NEB/ONÉ-Hearing Transcript-Transcription d'audience-GH-6-96-Volume 49 file:///C|/drew/docs/GH696v49.htm
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NATIONAL ENERGY BOARD
OFFICE NATIONAL DE L'ÉNERGIE
Order No. GH-6-96
Ordonnance No GH-6-96
Various
Sable Offshore/Onshore Projects
Hearing held at Audience tenue à
Halifax, Nova Scotia
3 July 1997 3 juillet 1997
Volume 49
© Her Majesty the Queen in Right of Canada 2000 © Sa Majesté du Chef du Canada 2000
as represented by the National Energy Board représentée par l 'Office national de l'énergie
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This publication is the recorded verbatim transcript and, as Cette publication est un compte rendu textuel des such, is taped and transcribed in either of the official délibérations et, en tant que tel, est enregistrée et transcrite languages, depending on the languages spoken by the dans l'une ou l'autre des deux langues officielles, compte tenu participant at the public hearing. de la langue utilitisée par le participant à l'audience publique.
Printed in Canada Imprimé au Canada
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ORDER NO. GH-6-96 ORDONNANCE No GH-6-96 IN THE MATTER of the proceedings concerning the Sable Gas Projects undertaken by the Joint Public Review Panel as established by the Joint Review Agreement dated June 1996 among the parties thereto; AND IN THE MATTER of the proceedings of the National Energy Board commenced pursuant to Hearing Order GH-6-96 to be consolidated with and heard during the Joint Public Review Panel proceedings. - - - RELATIVE à une demande de Mobil Oil Canada Properties et Shell Canada limitée concernant le "Sable Offshore Energy Project" et à une demande de Maritimes & Northeast Pipeline Management Limited concernant la partie canadienne du "Maritimes & Northeast Pipeline Project". RELATIVE A la Loi sur l'Office national de l'énergie et à ses règlements d'application (S.R.C., chapitre N-7). - - - Hearing held at Halifax, Nova Scotia, on Thursday, July 3, 1997. Audience tenue à Halifax, Nouvelle-Ecosse,
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le jeudi 3 juillet 1997. - - - PANEL: R. O. Fournier Chairman/Président J. L. Davies Member/Membre J. T. Sears Member/Membre A. Côté-Verhaaf Member/Membre K. W. Vollman Member/Membre
II APPEARANCES/COMPARUTIONS
L.E. Smith ) Sable Offshore Energy R.G. Grant ) Project/Maritimes & J. Dickson ) Northeast Pipeline Project N.M. Gretener ) M. Morin ) K. Dyte ) S. Denstedt ) D. Unruh ) D. Jones ) L. Keough )
N.J. Schultz Canadian Association of Petroleum Producers
T. Boudreau ) Canadian Federation of Labour C. Scott )
C. Murphy ) Cape Breton Island Building and G. Dumoulin ) Construction Trades Council J. Maloney )
R. Owen ) The Clean Nova Scotia Foundation G. Marquis )
D.J. Grady ) Coalition for Responsible Economic B.N. Williams ) and Environmental Development P. Moriarity )
C. O'Connor ) The Confederacy of Mainland E. Zscheile ) Micmacs
D. Thompson ) Conservation Council of New J. Dingwell ) Brunswick
H. Epstein ) Ecology Action Centre M. Butler ) A. Ruffman ) R.J.Pett ) M. O'Brien )
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T. Kenchington)
P.C.P. Thompson Industrial Gas Users Association
C. Chisholm International Brotherhood of Boilermakers
S. Graves ) Mainland Nova Scotia Building F. Tardif ) and Construction Trade Council J. Henley )
III APPEARANCES/COMPARUTIONS
P.F. Christie Maritime Pipeline Landowners Association
J. Reynolds ) Metropolitan Halifax Chamber D.R. Cleveland ) of Commerce P. Doig )
F.V. Hall ) Millwood Environmental Action D. Wimberly) Team
R.J. Hunka ) Native Council of Nova Scotia T. Martin ) D. Bruce Clarke )
C. Purcell Nova Scotia Salmon Association
R. Starr Nova Scotia New Democratic Party
G. Archibald Progressive Conservative Caucus of Nova Scotia
D. Ablonczy Reform Party of Canada
G. Dalzell ) Saint John Citizens for D. Thompson) Clean Air J. Dingwell)
J. Abouchar Union of New Brunswick Indians R. Perley P. Barlow
B. Chisholm United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada - Local 244
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E. Pace ) United Association of Plumbers B. MacDonald) and Pipefitters - Local 56
C. Recchia ) World Wildlife Fund C. Stewart ) R. Clowater ) I. Milewski
IV APPEARANCES/COMPARUTIONS
D. Wimberly ) Allergy and Environmental H. Lofgren ) Health Association, Nova Scotia, on behalf of Allergy and Environmental Health Association, New Brunswick; Allergy and Environmental Health Association, Canada; Real Alternatives To Toxics In The Environment; and Nova Scotia Coalition On Environmental Hypersensitivity
K. Burrill Accent Engineering Consultants Inc.
T. G. Kane, Q.C. ANR Pipeline Company
R.J. Harrison Central Maine Power Company
H. T. Soudek Consumers' Gas Co. Ltd.
N. Miller Corridor Resources Inc.
J.H. Smellie ) Irving Oil Limited S. Kirstiuk ) J.F. Bowe, Jr.)
F.V.W. Penick ) Kimberly-Clark Nova Scotia, D. MacDougall ) a Division of Kimberly-Clark Incorporated, et al (Large Industrial Group)
K.D. Dyte ) Mobil Oil Canada Properties L.E. Smith ) R.G. Grant )
L.L. Manning Mosbacher Operating Ltd.
I.A. Blue, Q.C. ) New Brunswick Power Corporation P.J. Dykeman, Q.C.)
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C.K. Yates ) Nova Scotia Power Incorporated P.W. Gurnham ) R.S. Niedermayer )
F.V.W. Penick PanCanadian Petroleum Limited
C.B. Woods PanEnergy Marketing Limited Partnership
V APPEARANCES/COMPARUTIONS
A. S. Hollingworth) Portland Natural Gas Transmission J. Zipp ) System G. Williams ) D. Wood )
L.W. van Hemert Seafloor Structures Consulting Limited
S. MacDonald Shell Canada Limited
R. Langlois ) Société en Commandite Gaz R. Lassonde ) Métropolitain M. Imbleau ) B. Pepin )
J. Calnan ) Statia Terminals Canada Inc. P. Crissman ) T. Thompson )
D.M. Campbell, Q.C.)Tatham Offshore Inc. D.F. Gallivan ) C.M. Darling ) M.K. Lewis )
A. L. Reid ) TransCanada PipeLines Limited J.M. Murray )
L.-A. Leclerc ) Trans Québec & Maritimes R. Heider ) Pipeline Inc.
J. Bertrand ) Hydro-Québec P. Lemieux ) G. Marchand ) M. Marcouiller )
G. Cameron Union Gas Limited
I. Travers) Environment Canada, Environmental A. McIver ) Protection Branch
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G. Lindsay)
R.K. Sweeney) Department of Fisheries and Oceans D. Gordon ) J. Ledbetter) T. Currie )
J. Coady Cape Breton Regional Municipality
VI APPEARANCES/COMPARUTIONS
H. MacLeod Municipality of the District of Guysborough
D. Hawkins Government of Newfoundland and Labrador
G.L. MacDonald) Guysborough County Regional A.J. England ) Development Authority
R. Redgrave Maine Public Utilities Commission
J. Brisson ) Procureur général du Québec R. Ménard ) J. Lebuis )
I.A. Blue, Q.C. ) Province of New Brunswick P. MacNutt, Q.C.) A. Hamilton )
D. G. Davies ) Province of Nova Scotia H. R. Huber ) T. M. Hughes ) G. Corsano )
J. Turchin Province of Ontario, Minister of Environment and Energy
M. Ledwell) Province of Prince Edward Island V. Bulger ) L. Walsh )
C. MacKinnon City of Saint John
P. Doig Strait-Highlands Regional Development Agency, Town of Port Hawkesbury, and the Strait Area Chamber of Commerce
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F. Leblanc, M.P. On his own behalf
E. Lockerby On his own behalf
P. Noonan ) Board Counsel C. Beauchemin ) - - -
VII
INDEX
WITNESSES/TEMOINS PAGE
BARNETT, D.E., Resumed: 9523
HOGG, W.D., Resumed:
WILLMS, A.H., Resumed:
MILLER, K.G., Resumed:
Cr.-Ex. by Mr. Pepin 9525 Cr.-Ex. by Mr. Reid 9531 Cr.-Ex. by Mr. Leclerc 9549 Cr.-Ex. by Mr. MacDougall 9587 Ex. by JPR Panel 9600 Cr.-Ex. by Mr. Doig 9614
- - -
MacDONALD, T. F., Recalled: 9621
Ex.-in-Chief by Mr. Gurnham 9621 Cr.-Ex. by Mr. Williams 9623 Cr.-Ex. by Mr. Wimberly 9627 Cr.-Ex. by Mr. Smellie 9652 Cr.-Ex. by Mr. Blue 9678/9693 Cr.-Ex. by Mr. Smith 9717 Ex. by JRP Panel 9725
- - - Argument-in-Chief on behalf of SOEP/M&NPP:
Submissions by Mr. Smith 9740 Submissions by Mr. Grant 9764
- - -
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A Short Recess/Pause 9619/9735 Luncheon Adjournment/Pause-midi 9692 - - -
VIII
EXHIBITS/PIECES JUSTIFICATIVES
NUMBERED/NUMEROTEE PAGE
C-9-4 SPA-N.S. Response to Undertaking 9734 given to EAC (Reserved)
A-1-123 Document entitled "Order of 9738/39 Appearances - Final Argument".
- - -
TRANSCRIPT CORRECTIONS/ CORRECTIONS A LA TRANSCRIPTION
Volume 48 - 2 July 1997
Page Line
9304 21 "now" should read "not" 9444 9 "volume" should read "volumes" 9469 26&27 "64 cents" should read "54 cents" 9471 16 "come" should read "comes" 9478 21 "there" should read "here" - - -
9522 Halifax, Nova Scotia Thursday, July 3, 1997 Le jeudi 3 juillet 1997
1 | --- Upon commencing at 8:30 a.m./A l'ouverture de 2 | l'audience à 08h30 3 | THE CHAIR: Good morning, ladies 4 | and gentlemen. |
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5 | Mr. Blue...? | 6 | MR. BLUE: Good morning, Mr. 7 | Chairman and Members and the Panel. | 8 | I rise with respect to the Order 9 | of Appearances for Final Argument. | 10 | I had written to the Board, as 11 | the Board noted yesterday, with a request that I 12 | argue after the Proponents. | 13 | The request is made on two 14 | practical grounds: First -- and I won't disguise 15 | it -- I had planned to be out of the country next 16 | week, and would like to do that, if possible, 17 | subject to the constraints of the Hearing. | 18 | Secondly, the Cabinet of New 19 | Brunswick has supported the M&NPP Project, and it 20 | would probably be appropriate that New Brunswick, 21 | with that support, should go right after the 22 | Applicants, as an avowed supporter, as well. | 23 | I wonder if I might just leave on 24 | the Record my desire to follow SOEP and Maritimes 25 | & Northeast Pipeline Project, before the Union of 26 | New Brunswick Indians argues; and if anyone has 27 | any objection, perhaps they could come forward. 28 | But I have spoken to a couple of people, and I do 29 | not detect any great problem with that. | 30 | THE CHAIR: Mr. Blue is proposing | 9523 1 | to go third in the Order of Appearances. | 2 | Are there any objections to that? | 3 | MR. NOONAN: Mr. Chairman, I, of 4 | course, don't rise to object; but I might indicate 5 | that I don't believe that Counsel for the Union of 6 | New Brunswick Indians is present. | 7 | I understand that she has a 8 | scheduling conflict next week, as well. | 9 | So perhaps I could undertake to 10 | contact her and find out whether she would have 11 | any objection, and then report back later in the 12 | day. | 13 | THE CHAIR: Or at the very least, 14 | Mr. Blue, you might follow immediately after the 15 | Union of New Brunswick Indians. | 16 | MR. BLUE: Thank you, Mr. 17 | Chairman.
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| 18 | THE CHAIR: Are there any 19 | procedural or filing matters this morning? 20 | --- (No Response/Pas de réponse) 21 | THE CHAIR: It would appear not. | 22 | D.E. BARNETT, Resumed: 23 | W.D. HOGG, Resumed: 24 | A.H. WILLMS, Resumed: 25 | K.G. MILLER, Resumed: 26 | THE CHAIR: Mr. Noonan, will you 27 | please call the next Party. | 28 | MR. NOONAN: Société en 29 | Commandite Gaz Métropolitain...? | 30 | THE CHAIR: Good morning, Mr. | 9524 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) 1 | Pepin. | 2 | MR. PEPIN: This morning, I would 3 | like to start with a very brief comment on what is 4 | alleged to have been our behaviour in the course 5 | of these Proceedings, relating to the cross- 6 | examination of this Panel. | 7 | As the Board remembers, GMi did 8 | request additional time to consider the Joint 9 | Position, the Additional Evidence, and to prepare 10 | cross-examination. | 11 | Since then, we have read, in a 12 | number of newspapers, declarations by Maritimes & 13 | Northeast that mention that, first, we have 14 | "hijacked" the Proceedings; second, that we are 15 | seeking a delay, that we got it, and then "headed 16 | out of town without asking one question"; and 17 | third, that -- speaking about the delay -- it is 18 | an "insult to the process, an insult to the Joint 19 | Review Panel, an insult to the Proponents, and an 20 | insult to the people doing business with this 21 | Project". | 22 | All of these comments come from a 23 | spokesman from Maritimes & Northeast. | 24 | We want to make it very clear 25 | that GMi's intent has never been as such. We 26 | never requested a delay for the sake of a delay. | 27 | We have had, and we really want, 28 | a fair chance to make our case before this Panel, 29 | and that is what we have pursued as a legitimate 30 | objective. | 9525 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel)
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1 | We feel that these comments are 2 | very ill-advised, that they are blatantly unfair 3 | to our clients, and we just wanted to put the 4 | matter straight before this Panel. | 5 | THE CHAIR: Mr. Pepin, just to be 6 | clear to you: The Panel made the decision on the 7 | basis of due process, and did not feel that it was 8 | in any way unduly influenced. | 9 | I think we made the decision that 10 | we thought was the best for all Parties. | 11 | MR. PEPIN: Thank you. | 12 | MR. SMITH: Mr. Chairman, I 13 | understand why Mr. Pepin is sensitive about this. 14 | It was high dudgeon that we witnessed, as my good 15 | friend, Mr. Langlois, made it clear that he was 16 | "in this game to win" and that this process was 17 | going to get "railroaded" if he didn't get what he 18 | wanted -- which was an opportunity to pose 19 | Information Requests, and all the other trappings 20 | of procedural fairness. | 21 | Mr. Chairman, we have no problem 22 | with this Panel having afforded all Parties the 23 | full panoply of procedural rights. The problem 24 | that my friend now finds himself in is that when 25 | they chose to invoke those procedural rights in 26 | Argument on the Motion, and then not use them, 27 | that, sir, I think is fair for comment, whether 28 | within the Hearing Room or outside. | 29 | We hadn't planned to say anything 30 | about it within the room; but now that he has | 9526 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) 1 | advanced his position, sir, you have ours. | 2 | THE CHAIR: Now we have heard 3 | both sides. Now we can move on. |
| | 4 | CROSS-EXAMINATION BY MR. PEPIN, ON BEHALF OF GMi: 5 | Q. Good morning, Panel. | 6 | I have just a few questions -- 7 | which will, for the most part, be addressed to the 8 | Proponents, mainly to compare the position of the 9 | Evidence before and after the filing of the Joint 10 | Position. | 11 | The first one is that I want you 12 | to confirm my understanding that the final
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13 | destination of the gas under this Joint Position 14 | is still governed by market forces and that there 15 | is no allocation of volumes. | 16 | MR. MILLER: I think that is 17 | fair; yes. | 18 | Q. And my understanding is that 19 | this was the case under your Application, and it 20 | is still your position after the filing of the 21 | Joint Position. | 22 | MR. MILLER: That is correct, 23 | other than the fact that we have agreed to keep 24 | available the 20,000 MMBtus for Nova Scotia and 25 | New Brunswick LDCs as they start up. | 26 | Q. Which we will come back to in 27 | a minute. | 28 | It is also my understanding that 29 | the price of gas will be governed by market 30 | forces. | 9527 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Pepin) 1 | This was the case under the 2 | Application, and this is still the case under the 3 | Joint Position. | 4 | MR. MILLER: That is the case, 5 | yes. | 6 | Q. I also understood that under 7 | the Application, your Base Case called for 8 | delivery of 440 MMbtu per day at the export point. | 9 | Is that correct? | 10 | MR. WILLMS: That was the Base 11 | Case for design purposes and for illustrative toll 12 | design; that is correct. | 13 | Q. Am I correct in understanding 14 | that this is still the case under the Joint 15 | Position? | 16 | MR. WILLMS: We still have the 17 | same illustrative toll design and the same design 18 | parameters; that is correct. | 19 | Q. I understood from your 20 | comments yesterday, Mr. Willms, that because there 21 | is no concern about capacity on the pipeline in 22 | the Canadian section, there was no commitment in 23 | the Joint Position to reserve transportation on 24 | Maritimes & Northeast.
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| 25 | MR. WILLMS: That is correct. | 26 | Q. I understand, also, that the 27 | Laterals Test is still unchanged, and the Laterals 28 | Policy is still unchanged. | 29 | MR. WILLMS: That is correct. | 30 | Q. Am I right in understanding, | 9528 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Pepin) 1 | also, based on the answers to the questions that 2 | were posed, that the laterals to Saint John and to 3 | Halifax, in your understanding, met the Laterals 4 | Test of 60 cents? | 5 | MR. WILLMS: Could you repeat 6 | that question, please, sir. | 7 | Q. Yes, of course. | 8 | I want you to confirm that the 9 | proposed laterals, or the laterals that you have 10 | in mind for Saint John and Halifax, meet the 11 | Laterals Test of 60 cents. | 12 | MR. WILLMS: They would certainly 13 | meet the Laterals Test. I think I indicated 14 | yesterday that, in our estimate, you would need 15 | approximately 40 million to 45 million on both to 16 | meet the Laterals Test and not have an aid-to- 17 | construct necessary to make them economic. | 18 | Q. In the Response to I.R. No. 3 19 | of Nova Scotia Power, when you give the answer 20 | that the laterals do not need an aid-to-construct 21 | and meet that Lateral Test, was this based on the 22 | fact that you think that the Precedent Agreements 23 | that have now been signed will be converted into 24 | Firm Service Agreements? | 25 | MR. WILLMS: No. It was based 26 | upon the assumed costs and volumes; roughly 45 27 | million cubic feet a day of volumes, and the costs 28 | attendant to a pipeline that would be required to 29 | carry that. | 30 | Q. And with respect to the | 9529 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Pepin) 1 | volume of 40 million to 45 million, your statement 2 | that it would be met was based on the premise that 3 | the Precedent Agreements that have been signed so 4 | far will be converted into Firm Service
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5 | Agreements? | 6 | MR. WILLMS: Either that or other 7 | agreements. | 8 | Q. Am I also to understand that, 9 | further to the Joint Position, there has been no 10 | amendment to the Mobil Backstop Precedent 11 | Agreement? | 12 | MR. WILLMS: There has not. | 13 | Q. Nor is there a need to amend 14 | the Backstop Precedent Agreement? | 15 | MR. WILLMS: None that I can 16 | think of at this moment. | 17 | Q. I would like to draw your 18 | attention to I.R. No. 2 of the Joint Review Panel 19 | to SOEP. | 20 | In your Response, you mention the 21 | fact that you will keep gas available for the LDC 22 | markets in the Maritimes. | 23 | The first question is: Why do 24 | you think this is necessary? | 25 | MR. MILLER: I think we talked 26 | about this before during the course of the 27 | Hearings, in terms of a concern that if the 28 | production was sold out initially under long-term 29 | contracts, there may not be gas available for such 30 | start-up LDCs. | 9530 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Pepin) 1 | Also, in the course of the 2 | negotiations, this was an issue that was raised, 3 | and raised in terms of the Governments receiving 4 | some further assurances, which is what we 5 | provided. | 6 | Q. Does that mean that you 7 | believe it is likely that the entire production 8 | will be sold on a long-term basis in the period of 9 | the first three years? | 10 | MR. MILLER: No, sir. I think we 11 | have been clear on the Record, and in the Response 12 | to, I believe, Panel I.R. No. 6, in which we said 13 | that there would be significant gas sold on Short- 14 | Term Orders initially that would then be available 15 | for a start-up LDC. | 16 | I think I said yesterday that
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17 | what we have done here is simply provided further 18 | assurances that that is the case. | 19 | Q. So with that caveat that you 20 | just expressed, it is not a big concern, then -- 21 | availability of gas in the first three years for 22 | the LDCs. | 23 | MR. MILLER: No. I think I said 24 | earlier that we expected that there would be 25 | significant gas sold on a short-term basis in the 26 | markets, and that would be available. | 27 | Q. You mentioned earlier that it 28 | was a concern. I want you to confirm that it is 29 | not a big concern. | 30 | MR. MILLER: That is correct. | 9531 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Pepin) 1 | MR. PEPIN: Thank you. Those are 2 | all of my questions. | 3 | THE CHAIR: Thank you, Mr. Pepin. | 4 | MR. NOONAN: TransCanada 5 | PipeLines Limited...? | 6 | MR. REID: Thank you, Mr. 7 | Chairman. Good morning, Panel Members. | 8 | Mr. Chairman, just before I 9 | start, I will add my two bits worth to the 10 | swirling controversy over GMi's actions. | 11 | I think it will come to no 12 | surprise to you, sir, to learn that the 13 | Information Request that TransCanada submitted, 14 | although it came under TransCanada's name as an 15 | Intervenor in this Proceeding, was the Information 16 | Request of the Project, the TransMaritime Pipeline 17 | Project. That is the way that we approached it. | 18 | We thought it was the most 19 | efficient use of hearing time; that the questions 20 | did not need to be asked three separate times. | 21 | That is why it worked that way. | 22 | THE CHAIR: Thank you, Mr. Reid. | 23 | MR. SMITH: It is too bad that 24 | Ms. Myrden is not here to hear that, sir. | 25 | THE CHAIR: Thank you. |
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| | 26 | CROSS-EXAMINATION BY MR. REID, ON BEHALF OF TCPL: 27 | Q. Good morning, gentlemen. | 28 | Mr. Willms, I would like to begin 29 | by referring you to TransCanada's Information 30 | Request No. 2 (b). | | (Joint Position Panel) 9532 SOEP/M&NPP/N.S./N.B. | 1 | I will start by reading that cr-ex (Reid) 2 | Question to you, sir, and then we will go to the 3 | Response. | 4 | The Question was: 5 | "Please complete the attached 6 | table 7 | given the Joint Position on 8 | Tolling 9 | and Laterals, assuming throughput 10 | on 11 | the M&NE Pipeline remains 12 | constant at 13 | 530,000 MMBtu per day and 14 | assuming a 15 | discount rate equivalent to the 16 | weighted average cost of capital 17 | for 18 | each year in question and under 19 | the 20 | following the scenarios: ---" 21 | And we went on to list four scenarios there. | 22 | Do you see that, Mr. Willms? | 23 | MR. WILLMS: I do. | 24 | Q. And the discount rate that 25 | was used in responding to the Question was 11.86 26 | percent. | 27 | Correct? | 28 | MR. WILLMS: I believe that is 29 | correct, yes. | 30 | Q. And in the Maritimes & | | (Joint Position Panel) 9533 SOEP/M&NPP/N.S./N.B. | 1 | Northeast Response to TransCanada I.R. No. 1 (c), cr-ex (Reid) 2 | it was confirmed that Maritimes & Northeast's ROE 3 | and debt interest rate would not change as a 4 | result of the Joint Position. |
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5 | Correct? | 6 | MR. WILLMS: Yes. | 7 | Q. And the debt/equity split 8 | remains 75/25 under the Joint Position. | 9 | Correct? | 10 | MR. WILLMS: I believe that is 11 | correct. | 12 | Q. If I am not mistaken, then, 13 | Table L3 from your Application, that shows the 14 | weighted average cost of capital as being 9.25 15 | percent, should still apply. | 16 | MR. WILLMS: Could you refer me 17 | to that other table, please. | 18 | MR. REID: It is Table L3, in 19 | your Application. | 20 | You can accept it, subject to 21 | check, sir. | 22 | MR. WILLMS: In the Application? | 23 | MR. REID: Yes. | 24 | MR. WILLMS: I think I will take 25 | that subject to check. | 26 | Q. Thank you. | 27 | Can you tell me, Mr. Willms, why 28 | a discount rate of 11.86 percent was used to 29 | respond to TransCanada's Request 2(b)? | 30 | MR. WILLMS: That is the pre-tax | | (Joint Position Panel) 9534 SOEP/M&NPP/N.S./N.B. | 1 | rate. The 9.3, or whatever the other number was, cr-ex (Reid) 2 | was the post-tax rate. | 3 | Q. Thank you. | 4 | In your Response to Question 5 | 2(b), you provided two separate cases. | 6 | Correct? | 7 | MR. WILLMS: Yes. | 8 | Q. Can you confirm for me, Mr. 9 | Willms, that despite TransCanada's request that a
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10 | constant throughput of 530,000 MMBtu per day be 11 | assumed so that an apples-to-apples comparison 12 | could be made of different volume distributions, 13 | Maritimes & Northeast responded by providing 14 | TransCanada with two cases that had different 15 | total throughputs? | 16 | MR. WILLMS: Yes. Let me explain 17 | that for a second. | 18 | We were given the Information 19 | Request, I believe, at 9 o'clock on a morning, and 20 | something like 48 hours later we had to have 21 | Responses. | 22 | What we have done here, Mr. Reid, 23 | is we have chosen cases in which we had capital 24 | cost estimates. We had done the work on it. We 25 | could not in that time come up with new projects, 26 | with new capital cost estimates, with new lateral 27 | costs, and so on. | 28 | So, we took from the material 29 | that we had filed here those types of cases that 30 | we had already done the work on. | | (Joint Position Panel) 9535 SOEP/M&NPP/N.S./N.B. | 1 | We simply did not have the time cr-ex (Reid) 2 | to replicate an entirely new pipeline scheme. | 3 | We were not able to do that that 4 | quickly with any credibility. | 5 | We have chosen to use material as 6 | close as possible to your Request, but using 7 | actual work that we had already done. | 8 | Q. But your Tolls Case is based 9 | on a Base Case assumption of 530,000 per day with 10 | 440,000 in the U.S. and 90,000 in Canada, is it 11 | not? | 12 | MR. WILLMS: That is correct. | 13 | Q. Where did the 550,000 per day 14 | come from, Mr. Willms? | 15 | That is the first time, I think, 16 | that that kind of a volume has been assumed, isn't 17 | it? | 18 | MR. WILLMS: I think there was a 19 | case run in which we had a 110 for the Maritimes. 20 | I believe it was 65 million a day into Saint John 21 | and 45 million into Halifax, and the 440 at the 22 | border, which would add up to 510.
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| 23 | I don't recall exactly what 24 | Response that was, but that work has been done and 25 | has been utilized in this case somewhere. | 26 | Q. You were here yesterday when 27 | Mr. Miller confirmed for Mr. Lewis that the daily 28 | average production from SOEP would be 480 MMBtu 29 | today, and it could go as high as 530. | 30 | Correct? | | (Joint Position Panel) 9536 SOEP/M&NPP/N.S./N.B. | 1 | MR. WILLMS: Yes. cr-ex (Reid) | 2 | Q. Would you agree with me, sir, 3 | that 550 per day is something of a stretch? | 4 | MR. WILLMS: Yes, it is. | 5 | Q. Thank you. | 6 | MR. WILLMS: It was as close as 7 | we could get to your second alternative, where you 8 | wanted 110 -- sorry. | 9 | We were attempting to replicate 10 | as close as possible we could to your case. | 11 | I concede that the 550 is 12 | different than has been discussed here earlier in 13 | the Proceeding at one point. | 14 | Q. In Information Request 2(c), 15 | TransCanada requested that Maritimes & Northeast 16 | "provide the present value of the aggregate annual 17 | cost of service and revenues over the life of the 18 | project" for the Original Case. | 19 | Correct? | 20 | MR. WILLMS: Yes. | 21 | Q. And in 2(d), when we 22 | requested a comparison of the present values 23 | generated in Response to I.R. 2(b) with the 24 | present value generated in Response to I.R. 2(c), 25 | your Response is that the present values for (b) 26 | and (c) are different because those cases have 27 | different volume assumptions and different lateral 28 | capital amounts. | 29 | Correct? | 30 | MR. WILLMS: Yes. |
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| (Joint Position Panel) 9537 SOEP/M&NPP/N.S./N.B. | 1 | Q. And Maritimes and & Northeast cr-ex (Reid) 2 | had to compare those different volume assumptions 3 | and different lateral capital amounts because the 4 | answers that you provided in Response to 2(b) make 5 | those assumptions as to volume and lateral costs. | 6 | Is that not correct? | 7 | MR. WILLMS: Yes. | 8 | Q. So that your inability to 9 | make an apples-to-apples comparison in Response to 10 | 2(d) is because you chose to provide answers in 11 | 2(b) that made those comparisons impossible. | 12 | Correct? | 13 | MR. WILLMS: We did not choose to 14 | do that, but that is what we have presented. | 15 | If you wished, I could take the 16 | original Application as we had pre the --- 17 | Well, we have the pre-discount. | 18 | I could give you the original 19 | Application, post Joint Agreement, if that would 20 | be helpful, and you could compare those. | 21 | Q. I don't think we need it 22 | right now, sir. | 23 | MR. WILLMS: All right. | 24 | Q. I take it you would agree 25 | with me, Mr. Willms, on the basis of the second 26 | paragraph of Maritimes & Northeast Response 2(d) 27 | that, for a given case, the Joint Position will 28 | not change the present value of the aggregate 29 | annual cost of service. | 30 | Will it? | | (Joint Position Panel) 9538 SOEP/M&NPP/N.S./N.B. | 1 | MR. WILLMS: Actually, in that cr-ex (Reid) 2 | one I overstated myself a little bit. I should 3 | have said "will not materially change". I would 4 | like to add that word in there, if I may, at this 5 | point in time. | 6 | They come very close to being the 7 | same, sir. | 8 | Q. So, on a present value basis, 9 | Maritimes & Northeast has not really given up
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10 | anything in the Joint Position. | 11 | Correct? | 12 | MR. WILLMS: If you look at it on 13 | a present-value basis, over time, the two come 14 | very close. | 15 | The benefit, of course, is --- 16 | Just like you and I: if we have 17 | money in the bank today, I would rather have that 18 | in the bank than in Year 24. | 19 | So, the value of the Joint 20 | Position to the participants is that they get the 21 | discount in the early years, when money is worth 22 | something, or is more meaningful. | 23 | Q. What the Joint Position 24 | creates is a "pay me later" as opposed to a "pay 25 | me now" situation. | 26 | Doesn't it? | 27 | MR. WILLMS: I am sorry, I missed 28 | that question. | 29 | Q. Does the Joint Position not 30 | create a "pay me later" as opposed to a "pay me | | (Joint Position Panel) 9539 SOEP/M&NPP/N.S./N.B. | 1 | now" situation? cr-ex (Reid) | 2 | MR. WILLMS: As we discussed 3 | yesterday, what this does is give some material 4 | discounts for the first ten years. There is 5 | always the risk -- that is then being taken by the 6 | Proponents in Years 10 to 25 -- that that 7 | additional capital cannot be recovered. | 8 | Competitive conditions, 9 | regulatory conditions may change. | 10 | So, you have shifted the risk 11 | profile. | 12 | Q. Mr. Willms, I would like to 13 | refer you to your Response to TransCanada's I.R. 14 | 3(a). | 15 | MR. WILLMS: Number 3(a)? | 16 | Q. Yes. I take it from the 17 | Answer given there, Mr. Willms, that Maritimes & 18 | Northeast is saying that under the Joint Position, 19 | traffic to each of Nova Scotia, New Brunswick and
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20 | the export point is distinct traffic, and that 21 | justifies the different toll that we pay to 22 | service each point. |
| | 23 | MR. WILLMS: Mr. Reid, what we 24 | are saying here is that the Parties have come to 25 | an agreement; and if we go to the Board, we are 26 | considering whether the Board, under its Act, has 27 | some discretion to accept tolls that are 28 | different. | 29 | We certainly believe that, under 30 | the Act, and under some of the decisions that the | 9540 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Reid) 1 | Board has made in the past, it is obvious that the 2 | Board has that discretion. | 3 | Q. That was not my question, 4 | sir. | 5 | What I asked you was: Is it not 6 | Maritimes & Northeast's position that each of Nova 7 | Scotia, New Brunswick and the export point have 8 | distinct traffic? | 9 | MR. WILLMS: I had not thought 10 | about it that way. When we were working on the 11 | Joint Agreement, I certainly did not think about 12 | it that way. I looked at it as a toll, a postage 13 | stamp toll, but with some specific discounts for 14 | specific parties, per agreement. | 15 | If you want to characterize that 16 | as "distinct traffic" and "distinct locations", so 17 | be it. | 18 | Q. But under the original 19 | tolling proposal, the full postage stamp, your 20 | position was that traffic to each of Nova Scotia, 21 | New Brunswick and the export point was not 22 | distinct--was it not--because it was going to all 23 | pay the same toll? | 24 | MR. WILLMS: We did have tolls 25 | that were going to be identical in all of those 26 | locations; that is correct. | 27 | Q. So the same metamorphosis 28 | that occurred on June 18th will also occur at the 29 | end of three years, when the New Brunswick 30 | discount ends; and at the end of ten years, when
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| 9541 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Reid) 1 | the Nova Scotia discount ends. | 2 | Correct? | 3 | MR. WILLMS: Pursuant to the 4 | Agreement, that is correct. | 5 | Q. So, in Year Eleven the 6 | traffic that was formerly distinct -- and that 7 | distinctiveness justified differential tolls -- 8 | will become traffic of the same description. | 9 | Right? | 10 | MR. WILLMS: It depends on the 11 | regulatory conditions of the day. They may or 12 | they may not. | 13 | Under our Pro Formas here, we 14 | have assumed that it would go back to postage 15 | stamp at that point in time. But who knows. | 16 | Q. But the present assumption is 17 | that it will be postage stamp in Year Eleven. | 18 | MR. WILLMS: It is. | 19 | Q. Thank you. | 20 | In your Response to TransCanada's 21 | Information Request No. 3(b), I noted that you 22 | assumed volumes of 121,000 MMBtu per day to 23 | Halifax, 128,000 MMBtu per day to Saint John, and 24 | 440,000 MMBtu per day still going to export. | 25 | And that was for November 1, 26 | 1999. | 27 | My math tells me that that is a 28 | total of 689,000 MMBtu per day. | 29 | My question is: Where did all 30 | that gas come from? | 9542 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Reid) 1 | MR. WILLMS: Sir, I believe 2 | during the course of these proceedings we have had 3 | many, many alternatives that we have looked at, 4 | and that we have been asked to look at, and some 5 | of them had volumes that added up to in excess of 6 | 700 million a day. | 7 | For purposes of calculation and
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8 | description, those were used. | 9 | This came from, as it says here, 10 | Exhibit B-2-53, in which these kinds of volumes 11 | were looked at. | 12 | I am not sure whether they were 13 | based on someone's assumption or request of us. 14 | But there has been a wide variety of scenarios put 15 | before this Panel. | 16 | Q. You would agree with me, sir, 17 | that 689,000 MMBtu far exceeds what the SOEP 18 | Application is. | 19 | Would you not? | 20 | MR. WILLMS: It certainly exceeds 21 | their view of what volumes would initially flow 22 | from those fields; that is correct. | 23 | Q. Thank you. | 24 | Mr. Hogg, I would like to get an 25 | appreciation for the evolution of the Province's 26 | approach to tolling and laterals. | 27 | If I can quickly summarize where 28 | you were prior to the Joint Position -- and I am 29 | taking this from the Policy Evidence that Mr. 30 | Huber had you adopt on June 5th. | 9543 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Reid) 1 | Your position on June 18th was 2 | that mainline tolls would be point-to-point; 3 | laterals would be tolled incrementally; and that 4 | laterals, because they were part of a local 5 | distribution system, or could be part of a local 6 | distribution system, were under Provincial 7 | jurisdiction. | 8 | Is that accurate, sir? | 9 | MR. HOGG: Yes, that is fairly 10 | accurate. | 11 | Q. And as of June 19th, your 12 | position is: postage stamp for all Maritime & 13 | Northeast deliveries, with some initial discounts, 14 | of course; the Halifax Lateral will now be under 15 | Federal jurisdiction; and jurisdiction over future 16 | laterals is still an open question. | 17 | Is that also accurate? | 18 | MR. HOGG: Yes. There was a
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19 | question similar to that yesterday, where I went 20 | through the objectives of the Province and how the 21 | Joint Position met those objectives. | 22 | Your summary of the Joint 23 | Position is fair. | 24 | Q. Thank you. | 25 | Mr. Hogg, would you agree that a 26 | postage stamp tolling methodology and a point-to- 27 | point tolling methodology are polar opposites? | 28 | MR. HOGG: They have been 29 | characterized as polar opposites during this 30 | Hearing. They are certainly different, yes. | 9544 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Reid) 1 | Q. All right. Thank you. And 2 | when I reviewed your original Evidence again, Mr. 3 | Hogg, I observed that you noted, on page 10 of 4 | your Evidence, and I quote: 5 | "The development of markets in 6 | Nova 7 | Scotia and local supporting 8 | distribution systems will require 9 | time, and more importantly, the 10 | right 11 | combination of transportation 12 | tolls 13 | and commodity prices." 14 | Do you recall making that 15 | statement, Mr. Hogg? | 16 | MR. HOGG: Yes. | 17 | Q. That is a fairly basic 18 | principle. | 19 | Correct? | 20 | MR. HOGG: Yes. | 21 | Q. So I take it that the "right 22 | combination of transportation tolls and commodity 23 | prices" remains as important to the development of 24 | Nova Scotia markets today, under the Joint 25 | Position, as it was under the Province's original 26 | position. | 27 | Correct? | 28 | MR. HOGG: Yes, that is correct. | 29 | Q. And really, all that 30 | statement recognizes is that it is the delivered
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| 9545 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Reid) 1 | cost of gas that is important. | 2 | Correct? | 3 | It recognizes there is a 4 | transportation component and a commodity price 5 | component; but at the end of the day, that is what 6 | it costs to have gas on your doorstep? | 7 | MR. HOGG: I think it would be 8 | useful to refer to the entire paragraph --- 9 | Q. Certainly. | 10 | MR. HOGG: -- which I think puts 11 | it in context. | 12 | The first part of your point is 13 | true, that an important feature of markets is the 14 | delivered price of gas. But the paragraph also 15 | goes on to talk about ensuring that there is 16 | enough capacity and that there is a transportation 17 | system, as well as the supply of gas, in order for 18 | everything to come together. | 19 | The delivered price of gas, if 20 | you assume all of the other infrastructure and 21 | supply, is important. But there are, of course, 22 | many other factors besides just that one. | 23 | Q. That is fair, sir. | 24 | And it would be a fair 25 | assumption, Mr. Hogg, that because the cost of the 26 | commodity and the cost of transportation go hand- 27 | in-hand, that you would have considered the likely 28 | price that Nova Scotians would pay for the 29 | commodity in arriving at your original position on 30 | tolling? | 9546 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Reid) 1 | MR. HOGG: The original position 2 | on tolling was concentrated and focused on 3 | tolling. But the end price, the delivered price, 4 | as you pointed out before, is always a factor. | 5 | Q. So did you consider commodity 6 | price, Mr. Hogg, when arriving at your original 7 | tolling position? | 8 | MR. HOGG: I would repeat what I 9 | said before, that the primary focus was on tolling 10 | and transportation costs. The commodity cost was 11 | a factor, but not a major factor.
