PIEDMONT NATURAL GAS CO INC (Form: 10-Q, Received: 03/06/2013 16:10:39)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-6196

Piedmont Natural Gas Company, Inc.

(Exact name of registrant as specified in its charter)


North Carolina		56-0556998
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4720 Piedmont Row Drive, Charlotte, North Carolina		28210
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (704) 364-3120

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class	Outstanding at March 4, 2013
Common Stock, no par value		75,520,220

Piedmont Natural Gas Company, Inc.

Form 10-Q

for

January 31, 2013

TABLE OF CONTENTS


		Page
Part I.	Financial Information

Item 1.	Financial Statements		1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		44
Item 4.	Controls and Procedures		44

Part II.	Other Information

Item 1.	Legal Proceedings		45
Item 1A.	Risk Factors		45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		45
Item 6.	Exhibits		46

	Signatures		48

Part I. Financial Information

Item 1. Financial Statements

Piedmont Natural Gas Company, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

(In thousands)


	January 31,		October 31,
	2013		2012
ASSETS
Utility Plant:
Utility plant in service	$	3,781,113	$	3,746,178
Less accumulated depreciation		1,036,738		1,036,814

Utility plant in service, net		2,744,375		2,709,364
Construction work in progress		469,259		388,979
Plant held for future use		6,743		6,743

Total utility plant, net		3,220,377		3,105,086

Other Physical Property, at cost (net of accumulated depreciation of $851 in 2013 and $843 in 2012)		407		415

Current Assets:
Cash and cash equivalents		10,595		1,959
Trade accounts receivable (less allowance for doubtful accounts of $3,260 in 2013 and $1,579 in 2012)		176,321		56,700
Income taxes receivable		35,406		31,606
Other receivables		1,922		2,104
Unbilled utility revenues		86,512		24,012
Inventories:
Gas in storage		78,634		72,661
Materials, supplies and merchandise		877		934
Gas purchase derivative assets, at fair value		724		3,153
Amounts due from customers		58,918		81,626
Prepayments		5,488		30,600
Other current assets		296		287

Total current assets		455,693		305,642

Noncurrent Assets:
Equity method investments in non-utility activities		100,239		87,867
Goodwill		48,852		48,852
Marketable securities, at fair value		2,676		2,131
Regulatory asset for postretirement benefits		120,863		123,290
Unamortized debt expense		13,277		13,583
Regulatory cost of removal asset		21,582		21,129
Other noncurrent assets		64,868		61,944

Total noncurrent assets		372,357		358,796

Total	$	4,048,834	$	3,769,939

See notes to consolidated financial statements.

Piedmont Natural Gas Company, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

(In thousands)


	January 31,			October 31,
	2013			2012
CAPITALIZATION AND LIABILITIES
Capitalization:
Stockholders’ equity:
Cumulative preferred stock—no par value—175 shares authorized	$	—		$	—
Common stock—no par value—shares authorized: 200,000; shares outstanding: 72,512 in 2013 and 72,250 in 2012		450,175			442,461
Retained earnings		649,098			584,848
Accumulated other comprehensive loss		(463	)		(305	)

Total stockholders’ equity		1,098,810			1,027,004
Long-term debt		875,000			975,000

Total capitalization		1,973,810			2,002,004

Current Liabilities:
Current maturities of long-term debt		100,000			—
Short-term debt		530,000			365,000
Trade accounts payable		123,459			94,269
Other accounts payable		27,267			47,699
Accrued interest		12,700			21,450
Customers’ deposits		22,263			21,739
Deferred income taxes		46,063			13,542
General taxes accrued		8,858			21,504
Amounts due to customers		—			28
Other current liabilities		15,940			7,320

Total current liabilities		886,550			592,551

Noncurrent Liabilities:
Deferred income taxes		623,701			597,211
Unamortized federal investment tax credits		1,602			1,669
Accumulated provision for postretirement benefits		17,466			37,299
Cost of removal obligations		501,892			492,963
Other noncurrent liabilities		43,813			46,242

Total noncurrent liabilities		1,188,474			1,175,384

Commitments and Contingencies (Note 9)

Total	$	4,048,834		$	3,769,939

See notes to consolidated financial statements.

Piedmont Natural Gas Company, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands except per share amounts)


	Three Months Ended
	January 31
	2013			2012
Operating Revenues	$	515,875		$	471,840
Cost of Gas		284,252			251,603

Margin		231,623			220,237

Operating Expenses:
Operations and maintenance		55,882			58,397
Depreciation		26,701			26,178
General taxes		9,528			8,622
Utility income taxes		53,299			47,221

Total operating expenses		145,410			140,418

Operating Income		86,213			79,819

Other Income (Expense):
Income from equity method investments		7,155			6,292
Non-operating income		448			61
Non-operating expense		(762	)		(421	)
Income taxes		(2,674	)		(2,318	)

Total other income (expense)		4,167			3,614

Utility Interest Charges:
Interest on long-term debt		12,675			10,023
Allowance for borrowed funds used during construction		(8,313	)		(4,423	)
Other		95			1,606

Total utility interest charges		4,457			7,206

Net Income		85,923			76,227

Other Comprehensive Loss, net of tax:
Unrealized loss from hedging activities of equity method investments, net of tax of ($114) and ($278) for the three months ended January 31, 2013 and 2012, respectively		(179	)		(436	)
Reclassification adjustment of realized gain from hedging activities of equity method investments included in net income, net of tax of $14 and $272 for the three months ended January 31, 2013 and 2012, respectively		21			426

Total other comprehensive loss		(158	)		(10	)

Comprehensive Income	$	85,765		$	76,217

Average Shares of Common Stock:
Basic		72,356			72,126
Diluted		72,725			72,433
Earnings Per Share of Common Stock:
Basic	$	1.19		$	1.06
Diluted	$	1.18		$	1.05
Cash Dividends Per Share of Common Stock	$	0.30		$	0.29

See notes to consolidated financial statements.

Piedmont Natural Gas Company, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Three Months Ended
	January 31
	2013			2012
Cash Flows from Operating Activities:
Net income	$	85,923		$	76,227
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		28,392			27,257
Amortization of investment tax credits		(67	)		(89	)
Allowance for doubtful accounts		1,681			1,408
Net gain on sale of property		(18	)		—
Income from equity method investments		(7,155	)		(6,292	)
Distributions of earnings from equity method investments		1,962			1,600
Deferred income taxes, net		59,111			60,974
Changes in assets and liabilities:
Gas purchase derivatives, at fair value		2,429			996
Receivables		(183,621	)		(156,455	)
Inventories		(5,916	)		(14,091	)
Amounts due from/to customers		22,680			10,428
Settlement of legal asset retirement obligations		(328	)		(221	)
Regulatory asset for postretirement benefits		2,427			1,024
Other assets		17,932			20,414
Accounts payable		19,436			17,164
Provision for postretirement benefits		(19,833	)		14
Other liabilities		(12,401	)		(15,711	)

Net cash provided by operating activities		12,634			24,647

Cash Flows from Investing Activities:
Utility capital expenditures		(137,211	)		(98,140	)
Allowance for funds used during construction		(8,313	)		(4,423	)
Contributions to equity method investments		(7,548	)		(1,828	)
Distributions of capital from equity method investments		110			—
Proceeds from sale of property		370			211
Investments in marketable securities		(418	)		(677	)
Other		38			251

Net cash used in investing activities		(152,972	)		(104,606	)

Piedmont Natural Gas Company, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Three Months Ended
	January 31
	2013			2012
Cash Flows from Financing Activities:
Borrowings under credit facility	$	10,000		$	282,000
Repayments under credit facility		(10,000	)		(155,500	)
Net borrowings—commercial paper		165,000			—
Expenses related to issuance of debt		(4	)		(131	)
Issuance of common stock through dividend reinvestment and employee stock plans		5,680			4,914
Repurchases of common stock		—			(27,016	)
Dividends paid		(21,702	)		(20,979	)

Net cash provided by financing activities		148,974			83,288

Net Increase in Cash and Cash Equivalents		8,636			3,329
Cash and Cash Equivalents at Beginning of Period		1,959			6,777

Cash and Cash Equivalents at End of Period	$	10,595		$	10,106

Cash Paid During the Year for:
Interest	$	22,352		$	20,604

Income Taxes:
Income taxes paid	$	790		$	1,981
Income taxes refunded		—			—

Income taxes, net	$	790		$	1,981

Noncash Investing and Financing Activities:
Accrued capital expenditures	$	32,755		$	11,643

See notes to consolidated financial statements.

Piedmont Natural Gas Company, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands except per share amounts)


										Accumulated
										Other
	Common Stock						Retained			Comprehensive
	Shares			Amount			Earnings			Loss			Total
Balance, October 31, 2011		72,318		$	446,791		$	550,584		$	(452	)	$	996,923
Net income								76,227						76,227
Other comprehensive loss											(10	)		(10	)
Common Stock Issued		156			4,914									4,914
Common Stock Repurchased		(800	)		(27,016	)								(27,016	)
Tax Benefit from Dividends Paid on ESOP Shares								27						27
Dividends Declared ($.29 per share)								(20,979	)					(20,979	)

Balance, January 31, 2012		71,674		$	424,689		$	605,859		$	(462	)	$	1,030,086

Balance, October 31, 2012		72,250		$	442,461		$	584,848		$	(305	)	$	1,027,004
Net income								85,923						85,923
Other comprehensive loss											(158	)		(158	)
Common Stock Issued		262			7,916									7,916
Expenses from issuance of common stock					(202	)								(202	)
Tax Benefit from Dividends Paid on ESOP Shares								29						29
Dividends Declared ($.30 per share)								(21,702	)					(21,702	)

Balance, January 31, 2013		72,512		$	450,175		$	649,098		$	(463	)	$	1,098,810

See notes to consolidated financial statements.

Piedmont Natural Gas Company, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

1. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The consolidated financial statements have not been audited. We have prepared the unaudited consolidated financial statements under the rules of the Securities and Exchange Commission (SEC). Therefore, certain financial information and note disclosures normally included in annual financial statements prepared in conformity with generally accepted accounting principles (GAAP) in the United States of America are omitted in this interim report under these SEC rules and regulations. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our Form 10-K for the year ended October 31, 2012.

Seasonality and Use of Estimates

The unaudited consolidated financial statements include all normal recurring adjustments necessary for a fair statement of financial position at January 31, 2013 and October 31, 2012 and the results of operations, cash flows and stockholders’equity for the three months ended January 31, 2013 and 2012. Our business is seasonal in nature. The results of operations for the three months ended January 31, 2013 do not necessarily reflect the results to be expected for the full year.

In accordance with GAAP, we make certain estimates and assumptions regarding reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and reported amounts of revenues and expenses during the periods reported. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates and assumptions.

Significant Accounting Policies

Our accounting policies are described in Note 1 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2012. There were no significant changes to those accounting policies during the three months ended January 31, 2013.

Rate-Regulated Basis of Accounting

Our utility operations are subject to regulation with respect to rates, service area, accounting and various other matters by the regulatory commissions in the states in which we operate. The accounting regulations provide that rate-regulated public utilities account for and report assets and liabilities consistent with the economic effect of the manner in which independent third-party regulators establish rates. In applying these regulations, we capitalize certain costs and benefits as regulatory assets and liabilities, respectively, in order to provide for recovery from or refund to utility customers in future periods.

Our regulatory assets are recoverable through either base rates or rate riders specifically authorized by a state regulatory commission. Base rates are designed to provide both a recovery of cost and a return on investment during the period the rates are in effect. As such, all of our regulatory assets are subject to review by the respective state regulatory commissions during any future rate proceedings. In the event that accounting for the effects of regulation were no longer applicable, we would recognize a write-off of the regulatory assets and regulatory liabilities that would result in an adjustment to net income. Our utility operations continue to recover

their costs through cost-based rates established by the state regulatory commissions. As a result, we believe that the accounting prescribed under rate-based regulation remains appropriate. It is our opinion that all regulatory assets are recoverable in current rates or future rate proceedings.

Regulatory assets and liabilities in the Consolidated Balance Sheets as of January 31, 2013 and October 31, 2012 are as follows.


	January 31,		October 31,
In thousands	2013		2012
Regulatory assets	$	270,855	$	293,104
Regulatory liabilities		498,102		489,692

Inter-company transactions have been eliminated in consolidation where appropriate; however, we have not eliminated inter-company profit on sales to affiliates and costs from affiliates in accordance with accounting regulations prescribed under rate-based regulation. For information on related party transactions, see Note 12 to the consolidated financial statements in this Form 10-Q.

Fair Value Measurements

The carrying values of cash and cash equivalents, receivables, short-term debt, accounts payable, accrued interest and other current liabilities approximate fair value as all amounts reported are to be collected or paid within one year. Our financial assets and liabilities are recorded at fair value. They consist primarily of derivatives that are recorded in the Consolidated Balance Sheets in accordance with derivative accounting standards and marketable securities that are held in rabbi trusts established for our deferred compensation plans and are classified as trading securities. Our qualified pension and postretirement plan assets and liabilities are recorded at fair value in the Consolidated Balance Sheets in accordance with employers’ accounting and related disclosures of postretirement plans.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, or exit date. We utilize market data or assumptions that market participants would use in valuing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for fair value measurements and endeavor to utilize the best available information. Accordingly, we use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value of our financial assets and liabilities are subject to potentially significant volatility based on changes in market prices, the portfolio valuation of our contracts, as well as the maturity and settlement of those contracts, and subsequent newly originated transactions, each of which directly affects the estimated fair value of our financial instruments. We are able to classify fair value balances based on the observance of those inputs at the lowest level in the fair value hierarchy levels as set forth in the fair value guidance.

For the fair value measurements of our derivatives and marketable securities, see Note 8 to the consolidated financial statements in this Form 10-Q. For the fair value measurements of our benefit plan assets, see Note 9 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2012. For further information on our fair value methodologies, see “Fair Value Measurements” in Note 1 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2012. There were no significant changes to these fair value methodologies during the three months ended January 31, 2013.

Recently Issued Accounting Guidance

In December 2011, the Financial Accounting Standards Board (FASB) issued accounting guidance to improve disclosures and make information more comparable to International Financial Reporting Standards regarding the nature of an entity’s rights of offset and related arrangements associated with its financial instruments and derivative instruments. The guidance requires an entity to disclose information about offsetting and related arrangements in tabular format to enable users of financial statements to understand the effect of those arrangements on the entity’s financial position. The new disclosure requirements are effective for annual periods beginning after January 1, 2013 and interim periods therein and require retrospective application in all periods presented. We will adopt this offsetting disclosure guidance for the first quarter of our fiscal year ending October 31, 2014. The adoption of this guidance will have no impact on our financial position, results of operations or cash flows.

In November 2012, the FASB finalized the presentation disclosures on items reclassified from other comprehensive income. In February 2013, the FASB further clarified the presentation disclosures. The guidance is effective for interim and annual periods beginning after December 15, 2012. We will adopt this disclosure guidance for the second quarter of our fiscal year ending October 31, 2013. The adoption of this guidance will have no impact on our financial position, results of operations or cash flows.

2. Regulatory Matters

In October 2012, we filed a petition with the North Carolina Utility Commission (NCUC) seeking authority to transfer $6.7 million of capital costs held in “Plant held for future use” in “Utility Plant” in the Consolidated Balance Sheets to a deferred regulatory asset account, effective November 1, 2012. This balance in “Plant held for future use” relates to the development of the liquefied natural gas (LNG) facility in Robeson County, North Carolina, construction of which was suspended by Piedmont in March 2009. In January 2013, we filed a motion to suspend this filing in order to incorporate it into a future regulatory proceeding.

In August 2012, we filed an annual report with the Tennessee Regulatory Authority (TRA) reflecting the shared gas cost savings from gains and losses derived from gas purchase benchmarking and secondary market transactions for the twelve months ended June 30, 2012 under the Tennessee Incentive Plan (TIP). We are waiting on a ruling from the TRA at this time.

In September 2012, we filed an annual report for the twelve months ended June 30, 2012 with the TRA that reflected the transactions in the deferred gas cost account for the Actual Cost Adjustment mechanism. We are waiting on a ruling from the TRA at this time.

3. Earnings per Share

We compute basic earnings per share (EPS) using the weighted average number of shares of common stock outstanding during each period. Shares of common stock to be issued under approved incentive compensation plans are contingently issuable shares, as determined by applying the treasury stock method, and are included in our calculation of fully diluted EPS.

A reconciliation of basic and diluted EPS for the three months ended January 31, 2013 and 2012 is presented below.


	Three Months
In thousands except per share amounts	2013		2012
Net Income	$	85,923	$	76,227

Average shares of common stock outstanding for basic earnings per share		72,356		72,126
Contingently issuable shares under incentive compensation plans		369		307

Average shares of dilutive stock		72,725		72,433

Earnings Per Share of Common Stock:
Basic	$	1.19	$	1.06
Diluted	$	1.18	$	1.05

4. Long-Term Debt Instruments

We have an open combined debt and equity shelf registration statement filed with the SEC in July 2011 that is available for future use until its expiration date of July 6, 2014. Unless otherwise specified at the time such securities are offered for sale, the net proceeds from the sale of the securities will be used for general corporate purposes, including capital expenditures, additions to working capital and advances for or investments in our subsidiaries, and for repurchases of shares of our common stock. On January 29, 2013, we entered into an underwriting agreement to sell shares of common stock under this registration statement. For further information on this transaction, see Note 6 to the consolidated financial statements.

5. Short-Term Debt Instruments

We have a $650 million five-year revolving syndicated credit facility that expires on October 1, 2017. The credit facility has an option to request an expansion up to $850 million. We pay an annual fee of $35,000 plus 8.5 basis points for any unused amount up to $650 million. The facility provides a line of credit for letters of credit of $10 million, of which $2.1 million and $3.6 million were issued and outstanding at January 31, 2013 and October 31, 2012, respectively. These letters of credit are used to guarantee claims from self-insurance under our general and automobile liability policies. The credit facility bears interest based on the 30-day London Interbank Offered Rate (LIBOR) plus from 75 to 125 basis points, based on our credit ratings. Amounts borrowed are continuously renewable until the expiration of the facility in 2017 provided that we are in compliance with all terms of the agreement. Due to the seasonal nature of our business, amounts borrowed can vary significantly during the period.

We have a $650 million unsecured commercial paper (CP) program that is backstopped by the revolving syndicated credit facility. The notes issued under the CP program may have maturities not to exceed 397 days from the date of issuance and bear interest based on, among other things, the size and maturity date of the note, the frequency of the issuance and our credit ratings, plus a spread of 5 basis points. The amounts outstanding under the revolving syndicated credit facility and the CP program, either individually or in the aggregate, cannot exceed $650 million unless the option to expand the credit facility is exercised as discussed above. Any borrowings under the CP program rank equally with our other unsubordinated and unsecured debt. The notes under the CP program are not registered and are being offered and issued pursuant to an exemption from registration.

As of January 31, 2013, we have $530 million of notes outstanding under the CP program, as included in “Short-term debt” in “Current Liabilities” in the Consolidated Balance Sheets with original maturities ranging from 7 to 21 days from their dates of issuance at a weighted average interest rate of .34%. As of October 31, 2012, our outstanding notes under the CP program, included in the Consolidated Balance Sheets as stated above, were $365 million.

A summary of the short-term debt activity for the three months ended January 31, 2013 is as follows.

Short-Term Debt Activity


	Credit			Commercial			Total
In millions	Facility			Paper			Borrowings
Minimum amount outstanding ⁽¹⁾	$	—		$	390		$	390
Maximum amount outstanding ⁽¹⁾	$	10		$	555		$	555
Minimum interest rate ⁽²⁾		1.12	%		.32	%		.32	%
Maximum interest rate		1.12	%		.45	%		1.12	%
Weighted average interest rate		1.12	%		.39	%		.39	%

⁽¹⁾	During December 2012, we were borrowing under both the credit facility and CP program for a portion of the month.

⁽²⁾	This is the minimum rate when we were borrowing under the credit facility and/or CP program.

Our five-year revolving syndicated credit facility’s financial covenants require us to maintain a ratio of total debt to total capitalization of no greater than 70%, and our actual ratio was 58% at January 31, 2013.

6. Capital Stock

Changes in common stock for the three months ended January 31, 2013 are as follows.


In thousands	Shares		Amount
Balance, October 31, 2012		72,250	$	442,461
Issued to participants in the Employee Stock Purchase Plan (ESPP)		7		214
Issued to the Dividend Reinvestment and Stock Purchase Plan		182		5,418
Issued to participants in the Incentive Compensation Plan (ICP)		73		2,284
Costs from issuance of common stock		—		(202	)

Balance, January 31, 2013		72,512	$	450,175

On January 29, 2013, we entered into an underwriting agreement under our open combined debt and equity shelf registration statement to sell up to 4.6 million shares of our common stock as follows.

•

Direct shares – 3 million shares were issued by us and delivered directly to the underwriters on February 4, 2013.

•

Forward shares – 1 million shares were borrowed by a forward counterparty and sold to the underwriters for resale to the public on February 4, 2013.

•

Additional shares – Up to .6 million shares were subject to a 30-day option by the underwriters to purchase these additional shares at the same price as the direct shares and would be, at our option, either issued at the time of purchase and delivered directly to the underwriters or borrowed and delivered to the underwriters by the forward counterparty.

On February 4, 2013, we received $92.6 million from the underwriters at the settlement of the sale of the 3 million direct shares of our common stock and recorded this amount in “Stockholders’ equity” as an addition to “Common Stock” in the Consolidated Balance Sheets. The shares were purchased by the underwriters at the net price of $30.88 per share, the offering price to the public of $32 per share per the prospectus less an underwriting discount of $1.12 per share. The net proceeds from this sale of our common stock were used to repay outstanding short-term, unsecured notes under our CP program.

Under the forward sale agreement (FSA) that we executed with the forward counterparty on January 29, 2013, we have agreed to sell 1 million shares to the forward counterparty to be settled no later than December 15, 2013. If we physically settle by issuing 1 million shares of our common stock to the forward counterparty, the forward counterparty will, at settlement, pay us the proceeds less certain adjustments from its sale of the borrowed shares to the underwriters. We have the option to settle the FSA by cash or net share settlement for all or a portion of our obligation under the FSA. We expect to settle by delivering shares.

On February 19, 2013, the underwriters exercised their option to purchase the full additional .6 million shares of our common stock at the net price described above of $30.88 per share with settlement on February 22, 2013. We have elected to place the .6 million shares under an additional FSA having substantially similar terms as the original FSA. In connection with the FSA, the .6 million shares were borrowed from third parties and sold to the underwriters by the forward counterparty. Under the terms of the additional FSA, to the extent that the transaction is physically settled, we would be required to issue and deliver an equivalent number of shares of our common stock to the forward counterparty at the then applicable forward sale price, which would be the net price described above of $30.88 per share less certain adjustments. The additional FSA is afforded the same accounting treatment described below. We have the option to settle the FSA by cash or net share settlement for all or a portion of our obligation under the FSA. We expect to settle by delivering shares.

In accordance with ASC 815-40, Derivatives and Hedging- Contracts in Entity’s Own Equity, we have classified the FSAs as equity transactions because the forward sale transactions were indexed to our own stock and physical settlement is within our control. As a result of this classification, no amounts will be recorded in the consolidated financial statements until settlement of each FSA.

If we decide to physically settle or net share settle the FSAs, any delivery of our shares upon settlement could result in dilution to our EPS at the date of the settlement. The inclusion of any incremental shares in the calculation of diluted EPS under the treasury stock method will begin in our second quarter ending April 30, 2013. Any dilutive effect of the FSAs on our EPS will occur only during periods when the average market price per share of our common stock is above the per share adjusted forward sale price described above.

No later than December 15, 2013, by delivering 1 million shares of our common stock to the forward counterparty, we expect to receive net proceeds of $29.6 million based on the net settlement price of $30.88 per share described above less certain adjustments. No later than December 15, 2013, by delivering .6 million shares of our common stock to the forward counterparty, we anticipate receiving net proceeds from these shares of $17.8 million based on the net settlement price of $30.88 per share described above less certain adjustments. The net proceeds from these FSA transactions will be used to repay outstanding short-term, unsecured notes under our CP program and for general corporate purposes.

7. Marketable Securities

We have marketable securities that are invested in money market and mutual funds that are liquid and actively traded on the exchanges. These securities are assets that are held in rabbi trusts established for our deferred compensation plans. For further information on the deferred compensation plans, see Note 10 to the consolidated financial statements in this Form 10-Q.

We have classified these marketable securities as trading securities since their inception as the assets are held in rabbi trusts. Trading securities are recorded at fair value in the Consolidated Balance Sheets with any gains or losses recognized currently in earnings. We do not intend to engage in active trading of the securities, and participants in the deferred compensation plans may redirect their investments at any time. We have matched the current portion of the deferred compensation liability with the current asset and the noncurrent deferred compensation liability with the noncurrent asset; the current portion is included in “Other current assets” in “Current Assets” in the Consolidated Balance Sheets.

The money market investments in the trust approximate fair value due to the short period of time to maturity. The fair values of the equity securities are based on the quoted market prices as traded on the exchanges. The composition of these securities as of January 31, 2013 and October 31, 2012 is as follows.


	January 31, 2013				October 31, 2012
			Fair				Fair
In thousands	Cost		Value		Cost		Value
Current trading securities:
Money markets	$	—	$	—	$	—	$	—
Mutual funds		134		171		134		157

Total current trading securities		134		171		134		157

Noncurrent trading securities:
Money markets		334		334		243		243
Mutual funds		2,019		2,342		1,668		1,888

Total noncurrent trading securities		2,353		2,676		1,911		2,131

Total trading securities	$	2,487	$	2,847	$	2,045	$	2,288

8. Financial Instruments and Related Fair Value

Derivative Assets and Liabilities under Master Netting Arrangements

We maintain brokerage accounts to facilitate transactions that support our gas cost hedging plans. The accounting guidance related to derivatives and hedging requires that we use a gross presentation, based on our election, for the fair value amounts of our derivative instruments and the fair value of the right to reclaim cash collateral. We use long position gas purchase options to provide some level of protection for our customers in the event of significant commodity price increases. As of January 31, 2013 and October 31, 2012, we had long gas purchase options providing total coverage of 24.9 million dekatherms and 35.8 million dekatherms, respectively. The long gas purchase options held at January 31, 2013 are for the period from March 2013 through January 2014.

Fair Value Measurements

We use financial instruments to mitigate commodity price risk for our customers. We also have marketable securities that are held in rabbi trusts established for certain of our deferred compensation plans. In developing our fair value measurements of these financial instruments, we utilize market data or assumptions about risk and

the risks inherent in the inputs to the valuation technique. Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the entity transacts. We classify fair value balances based on the observance of those inputs into the fair value hierarchy levels as set forth in the fair value accounting guidance and fully described in “Fair Value Measurements” in Note 1 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2012.

The following table sets forth, by level of the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value on a recurring basis as of January 31, 2013 and October 31, 2012. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their consideration within the fair value hierarchy levels. We have had no transfers between any level during the three months ended January 31, 2013 and 2012.

Recurring Fair Value Measurements as of January 31, 2013


			Significant
	Quoted Prices		Other		Significant
	in Active		Observable		Unobservable		Total
	Markets		Inputs		Inputs		Carrying
In thousands	(Level 1)		(Level 2)		(Level 3)		Value
Recurring Fair Value Measurements:
Assets:
Derivatives held for distribution operations	$	724	$	—	$	—	$	724
Debt and equity securities held as trading securities:
Money markets		334		—		—		334
Mutual funds		2,513		—		—		2,513

Total recurring fair value assets	$	3,571	$	—	$	—	$	3,571

Recurring Fair Value Measurements as of October 31, 2012


			Significant
	Quoted Prices		Other		Significant
	in Active		Observable		Unobservable		Total
	Markets		Inputs		Inputs		Carrying
In thousands	(Level 1)		(Level 2)		(Level 3)		Value
Recurring Fair Value Measurements:
Assets:
Derivatives held for distribution operations	$	3,153	$	—	$	—	$	3,153
Debt and equity securities held as trading securities:
Money markets		243		—		—		243
Mutual funds		2,045		—		—		2,045

Total recurring fair value assets	$	5,441	$	—	$	—	$	5,441

Our utility segment derivative instruments are used in accordance with programs filed with or approved by the NCUC, the Public Service Commission of South Carolina (PSCSC) and the TRA to hedge the impact of market fluctuations in natural gas prices. These derivative instruments are accounted for at fair value each reporting period. In accordance with regulatory requirements, the net costs and the gains and losses related to these derivatives are reflected in purchased gas costs and ultimately passed through to customers through our purchased gas adjustment (PGA) procedures. In accordance with accounting provisions for rate-regulated activities, the unrecovered amounts related to these instruments are reflected as a regulatory asset or liability, as

appropriate, in “Amounts due to customers” in “Current Liabilities” or “Amounts due from customers” in “Current Assets” in the Consolidated Balance Sheets. These derivative instruments are exchange-traded derivative contracts. Exchange-traded contracts are generally based on unadjusted quoted prices in active markets and are classified within Level 1.

Trading securities include assets in rabbi trusts established for our deferred compensation plans and are included in “Marketable securities, at fair value” in “Noncurrent Assets” in the Consolidated Balance Sheets. Securities classified within Level 1 include funds held in money market and mutual funds which are highly liquid and are actively traded on the exchanges.

In developing the fair value of our long-term debt, we use a discounted cash flow technique, consistently applied, that incorporates a developed discount rate using long-term debt similarly rated by credit rating agencies combined with the U.S. Treasury benchmark with consideration given to maturities, redemption terms and credit ratings similar to our debt issuances. The carrying amount and fair value of our long-term debt, including the current portion, which is classified within Level 2, are shown below.


	Carrying
In thousands	Amount		Fair Value
As of January 31, 2013	$	975,000	$	1,139,724
As of October 31, 2012		975,000		1,163,227

Quantitative and Qualitative Disclosures

The costs of our financial price hedging options for natural gas and all other costs related to hedging activities of our regulated gas costs are recorded in accordance with our regulatory tariffs approved by our state regulatory commissions, and thus are not accounted for as hedging instruments under derivative accounting standards. As required by the accounting guidance, the fair value amounts are presented on a gross basis and do not reflect any netting of asset and liability amounts or cash collateral amounts under master netting arrangements.

The following table presents the fair value and balance sheet classification of our financial options for natural gas as of January 31, 2013 and October 31, 2012.

Fair Value of Derivative Instruments


	Fair Value		Fair Value
In thousands	January 31, 2013		October 31, 2012
Derivatives Not Designated as Hedging Instruments under Derivative Accounting Standards:
Asset Financial Instruments:
Current Assets—Gas purchase derivative assets (March 2013-January 2014)	$	724

Current Assets—Gas purchase derivative assets (December 2012-October 2013)			$	3,153

We purchase natural gas for our regulated operations for resale under tariffs approved by state regulatory commissions. We recover the cost of gas purchased for regulated operations through PGA procedures. Our risk management policies allow us to use financial instruments to hedge commodity price risks, but not for speculative trading. The strategy and objective of our hedging programs is to use these financial instruments to provide some level of protection against significant price increases. Accordingly, the operation of the hedging programs on the regulated utility segment as a result of the use of these financial derivatives is initially recorded as a component of deferred gas costs and recognized in the Consolidated Statements of Comprehensive Income as a component of cost of gas when the related costs are recovered through our rates.

The following table presents the impact that financial instruments not designated as hedging instruments under derivative accounting standards would have had on the Consolidated Statements of Comprehensive Income for the three months ended January 31, 2013 and 2012, absent the regulatory treatment under our approved PGA procedures.



	Amount of Loss Recognized				Amount of Loss Deferred
	on Derivatives Instruments				Under PGA Procedures
	Three Months Ended				Three Months Ended				Location of Loss
	January 31				January 31				Recognized through
In thousands	2013		2012		2013		2012		PGA Procedures
Gas purchase options	$	2,475	$	2,923	$	2,475	$	2,923	Cost of Gas

In Tennessee, the cost of gas purchase options and all other costs related to hedging activities up to 1% of total annual gas costs are approved for recovery under the terms and conditions of our TIP approved by the TRA. In South Carolina, the costs of gas purchase options are subject to and are approved for recovery under the terms and conditions of our gas hedging plan approved by the PSCSC. In North Carolina, the costs associated with our hedging program are treated as gas costs subject to an annual cost review proceeding by the NCUC.

Risk Management

Our financial derivative instruments do not contain material credit-risk-related or other contingent features that could require us to make accelerated payments.

We seek to identify, assess, monitor and manage risk in accordance with defined policies and procedures under an Enterprise Risk Management program. In addition, we have an Energy Price Risk Management Committee that monitors compliance with our hedging programs, policies and procedures.

9. Commitments and Contingent Liabilities

Long-term contracts

We routinely enter into long-term gas supply commodity and capacity commitments and other agreements that commit future cash flows to acquire services we need in our business. These commitments include pipeline and storage capacity contracts and gas supply contracts to provide service to our customers and telecommunication and information technology contracts and other purchase obligations. Costs arising from the gas supply commodity and capacity commitments, while significant, are pass-through costs to our customers and are generally fully recoverable through our PGA procedures and prudence reviews in North Carolina and South Carolina and under the TIP in Tennessee. The time periods for pipeline and storage capacity contracts are up to nineteen years. The time periods for gas supply contracts are up to nine months. The time periods for the telecommunications and technology outsourcing contracts, maintenance fees for hardware and software applications, usage fees, local and long-distance costs and wireless service are up to four years. Other purchase obligations consist primarily of commitments for pipeline products, vehicles, equipment and contractors.

