Information Request No. 4 to Trans Mountain Pipeline

Information Request To: Trans Mountain Pipeline ULC From: City of Vancouver

OH-001-2014 Trans Mountain Pipeline ULC (Trans Mountain) Application for the Trans Mountain Expansion Project (Project) File OF-Fac-Oil-T260-2013-03-02

City of Vancouver Information Request No. 4 Trans Mountain New Evidence

Contents

1. MUSE STANCIL REPORT—NEIL EARNEST 2 2. RATIONALE FOR NEED CHANGED 5 3. FORECASTING ACCURACY 8 4. NETBACK ANALYSIS 10 5. IMPACT OF HIGHER CRUDE PRICES 13 6. CLIMATE CHANGE AS A BUSINESS RISK 14 7. NATIONAL ENERGY BOARD FORECAST 17 8. MARKETS 18 9. THE ASIA-PACIFIC MARKET (INCLUDING HAWAII) 21 10. THE CHINA MARKET 24 11. CONFERENCE BOARD REPORT—GLEN HODGSON 27 12. LIMITATIONS OF INPUT OUTPUT 30 13. DIRECT EVIDENCE OF JOHN REED 33 14. PRODUCTION 35

Page 1 of 36 1. MUSE STANCIL REPORT—NEIL EARNEST

References:

(i) Letter from Trans Mountain of September 25, 2015, Trans Mountain Evidence to Replace Evidence Prepared by Mr. Steven Kelly for the Project, (A4T6E7)

(ii) Trans Mountain Pipeline ULC, Evidence to replace the Direct Evidence Prepared by Mr. Steven Kelly for the Project (A4T6E8), Market Prospects and Benefits Analysis of the Trans Mountain Expansion Project, Muse Stancil Report prepared by Neil Earnest, September 25, 2015.

(iii) Market Prospects and Benefits Analysis for the Northern Gateway for Enbridge, Application for the Enbridge Northern Gateway Project, OH-4-2011, January 2010 (A1S9X7)

(iv) Update of Market Prospects and Benefits Analysis for the Northern Gateway for Enbridge, Application for the Enbridge Northern Gateway Project, OH-4-2011, July 2012 (A2V1R7)

(v) Presentation by Ian Anderson, President, Kinder Morgan Canada, Analysts Conference, January 28, 2015, Page 3. http://ir.kindermorgan.com/sites/kindermorgan.investorhq.businesswire.com/files/event/addit ional/KM5-05AnalystConfKMCanada2015IA.pdf

Preamble:

Trans Mountain states in reference (i), pdf page 1, that it has replaced “the direct evidence prepared by Mr. Kelly for the Project in this proceeding,” and has “enclosed the expert report of Muse Stancil and consequential amendments to the Conference Board of Canada’s direct evidence (“CBofC”) and Mr. John Reed’s direct evidence.”

Reference (ii) is the Market Prospects and Benefits Analysis Report for Trans Mountain prepared by Mr. Earnest on behalf of Kinder Morgan.

Reference (iii) and (iv) are the Market Prospects and Benefits Analyses Reports for Northern Gateway prepared by Mr. Earnest on behalf of Enbridge, OH-4-2011.

Request:

(a) Please provide the date that Trans Mountain first contacted Mr. Earnest to discuss the possibility that an expert report to address the issues previously dealt with in Mr. Kelly’s direct evidence may, or would be, necessary.

(b) Please provide the date that Mr. Earnest commenced work for Trans Mountain in connection with reference (ii).

Page 2 of 36 (c) Please provide a copy of all documents setting out, or relating to, Trans Mountain’s engagement of Mr. Earnest.

(d) Please provide all work papers, data, excel spreadsheets and other documents on which Mr. Earnest relied in preparing reference (ii).

(e) Please confirm that the page numbers on the Table of Contents in reference (ii) are incorrect. Please provide a corrected version as errata.

(f) Has Trans Mountain Pipeline ULC, or any of the numerous Kinder Morgan Inc. corporate entities in Canada or the US, commissioned Muse Stancil and/or Mr. Neil Earnest to undertake any reports on its behalf prior to reference (ii)? If yes, please provide copies of these documents.

(g) Please confirm that Mr. Kelly’s report was commissioned and prepared over a period of time that was approximately 5 months. If not confirmed, please explain.

(h) Please confirm that Mr. Earnest has almost exclusively represented Enbridge at proceedings before Canadian and US regulatory agencies over the past decade.

(i) Is Trans Mountain aware that reference (iii) and (iv) were prepared by Mr. Earnest?

i. If so, please advise when Trans Mountain first became aware of reference (iii) and (iv). ii. If no, please read reference (iii) and (iv), particularly with a view to identifying the exclusion of the Trans Mountain Expansion Project from the anticipated pipeline capacity over the forecast period.

(j) Please confirm that Trans Mountain was, as recently as January 2015, proceeding with its Application on the assumption that Northern Gateway, Energy East and Keystone XL projects would all be completed.

(k) Did Trans Mountain request that Mr. Earnest exclude Northern Gateway, Keystone XL and Energy East from his analysis in reference (ii)?

(l) Please advise whether Mr. Earnest is of the opinion that the assumption in reference (ii) that the Trans Mountain Expansion Project (“TMEP”) is likely to be the only pipeline that is built between 2018 and 2038 is a reasonable assumption? i. Provide a detailed explanation of why or why not. ii. If yes, please advise whether Mr. Earnest has retracted reference (iii) and reference (iv) and advised Canada’s regulatory authorities that the assumptions underlying these two reports are no longer valid.

(m) Is Trans Mountain aware that the oil to be transported on the Northern Gateway pipeline, as discussed in reference (iii) and (iv), is intended to serve the Asia-Pacific market?

Page 3 of 36 (n) Please confirm that Mr. Earnest’s report at reference (ii) does not consider whether there will be sufficient oil supply and demand in the period 2018 through 2038 to make both the TMEP and the Northern Gateway pipeline used and useful.

(o) Please confirm that much of the content of Mr. Earnest’s report at reference (ii) has been copied from reference (iii) and (iv).

(p) Please confirm that Table A-13 at page 76 (at pdf page 78) of reference (ii), entitled “Disposition of Canadian Heavy Base Case (No Northern Gateway)”, has been reproduced in error from reference (iii).

(q) Please confirm that page 76 (at pdf page 78), including Table A-13, should be removed from reference (iii).

Page 4 of 36 2. RATIONALE FOR NEED CHANGED

References:

(i) Trans Mountain Pipeline ULC, Application for Trans Mountain Pipeline Expansion Project, OH-001-2014, Volume 1 (A3S0Q7), Volume 2 (A3S0Q8, A3S0Q9, A3S0R0)

(ii) Trans Mountain Pipeline ULC, Evidence to replace the Direct Evidence Prepared by Mr. Steven Kelly for the Project (A72774), September 25, 2015.

(iii) Neil K. Earnest, The Renaissance of the North American Energy Sector, Muse Stancil, October 9-10, 2013, Slide 10 of 25: http://slidegur.com/doc/30145/north-american-light- crude-oil-supply

Preamble:

On December 16, 2013, Trans Mountain Pipeline ULC filed reference (i) with the National Energy Board (NEB). The Application includes a discussion on the need, financial feasibility, commercial viability and economic impact of the Trans Mountain Expansion Project which has informed this hearing. For almost two years Trans Mountain endorsed a narrative developed in Reference (i), particularly pages 1-4 (at pdf page 30), and 2-40 to 2-45 (at pdf page 11 to 16) , that includes the following:

(1) significant heavy oil markets exist in California and Asia;

(2) supplying the California and Asia markets results in raising the netback price for all Western Canadian heavy oil by $5 - $6 per barrel (constant 2012 US dollars);

(3) the Project represents one of four new pipelines planned for in-service between 2017 - 2018, with Project benefits calculated as a proportionate share of all benefits expected to arise when all of the major pipeline projects are completed;

(4) due to excess pipeline capacity, spot capacity on the Project is excluded from the analysis and thus only long-term shipper volume of 707,500 bbl/d is included, of which 540,000 is related to new pipeline capacity;

(5) benefits calculated include netback improvements estimated for only heavy oil;

(6) the need for crude oil by rail transport capacity is displaced by pipeline projects; and

(7) some level of under-utilization of aggregate pipeline capacity exiting Western Canada expected during the forecast period.

