ATTACHMENT 1
STATE OF ILLINOIS
ILLINOIS COMMERCE COMMISSION
ENERGY TRANSFER CRUDE OIL COMPANY, LLC )
) Docket No. 14-0755 ) APPLICATION PURSUANT TO SECTION 15-401 ) OF THE COMMON CARRIER ) BY PIPELINE LAW AND SECTIONS 8-503 ) AND 8-509 OF THE PUBLIC UTILITIES ACT ) AND FOR A CERTIFICATE IN GOOD STANDING ) AND RELATED AUTHORITY TO CONSTRUCT AND ) OPERATE A PETROLEUM PIPELINE AS A COMMON ) CARRIER PIPELINE AND WHEN ) NECESSARY TO TAKE PRIVATE PROPERTY AS ) PROVIDED BY THE LAW OF EMINENT DOMAIN )
PREPARED TESTIMONY ON REOPENING OF
DAMON RAHBAR-DANIELS
ON BEHALF OF
ENERGY TRANSFTER CRUDE OIL COMPANY, LLC
ETCO EXHIBIT 5.12
JULY 31, 2015 ETCO Exhibit 3.10 Page 1 of 20 PREPARED TESTIMONY ON REOPENING
OF
DAMON RAHBAR-DANIELS
ON BEHALF OF
ENERGY TRANSFER CRUDE OIL COMPANY, LLC
1 I. WITNESS INTRODUCTION AND PURPOSE OF TESTIMONY
2 Q. Please state your name, present position and business address.
3 A. My name is Damon Rahbar-Daniels. I am the Vice President – Commercial Operations
4 of Energy Transfer Partners, L.P. (“ETP”). ETP is one of the equity owners of Energy
5 Transfer Crude Oil Company, LLC (“ETCO”), the applicant in this proceeding. My
6 business address is 1300 Main Street, Houston, Texas 77002.
7 Q. Have you previously submitted prepared testimony and exhibits in this proceeding?
8 A. Yes, I have previously submitted prepared direct testimony, dated January 21, 2015,
9 which is identified as ETCO Exhibit 3.0, and accompanying exhibits identified as ETCO
10 Exhibits 3.1 through 3.3. In addition, I have previously submitted prepared supplemental
11 testimony, dated May 15, 2015, which is identified as ETCO Exhibit 3.4, and
12 accompanying exhibits identified as ETCO Exhibits 3.5 through 3.7. Finally, I have
13 previously submitted prepared surrebuttal testimony identified as ETCO Exhibit 3.8, and
14 an accompanying exhibit identified as ETCO Exhibit 3.9.
15 Q. What is the purpose of your testimony on reopening?
16 A. The purpose of my testimony on reopening is to demonstrate that there is a separate,
17 stand-alone need and demand for the ETCO Pipeline from Patoka, Illinois, to Nederland,
18 Texas, even if the Dakota Access Pipeline were not built or were not yet placed into
19 service. My testimony on reopening will support ETCO’s position that it should be ETCO Exhibit 3.10 Page 2 of 20
20 granted a certificate of good standing to construct, operate and maintain the ETCO
21 Pipeline and authority under Sections 8-503 and 8-509 of the Public Utilities Act to use,
22 if necessary, eminent domain to acquire easements for the new-build portion of the
23 ETCO Pipeline, without having the certificate of good standing and the Section 8-503
24 and 8-509 authorities conditioned on Dakota Access also receiving an order granting it a
25 certificate in good standing.
26 Q. In addition to your prepared testimony on reopening, which is identified as ETCO
27 Exhibit 3.10, are you sponsoring any other exhibits?
28 A. Yes, I am also sponsoring ETCO Exhibit 3.11, which was prepared under my supervision
29 and direction.
30 II. STAND-ALONE NEED FOR THE ETCO PIPELINE
31 Q. Is the ETCO Pipeline Project solely a companion project to the Dakota Access
32 Pipeline?
33 A. No. The ETCO Pipeline will be a stand-alone interstate crude oil pipeline that will
34 provide service from the crude oil terminalling hub near Patoka, Illinois, (the “Patoka
35 Hub”) to the crude oil terminalling hub in Nederland, Texas, to meet the need for crude
36 oil transportation service from the Midwest to the Gulf Coast to serve refineries in that
37 region. In accordance with the Interstate Commerce Act, ETCO will provide the public
38 with service on the ETCO Pipeline pursuant to local tariff rates publicly filed with the
39 Federal Energy Regulatory Commission (“FERC”) for crude oil transportation service
40 from Patoka, Illinois, to Nederland, Texas. Service offered by ETCO under the local
41 tariff rates will be provided in accordance with a rules and regulations tariff also publicly
42 filed with the FERC under the Interstate Commerce Act and FERC’s regulations. Like ETCO Exhibit 3.10 Page 3 of 20
43 ETCO, Dakota Access, LLC will have publicly filed local tariff rates for service between
44 points of origin and destination on the Dakota Access Pipeline, as well as a publicly filed
45 rules and regulations tariff for that service.
