution companies] must align customers’

I N D U S T R Y B R I E F | G A S U T I L I T I E S | 11

efficiency interests with companies’ profit

interests. Investors, consumers, companies, and

regulators will all benefit from innovative rate

designs that promote customer efficiency and

protect shareholder returns.”55

Value Impact

Companies that are able to align their financial

incentives with the objectives of public policy and

consumers—namely, increasing resource

efficiency and reducing GHG emissions—may be

better positioned over the long term to

outperform on risk-adjusted returns. Utilities can

work with regulators in this regard to continue

the growth of potentially favorable alternative-

rate designs, such as decoupling, and other

programs designed to promote end-use efficiency

and demand reductions, while rewarding

companies for strong performance in these areas

and potentially financially penalizing those with

poor performance. Such efforts, together with

improving the energy efficiency performance of

customers through specific initiatives, may

increase the stability of long-term revenues,

provide additional revenue upside opportunities,

and drive down the cost of capital as a result of

risk reductions with the rate structures that can

accompany efficiency efforts.

Given the growing urgency to act on climate

change mitigation, it is likely that energy sector

regulations will increasingly emphasize energy

efficiency. Thus the probability and magnitude of

impacts from this issue are likely to further

increase in the future.

LEADERSHIP AND GOVERNANCE

As applied to sustainability, governance involves

the management of issues that are inherent to the

business model or common practice in the

industry and are in potential conflict with the

interest of broader stakeholder groups

(government, community, customers, and

employees). They therefore create a potential

liability, or worse, a limitation or removal of

license to operate. This includes regulatory

compliance, lobbying, and political contributions.

It also includes risk management, safety

management, supply chain and resource

management, conflict of interest, anti-competitive

behavior, and corruption and bribery.

Specifically in the Gas Utilities industry, companies

that demonstrate leadership and strong

governance procedures directed at accident

prevention and prompt corrective action during

emergencies can benefit from a stronger societal

license to operate. Through enhanced

reputational value, such companies could

potentially benefit from the favorable opinion of

their regulators and customers.

Operational Safety, Emergency Preparedness, and Response

Operating a vast network of pipelines requires a

complex, structured approach to inspections and

maintenance to prevent emergency situations

such as accidents or leaks. Without proper

inspection, maintenance, and retrofitting, an

aging or otherwise neglected pipeline

infrastructure increases the likelihood of incidents

such as combustion, resulting in fires or

explosions. Accidents—particularly fatal

accidents—can result in claims of negligence

against companies, leading to costly court battles

and fines.

In many parts of the country, concerns about

aging infrastructure have caused companies in the

industry to look for ways to expedite the

replacement approval process, especially in cases

where pipelines are located near densely

populated areas. This is especially true on the East

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Coast, which has the country’s oldest distribution

infrastructure, including a higher proportion of

unprotected steel and cast iron pipelines. These

are more susceptible to leaks than newer lined

steel or plastic piping.56 In New York, more than

half the pipelines are made of cast iron, wrought

iron, or unprotected steel.57 However, as

previously mentioned, utilities can generally

recover infrastructure upgrade costs only with

utilities commission approval, so companies need

to be sure that the utilities commission will see

the infrastructure upgrades as being in the best

interest of ratepayers.

To ease the regulatory friction in upgrading

infrastructure, some utilities have made proposals

of Targeted Infrastructure Replacement Fund

Programs (TIFTs), which allow for the recovery of

capital costs for specific types of projects between

rate cases. These programs have been increasingly

approved by utilities commissions. In areas where

these programs have not been implemented, the

capital repayment structure for these upgrades

and repairs is made in the general rate case.58

These costs vary depending on the location of the

pipelines, but are generally rather expensive.

Employee training and sophisticated technology

that allows for the cost-effective monitoring of

leaks are vital resources that help companies

manage the risk of escaping natural gas igniting

and causing bodily harm and infrastructure and

property damage.59 Company performance in this

area can be analyzed in a cost-beneficial way

through the following direct or indirect

performance metrics (see Appendix III for metrics

with their full detail):

• Number of (1) reportable pipeline

incidents, (2) Corrective Action Orders

(CAO), (3) Notices of Probable Violation

(NOPV);

• Average response time for gas

emergencies;

• Percentage of distribution pipeline that is

(1) cast and/or wrought iron and (2)

unprotected steel; and

• Discussion of management systems used

to integrate a culture of safety and

emergency preparedness throughout

project lifecycles.

