NATIONAL ENERGY BOARD OFFICE NATIONAL DE L’ÉNERGIE
Hearing Order GH-003-2015 Ordonnance d’audience GH-003-2015
NOVA Gas Transmission Ltd. Towerbirch Expansion Project
NOVA Gas Transmission Ltd. Projet d’agrandissement Towerbirch
VOLUME 5
Hearing held at L’audience tenue à
National Energy Board 517 Tenth Avenue SW Calgary, Alberta
June 9, 2016 Le 9 juin 2016
International Reporting Inc. Ottawa, Ontario (613) 748-6043
© Her Majesty the Queen in Right of Canada 2016 © Sa Majesté du Chef du Canada 2016 as represented by the National Energy Board représentée par l’Office national de l’énergie
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 Order RH-2-2004 HEARING ORDER/ORDONNANCE D’AUDIENCE GH-003-2015
IN THE MATTER OF NOVA Gas Transmission Ltd. Application for the Towerbirch Expansion (Application or Project)
HEARING LOCATION/LIEU DE L’AUDIENCE
Hearing held in Calgary, Alberta, Thursday, June 9, 2016 Audience tenue à Calgary (Alberta), jeudi, le 9 juin 2016
BOARD PANEL/COMITÉ D'AUDIENCE DE L'OFFICE
J. Ballem Chairman/Président
S. Parrish Member/Membre
M. Lytle Member/Membre
Transcript Hearing Order GH-003-2015
APPEARANCES/COMPARUTIONS (i)
APPLICANTS/DEMANDEURS
NOVA Gas Transmission Ltd. - Mr. Sander Duncanson - Mr. Shawn Denstedt, Q.C. - Mr. Matthew Ducharme - Ms. Jackie Johnson
INTERVENORS/INTERVENANTS
Canadian Association of Petroleum Producers - Mr. Nick Schultz
Cutbank Ridge Partnership, by its managing partner Encana Corporation - Ms. Katie Slipp
Pacific Northwest Group Export Users Group and Northwest Pipeline LLC - Mr. Fred Weisberg
FortisB.C. Energy Inc. - Mr. James Smellie
Government of Alberta Department of Energy - Mr. Colin King
Westcoast Energy Inc., carrying on business as Spectra Energy Transmission - Mr. Don Davies - Ms. Rachel Kolber
National Energy Board/Office national de l’énergie - Ms. Lauren Bell - Ms. Suzanne MacMillan
Transcript Hearing Order GH-003-2015
TABLE OF CONTENTS/TABLE DES MATIÈRES (i)
Description Paragraph No./No. de paragraphe
Opening remarks by the Chairman 4596
FortisB.C. Energy Inc. Mr. Dennis Swanson Mr. Hans Mertins Dr. Jeff Makholm
- Examination by Mr. Duncanson 4604 - Examination by Member Lytle 4985 - Examination by Member Parrish 5031 - Examination by the Chairman 5052
Westcoast Energy Inc., carrying on business as Spectra Energy Transmission Mr. Garth Johnson Ms. Marion Burnyeat Mr. Darren Christie Dr. Charles Cicchetti
- Examination by Ms. Kolber 5131 - Examination by Mr. Schultz 5185 - Examination by Ms. Slipp 5349 - Examination by Mr. Denstedt 5560 - Examination by Ms. Bell 5972 - Examination by Member Lytle 6095 - Examination by Member Parrish 6139 - Examination by the Chairman 6158
Closing remarks by the Chairman 6186
Transcript Hearing Order GH-003-2015
LIST OF EXHIBITS/LISTE DES PIÈCES
No. Description Paragraph No./No. de paragraphe
A77475 NOVA Gas Transmission Ltd. - Towerbirch Expansion Project - Response to Undertaking U-3 4977
A77476 NOVA Gas Transmission Ltd. - Towerbirch Expansion Project - Response to Undertaking U-4 4977
A77483 Pacific Northwest Group - Response to Undertaking U-5 5342
A77437 Westcoast Energy Inc. - Request relative to Undertaking U-7 5987
Transcript Hearing Order GH-003-2015
UNDERTAKINGS/ENGAGEMENTS
No. Description Paragraph No./No. de paragraphe
U-6 By FortisB.C. to provide a non-confidential copy of the 2016-2017 Annual Contracting Plan as filed with the B.C. Utilities Commission. (Requester has agreed to discharge it) 4665
U-7 By Westcoast Energy Inc. to provide information with regard to expiry of contracts on the South Peace Pipeline. 5987
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson --- Upon commencing at 8:28 a.m./L’audience débute à 8h28
4596. THE CHAIRMAN: Good morning everyone, and welcome back.
4597. Before we start, I do want to express our appreciation yesterday; we got back on schedule. Or our schedule anyway. And thank you very much. And let’s hope we can continue to do it.
4598. Before we begin, are there any preliminary matters to deal with? Okay.
4599. Mr. Smellie, your panel is ready for cross again?
4600. MR. SMELLIE: They appear to be, Mr. Chairman.
4601. THE CHAIRMAN: It’s you, is it, Mr. Duncanson?
4602. MR. DUNCANSON: It is, Mr. Chairman.
4603. I should note as well that I believe we’re just finalizing the responses to the outstanding undertakings and should have those ready sometime later this morning.
DENNIS SWANSON: Resumed HANS MERTINS: Resumed JEFF MAKHOLM: Resumed
--- EXAMINATION BY/INTERROGATOIRE PAR MR. DUNCANSON:
4604. MR. DUNCANSON: So good morning, panel. My name is Sander Duncanson. I’m counsel for NGTL.
4605. Dr. Makholm, I believe we’ve met a few times before.
4606. But, Mr. Mertins and Mr. Swanson, we have not met before so nice to meet you.
4607. Just by way of some introductions, Mr. Swanson, you are currently Vice-President of Energy Supply for FortisB.C.; is that right?
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson 4608. MR. SWANSON: For Fortis Energy Inc., yes.
4609. MR. DUNCANSON: Fortis Energy Inc., okay.
4610. MR. SWANSON: Well, I guess for FortisB.C., which also includes the electric company.
4611. MR. DUNCANSON: Okay, thank you.
4612. And when did you assume that role with Fortis?
4613. MR. SWANSON: Very recently; beginning of May.
4614. MR. DUNCANSON: Beginning of May, okay.
4615. And, Mr. Mertins, you are Manager Upstream Regulatory for FortisB.C.?
4616. MR. MERTINS: Yes, I am.
4617. MR. DUNCANSON: And you assumed that role in 2015?
4618. MR. MERTINS: I did, yes.
4619. MR. DUNCANSON: Okay, great.
4620. And were either of you involved in developing Fortis’s corporate position on roll-in versus stand-alone for the Komie or North Montney proceedings?
4621. MR. SWANSON: I was not.
4622. MR. MERTINS: I had a very indirect role but I’m aware of it.
4623. MR. DUNCANSON: Okay, fair enough. So you’ve inherited the company position, so to speak.
4624. MR. SWANSON: I have inherited it, yes.
4625. MR. DUNCANSON: Okay. Now, gentlemen, I was listening when
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson Mr. Smellie was walking through your evidence yesterday when you were adopting it. And there was an attachment to the Fortis evidence. It’s attachment or Appendix FEI-2. And I don’t think we need to turn it. But it was the written evidence of Cal Johnson in the Komie North proceeding.
4626. And just so that I’m clear, that evidence wasn’t prepared under either of your direction and control, right?
4627. MR. MERTINS: That is correct.
4628. MR. SWANSON: However, the inclusion of it was under our direction and control.
4629. MR. DUNCANSON: Okay. And just so that I’m clear, are you, either of you or both of you, adopting that evidence as your evidence in this proceeding or are you just relying on that evidence to make some of the statements that you make in your own evidence?
4630. MR. SWANSON: We’re adopting that evidence as well. We believe it’s statement of fact.
4631. MR. DUNCANSON: Okay. No, that’s helpful. Thank you.
4632. So I want to talk a little bit about Fortis’s overall position in all this just to start off. And perhaps we could turn to page 4 of your evidence. So this is Exhibit A75845-2. I believe the PDF is also page 4. And I’m right down at the bottom of page, starting at line 35.
4633. And so it says there:
“Although the Station 2 market […] is currently well supplied with gas and the Towerbirch project is unlikely to have an effect on Station 2 liquidity in the short-term, FEI remains concerned about potential market distortions that the use of NGTL’s Alberta System toll methodology could create in the long-term.”
4634. You see that?
4635. MR. MERTINS: Yes.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson
4636. MR. DUNCANSON: Okay. And that language is generally consistent with the language you had in your opening statement which talked about how -- well, I can read it for you. You say:
“Authorizing NGTL to use the tolling methodology it proposes will lead to the development of gas infrastructure that favours NGTL. This in turn has the potential to result in the construction of unnecessary facilities and underutilization of Westcoast facilities, upon which FEI and its customers depend for gas supply.”
4637. Right?
4638. MR. MERTINS: Yes, that’s correct.
4639. MR. DUNCANSON: So I took it from that, Mr. Mertins or Mr. Swanson, that Fortis’ concern in this proceeding is not really with this Towerbirch project specifically. It’s more about the long-term effects that the NGTL rate design could have if additional expansion projects proceed; is that fair?
4640. MR. MERTINS: Not entirely. Our primary concern with this project is the applicability of the existing NGTL tolling methodology. So it applies to this project as well. And then the longer-term concern that we have is the impact that that tolling methodology on not only this set of facilities but any other future application.
4641. MR. DUNCANSON: Okay. And that’s very helpful. And that’s consistent with my understanding as well. In terms though of liquidity at Station 2 and underutilization of Westcoast, those types of things you’re not putting forward in your evidence that those things will happen because of this project; those will happen if additional expansions are allowed to occur?
4642. MR. MERTINS: No, don’t agree with that. Our concern is that the impact of allowing the approval of the existing toll methodology on these facilities over the long term could have that same impact. So it wouldn’t be immediate in our estimation but our fear is that it could lead to that, yes.
4643. MR. DUNCANSON: Okay. And maybe you can explain that one to me. So we’ve got contracts today for certain volumes. And I took it from your
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson evidence when you say that there’s not going to be an effect on Station 2 liquidity in the short-term you’re saying based on those contracted flows you don’t expect to see a change in liquidity, right?
4644. MR. MERTINS: That’s correct.
4645. MR. DUNCANSON: Okay. So what happens over the long term with these facilities, in your view, changes that?
4646. MR. MERTINS: Mr. Duncanson, could you repeat your question?
4647. MR. DUNCANSON: Sure. And again, I’m just trying to understand the company’s position on all this.
4648. So we’re talking specifically about liquidity at Station 2 and underutilization of Westcoast. And you say in your evidence that you don’t think that’s something that will happen in the short term because of these facilities. And you confirmed for me that means that the contracts that are in place today and the flows under those contracts -- you don’t expect those will correlate with any sort of change in liquidity or utilization of Westcoast.
4649. But the concern is more long-term. And I thought that was because you were concerned about other expansions in the future. You said that wasn’t the case. So I’m just trying to understand what is it about these project facilities in the long term that is going to change your view on liquidity at Station 2 and utilization of Westcoast?
4650. MR. MERTINS: I suppose the longer-term concern is that if approval of the existing toll methodology is made for these facilities then that sets a precedent that would allow other applications to come forward for other facilities in the area. That’s really the concern.
4651. MR. DUNCANSON: Okay, thank you.
4652. Now, Panel, I talked with Ms. Des Brisay at length in North Montney about the various things that Fortis was doing as a company to make sure it would have continued access to supply for its customers. I don’t intend to go through all of that with you again this morning, in the interest of time.
4653. But just one question that I had for you. In response to NGTL
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson Information Request 1.2(b) -- and maybe we can pull that up. That’s Exhibit A76413-1 at PDF page 5.
4654. So just scrolling down to the bottom of the page, you talk about the 2015-2016 annual contracting plan as filed with the B.C. Utilities Commission and you provide a link to the B.C.UC’s approval of that annual contracting plan; is that right?
4655. MR. MERTINS: Yes.
4656. MR. DUNCANSON: And we don’t need to click into that link. I don’t even know if Ms. Foreman can. But you can confirm for me, subject to check if you’d like, that one of the things that you recommended in that annual contracting plan, and that was then approved by the BCUC, was a recommendation for consideration of longer-term contracts with B.C. gas producers up to 10 years in length in the interest of supply security at the Station 2 market hub.
4657. MR. MERTINS: That is correct.
4658. MR. DUNCANSON: Okay. And when I looked at that order from the BCUC as well, I saw that they directed Fortis to file the next annual contracting plan for 2016-2017 by May 1 of 2016. Do you know if that happened?
4659. MR. MERTINS: Yes, that’s correct. That occurred.
4660. MR. DUNCANSON: That occurred? And just for completeness of the record, would you be able to undertake to provide a copy of that, or a non- confidential summary of that, or something that we could have just to see what that says?
4661. MR. MERTINS: Yes we could.
4662. MR. DUNCANSON: Okay, thank you.
4663. MR. MERTINS: It would be a non-confidential version of that, yes.
4664. MR. DUNCANSON: Great.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson 4665. That request will be Undertaking No. 6 -- U-6.
--- UNDERTAKING NO./ENGAGEMENT No. U-6:
By FortisBC to provide a non-confidential copy of the 2016-2017 Annual Contracting Plan as filed with the B.C. Utilities Commission. (Requester has agreed to discharge it)
4666. MR. DUNCANSON: Great. So now I want to move on a little bit to talk about the issue of geography, which is something you talked a little bit about yesterday afternoon with Mr. Schultz and Ms. Slipp.
4667. And so maybe we can turn up your evidence again. So this is Exhibit A75845-2 and I’m looking at page 2 of that document at line 11.
4668. And just the second half of that first paragraph, in A4, you state:
“...FEI does not believe that NGTL’s Alberta System toll methodology produces tolls that are just and reasonable for service on facilities in northeast British Columbia...”
4669. Right?
4670. MR. MERTINS: That’s correct.
4671. MR. DUNCANSON: And you talked a little bit about that yesterday afternoon and my understanding is that’s the case and Fortis is opposed to any new NGTL facilities in Northeast B.C. that propose the same type of toll treatment until some form of inquiry or hearing has been completed to look at that issue. Is that right?
4672. MR. SWANSON: I think you’re slightly mischaracterizing that. It’s not that FortisBC is -- or FEI is opposed to the facilities; it’s opposed to the use of the tolling methodology on those new facilities.
4673. MR. DUNCANSON: Okay. So thanks for that. But just so that I'm clear, Fortis is opposed to the use of the NGTL rate design for any new facilities in Northeast B.C. until such time as that inquiry or hearing that you’re asking for has been completed, right?
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson 4674. MR. SWANSON: Yes, I think that’s probably a fair characterization of it with the caveat that we would want to take a very close look at each facilities application and then we would decide based on what the application entailed to determine whether or not the rate design itself creates a particular problem that we take issue with. It’s hard to believe that there would be one that we wouldn’t but there may be something that we take no issue with.
4675. MR. DUNCANSON: Okay. So that’s helpful and I think we’ll probably get back that in a minute. So -- and maybe that’s partially your answer to this next question.
4676. So if you had a project that was completely integrated with the NGTL system and the nature of service was the same, is there any circumstance that you can envision in which Fortis would not oppose the use of the NGTL rate design in Northeast B.C.?
4677. MR. SWANSON: We don’t fully understand NGTL’s, I guess, definition of the use “integrated”. As we see it, they seem to be able to have the flexibility to decide which entity builds a pipe and then define it as integrated or not integrated based on saying, you know, “It meets our tolling methodology; therefore it’s integrated.” So without a definition of what exactly you mean of “integrated”, it’s difficult to answer that question.
4678. MR. DUNCANSON: Okay. You’re aware, though, Mr. Swanson, that the NEB has talked about integration in the past and it has certain things that it considers relevant in terms of the issue of integration, right?
4679. MR. SWANSON: That’s correct.
4680. MR. DUNCANSON: Okay. And so based on those principles or tests or factors that the NEB has used in the past for integration, if a project in Northeast B.C. met all of those things, is there any type of project that you can envision for NGTL where that project is proposed to use the existing NGTL rate design in Northeast B.C. and that would be acceptable to Fortis or you wouldn’t oppose it?
4681. MR. SWANSON: You refer to the test and I’m not sure which tests apply. I don’t believe there are any specific tests that apply to determine whether something is clearly integrated or not integrated.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson 4682. MR. DUNCANSON: Okay, fair enough. How about this? If the NEB was to find that a facility was in fact integrated based on whatever test it decided to apply, and that the nature of service was also the same, is your view that the NGTL rate design could be used in Northeast B.C. for that facility or not?