On September 25, 2015, Trans Mountain Pipeline ULC filed reference (ii). A completely different narrative is now offered for consideration. This new view includes:

Page 5 of 36 (1) significant heavy oil market demand exists in Northeast Asia;

(2) California has disappeared as a market for heavy oil from Western Canada but provides a market for light oil and Hawaii has emerged as a significant market for light oil;

(3) supplying Northeast Asia and Hawaii results in changing the price for all Western Canadian light and heavy crude oil produced by as much as $5.18 per barrel, constant 2015 US dollars, over the forecast period;

(4) the Project represents the only pipeline planned for construction in the Canadian economy between 2017 - 2038, and thus all benefits are attributable to TMEP. Since there are no oil pipelines to be constructed in Canada over the forecast period other than Trans Mountain, additional transportation capacity needs will be met by rail;

(5) limited pipeline capacity because no other pipelines are constructed, and rail capacity is assumed to be more expensive than pipeline capacity, results in full utilization of spot capacity on Trans Mountain. Total crude oil volume on the expanded system includes the legacy and new pipeline at 840 kb/d (50 kb/d of refined product is removed from the analysis);

(6) the marine transport capacity at the Westridge dock is explicitly allocated to both light (~100 kb/d) and heavy oil (~540 kb/d);

(7) benefits calculated include price increases estimated for both light and heavy oil, conventional and oil sands; and

(8) the need for crude oil by rail transport capacity is not displaced by pipeline capacity but continues to be viable, although the need for rail is reduced, during the forecast period by the capacity shipped on Trans Mountain’s expansion.

Request:

(a) Please confirm that Trans Mountain accepts and adopts the assumptions relied upon, and the conclusions reached by Mr. Earnest, Mr. Hodgson and Mr. Reed on markets, supply, demand, products to be shipped, pipeline projects, capacity utilization and benefit estimates in reference (ii). If not confirmed, please identify the assumptions and conclusions that Trans Mountain is not in agreement with and provide the view consistent with Trans Mountain’s understanding of markets, supply, demand, products to be shipped, pipeline projects, capacity utilization and benefits estimates.

(b) Please confirm that Trans Mountain adopted and relied on Mr. Kelly’s assumptions, analysis and conclusions in support of the statements made at pages 1-4 (at pdf page 30) and 2-40 through 2-45 of reference (i) (at pdf page 11 to 16) .

Page 6 of 36 (c) Given that many of Mr. Kelly’s assumptions and conclusions regarding markets, supply, demand, products to be shipped, pipeline projects, capacity utilization and benefit estimates are contradicted by reference (ii) please advise when Trans Mountain first began to realize Mr. Kelly’s analysis and conclusions were no longer reflective of a plausible set of market dynamics.

(d) Please advise when Trans Mountain determined that California was no longer a likely and large market for heavy oil.

(e) Please provide a detailed explanation of all of the factors that contributed to the determination that California is no longer a likely market for heavy oil.

(f) Please explain the factual basis for the assumption in reference (ii) that Northern Gateway, Energy East and Keystone XL will not be built at any time between 2018 and 2038.

(g) Please confirm that Trans Mountain believes Western Canadian producers are delivering an excess supply of both light and heavy oil to the North American market (defined as Canada and the US). If not confirmed, please explain why overseas exports of light and heavy oil are postulated in reference (ii).

(h) Please confirm that Mr. Earnest’s analysis in reference (ii) assumes that the Trans Mountain system, once expanded, will immediately operate at full capacity. If not confirmed, please explain why the “Transportation Summary” in Table A-9 of reference (ii) (at pdf page 72) illustrates 840 kb/d in 2018.

(i) Please confirm that, under the assumptions in reference (ii), there will be pressure to expand the throughput capacity of the TMEP beyond 840,000 barrels/day if increased rail transport from Western Canada is to be avoided. If not confirmed, please explain why rail transport doubles between 2018 and 2019.

(j) Mr. Earnest explains in reference (iii) that dredging Vancouver harbour to deepen the channel is planned. Please advise whether Trans Mountain has any plans to dredge the marine transit route through Burrard Inlet.

(k) Given that dredging would enable a greater loading capacity at the Westridge dock than contemplated under the current Application and would expand throughput capacity on the Trans Mountain pipeline, please advise whether Trans Mountain will commit not to dredge any part of the marine transit route through Burrard Inlet at any time in the future.

Page 7 of 36 3. FORECASTING ACCURACY

References:

(i) Application for the Enbridge Northern Gateway Project, OH-4-2011, Hearing Transcripts, Volume 71, September 6, 2012 (A2Z8V4)

(ii) Trans Mountain Pipeline ULC, Evidence to replace the Direct Evidence Prepared by Mr. Steven Kelly for the Project (A4T6E8), Market Prospects and Benefits Analysis of the TMEP, September 25, 2015, (Muse Stancil Report)

(iii) OH-001-2014, Trans Mountain Response to Eliesen M IR No. 1, 1(l), Not Stricken. (A3X6D1)

Preamble:

Reference (i) is a cross examination transcript from the Northern Gateway hearing. When presented with evidence that Mr. Earnest’s forecasts of oil prices were not accurate or reliable, Mr. Earnest at paragraph 17722 and 17723 (at pdf page 97) told the Board that, “Price forecasting in the oil industry and most industries is certainly a challenge. If I could predict with confidence future oil prices, I wouldn't be sitting here today, I'd be floating around in my yacht on the Rivieria, I assure you.”

Reference (ii) page 48 (at pdf page 50) explains the role Mr. Earnest’s price forecasts play in establishing the output from the proprietary Muse Crude Optimization Model relied upon to forecast Western Canadian crude oil distribution and prices from 2018 - 2038.

Request:

(a) Please confirm that Mr. Earnest has no formal training in economics and economic forecasting.

(b) Please explain how the Board and Intervenors are able to independently assess the reliability and veracity of the Muse Crude Optimization Model when it is proprietary.

(c) Please provide a listing of all NEB hearings where Mr. Earnest has presented evidence that relies on his forecasting ability and the Muse Optimization Model along with an identification of the clients Mr. Earnest represented.

(d) Please provide a summary of the oil price forecasts that Mr. Earnest presented in each of the NEB hearings listed in response to Request 3(c) above and compare these forecasted prices with actual oil prices to date in order to test the veracity of Mr. Earnest’s predictions.

(e) Please advise why Mr. Earnest assumes an exchange rate of 1.0/1.0 Canadian - US dollar for all years of the forecast period.

Page 8 of 36 (f) Please confirm Mr. Earnest’s understanding of the current value of the Canadian dollar as compared against the US dollar.

(g) Please confirm that Mr. Earnest is aware of sensitivity analysis and its importance in testing the reliability of linear programming models.

(h) Please confirm that no sensitivity analysis was included in reference (ii).

(i) If Mr. Earnest did undertake sensitivity analysis on the TMEP case presented in reference (ii), please provide complete details of the independent variables that were changed for the sensitivity analysis and the impact that those changes had on the model’s dependent variables including the distribution of, and price lift on, western Canadian crude oil.

(j) Please confirm that in reference (iii) Trans Mountain confirmed that it undertakes sensitivity analysis when evaluating investment decisions such as the TMEP.