46 Q. Are there pipeline systems that currently transport crude oil to the Patoka Hub?
47 A. Yes. Currently, four major pipeline systems deliver crude oil to the Patoka Hub. The
48 WoodPat Pipeline has a delivery capacity into the Patoka Hub of approximately 315,000
49 barrels per day (“BPD”). The Mustang Pipeline has a delivery capacity into the Patoka
50 Hub of approximately 100,000 bpd. The Keystone Pipeline has a delivery capacity into
51 the Patoka Hub of approximately 500,000 bpd. The Capline Pipeline has a delivery
52 capacity into the Patoka Hub of over 1,000,000 bpd.
53 Q. In the future, will other pipeline systems also deliver crude oil to the Patoka Hub?
54 A. Yes. Illinois Extension Pipeline, L.L.C. is in the process of building the Southern Access
55 Extension Pipeline (“SAX Pipeline”) to deliver crude oil to the Patoka Hub. The SAX
56 Pipeline is a 168-mile long, 24-inch-diameter pipeline that will be capable of delivering
57 crude oil from Flanagan Terminal near Pontiac, Illinois, to the Patoka Hub. The delivery
58 capacity of the SAX Pipeline to the Patoka Hub will be at least 300,000 bpd, and it is
59 anticipated to be in-service by late 2015.
60 Q. Is all of the 300,000 barrels per day of capacity of the SAX Pipeline subscribed
61 under shipper contracts, or will the SAX Pipeline have capacity available beyond
62 what is subscribed under contractual commitments?
63 A. According to Illinois Extension Pipeline, L.L.C., a significant percentage – i.e., 90,000
64 bpd of the 300,000 bpd capacity – of the SAX Pipeline will be available for shippers
65 other than the two parties that entered contracts for service on the pipeline system. ETCO Exhibit 3.10 Page 4 of 20
66 (Illinois Extension Pipeline LLC, Docket 07-0446, Order on Reopening (Dec. 17, 2014),
67 at 6 and 52.)
68 Q. Is the SAX Pipeline the only new pipeline project, other than the Dakota Access
69 Pipeline, that is proposing to deliver crude oil to the Patoka Hub in the future?
70 A. No. The SAX Pipeline and the Dakota Access Pipeline are the most advanced among the
71 pipeline projects that are proposing to deliver crude oil to the Patoka Hub, but they are
72 certainly not alone. On October 10, 2014, Spectra Energy and Spectra Energy Partners
73 (collectively, “Spectra”) announced a proposed expansion of their existing crude oil
74 pipeline network, with construction of a new crude oil pipeline to provide transportation
75 service from Guernsey, Wyoming to Patoka, Illinois. The anticipated delivery capacity
76 of that pipeline to the Patoka Hub is 400,000 bpd. Spectra has said that it anticipates the
77 expansion project to be in-service in 2017. ETCO Exhibit 3.11 is a copy of Spectra’s
78 announcement concerning the project.
79 Q. Are you aware of other proposed projects that are looking to deliver crude oil to the
80 Patoka Hub?
81 Yes. Since the announcement of the ETCO Pipeline, we have received inquiries from
82 other infrastructure project developers about future potential projects to bring crude oil to
83 the Patoka Hub. The proposed projects are attracted to the Patoka Hub because the hub
84 will offer connections to both Midwest refineries and, upon the ETCO Pipeline being
85 placed in-service, Gulf Coast refineries. Generally speaking, these projects do not appear
86 to be as advanced as the SAX Pipeline and the Spectra project. Nevertheless, they are
87 indicative of the interest that the ETCO Pipeline has spurred in the Patoka Hub. ETCO Exhibit 3.10 Page 5 of 20
88 Q. Is there evidence of market demand specifically for crude oil transportation service
89 from the Patoka Hub to the Gulf Coast?
90 A. Yes. In fact, the Pegasus Pipeline provided crude oil transportation service of up to
91 approximately 95,000 bpd from the Patoka Hub to Nederland, Texas, until it ceased
92 operations on May 29, 2013. Additionally, as I will describe in greater detail later in my
93 testimony, there is significant demand for crude oil to move to the Gulf Coast through
94 upstream pipeline systems that deliver to the crude oil terminalling hub in Cushing,
95 Oklahoma (the “Cushing Hub”), where the crude oil can then be transported on pipeline
96 systems that connect the Cushing Hub to the Gulf Coast. Shippers on those upstream
97 pipeline systems will gain the opportunity to route their crude oil to the Gulf Coast or
98 other Midwest destinations through the Patoka Hub, instead of through the Cushing Hub,
99 if there is a pipeline to connect the Patoka Hub to the Gulf Coast.