Evidence

Gas distribution line accidents have resulted in

more than 120 deaths and were responsible for

more than $775 million in damages between

2004 and 2014.60 During this period, there was

an annual average of 28 serious incidents, defined

as events that include a fatality or an injury

requiring in-patient hospitalization. While still a

serious issue for the industry, these incidents have

been trending downward recently, which is

partially due to technological advances. Between

2012 and 2014, gas distribution companies

averaged 23 incidents per year.61 However, aging

pipelines could mean this downward trend may

not continue in the long term without effective

actions to strengthen the pipe infrastructure. As

mentioned, these upgrade costs can vary

significantly by location. For example, in

Pittsburgh, it costs roughly $1 million per mile to

replace distribution lines; in New York City, it

costs $10 million per mile.62 Paradoxically, the

riskier that a utility is perceived to be (in regard to

its safety record), it will likely have more trouble

raising capital, making these needed upgrades

costlier or potentially prohibitively expensive

without regulatory intervention.

Distribution lines can explode, causing loss of

human life and property, as well as serious

regulatory repercussions. A 2011 distribution line

blast in Allentown, Pennsylvania, killed five people

and leveled a city block. UGI, a Pennsylvania-

based natural gas distribution company, was fined

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$500,000 for improperly odorizing some of its gas

and for failing to check for corrosion in its

pipelines—both measures that potentially could

have helped avoid the explosion.63

After the PUC investigation, UGI was required to

spend between $2 million and $4 million to add

equipment to better spread mercaptan, an

odorant, throughout its lines.64 Furthermore, it

was directed to accelerate its replacement of cast-

iron pipelines, which cost an estimated $18

million a year in 2013 and 2014 and ultimately is

estimated to cost $1.2 billion.65 UGI was

replacing pipes at a rate of 6 to 10 miles per year,

but in the aftermath of the accident has now

greatly accelerated its replacement rate to 63 to

66 miles per year.66 This explosion also caused the

Pennsylvania government to raise the maximum

fine for pipeline safety incidents from $500,000

to $2 million.67

A 2014 explosion in East Harlem that killed eight

people, injured 50 people, and displaced more

than 100 families led to increased media scrutiny

of Consolidated Edison, a large regulated utility

based in New York City.68 It was subsequently

revealed that of the 525 people who had been

trained to connect pipe sections between 2009

and 2014, 301 had lapses in their qualifications.69

The National Transportation Safety Board issued a

report in 2015 that found that the explosion

could have been avoided if two Con Edison

pipelines had been properly connected; it also

found that New York City also should have

repaired a hole in the sewer main.70

Con Edison faced initial costs of $1.9 million for

emergency response and repair,71 and since the

blast, the company has been shouldering the

increased expense of surveying its 4,300 miles of

gas lines monthly, instead of the yearly

inspections required by state and federal law.72

Con Edison could also face both fines and legal

action from this incident.73

Con Edison, in its FY2015 Form 10-K, noted the

incident under “Other Material Contingencies”:

“Approximately seventy suits are pending against

the company seeking generally unspecified

damages and, in one case, punitive damages, for

wrongful death, personal injury, property damage

and business interruption. The company has

notified its insurers of the incident and believes

that the policies in force at the time of the

incident will cover the company’s costs, in excess

of a required retention (the amount of which is

not material), to satisfy any liability it may have

for damages in connection with the incident. The

company is unable to estimate the amount or

range of its possible loss related to the incident.

At December 31, 2015, the company had not

accrued a liability for the incident.”74 Credit rating

agency Fitch, in assessing the credit risk of Con

Edison, noted that it has been unable to verify the

extent of the insurance coverage for this

incident.75

While companies in this industry have insurance

to cover potential damages, it may not always

fully protect the company from losses. As Atmos

Energy, a Dallas-based natural gas distributor with

operations in both regulated and deregulated

markets, noted in its FY2014 Form 10-K,

“Because some of our…distribution facilities are

near or are in populated areas, any loss of human

life or adverse financial results resulting from such

events could be large. If these events were not

fully covered by our general liability and property

insurance, which policies are subject to certain

limits and deductibles, our operations or financial

results could be adversely affected.”76

Value Impact

Operational safety management has implications

for the cost structure of gas utilities. Companies

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that are found negligent in accidents can incur

costs and fines that cannot be passed on to their

customers. Accidents can lead to legal and

regulatory actions that could result in

extraordinary expenses, contingent liabilities, an

increase in insurance costs, and an increase in a

company’s cost of capital.