4683. MR. SWANSON: It absolutely would depend on the circumstance, I think.
4684. MR. DUNCANSON: Okay. Now, Mr. Swanson, yesterday -- I don’t think I need to pull up the transcript but I can if you’d like -- you sort of talked, I think right at the outset with Mr. Schultz, about the whole whack-a-mole concept and you were saying that you’re here making the same arguments and taking the same positions for the third time, right?
4685. MR. SWANSON: Yes, the company’s here for third time making the same arguments.
4686. MR. DUNCANSON: Right, but the positions aren’t exactly the same, right?
4687. MR. SWANSON: Fundamentally, with respect of the use of the NGTL toll design in Northeastern British Columbia, the position is the same.
4688. MR. DUNCANSON: Okay, so maybe let’s talk about that a little bit. I provided your counsel with an aid to cross that had some transcript excerpts from the Komie North proceeding; that’s Aid to Cross No. 2. It’s been given -- the number on the registry, A77419-3, I believe. Do you have a copy of that, Mr. Swanson, or Panel?
4689. MR. SWANSON: Yes, we do.
4690. MR. DUNCANSON: Great. And if we turn to the second page of that document and you scroll down a little bit -- a little bit farther down -- so right in paragraph 7536, Mr. Shultz asks Ms. Des Brisay about the fact that Fortis was opposing the Komie North section of that application but not the Chinchaga section of that application. And he asked why that was the case and he said:
“Is that because it’s on the Alberta side of the border?”
4691. And Ms. Des Brisay said: “No.”
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson
4692. And then if we scroll two more pages down -- I’m looking at paragraph 7553 -- there’s a little bit of back and forth about exactly what the difference is between Komie North and Chinchaga and Dr. Makholm states quite clearly in paragraph 7553 the difference is that for Chinchaga it’s within the existing footprint; Komie North is not.
4693. And then Mr. Schultz asks in paragraph 7555 -- just to clarify Fortis’ position, he asks:
“So wherever NGTL is today defines the outward extent of where NGTL would be allowed to go in the future with rolled- in tolling. Is that correct?”
4694. And Mr. Johnson, who was representing Fortis in that proceeding, said:
“Mr. Makholm’s comments, I believe, and my understanding of the position of Fortis is that is so as it relates to Northeastern British Columbia.”
4695. And I’ll just keep reading for the record so we don’t have to enter this whole thing.
“Fortis isn’t taking any position with respect to rolled-in on the Alberta side of the border if there were further extensions there beyond the existing footprint. But the existing footprint in Northeastern British Columbia would continue to fall within a rolled-in tolling methodology. Extensions beyond that, beyond the existing footprint in Northeast British Columbia, Fortis would propose that its at-risk pricing model, or as Westcoast refers to it, as a competitive pricing model, should be the applicable methodology.”
4696. You see that?
4697. MR. MERTINS: Yes.
4698. MR. DUNCANSON: So is it fair to say that Fortis' position has changed from the Komie North proceeding, as I just summarized it?
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson
4699. MR. SWANSON: I think it would be fair to say that our position, I guess, is we're getting more committed to the position. We're -- our concern -- our level of concern is increasing with each application because we do see this as a little bit of the thin edge of the wedge that every time an application comes forward, we raise the same concerns, and the Board twice before has agreed with those concerns. And what we tend to see is NGTL bringing forward more projects to try and -- in our opinion, to try and set some sort of precedent in order to be able to justify future projects.
4700. So I would say our concern is growing in that it's broadening because we tend to see NGTL's approach to utilizing this tolling methodology of broadening, we believe, as a way to try and to establish some precedent on the issue.
4701. MR. DUNCANSON: Okay, so that's helpful. Thank you.
4702. Just so that I'm clear though, in terms of the corporate position that Fortis has taken in this proceeding, relative to Komie North, in Komie North, the company position was, if you're looping an existing footprint in Northeast B.C., that could be rolled-in. And my understanding of what Fortis is saying in this proceeding is, that is no longer the case. Any new facility that NGTL proposes in Northeast B.C., whether it be a loop or an expansion or an extension, under the existing NGTL rate design, you are opposed until this inquiry or hearing is complete, right?
4703. MR. SWANSON: I believe I've already answered the question.
4704. MR. DUNCANSON: Okay. Now, yesterday, Mr. Swanson, you talked about why Fortis has taken no position with respect to the Westcoast applications to expand their T-North system. Do you recall that?
4705. MR. SWANSON: Yes, we did.
4706. MR. DUNCANSON: Okay, and you mentioned a few times that you were taking no position, but is it also fair to say you're certainly not opposed to those applications?
4707. MR. SWANSON: Again, I think I said it several times. We've taken no position.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson
4708. MR. DUNCANSON: No, and I understand you've taken no position, but you also have not opposed. Those are different things, right?
4709. MR. SWANSON: We have not opposed or supported. We've taken no position.
4710. MR. DUNCANSON: Right, okay. And when you were talking -- I think it was with Ms. Slipp -- about why it is that you have taken no position in respect of those applications, you talked about how both of those Westcoast applications you were referring to provide additional capacity on T-North and they will both involve gas flowing through Station 2 -- and that's where Fortis purchases the majority of its gas -- and so that is beneficial for Fortis, right?
4711. MR. MERTINS: That's correct, and we also indicated that one of the key reasons why we're interested in those projects and don’t oppose them is that they provide additional connectivity to the NGTL systems, so which is important for us. There is increased capacity on the T-North system and the combination of having additional and improved connectivity to the NGTL system, plus the fact that those flow -- that flow path moves past Station 2, it gives us an opportunity then to bid for the physical gas molecules. So both of those are of interest and of concern to us.
4712. MR. SWANSON: And also, we want increased liquidity at all trading hubs. We rely on service, both from the Westcoast system and from the NGTL system and actually are not able to serve our customers solely from either one of the systems. So we do want increased liquidity. We want, you know, ideally, increased flow back and forth between the two systems.
4713. MR. DUNCANSON: No, fair enough, and I think your evidence is fairly clear on that, Mr. Swanson. I'm just trying to understand the basis for why Fortis is actively opposing certain applications and taking no position, as you say, in respect of others.
4714. And two other projects I just want to talk to you about quickly; the first was the Stewart Lake Extension that Westcoast proposed and constructed a few years ago, and when I was talking with Ms. Des Brisay about that in North Montney, she said something very similar, I think, to what you just said, Mr. Mertins, is that that project was going to increase the connectivity between Station 2 and the NGTL system or NIT, and so Fortis supported that and they
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson thought that was a good thing, right?
4715. MR. MERTINS: Yes, that's correct.
4716. MR. DUNCANSON: Okay, and you also said similar things in respect of the original Groundbirch Mainline Project yesterday, that that was why Fortis -- or Terasen at the time -- supported that project?
4717. MR. MERTINS: Yes, that's correct as well. And I think the -- probably another important consideration is, why would we then take issue with other NGTL projects that extended to Northeast B.C.? So if we take a look at Komie, if we look at North Montney, if we look at Tower, one of the distinguishing features or characteristics of those projects that makes it different from what Westcoast has proposed or the Stewart Lake Extension, or Groundbirch, is that what we see is that those kind of projects appear to want to attract supply exclusively to the NGTL system. So that, for us, is one of the primary concerns that those kind of projects raise.
4718. And it starts to matter because with a tolled methodology that provides, in this case, NGTL with an advantage that no other competitor can offer, then it would make it very difficult for incremental supply, that is required by us and other market participants, to flow on a path that is critical for how we are able to secure our supply.
4719. MR. SWANSON: And that advantage Mr. Mertins is speaking to -- it's not an advantage, in that there -- or it doesn’t appear to be an advantage in that NGTL can construct and operate transmission pipe at a lower cost. It really seems to be an advantage that's given to them, solely due to the regulation.
4720. MR. DUNCANSON: So we'll talk a little bit about that, but again, I'm just trying to understand how these different projects all fit together. Just -- the only other question I wanted to ask you in respect of Groundbirch, were you aware, Mr. Mertins, or do you know whether Terasen, at the time, was aware of the -- of how NGTL proposed to toll that facility when Terasen gave its support for that project? Do you know?
4721. MR. MERTINS: I'm not aware.
4722. MR. DUNCANSON: Okay. Are you aware that that was fairly clearly specified in the application for that project?
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson
4723. MR. MERTINS: No, I'm not.
4724. MR. DUNCANSON: Okay, and maybe just so that the record's clear on this, Ms. Foreman, I didn’t give this exhibit number to you, but it's NGTL's Undertaking Number 2 response, which is Exhibit A77441-1.
4725. Perfect, and it's on the second page. I guess, sorry, last line of the first page. It says, "In the Groundbirch Mainline application, NGTL stated:" -- and then on to the next page, this is just quoting exactly what was in the application.
4726. It was very clear that the proposal was “to establish rates for services on a rolled-in basis in accordance with the governing Alberta system rate design methodology and approved rates then in effect."
4727. Do you see that, Mr. Mertins?
4728. MR. MERTINS: Yes, I do.
4729. MR. DUNCANSON: Okay, and notwithstanding that, Terasen supported that application, correct?
4730. MR. MERTINS: Terasen did because the primary concern about that project was that it promised increased connectivity, which for us is extremely important.
4731. MR. DUNCANSON: Great. Okay now, moving to the other side of the border, you talk in your evidence, and I think you talked a little bit about this yesterday as well, about some of the concerns that you have with the NGTL rate design. You talked about the 50/50 split between delivery and receipt costs. You talked about the distance sensitivity in the tolls, ceilings, and floors. Just so that I'm clear, are you opposed to the existing rate design as it's applied in Alberta?
4732. MR. SWANSON: I'm sorry, could you repeat the question, please?
4733. MR. DUNCANSON: Sure. Is Fortis opposed to the use of NGTL's existing rate design in Alberta?
4734. MR. SWANSON: We think there could be improvements there but we’re not opposing the use of the NGTL rate design in Alberta.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson
4735. MR. DUNCANSON: Okay, thank you.
4736. One of the other two aids to cross that I provided you with was an excerpt from the recent NEB recommendation report for the NGTL 2017 Expansion Project. This was Aid to Cross number 3. That’s at Exhibit number A77419-4. Do you have a copy of that, panel?
4737. MR. MERTINS: Yes, I do.
4738. MR. DUNCANSON: Great.
4739. And if we just turn to the second page of that document, this is a map of the facilities that were part of that application. And if you look sort of in the top left-hand corner of that map, you see a few facilities that are very close to the Alberta/B.C. border, including the Boundary Lake section, which essentially runs north-south parallel to that border just on the other side, right?
4740. MR. MERTINS: Yes.
4741. MR. DUNCANSON: Okay. And one of the purposes of that project, the 2017 Expansion Project, was to transport incremental supply from Northeast B.C. to markets in Alberta and export markets?
4742. MR. MERTINS: That’s my understanding, yes.
4743. MR. DUNCANSON: Okay. And Fortis, as part of the Western Export Group, intervened in that application; is that right?
4744. MR. MERTINS: Yes, that’s correct.
4745. MR. DUNCANSON: And you supported that project including the proposed toll treatment, correct?
4746. MR. MERTINS: Yes, we did.
4747. MR. DUNCANSON: Okay. And Fortis has not opposed new extensions of the NGTL system in Alberta?
4748. MR. MERTINS: We’ve taken no formal position on that.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson
4749. MR. DUNCANSON: Okay. So is it fair to say that the statement that Mr. Johnson made on behalf of Fortis in Komie, which we read onto the record a minute ago, that essentially in Alberta if new facilities are proposed, whether they are extensions or expansions, Fortis is generally supportive of those facilities being rolled in. Is that still a fair statement?
4750. MR. MERTINS: No, we’ve taken no position on that.
4751. MR. DUNCANSON: You’ve taken no position, okay.
4752. And panel, if we’re to look at the other map on the screen, this is the one that’s been up kind of all week -- Ms. Foreman, again we’ll have to indicate somehow in the transcript what map it is that we’re talking about. But you can see the map that’s on the screen there? [Figure 1-1 of Exhibit A75175, PDF page 12]
4753. MR. MERTINS: Yes.
4754. MR. DUNCANSON: And it’s showing the project facilities. And at the eastern terminus of the Groundbirch Mainline Loop that’s shown there is the Gordondale Meter Station, right?
4755. MR. MERTINS: Yes.
4756. MR. DUNCANSON: And you see that there’s a green line that runs north from that station and it kind of tracks up towards the B.C. border and sort of hooks back at the top? You see that green line?
4757. MR. MERTINS: Yes.
4758. MR. DUNCANSON: So that’s the Doe Creek supply lateral on the NGTL system. Just so that I’m clear as to Fortis’ position, if that type of a project was proposed today under the same toll treatment that’s been put forward in this application, is that a facility that Fortis would be opposing or would you take no position?
4759. MR. MERTINS: Could you clarify where those facilities would be located?
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson 4760. MR. DUNCANSON: So they’re located just -- assuming that facility is not there and it was proposed to be there next year, so just on the other side of the Alberta/B.C. border.
4761. MR. SWANSON: You know, without having all the facts in front of us it’s going to be really difficult for us to say.
4762. MR. DUNCANSON: Okay.
4763. So I guess what I’m trying to understand is you’ve been very clear in your evidence about the application of NGTL’s rate design in Northeast B.C. And it’s very clearly Northeast B.C. that’s referenced throughout your evidence and your responses to information requests. And is the reason why you are opposed to the use of the NGTL rate design in Northeast B.C. -- is that because of something in the rate design that you don’t think works in Northeast B.C.? Or is it because, as I think Dr. Makholm suggests, the competitive environment in Northeast B.C. means that you need to have something different?
4764. MR. SWANSON: I think you’ve summarized it very well; it’s both. We see issues with the underlying toll design in northeastern B.C. You’ve mentioned some of them. You’ve mentioned the distance algorithm; the 50/50 splitting of costs between the delivery and receipt pools; the floor and ceiling, we’ve raised the diameter issue on the pipe.
4765. In addition, it does cause a problem with respect to competition and that has the potential to divert supply that we and our customers and the 3 million- plus British Columbians who rely on that system -- it can cause that supply to go elsewhere and we have to be here to protect the interests of our customers. We need to be able to continue providing supply to them.
4766. This isn’t a commercial interest for FortisBC. This is simply an interest of keeping our tolls to our customers low. From a commercial perspective, if this supply were to build across the top and take the supply into Alberta and we would have to build lines down the south to bring it back into our system, from a commercial or from a company perspective we’d have more rate base; we’d earn more return. We’re really here protecting the interests of our million customers.
4767. MR. DUNCANSON: Okay, very helpful, Mr. Swanson. And we’ll talk about competition in a moment. But again just so that I’m clear, maybe Ms.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson Foreman if we could just pull that map from the 2017 expansion just back up onto the screen.
4768. So when you’re looking at that Boundary Lake section in the top left of the map and you’re comparing that to this project that’s before the Board, in terms of the rate design, the things that you were talking about -- the 50/50 split, the distance sensitivity, the ceilings and floors -- you would agree with me that there’s nothing different about these project facilities as compared with Boundary Lake section in terms of how the rate design works? It’s the same distance sensitivity; it’s the same split of costs; the ceilings don’t apply in either case. You’d agree with that?
4769. MR. MERTINS: I think generally I would agree with that. But there’s a significant difference when we take a look at Northeast B.C. Unlike on the east side of the B.C./Alberta border, where there is no competition there is competition in Northeast B.C. And that’s where the toll design matters.
4770. There’s a 30-plus year history of competition for gas infrastructure in Northeast B.C. We view that that competition, that environment has been extremely valuable because it’s helped to ensure the most efficient development of that resource possible. And we want that environment maintained. We don’t want a toll methodology to come into Northeast B.C. that ends up essentially destroying it. And that would be the effect of the toll methodology if it gets approved for facilities that NGTL applies for, whether it’s Towerbirch or any other future facility.
4771. And so from our perspective that’s a red line that can’t be crossed because once that happens then the impact of that, which may take some time to be felt, is going to be very difficult to undo. And we want to avoid that.
4772. MR. DUNCANSON: Right. And that’s very helpful, Mr. Mertins, and that’s consistent with my understanding of your position, which is that -- I mean, just talking about the Towerbirch project specifically, which is the project before the Board, there’s nothing in the NGTL rate design that doesn’t work for those facilities. The concern is that if that NGTL rate design was applied, there would be these impacts on competition that you’re concerned about for all the reasons you just said.
4773. MR. MERTINS: In part but there is something wrong with it.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson 4774. MR. DUNCANSON: So ---
4775. MR. MERTINS: And one of the key issues as it applies to the Towerbirch facilities is that the proponent for whom these facilities are being considered won’t pay for the incremental cost of those facilities. And that’s fundamentally unfair to shippers in the existing system and to our customers who end up having to pay the toll for that. And that’s unfair; that’s not reasonable.
