Maritimes & Northeast Pipeline Management Ltd. (M&NP) Application for Approval of MNLRS-IOL Service (Load Retention Service or LRS) and Toll (LRS Toll) (Application) Application under part IV of the National Energy Board Act , dated 17 November 2016 File No.: File OF-Tolls-Group1-M124-2016-01 01

Information Request No. 1 Tolls and Tariff Matters 1.1 LRS and LRS Toll

Reference: i) Resources (Imperial) and ExxonMobil Properties (ExxonMobil) Letter of comment, Page 2 of 2 (PDF Page 2 of 2), A81079-1

ii) Heritage Gas Limited (Heritage Gas), Letter of Comment, Page 1 of 1 (PDF page 1 of 1), A81088-1

iii) Nova Scotia Power Inc. (NSPI), Letter of Comment, Page 2 of 3 (PDF page 2 of 3), A81087-1

iv) Maritimes and Northeast Pipelines Limited Partnership (M&NP), Reply to Process Comments, Page 2 of 3 (PDF page 2 of 3), A81220-1

Preamble: In reference i), Imperial and ExxonMobil state that the effect on other M&NP shippers of the approval or denial of the LRS (MNLRS-IOL) is not addressed in the application.

In reference ii), Heritage Gas submits that the Board should start by requiring M&NP and Limited to respond to information requests, so that parties can obtain all of the information that they require to assess the appropriateness of the LRS and toll and the impacts on other M&NP customers.

In reference iii), NSPI states that the Board should consider implications of the proposed LRS on other M&NP shippers.

In reference iv), M&NP advises the Board it will shortly be filing for approval of final 2017-2019 rates ("Toll Proceeding") and will address the Toll Impact Issue as part of that filing. M&NP also states that resolution of the issue of the rate impact of approving the LRS toll on M&NP system tolls may well have an impact on, or be impacted by, decisions the Board will make with respect to general M&NP system tolls in the Toll Proceeding.

The Board has identified the estimated potential impact of the LRS and LRS Toll on current and future M&NP System tolls as an issue to be considered in this proceeding. Page 1 of 5

Request: a) Using the 2016 actual and 2017 forecasted throughput and contract demand quantities, provide the following information for the three scenarios below for 2016 and 2017:

a.1) Assuming the continued use of the existing services, tolling methodology and 2017 interim tolls, provide the actual or estimated annual revenue by service and the actual or estimated 12-month average toll for each service offered by M&NP;

a.2) Assuming implementation of the MNLRS-IOL service and MNLRS-IOL toll as applied for in 2016 and 2017 and the continued use of the tolling methodology from a.1) for the other services, revise the throughput and contract demand quantities in the response to a.1) and provide the estimated annual revenue by service and the estimated 12-month average toll for each service offered by M&NP ; and

a.3) Assuming the MNLRS-IOL service and MNLRS-IOL toll are not implemented as applied for and Irving exercises its option with Emera Brunswick in 2016 and 2017, revise the throughput and contract demand quantities in the response to a.1) and provide the estimated annual revenue by service and the estimated 12-month average toll for each service offered by M&NP assuming the tolling methodology in a.1) remains in effect.

b) If projected tolls from a settlement are available for 2017 to 2019 and projected throughput and contract demand quantities are also available for 2019 provide similar data as in a.1) through a.3) for 2020 assuming the same settlement conditions and throughput data prevail through 2020.

c) Provide the underlying assumptions such as throughput volumes and contract demand quantities supporting the revenue and toll data presented in each of the responses to a) and b).

d) Provide analysis and commentary on the toll impacts on each service caused by Irving having an LRS or Irving leaving the M&NP system in scenarios a.2 and a.3, respectively.

Response 1.1 (a-d)

The MNLRS-IOL service would not commence until December 1, 2019. Therefore, tolling for the January 1, 2017 through November 30, 2019 period would not be impacted by the MNLRS-IOL service. As such, M&NP has focused its response on 2020 and scenarios outlined in a.1) through a.3).

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Actual throughput levels (excluding export volumes) averaged 176,119 MMBtu per day in 2016. As per the information request, M&NP has used that level as the basis for forecasting 2020 determinants as outlined in a.1 through a.3. The following table outlines the 2020 determinants and associated tolls assuming 2014-16 settlement parameters and that 2016 throughput data will prevail through 2020.

(6) (7) (8) 2020 Scenarios (a.1) Scenario (a.2) Scenario (a.3) Scenario (IOL on MN365) (IOL on MNLRS-IOL) (IOL on Emera Brunswick) MMBtu/d Revenue ($MM) MMBtu/d Revenue ($MM) MMBtu/d Revenue ($MM) MN365 Contract Determinants (1) 176,119 $ 53.6 128,946 (2) $ 47.6 128,946 $ 53.6 MNLRS-IOL Contract Determinants (3) - $ - 65,000 $ 6.0 - $ - MNIT Contract Determinants (4) - $ - - $ - - $ - 176,119 $ 53.6 193,946 $ 53.6 128,946 $ 53.6