Certain storage and pipeline capacity contracts require the payment of demand charges that are based on rates approved by the Federal Energy Regulatory Commission (FERC) in order to maintain our right to access the natural gas storage or the pipeline capacity on a firm basis during the contract term. The demand charges that are incurred in each period are recognized in the Consolidated Statements of Comprehensive Income as part of gas purchases and included in cost of gas.

Leases

We lease certain buildings, land and equipment for use in our operations under noncancelable operating leases. We account for these leases by recognizing the future minimum lease payments as expense on a straight-line basis over the respective minimum lease terms under current accounting guidance.

Legal

We have only routine litigation in the normal course of business. We do not expect any of these routine litigation matters to have a material effect on our financial position, results of operations or cash flows.

Letters of Credit

We use letters of credit to guarantee claims from self-insurance under our general and automobile liability policies. We had $2.1 million in letters of credit that were issued and outstanding at January 31, 2013. Additional information concerning letters of credit is included in Note 5 to the consolidated financial statements in this Form 10-Q.

Environmental Matters

Our three regulatory commissions have authorized us to utilize deferral accounting in connection with environmental costs. Accordingly, we have established regulatory assets for actual environmental costs incurred and for estimated environmental liabilities recorded.

We are responsible for any third-party claims for personal injury, death, property damage and diminution of property value or natural resources regarding nine manufactured gas plant (MGP) sites that were a part of a 1997 settlement with a third party and several MGP sites retained by Progress Energy, Inc., now a subsidiary of Duke Energy Corporation, in connection with our 2003 acquisition of North Carolina Natural Gas Corporation. We know of no such pending or threatened claims.

There are four other MGP sites located in Hickory and Reidsville, North Carolina, Nashville, Tennessee and Anderson, South Carolina that we have owned, leased or operated and for which we have an investigation and remediation liability. In fiscal year 2012, we performed soil remediation work at our Reidsville site. In July 2012, the North Carolina Department of Environment and Natural Resources (NCDENR) approved our proposed groundwater investigation work plan, which included installing five monitoring wells in September 2012. The water samples from these wells yielded uncontaminated groundwater. We will submit a no further action request to the NCDENR. We have incurred $.6 million of remediation costs at the Reidsville site through January 31, 2013.

As part of a voluntary agreement with the NCDENR, we conducted and completed soil remediation for the Hickory, North Carolina MGP site in 2010. A Phase II groundwater investigation was conducted in 2011. A groundwater remedial action plan was submitted and approved by the NCDENR in 2012. We continue to conduct quarterly groundwater monitoring at this site in accordance with our site remediation plan. We have incurred $1.5 million of remediation costs at this site through January 31, 2013.

In November 2008, we submitted our final report of the remediation of the Nashville MGP holding tank site to the Tennessee Department of Environment and Conservation (TDEC). Remediation has been completed, and a final consent order imposing land usage restrictions on the property was approved and signed by the TDEC in June 2010. The final consent order required two years of semi-annual groundwater monitoring, which has been completed. In February 2013, we received a letter from the TDEC certifying completion of the actions agreed to be taken in the consent order. We have incurred $1.5 million of remediation costs at this site through January 31, 2013.

During 2008, we became aware of and began investigating soil and groundwater molecular sieve contamination concerns at our Huntersville LNG facility. The molecular sieve and the related contaminated soil were removed and properly disposed, and in June 2010, we received a determination letter from the NCDENR that no further soil remediation would be required at the site for this issue. In September 2011, we received a letter from the NCDENR indicating their desire to enter into an Administrative Consent Order (ACO) addressing the remaining groundwater issues at the site. On April 11, 2012, we entered into a no admit/no deny ACO that imposed a fine of $40,000, unpaid annual fees totaling $18,000 and $1,860 for investigative and administrative costs. As part of the ACO, we were required to develop a site assessment plan to determine the extent of the groundwater contamination related to the sieve burial, a groundwater remediation strategy and a groundwater and surface water site-wide monitoring program. A site assessment plan was accepted by the NCDENR, and we began groundwater sampling in July 2012. We performed an initial round of sampling in our first quarter, and we continue to assess the extent of the groundwater contamination. Upon completion of the assessment, we will be required to submit additional plan(s) to remediate and/or monitor the groundwater. These plan(s) are due within thirty days of the completion of the site assessment.

The Huntersville LNG facility was originally coated with lead-based paint. As a precautionary measure to ensure that no lead contamination occurs, removal of lead-based paint from the site was initiated in spring 2010. The last phase of the lead-based paint removal began in July 2012 on the LNG tank, and the remediation of rafters in a nearby building will begin in mid-2013 with completion anticipated for both projects by the end of fiscal 2014. We have incurred $4.3 million of remediation costs through January 31, 2013 for all issues at the Huntersville LNG plant site. Once the lead-based paint is removed at our Huntersville LNG facility, we expect there will be no potential environmental or employee exposures.

We are transitioning away from owning and maintaining our own petroleum underground storage tanks (USTs). Our Charlotte, North Carolina resource center continues to operate USTs. During 2011, our Greenville, South Carolina and Greensboro and Salisbury, North Carolina resource centers had their tanks removed, and we do not anticipate significant environmental remediation with respect to the removal process. The South Carolina Department of Health and Environmental Control (SCDHEC) requested that we conduct an initial groundwater assessment at our Greenville, South Carolina site to determine its current groundwater quality condition. This assessment was conducted in August 2012, and in November 2012, we received a determination letter from the SCDHEC that no further groundwater remediation would be required at the site for this issue.

For all matters discussed above, as of January 31, 2013, our estimated undiscounted environmental liability totaled $1.9 million and consisted of $1.1 million for the MGP sites for which we retain remediation responsibility, $.3 million for the LNG facilities, $.2 million for the groundwater remediation at the Huntersville LNG site and $.3 million for the USTs not yet remediated. The costs we reasonably expect to incur are estimated using assumptions based on actual costs incurred, the timing of future payments and inflation factors, among others.

As of January 31, 2013, our regulatory assets for unamortized environmental costs in our three state territory totaled $10.3 million. We received approval from the TRA to recover $2 million of our deferred Tennessee environmental costs over an eight year period beginning March 2012, pursuant to the recent general rate case proceeding in Tennessee. We will seek recovery of the remaining balance in future rate proceedings.

Further evaluation of the MGP, LNG and UST sites and removal of lead-based paint at our LNG site could significantly affect recorded amounts; however, we believe that the ultimate resolution of these matters will not have a material effect on our financial position, results of operations or cash flows.

Additional information concerning commitments and contingencies is set forth in Note 8 to the consolidated financial statements of our Form 10-K for the year ended October 31, 2012.

10. Employee Benefit Plans

Components of the net periodic benefit cost for our defined benefit pension plans and our other postretirement employee benefits (OPEB) plan for the three months ended January 31, 2013 and 2012 are presented below.


	Qualified Pension						Nonqualified Pension				Other Benefits
In thousands	2013			2012			2013		2012		2013			2012
Service cost	$	3,150		$	2,475		$	—	$	10	$	332		$	347
Interest cost		2,475			2,650			40		51		282			337
Expected return on plan assets		(5,300	)		(5,125	)		—		—		(416	)		(388	)
Amortization of transition obligation		—			—			—		—		167			167
Amortization of prior service (credit) cost		(550	)		(550	)		20		20		—			—
Amortization of actuarial loss		2,750			1,375			40		12		—			—

Total	$	2,525		$	825		$	100	$	93	$	365		$	463

In November 2012, we contributed $20 million to the qualified pension plan, and in January 2013, we contributed $.7 million to the money purchase pension plan. We anticipate that we will contribute the following amounts to our other plans in 2013.


In thousands
Nonqualified pension plans	$	502
OPEB plan		1,500

We have a non-qualified defined contribution restoration (DCR) plan that we fund annually and that covers all officers at the vice president level and above. For the three months ended January 31, 2013, we contributed $.4 million to this plan. Participants may not contribute to the DCR plan. We have a voluntary deferral plan for the benefit of all director-level employees and officers, where we make no contributions to this plan. Both deferred compensation plans are funded through rabbi trusts with a bank as the trustee. As of January 31, 2013, we have a liability of $2.9 million for these plans.

See Note 7 and Note 8 to the consolidated financial statements in this Form 10-Q for information on the investments in marketable securities that are held in the trusts.

11. Employee Share-Based Plans

Under our shareholder approved ICP, eligible officers and other participants are awarded units that pay out depending upon the level of performance achieved by Piedmont during three-year incentive plan performance periods. Distribution of those awards may be made in the form of shares of common stock and withholdings for payment of applicable taxes on the compensation. These plans require that a minimum threshold performance

level be achieved in order for any award to be distributed. For the three months ended January 31, 2013 and 2012, we recorded compensation expense, and as of January 31, 2013 and October 31, 2012, we have accrued a liability for these awards based on the fair market value of our stock at the end of each quarter. The liability is re-measured to market value at the settlement date.

In December 2010, a long-term retention stock unit award under the ICP (where a stock unit equals one share of our common stock upon vesting) was approved for eligible officers and other participants to support our succession planning and retention strategies. This retention stock unit award will vest for participants who have met the retention requirements at the end of a three-year period ending in December 2013 in the form of shares of common stock and withholdings for payment of applicable taxes on the compensation. The Compensation Committee of our Board of Directors has the discretion to accelerate the vesting of all or a portion of a participant’s units. For the three months ended January 31, 2013 and 2012, we recorded compensation expense, and as of January 31, 2013 and October 31, 2012, we have accrued a liability for this award based on the fair market value of our stock at the end of the quarter. The liability is re-measured to market value at the settlement date.

Also under our approved ICP, 64,700 unvested retention stock units were granted to our President and Chief Executive Officer in December 2011. During the five-year vesting period, any dividend equivalents will accrue on these stock units and be converted into additional units at the same rate and based on the closing price on the same payment date as dividends on our common stock. The stock units will vest, payable in the form of shares of common stock and withholdings for payment of applicable taxes on the compensation, over a five-year period only if he is an employee on each vesting date. In accordance with the vesting schedule, 20% of the units vest on December 15, 2014, 30% of the units vest on December 15, 2015 and 50% of the units vest on December 15, 2016. For the three months ended January 31, 2013, we recorded compensation expense, and as of January 31, 2013, we have accrued a liability for this award based on the fair market value of our stock at the end of the quarter. The liability is re-measured to market value at the settlement date.

At the time of distribution of awards under the ICP, the number of shares issuable is reduced by the withholdings for payment of applicable income taxes for each participant. The participant may elect income tax withholdings at or above the minimum statutory withholding requirements. The maximum withholdings allowed is 50%. To date, shares withheld for payment of applicable income taxes have been immaterial. We present these net shares issued in our Consolidated Statements of Stockholders’ Equity.

The compensation expense related to the incentive compensation plans for the three months ended January 31, 2013 and 2012, and the amounts recorded as liabilities as of January 31, 2013 and October 31, 2012 are presented below.


	Three Months
In thousands	2013		2012
Compensation expense	$	1,856	$	1,575

	January 31,		October 31,
	2013		2012
Liability	$	8,495	$	10,631

On a quarterly basis, we issue shares of common stock under the ESPP and have accounted for the issuance as an equity transaction. The exercise price is calculated as 95% of the fair market value on the purchase date of each quarter where fair market value is determined by calculating the mean average of the high and low trading prices on the purchase date.

12. Equity Method Investments

The consolidated financial statements include the accounts of wholly owned subsidiaries whose investments in joint venture, energy-related businesses are accounted for under the equity method. Our ownership interest in each entity is included in “Equity method investments in non-utility activities” in “Noncurrent Assets” in the Consolidated Balance Sheets. Earnings or losses from equity method investments are included in “Income from equity method investments” in “Other Income (Expense) in the Consolidated Statements of Comprehensive Income.

Cardinal Pipeline Company, L.L.C.

We own 21.49% of the membership interests in Cardinal Pipeline Company, L.L.C. (Cardinal), a North Carolina limited liability company. Cardinal owns and operates an intrastate natural gas pipeline in North Carolina and is regulated by the NCUC.

Cardinal enters into interest-rate swap agreements to modify the interest characteristics of its unsecured long-term debt. Our share of movements in the market value of these agreements are recorded as a hedge in “Accumulated other comprehensive loss” in “Stockholders’ equity” in the Consolidated Balance Sheets; the detail of our share of the market value of the swap agreements is combined with our other equity method investments and presented in “Other Comprehensive Loss, net of tax” in the Consolidated Statements of Comprehensive Income. Cardinal’s long-term debt is nonrecourse to the members.

We have related party transactions as a transportation customer of Cardinal, and we record the transportation costs charged by Cardinal in “Cost of Gas” in the Consolidated Statements of Comprehensive Income. For each period of the three months ended January 31, 2013 and 2012, these transportation costs and the amounts we owed Cardinal as of January 31, 2013 and October 31, 2012 are as follows.


	Three Months
In thousands	2013		2012
Transportation costs	$	2,139	$	1,035

	January 31,		October 31,
	2013		2012
Trade accounts payable	$	457	$	855

Pine Needle LNG Company, L.L.C.

We own 40% of the membership interests in Pine Needle LNG Company, L.L.C. (Pine Needle), a North Carolina limited liability company. Pine Needle owns an interstate LNG storage facility in North Carolina and is regulated by the FERC.

Pine Needle enters into interest-rate swap agreements to modify the interest characteristics of its long-term debt. Our share of movements in the market value of these agreements are recorded as a hedge in “Accumulated other comprehensive loss” in “Stockholders’ equity” in the Consolidated Balance Sheets; the detail of our share of the

market value of the swap agreements is combined with our other equity method investments and presented in “Other Comprehensive Loss, net of tax” in the Consolidated Statements of Comprehensive Income. Pine Needle’s long-term debt is nonrecourse to the members and is secured by Pine Needle’s assets and by each member’s equity investment in Pine Needle.

We have related party transactions as a customer of Pine Needle, and we record the storage costs charged by Pine Needle in “Cost of Gas” in the Consolidated Statements of Comprehensive Income. For each period of the three months ended January 31, 2013 and 2012, these gas storage costs and the amounts we owed Pine Needle as of January 31, 2013 and October 31, 2012 are as follows.


	Three Months
In thousands	2013		2012
Gas storage costs	$	2,785	$	2,519

	January 31,		October 31,
	2013		2012
Trade accounts payable	$	951	$	914

SouthStar Energy Services LLC

We own 15% of the membership interests in SouthStar Energy Services LLC (SouthStar), a Delaware limited liability company. SouthStar primarily sells natural gas to residential, commercial and industrial customers in the southeastern United States and Ohio with most of its business being conducted in the unregulated retail gas market in Georgia. We account for our investment in SouthStar using the equity method, as we have board representation with equal voting rights on significant governance matters and policy decisions, and thus, exercise significant influence over the operations of SouthStar.

SouthStar uses financial contracts to moderate the effect of price and weather changes on the timing of its earnings. These financial contracts, in the form of futures, options and swaps, are considered to be derivatives and fair value is based on selected market indices. Our share of movements in the market value of these contracts are recorded as a hedge in “Accumulated other comprehensive loss” in “Stockholders’ equity” in the Consolidated Balance Sheets; the detail of our share of the market value of these contracts is combined with our other equity method investments and presented in “Other Comprehensive Loss, net of tax” in the Consolidated Statements of Comprehensive Income.

We have related party transactions as we sell wholesale gas supplies to SouthStar, and we record the amounts billed to SouthStar in “Operating Revenues” in the Consolidated Statements of Comprehensive Income. For each period of the three months ended January 31, 2013 and 2012, our operating revenues from these sales and the amounts SouthStar owed us as of January 31, 2013 and October 31, 2012 are as follows.


	Three Months
In thousands	2013			2012
Operating revenues	$	(9	)	$	(112	)

	January 31,			October 31,
	2013			2012
Trade accounts receivable	$	5		$	473

Hardy Storage Company, LLC

We own 50% of the membership interests in Hardy Storage Company, LLC (Hardy Storage), a West Virginia limited liability company. Hardy Storage owns and operates an underground interstate natural gas storage facility located in Hardy and Hampshire Counties, West Virginia, that is regulated by the FERC.

We have related party transactions as a customer of Hardy Storage and record the storage costs charged by Hardy Storage in “Cost of Gas” in the Consolidated Statements of Comprehensive Income. For each period of the three months ended January 31, 2013 and 2012, these gas storage costs and the amounts we owed Hardy Storage as of January 31, 2013 and October 31, 2012 are as follows.


	Three Months
In thousands	2013		2012
Gas storage costs	$	2,425	$	2,425

	January 31,		October 31,
	2013		2012
Trade accounts payable	$	808	$	808

Constitution Pipeline Company, LLC

On November 9, 2012, we entered into an agreement to become a 24% equity member of Constitution Pipeline Company, LLC (Constitution), a Delaware limited liability company. The other members are subsidiaries of The Williams Companies, Inc. and Cabot Oil & Gas Corporation. A subsidiary of The Williams Companies is the operator of the project. The purpose of the joint venture is to construct and operate approximately 123 miles of interstate natural gas pipeline and related facilities connecting natural gas gathering systems in Susquehanna County, Pennsylvania to the Iroquois Gas Transmission and Tennessee Gas Pipeline systems in New York. We have committed to fund an amount in proportion to our ownership interest for the development and construction of the new pipeline, which is expected to cost between $700 – $800 million. As of January 31, 2013, our current fiscal year contributions were $7.5 million, and we expect our total contributions will be an estimated $180 million through 2015 with approximately 90% of that funding to occur during our fiscal 2014 and 2015 years. The target in-service date of the project is March 2015. The capacity of the pipeline is 100% subscribed under fifteen year service agreements with a negotiated rate structure.

13. Variable Interest Entities

Under accounting guidance, a variable interest entity (VIE) is a legal entity that conducts a business or holds property whose equity, by design, has any of the following characteristics: an insufficient amount of equity at risk to finance its activities, equity owners who do not have the power to direct the significant activities of the entity (or have voting rights that are disproportionate to their ownership interest), or where equity owners do not receive expected losses or returns. An entity may have an interest in a VIE through ownership or other contractual rights or obligations and that interest changes as the entity’s net assets change. The consolidating investor is the entity that has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

As of January 31, 2013, we have determined that we are not the primary beneficiary, as defined by the authoritative guidance related to consolidations, in any of our equity method investments, as discussed in Note 12 to the consolidated financial statements in this Form 10-Q. Based on our involvement in these investments, we do not have the power to direct the activities of these investments that most significantly impact the VIE’s economic performance. As we are not the consolidating investor, we will continue to apply equity method accounting to these investments, as discussed in Note 12 to the consolidated financial statements in this Form 10-Q. Our maximum loss exposure related to these equity method investments is limited to our equity investment in each entity. As of January 31, 2013 and October 31, 2012, our investment balances are as follows.


	January 31,		October 31,
In thousands	2013		2012
Cardinal	$	18,365	$	17,969
Pine Needle		19,176		19,239
SouthStar		22,400		18,118
Hardy Storage		32,626		32,541
Constitution		7,672		—

Total equity method investments in non-utility activities	$	100,239	$	87,867

We have also reviewed various lease arrangements, contracts to purchase, sell or deliver natural gas and other agreements in which we hold a variable interest. In these cases, we have determined that we are not the primary beneficiary of the related VIE because we do not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, or the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

14. Business Segments

We have two reportable business segments, regulated utility and non-utility activities. Our segments are identified based on products and services, regulatory environments and our current corporate organization and business decision-making activities. The regulated utility segment is the gas distribution business, where we include the operations of merchandising and its related service work and home warranty programs, with activities conducted by the parent company. Operations of our non-utility activities segment are comprised of our equity method investments in joint ventures that are held by our wholly owned subsidiaries.

Operations of the regulated utility segment are reflected in “Operating Income” in the Consolidated Statements of Comprehensive Income. Operations of the non-utility activities segment are included in the Consolidated Statements of Comprehensive Income in “Income from equity method investments” and “Non-operating income.”

We evaluate the performance of the regulated utility segment based on margin, operations and maintenance expenses and operating income. We evaluate the performance of the non-utility activities segment based on earnings from the ventures. The basis of segmentation and the basis of the measurement of segment profit or loss are the same as reported in the Consolidated Financial Statements in our Form 10-K for the year ended October 31, 2012.

Operations by segment for the three months ended January 31, 2013 and 2012 are presented below.


	Regulated				Non-utility
	Utility				Activities						Total
In thousands	2013		2012		2013			2012			2013		2012
Three Months
Revenues from external customers	$	515,875	$	471,840	$	—		$	—		$	515,875	$	471,840
Margin		231,623		220,237		—			—			231,623		220,237
Operations and maintenance expenses		55,882		58,397		59			23			55,941		58,420
Income from equity method investments		—		—		7,155			6,292			7,155		6,292
Operating income (loss) before income taxes		139,512		127,040		(135	)		(107	)		139,377		126,933
Income before income taxes		134,877		119,581		7,019			6,185			141,896		125,766

Reconciliations to the Consolidated Statements of Comprehensive Income for the three months ended January 31, 2013 and 2012 are presented below.


	Three Months
In thousands	2013			2012
Operating Income:
Segment operating income before income taxes	$	139,377		$	126,933
Utility income taxes		(53,299	)		(47,221	)
Non-utility activities before income taxes		135			107

Operating income	$	86,213		$	79,819

Net Income:
Income before income taxes for reportable segments	$	141,896		$	125,766
Income taxes		(55,973	)		(49,539	)

Net income	$	85,923		$	76,227

15. Subsequent Events

We monitor significant events occurring after the balance sheet date and prior to the issuance of the financial statements to determine the impacts, if any, of events on the financial statements to be issued. All subsequent events of which we are aware were evaluated. For information on subsequent event disclosures related to our capital stock and environmental matters, see Note 6 and Note 9, respectively, to the consolidated financial statements in this Form 10-Q.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report, as well as other documents we file with the Securities and Exchange Commission (SEC), may contain forward-looking statements. In addition, our senior management and other authorized spokespersons may make forward-looking statements in print or orally to analysts, investors, the media and others. These statements are based on management’s current expectations from information currently available and are believed to be reasonable and are made in good faith. However, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the statements. Factors that may make the actual results differ from anticipated results include, but are not limited to the following, as well as those discussed in Item 1A. Risk Factors:

•

Economic conditions in our markets

•

Wholesale price of natural gas

•

Availability of adequate interstate pipeline transportation capacity and natural gas supply

•

Regulatory actions at the state level that impact our ability to earn a reasonable rate of return and fully recover our operating costs on a timely basis

•

Competition from other companies that supply energy

•

Changes in the regional economies, politics, regulations and weather patterns of the three states in which our operations are concentrated

•

Costs of complying or effect of noncompliance with state and federal laws and regulations that are applicable to us

•

Effect of climate change, carbon neutral or energy efficiency legislation or regulations on costs and market opportunities

•

Weather conditions

•

Operational interruptions to our gas distribution and transmission activities

•

Ability to complete necessary or desirable pipeline expansion or infrastructure development projects

•

Our credit ratings

•

Availability and cost of capital

•

Federal and state fiscal, tax and monetary policy

•

Ability to generate sufficient cash flows to meet all our cash needs

•

Ability to satisfy all of our outstanding debt obligations

•

Ability of counterparties to meet their obligations to us

•

Costs of providing pension benefits

•

Earnings from the joint venture businesses in which we invest

•

Ability to attract and retain professional and technical employees

•

Changes in accounting standards

•

Risk of cyber-attack, acts of cyber-terrorism, or failure of technology systems

•

Ability to obtain and maintain sufficient insurance

•

Change in number of outstanding shares

Other factors may be described elsewhere in this report. All of these factors are difficult to predict, and many of them are beyond our control. For these reasons, you should not place undue reliance on these forward-looking statements when making investment decisions. When used in our documents or oral presentations, the words “expect,” “believe,” “project,” “anticipate,” “intend,” “should,” “could,” “assume,” “estimate,” “forecast,” “future,” “indicate,” “outlook,” “plan,” “predict,” “seek,” “target,” “would” and variations of such words and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are based on information available to us as of the date they are made, and we do not undertake any obligation to update publicly any forward-looking statement either as a result of new information, future events or otherwise except as required by applicable laws and regulations. Our reports on Form 10-K, Form 10-Q and Form 8-K and amendments to these reports are available at no cost on our website at www.piedmontng.com as soon as reasonably practicable after the report is filed with or furnished to the SEC.

Overview

Piedmont Natural Gas Company, Inc., which began operations in 1951, is an energy services company whose principal business is the distribution of natural gas to over one million residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee, including 52,400 customers served by municipalities who are our wholesale customers. We are invested in joint venture, energy-related businesses, including unregulated retail natural gas marketing, and regulated interstate natural gas transportation and storage and intrastate natural gas transportation businesses. Unless the context requires otherwise, references to “we,” “us,” “our,” “the Company” or “Piedmont” means consolidated Piedmont Natural Gas Company, Inc. and its subsidiaries.

We have two reportable business segments, regulated utility and non-utility activities, with the regulated utility segment being the largest. Factors critical to the success of the regulated utility include operating a safe, reliable natural gas distribution system and the ability to recover the costs and expenses of the business in the rates charged to customers. The non-utility activities segment consists of our equity method investments in joint venture, energy-related businesses. The percentages of the assets as of January 31, 2013 and earnings before taxes by segments for the three months ended January 31, 2013 are presented below.


				Earnings
	Assets			Before Taxes
Regulated Utility		97	%		95	%

Non-utility Activities:
Regulated non-utility activities		2	%		2	%
Unregulated non-utility activities		1	%		3	%

Total non-utility activities		3	%		5	%

For further information on equity method investments and business segments, see Note 12 and Note 14, respectively, to the consolidated financial statements in this Form 10-Q.

Regulation

Our utility operations are regulated by the North Carolina Utilities Commission (NCUC), the Public Service Commission of South Carolina and the Tennessee Regulatory Authority as to rates, service area, adequacy of service, safety standards, extensions and abandonment of facilities, accounting and depreciation. The NCUC also regulates us as to the issuance of long-term debt and equity securities.

We are also subject to various federal regulations that affect our utility and non-utility operations. These federal regulations include regulations that are particular to the natural gas industry, such as regulations of the Federal Energy Regulatory Commission that affect the certification and siting of new interstate natural gas pipeline projects, the purchase and sale of, the prices paid for, and the terms and condition of service for the interstate transportation and storage of natural gas, regulations of the U.S. Department of Transportation that affect the design, construction, operation, maintenance, integrity, safety and security of natural gas distribution and

transmission systems, and regulations of the Environmental Protection Agency relating to the environment. In addition, we are subject to numerous other regulations, such as those relating to employment and benefit practices, which are generally applicable to companies doing business in the United States of America.

Our regulatory commissions approve rates and tariffs that are designed to give us the opportunity to recover the cost of natural gas we purchase for our customers and our operating expenses and to earn a fair rate of return on invested capital for our shareholders. Our ability to earn our authorized rates of return is based in part on our ability to reduce or eliminate regulatory lag and also by improved rate designs that decouple the recovery of our approved margins from customer usage patterns impacted by seasonal weather patterns and customer conservation.

We continually assess alternative rate structures and cost recovery mechanisms that are more appropriate to the changing energy economy. The traditional utility rate design provides for the collection of margin revenue based on volumetric throughput which can be affected by customer consumption patterns, weather, conservation, price levels for natural gas or general economic conditions. Alternative rate structures and cost recovery mechanisms are rate designs and mechanisms that allow utilities to encourage energy efficiency and conservation by separating or decoupling the link between energy consumption and margin revenues, thereby aligning the interests of shareholders and customers.

In North Carolina, we have a margin decoupling mechanism that provides for the recovery of our approved margin from residential and commercial customers on an annual basis independent of consumption patterns. The margin decoupling mechanism provides for semi-annual rate adjustments to refund any over-collection of margin or to recover any under-collection of margin. In South Carolina, we operate under a rate stabilization adjustment tariff mechanism that achieves the objectives of margin decoupling for residential and commercial customers with a one year lag. Under the rate stabilization adjustment tariff mechanism, we restate our rates in South Carolina based on updated costs and revenues on an annual basis. We also have a weather normalization adjustment (WNA) mechanism for residential and commercial customers in South Carolina for bills rendered during the months of November through March and in Tennessee for bills rendered during the months of October through April that partially offsets the impact of colder- or warmer-than-normal winter weather. Our WNA formulas calculate the actual weather variance from normal, using 30 years of history, and increases revenues when weather is warmer than normal and decreases revenues when weather is colder than normal. The WNA formulas do not ensure full recovery of approved margin during periods when customer consumption patterns vary from consumption patterns used to establish the WNA factors.

In all three states, the gas cost portion of our costs is recoverable through purchased gas adjustment (PGA) procedures and is not affected by the margin decoupling mechanism or the WNA mechanism. For the three months ended January 31, 2013, these and other rate designs stabilized our gas utility margin by providing fixed recovery of 69% of our utility margin, including margin decoupling in North Carolina, facilities charges to our customers and fixed-rate contracts; semi-fixed recovery of 22% of our utility margin, including the rate stabilization mechanism in South Carolina and WNA in South Carolina and Tennessee; and volumetric or periodic renegotiation of 9% of our utility margin, including our secondary market programs. For further information on state commission regulation, see Note 2 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2012.

Strategic Focus

Our strategic directives focus on our customers, our communities, our employees and our shareholders and reflect what we believe is the inherent advantages of natural gas compared to other types of energy. They are as follows:

•

Promote the benefits of natural gas

•

Expand our core natural gas and complementary energy-related businesses to enhance shareholder value

•

Be the energy and service provider of choice

•

Achieve excellence in customer service every time

•

Preserve financial strength and flexibility

•

Execute sustainable business practices

•

Enhance our healthy, high performance culture

For further discussion of our strategic objectives, see the “Overview” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended October 31, 2012.

Executive Summary

We monitor our progress and measure our performance related to our strategic directives and our business objectives over the course of our fiscal year. The metrics we use to measure our performance include, but are not limited to, earnings per share (EPS) and EPS growth, total shareholder return compared to our industry peer group, return on invested capital, return on equity, utility margin, investment grade credit ratings, customer growth, utility customer satisfaction and loyalty, operations and maintenance expense discipline, pipeline safety, carbon emissions and our corporate culture related to employee job satisfaction, health and safety.

Focus Areas and Achievements

Managing Gas Supplies and Prices. Our gas supply acquisition strategy is regularly reviewed and adjusted to ensure that we have sufficient and reliable supplies of competitively-priced natural gas to meet the needs of our utility customers. Natural gas development and production in North America continues to provide supply stability and price moderation for natural gas as an energy commodity. Over the past five years, the lower price of natural gas has allowed us to significantly lower the cost of gas to our customers, and we have filed for a further reduction in our rates in North Carolina and South Carolina that were effective February 1, 2013. Currently, natural gas has a price advantage over many other fuels, and it is anticipated that the cost of natural gas will remain competitive due to abundant domestic sources of shale gas reserves.

In November 2012, in order to provide diversification, reliability and gas cost benefits to our customers, we signed long-term contracts to source more of our gas supplies from the Marcellus shale basin in Pennsylvania for our markets in the Carolinas. These new supply arrangements are scheduled to begin in December 2015.

Customer Growth. With some improvement in economic conditions and target marketing on the benefits of natural gas, customer gains in the first fiscal quarter improved 9% from the same period in 2012. Lower wholesale natural gas costs continued to favorably position natural gas relative to other energy sources. Customer gains in our residential new construction and conversion markets increased 12% for the three months ended January 31, 2013 compared to the same period in 2012. Commercial customer additions decreased 10% for the three months ended January 31, 2013 compared to 2012, reflecting a reduction in new construction activity coupled with a longer sales cycle for conversions. We forecast continuing gross customer growth for fiscal 2013 of slightly better than 1%. Overall, total customers billed increased 1% for the three months ended January 31, 2013 compared to the same period in 2012.

We continue to execute our plan to build compressed natural gas (CNG) fueling stations in our service area for use by our own vehicle fleet as well as by third party customers. We currently own and operate eight company CNG fueling stations at Company resource centers with 14% of our vehicle fleet capable of using CNG. We are marketing our CNG fueling stations to commercial fleets to utilize these CNG stations and will serve

commercial customers with fueling stations at their sites where there is sufficient demand. We sold 15,200 dekatherms of CNG to commercial customers for the three months ended January 31, 2013, which is equivalent to approximately 225 homes, and used 1,100 dekatherms of CNG in our own fleets. Through sales of CNG to our commercial customers and use by our own fleet, this CNG usage displaced approximately 129,600 gallons of gasoline and diesel fuel.

Capital Expenditures. We continue to make progress with capital projects that we expect will provide benefits to our customers through safe and reliable natural gas service, while providing our shareholders a reasonable return on invested capital. We have one pipeline expansion project under construction to provide natural gas delivery service to a power generation facility currently under construction in North Carolina with a targeted in service date of June 2013. See the discussion of our forecasted capital investment related to the construction of natural gas pipelines and compressor stations to serve a new power generation facility in “Cash Flows from Investing Activities” in Item 2 of this Form 10-Q in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We are increasing our utility capital expenditures for pipeline integrity, safety and compliance programs as well as system and technology infrastructure. To ensure safe and efficient pipeline operations, we are developing a new work and asset management system. These capital expenditures will require rate cases or other regulatory mechanisms to obtain a return of and on those capital costs. See further discussion in the section below on “Business Process and Technology Improvements.”