(k) Please confirm that, in the absence of a sensitivity analysis, Trans Mountain will not rely on reference (ii) to evaluate its own investment decisions with respect to the TMEP.

(l) Please identify where in reference (ii) Mr. Earnest indicates risks, limitations, or lack of confidence in the results forecasted in the report or in the Muse Optimization model.

(m) Please confirm that Mr. Earnest gave the following evidence to the Joint Review Panel in the Northern Gateway proceedings, as set out in reference (i): “If I could predict with confidence future oil prices, I wouldn’t be sitting here today. I’d be floating around in my yacht on the Rivieria, I assure you.”

Page 9 of 36 4. NETBACK ANALYSIS

References:

(i) Written Reply Evidence of Steven Kelly, January 31, 2013, Trans Mountain Pipeline ULC NEB Application for Approval of the Transportation Service and the Toll Methodology to be Applied on the Expanded Trans Mountain Pipeline System, Hearing Order RH-001-2012, (A3F1C8).

Preamble:

Mr. Kelly, then Vice President of IHS Inc. (and now a member of the National Energy Board) was an expert witness on behalf of Trans Mountain at Trans Mountain’s Toll Application Hearing in reference (i). In reference (i) Mr. Kelly argues strongly against the usefulness and reliability of netback analysis. He presents evidence that distinguishes between the committed versus the spot barrel and how committed shipping arrangements do not rely on spot pricing but rely on long-term supply agreements, or non-spot market pricing, because the supply agreements are made between integrated producer and refinery operations.

Reference (ii) (at pdf page 32) claims that the Muse Optimization Model routes “Western Canadian crude oil to the refineries that will pay the most for the crude oil, taking into consideration the transportation costs from Canada, while simultaneously having due regard for the finite capacities of the pipeline and rail routes, and the refineries themselves.”

Request:

(a) Please confirm that Mr. Kelly’s evidence submitted at Trans Mountain’s Toll Application Hearing, reference (i), included the following evidence at Item 5, “Need for, and Limitations of, Netback Analysis”, A17, (at pdf page 17) that: “The commercial terms associated with term deliveries and spot deliveries are likely to differ significantly. Term delivery commitments are more likely to be made in conjunction with long term supply agreements between producers and refiners, or to supply integrated refining operations. These deliveries are normally considered to proceed without consideration of the realized price to the producer (“the netback price”). In contrast, spot shipments are likely to be directed to markets offering the highest marginal netback price at a specific point in time.”

(b) Please confirm that Mr. Kelly’s evidence submitted at Trans Mountain’s Toll Application Hearing, reference (i) (at pdf page 17), included the following evidence: “Potential shippers have individual strategies and capabilities, and will assess their participation in infrastructure projects accordingly. This suggests that limitations will apply to any comparison of netback prices from different markets. Such a comparison may be useful, but will not necessarily

Page 10 of 36 capture the economic incentives for all shippers, particularly if the comparison includes those making crude deliveries on both term and spot basis.”

(c) Please confirm that reference (ii) does not incorporate potential term arrangements between shippers and refineries, but treats all crude oil as if it is purchased in the spot market at a spot price. If not confirmed, please identify where in reference (ii) crude oil prices (and hence differentials) have been calculated and input into the model to reflect potential term prices reflective of integrated refinery relationships, and/or long term agreements between parties that do not rely on absolute spot pricing.

(d) Please confirm that Mr. Kelly’s evidence submitted at Trans Mountain’s Toll Application Hearing, reference (i) (at pdf page 18), included the following evidence: Mr. Kelly is “aware that any netback analysis conducted on the basis of current market conditions may yield distorted results, given the pipeline constraints currently affecting prices of Canadian crude oil. An analysis based on netbacks available from markets potentially served by Western Canadian crude oil over the long term may be useful. However, in our experience, it may also produce distorted results to the extent it compares term and spot deliveries in different export pipelines. As an illustration, the development of the Asian refining industry as a market outlet for Western Canadian crude is expected to proceed in conjunction with upstream developments in the oil sands. The commercial arrangements under which crude oil is delivered to Asia (and the resulting netback price) may vary considerably, depending on the type of crude being processed, the need for incremental refining capacity to be constructed to process the crude, the basis upon which such capacity is justified, financed and constructed, and the organizational relationship between the crude seller and buyer.”

(e) Please advise whether Mr. Earnest agrees that shippers can and do enter into long-term supply agreements that may include pricing determined outside of, or with features in addition to, prices as determined in the spot market. If Mr. Earnest does not agree:

i. please explain why and provide the evidence that Mr. Earnest relies on to support the contention that all crude oil is bought and sold based on spot prices, including crude oil sourced by refineries and/or shippers who are also oil producers; and ii. please confirm that long-term shippers with 15 and 20 year take or pay contracts are exposed to significant risk for their supply at spot market prices since they are faced with an obligation to pay for shipments in the long term, but are exposed to short term market volatility and uncertainty regarding the price their product may command.

(f) Please confirm that if refinery interests in Northeast Asia were to decide to invest in capacity to process western Canadian heavy oil, it would be commercially prudent for them to enter into long-term supply contracts with western Canadian suppliers. If not confirmed, please explain.

(g) Please confirm that since the Muse Crude Optimization Model (the "Muse Model") is based on spot market valuations, the commercial arrangements under which crude may be refined in target markets, including Canadian and US markets, may differ from the price lift valuations resulting from the Muse Model and applied to every barrel of western Canadian crude oil

Page 11 of 36 supplied. If not confirmed, please explain.

Page 12 of 36 5. IMPACT OF HIGHER CRUDE PRICES References:

i. Update of Market Prospects and Benefits Analysis for the Northern Gateway Project – July 2012, Muse Stancil Attachment 1 to Northern Gateway Reply Evidence (A2Z7Q4 at PDF Page 9)

Preamble:

On Page 6 (PDF Page 9), of Reference i states: “Higher crude prices increase the revenues of the Canadian crude producers, but they also increase the feedstock cost for Canadian refineries by the same amount (to the extent the refiners are processing Western Canadian crude). Consequently, the gross Canadian oil industry benefit is adjusted for the effect of the higher crude prices on Canadian refineries.”

Request:

a. Is it Mr. Earnest’s view that the higher crude prices predicted as a result of the TMEP expansion project will increase the feedstock cost for Canadian refineries by the same amount?

b. If the answer to (a) is yes, please explain why and if the answer to (a) is no, please explain why not.

c. Has the gross Canadian oil industry benefit for TMEP been adjusted for the effect of the higher crude prices on Canadian refineries? If not, why not?

d. Is it Mr. Earnest’s view that, in general, higher feedstock costs for refineries result in higher prices for Canadian consumers of refined products? Please explain.

e. Please advise whether Mr. Hodgson included the higher prices paid by Canadian consumers for refined products in his analysis of economic impacts of the TMEP.