100 Q. Focusing first on the Pegasus Pipeline, did that pipeline system cease service from
101 the Patoka Hub to Nederland, Texas, in May of 2013 due to a lack of market
102 demand for that transportation service?
103 A. No, to the contrary, the system transported a significant volume of crude oil up until that
104 date, when the operator ceased service to address issues from a rupture of the pipeline in
105 Arkansas. The operator subsequently elected only to place a portion of the Pegasus
106 Pipeline in Texas back in service in the middle of 2014. The segments of the Pegasus
107 Pipeline outside of Texas have remained out of service since May 29, 2013.
108 Q. Is the Pegasus Pipeline outside of Texas expected to be returned to service in the
109 near future?
110 A. No, it is not. ETCO Exhibit 3.10 Page 6 of 20
111 Q. Do you have further evidence of market demand for crude oil transportation service
112 from the Patoka Hub to the Gulf Coast?
113 A. Yes. In my surrebuttal testimony, I submitted letters from Phillips 66, XTO Energy, Inc.,
114 and Shell Trading (US) Company, each of which expressed its interest in transportation
115 service from Patoka, Illinois, to Nederland, Texas. These letters are particularly notable
116 because they come from companies whose affiliates include owners of interests in major
117 refineries not just in the Gulf Coast but also major refineries in the Midwest and other
118 areas that source barrels through the Midwest.
119 Q. What value does a pipeline like the ETCO Pipeline offer to Midwest refiners and
120 other market participants in the Midwest?
121 A. The logistical flexibility to move barrels from the Patoka Hub to Nederland, Texas, is
122 valuable to Midwest refiners and other market participants in the Midwest because it will
123 allow crude oil to be moved to Gulf Coast refineries in times when refineries in the
124 Midwest are in turnaround or otherwise are not operating at normal capacities. It also
125 encourages other market participants, like marketers and producers, to view the Patoka
126 Hub as a more attractive hub through which to route barrels. More barrels routed through
127 the Patoka Hub will provide Midwest refiners with greater market liquidity and
128 optionality at a key market hub in Illinois.
129 Q. Is the logistical flexibility that you just described likely to support additional
130 infrastructure development at the Patoka Hub specifically and in Illinois more
131 generally?
132 A. Yes. Among the factors that contribute to making a crude oil market hub valuable is the
133 flexibility to source barrels out of the hub. Said another way, market participants gain ETCO Exhibit 3.10 Page 7 of 20
134 confidence in storing barrels at, and transporting barrels through, a market hub as the
135 certainty of being able to transport the barrel out of the hub increases and as the extent of
136 access to crude oil refineries out of the hub grows. When market participants consider
137 where to invest in new storage and terminalling infrastructure among key market hubs, a
138 more robust network of pipelines both in and out of the Patoka Hub will make it a more
139 attractive location for investing additional capital in tankage and other terminalling
140 assets.
141 Robust market hubs also serve to attract additional pipeline infrastructure
142 development. In fact, Spectra’s proposed expansion of its existing crude oil pipeline
143 system exemplifies the ETCO Pipeline’s impact in helping to support additional future
144 development in Illinois. In announcing its expansion project, Spectra made particular
145 note of the optionality that its project would offer by reaching the Patoka Hub,
146 highlighting that the Patoka Hub would offer shippers connections to both Midwest and
147 Gulf Coast refinery markets: “This announcement is in response to strong market demand
148 to move light, sweet, U.S. domestic crude from multiple supply areas, including the
149 Bakken, the Denver-Julesburg Basin and the Powder River Basin, to Patoka, where
150 shippers will be able to access Midwest and Gulf Coast markets.” (Emphasis added).
151 Q. Are there examples of situations in which shippers currently must choose whether to
152 route crude oil through the Patoka Hub versus another market hub, such that the
153 Patoka Hub could attract additional barrels if it were to provide improved out-
154 bound logistics options to shippers?
155 A. Yes, many examples exist. First, the Keystone Pipeline carries over 500,000 bpd of
156 crude oil into the U.S. Shippers on that pipeline system have the option to deliver barrels ETCO Exhibit 3.10 Page 8 of 20
157 to the Cushing Hub or to the Patoka Hub. Specifically, crude oil on the Keystone
158 Pipeline reaches Steele City, Nebraska, and either continues south on a pipeline segment
159 that delivers into the Cushing Hub or is directed eastward on a separate pipeline segment
160 to the Patoka Hub. When shippers direct their crude oil to the Cushing Hub, they have
161 the option not only to sell their crude oil to Midcontinent refineries, but they also have
162 the ability to transport their crude oil to the Gulf Coast through two major pipeline
163 systems that connect the Cushing Hub to the Gulf Coast. Shippers lack the same
164 flexibility when they elect to send their barrels to the Patoka Hub, however, because the
