CANADA ENERGY REGULATOR RÉGIE DE L’ÉNERGIE DU CANADA

Enbridge Pipelines Inc. Canadian Mainline Contracting Application Virtual Hearing RH-001-2020

Pipelines Enbridge Inc. Demande visant les contrats relatifs à la canalisation principale au Canada Audition virtuelle RH-001-2020

VOLUME 17

Hearing held at L’audience tenue à

Canada Energy Regulator 517 Tenth Avenue SW Calgary, Alberta

June 17, 2021 Le 17 juin 2021

International Reporting Inc. Ottawa, Ontario (613) 748-6043

© Her Majesty the Queen in Right of Canada 2021 © Sa Majesté du Chef du Canada 2021 as represented by the Canada Energy Regulator représentée par la Régie de l’énergie du Canada

This publication is the recorded verbatim transcript Cette publication est un compte rendu textuel des and, as such, is taped and transcribed in either of the délibérations et, en tant que tel, est enregistrée et official languages, depending on the languages transcrite dans l’une ou l’autre des deux langues spoken by the participant at the public hearing. officielles, compte tenu de la langue utilisée par le participant à l’audience publique.

Printed in Canada Imprimé au Canada

Transcript

IN THE MATTER OF Enbridge Pipelines Inc. Canadian Mainline Contracting Application Virtual Hearing RH-001-2020

HEARING LOCATION/LIEU DE L’AUDIENCE

Hearing held via videoconference in Calgary, Alberta, Thursday, June 17, 2021 Audience tenue par vidéoconférence à Calgary (Alberta), jeudi, le 17 juin 2021

COMMISSION PANEL/COMITÉ D'AUDIENCE DE LA COMMISSION

Stephania Luciuk Presiding Commissioner/Commissaire présidant l’audience

Trena Grimoldby Commissioner/Commissaire

Wilma Jacknife Commissioner/Commissaire

Transcript

APPEARANCES/COMPARUTIONS (i)

Applicant/Demandeur

Enbridge Pipelines Inc. Ms. Kristi Millar Mr. Bernard Roth Mr. Don G. Davies, Q.C. Ms. Jennifer Nichols

Intervenors/Intervenants

Alberta Department of Energy Mr. Colin King Ms. Joyce Amiwero

Alberta Petroleum Marketing Commission Mr. Colin King

BP Products North America Inc. Mr. John Cusano Ms. Michelle Voinorosky Ms. Laura McPhee Ms. Laura Estep

Canadian Natural Resources Limited Mr. Martin Ignasiak Mr. John Gormley

Cenovus Energy Inc. Mr. James H. Smellie Mr. Lorne Rollheiser

ConocoPhillips Canada Mr. Alan Ross Mr. Bradon Willms

Consumers’ Cooperative Refineries Ltd. & Federated Co-operatives Limited Mr. Rangi Jeerakathil Ms. Jessica Buhler Mr. Douglas Mah Mr. Warren Cross Mr. Gurpreet Bhatia

Transcript

APPEARANCES/COMPARUTIONS (ii)

Intervenors/Intervenants (Continued/Suite)

Ducere LLC Mr. David Nelson

Government of Saskatchewan Ms. Jessica Kennedy Mr. Coleman Brinker Mr. Bruce Wilhelm Mr. Paul Wagner Mr. Dylan Gejdos

Imperial Oil Limited Mr. Brad Gilmour Ms. Jessica Mercier Mr. Tim Myers

Inter Pipeline Ltd. Mr. Sander Duncanson Ms. Michelle Dawson

MEG Energy Corp. Mr. Keith Miller

Motiva Enterprises LLC Mr. Gordon Nettleton

Phillips 66 Canada Mr. Dennis P. Langen Ms. Larissa D. Lees

Shell Canada Limited Mr. Evan W. Dixon Mr. Evan Dickinson Mr. Brendan Downey

Suncor Energy Inc. Ms. Katie Slipp Mr. Jay Headrick Mr. C. Kemm Yates

Transcript

APPEARANCES/COMPARUTIONS (iii)

Intervenors/Intervenants (Continued/Suite)

The Explorers and Producers Association of Canada Mr. Randall Block Ms. Laurie Ziola

Total E&P Canada Ltd. Mr. Ron Kruhlak Mr. Shawn Hinch Mr. Rusty Miller Mr. Michael Barbero

United Refining Company Mr. Loyola G. Keough

Valero Energy Inc. Mr. Dennis P. Langen Ms. Larissa D. Lees Mr. Nathan Murphy

Vitol Inc. Mr. Dennis P. Langen Ms. Larissa D. Lees

Canada Energy Regulator/Régie de l’énergie du Canada Ms. Jessica Gill Ms. Carol Gagné

Transcript

TABLE OF CONTENTS/TABLE DES MATIÈRES (i)

Description Paragraph No./No. de paragraphe

Opening remarks by the Presiding Commissioner 16567

Canadian Shippers Group (CSG) and MEG Energy Corp. (MEG) Ms. Shonda Day Mr. Glenn Booth Ms. Shannon Hardy Mr. Gary M. Houston Ms. Pauline Buitink Mr. Erik Alson Mr. Mark Drazen Mr. Ron Mikkelsen Dr. Jeff D. Makholm Mr. Roland Priddle

- Examination by Mr. Davies (continued) 16583

Transcript

LIST OF EXHIBITS/LISTE DES PIÈCES

No. Description Paragraph No./No. de paragraphe

Transcript

UNDERTAKINGS/ENGAGEMENTS

No. Description Paragraph No./No. de paragraphe

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

--- Upon commencing at 9:02 a.m./L’audience débute à 9h02

16567. THE PRESIDING COMMISSIONER: Okay. Good morning, everyone, and welcome back to the continuation of the oral portion of the CER's proceeding regarding Enbridge Pipelines Inc. Canadian Mainline Contracting Application, RH-001-2020.

16568. My name is Stephania Luciuk, and joining me today are Commissioners Jacknife and Grimoldby.

16569. Commissioner Jacknife, would you please say a few words to make sure your connection is working?

16570. COMMISSIONER JACKNIFE: Good morning, everyone.

16571. THE PRESIDING COMMISSIONER: And Commissioner Grimoldby?

16572. COMMISSIONER GRIMOLDBY: Good morning, everyone.

16573. THE PRESIDING COMMISSIONER: We also have with us our CER staff who include our dual counsel, Carol Gagné and Jessica Gill; our regulatory officer, Janet Foreman; process advisor, Heather Tilley; and our client services expert, John Nelson.

16574. And there is a live audio and video stream continuing to be broadcast from the CER's website.

16575. A few reminders as our large panel resumes again today. Please remember, with discipline, to introduce yourself when answering a question, just identifying yourself when you unmute to speak, assists the court reporter and all those listening to follow who is speaking in this virtual environment.

16576. As always, please ensure you clearly identify exhibit numbers, filing numbers for any documents that you wish to have pulled up by Ms. Foreman, including the PDF page number.

16577. And we will aim to break somewhere in the vicinity of 10:30 today. We will have our usual lunch break, and then as indicated yesterday, we will have

Transcript Canadian Shippers Group Panel Examination by Mr. Davies a longer session in the afternoon.

16578. Mr. Davies, maybe we can touch base with you a little bit later in the day and see how your cross-examination is going.

16579. Are there any preliminary matters that we need to deal with before we continue with the cross-examination of the Canadian Shippers Group panel?

--- (No response/Aucune réponse)

16580. THE PRESIDING COMMISSIONER: Okay. I believe I have counted up all the witnesses and see everybody clearly.

16581. With that, Mr. Davies, on behalf of Enbridge, please go ahead and resume your cross-examination whenever ready.

16582. MR. DAVIES: Yes, thank you, Madam Chair and Commissioners.

SHONDA DAY: Resumed GLENN BOOTH: Resumed SHANNON HARDY: Resumed GARY M. HOUSTON: Resumed PAULINE BUITINK: Resumed ERIK ALSON: Resumed MARK DRAZEN: Resumed RON MIKKELSEN: Resumed JEFF D. MAKHOLM: Resumed ROLAND PRIDDLE: Resumed

--- EXAMINATION BY/INTERROGATOIRE PAR MR. DAVIES: (Continued/Suite)

16583. MR. DAVIES: Ms. Day, back to you. You mentioned yesterday that CNRL transports condensate on the Mainline. And I think you indicated this, but just to confirm, that condensate is transported from Edmonton to Hardisty; is that right?

16584. MS. DAY: Good morning, Madam Chair, Commission, and Mr. Davies.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16585. Yes, that is correct. And I think I also mentioned we were shipper of record for our 15,000 barrels a day of Flanagan South and 700,000 barrels a day of our production also moves on Enbridge Mainline.

16586. MR. DAVIES: CNRL holds capacity on the Keystone Pipeline; is that correct?

16587. MS. DAY: We are not a shipper on Keystone Base system.

16588. MR. DAVIES: Does that mean you don’t ship volumes on Keystone?

16589. MS. DAY: Sorry, we have shipped uncommitted volumes on Keystone. We do not have any TSAs on the Keystone Base system. We were a support of KXL. But we don’t have any commitments on Keystone Base system. There was an expansion of 50,000 barrels a day that was planned for Keystone, but it’s not in service yet. So we don’t have any commitments that are in place currently shipping on Keystone.

16590. MR. DAVIES: But you do ship uncommitted volumes on Keystone, do you?

16591. MS. DAY: Yes, we were fortunate a month ago, I think, we put our name in the lottery and were allocated some uncommitted space. So we were able to ship some barrels down to the Gulf Coast.

16592. MR. DAVIES: Will CNRL be a shipper on the Trans Mountain Expansion Project?

16593. MS. DAY: Yes, we will.

16594. MR. DAVIES: And are you able to advise how much capacity you have signed up for?

16595. MS. DAY: Yes, I am. Let me just confirm the number. I believe it’s 94,000 barrels a day, but I would like to confirm that number, please. Could I -- I’ll just leave it at that, subject to check. Just we had one -- we had an amalgamation of volume, so between CNRL’s initial volume and then volume that was brought over. But I can check that and get back to you at the break, if you would like.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16596. MR. DAVIES: Yeah, or if the number is right, no need to get back to me.

16597. MS. DAY: Sure.

16598. MR. DAVIES: Does CNRL have a forecast of its expected Western Canadian oil production beyond 2021?

16599. MS. DAY: Yes, we do.

16600. MR. DAVIES: And how far out in the future does it forecast?

16601. MS. DAY: Well, we released our budget, I guess, in December of 2020. And at that time, we indicated we had a number of near and midterm opportunities that were available based on the correct price signals and access to egress.

16602. At that time, we indicated that we have, I think it’s 95,000 barrels a day of unutilized capacity in our thermal projects. We’ve got -- Horizon’s got a number of 35 to 45,000 barrel a day small expansions that can happen. As well, we’ve got 165,000 barrels a day of production, so not blend, but production, that we can be -- that can be brought on quite quickly on our conventional and unconventional space.

16603. So we just look at the next year out, apply capital, and look at basically the pricing and the egress environment. And until we get some egress on, we’re waiting to bring on those projects. So I think beyond that, if you’re asking for longer than that, Mr. Davies, we identified in that same budget that we have the ability to bring on 1.2 million BOE equivalent of future capacity.

16604. MR. DAVIES: Okay. Let’s turn up, if we could, Exhibit C13524-3.

16605. MS. DAY: If you ---

16606. MR. DAVIES: And this is a transcript of CNRL’s Q1 2021 Earnings Call. Are you with me, Ms. Day?

16607. MS. DAY: I am, Mr. Davies. I’ve got my binder here of 1,200 pages. So I will work through it with you.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16608. MR. DAVIES: And it’s clear from reading the transcript that CNRL is focused on maximizing free cash flow. Is that correct?

16609. MS. DAY: Yes, that’s correct. I think right now what we have been clear in our investor transcripts is there is not any point in bringing on a lot of new production unless there is sufficient egress for it to be sold into. Right now we’re bringing on production and as we’ve sort of talked about in this hearing, sometimes up to 50 percent of it on the heavy side is sold at a post apportionment discounted price.

16610. So we’re waiting for some egress so we can bring on some of these new development opportunities that we have.

16611. MR. DAVIES: In his cross-examination of the Enbridge panel, Mr. Ignasiak referred to free cashflow as a bonus. Do you consider free cash flow to be a bonus, Ms. Day?

16612. MS. DAY: No, not -- I don’t -- I think we’re in the business of returning value to our shareholders. And so we have four pillars: balanced sheets strength, shareholder returns, resource value growth, and opportunistic acquisitions. So that’s how CNRL approaches its business.

16613. MR. DAVIES: Okay. And if we go to PDF page 11 of this transcript, please?

16614. MS. DAY: M’hm.

16615. MR. DAVIES: And if we scroll down to the bottom, you see that Mr. Fong of CIBC is asking a question about capital allocation and the longer-term strategy for moving forward on capital projects like debottlenecking projects at the Horizon Project?

16616. MS. DAY: I do.

16617. MR. DAVIES: And if we go over the page, please, Mr. McKay, your president, responds to the question by saying this:

“Well, that's a very -- the hard part of that is that we would have to kind of speculate in on certain conditions, whether it's egress or pricing and it's really difficult to say.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies What I can say is, if you look out, I can't see us doing a major project, in terms of capital expenditure, in terms of Horizon expansion. If we do anything, I suspect, it will be very small.

We'll leverage off our facilities. We're doing drill to fill on the gas side. With the oil side, it would be essentially brownfield small developments. I just don't see really any industry -- anybody in the industry really being aggressive on any kind of major capital program.”

16618. Does this, Ms. Day, accurately summarize CNRL’s longer term strategy?

16619. MS. DAY: No, I don’t think it -- I think Mr. McKay is saying exactly what he said there, that, you know, the conversation earlier in this document was about how Canada, as a producing industry, has to, I’ll say, crack the ESG nut, as well as bring some new egress online. And between those two things, then we can continue to develop our resources, which I think is to the benefit of all Canadians.

16620. CNRL puts out a capital plan that they discuss with the investors and, you know, shareholders in December, I believe it is. And at that time, we go through the slides that I was just referencing in terms of our expansion opportunities.

16621. But I think this conversation here was about, okay, in light of issues around how we’re going to address the emissions and ESG challenges we have and the lack of egress, what are you planning to do, and this is a quarterly call. And I think Mr. McKay is saying, look, we’re happy to drill the fill on the gas side and, on the oil side, we will have small developments. Because at this point, there’s no egress to develop into.

16622. MR. DAVIES: Where, in advance of this response that Mr. McKay provided on PDF page 12 -- where in this transcript in advance of that does he talk about ---

16623. MS. DAY: Talk about what? Sorry, Mr. Davies?

--- (A short pause/Courte pause)

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16624. MS. DAY: I’m sorry, I’m not sure if Mr. Davies is still with us.

16625. MR. DAVIES: I’m waiting. Can you hear me?

16626. MS. DAY: I did. You asked -- you said, “where in the transcript”. I missed your question. What are you asking me is in the transcript?

16627. MR. DAVIES: Where in advance of that discussion on PDF page 12 that we were talking about does Mr. McKay or anyone else at CNRL talk about a lack of egress in this transcript?

16628. MS. DAY: Well, I think Dennis Fong, the analyst, is asking him some -- maybe some of the criteria at the bottom of page 11:

“…from a leverage perspective that you would consider before -- as well as egress before you would consider moving forward…”

16629. MR. DAVIES: Okay.

16630. MS. DAY: So that’s where I was. Yes.

16631. MR. DAVIES: Madam Chair, for some reason I -- and it happened yesterday as well, I just somehow get bumped out and press a button and come back. So hopefully, this isn’t a continuous thing, but bear with me if it is.

16632. THE PRESIDING COMMISSIONER: So Mr. Davies, we did notice it. It seemed like you froze for a moment, but it was brief. But we’ll monitor it and see if we need to do anything further.

16633. MR. DAVIES: Thank you.

16634. I wonder if we could turn up, please, Exhibit C135 -- just a minute. Sorry, it’s the Oilsands Pathways to Net Zero --- there we go. Thank you.

16635. And this, Ms. Day, is the announcement that we read about last week, whereby a group of producers CNRL, Cenovus, Imperial, MEG and Suncor announced an Oil Sands Pathways to Net Zero initiative; right?

16636. MS. DAY: M’hm, yes, that’s correct. We are quite proud of that.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

16637. MR. DAVIES: Yeah, and you should be.

16638. And if we scroll down please. That’s good. You see that the statement is made that, “The Pathways” -- I’m looking at the third bullet:

“The Pathways initiative is ambitious and will require significant investment on the part of both industry and government to advance the research and development of new and emerging technologies.”

16639. Do you see that?

16640. MS. DAY: I do.

16641. MR. DAVIES: And over the page please? Just scroll down a little bit more. Thank you.

16642. There is an indication that:

“…the initiative incorporates a number of parallel pathways to address GHG emissions, including:”

16643. In the second bullet:

“Deploying existing and emerging GHG reduction technologies at oil sands operations along the corridor, including CCUS technology, clean hydrogen, process improvements, energy efficiency, fuel switching and electrification.”

16644. And then the next bullet talks about:

“Evaluating, piloting and accelerating application of potential emerging emissions reducing technologies including direct air capture, next-generation recovery technologies and small modular nuclear reactors.”

16645. And then if we scroll down to the bottom of the page, we see that:

Transcript Canadian Shippers Group Panel Examination by Mr. Davies “Members of the Pathways initiative believe the most effective way to address climate change is by developing and advancing new technologies…”

16646. Now, if we could take that Exhibit down please and bring up Exhibit C13524-29. And this is “Canada’s Energy Future 2020” report that was issued by the Canada Energy Regulator. And if we could go to PDF page 7, please.

16647. Sorry, 7; it’s two pages back. Yes, there we go. Thank you.

16648. And what we see here, Ms. Day, are three options that were considered in this report. We see “Towards Net-Zero”, which is described as:

“The pace of action on addressing climate change increases from current levels.”

16649. The “Evolving Energy System Scenario”, which is described as:

“Continues the historical trend of increasing action on climate change throughout the projection. Policies and agreements are strengthened after they sunset. Low carbon technologies continue to be developed.”

16650. And then, the “Reference Energy System Scenario:

“Climate change actions limited to only the measures that are currently in place. Technological development is modest, and generally limited to those with existing momentum and/or market share.”

16651. Now, which of those three options best aligns with CNRL’s view of future climate change actions that will be required?

16652. MS. DAY: Well, I don’t know which of the specific scenarios put out by the CER best aligns. But as the announcement is showing, CNRL and a number of our fellow producers have put together initiative where we can achieve the Paris Accord and work towards Net Zero by 2050. But we’re still on the pathway to developing our resources for the benefit of all Canadians, and we are doing so in an environmentally friendly way.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16653. So we are putting all of our resources and technology and considerable funds towards that initiative.

16654. MR. DAVIES: And I suggest to you that the initiative would be consistent with either the evolving energy system scenario or perhaps be towards net zero case; do you agree?

16655. MS. DAY: I think we have all recognized that we need to do our part in making sure that Canada stays number one on the ESG scale, and we need to be able to continue to produce in an environmentally friendly manner, and work on improving that, and developing better technologies, and reducing greenhouse gases. And I think we have made some great strides, but we are a production company, and we are in the business of producing oil and gas, so we will continue to try to find ways to do that in accordance with this initiative that we have just announced. And I think it's going to take a lot of work and effort, but I think we need to be mindful of the costs involved with that and work hard at finding those good cost-efficient technologies, so that we can continue to develop.

16656. I think we have seen in this hearing, Mr. Monaco and Mr.-- I know -- well, for sure, Mr. Monaco has talked about how Canada is well suited on the ESG scale, and we're positioned well to continue to produce, and energy will be required in any energy-demand scenario. So I think we're -- CNRL is ready to do our part. We're stepping up on this Oil Sands Alliance. We're going to work hard to find ways to continue to produce, and grow, and still be mindful of our goal of net zero.

16657. I'm not sure, perhaps Mr. Alson has something that he would ---

16658. MR. DAVIES: So well ---

16659. MS. DAY: --- like to add because he is also ---

16660. MR. DAVIES: I ---

16661. MS. DAY: --- a member of this and it might be helpful to hear from him as well.

16662. MR. DAVIES: I'm going to be coming to Mr. Alson. The answer to the question that I asked you, Ms. Day, is yes?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16663. MR. ALSON: Actually, I will weigh in at this point.

16664. MR. DAVIES: Well, Mr. Alson, just hold on. I want to get an answer from Ms. Day. And trust me, I'm coming to May.

16665. MR. ALSON: I understand that you're coming to May.

16666. MR. DAVIES: And you'll have an opportunity to weigh in, but can I please get a question from Ms. Day to my -- or an answer from Ms. Day to my question?

16667. MR. ALSON: I believe she answered you, but I wanted to provide ---

16668. MR. DAVIES: She has not answered me ---

16669. MR. ALSON: --- some ---

16670. MR. DAVIES: --- sir, with all due respect.

16671. Let me pose the question again, Ms. Day, and I will ask you to answer it, please. The result of the initiative would be consistent with either the evolving energy system scenario or perhaps the towards net zero case. Do you agree?

16672. MS. DAY: Yes, I think we agree. It would be towards one of those cases because we recognize and have announced that we're going to try to do things to improve our -- continue to improve as an ESG producer.

16673. MR. DAVIES: Thank you. Now, Mr. Alson, I am going to come to you, but if there's something you're dying to say now, by all means, go ahead.

16674. MR. ALSON: Thank you, Counsel, I appreciate that. It's just to piggyback on what Ms. Day had to say. I think semantics are important. So in this document you have pointed to the scenarios of torts net zero, the evolving energy system scenario and the reference energy scenario, where I think the difference is, is we are clearly, as an alliance, moving towards decarbonization of our products, which you would say is moving towards net zero.

16675. I think the big distinction that we need to make is the CER 2020 document is actually looking in those scenarios at the usage of the underlying fuels, and so in this case, oil. And so if I thought about the reference energy

Transcript Canadian Shippers Group Panel Examination by Mr. Davies scenario, which thinks about hydrocarbon demand, as we carbonize the oil that we produce, it, yes, from a greenhouse gas emissions perspective moves us towards net zero, but from a supply demand balance perspective pertinent to the CER 2020 material, it's more aligned with the reference energy scenario where hydrocarbons continue to be used.

16676. MR. DAVIES: Well, as I say, I will be coming to you.

16677. Ms. Hardy, you are responsible for the Total Canada overview that is provided in Appendix A to the CGS evidence; is that right?

16678. MS. HARDY: Yes, Mr. Davies. I believe you mean the CSG evidence?

16679. MR. DAVIES: Yeah, I'm sorry. What did I say?

16680. MS. HARDY: CGS. That's okay.

16681. MR. DAVIES: Okay. I apologize. Total Canada is a wholly owned subsidiary of Total SC out of France; is that right?

16682. MS. HARDY: Yes, I would just note, for the record, that our name did change to TotalEnergies SE within this past week.

16683. MR. DAVIES: And Total Canada holds interests in the Surmont and Fort Hills oil sands projects?

16684. MS. HARDY: That's correct. We have built up with our operating partners about 160,000 barrels a day of production through those two assets.

16685. MR. DAVIES: Does the date of July 29, 2021, that has any significance to you, Ms. Hardy?

16686. MS. HARDY: July 29, 2021?

16687. MR. DAVIES: 2020.

16688. MS. HARDY: 2020? Last summer, I believe, nothing, no.

16689. MR. DAVIES: Okay. I wonder if we could turn up, please, Exhibit

Transcript Canadian Shippers Group Panel Examination by Mr. Davies C11771-2, at PDF page 8. And in the response to 1.3 (a), Ms. Foreman, could you hit on the link, please? Is it possible to get that document in one page, or no?

16690. THE REGULATORY OFFICER: No.

16691. MR. DAVIES: Okay. Well, we will ---

16692. THE REGULATORY OFFICER: Do you know what ---

16693. MR. DAVIES: --- have to work -- we will have to work ---

16694. THE REGULATORY OFFICER: Want me to go to ---

16695. MR. DAVIES: --- we will have to work through this, and that's fine. But there is more to the document if you scroll down on this, is there? Yes, thank you.

16696. So if we go back to the top -- thank you. This is a -- do you have this press release in front of you, Ms. Hardy?

16697. MS. HARDY: I believe I do, yes. I apologize. I wasn't familiar with the exact date of it. But yes, I am familiar with it.

16698. MR. DAVIES: And the release is entitled -- first of all, it's a release from Total and it's entitled "Short term price revision and Climate Ambition: Total announces exceptional 8 B$ asset impairments including 7 B$ in Canadian oil sands". Do you see that?

16699. MS. HARDY: I do.

16700. MR. DAVIES: And in the first four paragraphs of the release ---

16701. MS. HARDY: Mr. Davies, I believe we have lost you.

16702. MR. DAVIES: Can you hear me?

16703. MS. HARDY: Mr. Davies, I can now, but I missed you after the “first four paragraphs of the release”.

16704. MR. DAVIES: I was pausing. The first four paragraphs of the

Transcript Canadian Shippers Group Panel Examination by Mr. Davies release -- I was going to say it's unfortunate we don't have the whole document on the screen, but that's fine. We'll manage. The first four paragraphs of the release, Ms. Hardy, Total discusses oil prices?

16705. MS. HARDY: They do. I just wanted to provide some context on this impairment. This was a normal course of business to assess and report back to shareholders on the value of and recoverability of assets that we have. And so Total has done that in an effort to be transparent to its shareholders.

16706. MR. DAVIES: Yes, and I certainly wasn’t suggesting otherwise.

16707. And the fifth paragraph, we see that as the result of its short-term price revision, Total recognized an exceptional asset impairment charge of $1.5 billion on its Canadian oil sands assets, yes?