Page 13 of 36 6. CLIMATE CHANGE AS A BUSINESS RISK

References:

(i) Breaking the Tragedy on the Horizon—climate change and financial stability, Bank of England Governor, Mark Carney, September 29, 2015, Speech, Lloyd’s of London. http://www.bankofengland.co.uk/publications/Pages/speeches/2015/844.aspx

(ii) Winners and Losers in the Energy Transition, International Energy Agency, Maria van der Hoeven, June 25, 2015, Speech. http://www.iea.org/newsroomandevents/speeches/150625_Deltalinqs_Rotterdam.pdf

(iii) Most of Canada oil sands crude being produced at a loss—report, Reuters, August 20, 2015 http://www.reuters.com/article/2015/08/20/canada-oil-sands-costs- idUSL1N10V2KB20150820

(iv) Goldman Sachs, Podcast, Jeff Currie, Global Head Commodities Research, September 17, 2015. http://www.goldmansachs.com/our-thinking/podcasts/episodes/9-17-2015-jeff- currie.html

(v) Update of Market Prospects and Benefits Analysis for the Northern Gateway for Enbridge, Application for the Enbridge Northern Gateway Project, OH-4-2011, July 2012 (A2V1R7)

(vi) Trans Mountain Pipeline ULC, Evidence to replace the Direct Evidence Prepared by Mr. Steven Kelly for the Project (A4T6E8), Market Prospects and Benefits Analysis of the TMEP, September 25, 2015, (Muse Stancil Report)

(vii) IEA, World Energy Outlook Special Report, Energy and Climate Change https://www.iea.org/publications/freepublications/publication/WEO2015SpecialReportonEn ergyandClimateChange.pdf

Preamble:

Reference (i) (at pdf page 10 and 11) discusses how climate change will impact global financial stability and will have a profound effect on companies involved in fossil fuels development. “Take for example, the International Panel on Climate Change’s estimate of a carbon budget that would likely limit global temperature rises to 2 degrees (centigrade) above pre-industrial levels. That budget amounts to between a fifth and a third of the world’s proven oil, gas and coal…it would render the vast majority of reserves stranded—oil, gas and coal that will be literally unusable…” (emphasis added)

Reference (ii) (at pdf page 2) states that the “oil market today is not the same market as it was 10, 20 or 30 years ago. Since the oil crisis in the 70’s, roughly every 10 years we have seen a price decline followed by a price correction. This time it is not business as usual. This shift in

Page 14 of 36 underlying market conditions will eventually lead to a different mechanism of price changes than what we were used to in the past.” (emphasis added).

Reference (iii) refers to a report by TD Securities that “more than three-quarters of Canada’s daily output of 2.2 million barrels of crude from oil sands is being produced at a loss at current prices.”

Reference (iv) explains why prolonged over-supply and steady production out of the US and OPEC will continue to hold down oil prices. Goldman Sach’s West Texas Intermediate (WTI) 15-year oil price forecast puts crude oil at $50 per barrel.

Reference (vii) details the assumptions relied on in the IEA “Bridge Scenario” forecast used in reference (vi) (at pdf page 19 – 22) to predict world, US and Asian demand for crude oil.

Request: (a) Please confirm that the Western Canadian crude oil supply forecast relied on by Mr. Earnest in reference (vi) is based on the CAPP survey of oil producer intentions and that climate change issues are not explicitly addressed in the CAPP survey of producer intentions. If not confirmed please provide a detailed explanation of where and how the CAPP survey addresses issues of climate change.

(b) Irrespective of climate change, does Mr. Earnest agree with the Executive Director of the International Energy Agency, reference (ii), that the historical cyclical behaviour of oil price decline and increase is no longer applicable to current and future oil market conditions?

(c) Advise whether any of Trans Mountain, Mr. Earnest, Mr. Hodgson or Mr. Reed agree with the statement in reference (iii) that more than three-quarter of Canada’s daily output of 2.2. million barrels of crude from oil sands is being produced at a loss at current prices.

(d) Table A-14 in reference (vi) (at pdf page 80) provides Mr. Earnest’s prediction for WTI over the forecast period in real 2015 dollars. If Trans Mountain is expanded, Mr. Earnest projects WTI at Cushing in 2018 to be $73.92 per barrel (real 2015 or $78.68 nominal). Confirm that Mr. Earnest’s prediction of oil prices in 2018 is roughly 60 percent higher than Goldman Sach’s outlook, and more than double Goldman Sach’s forecast by the end of the 15 year forecast period.

(e) Please confirm that in 2012, Mr. Earnest predicted WTI at Cushing for 2015 at $96.71 US per barrel (real 2012$) as set out in Table A-7 of reference (v) (at pdf page 79).

(f) Please confirm that, adjusting for inflation, Mr. Earnest’s 2012 prediction of $96.71 US per barrel would be over $100 US per barrel if presented in nominal terms.

(g) Please confirm that the current price for WTI at Cushing is roughly $50 US per barrel, not the more than $100 US per barrel predicted by Mr. Earnest.

Page 15 of 36 (h) Please confirm that the Bridge Scenario relied on in reference (vi) is defined in reference (vii), at page 74, as being insufficient to “put the world on track for reaching the 2 °C target (the long-term global mean temperature would rise by 2.8 °C if no additional mitigation measures were taken later).”

(i) Mr. Earnest in reference (vi) (at pdf page 19) states that “Like the 450 Scenario from the WEO2014 report, the Bridge Scenario adopted a specified outcome and assumes a set of policies that result in that desired outcome”. Please confirm that reference (vii), at page 32, actually states that “[The Bridge Scenario] is not, in itself, a pathway to the 2 °C target – additional technology and policy needs for such a pathway are set out in the 450 Scenario. But it indicates a strategy for near-term action as a bridge to higher levels of decarbonisation at a later stage compatible with the 2 °C goal. The 450 Scenario takes a different approach…It adopts a specified outcome..”

(j) Please confirm that the Bridge Scenario does not assume a set of policies that will result in a 2 °C target.

(k) Please confirm that the IEA, World Energy Outlook “Special Report, Energy and Climate Change” contemplates that additional technology and policies over and above those assumed in the Bridge Scenario will be required in order to achieve the 2 °C target.

(l) Please confirm that the “Bridge Scenario” is assumed by the IEA to apply for only a short period of time until a meaningful scenario to reach a 2 °C goal can be implemented.

Page 16 of 36 7. NATIONAL ENERGY BOARD FORECAST

References:

(i) Trans Mountain Pipeline ULC, (A4T6E8), Market Prospects and Benefits Analysis of the TMEP, September 25, 2015, (Muse Stancil Report)

(ii) National Energy Board, Canada’s Energy Future, 2013, Production Forecast. https://www.neb-one.gc.ca/nrg/ntgrtd/ftr/2013/2013nrgftr-eng.pdf

Preamble:

Reference (i) page 34 (at pdf page 36) and Figure 19 (at pdf page 37) refer to reference (ii). Reference (i) compares the National Energy Board’s Production Forecast reference (ii) with the Canadian Association of Petroleum Producers’ (CAPP) outlook.

Request:

(a) Please confirm that CAPP produces an annual survey and not an economic forecast of long- term oil production. If not confirmed, please explain the compilation behind CAPP’s figures.

(b) Please confirm that Mr. Earnest has provided the NEB 2013 Reference Case as a method by which to test the veracity of the CAPP projections he relies on. If not confirmed, please explain.

(c) Please confirm that reference (ii) included projections based on three oil price scenarios: High Price $140 US per barrel, Reference Case $110 US per barrel and Low Price $80 US per barrel. If not confirmed, please explain.

(d) Please confirm that the NEB forecasts different oil production scenarios associated with different oil price assumptions and that lower production is associated with lower oil prices and higher production is associated with higher oil prices, as is consistent with economic theory. If not confirmed, please explain.

(e) Please confirm that the current price of WTI at Cushing is approximately $50 US per barrel. If not confirmed please provide a current price for WTI at Cushing.

(f) Please submit a chart, and a Table with figures, showing the NEB Low Price Scenario against the CAPP 2015 survey.

Page 17 of 36 8. MARKETS

References:

(i) Trans Mountain Pipeline ULC, Application for Trans Mountain Pipeline Expansion Project, OH-001-2014, Volume 1 (A3S0Q7), Volume 2 (A3S0Q8, A3S0Q9, A3S0R0)

(iii) Market Prospects and Benefits Analysis for the Northern Gateway for Enbridge, Application for the Enbridge Northern Gateway Project, OH-4-2011, January 2010 A1S9X7 (at PDF page 47 to 122)

(iv) Northern Gateway Pipelines Response to JRP IR No. 2, Enbridge Northern Gateway Project, (A2C2V5) Page 10 of 29, 2.7 (a).