While the probability of these events is low, their

impact, however, can be significant—raising costs

and cutting into the otherwise generally stable

returns investors expect from utilities. On the

other hand, capital expenditures to upgrade aging

infrastructure may be built into rates, depending

on the utilities commission and rate design,

resulting in higher profits. Furthermore, accidents

can significantly impact utilities’ own

infrastructure and their reputation, affecting both

tangible and intangible assets.

Over time, the probability of this impact is likely

to increase as the current infrastructure of

pipelines continues to age.

SASB INDUSTRY WATCH LIST

The following section provides a brief description

of sustainability disclosure topics that are not

likely to constitute material information at present

but could do so in the future.

Distribution Network Cybersecurity

Systemic or regional disruptions may occur if gas

utilities are not prepared to handle cyber-attacks.

These attacks could result in frequent or

significant service disruptions and the need to

upgrade or repair compromised equipment. Gas

utilities own and operate infrastructure that

people and businesses rely on for critical

functions, such as heating. Natural gas is the main

heating fuel for 43 percent of U.S. households.77

Disruption to natural gas pipelines in winter could

potentially result in a high death toll, especially in

the dangerously frigid climates of the upper

Midwest and the Northeast.

The cybersecurity of some unnamed gas utilities

has been compromised. Since 2011, Chinese

hackers have attempted to infiltrate at least 23

natural gas pipelines, and authorities have

confirmed that they were able to gain access to

private information and to gain control of systems

at 10 facilities. With this kind of access, hackers

could concentrate gas in certain pipelines, causing

them to explode.78

Cybersecurity is the focus of a presidential

initiative, as it has been identified as one of the

chief U.S. security weaknesses.79 In 2014, the U.S.

Department of Homeland Security sent a warning

to gas utilities stating that many of their

substation and pipeline controls were not

adequately secure.80 This political support makes

it likely that rate cases seeking to specifically

address the strengthening of this infrastructure

will be approved, potentially a boon for investors

in this industry. As more elements of operational

infrastructure are connected to the Internet, and

as companies move information technology

infrastructure to shared networks, it is likely that

companies’ risks from cyber-attacks will increase

in the future.81

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APPENDIX I

FIVE REPRESENTATIVE GAS UTILITIES COMPANIESIII

III This list includes five companies representative of the Gas Utilities industry and its activities. This includes only companies for which the Gas Utilities industry is the primary industry, companies that are U.S.-listed but are not primarily traded over the counter, and for which at least 20 percent of revenue is generated by activities in this industry, according to the latest information available on Bloomberg Professional Services. Retrieved on March 24, 2015.

COMPANY NAME (TICKER SYMBOL)

NiSource (NI)

Atmos Energy (ATO)

AGL Resources (GAS) UGL Corporation (UGI)

Questar Corporation (STR)

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APPENDIX IIA: Evidence for Sustainability Disclosure Topics

Sustainability Disclosure Topics

EVIDENCE OF INTERESTEVIDENCE OF

FINANCIAL IMPACTFORWARD-LOOKING IMPACT

HM (1-100)

IWGsEI

Revenue & Cost

Asset & Liabilities

Cost of Capital

EFIProbability & Magnitude

Exter- nalities

FLI% Priority

End-use Efficiency 63 67 2 Medium • • Medium • • Yes

Operational Safety, Emergency Preparedness, and Response

71* 75 1 High • • • High • Yes

HM: Heat Map, a score out of 100 indicating the relative importance of the topic among SASB’s initial list of 43 generic sustainability issues. Asterisks indicate “top issues.” The score is based on the frequency of relevant keywords in documents (i.e., 10-Ks, 20-Fs, shareholder resolutions, legal news, news articles, and corporate sustainability reports) that are available on the Bloomberg terminal for the industry’s publicly listed companies. Issues for which keyword frequency is in the top quartile are “top issues.”

IWGs: SASB Industry Working Groups

%: The percentage of IWG participants that found the disclosure topic likely to constitute material information for companies in the industry. (-) denotes that the issue was added after the IWG was convened.

Priority: Average ranking of the issue in terms of importance. 1 denotes the most important issue. (-) denotes that the issue was added after the IWG was convened.