4776. MR. DUNCANSON: Mr. Mertins ---
4777. MR. SWANSON: What we’re really looking for here is for these new producers and shippers to, you know, pay the same toll design on the old system that everybody else is paying plus pay the incremental costs of the new system that they’re requiring.
4778. MR. DUNCANSON: Okay, but Mr. Mertins, when you’re talking about that incremental cost issue, that’s the distance sensitivity and the tolls, right? It’s the same distance sensitivity that works right across Alberta. So if your distance of haul is 1,000 kilometres and you’re adding 30 kilometres to that, that’s not going to be a very big difference in the overall toll. But that’s the way that the whole system works. That’s the way that the costs are allocated across the system, right?
4779. MR. MERTINS: I’m completely agree with you. That’s exactly how the current toll methodology works and it also highlights one of the problems with it. If you apply that toll methodology, that’s exactly the outcome. And that was the problem that was highlighted in the Komie North proceeding. That problem was also highlighted in the North Montney proceeding. And it’s also evident in the Towerbirch proceeding. And it will be with every other facility application or proposal that’s brought forward where that toll methodology is applied. There will be no other outcome, none.
4780. MR. DUNCANSON: Okay. So just so that I’m clear on this because I’m still not completely. On the Alberta side of the border if you’ve got new facilities including an extension with the same distance sensitivity, I heard you say you have no concern with that. But when you cross into B.C. you are. And the reason for that, I’m putting to you, is because of competition, right?
4781. MR. MERTINS: Let’s be very clear about something. We take no position on the impact or the applicability of the toll methodology within Alberta.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson
4782. MR. DUNCANSON: Okay.
4783. MR. MERTINS: It doesn’t mean that we support it or doesn’t mean that we don’t support it. We just take no position on that at this point. Our concern is how that toll methodology affects competition for gas infrastructure in Northeast B.C. That’s our interest.
4784. MR. DUNCANSON: Okay, thank you. I think that is finally clear so we can move on to my next area of questions.
4785. So yesterday you talked a little bit about this inquiry that you’re suggesting the NEB should be conducting. And first of all, you made a statement -- we can take you to it if you’d like; I think it was Mr. Mertins -- about who can be member in the TTFP on NGTL. And you said it was only limited to shippers on NGTL. Have you had a chance to confirm whether or not that’s the case since yesterday?
4786. MR. SWANSON: Yes, thank you. We were incorrect on who can be part of that process.
4787. MR. DUNCANSON: So it is broader than just the shippers?
4788. MR. SWANSON: It appears the process is much broader than we had originally understood.
4789. MR. DUNCANSON: Okay, thank you.
4790. And maybe a reference that we should pull up from yesterday’s transcript -- it’s right at the end of the transcript on PDF page 166, paragraph 4587. So 4587. So I think just a little further down. Yes, right there. And that’s perfect if you could just keep the screen just like that.
4791. You’re talking about the scope of this inquiry that you’re asking for and you say there that it would be triggered by the NGTL toll methodology but that it would then cast a much broader look and take a big-picture look at this -- which is what you start to say on the top of the next page -- and you may “also see that a view on how Westcoast toll methodology works would be looked at.”
4792. And just so that I again understand the scope of the inquiry that you’re
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson asking for, would it be limited to NGTL or would it include the Westcoast T- North toll methodology also?
4793. MR. SWANSON: First of all, in the context of this proceeding it is only NGTL; let’s be clear. It’s only NGTL’s tolling methodology that’s in question here.
4794. We’ve requested a full hearing into that tolling methodology or a determination here into that methodology for this project. That’s the application in front of us. But more broadly, we think that the tolling methodology into northeastern B.C. by NGTL for new facilities needs to be looked at. And if that were to take the form of an inquiry, a broader inquiry, we’re not opposed to it including other parties.
4795. And that position we’ve consistently started since we supported Westcoast’s request for an inquiry several years ago. We continue to say the use of the toll methodology on a project-by-project basis is a concern; on a broader basis it’s a concern.
4796. And even broader, if we’re going to look at tolling methodologies in northeastern B.C., I think doing it as a whole area makes some sense. Because it’s the competition in that area that’s our underlying concern, or the effect of the tolling methodology on that competition.
4797. So we’re not necessarily asking for that broader inquiry to be brought into -- we’re not asking for that broader inquiry to be brought into this proceeding. We’re saying in this proceeding, until such time as that broader inquiry is completed, in order to allow these project as proposed to be constructed, we offer a suggestion that on an interim basis basically that the existing tolling does not get hampered; NGTL can continue to use the existing tolling on the existing system. On these new facilities those are to be treated on an at-risk basis where the allocation of that risk is borne by the shipper or by NGTL until such time as a broader inquiry is decided upon.
4798. We believe there’s some real policy issues that build into a toll design that need to be questioned. And we feel having those questions heard in front of the Board is the appropriate forum for that.
4799. MR. DUNCANSON: Okay. Thanks for that, Mr. Swanson. I think I understood all of that.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson
4800. All I’m trying to understand is if this Board was to come away from this process and make some form of recommendation for an inquiry, who should be within the scope of that? Is it limited to the NGTL rate design only? Does it include Westcoast? Should it include the other parties that are competing for supply in the area? What’s the scope?
4801. MR. MERTINS: It should be all interested parties in Northeast B.C. So we wouldn’t be excluding anybody from that.
4802. MR. DUNCANSON: Okay, thank you.
4803. I’m actually doing pretty well here. I’m over halfway done. A lot of the questions that I have left for you now go to tolling principles or factors that you’re suggesting that this Board should be applying to this project and presumably others like it. And most of my questions will be for Dr. Makholm.
4804. But just before I get to Dr. Makholm, I just want to understand the company’s position on the issue of integration. And if we could turn up your response to NGTL IR 1.8(b). This is Exhibit A76413-1 at PDF 25. Perfect. So just down to the next page.
4805. And it’s the paragraphs after that indented quote that I’m looking at. And this I think is putting forward what Fortis believes should be the relevant considerations to determine whether facilities are integrated or not.
4806. And the first paragraph deals with the Tower Lake section and you say:
“It is not necessary for the Tower Lake Section to be owned or operated by NGTL, and it is not necessary for the Alberta System toll methodology to be used to determine tolls on the Tower Lake facilities, whether or not those facilities are owned...by NGTL.”
4807. And then you essentially in the next paragraph say the same thing in respect of the Groundbirch Loop. You acknowledge its unlikely looping would be conducted by a party other than NGTL. But you say:
“... [I]t is not necessary for the tolls on the loop to be the
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson same...”
4808. And you say halfway through the paragraph:
“Further, similar service to that provided by the Groundbirch pipeline loop could be provided in a separate pipeline constructed by a third party.”
4809. You see that?
4810. MR. MERTINS: Yes.
4811. MR. DUNCANSON: And so you conclude in both cases that the facilities are not integrated with the existing system. And I took that to mean that if facilities could be owned by a third party, and if the services on those facilities could be different than those on the existing facilities, then you don’t have integration. Did I get that right?
4812. MR. MERTINS: No, I don’t think that’s correct at all.
4813. Let’s step back and take a look at what integration means. Integration involves considerations like how integral facilities are, whether facilities are necessary, whether facilities are required.
4814. So for the Towerbirch set of facilities, whether it’s the Tower Lake section or the Groundbirch Loop, there is nothing about those facilities that makes them necessary for the continued operation of the NGTL system. Nothing. There is no set of facilities that NGTL has ever proposed for Northeast B.C. that make those facilities necessary for the continued operation of that system.
4815. MR. DUNCANSON: So is that the test?
4816. MR. MERTINS: NGTL system require a supply, and supply can be brought to that system by any party. I could do it if I built my own pipeline company. Westcoast does it today. And prior to when NGTL moved to federal regulation and the current rate design was adopted, then there were parties that built at-risk pipelines from Northeast B.C. to connect to the NGTL system in Alberta. So all of those things are possible.
4817. The important thing is that none of those facilities are necessary for the
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson continued operation of the NGTL system. And it’s really important in a competitive environment where there’s competition for gas infrastructure that that ability is retained. The NGTL toll methodology, given how it works, matters in Northeast B.C. because it provides an advantage to NGTL that nobody else can match. Nobody can build facilities and offer that to anybody for no cost, but NGTL can do that and that’s a huge problem.
4818. MR. DUNCANSON: Okay. So, Mr. Mertins, we’ve ---
4819. MR. MERTINS: And as a result of that ---
4820. MR. DUNCANSON: --- heard the same speech on that side of things a few times. It was not relevant to my question.
4821. MR. SMELLIE: Well, if you keep asking the same question, Mr. Duncanson, you’re going to get the same answer.
4822. MR. DUNCANSON: My question was what is the test for integration? Not what are the implications of the NGTL rate design in Northeast B.C., which we’ve already heard at length. My question is what does Fortis believe the test is for integration?
4823. So perhaps on that, based on the response you gave me at the start of the response, Mr. Mertins, I heard you say a few times the test should be whether it’s necessary for the continued operation of the system; should that be the test?
4824. MR. MERTINS: I think we’ve answered the question.
4825. MR. DUNCANSON: Well, okay. So how about this? The NEB’s consideration of the issue of integration -- Mr. Swanson spoke to it a little bit earlier. Are you aware of any case previously where the Board has said that the test for integration should be whether the facilities are necessary for the continued operation of the system?
4826. MR. SWANSON: And again, you said I spoke to this earlier but I’ll make the same point. You’re referring to this test and I don’t believe there is a single test of what defines integration or not. I think you have to look at the facts of the individual case and that will assist the Board in making that determination.
4827. I mean, if there were a test, when I look at the “test” that NGTL seems
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson to be using it’s that if service can be provided under their tariff then it’s integrated. And if it’s integrated then they can provide service under their tariff. That’s where we say it’s a circular argument. And again, I don’t see that as being defined as a test anywhere.
4828. MR. DUNCANSON: Okay, no, so my question -- just to be clear, you’re saying that what you’re thinking the test should be is whether the facilities are necessary for the continued operation of the system. And all my question was, are you aware of any case where the NEB has used that as a consideration for integration?
4829. MR. MERTINS: I don’t believe that the NEB has ever been clear about what it understands integration ought to be. It’s provided some insight and some thoughts on that but it’s never provided a definitive position on that. And from our perspective, I think I’ve outlined things that I think that ought to be considered that I think are really important.
4830. MR. DUNCANSON: Okay, that’s great. And we can finish off that issue in argument.
4831. So, Dr. Makholm, you’ve gotten off easy so far with all of the questioners so I’ll give you your chance. I’ve got a few questions for you. And the first questions relate to Aid to Cross number 1 that I’ve provided your counsel with earlier this week. It’s a copy of the evidence you filed in the RH-003-2011 proceeding. I believe that’s Exhibit A77419-2.
4832. DR. MAKHOLM: Yes, all 130 pages. Yes, I have it.
4833. MR. DUNCANSON: All 130 pages.
4834. And you’ll be happy to know, Mr. Chairman, we did not print 20 copies of that. But I trust that the Board has access to that document.
4835. Okay. So, Dr. Makholm, you appeared in that case on the issue of the TransCanada Mainline restructuring proceeding. And in that case you actually argued in favour of rolled-in tolling, right?
4836. DR. MAKHOLM: I don’t think that’s correct, no. And certainly to the extent that there was an issue of things that in the past had been rolled-in, it was a different kind of case than the kind of case we’re talking about here. No, I
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson didn’t argue for rolled-in as a general nature. I wouldn’t do such a thing.
4837. MR. DUNCANSON: No, no perhaps you misunderstood me, Dr. Makholm. For the circumstances of that case you were advocating for rolled-in tolling.
4838. DR. MAKHOLM: No, no.
4839. MR. DUNCANSON: Not talking about application here or anywhere else. I’m just trying to understand what you were saying in that case.
4840. DR. MAKHOLM: No. But if you want to go to a particular part of my evidence I’d be happy to talk about that part of my evidence.
4841. MR. DUNCANSON: All right.
4842. DR. MAKHOLM: But your implication is incorrect.
4843. MR. DUNCANSON: Okay, so just so that I’ve got this clear on the record. In this case you were not asking the Board to treat those facilities on a rolled-in basis?
4844. DR. MAKHOLM: Which facilities?
4845. MR. DUNCANSON: The TransCanada Mainline facilities that were the subject of that proceeding.
4846. DR. MAKHOLM: I think it’s a better idea if we go to context. My colleagues up here have always talked about the context, and the context is important.
4847. MR. DUNCANSON: Okay.
4848. DR. MAKHOLM: And so before dealing with generalities in an attempt to make me look inconsistent it might be better to look at the specific issue and the context within which that term arose. Let’s do that.
4849. MR. DUNCANSON: Okay, let’s do that. So let’s turn to page 15 of that document. And that is at PDF page 17. And I’m looking at the bottom of the page in Q and A26.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson
4850. And here you’re responding to a question that talks about the core feature of regulation on the TransCanada Mainline. You say there:
“The core feature has been that the costs of providing service be combined into one single rate base for services that are functionally and operationally integrated.”
4851. Right?
4852. DR. MAKHOLM: That’s correct with respect to the TransCanada Mainline ---
4853. MR. DUNCANSON: Right.
4854. DR. MAKHOLM: --- in its historical and traditional construction, yes.
4855. MR. DUNCANSON: Okay. And then if you go down to the next page, you’re asked a question:
“Why is this so?”
4856. And you start off by saying:
“Because integrating tolling for all integrated services is premised on the idea that the shippers of a functionally and operationally integrated pipeline collectively cause the costs of providing the services and also collectively benefit from them when those facilities were constructed.”
4857. And then if you skip down a sentence you say:
“Integrated tolling best adhere to the cost causation tolling principle in this respect for existing integrated pipelines […]”
4858. Right?
4859. DR. MAKHOLM: Yes. And emphasize the point if you could “when those facilities were constructed.” We’re talking about the TransCanada
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson line that was built for Canadians long before open access and long before a competitive gas market.
4860. When those pipelines were -- when the TransCanada system was constructed in its purpose to take Alberta gas and ship it to customers in Ontario and Quebec -- Ontario first and then to Quebec -- that long predated the kind of gas market we have now.
4861. So you have to emphasize “when those facilities were constructed”, as I wrote.
4862. MR. DUNCANSON: Okay. And you say after your quote from RH- 1-2007 that:
“[…] the Board made clear that the degree of integration and the nature of the services provided were key considerations for cost allocation on the Mainline.”
4863. You see that?
4864. DR. MAKHOLM: Yes.
4865. MR. DUNCANSON: And then, Dr. Makholm, if we skip forward to hard copy page 62 of your evidence, and this is PDF page 64.
4866. DR. MAKHOLM: I have it.
4867. MR. DUNCANSON: Right at the top of the page you’re disagreeing with TransCanada and Mr. Reed, and you say that what they're saying is contrary to the Board's prior finding that rolled-in tolls best adhere to the principle of cost- based user-pay tolls where the facilities are integrated with the rest of the pipeline system and where service of the same nature is provided on both, right?
4868. DR. MAKHOLM: Yes, for the constructed of -- for the TransCanada facilities, as they included the TQM, the Trans-Quebec Maritime piece of the pipe; it's not owned by TransCanada, but it's operated and has been operated by TransCanada since the start. That was planned before the era of open access and constructed as an integrated facility running from Alberta to Quebec.
4869. MR. DUNCANSON: Okay, and just the last passage from this
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson evidence that I'll take you to, Dr. Makholm -- actually, if we go back to the page we were just on -- so this is hard copy page 16, looking at PDF page 18, right at the bottom of the page. And there's a paragraph there that says, you know, in light of the way that the Board has consistently allocated costs, you consider that in the context of the current proceeding, meaning the TransCanada restructuring proceeding, a just and reasonable cost allocation scheme should include two elements.
4870. And continuing on to the next page, you say,
"First, the Board should respect the legitimate expectations and interests of all stakeholders that the cost-allocation principles that have guided the regulation of the Mainline throughout its history not be changed, absent sound public policy considerations supported by compelling evidence."
4871. And you say,
"Second, any decision modifying the current cost-allocation scheme should not be discriminatory or arbitrary."
4872. And you agreed that those were relevant in that case, the TransCanada restructuring case?
4873. DR. MAKHOLM: Yes, and particularly with respect to the proposal of TransCanada to separate the Terminal Zone, the TQM, for tolling only to people in Quebec served by the TQM Pipeline.
4874. MR. DUNCANSON: Okay.
4875. DR. MAKHOLM: That was the context within which this dispute between TransCanada, with Mr. Reed's help, and I, for the MAS Group -- Union, Enbridge, and Gaz Metro -- arose. This whole part of the testimony was an attempt by those distributors not to see a discriminatory change in the nature of the tolling on the TransCanada Mainline that would take the Terminal Zone, chop it off, and take the costs of that Terminal Zone and apply them only to customers in Quebec. The effect of that would be to price discriminate against those customers captive to TransCanada and shift to them costs for the system that, through the change in the way gas is sourced, left much of TransCanada's system idle.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson
4876. We viewed that as an unjustified, discriminatory move and the Board agreed with us and denied the request to chop off TQM and charge it only to the customers at the end of the system. This part of my evidence dealt with our objection to that discriminatory proposal that the Board rejected.