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| 12 | Q. Did you make an assumption as 13 | to commodity price? For instance, did you assume 14 | the Boston price? | 15 | MR. HOGG: That has been the 16 | normal reference point, yes. | 17 | Q. All right. And before 18 | agreeing to the Joint Position, did the Province 19 | revisit the tolling and commodity price 20 | combination to ensure that Nova Scotia's delivered 21 | cost of gas would promote the development of Nova 22 | Scotia gas markets, sir? | 23 | MR. HOGG: Yes. I emphasize, 24 | again, the focus was on transportation. But the 25 | commodity price was referred to in agreeing to the 26 | Joint Position. | 27 | Q. And how was that commodity 28 | price reconsidered, sir? | 29 | MR. HOGG: Did you say 30 | "reconsidered"? | 9547 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Reid) 1 | MR. REID: Well, I am assuming -- 2 | - 3 | Well, "referred to" I think those 4 | were your words. | 5 | I don't want to put words in your 6 | mouth, sir. | 7 | MR. HOGG: It was referred to in 8 | the context of the relationship or the proportion 9 | of the transportation costs to a likely commodity 10 | cost, and what component that would be of the 11 | delivered price. |
| | 12 | Q. What was that relationship, 13 | sir? | 14 | Is the commodity price 15 | approximately 80 percent, 70 percent, of the total 16 | delivered cost of gas? | 17 | MR. HOGG: That sounds a little 18 | high; I don't have the actual proportion. | 19 | It depends upon, obviously, the 20 | commodity price that you assume. That would
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21 | influence the proportion that you referred to in 22 | your question. | 23 | Q. But the commodity price is 24 | certainly more than 50 percent of the total 25 | delivered cost of gas. | 26 | Is it not? | 27 | MR. HOGG: Yes. | 28 | Q. Thank you. | 29 | You are aware, sir, that the 30 | TransMaritime Pipeline Project Evidence was heard | 9548 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Reid) 1 | on June 11th and 12th. | 2 | MR. HOGG: I will take your word 3 | for that. | 4 | Q. In arriving at the Joint 5 | Position, sir, did the Province ever give any 6 | consideration as to what commodity prices or 7 | transportation prices would be in Nova Scotia if 8 | there was a connection to the Canadian pipeline 9 | grid through the TransMaritime Pipeline Project? | 10 | MR. HOGG: Yes, I believe they 11 | took that into consideration. | 12 | Q. All right; thank you. | 13 | I am assuming, Mr. Hogg, that, 14 | prior to signing the Joint Position, you gave some 15 | consideration to the impact of postage stamp 16 | tolling methodology on Nova Scotia gas markets. | 17 | MR. HOGG: We gave consideration 18 | to the postage stamp approach, with the 10 percent 19 | discount for eight years and 4 percent discount 20 | for two years; yes. | 21 | Q. And in Year Eleven, sir, you 22 | are going to have a straight postage stamp 23 | methodology. | 24 | Are you not? | 25 | MR. HOGG: As was mentioned 26 | before, that is one of the possibilities; but 27 | there are other possibilities, as well. | 28 | Q. Certainly there are, sir. |
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29 | Would you agree with me that, 30 | once the infrastructure develops around a mainline | 9549 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Reid) 1 | gas transmission system, parties have responded to 2 | certain economic signals, and one of those would 3 | be the tolling methodology, and ten years out it 4 | becomes a little more difficult to change the 5 | tolling methodology? | 6 | MR. HOGG: Yes. However, it is 7 | not that long ago that the regulatory system in 8 | Canada was substantially different than what it is 9 | today. The same considerations would apply, 10 | whether you were looking at the situation ten to 11 | eleven years ago or looking at it ten to eleven 12 | years from today. | 13 | But, yes, people will invest in 14 | infrastructure based on their best assumption of 15 | what the future environment will be. | 16 | MR. WILLMS: If I could add just 17 | one small comment. | 18 | My experience is that, on a new 19 | pipeline like this, in ten years we may have a 20 | better handle and indication of where the markets 21 | are, where they are developing, and you may 22 | actually be in a position to look at a different 23 | toll design at that time, which may reflect the 24 | realities of the day. | 25 | Q. But right now, Mr. Willms, it 26 | 27 | is postage stamp in Year Eleven, under the terms | of the Joint Position. 28 | | Correct? 29 | 30 | MR. WILLMS: That is our | position, at this stage; yes. 9550 SOEP/M&NPP/N.S./N.B. | | (Joint Position Panel) cr-ex (Reid) 1 | | Q. Thank you. 2 | 3 | Mr. Hogg, as part of your 4 | consideration of postage stamp tolling 5 | methodology, did you look at the postage stamp | experience on other pipeline systems? 6 | 7 | MR. HOGG: We were aware of the 8 | postage stamp situation in other provinces and, to | that extent, took it into consideration. 9 |
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10 | I am not sure if your question is | broader than that. 11 | 12 | Q. Would you be familiar with | the NOVA System in Alberta, Mr. Hogg? 13 | 14 | MR. HOGG: No, I wouldn't say 15 | that I am familiar, in detail, with that system; | no. 16 | 17 | Q. So you didn't take into 18 | consideration the fact that NOVA uses the postage 19 | stamp tolling methodology, in arriving at the 20 | Province's position to accept, for the time being, | the postage stamp tolling methodology? 21 | 22 | MR. HOGG: The Province knows 23 | that there are postage stamp arrangements in other 24 | Provinces. I am not personally aware of the | intricacies of how that works in those Provinces. 25 | 26 | But the fact that there are 27 | postage stamp arrangements in other Provinces, and 28 | with the more expert opinion of our staff, that | was taken into account. 29 | | Q. All right. 30 | | So you have an understanding that 9551 SOEP/M&NPP/N.S./N.B. | | (Joint Position Panel) cr-ex (Reid) 1 | | NOVA uses a postage stamp, then. 2 | | Correct? 3 | 4 | MR. HOGG: I am not qualified to | talk about the NOVA System. 5 | | MR. REID: All right. 6 | 7 | Mr. Chairman, those are all of my | questions. 8 | | Thank you, gentlemen. 9 | | THE CHAIR: Thank you, Mr. Reid. 10 | 11 | MR. NOONAN: Gazoduc Trans Québec | & Maritimes Pipeline Inc.? 12 | 13 | MR. LECLERC: Good morning, Mr. | Chairman, Panel Members. 14 | 15 | THE CHAIR: Good morning, Mr. | Leclerc. 16 |
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17 | MR. LECLERC: Rest assured, sir, | I will not add my two bits.
| | 18 | CROSS-EXAMINATION BY MR. LECLERC, ON BEHALF OF 19 | TQ&M: 20 | Q. Gentlemen, I would just like 21 | to clarify some of the answers that were given 22 | yesterday -- because all of the areas I wanted to 23 | cover have already been addressed. | 24 | The first area is for you, Mr. 25 | Hogg; and for Mr. Barnett. | 26 | Is it fair to characterize the 27 | Agreement that you reached, or the Joint Position, 28 | as the introduction of development rates on the 29 | M&NE Pipeline. | 30 | Is that your understanding of the | 9552 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | Agreement that you signed? | 2 | MR. HOGG: I think you may be 3 | using a more technical phrase than I am familiar 4 | with. | 5 | I would refer you to page 1 of 6 | the Agreement, where it says "lower rates to help 7 | develop the Canadian market". | 8 | Q. That is where I got 9 | "development rates" from, sir. | 10 | And that this is achieved through 11 | a discount on the rates that would otherwise be 12 | payable if the full postage stamp rate were in 13 | place. | 14 | MR. HOGG: Yes. | 15 | Q. Is it fair to say, sir, that 16 | neither Nova Scotia nor New Brunswick had seen the 17 | need for this type of development rate up to June 18 | the 19th, nor advocated this type of rate? | 19 | MR. BARNETT In the case of New 20 | Brunswick, that is correct. | 21 | Q. And Nova Scotia, sir...? | 22 | MR. HOGG: I would not quite 23 | characterize it that way.
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| 24 | Our intent has always been for 25 | lower rates. That was our previous evidence, and 26 | that is the result of the Joint Position. | 27 | I think the only thing that is in 28 | question is how much lower. | 29 | Q. Yes. But your philosophy, or 30 | your approach, was different than development | 9553 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | rates off of the postage stamp. You were 2 | advocating point-to-point. | 3 | Were you not? | 4 | MR. HOGG: The motives or the 5 | reasons may have been different, but the --- 6 | Q. I am not debating that. I am 7 | debating the means by which you will achieve your 8 | objective. | 9 | MR. HOGG: Yes, that is correct. 10 | The Original Evidence was on the methodology. The 11 | Joint Position is what it says. | 12 | Q. Could you tell us whose idea 13 | this was? | 14 | Surely, it was not yours in Nova 15 | Scotia -- because you were advocating point-to- 16 | point. | 17 | Who came up with the idea of 18 | discounts off the postage stamp rates? | 19 | MR. HOGG: I am not sure that 20 | there is a single person that came up with that 21 | approach. | 22 | The Parties had objectives. They 23 | discussed those objectives, and methods to -- as 24 | the first paragraph says -- find a solution to the 25 | conflicting toll recommendations; meet Nova 26 | Scotia's objectives and New Brunswick's. | 27 | I cannot attribute where that 28 | idea arose initially, but it was certainly 29 | something that was on the common minds of everyone 30 | involved. | | (Joint Position Panel) 9554 SOEP/M&NPP/N.S./N.B. | 1 | That was my understanding. cr-ex (Leclerc) |
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2 | Q. Let me take it this way: Was 3 | it your suggestion, initially? | 4 | MR. HOGG: As I indicated 5 | yesterday, I was not at the Table. I was informed 6 | as things progressed. | 7 | But others who were --- 8 | Q. Before we get to others... | 9 | You indicated that you were not 10 | there; but were you informed as to whether or not 11 | this idea originated from Nova Scotia? | 12 | MR. HOGG: No, I was not informed 13 | as to who first proposed the idea. I knew what 14 | our objectives were. I was informed what the 15 | objectives of the other Parties were; and I was 16 | informed of possible potential solutions. | 17 | But, I was not told, and I do not 18 | know who individually --- 19 | Q. That is fair, Mr. Hogg. | 20 | Were you involved, Mr. Barnett, 21 | in these discussions? | 22 | MR. BARNETT: No, I was not. | 23 | As you perhaps remember, the day 24 | I appeared as a New Brunswick Policy Witness, I 25 | had had a call to go back to Fredericton -- I 26 | think it was June the 11th. | 27 | I was apprised at that time, when 28 | I got back to Fredericton, that the negotiations 29 | were starting. | 30 | I was not apprised of the details | | (Joint Position Panel) 9555 SOEP/M&NPP/N.S./N.B. | 1 | of those negotiations, and I was not part of those cr-ex (Leclerc) 2 | negotiations. | 3 | They were done at the Senior 4 | level. | 5 | Q. Were you informed as to 6 | whether or not this idea originated from New 7 | Brunswick? | 8 | MR. BARNETT: No, I was not. | 9 | Q. Thank you. | 10 | That leaves you, Mr. Willms.
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| 11 | Can you help us out? | 12 | MR. WILLMS: Let me say that all 13 | Parties went into these discussions with the 14 | intent to get a "win/win/win" situation for 15 | everybody, and one of the objectives was to do that. | 16 | I do not know if I can specify 17 | exactly whose idea it was to get a discount, but 18 | obviously Nova Scotia was seeking a differential 19 | lower than the postage stamp. That was really the 20 | starting point of the discussions, and the 21 | discussions raged on about the size of the 22 | discount and the length of the discount. | 23 | I do not think it is possible to 24 | attribute it to one individual. It was the result 25 | of the objective of this entire group to come up 26 | with a solution that all Parties could be 27 | satisfied with. | 28 | Q. I understand that that is the 29 | end result; but I am trying to focus on who came 30 | up with the idea. | | (Joint Position Panel) 9556 SOEP/M&NPP/N.S./N.B. | 1 | Why I am doing so is very simple, cr-ex (Leclerc) 2 | sir. | 3 | We had two Parties with very 4 | opposing views, including the Proponents, 5 | including New Brunswick and Nova Scotia, and this 6 | had never been addressed before. | 7 | I am trying to find out who 8 | brought up the idea. | 9 | You were involved in the 10 | negotiations, were you not? | 11 | MR. WILLMS: Yes, I was. | 12 | Q. Are you telling us now that 13 | you do not recall who brought in that idea, or 14 | whether it was not Westcoast or M&NE? | 15 | MR. WILLMS: Certainly, during 16 | the discussions I recall that I, on behalf of 17 | Maritimes & Northeast, put up various scenarios of 18 | discounts and alternatives, and so on, as other 19 | Parties put up various scenarios of discounts and 20 | other alternatives, and what you see here is the 21 | product of those discussions over a period of 22 | time. |
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23 | Q. So, is that a "yes" or a "no" 24 | to the question: Did it or did it not originate 25 | from M&NE? | 26 | MR. WILLMS: I would not say it 27 | originated --- 28 | In the give-and-take of 29 | negotiations like that, it was not as if we 30 | presented one and then somebody else presented | | (Joint Position Panel) 9557 SOEP/M&NPP/N.S./N.B. | 1 | another. It was everybody trying to meet the cr-ex (Leclerc) 2 | objectives of a win/win for all Parties, and the 3 | result was this. | 4 | Q. Mr. Miller, could you shed 5 | any light on this? | 6 | MR. MILLER: No. I think Mr. 7 | Willms has described the process very well. | 8 | Q. You were not involved in any 9 | discussions, as I understood your statement 10 | yesterday. | 11 | Is that correct? | 12 | MR. MILLER: No, I don't think 13 | I --- 14 | Q. Did I misunderstand that? I 15 | am sorry. I thought you said you were not 16 | directly involved in the negotiations. | 17 | Did I misunderstand? | 18 | MR. MILLER: I was not directly 19 | involved in the whole process of the negotiations, 20 | but I was involved in some of the latter parts, to 21 | finalize the position; and I was, obviously, a 22 | Signatory to the Position. | 23 | Q. In the latter parts in which 24 | you were involved, could you help me out in my 25 | quest to find out where the idea came from? | 26 | MR. MILLER: No, because I was 27 | not involved in the early parts. By the time I 28 | was directly involved in it, they had focused 29 | pretty much on a narrow range of options. | 30 | Q. Mr. Hogg, before the Province | | (Joint Position Panel) 9558 SOEP/M&NPP/N.S./N.B. | 1 | of Nova Scotia accepted this as a reasonable cr-ex (Leclerc) 2 | compromise, did you verify, or did you have
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3 | someone verify, with the NEB whether there was any 4 | precedent for this type of arrangement? | 5 | MR. HOGG: The mechanisms and the 6 | precedents were discussed, yes. | 7 | Q. Did you verify that? Did you 8 | ask that that be done, on behalf of the Province 9 | of Nova Scotia? | 10 | MR. HOGG: Yes, I asked, and it 11 | was part of the process to find out how this 12 | methodology would work. | 13 | As Mr. Willms pointed out 14 | previously, there are a number of ways that you 15 | could have come to meet the objectives of the 16 | Parties, and this was what the result of the 17 | negotiations were. | 18 | Q. I understand that. But that 19 | is not what I am focusing on. | 20 | You said that you asked that that 21 | be verified. | 22 | Was that asked of someone you had 23 | retained previously? Or was that asked of someone 24 | within the Discussion Group? | 25 | MR. HOGG: It was both. We asked 26 | Staff of the Department what their knowledge was 27 | of similar agreements, and information was 28 | provided during these discussions from the 29 | Proponents. | 30 | Q. Were you provided with such | | (Joint Position Panel) 9559 SOEP/M&NPP/N.S./N.B. | 1 | precedent, sir, for the type of arrangement that cr-ex (Leclerc) 2 | is now before the Board? In other words, 3 | development rates which are afforded to some 4 | clients but not all clients? |
| | 5 | MR. HOGG: We were provided with 6 | the information that there had been market 7 | development rates in other systems. The timing 8 | and the amount had been different; but the 9 | information that I was provided with is that there 10 | is precedent for this approach. | 11 | But I do not believe anyone
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12 | confirmed that there was an identical arrangement 13 | for the same length of time, and the same 14 | discount, and that sort of thing. But, the 15 | concept of market development rates was confirmed 16 | as having occurred before. | 17 | Q. Does your recollection go to 18 | the extent --- 19 | I am trying to focus on the fact 20 | that development rates are being offered to some 21 | of the clients of the Pipeline, but not all of the 22 | clients. | 23 | MR. HOGG: I don't have that 24 | distinction. | 25 | Q. Thank you. | 26 | As I understood the evidence 27 | yesterday, sir, Nova Scotia did not conduct a 28 | thorough analysis as to whether or not the end 29 | result of this discount would allow gas to 30 | penetrate the Nova Scotia market. | 9560 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | That is the stated objective of 2 | the rate, is it not? | 3 | Did I understand that correctly? | 4 | MR. HOGG: No, you misunderstood. | 5 | Q. So, what did you? What did 6 | you do to assure yourself that the end result of 7 | the compromise you reached --- 8 | As I understood the discussion 9 | yesterday, for illustrative purposes a 54-cent 10 | toll off of M&NE would allow you to penetrate the 11 | Nova Scotia markets. | 12 | How did you test whether that 13 | would be the case? | 14 | MR. HOGG: As I pointed out 15 | yesterday, the development of the market in Nova 16 | Scotia and New Brunswick is significantly 17 | different than elsewhere in Canada, as well as in 18 | the States. | 19 | Determining how changes in the 20 | level of tolls will impact on the market is very 21 | difficult, if not impossible to do. | 22 | The information that we had is 23 | that, based on the applied-for tolling 24 | methodology, there had been Precedent Agreements
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25 | signed in Nova Scotia and New Brunswick. | 26 | That was an indication that there 27 | was interest in gas -- not necessarily acceptance 28 | of the tolls. And there were also discussions 29 | going on with the producers as to the purchase of 30 | the commodity. | 9561 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | What that establishes is that 2 | there is certainly a high level of interest in 3 | gas. | 4 | Obviously, anything that you can 5 | do to reduce the cost of that, to reduce the 6 | transportation cost of that, will increase the 7 | interest and increase the number of customers that 8 | sign up to get access to the gas. | 9 | We were also mindful that in 10 | respect of the Evidence that we submitted, and 11 | others submitted, as with any other tribunal 12 | approach, you are never assured that you are going 13 | to achieve that. | 14 | So, the approach that was taken 15 | was that the impact could not be quantified; but 16 | anything that moved the toll in the direction that 17 | lowered the cost was a worthwhile objective. | 18 | Q. Let me try to understand 19 | that. | 20 | I would have thought, sir -- and 21 | possibly I am wrong; and correct me if I am wrong, 22 | sir -- that the ability for gas to penetrate the 23 | market, be it in Nova Scotia or any other market, 24 | will in large part depend on the cost of alternate 25 | fuels to the end-user, the person who is called 26 | upon to make the choice as to whether or not they 27 | will choose gas, electricity, or some other fuel. | 28 | MR. HOGG: That is one factor, 29 | but not the only factor. | 30 | Q. Would you agree that it is | 9562 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | one of the main factors? | 2 | Why would someone --- 3 | MR. HOGG: There are many reasons 4 | why they would do it. They could it for 5 | operational efficiency reasons; they could do it 6 | because other forms of energy just don't produce
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7 | the level of energy that they need; they could do 8 | it for environmental reasons. | 9 | But in assessing whether they do 10 | it, once they have taken all of those other things 11 | into account, cost would be important, yes. | 12 | Q. Are you aware of the cost of 13 | alternate fuels in Nova Scotia? | 14 | MR. HOGG: Somewhat. I cannot 15 | list them for you. | 16 | Q. Would it not have been of 17 | interest to Nova Scotia to find out the cost of 18 | alternative fuels, to determine whether or not, on 19 | an empirical basis, and a sensitivity-analysis 20 | basis, the compromise that you have achieved would 21 | in fact allow you to reach your stated objective, 22 | which is to develop the market. | 23 | MR. HOGG: When I said that I 24 | could not list the alternate costs, it is because 25 | I don't have them here with me. | 26 | If you look at power generation, 27 | the costs of power generation with coal and with 28 | oil are known to be fairly low-cost. | 29 | In certain instances, gas is 30 | higher. If you look at residential markets, gas | 9563 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | can be lower than other forms of energy. | 2 | But because gas isn't present, to 3 | try to predict how much a change an anticipated 4 | potential asked-for toll would have on the market 5 | would be -- I am not sure what value that would 6 | be. | 7 | The objective is to get the 8 | lowest toll that is reasonably possible. | 9 | If the cost of the commodity and 10 | the transportation is not economic in comparison 11 | to other fuel sources, and the other reasons that 12 | you may have for using it don't counteract that, 13 | then gas wouldn't be the fuel of your choice. | 14 | Q. Is it fair to summarize when 15 | you say that it is extremely difficult to do, the 16 | situation to be that Nova Scotia has not done it 17 | and that your principal goal was to make sure that 18 | the toll was the lowest possible. |
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19 | Is that fair? | 20 | MR. HOGG: Yes, that is fair, on 21 | the Joint Position, as well as the original 22 | Evidence that we submitted. | 23 | Q. Did I understand you 24 | yesterday -- 25 | I believe it was in a question from Mr. Epstein -- 26 | to say that the end result was a compromise 27 | between the position that you had originally put 28 | forward and the position that was being advocated 29 | by both the Proponents and supported by the 30 | Province of New Brunswick? | 9564 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | MR. HOGG: Yes. | 2 | Q. And when you say it is 3 | somewhere in between, is that not only 4 | philosophically, but as far as the end result as 5 | to actual numbers, in the sense that, according to 6 | your understanding, the proposal that you had put 7 | forth would have produced lower tolls for Nova 8 | Scotians? | 9 | MR. HOGG: I think it has been 10 | mentioned previously --- 11 | MR. LECLERC: I wasn't here, sir; 12 | that is why I wanted to make sure that that was 13 | the case. | 14 | MR. HOGG: -- that the reason for 15 | the compromise is that the tolling recommendations 16 | that had been put forth were in conflict. The 17 | outcome of those conflicting toll recommendations 18 | may not have been one toll or the other. It could 19 | have been some other method that was felt to be 20 | appropriate. | 21 | The Parties wanted to provide 22 | some solution to these conflicting recommendations 23 | and present a Joint Position to the Panel. | 24 | That is what the negotiations 25 | were around. And obviously, that requires some 26 | compromise on what the Parties had stated before, 27 | but keeping in mind what your overall objectives 28 | are in reaching the Joint Position. | 29 | Q. I am not debating that. You 30 | are telling me that you looked at various | 9565 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | solutions and you came to a compromise that you
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2 | thought was acceptable. | 3 | But my question was specifically 4 | addressed to the following: Did your proposal, 5 | according to your analysis, the one that you had 6 | defended up to June 19th, produce lower tolls than 7 | what will flow from this Joint Position? | 8 | And I understand that you have 9 | reasons why you would move from the lower toll to 10 | what you are now suggesting. All I am questioning 11 | is whether or not that was the case. | 12 | MR. HOGG: Yes, that is the case. | 13 | What I was trying to explain is 14 | that that was our position. And similarly with 15 | the Proponents. | 16 | Particularly with conflicting 17 | recommendations, there is no assurance that that 18 | is what you would end up with. | 19 | Q. In your discussions with Nova 20 | Scotia, did you try to obtain from SOEP 21 | representatives assurances or an indication as to 22 | what the price would be? | 23 | MR. HOGG: Not during the 24 | discussions. I think the information on pricing 25 | has been discussed throughout the Hearing process. | 26 | Q. As I understand it, all we 27 | have heard is "market", and there has been no 28 | indication at this point in time as to what would 29 | be the exact number. | 30 | MR. HOGG: No, there have not | 9566 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | been discussions about the exact number. Prices 2 | are fairly volatile. | 3 | The discussions have been on what 4 | the benchmark or the reference point would be. | 5 | I think the discussions have been 6 | extensive. | 7 | It is in our Evidence, and it has 8 | been brought out during the discussions before, 9 | how that benchmark would be used. |
| |
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10 | Q. I gather what you are telling 11 | me is what you told Mr. Reid earlier on: that the 12 | Boston price will be the benchmark. | 13 | MR. HOGG: As it stands now, yes. 14 | There could be a better indicator of what the 15 | market price would be. But for the time being, 16 | that is the best indicator. | 17 | Q. I understood, from your 18 | answer to a question from Mr. Reid earlier, that 19 | you had taken into consideration the commodity 20 | price that would flow from an interconnect with 21 | the TransMaritime Pipeline Project as opposed to 22 | the M&NE Project. | 23 | Did I understand that correctly? | 24 | That is what I heard you to say, 25 | sir. | 26 | MR. HOGG: Yes. | 27 | Q. Do you have a recollection of 28 | what price that was? | 29 | MR. HOGG: No. What we are 30 | looking at is --- | 9567 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | Because gas prices are so 2 | volatile, you have to make a lot of assumptions. 3 | They certainly do change considerably. | 4 | Q. Would it be fair to say, sir, 5 | that they would be the prices that are being 6 | achieved in the Western Canadian Sedimentary 7 | Basin? | 8 | MR. HOGG: Yes. But you have to 9 | pick a particular point in time to estimate that. | 10 | Q. There is no disputing that; 11 | thank you, sir. | 12 | Mr. Barnett, did you conduct a 13 | sensitivity analysis as to whether or not the 14 | development rates that were being offered to you 15 | that flowed from this Joint Position would in fact 16 | help you to develop the market in New Brunswick? | 17 | MR. BARNETT: No, sir, we did 18 | not. But, directionally, the 4 percent reduction 19 | was moving in a lower direction; it was taking us 20 | to the 57 cents; 57.6 cents. |
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21 | Based upon the Precedent 22 | Agreements that we had signed by the Irving 23 | Companies and by NB Power --- 24 | They were signed with the 25 | knowledge of a 60-cent toll. | 26 | We did not do a sensitivity 27 | analysis. But I would suggest to you that because 28 | we are now 4 percent lower in the first three 29 | years, it is directionally going in the right 30 | direction. We did not do a sensitivity analysis. | 9568 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | Q. You are in the right 2 | direction, but you don't know whether it will 3 | achieve the result. | 4 | MR. BARNETT: I say it is heading 5 | in the right direction until --- 6 | We have PAs signed, and those are 7 | subject to gas prices, sir. Those private 8 | negotiations have been concluded with the gas 9 | producers. | 10 | But I would repeat: the 11 | reduction in toll is a move in the right 12 | direction, sir; to lower the price. | 13 | Q. Gentlemen, I believe you said 14 | numerous times yesterday that the end numbers, as 15 | far as the percentage points of the discounts -- 16 | in other words, 10 percent -- and the period over 17 | which they are allowed was a result of 18 | negotiations. | 19 | I would like to know from Nova 20 | Scotia: Did you come in in that regard with a 21 | much higher percentage and a much longer period? | 22 | MR. HOGG: As with any process of 23 | negotiation, you always approach the negotiation 24 | with your objectives in mind, as well as an 25 | opening position on what you would like to 26 | achieve. | 27 | Obviously, our beginning 28 | discussions were for something more than what the 29 | final negotiated arrangements resulted in. | 30 | You are talking specifically | 9569 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | about the discounts. | 2 | MR. LECLERC: Yes, that is
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3 | correct. | 4 | MR. HOGG: But there are other 5 | factors in the Joint Position that were considered 6 | as well. | 7 | Q. I understand that. | 8 | But my question is basically the 9 | following: Once you had reached the level of 10 | understanding between the four Parties that the 11 | way to go was discounts off of the postage stamp, 12 | once that was reached, did you come in, on behalf 13 | of Nova Scotia, with a higher discount and a 14 | longer period of time? | 15 | MR. HOGG: My understanding, as 16 | with any other negotiations, is that both Parties 17 | come in with their preferred positions; and 18 | through their negotiations, they compromise on 19 | something that they can live with. | 20 | Q. Is that a "yes". | 21 | MR. HOGG: Did we come in with an 22 | expectation higher than 10-and-4, or hope for 23 | greater?--Yes. But --- 24 | Q. So you did; okay. | 25 | MR. HOGG: But the result of the 26 | negotiations was something that was agreeable to 27 | the Province. And that is just the nature of 28 | negotiations. | 29 | Q. I am not disputing that; I 30 | just wanted to know --- | 9570 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | I was trying to focus on whether 2 | or not the end result of the toll was more 3 | important to Nova Scotia, as opposed to getting a 4 | lower toll than New Brunswick. | 5 | That is what I am trying to focus 6 | on: Which was more important. | 7 | If the end result was more 8 | important, obviously you would have come in with a 9 | much higher discount at the outset, to make sure 10 | that the gas would penetrate the market. | 11 | But if you were only in there for 12 | the question of the principle, so long as you got 13 | a better rate than New Brunswick that would have 14 | been acceptable. |
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15 | MR. HOGG: I am not sure what 16 | your question was? | 17 | Q. The question I was trying to 18 | focus on was: You told me that you did come with 19 | a higher amount -- or, I assumed that to be a 20 | "yes". And if that is a "yes", I have no problem 21 | with that. | 22 | Okay?--Is it a "yes"? | 23 | MR. HOGG: Yes, I think so. | 24 | Q. Thank you. | 25 | MR. HOGG: Just to summarize 26 | again: It was a process of negotiation --- 27 | MR. LECLERC: Yes. | 28 | MR. HOGG: -- parties came 29 | forward with their hopes and expectations; and 30 | through the process of negotiation, we ended up | 9571 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | with the Joint Position. | 2 | So, you can assume that the 3 | Parties went in with, in our case, an expectation 4 | of more; and in the case of the Proponents, an 5 | expectation of less, and the Joint Position is the 6 | product of the negotiations. | 7 | Q. Moving on to another topic. | 8 | I am extremely curious, sir, at 9 | the fact that you were not involved in the 10 | negotiations, and that Mr. Barnett was not 11 | involved in the negotiations. | 12 | Who was involved in the 13 | negotiations, on behalf of the Provinces? | 14 | MR. SMITH: Mr. Chairman, we have 15 | not really intervened that much in any of the 16 | questioning surrounding the various positions and 17 | the dynamics of the substantive result of what was 18 | agreed to. But we do have some reservation about 19 | getting very far into the actual negotiations 20 | themselves, and who might have done what. | 21 | Sir, what we have done is we have 22 | put before you the Joint Position, which reflects 23 | a result that these Parties can live with. It is 24 | respectfully put to this Panel. It is not binding 25 | on this Panel; it is for the Panel's 26 | consideration. It is something that these Parties
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27 | can live with. | 28 | That is the limited purpose of 29 | the Joint Position. | 30 | We would suggest, in light of | 9572 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | that, that it is neither necessary nor appropriate 2 | to start getting into all of the intriguing 3 | details that may have lain in the course of the 4 | weeks of the negotiations, sir; and that includes 5 | who would have been involved. | 6 | MR. LECLERC: Mr. Chairman, if I 7 | may --- 8 | MR. BLUE: Mr. Chairman, I would 9 | only add to Mr. Smith's comments that there is 10 | evidence before you, from both Mr. Hogg and Mr. 11 | Barnett, that the Cabinets of each Province have 12 | approved this Joint Position. And that, in 13 | itself, should tell the Panel everything it needs 14 | to know about who was involved. | 15 | MR. LECLERC: If I may, Mr. 16 | Chairman: This is being brought forward at the 17 | eleventh and-a-half hour of the process. It is 18 | being brought forward as a response to a question 19 | from Mr. Vollman and you yourself, sir, to resolve 20 | a tolling issue, on principles that have been 21 | discussed for several weeks before you. | 22 | I think it is extremely 23 | important, on the issue of weighing the probative 24 | value of this Joint Position, to know whether it 25 | is the result of a political process, or whether 26 | it is the result of weighed and careful 27 | consideration of the principles underlying this 28 | issue. | 29 | I don't propose to go very far 30 | into this. But I would like to know who was | 9573 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | involved in the negotiations, to find out whether 2 | it was strictly a high-level political process and 3 | whether or not the people who had been involved up 4 | to now in counselling, in coming before you and 5 | setting forth principles as to the appropriate 6 | tolling method, were involved in these 7 | discussions. | 8 | I believe that that is important 9 | for you to consider, as to what weight you should 10 | give this Joint Position, as opposed to the
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11 | original position that was put forward. | 12 | MR. SMITH: Mr. Chairman, we are 13 | putting this to you, the Regulators, to determine 14 | whether or not it is appropriate. | 15 | This is a Regulatory process that 16 | we are engaged in and the Signatories, who have 17 | come to an agreement here on several limited 18 | aspects of this much larger proceeding, have 19 | respectfully placed before you their Joint 20 | Position and ask that you consider whether or not 21 | it fits within the public convenience and 22 | necessity and justness and reasonableness, as the 23 | Panel and Board appreciate those concepts. |
| | 24 | Who actually negotiated this, who 25 | may have been involved at all the different times, 26 | sir, I submit, is simply not relevant. | 27 | My friend seeks to put a bit of a 28 | political spin on this. But let's be clear that 29 | the Procureur général du Québec and the Alberta 30 | Department of Energy are also representing | 9574 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | Provinces, as clearly Mr. Blue and Mr. Davies are. | 2 | They are all here before you, 3 | this Panel, to make these decisions. | 4 | We are engaged in a regulatory 5 | process. The outcome of all of these discussions 6 | is focused very much on you. You have complete 7 | discretion whether or not to accept this. | 8 | I don't know that it is necessary 9 | to get into anything that he seems interested in 10 | pursuing at this point. | 11 | MR. LECLERC: I would just add, 12 | Mr. Chairman, if I may, that what my friend is 13 | saying is true. It could have been done through 14 | Argument, like everyone else will be doing. But 15 | this is presented under the guise of a Response to 16 | your concern on tolling principles. | 17 | That is where I part ways with 18 | what my friend is saying. | 19 | As I say, I am not seeking to go 20 | very far on this. I just want to see what level 21 | the negotiations were at.
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| 22 | MR. SMITH: If my friend wants to 23 | pursue with the Witnesses, sir, whether or not 24 | this was done solely because of questions which 25 | arose from the Panel, that is fine; if he wants to 26 | understand what prompted the exercise. | 27 | I submit to him that it wasn't 28 | just the Panel; but clearly, the Panel was part of 29 | it. | 30 | Again, I guess I am a little at | 9575 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | sea now as to what specifically he wants to 2 | pursue. | 3 | THE CHAIR: The principle we have 4 | used all along has been that if an individual is 5 | capable of answering the question, they should in 6 | fact try; if they are unable, then you obviously 7 | have to move on. | 8 | I agree with Mr. Leclerc. | 9 | I think you should continue, Mr. 10 | Leclerc. | 11 | MR. DAVIES: What I have heard 12 | going on here is a debate about a question that 13 | has already been answered. | 14 | As I understand Mr. Leclerc, at 15 | least in terms of the question he posed to Mr. 16 | Hogg, it was: Was the consultant that had been 17 | retained by the Province involved in discussions 18 | respecting the Joint Proposal. | 19 | I think that question was 20 | answered yesterday, in stating that Mr. Drazen was 21 | not involved. | 22 | MR. LECLERC: I was asking who 23 | was involved in the negotiations. | 24 | THE CHAIR: If I understand 25 | correctly, what Mr. Leclerc is asking is: Who sat 26 | at the table and made the decisions? | 27 | MR. LECLERC: Precisely. | 28 | Q. So, Mr. Hogg, who was sitting 29 | at the table on behalf of the Province of Nova 30 | Scotia? | 9576 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel)
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| cr-ex (Leclerc) 1 | MR. HOGG: As I mentioned 2 | yesterday, I wasn't at the table. I didn't ask 3 | for, and didn't receive, a list of names of who 4 | was there from Nova Scotia, or the other Parties. | 5 | Q. Are you telling us that you 6 | don't know? | 7 | MR. HOGG: I don't know all of 8 | the Parties. I know that the Minister was 9 | involved and the Premier's Office was involved. | 10 | I know that I wasn't involved. 11 | But I don't know the others that were there. The 12 | information that I was provided with was: This was 13 | the discussion. What is the technical side of it? | 14 | And that is what we provided. | 15 | I cannot speak to who was in the 16 | room, because I wasn't there. | 17 | Q. I understood your evidence up 18 | to now -- and correct me if I am wrong -- was that 19 | an agreement was reached, and you were presented 20 | with it. | 21 | Is that correct? | 22 | MR. HOGG: No. As the 23 | discussions progressed, I was informed what the 24 | various positions were, the direction in which the 25 | discussions were going, and ultimately it resulted 26 | in this Joint Position, which went to the entire 27 | Cabinet, which they approved. | 28 | Q. How about you, Mr. Barnett? | 29 | MR. BARNETT: I was briefed, but 30 | I was not at the table. I was briefed by the | 9577 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | Minister, at the initial start of the 2 | negotiations. | 3 | I was advised of the decision by 4 | the Secretary to the Cabinet. | 5 | Q. Do you know who participated; 6 | who was sitting at the table? | 7 | MR. BARNETT: No, I do not. | 8 | Q. You, as the Deputy Minister, 9 | do not ---
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10 | MR. BARNETT: I am not the Deputy 11 | Minister, sir. I am the Assistant Deputy 12 | Minister. I report to a Deputy Minister. I was 13 | kept apprised of the negotiations by the Deputy 14 | Minister of Natural Resources and Energy. | 15 | Q. Could you gentlemen tell us 16 | when these discussions started? | 17 | MR. WILLMS: Do you want me to be 18 | helpful here? | 19 | MR. LECLERC: Absolutely -- since 20 | you were there, Mr. Willms. | 21 | And the reason for that is 22 | obvious, I think. | 23 | MR. WILLMS: First of all, there 24 | had been discussions many months ago about the 25 | possibility of finding a win/win solution. It 26 | never came to any conclusion at that point in 27 | time. | 28 | Then, approximately the first 29 | week of June, or late May, there were some 30 | preliminary discussions begun in earnest; and the | 9578 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | discussions became much more intense around the 2 | first week of June. | 3 | Q. So, as I understand that, 4 | prior to the question being asked of you: Is there 5 | any way of solving this binary problem? | 6 | MR. WILLMS: As I said, there had 7 | been discussions months ago, very preliminary 8 | discussions, just asking ourselves: Is there a way 9 | to find a win/win here? And it didn't seem 10 | possible. | 11 | But then, as I indicated, and I 12 | repeat, the discussions really picked up and 13 | intensified again in the first week. | 14 | Q. Was one of the objectives 15 | sought by M&NE in these discussions as early as 16 | June to seek the support of the Provinces of Nova 17 | Scotia and New Brunswick for your Project? | 18 | MR. WILLMS: Clearly, first of 19 | all 20 | -- and I mentioned this yesterday -- it was a 21 | dilemma, when you had two Provinces with distinct 22 | positions, and we felt it would be useful for
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23 | everyone --- 24 | And I am going to be very candid. 25 | Obviously, it would be helpful to our Project if 26 | we could get the Provinces to agree upon a Joint 27 | Position on tolling. | 28 | Q. I would have thought that 29 | that would have been an easy "yes", Mr. Willms. | 30 | MR. WILLMS: Yes, it is. | 9579 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | Q. Go the next step: Was this 2 | one of the principal considerations why you were 3 | entering into the discussions? | 4 | MR. WILLMS: No. The principal 5 | consideration was to try to get some closure on 6 | tolling; to remove the disagreement on tolling. | 7 | Q. Even though the discussions 8 | started prior to the specific question being asked 9 | of you. | 10 | MR. WILLMS: That is true. | 11 | Q. You ultimately got the 12 | support of the Provinces. | 13 | Correct? | 14 | MR. WILLMS: Yes. | 15 | Q. As pointed out in the 16 | penultimate paragraph, I believe. | 17 | MR. WILLMS: Right. | 18 | Q. Would you have accepted to 19 | give the discounts had you not received that 20 | support, sir? | 21 | MR. WILLMS: I am sorry, could 22 | you repeat that, please. | 23 | Q. Would you have accepted to 24 | grant the discounts off the postage stamp mainline 25 | tolls had you not received that support? | 26 | MR. WILLMS: Without a doubt, 27 | this was a four-way agreement, in which all 28 | parties had to agree upon a tolling methodology. | 29 | We clearly wanted to solve that, 30 | and we clearly wanted to get the Provinces on-side | 9580 SOEP/M&NPP/N.S./N.B.
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| (Joint Position Panel) | cr-ex (Leclerc) 1 | with the project. | 2 | Q. There is no doubt about that, 3 | sir. But you went in with a position and a goal 4 | in mind, and my specific question to you is the 5 | following: Would you have accepted these 6 | discounts had you not obtained the support of the 7 | Provinces for your project? | 8 | I would have thought that --- 9 | MR. WILLMS: Probably not. | 10 | Q. Thank you. | 11 | My next questions are for you, 12 | Mr. Miller. It is just a clarification of what 13 | has happened up to now. Tell me if I understood 14 | this correctly. | 15 | It deals with the volumes that 16 | are being reserved for the various LDCs. | 17 | Is it fair to summarize the 18 | evidence that you gave yesterday to be that this 19 | volume will be reserved for the LDCs for an 20 | initial period of three years, starting November 21 | 1, 1999, or whenever the project comes into 22 | service? | 23 | MS. MILLER: Sir, I think I said 24 | very clearly that it would be "kept available". | 25 | Q. That is my understanding. | 26 | I'm sorry, did I use the word 27 | "reserve"? Is that what got you --- 28 | MS. MILLER: I am just clarifying 29 | what I said yesterday. | 30 | Q. It was not my intent to say | 9581 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | otherwise. We will come back to that. | 2 | What also came out in evidence 3 | yesterday -- which I thought was given clearly in 4 | a response to Mr. Yates -- is that that commitment 5 | is subject to the fact that the LDC, or the 6 | marketer who would be wishing to market gas in the 7 | LDC's market area, would have to pay the price 8 | that anyone else would offer that gas for; offer 9 | to purchase it from them. |
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| | 10 | MS. MILLER: Yes, that is 11 | correct. | 12 | Q. Sir, when you say these 13 | volumes are being reserved by SOEP, are they being 14 | allocated to each producer? | 15 | MS. MILLER: Sir, we jointly gave 16 | that commitment. But whether in fact those would 17 | be allocated to each producer I think would remain 18 | to be seen. | 19 | If there was an LDC that took 20 | 10,000 MMBtu from a sale by Mobil, for example, 21 | then that would satisfy the requirements of all. | 22 | Q. The reason that I asked that, 23 | sir, is that you indicated earlier in your 24 | evidence that the SOEP producers, although you are 25 | jointly before this Panel to have your project 26 | approved, would be actively competing against one 27 | another in the marketing of their respective gas 28 | supplies. | 29 | MS. MILLER: Yes, that is 30 | correct. | 9582 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | Q. So, to the extent that one of 2 | those producers was more successful than another 3 | in marketing its gas, is it possible that one of 4 | the SOEP producers would end up with a commitment? | 5 | MS. MILLER: Yes, it is very 6 | possible that one of the SOEP producers could end 7 | up satisfying that commitment. | 8 | Q. You have not discussed the 9 | allocation yet between the producers. | 10 | MS. MILLER: That is correct. | 11 | Q. Mr. Miller, I would ask you 12 | to place yourself in the shoes of an LDC investor 13 | who would be called upon to invest several 14 | millions of dollars in the infrastructure to put 15 | in place his business. And, of course, there was 16 | a need for gas in order for him to be successful. | 17 | If you were in his shoes, would 18 | you make that investment in the LDC with the type 19 | of commitment you made with regard to the 10,000 20 | MMBtu? |
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21 | MS. MILLER: Sir, I think if I 22 | were that investor, I would look at the amount of 23 | gas volume that I required, the term that I 24 | required, and the price that I could afford to 25 | pay; and then I would go out and negotiate with 26 | each of the marketers marketing gas in the area 27 | and make a decision based on that. | 28 | Q. That's fair. | 29 | Mr. Willms, to be clear, you 30 | mentioned several times yesterday that your | 9583 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | commitment in the Joint Agreement with regard to 2 | laterals, both the one for Halifax and for Saint 3 | John, as well as the future ones for Cape Breton 4 | and northern New Brunswick, is predicated on -- I 5 | would like to use the exact words. | 6 | Was it "market commitment"? | 7 | MR. WILLMS: I think it was 8 | "appropriate market commitments". | 9 | Q. And I believe you agreed, 10 | yesterday, that that translated into executed 11 | Precedent Agreements. | 12 | Correct? | 13 | MR. WILLMS: Yes. | 14 | Q. In both scenarios. | 15 | MR. WILLMS: Yes. | 16 | Q. Is it also fair to expect, 17 | sir, that all of any such Precedent Agreements 18 | would be conditioned upon the availability of gas? | 19 | MR. WILLMS: Yes. I would think 20 | that any party would not wish to have a firm 21 | binding transportation commitment without the gas 22 | supply committed or tied to it. | 23 | Q. Again to refer to the words 24 | you used yesterday, axiomatic...? | 25 | MR. WILLMS: That is probably 26 | right. | 27 | Q. On the assumption that your 28 | preferred case comes to fruition -- that 440,000 29 | MMBtu of the SOEP production goes to the United 30 | States and that 45,000 goes to each of the Saint
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| 9584 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | John and Halifax markets -- do you think it is 2 | very likely that the Cape Breton and northern New 3 | Brunswick Laterals will ever be constructed? | 4 | MR. WILLMS: The case that you 5 | mentioned is the illustrative case that we have 6 | here, and it is based upon SOEP's initial maximum 7 | volumes of 530. But as I think has been testified 8 | to here often during the past number of months, if 9 | the market shows it is there, the SOEP Producers 10 | will increase their activity in the area, and we 11 | feel very confident that 530 is not going to be a 12 | limit on gas supply. | 13 | Q. But there is no evidence yet 14 | as to when this may occur. | 15 | Is that correct? | 16 | MR. WILLMS: I am not sure if 17 | there is, or not. | 18 | MR. MILLER: Without going back 19 | over it, I might refer to the evidence I gave 20 | earlier on the timing of our potential exploration 21 | activities and other activities that would 22 | determine the resources available for that 23 | incremental market. | 24 | Q. While we are on this point, 25 | Mr. Miller, to the extent that you would have to 26 | increase your exploration activities offshore and 27 | that you did find more gas, would that require you 28 | to increase your offshore line into the plant in 29 | Goldboro? | 30 | MR. MILLER: No, sir. | 9585 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | Q. And the capacity is at 26- 2 | inch, I believe? | 3 | MR. MILLER: Yes, sir. I believe 4 | the Record is clear about the maximum capacity of 5 | that line being somewhere between 800 and 900 6 | million cubic feet a day, with compression added. | 7 | Q. What you are telling me is 8 | that there is sufficient room to increase the 9 | capacity on that line? | 10 | MR. MILLER: Yes, sir. |
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11 | Q. Thank you. | 12 | Coming back to the commitment of 13 | 10,000 -- and this is just for clarification. | 14 | In your Response to the 15 | Information Request of the Joint Panel, you 16 | indicated the reason why you were making the 17 | commitment is to give an assurance to the 18 | Provinces that this gas would not all be committed 19 | for long-term exports. | 20 | Is that correct? | 21 | MR. MILLER: Would you repeat the 22 | last phrase? | 23 | Q. One of the reasons why you 24 | were making the commitment, sir, is to give the 25 | Provinces of Nova Scotia and New Brunswick an 26 | assurance that the gas would not be committed to 27 | long-term export contracts. | 28 | MR. MILLER: Subject to check, I 29 | think the intent was basically long-term 30 | contracts. | 9586 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | Q. That is what I am getting at. | 2 | MR. MILLER: The idea is long- 3 | term contracts anywhere, whether it is in the 4 | Maritimes or the U.S., would lock up gas. | 5 | Q. That is what I wanted you to 6 | confirm. | 7 | MR. MILLER: Getting back to the 8 | evidence I gave earlier, we felt that there would 9 | be sufficient quantities in Short-Term Orders, or 10 | in short-term sales, in Canada that would be 11 | available. | 12 | Q. That is what I wanted you to 13 | confirm. | 14 | In essence, what you are 15 | reserving it for is the core market as you have 16 | defined it, as opposed to large industrials. | 17 | Mr. Hogg, on laterals, I would 18 | like to get your rationale as to what brought you 19 | to agree to the fact that Halifax residents, or 20 | Haligonians, as I understand the term is, would 21 | receive a certain treatment by having their 22 | lateral rolled into the M&NE Pipeline and that
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23 | other Nova Scotians would not receive the same 24 | treatment. | 25 | I am just wondering what as to 26 | your rationale for having accepted that. Or do 27 | you have a rationale for that? | 28 | MR. HOGG: I would refer you to 29 | page 2. The best way to summarize it is that in 30 | the case of Halifax, if you are talking about Nova | 9587 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | Scotia only, the Joint Position says that it would 2 | be rolled-in. | 3 | There is no decision taken on 4 | future laterals, if you look to the second 5 | paragraph under the heading of "Laterals". | 6 | In the case of Halifax, where 7 | there is a Precedent Agreement, the decision was 8 | taken on Halifax. For future laterals, the 9 | decision will be taken at that time. | 10 | Q. I understand that you are 11 | placing a nuance that the decision is not taken 12 | yet, but I read the Agreement to say that M&NE --- 13 | We heard yesterday that it is a 14 | question of law, and it is not for a Province to 15 | determine. | 16 | -- that M&NE has agreed not to 17 | pursue, itself, the construction of these laterals 18 | if either of the Provinces express the preference 19 | that it be done by someone else. | 20 | Is that a fair reading of the 21 | undertaking? | 22 | MR. HOGG: I think that is what 23 | it says. | 24 | Q. If M&NE is undertaking to do 25 | that, obviously the Provinces wanted to keep that 26 | option open. | 27 | MR. HOGG: Yes. I think that is 28 | how I answered the question before. | 29 | Q. Fine. And I am asking what 30 | the rationale would be for the Province seeking | 9588 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | one treatment for some of the citizens and a 2 | different treatment for other of its citizens.
