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|File OF-Tolls-Group1-E101-2019-02 02 CANADA ENERGY REGULATOR in the MATTER of the Canadian Energy Regulator Act, SC 2019, C |File OF-Tolls-Group1-E101-2019-02 02 CANADA ENERGY REGULATOR IN THE MATTER OF the Canadian Energy Regulator Act, SC 2019, c 28, s 10 and the regulations made thereunder; AND IN THE MATTER OF an application by Enbridge Pipelines Inc. for approval of the Transportation Service and Toll Methodology for the Canadian Mainline; AND IN THE MATTER OF Hearing Order RH-001-2020. Written Argument of the Canadian Shippers Group July 7, 2021 To: Mr. Jean-Denis Charlebois Secretary of the Commission Suite 210, 517 10 Ave SW Calgary, AB T2R 0A8 LEGAL_CAL:15526888.10 TABLE OF CONTENTS I. INTRODUCTION ................................................................................................. 4 II. EXECUTIVE SUMMARY ..................................................................................... 5 III. BACKGROUND ................................................................................................. 11 IV. LEGISLATIVE FRAMEWORK ........................................................................... 12 Canadian Public Interest ......................................................................... 14 Just and Reasonable Tolls ...................................................................... 16 No Unjust Discrimination ......................................................................... 17 Burden of Proof ....................................................................................... 18 V. CONSULTATION AND NEGOTIATIONS WERE NEITHER FAIR, OPEN NOR TRANSPARENT, AND THE DEGREE OF OPPOSITION IS UNPRECEDENTED .......................................................................................... 19 Proposed “Negotiated” Tolls Did Not Result from a Fair and Transparent Negotiation Process ........................................................... 19 Bilateral Negotiations Were Unreasonable and Unfair in the Circumstances ........................................................................................ 24 Enbridge Abused its Dominant Market Position During the Course of Negotiations ........................................................................................ 27 Degree of Opposition to the Application.................................................. 30 VI. ENBRIDGE HAS NOT PROVIDED ADEQUATE JUSTIFICATION FOR INTRODUCING MAINLINE CONTRACTING .................................................... 31 Enbridge has not Demonstrated that it Faces any Material Volume Risk ......................................................................................................... 32 Enbridge has not Demonstrated that Mainline Contracting Is Necessary to Enable Future Expansion .................................................. 37 VII. CONVERTING THE CANADIAN MAINLINE TO FIRM SERVICE IS NOT IN THE PUBLIC INTEREST .............................................................................. 38 Mainline Contracting Would Result in Adverse Impacts on Netbacks and Government Revenues .................................................................... 39 Adverse Impacts on Aggregators and Small to Mid-size Producers ....... 55 Adverse Impacts on Shippers of Refined Products and NGLs ................ 58 Adverse Impacts on Eastern Canadian Refineries ................................. 64 VIII. CONTRACTED SERVICE IN THE ABSENCE OF NEW FACILITIES IS UNREASONABLE ............................................................................................. 66 -- 2 -- LEGAL_CAL:15526888.10 TABLE OF CONTENTS (continued) IX. CONTRACTED SERVICE WOULD RESULT IN THE CREATION OF TWO CLASSES OF SHIPPERS AND UNDUE DISCRIMINATION ................... 69 X. THE PROPOSED OPEN SEASON PROCEDURES AND TSA TERMS ARE UNREASONABLE AND UNJUSTLY DISCRIMINATORY ......................... 71 XI. THE PROPOSED TOLLS AND TOLL METHODOLOGIES SHOULD BE REFLECTIVE OF COST OF SERVICE AND TOLL PRINCIPLES .................... 76 Tolls Should Be Cost-Based ................................................................... 76 The Commission’s Requirement for Cost of Service Rate-Making ......... 78 A Cost of Service Review is Necessary .................................................. 80 A Cost of Service Review is Timely ........................................................ 82 XII. THE PROPOSED TOLLS ARE NOT JUST AND REASONABLE ..................... 83 There is Insufficient Information for the Commission to Conclude the Proposed Tolls Are Just and Reasonable ......................................... 83 The Evidence Demonstrates that the Proposed Tolls Exceed a Reasonable Cost of Service Toll ............................................................. 88 The CER Cannot Rely Upon the Simplified Mainline Contracting Earnings Model Prepared by Concentric ................................................ 