165 Patoka Hub lacks the out-bound pipeline infrastructure to reach the Gulf Coast. The
166 ETCO Pipeline would address this logistical gap at the Patoka Hub.
167 Additionally, with respect to the Mustang Pipeline, shippers that transport barrels
168 through the mainline system of Enbridge Energy, Limited Partnership’s (“Enbridge”)
169 Lakehead Pipeline have the option to ship barrels either to the Cushing Hub through
170 pipelines that connect the Cushing Hub to the Lakehead Pipeline or to the Patoka Hub
171 through the Mustang Pipeline. The Lakehead Pipeline transports over 2.2 million barrels
172 of crude oil from oil and gas production regions like the Williston Basin and Canada.
173 Accordingly, if the ETCO Pipeline is placed into service, shippers of domestic crude oil
174 produced in the Williston Basin and Canadian crude oil will have the option of routing
175 their barrels through the Patoka Hub, not just the Cushing Hub, while maintaining
176 optionality to reach the Gulf Coast. Once the SAX Pipeline is placed in-service, the same
177 dynamic will apply to that system.
178 Likewise, multiple grades of U.S. and Canadian crude oil that are transported to
179 the crude oil market hub near Guernsey, Wyoming, have the option to reach the Cushing ETCO Exhibit 3.10 Page 9 of 20
180 Hub through the Pony Express Pipeline. Alternatively, those barrels can currently access
181 the Patoka Hub through Spectra’s existing Platte pipeline system, which delivers into
182 Wood River, Illinois, where it connects to the WoodPat Pipeline for delivery to the
183 Patoka Hub.
184 Q. Was the ETCO Pipeline originally planned as a standalone project?
185 A. Yes, the ETCO Pipeline Project was originally conceived, and was being developed, as a
186 stand-alone pipeline project. The project was originally referred to as the Trunkline
187 Crude Oil Pipeline project, due to the plan to convert the existing Trunkline Gas
188 Company, LLC (“Trunkline”) natural gas pipeline for the project. On July 26, 2012,
189 Trunkline filed its petition with the Federal Energy Regulatory Commission for approval
190 to abandon portions of the existing Trunkline natural gas pipeline from natural gas
191 transportation, so that it could be converted to crude oil transportation service (FERC
192 Docket No. CP12-491-000).
193 Q. What was the need for crude oil transportation service from the Patoka Hub to the
194 Gulf Coast region that was the driver for proposing a pipeline project from the
195 Patoka Hub?
196 A. This need was described in Trunkline’s abandonment petition for the existing natural gas
197 pipeline in FERC Docket No. CP12-491-000 (the “Pipeline Facilities” refers to the
198 existing natural gas pipeline facilities that Trunkline proposed to abandon for conversion
199 to crude oil transport service):
200 The Pipeline Facilities are strategically located to act as a relief 201 valve on the transportation bottleneck that exists for transporting crude oil 202 from the Midwest, where crude oil is delivered from multiple pipelines 203 with origin points for receiving crude oil further north, to the U.S. 204 Petroleum for Defense District (“PADD”) III refining complex…. The 205 conversion, which can be accomplished with minor modification, will not ETCO Exhibit 3.10 Page 10 of 20
206 only facilitate domestic oil commerce in the Texas-Louisiana Gulf Coast 207 and Midwest areas, but also will help to reduce the country’s dependence 208 on crude supplies from outside North America, enhancing the overall 209 diversity of supply sources that domestic refineries can call upon in PADD 210 III.
211 * * * * *
212 The proposed abandonment of the Pipeline Facilities by sale to an 213 affiliate to be designated by Energy Transfer will permit the facilities to be 214 transferred from an industry with surplus capacity to one with significant 215 capacity needs.
216 Indeed, in a speech on March 22, 2012, President Obama noted 217 that a significant problem has arisen in the U.S. “because we can’t get 218 enough of the oil to our refineries fast enough. If we could, then we 219 would be able to increase our oil supplies at a time when we need it as 220 much as possible.” Pipelines are the most efficient means of U.S. crude 221 oil transportation. Today, however, the growing supplies of crude oil that 222 cannot reach PADD III refineries by pipeline have forced traders, refiners, 223 and producers to increase their utilization of railways, barges, and tank 224 trucks to compensate for the lack of north-to-south pipeline capacity. The 225 Energy Transfer affiliate will offer crude oil transportation service 226 pursuant to the rules and regulations of the [Federal Energy Regulatory] 227 Commission under the Interstate Commerce Act, in accordance with terms 228 and conditions of crude oil tariff(s) to be filed with the Commission prior 229 to the provision of any such service. Thus, the conversion of the Pipeline 230 Facilities to crude oil transportation service will ensure that the facilities 231 are converted to a productive use.