Regulatory Activity. Even though we have WNA mechanisms in South Carolina and Tennessee, we are not fully insulated from the effects of weather that are significantly warmer than normal, such as weather that we continue to experience during the 2012-2013 winter heating season. Weather for the three months ended January 31, 2013 was 9% warmer than normal and 8% colder than the same prior year period.

For the three months ended January 31, 2013, the margin decoupling mechanism in North Carolina increased margin by $7.3 million, and the WNA mechanisms in South Carolina and Tennessee increased margin by $5 million.

Business Process and Technology Improvements. To support our strategic objective of excellence in customer service and sustainable business practices through safe and efficient pipeline operations, we are in the process of a multi-year program designed to bring additional technology and automation to our field operations by providing systems and information to enable operations employees to more effectively and efficiently manage our pipeline assets, ensure operating efficiencies and facilitate compliance with pipeline safety and integrity regulations. These enhanced new systems and process programs, which include multiple projects, will be integrated with our current and future financial and other business systems.

Cost Containment Measures. We continue to focus on improving operating efficiency and productivity and cost containment discipline where possible in payroll, corporate overhead charges and various discretionary spending categories. We will manage our business as efficiently as possible consistent with providing safe, reliable and cost effective services to our customers.

Financial Strength and Flexibility. In order to profitably fund our Company’s investment in growth and our ongoing capital needs, we have executed our financing programs to optimize and reduce our cost of capital, preserve our liquidity and strong balance sheet and protect our high quality credit ratings. We have an open shelf registration filed with the SEC in June 2011 that is available for future issuances of debt or equity. On January 29, 2013, we entered into an underwriting agreement to sell up to 4.6 million shares of our common stock, priced to the public at $32 per share. Of the 4.6 million shares, 3 million shares were issued on February 4, 2013 providing net proceeds of $92.6 million, and the remaining shares will be issued later in 2013 under the forward sale agreements (FSAs). For further information on this offering, see Note 6 to the consolidated financial statements in this Form 10-Q and the following discussion of “Cash Flows from Financing Activities.”

Additional information on operating results for the three-month period follows.

Results of Operations

We reported net income of $85.9 million for the three months ended January 31, 2013 as compared to $76.2 million for the same period in 2012. The following table provides a comparison of the components of our Consolidated Statements of Comprehensive Income for the three months ended January 31, 2013 as compared with the three months ended January 31, 2012.

Comprehensive Income Statement Components


	Three Months Ended January 31
In thousands, except per share amounts	2013		2012		Variance			Percent Change
Operating Revenues	$	515,875	$	471,840	$	44,035			9.3	%
Cost of Gas		284,252		251,603		32,649			13.0	%

Margin		231,623		220,237		11,386			5.2	%

Operations and Maintenance		55,882		58,397		(2,515	)		(4.3	)%
Depreciation		26,701		26,178		523			2.0	%
General Taxes		9,528		8,622		906			10.5	%
Utility Income Taxes		53,299		47,221		6,078			12.9	%

Total Operating Expenses		145,410		140,418		4,992			3.6	%

Operating Income		86,213		79,819		6,394			8.0	%
Other Income (Expense), net of tax		4,167		3,614		553			15.3	%
Utility Interest Charges		4,457		7,206		(2,749	)		(38.1	)%

Net Income	$	85,923	$	76,227	$	9,696			12.7	%

Average Shares of Common Stock:
Basic		72,356		72,126		230			0.3	%
Diluted		72,725		72,433		292			0.4	%

Earnings Per Share of Common Stock:
Basic	$	1.19	$	1.06	$	0.13			12.3	%
Diluted	$	1.18	$	1.05	$	0.13			12.4	%

Margin by Customer Class


	Three Months Ended January 31
In thousands	2013				2012
Sales and Transportation:
Residential	$	137,914	60	%	$	134,219	61	%
Commercial		59,855	26	%		58,083	26	%
Industrial		16,330	7	%		14,939	7	%
Power Generation		10,115	4	%		5,803	3	%
For Resale		2,106	1	%		2,129	1	%

Total		226,320	98	%		215,173	98	%
Secondary Market Sales		3,313	1	%		2,542	1	%
Miscellaneous		1,990	1	%		2,522	1	%

Total	$	231,623	100	%	$	220,237	100	%

Key statistics are shown in the table below for the three months ended January 31, 2013 and 2012.

Gas Deliveries, Customers, Weather Statistics and Number of Employees


	Three Months Ended
	January 31
	2013			2012			Variance			Percent Change
Deliveries in Dekatherms (in thousands):
Sales Volumes		42,468			38,596			3,872			10.0	%
Transportation Volumes		65,480			52,369			13,111			25.0	%

Throughput		107,948			90,965			16,983			18.7	%

Secondary Market Volumes		16,347			11,447			4,900			42.8	%

Customers Billed (at period end)		994,577			983,481			11,096			1.1	%
Gross Customer Additions		3,746			3,438			308			9.0	%

Degree Days
Actual		1,691			1,568			123			7.8	%
Normal		1,849			1,869			(20	)		(1.1	)%
Percent warmer than normal		(8.5	)%		(16.1	)%		n/a			n/a

Number of Employees (at period end)		1,746			1,782			(36	)		(2.0	)%

Operating Revenues

Changes in operating revenues for the three months ended January 31, 2013 compared with the same period in 2012 are presented below.

Changes in Operating Revenues—Increase (Decrease)


In millions
Residential and commercial customers	$	16.2
Industrial customers		3.6
Power generation customers		6.0
Secondary market		29.8
Margin decoupling mechanism		(9.5	)
WNA mechanisms		(2.1	)

Total	$	44.0

•

Residential and commercial customers – the increase is primarily due to higher consumption from colder weather and slightly higher gas costs passed through to sales customers.

•

Industrial customers – the increase is primarily due to colder weather and customer growth.

•

Power generation customers – the increase is primarily due to increased transportation services.

•

Secondary market – the increase is due to increased activity and margins in the wholesale market. Secondary market transactions consist of off-system sales and capacity release arrangements and are part of our regulatory gas supply management program with regulatory-approved sharing mechanisms between our utility customers and our shareholders.

•

Margin decoupling mechanism – the decrease is due to colder weather in North Carolina. As discussed in “Financial Condition and Liquidity,” the margin decoupling mechanism in North Carolina adjusts for variations in residential and commercial use per customer, including those due to weather and conservation.

•

WNA mechanisms – the decrease is due to colder weather in South Carolina and Tennessee.

Cost of Gas

Changes in cost of gas for the three months ended January 31, 2013 compared with the same period in 2012 are presented below.

Changes in Cost of Gas—Increase (Decrease)


In millions
Commodity gas costs passed through to sales customers	$	16.0
Commodity gas costs in secondary market transactions		29.1
Pipeline demand charges		3.5
Regulatory approved gas cost mechanisms		(16.0	)

Total	$	32.6

•

Commodity gas costs passed through to sales customers – the increase is due to higher volumes sold due to colder weather and slightly higher wholesale gas costs passed through to sales customers.

•

Commodity gas costs in secondary market transactions – the increase is due to increased activity and higher average wholesale gas costs.

•

Pipeline demand charges – the increase is due to increased demand costs, decreased asset manager payments and decreased capacity release.

•

Regulatory approved gas cost mechanisms – the decrease is primarily due to commodity gas cost true-ups.

In all three states, we are authorized to recover from customers all prudently incurred gas costs. Charges to cost of gas are based on the amount recoverable under approved rate schedules. The net of any over- or under-recoveries of gas costs are reflected in a regulatory deferred account and are added to or deducted from cost of gas and are included in “Amounts due from customers” in “Current Assets” or “Amounts due to customers” in “Current Liabilities” in the Consolidated Balance Sheets.

Margin

Margin, rather than revenues, is used by management to evaluate utility operations due to the regulatory passthrough of changes in wholesale gas costs. Our utility margin is defined as natural gas revenues less natural gas commodity costs and fixed gas costs for transportation and storage capacity. It is the component of our revenues that is established in general rate cases and is designed to cover our utility operating expenses and our return of and on our utility capital investments and related taxes. Our commodity gas costs accounted for 41% of revenues for the three months ended January 31, 2013, and our pipeline transportation and storage costs accounted for 7%.

In general rate proceedings, state regulatory commissions authorize us to recover our margin in our monthly fixed demand charges and on each unit of gas delivered under our generally applicable sales and transportation tariffs and special service contracts. We negotiate special service contracts with some industrial customers that may include the use of volumetric rates with minimum margin commitments and fixed monthly demand charges. These individually negotiated agreements are subject to review and approval by the applicable state regulatory commission and allow us to make an economic extension or expansion of natural gas service to larger industrial customers under terms and conditions of service that are competitive with alternative energy sources and allow such service to be provided without general subsidies from Piedmont’s other system customers.

Our utility margin is also impacted by certain regulatory mechanisms as defined elsewhere in this document. These include WNA mechanisms in Tennessee and South Carolina, the Natural Gas Rate Stabilization Act in South Carolina, secondary market activity in North Carolina and South Carolina, the gas supply Incentive Plan in Tennessee, the margin decoupling mechanism in North Carolina, negotiated loss treatment in North Carolina and South Carolina and the recovery of uncollectible gas costs in all three jurisdictions. We retain 25% of secondary market margins generated through off-system sales and capacity release activity in all jurisdictions, with 75% credited to customers through the incentive plans.

Changes in margin for the three months ended January 31, 2013 compared with the same period in 2012 are presented below.

Changes in Margin—Increase (Decrease)


In millions
Residential and commercial customers	$	5.5
Industrial customers		1.4
Power generation customers		4.3
Secondary market activity		.7
Net gas cost adjustments		(.5	)

Total	$	11.4

•

Residential and commercial customers – the increase is primarily due to increased volumes delivered due to colder weather, the general rate increase in Tennessee effective March 1, 2012 and customer growth in all three states.

•

Industrial customers – the increase is primarily due to higher consumption in the industrial market from colder weather and customer growth.

•

Power generation customers – the increase is due to increased transportation services.

•

Secondary market activity – the increase is primarily due to increased activity and margins in the wholesale market.

Operations and Maintenance Expenses

Changes in operations and maintenance expenses for the three months ended January 31, 2013 compared with the same period in 2012 are presented below.

Changes in Operations and Maintenance Expenses—Increase (Decrease)


In millions
Employee benefits	$	(3.6	)
Payroll		(.5	)
Contract labor		.7
Regulatory		.6
Other		.3

Total	$	(2.5	)

•

Employee benefits – the decrease is primarily due to reduced group medical insurance expense from lower claims, a regulatory pension deferral in the current year versus none in the prior year, partially offset by an increase in pension expense.

•

Payroll – the decrease is primarily due to vacancies and salaries capitalized to projects, partially offset by increases in incentive plan accruals.

•

Contract labor – the increase is primarily due to timing of expenses related to pipeline integrity and maintenance programs.

•

Regulatory – the increase is due primarily to amortization of regulatory assets that began with the Tennessee general rate increase in March 2012.

Other Income (Expense)

Other Income (Expense) is comprised of income from equity method investments, non-operating income, non-operating expense and income taxes related to these items. Non-operating income includes non-regulated merchandising and service work, home service warranty programs, subsidiary operations, interest income and other miscellaneous income. Non-operating expense is comprised of charitable contributions and miscellaneous expenses. Activity for the three months ended January 31, 2013 compared with the same period in 2012 was comparable.

Utility Interest Charges

Changes in utility interest charges for the three months ended January 31, 2013 compared with the same period in 2012 are presented below.

Changes in Utility Interest Charges—Increase (Decrease)


In millions
Borrowed Allowance for Funds Used During Construction (AFUDC)	$	(3.9	)
Regulatory interest expense, net		(.7	)
Interest expense on short-term debt		(.7	)
Interest expense on long-term debt		2.7
Other		(.1	)

Total	$	(2.7	)

•

Borrowed AFUDC – the decrease to interest expense is due to an increase in capitalized interest primarily as a result of increased project construction expenditures.

•

Regulatory interest expense, net – the decrease is primarily due to interest charged on increased amounts due from customers, which is recorded as interest income.

•

Interest expense on short-term debt – the decrease is primarily due to interest rates that are on average 79 basis points lower than the same prior period, partially offset by higher balances outstanding during the current period used for utility capital expenditures and other corporate purposes.

•

Interest expense on long-term debt – the increase is primarily due to higher amounts of long-term debt outstanding in the current period.

Financial Condition and Liquidity

Our capital market strategy has continued to focus on maintaining a strong balance sheet, ensuring sufficient cash resources and daily liquidity, accessing capital markets at favorable times when needed, managing critical business risks, and maintaining a balanced capital structure through the issuance of equity and long-term debt securities or the repurchase of our equity securities. The need for long-term capital is driven by long-term debt maturities and the level and timing of capital expenditures. Our issuance of long-term debt and equity securities is subject to regulation by the NCUC. On January 29, 2013, we offered 4.6 million shares of our common stock for sale under an open combined debt and equity shelf registration statement, and on February 4, 2013, we issued 3 million of those common shares. Also on January 29, 2013, in connection with the offering of these shares, we entered into a FSA for up to 1 million shares to be settled no later than December 15, 2013. On February 19, 2013, we entered into an additional FSA as part of the offering for an additional .6 million shares to be settled no later than December 15, 2013. For further information on these transactions, see Note 6 to the consolidated financial statements in this Form 10-Q.

To meet our capital and liquidity requirements outside of the long-term capital markets, we rely on certain resources, including cash flows from operating activities, cash generated from our investments in joint ventures and short-term debt. Operating activities primarily provides the liquidity to fund our working capital, a portion of our capital expenditures and other cash needs.

Short-term debt is vital to meet the timing of our working capital needs, such as our seasonal requirements for gas supply, pipeline capacity, payment of dividends, general corporate liquidity, a portion of our capital expenditures and approved investments. We rely on short-term debt together with long-term capital markets to provide a significant source of liquidity to meet operating requirements that are not satisfied by internally generated cash flows. Currently, cash flows from operations are not adequate to finance the full cost of planned capital expenditures, which are fundamental to support our system infrastructure and growth.

We believe that the capacity of short-term credit available to us under our revolving syndicated credit facility and our commercial paper (CP) program and the issuance of long-term debt and equity securities, together with cash provided by operating activities, will continue to allow us to meet our needs for working capital, construction expenditures, investments in joint ventures, anticipated debt redemptions, dividend payments, employee benefit plan contributions and other cash needs. Our ability to satisfy all of these requirements is dependent upon our future operating performance and other factors, some of which we are not able to control. These factors include prevailing economic conditions, regulatory changes, the price and demand for natural gas and operational risks, among others. Liquidity has been enhanced by the extension of bonus depreciation legislation. For further information on bonus depreciation, see the following discussion of “Cash Flows from Operating Activities.”

Short-Term Debt . We have a $650 million five-year revolving syndicated credit facility that expires in October 2017 and has an option to request an expansion up to $850 million. We pay an annual fee of $35,000 plus 8.5 basis points for any unused amount up to $650 million. The five-year revolving syndicated credit facility contains normal and customary financial covenants.

We have a $650 million unsecured CP program that is backstopped by the revolving syndicated credit facility. The notes issued under the CP program may have maturities not to exceed 397 days from the date of issuance. The amounts outstanding under the revolving syndicated credit facility and the CP program, either individually or in the aggregate, cannot exceed $650 million. Any borrowings under the CP program rank equally with our other unsubordinated and unsecured debt.

Highlights for our short-term debt as of January 31, 2013 and for the quarter ended January 31, 2013 are presented below.

Short-Term Debt

As of January 31, 2013


	Credit			Commercial			Total
In thousands	Facility			Paper			Borrowings
End of period (January 31, 2013):
Amount outstanding	$	—		$	530,000		$	530,000
Weighted average interest rate		—	%		0.34	%		0.34	%
During the period (November 1, 2012—January 31, 2013):
Average amount outstanding	$	100		$	479,000		$	479,100
Minimum amount outstanding ⁽¹⁾		—			390,000			390,000
Maximum amount outstanding ⁽¹⁾		10,000			555,000			555,000
Minimum interest rate ⁽²⁾		1.12	%		.32	%		.32	%
Maximum interest rate		1.12	%		.45	%		1.12	%
Weighted average interest rate		1.12	%		.39	%		.39	%
Maximum amount outstanding:
November 2012	$	—		$	465,000		$	465,000
December 2012		10,000			530,000			530,000
January 2013		—			555,000			555,000

⁽¹⁾	During December 2012, we were borrowing under both the credit facility and CP program for a portion of the month.

⁽²⁾	This is the minimum rate when we were borrowing under the credit facility and/or CP program.

As of January 31, 2013, we had $10 million available for letters of credit under our revolving syndicated credit facility, of which $2.1 million were issued and outstanding. The letters of credit are used to guarantee claims from self-insurance under our general and automobile liability policies. As of January 31, 2013, unused lines of credit available under our revolving syndicated credit facility, including the issuance of the letters of credit, totaled $117.9 million.

Cash Flows from Operating Activities . The natural gas business is seasonal in nature. Operating cash flows may fluctuate significantly during the year and from year to year due to working capital changes within our utility and non-utility operations. The major factors that affect our working capital are weather, natural gas

purchases and prices, natural gas storage activity, collections from customers and deferred gas cost recoveries. We rely on operating cash flows and short-term debt to meet seasonal working capital needs. The level of short-term debt can vary significantly due to changes in the wholesale cost of natural gas and the level of purchases of natural gas supplies for storage to serve customer demand. We pay our suppliers for natural gas purchases before we collect our costs from customers through their monthly bills. During our first and second quarters, we generally experience overall positive cash flows from the sale of flowing gas and gas withdrawal from storage and the collection of amounts billed to customers during the November through March winter heating season. Cash requirements generally increase during the third and fourth quarters due to increases in natural gas purchases injected into storage, construction activity and decreases in receipts from customers.

During the winter heating season, our trade accounts payable increase to reflect amounts due to our natural gas suppliers for commodity and pipeline capacity. The cost of the natural gas can vary significantly from period to period due to changes in the price of natural gas, which is a function of market fluctuations in the commodity cost of natural gas, along with our changing requirements for storage volumes. Differences between natural gas costs that we have paid to suppliers and amounts that we have collected from customers are included in regulatory deferred accounts in amounts due to or from customers. These natural gas costs can cause cash flows to vary significantly from period to period along with variations in the timing of collections from customers under our gas cost recovery mechanisms.

Cash flows from operations are impacted by weather, which affects gas purchases and sales. Warmer weather can lead to lower revenues from fewer volumes of natural gas sold or transported. Colder weather can increase volumes sold to weather-sensitive customers, but may lead to conservation by customers in order to reduce their heating bills. Regulatory margin stabilizing and cost recovery mechanisms, such as those that allow us to recover the gas cost portion of bad debt expense, are expected to mitigate the impact that customer conservation and higher bad debt expense may have on our results of operations. Warmer-than-normal weather can lead to reduced operating cash flows, thereby increasing the need for short-term bank borrowings to meet current cash requirements.

Net cash provided by operating activities was $12.6 million and $24.6 million for the three months ended January 31, 2013 and 2012, respectively. Net cash provided by operating activities reflects an increase of $9.7 million in net income for 2013 compared with 2012 primarily due to higher margin and lower interest expense partially offset by higher operating expenses. The effect of changes in working capital on net cash provided by operating activities is described below.

•

Trade accounts receivable and unbilled utility revenues increased $183.8 million from October 31, 2012 primarily due to colder weather and higher consumption of natural gas. Volumes sold to weather-sensitive residential and commercial customers increased 3.9 million dekatherms as compared with the same prior period primarily due to 8% colder weather during the current period. Total throughput increased 17 million dekatherms as compared with the same prior period, largely from 11.4 million dekatherms, or 42%, increased deliveries to power generation customers as well as increased sales to residential and commercial customers.

•

Net amounts due from customers decreased $22.7 million from October 31, 2012 primarily due to the collection of deferred gas costs through rates.

•

Gas in storage increased $6 million in the current period primarily due to increased volumes in storage, partially offset by a decrease in the weighted average cost of gas purchased for injections during the current period.

•

Prepaid gas costs decreased $26.7 million in the current period primarily due to gas being made available for sale during the period. Under some gas supply asset management contracts, prepaid gas costs incurred during the summer months represent purchases of gas that are not available for sale, and therefore not recorded in inventory, until the start of the winter heating season.

Our three state regulatory commissions approve rates that are designed to give us the opportunity to generate revenues to cover our gas costs, fixed and variable non-gas costs and earn a fair return for our shareholders. We have WNA mechanisms in South Carolina and Tennessee that partially offset the impact of colder- or warmer-than-normal weather on bills rendered in November through March for residential and commercial customers in South Carolina and in October through April for residential and commercial customers in Tennessee. The WNA mechanisms in South Carolina and Tennessee generated charges to customers of $5 million and $7.1 million in the three months ended January 31, 2013 and 2012, respectively. In Tennessee, adjustments are made directly to individual customer bills. In South Carolina, the adjustments are calculated at the individual customer level but are recorded in “Amounts due from customers” in “Current Assets” or “Amounts due to customers” in “Current Liabilities” in the Consolidated Balance Sheets for subsequent collection from or refund to all customers in the class. The margin decoupling mechanism in North Carolina provides for the collection of our approved margin from residential and commercial customers independent of consumption patterns. The margin decoupling mechanism increased margin by $7.3 million and $16.8 million in the three months ended January 31, 2013 and 2012, respectively. Our gas costs are recoverable through PGA procedures and are not affected by the WNA or the margin decoupling mechanisms.

The American Taxpayer Relief Act of 2012, enacted in January 2013, and The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, enacted in December 2010 (the Acts), extended the 50% bonus depreciation that expired December 2009 and temporarily increased bonus depreciation for federal income tax purposes to 100% for certain qualified investments. These provisions are effective for our fiscal year tax returns for 2010 – 2015. Based on current capital projections and timelines, we are anticipating that bonus depreciation will reduce cash needed to pay federal income taxes during fiscal years 2010 – 2015 by $165 – $205 million as compared with cash tax needs prior to the Acts. While reducing cash tax payments, bonus depreciation will increase deferred tax liabilities by a similar amount. Rate base generally consists of net utility plant in service less utility deferred income tax liabilities. Rate base upon which authorized revenue requirements are determined is expected to increase for 2013, but less than if bonus depreciation had not been in effect.

The financial condition of the natural gas marketers and pipelines that supply and deliver natural gas to our distribution system can increase our exposure to supply and price fluctuations. We believe our risk exposure to the financial condition of the marketers and pipelines is not significant based on our receipt of the products and services prior to payment and the availability of other marketers of natural gas to meet our firm supply needs if necessary. We have regulatory commission approval in North Carolina, South Carolina and Tennessee that places tighter credit requirements on the retail natural gas marketers that schedule gas for transportation service on our system.

The regulated utility competes with other energy products, such as electricity and propane, in the residential and commercial customer markets. The most significant product competition is with electricity for space heating, water heating and cooking. Numerous factors can influence customer demand for natural gas, including price, value, availability, environmental attributes, comfort, convenience, reliability and energy efficiency. Increases in the price of natural gas can negatively impact our competitive position by decreasing the price benefits of natural gas to the consumer. This can impact our cash needs if customer growth slows, resulting in reduced capital expenditures, or if customers conserve, resulting in reduced gas purchases and customer billings.

In the industrial market, many of our customers are capable of burning a fuel other than natural gas, with fuel oil being the most significant competing energy alternative. Our ability to maintain industrial market share is largely dependent on price. The relationship between supply and demand has the greatest impact on the price of natural gas. The price of oil depends upon a number of factors beyond our control, including the relationship between worldwide supply and demand and the policies of foreign and domestic governments and organizations, as well as the value of the US dollar versus other currencies. Our liquidity could be impacted, either positively or negatively, as a result of alternate fuel decisions made by industrial customers.

In an effort to keep customer rates competitive and to maximize earnings, we continue to implement business process improvement and operations and maintenance cost management programs to capture operational efficiencies while improving customer service and maintaining a safe and reliable system.

Cash Flows from Investing Activities . Net cash used in investing activities was $153 million and $104.6 million for the three months ended January 31, 2013 and 2012, respectively. Net cash used in investing activities was primarily for utility capital expenditures. Gross utility capital expenditures for the three months ended January 31, 2013 were $137.2 million as compared to $98.1 million in the same prior period primarily due to additional expenditures on system integrity projects.

We have a substantial capital expansion program for the construction of transmission and distribution facilities, purchase of equipment and other general improvements. We are increasing our spending for pipeline integrity, safety and compliance programs, and systems and technology infrastructure to enhance our pipeline system and integrity. Our program primarily supports our system infrastructure and the growth in our customer base. To ensure safe pipeline operations, we are also deploying new technology through the development of a new work and asset management system. Significant utility construction expenditures are expected for growth and system integrity and are part of our long-range forecasts that are prepared at least annually and typically cover a forecast period of five years. We are contractually obligated to expend capital as the work is completed.

We anticipate making utility capital expenditures, including AFUDC, in the range of $550 – $600 million in our fiscal year 2013, including approximately $250 million for system integrity projects, and $75 – $85 million for the completion of the Sutton power generation delivery project. Our estimates of utility capital expenditures shown below for 2013 – 2015 include system integrity projects of approximately $150 million in both 2014 and 2015. We intend to fund capital expenditures in a manner that maintains our targeted capitalization ratio of 45 – 50% in long-term debt and 50 – 55% in common equity. A portion of the funding for capital expenditures is derived from operations, including lower federal income tax payments due to accelerated depreciation as well as bonus depreciation benefits. Additional detail for the anticipated capital expenditures follows.


In millions	2013		2014		2015
Utility	$	475—515	$	275—325		$	275—325
Sutton power generation project		75—85		—			—

Total forecasted capital expenditures	$	550—600	$	275—325		$	275—325

In April 2010, we reached an agreement with Progress Energy Carolinas, now a subsidiary of Duke Energy Corporation, to provide natural gas delivery service to a power generation facility to be built at their existing Sutton site near Wilmington, North Carolina. The agreement calls for us to construct approximately 130 miles of transmission pipeline along with compression facilities to provide natural gas delivery service to the plant by June 2013. Our investment in the pipeline and compression facilities is supported by a long-term service agreement with fixed monthly payments.

The Sutton facilities will also create cost effective expansion capacity that we will use to help serve the growing natural gas requirements of our customers in the eastern part of North Carolina. We anticipate that a portion of the revenue requirement of this project will be included in our North Carolina utility rates because the facilities will enhance our ability to serve our other North Carolina customers.

In November 2012, we became a 24% equity member of Constitution Pipeline Company, LLC (Constitution), a Delaware limited liability company. The purpose of the joint venture is to construct and operate approximately 123 miles of interstate natural gas pipeline and related facilities connecting gathering systems in Susquehanna County, Pennsylvania to the Iroquois Gas Transmission and Tennessee Gas Pipeline systems in New York. We have committed to fund an amount in proportion to our ownership interest for the development and construction of the new pipeline, which is expected to cost between $700 – $800 million. Our current fiscal year contributions through January 31, 2013 were $7.5 million, and we expect our total contributions will be an estimated $180 million through 2015 with approximately 90% of that funding to occur during our fiscal 2014 and 2015 years. The target in service date of the project is March 2015. For further information regarding this agreement, see Note 12 to the consolidated financial statements in this Form 10-Q.

Cash Flows from Financing Activities . Net cash provided by financing activities was $149 million and $83.3 million for the three months ended January 31, 2013 and 2012, respectively. Funds are primarily provided from long-term securities, short-term borrowings and the issuance of common stock through our dividend reinvestment and stock purchase plan (DRIP), our employee stock purchase plan (ESPP) and bonus depreciation. We may sell common stock and long-term debt when market and other conditions favor such long-term financing to maintain our target capital structure of 50 – 55% equity to total long-term capital. Funds are primarily used to retire long-term debt maturities, pay down outstanding short-term debt, repurchase common stock under the common stock repurchase program and pay quarterly dividends on our common stock.

Outstanding debt under our syndicated revolving credit facility and CP program increased to $530 million as of January 31, 2013 from $365 million as of October 31, 2012 primarily due to higher capital expenditures. For further information on short-term debt, see Note 5 to the consolidated financial statements in this Form 10-Q and the previous discussion of “Short-Term Debt” in “Financial Condition and Liquidity.”

We have an open combined debt and equity shelf registration statement filed with the SEC in July 2011 that is available for future use. On January 29, 2013, we entered into an underwriting agreement to sell up to 4.6 million shares of our common stock under the registration statement as follows.

•

Direct shares – 3 million shares were issued by us and delivered directly to the underwriters. The offering was settled on February 4, 2013, and we received $92.6 million from the underwriters. The shares were purchased by the underwriters at the net price of $30.88, the offering price to the public of $32 per share per the prospectus less an underwriting discount of $1.12 per share.

•

Forward shares – 1 million shares were borrowed by a forward counterparty and sold to the underwriters. Under a FSA between us and the forward counterparty dated January 29, 2013, we have agreed to sell 1 million shares to the forward counterparty to be settled no later than December 15, 2013. If we physically settle by issuing 1 million shares to the forward counterparty, the forward counterparty will, at settlement, pay us the proceeds less certain adjustments from its sale of the borrowed shares to the underwriters, which is anticipated to be $29.6 million at December 15, 2013. We have the option to settle the FSA by cash or net share settlement for all or a portion of our obligation under the FSA. We expect to settle by delivering shares.

•

Additional shares – The underwriters had a 30-day option to purchase up to an additional .6 million shares at the same price as the direct shares that would be, at our option, either issued at the time of purchase and delivered directly to the underwriters or borrowed and delivered to the underwriters by the forward counterparty. The underwriters exercised the full option, and on February 22, 2013, the forward counterparty sold .6 million borrowed shares to the underwriters. Under an additional FSA between us and the forward counterparty dated February 19, 2013, we agreed to sell .6 million shares to the forward counterparty to be settled no later than December 15, 2013. If we physically settle by issuing .6 million shares to the forward counterparty, the forward counterparty will, at settlement, pay us the proceeds less

certain adjustments from its sale of the borrowed shares to the underwriters, which is anticipated to be $17.8 million at December 15, 2013. We have the option to settle the FSA by cash or net share settlement for all or a portion of our obligation under the FSA. We expect to settle by delivering shares.

We used the net proceeds from this sale of our common stock to repay outstanding unsecured notes under the CP program. We intend to use the proceeds from the FSAs for the same purpose and for general corporate purposes. For further information on our common stock, see Note 6 to the consolidated financial statements in this Form 10-Q.

We anticipate issuing $250 million in long-term debt in fiscal 2013. The balance of our $100 million of 5% medium-term notes becomes due in December 2013. We continually monitor customer growth trends and investment opportunities in our markets and the timing of any infrastructure investments that would require the need for additional long-term debt.

During the three months ended January 31, 2013 and 2012, we issued $5.7 million and $4.9 million, respectively, of common stock through DRIP and ESPP. From time to time, we have repurchased shares of common stock under our Common Stock Open Market Purchase Program as described in Part II, Item 2 in this Form 10-Q. We do not anticipate repurchasing any of our common stock in our fiscal year 2013. During the three months ended January 31, 2012, we repurchased and retired .8 million shares for $27 million under the program.

We have paid quarterly dividends on our common stock since 1956. Provisions contained in certain note agreements under which certain long-term debt was issued restrict the amount of cash dividends that may be paid. As of January 31, 2013, our retained earnings were not restricted. On March 6, 2013, the Board of Directors declared a quarterly dividend on common stock of $.31 per share, payable April 15, 2013 to shareholders of record at the close of business on March 25, 2013.

Our long-term targeted capitalization ratio is 45 – 50% in long-term debt and 50 – 55% in common equity. As of January 31, 2013, our capitalization, including current maturities of long-term debt, if any, consisted of 47% in long-term debt and 53% in common equity.

The components of our total debt outstanding (short-term debt and long-term debt) to our total capitalization as of January 31, 2013 and 2012, and October 31, 2012, are summarized in the table below.


	January 31					October 31					January 31
In thousands	2013		Percentage			2012		Percentage			2012		Percentage
Short-term debt	$	530,000		20	%	$	365,000		16	%	$	457,500		21	%
Current portion of long-term debt		100,000		4	%		—		—	%		—		—	%
Long-term debt		875,000		34	%		975,000		41	%		675,000		31	%

Total debt		1,505,000		58	%		1,340,000		57	%		1,132,500		52	%
Common stockholders’ equity		1,098,810		42	%		1,027,004		43	%		1,030,086		48	%

Total capitalization (including short-term debt)	$	2,603,810		100	%	$	2,367,004		100	%	$	2,162,586		100	%

Including the effect of the issuance of 3 million shares on February 4, 2013 with net proceeds of $92.6 million, our long-term capitalization at January 31, 2013, including current maturities of long-term debt, would have been 45% debt and 55% equity.

Credit ratings impact our ability to obtain short-term and long-term financing and the cost of such financings. The borrowing costs under our revolving credit facility and our CP program are based on our credit ratings, and consequently, any decrease in our credit ratings would increase our borrowing costs. We believe our credit ratings will allow us to continue to have access to the capital markets, as and when needed, at a reasonable cost of funds.

As of January 31, 2013, all of our long-term debt was unsecured. Our long-term debt is rated “A” by Standard & Poor’s Ratings Services (S&P) and “A3” by Moody’s Investors Service (Moody’s). Currently, with respect to our long-term debt, the credit agencies maintain their stable outlook. S&P and Moody’s have issued credit ratings on the CP program at “A1” and “P2”, respectively. Credit ratings and outlooks are opinions of the rating agencies and are subject to their ongoing review. A significant decline in our operating performance, capital structure or a significant reduction in our liquidity could trigger a negative change in our ratings outlook or even a reduction in our credit ratings by our rating agencies. This would mean more limited access to the private and public credit markets and an increase in the costs of such borrowings. There is no guarantee that a rating will remain in effect for any given period of time or that a rating will not be lowered or withdrawn by a rating agency if, in its judgment, circumstances warrant a change.