16708. MS. HARDY: That’s correct. That’s related to pricing, as is similar to, unfortunately, other aspects of business within the Canadian oil sands that have had to revise pricing forecasts as a result of COVID.

16709. MR. DAVIES: And then the sixth paragraph says -- if we could just scroll down a bit, please? Thank you. It says:

"In addition, in line with its new Climate Ambition announced on May 5, 2020, which aims at carbon neutrality, Total has reviewed its oil assets that can be qualified as 'stranded', meaning with reserves beyond 20 years and high production costs, whose overall reserves may therefore not be produced by 2050. The only projects identified in this category are the Canadian oil sands projects Fort Hills and Surmont."

16710. Do you see that?

16711. MS. HARDY: I do.

16712. MR. DAVIES: And then in the next paragraph, what we see is that because of that, Total recognized an additional exceptional asset impairment of $5.5 billion on the Fort Hills and Surmont Projects, right?

16713. MS. HARDY: That’s correct. I believe we have addressed this in our IR Response to Enbridge Number 1.5 at PDF 12.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

16714. MR. DAVIES: And then it goes on to say:

"In addition, Total will not approve any new project of capacity increase on these Canadian oil sands assets."

16715. Right?

16716. MS. HARDY: That is correct. As I mentioned before, this is on the record, and Total has a very strong view on how it wants to take leadership on climate. And these activities are designed to support that.

16717. That said, you know, we have two assets that are producing 160,000 barrels a day. We are moving towards working with our operators -- or I shouldn't say moving towards, pardon me. We are working hard with our operators to optimize and maintain those assets and ensure that they are -- the value of those are maximized, and that’s what we believe is our duty as stewards of the resource and what Canadians expect us to do when projects are approved.

16718. MR. DAVIES: And the last sentence of the release or this press release indicates that Total had decided to withdraw from CAPP because of a misalignment between their public positions. What was the misalignment, Ms. Hardy?

16719. MS. HARDY: At the time, we were concerned that there was not sufficient or as aggressive alignment with some of the environmental or some of the perspectives on climate change. However, I would say that we're very encouraged by the New Pathways announcements and the direction that the industry is taking. We absolutely agree with the founding participants in Pathways that oil sands can and should do more to reduce absolute GHG emissions. This is really important, and we are very encouraged on that front.

16720. With respect to CAPP, we have always had, at a working level, very strong relationships, and I'm saddened that that didn’t work out, but we feel it's important to take that direction. And in general, I think that, you know, like I said, we're very encouraged about these steps that have been taken recently and that that’s going to create a lot of opportunity for the industry to work together and leverage different ways in Pathways to reduce emissions for all of the industry.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16721. MR. DAVIES: Okay. And if we take this down, Ms. Foreman, but go back to the Response to 1.3 (a)?

16722. You indicate, Ms. Hardy, in the second sentence:

"Note that it is not referenced in the CSG evidence."

16723. And we, in fact, did note that when we read the Total Canada overview. And so the question for you is, why did you not provide to the Commission this information about Total's future plans in the Canadian oil sands?

16724. MS. HARDY: Well, I believe that in any healthy market, there's always companies that are growing or contracting or choosing to remain the same, and you know, we right now are focused on maintaining and operating the -- pardon me, not operating -- but maintaining and optimizing the projects that we have in front of us. There's no shame in that, and there's no -- I don’t see any reason, you know, to say that we have any change in the funding that we're continuing to invest in those projects.

16725. We -- I noted in our bio that we're spending between one and one and a half billion dollars a year on products and services that support those assets. We support indirectly, through our ownership, employment for about 1,000 Canadians in jobs in the industry at those projects, and we are continuing to work hard to make sure that that’s optimized.

16726. MR. DAVIES: If we go over to PDF page 10 of this Response to Information Request, Ms. Foreman, please, and if we scroll down at the bottom, thank you.

16727. In Request (h) -- this is 1.4 (h) -- reference is made to an Investor Day Presentation dated September 29, 2020, in which Total's chairman, CEO, and president stated, and I quote:

"The last consequence is when you look to a very long-term oil, which is expensive like oil sands. Our position is that it’s probably better to avoid investing more in this type of place."

16728. And if we scroll to the next page, please, the question was, please advise whether Total considers the Canadian oil sands to be “this type of place”.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16729. And the response to (h) says, "Confirmed."

16730. So the view of Total is that it is probably better to avoid investing more in a place like the Canadian oil sands; is that right, Ms. Hardy?

16731. MS. HARDY: I believe that the statement there is simply consistent with the fact that we are happy and content with the position that we have in Canada and we intend to continue to maintain and operate that and work on that basis.

16732. You know, I don't think that whether a company is planning to grow or not grow changes their standing in a hearing such as this one or the fact that they should be very concerned about an offering like the Mainline Contracting offering. We have some significant concerns that this is not in the public interest, and we feel we need to make sure that that voice is heard.

16733. There are some real significant concerns in our evidence that Mainline Contracting will result in depression of prices for Canadian producers. That affects us materially every day. We have concerns that the cost of the transportation that Enbridge is offering is a good dollar above what a cost of service would be.

16734. And that is significant in this context because what it does is it will put Canadian producers in a position where they are less able to compete globally. And when we talk about some of these issues related to GHG, et cetera, as we move forward through the energy transition over the coming decades, Canada is going to need to be positioned as well as it can be in the world context.

16735. And finally, we think that Mainline Contracting will likely limit an appetite for expansion of the Mainline system and currently egress is one of our number one problem.

16736. So you know, while we might be choosing not to grow, I think that there are some real concerns here that need to be dealt with in this hearing.

16737. MR. DAVIES: The view of Total is that it is probably better to avoid investing more in a place like the Canadian oil sands? Is that right?

16738. MS. HARDY: The view of Total is that we have achieved the portfolio, like, within our global portfolio. We are comfortable with where we are

Transcript Canadian Shippers Group Panel Examination by Mr. Davies in Canada. We are, at the moment, at this moment in time, not looking towards further investment in terms of growth. But make no mistake, we’re still investing between one and one and a half billion dollars a year on these two projects and working really hard with our operators to make sure that we’re optimizing and getting the best value for the assets that are there in place today.

16739. MR. DAVIES: I’ll try this one more time. The view of Total is that it is probably better to avoid investing more in a place like the Canadian oil sands, correct?

16740. MS. HARDY: I’m not sure what to tell you. I’m saying that we’re comfortable with our portfolio as it is today. I don’t think ---

16741. MR. DAVIES: Ms. Foreman, if you go back to PDF page 7 of this document, please?

16742. MS. HARDY: Pardon me?

16743. MR. DAVIES: In A, Ms. Hardy, you provide the average daily volumes of bitumen produced by Total Canada?

16744. MS. HARDY: Pardon me? Can you please repeat your question, Mr. Davies?

16745. MR. DAVIES: Yes, I’m looking at the Response to A, which provides the average daily volumes of bitumen in Canada produced by Total Canada?

16746. MS. HARDY: Yes, I see that.

16747. MR. DAVIES: And can you confirm that in 2020, Total Canada’s production fell about 20 percent to 81,000 barrels per day?

16748. MS. HARDY: I can, yes. I think that’s consistent with the response that we had to COVID, where we had to back down production in some of our assets, together with our operators -- obviously those decisions aren’t made alone -- in order to respond to the COVID and pricing crisis. I can confirm that we are ramping back up in 2021.

16749. MR. DAVIES: What is your production target for 2021?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

16750. MS. HARDY: I don’t believe that we have made that public, but what I can say is that we are striving to fully operationalize the capacity of those projects and we will -- we are working hard at that with our operating partners right now.

16751. MR. DAVIES: Ms. Hardy, you mention in your overview that Total Canada holds capacity on the Flanagan South Pipeline. Are you able to provide any details of that commitment?

16752. MS. HARDY: We shared the fact that we are capacity holders because we felt it was relevant to this hearing. It hadn’t been public before. But no, we will not be sharing the volume of that commitment due to its confidential nature.

16753. MR. DAVIES: Has Total Canada provided any information to the Commission in this proceeding about the magnitude of the volumes that it ships on the Mainline?

16754. MS. HARDY: We did indicate in our company bio that 80 percent of our production -- which for 2019 was 160,000 barrels a day, approximately -- is moved on the Mainline. A portion of that is with shippers of record and a portion is through sales.

16755. MR. DAVIES: And how much of that is Total Canada a shipper of record?

16756. MS. HARDY: Again, I think I have answered that question, that we are not able to share the amount that our capacity is and we are quite significantly impacted by apportionment on our ability to utilize Flanagan.

16757. MR. DAVIES: Okay. Thank you.

16758. MS. HARDY: But ---

16759. MR. DAVIES: Ms. -- and I’m probably going to butcher the pronunciation. I apologize. Is it Buitink?

16760. MS. BUITINK: Good morning, Mr. Davies. It’s Ms. Buitink.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16761. MR. DAVIES: I’m sorry?

16762. MS. BUITINK: Ms. Buitink.

16763. MR. DAVIES: Buitink?

16764. MS. BUITINK: It’s good enough. Thank you.

16765. MR. DAVIES: That’s close enough? It will be spelled right in the transcript, so we will be okay.

16766. Now, Ms. Buitink, you are responsible for the Shell Canada overview that is provided in Appendix 8 of the CSG evidence?

16767. MS. BUITINK: Yes, that’s correct.

16768. MR. DAVIES: And Shell Canada is a subsidiary of Royal Dutch Shell out of the Netherlands?

16769. MS. BUITINK: Yes, that’s correct.

16770. MR. DAVIES: And if we could turn up, please, Exhibit C11771-2?

16771. THE PRESIDING COMMISSIONER: While we are waiting for that, Mr. Davies, Ms. Buitink, I’m just going to ask you to speak up a little bit or possibly get closer to your mic to ensure that we have your evidence come across clearly.

16772. MS. BUITINK: Okay. Thank you. I will do that, Madam Chair.

16773. MR. DAVIES: Yeah, thank you, Ms. Foreman.

16774. Ms. Buitink, this is a response to an information request from Enbridge. And if we -- yes, in C, and I won’t turn it up, but what you provided there was a press release dated May 31, 2017 announcing that Shell had sold most of its oil sand interests in Canada, right?

16775. MS. BUITINK: Yes, that’s correct.

16776. MR. DAVIES: And then in D, you confirm a statement that was

Transcript Canadian Shippers Group Panel Examination by Mr. Davies made by Shell Canada’s president, Mr. Crothers, in March of 2017 stating:

“Oil Sands and in-situ operations are no longer a strategic fit for Shell.”

16777. Do you see that?

16778. MS. BUITINK: Yes, I do, Mr. Davies.

16779. MR. DAVIES: And why did you make no mention of these things in the corporate overview that you provided to the Commission?

16780. MS. BUITINK: I cannot specifically talk to that question, Mr. Davies, because I was not part of providing that overview.

16781. What I can tell you is that Shell, in line with their strategic -- what I can tell you, it’s in line with the strategic direction Shell has been setting, relation has been made -- we’re making relations to diversly invest in assets. And the position was made, actually, in diversity of the oil sands and maintain a smaller share in this. And that’s what we actually have been doing.

16782. MR. DAVIES: Okay. I’m sorry. I missed the first part of that. Did you say that you didn’t prepare the corporate overview?

16783. MS. BUITINK: That’s correct. I only joined Shell Canada in August last year. So I have since November been part of this thing to be part of the hearing. But I was not part of the preparation of this information.

16784. MR. DAVIES: If we could turn up, please -- yes, if you could take that down, Ms. Foreman, and turn up, please, Exhibit C10237-2, at PDF page 137.

16785. MS. FOREMAN: Can you repeat that exhibit, please?

16786. MR. DAVIES: Yes, it's C10237-2. It's the CGS evidence, at PDF page 137.

16787. Thank you. And if you scroll down, please, to paragraph 4. The first sentence, Ms. Buitink, says:

"Shell Canada's upstream operations produce approximately

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 28,000 b/d from the Fox Creek, Grande Prairie and Rocky Mountain House areas of Alberta."

16788. You see that?

16789. MS. BUITINK: Yes, I see.

16790. MR. DAVIES: And this evidence was filed in December of 2020, and can you confirm for me that effective January 1, 2021, Shell sold these upstream operations?

16791. MS. BUITINK: That's correct. We sold our upstream Fox Creek facility.

16792. MR. DAVIES: And so what is Shell's current oil production from the WCSB?

16793. MS. BUITINK: So as pointed out in Item 5 below, we still hold 10 percent of the interest in the oil sands project. And on top of that, we have some oil being produced, some liquids being produced as part of the Groundbirch project. In total, we are producing around 25,000 barrels a day as a producer in the Canadian oil sands.

16794. MR. DAVIES: Sorry, how much?

16795. MS. BUITINK: Twenty-five thousand (25,000).

16796. MR. DAVIES: Seventy-five thousand (75,000)?

16797. MS. BUITINK: Twenty-five thousand (25,000).

16798. MR. DAVIES: Twenty-five thousand (25,000).

16799. MS. BUITINK: Yes, approximately.

16800. MR. DAVIES: Now we don't need to turn this up, but in the CSG opening statement, Ms. Buitink, reference is made to parties with DSV capability. Shell has DSV capability, does it?

16801. MS. BUITINK: Yes, it does.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

16802. MR. DAVIES: And that DSV capability includes the 85,000 barrels a day of Sarnia refining capacity?

16803. MS. BUITINK: That's correct.

16804. MR. DAVIES: So Shell has significantly more DSV capability than it has WCSB oil production, right?

16805. MS. BUITINK: That's correct.

16806. MR. DAVIES: If we could turn up, please, Exhibit C13524-6? Thank you, and if we could just scroll back to page 1, please? And what we have here, Ms. Buitink, is a document entitled "What the future holds for the oilsands and gas stations — and 12 other Qs for Shell Canada's departing boss".

16807. And so this is an interview with your retiring president, Mr. Crothers, right?

16808. MS. BUITINK: Yes, correct.

16809. MR. DAVIES: And Mr. Crothers became the president of Shell Canada in 2016.

16810. MS. BUITINK: That's correct.

16811. MR. DAVIES: And at the bottom of page 3 -- or, actually, the bottom of page 2, yes, thank you. You see that he is asked the question:

"Since you became president, which really isn't that long ago, there sure has been monumental change with Shell Canada."

16812. And he says:

"We were a big oilsands producer at that time and we had assets that we don't have any longer. We were really focused on shale and on heavy oil and now you can see our transformation, having shifted to gas and renewables really strongly and focusing on this powering progress strategy for really getting to net-zero. Climate change strategy has

Transcript Canadian Shippers Group Panel Examination by Mr. Davies transformed Shell Canada."

16813. And I think, Ms. Buitink, that's pretty consistent with what you were telling me earlier; is that right?

16814. MS. BUITINK: Yes, Mr. Davies, it's fair to say that they are not a large oil sands producer anymore. What I would like to mention is that we are still having a significant stake in the producing assets, as well as still we have our refineries that actually take in the crude products and make the refined products.

16815. MR. DAVIES: Okay. And just for interest, over the page -- or actually at the bottom of -- yeah, just scroll down, please, to the bottom of the page. Mr. Crothers is asked the question:

"Do you think the oilpatch, in general, is ready for the energy transition?"

16816. And he says:

"I think it really varies and if you look around in our peer group and see others like Shell have embraced net-zero and are really focused on that. Some of the smaller producers are, I think, still getting their heads around what it means for them."

16817. And do you have any views to offer on what net-zero means for smaller producers?

16818. MS. BUITINK: No, Mr. Davies, I cannot talk about what net-zero means for smaller producers. I think what we do see, and it was coming back to the evidence you showed earlier, that companies all around us are really looking about how they can become net-zero emissions over time. And initiatives are being made. CNRL and the other big companies in the oil sands are really good example about how to get a net-zero emissions. What that means for smaller producers, I cannot talk to.

16819. MR. DAVIES: Okay. Thank you. We could take that down, Ms. Foreman, please.

16820. Now, Ms. Buitink, you became the general manager of the Shell

Transcript Canadian Shippers Group Panel Examination by Mr. Davies Sarnia manufacturing centre in, what, about September of 2020?

16821. MS. BUITINK: It was August of 2020.

16822. MR. DAVIES: Oh, August of 2020. And did they tell you when you joined that Shell was or had been looking to sell its refinery?

16823. MS. BUITINK: It was publicly known that the refiner -- the refining was up for sale since January of 2019, so when I joined, I was aware of that, Mr. Davies.

16824. MR. DAVIES: So did you think maybe you would have a short career?

16825. MS. BUITINK: It was a nice opportunity.

16826. MR. DAVIES: If we could turn up, please, Exhibit C11771-2, at PDF page 17. And what is provided here -- this is a Shell Response to an Information Request, and there are some articles that are provided, Ms. Buitink.

16827. And Ms. Foreman, if you could just maybe hit on the first link. And this article is entitled, “Shell looks to sell its Sarnia operations”.

16828. And if we could just scroll down, please, yes, right there. Thank you. It indicates that:

“Shell is placing its Sarnia Manufacturing Centre on the market, saying it's ‘no longer a natural fit’ with the company's ‘evolving portfolio.’”

“In a statement received by CBC News, the company said the process is ‘expected to take several months as potential buyers indicate their interest and Shell reviews proposals.’ The company hopes to sell both the Sarnia Manufacturing Centre and its distribution terminals in Sarnia and Hamilton.”

16829. And this is a report posted January 10, 2019. And I think that’s what you were referring to, Ms. Buitink when you had said that you had understood that the refinery had been put up for sale in January of 2019. Is that right?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16830. MS. BUITINK: That’s correct.

16831. MR. DAVIES: And then -- so if we could just go back to the IR response, please. And let’s just hit the last link.

16832. And I take it, Ms. Buitink, maybe with some relief you would have read this article, which says:

“Shell takes Sarnia Manufacturing Centre off the market”.

16833. MS. BUITINK: Yeah, I found out a bit earlier than that, Mr. Davies.

16834. MR. DAVIES: I’m sorry?

16835. MS. BUITINK: I found out a bit earlier than that.

16836. MR. DAVIES: I suspect you did. And the article, if we scroll down, indicates that:

“Shell Canada is no longer actively pursuing the sale of its Sarnia Manufacturing Centre.”

16837. And there’s a statement then from a media relations manager. And if we scroll down further please, it is indicated:

“The company first announced its intention to divest in January of 2019.”

“We stated it was to be a value-driven process rather than time-driven. Should we receive interest at a later date, we will assess next steps.”

16838. And Ms. Lemay goes on to say that:

“…she does not know of any plans for closure and considerations for future investment will be handled on a case- by-case basis.”

16839. Has anything changed, Ms. Buitink, since October 2020 or does this remain the current status of the matter?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

16840. MS. BUITINK: It’s a good reflection about the current status, Mr. Davies.

16841. MR. DAVIES: Thank you.

16842. Has Shell Canada provided any information to the Commission in this proceeding about whether it is currently a crude oil shipper on the Enbridge Mainline and, if so, the magnitude of the volumes that it ships?

16843. MS. BUITINK: I understand we have indicated we are a shipper on the Mainline for crude. We have not provided magnitude of the crude. That’s confidential and comparative information.

16844. MR. DAVIES: Okay. If Shell chose to contract for capacity on the Canadian Mainline, assuming this application, of course, were approved in order to provide feedstock for its Sarnia refinery, would that serve to lock in a market for Western Canadian crude oil?

16845. MS. BUITINK: Can you clarify this question, Mr. Davies?

16846. MR. DAVIES: Yes. If you contracted for capacity on the Mainline, would the fact that you entered into that contract act to lock in a refinery market for Western Canadian crude oil?

16847. MS. BUITINK: So -- Mr. Davies, our refinery is virtually dependent on crude coming from the -- through the Mainline from the Western Basin. So even at this point in time, that’s the case; we actually get crude from the Mainline -- via the Mainline from the Western Basin.

16848. MR. DAVIES: Okay. Shell also owns the Scotford Refinery in Edmonton?

16849. MS. BUITINK: Correct.

16850. MR. DAVIES: And would the Scotford Refinery benefit from having lower feedstock prices or higher feedstock prices?

16851. MS. BUITINK: That’s -- that’s a difficult question to answer. Yeah, I mean, you could say you benefit from lower feedstock price but ultimately it

Transcript Canadian Shippers Group Panel Examination by Mr. Davies depends about the price of the product, that’s really -- is valuable, yes or no. We see that there’s a dynamic; oil market like we have today, a lower crude price doesn’t necessarily mean a better refinery net price.

16852. MR. DAVIES: Thank you, Ms. Buitink.

16853. Now, in your opening statement -- and maybe we should bring this up please, Ms. Foreman. It’s Exhibit C13530-2.

16854. And scroll down to the bottom of the first page, please. There is a footnote, Ms. Buitink, that says:

“Shell Canada is also one of a limited number of shippers of NGLs on the Canadian Mainline, shipping approximately 8,000 bpd”.

16855. Do you see that?

16856. MS. BUITINK: Yes, I do.

16857. MR. DAVIES: Okay, and we can take that down now, please.

16858. Did you previously, or Shell previously provide this information to the Commission in any of its filed evidence?

16859. MS. BUITINK: No, we have not, Mr. Davies. We were restricted in confidentiality agreement between Plains and Shell, and this only recently has been agreed that we could provide this information. That's what I have been doing in this hearing.

16860. MR. DAVIES: So you didn’t provide it in your filed evidence that you thought it was appropriate to slip the information in as a footnote in an opening statement?

16861. MS. BUITINK: I would not say it's like that, Mr. Davies. In the -- and it's the examination with Enbridge, it was clearly brought forward that we were a shipper on the NGL. There must be some confusion there, because communication taking place and the emails having to be interpreted, but that was actually the reason to bring it out in the open in our statement this morning time.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16862. MR. DAVIES: Well, do you understand that an opening statement is not a place for new evidence or do you rely on your lawyer to tell you that?

16863. MS. BUITINK: I must say, I rely on my lawyer to tell me that, Mr. Davies.

16864. MR. DAVIES: Did he tell you that?

16865. MS. BUITINK: I presume he did. Not my personally, but he has been looking at the -- he has been drafting the statement as an opening statement.

16866. MR. DAVIES: Your lawyer has?

16867. MS. BUITINK: Yes.

16868. MR. DAVIES: Now, you mentioned this, and you understand that when your counsel, Mr. Dixon, was questioning the Enbridge panel, he asked for confirmation that Shell was a shipper of NGL on the Mainline, and he was told that Shell was not an NGL shipper on the Mainline, right?

16869. MS. BUITINK: It's my understanding that he was told that we are not a shipper of record, which is indeed the case, that we are a shipper, not a thing -- could not be confirmed by Enbridge that point in time.

16870. MR. DAVIES: Well, do you understand, Ms. Buitink, that there is a difference between being a shipper on the Mainline and making commercial arrangements with a shipper on the Mainline?

16871. MS. BUITINK: So you mean a shipper of record or being a shipper? Yes, I do understand that.

16872. MR. DAVIES: Okay. And with regard to NGLs, Shell does not submit nominations to Enbridge, and it does not receive invoices from Enbridge; is that right?

16873. MS. BUITINK: That’s correct. We have an agreement that Plains -- a joint venture agreement that a process arise in the facility as well as nomination on -- through Plains on the Mainline.

16874. MR. DAVIES: Well, Shell may have commercial arrangements in

Transcript Canadian Shippers Group Panel Examination by Mr. Davies place with Plains, that is an NGL shipper on the Mainline, but Shell itself is not an NGL shipper on the Mainline, right?

16875. MS. BUITINK: I understand we are not a shipper of record. We are a shipper ultimately because we transport products on the Mainline.

16876. MR. DAVIES: Well, you're not a shipper of record on the Mainline?

16877. MS. BUITINK: Correct.

16878. MR. DAVIES: If you want to consider yourself a shipper, it's because you have made commercial arrangements with Plains, which is a shipper on the Mainline, right?

16879. MS. BUITINK: That’s -- so yes, that’s correct.

16880. MS. DAY: Mr. Davies, I think it might be helpful to just clarify that I think, you know, many of us producers are shippers on the Mainline and we're providing the crude that actually flows in Mainline.

16881. Over time, it has developed sort of as a -- as convenience that the people with downstream verification, due to the rules, are more likely to be the shippers of record because they hold the downstream verification, which is the most scarce piece of the puzzle right now. And not surprisingly, they're not willing to give that up, so it's very difficult for producers to become the shipper of record unless they have a downstream verification amount.

16882. But I think it's really important to think about. You know, in CNRL's case, we have got a million barrels of production. At least 70 percent of them are flowing down the Mainline, and whether we're currently paying the toll on all those barrels or not is just -- it's semantics.

16883. Our crude is going down that Mainline, and we're very invested as to what happens with the last available egress leaving the Western Canadian Sedimentary Basin.

16884. MR. DAVIES: Mr. Alson, you are responsible for the MEG overview that is provided in Appendix A to the CSG evidence, correct?

16885. MR. ALSON: Yes, that’s right, Mr. Davies.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

16886. MR. DAVIES: And MEG produces oil exclusively from its Christina Lake in situ project?

16887. MR. ALSON: That is correct.

16888. MR. DAVIES: And all of MEG's production is transported on the access pipeline to Edmonton; is that right?

16889. MR. ALSON: That is right, yes.

16890. MR. DAVIES: And what sort of transportation arrangement does MEG have with the owner of the access pipeline?

16891. MR. ALSON: Can you give me a better sense for what you're looking for, Mr. Davies?

16892. MR. DAVIES: Do you have a long-term transportation agreement for service on the access pipeline?

16893. MR. ALSON: We do.

16894. MR. DAVIES: Okay. If we could turn up, please, Exhibit C13524-7, which is a transcript -- well, if we just go back to the beginning, please, Ms. Foreman? Thank you.