2020 MN365 Toll (CAD/MMBtu/d) (5) $ 0.83 $ 1.01 $ 1.14

(1) MN365 contract determinants based on 2016 actual domestic throughput (2) MN365 contract determinants reduced by actual average throughput at refinery (47,173 MMBtu/d) (3) MNLRS-IOL revenue calculated using rate of $0.255 per MMBtu per day (4) Zero MNIT deteminants assumed for 2020 (all throughput flows on MN365 or MNLRS-IOL) (5) MN365 Toll calculation assumes MNLRS-IOL revenue treated as a credit to MN365 cost of service (6) Cost of service assumes a $5MM annual credit for imbalance/other revenue on M&NP system (7) Applied 2014-16 Settlement parameters for capital structure, return on equity and debt rate in the 2020 cost of service calculation (8) Applied a reduced depreciation rate for 2020 to fully depreciate Net Assets by 2039 As demonstrated in the table above, there is a clear economic advantage ($6MM) to the benefit of all M&NP shippers if IOL contracts with M&NP are retained through a load retention service. That $6MM equates to a toll reduction of 13 cents using MN365 contract determinants of 128,946 MMBtu/d. If the MN365 contract determinants were lower than 128, 946 MMBtu/d, the per MMBtu benefit of the MNLRS-IOL service increases as follows:

Impact of Lower (a.2) Scenario (a.3) Scenario MN365 Contract Determinants MN365 Toll MN365 Toll Net Benefit (MMBtu/day) ($/MMBtu/day) ($/MMBtu/day) ($/MMBtu/day) 128,946 $1.01 $1.14 $0.13 118,946 $1.10 $1.23 $0.14 108,946 $1.20 $1.35 $0.15 98,946 $1.32 $1.48 $0.17 88,946 $1.47 $1.65 $0.19 78,946 $1.65 $1.86 $0.21

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1.2 The EBPC Alternative to M&NP

Reference: i) Maritimes and Northeast Pipelines Limited Partnership (M&NP), Application for Approval of MNLRS-IOL Service and Toll, Page 3 of 12 (PDF page 5 of 14), A80680-1

ii) Maritimes and Northeast Pipelines Limited Partnership (M&NP), Application for Approval of MNLRS-IOL Service and Toll, Page 8 of 12 (PDF page 10 of 14), A80680-1

iii) Maritimes and Northeast Pipelines Limited Partnership (M&NP), Application for Approval of MNLRS-IOL Service and Toll, Page 9 of 12 (PDF page 11 of 14), A80680-1

Preamble: In reference i), M&NP states that Irving Commercial Oil Ltd. (Irving or Customer) advised M&NP that it was offered long term firm service on the EBPC system (EBPC Alternative) that would meet the needs of the and Cogen. The needs of the Oil Refinery and Cogen are currently being met by the M&NP system.

In reference ii), M&NP states that the EBPC Alternative represents a “credible competitive [bypass] threat” and that "while the EBPC system is not currently a full bypass alternative, it could become so with a modest incremental investment ―an investment EBPC is willing to make as demonstrated by its offer of service to Customer in the form of the EBPC Alternative."

In reference iii), M&NP provided information on the derivation of the MNLRS-IOL Toll and the additional costs that might be incurred by EBPC to provide Customer with the desired service.

The Board requires additional information to assess whether the “credible competitive [bypass] threat” of the EBPC Alternative is well-founded. Request: a) Describe the due diligence process that M&NP used to determine that the EBPC bypass for Irving represents a “credible competitive [bypass] threat.”

b) Discuss M&NP's sources of information regarding the competing EBPC bypass. In your response, explain whether M&NP relied solely on information provided by Irving regarding the competing EBPC bypass or whether it took steps to obtain information independently of Irving.

c) Describe the assessment M&NP carried out to conclude that the EBPC Alternative would require only a mainline tap and meter station facilities. Also, provide the basis for EBPC’s estimated cost for these facilities of $5.4 million CAD.

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Response:

a) The due diligence process that M&NP used to determine that the EBPC bypass for Irving Oil represents a credible competitive bypass threat included the following:

• Verification that the EBPC pipeline is an existing high pressure gas transmission pipeline that is currently physically located on the Irving Oil Refinery property. • Verification that the EBPC pipeline has existing sufficient capacity over and above current contract commitments to offer firm service to the Irving Refinery at the 65,000 MMbtu/day level (combination of review of EBPC’s firm contracts and design capacity, historical load factors, and advice from Irving Oil that EBPC had tendered an offer for firm service). • Verification that the EBPC pipeline offers an existing direct transportation path from Baileyville, Maine (interconnection point with M&NP US) to the Irving Refinery property. • Verification that the existing published transportation toll in place for EBPC firm service is significantly less than the current (and future projected) M&NP Canada firm service toll. • Verification that given the current running line of EBPC on the Irving Oil Refinery property, that modest capital cost would be required on the EBPC system to construct an interconnection and meter station to serve the Refinery load. (M&NP has estimated this cost to be $5.4 million CAD). • Verbal notification from Irving Oil that EBPC had formally offered firm transportation service to Irving Oil with receipt at Baileyville, Maine and delivery at the Irving Refinery. • Receipt of formal notice from Irving Oil that they did not wish to renew expiring firm contract commitments on M&NP Canada. • Confirmation that other existing M&NP Canada large industrial loads in close in close proximity to EBPC in Saint John had formally been provided offers of firm transportation service on EBPC.

b) As described in part a), M&NP took steps to obtain information independently of Irving and did not rely solely on information provided by Irving regarding the competing EBPC bypass. These sources of information included the NEB filed EBPC toll and design capacity, a review of historical EBPC load factors, independent estimation of any capital associated with reverse flow and physical interconnection of EBPC to the refinery, and verification of the existing running line of EBPC.

c) As described in part a), M&NP verified the existing running line of EBPC is actually located on the Irving Oil refinery property. There is, therefore, no EBPC pipeline extension or lateral required to serve the refinery. In M&NP’s estimation, the extent of the facilities required for EBPC to provide service to the refinery include a hot tap and meter station. The $5.4 million CAD estimate for these facilities was completed internally by M&NP and incorporates gas transmission meter station and hot tap construction experience in .

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