232 Q. In its Application to this Commission for a certificate of good standing and other
233 authority, why did ETCO present the ETCO Pipeline Project as essentially a
234 companion project to the Dakota Access Pipeline Project from North Dakota to the
235 Patoka Hub?
236 A. With the rapid development of crude oil production in the Bakken/Three Forks region of
237 North Dakota over a relatively short period from 2009 to 2013, and the lack of pipeline
238 capacity to transport crude oil from that production area, it became apparent to ETP in the
239 period of 2013 through 2014 that there was a significant need for, and market opportunity
240 in, the construction and operation of a crude oil transportation pipeline from North ETCO Exhibit 3.10 Page 11 of 20
241 Dakota to the Midwest, in particular to the Patoka Hub, from which the crude oil could
242 then be shipped either to refineries in Illinois or other Midwestern (PADD II) states or to
243 the Gulf Coast refinery complex (given adequate transportation capacity for that
244 movement). Therefore, ETP initiated development of the Dakota Access Project. Given
245 the growing and abundant supplies of crude oil from the Bakken region and the lack of
246 direct pipeline transportation options to move crude oil from the Bakken region to the
247 Gulf Coast refinery markets, the Dakota Access and ETCO Projects naturally fit together
248 as companion projects.
249 Additionally, at the time the Applications for certificates of good standing and
250 other authorities were filed, contemporaneously, with this Commission for the Dakota
251 Access and ETCO Pipeline Projects in Illinois, Dakota Access and ETCO assumed that
252 the two cases would proceed on approximately the same schedule and that orders in the
253 two cases would be issued at more or less the same time.
254 Unfortunately, the circumstances I just described resulted in ETCO filing its
255 Application and testimony to date without a more fulsome explanation of the need for the
256 ETCO Pipeline on a stand-alone basis, even if the Dakota Access Pipeline were not
257 placed into service.
258 ETCO did not anticipate what has now transpired, namely, that the ETCO case
259 has proceeded such that an order may be issued in this docket several months ahead of
260 the order in the Dakota Access docket (14-0754). This development in turn provides a
261 significant opportunity to start construction and conversion of the ETCO Pipeline,
262 complete it, and place it into crude oil transportation service significantly in advance of ETCO Exhibit 3.10 Page 12 of 20
263 the Dakota Access Project. This development has re-focused attention on the need for
264 the ETCO Pipeline as a stand-alone project.
265 Q. How much sooner could the ETCO Pipeline be placed into crude oil transportation
266 service in advance of the Dakota Access Pipeline?
267 A. It appears that a final order could be issued in Docket 14-0755 by late September or early
268 October of 2015, or possibly somewhat sooner if all issues were resolved. In contrast, it
269 would appear that entry of the order in the Dakota Access case, Docket 14-0754, may not
270 occur until December 2015. This is more than just a 2 to 3 month difference, however,
271 because receipt of an order for ETCO granting a certificate and eminent domain
272 authority, not conditioned on issuance of a certificate to Dakota Access, by on or about
273 October 1 would enable ETCO to commence construction activities on the new build
274 portion of the ETCO Pipeline in Illinois before the advent of winter weather that limits
275 construction activities. ETCO anticipates that the 31-mile new build portion in Illinois
276 can be constructed in 2 to 3 months, weather permitting, and coupled with the conversion
277 of the Trunkline Pipeline, the system could be placed into operations at least 6 months
278 ahead of Dakota Access or six months ahead of the currently anticipated in-service date if
279 the ETCO certificate remains conditioned on the Dakota Access certificate.
280 Further, the ETCO Pipeline Project involves only about 65 miles of new pipeline
281 construction, with approximately 30 miles of new pipeline to be constructed from Buna,
282 Texas, to Nederland, Texas, in addition to the Illinois new-build portion, and several
283 replacement sections to be installed to the existing natural gas pipeline at locations in
284 Illinois and points to the south. The vast majority, by distance, of the ETCO Pipeline
285 Project involves the work to convert the existing natural gas pipeline to crude oil ETCO Exhibit 3.10 Page 13 of 20
286 transport service, as was described in Mr. Broad’s direct testimony. In contrast, the
287 Dakota Access Pipeline Project requires approximately 1,130 miles of new pipeline
288 construction.