16895. It's a transcript of MEG's Q3 2020 Earnings Call. And if we could now then go to PDF page 10, please?

16896. You see that about halfway through the paragraph, Mr. Evans, who is your CEO, says:

"...we believe that the WTI:WCS differential is actually in the process of shrinking as more pipeline capacity becomes available."

16897. Do you see that?

16898. MR. ALSON: I do, yes.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 16899. MR. DAVIES: And then at the bottom of the page, there is a -- thank you, just scroll up a little bit. There is a Mr. Mehta, M-e-h-t-a. He asks Mr. Evans to elaborate on his views about the differential. In fact, he says:

"It sounds like you have got a more constructive view."

16900. Do you see that?

16901. MR. ALSON: That’s right. I do.

16902. MR. DAVIES: And then over the page, Mr. Evans starts by making some views about consolidation, and then he says -- and I'm starting about six lines down -- he says this:

"On the second part, which was really we appear to be or sound to be more constructive than others, maybe in terms of the WCS-WTI differentials. We would point to the fact that storage levels in the province in Alberta are at some of the lowest that we have seen historically. We have seen continued small improvements on both the Enbridge system and on the Keystone system. We have got the Northwest upgrader actually running and processing heavy. All three of those add somewhere in the neighborhood of 150,000 barrels a day of incremental demand. We are seeing unprecedented levels of interest in our heavy crude in the U.S. Gulf Coast, not only for U.S. Gulf Coast refineries, but -- and in the Caribbean as well…obviously, you saw the Reliance deal and that product moving to India. So we think there has been a step rate change even before you start to consider the Enbridge Line 3, the project, which replacement and expansion, which should come on in mid-2021. And it’s surprising to us, but people continued to...think that TMX isn’t going to get built, even though there is numerous pipeline spreads out with pipeline in the ground. And as we have pointed out here again today, I think people have forgotten that we have 20,000 barrels a day of long-haul capacity.”

16903. So I think directionally, we are back in a position where pipeline capacity, egress capability is not going to be as big a problem as it has been in the past. That should be reflected in the differentials. And that really is our thesis on

Transcript Canadian Shippers Group Panel Examination by Mr. Davies why we believe there has been a step rate change. And that is very positive for our business, obviously.

16904. Now, Mr. Alson, do you disagree with these views being expressed by your CEO to investors?

16905. MR. ALSON: No, not at all. I think Derek was very specific on talking about general improvements and trends. And so looking at, you know, egress going forward, he highlights that, you know, egress won’t be as big of a problem. He doesn’t say egress problems are eliminated. But with egress additions made and egress additions on the horizon, certainly things are improved relative to where they had been.

16906. MR. DAVIES: Well, I certainly don’t take Mr. Evans to be saying here that the fundamental issue facing industry today is a lack of egress capacity. Do you agree?

16907. MR. ALSON: No, I don’t agree.

16908. MR. DAVIES: So you think that if Mr. Mehta had asked the specific question to Mr. Evans, “Do you think that the fundamental issue facing industry today is a lack of egress capacity” that Mr. Evans would have said yes?

16909. MR. ALSON: I believe Mr. Evans would say egress capacity is still constrained. Egress capacity constraints are eased through time. And that’s directionally positive for differentials, as he described.

16910. MR. DAVIES: Okay. Madam Chair, this probably would be a good time for a break, if it suits you.

16911. THE PRESIDING COMMISSIONER: That works. Let’s take a break until quarter to the hour. We’ll break until 10:45. Thank you, Mr. Davies. Thank you, witnesses.

--- Upon recessing at 10:27 a.m./L’audience est suspendue à 10h27 --- Upon resuming at 10:49 a.m./L’audience est reprise à 10h49

16912. THE PRESIDING COMMISSIONER: Welcome back, Canadian Shippers Group witness panel and Mr. Davies. Whenever you’re ready to proceed, it looks like we now have everybody in the virtual hearing room.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

SHONDA DAY: Resumed GLENN BOOTH: Resumed SHANNON HARDY: Resumed GARY M. HOUSTON: Resumed PAULINE BUITINK: Resumed ERIK ALSON: Resumed MARK DRAZEN: Resumed RON MIKKELSEN: Resumed JEFF D. MAKHOLM: Resumed ROLAND PRIDDLE: Resumed

--- EXAMINATION BY/INTERROGATOIRE PAR MR. DAVIES: (Continued/Suite)

16913. MR. DAVIES: Thank you, Madam Chair.

16914. Ms. Foreman, could we turn up, please, Exhibit C13524-8?

16915. And, Mr. Alson, this is a transcript of MEG’s Q4 2020 Earnings Call that was held on March 4th of 2021, right?

16916. MR. ALSON: Yes, that’s right.

16917. MR. DAVIES: And if we go to page 3, please, and scroll down a little bit. Thank you. There’s an indication that:

“MEG sold 40% of its sales volumes to the U.S. Gulf Coast in 2020 compared to 33% in 2019. Increase in sales to the U.S. Gulf Coast is primarily a result of Corporation's increased contracted blend transportation capacity on the Flanagan South and Seaway pipeline systems, effective July 2020 […] moving from 50,000 barrels a day to 100,000 barrels a day.”

16918. You see that?

16919. MR. ALSON: I do see that.

16920. MR. DAVIES: And then at the end of that paragraph, it indicates:

Transcript Canadian Shippers Group Panel Examination by Mr. Davies “MEG’s AWB blend sales by rail were approximately 17,000 barrels a day in 2020, representing 14% of total blend sales compared to approximately 20,000 barrels [a day], representing 15% of total blend sales in 2019.

“MEG is not anticipating -- undertaking any AWB blend sales by rail in 2021.”

16921. And can you just tell us why that’s the case?

16922. MR. ALSON: Without going into commercially sensitive information, I would say at a high level that the economics wouldn’t support movements via rail in ’21.

16923. MR. DAVIES: Okay. And over the page, please. There is an indication in the first paragraph:

“As announced on December 7, 2020, MEG's capital investment plan for 2021 of $260 million includes $245 million to be directed towards sustaining and maintenance capital and the remaining $15 million towards nondiscretionary field infrastructure, regulatory and [capital costs --] corporate capital costs…”

16924. Now, I won’t ask you about the regulatory costs, because I know how much Mr. Miller charges. But we can agree that the focus for 2021 is on sustaining production as opposed to spending capital to grow production?

16925. MR. ALSON: No, I would not agree on that.

16926. MR. DAVIES: Okay. MEG’s -- there is also an indication that:

“MEG's 2021 annual average bitumen production volumes are targeted to be in the range of 86,000 to 90,000 barrels a day.”

16927. Right?

16928. MR. ALSON: That guidance we subsequently updated in one of the other aids to cross that you provided us to a range of 88 to 90,000 barrels a day. And ideally we’ll be providing further guidance on a go-forward basis.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

16929. MR. DAVIES: Okay. And then over at page 7, near the bottom, we have Mr. Mehta again -- this guy is persistent -- asking about the differential outlook in Alberta. Do you see that?

16930. MR. ALSON: I do, yes.

16931. MR. DAVIES: And your CFO provides a response? Mr. Toews is your CFO?

16932. MR. ALSON: That’s correct. I didn’t realize you were asking me a question. It sounded like a statement.

16933. MR. DAVIES: And he says this -- he says:

“Yes, the starting point for differentials is the Gulf Coast. That's been structurally very tight [in] the last six months. And we don't frankly see that changing. And I think if you look at the strip for WCS and AWB in the Gulf Coast, that would echo that comment. It's around -- WCS is around $3 off WTI in the Gulf Coast. We've seen very -- and our peers have seen very significant demand from Asian refineries from both Chinese and Indian. That's been drawing those barrels out of the Gulf Coast as well as the PADD III refiners. So that -- we don't see that structurally changing as we move through 2021 and frankly, into 2022 and onward. The egress that you talk about out of Alberta, there's been marginal egress improvements, which we've been, I think, those differentials in Edmonton we've been benefiting from, with 50% apportionment in the first quarter, you expect to see dips blow out in Edmonton. We haven't seen that. I think that's because of the incremental storage that's been built as well as the rail capacity, which isn't fully utilized, frankly. So we […] see differentials in Edmonton around $10 to $13. That's why we've been layering in picking away differential hedges around that $11 range. So we think structurally, there's a lot of tailwinds from a differential perspective. Inventories in Alberta, I think, around 30 million barrels. So we've had -- the storage has been there to soak up the apportionment as has the incremental egress. So very positive from a differential perspective, Neil.”

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

16934. And I take it, Mr. Alson, you don’t agree -- or you don’t disagree with these views provided by your CFO to investors?

16935. MR. ALSON: I do not disagree with Eric’s views. I think they paint a pretty good accurate picture of the overall supply and demand balance egress picture and the implications on differentials. So if I look at differentials between the Gulf Coast and Edmonton, if you saw that, you know, $10 or $11 spread between the Gulf Coast and Edmonton, that kind of sits right in the uncommitted pipeline cost of transport.

16936. And so, yeah, he points out the fact that, you know, storage is -- at least at that point, it was at, you know, a lower level than it is currently. So I think storage was at 32 or 32 and a half million barrels at the time we took this to press. So it was 48 percent storage utilization.

16937. And really, the fact that, you know, rail wasn’t being heavy utilized, so again kind of that clearing mechanism being uncommitted pipe. So yeah, the overall improvement from a differentials perspective, which as we look at from a MEG shareholder perspective, is very leveraging.

16938. MR. DAVIES: Okay. Thank you. And if we could now pull up, please, Exhibit C13524-7? And this, Mr. Alson, is MEG’s May 2021 Corporate Presentation. And if we could go, please, to PDF page 12? No, sorry, I was looking for Exhibit C13524-7.

16939. THE REGULATORY OFFICER: Can you repeat that again, please?

16940. MR. DAVIES: Yeah, it’s Exhibit -- let me just check, Ms. Foreman. It is Exhibit C13524- -- sorry, dash 9. Thank you. My apologies.

16941. THE REGULATORY OFFICER: No problem. Thank you.

16942. MR. DAVIES: And if we could turn, please, to PDF page 12, which is entitled “Assets to Access High Value Markets”. And there’s an indication at the top that:

“MEG’s contracted infrastructure improves bitumen realizations and manages risk.”

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

16943. And when you say “contracted infrastructure,” what do you mean by that, Mr. Alson?

16944. MR. ALSON: I mean all the assets that are highlighted on this page.

16945. MR. DAVIES: All the assets that are contracted?

16946. MR. ALSON: Correct.

16947. MR. DAVIES: And it says:

“..expect >900,000 bbbls/d incremental egress capacity from Western Canada by the end of 2022.”

16948. You see that?

16949. MR. ALSON: I do see that.

16950. MR. DAVIES: And that reflects the incremental capacity of TMX and the Line 3 Expansion, right?

16951. MR. ALSON: As well as some other things, yes.

16952. MR. DAVIES: What other things?

16953. MR. ALSON: So it would contemplate things like the Gibson DRU and the additional 50,000 barrels a day of Keystone capacity.

16954. MR. DAVIES: Well, the 590 for TMX and the 370 for Line 3 would equate to about 960,000 barrels a day, and what you have told me would increase the number even more; is that right?

16955. MR. ALSON: Well, it would, but I think the other thing that's probably worth highlighting, because there seems to be misconceptions about it, is the actual incremental amount associated with the Line 3 replacement. So of that 370,000, you know, circa 100, 125,000 barrels a day of that is already in service. So the incremental component is -- and I've gotten different answers, even from Enbridge in terms of what the incremental capability is, but it's something on the order of 255 to 270,000 barrels a day.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

16956. MR. DAVIES: Okay. And what this document shows is, first of all, 1.4 million barrels a day of Western Canadian storage. And is that storage for which MEG has contracted?

16957. MR. ALSON: It is.

16958. MR. DAVIES: And 100,000 barrels a day on the Flanagan Seaway Pipeline, we talked about that before, right?

16959. MR. ALSON: I don't know if we actually spoke about that before, but certainly, we do have the contract for 100,000 barrels a day on Flanagan.

16960. MR. DAVIES: Well, we read about it in the investor presentation, the earnings call that we talked about before. Do you remember that?

16961. MR. ALSON: Fair enough. I didn't speak to it, but, yes.

16962. MR. DAVIES: And 20,000 barrel a day commitment on TMX?

16963. MR. ALSON: That is correct. We're excited about the assets that we have.

16964. MR. DAVIES: And 30,000 barrels a day of rail loading capacity, which maintains optionality, yes?

16965. MR. ALSON: Again, the full picture there is “maintains optionality”. Rail is not anticipated to be part of the sale strategy in 2021, and our obligation to that expires at the end of 2021.

16966. MR. DAVIES: And as well, you have 1.4 million barrels a day of storage contracted in the U.S. Gulf Coast; is that right?

16967. MR. ALSON: Just to be clear, it's not 1.4 million barrels a day. It's 1.4 million barrels.

16968. MR. DAVIES: Yeah, I'm sorry. One point four (1.4) million barrels. Thank you. And if we turn the page, we see a heading "improved differential outlook". And it starts by saying:

Transcript Canadian Shippers Group Panel Examination by Mr. Davies "Constructive light/heavy differential outlook with material improvement in western Canadian egress and continued strong demand for [heavily -- for] heavy oil globally."

16969. See that?

16970. MR. ALSON: I do see that.

16971. MR. DAVIES: And then over on the right-hand side, it says:

"The Edmonton differential has moderated against a balanced egress outlook…"

16972. MR. ALSON: It is moderated ---

16973. MR. DAVIES: Yes?

16974. MR. ALSON: --- yes.

16975. MR. DAVIES: What does "balanced egress outlook" mean?

16976. MR. ALSON: A balanced egress outlook would be at the point where you are not egress constrained, and so this is saying it continues to moderate or improve relative to that constraint.

16977. MR. DAVIES: Okay. And there's four bullets. And the last bullet says:

"Rail capacity continues to provide relief including [50,000 barrels a day] diluent recovery unit[s] starting up in H2."

16978. What does that refer to?

16979. MR. ALSON: Which piece?

16980. MR. DAVIES: I'm sorry?

16981. MR. ALSON: Which piece are you asking me about?

16982. MR. DAVIES: The piece I just read. The fourth bullet. It says:

Transcript Canadian Shippers Group Panel Examination by Mr. Davies "Rail capacity continues to provide relief including [50,000 barrels a day] diluent recovery unit starting up in H2."

16983. And I asked you what that referred to.

16984. MR. ALSON: Yeah, so there are a couple of components in that bullet, which is why I was asking you for the clarification. But the 50,000 barrels a day of diluent recovery is the piece that I spoke to you about earlier, the Gibson DRU, which is expected to start up in the second half of this year.

16985. And, you know, rail capacity continues to provide relief, but what we have seen just in current rail utilization is people that have, you know, significant sub-costs in rail are looking at their variable rail economics, and at the point you've made a significant investment in rail and your incremental cost to move via rail is competitive, you will continue to do that. So some amount of rail is currently moving. I think it's on the order of about a 100,000 barrels a day currently.

16986. MR. DAVIES: Okay. Thank you. If we could take this exhibit down, please, Ms. Foreman, and bring up Exhibit C13524-10. And over on -- well, first of all, this is the Q1 2021 Earnings Call transcript from May 4, 2021. And if we can turn up, please, page 4? And in the last paragraph, Mr. Alson, there is an indication by your CEO Mr. Evans that, due to increased apportionment on the Enbridge Mainline, MEG's expected sales to the Gulf Coast -- says Atlantic and South; should be -- Flanagan South and Seaway were revised downwards, approximately two-thirds to a full average AWB blend sales volumes to approximately 50 percent. You see that?

16987. MR. ALSON: I had lost you for a brief period of time there, or maybe you -- it was a poignant pause, but if you could start from the start of that, that would be fantastic.

16988. MR. DAVIES: I'm just reading the first sentence in the last paragraph and indicating that "Atlanta and South" should be "Flanagan South".

16989. MR. ALSON: That is correct.

16990. MR. DAVIES: And then if we turn the page, we see a question from -- scroll down, please -- Mr. Gresh, who is asking about how apportionment and takeaway might play out in 2021 and into 2022; you see that?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

16991. MR. ALSON: I do.

16992. MR. DAVIES: And then over the page, and I'm reading starting about halfway down, and this is your CFO talking. And he says:

"Now as it relates to what we see going forward, we expect that apportionment in the level to go down to that sort of 10% level plus or minus once Line 3 comes on. And I think the general view is that it comes on in late Q3 or early Q4. We are aware of the ongoing legal challenges to that."

16993. One of which, by the way, as we read in the paper yesterday, has been overcome. In any event:

"But I think Enbridge has tried that ground pretty well over the past. [And] so we expect that, that pipeline comes on in that timeframe, and then we'd see that level mitigate. So obviously, the amount of barrels we move to the Gulf Coast in the back end of the year. If Line 3 - if that proves to be true, when it comes on, you should expect to see our barrels ramp back up that we get down that pipeline."

16994. Do you see that, sir?

16995. MR. ALSON: I do.

16996. MR. DAVIES: And then your CEO, Mr. Evans, chimes in with two quick reminders. He says, first of all:

"I know people -- or I hope people remember that even though we do not move those barrels or cannot move those barrels, that there is no take-or-pay on those barrels. Those barrels -- the cost of moving those barrels is not incurred. Those barrels do get moved to the end of our contract."

16997. And just to stop there, can you elaborate a bit on why MEG does not incur a cost for barrels that do not move on the Flanagan South Pipeline?

16998. MR. ALSON: Well, if I took a step back and say, you know, MEG is,

Transcript Canadian Shippers Group Panel Examination by Mr. Davies through the TSA contract, exposed to shortfall payments. One of the excused events or excused activities around that would be if there is Flanagan apportionment or upstream apportionment. And so the point that Derek was making here was where our movements are constrained by apportionment, that where we are deficit relative to the 100,000 barrel a day commitment, we wouldn't incur a take-or-pay -- or sorry, we wouldn't incur a shortfall payment on that volume.

16999. MR. DAVIES: Thank you.

17000. Now, continuing on, Mr. Evans provides his second reminder, and he says:

"And I guess the other thing I'd just point out, that there has historically been a negative price associated with high apportionment levels. That is not the case with the apportionment levels that we're seeing today. In fact, we can show you that in months such as February of this year when the post-apportionment barrels, i.e., the barrels that had to be turned back from the line actually sold at a premium to the pre- apportionment barrels. So I guess the long and the short here is that although apportionment levels are high, we're not seeing what we would have seen previously in terms of higher differentials."

17001. And I take it, Mr. Alson, you don’t disagree with these comments being provided by your CEO to investors?

17002. MR. ALSON: No, I would agree that that was relevant at that point in time. I think there were two months -- I want to say February and April -- where the supply dynamics -- supply/demand dynamics were such that we saw improved pricing post-apportionment. I think what you have seen here more recently is the return to the longer-term trend, which is discounts, sometimes very significant discounts in the post-apportionment market.

17003. So if you looked at it over the long term, you would still see that circa $3, $4 discount in the post-apportionment market. Yeah, at this point in time, we weren’t seeing those discounts.

17004. MR. DAVIES: Okay. So that’s it for my questions for each of the

Transcript Canadian Shippers Group Panel Examination by Mr. Davies individual companies. So I have got -- this is kind of a tossup for whoever it is wants to answer it.

17005. How did the four companies go about preparing the CSG evidence? Did you divide up responsibility for drafting different sections? Did some companies take the lead on certain sections? How did that work?

17006. MS. DAY: So I think it's fair to say that we all had a hand in all parts of this evidence. There was numerous drafts. I think we collaborated through conference calls and other things on ideas for what we wanted to include in each section. We had help from Mr. Booth and -- in helping to write it up, but all the companies basically chipped in and provided their thoughts and then we came together with drafts and circulated those for comment, and blacklined and shared. And so you know, it's a group effort in the whole document.

17007. There's certain sections that obviously, if it's a Canadian refiner section, that Shell was best able to speak to because they're a Canadian refiner, but I think that what was kind of interesting about this process is, you have a number of parties that have very different interests but are very -- wanted to put forward what we think are some of the very large issues with this application. And so we worked together to pull the document together that we hoped would tell our story.

17008. MR. DAVIES: Well, if I went through the table of contents and asked you who took the lead in drafting certain sections, would you be able to tell me or would your response simply be that you were all involved?

17009. MS. DAY: We were all involved.

17010. MR. DAVIES: Okay. During the course of your evidence preparation, were there discussions ongoing between the CSG and EPAC?

17011. MS. DAY: I think there was a lot of discussions around the industry, just in parties that had submitted letters to the CER when we initially opposed the open season, so yes, there was lots of discussions in industry.

17012. As you are aware, Mr. Davies, this has been a topic of conversation for a couple of years.

17013. MR. DAVIES: Well, I wasn’t asking about discussions in industry; I

Transcript Canadian Shippers Group Panel Examination by Mr. Davies was asking about discussions with EPAC. And can you tell me, during the course of the evidence preparation, were there discussions ongoing between the CSG and EPAC?

17014. MS. DAY: Yes, I did talk to EPAC, and I also talked to, as I said, Government of Saskatchewan and Athabasca and lots of other interested parties that may or may not have put forward evidence. And I'm sure the other members of CSG would say the same.

17015. MR. DAVIES: Were the CSG and EPAC exchanging information about the contents of their evidence?

17016. MS. DAY: No. I think -- well, I think, yes, we did discuss -- I mean, there's commonality in a lot of the areas as producers, so it's not surprising, I guess, that we have common concerns.

17017. But yeah, I think that’s ---

17018. MR. DAVIES: Were the CSG and EPAC exchanging drafts of their evidence or sections of their evidence before it was filed?

17019. MS. DAY: No.

17020. MR. DAVIES: You sure about that?

17021. MS. DAY: Yeah. I don’t recall -- yes.

17022. MR. DAVIES: When I compare paragraphs 205 to 219 of the CSG evidence relating to the effects on pricing with paragraphs 46 to 60 of the EPAC evidence on that same issue, the similarity is striking, right down to the use of some similar phraseology. And you are telling me, Ms. Day, that that is a total coincidence?

17023. MS. DAY: Yeah. I would have to pull up the EPAC evidence, because I'm not as familiar with it, and I can look at ours, but I think a lot of us use common phraseology, so I'm not sure exactly what you're speaking of, but yes, it must be a coincidence.

17024. MR. DAVIES: Okay. During this time of evidence preparation, were there regularly scheduled meetings between the CSG and EPAC?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17025. MS. DAY: No. We had a larger group that started to begin with, and as folks -- I'll say decided to be part of the CSG or not and share some of the costs associated with this application and share our views and our resources, then EPAC wasn’t part of that group any more.

17026. I would say there's still times when we chatted, but no, they were not part of our regular meetings.

17027. MR. DAVIES: But to be clear, you chatted about what was going to go in each of your evidence?

17028. MS. DAY: No, I chatted with them about -- we just chatted about the process, where things were at, those types of things.

17029. MR. DAVIES: Okay. So you're telling me no collaboration on the evidence whatsoever?

17030. MS. DAY: No, I didn’t say that, sir. I said -- you asked me before if we exchanged drafts or -- and I said no. But what I think all of us did is talked about issues that we had with this application.

17031. MR. DAVIES: Now, Ms. Day, I provided you some documents as aids to cross-examination with respect to the National Energy Board’s MH-001- 2006 Proceeding. Did you have an opportunity to review those?

17032. MS. DAY: Can I just bring that up please, Mr. Davies. I’m just going to grab this binder. Oh dear, so is this the Keystone?

17033. MR. DAVIES: This is the Transfer Application from TransCanada Pipelines to Keystone.

17034. MS. DAY: Yeah, I did look at that. I had no involvement with this application. So I did look at the aid to cross.

17035. MR. DAVIES: Well, you didn’t personally have any involvement, but CNRL did. Right?

17036. MS. DAY: Yes, I see that in the transcript.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17037. MR. DAVIES: And the MH-001-2006 Proceeding related to an application to transfer existing pipeline facilities from TransCanada Pipelines to TransCanada to Keystone, right?

17038. MS. DAY: Yes.

17039. MR. DAVIES: And the facilities to be transferred comprised primarily about 860 kilometres of 34-inch pipeline that was being used by TransCanada to provide natural gas transportation service?

17040. MS. DAY: Yes.

17041. MR. DAVIES: And the proposal was to transfer that pipeline to TransCanada Keystone and convert it to oil service as part of the Keystone Pipeline Project, right?

17042. MS. DAY: Yes. Yes, as I understand.

17043. MR. DAVIES: And Keystone had entered into 20 -- 10- and 20-year contracts to provide oil transportation service for about 340,000 barrels a day, right?

17044. MS. DAY: Yes, my understanding is Keystone was proposing some new egress to a liquid hub, U.S. Gulf Coast, which should be a new market for producers in the Western Canadian Sedimentary Basin.

17045. And my understanding is the thought is if we took a piece of gas pipe that was highly underutilized because of the growth of the Marcellus taking away some of the traditional Canadian markets for our nat gas, that we could more quickly bring on new egress to the U.S. Gulf Coast through taking that pipe out of natural gas service, which should ultimately lower the tolls -- or the tariffs, I should say, for the gas customers and divert it into crude oil service, to make sure that we could bring on Keystone as quickly as possible to meet the demand.

17046. MR. DAVIES: CNRL participated in the MH-001-2006 Proceeding and, together with ConocoPhillips and Suncor, formed the Keystone Shippers Group, right?

17047. MS. DAY: I don’t have any intimate knowledge of that, Mr. Davies, but I do see in one of the aids to cross that that was -- there was a group called the

Transcript Canadian Shippers Group Panel Examination by Mr. Davies Keystone Shippers Group, and CNRL was part of that.