89 Enbridge’s Proposed Toll Methodology Improperly Makes the Revenue Requirement for the Canadian Mainline Dependent Upon Tolls Set in the United States and Establishes “ad hoc” Tolls ................. 98 The Toll Structure is Discriminatory ...................................................... 101 Toll Stability is Not a Significant Consideration ..................................... 103 XIII. ENBRIDGE SHOULD NOT BE EXEMPT FROM KEEPING A SYSTEM OF ACCOUNTS UNDER THE OPUAR OR FROM FULL REPORTING UNDER GUIDE BB .......................................................................................... 105 XIV. CSG COMMENTS REGARDING ENBRIDGE’S WRITTEN ARGUMENT ....... 106 Volume Risk .......................................................................................... 107 Over Subscription ................................................................................. 111 Negotiations and Cost Information ........................................................ 111 DSV Requirement Renders the Mainline Unsuitable for Contracting .... 112 CSG Proposal for Rebasing Is Not Regressive .................................... 115 Tolling Methodology Should Result in Cost-Based Tolls....................... 116 Market-based Solutions ........................................................................ 117 Enbridge Fails To Apply Appropriate Principles .................................... 118 Enbridge Justification for a Higher ROE Is Not Supported.................... 118 Enbridge Advocates An Inappropriate Resolution ................................ 119 Drazen Modelling .................................................................................. 119 Exemption for OPUAR .......................................................................... 123 -- 3 -- LEGAL_CAL:15526888.10 TABLE OF CONTENTS (continued) Divide and conquer ............................................................................... 123 Prematurity ........................................................................................... 124 XV. CONCLUSION AND REQUESTED RELIEF ................................................... 125 -- 4 -- LEGAL_CAL:15526888.10 Enbridge Pipelines Inc. Application for Mainline Contracting Final Argument of Canadian Shippers Group CER Hearing Order RH-001-2020 Page 4 of 127 File OF-Tolls-Group1-E101-2019-02 02 I. INTRODUCTION 1. This written argument is submitted on behalf of the Canadian Shippers Group1 (the “CSG”) regarding Enbridge Pipelines Inc. (“Enbridge”)’s application for Mainline contracting (the “Application”). 2. Enbridge has applied to the Commission of the Canada Energy Regulator (“Commission” or “CER”) for approval of: (a) a new service and tolling framework for the Canadian Mainline pipeline system (“Canadian Mainline” or “Mainline”) including: (i) converting 90% of the Mainline’s current common carrier capacity to contracted service, leaving just 10% remaining for uncommitted (spot) service; (ii) proposed tolls and terms and conditions of service for contract and uncommitted service, and (iii) proposed Open Season Procedures; and (b) an exemption from the requirement to keep the system of accounts described in the Oil Pipeline Uniform Accounting Regulations, CRC, c 1058 (“OPUAR”). 3. For the reasons set out below, the CSG submits that the Commission must deny the Application. The CSG requests that, in addition to denying the Application, the Commission also direct Enbridge to file an application by January 31, 2022, for tolls calculated on a cost-of-service basis for the Mainline under continued 100% common carrier service. 1 The CSG members are: Canadian Natural Resources Limited (“Canadian Natural”); MEG Energy Corp. (“MEG”); Shell Canada Limited (“Shell Canada”); and Total Energies EP Canada Ltd. (“TOTAL Canada”). LEGAL_CAL:15526888.10 Enbridge Pipelines Inc. Application for Mainline Contracting Final Argument of Canadian Shippers Group CER Hearing Order RH-001-2020 Page 5 of 127 File OF-Tolls-Group1-E101-2019-02 02 II. EXECUTIVE SUMMARY 4. The CSG members have distinct and diverse commercial interests. Each CSG member has a unique set of assets and operations, which include oil production, marketing and aggregating, downstream offtake capabilities, refining, natural gas liquids (“NGLs”)2 and refined products distribution and retail operations. However, despite the varied and frequently competing commercial interests of the CSG members, the group is united in its opposition to Enbridge’s Mainline contracting proposal. 5. Enbridge’s evidence presented to the Commission in this proceeding has been internally inconsistent, and in some notable instances, diametrically opposed to communications by Enbridge’s senior management and CEO to its investors and securities regulators. In short, Enbridge’s evidence on key
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