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| 3 | MR. HOGG: I would not agree with 4 | the way you characterize that, as one treatment 5 | versus another. | 6 | The method for dealing with 7 | Halifax --- 8 | The decision on that was taken 9 | because of the Precedent Agreement. | 10 | There is no Precedent Agreement 11 | for Cape Breton. And for future laterals, it is 12 | unknown. | 13 | That is why there is a 14 | distinction. | 15 | Q. You are telling me it is the 16 | Precedent Agreement that motivated that decision. | 17 | MR. HOGG: Yes. | 18 | Q. Thank you, sir. | 19 | Mr. Willms, in a response to a 20 | question from Mr. Lewis yesterday, or Mr. Penick, 21 | I believe, you indicated that the toll discount 22 | only applied to contracted firm volumes. |
| | 23 | Is that correct? | 24 | MR. WILLMS: Yes. | 25 | Q. And you indicated that any 26 | interruptible volumes would be put up for bid. | 27 | MR. WILLMS: Yes. | 28 | Q. I would like to know how you 29 | would account, in your proposal, for the revenues 30 | generated by interruptible sales. | 9589 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | Would they be credited off the 2 | full revenue requirement before you start the 3 | process? | 4 | MR. WILLMS: This Joint Position 5 | does not change that. | 6 | I am trying to recall exactly 7 | what the proposal is here, on interruptible 8 | revenue.
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| 9 | I do not think we finalized the 10 | proposal. | 11 | Q. You have not mentioned it. 12 | That is why I am asking. | 13 | MR. WILLMS: No. It is not 14 | impacted by this Joint Proposal. | 15 | Q. Let me try to be more precise 16 | here. | 17 | As I understand it, the 18 | mechanics, as you pointed out, I believe, in the 19 | Response to the Joint Panel's Question 5 --- 20 | MR. WILLMS: Yes. | 21 | Q. -- is that you would first 22 | start out with what would be your total revenue 23 | requirements --- 24 | MR. WILLMS: Correct. | 25 | Q. -- and then you would 26 | calculate the discount and come up with a net 27 | revenue requirement. | 28 | MR. WILLMS: Correct. | 29 | Q. My question is: On the 30 | assumption that from year to year you do get | 9590 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | revenues generated by interruptible sales, how 2 | would you account for them in the mechanics. | 3 | You would just credit it off the 4 | full revenue requirement? | 5 | MR. WILLMS: Again, my 6 | understanding was on interruptible volumes --- 7 | First of all, it would not be 8 | impacted by the Joint Agreement, the position we 9 | were going to take. | 10 | As I recall, interruptible 11 | revenues were not going to be dealt with in terms 12 | of determining revenue requirements. | 13 | I do not think that has been 14 | finalized in our position. I must admit, I do not 15 | recall. But, it will not be impacted by this 16 | Joint Agreement. | 17 | Q. Fair enough. |
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18 | My last question, sir -- and this 19 | is for you, Mr. Barnett. | 20 | Must we interpret the support of 21 | the Province of New Brunswick for the M&NE Project 22 | as including support for the applied-for 13 23 | percent rate of return? | 24 | MR. BARNETT: No, sir. Our 25 | position still remains on that, insofar as the 26 | evidence that we have filed. | 27 | I indicated it yesterday to Mr. 28 | Yates. | 29 | Q. Would you agree, sir, with 30 | the Province having recognized that there is | 9591 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | additional risk for M&NE getting involved in this 2 | project, the likelihood of getting your way has 3 | decreased? | 4 | MR. BARNETT: I think there is a 5 | directional increase in the risk, sir. | 6 | MR. LECLERC: Thank you. | 7 | Mr. Chairman, those are all of my 8 | questions. | 9 | THE CHAIR: Thank you, Mr. 10 | Leclerc. | 11 | MR. NOONAN: Hydro-Québec...? 12 | --- (No Response/Pas de réponse) 13 | MR. NOONAN: Cape Breton Regional 14 | Municipality...? | 15 | MR. SMITH: Mr. Chairman, just 16 | before my friend Mr. MacDougall begins: In our 17 | attempt to canvass the time, we knew that we would 18 | be coming tight-up against the break, and perhaps 19 | extending beyond the break with this Panel. | 20 | Mr. Willms has a commitment in 21 | Calgary which he can only make if he is able to 22 | catch the 12:30 flight; and depending upon how 23 | long the cross-examination, sir, may extend to 24 | complete this Panel, we were going to try and seek 25 | your indulgence to perhaps take a slightly 26 | abbreviated break, or to shift the time that you 27 | might take the break, so as to try and finish this 28 | Panel, if that is reasonable. | 29 | I would simply like to flag the
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30 | sensitivity at this point. It may not be | 9592 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Leclerc) 1 | necessary to do anything; but we would like to do 2 | that. | 3 | THE CHAIR: Maybe as we approach 4 | 10:30, we can decide then. | 5 | MR. SMITH: Thank you. | 6 | MR. MacDOUGALL: Good morning, 7 | Mr. Chairman. | 8 | THE CHAIR: Good morning, Mr. 9 | MacDougall. | 10 | MR. MacDOUGALL: Good morning, 11 | gentlemen. David MacDougall, for the Cape Breton 12 | Regional Municipality. |
| | 13 | CROSS-EXAMINATION BY MR. MacDOUGALL, ON BEHALF OF 14 | THE CBRM: 15 | Q. Mr. Willms, I would like to 16 | start with you, just to follow up a little bit. | 17 | I was a little unclear on some of 18 | what appeared to be commitments in this Joint 19 | Position. | 20 | If you could possibly turn up 21 | Page 2 of the Joint Position, and also, at the 22 | same time, the M&NP Responses to the Province of 23 | Prince Edward Island Information Request. | 24 | MR. WILLMS: Yes. | 25 | Q. And I will follow-up a bit on 26 | a few of the responses that you gave to Mr. Penick 27 | yesterday. | 28 | In paragraphs 2 and 3, the first 29 | two paragraphs under the heading "Laterals", you 30 | are talking about the commitment to develop Work | 9593 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | Plans, and I believe -- and I would ask you to 2 | confirm -- that you indicated to Mr. Penick 3 | yesterday that the words "assuming appropriate 4 | market support", in the first paragraph, were 5 | meant only to qualify the facilitation of the in- 6 | service date of November 1999, and not the
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7 | commitment to develop the Work Plan. | 8 | MR. WILLMS: That is correct. | 9 | Q. And with respect to the next 10 | paragraph, the qualifier as to "reaches an 11 | economic threshold" was again only to qualify the 12 | future in-service date, and not the commitment to 13 | develop the Work Plan. | 14 | MR. WILLMS: That is correct. | 15 | Q. If we could go, then, to 16 | Response No. 1 (e) of the Province of Prince 17 | Edward Island, that reads: 18 | "Markets in Cape Breton and 19 | northern 20 | New Brunswick have demonstrated 21 | interest but have yet to indicate 22 | market support by way of signed 23 | precedent agreements. As signed 24 | precedent agreements identify 25 | delivery 26 | points, future in-service dates 27 | can be 28 | defined". | 29 | In other words, the "economic 30 | threshold" is signed Precedent Agreements | 9594 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | identifying delivery points. | 2 | Is that correct? | 3 | MR. WILLMS: Yes. | 4 | Q. Then if we look up to the 5 | Response to Answer (c), which is with respect to 6 | Halifax, it is talking about "appropriate market 7 | support"; and again that appears to say "signed 8 | precedent agreements with designated delivery 9 | points". | 10 | Is that correct? | 11 | MR. WILLMS: Right. | 12 | Q. So "appropriate market 13 | support" with respect to Halifax, and "economic 14 | threshold" with respect to Cape Breton are 15 | essentially identical. | 16 | MR. WILLMS: Yes, they are. | 17 | Q. They are identical; not
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18 | "essentially". | 19 | Could we then go to your Response 20 | 1(b) to Prince Edward Island. | 21 | That Response says what a "work 22 | plan" is. | 23 | MR. WILLMS: Right. | 24 | Q. It defines it as a three-step 25 | process, from concept to regulatory filing. It 26 | states: 27 | "There are three phases to the 28 | work 29 | plan (i) market assessment; ii) 30 | engineering and environmental | 9595 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | studies; 2 | iii) regulatory filing." 3 | Is that correct? | 4 | MR. WILLMS: Yes. | 5 | Q. You have said that the 6 | commitment to develop a Work Plan is not based on 7 | the qualifiers. | 8 | So what I would like to know is: 9 | With respect to the commitment to develop a Work 10 | Plan for Halifax and Cape Breton -- that is the 11 | (a) question and the (b) question, respectively -- 12 | all of what is defined there is a Work Plan. | 13 | Correct? | 14 | MR. WILLMS: Yes. | 15 | Maybe there should be a little 16 | bit of an explanation. | 17 | I would think that if, through 18 | our market assessment, and so on, it was 19 | determined that there was not an "economic 20 | threshold" or "appropriate market support", one 21 | probably would not go into that last phase; that 22 | is, the regulatory phase, to apply. | 23 | Q. Could we stop there for a 24 | second, Mr. Willms? | 25 | MR. WILLMS: Yes. | 26 | Q. What is defined here as a 27 | "work plan", and which is not based on the
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28 | qualifier -- and we have a Work Plan that is 29 | defined here --- 30 | MR. WILLMS: Yes. | 9596 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | Q. Are we talking about the Work 2 | Plan here as only the "market assessment"? Or is 3 | it the "market assessment" and the "engineering 4 | and environmental studies"? | 5 | You have now said it is not the 6 | third part. | 7 | MR. WILLMS: One would have to do 8 | the first and the second. | 9 | One would do the market 10 | assessment; and then one would have to do some 11 | engineering, to get some cost estimating, looking 12 | at what environmental issues may have to be faced, 13 | which also addresses the issue of cost. And then 14 | when you have the market and your costs together, 15 | you could make a decision as to whether you should 16 | go the next step and make a regulatory filing. | 17 | When you do that, you basically 18 | are committed to say: "I want to build." 19 | So you do some engineering and 20 | environmental work to help you determine costs. | 21 | Q. Okay. So the Work Plan 22 | commitment that is being given, that isn't based 23 | on the qualifiers, for either Halifax and Saint 24 | John, or for Cape Breton, is to do an appropriate 25 | market assessment, and to also do the appropriate 26 | engineering and environmental studies necessary to 27 | determine whether a regulatory filing should go 28 | ahead. | 29 | MR. WILLMS: Yes, based upon the 30 | economics of what you have determined at that | 9597 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | point. | 2 | Q. And that is a commitment that 3 | you will undertake without any signed Precedent 4 | Agreements or any delivery points? | 5 | MR. WILLMS: Yes. | 6 | Q. Thank you. | 7 | Mr. Hogg, I have a couple of 8 | questions for you now.
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| 9 | For clarification purposes: 10 | Under this Joint Position Proposal, areas of Nova 11 | Scotia which are using less 10 kilometres of the 12 | mainline pay the same mainline toll as areas 13 | using, let's say, 50 to 100 kilometres, and areas 14 | using more than 100 kilometres of the mainline. | 15 | Is that correct? | 16 | MR. HOGG: I will take the facts 17 | in your question. I am assuming you are equating 18 | the 10 kilometres to some calculation. | 19 | Q. No. I am just saying that if 20 | a customer uses 10 kilometres of the mainline to 21 | get gas to their facilities -- for example, 10 22 | kilometres from Country Harbour to their 23 | facilities -- they will pay the same toll as a 24 | customer who is 50 kilometres, who is 100 25 | kilometres, away. | 26 | MR. HOGG: Yes. Sorry; I 27 | misinterpreted your question. | 28 | Q. I do have a reason for the 29 | ten, but not that specific. | 30 | Why is it not appropriate for | 9598 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | regions requiring so little of the main 2 | transportation line to avoid mainline tolls 3 | completely -- let's talk here about the group that 4 | is within the 10 kilometres -- 5 | through the development of lateral lines directly 6 | from the natural gas plant at Country Harbour? | 7 | MR. HOGG: Could you repeat the 8 | very beginning of your question. | 9 | Q. Sure. What I would like to 10 | know is why it is not appropriate for customers or 11 | regions within 10 kilometres of Country Harbour to 12 | avoid mainline tolls completely through the 13 | development of lateral lines directly from the 14 | natural gas plant at Country Harbour? | 15 | MR. HOGG: I am not sure why you 16 | would pick 10 kilometres. | 17 | Q. I will tell you why I have 18 | picked the 10 kilometres. | 19 | In Response to one of the I.R.s - 20 | -
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21 | earlier, there was a Figure J.1, which we saw on 22 | the lateral to Cape Breton, which was at Kilometre 23 | Post Zero. | 24 | Now, in response to one of the 25 | I.R.s, there was a reference that maybe the 26 | lateral should come off where the natural gas 27 | liquids line comes off 28 | -- which happens to be at Kilometre Post 8. | 29 | I went a couple of kilometres 30 | past Kilometre Post 8, in my scenario. | 9599 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | MR. HOGG: That was what I was 2 | going to come to; that is, how far do you keep 3 | going?--Is it 8? Is it 10? Is it 20? Is it 50? | 4 | Q. Let's say zero. Let's go 5 | back to the original figure. | 6 | Isn't it appropriate for 7 | customers 20 feet away from Country Harbour to 8 | avoid the mainline toll completely, through the 9 | development of lateral lines directly from the 10 | natural gas? | 11 | MR. SMITH: Mr. Chairman, I 12 | wonder if my friend could relate this to the Joint 13 | Position 14 | and --- 15 | MR. MacDOUGALL: Yes, I can. | 16 | MR. SMITH: If he would, please. | 17 | MR. MacDOUGALL: Mr. Yates asked 18 | yesterday if there was nothing in the Joint 19 | Agreement about bypass. | 20 | The issue is relative to the 21 | bypass issue. | 22 | I certainly believe that things 23 | that are not in the Joint Agreement are as 24 | important as what is in the Joint Agreement; and I 25 | want to get to why they may not be there. | 26 | MR. MILLER: Sir, I think we 27 | dealt with that fairly well in past Panels. | 28 | We have talked a lot about --- 29 | This gets back to the issue of 30 | why SOEP has committed production from the six | 9600 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall)
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1 | fields to the Maritimes & Northeast Project, I 2 | think -- which is to ensure the financeability and 3 | development of the entire project. Because 4 | without the entire project going ahead, there will 5 | be no gas for any other line. |
| | 6 | Q. I understand that that is the 7 | "SOEP" answer. | 8 | I want the Government answer as 9 | to why they may think it is inappropriate. | 10 | And if that is their only reason, 11 | then that is fine. | 12 | I would like to hear that from 13 | the Government. I would like to know why they 14 | feel it is inappropriate, and if that is the only 15 | reason -- 16 | because it is an issue that is not dealt with in 17 | this Joint Position. | 18 | MR. HOGG: That is one reason. | 19 | The other reason is the Joint 20 | Position confirms the postage stamp structure, 21 | with the discount. | 22 | Q. How is that referable to 23 | people not using the mainline? | 24 | Is it all tied back into Mr. 25 | Miller's comment that there is one reason? | 26 | How is that a second reason? | 27 | MR. HOGG: If they are not using 28 | the mainline and they have a supply of gas, then 29 | we would be talking about a separate situation. | 30 | The way I understood your | 9601 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | question 2 | was --- 3 | I must have misinterpreted it. I 4 | thought you meant off of the mainline. | 5 | Q. I am sorry. I guess I went 6 | back to Kilometre Post 0.0, and we went there. | 7 | So let's say, then, if it is at 8 | Kilometre Post 1, the Government's position is,
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9 | then, that that Kilometre Post 1 is no different 10 | than anywhere else; that those customers are using 11 | one kilometre of the mainline, and therefore it is 12 | a postage stamp rate, with a discount. | 13 | And you don't feel that that is 14 | inappropriate for customers in the Cape Breton 15 | area? | 16 | MR. HOGG: No. That is what the 17 | Joint Position says. | 18 | Q. That is all I was getting at, 19 | Mr. Hogg. Thank you. | 20 | Now I will come to Mr. Miller's 21 | point 22 | -- which is where I was going next. | 23 | I will try to use a little bit of 24 | an analogy. | 25 | Is it not possible that the Joint 26 | Position on tolling, as advocated, contradicts, to 27 | some extent, the postage stamp analogy? | 28 | And I will explain what I mean by 29 | that. | 30 | We base "postage stamp" on Canada | 9602 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | Post. That is where it comes from. Everyone pays 2 | the same rate for delivery in a certain service 3 | area. | 4 | In the case of local mail 5 | service, for example, there are options available 6 | to people, particularly those in close proximity 7 | to their markets. 8 | In other words, the Federal Government does not 9 | forbid other people from transporting mail. 10 | Couriers can transport mail, or you can transport 11 | mail yourself; you can walk it across the road. | 12 | Is it not the case, with the 13 | monopoly position of SOEP and the M&NPP, and the 14 | agreements between these Parties in the form of 15 | SOEP committing all of their production from the 16 | first six fields to the largest transportation 17 | network, that this works to the disadvantage of 18 | regions which should have a comparative advantage 19 | vis-à-vis their close proximity to this resource? | 20 | And if you agree with that 21 | proposition, I would just like to know if that was
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22 | considered in the deliberations coming to this 23 | Joint Position. | 24 | MR. MILLER: Sir, the Joint 25 | Position was the result of a compromise --- 26 | Q. I am sorry, Mr. Miller. The 27 | question was for Mr. Hogg. | 28 | I apologize. I understand. | 29 | MR. HOGG: I apologize. I 30 | thought the question was for Mr. Miller! | 9603 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | --- (Laughter/Rires) 2 | Q. I went back to Mr. Miller's 3 | issue, but I am sorry, the question is still for 4 | you, Mr. Hogg. | 5 | MR. HOGG: I have to ask you to 6 | maybe shorten that a bit. | 7 | Q. Sure. In light of the fact 8 | that what we have here is an agreement between 9 | SOEP and M&NE that production from the first 10 | fields are committed to the transportation 11 | network, does not this somehow work to the 12 | disadvantage of regions which may otherwise have a 13 | comparative advantage vis-à-vis their close 14 | proximity to this resource, and was that 15 | considered by the Province in this Joint Position? | 16 | MR. HOGG: Yes, it was. | 17 | The situation we have here is 18 | that with an initial project, as has been talked 19 | about quite often in the past, there is a 20 | requirement for some certainty in the economics of 21 | the pipeline; and that is why those arrangements 22 | were entered into. | 23 | My understanding is that it is 24 | fairly common for new pipelines to operate that 25 | way. | 26 | If you were talking about future 27 | developments -- for example, a seventh field; or 28 | in other basins where the infrastructures and the 29 | reserves are well-established and developed -- 30 | then I think the situation would be different. | 9604 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | MR. WILLMS: Let me just add, sir 2 | -- 3 | and I know I testified to this in Policy earlier,
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4 | about postage stamp. But the comparative 5 | closeness to the resource has not helped that area 6 | at all, until this point; and the only reason that 7 | it may ultimately get this resource is because of 8 | the large commitment by other customers much 9 | further down the system. | 10 | That has been the basic argument 11 | for postage stamp in the first place. | 12 | Without those other customers, 13 | the closeness to the resource would be of no value 14 | to you, or your clients, because there isn't an 15 | adequate market there to bring the project forward 16 | in the first place. | 17 | Q. I understand your position on 18 | that, Mr. Willms. | 19 | Mr. Willms, in the Response to an 20 | Information Request from TransCanada PipeLines, 21 | Request Item No. 4 --- 22 | MR. WILLMS: Yes. | 23 | Q. -- in Case 1, the Response 24 | Answer, in Case 1, it talks about, and I quote: 25 | "The incremental domestic sales 26 | will 27 | generate benefits equal to the 28 | avoided 29 | cost of the displaced fuels." 30 | That concept of "avoided cost of | 9605 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | displaced fuels" appears to recognize that one of 2 | the net benefits of this Project, as proposed, is 3 | that Nova Scotia natural gas will displace, or 4 | potentially displace, more expensive forms of 5 | energy, including electricity and light fuel oil. | 6 | Is that a correct interpretation? | 7 | MR. WILLMS: Yes. Inherent in 8 | this analysis is that the buyer would not buy the 9 | gas unless it was cheaper. | 10 | I know there may be other 11 | considerations, as Mr. Hogg has indicated. But 12 | this analysis is strictly based upon costs, 13 | revenues and benefits. | 14 | The assumption here is that that 15 | customer would not convert unless it was less 16 | expensive. | 17 | Q. But that they may convert,
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18 | and that there would be a displacement of fuels 19 | where it was less expensive. | 20 | MR. WILLMS: Yes. | 21 | Q. Thank you. Would you expect 22 | that, over time, the demand for natural gas in 23 | Nova Scotia would increase? | 24 | MR. WILLMS: That is certainly my 25 | opinion. | 26 | Q. Would this also suggest that, 27 | over time, the extent of displacement of 28 | electricity and light fuel oil, and other fossil 29 | fuels, will increase, as, in the words used in 30 | that phrase, an "efficient scale of domestic | 9606 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | market can be achieved"? | 2 | MR. WILLMS: That certainly is a 3 | possibility. It depends, obviously, also on the 4 | economic growth generally and what the entire 5 | energy needs are of this Province or of this 6 | Region. | 7 | One could see where gas could 8 | grow and take up incremental growth, or it could 9 | bite into and take some of the electrical and 10 | light fuel load. | 11 | I agree with that. | 12 | MR. MacDOUGALL: Those are all of 13 | my questions, gentlemen. | 14 | MR. WILLMS: Thank you. | 15 | THE CHAIR: Thank you, Mr. 16 | MacDougall. | 17 | Perhaps we could take an 18 | assessment now and see where we are. | 19 | MR. NOONAN: Perhaps I could just 20 | run down the list, Mr. Chairman, and see who is 21 | next. | 22 | Environment Canada, Environmental 23 | Protection Branch...? 24 | --- (No Response/Pas de réponse) 25 | MR. NOONAN: Department of 26 | Fisheries and Oceans...? 27 | --- (No Response/Pas de réponse) 28 | MR. NOONAN: Municipality of the
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29 | District of Guysborough...? 30 | --- (No Response/Pas de réponse) | 9607 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (MacDougall) 1 | MR. NOONAN: The Government of 2 | Newfoundland and Labrador...? 3 | --- (No Response/Pas de réponse) 4 | MR. NOONAN: Guysborough County 5 | Regional Development Authority...? 6 | --- (No Response/Pas de réponse) 7 | MR. NOONAN: Halifax Regional 8 | Municipality...? 9 | --- (No Response/Pas de réponse) 10 | MR. NOONAN: Procureur général du 11 | Québec...? 12 | --- (No Response/Pas de réponse) 13 | MR. NOONAN: The Province of 14 | Prince Edward Island...? 15 | --- (No Response/Pas de réponse) 16 | MR. NOONAN: That just leaves the 17 | questions from the Panel, Mr. Chairman. |
| | 18 | EXAMINATION BY JPR PANEL: 19 | THE CHAIR: I have a couple of 20 | questions. | 21 | Gentlemen, you may be aware that 22 | when we asked the question originally about the 23 | polarity that existed, we had the sense that there 24 | were two positions which were on kind of a 25 | collision course. | 26 | What we were really saying was: 27 | Is there any way that this could be reconciled 28 | without necessarily passing it on to the Panel? | 29 | What has resulted is this Joint 30 | Agreement. | 9608 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | In the perceptions of some, that 2 | polarity is still there. | 3 | By that, I mean that New 4 | Brunswick and Nova Scotia have signed an 5 | Agreement, along with the Proponents. But at the 6 | same time, the perception is that Nova Scotia 7 | Power, for example, and the big industrial users 8 | in Nova Scotia are excluded from this process. | 9 | Also, there is the perception 10 | that, to some extent, rather than "win/win/win",
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11 | as Mr. Willms said, there are winners and losers, 12 | in the sense that, within the Joint Agreement, New 13 | Brunswick has in effect received its preferable 14 | position of a postage stamp tolling, as well as a 15 | discount. | 16 | I wonder if you gentlemen, Mr. 17 | Hogg and Mr. Barnett, could comment on the 18 | perception that has emerged as a result of this 19 | Joint Agreement -- 20 | which was really constructed as a way of 21 | offsetting a perceived problem but which has 22 | created, in the minds of people, a problem. | 23 | MR. HOGG: I start by going back 24 | to what you mentioned at the outset about the 25 | polar positions. In that case, there would 26 | obviously be winners and losers in that situation. | 27 | The hope of the Joint Position 28 | was to create more winners than losers than the 29 | polar situation. | 30 | It is obvious that everyone has | 9609 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | different interests, has different requirements 2 | and different objectives. It is very difficult to 3 | make everyone comfortable or totally happy. | 4 | The purpose of the Joint Position 5 | was to attempt -- for the four parties involved at 6 | least -- 7 | to identify to you areas where there was 8 | agreement, where there was a point where all four 9 | parties could agree. | 10 | When this was entered into, it 11 | was clear that there still would be people that 12 | would not be totally in agreement with this, just 13 | as there were people who were not totally in 14 | agreement with the original polar positions. | 15 | What we think has been achieved 16 | is that at least there has been a gathering 17 | together of some of the mass of common thought on 18 | tolling and laterals. | 19 | I do recognize that, for whatever 20 | reasons, people would take a different view as to 21 | whether they totally support, or somewhat support, 22 | or do not support at all, what is in the Joint 23 | Position. | 24 | THE CHAIR: I don't have any 25 | trouble with that, philosophically. But the group
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26 | that seems to be excluded are the only ones that 27 | have signed a Precedent Agreement, the only ones 28 | whom, at the moment, we know are potential big 29 | users of gas in Nova Scotia. | 30 | So, they are on the "outs", to | 9610 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | some extent, on the basis of this Agreement. | 2 | Your advice to us is: Charge 3 | ahead with this Joint Agreement, and so be it! | 4 | I am not putting words in your 5 | mouth. I am verbalizing the sense that seems to 6 | have emerged since the publication of, or 7 | awareness of, this Joint Agreement. | 8 | MR. HOGG: The distinction that I 9 | would make is that the Parties to the Agreement -- 10 | and in particular the Province -- looked at the 11 | interests of all of the Province and entered into 12 | the Joint Position to what it thought was the 13 | benefit of Nova Scotia entirely. | 14 | It is true that Nova Scotia Power 15 | could be, through their Precedent Agreement, a 16 | major user of gas. However, their interests are 17 | specific to Nova Scotia Power Incorporated, not 18 | necessarily widespread across the Province. | 19 | I am not saying that they are any 20 | less legitimate; I am just saying that they are 21 | different and more focused than what the 22 | Province's objectives are. | 23 | It certainly would have been 24 | preferable if Nova Scotia Power could have found 25 | that this was something that they could agree to. 26 | But I think you have to recognize that their 27 | position was not something that was guaranteed, in 28 | any event. | 29 | As you mentioned before, with the 30 | polar positions, you could end up with all or | 9611 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | nothing. | 2 | I guess that is a risk that they 3 | would have assessed in determining whether they 4 | stick with their original position or somehow 5 | adopt the Joint Position. | 6 | I am not sure if I can be of much
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7 | more help than that. | 8 | THE CHAIR: Mr. Barnett, one of 9 | the driving forces behind the discussion that has 10 | emerged was the sense that Nova Scotia felt it 11 | needed some advantage because of the proximity, 12 | and all the arguments we are familiar with; and 13 | New Brunswick's position was that it wanted 14 | postage stamp tolling. And, yet, the Joint 15 | Agreement comes out with exactly what you wanted, 16 | plus a 4 percent discount. | 17 | Why was the 4 percent discount in 18 | there? | 19 | In other words, it seemed to me 20 | that this was an attempt to reach a compromise, 21 | and it seemed to pull the positions apart somewhat 22 | more. | 23 | MR. BARNETT: The 4 percent was 24 | negotiated, Mr. Chairman. | 25 | It is to try and increase gas 26 | service in the initial years, similar to Nova 27 | Scotia. | 28 | We were comfortable leaving it at 29 | that three-year term. | 30 | What I would like to say, if I | 9612 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | may, as Mr. Hogg has said in response to your 2 | initial question, is that we look upon this Joint 3 | Submission as a way of benefiting the whole of the 4 | Maritimes, Nova Scotia and New Brunswick, as 5 | Signatories to the Agreement. | 6 | You asked the question 7 | specifically about Nova Scotia Power, who clearly 8 | do not agree with the position that has been 9 | taken. | 10 | I would suggest to you, sir, 11 | there are other issues --- 12 | And that has been focused upon 13 | the Precedent Agreement that has been signed. | 14 | There are other Precedent 15 | Agreements that have been signed in New Brunswick, 16 | and the question I have to ask myself is: If, in 17 | fact, you went to the other extreme -- which, in 18 | our view, is what Nova Scotia Power is seeking; 19 | that is, point-to-point -- what does that do to 20 | the Precedent Agreements that have been signed in
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21 | New Brunswick? | 22 | They were signed on the basis 23 | that the applied-for transportation toll was the 24 | notional 60 cents; signed on the basis of the 25 | Laterals Policy that was part of the Application. | 26 | I suggest for your consideration 27 | that if we deviate too much from that, it raises 28 | questions in the eyes of potential users in New 29 | Brunswick. | 30 | THE CHAIR: That is what led to | 9613 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | the original question by Mr. Vollman and myself. | 2 | We certainly realize that one 3 | favoured one Province and the other favoured the 4 | other. | 5 | I will leave that for the moment. | 6 | Mr. Willms, with regards to the 7 | laterals, you said that 45,000 million Btu was 8 | sufficient to past the test for these laterals to 9 | be put in. | 10 | Yet, I remember from Fredericton 11 | that the cost of a lateral to Halifax was quoted 12 | as about $65 million; and the cost of a lateral to 13 | Saint John was somewhere around $70-plus million. | 14 | 45 million, using your test of 15 | 1.3 million per thousand Btu, only produces about 16 | 58 million. In other words, there is a disparity 17 | on the Halifax Lateral of about 7 million; and on 18 | the Saint John Lateral, of about 12 million. | 19 | MR. WILLMS: The costs that were 20 | included for those higher numbers, sir, were for 21 | larger volumes and, therefore, if one was looking 22 | at this and saw only a 45-million volume, you 23 | would downsize your pipeline and you could get 24 | your cost somewhat less. | 25 | The two come together. I don't 26 | know if it is exactly dollar for dollar, but 27 | around 45 million cubic feet would meet the 28 | Laterals Test. | 29 | So, we would downsize the 30 | pipeline somewhat and, therefore, reduce the cost | 9614 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel)
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1 | somewhat. | 2 | THE CHAIR: What would that mean, 3 | though, if you built the pipeline for 45,000 4 | million and then, 10 years from now, you wanted to 5 | triple that amount into Halifax or Saint John? | 6 | Do you have to build another 7 | pipeline, then? | 8 | MR. WILLMS: What you would have 9 | to do is you would have to, at that stage, loop 10 | that line and add some more capacity. You don't 11 | have to build a full line. You would have to add 12 | some loop, or maybe even some compression in the 13 | middle. | 14 | However, I would even add one 15 | other thing -- and I think it came out -- and that 16 | is if there is an enduring market. We would look 17 | at that, and if it appears that that volume is 18 | going to grow over time, we may actually size it 19 | somewhat bigger. | 20 | We would have to come up with 21 | some kind of an accounting approach to deal with 22 | that. |
| | 23 | Those are the kinds of things you 24 | have to look at in any start-up project. | 25 | THE CHAIR: You have Precedent 26 | Agreements for Halifax signed already for 90; and 27 | for Saint John, for 110, I think. | 28 | Do you not? | 29 | MR. WILLMS: Yes. | 30 | THE CHAIR: So, the markets are | 9615 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | already indicating that 45 is too little, in the 2 | longer term. | 3 | MR. WILLMS: Yes. I was only 4 | indicating at what point in time or at what break 5 | point you would have a lateral that would not need 6 | an aid-to-construct. And if there is greater 7 | market than that, then we will build it according 8 | to that market. | 9 | THE CHAIR: Mr. Willms, I have
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10 | another question for you. | 11 | I am going to take a little bit 12 | of licence with this Panel. I am going to ask you 13 | a question that is a little bit off the Joint 14 | Agreement. | 15 | It arose as a result of a comment 16 | made by Mr. Smith after the Policy Panel had left. 17 | It was in response to the letter that was 18 | submitted by TCPL. | 19 | TCPL submitted a document that 20 | said that FERC, in the United States, had some 21 | difficulty with the American portion of the 22 | Application and that the Final Approval would be 23 | somewhat delayed; and then Mr. Smith stood up and 24 | said, addressing us: "Don't be concerned about 25 | that, because the Preliminary Approval is the one 26 | that is really the important one." 27 | MR. WILLMS: Right. | 28 | THE CHAIR: What I would like to 29 | know is what does the Preliminary Approval mean to 30 | you? | 9616 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | Do you sign agreements with your 2 | Bankers, and do you start contracts and digging 3 | holes and moving ahead? Or are you still letting 4 | your engine idle, waiting for the final one to 5 | come? | 6 | MR. WILLMS: Let me say, first of 7 | all, that the Preliminary Determination in the 8 | United States, the process, deals with the need 9 | and necessity of the pipeline, the type of tolls, 10 | the rates of return, the engineering, and all 11 | those matters, when you get the Preliminary 12 | Determination. | 13 | That does not give you the Final 14 | Certificate. The Final Certificate arises when 15 | you get your Final Environmental Assessment. | 16 | But in the United States, as I 17 | testified to when I was on the stand, once you 18 | have your Preliminary Destination, as I believe I 19 | used the words, you essentially have been told you 20 | have the pipeline. | 21 | You simply have to, in certain 22 | areas, meet all of the environmental tests. But 23 | it indicates to you that the necessity is there, 24 | the need is there, and so on. |
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25 | And on that basis, as I 26 | understand it, the SOEP Producers would feel 27 | confident that there would be a pipeline in place 28 | and that they could proceed. | 29 | We would still have to get our 30 | Final Certificate. | 9617 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | We would not be building until 2 | somewhat later, in any event, given the timing. 3 | But the assurance that is needed, that there is an 4 | economic pipeline, is what is so critical in terms 5 | of the timing. | 6 | THE CHAIR: The reason that I am 7 | asking, of course, is that we have been told, very 8 | clearly, that September is when you want a 9 | response from us. | 10 | MR. WILLMS: Right. | 11 | THE CHAIR: And in the U.S., you 12 | are going to get a preliminary response -- in the 13 | early fall, perhaps; but the final authorization 14 | might be several months later. | 15 | MR. WILLMS: That is correct. | 16 | THE CHAIR: So there is a 17 | disparity between the two, in a sense. | 18 | MR. WILLMS: There is one 19 | distinct difference -- and I will let Mr. Miller 20 | speak to this, in a moment, if he wishes. | 21 | In the United States, there is no 22 | great uncertainty in terms of other pipelines into 23 | this exact market area to deliver this gas, and so 24 | on. | 25 | In Canada, obviously, reading the 26 | Press and seeing what is happening, there is some 27 | uncertainty. There is a challenge, and so on. | 28 | We have to remove that 29 | uncertainty. We don't feel we have that 30 | uncertainty with respect to the United States | 9618 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | portion of this pipeline. | 2 | THE CHAIR: So, in a sense, the 3 | Preliminary Approval tells you that everything is 4 | going well, that the process is under way; but you
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5 | would not sign your agreement with your Banker at 6 | that point. | 7 | MR. WILLMS: We would not, at 8 | that stage, require the money, in any event. It 9 | would not be based upon that. But it would 10 | certainty be a strong indication that it will go 11 | forward. | 12 | (To Mr. Miller:) Mr. Miller, I 13 | don't know if you want to add anything. | 14 | MR. MILLER: I would just add, as 15 | I testified to, that the SOEP Producers were well 16 | aware of that situation, and the Preliminary 17 | Determination was what we had determined would be 18 | sufficient for us to move ahead -- because of the 19 | situation Mr. Willms is describing. | 20 | I think, even in our earlier 21 | schedule, when we were looking at July, our 22 | expectation was that that was what we would have. | 23 | So we haven't changed our 24 | position there, at all. | 25 | THE CHAIR: Thank you. | 26 | One final question -- and again, 27 | I want to use a little bit of licence. I want to 28 | address this to Mr. Hogg. | 29 | Again it comes down to the 30 | September deadline. | 9619 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | The Liquids Plant at Point 2 | Tupper, and the liquids line, are not regulated by 3 | the NEB; they are regulated by the Province. | 4 | Will the Province have approved 5 | those lines by September?--The line and the plant? | 6 | MR. HOGG: We believe so, sir. 7 | We are working quite hard to get that in place, so 8 | that it will be done coincident with the other 9 | Approvals. | 10 | THE CHAIR: So you believe it 11 | will be done by September? | 12 | MR. HOGG: Yes, I do. | 13 | THE CHAIR: Thank you. | 14 | Those are all of my questions.
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| 15 | Do any of my colleagues wish to 16 | ask any questions? | 17 | Dr. Davies...? | 18 | DR. DAVIES: I believe this is 19 | for Mr. Miller -- and I am going to ask you to do 20 | some predicting. I am revisiting the topic of 21 | bypass. Let's get it all on the table. | 22 | The total from these six fields 23 | is now committed to this pipeline -- we understand 24 | that -- 25 | with an in-service date of November 1999. | 26 | The Joint Position, as I 27 | understand it, does not change this. | 28 | Is that correct? | 29 | MR. MILLER: That is correct. | 30 | DR. DAVIES: And with the | 9620 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | Position before us, there is no bypass allowed to 2 | Nova Scotia customers. | 3 | MR. MILLER: That is correct. 4 | All of the gas is committed to Maritimes & 5 | Northeast. | 6 | DR. DAVIES: Right. | 7 | Throughout these Hearings, 8 | although we are only really discussing the 9 | production from these six fields, we have been 10 | talking about additional output, should there be 11 | committed a market for that output. | 12 | My question, to try to get 13 | something fairly specific, is: Could the SOEP 14 | Producers, if there were committed markets now, 15 | produce this for customers as of November 1999? | 16 | MR. MILLER: I would have to 17 | qualify it by saying that it depends on the size, 18 | obviously, of the market. | 19 | The facilities would be in place, 20 | offshore, with the infrastructure in November 21 | 1999. | 22 | We do not have a slot for our 23 | drilling rigs until November of 1999.