4877. MR. DUNCANSON: Okay, thank you. Dr. Makholm, in terms of just general principles, I think you’ve said before, determinations of rolled-in tolling should be made on a case-by-case basis. You've said that, right?
4878. DR. MAKHOLM: Well, I've said that for this Board, recognizing the more complicated legal political jurisdictional cards that you're dealt with, rather than in the States where I come from. I don’t apply that to the States. We've settled that issue long ago.
4879. MR. DUNCANSON: Okay. Now, Dr. Makholm, if I understand the evidence that you've put forward in this case, as compared with that RH-3-2011 case, the various principles that we went through that you cited to the Board in RH-3-2011, is it your view that those principles essentially are not relevant, or at least should not win the day in this case because of the fact that there's competing pipelines in Northeast B.C.?
4880. DR. MAKHOLM: No, I don’t agree with that. In fact, I think that's a sort of a slanted question. The principles that I brought to bear in RH-3, the restructuring case, are the same principles I bring to bear here. You have to have a reasonable way of dealing with your long-standing customers, for instance, on TransCanada, that has been in place for decades.
4881. MR. DUNCANSON: Okay.
4882. DR. MAKHOLM: You always have to be mindful of proper responses to competitive entry. In that case, it was the entry of Marcellus Gas into eastern Canada to replace Alberta Gas to eastern Canada, and its effect on TransCanada. Those things weren't TransCanada's fault, but very much about the restructuring case was about various parties' objections to ways in which TransCanada was reacting to the cards it had been dealt with.
4883. TransCanada wanted to move the Alberta zone to the Manitoba border. TransCanada wanted to lop off TQM in the -- at the end of the system and charge it only to people in Quebec. TransCanada wanted to shift around accumulated
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson depreciation to allow the part of the system that was empty to be valued at peanuts. Those were all things that the Board denied, and they were all things that we concluded.
4884. We, on the eastern end of the pipe, objected to lopping off the TQM and shifting around accumulated depreciation. CAPP, at the western end of the pipe, went crazy when it thought that the Alberta part of the system would be expanded to the Manitoba border. And usefully, I think, the Board denied all of those discriminatory responses to an unfortunate hand that TransCanada had been dealt with as its system emptied out.
4885. MR. DUNCANSON: Okay, so I just want to understand, Dr. Makholm, in this proceeding, your evidence is rolled-in tolling should never be used where there are competing pipelines, right? You said that.
4886. DR. MAKHOLM: No, you're misconstruing my statement.
4887. MR. DUNCANSON: Okay, so let's go ---
4888. DR. MAKHOLM: The most important -- of paramount importance in a newly-developing place like Northeast British Columbia, is the maintenance of cost-based competition between competing transport modes. They just happen to be pipelines here. There's no other way to get the gas out of Northeast B.C. And the maintenance of that competition is of paramount importance and should be the focus, to the extent that rolled-in tolling subverts that cost-based competition. That's the problem.
4889. MR. DUNCANSON: Okay, so let's go to your evidence, Dr. Makholm. Looking at Fortis' response to NGTL Information Request 1.9(a), this is Exhibit A76413-1, PDF page 27, 1.9.
4890. DR. MAKHOLM: Yes, I have it.
4891. MR. DUNCANSON: See that? Hard copy page 26.
4892. DR. MAKHOLM: Yes.
4893. MR. DUNCANSON: So we ask:
"Does Dr. Makholm support rolled-in tolling in any instance in
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson an area in which there are competing pipelines?"
4894. You then referred us back to the same question and answer from North Montney. The answer was:
"No, not where the effect of roll-in damages competition for expanded facilities based on lower cost."
4895. And that ---
4896. DR. MAKHOLM: That's what -- that's just what I said. I said, "No, not where it damages competition."
4897. MR. DUNCANSON: Okay, and so just so that I'm clear on all this, so the principles that you talked about earlier, about degree of integration, nature of service, if you're in a situation where roll-in could damage competition, are those relevant considerations or should roll-in tolling never be approved?
4898. DR. MAKHOLM: Well, let me go back to the first part of your question. You said "degree of integration and nature of service." I don't think we worked on that yet today. What do you mean by those things?
4899. MR. DUNCANSON: I just quoted you from your RH-3-2011 evidence where you said those were relevant factors in the case of the TransCanada Mainline restructuring proceeding.
4900. DR. MAKHOLM: Oh, yes. I mean, they were relevant in terms of a pipeline that had been in service for decades, serving lots of users throughout Canada, from a part of history long before we had competition in gas in North America. It -- TransCanada would never have been built like that if the issues came up today. We have a different kind of market than we had then. So yes, so all those considerations were proper then, but ---
4901. MR. DUNCANSON: So those principles apply to the TransCanada Mainline facilities, but not other facilities in Canada?
4902. DR. MAKHOLM: No. No, the principles of being non- discriminatory and fair and supporting competitive markets apply to both cases. Those are general principles.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson 4903. MR. DUNCANSON: Right.
4904. DR. MAKHOLM: They're the principles that -- as I state in my testimony, most expansively in the Komie North, regulation has certain points, and one is the facilitation of the application of capital for public services. That's one thing that regulation does. It clears the way so that investors can expand confidently, something that doesn’t happen when we have cases like this where we don’t know the outcome over big pots of money. But that's one purpose of regulation is to clear the ground for the useful application of useful public service investments.
4905. The second one is to make sure that the public doesn’t get abused and there’s not undue discrimination in the pricing of the services that come after that capital is put the ground; that’s a second purpose of regulation, a very big one in the TransCanada proceeding.
4906. But the third, which comes up in gas, doesn’t really come in the same way in local public services like utilities or even electricity, is that gas is a bulk commodity, that, it turns out, in North America is now competitively supplied. And that third purpose of regulation, to make sure that you maintain rivalry among transport modes in the provision of the supplies of gas, is something that the Board has to be mindful of also.
4907. All those three things are principles of regulation to be applied to TransCanada or NGTL or Westcoast or anybody else. And they’re all, by me, consistently applied in all these cases depending on the facts of those cases.
4908. With respect to lopping off the TQM, there was a question of undue discrimination with facilities that has been in the ground in decades. And that particular move would have no other effect than to raise prices in Quebec and lower them for anybody else unjustifiably. And the Board denied it as a result, usefully; it didn’t take them long.
4909. There are other elements of the TransCanada case, moving the border of Alberta to Manitoba; price discrimination, denied. And that had nothing to do with new investment but it had to do with abusing consumers and improper affiliate cross-subsidies. All of the principles that I discussed in these cases apply to both cases; there’s no inconsistency there.
4910. MR. DUNCANSON: Okay. So just so that I understand, your view
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson is, if roll-in will damage competition, roll-in should not be allowed regardless of how integrated the facilities are or whether they’re providing the same service; is that correct?
4911. DR. MAKHOLM: Let me parse that out just so that we can get ---
4912. MR. DUNCANSON: Oh, no, I ---
4913. DR. MAKHOLM: --- to the bottom of this.
4914. MR. DUNCANSON: Before you start talking again about the TQM and everything else ---
4915. DR. MAKHOLM: No, no, no. No TQM.
4916. MR. DUNCANSON: --- I want to get an answer to that specific question. That’s what I’m interested in.
4917. DR. MAKHOLM: I will do that. If it damages competition, you shouldn’t roll it in.
4918. MR. DUNCANSON: Okay.
4919. DR. MAKHOLM: The last part of the sentence, I don’t agree with; that is, “regardless if it’s integration or the services provided” and so forth. I think if you look around, as I have, all around the world, you’ll realize that the question of integration is oversold.
4920. It’s like what we were talking about yesterday with stacked services. It doesn’t matter whether you have one or two or 12 pipelines to get gas from the Gulf to Boston, they can all be efficiently priced and they can all be efficiently connected with one another with meter stations between them. That’s not a difficult thing to do.
4921. I would thus, for your specific question, rely on the first part. Forget the integration services provided; that’s irrelevant.
4922. MR. DUNCANSON: Okay.
4923. DR. MAKHOLM: The first part is what’s relevant. If roll-in served
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson to damage competition in the case that you’re looking, it should be disallowed.
4924. MR. DUNCANSON: Okay. I think I got there so thank you.
4925. One other piece of evidence I just want to talk with you about, hopefully briefly, Dr. Makholm, is your testimony from Komie North. And you attached that as Exhibit JDM-2 to your evidence? So this is in Exhibit A75858-2. And I’m looking at page 12 of the evidence, which is PDF 81.
4926. And that’s perfect just as it is on the screen there.
4927. DR. MAKHOLM: Yes.
4928. MR. DUNCANSON: And so this is in Komie North, Dr. Makholm, where there was a loop component that was Chinchaga section; and then there was the extension, the Komie North Extension. And you’ve got this paragraph that’s at the bottom of the screen where you’re making the point that the Board has approved rolled-in in numerous instances for projects within integrated systems. And the example that you provide is an expansion of the Northwest Mainline that involved new pipeline loops; and you emphasized the word “loops”, meaning the new contiguous pipes were only adding capacity to the existing pipeline system. Right?
4929. DR. MAKHOLM: Yes.
4930. MR. DUNCANSON: And then in the hearing Mr. Denstedt asked you about that.
4931. And so if we could pull up Aid to Cross Examination No. 2. This is Exhibit A77419-3. And starting right at the bottom of PDF page 8, which is paragraph 7938 -- yeah, just right there would be great to start.
4932. So Mr. Denstedt asks you about the distinction between Chinchaga and Komie, and he said is the distinction because Chinchaga’s “within a current footprint and the Komie piece is not? I take it that is correct? Did I get that right?”
4933. And you said: “Yes.”
4934. And then Mr. Denstedt talked to you about that paragraph we just read
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson about the Board approving rolled-in numerous times for integrated pipeline systems.
4935. And if we look at paragraph 7946 -- this is just a little bit farther down on the next page -- right there. So Mr. Denstedt asks:
“...what are you trying to convey to the Board with that paragraph [...]? What do you want the Board to take away from that?”
4936. And you state:
“Cost-based user pay as a principle is hard to track when you loop in the middle of an existing integrated system, particularly one that has been built up and operates as a big pooled transmission system with a complex toll-making model like NOVA has.”
4937. Do you see that?
4938. DR. MAKHOLM: Yes.
4939. MR. DUNCANSON: And then if we scroll into the next page, starting at paragraph 7952, you then clarify that when you’re talking about “within integrated pipeline systems” you did not mean that to be unduly limiting. You talk about how the Board has also accepted rolled-in tolling for other projects that are not technically within the integrated pipeline system and you give Gros Cacouna as an example of that. Right?
4940. DR. MAKHOLM: Yes.
4941. MR. DUNCANSON: Okay. And again just so that I’m clear, that discussion about whether it’s within the integrated pipeline system or not, if you’re in an environment where there is -- there are competing pipelines and the roll-in proposal will, in your view, damage competition, the roll-in should not be approved?
4942. DR. MAKHOLM: Well, the last part of the statement’s still true no matter what came here. That’s correct.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson 4943. MR. DUNCANSON: Okay. And you’re aware, Dr. Makholm, Westcoast competes with NGTL on the other side of the Alberta/ B.C. border, right? Are you aware of that?
4944. DR. MAKHOLM: Yes.
4945. MR. DUNCANSON: So perhaps we can turn up, actually, a map that Westcoast filed in their evidence. This is Exhibit A75951-2 and it’s at PDF page 17 of that document.
4946. THE REGULATORY OFFICER: Can you repeat that, please?
4947. MR. DUNCANSON: A75851-2. Okay. And if we just scroll down a little bit -- and that’s good.
4948. And you can see, I hope, on that screen there, the Alberta/B.C border; it’s shown as the white line going north to south. And you can see, if you look on the right side of that -- right being Alberta -- side of that line, you can see the text “CSA1”. Do you see that, Dr. Makholm?
4949. DR. MAKHOLM: Yes.
4950. MR. DUNCANSON: You see that you’ve got light blue lines there; that’s Westcoast T-North. You’ve got the purplish line, which is NGTL. You’ve also got a yellow line which shows Alliance. And then there’s also green, which is Midstream. You see all that?
4951. DR. MAKHOLM: Yes.
4952. MR. DUNCANSON: So you would agree with me that there are, from a factual perspective, competing pipelines in that area?
4953. DR. MAKHOLM: There are rivals in the area, yes.
4954. MR. DUNCANSON: Is there a distinction between “rivals” and “competing” pipelines?
4955. DR. MAKHOLM: Not until we talk about pricing. But these are rivals in the area.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson 4956. MR. DUNCANSON: Okay.
4957. DR. MAKHOLM: They’re rival pipelines.
4958. MR. DUNCANSON: They are rival pipelines. So given that, that there are rival pipelines competing to provide service in this area, if new facilities were proposed there on a rolled-in basis, is your view that those facilities should be denied on that basis and tolled on a stand-alone basis?
4959. DR. MAKHOLM: If the paramount point is competition, remember? If it damages that rivalry and tilts the playing field unduly toward one so that the customers of that one who caused those costs aren’t paying for them then, yeah, you should deny it.
4960. MR. DUNCANSON: Okay. And so I guess in that context, I mean, I appreciate that Fortis’s position is focused on the Alberta/B.C. distinction. But from your perspective, Dr. Makholm, if you’ve got competing pipelines and a company proposes to roll-in new facilities and there’s going to be some damage to the competitor, you’re ---
4961. DR. MAKHOLM: No, no, no, no, no, not damage to the competitor. It’s damage to competition.
4962. MR. DUNCANSON: Damage to competition.
4963. DR. MAKHOLM: It’s damage to people like Fortis, it’s damage to consumers, and it’s a damage because of proceedings like these to the pathway of investment in social useful services. That is, new pipes that aren’t worth the cost. That’s the damage. It’s not damaging a competitor. That’s not why antitrust laws are in place. It’s damaging competition, and consumers, and investors as a result.
4964. MR. DUNCANSON: I apologize, Dr. Makholm. I’m sure I misspoke.
4965. Just so I’m clear though, the provincial border does not matter if you’ve got competition ---
4966. DR. MAKHOLM: The gas doesn’t care.
4967. MR. DUNCANSON: --- between pipelines and somebody comes
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Mr. Duncanson forward and wants to roll-in new pipe ---
4968. DR. MAKHOLM: For the purpose of undermining competition. If the purpose of the roll-in, as I conclude is in this case, is to undermine competition and undermine the reasonable rivalry between cross-based rivals then it should be denied.
4969. MR. DUNCANSON: Okay, great.
4970. I think, Mr. Chairman, that’s where I’ll leave off this morning. So thank you very much, all of you gentlemen. And thank you, Mr. Chairman.
4971. THE CHAIRMAN: Thank you, Mr. Duncanson.
4972. We’ll take, I think, a 20-minute break before the panel or the Board counsel have our questions.
4973. MR. DUNCANSON: Sorry, Mr. Chairman? Just before we do. I just received the copies of undertakings 3 and 4, which perhaps this would be a good time to get those into the record so people can review them at the break.
4974. THE CHAIRMAN: It would be great, Mr. Duncanson.
4975. MR. DUNCANSON: Okay. So we’ve got responses to both Undertaking No. 3 and Undertaking No. 4; make sure that everyone can get copies of those. But can we just get exhibit numbers for each of them?
4976. THE REGULATORY OFFICER: Undertaking 3 will be A77434 (sic). Undertaking U-4 will A77435 (sic).
--- EXHIBIT NO./PIÈCE No. A77475:
NOVA Gas Transmission Ltd. - Towerbirch Expansion Project - Response to Undertaking U-3
--- EXHIBIT NO./PIÈCE No. A77476:
NOVA Gas Transmission Ltd. - Towerbirch Expansion Project - Response to Undertaking U-4
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Member Lytle
4977. MR. DUNCANSON: Great, Thank you.
4978. THE CHAIRMAN: Okay, we’ll be back in 20 minutes.
--- Upon recessing at 9:50 a.m./L’audience est suspendue à 9h50 --- Upon resuming at 10:11 a.m./L’audience est reprise à 10h11
4979. THE CHAIRMAN: Welcome back everyone.
4980. For the record, does Board counsel have any questions?
4981. MS. MacMILLAN: No, Mr. Chairman, we do not.
4982. THE CHAIRMAN: Okay. The Panel does have some.
4983. So, Dr. Lytle, you’re first.
DENNIS SWANSON: Resumed HANS MERTINS: Resumed JEFF MAKHOLM: Resumed
--- EXAMINATION BY/ INTERROGATOIRE PAR MEMBER LYTLE:
4984. MEMBER LYTLE: Thank you, Mr. Chairman.
4985. Dr. Makholm, in your evidence at Exhibit A75845-3 -- I believe it’s Adobe page looks like 47 -- you state that NGTL’s tolling model no longer works efficiently as the highly competitive gas market has evolved around it.