EI: Evidence of Interest, a subjective assessment based on quantitative and qualitative findings.

EFI: Evidence of Financial Impact, a subjective assessment based on quantitative and qualitative findings.

FLI: Forward Looking Impact, a subjective assessment on the presence of a material forward-looking impact.

17I N D U S T RY B R I E F | G A S U T I L I T I E S

APPENDIX IIB: Evidence of Financial Impact for Sustainability Disclosure Topics

Evidence of

Financial Impact

REVENUE & EXPENSES ASSETS & LIABILITIES RISK PROFILE

Revenue Operating Expenses Non-operating Expenses Assets Liabilities

Cost of Capital

Industry Divestment

RiskMarket Share New Markets Pricing Power

Cost of Revenue

R&D CapExExtra-

ordinary Expenses

Tangible Assets

Intangible Assets

Contingent Liabilities & Provisions

Pension & Other

Liabilities

End-use Efficiency • • • •

Operational Safety, Emergency Preparedness, and Response

• • • • • • •

H IGH IMPACTMEDIUM IMPACT

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APPENDIX III

SUSTAINABILITY ACCOUNTING METRICS—GAS UTILITIES

TOPIC

ACCOUNTING METRIC CATEGORY UNIT OF

MEASURE

CODE

End-Use Efficiency Customer gas savings from efficiency measures by market4

Quantitative Million British Thermal Units (MMBtu)

IF0102-01

Operational Safety, Emergency Preparedness, and Response

Number of (1) reportable pipeline incidents, (2) Corrective Action Orders (CAO), and (3) Notices of Probable Violation (NOPV)5

Quantitative Number IF0102-02

Average response time for gas emergencies Quantitative Minutes IF0102-03

Percentage of distribution pipeline that is (1) cast and/or wrought iron and (2) unprotected steel

Quantitative Percentage (%) by kilometers (km)

IF0102-04

Discussion of management systems used to integrate a culture of safety and emergency preparedness throughout project lifecycles

Discussion and Analysis

n/a IF0102-05

4 Note to IF0102-01—The registrant shall discuss customer efficiency measures that are required by regulations for each of its relevant markets. 5 Note to IF0102-02—The registrant shall discuss notable incidents such as those that affected a significant number of customers, created extended disruptions to service, or resulted in serious injury or death.

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APPENDIX IV: Analysis of SEC Disclosures | Gas Utilities

The following graph demonstrates an aggregate assessment of how representative U.S.-listed Gas Utilities companies are currently reporting on sustainability topics in their SEC annual filings.

Gas Utilities

End-Use Efficiency

Operational Safety, Emergency Preparedness, and Response

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

TYPE OF DISCLOSURE ON SUSTAINABILITY TOPICS

NO DISCLOSURE BOILERPLATE INDUSTRY-SPECIF IC METRICS

67%

75%

IWG Feedback*

*Percentage of IWG participants that agreed topic was likely to constitute material information for companies in the industry.