289 Of course, completing construction of the 31-mile new-build portion of the ETCO
290 Pipeline in Illinois requires acquisition of easements on this entire segment. As Ms.
291 McDaneld reports in her testimony on reopening, ETCO continues to make significant
292 progress in acquiring easements for the new-build portion of the route through voluntary
293 agreements. As of July 24, 2015, ETCO has acquired easements for 132 (82.5%) of the
294 160 parcels that will be crossed by the new-build portion of the pipeline. However, even
295 a few holdout landowners can prevent ETCO from starting and completing construction
296 of the new-build portion of the pipeline. This is why receipt of eminent domain
297 authority, not conditioned on the issuance of the Dakota Access certificate order, is
298 necessary in order for ETCO to be able to start construction in 2015. In the event ETCO
299 cannot use eminent domain until Dakota Access receives its certificate order, ETCO’s
300 construction activities would not begin and its in-service date would not occur earlier, but
301 instead would remain concurrent with the Dakota Access construction and in-service
302 schedule.
303 Q. Assuming that the Dakota Access Pipeline were not in service, what would be the
304 sources of crude oil that would be shipped from Patoka to the Gulf Coast via the
305 ETCO Pipeline?
306 A. Earlier in my testimony, I identified the pipeline systems that deliver to the Patoka Hub,
307 along with the proposed pipeline systems that will deliver to the Patoka Hub in the future.
308 Except for the Capline Pipeline, each of those pipeline systems would be a likely ETCO Exhibit 3.10 Page 14 of 20
309 potential source of crude oil for the ETCO Pipeline. Each of those pipeline systems
310 transport, or are proposing to transport, crude oil from one or more production regions to
311 the Patoka Hub, where the crude oil could be received by the ETCO Pipeline for
312 transportation to Nederland, Texas.
313 Even the Capline Pipeline, however, which transports crude oil from St. James,
314 Louisiana, to Patoka, Illinois, could at times be a source of crude oil for the ETCO
315 Pipeline. For example, if crude oil transported initially to the Patoka Hub for Midwest
316 refinery demand had to be diverted out of the Patoka Hub because of a refinery
317 turnaround, it is reasonable to envision the market reacting by incentivizing crude oil
318 flows back to the Gulf Coast. Reduced Midwestern refinery demand and unanticipated
319 excess supply at the Patoka Hub would combine to pressure the basis pricing at Patoka
320 Hub and incentivize shipments out of the Hub, including shipments to the Gulf Coast.
321 Moreover, depending on pricing differentials, circumstances could arise where
322 crude oil might seek to move from St. James, Louisiana, to Nederland, Texas. Efficient
323 pipeline logistics for that movement do not currently exist because Shell Pipeline
324 Company’s Houma-to-Houston pipeline system was put into alternative service. A
325 shipment of crude oil up the Capline Pipeline to Patoka, Illinois, and down to Nederland,
326 Texas, through the ETCO Pipeline would allow that shipment to occur entirely by
327 pipeline logistics. I do not anticipate the scenarios in which this would occur to be
328 frequent. Nevertheless, that type of scenario highlights how a robust logistical network
329 both in and out of a market hub like the Patoka Hub can present episodic pricing
330 opportunities that cause market participants to want to position themselves at that market
331 hub as either owners in or customers of terminalling and pipeline infrastructure. ETCO Exhibit 3.10 Page 15 of 20
332 Q. The planned initial capacity of the ETCO Pipeline is approximately 400,000 bpd.
333 Do you have an estimate of the volumes of crude oil that would be shipped on the
334 ETCO Pipeline on a stand-alone basis if the Dakota Access Pipeline were not in
335 service?
336 A. The volume of crude oil that would be shipped on ETCO Pipeline in such a case would
337 depend on many market factors, of course, including differences in seasonal demand in
338 different regions, the timing of new pipeline infrastructure projects delivering into the
339 Patoka Hub, and the basis pricing differentials across regions. Nevertheless, it is
340 reasonable to anticipate that at least 150,000 bpd would be routinely transported by
341 ETCO Pipeline. Cumulatively, that level of volume matches reasonably well with (a)
342 what was being transported by the Pegasus Pipeline prior to May 29, 2013, plus (b) a
343 volume that accounts – somewhat conservatively, I believe – for the fact that additional
344 pipeline capacity, beyond what existed in 2013, will be capable of delivering a greater
345 aggregate volume of crude oil to the Patoka Hub by late 2015, with the introduction of
346 the SAX Pipeline. This represents less than 12.5% of the total capacity of the pipelines
347 bringing volume into Patoka, inclusive of the SAX Pipeline but, for the reasons that I
348 discussed earlier, with the Capline Pipeline excluded. Given the potential for volatility in
349 crude oil basis pricing and for refinery turnarounds or upsets, it is not unreasonable to
350 project that the ETCO Pipeline’s full 400,000 bpd of capacity could be utilized
351 episodically at various times throughout the year. Moreover, considering that Spectra’s
352 400,000 bpd expansion project to the Patoka Hub is anticipated to be placed in service
353 later in the decade, the volumes that would be likely to move into the ETCO Pipeline
354 more routinely could increase substantially. ETCO Exhibit 3.10 Page 16 of 20
355 Q. In previous testimony, Mr. Maple indicated that it was not known whether crude oil
356 deliveries into the Patoka Hub from the north and west are currently in balance
357 with outbound crude oil shipments from the Patoka Hub. Is crude oil currently
358 being transported to the Gulf Coast refinery region through other pathways that
359 could be routed through Patoka if the ETCO Pipeline were available for
360 transportation service from Patoka to the Gulf Coast?