4986. And we heard Mr. Keys yesterday say that the NGTL trading hub has a velocity of five to seven times its volume, which would seem to me to be quite efficient.
4987. And so I’d like to understand how the parameters of the proposed tolling methodology which get the gas to that hub are inefficient, and whether it’s possible to quantify that inefficiency?
4988. DR. MAKHOLM: Okay. First, with the five to seven times. In the context of commodity markets that’s not that great. It’s not that liquid. The
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Member Lytle Henry Hub has a churn ratio of 26 times.
4989. Many hubs in the US, the Dominion South Hub that is the pricing point for most of the Marcellus gas, has multiples of the trading that go on the NIT. And one of the reasons that the NIT, in terms of other -- and for commodities generally -- at the West Texas Intermediate oil hub in Cushing, Oklahoma it has a churn ratio of 100. For U.S. corn, in its silos, on the Mississippi River has a churn ratio of 30.
4990. Commodities trade a lot in competitive markets, and particularly in futures markets. And by that standard the NIT is not that great. It’s not that liquid. And one of the reasons why it’s not that liquid is that it’s a notional hub. It’s not a physical hub.
4991. In order to clear futures markets you have to have a place in which you can warrant that the commodity has shown up. And that’s why the Henry Hub is so great, and why it’s alone the fulcrum of future trading in North America because it’s the intersection of nine interstate and four intrastate pipelines in the middle of a competitive pipeline system and you can get your volumes there. Hence, you’ve got thousands of futures contracts going out up to four years for futures trading at the Henry Hub.
4992. Futures trading at the NIT is almost non-existent. I just looked yesterday and they have 25 contracts out a month and five contracts out two months. That’s microscopic by comparison to the futures trading at the Henry Hub.
4993. One of the problems there, as I said, was that Alberta for good historical reasons, useful historical reasons, treated the system like a large tank where you sort of pay to get in and you pay to get out. But within that it’s a hypothetical system.
4994. Now, it has a model for tolling but I don’t think the model is that good either. For instance, it does things that a tolling model shouldn’t do. It’s got diameter as a way of connecting. And I’ve made tolling models on all continents all over the world for 30 years and I’ve never seen any other model that uses diameter. And the problems with something like that are if the Groundbirch Loop had been a 42-inch pipeline instead of a 36-inch pipeline the receipt tolls at the end of the loop would be lower because of the use of a larger pipe. That’s not a good tolling model.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Member Lytle
4995. So as far as what’s going on in Alberta are concerned, when I made these statements the tolling model -- and I described the -- I looked back and I researched the evolution of the tolling model from a facility-specific to a postage stamp to the current model and I can see what happened. But from the perspective of the furtherance of a competitive gas market I think it’s long outlived its usefulness, and it has unfortunate and inconvenient features.
4996. The NIT could be bigger. No. Trading of gas and the trading of futures could be bigger for Alberta and B.C. based gas that goes south and east if it didn’t go into a tank but if it actually went to a point, like the other points where gas is traded in North America that have much bigger churn ratios than the five to seven that we’ve heard about yesterday.
4997. Those are the kinds of things that I was talking about when making reflections on the model. Not for treatment in this proceeding but for treatment in the kind of proceeding that Mr. Mertins was talking about.
4998. MEMBER LYTLE: Okay. Again, if we go to Adobe page 54 and 55 you talk about cross-subsidization and make an interesting argument. I’d like to ensure that I understand that argument.
4999. I’m supposing that one way to gauge the degree of cross-subsidization is from market signals, and in light of this I would have expected to see more opposition at this hearing for the NGTL -- from the NGTL downstream shippers protesting the tolling mechanism. So I’m interested in your thoughts about why we don’t see more of these shippers on the NGTL system talking about cross- subsidization?
5000. DR. MAKHOLM: Well, there are a couple of reasons. One, in the context of shippers or consumers in the ATCO system, they’ve been co-opted by being brought into the tent and being part of a collective charging system. If ATCO had not been in that position they’d be in here. Because to the extent that ATCO uses the NGTL pipes, and ATCO’s prices would go up because of some project that they don’t benefit from at all or enough to justify the price increase, they’d object too.
5001. The thing about the Export Users Group of the northwest utilities, the distributors in Washington and Oregon, and the thing about Fortis, is that they are distributors with a problem that needs alleviating.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Member Lytle
5002. But Alberta is different. And Alberta, in terms of the consumer end, because of the position of ATCO has been largely co-opted.
5003. On the producer side it’s my experience that producers live with what works. And there’s no question that producers like the NIT; I mean, it’s convenient. If you show them another kind of system that lowered their cost I think they’d like that better. But they don’t have one and they can’t conceive of one.
5004. Tariff-making on pipelines is not their business; they don’t know how it works. They don’t know that the NIT is unique in North America. They’re not in the Marcellus field or the Bakken field. Sell into a physical system, not a notional system.
5005. So they’re happy enough. And to the extent that incremental producers can find a way of getting on the system at less than cost, they’re overjoyed. I mean, they love that.
5006. But the organized opposition to attempts of pipelines to monopolize in the context of North America has usually come not from oil companies or producers but from distributors. I write about it in my book and I quote it in my testimony, how the U.S. distributors acting collectively in groups over 30 years created the competitive gas system looking out for their users just like Fortis is doing here.
5007. That’s where the pressure comes from, the pressure groups of distributors acting on behalf of their connected population, in this case three-and- a-half or four million people who live in British Columbia in the systems that are served by Fortis. And the millions of people who live on the other side of the border in the systems served in Washington and Oregon, those are the ones who really push for efficiency and fairness in gas pipeline systems. That’s always been the case in the States.
5008. MEMBER LYTLE: Good. Thank you very much.
5009. Now I’ll turn to your colleagues.
5010. Yesterday we heard from EUG that the playing field is not level and earlier today there was a statement that the advantage is given to NGTL solely
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Member Lytle due to regulation. And I’m wondering how regulation is tilting the playing field. Other than the relative sizes of the combatants, are there structural impediments to free competition in both Alberta and Northeast B.C.?
5011. MR. SWANSON: When I make that statement that the advantage is solely due to regulation, I’m really meaning that it’s solely due to the fact regulation has allowed or may allow a toll structure that leads to that tilting of the playing field.
5012. And you’re quite right. The tilting of the playing field -- we’ve got other issues that we’ve talked about with regards to the tariff design. But really the tilting of the playing field fundamentally comes from the fact you’ve got NGTL with a great big rate base down here and if you’re going to use rolled-in, unless you have a rate base a similar size there’s no way you can roll your costs in and compete on a cost-to-service basis.
5013. And that’s kind of the principle in what I said, “due to regulation”. I mean the regulatory approval of that principle.
5014. MEMBER LYTLE: Okay. Thanks for that clarification.
5015. Finally, we hear from NGTL that tolling costs are often not a determinant of commercial decisions made by gas producers and what they want to do. Things like trading liquidly, market access, variability, contract terms are also important considerations according to NGTL. Now, these are all attributes that favour NGTL so of course they’re going to say that.
5016. But this view in its most general sense seemed to be confirmed to me by Mr. Donovan when he mounted his self-described soapbox yesterday afternoon. And Mr. Donovan, I hasten to add that your performance was worthy of Hyde Park in my view and I found it very helpful and useful, thank you.
5017. But with this as background, I’d be interested in hearing Fortis’ view about competitive edges that might be owned by Westcoast and Alliance. For example, my understanding is that only Alliance will take wet gas. That might be a unique feature of their offering to the market. And perhaps the vertical integration, if I can use that term, of Westcoast would be a competitive edge that they would have as well.
5018. So I’d be interested in your views on this general topic of other
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Member Lytle competitive elements.
5019. MR. SWANSON: I can probably start off with this answer.
5020. You know, we step back and we heard a lot of discussion about wet gas and the gas quality. But really, when we’re looking at this we’re looking at this from the perspective you’ve got raw gas being produced and you’ve got end- use consumers. And somewhere along the line that’s going to have to be processed and that’s going to have to be shipped. And how you do it -- if you continue to tilt that playing field, you’re going to set up a situation where yeah, I would agree that producers will go in a certain path because of that playing field being tilted. I’m not explaining this well, sorry for that.
5021. If the playing field is level, that production and that transport will develop in a way that’s efficient, that will get from the production area to the end- use consumer in an efficient manner. Yes, when it’s tilted you’re going to get the situation where, you know, raw gas is going one way and processed gas is going somewhere else. But that’s a result of that tilting of the playing field in our opinion.
5022. MEMBER LYTLE: But I guess my question is, are there competitive advantages that accrue to other pipeline companies that they can apply to level the field a little bit from their perspectives?
5023. MR. SWANSON: There may be, but I don’t think to the extent that you can overcome a near-zero toll for new producers to hop onto the pipeline system. I don’t know that anybody would have any tools in their toolbox that are that large to overcome that big of a hurdle.
5024. MEMBER LYTLE: So you would disagree with Mr. Keys’ characterization then that tolling methodologies and tolls themselves are not as big a determinant as we might otherwise think?
5025. DR. MAKHOLM: Of course. We’re talking about a bulk commodity shipping business. It could be oil; it could be corn, wheat or anything else. It just happens to be gas. And when you look upon where it comes from, nobody lives there. It has to get to some market where actually people live and exist, cities, power plants and such.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Member Parrish 5026. And producers, the oil and gas community, look upon pipes like they look upon any other mode of transport, rail transport of crude oil or water board transport, or LNG going to the Far East. It’s just a cost of getting it to someone who will buy.
5027. And for that the deal on how much it’s going to cost for how much time is everything. Yes, it’s in NGTL’s interest to try to take the pressure off this rolled-in zero toll business. But ultimately the producers of that hard commodity look upon how to get it to market like everybody else looks at a hard or soft commodity. It takes a certain amount of money over a certain period of time. And they’re looking to spend the least and if they could steal a march on some other people or some other producers by getting a free ride for part of the system.
5028. When the administration of the larger regulatory business doesn’t permit the aggrieved parties to collectively get together and voice their opinion and oppose because this is expensive, then they’re happy to do so.
5029. MEMBER LYTLE: Thank you.
5030. THE CHAIRMAN: Mr. Parrish?
--- EXAMINATION BY/INTERROGATOIRE PAR MEMBER PARRISH:
5031. MEMBER PARRISH: Thank you, Chair.
5032. Okay. Well, I’d like to take the discussion back to whack-a-moles. And you’ve -- this is your third -- your third mole, I guess you could say. And which mole -- with respect to this mole, which mole does it have more similarities to, the Komie North or the North Montney? And I guess if you can provide some reasons why.
5033. MR. SWANSON: From a rates and tolls perspective, it’s similar to both. I don’t know that you can say it’s one more than the other because really -- again, our principle issue in this case is the use of the NGTL toll methodology and its effect on competition. So all three of those processes, we’ve had the same issue and we continue to have the same issue.
5034. I understand for other people their issues may be broader than that but our issue is really one that’s quite narrow. So our belief is in all three cases it’s very similar with respect to that, the implications on the competition due to the
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Member Parrish toll methodology.
5035. MR. MERTINS: Maybe I can add a few things to what Mr. Swanson has provided. And I think that’s a very good question that you raise, Mr. Parrish.
5036. I think probably it would be helpful for everyone to take a look at a particular document. And if we can go back and maybe pull up A77381-1; it’s the 2010 Reasons for Decision on the Rate Design Methodology and Integration Application. And if I can -- once we have that up, if we just turn to page 6, I just want to draw everyone’s attention to a particular sentence that I think -- yeah. So if we could go to the top of page 6, and then if we can take a look at the last sentence. And it starts off ---
5037. MEMBER PARRISH: PDF or ---
5038. MR. MERTINS: I’m sorry? I’m sorry, I just have a hard copy so -- but you have the right page up, yes. So no -- stay at the top. And then the sentence that starts -- and I’ll just read this out.
“This latter deadline will enable NGTL to incorporate and asses the actual effects of rate design changes, [...] and any Board-approved extensions to northeast B.C.”
5039. And one of the things, as we were preparing for this proceeding and we looked at this -- and sorry, that raises a concern for us. We understood -- or the way that we interpreted that direction from the Board was that the onus is on, in this case, NGTL to be assured that whatever rate design it proposes for future facilities applications, in fact do take these kind of issues into account and that that rate design in fact does get changed.
5040. And so whack-a-mole reference that you refer to certainly highlights a frustration on our part that ---
5041. MEMBER PARRISH: Let’s stop right there. That’s not my reference.
5042. MR. MERTINS: No, no, that’s fair enough. That’s our reference, not yours. No, I stand corrected; you’re right.
5043. It does reflect a certain frustration on our part that we have not seen
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by Member Parrish NGTL make or propose any changes to its toll design methodology. We’ve had successive applications put in front of the Board and the Board has provided feedback in terms of issues it felt exists with that toll design methodology and we have seen no response on the part of NGTL dealing with that.
5044. If you’d go back to this particular decision, I think it was pretty clear, I think, what the Board intended was expecting of NGTL. And we haven’t seen that yet and that’s a problem.
5045. MEMBER PARRISH: Thank you very much. And I guess my other question is kind of -- you’ve asked -- I mean you’ve been very descriptive about the need for an inquiry. And I -- in a sense I see -- we talk about the NIT and the issues around the NIT.
5046. Is this a clash of -- is this a clash of two, perhaps, monopolies who operate very differently? And would such an inquiry also engage Westcoast or the Westcoast system as well as the NIT? Or is this just a NIT -- an inquiry around the NIT?
5047. I mean, I guess, your comments seem to be that as long as your supply is not impacted you’re quite happy with the Westcoast model.
5048. MR. SWANSON: You know, I think the company has fairly consistently taken the position that we believe there’s a problem with the tolling methodology in Northeastern B.C. And to the extent that inquiry were to include all parties and all potential parties and how their tolls are designed, that would probably make sense because we are looking at a unique set of circumstances up in that area due to history, much like we’ve got a unique set of circumstances in the NIT in Alberta due to history. Broadening that inquiry and looking at how tolls should be designed in that area probably best addresses our concern.
5049. MEMBER PARRISH: Those are all my questions, Chair. Thank you.
5050. THE CHAIRMAN: Thank you, Mr. Parrish.
5051. I do have a couple of questions, and the first one for Dr. Makholm. And I’m following up a little bit from Dr. Lytle’s question.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by the Chairman --- EXAMINATION BY/INTERROGATOIRE PAR THE CHAIRMAN:
5052. When you spoke in length, and not in glowing terms, of the NIT, do you think it should be abolished?
5053. DR. MAKHOLM: I hesitate to say yes because there would be dislocation in doing so. But there are costs to the NIT and there’s a detraction for the NIT, not for the people who are looking at and don’t look anywhere else. Certainly there’s a convenience for producers who would find the idea of learning a new system unpleasant.
5054. Then again, they can always ask their fellows in the States and they’d realize that what they’re facing in the NIT is a detraction to the most vigorous trading as their other Canadian or U.S. fellows see it looking out of their production areas.
5055. It’s an anachronism; I said that in my testimony. It was made to permit quick gas trading when in the ‘80s, not ‘90s but in the ‘80s, when open access was pursued both in the States and in Canada, before there was a way to work out the historical nature of the unified publicly-built transport system in Alberta. It was a very useful thing to do, just like it was useful in the UK to permit gas trading within a unified, bundled tank operated by British Gas on that island.
5056. But I certainly think that that system ought to be abolished in Britain. It’s not; the politics won’t permit it. It is migrated to the continent. Every Member State in the EU has its own little tank and it totally subverts the competitive market. Europeans, through their pipelines, have paid half a trillion dollars in the last six years, more than North Americans have for their gas. Their price of gas is three times the price of ours because they don’t have gas competition.
5057. The only system like that in North America is the NIT. It doesn’t truly detract from the wider competitive market but it does limit the options in Alberta and it creates for a less liquid market for gas than you’d have anywhere else where you had physical facilities at which to trade.
5058. Like I said, it’s not that great. It’s a negative influence on the liquidity of gas in Northeast B.C. and in Alberta. Changing something like that, given the complicated history of Alberta, is a tall order and it may not be worth the trouble.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by the Chairman But make no mistake, it’s not that great. And the idea of widening the NIT to other parts of the producing fields in Northwest B.C. would be a big mistake. If you keep it where it is, it's only moderately inefficient. If you expand the NIT, it is damagingly inefficient to the investment in new infrastructure and the liquidity of the gas that comes out that infrastructure.
5059. THE CHAIRMAN: Okay. But why are so many people and producers trying to get into the NIT, including, in testimony this morning, your clients?