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REFERENCES

1 “Energy Primer: A Handbook of Energy Market Basics,” Federal Energy Regulation Commission, July 2012, p. 32. 2 AmeriGas, FY2014 Form 10-K for the Period Ending November 30, 2014 (filed November 26, 2014), p. 4. 3 Nicholas Kusnetz, “Underground Industry: Gas Pipelines Are Big Business but Lightly Regulated,” ProPublica, October 20, 2011, accessed April 22, 2015, http://www.propublica.org/article/underground-industry-gas-pipelines-are-big-business-but-lightly-regulated. 4 “Distribution of Natural Gas,” U.S. Energy Information Agency, June 2008, p. 5, accessed April 14, 2015, http://www.eia.gov/pub/oil_gas/natural_gas/feature_articles/2008/ldc2008/ldc2008.pdf. 5 “Electricity Regulation in the U.S.,” Regulatory Assistance Project, March 2011, p. 9, accessed April 22, 2015, http://www.raponline.org/docs/RAP_Lazar_ElectricityRegulationInTheUS_Guide_2011_03.pdf. 6 “Natural Gas Residential Choice Programs by State as of December 2009,” U.S. Energy Information Agency, May 17, 2010, accessed April 11, 2015, http://www.eia.gov/oil_gas/natural_gas/restructure/restructure.html. 7 Ibid.; “Order No. 636 - Restructuring of Pipeline Services,” Federal Energy Regulatory Commission, last updated June 28, 2010, accessed March 20, 2016, http://www.ferc.gov/legal/maj-ord-reg/land-docs/restruct.asp. 8 “Number of Natural Gas Customers Participating in Customer Choice Programs Is Increasing,” U.S. Energy Information Agency, December 3, 2014, accessed April 11, 2015. 9 “Ibid., accessed February 2, 2016, https://www.eia.gov/todayinenergy/detail.cfm?id=19031. 10 “Distribution of Natural Gas,” U.S. Energy Information Agency. 11 “Alternative Regulation for Evolving Utility Challenges: An Updated Survey,” Edison Electric Institute, January 2013, accessed February 10, 2016, http://www.eei.org/issuesandpolicy/stateregulation/Documents/innovative_regulation_survey.pdf. 12 Ralph Cavanagh, “Report: ‘Decoupling’ Is Transforming the Utility Industry,” Natural Resources Defense Council, January 31, 2013, accessed March 30, 2015, http://switchboard.nrdc.org/blogs/rcavanagh/report_decoupling_is_transform.html; “Revenue Decoupling: An Overview,” Center for Climate and Energy Solutions, accessed April 24, 2015, http://www.c2es.org/us-states-regions/policy-maps/decoupling/detail. 13 Data from Bloomberg Professional service, accessed on March 24, 2015, using the ICS <GO> command. The data represents global revenues of companies listed on global exchanges and traded over the counter from the Gas Utilities industry, using Levels 4, 5, and 6 of the Bloomberg Industry Classification System. Revenue of Gazprom reported under the BICS Level 6 Natural Gas Distributors segment (equal to approximately $93 billion at the time of data retrieval) is not included, as the activities reported under “Gas Distribution” as a segment would be defined as those performed by integrated oil and gas companies under U.S. law. 14 Ibid. NB: The reason that the revenue figure for gas distributors is larger than the combined amount of propane gas distributors and natural gas distributors is that not all companies are classified down to BICS Level 6. 15 Author’s calculation based on data from Bloomberg Professional service, accessed on March 24, 2015, using the ICS <GO> command. 16 Zachary Harris, Industry Report 22121 Natural Gas Distribution in the US, IBIS World, December 2014, p. 14. 17 AmeriGas Partners, FY2015 Q1 Earnings Call, p. 3., accessed from Bloomberg Professional service, March 24, 2015, using the CF <GO> command. 18 “Energy Primer: A Handbook of Energy Market Basics,” Federal Energy Regulation Commission, p. 7–8. 19 “Leveraging Natural Gas to Reduce Greenhouse Gas Emissions,” Center for Climate and Energy Solution,” June 2013, accessed April 22, 2015, http://www.c2es.org/publications/leveraging-natural-gas-reduce-greenhouse-gas-emissions. 20 Author’s calculation from “Natural Gas,” U.S. Energy Information Administration, February 3, 2016, accessed February 4, 2016, https://www.eia.gov/dnav/ng/hist/rngwhhdm.htm. 21 David Witter, Industry Report 22121 Natural Gas Distribution in the US, IBISWorld, January 2016, p. 5. 22 Harris, Industry Report 22121 Natural Gas Distribution in the US, p. 20. 23 “Strategies to Fuel the Energy Workforce,” Manpower, 2014, accessed April 15, 2015, https://docs.google.com/file/d/0By8DaUoNvkIzQ1F2TEpZWHJJYWM/edit. 24 Harris, Industry Report 22121 Natural Gas Distribution in the US, p. 19. 25 Ibid., p. 22.