(v) “China’s Environment, Big Issues, accelerating effort, ample opportunities”, Goldman Sachs Equity Research, July 13, 2015 Retrieved October 5, 2015 http://www.goldmansachs.com/our-thinking/pages/interconnected-markets-folder/chinas- environment/report.pdf

Preamble:

Reference (ii) states that the markets of Northeast Asia and California are the most prospective offshore potential markets for crude oil exported from western Canada (page 4, at pdf page 6). Under the TMEP scenario, the report suggests that of the dock total (625,000 kb/d), roughly 100 kb/d of light oil will be delivered to California and does not leave North America. About 500 kb/d is going overseas, including Hawaii (page 10, at pdf page 12)).

Reference (ii), pages 21 to 30 (at pdf page 23 to 32), under the heading “Northeast Asia”, discusses the oil markets of China, Japan, South Korea and Taiwan.

Reference (iii), pages 12 to 23 (at pdf page 60 to 71), also under the heading “Northeast Asia”, discusses the oil markets of China, Japan, South Korea and Taiwan. The paragraphs, narrative and evaluation are exactly the same as reference (ii), pages 21 to 30 (at pdf page 23 to 32), but for updated figures on imports and refining capacities.

Request:

(a) Please provide a listing of the 13 shippers who have signed contracts under the TMEP.

Page 18 of 36 (b) Did Mr. Earnest survey or otherwise query the potential shippers to obtain an appreciation of where, and what type of, crude oil would be shipped to particular markets? If no, why not? If yes, please provide a copy of the survey questions and aggregated results.

(c) Please provide details of historical shipments of Canadian crude oil to the identified target markets of California, Washington, Hawaii, Japan, China, South Korea, Taiwan and other Asian countries in the past 10 years as was provided to the NEB in reference (iv).

(d) Please provide Trans Mountain’s explanation for why, in reference (i), it is asserted there is growing demand in California for heavy oil, whereas in reference (ii) no heavy oil is assumed to be shipped to California over the forecast period.

(e) Please provide details of the volume of light oil that firm shippers on the Trans Mountain Pipeline have shipped to the Westridge Marine Terminal for delivery to the California market since firm service was implemented. Please include details of the volumes light oil shipped, specific refineries that the volumes were delivered to, and capacities of those refineries.

(f) Please provide details of the volume of heavy oil that firm shippers on the Trans Mountain Pipeline have shipped to the Westridge Marine Terminal for delivery to the California market since firm service was implemented. Please include details of the volume of heavy oil shipped, specific refineries that the volumes were delivered to, and capacities of those refineries.

(g) Please provide details for each of the years 2004 through to 2015 of the volume of crude oil, by type, that was delivered through Trans Mountain pipeline, either through Sumas by pipeline or to the Westridge Marine Terminal and onto tanker, to:

1) California refineries and the names of the refineries; 2) Washington state refineries and the names of the refineries; 3) Oregon state refineries and the names of the refineries; 4) Hawaii state refineries and the names of the refineries; 5) Alaska state refineries and the names of those refineries; 6) US Gulf Coast refineries and the names of those refineries; 7) Asian refineries and the names of those refineries.

(h) Page 21 in reference (ii) (at pdf page 23) “Northeast Asia Overview” has the exact wording as Page 12 in reference (iii) (at pdf page 60) “Northeast Asia Overview”, except that “Westridge” is substituted for “Kitimat.” Please confirm that, when introducing the Northeast Asia market, Mr. Earnest simply cut and paste information from reference (iii), a report written five and a half years ago, into reference (ii).

(i) Please explain why the analysis for the North East Asia Overview Market is virtually identical for reference (ii) as for reference (iii).

Page 19 of 36 (j) Please confirm that Kitimat is more competitive than Westridge in terms of distance to Northeast Asian markets and the size of tanker that can dock at Kitimat.

(k) Please confirm that, all else being equal, as toll rates rise, including tanker rates, netbacks fall. If not confirmed please explain.

(l) Please confirm that the price lifts in Table 1 of reference (ii) (at pdf page 8)represent prices in Edmonton. If not confirmed, please explain.

(m) Please confirm that price lifts in Table 1 of reference (ii) (at pdf page 8) do not include the transportation costs incurred by producers to deliver western Canadian crude to market. If not confirmed please explain and include a discussion as to how price lifts in Table 1 relate to transportation costs of western Canadian crude deliveries including the crude oil intended for transport along TMEP.

(n) Please confirm that if the transportation costs on TMEP increase above those assumed in Table A-2 of reference (ii), (at pdf page 63) the netback to producers is reduced by the same amount.

(o) Please provide the list of shippers contemplated in reference (ii) at page 30 (at pdf page 32) when it states, “Due to its size and proximity, Northeast Asia is expected to be a very important market for shippers on TMEP” as well as the list of shippers contemplated in reference (iii) page 23 (at pdf page 71) where it states, “Due to its size and proximity, Northeast Asia is expected to be a very important market for shippers on Northern Gateway”.

(p) Please confirm that Mr. Earnest’s estimate for a growth rate of 5% of market potential in China (reference (ii) at pdf page 29) is more than double the rate of increased oil consumption (2.2%) forecast by Goldman Sachs in reference (v).

(q) Please confirm that Mr. Earnest’s estimate for a growth rate of 5% of market potential in China (reference (ii) at pdf page 29) exceeds the rate of growth in China’s refining capacity by more than 3% as forecast by the IEA in reference ii (at pdf page 48).

(r) Please provide copies of all source documents relied upon by Mr. Earnest in support of the following statement in reference ii (at pdf page 23) regarding refineries in China and Japan: “Moreover, refiners in this region are very interested in diversifying their supply sources so as to reduce their heavy reliance upon Middle East crude supply.”

Page 20 of 36 9. THE ASIA-PACIFIC MARKET (INCLUDING HAWAII)

References:

(i) Trans Mountain Pipeline ULC, Evidence to replace the Direct Evidence Prepared by Mr. Steven Kelly for the Project (A4T6E8), Market Prospects and Benefits Analysis of the TMEP, September 25, 2015, (Muse Stancil Report)

(ii) Trans Mountain Pipeline ULC, Application for Trans Mountain Pipeline Expansion Project, OH-001-2014, Volume 1 (A3S0Q7), Volume 2 (A3S0Q8, A3S0Q9, A3S0R0)

Preamble:

Reference (i) Figure 2 (page 10, at pdf page 12) shows the forecast Westridge dock loadings for the TMEP Scenario. “Of the total dock volume of about 95,400 m3/d (600 kb/d), roughly 15,900 m3/d (100 kb/d) of conventional light and medium crude oil in most years is being delivered to California, and does not leave North America. Consequently, about 79,500 m3/d (500 kb/d) of crude oil is going overseas (including Hawaii)…” Figure 2 represents more than 600,000 barrels per day.

Reference (ii), page 1-41, explains that the “expanded Westridge Marine Terminal has been designed to be capable of serving 34 Aframax class vessels per month, with actual demand to be driven by market conditions. The maximum size of vessels (Aframax class) served at the terminal will not change as part of the Project. Similarly, the future cargo will continue to be crude oil, primarily diluted bitumen. Of the 141,500 m3/d (890,000 bbl/d) capacity of the expanded system, up to 100,200 m3/d (630,000 bbl/d) may be delivered to the Westridge Marine Terminal for shipment.”

Reference (i), Table A-4 “Refinery and Refinery Aggregate Crude Capacities in North America and Asia Pacific” provides a list of refineries and their capacity.

Reference (i), Figure 27 (page 55) illustrates the shipments to California/Hawaii, Korea and China.

Request:

(a) Please confirm the volume of Western Canadian crude oil, by grade, shipped to Hawaii on a monthly basis since 2010.

(b) Reference (i), Table 4, identifies Hawaii as if there is only one refinery with 147,000 barrels a day of capacity. Please confirm that:

i. Hawaii has two refineries: Par Petroleum (93,500 bbl/d) and Chevron (54,000 bbl/d); and ii. neither of these refineries process heavy oil. If not confirmed, please explain.