We are subject to default provisions related to our long-term debt and short-term borrowings. Failure to satisfy any of the default provisions may result in total outstanding issues of debt becoming due. There are cross-default provisions in all of our debt agreements. As of January 31, 2013, there has been no event of default giving rise to acceleration of our debt.

Estimated Future Contractual Obligations

During the three months ended January 31, 2013, there were no material changes to our estimated future contractual obligations in Management’s Discussion and Analysis in this Form 10-Q compared to the disclosure provided in our Form 10-K for the year ended October 31, 2012. As previously disclosed, in November 2012, we contractually committed to fund an estimated $180 million in proportion to our 24% membership interest in Constitution for the development and construction of a new pipeline. As of January 31, 2013, we have funded $7.5 million. For further information about this contractual obligation, see Note 12 to the consolidated financial statements in this Form 10-Q.

Off-balance Sheet Arrangements

We have no off-balance sheet arrangements other than letters of credit and operating leases. The letters of credit are discussed in Note 5 to the consolidated financial statements in this Form 10-Q. The operating leases were discussed in Note 8 to the consolidated financial statements in our Form 10-K for the year ended October 31, 2012.

Critical Accounting Policies and Estimates

We prepare the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. We make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods reported. Actual results may differ significantly from these estimates and assumptions. We base our estimates on historical experience, where applicable, and other relevant factors that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate estimates and assumptions and make adjustments in subsequent periods to reflect more current information if we determine that modifications in assumptions and estimates are warranted.

Management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made, and changes in the estimate or a different estimate that could have been used would have had a material impact on our financial condition or results of operations. We consider regulatory accounting, revenue recognition, and pension and postretirement benefits to be our critical accounting estimates. Management is responsible for the selection of these critical accounting estimates

presented in our Form 10-K for the year ended October 31, 2012 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management has discussed these critical accounting estimates with the Audit Committee of the Board of Directors. There have been no changes in our critical accounting policies and estimates since October 31, 2012.

Accounting Guidance

For information regarding recently issued accounting guidance, see Note 1 to the consolidated financial statements in this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various forms of market risk, including the credit risk of our suppliers and our customers, interest rate risk, commodity price risk and weather risk. We seek to identify, assess, monitor and manage all of these risks in accordance with defined policies and procedures under the direction of the Treasurer and Chief Risk Officer through our Enterprise Risk Management program and with the direction of the Energy Price Risk Management Committee. Risk management is guided by senior management with Board of Directors’ oversight, and senior management takes an active role in the development of policies and procedures.

During the three months ended January 31, 2013, there were no material changes in the way that we monitor and manage market risk and credit risk in accordance with our policies and procedures. Our exposure to and management of interest rate risk, commodity price risk and weather risk has remained the same during the three months ended January 31, 2013. Our annual discussion of market risk was included in Item 7A of our Form 10-K as of October 31, 2012.

Additional information concerning market risk is included in “Financial Condition and Liquidity” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 in this Form 10-Q.

As of January 31, 2013, we had $530 million of debt outstanding under our CP program at an interest rate of .34%, which at January 31, 2013 was the rate for the CP program as we were not borrowing under the revolving syndicated credit facility. The carrying amount of this debt approximates fair value. A change of 100 basis points in the underlying average interest rate for our short-term debt would have caused a change in interest expense of approximately $1.2 million during the three months ended January 31, 2013.

Item 4. Controls and Procedures

Our management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Form 10-Q. Such disclosure controls and procedures are designed to provide reasonable assurance that the information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the United States Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.

We routinely review our internal control over financial reporting and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. There were no changes to our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the first quarter of fiscal 2013 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

We have only routine immaterial litigation in the normal course of business.

Item 1A. Risk Factors

During the three months ended January 31, 2013, there were no material changes to our risk factors that were disclosed in our Form 10-K for the year ended October 31, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

c) Issuer Purchases of Equity Securities.

The following table provides information with respect to repurchases of our common stock under the Common Stock Open Market Purchase Program during the three months ended January 31, 2013.


						Total Number of		Maximum Number
	Total Number					Shares Purchased		of Shares that May
	of Shares			Average Price		as Part of Publicly		Yet be Purchased
Period	Purchased			Paid Per Share		Announced Program		Under the Program (1)
Beginning of the period									2,910,074
11/1/12—11/30/12		—		$	—		—		2,910,074
12/1/12—12/31/12		—		$	—		—		2,910,074
1/1/13—1/31/13		295	⁽²⁾	$	32.70		—		2,910,074
Total		295		$	32.70		—

(1)

The Common Stock Open Market Purchase Program was approved by the Board of Directors and announced on June 4, 2004 to purchase up to three million shares of common stock for reissuance under our dividend reinvestment and stock purchase, employee stock purchase and incentive compensation plans. On December 16, 2005, the Board of Directors approved an increase in the number of shares in this program from three million to six million to reflect the two-for-one stock split in 2004. The Board also approved on that date an amendment of the Common Stock Open Market Purchase Program to provide for the purchase of up to four million additional shares of common stock to maintain our debt-to-equity capitalization ratios at target levels. The additional four million shares were referred to as our accelerated share repurchase (ASR) program. On March 6, 2009, the Board of Directors authorized the repurchase of up to an additional four million shares under the Common Stock Open Market Purchase Program and the ASR program, which were consolidated.

(2)

The total number of shares purchased is shares withheld by us to satisfy tax withholding obligations related to the vesting of shares awarded under an incentive compensation award and a retention award under an incentive compensation plan that is outside of the Common Stock Open Market Purchase Program.

The amount of cash dividends that may be paid on common stock is restricted by provisions contained in certain note agreements under which long-term debt was issued, with those for the senior notes being the most restrictive. We cannot pay or declare any dividends or make any other distribution on any class of stock or make any investments in subsidiaries or permit any subsidiary to do any of the above (all of the foregoing being “restricted payments”), except out of net earnings available for restricted payments. As of January 31, 2013, net earnings available for restricted payments were greater than retained earnings; therefore, our retained earnings were not restricted.

Item 6. Exhibits


10.1		Amended and Restated Limited Liability Company Agreement of Constitution Pipeline Company, LLC dated April 9, 2012, by and among Williams Partners Operating LLC and Cabot Pipeline Holdings LLC
10.2		First Amendment to Amended and Restated Limited Liability Company Agreement of Constitution Pipeline Company, LLC, dated as of November 9, 2012, by and among Constitution Pipeline Company, LLC, Williams Partners Operating LLC, Cabot Pipeline Holdings LLC, and Piedmont Constitution Pipeline Company, LLC
10.3		Confirmation of Forward Sale Transaction dated January 29, 2013, between the Company and Morgan Stanley & Co. LLC, in its capacity as the forward counterparty (incorporated by reference to Exhibit 99.1, Form 8-K filed February 4, 2013)
10.4		Underwriting Agreement dated January 29, 2013 among Piedmont Natural Gas Company, Inc., Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Wells Fargo Securities, LLC, individually and acting as representatives of each of the other underwriters named in Schedule II thereto, and Morgan Stanley & Co. LLC, as forward counterparty (incorporated by reference to Exhibit 1.1, Form 8-K filed February 4, 2013)

31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer

99.1		Instrument of Amendment for Piedmont Natural Gas Company, Inc. 401(k) Plan dated as of September 18, 2012

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

Attached as Exhibit 101 to this Quarterly Report are the following documents formatted in extensible business reporting language (XBRL): (1) Document and Entity Information; (2) Consolidated Balance Sheets at January 31, 2013 and October 31, 2012; (3) Consolidated Statements of Comprehensive Income for the three months ended January 31, 2013 and 2012; (4) Consolidated Statements of Cash Flows for the three months ended January 31, 2013 and 2012; (5) Consolidated Statements of Stockholders’ Equity for the three months ended January 31, 2013 and 2012; and (6) Notes to Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



				Piedmont Natural Gas Company, Inc.
				(Registrant)

Date March 6, 2013				/s/ Karl W. Newlin
				Karl W. Newlin
				Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Date March 6, 2013				/s/ Jose M. Simon
				Jose M. Simon
				Vice President and Controller (Principal Accounting Officer)

Piedmont Natural Gas Company, Inc.

Form 10-Q

For the Quarter Ended January 31, 2013

Exhibits


10.1		Amended and Restated Limited Liability Company Agreement of Constitution Pipeline Company, LLC dated April 9, 2012, by and among Williams Partners Operating LLC and Cabot Pipeline Holdings LLC

10.2		First Amendment to Amended and Restated Limited Liability Company Agreement of Constitution Pipeline Company, LLC, dated as of November 9, 2012, by and among Constitution Pipeline Company, LLC, Williams Partners Operating LLC, Cabot Pipeline Holdings LLC, and Piedmont Constitution Pipeline Company, LLC

31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer

31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer

99.1		Instrument of Amendment for Piedmont Natural Gas Company, Inc. 401(k) Plan dated as of September 18, 2012

Exhibit 10.1

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

CONSTITUTION PIPELINE COMPANY, LLC

A Delaware Limited Liability Company

April 9, 2012

TABLE OF CONTENTS


		Page
ARTICLE 1 DEFINITIONS			1
1.01	*Definitions*		1
1.02	*Interpretation*		13
ARTICLE 2 ORGANIZATION			14
2.01	*Formation*		14
2.02	*Name*		14
2.03	*Registered Office; Registered Agent; Principal Office in the United States; Other Offices*		14
2.04	*Purposes*		14
2.05	*Foreign Qualification*		14
2.06	*Term*		15
ARTICLE 3 MEMBERSHIP; DISPOSITIONS OF INTERESTS			15
3.01	*Current Members*		15
3.02	*Representations, Warranties and Covenants*		15
3.03	*Dispositions and Encumbrances of Membership Interests*		17
3.04	*Creation of Additional Membership Interest*		22
3.05	*Access to Information*		23
3.06	*Confidential Information*		23
3.07	*Liability to Third Parties*		25
3.08	*Use of Members’ Names and Trademarks*		25
ARTICLE 4 CAPITAL CONTRIBUTIONS			25
4.01	*Capital Contributions*		25
4.02	*Loans*		27
4.03	*No Other Contribution Obligations*		28
4.04	*Return of Contributions*		28
4.05	*Capital Accounts*		28
4.06	*Failure to Make a Capital Contribution*		29
ARTICLE 5 DISTRIBUTIONS AND ALLOCATIONS			32
5.01	*Distributions*		32
5.02	*Distributions on Dissolution and Winding-Up*		32
5.03	*Allocations*		32
5.04	*Varying Interests*		33
ARTICLE 6 MANAGEMENT			33
6.01	*Generally*		33
6.02	*Management Committee*		33
6.03	*Construction, Operation and Management Agreement*		39
6.04	*Conflicts of Interest*		40
6.05	*Indemnification for Breach of Agreement*		41
6.06	*Insurance Coverage*		41
ARTICLE 7 DEVELOPMENT OF FACILITIES			41
7.01	*Development of Initial Facilities*		41
7.02	*Construction Capital Opportunities*		42
7.03	*Acquisition Capital Opportunities*		44
7.04	*General Regulatory Matters*		45

-i-


ARTICLE 8 TAXES		45
8.01	*Tax Returns*	45
8.02	*Tax Elections*	45
8.03	*Tax Matters Member*	46
ARTICLE 9 BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS		47
9.01	*Maintenance of Books*	47
9.02	*Reports*	47
9.03	*Bank Accounts*	49
ARTICLE 10 WITHDRAWAL		50
10.01	*No Right of Withdrawal*	50
10.02	*Deemed Withdrawal*	50
10.03	*Effect of Withdrawal*	50
ARTICLE 11 DISPUTE RESOLUTION		51
11.01	*Disputes*	51
11.02	*Negotiation to Resolve Disputes*	52
11.03	*Selection of Arbitrator*	52
11.04	*Conduct of Arbitration*	52
ARTICLE 12 DISSOLUTION, WINDING-UP AND TERMINATION		53
12.01	*Dissolution*	53
12.02	*Winding-Up and Termination*	53
12.03	*Deficit Capital Accounts*	55
12.04	*Certificate of Cancellation*	55
ARTICLE 13 GENERAL PROVISIONS		55
13.01	*Offset*	55
13.02	*Notices*	55
13.03	*Entire Agreement; Superseding Effect*	55
13.04	*Effect of Waiver or Consent*	55
13.05	*Amendment or Restatement*	56
13.06	*Binding Effect*	56
13.07	*Governing Law; Severability*	56
13.08	*Further Assurances*	56
13.09	*Waiver of Certain Rights*	56
13.10	*Counterparts*	56
13.11	*Fair Market Value Determination*	57
13.12	*Press Releases*	57

EXHIBITS :

A – Members

B – Pre-Effective Date Expenditures

C – Precedent Agreements

D – Initial Facilities Contribution Cap

-ii-

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

CONSTITUTION PIPELINE COMPANY, LLC

A Delaware Limited Liability Company

This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF CONSTITUTION PIPELINE COMPANY, LLC (the “ Company ”) (this agreement being referred to herein as the “ Agreement ”), dated as of April 9, 2012 (the “ Effective Date ”), is adopted, executed and agreed to, for good and valuable consideration, by WILLIAMS PARTNERS OPERATING LLC, a Delaware limited liability company (“ Williams ”), and CABOT PIPELINE HOLDINGS LLC, a Delaware limited liability company (“ Cabot” ).

RECITALS

WHEREAS, Williams formed Constitution Pipeline Company, LLC by executing an Operating Agreement dated February 15, 2012 (“LLC Agreement”) and filing a Certificate of Formation with the Secretary of State of Delaware (the “ Delaware Certificate ”) as the initial, sole member of the Company; and

WHEREAS, Williams and Cabot desire to amend and restate the LLC Agreement as provided herein and the terms of this Agreement shall hereafter govern the business and management of the Company.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Williams and Cabot hereby agree that the LLC Agreement is hereby amended and restated in its entirety, as follows:

ARTICLE 1 DEFINITIONS

1.01 Definitions . As used in this Agreement, the following terms have the respective meanings set forth below or set forth in the Sections referred to below:

AAA —Section 11.03(b).

Acquisition Capital Opportunity — a Capital Opportunity to acquire facilities from another Person, rather than to construct such facilities, and such acquired facilities will interconnect with the Facilities.

Act —the Delaware Limited Liability Company Act.

Additional Contribution —Section 4.06(a).

Additional Contribution Member —Section 4.06(a).

Affiliate —with respect to any Person, (a) each entity that such Person Controls; (b) each Person that Controls such Person, including, in the case of a Member, such Member’s Parent; and (c) each entity that is under common Control with such Person, including, in the case of a Member, each entity that is Controlled by such Member’s Parent; provided, with respect to any Member, an Affiliate shall include (y) a limited partnership or a Person Controlled by a limited partnership if a general partner of such limited partnership is Controlled by such Member’s Parent, or (z) a limited liability company or a Person controlled by a limited liability company if the managing member of the limited liability company is Controlled by such Member’s Parent; provided further, for purposes of this Agreement the Company shall not be an Affiliate of any Member.

Affiliate’s Outside Activities —Section 6.04(b).

Affirmative Acquisition Vote —Section 7.03(c).

Affirmative Construction Vote —Section 7.02(c).

AFUDC —allowance for funds used during construction.

Aggregate Tax Rate —Section 3.03(b)(iv)(E).

Agreement —as set forth in the introductory paragraph.

Alternate Representative —Section 6.02(a)(i).

Appraisal Committee —Section 13.11(c).

Approved Project —Section 7.02(c).

Arbitration Notice —Section 11.02(c).

Arbitrator —Section 11.03(a).

Assignee —any Person that acquires a Membership Interest or any portion thereof through a Disposition; provided, however, that, an Assignee shall have no right to be admitted to the Company as a Member except in accordance with Section 3.03(b)(iii). Subject to Section 3.03(b), the Assignee of a dissolved Member is the shareholder, partner, member or other equity owner or owners of the dissolved Member to whom such Member’s Membership Interest is assigned by the Person conducting the liquidation or winding-up of such Member. The Assignee of a Bankrupt Member is (a) the Person or Persons (if any) to whom such Bankrupt Member’s Membership Interest is assigned by order of the bankruptcy court or other Governmental Authority having jurisdiction over such Bankruptcy, or (b) in the event of a general assignment for the benefit of creditors, the creditor to which such Membership Interest is assigned.

Authorizations —licenses, certificates, permits, orders, approvals, determinations and authorizations from Governmental Authorities having valid jurisdiction.

Available Cash —with respect to any Quarter ending prior to the dissolution or liquidation of the Company, and without duplication:

(a) the sum of all cash and cash equivalents of the Company on hand at the end of such Quarter, less

(b) the amount of any cash reserves that is necessary or appropriate in the reasonable discretion of the Management Committee to (i) provide for the proper conduct of the business of the Company (including reserves for future maintenance capital expenditures and for anticipated future credit needs of the Company) subsequent to such Quarter or (ii) comply with applicable Law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Company is a party or by which it is bound or its assets are subject; provided , however , that distributions made by the Company or cash reserves established, increased or reduced after the end of such Quarter but on or before the date of determination of Available Cash with respect to such Quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining Available Cash, within such Quarter if the Management Committee so determines.

Notwithstanding the foregoing, “Available Cash” with respect to the Quarter in which a liquidation or dissolution of the Company occurs and any subsequent Quarter shall be deemed to equal zero.

Bankruptcy or Bankrupt —with respect to any Person, that (a) such Person (i) makes a general assignment for the benefit of creditors; (ii) files a voluntary bankruptcy petition; (iii) becomes the subject of an order for relief or is declared insolvent in any federal or state bankruptcy or insolvency proceedings; (iv) files a petition or answer seeking for such Person a reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any Law; (v) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against such Person in a proceeding of the type described in subclauses (i) through (iv) of this clause (a); or (vi) seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of such Person or of all or any substantial part of such Person’s properties; or (b) against such Person, a proceeding seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any Law has been commenced and 120 Days have expired without dismissal thereof or with respect to which, without such Person’s consent or acquiescence, a trustee, receiver, or liquidator of such Person or of all or any substantial part of such Person’s properties has been appointed and 90 Days have expired without the appointment’s having been vacated or stayed, or 90 Days have expired after the date of expiration of a stay, if the appointment has not previously been vacated.

Breaching Member —a Member that (a) has committed a failure or breach of the type described in the definition of “Default,” (b) has received a notice of the type described in such definition of “Default,” and (c) has not cured such failure or breach, but as to which the applicable cure period set forth in such definition of “Default” has not yet expired.

Business Day —any day other than a Saturday, a Sunday, or a holiday on which national banking associations in the State of Texas are closed.

Buy-out Right —Section 3.03(b)(vi)(A).

Cabot —as set forth in the introductory paragraph.

Cabot Precedent Agreement —that certain Precedent Agreement between the Company and Cabot Oil & Gas Corporation (“COGC”), dated February 20, 2012, setting forth, among other things, the conditions precedent (and other terms and conditions) for the firm transportation service by Company for COGC through the Initial Facilities.

Capital Account —the account maintained by the Company for each Member and to be maintained by the Company for each Member from and after the Effective Date in accordance with Section 4.05.

Capital Budget —the annual capital budget for the Company that is approved (or deemed approved) pursuant to Section 6.02(i). The Capital Budget shall cover all items that are classified as capital items under Required Accounting Practices, but it shall not include Capital Opportunities.

Capital Call —Section 4.01(a).

Capital Contribution —with respect to any Member, the amount of money and the net agreed value of any property (other than money) contributed to the Company by the Member. Any reference in this Agreement to the Capital Contribution of a Member shall include a Capital Contribution of its predecessors in interest.

Capital Opportunity —a business opportunity to construct or acquire facilities in order: (a) to modify, improve, expand or increase the capacity of the Facilities, or any portion thereof (except in connection with customary or emergency repairs, replacements or maintenance), including looping or adding compression; or (b) to provide a new point of delivery or receipt of natural gas for the Facilities, including lateral pipelines or extensions, except for new points of delivery or receipt of natural gas for the Facilities which are requested by a third party in accordance with the Company’s interconnect policy (as set forth in the Company’s FERC Gas Tariff) and the costs for which are fully reimbursable to the Company.

Capital Opportunity Vote —an affirmative vote of the Management Committee to commit the Company to any matter under Sections 7.02 or 7.03, provided that (a) a Capital Opportunity Vote for any Capital Opportunity that has a target in-service date occurring during the first seven years immediately following the In-Service Date shall require the affirmative vote of an Ultramajority Interest that includes an affirmative vote by Cabot (unless Cabot has Disposed of its entire Membership Interest, in which case the approval of a Majority Interest shall be required), and (b) a Capital Opportunity Vote for any other Capital Opportunity after such seven-year period shall require the approval of a Majority Interest.

Certified Public Accountants —a firm of independent public accountants selected from time to time by the Management Committee.

Change of Member Control —with respect to any Member, an event that causes such Member to cease to be Controlled by such Member’s then Parent; provided, however, that the term “Change of Member Control” shall not include any of the following events:

(a) an event that causes such Member’s then Parent to be Controlled by another Person;

(b) an event that involves the Disposition of voting securities or other equity interests of such Member but also involves the Disposition of other assets having a value greater than $750 million;

(c) an event that involves the Disposition of voting securities or other equity interests of a Person that Controls such Member if such Person also owns assets (other than the voting securities or other equity interests of such Member) that have a value greater than $750 million;

(d) a Deemed Membership Disposition or a Disposition that is covered by the terms of Section 3.03(b)(ii);

(e) in the case of a Member that is a publicly traded partnership or is Controlled by a publicly traded partnership, any Disposition of or issuance of new units representing limited partner interests by such publicly traded partnership, whether to an Affiliate or an unrelated party and whether or not such units or interests are listed on a national securities exchange or quotation service; and

(f) any Disposition of interests of a Member, in whole or in part, to any limited partner in an investment fund managed by an Affiliate of such Member, so long as any such limited partner is, together with its Affiliates, primarily engaged in the business of investing in other companies and not, in whole or in part, engaged in the oil and gas exploration, production, or pipeline business.

Changing Member —Section 3.03(b)(vi)(A).

Claim —any and all judgments, claims, causes of action, demands, lawsuits, suits, proceedings, Governmental investigations or audits, losses, assessments, fines, penalties, administrative orders, obligations, costs, expenses, liabilities and damages (whether actual, consequential, direct, exemplary, incidental, indirect, punitive, or special), including interest, penalties, reasonable attorney’s fees, disbursements and costs of investigations, deficiencies, levies, duties, imposts, remediation and cleanup costs, and natural resources damages.

Code —the Internal Revenue Code of 1986.

CO&M Agreement —Section 6.03(a).

Company —as set forth in introductory paragraph.

Confidential Information —this Agreement and any information and data (including all copies thereof) that is furnished or submitted by any of the Members, their Affiliates, or the Operator, whether oral, written, or electronic, to the other Members, their Affiliates, or the Operator in connection with the Facilities and the resulting information and data obtained from those studies, including market evaluations, market proposals, service designs and pricing, pipeline system design and routing, cost estimating, rate studies, identification of

permits, strategic plans, legal documents, environmental studies and requirements, public and governmental relations planning, identification of regulatory issues and development of related strategies, legal analysis and documentation, financial planning, gas reserves and deliverability data, studies of the natural gas supplies for the Facilities, and other studies and activities to determine the potential viability of the Facilities and their design characteristics, and identification of key issues. Notwithstanding the foregoing, the term “Confidential Information” shall not include any information that:

(a) is in the public domain at the time of its disclosure or thereafter, other than as a result of a disclosure directly or indirectly by a Member or its Affiliates or the Operator in contravention of this Agreement;

(b) as to any Member or its Affiliates or the Operator, was in the possession of such Member or its Affiliates or the Operator prior to the execution of this Agreement; or

(c) has been independently acquired or developed by a Member or its Affiliates or the Operator without violating any of the obligations of such Member or its Affiliates or the Operator under this Agreement or the CO&M Agreement.

Construction Capital Opportunity —a Capital Opportunity to construct facilities, rather than to acquire such facilities from another Person.

Contract Decision —Section 6.04(c).

Contributing Member —Section 4.06(a).

Control —the possession, directly or indirectly, through one or more intermediaries, of the following:

(a) (i) in the case of a corporation, more than 50% of the outstanding voting securities thereof; (ii) in the case of a limited liability company, partnership, limited partnership or venture, the right to 25% or more of the distributions therefrom (including liquidating distributions); (iii) in the case of a trust or estate, including a business trust, more than 50% or more of the beneficial interest therein; and (iv) in the case of any other entity, more than 50% of the economic or beneficial interest therein; provided, however, in the case of a limited partnership, “Control” shall mean possession, directly or indirectly through one or more intermediaries, of, (A) in the case where the general partner of such limited partnership is a corporation, ownership of more than 50% of the outstanding voting securities of such corporate general partner, (B) in the case where the general partner of such limited partnership is a partnership, limited liability company or other entity (other than a corporation or limited partnership), the right to 25% or more of the distributions from such general partner entity, and (C) in the case where the general partner of such limited partnership is a limited partnership, Control of the general partner of such limited partnership in the manner described under clause (A) or (B), in each case, notwithstanding that the Person with respect to which Control is being determined does not possess, directly or indirectly through one or more subsidiaries, the right to receive at least 25% of the distributions from such limited partnership; or

(b) in the case of any entity, the power or authority, through ownership of voting securities, by contract or otherwise, to exercise control over the management of the entity.

Control Notice —Section 3.03(b)(vi).

Cost —with respect to the Initial Facilities or any Capital Opportunity, the sum of all costs and expenses, including AFUDC, and borne by the Company for the acquisition, business development, planning, design, engineering, financing, marketing, permitting, construction and other activities required for start-up of the Initial Facilities or Capital Opportunity (as applicable), and securing all Authorizations required therefor.

Damage Amount —Section 3.03(b)(iv)(E).

Damages —Section 3.03(b)(iv)(E).

Day —a calendar day; provided, however, that, if any period of Days referred to in this Agreement shall end on a Day that is not a Business Day, then the expiration of such period shall be automatically extended until the end of the first succeeding Business Day.

Deemed Membership Disposition —with respect to any Membership Interest that is owned by a Person that owns no assets other than such Membership Interest and assets that are directly related thereto, a Disposition of all of the voting securities or other equity interests of such Person.

Deemed Tax Disposition - Section 3.03(b)(iv)(E).

Default —with respect to any Member,

(a) the failure of such Member to contribute, within 15 Days of the date required, all or any portion of a Capital Contribution that such Member is required to make as provided in this Agreement, which is treated as a Default in accordance with Section 4.06(a)(i), or

(b) the failure of a Member to comply in any material respect with any of its other agreements, covenants or obligations under this Agreement, or the failure of any representation or warranty made by a Member in this Agreement to have been true and correct in all material respects at the time it was made, in each case if such breach is not cured by the applicable Member within 30 Days of its receiving notice of such breach from any other Member (or, if such breach is not capable of being cured within such 30-Day period, if such Member fails to promptly commence substantial efforts to cure such breach or to prosecute such curative efforts to completion with continuity and diligence, or if the issue with respect to whether a Default has occurred is being disputed in good faith by such Member and such dispute has not been finally resolved in accordance with Article 11).

The Management Committee may, but shall have no obligation to, extend the foregoing 10-Day and 30-Day periods.

Default Capital Contribution - Section 4.01(f)(ii).

Default Rate —a rate per annum equal to the lesser of (a) a varying rate per annum equal to the sum of (i) the prime rate as published in The Wall Street Journal , with adjustments in that varying rate to be made on the same date as any change in that rate is so published, plus (ii) 2% per annum, and (b) the maximum rate permitted by Law.

Delaware Certificate —as set forth in the Recitals.

Dispose , Disposing or Disposition —with respect to any asset (including a Membership Interest or any portion thereof), a sale, assignment, transfer, conveyance, gift, exchange or other disposition of such asset, whether such disposition be voluntary, involuntary or by operation of Law, including the following: (a) in the case of an asset owned by a natural person, a transfer of such asset upon the death of its owner, whether by will, intestate succession or otherwise; (b) in the case of an asset owned by an entity, (i) a merger or consolidation of such entity (other than where such entity is the survivor thereof), (ii) a conversion of such entity into another type of entity, or (iii) a distribution of such asset, including in connection with the dissolution, liquidation, winding-up or termination of such entity (unless, in the case of dissolution, such entity’s business is continued without the commencement of liquidation or winding-up); and (c) a disposition in connection with, or in lieu of, a foreclosure of an Encumbrance; but such terms shall not include the creation of an Encumbrance.

Disposing Member —Section 3.03(b)(ii).

Dispute —Section 11.01.

Disputing Member —Section 11.01.

Dissolution Event —Section 12.01.

Effective Date —as set forth in the introductory paragraph.

Encumber , Encumbering , or Encumbrance —the creation of a security interest, lien, pledge, mortgage or other encumbrance, whether such encumbrance be voluntary, involuntary or by operation of Law.

Estimated Cost -with respect to the Initial Facilities or any Capital Opportunity, the estimated Cost thereof, as determined pursuant to Section 7.02(b) or 7.03(a), as applicable.

Facilities —(a) the Initial Facilities and (b) any additional facilities resulting from Capital Opportunities that are approved by the Management Committee and constructed or acquired in accordance with Section 7.02 or 7.03 (as applicable).

Fair Market Value —(a) the fair market cash value of the Membership Interest of the Changing Member as determined pursuant to the terms of Section 13.11(b), or (b) the fair market cash value of the consideration to be paid to the Disposing Member pursuant to the proposed Disposition as determined pursuant to the terms of Section 13.11(a), as applicable.

FERC —the Federal Energy Regulatory Commission or any Governmental Authority succeeding to the powers of such commission.

FERC Application —the document pursuant to which application for a certificate(s) of public convenience and necessity is made under Section 7 of the NGA to the FERC by the Company for authority to construct, own, acquire and operate, and provide service on, the Initial Facilities or the facilities related to any Capital Opportunity (as applicable), including any applicable amendment thereof.

FERC Certificate —the certificate(s) of public convenience and necessity issued by the FERC pursuant to any FERC Application.

FERC Response Date —30 Days following the date upon which the FERC has issued the applicable FERC Certificate.

Financing Commitment —definitive agreements between one or more financial institutions or other Persons and the Company or the Financing Entity pursuant to which such financial institutions or other Persons agree, subject to the conditions set forth therein, to lend money to, or purchase securities of, the Company or the Financing Entity, the proceeds of which shall be used to finance all or a portion of the Initial Facilities or any Capital Opportunity (as applicable).

Financing Entity —a corporation, limited liability company, trust or other entity that may be organized for the purpose of issuing securities, the proceeds from which are to be advanced directly or indirectly to the Company to finance all or a portion of the Initial Facilities or any Capital Opportunity (as applicable).

First Side —Section 13.11(c).

FMV Notice —Section 13.11(c).

Funding Member(s) —Section 4.01(f)(ii).

Gas Transportation Service Agreements —the gas transportation service agreements by and between the Company or its designee and the Shippers for the transportation of natural gas through the Initial Facilities or any Capital Opportunity (as applicable).

Governmental Authority (or Governmental )—a federal, state, or local governmental authority; a state, province, commonwealth, territory or district thereof; a county or parish; a city, town, township, village or other municipality; a district, ward or other subdivision of any of the foregoing; any executive, legislative or other governing body of any of the foregoing; any agency, authority, board, department, system, service, office, commission, committee, council or other administrative body of any of the foregoing; including the FERC, any court or other judicial body; and any officer, official or other representative of any of the foregoing.

including — “including, without limitation.”

Indebtedness of the Company —indebtedness for borrowed money owed by the Company.

Initial Facilities — include approximately 121 miles of new pipeline extending from the discharge of Williams Field Services Company, LLC’s planned “Central Station” in Susquehanna County, Pennsylvania to points of interconnection with Iroquois Gas Transmission at the Wright Compressor Station and with Tennessee Gas Pipeline, both located in Schoharie County, New York, compressor station(s) and metering and other appurtenant facilities, the Estimated Cost of which is $748 million.

Initial Facilities Contribution Cap —Section 4.01(f)(i).

In-Service Date —the date the Members are notified by Operator of the placing of the Initial Facilities in service.

Law —any applicable constitutional provision, statute, act, code (including the Code), law, regulation, rule, ordinance, order, decree, ruling, proclamation, resolution, judgment, decision, declaration, or interpretative or advisory opinion or letter of a Governmental Authority having valid jurisdiction.

LLC Agreement — as set forth in the Recitals.

Majority Interest —Section 6.02(f)(i)(D).

Management Committee —Section 6.02.

MDth —one thousand dekatherms.

Matured Financing Obligation —any principal amount of the Company’s debt for borrowed money (including any related interest or other repayment obligations) that has become due (including by acceleration or any full or partial mandatory prepayment thereof) under any Financing Commitment.

Member —any Person executing this Agreement as of the Effective Date as a member or hereafter admitted to the Company as a member as provided in this Agreement, but such term does not include any Person who has ceased to be a member in the Company.

Membership Interest —with respect to any Member, (a) that Member’s status as a Member; (b) that Member’s share of the income, gain, loss, deduction and credits of, and the right to receive distributions from, the Company; (c) any Priority Interest to which that Member is entitled pursuant to Section 4.06(b); (d) all other rights, benefits and privileges enjoyed by that Member (under the Act, this Agreement, or otherwise) in its capacity as a Member, including that Member’s rights to vote, consent and approve and otherwise to

participate in the management of the Company, including through the Management Committee; and (e) all obligations, duties and liabilities imposed on that Member (under the Act, this Agreement or otherwise) in its capacity as a Member, including any obligations to make Capital Contributions.