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26 “A Guide to Utility Ratemaking,” Questar Gas Company, July 2014, accessed April 22, 2015, https://www.questargas.com/brochures/59027.pdf, p. 5. 27 “Regulatory Responsibility of the California Public Utilities Commission,” California Public Utilities Commission, accessed March 30, 2015, http://www.cpuc.ca.gov/PUC/aboutus; “A Guide to Utility Ratemaking,” Questar Gas Company. 28 “Alternative Regulation for Evolving Utility Challenges: An Updated Survey,” Edison Electric Institute, January 2013, accessed February 10, 2016, http://www.eei.org/issuesandpolicy/stateregulation/Documents/innovative_regulation_survey.pdf. 29 “Revenue Decoupling: An Overview,” Center for Climate and Energy Solutions. 30 Piedmont Natural Gas, FY2014, Form 10-K for the Period Ending November 31, 2014 (filed December 23, 2014), p. 15. 31 Dylan Sullivan et al., “Removing Disincentives to Utility Energy Efficiency Efforts,” National Resources Defense Council, May 2012. 32 Ibid. 33 James Tobin, “Distribution of Natural Gas: The Final Step in the Transmission Process,” U.S. Energy Information Agency, 2008, accessed April 22, 2015, www.eia.gov/pub/oil_gas/natural_gas/feature_articles/2008/ldc2008/ldc2008.pdf+&cd=2&hl=en&ct=clnk&gl=us. 34 “Mission and Goals,” Pipeline and Hazardous Materials Safety Administration, accessed June 8, 2014, http://www.phmsa.dot.gov/about/mission. 35 “Providing Increased Public Safety Levels,” National Association of Regulatory Utility Commissioners, 2013. 36 “Improvements Needed in EPA Efforts to Address Methane Emissions from Natural Gas Distribution Pipelines,” U.S. Environmental Protection Agency, July 25, 2014. 37 “Petroleum and Natural Gas Systems,” U.S. Environmental Protection Agency, last updated February 24, 2015, accessed April 30, 2015, http://www.epa.gov/climate/ghgreporting/ghgdata/reported/petroleum.html. 38 Steven Hamburg and Ramon Alvarez, “What Will It Take to Get Sustained Benefits from Natural Gas?” Environmental Defense Fund, accessed April 26, 2015, http://www.edf.org/energy/methaneleakage. 39 Elizabeth Paranhos et al., Controlling Methane Emissions in the Natural Gas Sector: A Review of Federal and State Regulatory Frameworks Governing Production, Gathering, Processing, Transmission, and Distribution, Joint Institute for Strategic Energy Analysis, April 2015. 40 “Natural Gas Star Program,” U.S. Environmental Protection Agency, accessed April 22, 2015, http://www.epa.gov/gasstar. 41 Chris Glorioso, “I-Team: Staten Island Natural Gas Leaks Revealed,” July 17, 2014, accessed April 11, 2015, http://www.nbcnewyork.com/news/local/Natural-Gas-Leaks-Staten-Island-Map-National-Grid-Environmental-Defense-Fund-267432531.html. 42 “Gov. Brown Signs Bill to Repair California’s Natural Gas Leaks,” Blue Green Alliance, September 23, 2014, accessed April 10, 2015, http://www.bluegreenalliance.org/news/latest/gov-brown-signs-bill-to-repair-californias-natural-gas-leaks. 43 “Energy Efficiency and Natural Gas Utilities,” American Gas Association, 2016, accessed February 8, 2016, https://www.aga.org/knowledgecenter/studies/energy-efficiency-environment-and-climate-change/natural-gas-efficiency. 44 “Estimated U.S. Energy Use in 2014,” Lawrence Livermore National Laboratory, 2015, accessed March 16, 2016, https://flowcharts.llnl.gov/commodities/energy. 45 “Fact Sheet: Administration Takes Steps Forward on Climate Action Plan by Announcing Actions to Cut Methane Emissions,” White House Office of the Press Secretary, January 14, 2015, accessed April 14, 2015, https://www.whitehouse.gov/the-press-office/2015/01/14/fact-sheet-administration-takes-steps-forward-climate-action-plan-anno-1. 46 “Natural Gas Energy Efficiency Program Investments 2007–2015,” American Gas Association, accessed March 15, 2016, https://www.aga.org/sites/default/files/updated_chart_for_aga_playbook_12042015.pptx. 47 “Natural Gas Efficiency Program Investments in the United States,” American Gas Association, 2016, accessed February 3, 2016, https://www.aga.org/sites/default/files/efficiency_fact_sheet_-_2016_0.pdf. 48 “Appendix A: Natural Gas Efficiency Program 2014 Expenditures and 2015 Budgets by State,” American Gas Association, 2014, accessed February 22, 2016, https://www.aga.org/knowledgecenter/studies/energy-efficiency-environment-and-climate-change/natural-gas-efficiency; Gas and Electricity Decoupling,” Natural Resources Defense Council, accessed March 16, 2016, http://www.nrdc.org/energy/decoupling. 49 “Efforts of Energy Utilities,” American Council for an Energy-Efficiency Economy, December 2014, accessed April 12, 2015, http://database.aceee.org/city/electric-gas-energy-efficiency#sthash.StPqLYU9.dpuf.

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