Page 21 of 36 (c) Please confirm that it is not anticipated that Hawaiian refineries will be capable of processing heavy oil during the forecast period 2018 to 2038.

(d) Please confirm that reference (i), Table A-12, suggests that none of the heavy crude oil to be transported on the TMEP will be delivered to California during the forecast period 2018 to 2038. If not confirmed, please explain.

(e) Please explain the significant increase in oil exports to California/Hawaii as quantified in Table A-10 in the period 2018 to 2038. Please include in the response an explanation for how, beginning in 2022, more light crude oil can be delivered to these markets than the capacity at the Westridge dock. For example, in 2027 approximately 770,000 bbl/d (heavy and light; Table A-10 and Table A-12) is delivered to Northeast Asia and about 250,000 bbl/ d is delivered to California/Hawaii, whereas the Westridge dock capacity is only 630,000 bbl/d.

(f) Please provide a disaggregation of the assumed volumes oil exports split between California and Hawaii.

(g) Please confirm that the anticipated delivery method for the volume of oil to be exported to California is marine transportation.

(h) Given that oil exports to California and Hawaii are projected in reference (i) to exceed the Westridge dock capacity as early as 2022, please advise whether Trans Mountain intends to increase dock capacity at Westridge to accommodate the projected oil exports and, if so, identify where in Trans Mountain’s Application details of this expansion have been provided.

(i) Given that oil exports to California and Hawaii are projected in reference (i) to exceed the Westridge dock capacity as early as 2022, please advise whether a new west coast port is assumed and, if so, please confirm that the new west coast port is Kitimat. If not confirmed, please explain.

(j) Please explain why reference (i) concludes that Japan is an important source for Canadian heavy crude oil when, as also noted in reference (i), about “83 per cent of Japanese crude oil imports were from the Middle East in 2014” and these “are in the medium sour category” with non-middle Eastern sources “to be various sweet grades.”

(k) Please explain the apparent contradiction in reference (i), at page 24, where it is stated that “The Japanese industry is a strong potential customer for Canadians synthetic crude oils…” whereas, according to Figure 2, only heavy oil is being shipped to the Asia-Pacific.

(l) Please explain why reference (i), Figure 27, illustrates shipments to Korea of heavy oil when Reference (i), page 28 states, “…many of the South Korean refineries are very large (and) they are not designed to process heavy sour crude oils.”

Page 22 of 36 (m) Please explain the rationale behind reference (i), Table A-10, page 72 and Figure 27 where approximately 100,000 bbl/d of heavy Western Canadian crude is delivered to Korea, continuing until 2025, and then suddenly drops off.

(n) Please confirm that reference (i), Table A-10 shows that western Canadian light crude is expected to serve all the Hawaiian crude oil needs by 2025-26. If not confirmed, please explain the market share anticipated for western Canadian crude in the Hawaiian market.

Page 23 of 36 10. THE CHINA MARKET

References:

(ii) Wall Street Journal, July 21, 2015, For Asia’s Consumers it’s a Buyer’s Market. (http://www.wsj.com/articles/for-asias-oil-consumers-its-a-buyers-market-1437026824)

(iii) Oil Price, July 15, 2015, The Battle for China’s Oil Market (http://oilprice.com/Energy/Crude-Oil/The-Battle-For-Chinas-Oil-Market.html)

(iv) Bloomberg Business Week, September 10, 2015, Iran Gets Ready to Sell to the World (http://www.bloomberg.com/news/articles/2015-09-10/iran-gets-ready-to-sell-oil-to-the- world)

(v) Financial Times, May 4, 2015, China Shakes up Leadership at 3 State Oil Groups (http://www.ft.com/intl/cms/s/0/e03be02a-f237-11e4-892a-00144feab7de.html)

(vi) Thompson Reuters, Power Politics, Inside Purge of China’s Oil Mandarins, Special Report, 2014 (http://graphics.thomsonreuters.com/14/07/CHINA-PURGE:CNPC.pdf)

(vii) RH-2-2011, Application for Firm Service to the Westridge Dock, Reasons for Decision (A2J3V8)

(viii) City of Vancouver, Written Evidence, (A4L7V8), HSBC Report, Stranded Assets: What Next (A4L7X2), May 2015

(ix) City of Vancouver Written Evidence, Professor Kathryn Harrison Report—Review of Destination Country Policies with Potential Demand for Canadian Oil Exports, (A4L7W8), May 2015

Preamble:

Reference (i) maintains that higher prices for Canadian heavy crude oil can be obtained in the China market. Figure 2 on page 10 (pdf page 12) forecasts approximately 500 kb/d of heavy oil will be shipped overseas. Based on Figure 27 (at pdf page 57) it is estimated that roughly 450 kb/d will be exported to China and then beginning in about 2025 the volume becomes slightly in excess of 500 kb/d. Reference (i) at pdf page 27 states that, “Data regarding the specific crude oils imported by China are not available…the Chinese import basket is predominantly a blend of medium sour crude oils and various sweet crude oil grades.”

References (v) and (vi) explain the direct role the Chinese government plays in directing/coordinating its three state owned oil companies. In particular, the references note that

Page 24 of 36 the chief executives are appointed by the Chinese government and each appointment is announced by the Communist Party’s Organization Department.

References (ii), (iii) and (iv) explain that in China it is a buyer’s market with crude oil flooding into Asia from all directions. Examples include:

• Saudi Aramaco, Saudi Arabia’s NOC, is selling crude oil at historically low levels to maintain market share • middle eastern producers absorbing the cost and risk of delivery normally borne by buyers • Russian NOCs allowing Chinese buyer to make payment in Chinese currency • expectation of Iran ramping up production from 2.9 million b/d to 3.9 million b/d • countries with supply following the middle east strategy of investing in China to secure captive markets

References (viii) and (ix) explain the risk of stranded assets, high cost of fossil fuel development, evaluation of Northeast Asian market and the potential impact of environmental regulation to address climate change.

Request:

(a) Please confirm that Mr. Earnest is aware that the Chinese government, through its National Oil Companies (NOCs) and powerful planning agencies, pursues a state-led, non- market approach to energy security.

(b) Please confirm that Mr. Earnest is aware that China’s three state-owned oil companies, China Petroleum Corporation (CNPC and its main subsidiary PetroChina), China Petrochemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC), operate under the direct instructions of, or in close coordination with, the central government.

(c) Please provide details as to whether there are any current long term shippers to the Westridge dock that ship to the Chinese market. Please include the list of shippers and the amount of heavy oil shipped by month since reference (vii) was approved by the Board.

(d) Please advise whether Mr. Earnest is aware that the current market situation that exists in China is a “buyer’s market” with Chinese NOCs making long term arrangements to secure market supply as referenced in (ii), (iii) and (iv).

(e) Please confirm that Mr. Earnest’s analysis in reference (i) assumes that all supply is a function of spot market transactions and not subject to contractual arrangements. If not confirmed, please explain.

(f) Please identify all Chinese owned oil companies that have elected to become firm shippers on the TMEP if the Project proceeds, including the capacity they have committed to take.

Page 25 of 36 (g) Mr. Earnest states in reference (i) at pdf page 12 that it is a “fundamental economic principle that reducing the supply of a commodity, all else equal, will increase its price.” Please confirm that Mr. Earnest also agrees that increasing the supply of a commodity, all else equal, will decrease its price.

Page 26 of 36 11. CONFERENCE BOARD REPORT—GLEN HODGSON

References:

(i) Trans Mountain Pipeline ULC, Evidence to replace the Direct Evidence Prepared by Mr. Steven Kelly for the Project, Understanding the Benefits for Canada and its Regions, Conference Board of Canada, Glen Hodgson, September 21, 2015 (A4T6F0)

(iii) City of Vancouver, Written Evidence, Report on the Economic Importance of the Lower Fraser River, (A4L7W2), July 2014

(iv) City of Vancouver, Written Evidence, Tourism Vancouver—Expenditure by Industry Sector, 2012, 2011, (A4L7W4).