17048. MR. DAVIES: And CNRL supported the transfer application?

17049. MS. DAY: Yes, that’s my understanding. I think we thought it was in the best interest of the Basin to utilize that asset, and we were keenly interested in new egress.

17050. MR. DAVIES: So CNRL supported converting existing pipeline facilities from gas service to oil service, so that those existing pipeline facilities could be used by Keystone to provide long-term, firm oil transportation service, correct?

17051. MS. DAY: I think there was 800 miles of existing pipe and about 1,800 miles of new pipe that had to be added. So definitely, there was a big cost to developing this new egress, and that was the purpose of the long-term commitments; it was to support the capital associated with putting together this line that would go to the Gulf Coast ultimately.

17052. MR. DAVIES: Well, in Canada, Ms. Day, the Keystone Project comprised 860 kilometres of existing pipeline and only 370 kilometres of new build, right?

17053. MS. DAY: I can’t -- I can find the reference, Mr. Davies, but I will take you on your word, but it would still have to be converted to oil service. And my understanding is there was some work that needed to be done on that pipe.

17054. But yes, I agree.

17055. MR. DAVIES: So CNRL supported converting existing pipeline facilities from gas service to oil service, so that those facilities could be used by Keystone to provide long-term firm oil transportation service, correct?

17056. MS. DAY: Yes, as I said, I think we thought it was in the best interests of Western Canadian producers to utilize that asset more effectively in crude oil service that was in constant apportionment or lacked egress and taken out of gas where, I understand, utilization rates were going down.

17057. MR. DAVIES: Do you understand that the toll methodology for the Keystone Pipeline Project was not based on cost of service but rather was

Transcript Canadian Shippers Group Panel Examination by Mr. Davies determined by negotiation between Keystone and its shippers?

17058. MS. DAY: I can’t speak to the toll methodology. I understand that there was long-term contracts to underpin the capital costs.

17059. MR. DAVIES: But you have no idea how the toll methodology was determined?

17060. MS. DAY: I was not part of those discussions and I have -- I’m not familiar with the decision; I’m sorry.

17061. MR. DAVIES: Well, the decision will speak for itself, Ms. Day.

17062. Ms. Foreman, if we could turn up, please, Exhibit C13524-15. Thank you.

17063. And what we have on the screen is Volume 10 of the transcript from the OH-001-2009 proceeding relating to the Keystone XL project. And if we turn the page, please, and scroll down. Thank you.

17064. You will see that this is the final argument presented in that proceeding on behalf of the Keystone XL Shippers Group. Mr. Nettleton was the Counsel, and the Keystone XL Shippers Group comprised:

“Canadian Natural Resources, ConocoPhillips, EnCana, Shell Trading, Total, and Trafigura Canada General Partnership.”

17065. Do you see that?

17066. MS. DAY: Yes, I do. Could you -- I’m sorry; could you please tell me -- I apologize, I didn’t have the Exhibit number, but on your list of 31 aids, can you tell me which number it was on there please?

17067. MR. DAVIES: Yes ---

17068. MS. DAY: My apologies ---

17069. MR. DAVIES: No, that’s fine. These are hard to follow, I take that. It’s No. 14 on the ladder, Ms. Day.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17070. MS. DAY: Fourteen (14). Thank you, that’s helpful. I’ll get to the right spot, so I can try to be helpful for you here.

17071. MR. DAVIES: Can you try a bit harder? Just let me know when ---

17072. MS. DAY: I’m there now.

17073. MR. DAVIES: Okay. Thank you.

17074. We had established that this is the argument that was being presented on behalf of Canadian Natural, Shell, and Total, the three, of course, being relevant in this case.

17075. And you’ll see in paragraph 11141 the indication is that each member of the group or an affiliate of the group had signed transportation service agreements with Keystone to ship significant volumes on the Keystone XL Pipeline. You see that?

17076. MS. DAY: Yes.

17077. MR. DAVIES: And the TSAs that were signed were for an average contract length of 17 years? And if you want to verify that, Ms. Day, you can look at paragraph 11169 of the transcript.

17078. MS. DAY: I recall looking at this.

17079. MR. DAVIES: So ---

17080. MS. DAY: Yeah, 385,000 barrels a day. Thank you.

17081. MR. DAVIES: For contracts with an average length of 17 years, right?

17082. MS. DAY: Yes, that’s correct, to support new egress to the Gulf Coast. We were very keen to access a new market.

17083. MR. DAVIES: And the tolls over the terms of the contracts were determined by a tolling methodology that had been negotiated between Keystone and its shippers, right?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17084. MS. DAY: That’s my understanding. It was a negotiated settlement based on expansion capacity.

17085. MR. DAVIES: We need to be careful about terminology. It was negotiated, but it was not presented as a settlement under the settlement guidelines, right?

17086. MS. DAY: I’m sorry, Madam Chair, I’m not a regulatory expert. I do know the shippers negotiated with KXL for a toll that they thought was fair. I think they looked at the -- I know there was detailed information in terms of what the costs would be associated with the conversion of the pipe and the new pipeline that would have to be built. So it was cost based. But it was a negotiated rate agreed upon between the shippers and Trans Canada.

17087. MR. DAVIES: Well, Ms. Day, it wasn’t cost based. In fact, Keystone, in its application, said it wasn’t determined based on cost, it was determined by negotiation. Are you aware of that?

17088. MS. DAY: Like -- I guess what I’m saying is that from CNRL’s perspective, they would certainly have looked at what they thought the relationship to cost was ---

17089. MR. DAVIES: Do you know that ---

17090. MS. DAY: --- and made sure that they believed the toll was just and reasonable.

17091. MR. DAVIES: Do you know that was done?

17092. MS. DAY: Just in my discussions with my senior vice president, Brian Bradley, my understanding is they carefully reviewed the toll.

17093. MR. DAVIES: Okay. If we turn ---

17094. MS. DAY: But I don’t have any direct ---

17095. MR. DAVIES: If we go back ---

17096. MS. DAY: --- knowledge, Mr. Davies.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17097. MR. DAVIES: I’m sorry.

17098. MS. DAY: I’m sorry. I just was saying I don’t have any direct knowledge because I was not part of the negotiation.

17099. MR. DAVIES: If we go back, please, to page 3 of this transcript, in paragraph 11144 ---

17100. MS. DAY: M’hm.

17101. MR. DAVIES: --- your counsel says:

“While this case is about the approval of new facilities, it is also a case that tests whether the Board's longstanding principles of market-based decisions being preferred over regulated or central-planning alternatives remains the manner in which the public interest should be assessed.”

17102. You see that?

17103. MS. DAY: I do. And I guess when I was reading this, I also was noting that it talks a lot about new market access and the need to:

“…alleviate the risks of market saturation in traditional markets and improve [the] netbacks for all Canadian producers in the Western Canadian Sedimentary Basin.”

17104. I was just reading down -- if you scroll down just a little bit there, it’s at 11148.

17105. So I think the driver, as I understand it, was to get new expansion capacity to new markets that were liquid so that producers could ship and we could continue to develop the resource basin for the benefit of all.

17106. MR. DAVIES: Okay. And over on page 5 ---

17107. MS. DAY: M’hm.

17108. MR. DAVIES: --- in paragraph 11158, we see this. Mr. Nettleton, your counsel says:

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

“This Board has consistently stressed the importance of market-based principles to effective regulation. The Board’s guidelines for Part IV Applications…”

17109. And just to stop there, Ms. Day, are you aware that Part IV Applications, at least back then, related to tolls and tariffs?

17110. MS. DAY: You know, I would like to -- I think there’s some folks on the panel that probably have better experience in the tolls and tariffs arena than I do. Perhaps Mr. Priddle would like to respond to this?

17111. MR. DAVIES: Mr. Priddle will agree with me that a Part IV Application relates to tolls and tariffs. Let’s move on.

17112. MS. DAY: Okay.

17113. MR. DAVIES: Unless Mr. Priddle feels the need to come in and agree with me?

17114. MR. PRIDDLE: I would be most happy to agree with you, Mr. Davies. So yes, you’re correct. Part IV Tolls and Tariffs of the former NEB Act.

17115. MR. DAVIES: Thank you. In any event, continuing on, it says:

“The Boards's guidelines for Part IV Applications provides the following under the heading of economic efficiency:”

17116. And there’s a quote:

"Canadians ought to derive the benefits of economic efficiency. A market environment in which efficient market signals are sent is part of this goal. When and where conditions exist which allow for the functioning of a workably competitive market, the Board is inclined to allow the market to operate and to evolve naturally according to its own choices. At the same time, the Board will not hesitate to provide a regulatory solution when a market solution is not available or comes with […] acceptable costs."

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17117. And that’s the end of the quote. And ---

17118. MS. DAY: I think that said -- pardon me. I think it said unacceptable costs.

17119. MR. DAVIES: I’m sorry, you’re right. Did I say acceptable?

17120. MS. DAY: Yes.

17121. MR. DAVIES: Unacceptable costs. I apologize.

17122. So this was the approach that CNRL, Shell, and Total were commending to the Board in this proceeding, namely to apply market-based principles, right?

17123. MS. DAY: Yes. And if I go back to 1157, it looks to me like they’re talking about there’s competitive dynamics. Because in this instance, there was a -- the pipe would compete with existing pipelines for crude volumes and it would allow Gulf Coast refiners to compete for Canadian crudes.

17124. And I think that’s different than the application in front of us today, where this is the last available egress and the existing markets are locked in as connected to the Mainline. And it doesn’t provide any new markets or any new competition.

17125. MR. DAVIES: We’re coming to the competition issue in a minute, Ms. Day. Just bear with me.

17126. MS. DAY: Sure.

17127. MR. DAVIES: Do you agree that good regulatory policy should focus on actions which result in efficient outcomes?

17128. MS. DAY: Yes, but I’m not a regulatory expert.

17129. MR. DAVIES: No, fair enough.

17130. MS. DAY: So perhaps we should caucus and I should bring in Mr. Priddle or Dr. Makholm to help out here for this section.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17131. MR. DAVIES: Yeah, I’m done with this section, but if you want to caucus, by all means, go ahead.

17132. MS. DAY: Let’s have a quick caucus, please. If you don’t mind, Madam Chair, we would like to have a discussion.

17133. THE PRESIDING COMMISSIONER: Go ahead.

17134. MS. DAY: Thank you.

--- (A short pause/Courte pause)

17135. MS. DAY: The CSG panel is back. I apologize for taking up some of your time there, but we're back.

17136. Oh, Mr. Davies, I think you're on mute.

17137. MR. DAVIES: Thank you very much.

17138. So if we could bring back up, please, the exhibit? Thank you.

17139. And Ms. Day, you I think made reference to this, but you understand, do you, that one of the issues in this Keystone XL proceeding was the extent to which the Keystone XL Pipeline would offload volumes from the Enbridge Mainline and cause the Mainline tolls to increase?

17140. MS. DAY: I recall in one of the aids to cross that you provided that Enbridge did mention that, and it was brought up about there was a concern about utilization or offloading. However, I think there was also a shortfall of capacity at that time.

17141. MR. DAVIES: Well, if we turn over to page 16 of the transcript, please?

17142. MS. DAY: Yes, I see.

17143. MR. DAVIES: And you will see in paragraph 11241 this:

"The question for the Keystone XL pipeline is simple: Given the need for the new facilitates demonstrated by the signed

Transcript Canadian Shippers Group Panel Examination by Mr. Davies long-term contracts, should the Board authorize the expansion of pipeline capacity despite the underutilization or offloading that will occur on another system? The answer is a firm 'yes.'"

17144. You see that?

17145. MS. DAY: I do.

17146. MR. DAVIES: And that was the position of CNRL, Shell, and Total in this proceeding, Ms. Day?

17147. MS. DAY: I believe that was -- yes, that was from Mr. Nettleton.

17148. MR. HOUSTON: Madam Chair, it's Mr. Houston. I was involved on behalf of Total in this particular proceeding. I recall at the time the whole industry was looking out 10, 15, 20 years and visualizing a scenario where PADD II would be saturated with Canadian production and the general need to move to PADD III.

17149. I remember discussing the Keystone XL Project and understanding that we could see a liquid price in the U.S. Gulf Coast and we could easily look down to that liquid hub and understand the value in the project. Again, looking over that longer horizon, we didn’t believe that the Enbridge system would be underutilized for a significant period of time during this proceeding.

17150. MR. DAVIES: Thank you, Mr. Houston.

17151. It's really the next paragraph, 11242, that I want to focus on.

17152. It says this:

"Underutilization or offloading, and the risk that common carrier tolls may --- "

17153. It says arise -- it should be rise, so:

"Underutilization or offloading, and the risk that common carrier tolls may rise as a result, are part of the costs of doing business for shippers on the Enbridge system and part of the risk that Enbridge, and its shippers, assume by choosing to

Transcript Canadian Shippers Group Panel Examination by Mr. Davies operate and continuing to operate the Mainline in a predominantly common carrier mode."

17154. You see that, Ms. Day?

17155. You're on mute now.

17156. MS. DAY: I said I do.

17157. MR. DAVIES: The position being advanced by CNRL, Shell, and Total to the National Energy Board was that Enbridge and its shippers were agreeing to assume the risks of offloading and rising tolls by choosing to operate and continuing to operate the Mainline in a common carrier mode, right?

17158. MS. DAY: Sorry, Mr. Houston.

17159. MR. HOUSTON: Yeah. Again, Madam Chair, we should recognize that this -- these statements were made prior to the CTS, and at that time, I think all producers understood that the capacity risk was an industry-borne risk. During the CTS, that risk was temporarily put on Enbridge's shoulders, but I think we all, to some extent, bear the risk of underutilization.

17160. I think we also need to keep in context that pipeline expansions are lumpy things and that it's impossible to fine tune the capacity exactly to the market needs. And so from time to time, there are small amounts of underutilization, but that’s just part of the healthy marketplace.

17161. THE PRESIDING COMMISSIONER: I'm going to step in for a moment here as Mr. Davies’ questions prompt answers from a broader range of witnesses. And I'm going to remind the witnesses to make sure that you introduce yourself before you speak, especially when exhibits are up. It can make it more difficult for everybody to identify the speaker and follow the answers.

17162. MR. HOUSTON: Sorry, Madam Chairman. That last comment was by Mr. Houston.

17163. MR. DAVIES: Mr. Houston, the position being advanced by CNRL, Shell, and Total to the National Energy Board was that Enbridge and its shippers were agreeing to assume the risks of offloading and rising tolls by choosing to operate and continuing to operate the Mainline in a common carrier mode. That’s

Transcript Canadian Shippers Group Panel Examination by Mr. Davies what the words say.

17164. Does this remain the position of CNRL, Shell, and Total today or have their positions changed?

17165. MS. DAY: This is Ms. Day speaking. I think at this time, as Mr. Houston said, we expected that there could be some slight underutilization as we pursued new markets. I think it's important to note at this time those shippers that -- at least, Total, Shell, and CNRL were also shipping on the Enbridge system and were very invested in what happened on that system at that time, as we are now.

17166. There is no other options available for egress right now. The proposal that Enbridge has brought forward is simply to convert an existing asset to long- term contracts. It's not going to do anything to solve apportionment. It doesn’t provide a new market. It doesn’t give producers an equal opportunity to participate because we don’t have downstream verification. And as we pointed out earlier, we're very concerned about what the price impact of Mainline Contracting will be.

17167. And frankly, from the information put forward and from the statements from Mr. Monaco, there's three million barrels that are committed to the Mainline, so we don’t see that there's going to be any underutilization, in the near future anyways, and we have got currently -- I think the new apportionment came out yesterday and it was 2 percent on light and probably 51 percent -- I might be off a percent or so on heavy -- 52 percent. That was my first guess. So there is a lot of crude trying to get in existing egress.

17168. So I don't think we're worried, you know, in the near term anyways, about underutilization or offloading. And we're particularly concerned that this application doesn’t solve any of those issues in terms of apportionment or new market access.

17169. MR. DAVIES: So does CNRL's position remain as set out in paragraph 11242 of this transcript, or has it changed, Ms. Day?

17170. MS. DAY: No, I think it's largely the same, that we are -- we recognize that under a common carriage model, there may be times when a system is not 100 percent utilized. But I think that’s okay. As Mr. Houston indicated, there can be times of slight underutilization, and what has happened on the Mainline over the last 10 years is a million barrels was brought onstream and

Transcript Canadian Shippers Group Panel Examination by Mr. Davies we quickly filled it up and got utilization higher. And as a result, I think that worked well for Enbridge and shippers.

17171. MR. DAVIES: Well, what you're telling the Commission, Ms. Day, now, is that it is not a matter of choice. Even if Enbridge and its shippers choose to no longer operate in a common carrier mode, they should be required to do so anyways; isn't that your position?

17172. MS. DAY: I think our position is that we don’t think Mainline Contracting and the offering put forward by Enbridge is the appropriate offering. The toll is over a dollar too high. We weren’t given proper cost information. We don’t think it enables producers to participate. It doesn’t access a liquid hub, and it's not expansion capacity. I think there's other opportunities for us to work with Enbridge to help manage the volume risk, and as CNRL, with 700,00 barrels a day flowing on the Mainline, we're very interested in finding a solution that works.

17173. MR. DAVIES: Do you think that was responsive to the question I asked you, Ms. Day?

17174. MS. DAY: I do. I think that we don’t want to -- we're asking the Commission to not approve MLC, and we're also telling or asking the Commission or advising the Commission that we're open to discuss other things with Enbridge.

17175. MS. HARDY: It's Ms. Hardy here. I just wanted to point out for the benefit of the Commission, you know, Enbridge and its shippers had a choice back then, and what it did with that choice was it negotiated the CTS, and that was a broad-based agreement that had representation from all aspects of the industry, industry groups, producers, refiners, integrated companies, large and small. And that resulted in an agreement that worked well for 10 years, and it had certain parameters in it that helped balance risk between Enbridge and its shippers throughout a common carriage system and that allowed periods of re-negotiation if necessary, if there were changes, and flexibility to adapt to periods of potentially lower throughput, if that were to play out, and adapt tolling with respect to that. And it benefited the industry greatly.

17176. However, now we're facing a point in time where that is -- the CTS rates are a bit out of step and the agreement is expiring. And I just wanted to contrast to where we are today with MLC, where that approach to developing the

Transcript Canadian Shippers Group Panel Examination by Mr. Davies next step, the choices are very different for producers. We haven't been involved with the initial outset in terms of determining the key terms, and the evolution of the negotiations have been very different, and that has resulted in us having to come to the regulator and be here today, which is not the efficient outcome we were hoping when we went into those negotiations.

17177. MR. DAVIES: Well, why don’t we, Madam Chair, if it's satisfactory, pick it up after lunch. I'm about to get into another line of cross-examination that’s going to take some time.

17178. THE PRESIDING COMMISSIONER: That works, Mr. Davies. Let's resume at 1:05.

--- Upon recessing at 11:57 a.m./L’audience est suspendue à 11h57 --- Upon resuming at 1:09 p.m./L’audience est reprise à 13h09

17179. THE PRESIDING COMMISSIONER: Welcome back to the continuation of the oral proceeding on Enbridge's Mainline Contracting Application.

17180. We are going to continue with the cross-examination of the Canadian Shippers Group and MEG's witness panel.

17181. Mr. Davies, on behalf of Enbridge, I will let you go whenever you're ready, and just note that with the longer sitting time that we have in place for today, perhaps we can aim for a break somewhere close to three o'clock, and then as I had indicated, we will continue somewhere to the vicinity of 5:00.

SHONDA DAY: Resumed GLENN BOOTH: Resumed SHANNON HARDY: Resumed GARY M. HOUSTON: Resumed PAULINE BUITINK: Resumed ERIK ALSON: Resumed MARK DRAZEN: Resumed RON MIKKELSEN: Resumed JEFF D. MAKHOLM: Resumed ROLAND PRIDDLE: Resumed

Transcript Canadian Shippers Group Panel Examination by Mr. Davies --- EXAMINATION BY/INTERROGATOIRE PAR MR. DAVIES: (Continued/Suite)

17182. MR. DAVIES: Thank you, Madam Chair.

17183. Ms. Buitink, I want to discuss with you evidence and argument that was presented by Shell Canada in the National Energy Board's MH-002-2012 proceeding, which relates to an application by Chevron for a priority destination designation on the Trans Mountain Pipeline System.

17184. And before I do that, let me say that I realize that your familiarity with this material may be recent, perhaps starting on Sunday when I filed the aids to cross-examination. I understand that you weren’t personally involved in the proceeding. So this may come down to us doing some reading together, but as we do that, I wanted to -- I want to make sure that you know you have the opportunity at any stage to interject and add comments or take exception to what might be printed on the page, and I will certainly give you the opportunity to do that.

17185. MS. BUITINK: Okay.

17186. MR. DAVIES: Before we get to the evidence though, let me just, to set the stage, see if I can get you to confirm a few facts. Trans Mountain transports oil from Alberta to four refineries in Washington State to a refinery in Burnaby and to the Westridge Dock.

17187. Are you aware of that?

17188. MS. BUITINK: Yes, I am.

17189. MR. DAVIES: And Shell owns one of the refineries in Washington State?

17190. MS. BUITINK: Correct.

17191. MR. DAVIES: The other three Washington State refineries that are connected to Trans Mountain are owned by Phillips 66, BP, and Tesoro?

17192. MS. BUITINK: Correct.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17193. MR. DAVIES: And the Burnaby refinery is now owned by Parkland, but it had been owned by Chevron. And you are aware of that?

17194. MS. BUITINK: Yes, I am.

17195. MR. DAVIES: And most of the crude oil that is shipped on Trans Mountain is -- sorry. Most of the crude oil shipped on Trans Mountain is shipped by the five refiners or their affiliates.

17196. You understand that?

17197. MS. BUITINK: It’s my understanding that -- the crude thing transported on a pipeline can be four to five refiners or can go to the dock you are referring to, the Westridge Dock.

17198. MR. DAVIES: Right, but the majority of crude oil is shipped on Trans Mountain by the refiners.

17199. MS. BUITINK: Okay, I will take that subject to check, Mr. Davies.

17200. MR. DAVIES: Okay. And in the MH-002-2012 proceeding, Chevron, which then owned the Burnaby refinery, was applying to have its refinery designated as a priority destination on the Trans Mountain system.

17201. Do you understand that?

17202. MS. BUITINK: Yes, I do.

17203. MR. DAVIES: And Shell opposed the application?

17204. MS. BUITINK: That’s correct.

17205. MR. DAVIES: So if we could turn up, please, Exhibit C13524-16. Thank you.

17206. And this is evidence that was submitted by Phillips 66 and Shell Trading Canada dated December 13, 2012, right?

17207. MS. BUITINK: Yes. Correct.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17208. MR. DAVIES: And are you aware that accompanying this evidence was expert evidence from Dr. Carpenter of the Brattle Group, that was sponsored by P66 and Shell?

17209. MS. BUITINK: Yes, I understand it was submitted as an aid to cross.

17210. MR. DAVIES: Yes, thanks. And in fact we see, if we turn to page 3 of the document, just to scroll down, you see in A3 there’s a statement that P66 and Shell relied on the expert opinion of Dr. Carpenter.

17211. MS. BUITINK: Okay. I see that.

17212. MR. DAVIES: Thank you.

17213. Now, if we go over to page 5, in A9. If we could scroll down please? There is an indication in the first sentence that:

“P66 and Shell must compete for feedstock with other refiners, including Chevron.”

17214. Do you see that?

17215. MS. BUITINK: Yes, I do.

17216. MR. DAVIES: And then further down, it says:

“To the extent TMPL is capacity constrained, a PDD would have the effect of conferring on Chevron unapportioned TMPL access to transport competitively priced WCSB barrels. Such unapportioned access in times of TMPL capacity constraint would result in a commensurate reduction in the ability of Chevron's competitors to source and transport those competitively priced WCSB barrels on the TMPL system.”

17217. Do you see that?

17218. MS. BUITINK: Yes, I do.

17219. MR. DAVIES: And you’re aware that at the time, that is back in 2012, the Trans Mountain system was in fact capacity constrained?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17220. MS. BUITINK: I understand there was a level of apportionment taking place. Yes.

17221. MR. DAVIES: And then if we go over the page, please. Q10 asks the question:

“Are P66 and Shell opposed in principle to unapportioned or firm access on the TMPL system?”

17222. And I will just read the answer. It says:

“No. In the view of P66 and Shell, the competitive refining industry is characterized by the need to make economic choices based on the unique circumstances of each market participant. One of the economic choices to be made in the context of security of supply is whether a market participant's relative captivity to a single supply source (or other considerations) warrants it making long-term shipping commitments when firm or committed service is offered.

“Each market participant makes an economic assessment of whether it values certainty of access to pipeline capacity sufficiently to make a long-term shipping commitment. If a shipper has limited alternative supply options and an expectation of capacity being constrained, it is logical that such a shipper would take steps including potential investment to diversify supply options and/or subscription for firm service and the assumption of the associated costs.”

17223. That’s the end of the response. And is there any statement in there with which you would disagree?

17224. MS. BUITINK: So I think it’s fair to say that that’s true in the context of the Trans Mountain Pipeline. I’m not sure what your question is about, but that’s what I would like -- that I can agree to.

17225. MR. DAVIES: Yes. And, indeed, it is in the context of the Trans Mountain Pipeline.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17226. MR. DAVIES: The next question then if we scroll down -- the question is asked:

“Has Chevron had the opportunity to obtain firm TMPL capacity?”

17227. And you will see that the statements are made that:

“Chevron has had options […] to obtain firm capacity on the TMPL system.”