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| 24 | So, I believe that the first time 25 | that we could have gas available would be after 26 | that date, unless we were to contract another rig 27 | to come in and drill up some of the SDAs that are 28 | available out there. | 29 | DR. DAVIES: I think I will push 30 | this a bit further, then -- because you have said | 9621 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | (JPR Panel) 1 | two things: First, that it depends on the size of 2 | the committed market -- and so I would want to 3 | know what the size would be. | 4 | Maybe you can refer it to the 5 | Nova Scotia Power market, that has been alluded to 6 | in this Hearing. | 7 | Would that be sufficient for you 8 | to move? | 9 | MR. MILLER: I think if it were 10 | in addition to the volumes created from Sable, we 11 | would certainly move on it. | 12 | If we had a Firm Service 13 | Agreement and a Gas Commodity Contract, then we 14 | would move on that. | 15 | I am referring to testimony that 16 | we gave in terms of the timelines. We said that 17 | it would take somewhere around, to my 18 | recollection, 24 months for us to get in place an 19 | additional facility, to do that. | 20 | I have to consider the length of 21 | the potential regulatory process that we might go 22 | through in that -- and I am assuming that that 23 | would go on in parallel. | 24 | If we could meet the regulatory 25 | timetable, roughly 24 months from the date that we 26 | would have those Agreements in place, I believe we 27 | could have additional gas flowing. | 28 | DR. DAVIES: Thank you very much. | 29 | That is all for this Panel. | 30 | THE CHAIR: I will now ask Mr. | 9622 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Doig) 1 | Smith to --- 2 | MR. NOONAN: Mr. Chairman, before
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3 | Mr. Smith proceeds to re-examination, I should 4 | indicate that I goofed earlier and forgot to call 5 | on one Party, the Strait-Highlands Regional 6 | Development Agency, which is here and has about 7 | five minutes of cross-examination. 8 | Perhaps we could do that now. | 9 | THE CHAIR: We will continue on 10 | until we finish, and then we can discharge the 11 | Panel; and Mr. Willms will be able to make his 12 | plane, I think. | 13 | MR. SMITH: Thank you, sir. | 14 | MR. DOIG: Thank you, Mr. 15 | Chairman. | 16 | Peter Doig, on behalf of the 17 | Strait-Highlands Regional Development Agency, Town 18 | of Port Hawkesbury, and the Strait Area Chamber of 19 | Commerce. | 20 | One of the benefits of appearing 21 | last is that most of my questions have been 22 | answered. So it should not take too long. |
| | 23 | CROSS-EXAMINATION BY MR. DOIG, ON BEHALF OF THE 24 | STRAIT-HIGHLANDS REGIONAL DEVELOPMENT AGENCY, TOWN 25 | OF PORT HAWKESBURY AND THE STRAIT AREA CHAMBER OF 26 | COMMERCE: 27 | Q. With respect to the Work 28 | Plan, Mr. Willms, in terms of timing, I believe 29 | yesterday you indicated that "immediately" was 30 | your timeframe. | 9623 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Doig) 1 | Is that "immediately upon 2 | sanction" or immediately as in "as we speak 3 | today"? | 4 | MR. WILLMS: We are assembling 5 | our teams right now, looking for adding people and 6 | bringing in people, and securing further space in 7 | the appropriate locations. | 8 | We are actually beginning to do 9 | that: assembling the necessary personnel and 10 | expertise as we sit here right now. | 11 | Q. Would the actual market 12 | assessment be commenced --- 13 | What sort of timeframe would you 14 | expect for the actual market assessment; meeting
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15 | with potential customers and working with groups 16 | in the area? | 17 | MR. WILLMS: Some of that has 18 | been ongoing, and we will put additional people on 19 | to this. I would think that over the next several 20 | weeks to a month, and so on, we will be working on 21 | that. | 22 | It will take some time to 23 | assemble the necessary people. But we are doing 24 | that as we speak. | 25 | Q. I think you responded to Mr. 26 | MacDougall that while you are commencing the 27 | market assessment, you will also be conducting 28 | preliminary cost estimates, so that the two can 29 | work forward in tandem: as you are determining 30 | what the market is, you will at the same time be | 9624 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Doig) 1 | determining what the cost is. | 2 | MR. WILLMS: Yes. Actually, the 3 | costing will follow somewhat the market. | 4 | As I discussed with the Chairman 5 | a moment ago, if you can get a general assessment 6 | of what the volumes may be, then you start 7 | costing-out. | 8 | It would follow somewhat. The 9 | costing would follow the marketing somewhat. | 10 | Q. Do you have a general idea, 11 | today, of what market level you are looking for 12 | for the Strait Area? | 13 | MR. WILLMS: I don't. | 14 | Q. You have indicated, for 15 | Halifax, that 40,000 to 45,000 MMBtu would likely 16 | be sufficient to support a lateral. | 17 | Do you have similar numbers for - 18 | -- 19 | MR. WILLMS: It depends on where 20 | in Cape Breton. If it is the Strait Area, as I 21 | mentioned yesterday, it does not take significant 22 | volumes to make a lateral economic in that area. | 23 | Q. Presumably, you can build any 24 | lateral with the appropriate aids-to-construct. | 25 | MR. WILLMS: Yes, if the 26 | potential customer is willing to do that.
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| 27 | Q. So if we can reduce the 28 | capital cost, we can reduce the aid-to-construct 29 | and make it more likely that the market will be 30 | penetrated. | 9625 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Doig) 1 | MR. WILLMS: That is correct. | 2 | Q. In your Response to Stora 3 | Request No. 1, you indicated that one logical 4 | option for the Cape Breton Lateral would be to 5 | follow the routing of the natural gas liquids line 6 | to Point Tupper. | 7 | Is that correct? | 8 | MR. WILLMS: Yes. | 9 | Q. And the intent is that the 10 | liquids line will be completed for the in-service 11 | date of November 1, 1999. | 12 | MR. MILLER: Yes, that is 13 | correct. | 14 | Q. If the lateral were to follow 15 | the NGL line, is it also logical that the capital 16 | cost could be reduced substantially if they were 17 | constructed at the same time? | 18 | MR. WILLMS: I don't think there 19 | is any doubt that there could be some synergies 20 | and some reduction. I don't know if I would agree 21 | with the word "substantial". I just don't know. 22 | But, clearly, there could be some synergies. | 23 | Q. Will the Work Plan consider 24 | those synergies? | 25 | MR. WILLMS: Yes. | 26 | Q. Mr. Hogg, do you know whether 27 | those synergies were considered as part of the 28 | discussions regarding the Joint Position? | 29 | MR. HOGG: I am not sure that 30 | they were directly relevant to the Joint Position. | 9626 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Doig) 1 | But it has always been the fact that if you could 2 | build two lines at the same time, there are some 3 | savings that you might achieve on rights-of-way or 4 | equipment. |
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5 | But in terms of the Joint 6 | Position, I don't think that was a significant 7 | factor. | 8 | Q. In the world of "give and 9 | got", one of the things we "got" was the 10 | commitment for a Work Plan. And we have heard 11 | over the last two days that it is contingent upon 12 | the economic threshold being reached. | 13 | And whether or not that economic 14 | threshold is reached is going to depend upon the 15 | capital cost. | 16 | The success of the Work Plan is 17 | going to be contingent, I would suggest, upon 18 | reducing those capital costs and taking advantage 19 | of the synergies that might be present. | 20 | So I think, in fact, it is very 21 | relevant to the considerations that went into the 22 | Joint Position. | 23 | There are no other opportunities 24 | for synergies in other laterals, are there?--Along 25 | the lines of the NGL line. | 26 | MR. WILLMS: Not that I am aware 27 | of. | 28 | Q. So, it is a unique 29 | opportunity. | 30 | MR. WILLMS: Yes, it is. | 9627 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Doig) 1 | Q. This question may have been 2 | answered earlier. | 3 | Mr. Hogg, has the Province 4 | indicated to M&NP whether or not it would prefer 5 | that the Cape Breton Lateral be constructed by 6 | M&NP, or not? | 7 | MR. HOGG: No, there has not been 8 | any indication. I think that would await the Work 9 | Plan, and just prior to their determination of 10 | whether they would file for regulatory approval, 11 | or not. | 12 | Q. Mr. Willms, have you sought 13 | any indication as to what the Province's 14 | preference will be prior to committing the funds 15 | necessary to develop the Work Plan? | 16 | MR. WILLMS: No, as a matter of
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17 | fact, we did not. What we said is we would pursue 18 | that work, in any event. | 19 | I would suspect, if they 20 | determined that some other Party should build it, 21 | that we will have to try to recover our costs from 22 | that Party by selling them the material and the 23 | work that we have done to that stage. | 24 | MR. DOIG: Those were all of my 25 | questions. | 26 | Thank you very much. | 27 | THE CHAIR: Thank you, Mr. Doig. | 28 | Any Re-Direct...? | 29 | MR. SMITH: No Re-Direct. Thank 30 | you, sir. | 9628 SOEP/M&NPP/N.S./N.B. | (Joint Position Panel) | cr-ex (Doig) 1 | THE CHAIR: Thank you, gentlemen. | 2 | This Panel is discharged. 3 | --- (The Witnesses Withdrew/Les témoins se 4 | retirent) 5 | THE CHAIR: We will take a 20- 6 | minute break, and be back at ten minutes past 11. 7 | --- A Short Recess/Pause 8 | --- Upon resuming/A la reprise 9 | MR. NOONAN: Before we call on 10 | Nova Scotia Power to present their case, I might 11 | indicate that there are ongoing discussions among 12 | some of the Parties with respect to the 13 | Appearances for Argument, as it commences, 14 | hopefully, later today. | 15 | As you heard this morning, there 16 | is a request from the Province of New Brunswick to 17 | move up on the list. | 18 | I just want to advise you, sir, 19 | that I understand that the Union of New Brunswick 20 | Indians did not want to "give way" and, therefore, 21 | the Province of New Brunswick would have to come 22 | further down the list. | 23 | I have now been apprised that the 24 | Nova Scotia Salmon Association, Mr. Purcell, has 25 | concerns about New Brunswick coming ahead of his 26 | organization, in that he has some scheduling 27 | commitments, too. | 28 | I am tentatively suggesting that 29 | New Brunswick come after the Nova Scotia Salmon
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30 | Association, which would make them No. 7 on the | 9629 1 | list. | 2 | There may be some other 3 | scheduling problems, and I understand some of the 4 | Parties are trying to work those out at the 5 | present time. | 6 | But that seems to be the Order of 7 | Appearances for Argument as we begin: SOEP, 8 | Maritimes & Northeast, Union of New Brunswick 9 | Indians, and then at the present time, CAPP -- 10 | although that may change to the Province of Nova 11 | Scotia -- followed by Local 244, the Association 12 | of Journeymen and Pipe Fitters, Nova Scotia Salmon 13 | Association, and then the Province of New 14 | Brunswick. | 15 | That is subject to any objections 16 | or concerns on the part of other Parties, and also 17 | subject to any arrangements that are being made by 18 | Parties as I speak. | 19 | I thought I should report those 20 | developments, Mr. Chairman. | 21 | Thank you. | 22 | THE CHAIR: Thank you. | 23 | Mr. Gurnham... | 24 | MR. GURNHAM: Thank you, Mr. 25 | Chair. | 26 | Mr. Terry MacDonald is here to 27 | present the Additional Evidence on behalf of Nova 28 | Scotia Power. | 29 | He has appeared before and has 30 | been sworn. | 9630 NSPI Panel No. 2 | (Joint Position Panel) | in-ch (Gurnham) 1 | His Exhibit has been marked as 2 | Exhibit C-58-33. | 3 | With your permission, I would 4 | like to lead him through his Direct Evidence. | 5 | T. F. MacDONALD, Recalled: |
| | 6 | EXAMINATION-IN-CHIEF BY MR. GURNHAM, ON BEHALF OF
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7 | NOVA SCOTIA POWER INC.: 8 | Q. Mr. MacDonald, do you have 9 | before you the Additional Evidence of Terry 10 | MacDonald, on behalf of Nova Scotia Power Inc., 11 | which has been marked as Exhibit C-58-33? | 12 | MR. MacDONALD: Yes, I do. | 13 | Q. Was that Evidence prepared by 14 | you or under your direction? | 15 | MR. MacDONALD: Yes, it was. | 16 | Q. Do you have any additions or 17 | changes to make to your Evidence? | 18 | MR. MacDONALD: No -- perhaps 19 | with the exception of the following: the very 20 | last line on page 4, which reads: 21 | "Subject to anything further that 22 | may 23 | arise during cross-examination of 24 | the 25 | witnesses for the signatories to 26 | the 27 | Joint Position." 28 | At the time of my June 4th 29 | appearance, in my Opening Comments, I referred to 30 | some work we had been doing with Consumers' Gas to | 9631 NSPI Panel No. 2 | (Joint Position Panel) | in-ch (Gurnham) 1 | estimate the potential for gas distribution in the 2 | Greater Halifax Area. | 3 | The number that we confirmed then 4 | was approximately 25,000 million Btu per day; and 5 | at this stage, we cannot confirm any number 6 | greater than that. | 7 | So, basically, there is a number 8 | that has been put before the Panel, earlier today, 9 | or yesterday, of 45,000 potential in the Halifax- 10 | Dartmouth area, and at this time we don't see that 11 | materializing overnight. | 12 | Secondly, there was a point made 13 | that some of the interests that we may have may 14 | not be as broad as others. | 15 | Certainly, we serve every 16 | electrical customer in Nova Scotia and, therefore, 17 | we do have the interests of Nova Scotia at heart. 18 | We, in fact, will be able to convey the benefits 19 | of "gas by wire" to every Nova Scotia consumer if 20 | the price of gas is correct. |
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21 | Q. With those additions, Mr. 22 | MacDonald, is this Evidence accurate, to the best 23 | of your knowledge and belief 24 | MR. MacDONALD: Yes, it is. | 25 | Q. And do you adopt this 26 | Evidence and your additional comments as your 27 | evidence in this Proceeding? | 28 | MR. MacDONALD: I do indeed. | 29 | MR. GURNHAM: Mr. MacDonald is 30 | available for cross-examination, Mr. Chair. | 9632 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Williams) 1 | THE CHAIR: Thank you. | 2 | MR. NOONAN: Again, as was the 3 | practice yesterday, I am not sure who wants to 4 | cross-examine, so I will proceed through the list. | 5 | Alliance of Manufacturers & 6 | Exporters Canada...? 7 | --- (No Response/Pas de réponse) 8 | MR. NOONAN: Canadian Association 9 | of Petroleum Producers...? | 10 | MR. SCHULTZ: No, thank you. | 11 | MR. NOONAN: Canadian Federation 12 | of Labour...? 13 | --- (No Response/Pas de réponse) 14 | MR. NOONAN: Cape Breton Island 15 | Building & Construction Trades Council...? 16 | --- (No Response/Pas de réponse) 17 | MR. NOONAN: The Clean Nova 18 | Scotia Foundation...? 19 | --- (No Response/Pas de réponse) 20 | MR. NOONAN: Coalition for 21 | Responsible Economic and Environmental 22 | Development...? | 23 | MR. WILLIAMS: Good morning; good 24 | morning, Mr. MacDonald. | 25 | MR. MacDONALD: Good morning. |
| | 26 | CROSS-EXAMINATION BY MR. WILLIAMS, ON BEHALF OF 27 | CREED: 28 | Q. I have a question relative to 29 | --- 30 | What concerns me is Nova Scotia | 9633 NSPI Panel No. 2
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| (Joint Position Panel) | cr-ex (Williams) 1 | Power being sort of left out of this arrangement. | 2 | What I am thinking of is the era 3 | when cogenerators are allowed into the Province. | 4 | We talked yesterday about 5 | TransAlta, a power company based largely in 6 | Western Canada, which generates very cheap power 7 | using coal from Western Canada strip mines. | 8 | Are you aware that, in Ontario, 9 | TransAlta supplies all the power to the Chrysler 10 | Automobile Plant? | 11 | MR. MacDONALD: I am aware that 12 | TransAlta does have some cogenerating facilities, 13 | yes. | 14 | Q. What I am wondering about, 15 | Mr. MacDonald, is the situation where Nova Scotia 16 | Power, for good reasons -- that are apparent to 17 | some of us -- 18 | opts out of any kind of use of the Sable gas and 19 | somebody like TransAlta, when deregulation 20 | happens, slips into a location like Trenton and 21 | builds a large plant. | 22 | They are a relatively low 23 | overhead utility, as opposed to Nova Scotia Power, 24 | which has a lot of expensive plants, Point Anconi 25 | being one of them. | 26 | Would that not virtually mean the 27 | end of Nova Scotia Power as we know it? | 28 | MR. MacDONALD: There are a 29 | couple of questions implied. | 30 | Let me say, to begin with, that | 9634 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Williams) 1 | the ability of an independent power producer to 2 | come into Nova Scotia to produce electricity would 3 | require that the energy price or the fueling price 4 | that the independent power producer would have 5 | access to would in fact be sufficiently low to 6 | enable the capital cost of new construction, the 7 | O&M cost of a new plant, plus the fueling cost, if 8 | it happened to be gas or oil or coal, or what- 9 | have-you, to be accommodated in a cost-competitive 10 | manner. | 11 | Perhaps an analogy I could put up 12 | is that if your rates are wrong, then it may be
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13 | possible for someone to come by and in fact 14 | undercut the regulated rate. | 15 | The analogy would be a bypass of 16 | a regulated pipeline. | 17 | If it is cost-effective to bypass 18 | the regulated pipeline because the tolls are 19 | wrong, then it would be cost-effective also to 20 | bypass the regulated electricity sales if the 21 | rates are wrong. | 22 | So, the opportunities would be 23 | there for someone to bypass. However, the big 24 | "if" would have to be: If they can get fuel at a 25 | competitive price. | 26 | Q. I understand what you are 27 | saying; but, Mr. MacDonald, if somebody had a very 28 | low overhead -- and I am making the judgment that 29 | Nova Scotia Power has a very high overhead per 30 | kilowatt-hour, or whatever, compared to other | 9635 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Williams) 1 | utilities. | 2 | I think that is probably why the 3 | power rate has to be highest in Canada, because 4 | you have so much --- 5 | Well, your fuel cost, of course; 6 | but your overhead, as well. | 7 | You are carrying an awful lot of 8 | large ineffective plants, or not as efficient as 9 | they could be. | 10 | If I stepped into the market 11 | today with a gas turbine -- I am starting out 12 | brand new; I get regulatory approval -- can I not 13 | beat you, hands down, every time? | 14 | MR. MacDONALD: Let me go back 15 | into a little bit of the differences in cost 16 | structures between ourselves and the utilities in 17 | Alberta. | 18 | In Alberta, the price that 19 | TransAlta pays for coal is approximately 50 cents 20 | per million Btu. We pay approximately five times 21 | that amount. | 22 | If you take away the differential 23 | in the fueling cost for generation in northeastern 24 | North America, whether it is in New England, or 25 | New Brunswick, or Nova Scotia, and you substitute 26 | the Alberta coal price into our cost structure,
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27 | you will find that the rates are in fact very, 28 | very similar; that there is not much difference. | 29 | The big difference between the 30 | cost that TransAlta incurs and the cost that we | 9636 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Williams) 1 | incur relates to the very high fueling cost in 2 | northeastern North America. | 3 | That is true whether you are in 4 | Philadelphia, or P.E.I., or Nova Scotia, or 5 | Newfoundland. | 6 | MR. WILLIAMS: Those are all of 7 | my questions. Thank you very much. | 8 | THE CHAIR: Thank you, Mr. 9 | Williams. | 10 | MR. NOONAN: The Confederacy of 11 | Mainland Micmacs...? 12 | --- (No Response/Pas de réponse) 13 | MR. NOONAN: I understand, Mr. 14 | Chairman, that there has been a switch. In lieu 15 | of Ecology Action Centre, we will call upon the 16 | Allergy and Environmental Health Association of 17 | Nova Scotia. |
| | 18 | CROSS-EXAMINATION BY MR. WIMBERLY, ON BEHALF OF 19 | AEHA, ET AL: 20 | Q. Mr. MacDonald, does this 21 | Agreement in any way affect your intentions to 22 | convert only Tuft's Cove and Trenton to natural 23 | gas? | 24 | MR. MacDONALD: I am sorry, does 25 | it impact...? | 26 | MR. WIMBERLY: Yes. | 27 | MR. MacDONALD: Under the 28 | initially proposed 60-cent toll, or under the 29 | currently proposed "discount", in quotation marks, 30 | 54-cent toll, it does not make it attractive for | 9637 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | us to convert Tuft's Cove or Trenton to gas- 2 | firing. | 3 | Q. And if you got what you are 4 | asking for, a switch from postage stamp to point-
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5 | to-point tolling, is there any chance at any point 6 | that it will become economical to switch more than 7 | just Tuft's Cove and Trenton? | 8 | MR. MacDONALD: Again, if the 9 | price is right, then it might be possible to 10 | convert additional generation to gas-firing. | 11 | However, the differential between 12 | coal pricing and expected gas pricing is likely 13 | such that there would be some difficulty in 14 | displacing all of the coal-fired generation in our 15 | system; or in any other system, for that matter. | 16 | Q. Do you think this Agreement 17 | would affect the decisions of any of the other 18 | Large Industrial Users in the Halifax area to 19 | switch to natural gas? | 20 | MR. MacDONALD: Depending upon 21 | the volumes of gas. | 22 | If the volumes are sizable, then 23 | the capital cost of lengthy laterals can result in 24 | a low enough price that presumably, along with the 25 | commodity price, there could be fuel substitution. | 26 | However, at the numbers that we 27 | think are likely in the absence of Nova Scotia 28 | Power's use of gas at Tuft's Cove, the unit cost 29 | of gas transmission on the laterals will be very 30 | high -- in fact, in excess of $1 -- and we just | 9638 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | don't think people will find it attractive to 2 | pursue that. | 3 | Q. But it would still be postage 4 | stamp. The cost of that lateral wouldn't make any 5 | difference. It would be absorbed in the whole 6 | cost. | 7 | MR. MacDONALD: Well, it may be 8 | absorbed; but because the cost would be 9 | approximately twice what the rate is recovering, a 10 | grant-in-aid-of- 11 | construction would be required. | 12 | So in effect the consumer of the 13 | gas will, through his capital contribution, or her 14 | capital contribution, be seeing a higher price 15 | than the simple postage stamp toll. | 16 | Q. Who would be making this 17 | grant? |
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18 | MR. MacDONALD: Presumably, the 19 | way I understand the Joint Position, it would be - 20 | - or in fact the earlier position by Maritimes & 21 | Northeast -- 22 | it would be the customers themselves. | 23 | Q. The customers themselves 24 | would be making the grant? | 25 | MR. MacDONALD: Yes. That is my 26 | understanding. | 27 | Q. Through the Province? | 28 | MR. MacDONALD: It is possible 29 | that the Province could be involved. But I don't 30 | think that at all is a consideration, or is | 9639 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | necessary. | 2 | Q. So if it was just Dalhousie 3 | and the VG Hospital -- which generate their own 4 | electricity now, a cogeneration on oil -- they 5 | would be expected to do that, if they wanted to 6 | switch that badly. | 7 | MR. MacDONALD: Yes. If they 8 | were to switch to gas-fired generation, then part 9 | of the capital costs they would be looking at 10 | would be a grant-in-aid for the construction of 11 | the lateral to their facilities. | 12 | Q. And if anyone wished to, 13 | under the Gas Distribution Act, apply for a 14 | franchise, then they would probably be expected to 15 | pay that aid? | 16 | MR. MacDONALD: I would expect 17 | so, yes. | 18 | Q. And you could foresee no one 19 | being able to afford that? | 20 | MR. MacDONALD: Well, it depends 21 | on what your marginal fuel price is. | 22 | If you are dependent on light 23 | fuel oil -- which is relatively expensive -- then 24 | you might very well be able to afford the cost. | 25 | However, if you are a heavy fuel 26 | oil customer, then you may not be able to afford 27 | the cost. And, in any event, it will be more 28 | costly than the alternative proposal that we have, 29 | which is the point-to-point.
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| 30 | Q. What do you think might be | 9640 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | the effectiveness of the increasing development of 2 | smaller and smaller and more efficient gas-powered 3 | electrical generation systems? | 4 | MR. MacDONALD: As gas turbine 5 | technology matures, efficiencies keep increasing. 6 | It would be possible, eventually, as the 7 | efficiencies increase and the capital costs 8 | reduce, that, in spite of the high costs of 9 | lateral construction, with low volumes, you may 10 | still find yourself able to make a business 11 | decision. | 12 | But I suspect that there will not 13 | be a large number of people in that position. | 14 | Q. Have you evaluated this trend 15 | in any way in your decision-making? | 16 | MR. MacDONALD: Yes. Economies 17 | of scale still exist at this time. In other 18 | words, "big" is more efficient than "little" in 19 | any generation technology, generally speaking. | 20 | So in the gas turbine world, 21 | bigger gas turbines are more efficient than 22 | smaller ones; and for steam turbines, the same is 23 | true. So at this time "smaller" doesn't 24 | necessarily become more cost-effective. But the 25 | trends are converging, such that one day they 26 | might very well come together. | 27 | Q. If you got the tolling 28 | arrangement that you are seeking, how might this 29 | affect Nova Scotia Power? | 30 | Would it possibly, over time, | 9641 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | dramatically decrease the amount of electrical 2 | generation that you would have a call for? | 3 | MR. MacDONALD: It would be 4 | theoretically possible for many stand-alone gas 5 | turbines to generate electricity for local use. | 6 | However, electricity will still 7 | be required. | 8 | So I guess it is a matter of 9 | determining whether it is going to be generated by
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10 | Nova Scotia Power, or by the customers themselves. | 11 | Q. Is it not possible that in 12 | the future, no matter which of the tolling 13 | arrangements is used, alternative energy might 14 | still be less effective, even before you have 15 | amortized all of the costs, such that the energy 16 | needs of Nova Scotians would go down? | 17 | Have you analyzed that? | 18 | MR. MacDONALD: When you say 19 | "alternative energy", are you talking about wind 20 | turbine generation, photovoltaics, and the like? | 21 | Q. Yes. Small-scale hydro. | 22 | MR. MacDONALD: Yes. We looked 23 | at all of those technologies, and we have a 24 | reasonable understanding of where the technologies 25 | are with regard to their technological 26 | development, and also where they are with regard 27 | to their cost-effectiveness; and although the 28 | costs are improving for these new technologies, 29 | they still cannot compete on a cost-only basis 30 | with conventional technologies. | 9642 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | Q. At this point? | 2 | MR. MacDONALD: At this point; 3 | exactly. | 4 | Q. But perhaps not in the 5 | future? | 6 | MR. MacDONALD: In the future, it 7 | is possible that, again, the costs will converge. | 8 | I indicated that smaller gas 9 | turbines are becoming more competitive, and one 10 | day will catch up with the larger ones. | 11 | And the same is true for the 12 | renewables. The costs are getting more 13 | competitive, and I am sure one day they will 14 | become reasonably competitive with the 15 | alternatives. | 16 | Q. Nova Scotia Power is 17 | protesting loudly the change in the tolling, and 18 | yet NB Power isn't. | 19 | How would you compare Nova 20 | Scotia's situation to that in New Brunswick, where 21 | the provision of natural gas to the Irvings would
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22 | likely induce them to generate their own 23 | electricity, and that would lessen dramatically 24 | the production demands of NB Power, which may so 25 | reduce their profitability that the citizens of 26 | New Brunswick might have to assume new debt. | 27 | Do you see anything like that 28 | happening in this area? | 29 | MR. MacDONALD: I guess that is 30 | possible, in any jurisdiction. | 9643 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | This is a case of a bypass where 2 | the approved rates of NB Power are too high. | 3 | It appears, maybe, that the 4 | Irving Company would find it in their interest to 5 | bypass those approved rates. | 6 | I think that is possible anywhere 7 | where the rates are too high. | 8 | Q. So they might be out of luck, 9 | no matter what happens. But you do not think that 10 | things of that sort will happen here. | 11 | MR. MacDONALD: It is very 12 | possible that similar things could happen. | 13 | Q. It is an uncertainty. Thank 14 | you. | 15 | What is the recovery time of your 16 | conversion expenditures if you went with the rates 17 | assumed under the Joint Position, versus if you 18 | actually went through the rate system that you are 19 | advocating. | 20 | MR. MacDONALD: We have not 21 | worked the numbers out that way. But in very 22 | simple terms, the capital expenditure, the 23 | incremental efficiency penalty, plus the 24 | incremental cost of the Joint Position, quote, 25 | "discount tolls", will result in a cost higher 26 | than our avoided cost and, as a result, we would 27 | not be able to justify before our Regulator -- 28 | that is, the Utility and Review Board -- the 29 | spending of those capital dollars so as to incur 30 | higher costs. | 9644 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | In short, our rates will go up if 2 | we were to buy gas under the terms as currently 3 | being proposed.
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|
| | 4 | Q. Yes, I understand that. But 5 | it is the cost of conversion that is the major 6 | cost right now. | 7 | If you did not have the 8 | conversion cost, then this would, indeed, be 9 | lower. | 10 | Correct? | 11 | MR. MacDONALD: The capital 12 | expenditure? | 13 | MR. WIMBERLY: Yes. | 14 | MR. MacDONALD: The capital 15 | expenditure is one of the components, right, that 16 | will cause the cost to be higher. | 17 | Q. So, if you did not have to 18 | retire your present equipment, to some extent --- 19 | MR. MacDONALD: What I am talking 20 | about here is not the removing from service of the 21 | generation but rather the, in effect, refuelling 22 | of the generators to take gas directly, rather 23 | than to, as currently, take oil directly. | 24 | I am talking about modest capital 25 | expenditures, as opposed to major capital 26 | expenditures, which would, in effect, remove the 27 | plant from service by displacing generation 28 | entirely. | 29 | Q. Okay; I understand what you 30 | are saying. | 9645 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | Let me pose it another way. | 2 | If you already had a gas-powered 3 | set-up and right beside it you had your oil- 4 | powered set-up at your present rates of buying oil 5 | and at the rates proposed through this Joint 6 | Position for selling the gas, which would be more 7 | efficient to run? | 8 | MR. MacDONALD: We will never 9 | recover our costs. It will always be more 10 | expensive to have chosen to go the gas route. | 11 | Q. Yes. I do not think that was 12 | exactly my question.
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| 13 | If you had the two side-by-side - 14 | -- 15 | MR. MacDONALD: Option "A" is we 16 | have an oil-fired plant; Option "B" is we have a 17 | gas-fired plant, and the capital --- 18 | Q. And you are just looking at 19 | the cost of running them. | 20 | MR. MacDONALD: Yes. | 21 | Q. Just the cost operation, not 22 | the cost of purchasing and retiring the capital 23 | expenditures. | 24 | Just --- 25 | MR. MacDONALD: And they are 26 | otherwise identical plants? | 27 | Q. Yes. Which would be more 28 | efficient; less expensive to generate electricity? | 29 | MR. MacDONALD: If the currently 30 | proposed pipeline toll is the one that is | 9646 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | finalized and someone actually purchased gas with 2 | that toll, then it would be more expensive, by 3 | virtue of the efficiency penalty, than using the 4 | oil. | 5 | Q. Okay. Even without the 6 | capital conversion cost, it would still be more 7 | expensive than using oil. | 8 | Thank you; that was what I was 9 | trying to get. | 10 | You give some broad figures here: 11 | a potential benefit to New Brunswick of $238 12 | million, and a cost to Nova Scotia of $232 13 | million. | 14 | I am not certain as to your 15 | assumptions, in arriving at those figures. | 16 | How did you calculate those cost- 17 | benefit figures here? | 18 | MR. MacDONALD: They were 19 | calculated by comparing the new proposed tariff or 20 | toll --- 21 | Q. Yes, I understand that. | 22 | MR. MacDONALD: -- in both New 23 | Brunswick and Nova Scotia, as compared to point-
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24 | to-point tolls, with incremental laterals in both 25 | New Brunswick and Nova Scotia. | 26 | Q. Did you use the same amounts 27 | of electrical generation as presently, rather than 28 | bringing in new markets, or new sales? | 29 | MR. MacDONALD: No. We used the 30 | only volumes that have been committed by way of | 9647 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | Precedent Agreements. So we used 85 plus 25 in 2 | New Brunswick, and 90 in Nova Scotia. | 3 | Q. You took it from the 4 | Precedent Agreements, rather than what you are 5 | generating right now. | 6 | MR. MacDONALD: Yes. | 7 | Q. It is just the Precedent 8 | Agreements. You were not assuming other large 9 | industrial users that have not signed Precedent 10 | Agreements, or you were not assuming any 11 | residential or institutional users. | 12 | MR. MacDONALD: No. To the 13 | extent there was more energy used in Nova Scotia 14 | under these tolls, the cost to Nova Scotians would 15 | go up; and to the extent less was used in New 16 | Brunswick, the benefit would go down. Or vice 17 | versa. | 18 | So, we just used the Precedent 19 | Agreement numbers. | 20 | Q. Just the Precedent Agreement 21 | numbers. | 22 | I am curious as to why New 23 | Brunswick Power is not making similar protest to 24 | this Joint Position. | 25 | Do you think New Brunswick Power, 26 | in your estimation, would be helped or harmed by 27 | this Joint Position, and by converting? | 28 | MR. MacDONALD: New Brunswick 29 | Power is obviously a little bit different than we 30 | are. They do have a fair bit of thermal energy in | 9648 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | their system; but they also have nuclear energy, 2 | and a little bit more hydraulic, in percent, than 3 | we do.
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| 4 | But the big advantage or the big 5 | difference between New Brunswick Power and Nova 6 | Scotia Power is the fact that they are 7 | interconnected to both Hydro-Québec and New England, and Prince Edward Island as well as Nova 8 | Scotia. 9 | | A major difference in their 10 | system compared to ours is that they are able to 11 | access relatively inexpensive energy from Québec 12 | and sell into a relatively expensive market to the 13 | South in New England, and thereby enjoy an 14 | advantage of their geographic location which they 15 | are able to pass on to their electricity 16 | customers. 17 | | Their perspective on the role of 18 | gas in their energy mix would be different than 19 | the perspective we would have, because we are not 20 | interconnected with anybody, and we would have to 21 | pay a fee to get through the New Brunswick system, 22 | if in fact they would let us get through their 23 | system. 24 | | Q. So, unlike Nova Scotia Power, 25 | you do not estimate them, at any rate, making 26 | major conversions, because they have cheaper 27 | electricity. 28 | | If the Irving Groups started 29 | generating their own electricity, how would that 30 | 9649 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) | impact --- 1 | MR. MacDONALD: Any new 2 | generation that comes on the system and is, as I 3 | will call it, "going to run", or "must run", will 4 | change the way costs are distributed among 5 | generators and the way transmission systems are 6 | used. 7 | | I would think that if some 8 | industrial customer, either in New Brunswick or 9 | Nova Scotia, began to generate their own 10 | electricity, there would be fixed costs that would 11 | still exist in both New Brunswick and Nova Scotia. 12 | | Those fixed costs would be spread 13 | over fewer kilowatt hours sold to other customers 14 | in New Brunswick and Nova Scotia and, all else 15 | being equal, the rates to all other customers in 16 | New Brunswick and Nova Scotia would go up. 17 | | Q. So, this Precedent Agreement 18 | might be very good for the Irvings, but be very
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19 | bad for the citizens of New Brunswick, as well as 20 | the citizens of Nova Scotia. 21 | | MR. MacDONALD: I do not want to 22 | speculate on what the outcome would be, but that 23 | is one possibility. 24 | | Q. That is a distinct 25 | possibility --- 26 | MR. MacDONALD: That is a 27 | possibility, sure. 28 | | Q. Why do you think New 29 | Brunswick Power is not following the lead of Nova 30 | 9650 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) | Scotia Power and becoming more active? What is 1 | the difference between the two organizations? 2 | | MR. MacDONALD: I think if -- and 3 | I can't speak for NB Power. But I would think 4 | that 5 | they --- 6 | They would be disadvantaged if 7 | they supported point-to-point tolling, because the 8 | delivered gas to Saint John and other areas where 9 | they have generation would generally be higher 10 | than under the postage stamp toll. 11 | | So, it is not in their commercial 12 | interests, or in the interests of their customers, 13 | to have point-to-point tolling, where it is very 14 | much in the interest of all electrical energy 15 | customers in Nova Scotia to have point-to-point 16 | tolling. 17 | | Q. So you have a possible "win" 18 | situation, in terms of your rates, and a possible 19 | "lose"; but they seem to be in a "lose/lose" 20 | situation. 21 | | MR. MacDONALD: I think if the 22 | postage stamp toll is acceptable to them -- and it 23 | must be, because they agreed to sign for 25 24 | million a day, at 60 cents delivered. They must 25 | find that acceptable to them. We just don't find 26 | it acceptable to us -- 27 | because our rates will have to go up, and that is 28 | not acceptable. 29 | | Q. Would you be able to 30 | 9651 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) | speculate on why you think the --- 1 | It seems to be obvious that the
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2 | Government of New Brunswick is able to negotiate 3 | better deals for New Brunswick than the Government 4 | of Nova Scotia is for Nova Scotians. 5 | | MR. MacDONALD: I think I will 6 | pass comment on that. 7 | | Q. I am not surprised -- but I 8 | was hoping that you might comment a little bit on 9 | it. 10 | | Perhaps you could at least answer 11 | this: Do you think it is fair for the Provincial 12 | Governments to bargain away their political 13 | support in this way? 14 | | MR. MacDONALD: I am not certain 15 | that I would categorize it that way. 16 | | But whether or not there is going 17 | to be a lateral built to the Halifax Metro area, 18 | under point-to-point tolling and incremental roll- 19 | in of the laterals, Nova Scotia Power is in a very 20 | good position to become the anchor tenant to 21 | provide for a lateral into the Halifax area; and 22 | similarly into the Trenton-New Glasgow area. 23 | |
| | 24 | That, without a rate increase, is 25 | not possible. And we are not going to increase 26 | our rates. | 27 | Q. Are you quite familiar with 28 | the Gas Distribution Act? | 29 | MR. MacDONALD: I am generally 30 | familiar; not "quite" familiar. But, yes, I have | 9652 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | read it. | 2 | Q. AEHA Nova Scotia was one of 3 | the presenters during the legislative process, 4 | through the Law Amendments Committee, as were a 5 | number of large industrial users, and others. | 6 | I am not going to ask you 7 | detailed questions about the gas distribution, but 8 | I assume it had been your belief that this Act was 9 | going to set up the regulatory system in Nova 10 | Scotia whereby all laterals would be done through 11 | a separate company from M&NP, through a 12 | franchising system.
