NOTICE TO THE PUBLIC OF AN APPLICATION BY

NOTICE TO THE PUBLIC OF AN APPLICATION BY

COLUMBIA GAS OF VIRGINIA, INC., FOR AUTHORITY

TO AMEND ITS TARIFF IN ORDER TO IMPLEMENT

AN OFF-SYSTEM SALES AND CAPACITY

RELEASE INCENTIVE MECHANISM

CASE NO. PUE-2007-00064

On July 12, 2007, Columbia Gas of Virginia, Inc. (“Columbia" or "Company"), filed an application with the State Corporation Commission ("Commission") for authority to implement a proposed Off-system Sales and Capacity Release Incentive Mechanism (“Incentive Mechanism"). In order to implement the proposed Incentive Mechanism, toe Company proposes revisions to the Purchased Gas Adjustment ("PGA'VActual Cost Adjustment ("ACA") mechanism in its tariff in order to specify the manner in which off-system sales margins and capacity release revenue will be shared between customers and the Company.

Under the Company's current PGA/ACA mechanism, all off-system sales margins and capacity release revenue are credited as an offset to gas costs through the Company's ACA. This treatment has the effect of giving customers 100% of the benefits resulting from off-system sales margins and capacity release revenue, thereby lowering customers’ gas costs collected through the PGA/ACA mechanism.

The Company’s application proposes to modify the traditional treatment of off-system sales margins and capacity release revenue because of the Company's recent commitment in Case No. PUE-2005-00098 to add new peak day capacity to serve customers. These new capacity additions, according to the Company, will create additional opportunities for the Company to increase the value that can be generated by managing its gas supply assets in a manner that will benefit both customers and the Company.

In order to provide an appropriate incentive to encourage the Company to maximize the value of its gas supply assets, the Company proposes to implement an Incentive Mechanism that will share off-system sales margins and capacity release revenue between customers and the Company. The proposed Incentive Mechanism has three components: First, in order to ensure that customers will preserve an appropriate level of benefits received from the current practice of crediting all off-system sales margins and capacity release revenue through the ACA, the Company proposes that 100% of the first $2.5 million of off-system sales margins and capacity release revenue be credited to customers. This amount, according to the Company’s application, is consistent with the histone levei of ACA credits for off-system sales margins and capacity release revenue, and is referred to as the "Program Year Threshold" in the Company's application. In succeeding years, the Program Year Threshold will be adjusted each year in proportion with the changes in the Company's firm capacity portfolio. An explanation of how the Program Year Threshold will be adjusted after the first year of the program is contained in the Company’s application.

Second, after the Program Year Threshold is met. the Company proposes that customers receive 35% and the Company receive 65% of all off-system sales margins and capacity release revenue until the amount received by the Company equals the Program Year Threshold, as calculated for each year of the program. Finally, after the Company receives an amount equal to the Program Year Threshold, the Company proposes that all amounts above that point be shared equally by customers and the Company. The Company proisosed to implement the revisions to its PGA/ACA mechanism on November 1. 2007.