17228. And there is reference to the fact that:

“…it could have obtained capacity had its bid for the firm service offered to the Westridge Marine Terminal…”

17229. Which was the Firm 50 service, right?

17230. MS. BUITINK: Yes.

17231. MR. DAVIES: And then, over the page, it goes on to say that Chevron:

“…could also have subscribed for firm service through the open season that has been conducted in respect of the […] Trans Mountain expansion.”

17232. That’s the first sentence ---

17233. MS. BUITINK: Yes, I see that.

17234. MR. DAVIES: --- of the first paragraph. I’m sorry?

17235. MS. BUITINK: Yes, I see that. Yes.

17236. MR. DAVIES: Yes, thank you.

17237. And then the last paragraph says:

“While Chevron is entitled to make the economic decision of

Transcript Canadian Shippers Group Panel Examination by Mr. Davies whether or not to subscribe for firm capacity and assume the associated costs, Chevron should not be insulated from the consequences of […] not doing so. Chevron's allocation of TMPL capacity should not become unapportioned indirectly through a PDD when it has not been prepared to pay the costs necessary to participate in market-based options that have been made available to it.”

17238. And Ms. Buitink, can you confirm that Shell considers the option to subscribe for firm service to be a market-based option?

17239. MS. BUITINK: In general, yes, we do. Going back to the point made earlier whereby all the members of the panel that firm service we see as something that actually is there. If you talk about expansion of a pipeline or conversion of a pipeline, or adding new additional changes to a pipeline, it actually warrants capital and therefore firm service to commit to that.

17240. And that was also the understanding of the -- and that’s, sorry, I will leave it at that.

17241. MR. DAVIES: Well, do you understand that this application was not being considered in the context of any expansion of a pipeline?

17242. MS. BUITINK: I was -- I understand that this -- actually, this firm service was done in the context of a very small portion of the line, and really to provide the collection with the dock cite you refer to in order to allow the additional ingress that would be available to be optimized in that surplus.

17243. MR. DAVIES: Well, to be clear, this was Chevron requesting priority to existing capacity on the Trans Mountain system, right?

17244. MS. BUITINK: So my understanding is this was Chevron asking for a PADD that actually is in addition to get firm commitment on a pipeline and not making use of the market mechanisms that are there to do so.

17245. MR. DAVIES: Okay. And we're ---

17246. MS. BUITINK: That being sort of a signing up for firm service in early applications.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17247. MR. DAVIES: Okay. In fact, if we turn over to PDF page 9, you mentioned Chevron not being prepared to take advantage of options. And in A13, Shell identifies a number of options, and I will just quickly run through the list: rail to truck to refinery, rail to refinery, bidding on spot dock capacity and diversion to the refinery, purchases of crude or capacity or both from other TMPL shippers in the secondary market, rail to barge to refinery, marine deliveries, and cargo sharing and lightering. And then, Ms. Buitink, in Q14 we see the question:

"What is the reaction of P66 and Shell to Chevron's description of its limited ability to take advantage of secondary market transactions and its description of those as ‘opportunistic’?"

17248. And the response reads:

"The secondary market on TMPL is an active market in which Chevron could participate to meet a portion of its refinery needs if it was prepared to pay market prices for crude and/or capacity. P66 and Shell are active participants in the secondary market for crude oil and capacity rights on the TMPL system."

17249. You see that?

17250. MS. BUITINK: Yes, I do.

17251. MR. DAVIES: And is there anything in there with which you would disagree?

17252. MS. BUITINK: No, I think, again, it's important to note this in the context of the Trans Mountain and specifically the PPD hearing that was taking place here.

17253. MR. DAVIES: Yeah. I'd like ---

17254. MS. BUITINK: But we also would to note for question 13A, it gives the possibilities about how to go about finding additional ingress or managing that, yeah. And that's where, again, in the context of what is possible and the problem that is there, an action to take.

17255. MR. DAVIES: Okay. Thank you.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17256. MS. BUITINK: And the same with -- maybe just to point around the secondary markets, there has been -- I think the definition of secondary market seems to be quite fluid. In the secondary market we have here in the Trans Mountain, for my understanding, but definitely the panel can help here, it's not the level of sacrifice and complexity which you would have in the secondary market of the hearing we are -- our Mainline hearing. This is actually one pipeline within that allowed that negotiation to dock with a large number of participants that creates a large level of flexibility to manage this market, and it is very different from the Mainline secondary market that has been referred.

17257. MR. DAVIES: Okay. Well, thank you for that. We're going to come back and talk about the secondary market in a minute.

17258. Just to finish off this document though, please, if we could turn over to PDF page 12, the first full paragraph reads:

"In a competitive market, participants must make economic choices in any given set of changing market circumstances, including potential scarcity of pipeline capacity and prevailing crude pricing conditions. The breadth of the choices available to any given market participant may be (and should be expected to be) impacted by investment decisions that have or have not been made."

17259. Do you generally disagree or generally agree with that, Ms. Buitink?

17260. MS. BUITINK: Yes, in general, I agree with that.

17261. MR. DAVIES: Thank you. Now, if we could take that document down, please, Ms. Foreman, and bring up Exhibit C13524-13. Thank you. No, I'm sorry, I must have the wrong one.

17262. THE REGULATORY OFFICER: Perhaps 18?

17263. MR. DAVIES: I wanted 13524-18, yes. Thank you.

17264. THE REGULATORY OFFICER: Thank you.

17265. MR. DAVIES: You should be doing this cross-examination. Yes,

Transcript Canadian Shippers Group Panel Examination by Mr. Davies thanks.

17266. And Ms. Buitink, you mentioned the secondary market, and there is further discussion in this transcript about the secondary market. And you probably are aware of this already, but this is the cross-examination of the Phillips 66 and Shell Canada panel. And Ms. Rosko, R-o-s-k-o is the Shell witness. And of course, Dr. Carpenter is Shell's expert witness. And if we can start at PDF page 21, please.

17267. And you see that cross-examining counsel, Mr. Sanderson, was suggesting that:

"…regulation often takes into account things other than pure economic efficiency, to the ongoing frustration of most economists?"

17268. And Dr. Carpenter refers to:

"…the importance of secondary markets in accomplishing efficient outcomes."

17269. That's in paragraph 8496. And he goes on to say:

"And in fact, I'd say the Board has, over the years, embraced the concept of using market mechanisms to accomplish efficient outcomes […] even under a regulated system."

17270. Do you see that?

17271. MS. BUITINK: Yes, I do.

17272. MR. DAVIES: And aside from telling me that these comments were made in the context of the Trans Mountain case, is there anything else that you would like to tell me?

17273. MS. BUITINK: No, it's maybe a moment to actually ask my -- the people on my panel to see whether they have anything to add to this in context of their understanding about secondary markets.

17274. MR. DAVIES: Okay. I'm happy to do that, but can we make it

Transcript Canadian Shippers Group Panel Examination by Mr. Davies through this transcript first and then come back and see whether anybody wants to add anything? Could we do that, just to make it more efficient?

17275. MS. BUITINK: I think we can.

17276. MR. DAVIES: Thank you. And then over on PDF page 61, and I'm looking at paragraph 8961, and I will just read this. It's one of the National Energy Board members. Member Ballem was asking:

"There's been a lot of talk about the secondary market. Do P66 and Shell participate in the secondary market?”

17277. And Ms. Rosko says:

“Yes, we do.

“MEMBER BALLEM: Every month?

“MS. ROSKO: Yes, we do. Whether we're successful every month is another story, but we definitely participate every month.”

17278. And then over on PDF page 62, and again, Mr. Ballem -- he asks the question, you’ll see, in 8971, if we could scroll down a little bit. He is essentially asking about whether effectively everything on the pipeline could qualify in the secondary market. And down at 8975 he says:

“Well, you have traders, and those traders are active in the market on a daily basis. And it's the way any sort of commodity market works, there's regular communication between counter-parties and one party asks -- will ask another party, ‘Do you have barrels to sell or do you have space to sell’ and another one says, ‘Well, yes. And would you be willing to take this price’. ‘Well, no, but would you be willing to take that price’, and parties agree.”

17279. Now, is that the way that the secondary market works, in your experience?

17280. MS. BUITINK: My understanding is that’s how the secondary

Transcript Canadian Shippers Group Panel Examination by Mr. Davies market works in context of the Trans Mountain Pipeline ---

17281. MR. DAVIES: Okay.

17282. MS. BUITINK: --- in terms of being -- and the fact that like I mentioned before, it’s what’s called a liquid system. So it has an open and flexibility about -- actually, everybody can get -- and there’s an openness and transparency around the market that allows you to, indeed, effectively bid on it.

17283. But again, my knowledge around -- like you pointed out in the beginning, my knowledge around this is limited. So I think my panel members can add more colour to this.

17284. MR. DAVIES: Okay. And that’s ---

17285. MS. DAY: I think what might be different ---

17286. MR. DAVIES: --- fine. We’ll just finish off ---

17287. MS. DAY: --- in this -- pardon me, ---

17288. MR. DAVIES: --- and go to ---

17289. MS. DAY: --- Madam Chair, I was just going to add, if I could, please?

17290. MR. DAVIES: Sure.

17291. MS. DAY: I think what might be different here is in this context, and I am not familiar with the cross aids, but I do think on Trans Mountain, parties are -- parties that are on the line are shuffling barrels back and forth in order to make the right ship size volumes and ensuring that they can move things back and forth to meet their refinery needs.

17292. That also happens, to some extent, on Enbridge for refiners to optimize what comes to their refinery in terms of time or in terms of swapping out a grade. But you already have to be on the line and you already had to have downstream verification in order to get on that line. So those are bilateral transactions taking place between counter parties that have already received capacity on Enbridge. And that’s similar to what is happening here on Trans Mountain.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17293. MR. DAVIES: Does CNRL today ship on the Trans Mountain system?

17294. MS. DAY: No, we don’t ship on Trans Mountain. When I worked at BP, we did participate a little bit in the cargo market.

17295. MR. DAVIES: Okay. And just to finish off this transcript, Ms. Buitink, if we could go, please, to PDF page 65? And I’m looking at the bottom paragraph where Dr. Carpenter says:

“When I say that the PDD is an anachronism from a prior world, it is -- it comes from the world of the common carrier pipeline where allocations are made on -- on the basis of capacities or historical volumes or some -- some basis that’s not in price or in -- in economics. That’s the world in which the PDD first arose back in the -- back in the eighties.”

17296. And he then goes on to say over on the next page:

“…in my opinion, the Board has moved well beyond those kinds of mechanisms. For gas pipelines, we have no such thing […] as common carriers, we’re contract carriers and capacity is allocated on the basis of firm contracts and there are active secondary markets, very active secondary markets. There’s no such thing as a PDD on a gas pipeline.

“With respect to oil pipelines, the evolution has […] moved and […] the Board is now embracing firm contracts for new pipelines, firm contracts for expansion pipelines, the Firm 50 case here […] however, there is still an allocation for common carrier purposes and it’s that allocation that gets apportioned and [it] is subject always to debate as to the nature of […] the apportionment.

“PDD is in that context and -- but at the same time, we now have secondary markets on oil pipelines that are much more active than they ever were in […] the mid-1980s and it’s the secondary market where you get, as I said before, the efficient allocation. That’s where the most efficient buyer and the

Transcript Canadian Shippers Group Panel Examination by Mr. Davies highest valued user can get the capacity if it’s willing to pay a price.

“You like to have that in regulated markets because it creates incentives for the buyers to be efficient in their operation, so that they can -- they can secure those barrels. That’s what I mean when I say the PDD is an anachronism and […] to fall back on it, given all the progress that’s been made on oil pipeline regulation is sort of a throwback.”

17297. And that’s the end of the quote. Is there anything in there, Ms. Buitink that you would like to comment on?

17298. MS. BUITINK: No, I would like to leave it up to the panel, Mr. Davies.

17299. MR. DAVIES: Thank you. If we could take that down, please? And just finally ---

17300. MS. DAY: Madam Chair, sorry. We had a mute issue here. So I think Dr. Makholm wanted to jump in, and then perhaps Mr. Booth had something to add as well.

17301. Dr. Makholm?

17302. DR. MAKHOLM: Well I think -- I don’t know what Mr. Booth had to say, but I did look with interest at that proceeding and Paul Carpenter’s testimony and I would point out that he was testifying in the context of a pipeline that went from a liquid hub to the ocean, another liquid hub. And his description about trading on that liquid hub from one part to the other and the problems of the PDD are all proper.

17303. But I would also like to point out that nothing in his comments detracts from the idea that we still have common carriers, legal common carriers throughout the continent, both in Canada and the U.S. And those common carriers have remained and they have survived challenged, partly because of the configuration of certain common carriers, and also because of the knowledge of the regulators involved, particularly the FERC, that moving from common to contract carriers can be discriminatory in favour of one group of shippers against another and hence, like in the Colonial case that I referred to in my testimony,

Transcript Canadian Shippers Group Panel Examination by Mr. Davies denied.

17304. So the idea that economics point in the way of contracts does work in the context of, as I say in my testimony, pipelines that may go from a liquid hub to another liquid hub, but don’t work in all cases, particularly in context of pipelines that go from a liquid hub to non-liquid locations like in the Mainline.

17305. MR. DAVIES: What was the liquid hub, Dr. Makholm, to which the Trans Mountain Pipeline went in 2012?

17306. DR. MAKHOLM: The ocean.

17307. MR. DAVIES: And what volume of capacity was reserved to transport volumes to that liquid hub?

17308. DR. MAKHOLM: I don’t know the quantity. I just know that it terminates at what we would call a liquid hub, because you trade on ships anywhere you wish. And I would call that a liquid hub.

17309. MR. DAVIES: Well Firm 50, Dr. Makholm, resulted in 54,000 barrels a day of capacity to the liquid hub that you’re talking about, right?

17310. DR. MAKHOLM: I’m not ---

17311. MR. DAVIES: Or you don’t know? You don’t know.

17312. DR. MAKHOLM: --- sure that I understand. I’m not sure that I could agree with that, other than in generalities of where it goes.

17313. MR. DAVIES: And the reason that you can't agree is because you don’t know?

17314. DR. MAKHOLM: Well, I know where the pipeline goes, but I don't know the specifics of the commercial arrangements on the pipeline other than its historical relationships and its historical general relations.

17315. MR. DAVIES: Was Chevron looking for the PDD to transport volumes to a liquid hub, Dr. Makholm?

17316. DR. MAKHOLM: It is my understanding of that case, having seen

Transcript Canadian Shippers Group Panel Examination by Mr. Davies aids to cross, that what -- not having been in the case -- that what Chevron was looking for was a certain kind of priority based on a reading of potential terms and conditions on Trans Mountain Pipeline that had never been invoked before.

17317. MR. DAVIES: Was Chevron looking for the PDD to transport to a liquid hub?

17318. DR. MAKHOLM: It was looking to transport to itself.

17319. MR. DAVIES: Right, to its refinery?

17320. DR. MAKHOLM: Which exists in the presence of a liquid hub.

17321. MR. DAVIES: Thanks for that, Dr. Makholm.

17322. Just to finish off, Ms. Buitink, if we could turn up, please, finally ---

17323. MS. BUITINK: Sorry, Mr. Davies. I'm sorry. I think Mr. Booth wanted to say something. I’m not ---

17324. MR. BOOTH: It shows me on mute.

17325. MR. DAVIES: We can hear you.

17326. MR. BOOTH: Okay. Sorry, Madam Chair, Mr. Davies. It's Glenn Booth speaking.

17327. Mr. Davies, you had earlier had an aid to cross up there, and there was a quote on efficiency. And you said that we would have an opportunity to speak to it, but you wanted to get to one part of the transcript first.

17328. Can we please go back to that quote?

17329. MR. DAVIES: Sure.

17330. MR. BOOTH: It was on lines 8501 and 8502. Can you bring it up again, please, Ms. Foreman? That was the last aid to cross Mr. Davies had.

17331. MR. DAVIES: So that would be Exhibit C13524- -- actually, that’s the one I made the mistake on before, so don’t trust me -- Exhibit C13524-18.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17332. MR. BOOTH: Yes. If we go to lines 8501, 8502, I believe.

17333. Now, if I recall correctly, you read it yourself and had said you would like to get through this before we discuss the issue of the Board taking into account other factors than pure economic efficiency, so I thought we were going to have an opportunity. And all I wanted to say is that the Board always has the opportunity to take into account other factors than economic efficiency, and as far as I know through my experience, it always has done. And fairness is, you know, one of the key factors that it always looks at.

17334. And I would just add in this case, there's certainly a huge fairness issue going on here in that given that we have a large number, a very large number of parties opposing this application, so I just wanted to make the point that fairness is a very relevant criterion in this case.

17335. Thanks, Mr. Davies.

17336. MR. DAVIES: Yeah, you're welcome. No problem.

17337. So if we could turn up, please, just to finish this area off, Exhibit C13524-19, which is the final argument of P66 and Shell. And if we could go, please, to PDF page 9, and scroll down, please, to Line 16. Thank you. Yes, thanks. Right -- perfect.

17338. I will just read this, Ms. Buitink. It says:

"Chevron looks at the secondary market as if it were an undesirable gap in regulation. Chevron says that: 'Permitting shippers with surplus capacity the right to earn monopoly profits is no more efficient or fair than permitting a pipeline to so.' This position is inconsistent with basic economics and long-standing regulatory policy (including that of this Board) or, put more simply, just plain wrong. The secondary market is a highly efficient mechanism for putting pipeline capacity in the hands of shippers who value it most. The secondary market is not in play 'behind the Board's back', so to speak, but with the Board's full endorsement, because it promotes efficiency and moderates the monopoly that the pipeline otherwise has over its capacity."

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17339. And Ms. Buitink, does this continue to be Shell's view of the secondary market?

17340. MS. BUITINK: This is Shell's view of the secondary market then in context to the Trans Mountain Pipeline.

17341. MR. DAVIES: Okay.

17342. MS. BUITINK: There is no definition of a secondary market. It's a fluid definition that is being used and in the context here of how the market -- because it's being worked in the Trans Mountain and not necessary how it actually would work in the Mainline.

17343. MR. DAVIES: Thank you. I apologize for making you read all these documents, Ms. Buitink, but thanks for doing that.

17344. THE PRESIDING COMMISSIONER: Mr. Davies, just while you're perhaps moving to your next line of questioning, I will remind the witnesses, although we don’t want people speaking over one another, I do welcome, as the Chair, if you need to speak up, turn on your microphone or have one of your panel colleagues do so if you’re having an issue.

17345. It's difficult to tell if you're speaking to each other or gesturing for some other reason, so that’s the surest way to get the attention of the Panel.

17346. And Mr. Davies is also juggling, I think, a lot of different views on his screen and may not be able to acknowledge you in real time. So it's going okay, but just keep that in mind so that we can acknowledge whoever needs to speak in a timely way.

17347. MS. HARDY: Thanks, Madam Chair.

17348. MR. DAVIES: I want to now turn to some questions with respect to Total's participation in the TMX proceeding, so this will be for you, Ms. Hardy, or perhaps even for Mr. Houston, because I know he was a witness for Total in that proceeding.

17349. MR. HOUSTON: That’s right. I was the principle policy witness for Total in that proceeding.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17350. MR. DAVIES: Did you tell Mr. McIntyre that?

17351. MR. HOUSTON: We were a team.

17352. MR. DAVIES: Now, Total indeed participated in the proceeding to consider the toll methodology for the Trans Mountain Expansion Project, right?

17353. MR. HOUSTON: That’s correct.

17354. MS. HARDY: That’s correct.

17355. MR. DAVIES: And if we could turn up, please, Exhibit 13524-21, and that is the opening statement of Total in that proceeding?

17356. MR. HOUSTON: Yes. Twenty-one (21), you said? I believe that’s the final argument. Okay. I’ve got the wrong document.

17357. MR. DAVIES: Yeah, Mr. Houston, the exhibit numbers are one off the numbers that are in the letter.

17358. MR. HOUSTON: Okay.

17359. MR. DAVIES: If that helps.

17360. THE REGULATORY OFFICER: I believe this one is 13524-22.

17361. MR. HOUSTON: Okay.

17362. MR. DAVIES: Okay. Well ---

17363. MR. HOUSTON: Go figure. I've got it, in any case, Mr. Davies.

17364. MR. DAVIES: Ms. Foreman is always one step ahead of me. Well done. Thank you for bringing up the opening statement.

17365. So you indicate in the first full paragraph, Mr. Houston, that you want the project to proceed, but you then say:

"Nevertheless, there are important and potentially precedent

Transcript Canadian Shippers Group Panel Examination by Mr. Davies setting decisions on the table that are being put forward by Trans Mountain and some shippers that could have a far- reaching effect on our industry and its competitive position." (As read)

17366. What were the precedent setting decisions that were on the table in this case?

17367. MR. HOUSTON: In particular, Total was objecting through its evidence in this hearing to the bilateral nature of the negotiations which seemed like a divide and conquer kind of approach on behalf of Trans Mountain. I remember at the time being involved in, for example, the Northern Gateway project where we had formed a group of interested parties and were able to have a more open dialogue. And in our opinion at the time, that was a more productive process leading to a more creative and certainly a more easily supported position.

17368. MR. DAVIES: Okay. So one precedent setting decision on the table was whether a pipeline could conduct bilateral negotiations to arrive at agreements with its shippers about terms and conditions and tolls, right?

17369. MR. HOUSTON: That's correct, yes.

17370. MR. DAVIES: And were there other precedent setting decisions on the table?

17371. MR. HOUSTON: Well, the other elephant in the room at the time was when the project was upsized from a 30-inch to a 36-inch pipeline. There wasn't that discussion of how the toll would be adjusted amongst the shippers and with Trans Mountain. It was a very unilateral approach and we had wished at the time to have a more open discussion around how that toll adjustment was approached.

17372. MR. DAVIES: Was another precedent setting decision on the table -- that was on the table, Mr. Houston, whether cost of service information is required to assess the justness and reasonableness of a negotiated toll?

17373. MR. HOUSTON: Cost was certainly -- I say a cost-based toll was something that we were looking for in this case, and particularly, when the shift from a 30-inch to a 36-inch pipeline was contemplated by Trans Mountain, the associated shift in tolls did not seem to us to be in line with the changes in cost

Transcript Canadian Shippers Group Panel Examination by Mr. Davies that would have been created by that change.

17374. MR. DAVIES: Okay. So we've got two precedent setting decisions on the table, one relating to bilateral negotiations, the other relating to the requirement for cost of service information, right?

17375. MR. HOUSTON: Yes, I don't necessarily think it's related to cost of service information, but about having a toll that's got a relationship to cost.

17376. MR. DAVIES: Okay. And if we can then bring up the evidence of Total, and that will be Exhibit C13524-20. And on page 4, in paragraph 11 were the issues that Total was considering in its evidence, correct?

17377. MR. HOUSTON: Yes.

17378. MR. DAVIES: And then over on the next page, please, in paragraph 14 -- and maybe I should just read it into the record. It says:

"Trans Mountain's Open Season process was neither fair nor transparent. Historically, pipeline companies have consulted collectively with potentially interested shippers to develop terms and conditions that are acceptable to [all shippers -- sorry,] all parties. Where differences arose that needed to be adjudicated, this was undertaken in public through a rate of return hearing conducted before the Board, where aspects of the tolls and tariff were reviewed and debated publicly and ultimately determined by the Board. More recently, the negotiated settlement process has evolved through which the pipeline company negotiates with multiple parties, all of whom had access to the same information, and through discussion, negotiation and collaboration, the parties arrive at a common rate and tariff solution that is presented to the Board for consideration along with a request for approval. The Board may or may not approve the proposed solution."

17379. And Mr. Houston, what Total was submitting here was that there needed to be either a negotiated settlement with all potentially interested shippers or a rate of return hearing, right?

17380. MR. HOUSTON: I think what we were presenting here is that, in our

Transcript Canadian Shippers Group Panel Examination by Mr. Davies view, Trans Mountain had missed an opportunity to have that kind of universal support through the approach that they took. The bilateral discussion approach, in our view, wasn't as productive as we had seen on some other projects, like the Northern Gateway project, for example, where these positions would have been discussed collaboratively amongst all the parties and a creative solution arrived at that was supported by the parties. So in our view, an opportunity was missed here.

17381. MR. DAVIES: Yes, but what you are telling the Board in this paragraph was that there were two options. One was a settlement with all potentially interested shippers, or a rate of return hearing, right?

17382. MR. HOUSTON: I think what we were telling the Board is just what I enunciated that there was an opportunity; there should have been an opportunity to have that collective discussion to reach an agreeable position by all the parties. We think there was an opportunity missed.

17383. MR. DAVIES: So you can't agree with me that what you were saying to the Board in this paragraph was that either there needed to be a settlement with all potentially interested shippers; absent that, there needed to be a rate of return hearing. That's the way I clearly read the paragraph, but you read it differently?

17384. MR. HOUSTON: Yes, and what our position was at the time, and it is that there was an opportunity for Trans Mountain to have a discussion with all of the shippers. They chose a different route, and that created a situation where some shippers, or potential shippers like Total, felt like they were left out of the process.

17385. MR. DAVIES: Well, in fact, that’s what you say in paragraph 15. The approach to which you were taking exception was the bilateral negotiations that had been conducted between Trans Mountain and potentially addressed with shippers, right?

17386. MR. HOUSTON: That’s correct.

17387. MR. DAVIES: Did the Board accept your submission?

17388. MR. HOUSTON: In fact, the Board didn’t agree with us. I think you’re well aware of that. And you know, I think in making their decision, the Board based their decision on three key principles in that case. One was that there

Transcript Canadian Shippers Group Panel Examination by Mr. Davies were a number of competing proposals in the air at that time, I’ll say. As I mentioned, we had been working extensively with Enbridge on Northern Gateway; Keystone XL was in play. And I’m not sure the exact timing, but Flanagan South began to be discussed with Enbridge. So there were a number of opportunities and that was one factor in the Board’s decision.