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| 13 | MR. MacDONALD: Yes, that was our 14 | understanding, and our assumption. | 15 | Q. And that that gas delivery 16 | system, as part of how they are assigning the 17 | franchise, would have included the lateral, as 18 | well as any actual connection to an end-user. | 19 | MR. MacDONALD: I believe that is 20 | right, yes. | 21 | Q. We had a different opinion 22 | from the Nova Scotia Government representative. 23 | But I don't think he was quite as fully briefed on 24 | what the Act had. | 25 | Would it not be the case under 26 | this Act that even if the NEB process approved a 27 | lateral into Halifax, you would still have to have 28 | a franchise to connect it from that to any user, 29 | including yourself? | 30 | MR. MacDONALD: I am not certain | 9653 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | on that point. | 2 | If, hypothetically speaking, Nova 3 | Scotia Power bought gas at the end of a lateral -- 4 | and I am not certain that the generating plant 5 | would have to become a franchise area. | 6 | I don't know that, and I would 7 | not want to guess that that is so. | 8 | Q. Is it not correct that the 9 | Act, in section 3(d), under "gas delivery 10 | system" -- actually, let's go to "operating 11 | franchise", section 4, which reads: 12 | "Notwithstanding any enactment, 13 | no 14 | person shall construct or operate 15 | a 16 | gas delivery system except 17 | pursuant to 18 | a franchise." 19 | And it defines a "franchise" as "any pipes, 20 | equipment, apparatus, mechanism, machinery, 21 | instrument or storage facility incidental to the 22 | delivery of gas for ultimate consumption". | 23 | Would you believe that that would 24 | mean that you could actually have a connection 25 | without --- 26 | MR. GURNHAM: Mr. Chairman, I am
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27 | not sure how relevant Mr. MacDonald's legal 28 | interpretation, as an engineer, is of the Gas 29 | Utilities Act. | 30 | MR. WIMBERLY: | 9654 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | Q. Your expertise only extends 2 | to engineering --- 3 | MR. MacDONALD: Thank you! 4 | --- (Laughter/Rires) 5 | Q. I would assume that it would 6 | extend a bit beyond that, and that you have 7 | considered what this says. | 8 | Right? | 9 | MR. MacDONALD: I am not going to 10 | challenge Peter's judgment on my ability to 11 | interpret the law. | 12 | Q. I am just going to ask you 13 | about one more thing. | 14 | Any process would have to look at 15 | the economic feasibility. The Gas Franchise Act, 16 | in section 8(2)(c), says that it cannot grant a 17 | franchise without economic feasibility being 18 | proposed. | 19 | Would it then be possible, do you 20 | think, for the NEB to approve a lateral into Nova 21 | Scotia without it being able to also pass this 22 | Economic Feasibility Test? | 23 | MR. MacDONALD: I will have to 24 | beg forgiveness in answering that one, as well. | 25 | Q. Okay. I guess it will be an 26 | open question that we will have to --- 27 | I want to return to it, because 28 | we are talking about economic feasibility here, 29 | and who is going to actually control this. | 30 | Okay. I will go on. | 9655 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | Given all these infrastructure 2 | costs to switch over to gas, and the long 3 | amortization schedules, and your high cost of gas, 4 | and many other uncertainties, would you not 5 | believe that it is quite possible that, in the 6 | long run, the lowest cost, cleanest power to Nova 7 | Scotians and Maritimers might just be delivered by 8 | not switching to gas but instead by supporting a
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9 | gradual switch-over to sustainable alternatives 10 | such as solar, and others? | 11 | MR. MacDONALD: That is a 12 | possibility. | 13 | Q. That is a possibility. Okay. | 14 | If that possibility matured, 15 | might this Joint Position turn out to be actually 16 | a blessing in disguise for the citizens of Nova 17 | Scotia, and even for the shareholders of Nova 18 | Scotia Power, since they might have made a 19 | mistake? | 20 | MR. MacDONALD: Sure. Nova 21 | Scotia Power is fully regulated by the Utility and 22 | Review Board, and so the benefit to our 23 | shareholders is in fact a regulated rate of 24 | return; we cannot make profit beyond our regulated 25 | rate of return. | 26 | So any cost savings we are able 27 | to enjoy are passed on to our customers by way of 28 | lower rates. | 29 | If in the long term it turned out 30 | that renewable or alternative energy forms were in | 9656 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | fact part of that long-term cost solution for our 2 | ratepayers, then, yes, we would be very pleased to 3 | pursue those alternatives. | 4 | Q. Which is exactly why I would 5 | much rather argue about laterals before your 6 | Regulator, than before the National Energy Board, 7 | because we can discuss more relevant matters than 8 | the National Energy Board is able to discuss. | 9 | Has not Nova Scotia Power, in 10 | partnership with Consumers' Gas, announced their 11 | hope to pursue your own monopoly on gas franchises 12 | in Nova Scotia? | 13 | MR. MacDONALD: Yes. We have 14 | formed a Joint Venture to pursue, when the time is 15 | right, an Application for the right to build an 16 | infrastructure which would enable gas to be 17 | delivered to Nova Scotians. | 18 | Q. Do you need to have this 19 | monopoly in Nova Scotia for it to be economically 20 | viable for Nova Scotia to switch to the use of 21 | natural gas? |
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22 | MR. MacDONALD: No. The monopoly 23 | I think you are referring to is in fact the 24 | regulated pipes in the ground, the distribution 25 | franchise, and not the actual gas itself. The 26 | commodity will be sold by whoever happens to own 27 | gas and to whomever wants to buy it. It is not 28 | necessary that there be a gas distribution entity 29 | at all in Nova Scotia in order to make it cost- 30 | effective for some people to use gas. | 9657 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | There are not necessarily 2 | required linkages between the two. | 3 | Q. Could you construct your own 4 | lateral to Halifax solely for your own use 5 | assuming point-to-point tolling, and be 6 | economical? | 7 | MR. MacDONALD: I believe we have 8 | indicated, previously, that that is so. | 9 | Q. This Joint Agreement, you 10 | think, makes it uneconomical, even shared with all 11 | of the users in Halifax, for that to be 12 | economically viable? | 13 | MR. MacDONALD: As we understand 14 | the Joint Agreement, it results in a 54-cent fee 15 | for gas delivery and does not bring with it the 16 | benefits of reduced prices as volumes increase, or 17 | as the distribution system grows, or as new 18 | generation is added to the system. | 19 | It is a fixed cost and, as a 20 | result of that fixed cost --- 21 | Ironically, in one or two years, 22 | it is a little bit lower than initially proposed 23 | for a toll; but in the longer term, it goes back 24 | to the initially proposed toll, and probably 25 | higher, because you have to recover the early 26 | years "discount", in quotation marks. | 27 | And so we find that it just 28 | doesn't fit into our energy mix. | 29 | Q. Assuming a development of 30 | smaller alternatives in the energy mix, would you | 9658 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | still be comfortable putting a pipeline just to 2 | Nova Scotia Power and not having to rely on other 3 | uses, even if you could never assume that you 4 | would be able to expand? |
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5 | MR. MacDONALD: The potential 6 | volumes that we could use at Tuft's Cove or 7 | Trenton are such that incrementally tolled stand- 8 | alone laterals are in fact viable, and would be in 9 | the overall best interests of Nova Scotia Power's 10 | electricity customers. | 11 | Q. Is that similar to the 12 | position of the Large Industrial Users in the Port 13 | Hawkesbury area, who said that a pipeline built by 14 | them, used solely by them, would be more 15 | economical than one also shared by the residential 16 | customers in the area? | 17 | MR. MacDONALD: I am not sure if 18 | that is exactly how they put it. But I believe 19 | that their position is similar to ours, yes. | 20 | Q. If the gas cost is low 21 | enough, would you hope to sell electricity itself 22 | outside of Nova Scotia? With point-to-point 23 | tolling, could you actually beat some of the 24 | rates, deregulated? | 25 | MR. MacDONALD: That might be a 26 | challenge. And why I say that is because the 27 | expected fee for the use of the transmission 28 | system in our neighbouring Province will probably 29 | be about .8 cents per kilowatt hour; and if you 30 | convert that into dollars-per-million Btu, it | 9659 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | would be about .8 dollars per million Btu. |
| | 2 | So you would need to have a 3 | fueling advantage that would be quite substantial, 4 | relative to the pipeline toll. | 5 | The pipeline toll, notionally, 6 | for postage stamp, is .6, whether it is in Nova 7 | Scotia or New Brunswick, forgetting the discount 8 | for a minute. | 9 | The likely transmission fee to 10 | move energy from Nova Scotia through New Brunswick 11 | is likely to be the equivalent of .8 dollars per 12 | million Btu. | 13 | To overcome that pricing 14 | disadvantage, I think, would be quite a challenge. 15 | You would have to use up all of the surplus that 16 | might be available in New Brunswick, before you 17 | could get to the surplus that might be available
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18 | in Nova Scotia. | 19 | Q. Even assuming point-to-point 20 | tolling, the transmission costs on the electrical 21 | grid, even with deregulation, would likely 22 | overcome any advantage. | 23 | MR. MacDONALD: Point-to-point 24 | tolling, with incremental tolling of the laterals 25 | in Nova Scotia, might very well result in the 26 | ability to move surplus energy on the grid; but it 27 | still would be a challenge with that .8-cent fee 28 | to go across the intermediate --- 29 | Q. It would be cutting it close, 30 | but it is possible. | 9660 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | Would it be more likely at 2 | Trenton than in Halifax? | 3 | MR. MacDONALD: You would be more 4 | likely to be able to move coal-fired energy out of 5 | the region than gas-fired energy, because coal- 6 | fired energy on the margin, is quite a bit 7 | cheaper, we think, than will be the price of gas. | 8 | Q. Is that with point-to-point 9 | tolling, or just --- 10 | MR. MacDONALD: Yes. | 11 | Q. Even with point-to-point 12 | tolling. | 13 | MR. MacDONALD: The tolling is 14 | kind of incidental once you are getting into the 15 | coal world. But if --- 16 | Q. That was just a comparison. | 17 | MR. MacDONALD: Yes. | 18 | But if it is competing with 19 | postage stamp tolls for gas, compared to coal, 20 | with a wheeling fee of .8 cents per kilowatt hour, 21 | the coal might have a chance. | 22 | Q. And if it is competing with 23 | point-to-point tolling, it might even have less of 24 | a chance. | 25 | MR. MacDONALD: The point-to- 26 | point tolling, with incremental roll-in of the 27 | laterals, all else being equal, will make it 28 | possible for greater electricity sales from Nova 29 | Scotia into the grid than in the absence of that 30 | type of tolling methodology. | 9661 NSPI Panel No. 2
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| (Joint Position Panel) | cr-ex (Wimberly) 1 | Q. In your opinion, if the 2 | result of this Joint Position is that no gas is 3 | actually distributed in Nova Scotia, would that, 4 | in any way, increase the royalties paid to the 5 | Province of Nova Scotia? | 6 | MR. MacDONALD: The royalty issue 7 | is more related to the actual price of the 8 | commodity received by the Sable Offshore Energy 9 | Producers. So I wouldn't want to speculate as to 10 | whether or not they could earn a greater netback 11 | from sales to Nova Scotia than from sales, say, to 12 | New England. | 13 | But you might be able to 14 | hypothesize that that could be possible. | 15 | Q. I am curious: What 16 | motivation do you think could have motivated the 17 | Nova Scotia Government to enter into this Joint 18 | Agreement, since it is so obviously against the 19 | interests of actually distributing gas in Nova 20 | Scotia? | 21 | MR. MacDONALD: I think Mr. Hogg 22 | indicated that there were many factors involved -- 23 | and I don't remember what he said. But I will 24 | have to accept what he said. | 25 | Q. But I am asking you for your 26 | opinion, rather than his opinion. | 27 | MR. MacDONALD: It is our opinion 28 | that the point-to-point tolling is the preferred 29 | and correct methodology that should be used; and, 30 | in fact, that, along with the incremental tolling | 9662 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Wimberly) 1 | on the laterals, would satisfy our objectives, and 2 | presumably the Province's, as well. | 3 | In fact, that was their evidence, 4 | until recently. | 5 | Q. So you can offer no logical 6 | explanation as to why this Joint Position would 7 | have been entered into? | 8 | MR. MacDONALD: I can't; no. | 9 | MR. WIMBERLY: Thank you. | 10 | THE CHAIR: Thank you, Mr. 11 | Wimberly.
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| 12 | MR. NOONAN: Metropolitan Halifax 13 | Chamber of Commerce...? 14 | --- (No Response/Pas de réponse) 15 | MR. NOONAN: Millwood 16 | Environmental Action Team...? 17 | --- (No Response/Pas de réponse) 18 | MR. NOONAN: Native Council of 19 | Nova Scotia...? 20 | --- (No Response/Pas de réponse) 21 | MR. NOONAN: Nova Scotia Salmon 22 | Association...? 23 | --- (No Response/Pas de réponse) 24 | MR. NOONAN: Progressive 25 | Conservation Caucus of Nova Scotia...? 26 | --- (No Response/Pas de réponse) 27 | MR. NOONAN: Union of New 28 | Brunswick Indians...? 29 | --- (No Response/Pas de réponse) 30 | MR. NOONAN: United Association | 9663 NSPI Panel No. 2 | (Joint Position Panel) 1 | of Journeymen and Apprentices of the Plumbing and 2 | Pipe Fitting Industry of the United States and 3 | Canada, Local 244...? 4 | --- (No Response/Pas de réponse) 5 | MR. NOONAN: United Association 6 | of Plumbers and Pipefitters, Local 56...? 7 | --- (No Response/Pas de réponse) 8 | MR. NOONAN: World Wildlife 9 | Fund...? 10 | --- (No Responses/Pas de réponse) 11 | MR. NOONAN: Ecology Action 12 | Centre...? 13 | --- (No Response/Pas de réponse) 14 | MR. NOONAN: Irving Oil 15 | Limited...? | 16 | MR. SMELLIE: Good morning, Mr. 17 | Chairman. | 18 | THE CHAIR: Good morning, Mr. 19 | Smellie. | 20 | MR. SMELLIE: Good morning, Mr. 21 | MacDonald. How are you, sir? | 22 | MR. MacDONALD: Pretty good, Mr. 23 | Smellie. And you? | 24 | MR. SMELLIE: Having a good 25 | summer? 26 | --- (Laughter/Rires) 27 | MR. MacDONALD: So far; so far! |
|
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| 28 | CROSS-EXAMINATION BY MR. SMELLIE, ON BEHALF OF 29 | IRVING OIL LIMITED: 30 | Q. Do you have a copy of Exhibit | 9664 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | No. C-58-33 with you, your Additional Evidence? | 2 | MR. MacDONALD: Yes, I do. | 3 | Q. Yesterday, Mr. Yates 4 | described your Company as the only customer in 5 | Nova Scotia who would be spending money on 6 | facilities, on tolls, and on gas. | 7 | Do you remember that? | 8 | MR. MacDONALD: I was here for 9 | that discussion; yes. | 10 | Q. Do you agree with that 11 | characterization, sir? | 12 | MR. MacDONALD: I think we are 13 | the only company, that I am aware of to date, that 14 | has signed a PA. | 15 | Q. And in your Additional 16 | Evidence, at page 4, you in fact say that you are 17 | the "only potential Nova Scotia customer", period. | 18 | Do I take that to mean that you 19 | are the only customer that, to date, has signed a 20 | Precedent Agreement? | 21 | MR. MacDONALD: Yes. | 22 | Q. You consider, do you, the 23 | members of the Large Industrial Group -- Oxford, 24 | Trentonworks, Michelin -- to be potential Nova 25 | Scotia customers for natural gas? | 26 | MR. MacDONALD: Absolutely. | 27 | Q. Let me see, sir, if I 28 | understand clearly your views on the Joint 29 | Position. | 30 | You tell us that you are pursuing | 9665 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | opportunities to use Sable gas for two purposes -- 2 | and I am at lines 12 and 13 of page 1 of your 3 | Evidence: 4 | firstly for power generation; and secondly, to
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5 | provide natural gas service to Nova Scotians. | 6 | I take it you are there referring 7 | to distribution opportunities? | 8 | MR. MacDONALD: Yes. | 9 | Q. I detect a clear link between 10 | those two, sir, as you have styled them in your 11 | Evidence. | 12 | Is that fair? | 13 | MR. MacDONALD: The link is a 14 | non-mandatory link. The link is one that results 15 | from the fact that (a) we are in the electrical 16 | generation business and we have electrical 17 | customers for whom we are trying to minimize 18 | rates; and (b) we have an arrangement, an 19 | agreement, with Consumers' Gas by which we would 20 | seek to apply for gas distribution franchise 21 | rights. | 22 | So, we have two interests. They 23 | are not necessarily linked, but they certainly 24 | could very well be linked. And to the extent we 25 | would be successful in seeking and gaining the gas 26 | distribution franchise, there might well be 27 | synergies that could result in lower costs to both 28 | electric and gas customers. | 29 | Q. But they are certainly linked 30 | for the purposes of this Evidence, sir, as I | 9666 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | understand it, reading from line 12 on, on the 2 | first page. | 3 | Let me see if you agree with me. | 4 | If Nova Scotia Power cannot have 5 | gas at Tuft's Cove and Trenton on commercially 6 | acceptable terms, the first thing you are telling 7 | us is that you are not going to buy it. | 8 | That is the first thing. | 9 | Right? | 10 | MR. MacDONALD: Absolutely. | 11 | Q. Okay. You don't --- 12 | MR. MacDONALD: Is there any 13 | doubt about that; that if it is not commercially 14 | acceptable, that we are not going to buy it! |
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15 | Q. That is what you say at line 16 | 18. | 17 | MR. MacDONALD: Right. | 18 | Q. And if you don't buy gas to 19 | generate power, then, in your view, a lateral to 20 | Halifax or Trenton will not likely be justifiable. | 21 | MR. MacDONALD: We say that a 22 | likely consequence is the necessary laterals will 23 | not be justifiable. | 24 | Q. Forgive me. And if the 25 | laterals are not built, then you tell us that 26 | residents of communities such as Halifax will be 27 | denied the opportunity to purchase gas. | 28 | MR. MacDONALD: If the laterals 29 | are not built, they will be denied. | 30 | Q. So there is then a clear link | 9667 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | between your pursuit of the opportunity to bring 2 | gas for your own purposes and the distribution 3 | opportunity that exists. | 4 | It follows, doesn't it? | 5 | That is what you have just told 6 | us. | 7 | MR. MacDONALD: But there is no 8 | mandatory requirement that we pursue the gas 9 | distribution franchise rights. We don't need to 10 | do that. | 11 | Q. But you are going to do it? | 12 | MR. MacDONALD: Our intent at 13 | this time is to do that. | 14 | Q. What do you mean when you say 15 | -- 16 | and I am at lines 20 and 21, and I quote: 17 | "Without Nova Scotia Power as the 18 | anchor load at these locations, a 19 | likely consequence is the 20 | necessary 21 | laterals to Halifax and 22 | Trenton/New 23 | Glasgow will not be justifiable - 24 | --" 25 | What do you mean when you use the 26 | word "justifiable"?
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| 27 | MR. MacDONALD: On the basis of 28 | the price that will result from --- 29 | Having relatively small loads on 30 | whatever laterals are constructed will make the | | (Joint Position Panel) 9668 NSPI Panel No. 2 | 1 | price high, and therefore the possibility of cr-ex (Smellie) 2 | displacing alternative energy forms lower. | 3 | Q. You heard Mr. Willms' view 4 | that perhaps 40,000 MMBtu to 45,000 MMBtu a day 5 | would be an appropriate level of market support 6 | for a lateral to Halifax? | 7 | MR. MacDONALD: Yes, I did. | 8 | Q. And your earlier Evidence in 9 | this Proceeding is that a probable estimate for a 10 | distribution load in Halifax would be in the order 11 | of 25,000 MMBtu a day? | 12 | I think you mentioned that this 13 | morning. | 14 | MR. MacDONALD: Yes. We said 15 | "within a reasonable period of time". | 16 | Q. I take it, sir, that given 17 | your interest in distribution, you clearly wish to 18 | play a larger role in the Nova Scotia energy 19 | market than you do today? | 20 | MR. MacDONALD: We intend to 21 | pursue opportunities, and we intend to attempt to 22 | minimize the long-term cost of electrical energy 23 | to our customers in Nova Scotia. | 24 | Q. Halifax, we can agree, sir, 25 | is a pretty important market for energy purposes 26 | in Nova Scotia? | 27 | MR. MacDONALD: Sure. Yes. | 28 | Q. If it is economical to attach 29 | it, would you agree with me that it will be an 30 | enduring market? | | (Joint Position Panel) 9669 NSPI Panel No. 2 | 1 | MR. MacDONALD: It should be. cr-ex (Smellie) | 2 | Q. I think your earlier evidence 3 | has been that with respect to your plant at Tuft's 4 | Cove and the potential LDC market in Halifax, if 5 | you are able to use gas at Tuft's Cove and pursue
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6 | distribution opportunities, that, in turn, would 7 | present opportunities to you in terms of gas 8 | supply management, efficient management of your 9 | load factor, and such things as that. | 10 | Is that a fair summary? | 11 | MR. MacDONALD: I am not sure if 12 | I understood you correctly. | 13 | If we held the gas distribution 14 | franchise...? | 15 | Q. Yes. In Halifax. | 16 | MR. MacDONALD: I don't think 17 | that that is necessarily so. Because the nature 18 | of the Legislation is Nova Scotia is such that the 19 | commodity sale of gas is not going to be part of 20 | the franchise, so that the franchise holder is not 21 | going to be the seller of gas, necessarily. | 22 | So it is a management tool for 23 | the commodity, basically. | 24 | Q. Sorry...? A management tool 25 | for the commodity...? | 26 | MR. MacDONALD: To manage the 27 | commodity cost; yes. | 28 | Q. That is fine. | 29 | Let me leave Halifax for a minute 30 | and go to Trenton. | | (Joint Position Panel) 9670 NSPI Panel No. 2 | 1 | You told us that because Trenton cr-ex (Smellie) 2 | is coal-fired --- 3 | Firstly, that it was unlikely 4 | that gas would be available to fire that facility 5 | on a competitive basis because of the cost of 6 | coal. | 7 | Do you remember that evidence? | 8 | MR. MacDONALD: Yes. | 9 | Q. To be fair, you then went on 10 | to tell us that because Trenton can be fired on 11 | heavy fuel as well, you have given thought to 12 | converting one unit at Trenton in order to be able 13 | to burn gas whenever Tuft's Cove might be off- 14 | line. | 15 | MR. MacDONALD: Yes.
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| 16 | Q. With reference to line 20 on 17 | page 1 of your Additional Written Evidence, it is 18 | in that context, is it, sir, that I should 19 | understand your description of Trenton as an 20 | "anchor load"? | 21 | MR. MacDONALD: Yes, that is 22 | right. | 23 | Mr. Smellie, just so you don't 24 | get misled here: we are talking about a system. 25 | It is the overall cost of operating the Nova 26 | Scotia Power system that is important. | 27 | There is the system element here 28 | as well. It is not Trenton stand-alone. It is 29 | not Tuft's Cove stand-alone. It is the overall 30 | system. | | (Joint Position Panel) 9671 NSPI Panel No. 2 | 1 | Q. I understand. cr-ex (Smellie) | 2 | At page 2 you tell us why you 3 | think that the overall toll level under the Joint 4 | Position is unacceptable. You tell us, based upon 5 | the examination that you have made, that any gas 6 | purchase by Nova Scotia Power under those 7 | arrangements would force an increase in your power 8 | rates because gas simply will not be the lowest 9 | cost alternative. | 10 | MR. MacDONALD: Yes. | 11 | Q. When, at line 8, you use the 12 | phrase "the lowest long-term cost alternative", 13 | what do you mean by "long term"? | 14 | MR. MacDONALD: I believe we may 15 | have had a discussion along these lines before, 16 | but basically --- 17 | MR. SMELLIE: That was in the 18 | spring. It is summer now! |
| | 19 | MR. MacDONALD: And did you have 20 | a good spring! | 21 | MR. SMELLIE: No! 22 | --- (Laughter/Rires) 23 | MR. SMELLIE: Sorry. Yes, I did 24 | have a very good spring! 25 | --- (Laughter/Rires)
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26 | MR. MacDONALD: The lowest long- 27 | term cost is a test that our Regulator uses in 28 | determining whether or not decisions that we are 29 | making are in the best interests of our 30 | electricity customers. | 9672 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | So, the "long term" can vary 2 | depending upon what the particular aspect of a 3 | project is you are looking at. | 4 | "Long term" can be, in some cases 5 | -- I think I mentioned this before. | 6 | If you are looking at a Hydro- 7 | Québec-type situation, you may be looking at 60 or 8 | 70 years worth of investment. If you are looking 9 | at a thermal system, you are looking at maybe 30, 10 | 33 years. Probably if you are looking at gas 11 | turbine-type systems, you are looking in the 20 to 12 | 25-year range. | 13 | We talked about what is a "long- 14 | term" contract not too long ago, and I believe it 15 | was Irving's evidence, I think, that 15 years was 16 | a long-term arrangement. | 17 | I was remembering 14, but I was 18 | corrected to say it was 15. | 19 | "Long term", therefore, depends 20 | upon the actual circumstances; but in our case, I 21 | would be suggesting it would be in excess of 15 22 | years. | 23 | Q. Thank you. | 24 | And I think it is clear that 25 | whether the postage stamp toll is 60 cents or 54 26 | cents, that does not get you there. | 27 | That is your evidence? | 28 | MR. MacDONALD: Right. | 29 | Q. "Will not be commercially 30 | acceptable". | 9673 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | MR. MacDONALD: Correct. Six 2 | cents off of 60 cents is 10 percent. Six cents 3 | off of the delivered cost of gas is more like 2 4 | percent. And six cents off the capital cost, the 5 | efficiency problems of changing from oil to gas, 6 | the commodity price and the toll, is de minimis.
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| 7 | It is not 10 percent; it is a 8 | very small number. | 9 | Q. And if I read the July 1st 10 | Chronicle-Herald correctly, your Vice-President of 11 | Public Affairs told us that the firm service toll 12 | to Halifax needed to be 43 cents for gas to be 13 | viable. | 14 | Did you read the article? | 15 | MR. MacDONALD: I know the 16 | article you refer to and, in fact, I did read it. | 17 | Q. And do you agree with what 18 | was said?--That 43 cents would be viable? | 19 | MR. MacDONALD: 43 cents in the 20 | first year might be. The context is not complete 21 | in that particular article. | 22 | Q. The right context is "long- 23 | term"? | 24 | MR. MacDONALD: The right context 25 | is "long-term", exactly. | 26 | Q. That 43 cents, sir, is that 27 | the same 43-odd cents that falls out of the 28 | calculation that Mr. Engbloom and others may have 29 | done when you were here before? | 30 | MR. MacDONALD: I think, if I can | 9674 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | jump ahead of you real quick --- 2 | I expect that what that is is the 3 | 60 million cubic feet a day delivered to Tuft's 4 | Cove on a stand-alone incrementally-tolled lateral 5 | along with 11 percent point-to-point tolling on 6 | the mainline. | 7 | Is that where...? | 8 | Q. At about 11 or 12 cents, I 9 | think it was? | 10 | MR. MacDONALD: Yes. I agree 11 | with you on that, yes. | 12 | Q. And that, of course, we know 13 | to have been based upon, or to be based upon, the 14 | capital cost estimates provided to you by the 15 | Sunstone Group, for the Halifax Lateral? |
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16 | MR. MacDONALD: I believe that is 17 | true, yes. If you know it is true, you can tell 18 | me. I will accept that. | 19 | Q. How do you know, Mr. 20 | MacDonald, that at 54 cents gas will not be viable 21 | because you will have to increase your power 22 | rates? | 23 | How do you know that? | 24 | MR. MacDONALD: I am not sure if 25 | we have gone through this in the past, but 26 | basically there is a capital cost that will be 27 | required to be incurred to convert the units to 28 | accommodate gas: there is an efficiency penalty 29 | that will be incurred to accommodate gas; there is 30 | a tolling that is before us which will be required | 9675 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | to be paid to accommodate gas, and --- 2 | Q. Can I stop you there for a 3 | second? | 4 | MR. MacDONALD: Yes, sir. | 5 | Q. And you know all those? | 6 | MR. MacDONALD: Yes. | 7 | Q. At least you have estimates 8 | of the capital cost --- 9 | MR. MacDONALD: I think we have 10 | been here before. | 11 | Q. And the last thing that you 12 | are going to tell me about is the gas cost. | 13 | MR. MacDONALD: Absolutely. | 14 | Q. Do you know that, sitting 15 | here today? | 16 | MR. MacDONALD: Not yet. But we 17 | know what we are being told, and we know what the 18 | market conditions are. We know what utilities are 19 | paying. We know what industrial customers are 20 | paying in various jurisdictions in the Northeast. | 21 | So, we have a reasonable feel for 22 | the magnitude of the number; and with that 23 | reasonable feel, I can tell you that it will 24 | require a rate increase for Nova Scotia Power's 25 | ratepayers. And that is not acceptable. | 26 | Q. I understand that.
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| 27 | But the margin, in the first 28 | year, at least, is 11 cents: 43 cents versus 54 29 | cents. | 30 | Right? | 9676 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | MR. MacDONALD: That is not the 2 | entire story. | 3 | Q. You said to the public that 4 | 43 cents would get you home in the first year -- 5 | you didn't say "in the first year". But your 6 | Company said that 43 cents would get you home in 7 | the first years. | 8 | MR. MacDONALD: No. The context, 9 | or the complete story, has not been reported. | 10 | We are talking about 60 million 11 | cubic feet a day in that calculation --- 12 | MR. SMELLIE: Yes. | 13 | MR. MacDONALD: -- whereas, the 14 | number we have been talking about to the Pipeline 15 | Company and the Producers is 90 million cubic feet 16 | a day. | 17 | You have to look at the entire 90 18 | million cubic feet a day, and the entire lateral 19 | costs, and the entire overall system costs, in 20 | order to come to any determination. | 21 | You will remember that we put 22 | forward information to show what the cost of gas 23 | delivered to Trenton would be under point-to-point 24 | -- and it would be substantially lower than the 43 25 | that you referred to. | 26 | So when you blend the two 27 | together, you get another significant reduction in 28 | cost. In fact, you get down to about the 32-cent 29 | range, or something like that, from the 43. | 30 | Q. Let me go back to the fourth | 9677 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | component of the four we have been talking about. | 2 | If I have understood you 3 | correctly, you have told me that you have a 4 | reasonable comprehension of the likely area of 5 | commodity pricing, so as to enable you to draw the 6 | conclusions that you have.
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| 7 | MR. MacDONALD: Yes. We are not 8 | in the gambling business. | 9 | Q. No, I didn't think you were. | 10 | And just before I go on with 11 | this, your point to me about 90,000 million a day 12 | versus 60,000 million a day, I take it that at 13 | 90,000 million a day, you are obliged to look at 14 | displacing a greater amount of alternative fuels, 15 | in order to make that 90,000 work. | 16 | Right. | 17 | MR. MacDONALD: Yes. | 18 | Q. Coal...? | 19 | MR. MacDONALD: Yes. | 20 | Q. I think you told me, Mr. 21 | MacDonald, that, as with any other situation, your 22 | demand is seasonal, and that the demand on your 23 | system, as a whole, is higher in the winter than 24 | in the summer. | 25 | MR. MacDONALD: Yes. | 26 | Q. Would you have a look, sir, 27 | at --- 28 | And this is not an aid-to-cross- 29 | examination. | 30 | This is M&NE's Response to NEB | 9678 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | I.R. 4.7, Mr. Chairman. | 2 | For the benefit of the Record, I 3 | will simply describe it as a Response which has an 4 | attached Table showing monthly wellhead prices for 5 | supplies used to serve Northeastern U.S. Markets 6 | over certain periods of time. | 7 | Have you had an opportunity to 8 | see this before, Mr. MacDonald? | 9 | MR. MacDONALD: Yes, I believe I 10 | did, sometime ago. | 11 | Q. Can we just look at Table 1, 12 | please. | 13 | MR. MacDONALD: Yes. |
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14 | Q. There are a lot of columns 15 | there, but to start this line of questioning, let 16 | me direct you to Column (9), which shows the NYMEX 17 | Close Henry Hub prices over a period of three 18 | years, on a monthly basis. | 19 | MR. MacDONALD: Yes. | 20 | Q. Just cast your eyes, sir, to 21 | the last three months of 1996, October, November, 22 | December; the last quarter. | 23 | MR. MacDONALD: Yes. | 24 | Q. For October, we see a price 25 | of $1.89, roughly. | 26 | MR. MacDONALD: Yes. | 27 | Q. And November, $2.65; and 28 | December, $3.90. | 29 | MR. MacDONALD: Yes. | 30 | Q. You would agree, sir, that | 9679 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | there was, at least according to this Evidence, a 2 | significant fluctuation in the commodity price 3 | during the initial part of the heating season in 4 | 1996, under that pricing scenario? |
| | 5 | MR. MacDONALD: Yes. | 6 | Q. Let's look at Column (13) -- 7 | Texas Eastern M3 for New York/New Jersey, for the 8 | same period. | 9 | I see that the prices ran through 10 | $2.06 in October through to $3.26 in October; up 11 | to $4.98 in December. | 12 | MR. MacDONALD: Yes. | 13 | Q. Have I read that correctly? | 14 | MR. MacDONALD: Yes. I see 15 | those; yes. | 16 | Q. Again, a significant 17 | fluctuation? | 18 | MR. MacDONALD: Yes, sir.
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| 19 | Q. Would you agree, sir, that in 20 | Transco Zone B, New York/New Jersey, in the last 21 | column -- also labelled "(13)" -- where I see 22 | prices of $2.10 in October, $3.33 in November, and 23 | $5.14 in December, that that is also a significant 24 | fluctuation? | 25 | MR. MacDONALD: Yes, it is. | 26 | Q. Can we agree then, sir, that, 27 | at least according to this Evidence, commodity 28 | prices can vary over a range which is far, far 29 | greater than any differential such as the 11 cents 30 | between a 54-cent postage stamp toll and a 43-cent | 9680 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | point-to-point delivered --- 2 | MR. MacDONALD: Yes; the 3 | commodity prices can vary quite a bit. | 4 | Q. All right, sir. | 5 | At page 2 of your Evidence -- and 6 | Mr. Wimberly discussed this with you a little bit; 7 | I think it was Mr. Wimberly -- you give us the 8 | results of a comparative assessment that you have 9 | done on the Joint Position toll, as opposed to 10 | point-to-point and stand-alone tolls in New 11 | Brunswick and Nova Scotia. | 12 | MR. MacDONALD: Yes. | 13 | Q. For purposes of looking at 14 | the Province of New Brunswick, I take it, sir, 15 | that you used the Joint Position toll and 16 | Maritimes & Northeast's estimate of point-to-point 17 | and stand-alone lateral tolls. | 18 | MR. MacDONALD: I believe so, Mr. 19 | Smellie; but I don't have the calculations here. | 20 | I think we used 92 cents as the 21 | point-to-point, with incremental laterals for 22 | deliveries to Saint John; and 57.5 or 57.6 for the 23 | first three years; and then 60 cents thereafter. | 24 | Q. I am just interested in the - 25 | -- 26 | I am sorry. Go ahead. | 27 | MR. MacDONALD: -- and I used the 28 | volumes that the PAs have been signed for; namely, 29 | the 85 and 25. | 30 | Q. I am just interested in the
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| 9681 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | source of the data that you use for the point-to- 2 | point stand-alone tolls. | 3 | It was Maritimes & Northeast 4 | data, was it? | 5 | MR. MacDONALD: I don't know. I 6 | can't remember. | 7 | If we can find that for you in a 8 | few minutes, I can tell you where the numbers came 9 | from. | 10 | They may very well have been 11 | Maritimes & Northeast numbers. I suspect that 12 | they were. | 13 | Q. I am sorry, I don't want to 14 | make a big deal out of it, Mr. MacDonald. | 15 | I assumed that is what you used - 16 | - 17 | because, so far as I am aware, those are the only 18 | numbers that are in the Record. | 19 | MR. MacDONALD: Yes. I used 20 | numbers that are available, yes. | 21 | Q. And you used those numbers 22 | for the point-to-point stand-alone toll 23 | calculation because you thought that they were 24 | reasonable. | 25 | Did you? | 26 | MR. MacDONALD: Just because they 27 | were available numbers that would probably not 28 | find themselves in significant dispute. | 29 | Q. When you were doing this 30 | comparative assessment in Nova Scotia, you | 9682 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | obviously considered the Halifax situation. | 2 | MR. MacDONALD: Yes. | 3 | Q. Did you use the tolls for 4 | point-to-point stand-alone purposes as estimated 5 | by Maritimes & Northeast? | 6 | MR. MacDONALD: I believe those 7 | estimates are based upon the Nova Scotia Power
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8 | numbers. | 9 | Q. The Sunstone estimate? | 10 | MR. MacDONALD: Yes. | 11 | Q. Or what falls out of the 12 | Sunstone estimate of capital cost. | 13 | MR. MacDONALD: Exactly, adjusted 14 | for AFUDC and AO. | 15 | Q. At page 3, sir, of your 16 | Evidence, under the heading "roll-in of Halifax 17 | lateral", you are concerned, or you continue to be 18 | concerned, that under Maritimes & Northeast's 19 | methodology, the benefit of any volume growth or 20 | transportation of incremental volumes in Nova 21 | Scotia on laterals in this Province would have to 22 | be shared with other shippers. | 23 | Fair?--At line 14. | 24 | MR. MacDONALD: Yes. Rather than 25 | realizing cost savings to Nova Scotia Power 26 | electricity consumers, they become sources of 27 | subsidy for third parties. | 28 | Q. Let's explore that a little 29 | bit. | 30 | Increased volumes on a pipeline | 9683 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | system, whether a mainline or a lateral, will tend 2 | to decrease the unit cost of transportation. | 3 | You are simply dividing the cost 4 | of service by a greater number of units.
| Correct? 5 | | MR. MacDONALD: Yes, all else 6 | being equal. 7 | | Q. Let me ask you this, Mr. 8 | MacDonald: If demand for Sable gas, or if the 9 | market for Sable gas warrants, we have heard 10 | evidence in this proceeding that that could well 11 | result in further reserves being tied in, in order 12 | to respond to that demand. 13 | | You are familiar with that 14 | evidence? 15 | | MR. MacDONALD: Yes.
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16 | | Q. Mr. Miller mentioned it this 17 | morning. 18 | | MR. MacDONALD: Yes. 19 | | Q. Would your understanding be, 20 | as mine, that if that were to happen, there is the 21 | potential to extend the life of the project, the 22 | economic life of the pipeline, if further reserves 23 | were tied in? 24 | | MR. MacDONALD: Yes. If the 25 | recoverable reserves go up and the rate of 26 | production stays the same, all else being equal, 27 | the life should be lengthened, yes. 28 | | Q. Do you understand, sir, that 29 | the depreciation on M&NE is a significant 30 | 9684 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) | component of the likely cost of service of that 1 | company? 2 | | MR. MacDONALD: I don't know if 3 | "significant" is --- 4 | Is this 4 percent, approximately? 5 | | Q. I did not bring it with me 6 | from my table. I will get it, if necessary. 7 | | It is a significant --- 8 | MR. MacDONALD: It is, sure. 9 | | Q. If we are in a scenario where 10 | additional reserves are being brought on and the 11 | economic life of the pipeline is being extended, 12 | can we agree, sir, that the depreciation 13 | component, in terms of cost of service, will be 14 | favourably affected; and that shippers on that 15 | pipeline will benefit accordingly, by virtue of 16 | the lower cost of service? 17 | | MR. MacDONALD: If the life were 18 | extended so that the rate of recovery of the 19 | capital investment was reduced, then the costs 20 | would be 21 | reduced --- 22 | MR. SMELLIE: Yes. 23 | | MR. MacDONALD: At least the 24 | stated costs. 25 | | MR. SMELLIE: Yes. 26 | | MR. MacDONALD: I agree with you.
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27 | | Q. I want you to assume with me, 28 | sir, a scenario in which, by reason of increased 29 | demand, or increased markets, the throughput on 30 | 9685 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) | the Maritime system increases from 530,000 MMBtu 1 | to 860,000 MMBtu a day. 2 | | I picked that number because I 3 | believe it is in the Record, and it is slightly in 4 | excess of 50 percent growth. 5 | | Can you make that assumption with 6 | me? 7 | | MR. MacDONALD: Sure. 8 | | Q. Under Maritimes & Northeast's 9 | methodology, if we start with the 54-cent postage 10 | stamp toll, the benefit of such increased 11 | throughput would reduce that toll considerably. 12 | | Would it not? 13 | | MR. MacDONALD: If you have 62 14 | percent more gas flowing, and it is equally 15 | distributed over that quantity, sure. 16 | | Q. No matter the destination of 17 | the volumes. 18 | | MR. MacDONALD: We are assuming 19 | postage stamp here, are we not? 20 | | MR. SMELLIE: Yes. Did I not say 21 | that? I meant to. 22 | | MR. MacDONALD: I think you might 23 | have. 24 | | But, yes. 25 | | Q. Let's turn away from that 26 | methodology to look at your preferred methodology: 27 | point-to-point on the mainline and stand-alone 28 | laterals. 29 | | And we will use the 11 or 12 30 | 9686 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) | cents on the mainline to the take-off point for a 1 | Halifax Lateral. 2 | | Okay?
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3 | | MR. MacDONALD: For the Base Case 4 | of 530? 5 | | MR. SMELLIE: Yes. 6 | | MR. MacDONALD: Okay. 7 | | Q. Thank you for that. 8 | | If the volumes were to grow in 9 | the order of magnitude that I have prescribed, I 10 | assume that we can agree, sir, that there would be 11 | the same favourable impact on that mainline point- 12 | to-point toll. 13 | | MR. MacDONALD: The 11 cents 14 | would go down? 15 | | Q. Considerably. Would it not? 16 | | MR. MacDONALD: Using the volume 17 | times distance methodology? 18 | | MR. SMELLIE: Yes. 19 | | MR. MacDONALD: Sure. 20 | | Q. Okay. But the lateral toll 21 | measured from the Base Case would only go down if 22 | some of this increased throughput was destined, in 23 | the case that we are talking about, to Halifax. 24 | | Right? 25 | | MR. MacDONALD: Yes. For 26 | instance, if, rather than simply refuelling Tuft's 27 | Cove and burning 90 a day, we repowered Tuft's 28 | Cove and burned 140 a day, yes, we could easily 29 | pick up another 50 in this part of the system, 30 | 9687 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) | plus the 25 for the LDC. 1 | |
| | 2 | We cut the lateral fee in half by 3 | doing that. | 4 | Q. If that was the measure of 5 | the growth. | 6 | My point is a very simple one: 7 | If all the gas is going right by the Halifax
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8 | Lateral take-off point, under your scenario, you 9 | and your customers do not benefit. | 10 | Right?--Under point-to-point 11 | stand-alone laterals, save and except for the 12 | benefit that accrues to the mainline point-to- 13 | point toll. | 14 | Am I right? | 15 | MR. MacDONALD: If we are not 16 | using any gas? | 17 | Q. No. We have a Base Case --- 18 | MR. MacDONALD: Yes. | 19 | Q. You pointed that out to me. | 20 | -- and we have a significant 21 | growth scenario. To the extent that the growth is 22 | occurring in markets other than yours --- 23 | MR. MacDONALD: In other words, 24 | we are fixed forever, and there is a growth market 25 | somewhere else. | 26 | Q. Under your methodology, the 27 | growth in volumes has to go down the Halifax 28 | Lateral for you and your customers to benefit. | 29 | Right? | 30 | MR. MacDONALD: It has to go | 9688 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | somewhere where we use gas. Not necessarily the 2 | Halifax Lateral. But, yes, we will talk about the 3 | Halifax Lateral, if we must. | 4 | Q. Whereas under the M&NE 5 | methodology, in this scenario, all shippers on the 6 | system benefit, no matter where the growth is 7 | destined. | 8 | Is that fair? | 9 | MR. MacDONALD: If we are 10 | consuming, let's say, 90 million cubic feet a day 11 | at Tuft's Cove and the growth all happened 12 | somewhere else, then the point-to-point toll on 13 | the mainline will go down, as it would for a 14 | postage stamp, and the rate on the lateral would 15 | remain unchanged, if the volumes on the lateral 16 | remained unchanged. | 17 | I agree with you. |
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18 | Q. And in the scenario that we 19 | have been talking about, the essence of your 20 | position on tolling, as I have understood it, 21 | would significantly curtail the direct benefit to 22 | your customers of lower tolls, as volumes 23 | transported on M&NE to markets other than yours 24 | increased. | 25 | Will you agree with me? | 26 | MR. MacDONALD: If the starting 27 | point is a 60-cent toll and you double the flow on 28 | that mainline, it will go down to 30 cents. | 29 | Is that the direction that you 30 | are going in? | 9689 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | MR. SMELLIE: Yes. | 2 | MR. MacDONALD: Okay. Now, I am 3 | not following your question because --- 4 | Are you suggesting that the 5 | point-to-point tolling, with incremental tolling 6 | of laterals, cannot get below 30 cents?--Because I 7 | do not buy that. I can't. | 8 | Q. I know you do not buy it. 9 | There has to be growth in the markets at the end 10 | of the stand-alone lateral, in order for you to 11 | benefit significantly from that growth. | 12 | Am I right? | 13 | MR. MacDONALD: Yes, there has to 14 | be growth, absolutely, in order to have the price 15 | decline with volume. | 16 | Q. So if the toll, for example, 17 | in the growth scenario we are talking about, on 18 | the mainline went from, say, 11 cents to 7 cents, 19 | on the mainline --- 20 | MR. MacDONALD: Yes. | 21 | Q. All right? | 22 | MR. MacDONALD: Okay; 7 cents. | 23 | Can we get service at 7 cents on 24 | the mainline! | 25 | Q. If there is enough growth, 26 | maybe you can. | 27 | But you benefit to that extent. |
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28 | MR. MacDONALD: Yes. | 29 | Q. Right? | 30 | I guess what I am trying to get | 9690 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smellie) 1 | at, and to suggest to you, sir, is that similar 2 | growth on the M&NE system may cause the postage 3 | stamp toll to decline to a number that, on a 4 | proportionate basis, would be in the order of 33, 5 | 35 cents. | 6 | MR. MacDONALD: Yes, that would 7 | be possible. | 8 | I will give you that, if you will 9 | give me the fact that 115 million flowing to 10 | Tuft's Cove on the lateral will result in a 28- 11 | cent figure, including 11 on the mainline. 12 | --- (Laughter/Rires) 13 | MR. SMELLIE: Let me check. | 14 | No, we can't go there, Mr. 15 | MacDonald. | 16 | Thank you, Mr. Chairman; thank 17 | you, Mr. MacDonald. | 18 | THE CHAIR: Thank you, Mr. 19 | Smellie. | 20 | MR. NOONAN: Kimberly-Clark Nova 21 | Scotia...? 22 | --- (No Response/Pas de réponse) 23 | MR. NOONAN: Portland Natural Gas 24 | Transmission System...? 25 | --- (No Response/Pas de réponse) 26 | MR. NOONAN: Société en 27 | Commandite Gaz Métropolitain...? 28 | --- (No Response/Pas de réponse) 29 | MR. NOONAN: Tatham Offshore 30 | Incorporated...? | 9691 NSPI Panel No. 2 | (Joint Position Panel) 1 | --- (No Response/Pas de réponse) 2 | MR. NOONAN: TransCanada 3 | PipeLines Limited...? 4 | --- (No Response/Pas de réponse) 5 | MR. NOONAN: Trans Québec & 6 | Maritimes Pipeline Incorporated...? 7 | --- (No Response/Pas de réponse) 8 | MR. NOONAN: Hydro-Québec...? 9 | --- (No Response/Pas de réponse) 10 | MR. NOONAN: Cape Breton Regional 11 | Municipality...?