Necessary Regulatory Approvals —all Authorizations as may be required (but excluding Authorizations of a nature not customarily obtained prior to commencement of construction of facilities) in connection with (a) the formation of the Company and the construction, acquisition and operation of the Initial Facilities or any Capital Opportunity (as applicable), and (b) the transportation of the natural gas to be transported under the applicable Gas Transportation Service Agreements through the Initial Facilities or any Capital Opportunity (as applicable), including (in each case) the applicable FERC Certificate.

NGA —the Natural Gas Act.

Non-Contributing Member —Section 4.06(a).

Non-Funding Member(s) —Section 4.01(f)(ii).

Officer —any Person designated as an officer of the Company as provided in Section 6.02(k), but such term does not include any Person who has ceased to be an officer of the Company.

Operating Budget —the annual operating budget for the Company that is approved (or deemed approved) pursuant to Section 6.02(i). The Operating Budget shall cover all items that are classified as non-capital items under Required Accounting Practices, but it shall not include any such items that are attributable to Capital Opportunities.

Operator — Williams Gas Pipeline Company, LLC, or another Affiliate of Williams, subject to any successor being appointed pursuant to Section 6.03(a).

Parent —the Person that Controls a Member and that is not itself Controlled by any other Person. The Parents of the initial Members as of the Effective Date are set forth in Exhibit A. Exhibit A shall be promptly updated by a Member upon any change to the identity of such Member’s Parent.

Person —the meaning assigned that term in Section 18-101(11) of the Act and also includes a Governmental Authority and any other entity.

Precedent Agreement —an agreement between the Company and a prospective shipper of natural gas through the Facilities that involves the commitment by such shipper to pay a reservation rate in return for a firm transportation obligation on the part of the Company, in each case subject to the satisfaction of one or more conditions precedent, and that either (i) prior to the Effective Date has been duly executed by an officer of the Company, and (ii) after the Effective Date has been approved by an affirmative vote of an Ultramajority Interest of the Management Committee. A list of the Precedent Agreements existing as of the Effective Date is set forth in Exhibit C.

Pre-Effective Date Expenditures —Expenditures made and costs incurred by any Member or any of its Affiliates prior to the Effective Date, if approved by the Members pursuant to Section 4.01(e) if required to be so approved, in the course of planning and designing the Initial Facilities, including expenditures made and costs incurred in preparing materials necessary for the FERC Application and determining the route(s), acquiring survey and land rights and commencing public outreach efforts for the Initial Facilities.

Priority Interest —the special distribution rights under Section 4.06(b) received by each Additional Contribution Member, which rights include the right to receive the return described in Section 4.06(b)(i) and which form part of the Additional Contribution Member’s Membership Interest.

Priority Interest Sharing Ratio —Section 4.06(b).

PUHCA —the Public Utility Holding Company Act of 2005.

Quarter —unless the context requires otherwise, a fiscal quarter of the Company.

Regulatory Allocations —Section 5.03(d).

Reimbursable Costs —with respect to a Person, the sum of (a) Third Person Expenses paid by such Person, and (b) the fully-burdened costs of all employees of such Person and its Affiliates utilized to perform the applicable services, provided that the Management Committee shall determine the procedures and methodology to be utilized to determine such costs, and the same procedures and methodology shall be used for all Members and their Affiliates.

Representative —Section 6.02(a)(i).

Required Accounting Practices —the accounting rules and regulations, if any, at the time prescribed by the Governmental Authorities under the jurisdiction of which the Company is at the time operating and, to the extent of matters not covered by such rules and regulations, generally accepted accounting principles as practiced in the United States at the time prevailing for companies engaged in a business similar to that of the Company.

Second Notice —Section 13.11(c).

Second Side —Section 13.11(c).

Section 4.01(f) Event —Section 4.01(f)(ii).

Securities Act —the Securities Act of 1933.

Sharing Ratio —subject in each case to adjustments in accordance with this Agreement or in connection with Dispositions of Membership Interests, (a) in the case of a Member executing this Agreement as of the Effective Date or a Person acquiring such Member’s Membership Interest, the percentage specified in Exhibit A for that Member as its Sharing Ratio, and (b) in the case of Membership Interests issued pursuant to Section 3.04, the Sharing Ratio established pursuant thereto; provided, however, that the total of all Sharing Ratios shall always equal 100%.

Shippers —those Persons that have entered into Gas Transportation Service Agreements (or, where applicable, a Precedent Agreement relating thereto).

Sole Discretion —Section 6.02(f)(ii).

Supermajority Interest —Section 6.02(f)(i)(C).

Tax Matters Member —Section 8.03(a).

Tax Termination —Section 3.03(b)(iv)(E).

Term —Section 2.06.

Third Person Expenses —the expenses paid by the Person involved to other Persons who are not Affiliates in connection with the performance of the applicable services.

Transferring Member —Section 3.03(b)(iv)(E).

Treasury Regulations —the regulations (including temporary regulations) promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Code. All references herein to sections of the Treasury Regulations shall include any corresponding provision or provisions of succeeding, similar or substitute, temporary or final Treasury Regulations.

Ultramajority Interest —Section 6.02(f)(i)(B).

Unanimous Interest —Section 6.02(f)(i)(A).

Williams —as set forth in the introductory paragraph.

Withdraw, Withdrawing or Withdrawal —the withdrawal, resignation or retirement of a Member from the Company as a Member. Such terms shall not include any Dispositions of Membership Interest (which are governed by Sections 3.03(a) and (b)), even though the Member making a Disposition may cease to be a Member as a result of such Disposition.

Withdrawn Member —Section 10.03.

Other terms defined herein have the meanings so given them.

1.02 Interpretation . Unless the context requires otherwise: (a) the gender (or lack of gender) of all words used in this Agreement includes the masculine, feminine, and neuter; (b) references to Articles and Sections refer to Articles and Sections of this Agreement; (c) references to Exhibits refer to the Exhibits attached to this Agreement, each of which is made a part hereof for all purposes; (d) references to Laws refer to such Laws as they may be amended from time to time, and references to particular provisions of a Law include any corresponding provisions of any succeeding Law; and (e) references to money refer to legal currency of the United States of America.

ARTICLE 2

ORGANIZATION

2.01 Formation . The Company has been organized as a Delaware limited liability company by the filing of the Delaware Certificate on of February 15, 2012.

2.02 Name . The name of the Company is “Constitution Pipeline Company, LLC” and all Company business must be conducted in that name or such other names that comply with Law as the Management Committee may select from time to time.

2.03 Registered Office; Registered Agent; Principal Office in the United States; Other Offices . The registered office of the Company required by the Act to be maintained in the State of Delaware shall be the office of the initial registered agent named in the Delaware Certificate or such other office (which need not be a place of business of the Company) as the Management Committee may designate in the manner provided by Law. The registered agent of the Company in the State of Delaware shall be the initial registered agent named in the Delaware Certificate or such other Person or Persons as the Management Committee may designate in the manner provided by Law. The principal place of business of the Company in the United States shall be at 2800 Post Oak Boulevard, Houston, Texas 77056 or at such other place as the Management Committee may designate from time to time, and the Company shall maintain records there or such other place as the Management Committee shall designate from time to time. The Company may have such other offices as the Management Committee may designate from time to time.

2.04 Purposes . The purposes of the Company are to plan, design, construct, acquire, own, maintain and operate the Facilities, to market the services of the Facilities, to engage in the transmission of natural gas through the Facilities, and to engage in any activities directly or indirectly relating thereto; provided, however, that the Members determine, as of the date of the commencement of any such activities, that such activity (a) generates “ qualifying income ” (as such term is defined pursuant to Section 7704 of the Code) or (b) enhances the operation of an activity of the Company that generates qualifying income.

2.05 Foreign Qualification . Prior to the Company’s conducting business in any jurisdiction other than Delaware, the Management Committee shall cause the Company to comply, to the extent procedures are available and those matters are reasonably within the control of the Management Committee, with all requirements necessary to qualify the Company as a foreign limited liability company in that jurisdiction. At the request of the Management Committee, each Member shall execute, acknowledge, swear to, and deliver all certificates and other instruments conforming with this Agreement that are necessary or appropriate to qualify, continue, or terminate the Company as a foreign limited liability company in all such jurisdictions in which the Company may conduct business.

2.06 Term . The period of existence of the Company (the “Term” ) commenced on February 15, 2012 and shall end at such time as a certificate of cancellation is filed with the Secretary of State of Delaware in accordance with Section 12.04.

ARTICLE 3

MEMBERSHIP; DISPOSITIONS OF INTERESTS

3.01 Current Members . As of the Effective Date, Williams and Cabot are the only Members of the Company.

3.02 Representations, Warranties and Covenants . (a) Each Member hereby represents, warrants and covenants to the Company and each other Member that the following statements are true and correct as of the Effective Date and shall be true and correct at all times that such Member is a Member:

(i) that Member is duly incorporated, organized or formed (as applicable), validly existing, and (if applicable) in good standing under the Law of the jurisdiction of its incorporation, organization or formation; if required by applicable Law, that Member is duly qualified and in good standing in the jurisdiction of its principal place of business, if different from its jurisdiction of incorporation, organization or formation; and that Member has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and all necessary actions by the board of directors, shareholders, managers, members, partners, trustees, beneficiaries, or other applicable Persons necessary for the due authorization, execution, delivery, and performance of this Agreement by that Member have been duly taken;

(ii) that Member has duly executed and delivered this Agreement and the other documents contemplated herein that are to be executed and delivered at or prior to the Effective Date and, with respect to documents contemplated herein that are to be executed and delivered after the Effective Date that Member will duly execute and deliver such document subject to the terms and conditions of this Agreement and the Precedent Agreement between Williams and Cabot dated February 20, 2012, and they constitute the legal, valid and binding obligation of that Member enforceable against it in accordance with their terms (except as may be limited by bankruptcy, insolvency or similar Laws of general application and by the effect of general principles of equity, regardless of whether considered at law or in equity);

(iii) that Member’s authorization, execution, delivery, and performance of this Agreement does not and will not (A) conflict with, or result in a breach, default or violation of, (1) the organizational documents of such Member, (2) any contract or agreement to which that Member is a party or is otherwise subject, or (3) any Law, writ, injunction or arbitral award to which that Member is subject; or (B) require any consent, approval or authorization from, filing or registration with, or notice to, any Governmental Authority or other Person, unless such requirement has already been satisfied; and

(iv) that Member is exempt from, or is not subject to, regulation as a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of a “holding company,” in each case as such term is defined in PUHCA; provided, however, that, if the statements in this Section 3.02(a)(iv) cease to be true and correct as to a Member, such Member shall promptly make with all due diligence the necessary filings with the FERC to establish an exemption of all other Members, all “affiliates” (as defined in PUHCA) of such other Members, and the Company from any obligation, duty, or liability under PUHCA.

(b) In addition to the foregoing representations and warranties, Williams hereby represents, warrants and covenants to Cabot that the following statements are true and correct as of the Effective Date:

(i) the Company is duly incorporated, organized or formed (as applicable), validly existing, and (if applicable) in good standing under the Law of the jurisdiction of its incorporation, organization or formation; if required by applicable Law; the Company is duly qualified and in good standing in the jurisdiction of its principal place of business, if different from its jurisdiction of incorporation, organization or formation; and the Company has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and all necessary actions by the board of directors, shareholders, managers, members, partners, trustees, beneficiaries, or other applicable Persons necessary for the due authorization, execution, delivery, and performance of this Agreement by the Company have been duly taken.

(ii) the Company has duly executed and delivered this Agreement and the other documents contemplated herein that are to be executed and delivered at or prior to the Effective Date and, with respect to documents contemplated herein that are to be executed and delivered after the Effective Date the Company will duly execute and deliver such document subject to the terms and conditions of this Agreement and the Precedent Agreement between Williams and Cabot dated February 20, 2012, and they constitute the legal, valid and binding obligation of the Company enforceable against it in accordance with their terms (except as may be limited by bankruptcy, insolvency or similar Laws of general application and by the effect of general principles of equity, regardless of whether considered at law or in equity);

(iii) the Company’s authorization, execution, delivery, and performance of this Agreement does not and will not (A) conflict with, or result in a breach, default or violation of, (1) the organizational documents of the Company, (2) any contract or agreement to which the Company is a party or is otherwise subject, or (3) any Law, writ, injunction or arbitral award to which the Company is subject; or (B) require any consent, approval or authorization from, filing or registration with, or notice to, any Governmental Authority or other Person, unless such requirement has already been satisfied;

(iv) the Company is exempt from, or is not subject to, regulation as a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of a “holding company,” in each case as such term is defined in PUHCA; provided, however, that, if the statements in this Section 3.02(b)(iv) cease to be true and correct as to the Company, Williams shall promptly make with all due diligence the necessary filings with the FERC to establish an exemption of the Company from any obligation, duty, or liability under PUHCA;

(v) except for the proposed Disposition by Williams of a portion of its Membership Interest (totaling up to a 24% Membership Interest) to or its Affiliate or as otherwise set forth in this Agreement, there are no (A) preemptive rights or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any interest in the Company or (B) outstanding options or warrants to purchase any interests in the Company;

(vi) there is no action, suit or proceeding before any Governmental Authority now pending or, to the knowledge of Williams, threatened against or affecting Williams or the Company or to which any of their properties are subject that would reasonably be expected to result in any material adverse effect on the Company or the ability of either Williams or the Company to perform its obligations under this Agreement; and

(vii) the Company has not incurred any Indebtedness of the Company and, except for obligations arising (A) under this Agreement, (B) under the Precedent Agreements, and (C) in the ordinary course of development of the Initial Facilities, the Company has not incurred any other obligations in an amount exceeding the Pre-Effective Date Expenditures.

3.03 Dispositions and Encumbrances of Membership Interests .

(a) Summary. A Member may not Dispose of or Encumber all or any portion of its Membership Interest except in strict accordance with this Section 3.03. References in this Section 3.03 to Dispositions or Encumbrances of a “Membership Interest” shall also refer to Dispositions or Encumbrances of a portion of a Membership Interest. Any attempted Disposition or Encumbrance of a Membership Interest, other than in strict accordance with this Section 3.03, shall be, and is hereby declared, null and void ab initio. The rights and obligations constituting a Membership Interest may not be separated, divided or split from the other attributes of a Membership Interest except as contemplated by the express provisions of this Agreement. The Members agree that a breach of the provisions of this Section 3.03 may cause irreparable injury to the Company and to the other Members for which monetary damages (or any other remedy at law) are inadequate in view of (i) the complexities and uncertainties in measuring the actual damages that would be sustained by reason of the failure of a Member to comply with such provision and (ii) the uniqueness of the Company business and the relationship among the Members. Accordingly, the Members agree that the provisions of this Section 3.03 may be enforced by specific performance and/or injunctive relief pursuant to Section 11.04(b).

(b) Dispositions of Membership Interests .

(i) General Restriction . A Member may not Dispose of its Membership Interest except by complying with all of the following requirements: (A) such Member must comply with Section 3.03(b)(ii), subject to the exceptions set forth therein; (B) such Member must comply with the requirements of Section 3.03(b)(iv) and, if the Assignee is to be admitted as a Member, Section 3.03(b)(iii); (C) a Member may not Dispose of all or a portion of its Membership Interest prior to April 9, 2013 without the prior written consent of the other Members (which consent shall not constitute a waiver of, and any such Disposition would remain subject to, the other provisions of this Section 3.03(b) unless otherwise agreed by such other Members); and (D), unless the proposed Assignee is an Affiliate of the Disposing Member, the Disposition must comply with the following minimum size requirements: (I) if such Member’s Sharing Ratio is less than 20%, the Disposition must include all of the Member’s Membership Interest, and (II) if such Member’s Sharing Ratio is 20% or more, but such Member does not propose to Dispose of all of its Membership Interest, the Disposition must be of a Membership Interest having a Sharing Ratio of at least 10% and must be of an amount such that such Member will retain a Sharing Ratio of at least 10%.

(ii) Right of First Offer . If at any time a Member wishes to Dispose of all or a portion of its Membership Interest to any Person other than its Affiliate, then such Member (the “Disposing Member” ) must first offer to Dispose of such Membership Interest to each of the other Members. Each such other Member shall have 30 Days to notify the Disposing Member of either (A) the terms and conditions on which such Member is willing to purchase the offered Membership Interest or (B) that such Member will not make an offer to purchase such Membership Interest. If any such other Member fails to deliver such notice referred to in the preceding sentence within such 30 day period, such other Member shall be deemed to have waived its right to make an offer pursuant to this Section 3.03(b)(ii) (other than as a result of a Disposition becoming subject to this Section 3.03(b)(ii) as a result of the last sentence of this Section 3.03(b)(ii)). The Disposing Member shall then have 30 Days after receipt of the last of such notices (or the end of such 30 Day period, as applicable) to accept the offer of the purchasing Member offering the highest price for the offered Membership Interest (if such highest price is offered by two or more purchasing Members, then such Members shall participate pro rata in accordance with their respective Sharing Ratios). If accepted, closing shall occur promptly (and no later than 30 Days following acceptance), and shall be held at the principal place of business of the Company, unless the Disposing Member and the purchasing Member(s) agree upon a different place or date. At the closing, (Y) the Disposing Member shall execute and deliver to the purchasing Member(s) (1) an assignment of the Membership Interest, in form and substance reasonably acceptable to the purchasing Member(s), containing a general warranty of title as to such portion of the Membership Interest (including that such portion of the Membership Interest is free and clear of all Encumbrances, other than those permitted by Section 3.03(c)) and (2) any other instruments reasonably requested by the purchasing Member(s) to give effect to the purchase, and (Z) the purchasing Member(s) shall deliver to the Disposing Member in immediately available funds the purchase price. The Sharing Ratios and Capital Accounts of the Members shall be deemed adjusted to reflect the effect of the purchase. If no Member makes an offer or all offers of the purchasing Member(s) are declined by the Disposing Member, then, for a period of 180 Days, the Disposing Member shall have the right to transfer the offered Membership Interest to any third party transferee at a price not less than price offered by any offering Member and on such other terms and conditions not more favorable in any material respect to the third party transferee than those offered by any offering Member. If, however, the Disposing Member fails so to Dispose of the Membership Interest within such 180-Day period, then any Disposition after the expiration of such 180-Day period shall again become subject to the right of first offer set forth in this Section 3.03(b)(ii). This Section 3.03(b)(ii) shall not apply to any Disposition by Williams of a portion of its Membership Interest (totaling up to a 24% Membership Interest) to or its Affiliate.

(iii) Admission of Assignee as a Member . An Assignee has the right to be admitted to the Company as a Member, with the Membership Interest of the Disposing Member (and attendant Sharing Ratio) so transferred to such Assignee, only if such Disposition is effected in strict compliance with Sections 3.03(a) and (b).

(iv) Requirements Applicable to All Dispositions and Admissions . In addition to the requirements set forth in Sections 3.03(b)(i), 3.03(b)(ii) and 3.03(b)(iii), any Disposition of a Membership Interest and any admission of an Assignee as a Member shall also be

subject to the following requirements, and such Disposition (and admission, if applicable) shall not be effective unless such requirements are complied with; provided, however, that the Management Committee, in its sole and absolute discretion, may waive any of the following requirements:

(A) Disposition Documents . The following documents must be delivered to the Management Committee and must be satisfactory, in form and substance, to the Management Committee:

(I) Disposition Instrument . A copy of the instrument pursuant to which the Disposition is effectuated.

(II) Ratification of this Agreement. An instrument, executed by the Disposing Member and its Assignee, containing the following information and agreements, to the extent they are not contained in the instrument described in Section 3.03(b)(iv)(A)(I): (aa) the notice address of the Assignee; (bb) if applicable, the Parent of the Assignee; (cc) the Sharing Ratios after the Disposition of the Disposing Member and its Assignee (which together must be equal to the Sharing Ratio of the Disposing Member before the Disposition); (dd) the Assignee’s ratification of this Agreement and agreement to be bound by it, and its confirmation that the representations and warranties in Section 3.02 are true and correct with respect to it; and (ee) representations and warranties by the Disposing Member and its Assignee (AA) that the Disposition and admission is being made in accordance with all applicable Laws, and (BB) that the Disposition and admission do not violate any Financing Commitment or any other agreement to which the Company is a party.

(III) Securities Law Opinion. Unless the Membership Interest subject to the Disposition is registered under the Securities Act and any applicable state securities Law, and if required by the Management Committee, a favorable opinion of the Company’s legal counsel, or of other legal counsel acceptable to the Management Committee, to the effect that the Disposition of the Membership Interest is being made pursuant to a valid exemption from registration under those Laws and in accordance with those Laws; provided, however, that no such opinion shall be required in the case of a Disposition by a Member to an Affiliate.

(B) Payment of Expenses . The Disposing Member and its Assignee shall pay, or reimburse the Company for, all reasonable costs and expenses incurred by the Company in connection with the Disposition and admission, including the legal fees incurred in connection with the legal opinion referred to in Section 3.03(b)(iv)(A)(III), on or before the 10th Day after the receipt by that Person of the Company’s invoice for the amount due. The Company will provide such invoice as soon as practicable after the amount due is determined but in no event later than 90 days thereafter. If payment is not made by the date due, the Person owing that amount shall pay interest on the unpaid amount from the date due until paid at a rate per annum equal to the Default Rate.

(C) No Release. No Disposition of a Membership Interest shall effectuate a release of the Disposing Member from any liabilities to the Company or the other Members arising from events occurring prior to the Disposition.

(D) Indebtedness of Company. Any Disposition of a Membership Interest shall also include all of the Indebtedness owed by the Company to the Disposing Member (or, if only a portion of a Membership Interest is being Disposed, a proportionate share of such Indebtedness). As long as this Agreement shall remain in effect, each evidence of Indebtedness of the Company owed to any of the Members shall bear an appropriate legend to indicate that it is held subject to, and may be Disposed only in accordance with, the terms and conditions of this Agreement, and that such Disposition may be made only in conjunction with the Disposition of a proportionate part of such Member’s Membership Interest pursuant to the terms and conditions of this Agreement.

(E) Tax Partnership Transfer Limitations.

(I) Tax Termination Make-Whole Payments . In connection with any Dispositions (including, without limitation, Deemed Tax Dispositions) by any Member hereunder, the Parties desire to address the possibility of a constructive termination of the Company under §708(b)(1)(B) of the Code (a “ Tax Termination ”) and to allocate responsibility for any damages resulting therefrom.

(1) In the event a Member (“ Transferring Member ”) Disposes of any portion of its Membership Interest which when combined with all other Dispositions of Membership Interests of the Company by all Members during the twelve-month period preceding such Disposition results in a Tax Termination, such Transferring Member shall pay to each other Member who is a Member at the date of the Tax Termination an amount equal to the Damages (as defined below). Notwithstanding the foregoing in this subsection (1), no payments under this subsection (1) shall be due from a Transferring Member (i) for any Disposition of any Membership Interest where such Disposition is in connection with a transaction, or a series of related transactions, where all of the selling Members are Affiliates of each other and all of the buying Members are already Members at the time of the sale and not Affiliates of any of the selling Members, or (ii) for any Disposition of any Membership Interest where such Disposition is in connection with a transaction, or a series of related transactions, where all of the selling Members collectively are selling 100% of the Membership Interests in the Company and all of the buying parties are not already Members at the time of the sale and not Affiliates of any of the selling Members.

(2) “ Damages ” shall be deemed to mean, with respect to any Tax Termination, an amount equal to the sum of (a) a damage amount (the “ Damage Amount ”) calculated as the product of (i) the excess of (A) the net present value as of the date of such Tax Termination, using a discount rate of 7%, of the aggregate amount of tax depreciation allocable to a Member from the Company for all future taxable periods calculated as if such Tax Termination had not occurred and all Company assets were held for the remainder of their depreciable lives but with all other facts unchanged, over (B) the net present value as of the date of such Tax Termination, using a discount rate of 7%, of the aggregate amount of tax depreciation allocable to such Member from the Company for all future taxable periods calculated taking into account such Tax Termination, and (ii) the sum of the highest marginal federal income tax rate as a percentage of taxable income applicable to a U.S. corporation for the taxable year in which the Tax Termination occurs, and 4% (as a proxy for applicable state income taxes) (collectively, the “ Aggregate Tax Rate ”); and (b) a gross-up amount calculated as (i) the Damage Amount divided by 1.0 minus the Aggregate Tax Rate, minus (ii) the Damage Amount.

(3) A Transferring Member shall make any payment required under clause (1) above to the other Members within 20 Days after the end of the month in which the relevant Tax Termination occurs.

(4) Article 11 hereof shall govern any Dispute regarding the amount of Damages payable under this subsection (I) of Section 3.03(b)(iv)(E).

(II) In connection with each such Disposition and Deemed Tax Disposition, the Member making the Disposition or with respect to whom the Deemed Tax Disposition applies shall give notice to the other Members of the date of the consummation of such Disposition or Deemed Tax Disposition and the Sharing Ratio of the Membership Interest so transferred or deemed transferred.

(III) As used herein, the term “ Deemed Tax Disposition ” means any event or series of events that is treated for federal income tax purposes as a sale or exchange of a Member’s Membership Interest or portion thereof for purposes of Section 708(b)(1)(B) of the Code.

(v) Deemed Membership Disposition. A Deemed Membership Disposition shall be deemed to be a Disposition of a Membership Interest and must comply with the requirements set forth in Sections 3.03(a) and (b).

(vi) Change of Member Control .

(A) Procedure. In the event of a Change of Member Control, then the Member with respect to which the Change of Member Control has occurred (the “Changing Member” ) shall promptly (and in all events within five Business Days after the Change in Member Control) give notice thereof to the Company and the

other Member(s). The other Member(s) shall have the right (the “ Buy-out Right ”) to acquire the Membership Interest of the Changing Member for the Fair Market Value thereof. Each such other Member shall have 30 Days following the determination of the Fair Market Value of such Membership Interest in which to notify the Members whether such other Member desires to exercise its Buy-out Right. If more than one of such other Members desires to exercise the Buy-out Right, they shall exercise such right on the same date (as further described below) and share in such purchase on a pro rata basis based on their respective Sharing Ratios, unless otherwise agreed to by such other Members.

(B) Closing. If the Buy-out Right is exercised in accordance with Section 3.03(b)(vi)(A), the closing of the purchase of the Membership Interest shall occur at the principal place of business of the Company no later than the 60th Day after the expiration of the last applicable period referred to in such Section 3.03(b)(vi)(A) (or, if later, the fifth Business Day after the receipt of all applicable Authorizations to the purchase), unless the Changing Member and the purchasing Members agree upon a different place or date. At the closing, (I) the Changing Member shall execute and deliver to the purchasing Member(s) (aa) an assignment of the Membership Interest, in form and substance reasonably acceptable to the purchasing Member(s), containing a general warranty of title as to such Membership Interest (including that such Membership Interest is free and clear of all Encumbrances, other than those permitted under Section 3.03(c)(i)) and (bb) any other instruments reasonably requested by the purchasing Member(s) to give effect to the purchase; and (II) the purchasing Member(s) shall deliver to the Changing Member in immediately-available funds the purchase price provided for in Section 3.03(b)(vi)(A). Effective as of the date of closing of the purchase, the Sharing Ratios and Capital Accounts of the Members shall be deemed adjusted to reflect the effect of the purchase.

(c) Encumbrances of Membership Interest. A Member may not Encumber its Membership Interest, unless (i) such Encumbrance is required by the terms of a Financing Commitment or such Member receives the prior consent of a Majority Interest of the non-Encumbering Members (calculated without reference to the Sharing Ratio of the Encumbering Member), which consent may be granted or withheld in the Sole Discretion of each such other Member, and (ii) the instrument creating such Encumbrance provides that any foreclosure of such Encumbrance (or Disposition in lieu of such foreclosure) must comply with the requirements of Sections 3.03(a) and (b).

3.04 Creation of Additional Membership Interest . With the consent of an Ultramajority Interest, (a) Additional Membership Interests may be created and issued to existing Members or to other Persons (with existing Members having a preemptive right to purchase Additional Membership Interests prior to such interests being sold to third-party(ies) so that the existing Members can maintain their Sharing Ratios), and (b) such other Persons may be admitted to the Company as Members, in each case on such terms and conditions as an Ultramajority Interest may determine. The terms of admission or issuance must specify the Sharing Ratios applicable thereto and may provide for the creation of different classes or groups of Members having different rights, powers, and duties. Any such admission is effective only after the new Member has executed and delivered to the Members an instrument containing the notice address of the new Member, the Assignee’s ratification of this

Agreement and agreement to be bound by it, and its confirmation that the representations and warranties in Section 3.02 are true and correct with respect to it. The provisions of this Section 3.04 shall not apply to Dispositions of Membership Interests or admissions of Assignees in connection therewith, such matters being governed by Sections 3.03(a) and (b).

3.05 Access to Information . Each Member shall be entitled to receive any information that it may reasonably request concerning the Company, except as otherwise provided in Section 9.02. Each Member shall also have the right, upon reasonable notice, and at all reasonable times during usual business hours to inspect the properties of the Company and to audit, examine and make copies of the books of account and other records of the Company. Such right may be exercised through any agent or employee of such Member designated in writing by it or by an independent public accountant, engineer, attorney or other consultant so designated. The Member making the request shall bear all costs and expenses incurred in any inspection, examination or audit made on such Member’s behalf. The Members agree (and Williams shall seek the agreement of the Operator) to reasonably cooperate, and to cause their respective independent public accountants, engineers, attorneys or other consultants to reasonably cooperate, in connection with any such request. Confidential Information obtained pursuant to this Section 3.05 shall be subject to the provisions of Section 3.06.

3.06 Confidential Information . (a) Except as permitted by Section 3.06(b), (i) each Member shall keep confidential all Confidential Information and shall not disclose any Confidential Information to any Person, including any of its Affiliates, and (ii) each Member shall use the Confidential Information only in connection with the Facilities and the Company.

(b) Notwithstanding Section 3.06(a), but subject to the other provisions of this Section 3.06, a Member may make the following disclosures and uses of Confidential Information:

(i) disclosures to another Member or to the Operator in connection with the Company;

(ii) disclosures and uses that are approved by the Management Committee;

(iii) disclosures that may be required from time to time to obtain requisite Authorizations or Financing Commitments for the Initial Facilities or any proposed Capital Opportunity, if such disclosures are approved by the Management Committee;

(iv) disclosures to an Affiliate of such Member, and to the directors, officers, employees, agents, advisors, including legal and financial advisors, partners, financing sources and consultants of a Member or an Affiliate of such Member, or to any Persons identified in good faith by a Disposing Member to be prospective Members of the Company; provided that such Member shall be responsible for any breach by such Affiliate, director, officer, employee, agent, advisor, financing source, consultant or prospective Member of the terms of this Section 3.06, and special care shall be taken to restrict any such disclosures prohibited by the FERC’s Standards of Conduct for Transmission Providers, 18 C.F.R. Part 358;

(v) disclosures to a Person that is not a Member or an Affiliate of a Member, if such Person has been retained by the Company, a Member or the Operator to provide services in connection with the Company and has agreed to abide by the terms of this Section 3.06;

(vi) disclosures to a bona-fide potential direct or indirect purchaser of such Member’s Membership Interest, if such potential purchaser has agreed in writing to abide by the terms of this Section 3.06;

(vii) disclosures required, with respect to a Member or an Affiliate of a Member, pursuant to (i) the Securities Act and the rules and regulations promulgated thereunder, (ii) the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, (iii) any state securities Laws, or (iv) any national securities exchange or automated quotation system; and

(viii) disclosures that a Member is legally compelled to make by deposition, interrogatory, request for documents, subpoena, civil investigative demand, order of a court of competent jurisdiction, or similar process, or otherwise by Law; provided, however, that, prior to any such disclosure, such Member shall, to the extent legally permissible:

(A) provide the Management Committee with prompt notice of such requirements so that one or more of the Members may seek a protective order or other appropriate remedy or waive compliance with the terms of this Section 3.06(b)(viii);

(B) consult with the Management Committee on the advisability of taking steps to resist or narrow such disclosure; and

(C) cooperate with the Management Committee and with the other Members in any attempt one or more of them may make to obtain a protective order or other appropriate remedy or assurance that confidential treatment will be afforded the Confidential Information; and in the event such protective order or other remedy is not obtained, or the other Members waive compliance with the provisions hereof, such Member agrees (I) to furnish only that portion of the Confidential Information that, in the opinion of such Member’s counsel, such Member is or may be (subject to risk of legal sanctions) legally required to disclose, and (II) to exercise all reasonable efforts to obtain assurance that confidential treatment will be accorded such Confidential Information.

(c) Each Member shall take such precautionary measures as may be required to ensure (and such Member shall be responsible for) compliance with this Section 3.06 by any of its Affiliates, and its and their directors, officers, employees, advisors, and agents, and other Persons to which it may disclose Confidential Information in accordance with this Section 3.06.

(d) Promptly after its Withdrawal, a Withdrawn Member shall promptly destroy (and provide a certificate of destruction to the Company with respect to), or return to the Company, all Confidential Information in its possession. Notwithstanding the immediately-preceding sentence, but subject to the other provisions of this Section 3.06, a Withdrawn Member may retain for a stated

period, but not disclose to any other Person, Confidential Information for the limited purposes of (i) explaining such Member’s corporate decisions with respect to the Facilities or (ii) preparing such Member’s tax returns and financial statements and preparing or defending audits, investigations and proceedings relating thereto; provided, however, that the Withdrawn Member must notify the Management Committee in advance of such retention and specify in such notice the stated period of such retention.