5060. DR. MAKHOLM: That's all ---
5061. THE CHAIRMAN: They want access to the NIT and its value and ---
5062. DR. MAKHOLM: It's all they have. It's -- if you wanted it from Northeast B.C., if you want to get gas south and east and if you don’t want to ship rich gas on the Alliance Pipeline, which as an aside, was a competitive option to NOVA, it was sidelined as a wet gas shipper as one of the ways to get NOVA out of the way. And to get NOVA to settle on the entry of Alliance, one of the conditions was, they wouldn't ship the same kind of gas. That's a -- was a competitive option. It was a barrier to entry that they wanted to overcome.
5063. But it is the market in Northeast B.C. There's nothing inherently wrong with it. It is inefficient, compared to what a physical market would be, but it does reflect the unique historical characteristics of Alberta. Wiping it away may not be worth the cost, but certainly, not expanding it is worth the cost.
5064. THE CHAIRMAN: You’ve made reference a number of times of "it's not a physical facility, it's a notional", and you use the Henry Hub as one example, and you used something in Marcellus that was developed.
5065. Do you actually compare Alberta and northeastern B.C. to Marcellus and its access to market? How do you put a physical NIT in Alberta that would -- that Marcellus would fit between Alberta and between Edmonton and Calgary?
5066. DR. MAKHOLM: Well, if the order came down that the NIT was to be abolished and you had to make a different kind of tariff system, tolling system for Alberta and you asked me to do so, yeah, it would take a few weeks. I could do it.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by the Chairman
--- (Laughter/Rires)
5067. DR. MAKHOLM: I've made tariffs and tolls innumerable places all around the world, in places that were more complicated than Alberta. I took a unified Gas del Estado system -- the second-oldest pipeline system in the world in Argentina, older than Canada's -- and it was a unified pipeline system, Gas del Estado, and it took me three weeks to break it up into three transporters and eight distributors for the purpose of privatization. That's not that hard.
5068. The more difficult issue, which you face here -- you didn’t face in Argentina because the government owned it all and it could do what it wished -- is that you've got parties with money at stake, and you’ve got producers who are used to a certain system, and you’ve got investors in TransCanada who have to be treated fairly and who can't be damaged by new regulatory rules unfairly. You’ve got lots of commerce that's going on that's wedded to this system. And you should take all that -- that has to be taken seriously, just as a matter of course.
5069. But the business of a gas producer is to get his or her gas to market, and for someone in northeast Pennsylvania, the business is this, as they see it from their wellhead, Chesapeake Energy, for instance. As long as they can get that out of -- into a gathering system that they have partly owned, and as soon as they hit an interstate pipeline -- in that case, it's Tennessee Gas Pipeline -- their journey to market is done, because once they hit a U.S. interstate gas pipeline, you can buy and sell capacity in the line at a market rate because of the sublet market. It's unregulated. You’ve got people who will buy and sell the gas in that pipeline at a market price.
5070. So as far as anybody in the States is concerned, the journey to the market ends as soon as you hit an interstate pipeline. That makes liquidity great. It means you can go to Goldman Sachs and you can sell your gas before you ever produce it, get the money like a farmer would do for feed or corn or seed, and help get the money to make the business go. That's why you’ve had so many billions of dollars flowing in to unconventional gas production in the U.S. It's because you hit an interstate pipeline, you're done. Somebody else will take it and there's no regulator standing in the way.
5071. The journey to market for Northeast B.C. isn't just a little further in distance, but it's further in terms of what you have to do to get to a market. You have to deal with the NIT, which is a relative illiquid hub. You have to deal with
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by the Chairman the unsettled contest between rivals represented by cases like this that get in the way of investing new facilities, because you don't know what you're going to pay until we've resolved these kinds of disputes, which is the reason why Fortis is calling for an inquiry.
5072. Settling those issues makes the trip to market easier and more definitive and will encourage investment in Northeast B.C., which is a wonderful resource. But the resource is being impaired by the uncertainty about how these two rivals are going to deal with each other. The rules are not set and not having those rules set is hurting commerce up here.
5073. THE CHAIRMAN: Mr. Swanson, you made a comment this morning that you're here to protect your customers, and I wasn’t sure if you put an equal weight on loss of supply or cost or they were -- you know, one's more than the ---
5074. MR. SWANSON: Thank you, Mr. Chair. Yeah, both are very important to us for obvious reasons. If we did have a loss of supply, the answer to correcting that situation is cost. So they're -- as much as they're both important, they're both interrelated. And what I mean by that is, if we had a loss of supply on the Westcoast system, we would have to figure out another way to be able to supply our customers, and that may be having to build duplicate infrastructure to bring gas back into B.C. in order to feed those customers. So the both are important and both are actually very interrelated.
5075. THE CHAIRMAN: So based on this application -- and I asked the question yesterday of the PNG panel as well -- we're told by NOVA that they’ve got the proposed expansion, the proposed project -- I will stop -- I'm not going to use "expansion" or "extension" -- the proposed project is basically full with new production. That's -- that was what we've heard from the NGTL people. So based on this application, how do you see a loss of supply?
5076. MR. SWANSON: I think that new production, if you had a level playing field, may go to the NOVA system, but it may go to the Westcoast system. In a level playing field, it will -- over time, facilities will be built and production would be going equally to all systems. And at the end of the day, you'd end up with more liquid trading hubs at each location, which, in the long term, would give us more security of supply, more cost-efficient access to gas. What it would do is -- sorry.
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by the Chairman 5077. What it would do is allow us to get our gas and the difference in cost at the various locations, you wouldn't -- it would basically be the cost of transmitting that gas into our system. Right now what we're seeing is, as you tilt that playing field, you're encouraging new supply, as it comes on, you're encouraging it to go into a direction. And over time, it's going to bypass the Westcoast system that we've come to rely on.
5078. THE CHAIRMAN: Did I hear you correctly in response to a question from Mr. Duncanson that in your future's contract with the B.C. Utilities Commission that you are signing 10 and 20-year contracts for supply? Did I hear that correctly?
5079. MR. SWANSON: Yes, you did.
5080. THE CHAIRMAN: Then is that not securing your supply? Like, regardless of new production and how good some other system may be, do you not already have that supply locked up?
5081. MR. SWANSON: It's -- it helps to lock up a portion of our supply requirements, but not all of it. And it also requires sufficient willing counter- parties to enter into these longer-term agreements, which are -- they’re not the easiest to negotiate and we haven’t found it easy to find sufficient counter-parties to enter into potentially enough of those longer-term agreements.
5082. So we’ve entered into some, might want to do some more. But entering into those agreements in and of themselves doesn’t deal with the longer- term impact that an uncompetitive playing field would likely result in over the longer term.
5083. So in the short-run not a significant concern. One of the concerns that we’ve got is that if the current application and the toll methodology is approved as applied for, then that sets a precedent for other future applications and then we have a much bigger problem that we have to wrestle with in the future. And there is no long-term supply agreement that we can enter into potentially with counter- parties because that supply physically can’t flow on the paths that we rely on without the construction of additional facilities as Mr. Swanson has pointed out.
5084. So we’re very fearful about the kind of consequences that we have to deal with years down the road. And by the time that that problem manifests itself it will be too late. There’s very little that we can do other than potentially sign up
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by the Chairman and have our customers pay for facilities that really could be avoided if we’re more careful how we manage this evolution as we go forward.
5085. THE CHAIRMAN: And I don’t know if this is the right term. Are you considered a shipper on the NOVA system?
5086. MR. MERTINS: Yes, we are.
5087. THE CHAIRMAN: So you are a shipper?
5088. MR. MERTINS: Yes, we are, yes.
5089. THE CHAIRMAN: And what percentage of your gas do you get from the NOVA system?
5090. MR. MERTINS: So roughly 75 percent of our supply requirement comes down the Westcoast system and then 25 percent from the NGTL system and then via Foothills B.C.
5091. THE CHAIRMAN: So as a shipper on the NGTL system, and it’s been your evidence and testimony that you will be cross-subsidizing this project if it’s approved as presented?
5092. MR. MERTINS: Correct. As a shipper on the NGTL system, yes.
5093. THE CHAIRMAN: As a system on the NGTL you’ll be cross- subsidizing?
5094. MR. MERTINS: Correct.
5095. THE CHAIRMAN: Have you done the calculation based on the numbers presented of how much more it’s going to cost you to ship your gas on the NOVA system?
5096. MR. MERTINS: As a result of the project?
5097. THE CHAIRMAN: The Towerbirch Project. If it’s approved and is built as applied for, you’re testimony or your evidence says that it’s going to cost you more and you’re going to be cross-subsidizing. Do you have a number for that?
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by the Chairman
5098. MR. MERTINS: No, we have not.
5099. THE CHAIRMAN: You must have some idea of how much more it’s going to cost because NOVA says it’s going to cost less. Can you not tell me how much more it’s going to?
5100. DR. MAKHOLM: The “cost less” is misleading. It’s not that; it’s not so. Remember that the comparison that NOVA gave in terms of the “cost less” compared the revenues that would come in via the shippers on the loop and the extension compared to the cost of the loop and extension, not relating to the fact that most of the journey to market would be taking place on an existing system for which they pay nothing under that comparison.
5101. The only way that the “cost less” contention is true is if you give away the rest of the NOVA system for free. You can’t usefully compare the revenues for the loop and the extension against the cost for the loop and the extension for the new shippers and say that the extra money is somehow a benefit to the rest of the system. It’s not.
5102. If there’s enough capacity sloshing around the NOVA system that they can bring these new shippers on without charging them anything extra for the underlying system, a complaint that we’ve always had in these proceedings, then the underlying system is inefficient and overbuilt.
5103. But that contention that prices will go down is an inept comparison.
5104. THE CHAIRMAN: Thank you, Dr. Makholm, but conversely was the question I asked. If the assertion of Fortis Energy is their cost will go up and their cost subsidizing, then they must have number or there should be a number that can be calculated. Otherwise it’s a, “We think it’s going to go up”?
5105. MR. SWANSON: I said earlier today that what we really wanted was new producers, new shippers to pay the same cost on the old system that everybody else would pay and pay the new incremental costs that they’re causing. And if they were to do that, they would be paying more than what’s being proposed currently by NGTL. And in that comparison our costs would be down -- or our costs are higher than they would be if they were paying their full fare.
5106. THE CHAIRMAN: Okay. I was going to ask a couple of more
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by the Chairman questions now but I’m going to bother now. This is my last little short area.
5107. You made the statement, Mr. Swanson, I think to Mr. Duncanson that your recommendation to this Panel is for this application it should be at-risk and not rolled-in until there’s an inquiry that will settle the argument once and for all?
5108. MR. SWANSON: That’s correct.
5109. THE CHAIRMAN: So if we’re saying, “Well, let’s not do anything new until we have an inquiry,” why wouldn’t this Panel say, “Okay, we recommend that there be an inquiry and NOVA you can do it as rolled-in”? Why put another iron in the fire? You already have Groundbirch, which is rolled in, which would be impacted by the inquiry. Why put another iron in the fire?
5110. MR. SWANSON: I think our position on that is that the more of these facilities that get constructed and rolled in, NGTL will just be able to point to those facilities and the fact it’s been rolled in as precedent to support the fact it should be rolled in.
5111. And our point there is we believe it’s incorrect to apply that NGTL rate design -- I’ve said this 100 times, in northeastern B.C. And because we believe it’s incorrect, to continue to do that in the interim just continues with the potential harm or the potential damage that could occur. We would rather see that halted until such time that these principles can be dealt with.
5112. THE CHAIRMAN: I realize that you’ve said many, many times you took no position or are taking no position on High Pine and Jackfish, but are you saying to us should we recommend to another Panel that do not approve rolled-in until this inquiry has taken place?
5113. MR. SWANSON: It’s an interesting question. Again, we really haven’t taken a position on that. Could you do that? Absolutely you could. Should you do that, which is what your question is, I’m really not sure.
5114. MR. MERTINS: If I can just add some thoughts to what Mr. Swanson has just provided.
5115. I think part of any decision like that probably needs to consider whether or not the projects that are proposed by Westcoast are fundamentally the same or in any way different than what NGTL has applied for through the
Transcript Hearing Order GH-003-2015 FortisBC Energy Inc. Examination by the Chairman Towerbirch application.
5116. We see the Westcoast projects as ones that will help to provide better connectivity in the region through the increased capacity in the T-North system. They will provide additional supply to NGTL and also to the markets served by Station 2.
5117. We don’t see that the Towerbirch project does that. The Towerbirch project is intended to capture supply exclusively and then feed the NGTL system. So we see that those are very distinct projects that have two very different purposes.
5118. So I would say that it isn’t necessary to place that kind of a caveat on the two Westcoast projects, but I would definitely -- strongly believe that that is something that would be appropriate for Towerbirch as a result of that difference.
5119. MR. SWANSON: In addition, I think with the Westcoast system being a zonal-based system, you really do -- I mean, you can call it “rolled-in” but you really do limit the exposure or the cost exposure to the shippers in that zone. So I guess on the scale of rolled-in systems, it’s nowhere near as rolled-in as say the NGTL roll-in with the great big rate base.
5120. THE CHAIRMAN: Okay. That’s all the questions I have.
5121. The panel is excused. Thank you for your testimony.
--- (Witnesses are excused/Les témoins sont libérés)
5122. THE CHAIRMAN: And we will take a 15-minute break, Mr. Davies, so you can have your panel seated. And when we come back we will do the usual things of adopting the evidence, swearing in the panel, and start cross- examination.
5123. And just before I go, to make sure I’m on the same page as everybody, CAPP is going first?
5124. MR. SCHULTZ: Yes.
5125. THE CHAIRMAN: CAPP is going first. We’ll see you in 15 minutes.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Kolber
--- Upon recessing at 10:59 a.m./L’audience est suspendue à 10h59 --- Upon resuming at 11:12 a.m./L’audience est reprise à 11h12
5126. THE CHAIRMAN: Welcome back everyone. Just to make sure I’m clear -- and no, I know you’re up first, Mr. Schultz, so I’m clear on that one. You’re going to introduce the panel, we’re going to swear them in, adopt their evidence. We’ll go with that one first.
5127. MS. KOLBER: Sounds like a good plan. Good morning.
5128. Before I introduce the Westcoast panel, I just wanted to note that we have filed our opening statement. And in accordance with the new process, that exhibit number is A77462.
5129. And now to introduce you to the Westcoast panel. Starting closest to the Board is Dr. Cicchetti, CEO of Cicchetti Associates Inc. Next to Dr. Cicchetti is Mr. Darren Christie, who is Director of Regulatory Affairs for Westcoast. Then we have Mr. Garth Johnson, Vice-President Pipeline and Strategic Development. And finally, Ms. Marion Burnyeat, Vice-President Field Services with Westcoast.
5130. If the witnesses could please be sworn?
CHARLES CICCHETTI: Sworn DARREN CHRISTIE: Sworn GARTH JOHNSON: Sworn MARION BURNYEAT: Sworn
--- EXAMINATION BY/INTERROGATOIRE PAR MS. KOLBER:
5131. MS. KOLBER: Thank you, Ms. Foreman.
5132. We’ll start with you, Dr. Cicchetti.
5133. Do you have before you the written evidence of Charles J. Cicchetti, which is Exhibit number A75851-3 and the information request responses related to that evidence, which are Exhibit 76439-2 and A76439-3?
5134. DR. CICCHETTI: I do.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Kolber 5135. MS. KOLBER: And was that evidence prepared by you or under your direction or control?
5136. DR. CICCHETTI: It was.
5137. MS. KOLBER: And is that evidence true and accurate to the best of your knowledge and belief, and do you also adopt it as your sworn testimony in this proceeding?
5138. DR. CICCHETTI: It is.
5139. MS. KOLBER: Thank you.
5140. And, Mr. Christie, do you have before you the direct evidence of Darren Christie, which is Exhibit A77283-2?
5141. MR. CHRISTIE: Yes.
5142. MS. KOLBER: And was that evidence prepared by you?
5143. MR. CHRISTIE: It was.
5144. MS. KOLBER: Is that evidence true and accurate to the best of your knowledge and belief?
5145. MR. CHRISTIE: Yes.
5146. MS. KOLBER: And do you also ---
5147. MR. CHRISTIE: Oh, sorry.
5148. MS. KOLBER: No problem. I’m trying to shorten it up. And do you also adopt it as your sworn testimony in this proceeding?
5149. MR. CHRISTIE: Yes.
5150. MS. KOLBER: Thank you.
5151. Mr. Johnson, do you have before you the direct evidence of Garth Johnson, which is Exhibit A77283-4?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Kolber
5152. MR. JOHNSON: Yes.
5153. MS. KOLBER: And was that evidence prepared by you?
5154. MR. JOHNSON: Yes.
5155. MS. KOLBER: Is that evidence true and accurate to the best of your knowledge and belief, and do you also adopt it as your sworn testimony in this proceeding?