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12 | --- (No Response/Pas de réponse) 13 | MR. NOONAN: Environment 14 | Canada...? 15 | --- (No Response/Pas de réponse) 16 | MR. NOONAN: Department of 17 | Fisheries and Oceans...? 18 | --- (No Response/Pas de réponse) 19 | MR. NOONAN: Municipality of the 20 | District of Guysborough...? 21 | --- (No Response/Pas de réponse) 22 | MR. NOONAN: Government of 23 | Newfoundland and Labrador...? 24 | --- (No Response/Pas de réponse) 25 | MR. NOONAN: Guysborough County 26 | Regional Development Authority...? 27 | --- (No Response/Pas de réponse) 28 | MR. NOONAN: Halifax Regional 29 | Municipality...? 30 | --- (No Response/Pas de réponse) | 9692 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | MR. NOONAN: Procureur général du 2 | Québec...? 3 | --- (No Response/Pas de réponse) 4 | MR. NOONAN: Province of New 5 | Brunswick/New Brunswick Power Corporation...? | 6 | MR. BLUE: Thank you, Mr. 7 | Chairman. |
| | 8 | CROSS-EXAMINATION BY MR. BLUE, ON BEHALF OF 9 | PROVINCE OF NEW BRUNSWICK AND NEW BRUNSWICK POWER 10 | CORPORATION: 11 | Q. How much per kilowatt-hour, 12 | on average, are the electricity costs for Nova 13 | Scotia Power, Mr. MacDonald? | 14 | Just in cents per kilowatt- 15 | hour... | 16 | MR. MacDONALD: About eight and a 17 | half. | 18 | Q. How does that compare to your 19 | estimate of costs for New Brunswick Power? | 20 | MR. MacDONALD: Can I just check 21 | the ballpark arithmetic here. 22 | --- (A Short Pause/Une courte pause) 23 | I would say more like 7.7 cents. | 24 | Q. For Nova Scotia Power? |
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25 | MR. MacDONALD: Yes, on average. | 26 | Q. And, on average, what is your 27 | understanding of the cost of New Brunswick Power? | 28 | MR. MacDONALD: It would be 29 | approximately 10 percent less than that. | 30 | Q. So that would be about .77 | 9693 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | cents less, or around 7 cents? | 2 | MR. MacDONALD: Something like 3 | that, yes, on average. | 4 | Q. In terms of that 7.7 cents 5 | per kilowatt-hour, Mr. MacDonald, how much of that 6 | is income tax and return on equity? | 7 | MR. MacDONALD: Our return on 8 | equity was approximately $94 million, plus or 9 | minus, in revenues, of about $730 million. | 10 | Income tax, in this particular 11 | year, is probably in the vicinity of $10 million, 12 | plus or minus. | 13 | Q. So, roll that into cents per 14 | kilowatt-hour. | 15 | Of the 7.7 cents cost per 16 | kilowatt-hour, how much is equity and how much is 17 | income tax? | 18 | MR. MacDONALD: It would be 1.2 19 | cents. | 20 | Q. Thank you. | 21 | Is it your understanding, Mr. 22 | MacDonald, that New Brunswick Power does not pay 23 | income tax, as a Crown corporation? | 24 | MR. MacDONALD: I believe that is 25 | correct, yes. | 26 | Q. And is it your understanding 27 | that New Brunswick Power's costs and revenues were 28 | almost equal in the last fiscal year? | 29 | MR. MacDONALD: Yes, I understand 30 | that. | 9694 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue)
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1 | Q. And is it not a fact, sir, 2 | that Nova Scotia Power, at this time, is proposing 3 | no rate increases for the foreseeable future? | 4 | MR. MacDONALD: That is our 5 | objective, yes. | 6 | Q. You are aware that New 7 | Brunswick Power, in its Five-Year Financial 8 | Forecast, is forecasting rate increases of 2.9 9 | percent per annum, to increase its financial 10 | health? | 11 | MR. MacDONALD: Yes, I understand 12 | that. In the last several years, I believe what 13 | they have done is use some stabilization reserves 14 | in order to hold their rates down, and I think 15 | they are just having some adjustments. | 16 | Q. What is FERC Order 888 and 17 | FERC Order 888-A, and what is their significance 18 | to Nova Scotia Power and to Canadian utilities? | 19 | MR. MacDONALD: If memory serves 20 | me correct, the relevant one is Order 888. | 21 | Basically, that provides that a 22 | system owning transmission is obligated to move 23 | energy through their system for the benefit of 24 | parties who are not customers of that system. | 25 | So System A selling to System C 26 | has the right, under FERC Order 888, to move 27 | energy through System B at a cost that will pay 28 | System B for the use of their facilities; but 29 | System B must move the energy. | 30 | That is the basic requirement. | 9695 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | Q. Have you read the portions in 2 | FERC Order 888 dealing with the reciprocity 3 | obligations for Canadian utilities that want to 4 | move electricity into the U.S.? | 5 | MR. MacDONALD: I understand, 6 | generally, what is contained therein. | 7 | Q. What is your understanding of 8 | it? | 9 | And perhaps included in that 10 | understanding you could summarize the effect of 11 | the FERC's decisions on Energy Alliance, Hydro- 12 | Québec and Ontario Hydro -- the one that came out 13 | in February of 1997.
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| 14 | MR. MacDONALD: Basically, the 15 | requirement is that if a Canadian entity wishes to 16 | market electricity in the United States, they must 17 | reciprocate and provide similar access to their 18 | systems, so that the Americans are not 19 | disadvantaged by FERC Order 888 to the advantage 20 | of Canadians. | 21 | Q. Right. And you are aware 22 | that, in response to that, on May 15, 1997, New 23 | Brunswick Power announced that it was going to 24 | publish a Transmission Tariff that would allow 25 | third party shippers to move electricity across 26 | the system to markets in the U.S. or other markets 27 | in Canada? | 28 | MR. MacDONALD: Yes. I have seen 29 | their Press Release. We are aware of what they 30 | are about, but we don't know the specifics of it | 9696 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | yet. | 2 | Q. You mentioned a number, .8 3 | cents per kilowatt-hour, as the transmission 4 | tariff, that you were aware of. | 5 | MR. MacDONALD: The .8 cents per 6 | kilowatt-hour is a number that we have talked to 7 | several of the systems in the Northeast about. I 8 | would be surprised if the New Brunswick number, on 9 | an annual basis, was much different than that. | 10 | It might be higher; it might be 11 | lower. | 12 | Q. Let's work with that concept 13 | in common. | 14 | MR. MacDONALD: Sure. | 15 | Q. Is it also your 16 | understanding, then, that if Nova Scotia did want 17 | to sell electricity, either to the New England 18 | interface or wanted to buy electricity from the 19 | Québec interface or the New England interface to 20 | get lower prices, that that electricity would have 21 | that .8 cents-per-kilowatt-hour tariff, in 22 | addition to whatever other price was paid for it? | 23 | MR. MacDONALD: Yes. | 24 | And for the benefit of one or two 25 | people who may not be as familiar with Order 888 26 | as you are, Mr. Blue, I might add that part of
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27 | that provision is that the host utility must pay 28 | itself the same fee as others pay to it for using 29 | its transmission system, so that you cannot 30 | preferentially price your transmission service. | 9697 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | Q. Thank you, Mr. MacDonald. 2 | That was my next question. | 3 | New Brunswick Power, once it 4 | publishes that Transportation Tariff, would itself 5 | have to pay exactly the same transportation tariff 6 | when it ships to New England that you would have 7 | to pay if you were shipping to New England. | 8 | That is your understanding of the 9 | effect? | 10 | MR. MacDONALD: The effect, as I 11 | understand it, Mr. Blue, is that the wires, the 12 | transmission system, is regulated, and will 13 | continue to be regulated. They will earn a 14 | regulated return on equity. So their revenue 15 | requirement is adjusted to reflect incremental 16 | income that would be derived by third parties 17 | using their system, so that they don't earn, in 18 | effect, a windfall by first of all charging their 19 | customers for the use of the grid and then drawing 20 | revenue from another party who is now using their 21 | grid. | 22 | So it is basically a break-even 23 | proposition. | 24 | Q. Fair enough. But regardless, 25 | in terms of their ability to sell in the New 26 | England interface, just like you if you wanted to 27 | sell in the New England interface, they would have 28 | to pay the same transmission tariff; and their 29 | electricity, when it goes to compete, would have 30 | that additional amount on it, just like yours | 9698 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | would. | 2 | Is that not true? | 3 | MR. MacDONALD: Let me just make 4 | sure I understand the question completely. | 5 | If Nova Scotia Power, at the 6 | interface with New Brunswick, were to put energy 7 | on the New Brunswick grid, we would pay, let's 8 | say, a hypothetical .8 cents per kilowatt hour to 9 | move a kilowatt hour into Maine. If NB Power,
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10 | using their system -- let's say, from Colson Cove 11 | or Belle Dune, or God knows where -- 12 | would want to push energy into New England at the 13 | same time, they would pay themselves, or charge 14 | themselves, .8 cents for that transaction? | 15 | MR. BLUE: Right. | 16 | MR. MacDONALD: Yes. | 17 | MR. BLUE: 18 | Q. And if your generation costs 19 | were identical, for the sake of the example, from 20 | the point of view of the price in the New 21 | England/Maine market, the electricity would be 22 | priced the same? | 23 | MR. MacDONALD: Yes. | 24 | Can I just add one point? | 25 | I have to add this point, because 26 | the story is not yet complete. | 27 | They would not have to pay for 28 | the use of the Nova Scotia Power transmission 29 | grid, whereas we would. | 30 | So we would be disadvanted by the | 9699 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | rate we would have to charge for the use of our 2 | grid. | 3 | Q. Mr. MacDonald, do you have a 4 | published Transmission Tariff? | 5 | MR. MacDONALD: No, we do not. | 6 | Q. Okay. Sir, let me just ask 7 | you this --- 8 | You mentioned all the 9 | interconnections that New Brunswick has, and the 10 | benefits they have received from them. | 11 | MR. MacDONALD: Yes. And we are 12 | not faulting them for that. | 13 | Q. No, no. But you would agree 14 | with me that, in light of FERC Order 888 and the 15 | publication of the Transmission Tariff, that is 16 | yesterday's box score, and that situation is not 17 | going to pertain in the future? | 18 | MR. MacDONALD: It pertains right 19 | now. But I agree with you, going forward, there
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20 | are going to be changes. |
| | 21 | Q. Thank you. | 22 | MR. MacDONALD: It is the pace of 23 | change that is the issue. | 24 | Q. Thank you, sir. | 25 | MR. MacDONALD: I agree with you. | 26 | Q. Mr. MacDonald, I would just 27 | like to clarify your evidence. I think you and I 28 | went through this before, and I just want to make 29 | sure that you are not saying something different 30 | than you were saying before. | 9700 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | So, let's --- 2 | MR. MacDONALD: We are one of the 3 | Parties that is saying the same thing we said 4 | before. | 5 | Q. Well, this is what I want to 6 | check. There seemed to be some confusion about 7 | it. | 8 | Could we go to your statement --- 9 | Excuse me. Let me get it. 10 | --- (A Short Pause/Une courte pause) 11 | Could you turn to your statement 12 | on page 1. There are two statements: Lines 9 and 13 | 10; and then Lines 18 and 19. | 14 | Would you have a look at those 15 | two statements? | 16 | MR. MacDONALD: Yes. | 17 | Q. What you are saying, then, is 18 | that if the delivered price of gas is not 19 | commercially acceptable, then Nova Scotia Power is 20 | not going to purchase gas at Tuft's Cove or 21 | Trenton. | 22 | That is effectively what you are 23 | saying? | 24 | MR. MacDONALD: Yes. And that is 25 | spelled out in our PA. | 26 | Q. And you said, I think, in 27 | your Opening Statement, which is marked as Exhibit
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28 | C-58-21 29 | -- and I am looking at the bottom of the page, and 30 | the top of the next page -- that the 60-cent | 9701 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | "take-it-or-leave-it" toll, as you described it, 2 | would make natural gas commercially unacceptable 3 | to Nova Scotia Power because the transportation 4 | toll exceeds cost-based alternatives and because 5 | the delivered cost of gas to Nova Scotia Power 6 | will exceed the cost of alternative fuels. | 7 | MR. MacDONALD: Yes. | 8 | Q. I take it that the statements 9 | on lines 9 to 10, and 18 to 19 of page 1 of your 10 | Additional Evidence are saying materially the same 11 | thing as the statement that I just read from 12 | Exhibit 13 | C-58-21? | 14 | It is nothing new? | 15 | MR. MacDONALD: No. What I think 16 | we are reflecting there is that in the first 17 | instance, we had the first toll of 60 cents, and 18 | now we have a new number. | 19 | Q. Yes. What you are saying is 20 | that it was 50 cents, and you are saying the same 21 | thing about 54 cents? | 22 | MR. MacDONALD: Basically, yes. | 23 | Q. Okay. Sir, at lines 19 to 22 24 | -- this is the statement Mr. Smellie went over 25 | with you -- you said that without Nova Scotia 26 | Power as the anchor load, a likely consequence is 27 | the necessary laterals to Halifax and Trenton/New 28 | Glasgow will not be justifiable. | 29 | Okay? | 30 | MR. MacDONALD: Yes. | 9702 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | Q. You are not saying, then, I 2 | take it, that they will not be built without Nova 3 | Scotia Power? | 4 | You are not saying "après Nova 5 | Scotia Power bowing out of the luge"; you are 6 | saying that the likely consequence is that they 7 | may not be built. |
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8 | MR. MacDONALD: We are saying 9 | that with the volumes that we might otherwise 10 | take, the costs will be higher, and therefore 11 | there might be a lesser inclination for people to 12 | purchase gas. | 13 | Q. Okay. In your experience, 14 | Mr. MacDonald, have you any experience in 15 | marketing and selling natural gas? | 16 | MR. MacDONALD: I think we went 17 | through that earlier. No. | 18 | Q. Mr. Willms, I note from 19 | Exhibit B-2-19, I think has been with Westcoast 20 | since, as Mr. Smellie would put it, he was 6. | 21 | MR. MacDONALD: That is where the 22 | discount came from! 23 | --- (Laughter/Rires) 24 | Q. That's right. | 25 | He has been Supervisor, Rates; 26 | Vice-President of Sales; President of the Company. | 27 | He knows a lot about natural gas. | 28 | Do you agree with that? | 29 | MR. MacDONALD: I expect that he 30 | should. | 9703 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | Q. You heard Mr. Willms' 2 | evidence yesterday that there are sufficient 3 | loads, in his opinion, in the Halifax area, 4 | exclusive to Nova Scotia Power, to justify a 5 | lateral. | 6 | MR. MacDONALD: Yes, I heard him 7 | say that. | 8 | Q. And I take it you don't have 9 | any disagreement with that? | 10 | MR. MacDONALD: I think what we 11 | put on the Record was that through work that we 12 | had done jointly with Consumers' Gas, we have an 13 | estimate that 25,000 million cubic feet a day is 14 | achievable in a relatively short period of time. | 15 | So, we are not "out to lunch" in 16 | differences in our numbers. | 17 | Q. But that is saying it a 18 | little bit differently. It was not what I asked
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19 | you. | 20 | My question was: Do you disagree 21 | with his view that there are sufficient loads, 22 | quite apart from Nova Scotia Power, to justify a 23 | lateral to Halifax? | 24 | MR. MacDONALD: We think the 25 | potential is there for sizeable loads. | 26 | Q. Thank you. Again -- and the 27 | only reason I want to focus on Tuesday's 28 | Chronicle-Herald article is that Mr. Coolican is 29 | quoted as saying, referring to the gas: "At this 30 | price, we will not be using natural gas at our | 9704 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | Tufts Cove and Trenton plants." -- Referring to 2 | the 54 cents. | 3 | Have you read that? | 4 | MR. MacDONALD: Yes. | 5 | Q. What I am concerned about is 6 | that that seems to be a little bit different from 7 | something you said under oath here to me back on 8 | June the 4th. | 9 | Perhaps you could get out pages 10 | 7046 to 7047 of the Transcript. | 11 | I think that was June the 4th. | 12 | MR. MacDONALD: Probably June the 13 | 4th, yes. | 14 | Q. At that time we were talking 15 | about a 60-cent toll. | 16 | Remember, you and I were talking 17 | about the fact that what is really important for 18 | you is the delivered price, which is a combination 19 | of the tariff plus the commodity cost. | 20 | MR. MacDONALD: Yes. | 21 | Q. You didn't think in terms of 22 | tariff; you thought in terms of the delivered 23 | price. | 24 | Then we were talking about the 25 | 60-cent tariff. | 26 | Then, at line 22, I started with 27 | this question:
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28 | "You have done all that 29 | arithmetic 30 | back at the office. | 9705 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | Have you got some number in your 2 | mind 3 | about what you can pay for the 4 | delivered price of gas, to make 5 | the 6 | conversion economic? | 7 | I am not asking you what the 8 | number 9 | is. I am just asking: Do you 10 | have a 11 | number? | 12 | MR. MacDONALD: We have a range 13 | of 14 | alternatives. | 15 | However, the bottom line is that 16 | if 17 | the price, notionally, is the 18 | type of 19 | number that is being talked about 20 | generally in the industry, of a 21 | 60 22 | -cent toll plus the commodity 23 | price, 24 | it is a stretch for us." 25 | Do you see that? | 26 | MR. MacDONALD: Yes. | 27 | Q. I am looking at the 28 | difference of "a stretch for us" versus "we 29 | won't", in the article. | 30 | Is the position, still, that you | 9706 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | are saying that your belief is that a delivered 2 | price that would have built into it a 54-cent toll 3 | is "a stretch for us"? Or are you saying, today: 4 | "My position has changed. We won't take the gas 5 | at that toll."? | 6 | MR. MacDONALD: What we were 7 | saying then, and I will say now, is that when we 8 | look at the total cost we have of doing nothing 9 | and compare it to the total cost we will incur in 10 | taking gas, we have to have a positive benefit 11 | from the expenditure to take gas.
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| 12 | Q. That is always true. | 13 | MR. MacDONALD: Yes. And it 14 | looks, now, and it looked then, that if the 15 | commodity price is it -- and that is the commodity 16 | price; you cannot change the commodity price -- 17 | and the toll is as written, be it 60 cents, or be 18 | it 54 cents, we will have to have an adjustment in 19 | our rates, and we don't think that that is 20 | acceptable. | 21 | Q. So you are saying, then --- 22 | Let me ask you this: You have 23 | not negotiated your commodity price with the 24 | vendors of gas yet? | 25 | MR. MacDONALD: No, we have not. | 26 | Q. Are you saying that if the 27 | Panel supports 54 cents, you are then breaking off 28 | negotiations, throwing away all intent of burning 29 | natural gas, and will not talk to the gas sellers? | 30 | MR. MacDONALD: What our | 9707 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | Precedent Agreement says with Maritimes & 2 | Northeast, basically, is that we can determine, at 3 | our sole discretion, whether or not we have a 4 | commercially viable alternative in burning gas and 5 | we can, in effect, terminate the Agreement. | 6 | Q. That is not what I asked you, 7 | sir. | 8 | I said: Are you telling the 9 | Board, today, that, at 54 cents, Nova Scotia Power 10 | is going to exercise its option not to buy gas, 11 | walk away from natural gas, and say: "We can't 12 | use it with the tariff at that price, and we are 13 | not going to try to negotiate further."? | 14 | MR. MacDONALD: If the final 15 | decision in September is that the tariff is 54 16 | cents and bypass is not possible, and so on, and 17 | so forth, then I will tell you today: We are not 18 | buying gas. 19 | Q. That is clear --- 20 | THE CHAIR: Mr. Blue, is this a 21 | good time to break? | 22 | MR. BLUE: Yes; thank you. | 23 | THE CHAIR: Lunch time. We will 24 | be back at 2 o'clock.
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25 | --- Luncheon Adjournment/Pause-midi 26 | --- Upon resuming/A la reprise 27 | THE CHAIR: Welcome back, ladies 28 | and gentlemen. | 29 | I have a brief announcement to 30 | make. | 9708 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | It is our intention to break at 2 | 1:00 tomorrow. We have had a number of requests 3 | for confirmation of that. | 4 | Therefore, it is our intention to 5 | terminate at 1:00 tomorrow -- "terminate", which 6 | is different from "self-destruct"! 7 | --- (Laughter/Rires) 8 | THE CHAIR: Over to you, Mr. 9 | Blue. | 10 | MR. BLUE: You may be summoned as 11 | a witness in a matrimonial case that I will be 12 | involved in! 13 | --- (Laughter/Rires) |
| | 14 | CROSS-EXAMINATION BY MR. BLUE (CONTINUED): 15 | Q. Mr. MacDonald, I just want to 16 | come back to where we were before the break. | 17 | What I was trying to do was to 18 | focus on the statement that you made, under oath, 19 | on June 4th, when the postage stamp toll you were 20 | talking about was 60 cents, when you said that, at 21 | that toll, purchasing natural gas would be a 22 | "stretch" for Nova Scotia Power, with the 23 | statement in the July 1st Chronicle Herald from 24 | Mr. Coolican, your Vice-President of Public 25 | Affairs, saying you would not be using it. | 26 | When I put that to you, you said, 27 | I think quite unequivocally, that if the decision 28 | of the Board is a 54-cent postage stamp and 29 | rolled-in tolling of laterals, Nova Scotia Power 30 | will not be taking gas. | 9709 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | First: Did I summarize what you 2 | said accurately? | 3 | MR. MacDONALD: Yes. I think 4 | what I said on the 4th -- if that was the date -- 5 | was that it would be a stretch, the "stretch"
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6 | being that we would be getting into rate 7 | increases, basically. | 8 | We don't feel it is appropriate 9 | that we increase the electricity rates to Nova 10 | Scotians, in order to accommodate the compromise 11 | position, nor indeed to accommodate the first 12 | application of 60 cents. | 13 | Q. I understand that. But 14 | before the break, you had said something 15 | different. You said, today, that if those two 16 | decisions that I recounted are made by the Board, 17 | Nova Scotia Power will not be taking gas. | 18 | That is what you said? | 19 | MR. MacDONALD: That is what I 20 | said; yes. | 21 | Q. And you said that even though 22 | you have not, at this stage, made any attempt to 23 | negotiate a specific gas purchase with the SOEP 24 | Producers. | 25 | MR. MacDONALD: We certainly have 26 | made a significant effort to negotiate a gas 27 | purchase price with the SOEP Producers. | 28 | Q. Okay. | 29 | Have you broken off negotiations 30 | with them? Have you told them: "Don't phone us | 9710 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | any more. We are not interested."? | 2 | MR. MacDONALD: No, we have not. | 3 | Q. Is the position that you 4 | stated here on the Record one that your Board of 5 | Directors has approved you making? | 6 | MR. MacDONALD: Which one, of 7 | many? | 8 | Q. The statement that if the 9 | decision is 54 cents for the postage stamp toll 10 | for Nova Scotia and if the Laterals Policy is 11 | rolled-in for the Halifax Lateral, you will not be 12 | taking gas. | 13 | Do you have authority from your 14 | Board of Directors to have made that statement? | 15 | MR. MacDONALD: No, I don't.
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| 16 | Q. All right. | 17 | So do we take that as Mr. Terry 18 | Macdonald's opinion? Or do we take that as Nova 19 | Scotia Power's official position? | 20 | MR. MacDONALD: It is Nova Scotia 21 | Power's position. | 22 | Q. All right. | 23 | Have you approved making that 24 | statement with Mr. David Mann, your President? | 25 | MR. MacDONALD: Yes. | 26 | Q. And he has approved it? | 27 | MR. MacDONALD: Yes. | 28 | Q. So you are a playing real 29 | brinkmanship game here, Mr. MacDonald, on behalf 30 | of Nova Scotia Power. You are throwing the dice, | 9711 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | and you are saying: "If I say that, or if Nova 2 | Scotia Power says that, we hope the Board won't 3 | support postage stamp tolls." 4 | That is the game; is it? | 5 | MR. MacDONALD: I don't believe 6 | it is a game, at all. | 7 | I would suggest that what we are 8 | doing is submitting evidence before this Panel, so 9 | that they can make a judgment based on facts. | 10 | Q. All right, sir. | 11 | So let me get this straight: At 12 | 60 cents, you came before this Board, under oath, 13 | and said that it was a "stretch" -- implying there 14 | was room for negotiation. Today, the tariff has 15 | fallen to 54 cents, and you are saying: "If that 16 | is the decision, we won't take it." 17 | Mr. MacDonald, what caused that 18 | change in position between June 4th and today? 19 | What is it? | 20 | Is it that you are ticked off 21 | that you weren't involved in the settlement 22 | discussion? Was that it? | 23 | MR. MacDONALD: Certainly not. |
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24 | It is basically that we have made 25 | a decision. | 26 | Q. Have you done any additional 27 | analysis since June 4th? | 28 | MR. MacDONALD: Yes, we have. | 29 | Q. Okay. | 30 | Have you had additional meetings | 9712 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | on prices with the Producers? | 2 | MR. MacDONALD: Yes, we have. | 3 | Q. Is it the product of those 4 | meetings, and that analysis, that has caused you 5 | to change your position? | 6 | MR. MacDONALD: It has confirmed 7 | our numbers, yes. | 8 | Q. Why didn't you mention those 9 | additional meetings, or that additional analysis, 10 | in your Additional Evidence, since you took the 11 | trouble to file Additional Evidence? | 12 | MR. MacDONALD: I didn't think it 13 | was important. | 14 | Q. So it wasn't important enough 15 | to affect --- 16 | Although it affected your 17 | position, what you are saying today is that you 18 | didn't think it was important enough to mention it 19 | in your Additional Evidence. | 20 | MR. MacDONALD: All we did was 21 | fine-tune some numbers. It confirmed our 22 | position. | 23 | Q. Oh! So the "additional 24 | analysis" are those numbers that you put on page 3 25 | of your Additional Witness Statement? | 26 | MR. MacDONALD: I am sorry...? | 27 | Q. When you say you "fine-tuned 28 | some numbers", are you referring to the numbers 29 | you put on page 3 of your Witness Statement? | 30 | MR. MacDONALD: No. I am talking | 9713 NSPI Panel No. 2 | (Joint Position Panel)
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| cr-ex (Blue) 1 | about our estimated cost of gas, the cost of 2 | conversion, the cost of the inefficiencies, the 3 | net costs of the increase to our ratepayers, and 4 | the fact that we cannot afford to have a rate 5 | increase in Nova Scotia, when we consume 90 6 | million cubic feet a day of gas, so that a single 7 | customer in New Brunswick, consuming 85 million 8 | cubic feet a day of gas, can enjoy a lower rate. | 9 | Q. Mr. MacDonald, did you take 10 | that analysis and, by memo, send it up to Mr. 11 | Mann, or to the Executive Committee of Nova Scotia 12 | Power, saying "We have done this analysis. We are 13 | now at a point that we do not think we will be 14 | able to take gas at the 54-cent postage stamp 15 | rate."? | 16 | Is there a memo in the Company? | 17 | MR. MacDONALD: Our internal 18 | processes, I do not think, are of interest to this 19 | particular --- 20 | Q. Is there a Memo in the 21 | Company? | 22 | MR. MacDONALD: There is a 23 | position in the Company. | 24 | Q. Is there a position dated 25 | subsequent to June the 4th? | 26 | MR. MacDONALD: There is work 27 | that has been carried out subsequent to June the 28 | 4th. | 29 | Q. Is there a Memo, with a date 30 | on it, subsequent to June the 4th, setting out the | 9714 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | additional analysis, the additional numbers that 2 | Nova Scotia Power has done, that has led to the 3 | statement that you have made here today that you 4 | will not take gas at a 54-cent postage stamp toll 5 | if there is a Lateral Policy. | 6 | Is there such a Memo? | 7 | MR. MacDONALD: Not signed by me. | 8 | Q. All right. Are you aware of 9 | a Memo signed by someone else? | 10 | MR. MacDONALD: I am not. | 11 | Q. All right. Now, in the
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12 | discussion you had with Mr. Mann --- 13 | Is that a meeting of the 14 | Executive Committee, reflecting that you were 15 | going to make this statement? | 16 | MR. MacDONALD: It was discussed. | 17 | Q. At an Executive Committee 18 | Meeting? | 19 | MR. MacDONALD: It was discussed, 20 | yes. | 21 | Q. At an Executive Committee Meeting. | 22 | MR. MacDONALD: It was discussed 23 | with the Executive. | 24 | Q. Okay. Are there Minutes of 25 | that meeting? | 26 | MR. MacDONALD: I would suspect 27 | not. | 28 | Q. You do not keep Minutes of 29 | Executive Committee Meetings at Nova Scotia Power? | 30 | MR. MacDONALD: We certainly do | 9715 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | not file them here. | 2 | Q. I did not ask you that. I 3 | said: Are there Minutes of the Executive 4 | Committee Meetings of Nova Scotia Power? | 5 | MR. MacDONALD: There are Minutes 6 | kept of Executive Committee Meetings --- 7 | Q. Are there Minutes that 8 | reflect the position that you have taken before 9 | this Board? | 10 | MR. MacDONALD: I doubt that 11 | there is. | 12 | Q. And why is that? | 13 | MR. MacDONALD: Because it was 14 | not an item for discussion on an approved Agenda 15 | of an Executive Committee Meeting. | 16 | Q. And do the Board of Directors 17 | get copies of Executive Committee Minutes? | 18 | MR. MacDONALD: Not from me. |
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19 | Q. No, but do they get them as a 20 | matter of course. | 21 | MR. MacDONALD: I doubt that they 22 | do. | 23 | Q. Do you know whether they do? | 24 | MR. MacDONALD: I do not know 25 | whether they do. I said I doubt it. | 26 | Q. Mr. MacDonald, you are saying 27 | that if natural gas is not economic, you will not 28 | take natural gas to Nova Scotia Power. | 29 | That is what you are saying on 30 | page 2, lines 4 to 17; and that is what you said | 9716 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | right here. |
| | 2 | MR. MacDONALD: Yes. The 3 | Precedent Agreement we signed with Maritimes & 4 | Northeast makes that very clear. | 5 | Q. Okay. Why should this Panel 6 | give a damn whether or not you take natural gas 7 | because you have made an economic decision not to. | 8 | MR. MacDONALD: You do not think 9 | it is relevant? | 10 | Q. I am asking you. Why should 11 | this Panel give a damn, if you make a business 12 | decision not to take natural gas on the grounds 13 | that it would increase your rates to do so. | 14 | MR. MacDONALD: Well, I should 15 | think that it would be something that would be of 16 | interest to them. | 17 | Q. Why? Explain that to me. | 18 | MR. MacDONALD: Why would they 19 | not be interested in it? | 20 | Q. I am here to ask the 21 | questions. What is Nova Scotia Power's answer to 22 | my question. | 23 | Why should the Panel care? | 24 | MR. MacDONALD: I would think, as
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25 | one of the potentially largest customers in Nova 26 | Scotia for Sable Island gas, the Panel would have 27 | a legitimate interest in whether or not we were 28 | likely to purchase gas on the Terms and Conditions 29 | as put forward in the termed Compromise Agreement. | 30 | Q. Mr. MacDonald, if you make a | 9717 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | decision that that is just not economic for your 2 | Utility, just like any other industrial customer 3 | may make a similar decision, how is the public 4 | interest harmed? | 5 | MR. MacDONALD: I guess that 6 | would apply to everything that has been said 7 | before this Panel. | 8 | Q. Yes. But I am asking you for 9 | your opinion. | 10 | How would the public interest of 11 | Nova Scotia be harmed if you made an economic 12 | decision not to use natural gas in order to keep 13 | your rates down. | 14 | MR. MacDONALD: The public 15 | interest would be served by the public knowing 16 | whether or not gas was going to be used in the 17 | generation of electricity in this Province. | 18 | Q. Let's assume the public knows 19 | that. They will --- 20 | MR. MacDONALD: Well, they know 21 | that now. | 22 | Q. But I am asking you: Apart 23 | from public knowledge, how is the public interest 24 | harmed? | 25 | Explain that to me. | 26 | MR. MacDONALD: I am not 27 | suggesting the public interest is either advanced 28 | or harmed. | 29 | I am simply stating a fact. The 30 | fact is that at the toll being proposed, Nova | 9718 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | Scotia electricity consumers are being asked to 2 | subsidize consumers in another Province. | 3 | Q. Not if you do not take the 4 | gas.
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| 5 | Are they? | 6 | MR. MacDONALD: They are being 7 | asked. They are being expected to --- 8 | Q. Who is asking them? | 9 | MR. MacDONALD: -- and we will 10 | not ask them to subsidize gas to another 11 | jurisdiction. | 12 | Q. Mr. MacDonald, who is asking 13 | your customers to subsidize New Brunswick? | 14 | MR. MacDONALD: The expectation, 15 | I have heard this morning, is people were basing 16 | some of their considerations on the fact that a PA 17 | was signed for 19 million cubic feet a day by Nova 18 | Scotia Power. | 19 | Maybe that was irrelevant. | 20 | If it was not, then they should 21 | not have been talking about it. | 22 | Q. But whose decision was that? | 23 | MR. MacDONALD: Not mine. | 24 | Q. It was Nova Scotia Power's -- 25 | was it not? -- to sign that Agreement. | 26 | MR. MacDONALD: I did not bring 27 | up the notion this morning about the laterals, and 28 | the 19 million cubic feet a day. | 29 | Other Witnesses brought that up. | 30 | Q. Mr. MacDonald, who made the | 9719 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | decision at Nova Scotia Power to sign the 2 | Precedent Agreement. | 3 | MR. MacDONALD: Nova Scotia Power. | 4 | Q. Right. So, if anyone is 5 | imposing a burden on Nova Scotia Power's 6 | customers, it would be Nova Scotia Power asking to 7 | sign the Precedent Agreement. | 8 | Isn't that correct? | 9 | MR. MacDONALD: Nova Scotia Power 10 | is protected in the Precedent Agreement, by virtue 11 | of having the ability to, in our sole discretion,
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12 | choose not to exercise that option. | 13 | Q. I will get back to my 14 | question: If you exercise your option not to buy 15 | the gas because the price is not right, in your 16 | opinion, how are your customers' interests, or the 17 | public interest in Nova Scotia harmed? | 18 | MR. MacDONALD: The public 19 | interest in Nova Scotia and the interest of Nova 20 | Scotia Power's customers may or may not be harmed. | 21 | Q. All right. How may it be 22 | harmed, since you put that in your realm of 23 | possibilities. | 24 | How may it be harmed? | 25 | MR. MacDONALD: Let's assume that 26 | someone in another jurisdiction has the ability to 27 | purchase gas at Terms and Conditions, including 28 | price, more favourable than those being offered in 29 | Nova Scotia --- 30 | Q. Well, I am sorry. | 9720 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | MR. MacDONALD: Is that possible? | 2 | Q. Is New Brunswick paying more 3 | than Nova Scotia? | 4 | They are paying 57 cents on the 5 | toll; you are only paying 54. | 6 | How would someone in New 7 | Brunswick be getting gas on terms more favourable? | 8 | MR. MacDONALD: I think we talked 9 | this morning about FERC Order 888 and the 10 | geographic advantage arising therefrom, wherein if 11 | someone in New Brunswick chooses to purchase 12 | electricity in another jurisdiction, they pay 13 | themselves for moving the energy in their 14 | jurisdiction. | 15 | If someone in Nova Scotia chooses 16 | to buy energy from another jurisdiction, they pay 17 | the New Brunswick toll, plus they have to pay a 18 | Nova Scotia toll. So, they pay more. | 19 | Reciprocally, energy moving out 20 | of Nova Scotia in the electric world is going to 21 | have to pay twice to go through the New Brunswick 22 | system. The electricity moving out of the New 23 | Brunswick system will pay once, and we would be 24 | subsidizing the rate being used in New Brunswick
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25 | to accommodate gas. | 26 | Q. Nice answer, Mr. MacDonald. 27 | But if New Brunswick wants to sell electricity, 28 | say, in the Massachussets interface, it has to pay 29 | two tolls. If you want to sell it in Maine, you 30 | have to pay two tolls. | 9721 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | If you want to sell any place 2 | else than where you live, you have to pay 3 | transmission tolls to get there. | 4 | That applies to Hydro-Québec; 5 | that applies to New Brunswick Power; that applies 6 | to Nova Scotia Power. | 7 | What makes you unique? | 8 | MR. MacDONALD: I think you are 9 | missing the point. | 10 | The point is that there are --- 11 | Q. No. I asked you: What makes 12 | you unique? | 13 | MR. MacDONALD: There is one more 14 | toll involved in Nova Scotia. There is the toll 15 | in Nova Scotia, the toll in New Brunswick, and the 16 | toll in Maine, and on it goes. | 17 | So, there is an additive toll. | 18 | Q. Tell me this: Why has not 19 | Nova Scotia ever built a cable to Prince Edward 20 | Island, so that it can sell to Prince Edward 21 | Island the way that New Brunswick does? Why have 22 | you never built a cable to Boston, so you can sell 23 | directly? | 24 | Where have your business 25 | decisions been that have left you in this 26 | situation that you are asking the National Energy 27 | Board to bail you out of by a veiled request for 28 | subsidized natural gas rates? | 29 | Where are those business 30 | decisions in Nova Scotia? Who has made them? | 9722 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | MR. MacDONALD: I think, sir, 2 | that the issue that you are raising is a red 3 | herring. What you are asking, on behalf of the 4 | Province of New Brunswick, is for Nova Scotia 5 | Power's electricity consumers to pay more, so that
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6 | consumers in New Brunswick can pay less. | 7 | Q. Mr. MacDonald, you have not 8 | made that case, sir. | 9 | You are paying the same market 10 | price, which would have a 54-cent toll; whereas 11 | New Brunswick would be paying a market with a 57- 12 | cent toll for natural gas. | 13 | I am putting it to you, sir, that 14 | that is not more favourable prices for natural gas 15 | in New Brunswick than in Nova Scotia. | 16 | MR. MacDONALD: The postage stamp 17 | notion confers upon New Brunswick a benefit; and 18 | it therefore takes away the advantage of 19 | geographic location from Nova Scotia. | 20 | It is as simple as that. | 21 | Q. You believe that because Nova 22 | Scotia is geographically closer to the gas, it 23 | should somehow get a better price for natural gas 24 | than is obtained in other parts of Canada. | 25 | Is that the position? | 26 | MR. MacDONALD: The position is 27 | that the cost of providing gas transportation 28 | service in Nova Scotia is less than the cost of 29 | providing gas transportation service in New 30 | Brunswick, by virtue of the distance, and, | 9723 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | therefore, it costs less to deliver gas here. | 2 | Q. We talked about that. But 3 | let me just ask you this, sir --- 4 | I want to come to your point on 5 | page 3 of your Statement. | 6 | I think you told me this morning 7 | that your cost estimate for the Nova Scotia 8 | lateral, that you compared with the Maine and 9 | Northeast lateral price and said was exorbitant, 10 | was the Bauhuis estimate. | 11 | There is no evidence there, is 12 | there? |
| | 13 | MR. MacDONALD: No. We had 14 | access to two estimates -- maybe even a third.