361 A. Yes. As I discussed earlier, shippers currently have the option to route crude oil from
362 pipeline systems like the Lakehead Pipeline and the Keystone Pipeline either to the
363 Patoka Hub or to the Cushing Hub. Once the ETCO Pipeline is placed in-service,
364 volumes that are currently routed from those systems to the Gulf Coast through the
365 Cushing Hub will have the opportunity to reach the Gulf Coast through the ETCO
366 Pipeline from the Patoka Hub. Incentivizing more barrels to be routed through the
367 Patoka Hub will help to reinforce the access that Midwest refineries have to crude oil
368 supplies. It will improve liquidity and optionality for all market participants at the Patoka
369 Hub. Additionally, as I have discussed, it will provide additional incentives for future
370 infrastructure development in the Patoka Hub and throughout Illinois.
371 Q. Approximately 90 percent of the capacity of the ETCO Pipeline is contracted for
372 under long-term contracts by shippers that have also contracted comparable
373 amounts of transportation capacity on the Dakota Access Pipeline, with 10 percent
374 of the ETCO Pipeline’s capacity reserved for walk-up shippers as required by
375 Federal Energy Regulatory Commission rules. Would the existing contracts enable
376 these shippers, or other shippers, to use the ETCO Pipeline in the manner you have
377 described if the Dakota Access Pipeline were not in service? ETCO Exhibit 3.10 Page 17 of 20
378 A. Yes. In fact, under the joint tariff structure that Dakota Access and ETCO established
379 with their shippers, the shippers viewed it as critical that they would have the opportunity
380 to deliver all of their crude oil volumes to the Patoka Hub. Thus, even for those shippers
381 that have contracted for capacity through both Dakota Access and ETCO from North
382 Dakota to Nederland, Texas, the systems are designed, and the joint tariff structure
383 agreements by and among Dakota Access, ETCO, and the shippers are structured, to
384 permit all of the volume transported by Dakota Access to be delivered into the Patoka
385 Hub. This structure provides the opportunity for crude oil being transported to the Patoka
386 Hub through other pipeline systems, or already in tankage at the Patoka Hub, to be
387 transported through the ETCO Pipeline during the periods when volumes from the
388 Dakota Access Pipeline area being delivered into the Patoka Hub.
389 Q. What is the investment in facilities in Illinois that the ETCO Pipeline will represent?
390 A. As ETCO has stated in previous testimony, the new-build and converted ETCO Pipeline
391 will be approximately a $230 million investment in Illinois. Physical construction of the
392 new-build portion of the pipeline from Patoka to Johnsonville will require a capital
393 expenditure of approximately $100 million. Receipt of an order granting a certificate of
394 good standing and Section 8-503 and 8-509 authority for the ETCO Pipeline, not
395 conditioned on the receipt of Dakota Access’s certificate order, will enable ETCO to
396 commence making these expenditures in the Illinois economy much sooner than would
397 otherwise be the case. The result would be an earlier influx of spending in the Project-
398 area communities, access to sales tax revenues from the goods purchased and consumed
399 during construction, and ultimately increased sales tax revenue to the State of Illinois
400 (approximately $6 million), as well as additional personal income taxes from the ETCO Exhibit 3.10 Page 18 of 20
401 operations staff being placed in the communities six or more months ahead of the current
402 plan.
403 Additionally, the ETCO pipeline, and more importantly the pump station at
404 Patoka, would be placed into service earlier, thereby resulting in the funds generated
405 from property taxes or ad valorem taxes (approximately $418,000 contributing to
406 governmental revenues and the local economy earlier. Without the earlier start to
407 construction for ETCO, these funds would not be available in 2016 as the current
408 schedule for the in-service date of the ETCO pipeline when constructed and
409 commissioned concurrently with Dakota Access is January 1, 2017. With an earlier start
410 of construction for ETCO, these tax revenues would start to be realized at least 6 months
411 ahead of the current schedule. However, the need to spend and the actual spending of the
412 capital investment would only start to occur if there was relative assurance that ETCO
413 could reasonably have a chance to conclude right-of-way purchasing and mobilization of
414 and actual construction of the pipeline in an efficient and unencumbered manner to
415 ensure a cost effective and seamless approach to construction. The lack of ability to use
416 eminent domain to acquire easements would eliminate the right-of-way certainty needed
417 to pursue an early start of construction for ETCO and therefore the early spending of
418 project resources and would delay or displaced receipt of tax revenues generated by the
419 Project to the local communities and the State of Illinois.
420 Q. Are there other benefits of being able to proceed to construct the ETCO Pipeline
421 and place it into service ahead of the Dakota Access Pipeline?