(e) The Members agree that no adequate remedy at law exists for a breach or threatened breach of any of the provisions of this Section 3.06, the continuation of which if unremedied will cause the Company and the other Members to suffer irreparable harm. Accordingly, the Members agree that the Company and the other Members shall be entitled, in addition to other remedies that may be available to them, to immediate injunctive relief from any breach of any of the provisions of this Section 3.06 and to specific performance of their rights hereunder, as well as to any other remedies available at law or in equity, pursuant to Section 11.04.

(f) The obligations of the Members under this Section 3.06 (including the obligations of any Withdrawn Member) shall terminate on the second anniversary of the end of the Term.

3.07 Liability to Third Parties . No Member or its Affiliates shall be liable for the debts, obligations or liabilities of the Company.

3.08 Use of Members’ Names and Trademarks . The Company, the Members and their Affiliates shall not use the name or trademark of any Member or its Affiliates in connection with public announcements regarding the Company, or marketing or financing activities of the Company, without the prior consent of such Member or Affiliate, which shall not be unreasonably withheld.

ARTICLE 4

CAPITAL CONTRIBUTIONS

4.01 Capital Contributions . (a) Except as otherwise provided in the following provisions of this Section 4.01(a) and in Section 4.01(d), 4.02, 7.02 or 7.03, the Management Committee shall issue or cause to be issued a written request to each Member for the making of Capital Contributions at such times and in such amounts as the Management Committee shall approve (such written request referred to herein as a “ Capital Call ”). Such Capital Contributions shall be made in cash. All amounts timely received by the Company pursuant to this Section 4.01 shall be credited to the respective Member’s Capital Account as of such specified date. As to each Capital Opportunity for which an Affirmative Acquisition Vote or Affirmative Construction Vote shall have occurred, no additional approval of the Management Committee shall be required for the Capital Contributions required to fund such Capital Opportunity to the extent such expenditures have been approved in accordance with Sections 7.02 and 7.03; rather, the Management Committee shall issue written notices to each Member for such Capital Contributions at such times and in such amounts approved in accordance with Sections 7.02 and 7.03 in order to fund the costs associated with the related Capital Opportunity.

(b) Each Capital Call issued pursuant to Section 4.01(a) shall contain the following information:

(i) The total amount of Capital Contributions requested from all Members;

(ii) The amount of Capital Contribution requested from the Member to whom the request is addressed, such amount to be calculated in proportion to the Sharing Ratio of such Member;

(iii) The purpose for which the funds are to be applied in such reasonable detail as the Management Committee shall direct; and

(iv) The date by which payments of the Capital Contribution shall be made (which date shall not be less than five Business Days following the date the Capital Call is given, unless a sooner due date is approved by an Ultramajority Interest of the Management Committee) and the method of payment, provided that such date and method shall be the same for each of the Members.

(c) Each Member agrees that it shall make payments of its respective Capital Contributions in accordance with Capital Calls issued pursuant to Section 4.01(a).

(d) In addition to the authority granted the Management Committee in Section 4.01(a) to issue Capital Calls, if within 30 Days prior to the date any Matured Financing Obligation is to become due (or within 15 Days after any notice of acceleration of any Matured Financing Obligation received prior to the maturity date thereof), (i) the Management Committee has not made a Capital Call for the payment of such amount that is (or is expected to be) a Matured Financing Obligation, and (ii) the Members have been unable to secure refinancing for such Matured Financing Obligation on reasonably acceptable terms after negotiating in good faith to do so with third party lender(s), then, at any time thereafter, any individual Member may on behalf of the Management Committee issue a Capital Call for cash in the amount required for the payment of such Matured Financing Obligation. If a Capital Call is validly issued by an individual Member under this Section 4.01(d), then each Member shall be obligated to pay such Capital Call as provided in this Section 4.01, but such payment shall be made within 15 Days after the date the Capital Call is given (and not the 30 Day period provided for in Section 4.01(b)).

(e) Pre-Effective Date Expenditures . Set forth in Exhibit B are the amounts of Pre-Effective Date Expenditures that have been incurred with respect to each Member. In addition, if any Member or Affiliate thereof has made expenditures or incurred costs that are not set forth in Exhibit B but which such Member desires to be considered as Pre-Effective Date Expenditures, such Member shall have the right to request approval thereof by Ultramajority Interest as soon as practicable after the Effective Date (but not later than 90 Days after the Effective Date). After all such additional expenditures and costs to be considered as Pre-Effective Date Expenditures hereunder have been approved or disapproved by the Members, the applicable Member(s) shall make cash Capital Contributions to the Company in order to “equalize” the Members’ Capital Accounts in proportion to their Sharing Ratios (so that all Members’ Capital Accounts are pro rata in proportion to their Sharing Ratios). The assets, if any, acquired by means of the Pre-Effective Date Expenditures of the Members shall be and are hereby contributed to the Company free of any Encumbrances. All applicable Members agree to execute and deliver any and all assignments and conveyances as may be necessary or appropriate to evidence such contribution.

(f) Limitation on Capital Contributions . (i) Notwithstanding anything herein to the contrary, unless otherwise agreed by such Member in writing, no Member shall be required to make Capital Contributions for the Cost of the Initial Facilities in excess of the amount set forth for such Member on Exhibit D as its “ Initial Facilities Contribution Cap .”

(ii) If at any time a Member has made Capital Contributions to the Company for the Cost of the Initial Facilities in an aggregate amount equal to its Initial Facilities Contribution Cap, and such Member (the “ Non-Funding Member ”) then fails to make its pro rata Capital Contribution for the Cost of the Initial Facilities pursuant to a Capital Call validly and timely issued pursuant to Section 4.01 hereof (a “ Section 4.01(f) Event ”), then (A) such Non-Funding Member shall not be considered to be a Breaching Member or to be in Default and shall not be required to make any further Capital Contribution to the Company for the Cost of the Initial Facilities, and (B) the provisions of Section 4.06 shall not apply thereto and this Section 4.01(f) shall apply and shall constitute the sole and exclusive remedy of the Company and each other Member with respect to such a Section 4.01(f) Event. Upon the occurrence of a Section 4.01(f) Event, each other Member that has timely contributed its pro rata Capital Contribution in response to such Capital Call shall have the right in its sole and absolute discretion, but not the obligation, to fund such deficiency as an additional Capital Contribution for the Cost of the Initial Facilities (a “ Default Capital Contribution ”). If a Default Capital Contribution shall be made by a Member in accordance with this Section 4.01(f) (such Member, in its capacity as a Member making a Default Capital Contribution, the “ Funding Member ”), the Company shall notify the Non-Funding Member in writing of the amount and date of such Default Capital Contribution. If any Default Capital Contribution is not repaid by the Non-Funding Member to the Funding Member within five Business Days after the date that the Funding Member made such Default Capital Contribution on behalf of the Non-Funding Member, then (I) such Non-Funding Member’s Sharing Ratio shall be reduced in accordance with Section 4.01(f)(iii) hereof and (II) the Company shall thereafter have no further obligation to offer the Non-Funding Member the opportunity to make pro rata Capital Contributions solely with respect to the Cost of the Initial Facilities.

(iii) If required by the terms of Section 4.01(f)(ii), each Member’s Capital Account shall be adjusted to reflect any additional Capital Contributions actually received by the Company from such Member and the application of Section 4.05 hereof, and each Member’s Sharing Ratio shall be adjusted to equal to such Member’s adjusted Capital Account (reduced by the portion of any Capital Account attributable to any Priority Interest) divided by the sum of the adjusted Capital Accounts (reduced by the portion of any Capital Account attributable to any Priority Interest) of all Members.

4.02 Loans . (a) If an Ultramajority Interest of the Management Committee determines that the Company needs funds, then, rather than calling for Capital Contributions, an Ultramajority Interest of the Management Committee may issue or cause to be issued a written request to each Member for the making of loans to the Company at such times, in such amounts and under such terms and conditions as an Ultramajority Interest of the Management Committee shall approve, provided that the Management Committee shall not call for loans rather than Capital Contributions if doing so would breach any Financing Commitment or any other agreement of the Company. All amounts received from a Member after the date specified in Section 4.02(b)(iv) by the Company pursuant to this Section 4.02 shall be accompanied by interest

on such overdue amounts (and the default shall not be cured unless such interest is also received by the Company), which interest shall be payable to the Company and shall accrue from and after such specified date at the Default Rate. Any such interest paid shall be credited to the respective Capital Accounts of all the Members, on a pro rata basis in accordance with their respective Sharing Ratios as of the date such payment is made to the Company, but shall not be considered part of the principal of the loan.

(b) Each written request issued pursuant to Section 4.02(a) shall contain the following information:

(i) The total amount of loans requested from all Members;

(ii) The amount of the loan requested from the Member to whom the request is addressed, such amount to be calculated in proportion to the Sharing Ratio of such Member;

(iii) The purpose for which the funds are to be applied in such reasonable detail as the Management Committee shall direct;

(iv) The date by which the loans to the Company shall be made (which date shall not be less than 30 Days following the date the request is given, unless a sooner date is approved by the Management Committee) and the method of payment, provided that such date and method shall be the same for each of the Members; and

(v) All terms concerning the repayment of or otherwise relating to such loans, provided that such terms shall be the same for each of the Members.

(c) Each Member agrees that it shall make its respective loans in accordance with requests issued pursuant to Section 4.02(a).

4.03 No Other Contribution Obligations . No Member shall be required or permitted to make any Capital Contributions or loans to the Company except pursuant to this Article 4.

4.04 Return of Contributions . Except as expressly provided herein, a Member is not entitled to the return of any part of its Capital Contributions or to be paid interest in respect of either its Capital Account or its Capital Contributions. An unrepaid Capital Contribution is not a liability of the Company or of any Member. A Member is not required to contribute or to lend any cash or property to the Company to enable the Company to return any Member’s Capital Contributions.

4.05 Capital Accounts . (a) Each Member’s Capital Account shall be increased by (i) the amount of money contributed by that Member to the Company, (ii) the fair market value of property contributed by that Member to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Section 752 of the Code), and (iii) allocations to that Member of Company income and gain (or items thereof), including income and gain exempt from tax and income and gain described in Treasury Regulation § 1.704-1(b)(2)(iv)(g), but excluding income and gain described in Treasury Regulation § 1.704-1(b)(4)(i), and shall be decreased by (iv) the amount of money distributed to that

Member by the Company, (v) the fair market value of property distributed to that Member by the Company (net of liabilities secured by such distributed property that such Member is considered to assume or take subject to under Section 752 of the Code), (vi) allocations to that Member of expenditures of the Company described (or treated as described) in Section 705(a)(2)(B) of the Code, and (vii) allocations of Company loss and deduction (or items thereof), including loss and deduction described in Treasury Regulation § 1.704-1(b)(2)(iv)(g), but excluding items described in (vi) above and loss or deduction described in Treasury Regulation § 1.704-1(b)(4)(i) or 1.704-1(b)(4)(iii). The Members’ Capital Accounts shall also be maintained and adjusted as permitted by the provisions of Treasury Regulation § 1.704-1(b)(2)(iv)(f) and as required by the other provisions of Treasury Regulation §§ 1.704-1(b)(2)(iv) and 1.704-1(b)(4), including adjustments to reflect the allocations to the Members of depreciation, depletion, amortization, and gain or loss as computed for book purposes rather than the allocation of the corresponding items as computed for tax purposes, as required by Treasury Regulation § 1.704-1(b)(2)(iv)(g). Thus, the Members’ Capital Accounts shall be increased or decreased to reflect a revaluation of the Company’s property on its books based on the fair market value of the Company’s property on the date of adjustment (as determined pursuant to Section 4.05(b)), immediately prior to (A) the contribution of money or other property to the Company by a new or existing Member as consideration for a Membership Interest or an increased Sharing Ratio, (B) the distribution of money or other property by the Company to a Member as consideration for a Membership Interest, or (C) the liquidation of the Company. A Member who has more than one Membership Interest shall have a single Capital Account that reflects all such Membership Interests, regardless of the class of Membership Interests owned by such Member and regardless of the time or manner in which such Membership Interests were acquired. Upon the Disposition of all or a portion of a Membership Interest, the Capital Account of the Disposing Member that is attributable to such Membership Interest shall carry over to the Assignee in accordance with the provisions of Treasury Regulation § 1.704-1(b)(2)(iv)(l). The Capital Accounts shall not be deemed to be, nor have the same meaning as, the capital account of the Company under the NGA.

(b) Whenever the fair market value of the Company’s property is required to be determined pursuant to the third and fourth sentences of Section 4.05(a), the Management Committee shall propose such a fair market value in a notice to the Members. If any other Member disagrees with such determination, such Member shall notify the other Members of such disagreement within 10 Business Days of receiving such notice. If such Dispute is not resolved within five Business Days after such notice, any Member may submit such Dispute to binding arbitration by delivering an Arbitration Notice. All of the provisions of Article 11 shall apply to such arbitration, with the following exceptions: (i) the Arbitrator shall be an appraiser or investment banking firm having recognized expertise in the valuation of natural gas transmission pipelines; (ii) the 20-Day period in Section 11.03(b) shall be a five-Business Day period; and (iii) the 90-Day period in Section 11.04 shall be a 20-Day period.

4.06 Failure to Make a Capital Contribution .

(a) General . If any Member fails to make a Capital Contribution as requested by the Management Committee (or on behalf of the Management Committee under Section 4.01(d) or pursuant to Section 4.01(e)) in a Capital Call validly and timely issued pursuant to Section 4.01 of this Agreement (each such Member being a “ Non-Contributing Member ”), and if such failure continues for more than 15 Days after the date on which it is due, the Members that have contributed their Capital Contribution (each, a “ Contributing Member ”) may (without limitation as to other remedies that may be available) thereafter elect to:

(i) treat the Non-Contributing Member’s failure to contribute as a Default by giving notice thereof to the Non-Contributing Member, in which event the provisions of this Agreement regarding the commission of a Default by a Member shall apply (but if the Capital Call is for the payment of a Matured Financing Obligation, the Default shall be immediate on the giving of such notice and the 30 Day cure period contemplated in the definition of Default shall not apply); notwithstanding the foregoing, this Section 4.06(a)(i) shall not apply in the case of a Capital Call issued by an individual Member under Section 4.01(d) above; or

(ii) pay the portion of the Capital Contribution owed and unpaid by the Non-Contributing Member (the “ Additional Contribution ”) in which event the Contributing Members that elect to fund the Non-Contributing Members’ share (the “ Additional Contribution Members ”) may treat the contribution as one of: (A) a Capital Contribution resulting in the Additional Contribution Members receiving a Priority Interest under Section 4.06(b), or (B) a permanent capital contribution that results in an adjustment of Membership Interests under Section 4.06(c), as determined by the Additional Contribution Members as set forth below.

No Contributing Member shall be obligated to make either election (i) or (ii) above. The decision of the Contributing Members to elect (i) or (ii) above shall be made by the determination of the Contributing Members holding the majority of the Sharing Ratios of all Contributing Members, but (ii) above may not be elected unless at such time of determination there is one or more Additional Contribution Members. The decision of the Additional Contribution Members to elect (ii)(A) or (ii)(B) above shall be made by the determination of the Additional Contribution Members holding the majority of the Sharing Ratios of all Additional Contribution Members. Unless and until such election is made, payment of the Additional Contribution shall be treated as a Priority Interest under (ii)(A) above. If the Additional Contribution Members make the election under (ii)(A) above to treat the contribution as a contribution for which they receive a Priority Interest, then the Additional Contribution Members will have the option, exercisable at any time thereafter (by the election of Additional Contribution Members holding a majority of the Sharing Ratios of all Additional Contribution Members) upon 30 Days prior written notice to the other Members, to change their election such that the amount of the payment of the Non-Contributing Members’ portion of the Capital Contribution (less any amounts received by the Additional Contribution Members as a payment of the applicable Priority Interest (other than payment of the return amount forming a part thereof)) shall be treated as an Additional Contribution as provided in Section 4.06(c). In such event, the accrued and unpaid return forming part of the Priority Interest shall not be treated as an Additional Contribution but shall continue as a Priority Interest as provided in Section 4.06(b) below (with such amount to continue to compound return thereon).

(b) Priority Interest . If the Additional Contribution Members elect to treat the payment of Additional Contribution as a contribution for which the Additional Contribution Members receive a Priority Interest, then the following shall apply:

(i) Each Additional Contribution Member shall receive a Priority Interest in the distributions from the Company that would otherwise be due and payable to the Non-

Contributing Member(s). The Priority Interest received by each Additional Contribution Member shall be in the proportion that the amount of the Additional Contribution paid by such Additional Contribution Member bears to the amount of the Additional Contributions made by all Additional Contribution Members (each Additional Contribution Member’s percentage share of the Priority Interests shall be its “ Priority Interest Sharing Ratio ”). All distributions from the Company, including all distributions pursuant to Section 5.01 and Section 5.02, that would otherwise be due and payable to the Non-Contributing Member(s) instead shall be paid to the Additional Contribution Members in accordance with their respective Priority Interest Sharing Ratio and no distribution shall be made from the Company to any Non-Contributing Member until all Priority Interests have terminated. The Priority Interest shall terminate with respect to an Additional Contribution Member when that Additional Contribution Member has received either through the distributions it receives under its Priority Interest or through payment(s) to it by the Non-Contributing Member(s) (which payment(s) may be made by the Non-Contributing Member(s) at any time) of an amount equal to the Additional Contribution made by such Member, plus a return thereon of 14% per annum (compounded monthly on the outstanding balance). For the purpose of making such calculation, all amounts received by an Additional Contribution Member shall be deemed to be applied first against a return on, and then to a return of the amount of, the Additional Contribution. For purposes of maintaining Capital Accounts, any amount paid by a Non-Contributing Member to a Contributing Member to reduce and/or terminate a Priority Interest shall be treated as though such amount were contributed by the Non-Contributing Member to the Company and thereafter distributed by the Company to the Contributing Member with respect to its Priority Interest.

(ii) The Priority Interests shall not alter the Sharing Ratios of the Members in the Company, nor shall the Priority Interests alter any distributions to the Contributing Members (in their capacity as Contributing Members, as opposed to their capacity as Additional Contribution Members) in accordance with their respective Sharing Ratios. Notwithstanding any provision in this Agreement to the contrary, a Member may not dispose of all or a portion of its Priority Interest except to a Person to whom it disposes all or the applicable pro rata portion of its Membership Interest after compliance with the requirements of this Agreement in connection therewith.

(iii) For so long as any Additional Contribution Member holds a Priority Interest, neither any Non-Contributing Member nor its Representative (except for a Non-Contributing Member that has paid to the Additional Contribution Member(s) all of the amount of the Additional Contribution attributable to such Non-Contributing Member in accordance with Section 4.06(b)(i)) shall have the right to vote its Membership Interest (or Sharing Ratio) under the Agreement with respect to any decision regarding distributions from the Company, and any distribution to which such Non-Contributing Member is entitled shall be paid to the Additional Contribution Members in respect of the Priority Interest.

(iv) No Member that is a Non-Contributing Member may Dispose of its Membership Interest unless at the closing of such Disposition, either the Non-Contributing Member or the proposed Assignee pays the amount necessary to terminate the Priority Interest arising from such Non-Contributing Member’s failure to contribute. No Assignee shall be admitted to the Company as a Member until compliance with this Section 4.06(b)(iv) has occurred.

(c) Permanent Contribution . Subject to Section 4.06(a), if the Additional Contribution Members elect under Section 4.06(a)(ii) to treat the Additional Contribution as a permanent capital contribution, then each Additional Contribution Member that funds a portion of the Additional Contribution shall have its Capital Account increased accordingly and the Members’ Membership Interests and Sharing Ratios will be automatically adjusted to equal each Member’s adjusted Capital Account (reduced by the portion of any Capital Account attributable to any Priority Interest) when expressed as a percentage of the sum of all Members’ adjusted Capital Accounts (reduced by the portion of any Capital Account attributable to any Priority Interest).

(d) Further Assurance . Each Member shall execute and deliver any additional documents and instruments and perform any additional acts that may be reasonably necessary or appropriate to effectuate and perform the provisions of this Section 4.06.

ARTICLE 5

DISTRIBUTIONS AND ALLOCATIONS

5.01 Distributions . Within 45 Days following the end of each Quarter, the Management Committee shall approve the amount of Available Cash with respect to such Quarter, and an amount equal to 100% of Available Cash with respect to such Quarter shall, subject to Section 18-607 of the Delaware Act, be distributed in accordance with this Article 5 to the Members (other than a Breaching Member or Member in Default) in proportion to their respective Sharing Ratios (calculated at the time the amounts of such distributions are made).

5.02 Distributions on Dissolution and Winding-Up . Upon the dissolution and winding-up of the Company, after adjusting the Capital Accounts for all distributions made under Section 5.01 and all allocations under Article 5, all available proceeds distributable to the Members as determined under Section 12.02 shall be distributed to all of the Members (other than a Breaching Member or Member in Default) in amounts equal to the Members’ positive Capital Account balances.

5.03 Allocations . (a) For purposes of maintaining the Capital Accounts pursuant to Section 4.05 and for income tax purposes, except as provided in Sections 5.03(b), (c), (d) and (e), each item of income, gain, loss, deduction and credit of the Company shall be allocated to the Members in accordance with their respective Sharing Ratios.

(b) With respect to each period during which a Priority Interest is outstanding, each Additional Contribution Member shall be allocated items of income and gain in an amount equal to the return that accrues with respect to such Additional Contribution Member’s Additional Contribution pursuant to Section 4.06(b)(i) prior to any allocation of any items to the Members pursuant to Section 5.03(a).

(c) For income tax purposes, income, gain, loss, and deduction with respect to property contributed to the Company by a Member or revalued pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f) shall be allocated among the Members in a manner that takes into account the variation between the adjusted tax basis of such property and its book value, as required by Section 704(c) of the Code and Treasury Regulation Section 1.704-1(b)(4)(i), using the remedial allocation method permitted by Treasury Regulation Section 1.704-3(d).

(d) In the event any Member receives any adjustments, allocations, or distributions described in Treasury Regulation, Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Company income and gain shall be specially allocated to the Members in an amount and in a manner sufficient to eliminate, to the extent required by Treasury Regulations, any deficit balance in the Member’s Capital Account (as adjusted in accordance with Treasury Regulation Section 1-704-1(b)(2)(ii)(d) created by such adjustments, allocations, or distributions as quickly as possible.

(e) Any item of income, gain, loss or deduction that is required to be allocated among the Members in a manner other than the manner otherwise prescribed in this Section 5.03 in order to comply with Treasury Regulation Sections 1.704-1 and 1.704-2 shall be allocated among the Members in accordance with such Treasury Regulations (the “Regulatory Allocations” ). However, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocations of other items and the Regulatory Allocations to the Members will be equal to the net amount that would have been allocated to the Members if the Regulatory Allocations had not occurred.

5.04 Varying Interests . All items of income, gain, loss, deduction or credit shall be allocated, and all distributions shall be made, to the Persons shown on the records of the Company to have been Members as of the last calendar day of the period for which the allocation or distribution is to be made. Notwithstanding the foregoing, if during any taxable year there is a change in any Member’s Sharing Ratio, the Members agree that their allocable shares of such items for the taxable year shall be determined on any method determined by the Management Committee to be permissible under Code Section 706 and the related Treasury Regulations to take account of the Members’ varying Sharing Ratios.

ARTICLE 6

MANAGEMENT

6.01 Generally . The management of the Company is fully vested in the Members. As further described below, to facilitate the orderly and efficient management of the Company, the Members shall act (a) collectively as a “committee of the whole” pursuant to Section 6.02, and (b) through the delegation of certain duties and authority to the Operator and the Officers. Subject to the express provisions of this Agreement, each Member agrees that it will not exercise its authority under the Act to bind or commit the Company to agreements, transactions or other arrangements, or to hold itself out as an agent of the Company.

6.02 Management Committee. The Members shall act collectively through meetings as a “committee of the whole,” which is hereby named the “Management Committee.” Decisions or actions taken by the Management Committee in accordance with the provisions of this Agreement shall constitute decisions or actions by the Company and shall be binding on each Member, Representative, Officer and employee of the Company. The Management Committee shall conduct its affairs in accordance with the following provisions and the other provisions of this Agreement:

(a) Representatives.

(i) Designation. To facilitate the orderly and efficient conduct of Management Committee meetings, each Member shall notify in writing the other Members, from time to time, of the identity of (A) one of its officers, employees or agents who, at no cost or expense to the Company, will represent it at such meetings (a “ Representative ”), and (B) at least one, but not more than two, of its officers, employees or agents, who will represent it at any meeting that the Member’s Representative is unable to attend (each an “ Alternate Representative ”). (The term “ Representative ” shall also refer to any Alternate Representative that is actually performing the duties of the applicable Representative.) The initial Representative and Alternate Representative(s) of each Member are set forth in Exhibit A. A Member may designate a different Representative or Alternate Representatives for any meeting of the Management Committee by notifying in writing each of the other Members at least three Business Days prior to the scheduled date for such meeting; provided, however, that if giving such advance notice is not feasible, then such new Representative or Alternate Representatives shall present written evidence of his or her authority at the commencement of such meeting.

(ii) Authority. Each Representative shall have the full authority to act on behalf of the Member that designated such Representative; the action of a Representative at a meeting (or through a written consent) of the Management Committee shall bind the Member that designated such Representative; and the other Members shall be entitled to rely upon such action without further inquiry or investigation as to the actual authority (or lack thereof) of such Representative. In addition, the act of an Alternate Representative shall be deemed the act of the Representative for which such Alternate Representative is acting, without the need to produce evidence of the absence or unavailability of such Representative.

(iii) DISCLAIMER OF DUTIES; INDEMNIFICATION. EACH REPRESENTATIVE SHALL REPRESENT, AND OWE DUTIES TO, ONLY THE MEMBER THAT DESIGNATED SUCH REPRESENTATIVE (THE NATURE AND EXTENT OF SUCH DUTIES BEING AN INTERNAL CORPORATE AFFAIR OF SUCH MEMBER), AND NOT TO THE COMPANY, ANY OTHER MEMBER OR REPRESENTATIVE, OR ANY OFFICER OR EMPLOYEE OF THE COMPANY OR OF ANY MEMBER. THE PROVISIONS OF SECTION 6.02(f)(ii) SHALL ALSO INURE TO THE BENEFIT OF EACH MEMBER’S REPRESENTATIVE. THE COMPANY SHALL INDEMNIFY, PROTECT, DEFEND, RELEASE AND HOLD HARMLESS EACH REPRESENTATIVE FROM AND AGAINST ANY CLAIMS ASSERTED BY OR ON BEHALF OF ANY PERSON (INCLUDING ANOTHER MEMBER), OTHER THAN THE MEMBER THAT DESIGNATED SUCH REPRESENTATIVE, THAT ARISE OUT OF, RELATE TO OR ARE OTHERWISE ATTRIBUTABLE TO SUCH REPRESENTATIVE’S SERVICE ON THE MANAGEMENT COMMITTEE.

(iv) Attendance. Each Member shall use all reasonable efforts to cause its Representative or Alternate Representative to attend each meeting of the Management Committee, unless its Representative is unable to do so because of a “force majeure” event or other event beyond his reasonable control, in which event such Member shall use all reasonable efforts to cause its Representative or Alternate Representative to participate in the meeting by telephone pursuant to Section 6.02(h).

(b) Chairman. One of the Representatives will be designated as Chairman of the Management Committee to preside over meetings of the Management Committee and to have such authority and perform such duties as the Management Committee may delegate from time to time. Unless the Management Committee decides otherwise, the Chairman shall be the Representative of the Member having the largest Sharing Ratio. If two or more Members are tied with the “largest” Sharing Ratio, then the Chairmanship shall be rotated on an annual basis among the Representatives of such Members (with such rotation proceeding with the Members alphabetically). Any Member may waive its right to the Chairmanship. The initial Chairman is set forth in Section 6.02(k).

(c) Procedures. The Chairman shall cause to be maintained written minutes of each Management Committee meeting, which shall be submitted to the Members for approval within a reasonable time after each meeting. The Management Committee may adopt whatever rules and procedures relating to its activities as it may deem appropriate, provided that such rules and procedures shall not be inconsistent with or violate the provisions of this Agreement.

(d) Time and Place of Meetings. The Management Committee shall meet quarterly, subject to more or less frequent meetings upon approval of the Management Committee. Notice of, and an agenda for, all Management Committee meetings shall be provided by the Chairman to all Members at least five Days prior to the date of each meeting, together with proposed minutes of the previous Management Committee meeting (if such minutes have not been previously ratified). Special meetings of the Management Committee may be called at such times, and in such manner, as any Member deems necessary. Any Member calling for any such special meeting shall notify the Chairman, who in turn shall notify all Members of the date and agenda for such meeting at least five Days prior to the date of such meeting. Such five-Day period may be shortened by the Management Committee, acting through a Unanimous Interest. All meetings of the Management Committee shall be held at a location designated by the Chairman. Attendance of a Member at a meeting of the Management Committee shall constitute a waiver of notice of such meeting, except where such Member attends the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

(e) Quorum. The presence in person or by phone of a Majority Interest shall constitute a quorum for the transaction of business at any meeting of the Management Committee.

(f) Voting.

(i) Voting by Sharing Ratios; Voting Thresholds. Except as provided otherwise in this Agreement, voting shall be in proportion to the Members’ respective Sharing Ratios. Set forth below are definitions of the principal voting thresholds that are required to approve certain actions (such thresholds being subject to adjustment pursuant to Section 6.02(f)(iii)):

(A) “Unanimous Interest” means all of the Members not in Default;

(B) “Ultramajority Interest” means two or more Members not in Default holding among them at least 80% of the Sharing Ratios; provided, however, that (I) any Members that are Affiliates of one another shall count as a single Member for purposes of determining whether two or more Members have approved the applicable matter, and (II) if there is only one Member not in Default, then Ultramajority Interest shall mean one Member holding at least 80% of the Sharing Ratios;

(C) “Supermajority Interest” means one or more Members not in Default holding among them at least 62.5% of the Sharing Ratios; provided, however, that any Members that are Affiliates of one another shall count as a single Member for purposes of determining whether two or more Members have approved the applicable matter; and

(D) “Majority Interest” means one or more Members not in Default holding among them at least a majority of the Sharing Ratios; provided, however, that any Members that are Affiliates of one another shall count as a single Member for purposes of determining whether two or more Members have approved the applicable matter.

Except for matters that require the approval of a Unanimous Interest, Ultramajority Interest or a Supermajority Interest pursuant to the provisions of this Agreement, the vote of a Majority Interest shall constitute the action of the Management Committee.

(ii) DISCLAIMER OF DUTIES. WITH RESPECT TO ANY VOTE, CONSENT OR APPROVAL AT ANY MEETING OF THE MANAGEMENT COMMITTEE OR OTHERWISE UNDER THIS AGREEMENT, EACH MEMBER MAY GRANT OR WITHHOLD SUCH VOTE, CONSENT OR APPROVAL (A) IN ITS SOLE AND ABSOLUTE DISCRETION, (B) WITH OR WITHOUT CAUSE, (C) SUBJECT TO SUCH CONDITIONS AS IT SHALL DEEM APPROPRIATE, AND (D) WITHOUT TAKING INTO ACCOUNT THE INTERESTS OF, AND WITHOUT INCURRING LIABILITY TO, THE COMPANY, ANY OTHER MEMBER OR REPRESENTATIVE, OR ANY OFFICER OR EMPLOYEE OF THE COMPANY OR OF ANY OTHER MEMBER (COLLECTIVELY, “SOLE DISCRETION”). THE PROVISIONS OF THIS SECTION 6.02(f)(ii) SHALL APPLY NOTWITHSTANDING THE NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL MISCONDUCT, STRICT LIABILITY OR OTHER FAULT OR RESPONSIBILITY OF A MEMBER OR ITS REPRESENTATIVE.

(iii) Exclusion of Certain Members and Their Sharing Ratios. With respect to any vote, consent or approval, any Breaching Member, Member in Default or Withdrawn Member shall be excluded from such decision (as contemplated by Section 10.03(b)), and the Sharing Ratio of such Breaching Member, Member in Default or Withdrawn Member shall be disregarded in calculating the voting thresholds in Section 6.02(f)(i). In addition, if any other provision of this Agreement provides that a Majority Interest, Supermajority Interest, Ultramajority Interest or Unanimous Interest is to be calculated without reference to the Sharing Ratio of a particular Member, then the applicable voting threshold in Section 6.02(f)(i) shall be deemed adjusted accordingly.

(g) Action by Written Consent . Any action required or permitted to be taken at a meeting of the Management Committee may be taken without a meeting, without prior notice, and without a vote if a consent or consents in writing, setting forth the action so taken, is signed or approved (either in writing or by electronic transmission) by the Members holding the requisite Sharing Ratios that could have taken the action at a meeting of the Management Committee (including satisfying quorum requirements). Such consent shall have the same force and effect as a resolution or consent approved at such a meeting.