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| 15 | Q. What was the third one? | 16 | MR. MacDONALD: I think there is 17 | a TQM estimate on the table that is lower. | 18 | Q. That is relative to those 19 | that are in the Evidence. | 20 | MR. MacDONALD: Yes. | 21 | Q. I am just trying to verify 22 | with you, sir, that you are comparing it to 23 | estimates that are already in the Evidence. | 24 | MR. MacDONALD: Yes. | 25 | Q. Thank you. | 26 | Sir, at page 3 of your Evidence, 27 | lines 19 to 22, you say: 28 | "The Joint Position postage stamp 29 | toll, like the originally 30 | proposed | 9724 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | M&NE postage stamp toll, relies 2 | on the 3 | tied sale ---" 4 | Do you see that? | 5 | MR. MacDONALD: Yes. | 6 | Q. Sir, the tied sale is a 7 | veiled reference to a concept in Competition Law. 8 | My question for you is this: Does Nova Scotia 9 | Power have a signed Legal Opinion expressing a 10 | view about whether this commercial arrangement is 11 | illegal under the Competition Act of Canada? | 12 | I don't want to know what the 13 | view is. I just want to know if you have an Opinion. | 14 | MR. GURNHAM: Mr. Chairman, 15 | surely any Opinion that I have provided to Nova 16 | Scotia Power would be, first, subject to the Rules 17 | of Privilege; and second, I really don't think it 18 | is relevant to ask this Witness what Legal 19 | Opinions Nova Scotia Power may have on a variety 20 | of issues. | 21 | THE CHAIR: You know that, Mr. 22 | Blue. | 23 | Quite frankly, questions of law 24 | we have been excluding from this process all
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25 | along. | 26 | MR. BLUE: No, sir; I am not 27 | asking what the Opinion is. I am asking whether 28 | they have a Legal Opinion. | 29 | That is a fact that we should 30 | know, to assess the seriousness with which they | 9725 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | are pushing this issue. | 2 | I am not asking what the Opinion 3 | is. | 4 | THE CHAIR: Whether Nova Scotia 5 | Power has a Legal Opinion --- 6 | MR. BLUE: Whether Nova Scotia 7 | Power has a Legal Opinion from an acknowledged 8 | expert in Competition Law on the issue of whether 9 | or not the arrangement that SOEP wants with 10 | respect to its gas is in violation of the 11 | Competition Act. | 12 | MR. GURNHAM: Mr. Chairman, Mr. 13 | MacDonald, in his Evidence, makes no mention of 14 | the Competition Act. He is talking about the 15 | arrangement whereby all of the gas from the six 16 | offshore fields has to go into this pipeline. | 17 | There is no mention in this 18 | Evidence about the Competition Act. It talks 19 | about an arrangement whereby we, and others, 20 | cannot get access to that because of the 21 | arrangement whereby all of the production from the 22 | SOEP fields goes into the M&NE pipeline. | 23 | And that is the tied sale. | 24 | THE CHAIR: Thank you. I think I 25 | will consult for a moment. | 26 | MR. BLUE: Mr. Chairman, before 27 | you do... | 28 | Q. Mr. MacDonald, do you adopt 29 | Mr. Gurnham's answer? | 30 | MR. MacDONALD: Yes. | 9726 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | MR. BLUE: I am content with 2 | that. | 3 | Q. Let me ask you this: Have
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4 | you contacted the Competition Bureau and discussed 5 | with them this arrangement, Mr. MacDonald? | 6 | MR. MacDONALD: No. | 7 | Q. Thank you. | 8 | At page 3, on the roll-in of the 9 | Halifax Lateral and the issue of bypass --- 10 | I am really looking at lines 25 11 | and 26 on page 3. | 12 | MR. MacDONALD: Yes. | 13 | Q. To whom would you make a 14 | Bypass Application?--To the National Energy Board? | 15 | MR. MacDONALD: It depends on who 16 | has jurisdiction. | 17 | Q. Let's assume that the 18 | National Energy Board has jurisdiction. You make 19 | it to the National Energy Board? | 20 | MR. MacDONALD: If they had 21 | jurisdiction, yes. | 22 | Q. Have you given any thought to 23 | your likelihood of success if the National Energy 24 | Board approved this pipeline on the basis that has 25 | been put forward?
| MR. MacDONALD: The bypass, or 26 | the --- 27 | Q. Yes. Let's say they have 28 | certified this pipeline. They have heard Mr. 29 | Miller say that the gas has to go to this project 30 | 9727 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) | to make it economically viable. They have heard 1 | Mr. Langan say that; they have heard Mr. Willms 2 | say that. They have heard Mr. Norcia say that, 3 | and Mr. Milne say that. 4 | | That is the evidence. 5 | | You come with a Bypass 6 | Application. 7 | | My question is: Have you given 8 | any realistic thought as to how likely it is that 9 | that Bypass Application would be successful? 10 | | MR. MacDONALD: If the case is 11 | made on a business basis and can pass the test of 12 | economics, we think it would have a good
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13 | probability of success. 14 | | Q. That is not what I asked you. 15 | I said: Have you given any thought, in the sense 16 | of getting a Legal Opinion, on the chances of your 17 | success on a Bypass Application to the NEB? 18 | | MR. MacDONALD: We do not have, 19 | as far as I am aware, a formal Legal Opinion on 20 | that point. But we have opinions that it would be 21 | possible. 22 | | Q. By "formal Opinion", you mean 23 | a written Opinion. 24 | | Do you? 25 | | MR. MacDONALD: I don't know that 26 | I can put my hand on a particular piece of paper 27 | that would have that analysis done. 28 | | Q. Mr. MacDonald, did Nova 29 | Scotia make any decisions on numbers forecasted 25 30 | 9728 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) | years from now? 1 | | MR. MacDONALD: I am sorry...? 2 | | Q. First, do Nova Scotia's 3 | Economists prepare a 25-year forecast of numbers 4 | that are of interest to you? 5 | | MR. MacDONALD: I guess we have 6 | estimates of future costs of a whole host of 7 | things. Whether they are categorized as forecasts 8 | and whether they are --- 9 | "Forecast" is a word that I want 10 | to be a little careful of. 11 | | If you were to use the word 12 | "projections", I will talk about projections. 13 | | We have notions of long-term 14 | projections of a whole host of costs, yes. 15 | | Q. I used to do work for Ontario 16 | Hydro, and they used to do Financial Forecasts of 17 | numbers for five, ten years out. 18 | | And you have probably seen those 19 | forecasts. 20 | | MR. MacDONALD: We do modelling 21 | for various periods of time, yes. 22 |
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| Q. My question to you is: Do 23 | you forecast any number for 25 years from now, a 24 | quantifying number for 25 years from now, in your 25 | normal course of business? 26 | | MR. MacDONALD: Interest and 27 | long-term debt. 28 | | Q. What reliability can you 29 | place on a 25-year forecast of interest for long- 30 | 9729 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) | term debt costs? 1 | | MR. MacDONALD: You may already 2 | have signed a contract for it. So, yes. 3 | | Q. With respect to a line to 4 | Trenton --- 5 | You burn coal at the Trenton 6 | plant. 7 | | MR. MacDONALD: Yes. I think we 8 | have been through this before. 9 | | Q. But I forgot to ask you: 10 | Where does the coal come from for Trenton? 11 | | MR. MacDONALD: It comes from 12 | various places; no single source. 13 | | Q. Does some of it come from 14 | Cape Breton? 15 | | MR. MacDONALD: Yes. 16 | | Q. What percentage? 17 | | MR. MacDONALD: It depends on the 18 | year. 19 | | I will say in excess of 50 20 | percent. 21 | | Q. Would it be fair for the 22 | Panel to conclude that you are probably not going 23 | to ever convert the Trenton plant to natural gas 24 | because it would have the effect of putting coal 25 | miners out of work in Cape Breton? 26 | | MR. MacDONALD: I think what we 27 | are going to do, depending on the economics, is we 28 | are going to use the most cost-effective fuel for 29 | the production of electricity for the benefit of 30 | 9730 NSPI Panel No. 2 | (Joint Position Panel)
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| cr-ex (Blue) | Nova Scotia Power's customers. 1 | | Q. And you would say: Hang the 2 | employment effects in Cape Breton, then. 3 | | MR. MacDONALD: Not at all. 4 | | Q. Then, I get back to my 5 | question. 6 | | We have looked at it. We have 7 | looked at your problem with Cape Breton coal and 8 | employment, and the political implications of that 9 | issue in Nova Scotia, and we have concluded that 10 | Nova Scotia Power does not have any serious intent 11 | of ever converting the Trenton Plant to natural 12 | gas, even if it were relatively economic, because 13 | of the socio-economic effects of that decision in 14 | this Province. 15 | | What do you say to that? 16 | | MR. MacDONALD: That is 17 | interesting that you did that analysis. When we 18 | have had a chance to review it, we will tell you 19 | what we think. 20 | | Q. Is that your answer to my 21 | question? 22 | | MR. MacDONALD: That is my 23 | answer. 24 | | Q. Thank you. 25 | | Because you are not saying "no" 26 | to my question, I note. You are giving me a non- 27 | answer. 28 | | MR. MacDONALD: Maybe if you 29 | repeat the question --- 30 | 9731 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) | Q. You understood it, sir. 1 | | MR. MacDONALD: I am afraid not. 2 | | Q. I am saying that on any 3 | foreseeable contingency in this Province --- 4 | MR. MacDONALD: Do you mean 25- 5 | year foreseeable, like we talked about earlier? 6 | |
|
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| 7 | Q. No; let's say the 20-year 8 | life of the Precedent Agreement. | 9 | -- the effect of converting the 10 | Trenton Plant would be to not take Cape Breton 11 | coal, and Nova Scotia would never take that 12 | decision in this Province because of the socio- 13 | economic effects of putting the Cape Breton coal 14 | miners out of work. | 15 | What do you say to that? | 16 | MR. MacDONALD: Nova Scotia Power 17 | must act in the interests of its electricity 18 | customers. And we hope to continue to do that. | 19 | Q. If the interests of the 20 | electricity customers were affected by what you 21 | were requested to do by the Nova Scotia 22 | Government, you would take the Nova Scotia 23 | Government's views into account. | 24 | Would you not? | 25 | MR. MacDONALD: We will take into 26 | account all of the factors that we judge to be 27 | relevant and appropriate, as a regulated electric 28 | utility. | 29 | Q. Just as a matter of fact, Mr. 30 | MacDonald, it is true--isn't it?--that Nova Scotia | 9732 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Blue) 1 | Power was kept informed on the status of the 2 | discussions between the four Signatories to the 3 | Joint Position, before the Joint Position was 4 | signed, and Nova Scotia Power was asked to join in 5 | the signing of the Agreement. | 6 | That is true, isn't it? | 7 | MR. MacDONALD: I am just looking 8 | at a note I wrote down when Mr. Willms was on the 9 | Stand this morning. | 10 | He talked about discussions 11 | beginning in late May; and then "in early June, 12 | they become more intense", I think were his words. | 13 | We were approached by Mr. 14 | Willms -- 15 | and when I say "we", I mean our President -- on 16 | June 13th. We were basically told then of the 17 | pending deal -- which turns out to be exactly what 18 |
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| the Joint Position is now. 19 | 20 | We were advised again on the 21 | 18th. The 18th was on or about the day that other | people made decisions. 22 | 23 | In both instances, they were | advised that 6 cents does not cut it. 24 | 25 | So there was no doubt; people 26 | knew our position. And for various reasons, they | chose not to take advantage of our input. 27 | 28 | Q. But the point I wanted to get 29 | out was that Nova Scotia Power, at the level of 30 | the President, was consulted before this deal was | done. 9733 NSPI Panel No. 2 | | (Joint Position Panel) cr-ex (Blue) 1 | 2 | MR. MacDONALD: The consultation | was very brief. 3 | 4 | I think Mr. Miller said this 5 | morning that when he became involved, there were | very few options left on the table. 6 | 7 | I assure you, sir, that when we 8 | got involved, there was one option left on the | table, and it is the one that we now have here. 9 | 10 | Q. On a brief point: How long 11 | was the meeting between Mr. Willms and your | President, Mr. Mann? 12 | 13 | MR. MacDONALD: I wasn't there, 14 | so I can't tell you. I have a feeling it was | relatively short. 15 | | Q. Do you know? 16 | 17 | MR. MacDONALD: I guess maybe a | half hour; it might have been 45 minutes. 18 | | Q. Do you know? 19 | | MR. MacDONALD: No, I don't know. 20 | | Q. Thank you. 21 | 22 | Do you understand that before you 23 | could sell into the U.S. and avail yourself of the 24 | transmission tariffs of the U.S. companies, you 25 | yourself would have to publish a transmission | tariff in Nova Scotia? 26 | 27 | MR. MacDONALD: Yes. I think we
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| went through that this morning. 28 | 29 | Q. Right. And you would have to 30 | pay yourself, the way that New Brunswick Power | would have to pay itself, in order to avail 9734 NSPI Panel No. 2 | | (Joint Position Panel) cr-ex (Blue) 1 | 2 | yourself of that transmission tariff, if you | wanted to sell in the U.S. interface. 3 | 4 | MR. MacDONALD: I said that this | morning. 5 | | MR. BLUE: Thank you. 6 | 7 | Those are all of my questions, | Mr. Chairman. 8 | | THE CHAIR: Thank you, Mr. Blue. 9 | 10 | MR. NOONAN: I understand the | Province of Nova Scotia has no questions. 11 | 12 | The Province of Prince Edward 13 | Island...? 14 | --- (No Response/Pas de réponse) 15 | MR. NOONAN: Strait-Highlands 16 | Regional Development Agency...? 17 | --- (No Response/Pas de réponse) 18 | MR. NOONAN: Sable Offshore 19 | Energy Project and/or Maritimes & Northeast | Pipeline Project...?
| | 20 | CROSS-EXAMINATION BY MR. SMITH, ON BEHALF OF 21 | M&NPP: 22 | Q. Good afternoon, Mr. 23 | MacDonald. My name is Laurie Smith, and I have a 24 | few questions for you on behalf of Maritimes & 25 | Northeast. | 26 | I noted that in your Additional 27 | Evidence that there are a number of numbers which 28 | you have there that --- 29 | What I am really trying to get at 30 | is whether you can give me some help on how these | 9735 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smith) 1 | numbers were constructed. | 2 | Maybe we could start, sir, on a 3 | number which is not in that Evidence, and that is 4 | the 43 cents, to which you have referred earlier;
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5 | the 43 cents I believe Mr. Coolican was quoted as 6 | having used as a toll "that NSP could live with". | 7 | Are you with me? | 8 | MR. MacDONALD: I know the 9 | reference in this article, yes. | 10 | Q. And that is the number that 11 | you can live with, or a number that you can live 12 | with, as Nova Scotia Power. | 13 | MR. MacDONALD: If you will 14 | permit me to expand on that a little bit: In our 15 | notion of tolling, the toll will decline over 16 | time, both as debt is paid down and as volumes go 17 | up --- 18 | Q. You are referring to 19 | Maritimes & Northeast? | 20 | MR. MacDONALD: I am talking 21 | about the Nova Scotia Power concept of 22 | incrementally-tolled laterals and point-to-point 23 | tolling. | 24 | Q. I am sorry. I thought you 25 | were referring to the fact that the Maritimes 26 | tolls would go down as depreciation decreased and 27 | costs were paid off. | 28 | MR. MacDONALD: I was trying to 29 | get to the 43-cent figure and weigh the relevance 30 | of it. | 9736 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smith) 1 | Q. Okay. Go ahead. | 2 | MR. MacDONALD: The relevance 3 | being that, first of all, it is 43 cents, that 4 | happened to be calculated, and, through time, we 5 | would expect that number to decline as debt is 6 | paid down. We also would expect volumes to 7 | increase on the laterals and, therefore, that, 8 | too, would contribute to reductions in the toll 9 | over time. | 10 | The 43 cents is a snapshot in 11 | time, and it is kind of a slightly longer-term 12 | picture I wanted to portray that we are interested 13 | in here. | 14 | Q. The statement that Mr. 15 | Coolican had made was that using gas would only be 16 | viable for NSP in Halifax if the tolls were 17 | reduced to 43 cents. |
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18 | I take it from your clarification 19 | that that still holds. | 20 | MR. MacDONALD: That is a 21 | snapshot of Year 1. | 22 | Q. Fair enough. | 23 | MR. MacDONALD: I think I 24 | mentioned to Mr. Smellie today that there is a 25 | notion of a system involved here, not just simply 26 | one power station; and the Trenton power station 27 | plays a role in that, as well. | 28 | Q. We may get to that, sir. | 29 | Could you just tell me what the 30 | 43 cents is based on? | 9737 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smith) 1 | I took it that the 11-cent 2 | mainline point-to-point rate was one component. | 3 | MR. MacDONALD: Yes. | 4 | Q. Could you tell me what the 5 | other component is? | 6 | MR. MacDONALD: The other 7 | component would be the estimate prepared on our 8 | behalf by Sunstone and amortized over a 25-year 9 | period. And I believe it was for the purchase of 10 | 60 million cubic feet a day. | 11 | Q. All right. | 12 | And that capital cost estimate 13 | was $33.5 million? | 14 | MR. MacDONALD: If you know that 15 | is exactly what it was in the Record, then that is 16 | what it would have been. | 17 | I am not sure if that was before 18 | the AO and the allowance for funds used during 19 | construction, or not. | 20 | Q. If you would take it subject 21 | to check, sir, that that was the figure that was 22 | used. | 23 | MR. MacDONALD: Okay. | 24 | Q. In fact, I can point you to 25 | Transcript 7285, if you need to look. |
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26 | Now, sir, let me ask you what 27 | that toll would be if you used the Consumers' Gas 28 | capital cost estimate of $42.6 million. | 29 | Instead of using Mr. Bauhuis' 30 | estimate, look at what Consumers' Gas, your | 9738 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smith) 1 | Partner in this gas distribution venture, used in 2 | their estimate of the lateral capital cost. | 3 | MR. MacDONALD: And their number, 4 | you said, was forty-three? | 5 | MR. SMITH: It is $42.6 million, 6 | sir. That appears on page 7284. | 7 | MR. MacDONALD: And the other 8 | number you said was thirty-something? | 9 | MR. SMITH: Sir, if I can help 10 | you, perhaps we could do some "subjects to check". | 11 | MR. MacDONALD: I will trust your 12 | arithmetic. | 13 | MR. SMITH: That is fine. | 14 | MR. MacDONALD: I don't need to 15 | push the button, sir. | 16 | Q. If you accept that the 17 | difference in the capital cost of Sunstone and 18 | Consumers' is approximately $9.1 million -- which 19 | equates to approximately a 27.16417 percent 20 | difference --- 21 | MR. MacDONALD: It has to be 22 | right! | 23 | Q. -- which equates to 8.69253 24 | cents, I put it to you that the toll would be in 25 | the vicinity of 40.69253 cents. | 26 | MR. MacDONALD: In that vicinity. 27 | Roughly. | 28 | Q. Mr. Norcia and I had problems 29 | with numbers, sir, back in Fredericton. I just 30 | wanted to be careful. | 9739 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smith) 1 | When I add the 11 cents to that, 2 | sir, that rate comes out to 52 cents, more or 3 | less. |
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4 | Are you with me? | 5 | MR. MacDONALD: Yes, I believe 6 | so. | 7 | Yes, approximately 51. | 8 | Q. And the Maritimes discounted 9 | toll is approximately 54 cents? | 10 | MR. MacDONALD: Yes. | 11 | Q. Have you told your Partner, 12 | Consumers', that if their numbers are right, your 13 | gas distribution joint venture is dead? | 14 | MR. MacDONALD: If their numbers 15 | are right, our gas distribution joint venture is 16 | dead? | 17 | No, we have not told them that. | 18 | Q. When were you going to? | 19 | MR. MacDONALD: Why do you make 20 | that proposition, that the gas distribution 21 | venture is dead? | 22 | Q. What was said was: "Natural 23 | gas would only be viable for NSP in Halifax if the 24 | tolls were reduced to 43 cents". | 25 | MR. MacDONALD: For Nova Scotia 26 | Power, yes. | 27 | The joint venture --- 28 | Q. What you said, sir, just 29 | before lunch --- 30 | Just to let you know why I am | 9740 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smith) 1 | putting this to you -- and I would like you to 2 | respond after -- 3 | just before lunch you said: "54 cents doesn't cut 4 | it. We are not going to proceed." 5 | What I am saying to you is that 6 | if the numbers of Consumers' Gas -- that you 7 | brought in to help you with this gas expertise you 8 | require for distribution purposes -- are right, 9 | that gives you virtually the same price --- 10 | I suggest it is within a murmur 11 | of six cents, with noise; within a murmur of what 12 | Maritimes has now provided you with by way of a 13 | discount. But you seem to be saying: "She won't 14 | hunt." 15 | --- (A Short Pause/Une courte pause)
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16 | MR. MacDONALD: Well, all I was 17 | doing was using your adjusted numbers here. That 18 | is what the pause was for --- 19 | Q. Yes, sir. | 20 | MR. MacDONALD: -- to take a look 21 | at the --- 22 | If it was 51.6 cents, as the 23 | adjusted number, with the increase due to the high 24 | estimate that you just referred to, then we would 25 | have, for 60 million cubic feet a day of 26 | transmission into the Halifax area, that 51.6. | 27 | Now I understand. That is the 28 | number you derived. | 29 | Am I right? | 30 | Q. Yes, sir. | 9741 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smith) 1 | MR. MacDONALD: That is for 60 2 | million cubic feet a day. | 3 | Q. It would be --- 4 | It is the apples-to-apples with 5 | the 43 cents, sir. | 6 | MR. MacDONALD: Yes. | 7 | But I just want to understand 8 | that that is 60 million cubic feet a day, before I 9 | agree 100 percent with this number. | 10 | Q. Yes. And that is the number 11 | you gave me as going to your 43-cent rate. | 12 | MR. MacDONALD: Yes, fair enough. | 13 | Okay. I am with you. | 14 | Now let's assume that that number 15 | goes to 90 -- because Tuft's Cove can take 90 -- 16 | and let's assume there is 25 for the distribution 17 | system --- 18 | And Mr. Willms said it would be 19 | 47. | 20 | So if we use 25 and not 47, we 21 | will have some room for error, to make the rates 22 | still lower. | 23 | If I had used the same arithmetic 24 | you just gave me, I will get 38 cents for 90 25 | million cubic feet a day; and if I jump it up by 26 | 25, I will get a still lower number; and if I use
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27 | Mr. Willms' number of 47, I will get a still lower 28 | number -- whereas, the proposition before us is 29 | that it stays at 54 cents forever. | 30 | That is basically the essence of | 9742 NSPI Panel No. 2 | (Joint Position Panel) | cr-ex (Smith) 1 | our argument. That is the problem we have. | 2 | Q. Sir, you can bring a grocery 3 | store of fruit to complicate this apples-to-apples 4 | comparison, if you want; but the fact is that you 5 | agreed at the outset that the Maritimes' rates, as 6 | well, will come down as debt is repaid. | 7 | Sir, I put it to you that as 8 | additional volumes come on to the system for 9 | Maritimes, whether they go to Halifax, or anywhere 10 | else, the rates are going to come down there, too. 11 | MR. MacDONALD: They are not 12 | going to come down in the direct linear fashion as 13 | the rates will on the lateral dedicated to Tuft's 14 | Cove. | 15 | Q. Sir, are gas prices volatile? | 16 | MR. MacDONALD: Sure. | 17 | Q. And would you describe the 18 | range of volatility as in the area of a noise or a 19 | murmur? | 20 | MR. MacDONALD: Well, as you 21 | know, there are many components to the costs of 22 | using gas. | 23 | But the commodity price of gas 24 | can fluctuate quite radically. Yes, I agree with 25 | you. | 26 | Q. More than six cents? | 27 | MR. MacDONALD: Yes, absolutely. | 28 | Q. More than ten cents? | 29 | MR. MacDONALD: Absolutely. | 30 | MR. SMITH: Thank you, sir. | 9743 NSPI Panel No. 2 | (Joint Position Panel) | (JRP Panel) 1 | Thank you, Mr. Chairman. | 2 | THE CHAIR: Thank you, Mr. Smith. |
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3 | MR. NOONAN: Do the Members have 4 | questions? |
| | 5 | EXAMINATION BY JPR PANEL: 6 | DR. SEARS: Yes, I have a few 7 | questions. | 8 | One is again taking a bit of 9 | licence 10 | -- but just as a matter of information, please. | 11 | What happens to the Tuft's Cove 12 | generating capacity, or potential, if you switch 13 | from oil to gas? | 14 | Can you give us a rough 15 | indication of what it would change to? Or do you 16 | have that estimate? | 17 | MR. MacDONALD: Yes. Today, 18 | there are three units at Tuft's Cove, two 100- 19 | megawatt units and one 150-megawatt. So there is 20 | a total of 350 megawatts installed. | 21 | If we were to convert the entire 22 | station to combined-cycle generation, it would be 23 | approximately 830 megawatts in size. | 24 | DR. SEARS: Thank you very much. | 25 | The second question has to do 26 | with --- 27 | I think this has been answered, 28 | in part; but it is just a little wrinkle, I think, 29 | on some of the questions you have been asked 30 | already. But perhaps you will bear with me. | 9744 NSPI Panel No. 2 | (Joint Position Panel) | (JRP Panel) 1 | It has to do, really, with the 2 | extent to which Nova Scotia Power might have 3 | undertaken any review of the Sunstone estimates of 4 | the capital cost of $33.6 million. | 5 | In view of some of the other 6 | numbers that have been suggested, or costed and 7 | suggested, for capital costs of the laterals, what 8 | has happened to your confidence in that figure, to 9 | put it bluntly? | 10 | MR. MacDONALD: Well, I am not 11 | certain if this was on the Record, or not. I 12 | think it was. But Barry Bauhuis explained, in 13 | some detail, the variations in cost estimates
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14 | between the estimates he prepared and those that 15 | were later prepared by Consumers' Gas, and the 16 | difference came down to one of installation cost, 17 | with virtual agreement on all of the other 18 | parameters. | 19 | So the difference between the 20 | number that was just referred to, in the $33 21 | million range, and the revised upwards number to 22 | $42 million or $43 million, comes about from 23 | different assumptions on installation costs. | 24 | And as Barry explained, if my 25 | memory is correct, in his instance he talked to 26 | several potential contractors and had a range of 27 | estimates and chose to pick the mid-range. | 28 | So we do have a range that was 29 | relatively broad, and we picked the middle of the 30 | range. | 9745 NSPI Panel No. 2 | (Joint Position Panel) | (JRP Panel) 1 | In the case of the estimate that 2 | was independently prepared by Consumers', they had 3 | a different contractor and a different estimate -- 4 | and of course they went with their contractor -- 5 | and therefore what we have are two estimates by 6 | two people who are capable of making estimates. | 7 | Even if we go to the larger 8 | estimate, as we were just talking with Mr. Smith 9 | about, there does appear to be the potential for 10 | significant reductions in the rates to be paid by 11 | gas shippers on laterals to Halifax, as compared 12 | to the 54-cent proposal that we currently have 13 | before us. | 14 | DR. SEARS: Given your assumption 15 | that the 54-cent rate would not decline over time? | 16 | MR. MacDONALD: Or, to put it 17 | another way, sir, if I may: Given that any 18 | incremental contribution to the Maritimes & 19 | Northeast main pipeline gets ploughed back into 20 | construction of laterals elsewhere, such that the 21 | costs in fact don't go down; the costs stay the 22 | same. | 23 | Rather, the benefits of 24 | increasing loads on the laterals, say, into 25 | Halifax, or into Trenton, will go towards funding 26 | laterals in other jurisdictions. | 27 | That is one of the problems. | 28 | DR. SEARS: Other parts of Nova
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29 | Scotia, for instance, as a possibility? | 30 | MR. MacDONALD: That would be a | 9746 NSPI Panel No. 2 | (Joint Position Panel) | (JRP Panel) 1 | possibility; sure. | 2 | DR. SEARS: Which we ought not to 3 | ignore, I suppose? | 4 | MR. MacDONALD: No, we shouldn't. | 5 | DR. SEARS: My other question has 6 | to do with the feasibility. | 7 | The point was raised that you 8 | were involved -- not "involved". I think that is 9 | putting it too strongly. | 10 | You were advised with respect to 11 | the progress that the Joint Position was making 12 | during the course of its development. | 13 | I get the impression that Nova 14 | Scotia Power has a real lock on the point-to-point 15 | tolling and that while we have huge variations, 16 | relatively speaking -- even absolutely speaking -- 17 | on the costs of the lateral, depending upon the 18 | set of assumptions --- 19 | And we pick, in the great 20 | Canadian tradition, the mid-price. | 21 | It seems to me, when you get as 22 | close as 51 cents and 54 cents --- 23 | I guess I have some problem with 24 | why it is not feasible to negotiate something from 25 | that position. | 26 | I really have -- and I have spent 27 | my adult life with academics, and I thought, at 28 | times, that they were somewhat locked into 29 | positions. But I did not see it quite so 30 | precisely defined, historically. | 9747 NSPI Panel No. 2 | (Joint Position Panel) | (JRP Panel) 1 | I have had a problem, as a Nova 2 | Scotian, all of my life -- longer than most 3 | anybody else here, I suspect; up to now, anyway. | 4 | But I do have a problem with the 5 | fixation on that. | 6 | To me, when you are talking about 7 | allocating fixed costs, moving down that road -- 8 | and to me, you do it with a Ouija Board on a good
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9 | day -- three cents, to me, sounds trivial. | 10 | I am sorry, but it does. | 11 | Make me feel better. | 12 | MR. MacDONALD: And forgive me. 13 | And two times trivial is still --- 14 | DR. SEARS: Is still zero, yes. | 15 | MR. MacDONALD: And two times 16 | three is six. | 17 | DR. SEARS: We have been through 18 | your arithmetic before, you may recall -- with Mr. 19 | Smellie's help. | 20 | MR. MacDONALD: Yes. Dr. Sears, 21 | one of the points that we are trying to make sure 22 | that everyone understands -- and I am sure you do. 23 | But just, again, for the Record, if I might: If 24 | we in fact use 90 million cubic feet a day at 25 | Tuft's Cove and not 60 --- 26 | Those calculations you referred 27 | to, 51 and 54, are based upon 60. | 28 | If we go to 90, we are increasing 29 | the volume moving down the lateral by 50 percent. | 30 | The number that is appropriate on | 9748 NSPI Panel No. 2 | (Joint Position Panel) | (JRP Panel) 1 | the lateral was 60 -- I will get my calculator 2 | out, to see how many zeros it has. It has a lot 3 | of decimal places here. | 4 | We have about, let's call it, 5 | 40.6. | 6 | And this is the lateral cost with 7 | 60 million flowing down the lateral. | 8 | Let's see how much it would be if 9 | we have 90 flowing down that lateral. It is going 10 | to be 27 cents. 27 cents plus 11 on the mainline 11 | is 38. | 12 | That is a sizeable difference 13 | between 54 and 38. | 14 | Now, let's put the 25 million 15 | cubic feet a day that the gas distribution system 16 | might also have on that same lateral. Let's now 17 | increase the volume up from 90 to 115 -- and we 18 | will do the same arithmetic again. |
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19 | We are down to 21 cents. And if 20 | you add 11 cents to that... | 21 | So, the difference starts to 22 | become material. It moves away from being a 23 | trivial number to a larger number. | 24 | That is one of the points that we 25 | just want to make sure everyone understands. | 26 | Some people will choose to 27 | understand that and accept it; other people will 28 | choose not to understand it. | 29 | DR. SEARS: Sir, I have one last 30 | point -- and it is part of the same thing. | 9749 NSPI Panel No. 2 | (Joint Position Panel) | (JRP Panel) 1 | The Panel enunciated their 2 | concern with respect to the distribution of 3 | options that were available to us in terms of 4 | possible tolling methodologies, and I think 5 | extended an invitation that some other 6 | possibilities be explored. | 7 | I have to confess my 8 | disappointment that they came only from the 9 | Proponents and the two Government Agencies and 10 | that they did not come from anywhere else. | 11 | But it does seem to me -- sort of 12 | beyond that -- that the negotiations of which you 13 | speak --- 14 | It seems to me that if I am on 15 | the other side of the table from you and I have 16 | myself a pipeline, I might be interested in 17 | talking to you if you are going to talk about 18 | increasing your throughput from 60, to 90, to 115, 19 | and I might not hang on for dear life to 54 cents; 20 | I might be willing to negotiate. | 21 | I wonder if we are looking at an 22 | option or a stalking horse. | 23 | MR. MacDONALD: When we had our 24 | discussions -- and I mentioned the two dates on 25 | which we had very brief discussions; that is, Nova 26 | Scotia Power with, in one instance, Maritimes & 27 | Northeast; and in the second instance, with Sable 28 | Offshore Energy Project/Maritimes & Northeast. | 29 | I was involved in the latter 30 | discussions. | | (Joint Position Panel) 9750 NSPI Panel No. 2 |
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1 | We did offer an alternative rate (JRP Panel) 2 | design; but it was judged by the Proponents to be 3 | a new design that had not yet been heard before 4 | this Panel, and it would throw things into a need 5 | to have a more thorough review. | 6 | Basically, it was rejected and we 7 | came back to the 6 cents off. That is how it was. | 8 | We attempted to find some ways 9 | that we could make some adjustments that might 10 | accommodate everyone's desires, including the 11 | desires at the export point to not exceed 60 12 | cents; the desire of New Brunswick at the time to 13 | not exceed 60 cents; and the desire of Nova Scotia 14 | to reflect some proximity to the gas. |
| | 15 | It turned out there was not time 16 | to do that, and it never found its way to the 17 | light of day. | 18 | DR. SEARS: Thank you, Mr. 19 | MacDonald. | 20 | THE CHAIR: Over to you, Mr. 21 | Gurnham. Any Re-Direct...? | 22 | MR. GURNHAM: No Re-Direct, Mr. 23 | Chairman. | 24 | THE CHAIR: That brings this 25 | Panel to a close. | 26 | Thank you, Mr. MacDonald. | 27 | MR. MacDONALD: Thank you. | 28 | THE CHAIR: You are discharged. 29 | --- (The Witness Withdrew/Le témoin se retire) 30 | MR. NOONAN: Mr. Chairman, | 9751 1 | perhaps I could ask the Counsel for the Proponents 2 | to advise whether they have any Additional Reply 3 | Evidence. | 4 | MR. SMITH: No, thank you. | 5 | MR. NOONAN: Mr. Chairman, before 6 | we proceed further, I might call at this time on 7 | any Party which is still preparing an answer in 8 | response to an Undertaking to come forward and 9 | advise you that they are still preparing an 10 | answer, and to reserve Exhibit numbers for that
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11 | evidence. | 12 | If there is any Party that is 13 | still preparing an answer pursuant to an 14 | Undertaking, could you come forward at this time, 15 | please. 16 | --- (No Response/Pas de réponse) 17 | MR. NOONAN: Apparently not. Is 18 | there any Party in the Proceeding who is still 19 | owed a response pursuant to an Undertaking; that 20 | is to say, if there is anyone who feels they have 21 | not received a satisfactory response to an 22 | Undertaking, could you come forward at this time. 23 | --- (No Response/Pas de réponse) 24 | MR. NOONAN: Apparently not. | 25 | Mr. Epstein...? | 26 | MR. EPSTEIN: Let me just check. 27 | --- (A Short Pause/Une courte pause) 28 | MR. EPSTEIN: I believe we have 29 | outstanding an Information Request to the Seafood 30 | Producers Association of Nova Scotia that has not | 9752 1 | been responded to. We can't find it; we have no 2 | recollection of receiving it; and it is not shown 3 | with an Exhibit number. | 4 | THE CHAIR: You put it forward to 5 | the Seafood Producers and have not received a 6 | Response? | 7 | MR. EPSTEIN: That is correct. | 8 | That is what you were asking--was 9 | it not?--Mr. Chairman. | 10 | THE CHAIR: Yes. | 11 | MR. NOONAN: Mr. Chairman, I 12 | think that what we could perhaps do there is 13 | reserve an Exhibit number for that Response. | 14 | We will contact the Seafood 15 | Producers Association and ask them what the status 16 | of that matter is. | 17 | THE CLERK: That will be Exhibit 18 | No. C-9-4. 19 | --- EXHIBIT NO. C-9-4: 20 | SPA-N.S. Response to Undertaking 21 | given 22 | to EAC (Reserved) 23 | MR. NOONAN: If no one else has 24 | any matters relating to the Evidentiary Record, 25 | Mr. Chairman, with your concurrence, I would note 26 | that the Evidentiary Record is closed ---
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27 | THE CHAIR: No; here comes Mr. 28 | Smith. | 29 | MR. SMITH: Mr. Chairman, I have 30 | consulted with Ms. Abouchar. | 9753 1 | There is a question about two 2 | Undertakings that we believe we responded to. But 3 | in fairness to her, and this great mass of paper, 4 | we would like to take the opportunity to double- 5 | check and put our minds to rest about whether or 6 | not we did respond, and where that might be. | 7 | I believe it would be fair to 8 | indicate that Ms. Abouchar is prepared to allow us 9 | to proceed with Argument at this point. | 10 | We are going to try to get this 11 | tidied up straight away; but it doesn't, I don't 12 | think, need to hold up starting off. She is not 13 | going to be reached today, to be sure. | 14 | So I would suggest that there 15 | would not be any prejudice --- 16 | --- (A Short Pause/Une courte pause) 17 | MR. NOONAN: Mr. Chairman, I 18 | wonder if we might just take a five-minute recess, 19 | to allow Parties to determine where matters stand, 20 | and then come back and close the Record. | 21 | THE CHAIR: That is a very good 22 | idea. | 23 | We will take a five-minute recess 24 | --- 25 | MR. BLUE: Mr. Chairman, before 26 | we break, I am desperately trying to reconcile my 27 | timing and your statement that you are going to 28 | adjourn at 1:00 tomorrow. | 29 | I have spoken to Mr. Smith. He 30 | has no objection to my going first, to get the | 9754 1 | Argument out of the way -- if we came back. | 2 | I would need about an hour to get 3 | it in, and then I would be finished and out of 4 | here. | 5 | Mr. Smith, of course, would have 6 | the last right of reply. | 7 | THE CHAIR: One moment, please. 8 | --- (A Short Pause/Une courte pause) 9 | THE CHAIR: We will take a five- 10 | minute recess, and then we will be back. 11 | --- A Short Recess/Pause
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12 | --- Upon Resuming/A la reprise 13 | THE CHAIR: Ladies and gentlemen, 14 | I think we should resume. | 15 | Mr. Noonan, please. | 16 | MR. NOONAN: Mr. Chairman, when 17 | we left off, we were asking Parties to determine 18 | whether or not they had any outstanding Responses 19 | to give, and it appeared that none of the Parties 20 | present had anything further to provide by way of 21 | evidence. | 22 | There was also an outstanding 23 | request from the Panel to determine whether any 24 | Party had a complaint that they not received a 25 | Response pursuant to an Undertaking, and a number 26 | of Parties needed additional time to make their 27 | determination. | 28 | I will ask, now, if there are any 29 | Parties -- other than the Ecology Action Centre, 30 | which we have already dealt with -- who feel that | 9755 1 | they are still owed an Undertaking Response. 2 | --- (No Response/Pas de réponse) 3 | MR. NOONAN: Apparently not, Mr. 4 | Chairman. | 5 | Therefore --- 6 | Mr. Smith...? | 7 | MR. SMITH: Mr. Chairman, with 8 | respect to the closing of the Record: As much as 9 | I am probably as anxious as any human being to 10 | close the Record in this proceeding, we have 11 | Responses to the List of Potential Certificate 12 | Conditions, which is a document that we propose to 13 | file. | 14 | Second, we have prepared a Legal 15 | Brief, for example -- and I know that Mr. Grant 16 | will have a document to file, which is in the 17 | nature of Written Argument, from which he will 18 | construct his Oral Argument. | 19 | I understand that there are 20 | others who may go the "Written and Oral" route. | 21 | I am wondering if it is 22 | appropriate to keep the Record open to handle 23 | those documents, sir. | 24 | I know what Mr. Noonan is trying 25 | to do -- which is quite appropriate. It is just 26 | that there are these other tag-ends, and I would 27 | hope that they are identified, for the benefit of
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28 | the Record. | 29 | MR. NOONAN: Mr. Chairman, 30 | perhaps I could respond to that. | 9756 1 | First, the normal practice at the 2 | National Energy Board is not to give Exhibit 3 | Numbers to Written Arguments. | 4 | What I propose to do, in the case 5 | of those Parties who do submit Written Argument 6 | only, is to ask the Court Reporter to incorporate 7 | them in the Transcript, so that the Transcript 8 | volumes themselves will contain all of the 9 | Arguments that are provided to the Joint Review 10 | Panel. | 11 | With respect to Parties who 12 | choose to do some of their Argument orally and 13 | some in writing, I think that their Briefs -- 14 | legal, et cetera -- can be received without giving 15 | them an Exhibit Number. It is not our normal 16 | practice to do that. | 17 | I suggest that we proceed in that 18 | fashion. | 19 | I believe there is nothing 20 | further to go into the Record. | 21 | With respect to the Responses to 22 | the Conditions, Mr. Smith: I believe when we 23 | posed those Questions to you earlier, we indicated 24 | that we would accept a Response in Argument. | 25 | Perhaps we will just treat that 26 | as part of your Argument. | 27 | It is an exception to the normal 28 | rule, but we did that for certain reasons at the 29 | time. | 30 | If so, Mr. Chairman, before the | 9757 1 | Record is formally closed, I will put one last 2 | Exhibit on the Record, and that is the Revised 3 | Order of Appearances for Final Argument. | 4 | The Revised Order I have 5 | indicates that SOEP will start, with Maritimes & 6 | Northeast Pipeline following, and the Union of New 7 | Brunswick Indians. | 8 | The Province of Nova Scotia now 9 | occupies the position formerly occupied by the 10 | Canadian Association of Petroleum Producers. |
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11 | Next is Local 244, Association of 12 | Journeymen and Pipefitters, followed by the Nova 13 | Scotia Salmon Association. | 14 | In position No. 7 is the Province 15 | of New Brunswick -- which obtained that position 16 | this morning, there being no objection to that. | 17 | At the present time, Mr. 18 | Chairman, with your concurrence, I would suggest 19 | that the Tribunal proceed to hear the first seven 20 | parties. | 21 | It appears from the canvass that 22 | we have done that we could probably finish the 23 | Province of New Brunswick, in the seventh 24 | position, by the close of business tomorrow, if 25 | the Tribunal sits a little bit longer -- perhaps 26 | to sometime in the middle of the afternoon. | 27 | Furthermore, with your 28 | concurrence, Mr. Chairman, I will provide this 29 | Exhibit to the Court Clerk and note that the 30 | Record is closed, with the receipt of this | 9758 1 | document. 2 | --- EXHIBIT NO. A-1-123: 3 | Document entitled "Order of 4 | Appearances - Final Argument". | 5 | THE CHAIR: Just to restate what 6 | Mr. Noonan said: Although I said that we would be 7 | closing at 1:00 tomorrow, it now looks as if we 8 | will be closing somewhat later, dependent on 9 | fitting in the Province of New Brunswick, in order 10 | to accommodate them. |
| | 11 | We figure, conservatively, 12 | between 1:00 and 3:00, perhaps. | 13 | MR. NOONAN: With that, Mr. 14 | Chairman, the Record is closed. | 15 | I wonder now if I can call upon 16 | the Sable Offshore Energy Project to come forward. | 17 | MR. BLUE: Mr. Chairman, may I 18 | thank the Panel for its accommodation of me 19 | personally and the Province of New Brunswick. | 20 | MR. SMITH: Thank you, Mr. 21 | Chairman, Panel Members. | 22 | Just to let you know that when
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23 | the pliers came out there, he was just helping me 24 | take the staple out of my Argument! 25 | --- (Laughter/Rires) 26 | MR. SMITH: Again, just by way of 27 | an introduction, sir, I have handed a copy of my 28 | Written Notes to the Court Reporter and would ask 29 | that he simply incorporate into the Record the 30 | references which are in bold, rather than my | 9759 1 | reading to you every single Transcript reference 2 | and Exhibit reference that we are relying on in 3 | this Argument. So, it will obviously show up in 4 | the Transcript tomorrow. 5 | ARGUMENT-IN-CHIEF ON BEHALF OF SOEP/M&NPP: 6 | --- Submissions by Mr. Smith: 7 | Introduction 8 | MR. SMITH: Mr. Chairman, Members 9 | of the Panel: The Proponents have invested 10 | enormous time and resources in the careful 11 | detailed preparation of the Applications before 12 | you -- Applications which, in the case of SOEP, 13 | were filed over a year ago; Applications which 14 | have been fully supported with Additional Evidence 15 | and hundreds of Information Responses, 16 | Undertakings and questions throughout the course 17 | of these long Proceedings. | 18 | And, sir, we have travelled far 19 | in eliciting the concerns of those who will be 20 | most directly affected: the people of Nova Scotia 21 | and New Brunswick. | 22 | As you know, Mr. Chairman, 23 | between them, SOEP and Maritimes conducted many 24 | Open Houses and Information Sessions -- public 25 | consultation which began well before the filing of 26 | any Applications; public consultation which 27 | continues today. | 28 | Since the Applications were 29 | filed, the Joint Panel and the Proponents have 30 | been engaged in 20 Scoping Meetings in Halifax, | 9760 SOEP/M&NPP Arg. | (Smith) 1 | Sheet Harbour, Country Harbour, Goldboro, Port 2 | Hawkesbury, Truro, Antigonish, Stellarton, St. 3 | Stephen, Saint John, Chipman, Sackville, Moncton, 4 | Amherst and Tatamagouche, where discussion of 5 | public concerns and public interest was encouraged 6 | and was considered. | 7 | And the public review continued 8 | in those two informal Hearings in Moncton and 9 | Antigonish. | 10 | And let us not forget the voices 11 | from those meetings in the many months which have
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12 | passed: voices like that of Duncan McGinnis, who 13 | I referred to earlier in these Proceedings [4T390- 14 | 91]. | 15 | Sir, Mr. McGinnis, and many 16 | others, spoke eloquently in favour of the Project 17 | and the public interest it represented to each of 18 | them. | 19 | And now we come to the conclusion 20 | of what will likely be close to 60 days of Formal 21 | Hearings, in Halifax and Fredericton. | 22 | The public review of these 23 | Applications, we respectfully submit, has been 24 | searching and has been extensive. | 25 | The Proponents have listened and 26 | have learned from the input received from citizens 27 | throughout the length and breadth of Maritime 28 | Canada. That impact, that response, is manifest 29 | in the Application, in the amendments to the 30 | filings, in the Joint Position, and in the many | 9761 SOEP/M&NPP Arg. | (Smith) 1 | examples of the continuing consultative effort to 2 | which the Proponents are dedicated. | 3 | The SOEP and the Maritimes 4 | Proponents, Mr. Chairman, as the evidence well 5 | discloses, are proud of their responsibility as 6 | good neighbours, as good corporate citizens, who 7 | will be active in this region for many, many years 8 | to come. | 9 | We believe that the true test of 10 | the credibility of the Proposals before you is 11 | found in the very high levels of professionalism 12 | exhibited by all of the Project Witnesses. | 13 | Beginning with Dr. Goobie and Mr. 14 | Bennett on the Gas Supply Panel, extending through 15 | the many Panels in the ensuing weeks, we 16 | respectfully submit that you saw rigorous, 17 | detailed, thorough analysis; careful sensitivities 18 | of all those analyses; comprehensive assessments 19 | and evaluations of all project variables, of all 20 | project impacts, and of all proposed mitigation. | 21 | As good neighbours, and as good 22 | corporate citizens, we would expect no less. As 23 | cautious business people seeking to invest 24 | billions of dollars, only that level of detailed, 25 | rigorous analysis can satisfy the exacting 26 | standards of prudence required both by the Joint 27 | Panel and by the Proponents themselves. |
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28 | SOEP and Maritimes, Mr. Chairman, 29 | recognize a responsibility here, to themselves and 30 | to our community: a responsibility not to | 9762 SOEP/M&NPP Arg. | (Smith) 1 | disappoint. | 2 | Our responsibility is to 3 | establish this historic development on sound 4 | business principles, on robust engineering and 5 | design, on well-thought-out progressive 6 | environmental stewardship, and on clearly 7 | established demand from existing and new markets. | 8 | No gimmicks, no shortcuts, no 9 | subsidies, sir; no more failed expectations, no 10 | more bridges to nowhere, Dr. Sears [7T823]. | 11 | This theme, Mr. Chairman, recurs 12 | throughout the Applications filed by SOEP and 13 | Maritimes. They are not restricted to the 14 | examination of options and alternatives. They 15 | pervade all aspects of the Applications. | 16 | The insistence upon high levels 17 | of professionalism, upon credible, detailed 18 | comprehensive analysis, upon careful sensitivity 19 | analyses of all key cost and risk components is 20 | not new. It is the cornerstone of any serious 21 | proposal involving the level of financial and 22 | corporate commitment required for an integrated 23 | undertaking of this nature. | 24 | None of Seafloor Structures, 25 | Tatham, nor TQM, has been able to provide the 26 | Panel, or the Proponents, with options which meet 27 | these critical technical cost, risk and timing 28 | requirements. | 29 | The rigor, the comprehensiveness, 30 | the thorough professional assessment disclosed in | 9763 SOEP/M&NPP Arg. | (Smith) 1 | all the evidence advanced -- on Gas Supply; on 2 | Drilling, Facilities and Operations; on the 3 | Environmental Panels, on Markets; on Pipeline 4 | Engineering and Environmental; on Land Acquisition 5 | and Right-of-Way; on Tolling and Financial 6 | matters; on Benefits; and on Policy -- all 7 | demonstrate why this Project should not be 8 | expected to wait for others with less concern 9 | about rigor, detail and credibility. | 10 | We owe it to future generations 11 | to properly anchor this strategic development on 12 | sound business principles, on sound economics, 13 | which mitigate risk and delay.
