Phillips 66 Ltd. (Phillips Canada) Complaint regarding TransCanada GP Ltd. (Keystone) Canada Energy Regulator (CER) Tariff No. 44 and CER Tariff No. 50 (Complaint) AO-001-RH-005-2020 File Number OF-Tolls-Group1-T241-2019-01 01

Phillips Canada and Husky Oil Operations Limited Information Request No. 3 to Keystone

Table of Contents

3.1 Financial Data for Keystone US ...... 2

3.2 Hydraulic Reports ...... 3

3.3 Pipeline integrity costs ...... 4 Information Request No. 3 Phillips Canada/Husky to Keystone July 6, 2021 Page 2 of 5

3.1 Financial Data for Keystone US

Reference: (i) Attachment P66-Husky IR 1.7d-1, PDF pages 43-50 of 119 (C11661-5).

(ii) Keystone’s updated response to P66-Husky IR No. 1.7, PDF pages 76-86 of 1023 (C13198-6).

(iii) Keystone’s updated response to P66-Husky IR No. 1.6c, PDF pages 76- 86 of 1023 (C13198-2, C13198-3, C13198-4, C13198-5).

Preamble: Reference (i), PDF pages 43-50 of 119, provides a narrative description of the general allocation methods applied by TC Energy for allocating overhead costs to subsidiaries, including Keystone. This document states that overhead allocations are calculated differently for enterprise services and governance costs. Further, TC Energy’s cost allocation guidelines identify that costs are allocated to Business Units (BUs), which “have the ability to move their directly incurred costs (including overhead) to the correct LOB within a single BU. This intra-business unit allocation is done primarily for tax and regulatory purposes and to reflect the full cost of each LOB/asset.”

Reference (ii), PDF page 76-86 of 1023, Keystone provides the average annual allocation factors for the Canadian section of the pipeline for 2016 to 2020 for all cost centers that are not directly allocated.

In Reference (iii), Keystone provides its operating expense database for the Canadian segment of the pipeline, which includes monthly expenses for the period 2016 to 2020.

This request seeks further data for the US segment of the pipeline to be able to replicate Keystone’s allocation of costs between the US and Canadian segments of the pipeline, and compare those allocations with alternative approaches.

Request: (a) Please provide data for the US segment of the Keystone pipeline that is equivalent to the average annual allocation factors previously provided in Reference (ii) for the Canadian segment of the pipeline. Please provide the data in its native workbook with all formulas intact where applicable and complete documentation for all inputs.

(b) Please provide an operating expense database for the US segment of the Keystone pipeline that is equivalent to general ledger database previously provided in Reference (iii) for the Canadian segment of the pipeline. Please provide the data in its native workbook with all formulas intact where applicable and complete documentation for all inputs.

(c) As pertains to the allocation of enterprise services and governance costs discussed in Reference (i), please provide the following amounts on an annual basis for each year from 2016 to 2021, related to the Liquids Pipelines Business Unit (BU) and its constituent Lines of Business (LOBs), including the LOBs designated for Keystone US and Keystone Canada. Information Request No. 3 Phillips Canada/Husky to Keystone July 6, 2021 Page 3 of 5

(i) Total direct labor costs (i.e., fully burdened internal labor charged at the BU or LOB level) for (i) the Liquids Pipelines BU, (ii) Keystone US, (iii) Keystone Canada, and (iv) the aggregate of all other LOBs within the Liquids pipelines BU.

(ii) Gross plant asset value (i.e., original cost value of carrier property capital assets in service) for (i) the Liquids Pipelines BU, (ii) Keystone US, (iii) Keystone Canada, and (iv) the aggregate of all other LOBs within the Liquids pipelines BU.

(iii) Gross revenue for (i) the Liquids Pipelines BU, (ii) Keystone US, (iii) Keystone Canada, and (iv) the aggregate of all other LOBs within the Liquids pipelines BU.

3.2 Hydraulic Reports

Reference: (i) “TransCanada Pipeline Ltd. Keystone Pipeline Steady-State Hydraulics Report 017617-6500-4H00-0003” produced in response to P66-Husky IR No. 2.15(a), PDF pages 11-53 (C13636-28).

Preamble: In response P66-Husky IR No. 2.15(a), Keystone produced the report described in Reference (i).

