Piedmont Natural Gas

April 30, 2015

Enterprise Risk Management & Risk Appetite

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Rob PritchardVice President, Treasurer, Chief Risk Officer

Nick GiaimoAssistant Treasurer

Introduction

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Company Overview• One Million customers• 90% Residential• 9% Commercial• 1% Industrial & Other

• $5.0 Billion total assets*• 96% regulated utility• 3% regulated non-utility• 1% unregulated non-utility

• $4.1 Billion utility plant (net)*• $3.1 Billion North Carolina• $0.7 Billion Tennessee• $0.3 Billion South Carolina

• $2.8 Billion equity market capitalization*

• 22,300 miles of distribution pipeline

• 2,910 miles of transmission pipeline

* Balance sheet data as of 1/31/15. Market capitalization as of 3/9/2015

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Customer Composition

Piedmont Footprint

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Company OverviewSummary Organizational Structure

• Income is calculated on a pre-tax basis and is based on FY2014 results• Joint ventures are equity method investments and any project debt is non-

recourse to the Company• Constitution Pipeline scheduled for in-service late 2015 or 2016• Atlantic Coast Pipeline scheduled for in-service late 2018

In Development

10% Ownership

24% Ownership

Hardy Storage2% Income

50% Ownership

Pine Needle LNG1% Income

45% Ownership

Cardinal Pipeline1% Income

21% Ownership

1% Income (In Development)Constitution Pipeline

Piedmont Natural Gas Company(Utility Operating Company)

96% Assets86% Income

Atlantic Coast Pipeline

SouthStar Energy9% Income

15% Ownership

Non-Utility UnregulatedNon-Utility Regulated

86%

9%

5%

2014 Pre-Tax Income

Utility

Non-Utility Unregulated

Non-Utility Regulated

96%

1%

3%

Assets*

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Residential51%

Commercial25%

Industrial7% Municipals & Military

1%

Power11%

Wholesale 4%

Miscellaneous1%

Margin(2014)

$690 million

Stable & Diverse Customer Base

Residential15%

Commercial11%

Industrial23%

Municipals & Military2%

Power49%

Volumes(2014)

411 MMDt

Proprietary and confidential information not to be distributed.

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Stability of Gas Utility Margin

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The Risk Discussion Dilemma

• [There is a] disparity between the risks that firms took and those that their Board of Directors perceived the firms to be taking.

• Many Boards [found it difficult] to facilitate meaningful analysis of the firm’s risk exposures and to constructively challenge management’s proposals and decisions…The information provided to the Board was voluminous and not easily understood...

Source: “Risk appetite frameworks: How to spot the genuine article” Deloitte, EMEA Centre for Regulatory Strategy, 2013.

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Benefits of Well Defined Risk Appetite

• Increases Company Performance• Creates a consistent language to articulate and measure risk• Enables effective comparison of opportunities (trade-offs) • Ensures direct alignment with Strategic Objectives

• Achieves External Stakeholder Expectations• Limits excessive risk taking• Enhances Corporate Governance• Fosters healthy discussion with Board and EMT

• Supports ERM Function• Establishes constant decision-making tool• Promotes a Company-wide risk awareness

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Enterprise Risk Management (ERM) Framework

Business Owners

(1st Line of Defense)

ERM Team(2nd Line of Defense)RM

AC

EMT

Chief Risk Officer

Board of Directors

Vision StatementDevelop a risk management framework that provides transparency to the risks Piedmont assumes in pursuit of our Vision, Mission, and Values.

Mission Statement

CultureWe will build a strong risk management and control culture by setting the appropriate tone at the top, outlining clear expectations, promoting awareness, ownership and proactive management of key risks, and fostering appropriate behavior and accountability. In addition, we will cultivate a risk-conscious workforce across the organization.

Structure We will put in place an organizational structure that promotes good corporate governance, defines clearly risk-taking responsibility and authority, and promotes ownership and accountability for risk taking.

Process We will implement formal and continuous processes and systems for effective identification, quantification, monitoring, mitigation and management of risk.

Internal Audit(3rd Line of Defense)

Risk Appetite

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What does Risk Appetite mean at Piedmont?

• Risk appetite (RA) is the articulation of Piedmont’s willingness to accept risk in pursuit of strategic objectives.

• RA sets guardrails to operate within when making strategic decisions.

• Metrics are identified and developed to monitor where we fall within those guardrails, but cannot be developed until after Risk Appetite is established

Risk level at or below our appetite

Risk level above cautionary

Cautionary Risk Level

Risk Appetite

Guardrail Guardrail

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What does Risk Appetite look like at Piedmont?

• Piedmont’s risk universe has been divided into seven risk categories

• Each risk category has the following:• Definition• Risk sub-topics with business

owners• Risk objective• Risk appetite statement • Metrics for ongoing monitoring

• Every year, risk appetite statement and metrics are reevaluated for improvement

Risk Categories

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• A scale allows for the comparison of risk-taking appetites throughout the organization.

Risk Appetite Scale

Rating Risk Taking Philosophy

Choice

When faced with multiple options, how willing are you to select an option that puts this objective at risk?

Trade-off

How willing are you to trade-off this objective against achievement of other objectives?

5 – High Will take justified risksWill choose option with highest return; accept possibility of failure Willing

4 – Moderate High Will take strongly justified risks

Will choose to put at risk, but will manage the impact Willing under certain conditions

3 – Moderate Preference for safe deliveryWill accept if limited, and heavily outweighed by the benefits Prefer to avoid

2 – Moderate Low Extremely conservativeWill accept only if essential and limited possibility/extent of failure With extreme reluctance

1 – Low Risk avoidance when possible Will select the lowest risk option Never

How do we compare Risk Appetite across Piedmont’s risk categories?

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Commercial Risk

Definition Internal risks that Piedmont actively assumes and manages in our organic natural gas utility business.

Risk Appetite StatementPiedmont will seek utility-return investment opportunities that result in an overall portfolio largely weighted towards fixed margin sources, either through contract or tariff terms, that minimizes exposure to weather, volumetric or other fluctuations. In addition, Piedmont will only extend credit to investment-grade counterparties unless acceptable guarantees are in place. Finally, Piedmont will ensure a diverse, reliable, and competitive gas supply mix for our customers. (Moderate, 3)

Assessment Measures1. Margin from fixed and semi-fixed sources (CML-1)2. Gas Usage Forecast Variance (CML-2, CML-3)3. Supply basin concentration (CML-4)4. Supplier concentration (CML-5)5. Credit profile of wholesale marketing sales portfolio (CML-6)6. Credit profile of industrial portfolio (CML-7)7. Total open credit extended and utilized (CML-8, CML-9)

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Example Risk Assessment

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Strategic Risk(STR)↔

Commercial Risk(CML)

↔

Market Risk(MKT)

↑

Financial Risk(FIN)

↑

Operational Risk(Various)

↓

Regulatory Risk(REG)

↓

Reputational Risk(REP)

↓

Risk Appetite Subjective Appraisal Adjustment Up Subjective Appraisal Adjustment Down Objective Assessment

Risk Taking Scale5 - High4 - Moderate High3 - Moderate2 - Moderate Low1- Low

↑Increasing Risk from Prior Quarter ↓Decreasing Risk from Prior Quarter ↔ Static Risk from Prior Quarter