17389. The second one was that there were 13 shippers, potential shippers on the pipeline, and of course, 11 of the 13 had not -- had a concern with the toll methodology or the way the open season was conducted.

17390. And I think finally, and above all, and Total stressed this in its evidence, this was an expansion project. The entire industry was supportive of the expansion project, including Total. And so that was, you know, in terms of public interest and the interests of the industry. That was an important factor for the Board in its decision.

17391. So you know, I think the Board is required to weigh in on tolling issues and tariff issues and they need to do that based on the context of each individual case and I can understand the position that they took in this case.

17392. MR. DAVIES: Well, if you could understand the position they took, why were you advocating against it in the hearing?

17393. MR. HOUSTON: I think we believed there would have been an easier way forward, and that would be to have an open discussion and negotiation with all parties at the table and to arrive at a collaborative approach from the get- go.

17394. MR. DAVIES: The Board in this case concluded that bilateral negotiations were appropriate, right?

17395. MR. HOUSTON: I think -- and I can’t remember the exact place where they quote that, but I think their wording was a little bit different than that. They essentially said that bilateral discussions were not precluded. And so they came at it from the backwards side, if you get my drift.

17396. MR. DAVIES: Well what they said, Mr. Houston, was:

“…the Board finds Trans Mountain’s use of bilateral negotiations to be legitimate

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17397. in this case.”

17398. MR. HOUSTON: Can you tell me exactly where you’re quoting from?

17399. MR. DAVIES: Well I can, I guess. It’s in the decision itself, RH- 001-2012, hardcopy page 13. I’ll tell you what, let’s -- I didn’t realize that ---

17400. MR. HOUSTON: No.

17401. MR. DAVIES: --- I was going to have this difficulty, but let’s bring it up.

17402. MR. HOUSTON: Yeah.

17403. MR. DAVIES: It’s Exhibit C13524-23. And I’m ---

17404. MR. HOUSTON: And you said ---

17405. MR. DAVIES: --- looking at -- I’m sorry, I don’t have the PDF. It’s hard page -- hard copy page 12.

17406. MR. HOUSTON: Okay. That’s -- I was looking at PDF 13. Yeah, so I was thinking of the paragraph at the bottom of that page where it says:

“The Board notes that parties are not precluded from conducting bi-lateral negotiations and there may be circumstances when this type of negotiation is appropriate.”

17407. And then the sentence that you quoted. So ---

17408. MR. DAVIES: Well just -- why don’t you just -- why don’t you just keep reading?

17409. MR. HOUSTON: Yeah:

“In this case, the Board is of the view that the respective competitive position of prospective shippers may have influenced negotiations if such negotiations would have occurred in a group setting.”

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17410. MR. DAVIES: Keep going.

17411. MR. HOUSTON: “As a result, the Board finds Trans Mountain’s use of bilateral negotiations to be legitimate in this case.”

17412. MR. DAVIES: There’s a few more paragraphs. Keep -- or a few more sentences. Keep going.

17413. MR. HOUSTON: You’re testing me.

“The Board is not concerned about the use of confidentiality agreements in these circumstances. Without these confidentiality agreements, the effectiveness of bilateral negotiations could be undermined and hinder the process. The Board notes that confidentiality agreements are common in the industry and do not taint the fairness of the negotiation process if the Open Season process is fair and transparent.”

17414. MR. DAVIES: That was the finding of the Board in this case ---

17415. MR. HOUSTON: M’hm.

17416. MR. DAVIES: --- which was contrary to what was being urged on the Board by Total, right?

17417. MR. HOUSTON: That’s correct. And I don’t think that the Board has really determined that bilateral negotiations were better than an open discussion which we had hoped for, but they certainly didn’t find that that was determinative in this case.

17418. MR. DAVIES: Okay. With that detour, if we can go back, please, to your evidence? And we had been discussing paragraphs 14 and 15.

17419. Now, what the Board approved in this case, Mr. Houston, was a negotiated toll methodology that was not presented under the negotiated settlement guidelines and that was not based on cost of service, right?

17420. MR. HOUSTON: That’s correct. And as I mentioned before, the Board based its decision on a number of factors that were specific to the Trans

Transcript Canadian Shippers Group Panel Examination by Mr. Davies Mountain case, a case where a pipeline is an expansion, it’s going from a liquid market to a liquid market, being the ocean, as Dr. Makholm pointed out. It based its decision on the fact that 11 out of 13 of the interested shippers were supportive and it based its decision fundamentally on the fact that this was an expansion project which was deemed to be in the Canadian public interest in that it was providing additional egress for Western Canadian barrels.

17421. MR. DAVIES: Well that wasn’t the basis upon which the Board approved the TMX facilities. Are you suggesting that’s the basis upon which the Board approved the toll methodology?

17422. MR. HOUSTON: Yes.

17423. MR. DAVIES: Okay. Pick up the decision, please, and tell me where you read that?

17424. MR. HOUSTON: Okay. I think if we go to PDF 13 -- I may be in the wrong document. Sorry, maybe page 13.

--- (A short pause/Courte pause)

17425. THE REGULATORY OFFICER: Can you verify that this is the correct document, the RH-001-2012?

17426. MR. HOUSTON: I’m sorry, I’m not as prepared as Mr. Davies in this case.

17427. MR. DAVIES: Are you looking for the decision, Mr. Houston?

17428. MR. HOUSTON: I believe so, yeah.

17429. MR. DAVIES: Okay, it’s Exhibit RH -- or sorry -- Exhibit C13524- 23.

17430. MR. HOUSTON: Yes, so I was looking for the Reasons -- I was looking in the Reasons for Decision, which is a 54-page document. Is that the one we’ve got up here? Yes, okay.

17431. And on PDF 13, which is the Disposition, and so this is the “Disposition”. And it’s on this page that the Board notes that 11 of 13 large,

Transcript Canadian Shippers Group Panel Examination by Mr. Davies sophisticated shippers executed long-term agreements.

17432. And I believe it’s on this page as well that they mention the existence of the Northern Gateway and Keystone XL. I’m having trouble locating those words.

--- (A short pause/Courte pause)

17433. MR. DAVIES: What is it that you’re looking for, Mr. Houston?

17434. MR. HOUSTON: You asked me to identify the places where the Board has talked about those three pillars underlying their decision. So you asked me for references -- if I recall the question correctly.

17435. MR. DAVIES: Well, I think what you had said was that the Board approved the toll methodology on the basis that this was a project, a new project that was transporting volumes to a liquid market.

17436. And I invited you to show me where, in this decision, the Board approved the toll methodology on that basis.

17437. MR. HOUSTON: I don’t believe they mention liquid market in their decision. They mentioned the expansion, that there were 11 of 13 shippers that approved it. And they mentioned that there was choice in the marketplace being Northern Gateway, Keystone XL, and other projects that were being discussed at the time.

17438. MR. DAVIES: Okay. With that detour, can we come back please to your evidence, which is Exhibit C13524-20. And if we can turn, Mr. Houston, please to -- well, let’s look first of all on page 7, paragraph 21. And you say this:

“Trans Mountain maintains that negotiations during the Open Seasons involved sophisticated parties negotiating in a workably competitive environment. However, because of the high demand for West Coast oil pipeline transportation as demonstrated by the recent apportionments, the lack of true competing alternative projects, and the fact that shippers were prevented from collaborating during the Open Seasons, there has not been a competitive negotiating process. The divided shippers have been told in isolation, without the benefit of any

Transcript Canadian Shippers Group Panel Examination by Mr. Davies sufficient supporting information or recourse, to accept a unilaterally proposed toll and tariff as the cost to acquire scarce transportation access to the West Coast. As there is no real alternative available the consequence of refusing the toll and tariff provisions are prohibitively high effectively resulting in forced acquiescence to fees and tariffs rather than leading to mutual agreement and acceptance.”

17439. Do you see that?

17440. MR. HOUSTON: Yes, I do.

17441. MR. DAVIES: And that was Total’s evidence in this proceeding?

17442. MR. HOUSTON: Yes, it was.

17443. MR. DAVIES: And by the time of this proceeding, the open season had already been conducted, right?

17444. MR. HOUSTON: Yes.

17445. MR. DAVIES: And while you’re referring this paragraph to the absence of recourse, you were, in fact, filing this evidence and asking for recourse from the National Energy Board, right?

17446. MR. HOUSTON: That’s correct.

17447. MR. DAVIES: And then moving down, you talk about toll methodology, and you say:

“TEPCA disagrees with several statements made by Trans Mountain in its responses to Information Requests filed on November 29, 2012. In particular, Trans Mountain alleged that the toll methodology was negotiated and that shippers had the necessary information to make an informed decision regarding the applied for toll methodology. On the contrary, despite these requests, Trans Mountain continues to refuse to provide sufficient details of its tolling methodology, which is a fundamental commercial component of typical terms and conditions of service in North America.”

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17448. And Mr. Houston, the details to which you refer here included requests for cost-of-service information, right?

17449. MR. HOUSTON: We would have preferred to have more access to cost to information to discuss the level of the toll, yes.

17450. MR. DAVIES: And what did the Board say in its decision about this issue that you were raising?

17451. MR. HOUSTON: So as I have mentioned, the Board determined that there were sufficient alternatives, being again Keystone XL, Northern Gateway, and that shippers had choice. They also rested on the fact that 11 out of 13 shippers had agreed to the toll.

17452. So I believe those are the fundamental factors that the Board took into account; that there was choice; that there were alternatives, and that Trans Mountain had established agreement with 11 of 13 shippers.

17453. I think that’s, you know, a fundamental difference from what we’re looking at today with the Mainline Contracting; there is no choice. And I think another factor that is distinguishing from the current situation is that, in the case of Trans Mountain, we were talking about one pipeline with a fairly small percentage of the egress capacity. Whereas in the case of Mainline Contracting, we’re talking about a company that has clearly market power with 70 percent of the egress capacity and the potential to change the fundamental dynamics of the oil markets -- oil trading markets for Western Canadian oil.

17454. MR. DAVIES: Did Trans Mountain have market power, Mr. Houston?

17455. MR. HOUSTON: It was determined in this decision that they did not. And again, that’s because of the number of options that were on the table, and the relationship of the Trans Mountain capacity compared to the other options that were apparently available.

17456. MR. DAVIES: Well, that’s not what the Board found, Mr. Houston, but it will be obvious from reading the decision.

17457. The Board -- and when I say it's not what the Board found, what I'm

Transcript Canadian Shippers Group Panel Examination by Mr. Davies talking about was the finding that Trans Mountain had market power. The Board found that Trans Mountain did not abuse its market power, but the Board did not make a finding that Trans Mountain did not have market power.

17458. MR. IGNASIAK: Madam Chair, apologies. It's Mr. Ignasiak, Martin Ignasiak.

17459. We're really streaming into the realm of legal argument here. The witness is being asked for his interpretation of Board decisions. That’s a classic issue to be dealt with in legal argument at the conclusion of the evidentiary portion.

17460. So you know, I understand in these regulatory proceedings it's a bit of a grey line, but you know, Mr. Houston is not here as a regulatory expert, per se, so I think these are really questions that are better addressed by counsel in legal argument.

17461. MR. DAVIES: Madam Chair?

17462. THE PRESIDING COMMISSIONER: Go ahead, Mr. Davies.

17463. MR. DAVIES: I'm prepared to move on. The decisions will speak for themselves. But just to be clear, it wasn’t me asking Mr. Houston what the Board said, it was Mr. Houston volunteering his interpretation of what the Board said.

17464. So with respect, I don’t accept the criticism that I was asking him to interpret a decision. What I was responding to was him offering an interpretation which was not correct.

17465. But with that, Madam Chair, probably nothing to gain by continuing the debate.

17466. We can agree, Mr. Houston, that the Board clearly concluded in this decision that cost of service information was not required for it to assess the proposed toll methodology?

17467. MR. IGNASIAK: Again, Madam Chair, with apologies, the decision says what it says, and it's something I think counsel can address in argument. I don’t think it's appropriate to be asking a factual witness about how to interpret

Transcript Canadian Shippers Group Panel Examination by Mr. Davies Board decisions.

17468. MR. DAVIES: Okay, that’s fine.

17469. Now, Mr. Houston, notwithstanding Total's appearance at the RH-001- 2012 hearing, Total was supportive of the TMX Project, right?

17470. MR. HOUSTON: We were at that time, and although I'm no longer with Total, my understanding is they continue to be supportive.

17471. MR. DAVIES: And the MX Project ---

17472. MS. HARDY: I was just going to -- in the case of there's any lack of clarity of speaking for Total on the issue of Trans Mountain, I can confirm that we are, in fact, supportive.

17473. MR. DAVIES: And the TMX Project involves using both expansion pipeline capacity and existing pipeline capacity to provide long-term firm service to shippers, right?

17474. MR. HOUSTON: Yes. We were talking about a project -- I think we all know the details -- where a significant investment was being made to create some new capacity using the backbone of the existing Trans Mountain Pipeline as a base.

17475. MR. DAVIES: But just to be clear, Mr. Houston, the long-term firm service that is being offered by Trans Mountain to shippers involves service on both new expansion capacity and on existing pipeline capacity, right?

17476. MR. HOUSTON: That’s correct.

17477. MR. DAVIES: Do you know how much existing pipeline capacity is being used by Trans Mountain today to provide spot service that post-TMX will be used to provide firm service?

17478. MR. HOUSTON: You're testing my memory now, Mr. Davies. I believe Trans Mountain had 300,000 barrels a day, and my understanding is that 20 percent of the combined new capacity is going to be uncommitted capacity. But you're testing my memory. Maybe if you have some numbers you want to use, we can talk about those?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17479. MR. DAVIES: Well, my number is 63,500 barrels a day of capacity that is currently being used by Trans Mountain to provide spot service. Will post- TMX be used to provide firm service?

17480. MR. HOUSTON: I can't dispute your numbers.

17481. MR. DAVIES: Would you like to turn up the decision and look at it or are you prepared to accept that?

17482. MR. HOUSTON: I can accept that, subject to check.

17483. MR. DAVIES: Thank you.

17484. The Canadian Mainline today offers only uncommitted service, right? This is a tossup for whoever wants to answer.

17485. MR. HOUSTON: I'll continue, since my mic's open. Yes.

17486. MR. DAVIES: And so committed service would therefore be a new service on the Canadian Mainline?

17487. MR. HOUSTON: So this is Mr. Houston speaking, and that’s my understanding, that committed service is not currently offered on the Canadian Mainline.

17488. MR. DAVIES: Right. So it will be a new service?

17489. MR. HOUSTON: Yes.

17490. MS. DAY: Perhaps it's a different description for the same service, but it's using the same assets, moving from uncommitted to priority access on the Canadian Mainline portion of Enbridge Mainline only. So the Lakehead System would stay in common carriage system -- common carriage service.

17491. MR. DAVIES: Sorry, my mind was wandering there, Ms. Day. Can you repeat that, please?

17492. MS. DAY: My understanding is that Enbridge is looking to change the Canadian Mainline portion to priority access and the common -- and would

Transcript Canadian Shippers Group Panel Examination by Mr. Davies remain common carriage on the Lakehead System. So with -- on the Canadian Mainline System, it's converting to priority access using the same assets as in service today.

17493. MR. DAVIES: Could we turn up, please, Exhibit C11771-2, which at PDF page 54, please? Thank you. And this is the CSG Response to Enbridge Information Request 1.23.

17494. Who wants to answer questions about this response?

17495. MR. HOUSTON: Maybe you should throw out a question, Mr. Davies, and we will see who answers.

17496. MS. DAY: Yeah, we will figure it out.

17497. MR. DAVIES: Well, let me ask the first question. Who prepared this response?

17498. MS. DAY: I think, as we said, Mr. Davies, we worked on this together, so 54?

17499. MR. DAVIES: Well, let me ask you this. Were any of your experts involved in the preparation of this response?

17500. MS. DAY: Sorry, I'm just trying to catch up to you. Just give us a minute, please, while we take a peek at the question. Thank you.

17501. MR. DAVIES: Sure.

--- (A short pause/Courte pause)

17502. MS. DAY: Thank you. I think we prepared this primarily on the panel, so Ms. Hardy is -- this is Ms. Day. Ms. Hardy is going to respond. You tell us your question and I'm sure Mr. Alson can jump in as well.

17503. THE PRESIDING COMMISSIONER: Mr. Davies, you are on mute.

17504. MR. DAVIES: Thank you. The information request we're asking for confirmation that Total Canada, Devon Energy and MEG supported the

Transcript Canadian Shippers Group Panel Examination by Mr. Davies downstream verification procedure when it was being considered by the FERC in 2013, right?

17505. MS. HARDY: That's correct.

17506. MR. DAVIES: And ---

17507. MS. HARDY: This is Ms. Hardy, by the way, just for the record.

17508. MR. DAVIES: I'm sorry?

17509. MS. HARDY: I was just clarifying or trying to get in the habit of identifying myself when I ---

17510. MR. DAVIES: Oh.

17511. MS. HARDY: --- spoke, so it's Ms. Hardy here.

17512. MR. DAVIES: And you provided a preamble to the response in order to provide additional context concerning the history of support for the downstream verification procedure, right?

17513. MS. HARDY: That's correct, yes.

17514. MR. DAVIES: And over the page -- thank you -- in the second paragraph, you point out that the verification process, starting in 2010, but based on historical shipments on the Mainline?

17515. MS. HARDY: That's my understanding, that was in response to an incident that Enbridge had and had some restrictions of their capacity for a period of time.

17516. MR. DAVIES: And yes, thank you. And then in the third full paragraph you set out the guiding principles for a new downstream verification process. And the fifth principle which you have bolded says "..there are no acquired rights to pipeline capacity", right?

17517. MS. HARDY: Yes, that's correct. These principles were agreed by shippers with Enbridge as part of a shipper group proceeding.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17518. MR. DAVIES: And what do you understand the no acquired rights principle to be, Ms. Hardy?

17519. MS. HARDY: Well, in the context at the time, the rules that Enbridge had set out in reaction to the restrictions that they were facing, were based on historic utilization of the Mainline. I believe it was an average over 24 months preceding the incident. So what the issue at hand was, is that we didn't want to continue in that manner because it effectively gave acquired rights and froze those rights that people or that shippers had at that moment in time going forward. We found that that wasn't flexible to meet the needs of shippers who -- many of whom were growing at that time. This is back in 2013, and there was a lot of growth in the industry, and refiners were modifying their facilities as well, and wanting to have flexibility in order to accommodate different needs and abilities to flow into their facilities.

17520. MR. DAVIES: Well, let me suggest this to you and see whether you can agree. The no acquired rights principle has been articulated as meaning that payment of tolls in the past confers no benefit on toll payers beyond the provision of service at that time. Is that -- does that accord with your understanding of what the no acquired rights principle is?

17521. MS. HARDY: I think we're entering into a bit of legal territory. I guess from my commercial perspective when I looked at it, I just felt that this was capacity that was being allocated on a kind of guaranteed type basis to particular shippers based on their historical usage. And so that felt like they, you know, would have, you know, guaranteed usage and access over -- in preference to other shippers on the line.

17522. MR. DAVIES: Well, let me ask you this. Is it your position that providing priority access to pipeline capacity is contrary to the no acquired rights principle?

17523. MS. HARDY: Again, this feels a bit legalistic, but in general, they seem fairly similar to me that acquired rights and priority access would both allow specific reservation of capacity for a particular shipper.

17524. MS. DAY: I think the ---

17525. MR. DAVIES: So ---

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17526. MS. DAY: Sorry, and I'm also a commercial person, but I think the issue that we talked about already a little bit with this application is that parties can participate in the open season, that is clear. But in order to actually ship, you need to have downstream verification. So it may be that historical shippers will -- which have downstream verification are more likely to participate in the open season because they want to get the crude to their refineries, and producers would also like to participate in this offering, but we don't have downstream verification. And the only reason we want to or may feel compelled, I guess, to participate, is because it's the last available egress.

17527. So I'm not sure -- I guess I was just trying to differentiate a little bit there with shippers of record, as you said earlier, today are all saying -- or are generally the supporters of this, the downstream refiners that have downstream verification. And this offering is perhaps best suited for their needs.

17528. I think on the upstream side, we have a difficulty participating in this priority access offering, and we think this service would be better left in common carriage, given the offering on the table.

17529. MR. DAVIES: Well, I've heard that before, Ms. Day, and I don't know how many times I've heard you say that you don't have downstream verification. Each of the CSG members has some downstream verification. It's in varying amounts, but you all have downstream verification, do you not?

17530. MS. HARDY: That's correct. This is Ms. Hardy speaking, and I would just say that we do have some downstream verification, that's correct, but the issue is, is that by virtue of being a refinery, you de facto have downstream verification for your entire needs. And that's where parties aren't really similarly situated when it comes to being able to participate in the open season on an equal footing in this hearing.

17531. MR. DAVIES: Do you think maybe the reason that parties have different downstream verification amounts is a function of the investments that they chose to make?

17532. MS. DAY: This is -- sorry, go ahead, Ms. Hardy.

17533. MS. HARDY: In some cases, that's true, but in some cases, it's also just the nature of their business. There are many participants who are just sole refinery operators. So, and that, just by virtue of that, gives them full coverage of

Transcript Canadian Shippers Group Panel Examination by Mr. Davies downstream verification for all of their needs.

17534. MR. DAVIES: Okay.

17535. MS. DAY: I think they've got -- sorry, I think, you know, there's refineries that are connected -- this is Ms. Day -- to the Mainline, and therefore they know that they will continue to have a need, and they would like to lock in the scarce resource, which is capacity. Alternatively, there's other parties in the industry, like, CNRL or -- and lots of small, junior producers that have made their core competency production, and that's the area of the business that we're focussed on. But that doesn't mean that we don't want fair and equal access to available egress.

17536. MR. DAVIES: Okay. Can we come back, please, because the document was taken down, to your response to 1.23, which was Exhibit C11771- 2, at PDF page 54 please. Actually, the next page.

17537. Now, after you have set out the guiding principles, including the no acquired rights principle, you say:

“Support for the procedures was provided within the context of common carriage (as confirmed by Enbridge on point 5 in the above quote) …”

17538. Now, tell me what it is in the quote in 5 that confirms that support was provided in the context of common carriage? What is it about point 5 that leads you to the conclusion that it only applies in the context of common carriage?

17539. MS. DAY: Well, I guess I’ll -- this is Ms. Day. I guess I will speak from my perspective. The Mainline was in common carriage and so that was the context that this was written in and there was no discussion of it going, in my opinion, to contract carriage at that time. So that is why we thought it was written in the context of common carriage.

17540. MR. DAVIES: Well, do you realize, Ms. Day, that the no acquired rights principle applies to an assortment of pipelines that offer contract service?

17541. MS. DAY: No, I’m just -- sorry, I’m just trying to be responsive to your last question, Mr. Davies. But I don’t have regulatory -- that much regulatory knowledge.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17542. MR. DAVIES: That’s why I asked the question at the beginning who prepared this. Who on the panel prepared this paragraph and talked about the no acquired rights principle in the context of common carriage?

17543. MS. DAY: Mr. Davies ---

17544. MS. HARDY: It’s ---

17545. MS. DAY: --- I think we’re trying to be helpful, but I honestly -- I don’t remember who ---

17546. MS. HARDY: Yeah.

17547. MS. DAY: --- highlighted that. I really don’t remember.

17548. MS. HARDY: Yeah.

17549. MS. DAY: There’s been thousands of pages in this and there’s been a lot of work for all of us, as I’m sure you can agree to. And I don’t remember who highlighted that.

17550. MS. HARDY: Mr. Davies, it’s Ms. Hardy here. And I would just like to note that all five of these were developed jointly for that presentation. All five of these points. And the one above is in compliance with the FERC common carrier principles. So whether that was pointing to 5 or to 4, like, the issue is is that we were all aligned under the principle of common carriage of Line 2, this discussion that we were having regarding downstream verification and how it should be treated among shippers.

17551. MR. DAVIES: Well why did you bold point 5? What were you trying to tell us when you were emphasising point 5?

17552. MS. HARDY: I -- as I mentioned in my first response to you, the thing that jumped out to me from a commercial context when we were doing many reviews of this is that, you know, we didn’t feel that we wanted to leave any doubt that there was any guarantee or priority access that was meant to be carried over from what was a temporary application of downstream verification rules by virtue of, like, a historic right. So perhaps our wording was misguided or not quite accurate from a legalistic perspective, but, you know, commercially, those

Transcript Canadian Shippers Group Panel Examination by Mr. Davies are the principles that we strove to achieve.

17553. MR. DAVIES: Okay. I just want to be clear about this then. Your view is that no acquired rights means no priority access?

17554. MS. HARDY: That was the commercial perspective that I certainly had when we spoke about this. You know, it felt like at the time that there were certain parties that would -- were benefiting from having historic access through the downstream verification rules.

17555. MR. DAVIES: Do you agree that what the no acquired rights principle means in the context of a contract for pipeline service is that the shipper that contracts pays no costs and gets no benefits once the contract has expired? Or am I beyond your knowledge level?

17556. MS. HARDY: I would say that what you’re telling me seems to be a reasonable interpretation, yes.

17557. MR. DAVIES: Okay.

--- (A short pause/Courte pause)

17558. MR. DAVIES: Mr. Drazen, let’s see if we can fit in a few questions for you before the break. Are you there, Mr. Drazen?

17559. THE PRESIDING COMMISSIONER: Mr. Drazen, I see you muted. Are you able to unmute?

17560. So Mr. Davies, I appreciate the suggestion that we perhaps start with a line of questions, but in light of the fact that Mr. Drazen is not able to unmute, maybe we will proceed with a break at this time and allow that to be resolved.

17561. Let’s pick up at 3:05 and hopefully everybody will be able to unmute and respond to the questions that you’ll start with then.