(v) Presentation by Ian Anderson, President, Kinder Morgan Canada, Analysts Conference, January 28, 2015, Page 3 (http://ir.kindermorgan.com/sites/kindermorgan.investorhq.businesswire.com/files/event/add itional/KM5-05AnalystConfKMCanada2015IA.pdf)

Preamble:

Reference (i) provides consequential amendments to the Conference Board Report as a result of striking Mr. Steven Kelly’s evidence.

References (iii) and (iv) were filed by the City of Vancouver to present a comprehensive evaluation of the economic importance of many local industries including tourism, as well as the importance of the land, marine and lower Fraser River environment.

Request:

(a) Please advise on what date Mr. Hodgson received reference (ii) for consideration and on what date he received the revised toll rates from Trans Mountain.

(b) Please confirm that if the Northern Gateway, Keystone XL and Energy East pipelines were to be constructed, as was Trans Mountain’s view in January 2015 (see reference (v)), that Mr. Hodgson would take a proportional share of benefits related to the estimated price lift (about 26 percent), and not 100% of the benefits. If not confirmed, please explain.

Page 27 of 36 (c) Please confirm that Mr. Hodgson is aware that long-term supply related to long-term transportation commitments is often subject to agreements that render spot market prices less relevant or reliable as indicators of producer returns. If not confirmed, please explain.

(d) Please confirm that Mr. Hodgson is aware that a significant portion of the crude oil traded in Western Canada is not based on spot market conditions.

(e) Please confirm that the price lift applied to all barrels supplied, without taking into consideration the volume of crude oil traded between non-arms-length parties or under firm contract, renders the benefit calculation largely hypothetical. If not confirmed, please explain.

(f) Please indicate whether Mr. Hodgson raised with Trans Mountain any areas of concern with the analysis or figures provided by Mr. Earnest given the number of changes in assumptions related to the need, markets and supply as proposed in Mr. Earnest’s report. If yes, please provide details and documentation of those discussions.

(g) Please confirm that Mr. Hodgson is aware that Mr. Earnest assumes rail transportation is displaced by the Trans Mountain expansion, although not eliminated. If confirmed, please also confirm that a reduction in rail transportation and related idle transportation capacity, as a result of the TMEP, is a cost to the Canadian economy. If not confirmed, please explain.

(h) Please confirm that Mr. Hodgson has not taken into account the decline in demand for rail transport out of western Canada, as predicted by Mr. Earnest, as a result of the TMEP.

(i) Please confirm that, all else being equal, if crude oil exports by rail are reduced as a result of the TMEP, the revenues received by rail companies will fall and this will have a negative direct, indirect and induced impact on the Canadian economy. If not confirmed, please explain.

(j) Please confirm that Mr. Hodgson predicts that the value of the Canadian dollar compared to the US dollar will be at par over the forecast period. If not confirmed, please provide Mr. Hodgson’s forecast for the value of the Canadian dollar.

(k) Please confirm that Mr. Hodgson has read and considered reference (iii) and (iv).

(l) Please confirm that if Mr. Hodgson were asked to model a $1 billion per year negative impact on lower mainland tourism due to the impact of 68 crude oil tanker transits a month through English Bay and Burrard Inlet, that the coefficients in the input-output model would predict a greater loss than the pipeline industry coefficients Mr. Hodgson relied on to model benefits from Trans Mountain tolls. If not confirmed, please explain.

Page 28 of 36 (n) Please explain why the Trans Mountain toll revenues Mr. Hodgson relied on as benefits to predict impacts in reference (i) are not considered to be toll expenses paid by oil producers.

Page 29 of 36 12. LIMITATIONS OF INPUT OUTPUT

References:

(i) Trans Mountain Pipeline ULC, Application for Trans Mountain Pipeline Expansion Project, OH-001-2014, Volume 1 (A3S0Q7), Volume 2 (A3S0Q8, A3S0Q9, A3S0R0)

(ii) City of Vancouver, Written Evidence, Part 1, Appendix 16, Alberta Treasury Board and Finance, Alberta Economic Multipliers, (A4L7X4)

(iii) Trans Mountain Pipeline ULC, Evidence to replace the Direct Evidence Prepared by Mr. Steven Kelly for the Project, Understanding the Benefits for Canada and its Regions, Conference Board of Canada, Glen Hodgson, September 21, 2015 (A4T6F0)

(iv) Trans Mountain Information Responses to the City of Vancouver, IR No. 2, 2.02.2, Economic Benefits—Taxes (A4H8I9 pdf pages 17-18)

(v) Trans Mountain Pipeline ULC, Evidence to replace the Direct Evidence Prepared by Mr. Steven Kelly for the Project (A4T6E8), Market Prospects and Benefits Analysis of the TMEP, September 25, 2015, (Muse Stancil Report)

Preamble:

Reference (iii) does not accurately identify the serious risks and limitations of Input Output models when applied to evaluate the economic impact of a project such as the Trans Mountain expansion. A brief discussion of the model and a truncated review of its assumptions are presented in Appendix C (at pdf page 50), following Mr. Hodgson’s resume and list of report references.

In contrast, the City of Vancouver has attempted to more accurately and fully inform the Board of the limitations of I/O modelling by providing reference (ii). Regrettably, when given the opportunity to re-submit reference (iii), Mr. Hodgson did not take the opportunity to improve his report and inform the Board of the many and significant risks and limitations to Input Output modelling.

Reference (iv) provides Trans Mountain’s response to the City of Vancouver regarding the surprisingly low effective corporate tax burden Trans Mountain faces as compared with the extensive direct corporate tax revenue Mr. Hodgson predicts through his proprietary model. Trans Mountain acknowledges that “the Conference Board does not attempt to estimate the corporate taxes paid directly by Trans Mountain, but instead models the corporate taxes that would be expected to arise due to the direct, indirect and induced GDP impacts of the Project. This is because the Conference Board model is not designed or intended to forecast the corporate taxes paid by a particular business.”

Page 30 of 36 Request:

(a) Reference (iii) states, at pdf page 50, that, “The results described here used Statistics Canada’s 2009 I/O model, the most current available at the time of the analysis.” Please confirm that this statement is incorrect and that when Mr. Hodgson did his analysis in reference (iii) pertaining to the impact of increased revenues related to Trans Mountain’s tolls the most current available Statistics Canada I/O model was 2010. If not confirmed, please explain.

(b) Why did Mr. Hodgson rely on a 2009 model when a 2010 model was available?

(c) Please confirm that Mr. Hodgson’s analysis assumes a 2009 snapshot of the Canadian economy and further assumes that this structure of the economy will remain unchanged from 2009 - 2038. If not confirmed, please explain.

(d) Mr. Hodgson is aware, as stated in reference (iii) at pdf page 51, that “the farther you look forward in time using an I/O model the less likely it is that the model accurately describes future economic activity.” Please confirm that another method by which this caveat could be stated is in reverence (ii) at pdf page 6 from the Alberta Treasury and Finance Department is, “The structure and limitations of I/O models lend themselves to measuring the impacts of projects that are shorter term in nature; generally, they are used to look at shocks to the economy. For longer-term, time series analysis, general equilibrium models are more appropriate.” If not confirmed, please explain including an explanation of how a long-term project with a twenty year revenue stream could be considered to be a “shock”.

(e) Please confirm that the Trans Mountain expansion project is a longer term project. If not confirmed please explain and provide Mr. Hodgson’s definition of short, medium and long- term when engaging in Input Output analysis.