(h) Meetings by Telephone . Members may participate in and hold such meeting by means of conference telephone, videoconference or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute presence in person at such meeting, except where a Member participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

(i) Matters Requiring Management Committee Approval. Notwithstanding any other provision of this Agreement, none of the following actions may be taken by, or on behalf of, the Company without first obtaining the vote of the Management Committee described below:

(i) Unanimous Interest. The following actions shall require the approval of a Unanimous Interest:

(A) dissolution of the Company pursuant to Section 12.01(a);

(B) causing or permitting the Company to become Bankrupt (but this provision shall not be construed to require any Member to ensure the profitability or solvency of the Company);

(C) conducting any activity or business that may generate income for federal income tax purposes that may not be “qualifying income” (as such term is defined pursuant to Section 7704 of the Code); and

(D) the actions specified in Sections 6.02(d) and 13.05 or any other express provision of this Agreement requiring the approval of a Unanimous Interest.

(ii) Ultramajority Interest. The following actions shall require the approval of an Ultramajority Interest:

(A) the Disposition or abandonment of all or substantially all of the Company’s assets;

(B) causing or permitting the Company to merge, consolidate or convert into any other entity;

(C) providing for the basic geographic configuration, points of receipt and delivery, pipeline diameter or design capacity of the Initial Facilities to be materially different from that set forth in the form of the FERC Application for the Initial Facilities;

(D) amending or terminating the CO&M Agreement;

(E) entering into any Financing Commitment;

(F) causing any Encumbrance to be placed on the Facilities or any other material asset of the Company; and

(G) any other action that, pursuant to an express provision of this Agreement, requires the approval of an Ultramajority Interest.

(iii) Supermajority Interest. The following actions shall require the approval of a Supermajority Interest:

(A) calling for loans to the Company pursuant to Section 4.02 rather than Capital Contributions pursuant to Section 4.01;

(B) approving or amending the annual Capital Budget and Operating Budget for the Company (with it being understood that the last approved Capital Budget or Operating Budget shall be used, and deemed approved, for any subsequent period until the new Capital Budget or Operating Budget (as applicable) for that period is so approved), including the parameters within which the Operator and Officers are authorized to expend Company funds without further Management Committee approval;

(D) approving accounting procedures for the Company; and

(G) any other action that, pursuant to an express provision of this Agreement, requires the approval of a Supermajority Interest.

(iv) Majority Interest. A Majority Interest shall be required to approve (A) the amount of Available Cash with respect to each Quarter, (B) any action that pursuant to an express provision of this Agreement requires the approval of a Majority Interest, or (C) any other action that requires the approval of the Management Committee but does not expressly require the approval of a Unanimous Interest, an Ultramajority Interest, or a Supermajority Interest.

(j) Subcommittees. The Management Committee may create such subcommittees, and delegate to such subcommittees such authority and responsibility, and rescind any such delegations, as it may deem appropriate. Notwithstanding the foregoing, the Management Committee may not delegate to such subcommittees authority or responsibility for any matters for which approval of the Management Committee by a Unanimous Interest, an Ultramajority Interest or a Supermajority Interest is required hereunder.

(k) Officers. (i) The Members hereby appoint the following Persons as Officers of the Company to serve until they are removed from office by the Management Committee or until their resignations are accepted and their successors are appointed by the Management Committee:


Office		Name
Chairman		Frank J. Ferazzi
Treasurer		Richard D. Rodekohr
Assistant Treasurer		Jeffrey P. Heinrichs
Assistant Treasurer		Peter S. Burgess
Assistant Treasurer		Anthony W. Rackley
Secretary		Sarah C. Miller
Assistant Secretary		William H. Gault
Assistant Secretary		David A. Glenn

(ii) The Management Committee may designate other Persons to be Officers of the Company (with such titles as designated by the Management Committee). Subject to the other provisions of this Agreement, the above Officers and any Officers hereafter designated by the Management Committee shall have such authority and perform such duties as the Management Committee may delegate to them and shall serve at the pleasure of the Management Committee and report to the Management Committee.

(iii) Any person dealing with the Company shall be entitled to rely on a certificate of the Secretary or any Assistant Secretary as conclusive evidence of the incumbency of any Officer and his or her authority to take action on behalf of the Company and shall be entitled to rely on a copy of any resolution or other action taken by the Committee and certified by any Officer not named in the resolution, as conclusive evidence of such action of the authority of the Officer referred to in such resolution to bind the Company to the extent set forth therein.

(iv) The foregoing appointments replace the Officer designations under the LLC Agreement and such Officers designated under the LLC Agreement are hereby removed effective as of the Effective Date. The Members hereby confirm that any and all actions heretofore taken by such Officers within the terms of the LLC Agreement are hereby approved, ratified and confirmed as the acts and deeds of the Company.

6.03 Construction, Operation and Management Agreement

(a) Subject to approval by an Ultramajority Interest of the Management Committee, the Company shall enter into a Construction, Operation, and Management Agreement with the Operator or another Affiliate of Williams (the “CO&M Agreement” ), which will set forth (a) the services to be provided by the Operator to the Company, (b) provisions for the payment to the Operator of its Reimbursable Costs and any other payments approved by the Management Committee, (c) the circumstances under which the CO&M Agreement may be terminated by the Company or by the Operator, (d) the audit rights of the Company with respect to the Operator, (e) the indemnification of the Operator by the Company, and (f) any other provisions that are consistent with the provisions of this Agreement and approved by an Ultramajority Interest of the Management Committee. It is anticipated that the CO&M Agreement contemplated by this Section 6.03(a) with the Operator will be executed concurrently with the execution of this Agreement. If at any time Williams Disposes of all of its Membership Interest, the Member with the largest Sharing Ratio shall have the right to appoint the Operator, and the Company and such successor Operator shall promptly negotiate in good faith a superseding CO&M Agreement.

(b) The CO&M Agreement entered into by the Company with the Operator shall not be amended nor shall the Company’s right to terminate the CO&M Agreement be exercised without first obtaining the consent of an Ultramajority Interest.

6.04 Conflicts of Interest . (a) Notwithstanding Section 6.04(b), the Members and their Affiliates shall be prohibited from competing with the Company in the following circumstances:

(i) Until the end of the Term, the Members and their Affiliates may only develop, construct, own, acquire and operate the Facilities through the Company or otherwise in accordance with this Agreement.

(ii) Until the end of the Term, the Members and their Affiliates may only develop, construct, own, acquire and operate Construction Capital Opportunities and Acquisition Capital Opportunities through the Company or otherwise in accordance with this Agreement.

The provisions of this Section 6.04(a) shall continue to bind a Withdrawn Member and its Affiliates until the third anniversary of such Withdrawal, but not thereafter. The Members agree that the provisions of this Section 6.04(a) are necessary (I) to further the purposes, business and activities of the Company, and (II) to protect confidential and proprietary information regarding the Company, to which the Members will have access pursuant to this Agreement. The Members agree that no adequate remedy at law exists for a breach or threatened breach of any of the provisions of this Section 6.04(a), the continuation of which unremedied will cause the Company and the other Members to suffer irreparable harm. Accordingly, the Members agree that the Company and the other Members shall be entitled, in addition to other remedies that may be available to them, to immediate injunctive relief from any breach of any of the provisions of this Section 6.04(a) and to specific performance of their rights hereunder, as well as to any other remedies available at law or in equity, pursuant to Section 11.04.

(b) Subject to Sections 6.04(a), 7.02 and 7.03, a Member or an Affiliate of a Member may engage in and possess interests in other business ventures of any and every type and description, independently or with others, including ones in competition with the Company, with no obligation to offer to the Company, any other Member or any Affiliate of another Member the right to participate therein. Subject to Sections 6.04(a), 7.02 and 7.03, the Company may transact business with any Member or Affiliate thereof, provided the terms of those transactions are approved by an Ultramajority Interest of the Management Committee or expressly contemplated by this Agreement or the CO&M Agreement. Without limiting the generality of the foregoing, the Members recognize and agree that their respective Affiliates currently engage in certain activities involving natural gas and electricity marketing and trading (including futures, options, swaps, exchanges of future positions for physical deliveries and commodity trading), production, gathering, processing, storage, transportation and distribution, electric generation, development and ownership, as well as other commercial activities related to natural gas and that these and other activities by Members’ Affiliates may be based on natural gas that is shipped through the Facilities or otherwise made possible or more profitable by reason of the Company’s activities (herein referred to as “Affiliate’s Outside Activities”) . Subject to Sections 6.04(a), 7.02 and 7.03, (i) no Affiliate of a Member shall be restricted in its right to conduct, individually or jointly with others, for its own account any Affiliate’s Outside Activities, and (ii) no Member or its Affiliates shall have any duty or obligation,

express or implied, fiduciary or otherwise, to account to, or to share the results or profits of such Affiliate’s Outside Activities with, the Company, any other Member or any Affiliate of any other Member, by reason of such Affiliate’s Outside Activities. The provisions of this Section 6.04(b) constitute an agreement to modify or eliminate certain fiduciary duties pursuant to the provisions of Section 18-1101 of the Act.

(c) Notwithstanding any other provision in this Agreement, if the Company and a Member or an Affiliate thereof propose to enter into or amend a contract or arrangement with each other (a “ Contract Decision ”), or if a dispute arises between the Company and an Affiliate of a Member under a Gas Transportation Service Agreement or any other contract or arrangement, any such Contract Decision that is not resolved by discussion among the Management Committee shall be resolved in accordance with Article 11, unless such Contract Dispute is within the primary jurisdiction of the FERC.

6.05 Indemnification for Breach of Agreement . Each Member shall indemnify, protect, defend, release and hold harmless each other Member, its Representative, its Affiliates, and its and their respective directors, officers, trustees, employees and agents from and against any Claims asserted by or on behalf of any Person (including another Member) that result from a breach by the indemnifying Member of this Agreement; provided, however, that this Section 6.05 shall not (a) apply to any Claim or other matter for which a Member (or its Representative) has no liability or duty, or is indemnified or released, pursuant to Section 6.02(a)(iii), 6.02(f)(ii) or 6.04 or pursuant to the terms of the CO&M Agreement or (b) hold the indemnified Person harmless from special, punitive, indirect, consequential or exemplary damages if the indemnified Person is legally obligated to pay such damages to another Person.

6.06 Insurance Coverage . The Operator shall be instructed to acquire and maintain insurance for the Company and the Facilities as set forth in the CO&M Agreement. Any premiums or other amounts due in connection with such insurance shall either be reimbursed to the Operator by the Company in accordance with the CO&M Agreement or funded directly by the Company.

ARTICLE 7

DEVELOPMENT OF FACILITIES

7.01 Development of Initial Facilities .

(a) Approval of Initial Facilities and Precedent Agreements. The Members hereby approve the development of the Initial Facilities, including the acquisition of Necessary Regulatory Approvals for the Initial Facilities and the construction, ownership, operation and maintenance of the Initial Facilities, provided that such approval is subject to Section 7.01(b). Further, the Members hereby approve the Precedent Agreements listed in Exhibit C.

(b) Acceptance of FERC Certificate for Initial Facilities . No later than 10 Days prior to the FERC Response Date, the Management Committee shall vote on whether the FERC Certificate for the Initial Facilities is substantially in form and substance as requested by the Company and, if not, whether such FERC Certificate has a material adverse effect on the rights or obligations of the

Company. If the Management Committee by a vote of a Majority Interest finds that the FERC Certificate for the Initial Facilities is substantially in form and substance as requested by the Company or, if not substantially in form and substance as requested, that such FERC Certificate does not have a material adverse effect on the rights or obligations of the Company, then the Company shall (1) accept the FERC Certificate for the Initial Facilities prior to the FERC Response Date without seeking rehearing, or (2) accept such FERC Certificate prior to the FERC Response Date and seek rehearing of any aspects of the order issuing the FERC Certificate that are not substantially in form and substance as requested by the Company. In such event, unless (and until) the Cabot Precedent Agreement is terminated (in accordance with the terms thereof) prior to commencement of construction of the mainline portion of the Initial Facilities, each Member, without limiting such Member’s rights otherwise set forth in this Agreement, shall be firmly committed to the construction of the Initial Facilities and the construction of the Initial Facilities shall not be subject to any conditions precedent, including Management Committee approval of any financial commitment for obtaining funds to finance the Initial Facilities or a Management Committee Approval to construct the Initial Facilities.

(i) If the Management Committee by a vote of a Majority Interest finds that the FERC Certificate for the Initial Facilities is not substantially in form and substance as requested by the Company and has a material adverse effect on the rights or obligations of the Company, and all the Members nevertheless vote to accept the order issuing the FERC Certificate with or without seeking rehearing, then the Company shall accept the FERC Certificate prior to the FERC Response Date and in such event, unless (and until) the Cabot Precedent Agreement is terminated (in accordance with the terms thereof) prior to commencement of construction of the mainline portion of the Initial Facilities, each Member, without limiting such Member’s rights otherwise set forth in this Agreement, shall be firmly committed to the construction of the Initial Facilities and the construction of the Initial Facilities shall not be subject to any conditions precedent as provided in Section 7.01(b).

(ii) If the Management Committee by a vote of a Majority Interest finds that the FERC Certificate for the Initial Facilities is not substantially in form and substance as requested by the Company and has a material adverse effect on the rights or obligations of the Company and one or more of the Members vote to reject the order issuing the FERC Certificate for the Initial Facilities, then, unless otherwise agreed to by all of the Members, such vote shall be a Dissolution Event and the Company shall dissolve and its affairs shall be wound up pursuant to Article 12.

7.02 Construction Capital Opportunities. The following provisions shall constitute the exclusive procedure by which Construction Capital Opportunities may be approved and constructed by the Company, a Member or an Affiliate of a Member.

(a) Proposal. Any one or more Members that become aware of a Construction Capital Opportunity may submit it to the Company by notifying in writing the other Members of the nature of the proposed Construction Capital Opportunity, including such details as are then available, and providing a detailed explanation of the reasons why such Construction Capital Opportunity is being requested.

(b) Feasibility Study. As soon as reasonably practicable and in no event later than 60 Days after the giving of the notice described in Section 7.02(a), the Management Committee shall vote on whether to authorize a feasibility study for the Construction Capital Opportunity. Upon a Capital Opportunity Vote to authorize such a study, which vote shall include approval of the Capital Contributions necessary to fund the study, the Company shall instruct the Operator to prepare and deliver to each Member the findings of such feasibility study, which shall include a detailed description of the Construction Capital Opportunity and the Estimated Cost thereof, appropriate rate information and the proposed financing therefor.

(c) Development Vote. Within 60 Days after the study described in Section 7.02(b) has been received by each Member, the Management Committee shall vote on whether to proceed with the development of the proposed Construction Capital Opportunity as set forth in such study and establish a capital budget to fund such development. Upon an affirmative Capital Opportunity Vote (“ Affirmative Construction Vote ”) to proceed with the development of the proposed Construction Capital Opportunity and to approve a capital budget to fund such development (“ Approved Project ”), the Company shall proceed with such development, including the acquisition of Necessary Regulatory Approvals and the Financing Commitment, if any. Further decisions regarding the development of the Approved Project (including acceptance of the Necessary Regulatory Approvals and any Financing Commitment therefor and construction thereof) shall be made by approval of a Majority Interest. In the event that the proposed Construction Capital Opportunity is not approved by the Management Committee, none of the Members may directly or indirectly participate in such Construction Capital Opportunity outside of the Company for its own account.

(d) Dilution . If one or more Members that voted in the negative in connection with an Approved Project pursuant to Section 7.02(c) elect in writing within 10 Days after such vote to be diluted, then (i) any such electing Member shall not be considered to be a Breaching Member or to be in Default and shall not be required to make any Capital Contribution to the Company pursuant to Section 4.01 in connection with the construction of the Approved Project in question, and (ii) each such electing Member’s Sharing Ratio shall, upon the contribution by the other Members of the Capital Contribution required in connection with the construction of the Approved Project in question, be reduced by multiplying it by a fraction, (A) the numerator of which is the aggregate positive balances in the Members’ Capital Accounts, with such balances being determined immediately following their adjustment pursuant to the third and fourth sentences of Section 4.05(a), and (B) the denominator of which is the sum of (I) such numerator and (II) the total of all Capital Contributions that the Management Committee then estimates will be required of all Members in connection with the Approved Project in question, based upon the Estimated Cost of such Approved Project, and shall be subject to further adjustment based on all other factors deemed relevant by the Management Committee, including the timing of and proportionate increase in distributions to be made available to the Members as a result of the Approved Project (with the Sharing Ratios of the other Members being proportionately increased). As soon as the actual amount of such Capital Contributions has been determined by the Management Committee, such Member’s Sharing Ratio shall be readjusted, using the method described in Section 7.02(d)(ii), but using such actual amount of such Capital Contributions instead of such estimate.

7.03 Acquisition Capital Opportunities. The following provisions shall constitute the exclusive procedure by which Acquisition Capital Opportunities may be approved and acquired by the Company, a Member or an Affiliate of a Member.

(a) Proposal. Any one or more Members that become aware of an Acquisition Capital Opportunity may submit it to the Company by notifying in writing the other Members of the nature of the proposed Acquisition Capital Opportunity, including such details as are then available, and providing a detailed explanation of the reasons why such Acquisition Capital Opportunity is being requested, together with the Estimated Cost of the Acquisition Capital Opportunity.

(b) Negotiation Vote. As soon as reasonably practicable and in no event later than 20 Days after the giving of the notice described in Section 7.03(a), the Management Committee shall vote on whether to authorize a negotiating team specified by the Management Committee to negotiate with the proposed seller a form of purchase and sale agreement, based upon such instructions as the Management Committee shall set forth.

(c) Acquisition Vote. If the negotiating team is able to negotiate a form of purchase and sale agreement that is acceptable to the seller, the Management Committee shall vote on whether the Company shall enter into such purchase and sale agreement and establish a capital budget to fund such acquisition. Upon a Capital Opportunity Vote to enter into such purchase and sale agreement and to approve a capital budget to fund such acquisition (“ Affirmative Acquisition Vote ”), such agreement shall be executed by the Company, and the terms thereof shall govern the rights and obligations of the Company; provided, however, that if such purchase and sale agreement is terminated without a closing occurring thereunder, it shall be deemed for the purposes of the other provisions of this Agreement that no Affirmative Acquisition Vote occurred. In the event that the proposed Acquisition Capital Opportunity is not approved by the Management Committee, none of the Members may directly or indirectly participate in such Acquisition Capital Opportunity outside of the Company for its own account.

(d) Other Details. All details related to the Acquisition Capital Opportunity that are not set forth in this Section 7.03 (including whether any Financing Commitment (and the terms thereof) is to be entered into in connection therewith) shall be determined by the Management Committee.

(e) Dilution . If (i) an Affirmative Acquisition Vote pursuant to Section 7.03(c) is not unanimous, and (ii) one or more Members that voted in the negative in connection with said Affirmative Acquisition Vote pursuant to Section 7.03(c), elect in writing within 10 Days after such vote to be diluted, then (A) any such electing Member shall not be considered to be a Breaching Member or to be in Default and shall not be required to make any Capital Contribution to the Company pursuant to Section 4.02 in connection with the acquisition of the Acquisition Capital Opportunity in question, and (B) each such electing Member’s Sharing Ratio shall, upon the contribution by the other Members of the Capital Contribution required in connection with the acquisition of the Acquisition Capital Opportunity in question, be reduced by multiplying it by a fraction, (I) the numerator of which is the aggregate positive balances in the Members’ Capital Accounts, with such balances being determined immediately following their adjustment pursuant to the third and fourth sentences of Section 4.05(a), and (II) the denominator of which is the sum of (aa) such numerator and (bb) the total of all Capital Contributions that the Management Committee then estimates will be required of all Members in connection with the Acquisition Capital Opportunity in question, based upon the Estimated Cost of such Acquisition Capital Opportunity and all other factors deemed relevant by the Management Committee, including the timing of and

proportionate increase in distributions to be made available to the Members as a result of such Acquisition Capital Opportunity (with the Sharing Ratios of the other Members being proportionately increased). As soon as the actual amount of such Capital Contributions has been determined by the Management Committee, such Member’s Sharing Ratio shall be readjusted, using the method described in Section 7.03(e)(B), but using such actual amount of such Capital Contributions instead of such estimate.

7.04 General Regulatory Matters.

(a) The Members acknowledge that the Company will be a “natural gas company” as defined in Section 2(6) of the NGA.

(b) Each Member shall (i) cooperate fully with the Company, the Management Committee and the Operator in securing the Necessary Regulatory Approvals, including supporting all FERC Applications, and in connection with any reports prescribed by the FERC and any other Governmental Authority having jurisdiction over the Company; (ii) join in any eminent domain takings by the Company, to the extent, if any, required by Law; and (iii) devote such efforts as shall be reasonable and necessary to develop and promote the Facilities for the benefit of the Company, taking into account such Member’s Sharing Ratio, resources and expertise.

ARTICLE 8

TAXES

8.01 Tax Returns . The Operator shall be instructed to prepare and timely file (on behalf of the Company) all federal, state and local tax returns required to be filed by the Company. Each Member shall furnish to the Operator all pertinent information in its possession relating to the Company’s operations that is necessary to enable the Company’s tax returns to be timely prepared and filed. The Company shall bear the costs of the preparation and filing of its returns.

8.02 Tax Elections . The Company shall make the following elections on the appropriate tax returns:

(a) to adopt as the Company’s fiscal year the calendar year;

(b) to adopt the accrual method of accounting;

(c) if a distribution of the Company’s property as described in Code Section 734 occurs or upon a transfer of Membership Interest as described in Code Section 743 occurs, on request by notice from any Member, to elect, pursuant to Code Section 754, to adjust the basis of the Company’s properties;

(d) to elect to amortize the organizational expenses of the Company ratably as permitted by Section 709(b) of the Code; and

(e) any other election the Management Committee may deem appropriate by an Ultramajority Interest.

Neither the Company nor any Member shall make an election for the Company to be excluded from the application of the provisions of subchapter K of chapter 1 of subtitle A of the Code or any similar provisions of applicable state Law and no provision of this Agreement shall be construed to sanction or approve such an election.

8.03 Tax Matters Member . (a) Williams shall serve as the “tax matters partner” of the Company pursuant to Section 6231(a)(7) of the Code (the “Tax Matters Member” ). The Tax Matters Member shall take such action as may be necessary to cause to the extent possible each other Member to become a “notice partner” within the meaning of Section 6223 of the Code. The Tax Matters Member shall inform each other Member of all significant matters that may come to its attention in its capacity as Tax Matters Member by giving notice thereof on or before the fifth Business Day after becoming aware thereof and, within that time, shall forward to each other Member copies of all significant written communications it may receive in that capacity.

(b) The Tax Matters Member shall provide any Member, upon request, access to accounting and tax information and schedules as shall be necessary for the preparation by such Member of its income tax returns and such Member’s tax information reporting requirements.

(c) The Tax Matters Member shall take no action without the authorization of an Ultramajority Interest of the Management Committee, other than such action as may be required by Law. Any cost or expense incurred by the Tax Matters Member in connection with its duties, including the preparation for or pursuance of administrative or judicial proceedings, shall be paid by the Company.

(d) The Tax Matters Member shall not enter into any extension of the period of limitations for making assessments on behalf of the Members without first obtaining the consent of the affected Members. The Tax Matters Member shall not bind any Member to a settlement agreement without obtaining the consent of such Member. Any Member that enters into a settlement agreement with respect to any Company item (as described in Code Section 6231(a)(3)) shall notify the other Members of such settlement agreement and its terms within 90 Days from the date of the settlement.

(e) No Member shall file a request pursuant to Code Section 6227 for an administrative adjustment of Company items for any taxable year without first notifying the other Members. If the Management Committee consents to the requested adjustment, the Tax Matters Member shall file the request for the administrative adjustment on behalf of the Members. If such consent is not obtained within 30 Days from such notice, or within the period required to timely file the request for administrative adjustment, if shorter, any Member, including the Tax Matters Member, may file a request for administrative adjustment on its own behalf. Any Member intending to file a petition under Code Sections 6226, 6228 or other Code Section with respect to any item involving the Company shall notify the other Members of such intention and the nature of the contemplated proceeding. In the case where the Tax Matters Member is the Member intending to file such petition on behalf of the Company, such notice shall be given within a reasonable period of time to allow the other Members to participate in the choosing of the forum in which such petition will be filed.

(f) If any Member intends to file a notice of inconsistent treatment under Code Section 6222(b), such Member shall give reasonable notice under the circumstances to the other Members of such intent and the manner in which the Member’s intended treatment of an item is (or may be) inconsistent with the treatment of that item by the other Members.

ARTICLE 9

BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS

9.01 Maintenance of Books . (a) The Company shall instruct the Operator to keep or cause to be kept at the principal office of the Company or at such other location approved by the Management Committee complete and accurate books and records of the Company, including all books and records necessary to provide to the Members any information required to be provided pursuant to Section 9.02, supporting documentation of the transactions with respect to the conduct of the Company’s business and minutes of the proceedings of its Members and the Management Committee, and any other books and records that are required to be maintained by applicable Law.

(b) The books of account of the Company shall be (i) maintained on the basis of a fiscal year that is the calendar year, (ii) maintained on an accrual basis in accordance with Required Accounting Practices, and (iii) unless an Ultramajority Interest of the Management Committee decides otherwise, audited by the Certified Public Accountants following the end of each calendar year.

9.02 Reports . (a) With respect to each calendar year, the Operator shall be instructed to prepare and deliver to each Member:

(i) Within 90 Days after the end of such calendar year, a statement of income and a statement of cash flows for such year, a balance sheet and a statement of each Member’s Capital Account as of the end of such year, and an audited report thereon of the Certified Public Accountants; provided, however, upon the written request of one or more Members at least 60 Days prior to the applicable calendar year end, which request shall be a standing request effective for subsequent calendar years unless and until revoked by the requesting Member, the Operator shall prepare and deliver to the requesting Member(s) within 45 Days after the end of each such calendar year the foregoing information except for the audited report, which the Operator shall prepare and deliver to the requesting Member(s) within 50 Days after the end of each such calendar year.

(ii) Within 75 Days after the end of such calendar year, such federal, state and local income tax returns and such other accounting and tax information and schedules as shall be necessary for tax reporting purposes by each Member with respect to such year; provided, however, upon the written request of one or more Members at least 60 Days prior to the applicable calendar year end, which request shall be a standing request effective for subsequent calendar years unless and until revoked by the requesting Member, the Operator shall prepare and deliver to the requesting Member(s) the foregoing returns, information and schedules within 30 Days after the end of each such calendar year.

(b) Upon the written request of one or more Members at least 60 Days prior to the applicable calendar year end, which request shall be a standing request effective for subsequent calendar years unless and until revoked by the requesting Member, the Company shall instruct the Operator to prepare and deliver to the requesting Member(s) the following information within 45 Days after the end of such calendar year:

(i) A discussion and analysis of the results of operations including detailed explanations of significant variances in revenues and expenses appearing in the audited financial statements, as compared to the same periods in the prior calendar year;

(ii) A schedule of amounts due by year for contractual obligations that will impact Available Cash including, but not limited to, notes payable, capital leases, operating leases, and purchase obligations; and

(iii) A three-year forward-looking forecast that includes a balance sheet, profit and loss statement, and a statement of cash flows. Such forecast shall include information pertaining to the underlying assumptions used in its preparation including volumetric, revenue per-unit and capital expenditure assumptions. Such forecast also shall be updated within 45 Days after execution by the Company of a material Gas Transportation Service Agreement if the timing and amount of revenues or expenses resulting from such agreement are materially different than estimates included in the forward-looking forecast.

The reasonable cost to the Operator of preparing the above reports shall be reimbursed to the Operator by the Member requesting such reports and, in the case of two or more Members requesting such reports, equally by such Members. Such cost shall be determined in accordance with the accounting procedure set forth in the CO&M Agreement.

(c) Within 25 Days after the end of each Quarter (or as otherwise required by the Management Committee), the Company shall cause the Operator to prepare and deliver to each Member:

(i) A statement of income for such Quarter (including sufficient information to permit the Members to calculate their tax accruals) and for the portion of the calendar year then ended as compared with the same periods for the prior calendar year and with the budgeted results for the current periods; and

(ii) A balance sheet and a statement of each Member’s Capital Account as of the end of such Quarter and the portion of the calendar year then ended.

In addition, as soon as reasonably practicable following the end of each calendar month, the Company shall cause the Operator to prepare and deliver to each Member an email notification of the Company’s income before income taxes for such month and year-to-date.

(d) Upon the written request of one or more Members at least 60 Days prior to the applicable calendar quarter end, which request shall be a standing request effective for subsequent calendar quarters unless and until revoked by the requesting Member, within 45 Days after the end of each of the first three calendar quarters of each year, the Company shall cause the Operator to prepare and deliver to each Member (i) a statement of income for such quarter and year-to-date, a

statement of cash flows and a statement of each Member’s Capital Account for the year-to-date period, and a balance sheet as of the end of such quarter, and (ii) a discussion and analysis of the results of operations including detailed explanations of significant variances in revenues and expenses appearing in the financial statements, as compared to the same periods in the prior calendar year.

(e) In addition to its obligations under subsections (a), (b), (c) and (d) of this Section 9.02, the Company shall cause the Operator to prepare and deliver timely to any Member, upon request, all of such additional financial statements, notes thereto and additional financial information as may be required in order for each Member or an Affiliate of such Member to comply with any reporting requirements under (i) the Securities Act and the rules and regulations promulgated thereunder, (ii) the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and (iii) any national securities exchange or automated quotation system. The reasonable incremental cost to the Operator of preparing and delivering such additional financial statements, notes thereto and additional financial information, including any required incremental audit fees and expenses, shall be reimbursed to the Operator by the Member requesting such reports and, in the case of two or more Members requesting such additional information, equally by such Members. Such cost shall be determined in accordance with the accounting procedure set forth in the CO&M Agreement.

(f) The Company shall also cause the Operator to prepare and deliver to each Member such other reports, forecasts, studies, budgets and other information as the Management Committee may request from time to time. The Operator shall deliver to each Member a copy of the annual budget for a calendar year no later than 30 days after the beginning of such calendar year.

(g) For purposes of clarification and not limitation, any audit or examination by a Member pursuant to the CO&M Agreement may, at the option of such Member, include audit or examination of the books, records and other support for the costs incurred pursuant to subsections (b) and (e) of this Section 9.02.

9.03 Bank Accounts . Funds of the Company shall be deposited in such banks or other depositories as shall be designated from time to time by the Management Committee or by the Operator. The Chairman, Treasurer and any Assistant Treasurer of the Company and the duly authorized officers of the Operator shall have the authority by a letter signed by any of them to open bank accounts on behalf of the Company with any banks and to name the person or persons, or combination of persons, authorized to sign checks and withdrawal documents drawn against such accounts, and to sign agreements and other documents providing for the transfer of funds by computers or similar electronic means or otherwise, the same as though the contents of such letter were incorporated in a formal resolution duly passed at a duly conducted meeting of the Management Committee. The Secretary or any Assistant Secretary of the Company, and the secretary and any assistant secretary of the Operator are hereby authorized to certify any such letter as may be required by any such bank at any time to evidence authority for the deposit and withdrawal of funds and the borrowing of money or otherwise.

ARTICLE 10

WITHDRAWAL

10.01 No Right of Withdrawal . A Member has no power or right to voluntarily Withdraw from the Company.

10.02 Deemed Withdrawal . A Member is deemed to have Withdrawn from the Company upon the occurrence of any of the following events:

(a) there occurs an event that makes it unlawful for the Member to continue to be a Member;

(b) the Member becomes Bankrupt;

(d) the Member commits a Default.

10.03 Effect of Withdrawal . A Member that is deemed to have Withdrawn pursuant to Section 10.02 (a “Withdrawn Member” ), must comply with the following requirements in connection with its Withdrawal:

(a) The Withdrawn Member ceases to be a Member immediately upon the occurrence of the applicable Withdrawal event.

(b) The Withdrawn Member shall not be entitled to receive any distributions from the Company except as set forth in Section 10.03(e), and neither such Withdrawn Member nor its Representative shall be entitled to exercise any voting or consent rights, or to appoint any Representative or Alternative Representative to the Management Committee (and the Representative (and the Alternative Representative) appointed by such Member shall be deemed to have resigned) or to receive any further information (or access to information) from the Company. The Sharing Ratio of such Member shall not be taken into account in calculating the Sharing Ratios of the Members for any purposes. This Section 10.03(b) shall also apply to a Breaching Member; but if a Breaching Member cures its breach during the applicable cure period, then any distributions that were withheld from such Member shall be paid to it, without interest.

(d) The Withdrawn Member shall remain obligated for all liabilities it may have under this Agreement or otherwise with respect to the Company or other Members that accrue prior to the Withdrawal.

(e) In the event of a deemed Withdrawal under Section 10.02(a), the Withdrawn Member shall be entitled to receive a portion of each distribution that is made by the Company from and after the In-Service Date, equal to the product of the Withdrawn Member’s Sharing Ratio as of the date of its Withdrawal times the aggregate amount of such distribution; provided, however, that the

Withdrawn Member’s rights under this Section 10.03(e) shall automatically terminate at such time as the Withdrawn Member has received an aggregate amount under this Section 10.03(e) equal to the sum of (i) the positive balance in the Withdrawn Member’s Capital Account, determined as of the date of the Withdrawal after adjustment pursuant to the third and fourth sentences of Section 4.05(a), plus (ii) any Indebtedness of the Company owed to such Member at the time of the Withdrawal. From the date of the Withdrawal to the date of such payment, the former Capital Account balance of the Withdrawn Member shall be recorded as a contingent obligation of the Company, and not as a Capital Account, until such payment is made. The rights of a Withdrawn Member under this Section 10.03(e) shall: (A) be subordinate to the rights of any other creditor of the Company; (B) not include any right on the part of the Withdrawn Member to receive any interest (except as may otherwise be provided in the evidence of any Indebtedness of the Company owed to such Withdrawn Member) or other amounts with respect thereto; (C) not require the Company to make any distribution (the Withdrawing Member’s rights under this Section 10.03(e) being limiting to receiving a portion of such distributions as an Ultramajority Interest of the Management Committee may, in its Sole Discretion, decide to cause the Company to make); (D) not require any Member to make a Capital Contribution or a loan to permit the Company to make a distribution or otherwise to pay the Withdrawing Member; and (E) be treated as a liability of the Company for purposes of Section 12.02. Except as set forth in this Section 10.03(e), a Withdrawn Member shall not be entitled to receive any return of its Capital Contributions or other payment from the Company in respect of its Membership Interest.