17562. We’ll take a break now until 3:05.

--- Upon recessing at 2:48 p.m./L’audience est suspendue à 14h48 --- Upon resuming at 3:12 p.m./L’audience est reprise à 15h12

Transcript Canadian Shippers Group Panel Examination by Mr. Davies SHONDA DAY: Resumed GLENN BOOTH: Resumed SHANNON HARDY: Resumed GARY M. HOUSTON: Resumed PAULINE BUITINK: Resumed ERIK ALSON: Resumed MARK DRAZEN: Resumed RON MIKKELSEN: Resumed JEFF D. MAKHOLM: Resumed ROLAND PRIDDLE: Resumed

17563. THE PRESIDING COMMISSIONER: Well, good afternoon and welcome back.

17564. I'm just going to do a bit of a roll call with the Commissioners to make sure we have good audio and video feed for them.

17565. Commissioner Jacknife, would you say a few words?

17566. COMMISSIONER JACKNIFE: Hi. Good afternoon.

17567. THE PRESIDING COMMISSIONER: Thank you, Commissioner Jacknife.

17568. Commissioner Grimoldby?

17569. COMMISSIONER GRIMOLDBY: Good afternoon, everyone.

17570. THE PRESIDING COMMISSIONER: Very good.

17571. Mr. Davies, I will let you proceed in a moment. I think you had indicated earlier today you might be able to give a bit of a refined estimate as to your progress to your cross-examination. Certainly, I know it's subject to change, and it is your examination, but do you have a sense of where you might get to today and whether you are likely to complete your cross-examination or not?

17572. MR. DAVIES: Yeah. Thanks for asking, Madam Chair. I was actually going to raise that myself.

17573. I am exceedingly unlikely to get done today, and obviously prepared to

Transcript Canadian Shippers Group Panel Examination by Mr. Davies sojourn on, but I may make it to the point where I reach an area that I would prefer to start anew as opposed to trying to squeeze in the last 15 or 20 minutes. And I may also reach the point where you may not see me on this camera because I have keeled over.

17574. So I guess my question to you was going to be, is that appropriate or are you going to hold me to five o'clock?

17575. THE PRESIDING COMMISSIONER: I'm going to suggest you see how far you can get, Mr. Davies, and we will check in at the point in time where you think you need to conclude, and then we can go from there.

17576. So just let the Panel know, even if it's before five o'clock. Certainly, the Commission is cognizant of the pandemic-related challenges that everybody is struggling, and the challenges of the virtual environment. So we're certainly going to do what we can and try and balance out everybody's interests and sort of, as I said, the challenges that we're all coping with. So just let me know, Mr. Davies, and we will see where we get to, closer to 5:00.

17577. MR. DAVIES: Thank you. My challenge relates more to old age and the fact that I get tired easily, but I guess I ought not complain about that, given that I'm about to talk to Mr. Drazen.

--- EXAMINATION BY/INTERROGATOIRE PAR MR. DAVIES: (Continued/Suite)

17578. MR. DAVIES: Mr. Drazen, how are you?

17579. MR. DRAZEN: Old.

17580. MR. DAVIES: The National Energy Board, you will recall, conducted a proceeding in 2014 to consider the appropriate verification procedures on the Trans Mountain Pipeline. Do you recall that?

17581. MR. DRAZEN: I do.

17582. MR. DAVIES: You provided evidence in that proceeding?

17583. MR. DRAZEN: I did.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17584. MR. DAVIES: Did you work with competent counsel?

17585. MR. DRAZEN: I'm sorry, it looked a lot like you. Similar name.

17586. MR. DAVIES: You're under oath.

17587. I wonder, sir, if we could turn up Exhibit C11771-2, which is the Response to Enbridge IR 1.81 (c). It's on PDF page 144.

17588. And if you could hit the link, please, in (c) to the RH-001-2013? Thank you.

17589. And Mr. Drazen, this is your evidence. It was filed on behalf of Imperial Oil and Suncor?

17590. MR. DRAZEN: Yes.

17591. MR. DAVIES: And if I can take you, please, to page 26, and I'm looking at -- if we scroll up, please, to A35?

17592. And you were recommending a downstream verification procedure whereby the capacity of the Puget Sound Pipeline and the capacity of the downstream delivery facilities would be certified by the owner of the downstream pipeline and the downstream delivery facilities, right?

17593. MR. DRAZEN: Yes.

17594. MR. DAVIES: And over on page 28, in A40, you note that the downstream verification procedure that you were recommending for Trans Mountain was the same sort of destination verification procedure that Enbridge applies on its Canadian and U.S. Mainline Pipelines, right?

17595. MR. DRAZEN: Yes.

17596. MR. DAVIES: And over on page 31, in A44, you note there -- well, it's entitled "Trans Mountain Proposal", and you note, Mr. Drazen, that Trans Mountain was proposing a verification procedure based on a measure of historical deliveries, right?

17597. MR. DRAZEN: Right.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17598. MR. DAVIES: And over on page 37 in A54, your view was that the Trans Mountain proposal would result in vintaging, correct?

17599. MR. DRAZEN: Correct.

17600. MR. DAVIES: And you say, sir:

"Any method of 'verification' based on historic deliveries creates a vintaging effect in that past delivery volumes create a greater entitlement to current and future space on the pipeline. Existing delivery volumes have an access advantage over any new delivery volumes. This is not consistent with the notion of a common carrier pipeline, for which all volumes have an equal right totransportation capacity. The Board has said on several occasions that shippers do not have any acquired rights to capacity by virtue of past use.”

17601. And that was your evidence?

17602. MR. DRAZEN: Yes.

17603. MR. DAVIES: And you say in the bracket at the end:

“(See, for example, the Reasons for Decision in RH-002-2011, page 26.)”

17604. Right?

17605. MR. DRAZEN: Right.

17606. MR. DAVIES: So if we could turn that decision up, please. It’s Exhibit C13524-26. And if we go to PDF page 33, which is hard copy page 26, I think.

--- (A short pause/Courte pause)

17607. MR. DAVIES: I’m sorry, I must have given you the wrong -- oh, yes, there we go. Thank you.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17608. So there, it’s page 26, Mr. Drazen. You may have to have it scrolled up or down, but what words on the page did you have in mind when you were making your reference in the evidence that we discussed?

17609. Let me help you. Scroll down. There we go.

17610. MR. DRAZEN: Okay. Is there a question in there?

17611. MR. DAVIES: Yeah, I asked which words on the page were you referring to in your cite that you provided in your previous evidence?

17612. MR. DRAZEN: That would have been the comments on acquired rights.

17613. MR. DAVIES: Okay. Do you want to just read them?

17614. MR. DRAZEN: Could you go back to the earlier part where -- that has the reference?

17615. MR. DAVIES: Well, your reference was to page 26 of this decision. We’re on page 26.

17616. MR. DRAZEN: Okay, so -- I was -- that’s the last paragraph on the page.

17617. MR. DAVIES: Okay. Do you want to read it please?

17618. MR. DRAZEN:

“As the Board has confirmed in previous decisions, shippers do not have any acquired rights to capacity on the Pipeline by virtue of past use.”

17619. MR. DAVIES: Keep going.

17620. MR. DRAZEN:

“As a result, the Board is of the view that there is no significant difference between existing and new capacity on a pipeline such that firm service should only be allowed for new capacity

Transcript Canadian Shippers Group Panel Examination by Mr. Davies and not allowed for existing capacity. On balance, the Board is satisfied that the substance of the Firm Service offering was appropriate.”

17621. MR. DAVIES: Thank you, Mr. Drazen.

17622. We can take that Exhibit down please.

17623. Now, Mr. Drazen, you are familiar, I know, with the cost-based user- pay toll design principle?

17624. MR. DRAZEN: I am.

17625. MR. DAVIES: And you are old enough to remember the days when Canadian pipelines used to go through regular cost-of-service hearings?

17626. MR. DRAZEN: Yes.

17627. MR. DAVIES: And those hearings were often conducted in phases. Do you remember that; Phase 1 to determine the revenue requirement; and Phase 2 to determine the toll design?

17628. MR. DRAZEN: Yes.

17629. MR. DAVIES: And the toll design relates to how the costs are allocated in tolls amongst the different services and different shippers?

17630. MR. DRAZEN: The costs are allocated in how the tolls are designed.

17631. MR. DAVIES: Okay. Now, some counsel in this proceeding have had a penchant to refer to the cost-based user-pay toll design principle as just the cost-based principle. Have you noted that, Mr. Drazen?

17632. MR. DRAZEN: No, I can’t say that I have.

17633. MR. DAVIES: The cost-based user-pay principle is a single principle. There is not a cost-based principle and a user-pay principle. There is just one cost-based user-pay principle, right?

17634. MR. DRAZEN: To tell the truth, I don’t use the term because I think

Transcript Canadian Shippers Group Panel Examination by Mr. Davies it’s easy to be misused.

17635. MR. DAVIES: Do you use the term “cost causation”?

17636. MR. DRAZEN: I do.

17637. MR. DAVIES: A cost-based user-pay principle is also called the “cost causation principle”?

17638. MR. DRAZEN: Well, delving back into history, people have cited “cost-based user-pay” to mean diametrically opposed things. And back when TransCanada Pipelines had some large expansions, some people defined “cost- based user-pay” to mean equal favour for everybody. You allocate the cost to all users, new and old.

17639. Other people cited it and said, no, what it means is new users should pay the cost of new facilities, and old users should pay the cost of old facilities.

17640. It’s that kind of confusion that led me to believe that it really isn’t a useful term.

17641. MR. DAVIES: I agree with you, Mr. Drazen. The principle, the cost- causation principle or the user-pay -- or sorry; the cost-causation principle or the cost-based user-pay principle is that a user of a pipeline should pay tolls that reflect the cost caused by the transportation of its product through the pipeline, without unjustified cross-subsidization by other users, right?

17642. MR. DRAZEN: Right.

17643. MR. DAVIES: And in fact, Mr. Drazen, we see this statement made in previous Board decisions, the terms “cross-subsidization” is used to denote a departure from cost causation, right?

17644. MR. DRAZEN: It is used to describe what happens when costs -- when you don’t follow the principle of equal responsibility.

17645. MR. DAVIES: Okay. Now, sir, you are a -- I was going to say “grizzled veteran”, but I’ll just say veteran of the tolling wars that occurred on pipelines like NGTL and Maritimes and Northeast over postage stamp tolls versus distance sensitive tolls?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17646. MR. DRAZEN: Yes.

17647. MR. DAVIES: And you were a distance sensitive toll guy?

17648. MR. DRAZEN: I’m a sensitive guy all around.

17649. MR. DAVIES: Including a distance sensitive toll guy?

17650. MR. DRAZEN: Yes.

17651. MR. DAVIES: And that was because you considered that the fairest and most effective means of addressing the user pay concept to be through the adoption of distance-based tolls, right?

17652. MR. DRAZEN: Right, where the costs are distance related.

17653. MR. DAVIES: Right. Thank you, Mr. Drazen. That was easy. I actually had gone back and looked at your evidence, all the way back to GH-5-89, and here we are, 22 years later and you're still consistent. So thank you.

17654. MR. DRAZEN: Thank you.

17655. MR. DAVIES: I wonder if we could turn up, please, Exhibit C13524- 27. And this isn't for you, Mr. Drazen, although you're free to answer it if you would like. These are the National Energy Board's reasons for decision in the Keystone Pipeline case. And if we could go, please, to PDF page 31. And if we could scroll down, please, to the heading "contracted capacity"? Thank you. And the first sentence under the heading says:

"In previous decisions, the Board has found that an oil pipeline acts in a manner consistent with its common carrier obligations when an open season is properly conducted and where the facilities are either readily expandable or capacity is left available for monthly nominations."

17656. And we see this same finding in many other Board decisions, but my question to the CSG is, does the CSG have any disagreement with this finding?

17657. MS. DAY: Sorry, we had some confusion here as to maybe who was

Transcript Canadian Shippers Group Panel Examination by Mr. Davies responding to this. So is your question specifically is around the first sentence there and if we agree with the first sentence?

17658. MR. DAVIES: Yes.

17659. MS. DAY: Let's take a read.

17660. Sorry, I think one of our members just got cut out of the hearing room. Ms. Hardy doesn't appear to be on the -- I don't know if you guys can see her.

17661. THE PRESIDING COMMISSIONER: So Ms. Day, I see Ms. Hardy, but I can't tell if she's frozen in my current view. Ms. Hardy, are you able to mute or unmute or -- no, I don't ---

17662. MS. DAY: Shannon, can you unmute or mute? Are you trying to do that? She's not -- I'm sorry, she's not in the meeting room at all. She just -- she's trying to get ---

17663. THE PRESIDING COMMISSIONER: Ms. Day, let's take a moment and, Mr. Davies, let's not actually take a break. Let's just be on standby here for a moment until we can confirm that Ms. Hardy is logged back in.

17664. MS. DAY: Thank you.

17665. MS. HARDY: Madam Chair, I just wanted to confirm that I am back. It seems to be working again. I apologize for that.

17666. THE PRESIDING COMMISSIONER: Very good. I see just a quick headcount that there are 10 witnesses that appear to have a working video feed, so if indeed you -- or when you are ready to proceed, let me know, Ms. Day, Ms. Hardy, and then we'll let Mr. Davies perhaps restart the question.

17667. MS. HARDY: Sure, I just wanted to confirm that you could hear me as well as see me. Excellent.

17668. THE PRESIDING COMMISSIONER: We can.

17669. Mr. Davies?

17670. MR. DAVIES: Yeah, so I had referred the panel to the first sentence.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies Do we need to bring it back up again?

17671. MS. DAY: Thank you.

17672. MR. DAVIES: It's at -- there we go. Yeah, the first sentence under the headed contract capacity, and my question had been whether the CSG has any disagreement with the contents of the sentence or the finding that has been made by the Board.

17673. MS. DAY: No, but I think we do agree with that, but it's also very important to think about the context. And an important part of that sentence is when an open season is properly conducted, and where the facilities are either readily expandable or capacity is left available. And in our instance, I think we have said we don't feel like the negotiation was a fair process. There was an offering that was crafted with seven shippers at the beginning, and very concentrated in those shippers that have downstream assets. And I think despite the fact that some of our concerns were consistent from the start of this, they weren't heard or there was no changes made to the offering to reflect our desires.

17674. MS. HARDY: This is ---

17675. MR. HOUSTON: Madam Chair, if I could just add to that. It's Mr. Houston speaking. I think it's also important when we talk about context to differentiate between a new pipeline -- a new pipeline capacity being proposed that's incremental to the market and this situation where we've got essentially 70 percent of the existing egress capacity at stake. And in this case, I think there's a real possibility that we could be looking at a change in the market conditions as a result of the offering that Enbridge is proposing. So that is much different from incremental capacity that's a small percentage of the egress capacity from the marketplace.

17676. MS. HARDY: It's Ms. Hardy here. I just wanted to also highlight the issue of how the Board framed the open season, that it was conducted and granted all potential shippers a fair and equal opportunity to participate. You know, that is concerning in light of the comments that were made during this hearing by Enbridge that they would be considering factors other than just credit and volumes requested in the open season, considering things -- issues such as alternate capacity that was available to shippers, where their -- what their historical usage was from a particular shipper, et cetera. And I'm referring to comments, just for the record, of Mr. Varsanyi on Volume 7, May 31st.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17677. And so when we look at the open season procedures and we look at the schedules that we're required to complete as shippers, one of the -- we don't see there any location where we note our alternate capacities and alternate sources of transportation that are available to us. So it is unclear at this moment in time how that will impact how our bids in the open season would be considered and treated by Enbridge, who have sole discretion over those in that important decision.

17678. MR. DAVIES: What paragraphs in Volume 7 were you referring to, Ms. Hardy?

17679. MS. HARDY: I was referring to the discussion in 7442, paragraph 7442.

17680. MR. DAVIES: Okay. I’ll look at that over the weekend and we may have a chat about that on Monday.

17681. The second sentence says:

“In this case, the Board is satisfied that the open season conducted by TransCanada granted all potential shippers a fair and equal opportunity to participate.”

17682. And does the CSG agree that an open season conducted by an oil pipeline should give all potential shippers a fair and equal opportunity to participate?

17683. MR. ALSON: This is Mr. Alson.

17684. MR. DAVIES: I assume so.

17685. MR. ALSON: And I would agree that they should have a fair and equal opportunity to participate. I would also highlight that it should be non- discriminatory.

17686. MR. DAVIES: Thank you.

17687. MS. DAY: I think it’s important to realize too, just, you know, as Mr. Houston said, this was in context of an expansion. And so those that chose not to participate did have options.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17688. MR. DAVIES: Mr. Priddle, I have a few questions for you. At least at this stage. There will be more later.

17689. MR. PRIDDLE: Ready when you are, Mr. Davies.

17690. MR. DAVIES: You, in your evidence, differentiate between common carriage and contact carriage, right?

17691. MR. PRIDDLE: Priddle speaking. Mr. Davies, do you mean do I differentiate definitionally or what? In what sense are you asking me about differentiation between the two types of carriage?

17692. MR. DAVIES: Well, for example, you talk about switching from common carriage to contract carriage.

17693. MR. PRIDDLE: Well, that is the major element of this application, yes.

17694. MR. DAVIES: It is your view that a Canadian oil pipeline that provides contract service is no longer a common carrier?

17695. MR. PRIDDLE: Mr. Davies, it cannot, itself, make itself not a common carrier. Oil pipelines that are regulated by the CER are, by definition, common carriers.

17696. MR. DAVIES: So a Canadian oil pipeline that offers contract service is still a common carrier?

17697. MR. PRIDDLE: That is correct. Under the law, it is.

17698. MR. DAVIES: I’m not arguing with you, Mr. Priddle. I’m actually agreeing with you.

17699. MR. PRIDDLE: Oh. Good.

17700. MR. DAVIES: Is a common carrier oil pipeline subject to a different form of regulation than a contract carrier oil pipeline?

17701. MR. PRIDDLE: Mr. Davies, Priddle again. The common carrier

Transcript Canadian Shippers Group Panel Examination by Mr. Davies pipeline is subject to the duties provided in section 239(1) of the CER Act. There isn’t -- there’s no scope within the law for differentiation of contract carriage and common carriage that the pipeline is a common carrier.

17702. MR. DAVIES: So an oil pipeline in Canada is subject to the same form of regulation whether or not it offers contract service? Is that right?

17703. MR. PRIDDLE: That would be my understanding of the law.

17704. MR. DAVIES: Okay. Thank you. That’s helpful.

17705. If we could turn up, please, Exhibit C10237-2? And this is the CSG evidence. At page 41 in paragraph 116.

17706. And here you are discussing the potential for a mismatch between Mainline capacity and downstream pipeline capacity, right?

17707. MR. ALSON: This is Mr. Alson. Yes, that’s right.

17708. MR. DAVIES: And you say in the third sentence:

“…if the Open Season is oversubscribed, as expected, and the shipper gets less than matching capacity on the Mainline, they would have a mismatch of capacity for years to come.”

17709. Right?

17710. MR. ALSON: Yes, that’s correct.

17711. MR. DAVIES: And when you suggest that the open season will be oversubscribed, are you talking about short haul capacity or medium haul capacity or long haul capacity?

17712. MR. ALSON: We were talking about capacity in total. And you can allocate that in different ways, but ultimately oversubscription.

17713. MR. DAVIES: Well if you go over to paragraph -- or page 46 and 47 of your evidence, and we look at paragraph 137 for example, the point that I took you to be making in paragraph 137 was that in respect of the short haul and medium haul, the service offerings appear aligned with the capacities of the

Transcript Canadian Shippers Group Panel Examination by Mr. Davies refineries located within these service hauls. And in fact, in paragraph 139, you talk about the refiners in the medium haul facing very little risk of being prorated. Do you see that?

17714. MR. ALSON: I do.

17715. MR. DAVIES: So in light of that evidence, is it your view that the short haul will be oversubscribed?

17716. MR. ALSON: No, I will take a step back and say if I look at the interest level by the supporting shippers that have indicated that at times it was, you know, 70 percent of capacity, now 75 percent of capacity. And then you look at a number of the opposing parties that have said they have no choice but to subscribe.

17717. You know, if I think about what this application is with 8- to 20-year contracts plus renewal, the term gets maybe overused, but if you said this is a generational opportunity, so you have one chance in the way the application is proposed to subscribe for this service. Whether you're supportive of the application or not, I think it has been described as a sign or die, you've got a gun to your head, there's a lot of different evidence out there where opposing parties would find it either imprudent or have no other choice to subscribe for capacity. As you look to add all that up, you get to a fairly significant number.

17718. So I think Suncor in their evidence had -- and they put it conservatively as 23 percent oversubscription. I've seen numbers that would indicate pro-ration of 50 to 60 percent. All those things together suggest oversubscription, and so I'm not -- maybe I'm a big agnostic to which haul it is, but in total, oversubscription.

17719. And you know, since you have posed the question to me, the other indication that I would have around the likely oversubscription is I have had several of the supporting shippers reach out to MEG, me specifically, on a commercial basis and suggest that they are likely to get more capacity than they need, and they expect that I will get less capacity than I'm subscribing for, and would I be interested in a commercial solution.

17720. So, it's fairly evident from at least a few parties that they intend to subscribe for more capacity than they need, and they're looking to extract a value associated from that, and have reached out to me specifically, and I suspect others

Transcript Canadian Shippers Group Panel Examination by Mr. Davies as well.

17721. MR. DAVIES: Well, sir, you may be agnostic as to which haul is being referred to, but there are shippers that may not be. Is it your view that the medium haul, the open season for the medium haul will be oversubscribed?

17722. MR. ALSON: I don't have a view on that.

17723. MR. DAVIES: Well, your view, sir, is expressed in paragraph 139 of your evidence.

17724. MR. ALSON: No, I don't think the view on oversubscription for the hauls is expressed. I think what Is expressed is the capacity of those specific hauls seems uniquely tailored for the specific refineries that are in those particular locations. And so if I thought about the likelihood for oversubscription, the issue would be if those refineries subscribe for that level of commitment. And similarly, you have producers that would sell to those refineries that don't want to be beholden to those refineries for downstream verification. To the extent that they subscribe as well, those hauls will be over-nominated because all the capacity is aligned with exactly the needs of those refiners. So anyone else subscribing beyond that would create an oversubscription situation.

17725. MR. DAVIES: So is it your view, sir, that the medium haul will be oversubscribed, will not be oversubscribed, or you don't have a view?

17726. MS. DAY: This is Ms. Day.

17727. MR. DAVIES: Well, let Mr. ---

17728. MS. DAY: I think what Mr. Alson ---

17729. MR. DAVIES: --- Alson finish, Ms. Day.

17730. MS. DAY: --- was suggesting is exactly what our evidence is showing, that the medium haul actually changed over time. There was initially no medium haul in the offering, then it went to a smaller number, and finally went to this number, and it does seem quite sized to the current level required for the medium haul. We're not sure who's going to subscribe beyond that, but it does appear as though that the parties in that haul are likely to get what they want if only those refiners in that haul subscribe for service.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17731. With respect to the long haul, there's a lot of supporting parties that have got refinery assets in the long haul. Long haul gives you the most optionality as well. And any of the opposing parties in this application -- when I just looked at the producers that are opposing including Suncor as an integrated, that's 92 percent of the production on this line. If we were likely to take out capacity, if we felt we had no other choice, we're likely to look at a long haul because that would give us the most ability to get beyond and to access any downstream commitments we may have.

17732. I think with respect to the refined products, we have heard that I think it was FCCL is concerned about getting what they'd like there as well as Shell, so that's certainly not my area of expertise, but I think there's a number of hauls that we think could well be oversubscribed.

17733. MR. DAVIES: Okay. Can we just talk about the medium haul to start with? What I heard you say is the view of the CSG is that the medium haul will not be oversubscribed; am I correct?

17734. MS. DAY: If only the refiners in that area seek capacity, that is correct.

17735. MR. DAVIES: What about the short haul? Is it the view of the CSG that the short haul will be oversubscribed, will not be oversubscribed, or you don't know?

17736. MS. DAY: I don't know. It's a ---

17737. MR. DAVIES: So when you were saying then, if we go back to paragraph 116, when you were saying that if the open season is oversubscribed as expected, were you talking there about the long haul?

17738. MS. DAY: Well, this section is with respect to downstream contracted capacity. So then in this paragraph, we're talking about downstream connected capacity, which is the long haul. The only way to get there is through the long haul. So in this paragraph, yes, I would agree that's referring to the sentence above, which is talking about the downstream contracted capacity for the -- and so that is the long haul.

17739. MR. DAVIES: Okay. What evidence has the CSG provided to the

Transcript Canadian Shippers Group Panel Examination by Mr. Davies Commission to indicate that the open season for long haul will be oversubscribed? Where do we see that in your evidence?

17740. MS. DAY: You're on mute.

17741. MR. ALSON: I don't know that that's explicitly in our evidence, and in MEG's evidence and here, we highlight the expected oversubscription. Unlike Suncor, we did not map it out explicitly. I think others have done an admirable job of highlighting that.

17742. MR. DAVIES: Well, when you say it's not explicitly in your evidence, do you mean it is not in your evidence?

17743. MR. ALSON: We highlight on numerous occasions the expected oversubscription. Do we tell you what the level of oversubscription is? No.

17744. MR. DAVIES: Well, where do you provide any assessment of whether the long-haul open season will be oversubscribed or not?

17745. MS. DAY: I don't think -- Mr. Davies, this is Ms. Day. I'm not sure it's necessary for us as a party that's coming into this proceeding to try to assess that. Enbridge has been having the conversations. But in our conversations with counterparties, what we can say is there's a lot of producers that are terrified of being left out of this last available egress, and we're going to face a very difficult decision as to whether they're going to participate or not. And when we look at Enbridge's own documentation, it shows that there's two million barrels of refinery capacity that's connected to the Mainline. They're going to need to get their crude from somewhere, and they have said they're going to take their crude with or without MLC, but nonetheless, they would like security of capacity.