(f) Please confirm that Mr. Hodgson is aware that Mr. Earnest, in reference (v), sourced the IEA World Energy Outlook 2014 (WEO 2014) oil demand scenarios and World Energy Outlook Special Report for his global demand forecast and elected to rely on the “Bridge Scenario”.

(g) Please confirm Mr. Hodgson’s understanding of the WEO model’s integration into a general equilibrium model in order to more precisely determine the feedback links between energy markets and the macro-economy.

(h) Please confirm that input-output models do not account for crowding out of other economic activity. If not confirmed, please explain.

(i) Please confirm that the I/O model relied on by Mr. Hodgson does not provide a feedback mechanism and as such does not incorporate exchange rate changes, relative price changes, interest rate changes, and input cost changes. If not confirmed, please explain fully.

Page 31 of 36 Page 32 of 36 13. DIRECT EVIDENCE OF JOHN REED

References:

(i) Written Direct Evidence of John J. Reed, Trans Mountain Expansion Project, September 25, 2015. (A4T6F2)

(ii) Trans Mountain Pipeline ULC, Revised Trans Mountain Pipeline ULC Application Pursuant to Part IV of the NEB Act, Revised January 10, 2013, Tab E1- J Reed Testimony (A5O046)

(iii) Trans Mountain Pipeline ULC, Application for approval of the Toll methodology to be applied on the expanded Trans Mountain Pipeline System, Revised Application Pursuant to Part IV Application, Written Reply Evidence of Mr. Steven Kelly, January 3, 2013. Hearing Order RH-001-2012, (A3F1C8).

(iv) Trans Mountain Pipeline ULC, Application for Trans Mountain Pipeline Expansion Project, OH-001-2014, Volume 1 (A3S0Q7), Volume 2 (A3S0Q8, A3S0Q9, A3S0R0) and 5b (A56004)

(vi) Trans Mountain Pipeline ULC, Evidence to replace the Direct Evidence Prepared by Mr. Steven Kelly for the Project, Understanding the Benefits for Canada and its Regions, Conference Board of Canada, Glen Hodgson, September 21, 2015 (A4T6F0)

(vii) Board Ruling No. 11, OH-001-2014, Notice of Motion by Mr. Marc Eliesen, Question of Reasonable Apprehension of Bias by Panel Chair, Mr. David Hamilton, April 28, 2014 (A3W1U4)

(viii) Presentation by Ian Anderson, President, Kinder Morgan Canada, Analysts Conference, January 28, 2015, Page 3. (http://ir.kindermorgan.com/sites/kindermorgan.investorhq.businesswire.com/files/event/add itional/KM5-05AnalystConfKMCanada2015IA.pdf)

(ix) Market Prospects and Benefits Analysis for the Northern Gateway for Enbridge, Application for the Enbridge Northern Gateway Project, OH-4-2011, January 2010 (A1S9X7)

(x) Update of Market Prospects and Benefits Analysis for the Northern Gateway for Enbridge, Application for the Enbridge Northern Gateway Project, OH-4-2011, July 2012 (A2V1R7).

Preamble:

Mr. Steven Kelly in reference (iii) and Mr. John Reed in reference (ii) provided expert testimony on behalf of Trans Mountain at the Part IV Toll Hearing. Mr. Kelly argued strongly against the

Page 33 of 36 usefulness and reliability of netback analysis in light of the relationship between spot and firm shippers and the likelihood of long-term supply agreements made with integrated producers and refinery operations.

Mr. Reed in reference (i) (at pdf page 3) states he has reviewed reference (iv) to (vi) and he has concluded that the Project is economically feasible. Mr. Reed refers to the approval by the Board of the Part IV Application and the contracts 13 shippers have entered into with Trans Mountain as evidence of economic feasibility.

Reference (vii) at pdf page 4 states that the, “Board did not decide on economic feasibility (at the Part IV Hearing). Rather the Board found that the open season was fair, the allocation of capacity appropriate, and the toll methodology would produce just and reasonable tolls…whether a witness for the applicant has referred to something in his or her evidence from a previous hearing is not determinative of any future Board finding.”

Request:

(a) Please confirm that Mr. Reed will amend his evidence to recognize the Board’s ruling in reference (vii) that the fact of the 13 shipper agreements is not evidence of economic feasibility of the TMEP.

(b) Please confirm on what date Mr. Reed received the Muse Stancil Report and the amended Conference Board Report for his review and consideration, or was otherwise informed of the material that is in the reports.

(c) Please confirm that Mr. Reed is aware that reference (v) excludes Northern Gateway, Keystone XL and Energy East from infrastructure capacity over the forecast period.

(d) Please explain why on pdf page 10 of reference (i) Mr. Reed states, “As acknowledged in TMEP’s application, the Project is one of a group of pipelines that are being proposed to meet the market’s need for additional pipeline capacity.”

(e) Please confirm that Mr. Reed raised with Trans Mountain the substantive changes in reference (v) as compared with reference (iv) and please provide the substance of those conversations.

(f) Please confirm that Mr. Reed is aware that Northern Gateway and Keystone XL have Certificates of Public Need and Convenience granted by the NEB.

(g) If Mr. Reed assessed the impact of Northern Gateway and Keystone XL on the financial feasibility of the TMEP, please provide this assessment including capacity utilization rates over the forecast period. If Mr. Reed did not undertake this assessment, explain why not given that these two major projects have received regulatory approval in Canada.

Page 34 of 36 (h) Please advise if Mr. Reed was aware that Mr. Earnest prepared reference (ix) and reference (x) and please further advise if Mr. Reed was aware that Mr. Earnest excluded the TMEP from his analysis in those reports.

(i) If Mr. Reed was aware that the TMEP was excluded from the Northern Gateway benefits assessments prepared for the Joint Review Panel, did he discuss with Mr. Earnest the reasons for his approach to capacity expansion selection and its potential for skewing benefits results and capacity utilization? If so, please provide the substance of the discussion.

(j) Please confirm that Mr. Reed was Trans Mountain’s expert witness at the Part IV toll hearing and that during that hearing Mr. Kelly was also an expert witness on behalf of Trans Mountain.

14. PRODUCTION References:

i. Muse Stancil, Market Prospects and Benefits Analysis of the TMEP, September 2015 (A4T6E8 at PDF Page 36-37) ii. Europe Brent Spot Price FOB (Dollars per Barrel) http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RBRTE&f=M Retrieved October 6, 2015 iii. Cushing, OK WTI Spot Price FOB (Dollars per Barrel) http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=M Retrieved October 6, 2015

Preamble:

Reference i shows a comparison between the NEB 2013 Reference Case production forecast to the 2013 CAPP production forecast for the period 2011 to 2030. Both forecasts have the same starting point but the NEB forecast shows a slower growth rate. By 2030, the NEB forecast is almost 2,000 kb/day less than the CAPP forecast.

Reference i also shows a comparison between the 2013 NEB Western Canadian crude oil production forecast and the 2015 CAPP production forecast. Both forecasts are for 2011 to 2013.

Reference ii and iii show historical oil prices by month for the last 20+ years. Oil prices in the latter half of 2013 (presumably when the 2013 NEB Western Canadian crude oil production forecast was being developed) are 40% to 50% higher than the first 8 months of 2015 (presumably when the 2015 CAPP production forecast was being developed).

Request:

a. In Mr. Earnest’s opinion, what are the limitations of comparing the 2013 NEB production forecast to the 2015 CAPP production forecast given that the price of oil dropped considerably in the period of time between these two forecasts?

Page 35 of 36 b. Given that CAPP reduced its production forecast in 2015 compared to its 2013 forecast, does Mr. Earnest agree that it is likely that the NEB will also reduce its 2015 production forecast as a result of lower oil prices. If yes, please identify where in Mr. Earnest's report (reference (i)) this reducted production forecast was considered and accounted for.

Page 36 of 36