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| 14 | As you heard from our Policy 15 | Panel, Mr. Chairman, as an overriding point of 16 | principle we should respect the decisions of the market. | 17 | That is the basis of Canadian 18 | Energy Policy. That is the basis upon which the 19 | International Energy Agency proclaims Canada's 20 | Market Based Policy as a beacon to the rest of the 21 | industrialized world [B-2-72]. | 22 | As Mr. Willms indicated, we tried 23 | it the other way, and it didn't work. | 24 | Recall, sir, his comment, in a 25 | related context, where he stated that he would 26 | hope never to have to repeat the nightmare of the 27 | Vancouver Island pipeline, which was based on 28 | significant government subsidy [35T6227-9]. | 29 | SOEP and Maritimes are proud, 30 | sir, to have placed before you evidence which, in | 9764 SOEP/M&NPP Arg. | (Smith) 1 | our respectful submission, makes it clear that 2 | both the SOEP and the Maritimes projects are in 3 | the public interest; that the project facilities 4 | will be used over the expected life of those 5 | facilities at high levels; that the projects are 6 | self-sustaining from an economic perspective; and 7 | that the projets can be constructed and operated 8 | without significant adverse effect on the 9 | environment, in light, in particular, of the 10 | proposed mitigation. | 11 | And sir, again, in our respectful 12 | submission, the time is now for approval of both 13 | projects. | 14 | With that brief introduction, we 15 | would like to outline how the Proponents have 16 | structured their argument. We will cover the 17 | subject areas of both Applications, generally in 18 | the order in which the Witness Panels were 19 | produced. | 20 | Policy points will generally be 21 | touched upon the in context of the subject-matter 22 | to which they relate. | 23 | I will proceed, shortly, to 24 | present our Argument with respect to Gas Supply, 25 | Drilling Facilities and Operations. | 26 | Mr. Grant will then take over, 27 | addressing you on all matters relating to SOEP's 28 | Environmental and Socio-economic Evidence, as well
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29 | as SOEP's Canada-Nova Scotia Benefits Argument. | 30 | Mr. Denstedt will pick up the | 9765 SOEP/M&NPP Arg. | (Smith) 1 | Environmental thread, and carry it into a 2 | discussion of the Onshore Facilities of SOEP and 3 | the Environmental and Land issues surrounding the 4 | Maritimes Application. | 5 | I will then take it up again from 6 | Mr. Denstedt and include canvassing the Maritimes 7 | Engineering and Design, Toll and Tariff Argument, 8 | as well as the Argument presented on behalf of 9 | both SOEP and Maritimes with respect to Markets 10 | and Policy. |
| | 11 | I will address you, sir, and 12 | Panel Members, in greater detail with respect to 13 | the positions advanced by TQM, Gaz Métro, TCPL, le 14 | Procureur général du Québec, and Hydro-Québec, at 15 | that time. | 16 | We would invite your questions, 17 | Mr. Chairman and Panel Members, as each of us 18 | concludes the various segments of our Argument. | 19 | We would also, sir, identify, as 20 | I did just a little earlier, that we have a Legal 21 | Brief which pertains to certain matters that will 22 | come a little in the Argument, which we would 23 | propose to file, and the discussion of the 24 | proposed Certificate Conditions -- 25 | which we talked about, again, just a moment ago -- 26 | which, as we move a little further along, we would 27 | tender and provide to the Board. | 28 | Mr. Chairman, we recognize that 29 | Argument is not an invitation to re-tell your 30 | entire story. We stand behind the Application as | 9766 SOEP/M&NPP Arg. | (Smith) 1 | presented to the Panel. In Argument, we will 2 | simply address the points raised by others in 3 | their Evidence, and in cross-examination, to the 4 | extent that they are material to the decisions 5 | which you must take. 6 | Gas Supply 7 | With respect to gas supply, the 8 | Gas Supply Evidence tendered by SOEP, it is 9 | important to remember, was also relied upon by 10 | maritimes for the purpose of its Application 11 | [5T506:B-2-28--Gas Supply Witness Responsibility 12 | List].
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| 13 | No one filed evidence to suggest 14 | that the SOEP gas supply story was overstated. 15 | Quite the contrary. The only evidence tendered 16 | was on behalf of the Province of Nova Scotia, 17 | which argued that greater gas supply was available 18 | within SOEP's six fields. | 19 | The CNSOPB Report, issued shortly 20 | before the commencement of the Hearing [B-2-24], 21 | also reflected higher supply estimates than SOEP, 22 | although, as both Witnesses attested, none of the 23 | studies was, strictly speaking, an apples-to- 24 | apples comparison [5T511]. | 25 | In the exchanges which followed, 26 | it became clear that SOEP's estimates of the gas 27 | reserves with the six fields were cautious 28 | [7T818]. | 29 | Dr. Goobie indicated that 30 | "prudent" meant "cautious", and that, depending | 9767 SOEP/M&NPP Arg. | (Smith) 1 | upon the data and with the benefit of production 2 | history, she felt comfortable with the project's 3 | proposed average and peak production rates 4 | [6T697]. | 5 | Dr. Goobie and Mr. Bennett 6 | defended their estimates as "achievable and 7 | believable" [5T600]. If anything, they were on 8 | the safe side [5T601]. | 9 | Their estimates, Mr. Chairman, 10 | emanate from a joint technical team composed of 11 | representatives from Shell, Esso and Mobil 12 | [6T658], which draws upon all of their expertise 13 | worldwide [See also 5T601-3]. | 14 | Under cross-examination, however, 15 | several questioners appeared to suggest that there 16 | might not be enough gas to justify the project as 17 | proposed. | 18 | Mr. Vollman and Dr. Sears both 19 | pursued similar lines of questioning. | 20 | In our Submission, a complete 21 | response to those concerns appears in the 22 | Responses to Panel Counsel, and to Mr. Vollman and 23 | Dr. Sears [7T799-831]. | 24 | Those exchanges revealed that 25 | SOEP had not contended itself with simply reading 26 | the Wade Study [B-1-49]. Rather, the technical 27 | team had thoroughly reviewed this work, confirming
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28 | the reasonableness of the mean expectation value 29 | for the total recoverable gas resource estimated 30 | in that Geological Survey of Canada Study [7T804]. | 9768 SOEP/M&NPP Arg. | (Smith) 1 | The independent use of the Wade 2 | Study by other organizations corroborates the 3 | general acceptance of this Study. | 4 | And I would note that those other 5 | organizations are the CNSOPB, the Nova Scotia 6 | Department of Natural Resources, and the National 7 | Energy Board. | 8 | Two of the geologists on the 9 | joint technical team had extensive experience in 10 | the area, or in these kinds of areas with analog 11 | basins [7T803-4]. | 12 | Mr. Bennett confirmed that the 13 | additional 2.3 Tcf recoverable gas estimated to be 14 | available in the other 16 SDLs likely would be 15 | within economic reach once the infrastructure was 16 | actually in place [7T810], and that 35 of the 17 | estimated 105 Scotian Shelf pools in the 100 Bcf 18 | or larger range could be developed [7T811,7T813]. | 19 | It is clear that in the 20 | foreseeable future all of this supply beyond the 21 | initial SOEP six-field development is attainable 22 | [7T812], particularly when one considers the 23 | advances in technology related to extended reach 24 | drilling, as has been experienced not just in the 25 | North Sea, but in Western Canada, as well [7T811]. | 26 | As the Record discloses, 27 | particularly in the exchanges with Counsel for GMi 28 | and Tatham, it is clear that every aspect of the 29 | downhole story has been carefully reviewed, 30 | sensitized under different assumptions, and | 9769 SOEP/M&NPP Arg. | (Smith) 1 | assessed with contingencies, arriving at the 2 | cautious estimates upon which the Application was 3 | based. | 4 | Rather than repeating what 5 | appeared, Mr. Chairman, we commend the Panel's 6 | review of those exchanges [5T518-619,6T627-702]. | 7 | I do not believe I am taking any 8 | liberty with the Record to suggest that the 9 | Witnesses' technical expertise was impressive. | 10 | And, Mr. Chairman, Mr. Bennett 11 | was positively "Adamant" about the potential in 12 | the Scotian Shelf area!
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| 13 | The Adamant exploration 14 | prospect -- 15 | which is thought to represent in the order of half 16 | a Tcf of potential [5T513] -- does not even appear 17 | in those numbers. | 18 | That alone represents potential 19 | supply equivalent to approximately 15 percent of 20 | the SOEP six fields. | 21 | The SOEP Proponents' confidence 22 | in the Scotian Shelf resource potential was 23 | matched by their commitment, in November 1995, of 24 | the largest work expenditure ever submitted for an 25 | exploration licence offshore Nova Scotia, and that 26 | was $86 million [5T512]. | 27 | The net effect of this, we 28 | submit, is that these additional supplies will not 29 | just extend the flat life, but also increase 30 | deliverability and sales gas volumes, providing | 9770 SOEP/M&NPP Arg. | (Smith) 1 | comfort for the willing markets which may 2 | materialize. | 3 | You will recall that both Mr. 4 | Bennett [7T818] and later Mr. Miller [B-1-76] made 5 | it abundantly clear that the producers are in the 6 | business of meeting real market demand. | 7 | In sum, Mr. Chairman and Panel 8 | Members, your approval of these Applications will 9 | provide the greatest real stimulus to the further 10 | development of the basin [5T534;7T810]. | 11 | This development, the "Seed 12 | Project" [5T533 and 537], will assure availability 13 | of supply for additional markets in the Maritimes, 14 | in the rest of Canada, and in the export market, 15 | depending upon who chooses to place the highest 16 | value upon those supplies. | 17 | In addition, the infrastructure 18 | created by this development could also stimulate 19 | development of other onshore prospects -- again, 20 | potential future supply not explicitly 21 | incorporated into the numbers in the Application 22 | [5T534;7T821-22;5T538]. | 23 | Delay, however, can only delay 24 | the many benefits which all stakeholders expect to 25 | realize through the development of this resource. 26 | Delay can only further delay the development of 27 | additional resources in the offshore which can 28 | support additional infrastructure for existing and
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29 | future markets. And the delay, sir, which TQM 30 | proposes, threatens the entire project, as SOEP | 9771 SOEP/M&NPP Arg. | (Smith) 1 | indicated in its response to GMi's questions on 2 | the Master Schedule. | 3 | That was Exhibit B-1-66. | 4 | Why risk this project, sir? Why 5 | jeopardize additional supply which ultimately will 6 | follow this seed development? | 7 | We submit, in this sense, that 8 | the evidence demonstrated that it is delay which 9 | is mutually exclusive -- delay which threatens to 10 | exclude the SOEP development, as well as the 11 | development of the other 16 SDLs and future 12 | exploration prospects, as well. | 13 | Clearly, though, as Mr. Bennett 14 | indicated: "Piecing together a multi-billion 15 | dollar project requires a well-timed and business- 16 | like approach" [5T509-510]. | 17 | The degree of rigor and the 18 | analysis of the gas supply potential, in the near 19 | and in the longer term, is indicative of the level 20 | of certainty required to sponsor a project of this 21 | magnitude. | 22 | It is clear, in our view, that, 23 | without this certainty, this project could not 24 | proceed. | 25 | Imagine, if you can, Mr. 26 | Chairman, Panel Members, if Mr. Miller were to 27 | present to his Board of Directors a project story 28 | which constantly changed in terms of its physical 29 | characteristics; which featured changing 30 | magnitudes of uncontrollable risk exposure and | 9772 SOEP/M&NPP Arg. | (Smith) 1 | costs; where the markets supporting the economics 2 | kept changing, and where parts of the development 3 | were not economic unless someone else backstopped 4 | the cost and the risk. | 5 | Under those conditions, it would 6 | be hardly surprising if his Management declined to 7 | commit further billions of dollars, regardless of 8 | how much money they had already spent. | 9 | Is that, Mr. Chairman, an 10 | "ultimatum"? Is that a "threat"? Or is that 11 | plain and simple common-sense? 12 | Drilling, Facilities and Operations
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13 | I am moving along to Drilling, 14 | Facilities and Operations. |
| | 15 | Once again, little, if any, 16 | evidence was tendered to challenge the evidence on 17 | the Record. | 18 | Questioning, if anything, 19 | revealed the impressive detailed analysis and 20 | wealth of related world-wide experience which the 21 | Drilling, Facilities and Operations Team brought 22 | to the Project. | 23 | Once again, the high degree of 24 | professionalism which characterized the appearance 25 | demonstrates the level of certainty with respect 26 | to cost and risk exposure which is required in 27 | order to piece together a multi-billion dollar 28 | project. | 29 | The issues which arose in 30 | connection with this Panel's appearance, we | 9773 SOEP/M&NPP Arg. | (Smith) 1 | submit, related principally to reliability and 2 | safety of the system design; the expandability of 3 | the proposed facilities to meet future market 4 | requirements; the need to develop the supply at 5 | reasonable cost; as well as concerns expressed 6 | with respect to third party access to the related 7 | facilities. | 8 | Safety, although a concern, 9 | appeared to be fully addressed as no party 10 | tendered evidence or seriously challenged the 11 | Panel during its appearance. | 12 | The sea ice discussion, initiated 13 | by the Ecology Action Centre, we submit, did not 14 | challenge the design basis of the proposed 15 | facilities [37T6695-6703]. | 16 | As Dr. Ruffman candidly admitted, 17 | "the purpose of my report was not to put forward 18 | design criteria" [37T670]. | 19 | Safety is also assured in the 20 | continuing processes which will lead to a final 21 | regulatory approval of the final design prior to 22 | construction taking place [9T1254-58; B-1-74]. | 23 | The preliminary design reflected 24 | in the filings was based on a wealth of 25 | information, updated from the previous Venture
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26 | Project and fine-tuned to reflect the iterative 27 | development of the Offshore Project design 28 | [9T1261]. | 29 | The role of the Certifying 30 | Authority, with respect to the facilities for | 9774 SOEP/M&NPP Arg. | (Smith) 1 | which the CNSOPB has responsibility was also 2 | discussed in detail [T1254-58; B-1-74]. | 3 | The role of the Certifying 4 | Authority in evolving a project design, 5 | construction and installation which will lead to a 6 | Certificate of Fitness is further assurance that 7 | the proposed facilities will be constructed in 8 | such a way as to assure their safe operation for 9 | many years to come [9T1254etseq.]. | 10 | At this point, it is comforting 11 | to know that the Certifying Authority, Lloyd's 12 | Register, is aligned with SOEP's approach 13 | [8T1077]. | 14 | Several Intervenors tested the 15 | extent of the design work done to date. The 16 | testimony demonstrates a detailed level of 17 | investigation with respect to matters such as sand 18 | ridge mobility -- which now appears to be much 19 | less pronounced than previously suspected, due to 20 | the results obtained utilizing highly accurate 21 | global positioning technology [7T874-77]. | 22 | Moreover, as Mr. Lamison 23 | testified, pipeline spanning, though a design 24 | concern, has never, to the best of his knowledge, 25 | resulted in a failure [7T878-79] -- a reassuring 26 | assessment given the breadth of the experience 27 | gained in the North Sea, the Gulf of Mexico, the 28 | Mediterranean, West Africa, and elsewhere [9T1258- 29 | 62]. | 30 | The testimony also includes a | 9775 SOEP/M&NPP Arg. | (Smith) 1 | long discussion with respect to various other 2 | measures. However, none appeared to be seriously 3 | challenged, and certainly not through evidence 4 | sponsored by Intervenors. | 5 | In response to questioning by 6 | Seafloor Structures, Mr. Ingersoll dismissed the 7 | suggestion that boulders would be propelled by the 8 | strong bottom currents. He testified that this 9 | theory is geologically inconsistent with the 10 | processes going on in the Shelf area under 11 | examination [8T981-2].
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| 12 | Concerns implied with respect to 13 | silt, bedrock and seismicity were also resisted on 14 | the basis that silt is a perfectly adequate 15 | foundation material for a variety of purposes 16 | [8T997-9], and that the King Study -- which was 17 | the source of some of these assertions -- is based 18 | on a fairly limited dataset [8T986]; that the line 19 | is being routed so as to avoid exposed bedrock 20 | [8T986-7]; and that seismicity will be considered 21 | in design, and has been considered in the routing 22 | of the pipeline [8T1090-92]. | 23 | The events in the earlier part of 24 | the century, referred to in cross-examination by 25 | Counsel for New Brunswick, would have no 26 | application to the proposed offshore pipeline 27 | since the area of seismic activity is avoided 28 | [8T1092]. | 29 | Moreover, pipelines are 30 | inherently stronger than the cables which were | 9776 SOEP/M&NPP Arg. | (Smith) 1 | affected by that event [8T1091-92]. | 2 | Finally, sir, this is a very 3 | reliable production system, comparable to others 4 | in similar circumstances elsewhere around the 5 | world. | 6 | With the 100 percent reliability 7 | design of the Offshore Line [8T993; 8T1005], the 8 | 97 percent-plus reliability of the overall project 9 | [8T1044], the Maritimes linepack capability and 10 | reverse flow capability [8T1045-6], and the 11 | additional well deliverability, it is the judgment 12 | of the Witnesses that storage is not required for 13 | system reliability [8T1044-54; 9T1161-3]. | 14 | A related concern was that the 15 | system needed to be expandable in order to handle 16 | increases in production from the other sixteen 17 | SDL's, as well as additional production brought on 18 | by SOEP participants or third parties. | 19 | Mr. King's Exhibit [B-1-50], 20 | contains a good illustration of the expandability 21 | built into the existing system. | 22 | It is clear that the decision to 23 | increase the diameter of the Offshore Pipeline has 24 | significantly lowered the cost of transporting 25 | additional production to market. | 26 | As explored in considerable 27 | detail by Counsel for Gaz Métro and Counsel for
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28 | Nova Scotia, a great deal of thought has been 29 | given to the expansion cases, their costs and 30 | timing [8T1054-61; 9T1210-18; 8T1093-95]. | 9777 SOEP/M&NPP Arg. | (Smith) 1 | Nevertheless, there are practical 2 | limits to the pre-building of capacity, as 3 | explained by the Witnesses under cross-examination 4 | by Counsel for Tatham [9T1178-1183]. | 5 | There are limits to a prudent 6 | platform size and the manner in which compression 7 | would be added to the system design, which 8 | reflects the best judgment concerning the 9 | production potential expected to be available 10 | within the foreseeable future. | 11 | It is respectfully submitted that 12 | the Proponents should not be required to build any 13 | additional excess capacity into their design over 14 | and above that considerable expansion potential 15 | already reflected in the design, particularly 16 | where no one has formally approached SOEP with a 17 | proposal which might underwrite the related cost 18 | of such an activity. | 19 | The "access" issue also was 20 | addressed during cross-examination. | 21 | SOEP maintains that third party 22 | access to the offshore facilities would be 23 | governed by standard industry practice, which is 24 | supported by Regulators in Alberta, British 25 | Columbia and Saskatchewan [B-1-4(a) S 5.1, l.2, p. 26 | 5-3; B-1-5, Tab 7; 8T1027-28; Response to Joint 27 | Panel IR 6.17]. | 28 | These industry and regulatory 29 | practices engender a fair and reasonable 30 | allocation of costs amongst those who first | 9778 SOEP/M&NPP Arg. | (Smith) 1 | constructed the facilities to which access is 2 | sought, including all developmental risks and rate 3 | of return considerations. | 4 | While this approach would apply 5 | to third parties outside the SOEP group, the 6 | testimony discloses that all owners covered by the 7 | SOEP fields will ultimately be accommodated 8 | through the commercial negotiations currently 9 | underway [8T1022]. | 10 | Other practical considerations 11 | relating to access were also reviewed. | 12 | It is clear that ownership and
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13 | proximity to facilities was not a technical 14 | selection criteria by SOEP when determining which 15 | SDLs to incorporate in the initial development 16 | [7T802]. | 17 | The concerns about the 18 | development of sour offshore gas supply and its 19 | access to the system posed no problem since the 20 | Witnesses testified that a solution could be 21 | engineered [8T1094-97]. | 22 | However, no evidence was tendered 23 | to support the need for a sour specification 24 | pipeline to shore. | 25 | Tatham's concerns about the 26 | availability of a practical route to shore were 27 | also allayed by Mr. Ingersoll, when it was made 28 | clear that even at its most narrow point, there 29 | was ample room for the installation of another 30 | pipeline and that other routes were available for | 9779 SOEP/M&NPP Arg. | (Smith) 1 | those who may come along later [9T1198-1201]. | 2 | The project schedule also was the 3 | subject of some inquiry, although the detailed 4 | responses reflecting the most up-to-date 5 | information subsequently appeared in a Response to 6 | an Undertaking to New Brunswick [B-1-56], and in 7 | response to GMi's Additional Written Questions 8 | arising from that same Undertaking [B-1-66]. | 9 | As noted by Mr. Owen on April 10 | l5th -- 11 | and that is April 15th -- the key constraint date 12 | is final project sanction [9T1154-59]. | 13 | Both of the Exhibits made clear 14 | that the project has not slipped and that the 15 | final project sanction date of October 15, 1997 is 16 | the critical date by which the SOEP Sponsors must 17 | be in a position to unanimously agree whether to 18 | proceed with the expenditure of sums, measured in 19 | the hundreds of millions of dollars, in order to 20 | maintain the Project's ability to meet the project 21 | schedule [B-1-66 Response to Question 7] and to 22 | meet the market driven start-up date of November 23 | 1, 1999. |
| | 24 | It is clear from all of the 25 | 26 | evidence filed in connection with the drilling, 27 | facilities and operations aspects of the SOEP,
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28 | that a great deal of confidence can be placed upon 29 | the cost estimates and risk exposure of the | project. 30 | | It is also clear that the SOEP 9780 SOEP/M&NPP Arg. | (Smith) 1 | 2 | Sponsors' decision not to make the final decision 3 | to proceed until the impact of the Terms and 4 | Conditions of the Regulatory Approvals can be 5 | assessed [9T1158-59] also lends credibility to 6 | SOEP's concerns about assuring the technical and 7 | economic viability of the overall project before | proceeding. 8 | 9 | Once again, in the context of the 10 | SOEP facilities, no reliance is placed upon the 11 | existence of subsidies, whether direct in the form 12 | of government grants, or indirect through 13 | allocation of project costs and risks to others, | who may not benefit either now or in the future. 14 | 15 | Consider, Mr. Chairman, Panel 16 | Members, the impact of TQM's proposal: "Delay 17 | approving Maritimes until we can catch up" -- 18 | despite the fact that TQM and Gaz Métro have been 19 | "intending" to file application after application | since November, 1995. 20 | 21 | And now, at the eleventh hour, | still no Application. 22 | 23 | And even if an Application were 24 | filed, how long would it take to resolve the 25 | tolling issues, to conduct the environmental 26 | review, to undergo the same Joint Panel Review, | Scoping Meetings, and all the rest? 27 | 28 | Sir, Panel Members, why should 29 | any serious investor, like the SOEP Proponents, be | forced to accept these risks? 30 | | Once again, the careful detailed 9781 SOEP/M&NPP Arg. | (Smith) 1 | 2 | step-by-step approach to developing a multi- 3 | billion investment simply does not permit the 4 | potentially extended delays, the cost uncertainty, 5 | and the increased risk exposure associated with 6 | others -- who, over the past nineteen months, have 7 | struggled with a variety of conceptual pipeline 8 | proposals, each of which is premised upon cost and 9 | risk sharing with others, who claim not to receive 10 | any offsetting benefit [B-2-89; CAPP, Union, ADOE | letters]. 11 | 12 | It is hardly surprising that the
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13 | SOEP Sponsors would say they balk at proceeding 14 | under conditions where, at some point in the 15 | future, they might be saddled with the costs of a 16 | conceptual proposal whose costs are almost double 17 | those reflected in the Maritimes & Northeast | Application. 18 | 19 | And that assumes that the 20 | conceptual proposal's costs -- ever changing -- 21 | are as reliable as Maritimes costs, which have now | been reviewed and closely tested. 22 | 23 | Sir, again, that is no threat; 24 | that is no ultimatum. That, we submit, is plain | and simple common sense. 25 | 26 | The Witness Panel's discussion of 27 | the alternatives considered in the development of 28 | the Project makes clear that options such as a 29 | pipeline through Québec to the New England market, 30 | as well as the LNG concept, were both dismissed at | the conceptual level [B-1-76 P.2-3; 8T1008-18; 9782 SOEP/M&NPP Arg. | (Smith) 1 | | 8T1061-64]. 2 | 3 | As Mr. Suggett indicated, the LNG 4 | concept was simply inapplicable to a project with | the size of the reserves involved in this case. 5 | 6 | Moreover, by SOEP's estimate [B- 7 | 1-27, Response to SSCL #1], the cost of the island 8 | on its own exceeds the cost of the SOEP/Maritimes | infrastructure from Thebaud to market. 9 | 10 | Finally, as early as in its 11 | Scoping Response [Issue # 27, B-1-21], SOEP 12 | highlighted its environmental concerns with that | same concept. 13 | 14 | In the case of the Québec 15 | Pipeline option, the concept was dismissed because 16 | of the obviously much greater capital cost 17 | involved in accessing the anchor market located in | the U.S. Northeast. 18 | 19 | In this case, there can be little 20 | doubt that the SOEP Proponents have selected the 21 | most appropriate means by which, from a technical 22 | and economic perspective, to carry out their 23 | project, which is to carry gas from the SOEP's six 24 | fields to the anchor market in the northeastern 25 | U.S., while opening up gas markets in Nova Scotia 26 | and New Brunswick at the same time -- an integral | aspect of this Project. 27 | 28 | Finally, the issue of the
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29 | appropriate method of regulation of the offshore | facilities was also reviewed. 30 | | Since no one else is restricted 9783 SOEP/M&NPP Arg. | (Smith) 1 | 2 | from producing, and since fair and reasonable 3 | access to the facilities has been agreed to in 4 | accordance with industry and regulatory practice 5 | elsewhere in the country, we believe that a light- | handed scheme of regulation would be appropriate. 6 | 7 | Moreover, Mr. Chairman, no third 8 | parties have asked for access to the project | facilities [8T1024-58; 9T1150]. 9 | 10 | When one considers that all the 11 | SOEP Proponents are requesting is to bear their 12 | own costs, it would seem unnecessary and 13 | inappropriate to impose any formal regulation at | this time [9T1150]. 14 | 15 | SOEP has already agreed to 16 | maintain their Books of Account to accommodate any 17 | future regulatory development [Response of Joint | Panel I.R. 6.16], should that prove necessary. 18 | 19 | In addition, it is, in our 20 | respectful submission, inappropriate to include a 21 | Condition in the Certificate which requires a 22 | reconciliation of forecast and actual costs 23 | incurred, since the SOEP Proponents anticipate 24 | that they alone, in all reasonably foreseeable | cases, will bear all of those costs themselves. 25 | 26 | There is a built-in incentive to 27 | minimize costs under those circumstances, which | does not require regulatory oversight. 28 | 29 | The competitive disciplines of 30 | the market and the self-interest in minimizing | costs make this a far different case from those in 9784 SOEP/M&NPP Arg. | (Smith) 1 | | which the Project costs would be borne by others. 2 | 3 | For this reason, we would draw 4 | particular attention to our objection to the 5 | proposed conditions -- Part II "Offshore 6 | Pipeline", Recommendation 17, and Part III 7 | "Goldboro Gas Plant", Recommendations 5 and 11 -- | which were set forth in Exhibit A-1-118. 8 | 9 | Sir, that concludes my initial | submissions. 10 | 11 | I would then turn it over to Mr.
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| Grant. 12 | 13 | THE CHAIR: Please continue, Mr. | Grant. 14 | 15 | MR. GRANT: Thank you, Mr. | Chairman. 16 | 17 | I am pleased, on behalf of SOEP, 18 | to present Closing Argument with respect to the 19 | Environmental Assessment, the Socio-Economic 20 | Assessment, and the Canada-Nova Scotia Benefits | Plan. 21 | 22 | My colleague, Mr. Denstedt, will 23 | make submissions with respect to the Environmental 24 | Assessment of the SOEP Project, as it pertains to | the Liquids Line and the Gas Plant. 25 | 26 | Mr. Chairman, I have prepared a 27 | Written Argument -- which I have just filed a | moment ago. 28 | 29 | I do not propose to read it to 30 | you; rather, I will speak to various of the issues | which are argued in the Written Brief. 9785 SOEP/M&NPP Arg. | (Smith) 1 | 2 | You may find it helpful to follow 3 | along with me as I speak to those points -- which 4 | are dealt with in a little more detail in the | Written document than I intend to go into orally. 5 | 6 | I placed a number of copies of | the Brief at the back of the room. 7 | 8 | I understand, Mr. Chairman, there | was a run on those. 9 | 10 | I will arrange to have additional | copies made. 11 | 12 | People felt that, if they had the 13 | Written Brief, that would obviate the need to hear | me "bombinate" in my Closing Submissions. 14 | 15 | Some Members of the Panel may 16 | wish to adopt the same strategy, as well! 17 | --- (Laughter/Rires) 18 | THE CHAIR: I heard, Mr. Grant, 19 | that they are selling hotly in front of the 20 | building! 21 | --- (Laughter/Rires) 22 | --- Submissions by Mr. Grant: 23 | MR. GRANT: Mr. Chairman, in our 24 | Argument, we have tried to address subjects which 25 | were contentious. We have not tried to repeat or
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26 | summarize evidence on the Assessment as a whole; 27 | rather, we have tried to focus on areas of | anticipated debate. 28 | 29 | It was an extensive Assessment, 30 | both the Environmental and the Socio-Economic. It | covered numerous topics, many of which were not 9786 SOEP/M&NPP Arg. | (Grant) 1 | | canvassed by the Intervenors. 2 | 3 | We have not referred to these 4 | topics, other than to say, Mr. Chairman, that the 5 | Proponents' uncontroverted evidence on these 6 | topics that the Project is not likely to cause a 7 | significant adverse environmental effect should, | in our submission, be accepted by the Panel. 8 | 9 | Mr. Chairman, at the first page 10 | of our Brief, we outline the "Environmental | Assessment Review Requirements". 11 | 12 | The starting point, of course, 13 | for the Panel here, in determining its mandate 14 | with respect to socio-economic and environmental | assessment, is to review the Agreement for Joint Review. 15 | 16 | In particular, we would refer to 17 | section 3.1 of this Agreement, where it is stated: 18 | "The primary purpose of this 19 | Agreement 20 | is to coordinate the 21 | environmental 22 | assessment requirements by the 23 | parties 24 | by providing for a Review of the 25 | Environmental Effects likely to 26 | result 27 | from the Projects." 28 | And, Mr. Chairman, "environmental 29 | effect" is defined in the Joint Review Agreement. 30 | It is defined in a fashion which includes, not | simply what one would generally expect to be an 9787 SOEP/M&NPP Arg. | (Grant) 1 | 2 | environmental effect, but also to include socio- | economic effects.
| | 3 | This is in keeping, of course, 4 | with the objective of the Joint Review Agreement 5 | to harmonize the environmental assessment 6 | requirements in order to avoid delay, duplication, 7 | and overlap [Exhibit A-1-1, p.3]. |
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8 | Mr. Chairman, the definition of 9 | "environmental effect" in the Mandate of the Panel 10 | is, in our submission, consistent with the 11 | requirements placed upon Responsible Authorities 12 | under the Canadian Environmental Assessment Act. | 13 | We would refer to the provisions 14 | of section 37 of the Act. | 15 | On page 2 of the Brief we set 16 | those requirements out, in detail. | 17 | The important point I wish to 18 | make is that under CEAA, the Responsible Authority 19 | gives the go-ahead to a project where -- and I am 20 | reading from sub-paragraph (a): 21 | "(a) where, taking into account 22 | the 23 | implementation of any mitigation 24 | measures that the responsible 25 | authority considers appropriate, 26 | (i) the project is not likely to 27 | cause significant adverse 28 | environmental effects, or 29 | (ii) the project is likely to 30 | cause | 9788 SOEP/M&NPP Arg. | (Grant) 1 | significant adverse environmental 2 | effects that can be justified in 3 | the 4 | circumstances ---" 5 | That test is, in our submission, 6 | the same test, effectively, as the one required 7 | under the Nova Scotia Environment Act and the 8 | environmental assessment provisions of that Act. | 9 | It is not as explicitly stated in 10 | the Nova Scotia Act as it is in CEAA, but I think 11 | the Panel will see from the Environmental 12 | Assessment Act Regulations (Reg. 95/220) -- which 13 | we set out on page 3 of our Brief -- that a 14 | similar test is required. | 15 | We refer to section 13(b), where 16 | it is clear that an undertaking gets approved 17 | where: 18 | "-- there are no adverse effects 19 | or 20 | significant environmental effects 21 | which may be caused by the 22 | undertaking 23 | or that such effects are 24 | mitigable and 25 | the undertaking is approved ---" 26 | Mr. Chairman, the point we wish 27 | to make is that, obviously, there are a number of
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28 | elements of the test that the Panel has to 29 | consider in weighing environmental effects. | 30 | The point that we want to | 9789 SOEP/M&NPP Arg. | (Grant) 1 | emphasize is the likelihood of the significance of 2 | the environmental effects. | 3 | In our submission, the Panel, in 4 | order to recommend against an aspect of a Project 5 | proceeding, has to be able to find that there is a 6 | likelihood of a significant adverse environmental 7 | effect that is not justifiable. | 8 | The significance of "likelihood" 9 | is underlined in the Decision of the Federal Court 10 | of Appeal in the Alberta Wilderness Association v. 11 | Express Pipelines Ltd. case: [(1996), 137 D.L.R. 12 | (4th) 177]. | 13 | We make reference to that case at 14 | the bottom of page 4 of our Written Argument. | 15 | There is a passage from the 16 | Decision of the Court, where the Court states: 17 | "No information about the 18 | probable 19 | effects of a project can ever be 20 | complete or exclude all possible 21 | future outcomes." 22 | And again, we refer to the 23 | probability of the effects. | 24 | Mr. Chairman, an issue that has 25 | been debated throughout these Hearings has been 26 | the application of the "Precautionary Principle". | 27 | Before the Members of the Panel, 28 | it has been urged by a number of Intervenors that 29 | the Precautionary Principle dictates that this 30 | Panel make certain recommendations, that certain | 9790 SOEP/M&NPP Arg. | (Grant) 1 | actions be taken, or certain actions be refrained 2 | from being taken. | 3 | In our submission, there has been 4 | a distortion of the Precautionary Principle in a 5 | number of these submissions. | 6 | The Precautionary Principle is 7 | incorporated as one of the many objectives of the 8 | Nova Scotia Environment Act. | 9 | It is useful to look at the Nova 10 | Scotia Environment Act and its Statement of
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11 | Objectives, to place in context the position of 12 | the Precautionary Principle. | 13 | It is just one of a number of 14 | principles which a decision-maker has to utilize 15 | in determining whether or not to give approval to 16 | a project. | 17 | Indeed, if you look at the bottom 18 | of page 5 of our Brief, a good portion of section 19 | 2 of the Environment Act is set out. I would like 20 | to draw your attention to sub-paragraph (b), where 21 | it notes the goal of "maintaining the principles 22 | of sustainable development, including" -- and sub- 23 | paragraph (ii) sets out the Precautionary 24 | Principle. | 25 | The Panel will see that the 26 | Precautionary Principle is only one of a number of 27 | principles that form part of the principles of 28 | sustainable development. | 29 | I would like to draw the Panel's 30 | attention to sub-paragraph (vi) on page 6 of our | 9791 SOEP/M&NPP Arg. | (Grant) 1 | Brief, where recognition is given to: 2 | "the linkage between economic and 3 | environmental issues, recognizing 4 | the 5 | long-term economic prosperity 6 | depends 7 | upon sound environmental 8 | management 9 | and that effective environmental 10 | protection depends on a strong 11 | economy ---" 12 | That, as I say, is just one of a 13 | number of principles that go into the principle of 14 | sustainable development. | 15 | Mr. Chairman, the Nova Scotia 16 | Environment Act recognizes that these principles 17 | require weighing. | 18 | For example, the Precautionary 19 | Principle has to be weighed with the principle 20 | that a strong economy forms part of sustainable 21 | development. | 22 | In this case, we would submit 23 | that the Joint Review Panel is fixed with the 24 | rather pleasant task of not having to weigh the 25 | two against the other, because in this case the 26 | interests of the environment can be addressed and 27 | preserved with the Project while, at the same 28 | time, addressing the interests of a strong
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29 | economy. | 30 | The Project can proceed on a | 9792 SOEP/M&NPP Arg. | (Grant) 1 | sound economic basis without likely causing any 2 | significant adverse environmental effects. | 3 | The Precautionary Principle was 4 | spoken to by Environment Canada in one of its 5 | Exhibits (Exhibit C-97-7, at p. 29) -- and we make 6 | reference to that on page 7 of our Brief. | 7 | We would submit, Mr. Chairman, 8 | that the Precautionary Principle is not a "do 9 | nothing" concept or a "zero risk" concept, I think 10 | as Dr. Tsui said; it is a principle under which 11 | one balances economics and environmental 12 | protection. | 13 | Effects Monitoring Programs 14 | provide a scientific basis for linking the 15 | predictive nature of an Environmental Impact 16 | Statement to the elimination of scientific 17 | uncertainty. (Dr. Tsui, 11 T 1576-1577;B-1-71) 18 | As Mr. Loch, of the Department of 19 | Fisheries and Oceans, said: 20 | "Caution is proportional to the 21 | degree 22 | of uncertainty. The more 23 | uncertainty, 24 | the more caution." 25 | The Department of Fisheries 26 | applied the Precautionary Principle in a pragmatic 27 | fashion, looking to scientifically-based 28 | monitoring programs, combined with adaptive 29 | management. (43 T 8224-5) 30 | Mr. Chairman, one of the early | 9793 SOEP/M&NPP Arg. | (Grant) 1 | and recurrent themes of this Environmental 2 | Assessment has been whether the Project presents 3 | the decisionmakers with a choice of favouring 4 | economic development at the expense of the 5 | environment. | 6 | Public consultations at early 7 | stages in the Project revealed concern that the 8 | Proponents not permit this to occur. | 9 | In our submission, the evidence 10 | demonstrates that the Proponents have conducted a 11 | proper and thorough Environmental Assessment. 12 | They have undertaken this in a flexible and 13 | iterative fashion so that impacts, once 14 | identified, can be eliminated, avoided or 15 | mitigated.
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| 16 | They did this in keeping with the 17 | requirements of Section 11 of the Canadian 18 | Environmental Assessment Act and the intent of the 19 | Environment Act of Nova Scotia that assessments be 20 | done early in the planning process, before any 21 | irrevocable decisions are taken. | 22 | Mr. Chairman, it is quite clear I 23 | am going to go past 4 o'clock, if I am going to 24 | complete my submission --- 25 | THE CHAIR: Mr. Grant, why don't 26 | you just take it down to "General Comments on the 27 | Evidence", and we will stop there. | 28 | MR. GRANT: I would be pleased to 29 | do so. | 30 | Stop just before that, Mr. | 9794 SOEP/M&NPP Arg. | (Grant) 1 | Chairman? | 2 | THE CHAIR: Yes. We can leave 3 | "General Comments on the Evidence" for tomorrow. | 4 | MR. GRANT: Thank you. | 5 | The next topic I deal with is the 6 | "Scope of the Assessment". | 7 | Mr. Chairman, it is axiomatic 8 | that the scope for the Panel's review is defined 9 | by the Agreement for the Joint Public Review. | 10 | My friend, Mr. Denstedt, will 11 | have more detailed comments about the scope as 12 | defined in the Agreement for Joint Review. 13 | (Exhibit A-1-1) 14 | The point which we wish to make 15 | at this stage is that there are a number of issues 16 | which have been raised from time to time 17 | throughout the Hearings which, in our submission, 18 | do not form part of the Panel's Mandate. | 19 | Those issues include the 20 | potential effects of the end-use of the natural 21 | gas by purchasers of the commodity from the SOEP 22 | Producers -- and, of course, the Panel has ruled 23 | on that. 24 | We would submit, also, the 25 | adequacy or appropriateness of the royalty régime 26 | imposed by the Province of Nova Scotia, after 27 | negotiations with the SOEP Proponents. | 28 | That is another issue, in our 29 | submission, which is outside the scope of the
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30 | Panel's review. | 9795 SOEP/M&NPP Arg. | (Grant) 1 | The proposed designation of the 2 | Gully as a marine protected area -- and I think, 3 | Mr. Chairman, Dr. Recchia, who has been the 4 | principal advocate of the designation of the Gully 5 | as a marine protected area, really acknowledged 6 | that in her testimony before the Board. | 7 | And, finally, in our submission, 8 | seismic activities on the Scotian Shelf do not 9 | form part of the subject of the review by this 10 | Panel. | 11 | THE CHAIR: Thank you, Mr. Grant. | 12 | We will proceed from there 13 | tomorrow, at 8:30. | 14 | We are adjourned. 15 | --- Adjournment/Ajournement
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