17746. So I think it's an expectation that they would likely take their crude. And when we start adding up the numbers, you start to think, look, this is the last available egress, and it's very likely to exceed what's currently available, because right now, we're in a situation where despite just having gone through the biggest pandemic and demand destruction, we're in constant apportionment. So clearly, there's demand for that capacity. And when everybody is facing this choice, it's very likely that they're going to have to do something to take care of their -- if this is approved -- to make sure that they can continue to access that capacity. Therefore, we think there will be oversubscription.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17747. MR. DAVIES: Can we agree that the CSG has provided no evidence to demonstrate that the long-haul open season will be oversubscribed?

17748. MS. DAY: I think Mr. Alson answered that, and that’s correct.

17749. MR. DAVIES: Now, the paragraph goes on to say:

"More likely, in order to direct as many barrels as possible to the US Gulf Coast and avoid the bottleneck in PADD II, shippers would be forced to guess at the level of oversubscriptions that will occur in the Open Season and bid accordingly for an 8 to 20-year period."

17750. Do you see that?

17751. MR. ALSON: I do see that.

17752. MR. DAVIES: Now, this is the game theory that Mr. Varsanyi was talking about. Do any of the CSG members use this game theory in nominating for spot capacity on the Mainline today?

17753. MR. ALSON: Speaking for MEG, we do not.

17754. MR. DAVIES: What about the rest?

17755. MS. DAY: No, I think there's verification processes in place on the upstream side as well. There's feeder verification as well as supply verification, so producers or CNRL nominates their production and any barrels that they would have in storage, and your feeder will verify that, and that’s how we nominate.

17756. MR. DAVIES: So you don’t -- CNRL does not use this game theory today in nominating for spot capacity?

17757. MS. DAY: I am not directly involved in our nominations, but my understanding is we do exactly what I said. I talk to the group, and we nominate based on our production. So -- and as well as barrels that you have in storage, you need to find a home for your barrels, and any barrel that’s sitting in storage or that you're planning to produce, you want to be able to bring onto the Mainline.

17758. MR. DAVIES: What about Total and Shell? No game theory-ing

Transcript Canadian Shippers Group Panel Examination by Mr. Davies there?

17759. MS. HARDY: Go ahead.

17760. MS. BUITINK: Ms. Buitink here. With Shell, we do not.

17761. MS. HARDY: And this is Ms. Hardy here, and I can confirm that we agree with MEG and Shell and CNRL and follow the same procedures, and don’t engage in game theory.

17762. MR. DAVIES: Well, do you understand that you can follow the procedures but still engage in game theory?

17763. MS. DAY: Did you want to give us an example of what you're talking about, Mr. Davies?

17764. MR. DAVIES: So you don’t understand that? You don’t understand that to be the case?

17765. MS. DAY: I guess what I'm -- what my mind goes to is there's been a lot of discussion in the industry, and I know CNRL has spent a lot of time, and I know we did at Devon as well in terms of trying to ensure that one barrel is pointed to one location. And so we have spent a lot of time trying to see if there was changes that could be made to the nomination processes to ensure that that was the case.

17766. So that’s the part that we have been most focused on, and we have spent a fair bit of time talking to Enbridge's and even, you know, the provincial government about things like that. And in fact, there was a session in front of the CER -- I'm sorry, I believe it was the NEB at that time -- where they brought in a bunch of companies to discuss how best to optimize the pipeline, and I think this game theory concept came up at that time. And it was indicated in that report that it appears as though a lot of the -- I don't have the exact quote in front of me, but the nomination verification processes were being followed, but some companies have better assets or assets that enable them to take advantage of the system more so than others.

17767. So I think there was a discussion in there about integrateds may have more assets available to them, and that’s all in that CER report. So I'm not sure if that’s what you're referring to, Mr. Davies, but ---

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17768. MR. ALSON: If we may, just to piggyback on that for MEG, to be very explicit, our processes about how we nominate are very prescriptive, and so the barrels that we would nominate for the Mainline are barrels that are not otherwise dedicated to another location. So there is no game theory in how we approach our monthly nominations.

17769. MR. DAVIES: So if you participated in the Mainline Contracting open season, you wouldn't be using game theory to make your nominations; is that right, Mr. Alson?

17770. MR. ALSON: No, that’s not right.

17771. MR. DAVIES: You would be using game theory to make your nominations?

17772. MR. ALSON: So we have suggested -- and it's clear in our evidence -- that we are concerned about oversubscription. We have an interest in right sizing what we receive. And we would potentially subscribe via a producer requirements contract and potentially a take-or-pay contract to achieve the level of ultimate award that is necessary to match our Flanagan commitment.

17773. And the one thing I would point out though is somewhat different than what Mr. Varsanyi suggested. When we talked about oversubscription, I think he mentioned something about he has consistently cautioned people about the potential oversubscription and the need not to over-nominate. Those conversations never happened with MEG, even though we have indicated what our intended approach would be.

17774. And even in the response to our IRs where we suggested that we would take that approach, we didn’t receive a similar caution. It wasn’t until very late in the IR process when I think Enbridge finally noted the first time that there was a potential for undersubscription. That seemed to be a very late change in the process.

17775. MR. DAVIES: Well, in fact, if you go back, Mr. Alson, you will find that that has consistently been Enbridge's position. In fact, we may talk about that on Monday morning.

17776. MR. ALSON: I would disagree that that has consistently been

Transcript Canadian Shippers Group Panel Examination by Mr. Davies Enbridge's position, so happy to discuss that on Monday.

17777. MR. DAVIES: Okay. I'll hold you to it.

17778. THE PRESIDING COMMISSIONER: Mr. Davies?

17779. MR. DAVIES: Yes?

17780. THE PRESIDING COMMISSIONER: I'm just going to interrupt you there. I know we said we would carry on til five o'clock. I'm just going -- sort of watching and scanning all of the witnesses, and we are getting into the last portion of the day. I'm just going to suggest a five-minute break and then we will resume the last stretch of your examination, however close that gets us to five o'clock.

17781. MR. DAVIES: Sure.

17782. THE PRESIDING COMMISSIONER: So five minutes.

--- Upon recessing at 4:08 p.m./L’audience est suspendue à 16h08 --- Upon resuming at 4:17 p.m./L’audience est reprise à 16h17

SHONDA DAY: Resumed GLENN BOOTH: Resumed SHANNON HARDY: Resumed GARY M. HOUSTON: Resumed PAULINE BUITINK: Resumed ERIK ALSON: Resumed MARK DRAZEN: Resumed RON MIKKELSEN: Resumed JEFF D. MAKHOLM: Resumed ROLAND PRIDDLE: Resumed

17783. THE PRESIDING COMMISSIONER: Welcome back, everyone.

17784. Mr. Davies, whenever you’re ready, go ahead.

--- EXAMINATION BY/INTERROGATOIRE PAR MR. DAVIES: (Continued/Suite)

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17785. MR. DAVIES: Yeah, thank you very much, Madam Chair.

17786. I wonder if we could just finish off, please, on paragraph 116 of the CSG evidence, which is Exhibit C10237-2 at page 41?

17787. The last sentence of the paragraph says:

“Either option puts the shipper at risk of further economic harm and, despite raising this concern numerous times to Enbridge, Enbridge did not address this issue by offering alignment of contracted capacity on the Mainline and connected pipelines.”

17788. And my question is, given that Enbridge has an obligation to give all potential shippers a fair and equal opportunity to participate in the open season, what would you have Enbridge do to ensure alignment of a shipper’s contracted capacity on the Mainline and its contracted capacity on downstream pipelines?

17789. MR. ALSON: Mr. Alson is coming off of mute. Apologies. As I think about that question, counsellor, the immediate answer is in thinking about a level playing field, which you ultimately want this process to be, and it’s not for a whole host of reasons. I don’t have a suggestion for how Enbridge could approach that.

17790. The issue that we have, and the disconnect between potentially what’s happening and if the application is approved and we proceed with Mainline contracting is ultimately the impairment to a very significant downstream contract that I have.

17791. So I don’t have a solution for that. Ultimately, you know, Enbridge negotiated the Flanagan contract with MEG with no consideration of Mainline Contracting and now we’re in this untenable position of trying to force fit very a material contract to us into an agenda that Enbridge wants to pursue.

17792. MS. DAY: And I would echo that when I was at Devon, I negotiated the contract on Flanagan South with Enbridge and we worked very hard on that contract, and particularly on some of the makeup rights because we were concerned about apportionment. So clearly, it was not in our mind that it would be shifting to contract carriage. That was one of the big benefits that Flanagan South offered; is that you didn’t have a firm commitment on the Mainline.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17793. MS. HARDY: This is Ms. Hardy. I would agree with that. I wasn’t present during those negotiations, but I did go back and review the material that was sent to our Board at the time, and the features that attracted us to Flanagan were related to the reduced commitment. And there is certainly no mention of risk of Mainline Contracting or that being a potential risk when we discussed the risk balance of that versus other options that were available at the time.

17794. MR. DAVIES: Could we turn up please -- if we could take that down, Ms. Foreman. Thank you.

17795. And if we could turn up Exhibit C11771-2, at PDF page 58. And I’m looking at the response to (c), and it says:

“Currently shippers” ---

17796. MS. DAY: Apologies; could you tell me the question number again please?

17797. MR. DAVIES: Yes, it’s 1.24 (c).

17798. MS. DAY: Thank you.

17799. MR. DAVIES: And the response says:

“Currently shippers that hold downstream connected capacity are often not able to secure their desired capacity to fully utilize their downstream commitments due to apportionment. There is therefore misalignment during periods of apportionment. The CSG considers that the proper solution to this misalignment is the addition of pipeline capacity, which is unfortunately not a feature of the current Enbridge proposal.”

17800. And do you understand that, had the open season been proceeded and had it been oversubscribed, we might now be considering an application by Enbridge to expand Mainline capacity?

17801. MS. DAY: Madam, Chair, I -- and Mr. Davies, I think this is one thing that I really struggle with.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17802. Over the past 10 years, we have added a million barrels to the Enbridge Mainline system under the common carriage approach through surcharges that would -- have been supported by shippers. And we did do that even just recently here for a new surcharge on Line 3 on the Canadian portion. So I guess our perspective is it’s not as simple as signing up contracts and the space will appear. I know in CNRL’s case, you know, we did sign up for contracts on KXL, Energy East, TMX, and we’re still waiting.

17803. So I think contracts is not the issue, and it may be in Enbridge’s perspective, I guess, but from our perspective, I don’t think that us disagreeing with MLC is preventing new capacity from coming on. I think Enbridge would bring on the new capacity if it was economically viable and supported by surcharges from the shippers.

17804. MR. DAVIES: Well, let me repeat the question. Irrespective of whether you agree with the motivations of Enbridge or not, do you understand that had the open season proceeded and had it been oversubscribed, we might now be considering an application by Enbridge to expand Mainline capacity?

17805. Do you understand that, Ms. Day?

17806. MS. DAY: I don’t know if that is what they would have done.

17807. MR. ALSON: This is Mr. Alson. I would interject that irrespective of Mainline Contracting moving forward, Enbridge still has the opportunity to bring forward capacity expansions. They are not mutually exclusive.

17808. MR. DAVIES: Well, we’ll come back to that.

17809. The response goes on to say:

“Contracting would lock in and potentially worsen the current misalignment for some shippers whereas under common carriage it is a manageable month-to-month difference.”

17810. How do you manage the mismatch on a month-to-month basis?

17811. MR. ALSON: Well, for MEG, more importantly if I think about the intent of what we put in this section, it’s thinking about locking in a capacity mismatch under a Mainline Contracting for 8 to 20 years relative to the

Transcript Canadian Shippers Group Panel Examination by Mr. Davies opportunity, which is, yes, we are currently limited by apportionment.

17812. But to the conversation that we had earlier, as you walked me through the various MEG presentations, you know, we expect additional egress capacity over the course of the next 18, 24 months. As that egress capacity comes on line, apportionment declines. And you know, with that we are, I think, well positioned to maybe not fully utilize Flanagan but certainly provide, you know, significant utilization of that asset and achieve our business objective, which is moving a significant portion of our crude to the U.S. Gulf Coast.

17813. MR. DAVIES: How do you, today, manage on a month-to-month basis this current misalignment?

17814. MR. ALSON: I think that’s elsewhere in our evidence, but it -- we manage post-apportionment volumes.

17815. MR. DAVIES: Well, what you’re saying in this response, Mr. Alson, is there’s a current misalignment, and you’re able to manage it. And what I took this to mean is you’re able to, on a month-by-month basis, manage the mismatch, and I’m trying to get from you a response to how you do that.

17816. What do you do; do you buy capacity from others? Do you trade in the secondary market? How do you manage this month-to-month difference?

17817. MR. ALSON: So there are a variety of measures that we utilize to manage that month-to-month difference. Probably the two biggest things are storage and post-apportionment sales.

17818. Again, the issue is how we manage things in the near term relative to apportionment where it sits today. The alternative of managing potentially high levels of mismatch in the Mainline Contracting environment versus a go-forward capability with declining apportionment in the future of having much less volume mismatch to deal with.

17819. MR. DAVIES: The CSG refers, throughout its evidence and in its opening statement, to Enbridge Mainline capacity being scarce. What evidence has the CSG provided to show that Mainline capacity will, in the future, continue to be scarce?

17820. MR. DAY: I was going to refer you to the table in our evidence; I

Transcript Canadian Shippers Group Panel Examination by Mr. Davies believe it is Figure 2, that shows the apportionment levels. However, that does stop at -- I believe it’s the timeframe of this application.

17821. However, I think even today, since this application and post-pandemic, we have continued to have a lot of apportionment; 52 percent, 2 percent on light. And we did put together a table in our evidence as well and just give me two seconds and I will find it. And it is Table 12.

17822. So our evidence is -- I believe it’s C10237. Let me just pull that up. I’ll get my figure up for you and we can take a peek at it. So it’s Figure 12, and it shows the Enbridge flows without KXL because, as we know, that has been cancelled now.

17823. Are you able to pull that up, Ms. Foreman? I believe that’s the right number, C10237, and it’s Table 12. It’s page 91 of 147. Table 12. Sorry, not Figure 12. It’s my page 91 of 147.

17824. I think we keep going down to -- there we go. Just a fast scroll. So it's 285 is the paragraph just above it. There we go. So it must be -- just keep going up. There we go. That one right there. I'm not sure what happened to the font.

17825. So what we looked at in this table is showing the CAPP 2019 supply forecast, which was provided in the Muse evidence. And we took off Western Canadian Refinery demand to get net supply available to the pipelines, and then we assumed that similar to what had been done in the other -- in Enbridge's evidence contract, capacity was filled next. And you will see here the line that says "Volume Available to the Enbridge Mainline", and in 2022, we have it at 3842.

17826. And then if you head out in time -- now, mind you, the forecast was a little more robust than it is now -- but it -- in 2035, we had over four million barrels, 4329 available to Enbridge Mainline.

17827. So the only thing limiting the throughput on the Mainline without KXL, based on the 2019 forecast, was really Enbridge's capacity.

17828. We have since looked at the numbers with respect to some of the newer forecasts that have come out, and in both cases, Enbridge is either full or very close to full in the years in this table.

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17829. MR. DAVIES: Okay. Well let's look at some of those forecasts, and Madam Chair, I have got a line of questions here for Dr. Makholm that I expect will take us maybe 15 or 20 minutes, which I think should fit well in terms of when you would like to break for the day, if that’s okay?

17830. THE PRESIDING COMMISSIONER: It sounds like that will work well.

17831. MR. DAVIES: Okay. So Dr. Makholm, if we can start, please, by having you turn up Exhibit C11771-2 at PDF page 97, and this is the response to Enbridge IR 1.49.

17832. DR. MAKHOLM: Thank you.

17833. MR. DAVIES: And the question you will see was asking whether you were asserting that capacity on the Mainline will continue to be scarce for the next 20 years, and you answered that:

"No. Dr. Makholm maintains only the Mainline’s evident current scarcity now and over the future period appearing in the projections of the CER that he examined and reproduced in his evidence."

17834. You see that?

17835. DR. MAKHOLM: I do.

17836. MR. DAVIES: And there, sir, you were referring to Figure 4 in your evidence? And let's turn that up, please. It's Exhibit C10237-4 at page 34.

17837. DR. MAKHOLM: The answer is yes.

17838. MR. DAVIES: And if we scroll to the bottom of the page, Ms. Foreman, please, you say:

"I expect WCSB production to continue to outpace export pipeline capacity until at least 2023, the year in which the Trans Mountain Expansion and Keystone XL could become operational."

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17839. Right?

17840. DR. MAKHOLM: Excuse me, I don’t -- I'm not sure I'm on your page. I'm sorry, my apologies, Mr. Davies.

17841. MR. DAVIES: No, that’s fine. I'm just reading the last sentence that’s up on the screen, Dr. Makholm.

17842. And if we turn the page -- are you with me?

17843. DR. MAKHOLM: Yes, I am.

17844. MR. DAVIES: Yeah, thanks. And if we turn the page, this is your Figure 4, and it's entitled "WCSB Production has Exceeded Export Pipeline Capacity since Late 2017, a Situation Unlikely to Improve Before 2023".

17845. And you tell us in the footnotes, I think, to the table that this figure is based on information from the CER's Energy Future 2020 Report, right?

17846. DR. MAKHOLM: Yes, and others that I list in the sources.

17847. MR. DAVIES: Right. And did you only consider information from the EF 2020 Report up to 2026?

17848. DR. MAKHOLM: From that report, I only listed here that information. That’s correct.

17849. MR. DAVIES: And the black line in the figure, Dr. Makholm, shows WCSB production?

17850. DR. MAKHOLM: That’s correct.

17851. MR. DAVIES: And you have taken this production data from the reference scenario in the EF 2020 Report, correct?

17852. DR. MAKHOLM: Yes.

17853. MR. DAVIES: And why did you choose to select the production data from the reference scenario?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies 17854. DR. MAKHOLM: That was CER data. I concluded that it was credible.

17855. MR. DAVIES: Well, let me be more specific. Why did you select the production data from the reference scenario as opposed to from the evolving scenario?

17856. DR. MAKHOLM: That’s what I had at the time, Mr. Davies.

17857. MR. DAVIES: Well, you had both at the time, Dr. Makholm. They were both in the report.

17858. DR. MAKHOLM: I don't know.

17859. MR. DAVIES: Okay.

17860. DR. MAKHOLM: I would have to look back at the report and decide why I lifted the production and not the evolving.

17861. MR. DAVIES: Now, sir, your Figure 4 compares WCSB production under the reference scenario with ex-WCSB Pipeline capacity, but what you forgot about was that some of the WCSB production would be consumed by Western Canadian refineries, right?

17862. DR. MAKHOLM: That’s correct, and as I believe that came up in an IR, and I said that yes, indeed, domestic deliveries should have been taken out of that. And I would do it that way if I had it to do over again, but it did not change my conclusion.

17863. MR. DAVIES: If we could turn up, please, Exhibit C13524-29?

17864. DR. MAKHOLM: Could you tell me what that is otherwise known as?

17865. MR. DAVIES: Yeah. It's the EF 2020 Report, Dr. Makholm. And if we can go to page 16, please?

17866. DR. MAKHOLM: Yes, thank you.

17867. MR. DAVIES: Right there. You see Figure ES.8, Dr. Makholm?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17868. DR. MAKHOLM: Yes.

17869. MR. DAVIES: And this figure provides a comparison between crude oil pipeline capacity versus total supply available for export evolving and reference scenarios, right?

17870. DR. MAKHOLM: Yes, that’s what it says.

17871. MR. DAVIES: Did you look at this figure when you were preparing your evidence?

17872. DR. MAKHOLM: I looked at the entire report, including this figure.

17873. MR. DAVIES: Okay. The capacity additions are shown on the right- hand side, and the -- it's a little bit hard to see, but the dotted blue line is Keystone XL, the diagonal blue is TMX, and the solid is Enbridge Line 3, right?

17874. DR. MAKHOLM: Yes.

17875. MR. DAVIES: And if you look at the total supply available for export in the evolving scenario, Dr. Makholm, you see that it rises and touches the top of the Line 3 capacity in about 2035, and then declines out to 2050? See that?

17876. DR. MAKHOLM: I do.

17877. MR. DAVIES: And the expansion capacity assumed in the report for TMX is 540,000 barrels a day? You can take that from me. It's on page 47.

17878. DR. MAKHOLM: I'll take that from you.

17879. MR. DAVIES: Okay. So in the evolving scenario, Dr. Makholm, there would be at least 540,000 barrels per day of excess export pipeline capacity from the time that TMX comes into service through to 2050, right?

17880. DR. MAKHOLM: On this chart, yes.

17881. MR. DAVIES: And in the reference scenario, the total supply available for export rises and touches the top of the Line 3 capacity in about 2026, and then touches the top of TMX in about 2032, right?

Transcript Canadian Shippers Group Panel Examination by Mr. Davies

17882. DR. MAKHOLM: That's what I see, like you.

17883. MR. DAVIES: So in 2026, there would be 540,000 barrels per day of export. Sorry, let me make sure this is right.

17884. Yes, in 2026, there would be 540,000 barrels per day of excess export pipeline capacity, and even more than that before 2026 after TMX comes into service, right?

17885. DR. MAKHOLM: That is what I see on this chart.

17886. MR. DAVIES: Thank you, Dr. Makholm.

17887. MR. ALSON: Actually, sorry, before we move on, Madam Chair, the one thing I would like to point, and then I think Ms. Day has something to add as well, I mean, we're looking at a graphical representation here. And, you know, there are a number of assumptions that go into how this is charted, including, you know, full capacity of the pipelines in general.

17888. The one thing I would point out, just to help put it in perspective, if you looked at the graphical representation in the 2020/2021 timeframe, if you looked at where 2021 is, you know, currently represented, you know, it would suggest that we have more than enough egress capacity as things currently stand, given the pipelines that are already in service.

17889. And so we can step back today and say that is absolutely not the case. And so yet you're drawing different reference connections relative to this chart, but let's ground ourselves in the reality of the chart is showing that this year, right now, we should have plenty of egress capacity. That's not the case. So that same issue that flows through the chart, flows through the chart in subsequent years and makes it look like there's potentially spare capacity. But I'll hand it over to Ms. Day to provide some further colour.

17890. MS. DAY: Oh, dear. It's getting late in the day. We're having trouble with our mute buttons apparently. I was just going to offer up, you know, I do look at the last sentence and the CER very clearly said this report does not assess the many factors that go into whether a pipeline is needed, including the value of access to new markets and the role of spare pipeline capacity in responding to temporary or lasting changes in markets. I think it's important to remember we

Transcript Canadian Shippers Group Panel Examination by Mr. Davies have to take into account the blend ratio and the differences between summer and winter. And that can be 40 percent, and there's quite a swing, as Enbridge would know, between summer and winter.

17891. And then I just -- you know, we had talked about, Mr. Davies, that we do have a chart done with the CER involving western Canada supply. We did the same thing, and we basically added in the DRU rail and said, well, what's left after the other contracts are filled for the Enbridge Mainline? And when we did that math, the lowest year was assuming TMX comes on in 2023 and assuming Line 3 comes on, and we would, you know, cross our fingers and toes that that happens. The lowest utilization that I see here is 93 percent for year ---

17892. MR. DAVIES: Just one last -- sorry, are you done?

17893. MS. DAY: Yeah.

17894. MR. DAVIES: Just, Mr. Alson, if we bring that figure back up again, please? This figure does not show spare capacity until the Line 3 replacement project is in service, right?

17895. MR. ALSON: Sorry, say your question again, Mr. Davies?

17896. MR. DAVIES: Sorry, I may have frozen. This chart does not show spare capacity until the Line 3 replacement project comes on; is that not right?

17897. MR. ALSON: Let me -- that's not the way I look at it, Mr. Davies.

17898. MR. DAVIES: Well, what year do you see spare capacity before the Line 3 replacement project comes on?

17899. MR. ALSON: Well, I see total supply sitting under the top end of the Enbridge Mainline. So if I look at the orange colour, and if I look at 2021, it's sitting below the capacity of the Enbridge Mainline, which suggests that there is capacity.

17900. MR. DAVIES: Okay. Madam Chair, I know I still have 10 minutes left, but if this would be an appropriate time to break, it would be good for me.

17901. THE PRESIDING COMMISSIONER: I think it might be good for everyone. It's been a long day and I would like to thank everyone today and

Transcript Canadian Shippers Group Panel Examination by Mr. Davies certainly all week for cooperation and accommodating the various scheduling requests that came to the Commission this week. Thank you, witnesses, counsel and participants. That concludes today's session.

17902. I'll remind the witnesses that you remain under oath and may not confer with counsel until you are excused. We will resume on Monday morning, continuing with the CSG and MEG witness panel.

17903. As a reminder, next week we will be sitting Monday, Tuesday, Wednesday and Friday. We will not be sitting on Thursday, June 24th.

17904. I would also like to take a moment at the end of our extended session today to reiterate my thanks to our CER staff who support this application and support the Commission in its work, for their diligent work throughout all of this.

17905. As a reminder, there is a new Teams Meeting invitation that goes out each week, so please watch for that. Please check in at 8:45 for a tech test. And apart from that, I look forward to seeing everyone next week, Monday morning, at 9:00 a.m. Thank you and have a good break before then.

17906. MS. DAY: Thank you. Have a nice weekend.

17907. MS. HARDY: Thank you.

--- Upon adjourning at 4:51 p.m./L’audience est ajournée à 16h51

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