5156. MR. JOHNSON: Yes.
5157. MS. KOLBER: Thank you.
5158. And finally, Ms. Burnyeat, do you have before you the direct evidence of Marion Burnyeat?
5159. MS. BURNYEAT: I do.
5160. MS. KOLBER: And sorry, that’s Exhibit A77283-3. Was that evidence prepared by you?
5161. MS. BURNYEAT: It was.
5162. MS. KOLBER: Is that evidence true and accurate to the best of your knowledge and belief, and do you also adopt it as your sworn testimony in this proceeding?
5163. MS. BURNYEAT: I do.
5164. MS. KOLBER: Thank you.
5165. Now, Mr. Christie, Ms. Burnyeat, and Mr. Johnson, were you all involved in the preparation of the written evidence of Westcoast, which is Exhibit A75851-2, and the responses to information requests relating to that evidence which are marked as Exhibits A76439-2 to number 5?
5166. MS. BURNYEAT: Yes.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Kolber 5167. MR. JOHNSON: Yes.
5168. MR. CHRISTIE: Yes.
5169. MS. KOLBER: Thank you. And there was one correction filed with the Board to that evidence or to one of the information requests, and that was provided Exhibit number A77415. Could you please confirm that with that one correction the evidence is true and accurate to the best of your knowledge and belief, and that you also adopt it as the evidence of Westcoast in this proceeding?
5170. MS. BURNYEAT: Yes.
5171. MR. JOHNSON: Yes.
5172. MR. CHRISTIE: Yes.
5173. MS. KOLBER: Thank you.
5174. Now, Mr. Chairman, Dr. Cicchetti’s CV was filed as part of his written evidence. And as you can see from his CV he has appeared a number of times before the Board as an expert as you know, in Komie North and North Montney.
5175. I would ask that he again be accepted as an expert for the purposes of his appearance in this proceeding.
5176. THE CHAIRMAN: Are there any comments or objections?
5177. He’s accepted.
5178. MS. KOLBER: Thank you, Mr. Chairman. That completes my examination.
5179. THE CHAIRMAN: Thank you.
5180. Mr. Schultz, you’re up first. And we’ll sit until 12:00 o’clock or around there. If you have a natural break before or after that in your questioning if you’re not completed then just let me know and we’ll accommodate that.
5181. MR. SCHULTZ: Thank you, sir. And I drew the lucky straw of standing between everyone and lunch again.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz
--- (Laughter/Rires)
5182. MR. SCHULTZ: And yesterday I was discourteous enough to simply get caught up in my own pleasures and roaring past noon so I wasn’t watching the clock over there. But I’ll try and do better today, sir.
5183. THE CHAIRMAN: I assure you, sir, it was not intentional that we put you before lunch and before dinner.
--- (Laughter/Rires)
5184. MR. SCHULTZ: Thank you, sir, that’s gracious.
--- EXAMINATION BY/ INTERROGATOIRE PAR MR. SCHULTZ:
5185. MR. SCHULTZ: The question I wanted to ask you, but I probably can’t, is to ask you sing the first few lines from “Don’t Cry for me Argentina”.
5186. But instead of that, Dr. Cicchetti, given the animated conversation we’ve just had about NIT and in anticipation of the fact that people are probably anxious to hear your views on the subject, I’m going to invite you to carry on the conversation. And if you’re prepared to accept the invitation in those broad terms, then feel free to tell us what you think.
5187. DR. CICCHETTI: I think NIT should be preserved. I think it’s valuable. I think that it demonstrates its usefulness by the fact that for every unit that physically flows through NIT there’s eight or nine people out there trading and certainly not running away from the existence of NIT. I agree that concerns related to access to NIT, which is what I think this case is about, should respect what the Board has found to be the -- I think, the overriding principle for tolling in Northeast British Columbia, which is cost-causation user pay.
5188. And I think this case is about access to NIT but I think NIT itself is extraordinarily valuable. And in conjunction with NIT, Henry Hub, and to the east in a major producing and consuming area, Dawn, I think we’ve got North America’s three main trading hubs which set prices in an North American market sense that are highly correlated with each except severe weather like the Polar Vortex or other factors that might come into play that cause temporary breaks in the system that might cause some deviation.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz
5189. But for most part I think we’ve got a deeply liquid, well understood set of rules for engaging in the trading and pricing of natural gas as a commodity across North America, so much so that we can seamlessly know what the prices are, without even knowing the geography, based upon that interaction. And I think NIT plays an important role.
5190. It did evolve through the development of the natural gas industry in Alberta which was -- as a government policy was intended to promote and expand that resource base and that resource development. Notwithstanding that, I think what we see in NIT is important -- is very important and valuable not just for Canadians but for all of North America.
5191. MR. SCHULTZ: All right. Thank you, Dr. Cicchetti.
5192. And turning to the Westcoast witnesses, do you have any view that would differ from what Dr. Cicchetti just told us?
5193. MR. JOHNSON: Just add one point on NIT and the Westcoast proposal. Westcoast for proposal for stand-alone extensions in no way impacts NIT. Westcoast ---
5194. THE CHAIRMAN: Excuse me, Mr. Johnson?
5195. MR. JOHNSON: Yes.
5196. THE CHAIRMAN: Sorry, it’s me. Could you move just a little closer to the microphone?
5197. MR. JOHNSON: Yeah.
5198. THE CHAIRMAN: Thank you.
5199. MR. JOHNSON: Wanted to talk about the Westcoast proposal for stand-alone tolls on extensions. And that is not going to impact NIT. In fact, it’s going to help NIT. Westcoast has been delivering to the existing NGTL system to the NIT market since 1989. And those deliveries have gone from the Westcoast T-North system to the NIT market and probably helped the NIT market because it’s more volume. So I don’t think that there’s any concern about our proposal and hurting NIT. It’s going to help it.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz
5200. MR. SCHULTZ: Thank you for that, Mr. Johnson.
5201. And that brings me quite nicely to where I was going to be starting off my examination, which is to ask you first how you would characterize your competition with Alliance. And then after that I’m going to be asking you how you would characterize your competition with NGTL.
5202. So if you can start with how you would characterize your competition with Alliance on the assumption you accept the premise that you do compete. But -- and if you don’t you can tell me, but I’d like to ask you that first.
5203. MR. JOHNSON: Maybe I’ll try to answer both in one swoop. The competition is for transportation of natural gas supply and whether it’s going to Alliance, whether it’s going to NIT, or whether it’s going to Station 2. Then you can also take it to access to NIT and we can talk about, for the NGTL system, T- North feeding into NIT or other pipeline companies feeding into NIT to access NIT or the existing NGTL system.
5204. MR. SCHULTZ: Okay, thank you. Now, is there a third element here that involves -- I thought I heard two basic elements there but is there a third element that relates to Station 2? Do you -- how would you characterize competition by pipelines in relation to Station 2? Or is there a competition for that?
5205. MR. JOHNSON: There is competition, and again it’s competition for access for supply.
5206. MR. SCHULTZ: And as pipelines competing as transporters of that gas?
5207. MR. JOHNSON: Yes.
5208. MR. SCHULTZ: Okay, thank you. Yesterday I asked Fortis if they agreed that we were experiencing a supply push in Northeast B.C. And would you agree that we’re experiencing a supply push in that region?
5209. MR. JOHNSON: Yes.
5210. MR. SCHULTZ: Okay, thank you. And just to be clear with regard
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz to the Groundbirch Mainline, your position -- Westcoast’s position is that it accepts the roll-in of the loop of the Groundbirch Mainline; is that correct?
5211. MR. JOHNSON: Yes.
5212. MR. SCHULTZ: All right, thank you. But would I also be correct that if what was being proposed now was the original Groundbirch Mainline project that your view -- and this is a hypothetical question, obviously -- that your view would be that it should have been tolled on a stand-alone basis?
5213. MR. JOHNSON: Yeah, in hindsight, if we could go back in time, yes.
5214. MR. SCHULTZ: All right, thank you. But then would you now be saying that it should be rolled in because of the expansion of the demand for the use of that system?
5215. MR. JOHNSON: Sorry, could you repeat that again?
5216. MR. SCHULTZ: Well, let’s -- I’m just taking the hypothetical to the next step. So we’re imagining that it’s the original Groundbirch line that was being proposed and you said in hindsight -- you confirmed that my intuition that you would have viewed that as a stand-alone project.
5217. I’m now asking to imagine that it’s now after that; it was put on a stand-alone basis but now we have increased demand for the use of the system including you having connected your Stewart Lake Line to it and so on. Would you, with that second stage of development, alter your view about whether it should be stand-alone or rolled in?
5218. MR. JOHNSON: I need some more help here.
5219. MR. SCHULTZ: All right. So hypothetical step one -- well, let’s start off with step zero; there’s no Groundbirch, okay? And last week Groundbirch comes along and it’s built on a stand-alone basis as you indicated would have been, in hindsight, your preference. So that’s sort of the first step.
5220. Then subsequently we’re going to hypothesize that Groundbirch is there but was tolled on a stand-alone basis. And in the intervening period, the demand for the use of the line increased; you increased your capacity to connect
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz into it; other demand came along that is causing NGTL to want to expand it with looping.
5221. And now I’m asking you, in that second step of the hypothetical, would you say the same thing as you are saying here about the loop, that you would now see the loop and the mainline all being now a rolled-in project?
5222. MR. JOHNSON: The -- it depends is the answer because I don’t have the information to say how was the original stand-alone Groundbirch Pipeline tolled. What was that negotiation between the pipeline company and the customers on Groundbirch?
5223. I could be that they agreed, “Let’s roll-in future loops.” I could be similar to what happens on field services where their toll is fixed and then expansions are then negotiated with the other customer that’s asking for that expansion. So it really depends.
5224. MR. SCHULTZ: All right, thank you. I’ll move on to something else now.
5225. Your raw gas gathering system is a kind of a web of pipelines, yes?
5226. MS. BURNYEAT: That’s correct.
5227. MR. SCHULTZ: Okay, thank you. So I want to ask a few questions about how it grew. So I’m going to start with a little bit of history and hope that this doesn’t take us too far afield.
5228. But if we go back to the very beginning with Frank McMahon’s dream for bringing gas out of Northeast B.C. in the Peace River country, the first development was the Fort St. John, the McMahon plant with the RGT behind it and then of course the line south from that to the markets. Is that a fair characterization?
5229. MS. BURNYEAT: I wasn’t there at the time but I think that’s how it started.
5230. MR. SCHULTZ: Well, I was alive at the time but I knew nothing of the subject.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz 5231. And the next big development was the Fort Nelson plant with again some RGT behind it, and then the line that’s now part of T-North that brought the residue gas down to Station 2, yes?
5232. MS. BURNYEAT: Yes.
5233. MR. SCHULTZ: Okay, thank you.
5234. So after that, and again focusing on the RGT, the RGT didn’t expand after that, just as a bunch of loops on what was then the existing RGT, did it? Where I’m going with this to make it transparent is that there would have been some looping, but there would have also been extensions and laterals and all kinds of other things.
5235. MS. BURNYEAT: Yes, I believe that’s the way it developed. I mean, at the time the commercial construct around that was cost-of-service and so that’s how those assets evolved and were constructed over time.
5236. MR. SCHULTZ: Yeah. Well, also from a physical perspective, it’s the logical way in which a system that’s developing to attract more gas would need to expand?
5237. MS. BURNYEAT: Yes.
5238. MR. SCHULTZ: Okay, thank you.
5239. And as you mentioned, when you are on cost-of-service you would also, if I am correct, have had as a foundation for your rates rolled-in rates for the RGT?
5240. MS. BURNYEAT: I’m sorry, Mr. Schultz; I don’t know that.
5241. MR. SCHULTZ: All right. Would you take it subject to check that at a point in time you had put the -- and in my appreciation of this it would have come along probably when you did an arrangement with the British Columbia Petroleum Corporation for a cost-of-service, but that it was rolled in but there was some element of a surcharge calculation at that point in time, if you’d take that subject to check. Are you prepared to do that?
5242. MS. BURNYEAT: Okay, yes.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz
5243. MR. SCHULTZ: All right, thank you.
5244. Now, it’s fair to say that if you’re looking to attach natural gas production, one of the issues you might have to face -- and I’ll ask you if you think this is a fair characterization -- is that wells can ramp up into production, reach a peak, and decline? That’s one factor. Another factor will be that some wells that look like they’re going to be great when they start up disappoint, but other wells that might do much better than as expected.
5245. So there’s some uncertainty as to what any given well may do and particularly when you’re talking about conventional production. Would you agree with that?
5246. MS. BURNYEAT: Yes.
5247. MR. SCHULTZ: So I’m assuming that Westcoast, like any service provider, would have addressed that in some fashion with its producers to structure contracts to strike some balance between the company’s needs and the needs of the customer for some way to address that uncertainty. Would that be reasonable to assume? I’m talking about historically again.
5248. MS. BURNYEAT: I’m not sure I understand the question, if you’re talking about in the cost-of-service model or when the framework for light- handed regulation came in. Because our risk model for Westcoast changed quite dramatically.
5249. MR. SCHULTZ: I’m talking before that. Well, I’m actually talking in terms of the structure of contracts and terms that might or might not give people some flexibility or that might be tailored to a particular profile of production where a contract might ramp up, ramp down, that kind of thing.
5250. MS. BURNYEAT: Prior to the framework coming in, Mr. Schultz, I don’t actually know how the gathering and processing contracts were structured.
5251. MR. SCHULTZ: Okay. And subsequent to that, are those things all confidential or do they show up in facilities hearings in terms of just the basic structure of contracts?
5252. MS. BURNYEAT: Can you just repeat the question, please?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz
5253. MR. SCHULTZ: Sure. I’m just focusing on how the company may have addressed -- and I’m doing this in very broad terms, obviously, because the situation of any arrangement between a supplier, a service provider, and a customer has to deal with the particular facts.
5254. But in broad terms, if you have that uncertainty that the producer may face or conversely the producer may be very comfortable that they’re going to produce on a certain profile with a peak and then a decline, has the company been able to reflect that in the terms of particular contracts with customers?
5255. MS. BURNYEAT: I think the best way to answer that is if you look at the framework for light-handed regulation there’s a number of parameters outlined in the framework that we negotiate gathering and processing contracts on -- some of which you’ve mentioned; there’s many others as well -- with the view to come to commercial negotiations, conclusion that reflects the risks that each party is prepared to take on.
5256. MR. SCHULTZ: Okay, thank you.
5257. Now, I think in the case of your system -- and I’m moving away from RGT now; I’m talking about now the whole system with its various parts where you had RGT and processing; you had the northern part of your transportation; and then you had the long line from Station 2 down to the lower mainland and the U.S. market. I’m sure there were occasions when there may have been matching of contracts from end to end.
5258. But is it the case -- can you tell me if you always in every expansion on any part of your system needed to have matching contracts from end to end on your system?
5259. And to put the question the other way around so it’s clear what I’m asking, were there occasions when you would expand a part of your system without having a matching expansion in some other part of the system?
5260. MR. JOHNSON: Are we post-framework?
5261. MR. SCHULTZ: Well, probably in any time in the system. You know, for example, have you on occasion expanded T-South without requiring an upstream expansion?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz
5262. MR. JOHNSON: Yes.
5263. MR. SCHULTZ: Okay. And similarly, if you were connecting some new supply behind one of the plants in the raw gas system, are there occasions when you might have done that without necessarily expanding the residue gas system?
5264. MR. JOHNSON: There are occasions, yes.
5265. MR. SCHULTZ: Okay, thank you.
5266. And have there been occasions when you might have relied, for example, for an expansion in the upper end of your system where you didn’t actually have a new contract for market but you relied on a global market study to support the need for attaching new supply?
5267. MS. BURNYEAT: Mr. Schultz, just to clarify, when we look at adding new facilities, I mean, we look at all parts of the value chain, so there could be occasions where we're expanding or optimizing a gathering and processing facility to take supply from a slightly different area, a same area that doesn’t require a downstream, a T-North expansion, because that capacity exists so the shipper decides to sell to somebody who has existing underutilized capacity, and that kind of thing. So we do look at -- want to make sure that it's clear that we do look at all parts of that, but we build to contracts.
5268. MR. SCHULTZ: Okay. Yes, I understand about building to contracts. Thank you. So I have a -- now, moving to something slightly different, you've been a federally-regulated pipeline from -- I'm sorry, did you have something to add, Mr. Johnson? Pardon me.
5269. MR. JOHNSON: I did. Just wanted to add one more thing to Ms. Burnyeat's statement, is that we do build to contract and we also rely on the shipper who is signing up for that expansion to make arrangements to have the gas taken away or to purchase the gas that they're looking for.
