DSM Incentive Returns Proposal – Benefit/Cost Ratio Approach Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.1 Page 1 Overview: An incentive return approach can be developed that actually gives the utility a reward for exceeding Commission DSM goals on a performance basis. These incentives are symmetrical and provide both rewards for exceptional performance and penalties for inferior performance. The benefit/cost (B/C) ratio approach would scale rewards and penalties based upon cost- effectiveness, rather than the total volume (or dollar) of savings. The higher the ratio, indicating the greater the benefit relative to every dollar spent, the greater the opportunity for the utility to earn an incentive. Lower ratios would result in penalties. Data and Approach: The data used in this approach would be taken from information supporting the portfolio of programs the Company proposes over the 3 year pilot period. Estimates of costs and savings would be used to develop the baseline B/C ratio for incentive purposes. Comparisons to other states’ best practices could also be utilized in establishing the baseline B/C ratio. This proposal envisions a dead-band around the baseline B/C ratio. Actual performance that falls within the baseline would not be subject to any penalties or rewards. Performance that exceeds the dead-band would result in a fixed dollar per decatherm ($/Dth) reward to the Company. The reward levels would be established from the benefits estimated in the Company’s proposed 3 year portfolio of DSM programs. Additional bounds could be established that give higher rewards as higher levels of DSM delivery effectiveness are attained.

DSM Incentive Returns Proposal – Benefit/Cost Ratio Approach, Illustrative Example Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.1 Page 2 Dead Band Initial Penalty Additional Penalty Band Initial Incentive Band Additional Incentive Band Initial $/Dth incentive No incentive or penalty Note: For illustrative purposes only, actual amounts would have to be determined by the parties after DSM programs are submitted by the Company. Additional $/Dth incentive Initial $/Dth penalty Additional $/Dth penalty benefit/cost ratio

DSM Incentive Returns Proposal – Total Savings Approach Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.2 Page 1 Overview: An incentive return approach can be developed that actually gives the utility a reward for exceeding Commission DSM goals in absolute value. These incentives are symmetrical and provide both rewards for exceptional performance and penalties for inferior performance. This proposed approach would scale rewards and penalties based upon total volume of savings. The higher the total achieved savings the greater the opportunity for the utility to earn an incentive. Lower achieved savings levels would result in penalties. Data and Approach: The data used in this approach would be taken from information supporting the portfolio of programs the Company proposes over the 3 year pilot period. Estimates of savings would be used to develop the baseline savings levels for incentive purposes. Comparisons to other states’ best practices could also be utilized in establishing the baseline level. This proposal envisions a dead-band around the baseline savings level. Actual performance that falls within the baseline would not be subject to any penalties or rewards. Performance that exceeds the dead-band would result in a fixed dollar per decatherm ($/Dth) reward to the Company. The reward levels would be established from the benefits estimated in the Company’s proposed 3 year portfolio of DSM programs. Additional bounds could be established that gives higher rewards as higher levels of DSM savings are attained.

DSM Incentive Returns Proposal – Total Savings Approach, Illustrative Example Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.2 Page 2 Dead Band Initial Penalty Additional Penalty Band Initial Incentive Band Additional Incentive Band Initial $/Dth incentive No incentive or penalty Additional $/Dth incentive Initial $/Dth penalty Additional $/Dth penalty million dth Note: For illustrative purposes only, actual amounts would have to be determined by the parties after DSM programs are submitted by the Company.

Statistical Re-coupling Approach Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.3 Page 1 Overview: A statistical re-coupling approach is a modification of a full revenue decoupling approach like the CET. The only difference is that the “true-up” amounts are adjusted to “back-out” the impacts associated with exogenous impacts like changes in the economy, prices and other factors. Making these adjustments results in maintaining the traditional risk relationship between a utility and its ratepayers. Thus, increased sales due to an expanding economy, or decreases in natural gas prices would be credited to the utility. Like traditional methods, the approach is also symmetrical meaning that decreases in economic activity, or increases in natural gas commodity prices, would result in decreases in the true-up amount. Data and Approach: A statistical re-coupling approach would use estimates of the income and price elasticity of demand to adjust the proposed average revenue balances. Income and price elasticities are estimated on a regular basis, through the load forecasting process, that is part of the Company’s Integrated Resource Plan (“IRP”). This proposal would adopt the Company’s current elasticity estimates and forecasted decrease in use per customer. The income elasticity of demand is 0.05 and the price elasticity of demand is on a use per customer basis. Average use per customer would also be adjusted for the 2.7 Dth/customer reduction anticipated to occur from customer-initiated efficiency.

Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.3 Page 2 Example: Statistical Re-coupling Approach Allowed Amounts Revenues Usage Customers Revenue per customer Use per customer Actual Amounts Revenues Usage Customers Revenue per customer Use per customer $ 150,000,000 68,400, ,000 $ $ 145,500,000 66,348, ,000 $ Unadjusted True-Up Shortfall, Total Revenue Shortfall, Revenue per Customer Adjustments (Use per Customer) Price Elasticity Adjustment Income Elasticity Adjustment Trend Adjustment Adjusted Use Per Customer Adjustments (Revenues) Price Elasticity Adjustment Income Elasticity Adjustment Trend Adjustment Total Adjustment Total Adjustment per Customer Net Decoupling Adjustment (Total) Net Decoupling Adjustment (per Customer) $ (4,500,000) $ (7.50) $ (720,000) $ 187,500 $ (3,552,632) $ (4,085,132) $ (6.81) $ (414,868) $ (0.69) Note: This example assumes an annual price increase of 8 percent and an increase in personal income of 2.5 percent.

Impact of Sales on Utility Earnings Source: NRRI Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.4 Where: E = earnings to common equity shareholders; R = revenues; FC = fixed costs (exclusive of equity returns) VC = variable costs ∆Q = the change in the quantity of sales relative to the test-year level, P = the delivered price of gas; ROE = rate of return on equity; * = targeted or authorized levels for the specified parameters (1) (2) (3) Equation (1) assumes that common equity shareholders hold residual claims to a utility’s earnings. Equation (2) says that changes in the earnings to common equity shareholders equal the difference between changes in revenue and variable costs (i.e., the change in net revenues). Equation (3) relates the proportional changes in earnings and the rate of return on equity to the change in net revenues and the ratio of revenues to earnings to common equity shareholders.

Impact of Sales on Utility Earnings – Adjustment Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.5 Usage attributable to a change in use per customer (existing customers) Changes in total usage can be decomposed between: Usage attributable to growth in new customers Where: C = customers C t-1 = prior period customers C t = current period customers Q t /C t = current period use per customer Q t-1 /C t-1 = prior period use per customer

Estimated Impacts on Usage – Changes in Use per Customer and Changes in Customer Growth Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.6

Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.7 Estimated Impacts on Revenue – Changes in Use per Customer and Changes in Customer Growth

Forecast – Estimated Potential Usage Trends Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.8

Summary Financial Impact of Changes in Use per Customer and Customers, Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.9 Page 1

Financial Impact of Change in Use per Customer, Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.9 Page 2

Financial Impact of Change in Customers, Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.9 Page 3

Questar Average and Incremental Investment Trends Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.10

Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.11 Incremental Impact of DSM Implementation on Shareholders

Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.12 Utah GS-1 Temperature-Adjusted Use Per Customer 1981 to 1987: 6 year trend of decreasing use per customer 1987 to 1997: 10 year trend of constant use per customer 1997 to year trend of decreasing use per customer

Statistical Significance of Changes in Use per Customer and Revenues per Customer Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.13

Utah Committee of Consumer Services Witness: David Dismukes Docket No T01 Supplemental Rebuttal Exhibit CCS-2.14 Utah GS-1 Temperature-Adjusted Use Per Customer with Major Period Trends Trend Period Major Period Average (Dth) Sub Period Average (Dth) Jan-81 to Apr May-87 to Mar Apr-97 to Current Apr-97 to Oct Nov-98 to Jun Jul-02 to Current Recent Trends: 2001 to