(f) The Sharing Ratio of the Withdrawn Member shall be allocated among the remaining Members in the proportion that each Member’s Sharing Ratio bears to the total Sharing Ratio of all remaining Members, or in such other proportion as the Members may unanimously agree.

ARTICLE 11

DISPUTE RESOLUTION

11.01 Disputes . This Article 11 shall apply to any dispute arising under or related to this Agreement (including whether arising in contract, tort or otherwise, and whether arising at law or in equity), including (a) any dispute regarding the construction, interpretation, performance, validity or enforceability of any provision of this Agreement or whether any Person is in compliance with, or breach of, any provisions of this Agreement, and (b) the applicability of this Article 11 to a particular dispute. Notwithstanding the foregoing, this Article 11 shall not apply to any matters that, pursuant to the provisions of this Agreement, are to be resolved by a vote of the Members (including through the Management Committee); provided, however, that (i) any matter that is expressly stated herein to be determinable by arbitration may be so determined pursuant to this Article 11, and (ii) if a vote, approval, consent, determination or other decision must, under the terms of this Agreement, be made (or withheld) in accordance with a standard other than Sole Discretion (such as a reasonableness standard), then the issue of whether such standard has been satisfied may be a dispute to which this Article 11 applies. Any dispute to which this Article 11 applies is referred to herein as a “Dispute.” With respect to a particular Dispute, each Member that is a party to such Dispute is referred to herein as a “Disputing Member.” The provisions of this Article 11 shall be the exclusive method of resolving Disputes.

11.02 Negotiation to Resolve Disputes . If a Dispute arises, the Disputing Members shall attempt to resolve such Dispute through the following procedure:

(a) first, the Representative of each of the Disputing Members shall promptly meet (whether by phone or in person) in a good faith attempt to resolve the Dispute;

(b) second, if the Dispute is still unresolved after 20 Days following the commencement of the negotiations described in Section 11.02(a), then the chief executive officer (or his designee) of the Parent of each Disputing Member shall meet (whether by phone or in person) in a good faith attempt to resolve the Dispute; and

(c) third, if the Dispute is still unresolved after 10 Days following the commencement of the negotiations described in Section 11.02(b), then any Disputing Member may submit such Dispute to binding arbitration under this Article 11 by notifying the other Disputing Members (an “Arbitration Notice” ).

11.03 Selection of Arbitrator . (a) Any arbitration conducted under this Article 11 shall be heard by a sole arbitrator (the “Arbitrator” ) selected in accordance with this Section 11.03. Each Disputing Member and each proposed Arbitrator shall disclose to the other Disputing Members any business, personal or other relationship or Affiliation that may exist between such Disputing Member and such proposed Arbitrator, and any Disputing Member may disapprove of such proposed Arbitrator on the basis of such relationship or Affiliation.

(b) The Disputing Member that submits a Dispute to arbitration shall designate a proposed Arbitrator in its Arbitration Notice. If any other Disputing Member objects to such proposed Arbitrator, it may, on or before the tenth Day following delivery of the Arbitration Notice, notify all of the other Disputing Members of such objection. All of the Disputing Members shall attempt to agree upon a mutually-acceptable Arbitrator. If they are unable to do so within 20 Days following delivery of the notice described in the immediately-preceding sentence, any Disputing Member may request the American Arbitration Association (or, if such Association has ceased to exist, the principal successor thereto) (the “AAA” ) to designate the Arbitrator. If the Arbitrator so chosen shall die, resign or otherwise fail or becomes unable to serve as Arbitrator, a replacement Arbitrator shall be chosen in accordance with this Section 11.03.

11.04 Conduct of Arbitration . The Arbitrator shall expeditiously (and, if possible, within 90 Days after the Arbitrator’s selection) hear and decide all matters concerning the Dispute. Any arbitration hearing shall be held in the City of Houston, Texas. The arbitration shall be conducted in accordance with the then-current Commercial Arbitration Rules of the AAA (excluding rules governing the payment of arbitration, administrative or other fees or expenses to the Arbitrator or the AAA), to the extent that such Rules do not conflict with the terms of this Agreement. Except as expressly provided to the contrary in this Agreement, the Arbitrator shall have the power (a) to gather such materials, information, testimony and evidence as it deems relevant to the dispute before it (and each Member will provide such materials, information, testimony and evidence requested by the Arbitrator, except to the extent any information so requested is proprietary, subject to a third-party confidentiality restriction or to an attorney-client or other privilege) and (b) to grant injunctive relief and enforce specific performance.

If it deems necessary, the Arbitrator may propose to the Disputing Members that one or more other experts be retained to assist it in resolving the Dispute. The retention of such other experts shall require the unanimous consent of the Disputing Members, which shall not be unreasonably withheld. Each Disputing Member, the Arbitrator and any proposed expert shall disclose to the other Disputing Members any business, personal or other relationship or Affiliation that may exist between such Disputing Member (or the Arbitrator) and such proposed expert; and any Disputing Member may disapprove of such proposed expert on the basis of such relationship or Affiliation. The decision of the Arbitrator (which shall be rendered in writing) shall be final, non-appealable and binding upon the Disputing Members and may be enforced in any court of competent jurisdiction; provided that the Members agree that the Arbitrator and any court enforcing the award of the Arbitrator shall not have the right or authority to award incidental, indirect, punitive, special, consequential or exemplary damages to any Disputing Member. The responsibility for paying the costs and expenses of the arbitration, including compensation to the Arbitrator and any experts retained by the Arbitrator, shall be allocated on an equal basis among the Disputing Members. Each Disputing Member shall be responsible for the fees and expenses of its respective counsel, consultants and witnesses.

ARTICLE 12

DISSOLUTION, WINDING-UP AND TERMINATION

12.01 Dissolution . The Company shall dissolve and its affairs shall be wound up on the first to occur of the following events (each a “Dissolution Event” ):

(a) the unanimous written consent of the Management Committee to dissolve the Company;

(b) entry of a decree of judicial dissolution of the Company under Section 18-802 of the Act;

(d) a Dissolution Event described in Section 7.01(b)(ii); or

(e) an event that makes it unlawful for the business of the Company to be carried on.

12.02 Winding-Up and Termination . (a) On the occurrence of a Dissolution Event, the Management Committee shall designate a Member or other Person to serve as liquidator. The liquidator shall proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Act. The costs of winding-up shall be borne as a Company expense. Until final distribution, the liquidator shall continue to operate the Company properties with all of the power and authority of the Members. The steps to be accomplished by the liquidator are as follows:

(i) as promptly as possible after dissolution and again after final winding-up, the liquidator shall cause a proper accounting to be made by a recognized firm of certified public accountants of the Company’s assets, liabilities, and operations through the last calendar day of the month in which the dissolution occurs or the final winding-up is completed, as applicable;

(ii) the liquidator shall discharge from Company funds all of the Indebtedness of the Company and other debts, liabilities and obligations of the Company (including all expenses incurred in winding-up and any loans described in Section 4.02) or otherwise make adequate provision for payment and discharge thereof (including the establishment of a cash escrow fund or reserve for contingent liabilities in such amount and for such term as the liquidator may reasonably determine); and

(iii) all remaining assets of the Company shall be distributed to the Members as follows:

(A) the liquidator may sell any or all Company property, including to Members, and any resulting gain or loss from each sale shall be computed and allocated to the Capital Accounts of the Members in accordance with the provisions of Article 5;

(B) with respect to all Company property that has not been sold, the fair market value of that property shall be determined and the Capital Accounts of the Members shall be adjusted to reflect the manner in which the unrealized income, gain, loss, and deduction inherent in property that has not been reflected in the Capital Accounts previously would be allocated among the Members if there were a taxable disposition of that property for the fair market value of that property on the date of distribution; and

(C) Company property (including cash) shall be distributed among the Members in accordance with Section 5.02; and those distributions shall be made by the end of the taxable year of the Company during which the liquidation of the Company occurs (or, if later, 90 Days after the date of the liquidation).

(b) The distribution of cash or property to a Member in accordance with the provisions of this Section 12.02 constitutes a complete return to the Member of its Capital Contributions and a complete distribution to the Member of its Membership Interest and all the Company’s property and constitutes a compromise to which all Members have consented pursuant to Section 18-502(b) of the Act. To the extent that a Member returns funds to the Company, it has no claim against any other Member for those funds.

(c) No dissolution or termination of the Company shall relieve a Member from any obligation to the extent such obligation has accrued as of the date of such dissolution or termination. Upon such termination, any books and records of the Company that there is a reasonable basis for believing will ever be needed again shall be furnished to the Operator, who shall keep such books and records (subject to review by any Person that was a Member at the time of dissolution) for a period of at least three years. At such time as the Operator no longer agrees to keep such books and records, it shall offer the Persons who were Members at the time of dissolution the opportunity to take over such custody, shall deliver such books and records to such Persons if they elect to take over such custody and may destroy such books and records if they do not so elect. Any such custody by such Persons shall be on such terms as they may agree upon among themselves.

12.03 Deficit Capital Accounts . No Member will be required to pay to the Company, to any other Member or to any third party any deficit balance that may exist from time to time in such Member’s Capital Account or in any other Member’s Capital Account.

12.04 Certificate of Cancellation . On completion of the distribution of Company assets as provided herein, the Members (or such other Person or Persons as the Act may require or permit) shall file a certificate of cancellation with the Secretary of State of Delaware, cancel any other filings made pursuant to Section 2.05, and take such other actions as may be necessary to terminate the existence of the Company. Upon the filing of such certificate of cancellation, the existence of the Company shall terminate (and the Term shall end), except as may be otherwise provided by the Act or other applicable Law.

ARTICLE 13

GENERAL PROVISIONS

13.01 Offset . Whenever the Company is to pay any sum to any Member, any amounts owed to the Company by such Member or its Affiliate that are not being disputed in good faith by such Member or its Affiliate may be deducted from that sum before payment.

13.02 Notices . Except as expressly set forth to the contrary in this Agreement, all notices, requests or consents provided for or permitted to be given under this Agreement must be in writing and must be delivered to the recipient in person, by courier or mail or by facsimile or other electronic transmission. A notice, request or consent given under this Agreement is effective on receipt by the Member to receive it; provided, however, that a facsimile or other electronic transmission that is transmitted after the normal business hours of the recipient shall be deemed effective on the next Business Day. All notices, requests and consents to be sent to a Member must be sent to or made at the addresses given for that Member in Exhibit A or in the instrument described in Section 3.03(b)(iv)(A)(II) or 3.04, or such other address as that Member may specify by written notice to the other Members. Any notice, request or consent to the Company must be given to all of the Members. Whenever any notice is required to be given by Law, the Delaware Certificate or this Agreement, a written waiver thereof, signed by the Person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

13.03 Entire Agreement; Superseding Effect . With the exception of the Cabot Precedent Agreement and the CO&M Agreement, this Agreement constitutes the entire agreement of the Members and their Affiliates relating to the Company and the transactions contemplated hereby and supersedes all provisions and concepts contained in the LLC Agreement and all other prior agreements.

13.04 Effect of Waiver or Consent . Except as otherwise provided in this Agreement, a waiver or consent, express or implied, to or of any breach or default by any Member in the performance by that Member of its obligations with respect to the Company is not a consent or waiver to or of any other breach or default in the

performance by that Member of the same or any other obligations of that Member with respect to the Company. Except as otherwise expressly provided in this Agreement, failure on the part of a Member to complain of any act of any Member or to declare any Member in default with respect to the Company, irrespective of how long that failure continues, does not constitute a waiver by that Member of its rights with respect to that default until the applicable statute-of-limitations period has run.

13.05 Amendment or Restatement . This Agreement or the Delaware Certificate may be amended or restated only by a written instrument executed (or, in the case of the Delaware Certificate, approved) by a Unanimous Interest.

13.06 Binding Effect . Subject to the restrictions on Dispositions set forth in this Agreement, this Agreement is binding on and shall inure to the benefit of the Members and their respective successors and permitted assigns.

13.07 Governing Law; Severability . THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE, EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION . In the event of a direct conflict between the provisions of this Agreement and any mandatory, non-waivable provision of the Act, such provision of the Act shall control. If any provision of the Act provides that it may be varied or superseded in a limited liability company agreement (or otherwise by agreement of the members or managers of a limited liability company), such provision shall be deemed superseded and waived in its entirety if this Agreement contains a provision addressing the same issue or subject matter. If any provision of this Agreement or the application thereof to any Member or circumstance is held invalid or unenforceable to any extent, (a) the remainder of this Agreement and the application of that provision to other Members or circumstances is not affected thereby, and (b) the Members shall negotiate in good faith to replace that provision with a new provision that is valid and enforceable and that puts the Members in substantially the same economic, business and legal position as they would have been in if the original provision had been valid and enforceable.

13.08 Further Assurances . In connection with this Agreement and the transactions contemplated hereby, each Member shall execute and deliver any additional documents and instruments and perform any additional acts that may be necessary or appropriate to effectuate and perform the provisions of this Agreement and those transactions; provided, however, that this Section 13.08 shall not obligate a Member to furnish guarantees or other credit support by such Member’s Parent or other Affiliates.

13.09 Waiver of Certain Rights . Each Member irrevocably waives any right it may have to maintain any action for partition of the property of the Company.

13.10 Counterparts . This Agreement may be executed in any number of counterparts with the same effect as if all signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

13.11 Fair Market Value Determination .

(a) Change of Member Control . If the Fair Market Value of a Membership Interest is to be determined for purposes of Section 3.03(b)(vi), the Changing Member, on the one side, and all other Members who in good faith have an interest in possibly exercising the applicable Buy-out Right, on the other side, shall seek to determine such Fair Market Value by mutual written agreement. As soon as either side decides that mutual agreement will not be reached, it may give notice to the other side that it elects to initiate the process set forth in Section 13.11(c) to determine such Fair Market Value.

(b) Appraisal . The side (the “ First Side ”) that gives the notice (the “ FMV Notice ”) to the other side (the “ Second Side ”) pursuant to Section 13.11(a) shall include in the FMV Notice the name of the appraisal firm selected by the First Side. Within 30 Days after the giving of the FMV Notice, the Second Side shall notify (the “ Second Notice ”) the First Side of the appraisal firm selected by the Second Side, provided that, if the Second Side fails to so select its appraisal firm within such 30 Day period, the Appraisal Committee shall consist solely of the appraisal firm selected by the First Side. The two appraisal firms so selected (if applicable) shall select a third appraisal firm within 15 Days after the giving of the Second Notice, and if they fail to do so within such period, such third firm will be selected by the American Arbitration Association at the request of either side within 10 Days after such request (such third firm, together with the appraisal firms selected by the First Side and the Second Side, being herein called the “ Appraisal Committee ”). Within 30 Days after the last member of the Appraisal Committee is selected, each of the First Side and Second Side shall submit a proposed Fair Market Value to the Appraisal Committee, together with any supporting documentation such side deems appropriate. If either side fails to submit its proposed Fair Market Value within the required time period, the Fair Market Value proposed by the other side (assuming such other side has submitted its proposed Fair Market Value within the required time period) shall be deemed to be the Fair Market Value, and same shall be deemed to be determined as of the last day of such time period. If both sides submit their respective proposed Fair Market Value on a timely basis, the Appraisal Committee shall be instructed to determine, by majority vote, the Fair Market Value (which must be one of the two proposals) as promptly as possible (and in any event on or before the 30th Day after submittal of the latter of the two competing proposals), which determination shall be final and binding on both sides. The cost of such appraisal shall be paid in equal portions by both sides, except that each side shall bear the fees and expenses of the appraisal firm selected by it. Each appraisal firm selected pursuant to this Section 13.11(b) shall be a firm having recognized expertise in the valuation of natural gas transmission pipelines. Each side shall provide to the other and, if applicable, the Appraisal Committee, all information reasonably requested by them.

13.12 Press Releases .

The Company and the Members shall cooperate in making any public announcement regarding this Agreement; provided, however, that nothing herein shall prevent any Member from reporting or making any statement that in that Member’s reasonable judgment is required by law prior to or separate from such joint press release.

Remainder of page intentionally left blank. Signature page follows.

IN WITNESS WHEREOF, the Members have executed this Agreement as of the date first set forth above.


MEMBERS:

WILLIAMS PARTNERS OPERATING LLC
By: Williams Partners L.P., its sole member
By: Williams Partners GP LLC, its general partner

By:		/s/ Randall L. Barnard
		Randall L. Barnard Senior Vice President – Gas Pipeline

CABOT PIPELINE HOLDINGS LLC

By:		/s/ Scott C. Schroeder
		Scott C. Schroeder
		Vice President, Chief Financial Officer, and Treasurer

Signature page to Amended and Restated LLC Agreement of Constitution Pipeline Company, LLC.

EXHIBIT A

MEMBERS


Name and Address	Sharing Ratio		Parent	Representative and Alternate Representatives
Williams Partners Operating LLC 2800 Post Oak Blvd. Houston, Texas 77056 Attn: Senior Vice President Fax:		75%	Williams Partners L.P.	Frank J. Ferazzi – Representative James C. Moore – Alternate Representative Richard D. Rodekohr – Alternate Representative

Cabot Pipeline Holdings LLC Three Memorial Plaza 840 Gessner, Suite 1400 Houston, Texas 77024 Attn: Marketing Administration Fax:		25%	Cabot Oil & Gas Corporation	Scott C. Schroeder – Representative Jeffrey W. Hutton – Alternate Representative Steven W. Lindeman – Alternate Representative

Exhibit 10.2

FIRST AMENDMENT

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

CONSTITUTION PIPELINE COMPANY, LLC

A Delaware Limited Liability Company

This FIRST AMENDMENT TO AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF CONSTITUTION PIPELINE COMPANY, LLC (“ Amendment ”), is entered into as of November 9, 2012 (“ Amendment Effective Date ”), by and among CONSTITUTION PIPELINE COMPANY, LLC, a Delaware limited liability company (“ Company ”), WILLIAMS PARTNERS OPERATING LLC, a Delaware limited liability company (“ Williams ”), CABOT PIPELINE HOLDINGS LLC, a Delaware limited liability company (“ Cabot” ), and PIEDMONT CONSTITUTION PIPELINE COMPANY, LLC, a North Carolina limited liability company ( “Piedmont” ) (each hereinafter also referred to as a “ Party ” and collectively as the “ Parties ”). Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Amended and Restated Limited Liability Company Agreement of Constitution Pipeline Company, LLC, dated April 9, 2012 (as amended herein, the “Agreement” ).

WITNESSETH:

WHEREAS, the Company was originally formed by Williams executing an Operating Agreement, dated February 15, 2012, and filing a Certificate of Formation with the Secretary of State of Delaware as the initial, sole member of the Company; and

WHEREAS, by execution of the Agreement, Cabot became a Member holding a 25% Sharing Ratio in the Company, with Williams holding the remaining 75% Sharing Ratio; and

WHEREAS, the Parties now desire that Piedmont become a Member holding a 24% Sharing Ratio in the Company, which interest would be made available by reducing Williams’ Sharing Ratio to 51%; and

WHEREAS, the Parties further desire to amend the Agreement as set forth herein.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed, the Company, Williams, Cabot and Piedmont hereby agree as follows:

1. Admission of Piedmont as a Member . By and with the express consent and approval of each of the Parties hereto, and subject to the terms contained herein, Piedmont is hereby admitted as a Member of the Company for all purposes of the Agreement and is entitled to all of the rights and privileges incidental thereto, and is hereby issued a 24% Sharing Ratio in the Company, which Sharing Ratio is made available by a reduction of Williams’ Sharing Ratio from 75% to 51%.

2. Ratification of the Agreement and Acknowledgement of the CO&M Agreement . Williams hereby represents and warrants that it has delivered true and complete copies of the Agreement and the CO&M Agreement to Piedmont, including all amendments, restatements or other modifications thereof, and Piedmont hereby acknowledges that it has received and reviewed such copies of the Agreement and the CO&M Agreement. Piedmont hereby ratifies the Agreement and agrees that upon execution of this Amendment, Piedmont shall become a party to the Agreement and shall be fully bound by and subject to all of the covenants, terms and conditions of the Agreement as of the Amendment Effective Date. Piedmont acknowledges that the Company has approved and duly executed, and is subject to the terms and conditions of, the CO&M Agreement.

3. Capital Contributions .

3-1. The Company represents, and Piedmont hereby acknowledges, that as of the Amendment Effective Date, the Members have made Capital Contributions to the Company, including Pre-Effective Date Expenditures, in the following amounts:


Williams	$	14,962,500
Cabot	$	4,987,500

3-2. Within three Days following the Amendment Effective Date, Piedmont shall make a Capital Contribution to the Company in the following amount:


Piedmont		$4,788,000

Such Capital Contribution shall be made by wire transfer to the Company delivered to the following bank account:

Constitution Pipeline Company, LLC

JPMorgan Chase Bank

New York, NY

ABA #

Acct#

3-3. Notwithstanding Section 4.04 of the Agreement or any other provision thereof or hereof, immediately following Piedmont’s Capital Contribution made pursuant to paragraph 3-2 above, the Company shall refund to Williams an amount equal to the amount of such Capital Contribution by Piedmont (“ Refund Amount ”). Williams’ and Piedmont’s respective Capital Accounts shall be adjusted correspondingly and consistent with the payments and refund of Capital provided for in Section 3-1 and 3-2 above and this Section 3-3.

4. Waiver of Specified Provisions of the Agreement . In conjunction with and solely for the purpose of effectuating the action taken in Section 1 above, Cabot and Williams, acting on behalf of themselves and the Company, do hereby waive (and/or deem expressly satisfied) the applicable requirements of each of the following Sections of the Agreement as they relate to the partial Disposition of Williams’ Membership Interest and Sharing Ratio to Piedmont and the admission of Piedmont as a Member of the Company: 3.03(a), 3.03(b)(i) – 3.03(b)(iv), and 4.03.

5. Representations and Warranties of Piedmont . Piedmont hereby represents, warrants and covenants to the Company and each other Member that the statements set forth in Sections 3.02(a)(i) through (iv) of the Agreement as they relate to the execution of this Amendment and ratification of the Agreement, as of the Amendment Effective Date, are true and correct as to Piedmont and shall be true and correct at all times that Piedmont is a Member.

6. Representations and Warranties of Williams . Williams hereby represents, warrants and covenants to Piedmont that the statements set forth in Section 3.02(b) of the Agreement are true and correct as of the Amendment Effective Date with respect to both the Agreement and this Amendment.

7. Amendments to Specific Provisions of the Agreement .

7-1 . The following definitions are hereby added to the Agreement:

“ Additional Membership Interest —an additional Membership Interest created and issued pursuant to Section 3.04.”

“ Piedmont —Piedmont Constitution Pipeline Company, LLC.”

7-2 . Clause (f) of the definition of Change of Member Control in the Agreement is hereby deleted in its entirety.

7-3 . The last sentence of the definition of Default in the Agreement is hereby deleted in its entirety and replaced by the following:

“The Management Committee may, but shall have no obligation to, extend the foregoing 15-Day and 30-Day periods.”

7-4 . The definition of Matured Financing Obligation is hereby amended by adding the following new sentence to the end of the current definition:

“Any Matured Financing Obligation for the Initial Facilities shall constitute a Cost of the Initial Facilities for all purposes hereunder and shall be subject to the Initial Facilities Contribution Cap.”

7-5. Section 3.02(b)(v) of the Agreement is hereby deleted in its entirety and replaced with the following:

“there are no (A) preemptive rights or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any interest in the Company or (B) outstanding options or warrants to purchase any interests in the Company.”

7-6. Section 3.03(b)(ii) of the Agreement is hereby amended by deleting the last sentence thereof.

7-7 . Section 6.02(f)(iii) of the Agreement is hereby deleted in its entirety and replaced with the following:

“(iii) Exclusion of Certain Members and Their Sharing Ratios. With respect to any vote, consent or approval, any Member in Default shall be excluded from such decision, and the Sharing Ratio of such Member in Default shall be disregarded in calculating the voting thresholds in Section 6.02(f)(i). In addition, if any other provision of this Agreement provides that a Majority Interest, Supermajority Interest, Ultramajority Interest or Unanimous Interest is to be calculated without reference to the Sharing Ratio of a particular Member, then the applicable voting threshold in Section 6.02(f)(i) shall be deemed adjusted accordingly.”

7-8 . Section 6.02(i)(ii) of the Agreement is hereby amended by deleting clause (G) in its entirety and replacing it with the following:

“(G) calling for loans to the Company pursuant to Section 4.02 rather than Capital Contributions pursuant to Section 4.01; and

(H) any other action that, pursuant to an express provision of this Agreement, requires the approval of an Ultramajority Interest.”

7-9 . Section 6.02(i)(iii)(A) of the Agreement is hereby deleted in its entirety and replaced by the words “Intentionally Omitted.”

7-10 . Section 6.02(i)(iii)(G) of the Agreement is hereby redesignated as Section 6.02(i)(iii)(E).

7-11 . Section 6.04(c) of the Agreement is hereby deleted in its entirety and replaced by the following:

“(c) Notwithstanding any other provision in this Agreement, if the Company and a Member or an Affiliate thereof propose to enter into or amend a contract or arrangement with each other (a “ Contract Decision ”), or if a dispute arises between the Company and an Affiliate of a Member under a Gas Transportation Service Agreement or any other contract or arrangement, any such Contract Decision or dispute that is not resolved by discussion among the Management Committee shall be resolved in accordance with Article 11, unless such Contract Decision or dispute is within the primary jurisdiction of the FERC.”

7-12 . The following is hereby added to the Agreement as new Section 7.01(c):

“(c) Cabot Precedent Agreement Termination Contingency . Notwithstanding anything herein to the contrary, if for any reason the Cabot Precedent Agreement is terminated at any time prior to the In-Service Date, and without effect on any remedies potentially available to the Company on account of such termination, the Management Committee shall vote on whether to continue with the construction of the Initial Facilities and the following provisions shall apply:

(i) If a Unanimous Interest votes to continue with the construction of the Initial Facilities, then each Member, without limiting such Member’s rights otherwise set forth in this Agreement, shall be firmly committed to the construction of the Initial Facilities.

(ii) If a Majority Interest votes to continue with the construction of the Initial Facilities but such vote is not unanimous, then the Members that voted for continuing with such construction may elect to continue with the construction of the Initial Facilities under this Agreement. If such Members elect to continue with the construction of the Initial Facilities, then the following shall apply: (A) any Member that voted not to continue with such construction shall not be required to make any further Capital Contribution to the Company for the Cost of the Initial Facilities, and such Member shall not be considered to be a Breaching Member or to be in Default for failure to make a further Capital Contribution to the Company and the provisions of Section 4.06 shall not apply thereto and this Section 7.01(c)(ii) shall constitute the sole and exclusive remedy of the Company and each other Member with respect to such Member’s failure to make a Capital Contribution to the Company pursuant to a Capital Call validly and timely issued pursuant to Section 4.01; and (B) each Member’s Capital Account shall be adjusted (i) to reflect any additional Capital Contributions actually received by the Company from the Members electing to continue with such construction and (ii) to reflect the application of Section 4.05, and each Member’s Sharing Ratio shall be adjusted to equal such Member’s adjusted Capital Account (reduced by the portion of any Capital Account attributable to any Priority Interest) divided by the sum of the adjusted Capital Accounts (reduced by the portion of any Capital Account attributable to any Priority Interest) of all Members.

(iii) If a Majority Interest votes to continue with the construction of the Initial Facilities but such vote is not unanimous, and the Members that voted to continue with such construction thereafter elect not to continue with such construction, then such event shall be a Dissolution Event and the Company shall dissolve and its affairs shall be wound up pursuant to Article 12, unless otherwise unanimously agreed to by all of the Members.

(iv) A vote of a Majority Interest against continuing with the construction of the Initial Facilities shall be a Dissolution Event and the Company shall dissolve and its affairs shall be wound up pursuant to Article 12, unless otherwise unanimously agreed to by all of the Members.”

7-13 . Exhibit A to the Agreement is hereby deleted in its entirety and replaced by revised Exhibit A attached hereto.

7-14 . Exhibit D to the Agreement is hereby deleted in its entirety and replaced by revised Exhibit D attached hereto.

8. Further Assurances . Each Member agrees to execute such other additional instruments and documents, and to take such further actions, as may be reasonably necessary to effectuate the terms and provisions of this Amendment.

9. Captions; Titles . The captions and titles to the paragraphs in this Amendment are included only for the convenience of reference and shall have no effect on, or be deemed part of, the text of this Amendment.

10. Counterparts . This Amendment may be executed in multiple counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

Remainder of page intentionally left blank. Signature page follows.

IN WITNESS WHEREOF, the Company and the Members have duly executed this Amendment as of the Amendment Effective Date.


COMPANY:

CONSTITUTION PIPELINE COMPANY, LLC

By:		/s/ Frank J. Ferazzi
		Its Chairman

MEMBERS:

WILLIAMS PARTNERS OPERATING LLC
By: Williams Partners L.P., its sole member
By: Williams Partners GP LLC, its general partner

By:		/s/ Frank J. Ferazzi
Name:		Frank J. Ferazzi
Title:		Vice President

CABOT PIPELINE HOLDINGS LLC

By:		/s/ Scott C. Schroeder
		Scott C. Schroeder
		Vice President, Chief Financial Officer, and Treasurer

PIEDMONT CONSTITUTION PIPELINE
COMPANY, LLC

By:		/s/ Frank H. Yoho
Name:		Frank H. Yoho
Title:		Senior Vice President

EXHIBIT A

MEMBERS


Name and Address	Sharing Ratio	Parent	Representative and Alternate Representatives
Williams Partners Operating LLC 2800 Post Oak Blvd. Houston, Texas 77056 Attn: Senior Vice President Fax:	51%	Williams Partners L.P.	Frank J. Ferazzi – Representative James C. Moore – Alternate Representative Richard D. Rodekohr – Alternate Representative

Cabot Pipeline Holdings LLC Three Memorial Plaza 840 Gessner, Suite 1400 Houston, Texas 77024 Attn: Marketing Administration Fax:	25%	Cabot Oil & Gas Corporation	Scott C. Schroeder – Representative Jeffrey W. Hutton – Alternate Representative Steven W. Lindeman – Alternate Representative

Piedmont Constitution Pipeline Company, LLC 4720 Piedmont Row Drive Charlotte, North Carolina 28210 Attn: Senior Vice President and Chief Utility Operations Officer, Commercial Operations Fax:	24%	Piedmont Natural Gas Company, Inc.	Victor M. Gaglio – Representative Karl W. Newlin – Alternate Representative Frank H. Yoho – Alternate Representative

Exhibit 31.1

CERTIFICATION

I, Thomas E. Skains, certify that:

I have reviewed this quarterly report on Form 10-Q of Piedmont Natural Gas Company, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 6, 2013

/s/ Thomas E. Skains

Thomas E. Skains

Chairman of the Board, President

and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION

I, Karl W. Newlin, certify that:

I have reviewed this quarterly report on Form 10-Q of Piedmont Natural Gas Company, Inc.;

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 6, 2013

/s/ Karl W. Newlin

Karl W. Newlin

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report of Piedmont Natural Gas Company, Inc. (the “Company”), on Form 10-Q for the period ended January 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas E. Skains, Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 6, 2013

/s/ Thomas E. Skains

Thomas E. Skains

Chairman of the Board, President and

Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report of Piedmont Natural Gas Company, Inc. (the “Company”), on Form 10-Q for the period ended January 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Karl W. Newlin, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 6, 2013

/s/ Karl W. Newlin

Karl W. Newlin

Senior Vice President and Chief Financial Officer

Exhibit 99.1

INSTRUMENT OF AMENDMENT FOR

PIEDMONT NATURAL GAS COMPANY, INC.

401(k) PLAN

THIS INSTRUMENT OF AMENDMENT (this “ Instrument ”) is made and entered into as of the 18 ^th day of September, 2012, by PIEDMONT NATURAL GAS COMPANY, INC., a North Carolina corporation (the “ Company ”).

Statement of Purpose

The Company maintains the Piedmont Natural Gas Company, Inc. 401(k) Plan (the “ Plan ”). The Company desires to amend the Plan to change the eligibility in connection with a conversion of the human resource information system. In Section 9.01 of the Plan the Company has reserved the right to amend the Plan in whole or in part at any time.

NOW, THEREFORE, the Company does hereby declare that the Plan is amended to read as follows:

1. Effective as of January 1, 2012, Section 2.01(b) of the Plan is amended in its entirety to read as follows:

“(b) Entry Date Schedule . The Entry Date shall be the first day following attainment of age eighteen (18) and the completion of 30 continuous days of employment.”

2. Except as expressly or by necessary implication amended hereby, the Plan shall continue in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Instrument to be executed as of the day and year first above written.


PIEDMONT NATURAL GAS COMPANY, INC.

By:		/s/ Kevin M. O’Hara
		Name: Kevin M. O’Hara
		Title: SVP – Chief Administrative Officer

“Company”