422 A. Yes. By placing ETCO in service earlier, the process of commissioning the pipeline and
423 preparing the pipeline for service is decoupled from Dakota Access, making the overall ETCO Exhibit 3.10 Page 19 of 20
424 process more manageable, more efficient, safer and ultimately more reliable to the
425 shippers who have transportation services on both Dakota Access and ETCO. The risk
426 factors are minimized by reducing the complications of starting up two major systems
427 concurrently, thereby reducing risk factors such as weather, mechanical failure, labor
428 availability, material access and overall performance of the technical staff and
429 contractors. For example, if ETCO is able to place the Project in service six months
430 earlier, all activities for commissioning the ETCO Pipeline would be executed ahead of
431 Dakota Access. These activities include filling the pipeline with crude oil, testing and
432 operating the pump stations to ensure they function as planned, and making actual
433 physical movements of crude oil from Patoka to the Gulf Coast to test the integrity and
434 operability of the system under actual operating conditions,
435 In addition to enhanced reliability, the earlier start for ETCO would allow ETCO
436 to fill the pipeline from sources such as crude oil originating from the Patoka area instead
437 of from North Dakota, reducing the amount of crude oil and time needed to fill the
438 pipeline from North Dakota. It is anticipated it will take approximately 30 to 40 days to
439 fill the Dakota Access pipeline with crude oil. The same time period is also anticipated
440 to fill the ETCO pipeline. Without a staggered start to fill the ETCO pipeline ahead of
441 the Dakota Access, both pipelines would both be filled from crude oil originating from
442 North Dakota and would occur back-to-back (i.e., the ETCO pipeline could not be filled
443 until Dakota Access is filled), taking from 60 to 80 days to fill both pipelines. In contrast
444 if ETCO can start commissioning activities earlier than Dakota Access, the ETCO
445 pipeline would be filled with crude oil originating from Patoka (from a source other than
446 Dakota Access). This would allow ETCO to be commissioned ahead of Dakota Access ETCO Exhibit 3.10 Page 20 of 20
447 and effectively reduce the total commissioning time for both projects by 50%, thereby
448 allowing ETCO to be ready to provide transportations service ahead of Dakota Access.
449 This will also increase assurances to shippers of a safe and efficient commissioning and
450 start-up process.
451 Q. Do ETCO and its equity owners see a public need for the ETCO Pipeline on a stand-
452 alone basis that justifies proceeding to construct and place the ETCO Pipeline into
453 service in advance of the Dakota Access Pipeline?
454 A. Yes. The construction and conversion of the ETCO Pipeline, in total, will be an
455 investment of approximately $890 million, including, as I previously stated,
456 approximately $230 million in Illinois. The equity investors in the ETCO Pipeline seek
457 to conserve their investors’ capital and invest it only in projects that provide strong risk
458 adjusted-return opportunities with significant prospects for success. Further, projects in
459 which the owners invest significant capital to construct and place into service must begin
460 to promptly generate positive cash flows and returns in order to meet our obligations to
461 our lenders and the expectations of our investors. IF ETCO and its owners did not
462 believe that the ETCO Pipeline is a promising investment opportunity that will meet an
463 unmet need for crude oil transportation service, on a stand-alone basis, we would not be
464 seeking to obtain a certificate of good standing and Section 8-503 and 8-509 authority not
465 conditioned on the Dakota Access order, as we are doing, to enable construction and
466 operation of the ETCO Pipeline to proceed as soon as possible.
467 Q. Does this conclude your prepared testimony on reopening?
468 A. Yes, it does. STATE OF ILLINOIS
ILLINOIS COMMERCE COMMISSION
ENERGY TRANSFER CRUDE OIL COMPANY, LLC ) ) Docket No. 14-0755 ) ) APPLICATION PURSUANT TO SECTIONS 15-401 ) OF THE COMMON CARRIER ) BY PIPELINE LAW AND SECTION 8-503 and 8-509 ) OF THE PUBLIC UTILITIES ACT FOR A ) CERTIFICATE IN GOOD STANDING AND ) RELATED AUTHORITY TO CONSTRUCT AND ) OPERATE A PETROLEUM PIPELINE AS A ) COMMON CARRIER PIPELINE AND WHEN ) NECESSARY TO TAKE PRIVATE PROPERTY AS ) PROVIDED BY THE LAW OF EMINENT DOMAIN )
ETCO EXHIBIT 3.11
SPECTRA ENERGY PRESS RELEASE