In Reference (i), PDF page 10 of 43, states that “The Keystone pipeline was designed to transport two products: diluted bitumen (dilbit), and synthetic crude.”

Reference (i), PDF page 22 of 43 refers to the “Keystone Pipeline Project— Keystone Hydraulic Capacity Reduction Study, Report prepared by SNC-Lavalin Inc. for TransCanada Pipelines Ltd., Document No. 017617-4000-45ER-0001, Rev. 0 (August 2009)”.

To develop a model of the full Keystone pipeline, further information is required on the technical specifications of the initial Keystone pipeline development.

Request: (a) Please provide an unredacted and complete version of this report.

(b) Please provide any revisions to this report or later-generated reports that analyze the same topics.

(c) Please identify the name and business address of the individuals responsible for the contents and accuracy of this report.

(d) Please identify the name and business address of the individuals whom this report was “Prepared By” as identified on page 1 of 43 of this report.

(e) Please identify the name and business address of the individuals whom this report was “Checked By” as identified on page 1 of 43 of this report. Information Request No. 3 Phillips Canada/Husky to Keystone July 6, 2021 Page 4 of 5

(f) Please identify the proportion of diluted bitumen (dilbit), and synthetic crude that Keystone was designed to transport.

(g) Please identify the individual employed at the time by Keystone most familiar with the basis of that statement or the individual who was responsible for conveying this design parameter on behalf of Keystone.

(h) Please provide a copy of the “Keystone Pipeline Project—Keystone Hydraulic Capacity Reduction Study, Report prepared by SNC-Lavalin Inc. for TransCanada Pipelines Ltd., Document No. 017617-4000-45ER- 0001, Rev. 0 (August 2009)”, that is identified in Reference (i).

3.3 Pipeline integrity costs

Reference: (i) Keystone’s response to P66-Husky IR No. 2.04(a), PDF pages 32-33 of 529 (C13636-2).

(ii) Keystone’s response to P66-Husky IR No. 2.04(b), PDF pages 33 of 529 (C13636-2).

(iii) Keystone’s response to CER IR No. 1.1, PDF pages 3-4 of 29 (C11661- 3).

Preamble: In Reference (i), PDF page 32 of 529, Keystone explains that pipeline integrity costs incorporated in the Variable Rate include in-line inspections of the pipeline, recoating and replacement of sections of pipeline less than 12 meters and other surveillance, engineering assessments and remediation activities. It identified four documents that support this accounting treatment:

“• Oil Pipeline Uniform Accounting Regulations (Additions to Plant) – This document is publicly available on the Canada Energy Regulator website.

• FERC Uniform System of Accounts (Section 3-6) – This document is publicly available on the FERC website.

• FERC Order on Accounting for Pipeline Assessment Costs – Provided as Attachment P66-Husky IR 2.04a-1.

• US GAAP (ASC 360 Property, Plant & Equipment). US GAAP allows costs to be capitalized if they increase the value or extend the useful life of the asset.”

In Reference (ii), PDF page 33 of 529, Keystone states “The Conversion segment has been subject to an extensive integrity management program since it was put into service as part of the Keystone Pipeline System.”

This request seeks additional information regarding the nature of the costs recorded on Keystone’s accounting records. Information Request No. 3 Phillips Canada/Husky to Keystone July 6, 2021 Page 5 of 5

In Reference (iii), PDF page 3 of 29, Keystone identified that “there has been an increase in the pipeline integrity activity since the [2019] incidents.”

Request: (a) Please explain where in any of the documents described in Reference (i) it states that replacing a length of pipeline up to 12 meters is a minor item of plant and therefore an OM&A expense as opposed to a capitalized cost that could increase the useful life of the asset.

(b) Please explain identify whether Keystone has any further documents that justify its use of 12 meters to distinguish a complete unit of plant, which is capitalized, from a minor item of plant, which is expensed.

(c) Please identify all of the costs related to the Conversion segment of the pipeline for 2016 to 2021, as described in Reference (ii), and provide a narrative about which of those costs were expensed and which were capitalized.

(d) Please identify all pipeline integrity costs for 2016 to 2021 that related to a prior incidents, as described in Reference (iii).

(i) Please identify each incident separately, provide a narrative of that incident and provide the total pipeline integrity costs separately for each incident and identify the costs that were expensed and capitalized.