5270. MR. SCHULTZ: Right. Thank you very much. That's a good qualification.
5271. So moving on to my next point, Westcoast has always been a
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz federally-regulated pipeline from the time of its initiation, which predated the creation of the NEB by a few years but then was brought under NEB jurisdiction; is that right?
5272. MR. JOHNSON: Give me a subject to check.
5273. MR. SCHULTZ: All right, thank you. And you've always had a line into Alberta from the very beginning of the system to bring Alberta Peace River gas into the system, into that initial McMahon plant?
5274. MR. JOHNSON: I think that, again, subject to check the Alberta side of the equation, was yeah, 1957, so that would align with it.
5275. MR. SCHULTZ: Thank you. That aligns with the construction of the original system?
5276. MR. JOHNSON: Yes.
5277. MR. SCHULTZ: Okay, thank you. Now, my question is this, NGTL, as we know, emerged as an Alberta system at the initiation of the Alberta government, didn’t come under federal regulation until decades later. But you’ve always been a federal pipeline without any provincial constraint on expanding your system beyond provincial boundaries.
5278. So my question is, why have we seen so little expansion of facilities on the Alberta side of your system to bring Alberta supply into your system?
5279. MS. BURNYEAT: I think the best way to answer that is just -- I mean, you’ve got a long history of company decisions and gas supply development, so I can't comment on any specific decision made early or later in time, the way the markets have expanded that have been connected to our system. I don't think we could point -- there wasn’t a conscious effort or there may have been a conscious effort to focus on B.C., but we don’t have that knowledge on this panel.
5280. MR. SCHULTZ: Okay. Well, thank you, but recognizing that obviously there were many people involved over the years, many decisions made at different times, but if we just focus on basic supply and demand fundamentals, the company was able to satisfy its supply requirements from the supply that was in B.C. without expanding in a significant way the supply from Alberta. That's, in
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz effect, what has transpired; would that be right?
5281. MS. BURNYEAT: I think we can agree with that, Mr. Schultz.
5282. MR. SCHULTZ: Okay, thank you. What I would like to do now is turn to an aid to cross-examination that NGTL provided to you. It's the August 22nd, 2007 application concerning the acquisition and operation of certain pipeline facilities owned by Westcoast Transmission Company Alberta Limited and it is Exhibit A5C5G2, and the page I'm going to refer to specifically after I ask a few preliminary questions will be Adobe page 11, which is a numeric page 7, if you are with me?
5283. Sorry, that's the NGTL aid to cross. I believe it's Number 6, Westcoast, August 22nd, 2007 application, A5C5G2. I think I have that right.
5284. THE REGULATORY OFFICER: Can you bear with me just a minute?
5285. MR. SCHULTZ: Oh, sure.
5286. THE REGULATORY OFFICER: The one that I have is a condensed version. I'll have to go into LiveLink and get the complete.
5287. MR. SCHULTZ: Oh, okay. Thank you. It seems I gave you a filing number and not the Exhibit number. Mr. -- my learned friend, Mr. Davies, has helped me out. It's -- the actual exhibit number is A77420-7.
5288. THE REGULATORY OFFICER: Thank you.
5289. MR. SCHULTZ: Old dogs are slow to learn new tricks.
--- (Laughter/Rires)
5290. MR. DAVIES: Some are.
5291. MR. SCHULTZ: Mr. Davies wishes the record to know that only some of us are slow.
5292. THE REGULATORY OFFICER: Is this the map you're looking for, or it was something different?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz
5293. MR. SCHULTZ: It's the -- it's Adobe page 11, or it's actually the Section 21. It's numeric page 7 in the application.
5294. THE REGULATORY OFFICER: That was A77420-7?
5295. MR. SCHULTZ: No, apparently it's the wrong one. This is what happens when I try to use somebody else's material that I haven't familiarized myself with the filing details of. My apologies.
5296. It was the right one? Oh, it is the right one? Number 6, it is number 6. It's Aid to Cross number 6.
5297. THE REGULATORY OFFICER: That one only had one page.
5298. MR. DAVIES: It's Aid to Cross number 6, which I think is Exhibit A77420-7, because the cover letter was the one marked dash 1.
5299. THE REGULATORY OFFICER: So it's A77427?
5300. MR. DAVIES: A77420-7.
5301. THE REGULATORY OFFICER: We'll try it again.
5302. MR. SCHULTZ: I apologize, Mr. Chairman. This is my fault for not understanding the system properly. The good news is this is my last area of questioning. Okay, great, there we go. Perfect. Thank you very much. Thank you for bearing with me.
5303. So folks if you’re with me, this application related to facilities you’ve had in Alberta initially since the start of the system and then with some expansion since then as described in the application, which I won’t go into. But just to confirm that that’s the case?
5304. MR. JOHNSON: Correct.
5305. MR. SCHULTZ: Okay, thank you. And as it turns out the facilities on the Alberta side were held by a Westcoast Alberta entity and were built under Alberta regulation; is that right?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz 5306. MR. JOHNSON: Correct.
5307. MR. SCHULTZ: Okay. And the purpose of this August 22nd, 2007 application is to bring them under NEB jurisdiction and then to roll the cost of the facilities in, correct?
5308. MR. JOHNSON: Yes, but maybe I should add some colour to that. The Westcoast Alberta system, as you’ve pointed out, Mr. Schultz, was the -- there was three components to it. There was the 12 or 13 kilometres of the 26- inch extension. There was a compressor, a small compressor station hooked up to the NGTL system to accommodate deliveries onto the NGTL system. And then there were six or seven laterals that were also connected to the system.
5309. Going way back in time that system wasn’t connected to NGTL. It simply was deliveries into the big merchant function of Westcoast. Then it became that the laterals -- by the time this application came up the laterals were six of them were decommissioned, and the seventh was decommissioned within months of this application. So really what we were looking at is taking that 26- inch 13-kilometre pipeline and the compressor station and connecting it to the NGTL system. There was no supply on this pipeline and it simply connected T- North with NGTL.
5310. MR. SCHULTZ: And did it also provide a connection to Alliance?
5311. UNKNOWN SPEAKER: Two-thousand and seven (2007).
5312. MR. SCHULTZ: Okay.
5313. MR. JOHNSON: Yes.
5314. MR. SCHULTZ: Okay, thank you.
5315. So if we now look at the reasons for the roll-in of the costs, at paragraph 21 of the application, Adobe page 11 or numeric page 7, we see at the top of this statement of reasons three broad concerns initially in the opening lines of paragraph 21, which I’m going to -- I’m not going to read the whole thing. But the three or four factors mentioned are enhancing the value of T-North service through reduced contracting complexity; that’s one. Second one is administrative burden and cost to move gas eastbound to Alberta and westbound to British Columbia. So that’s two rather than the three or four I mentioned but so those are
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz key considerations in what was motivating the company to bring this forward?
5316. MR. JOHNSON: Yes.
5317. MR. SCHULTZ: Okay, thank you.
5318. And then there are some particulars that are provided that unpack what the company considered to be the appropriate approach. A is the elimination of toll stacking in both directions. B are the reduction of administrative burden across several parameters; one invoice, the elimination of the separate tariff and service agreements, simplification of the nominating process. And then C being increased flexibility of T-North service. Correct?
5319. MR. JOHNSON: Yes. Although I think I want to be very clear that what was happening with this application there’s significantly major differences than what we’re talking about with the Tower Lake section.
5320. MR. SCHULTZ: Thank you. And then in paragraph 22 you talk about enhancing eastbound expansion opportunities at Gordondale. So Gordondale is your connection to NGTL and eastbound would take the gas into NGTL, correct?
5321. MR. JOHNSON: Correct.
5322. MR. SCHULTZ: Okay, thank you. And then you point out about four lines down that given the significantly depreciated nature of these Westcoast Alberta facilities:
“A standalone Westcoast Alberta expansion would result in a significant increase in transmission tolls on the Alberta Facilities. Rolling-in the cost of the Alberta Facilities into Zone 3, with its significantly greater Rate Base and number of allocation units, will therefore enhance eastbound expansion opportunities by creating one contiguous cost of service pipeline extending from compressor Station […] 1 at Taylor to Gordondale.”
5323. Do you see that?
5324. MR. JOHNSON: Yes. For a pipeline that is purposed to connect T-
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz North to NGTL or deliver gas to NGTL.
5325. MR. SCHULTZ: And what you’re emphasizing there is the benefit that rolling in provides over having a substantially increased stack toll if you had to expand these Westcoast Alberta facilities, and also the advantage of having what I’ll characterize as essentially a seamless service between Station No. 1 and Gordondale; is that fair?
5326. MR. JOHNSON: Can you repeat the question, Mr. Schultz?
5327. MR. SCHULTZ: If I had it written down I could, but I’ll ask the question and see if it resembled the one I did ask.
5328. The two considerations in the passage that I quoted emphasize the advantage of rolling in relative to the significant increase in a stacked toll if these Alberta facilities were not rolled in. And secondly, the advantage of providing what I characterized as a seamless service between Station No. 1 and Gordondale. I’m asking if that’s a fair interpretation of this.
5329. MR. JOHNSON: Let me make two comments. Number one, it talks about the fully contracted on an eastbound basis and not on the westbound/eastbound. One of the big issues with Westcoast Alberta being a separate zone, which was Zone 5, is that from the nomination to algorithm allowed someone to hold a capacity, firm capacity, on the Westcoast Alberta system. And that was the gatekeeper from a nomination algorithm perspective. That was the gatekeeper to be able to access either going down to Station 2 or over to Gordondale.
5330. And that gatekeeper meant you held firm service on that Westcoast Alberta line. You essentially could flow IT on the T-North system when you wanted to use it and that was an inequity that needed to be corrected; that’s the first point.
5331. And then the second point is that this pipeline, the 26-inch with the compressor, it was essentially repurposed from what it used to be, which was a supply -- pulling in supply in the merchant function to now just a delivery point to another pipeline company, an interconnect.
5332. MR. SCHULTZ: Thank you. And thank you folks. Those are my questions.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Schultz
5333. Thank you, Mr. Chairman.
5334. THE CHAIRMAN: Thank you, Mr. Schultz.
5335. We will adjourn until 1:30.
5336. Ms. Slipp, you’re up next. And we’ll see back then in an hour and a half.
--- Upon recessing at 12:00 p.m./L’audience est suspendue à 12h00 --- Upon resuming at 1:28 p.m./L’audience est reprise à 13h28
5337. THE CHAIRMAN: It’s amazing how things change in a day and a half. We go from maybe sitting Saturday morning to probably finishing today. And I can see the look of disappointment in people’s faces here.
5338. What we’ll do -- we get you first, Mr. Weisberg, but the plan is Cutbank will do their cross, NGTL. Then we’ll take a break and come back with the Board questions and closing.
5339. Mr. Weisberg, you’re up.
5340. MR. WEISBERG: Thank you, Mr. Chairman.
5341. I just have one filing. It is a response to an undertaking U-5 given by Mr. Donahue to Mr. Schultz. That was at transcript reference volume 4, paragraph 3602. If the hearing officer could provide me with an exhibit number?
5342. THE REGULATORY OFFICER: The filing number for U-5 will be A77436 (sic).
--- EXHIBIT NO./PIÈCE No. A77483:
Pacific Northwest Group - Response to Undertaking U-5
5343. MR. WEISBERG: Thank you. And I also appreciate the hearing officer’s efforts in providing copies for me. I’m not sure if Mr. Schultz has questions that arise out of that or not. I have only provided it to him a moment ago.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp
5344. MR. SCHULTZ: No, thank you, sir.
5345. THE CHAIRMAN: For the record, Mr. Schultz indicates he does not.
5346. MR. WEISBERG: Thank you, Mr. Chairman.
5347. THE CHAIRMAN: Ms. Slipp, you’re ready to cross the panel?
5348. MS. SLIPP: I am, sir, thank you.
CHARLES CICCHETTI: Resumed DARREN CHRISTIE: Resumed GARTH JOHNSON: Resumed MARION BURNYEAT: Resumed
--- EXAMINATION BY/ INTERROGATOIRE PAR MS. SLIPP:
5349. MS. SLIPP: Good afternoon, panel. I think I’ve met some of you. For those I haven’t my name is Katie Slipp, and I have a few questions for you on behalf of Cutbank Ridge Partnership.
5350. Perhaps we could pull up the aid to cross that I filed, which is Exhibit A77413-1. And down to page 2.
5351. So I just provided this map as an aid to help get us oriented. And with that in mind, I’m hoping we can go through this in some detail; not a bunch of detail but some. First of all, I just wanted to confirm that this map was filed by Westcoast in response to an information request in the North Montney proceeding?
5352. MS. BURNYEAT: That’s correct.
5353. MS. SLIPP: And does this map accurately represent the Westcoast system in this area as it exists today?
5354. MS. BURNYEAT: Yes.
5355. MS. SLIPP: And so it’s clear for the record, the map shows the
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp Westcoast Zone 1 raw gas gathering system in the dark blue lines?
5356. MS. BURNYEAT: I’m sorry, can you repeat the question?
5357. MS. SLIPP: Oh, sure. Just so it’s clear for the record I wanted to confirm that the Westcoast Zone 1 raw gas gathering lines are shown in dark blue?
5358. MS. BURNYEAT: Yes.
5359. MS. SLIPP: Okay. And the Westcoast Zone 2 raw gas processing facilities are shown by the blue triangles?
5360. MS. BURNYEAT: Yes.
5361. MS. SLIPP: And I’ll be talking about it in a bit, but can you confirm that the South Peace Pipeline is depicted by the dark blue line that extends south of the McMahon Plant?
5362. MS. BURNYEAT: Yes, that’s the South Peace Pipeline.
5363. MS. SLIPP: Okay. And it would continue past the border of that map; it’s artificial cut off there?
5364. MS. BURNYEAT: It does, yes.
5365. MS. SLIPP: And the McMahon Plant -- or sorry, and the South Peace Pipeline is part of Westcoast Zone 1?
5366. MS. BURNYEAT: Yes.
5367. MS. SLIPP: And the McMahon Plant is part of Zone 2?
5368. MS. BURNYEAT: Correct.
5369. MS. SLIPP: Okay. And the map also shows a portion of the Westcoast Zone 3 sales gas transmission system in the lighter blue colour?
5370. MS. BURNYEAT: Yes.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp 5371. MS. SLIPP: Okay. And then finally, we have provincially regulated third-party gas plants are shown in the yellow triangles?
5372. MS. BURNYEAT: That’s correct.
5373. MS. SLIPP: Okay. And there may be more today than there were back then?
5374. MS. BURNYEAT: That’s possible.
5375. MS. SLIPP: Okay. Thank you for that.
5376. At this point, I think it might also be helpful to talk a little bit on a general basis about the difference between raw gas and residue gas when we’re talking about those terms on the Westcoast system. Under the Westcoast tariff I understand that raw gas is natural gas produced from wells; is that correct?
5377. MS. BURNYEAT: Yes, that’s correct.
5378. MS. SLIPP: And that would be gas that’s undergone no or very minimal treatment?
5379. MS. BURNYEAT: That’s accurate, yes.
5380. MS. SLIPP: Okay. And residue gas is the residue remaining after raw gas has been subject to a number of processes?
5381. MS. BURNYEAT: Yes, that’s correct. I guess just one clarification is some raw gas needs very little in the way of any processing to meet sales gas to become sales.
5382. MS. SLIPP: Sure. It depends on what the constituents are within the gas, for example, hydrogen sulfide or carbon dioxide?
5383. MS. BURNYEAT: Correct. Or it could be as simple as water.
5384. MS. SLIPP: Okay. And back to the question on residue gas. To confirm residue gas ---
5385. MS. BURNYEAT: If you could just give us a moment?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp
5386. MS. SLIPP: I just wanted to clarify that in the context of the terminology that we’ve heard in this proceeding residue gas is the same thing as sales gas?
5387. MS. BURNYEAT: That’s correct.
5388. MS. SLIPP: And I understand that the various Zone 2 processing receipt points have their own specific gas quality requirements?
5389. MS. BURNYEAT: I don’t think I understand your question.
5390. MS. SLIPP: I can give you -- maybe it’s easier if I give you an example. So the McMahon Plant, for example, has certain specifications as to the quality of gas that it can receive?
5391. MS. BURNYEAT: Yes.
5392. MS. SLIPP: And is it fair to say that gas quality requirements for Zone 2 facilities effectively dictate the quality of gas that can be transported on the connecting Zone 1 gathering line?
5393. MS. BURNYEAT: There are restrictions but not -- it’s almost like a ceiling but not a floor. So say, for example, a gas plant is a sour gas plant it can take gas that has acid gas in it. But it can also take sweet gas or it can take rich sweet gas, that kind of thing. So there are limits but then they are -- there’s a range of gas that can be taken below those limits.
5394. MS. SLIPP: And you just can’t exceed the limits?
5395. MS. BURNYEAT: That’s correct.
5396. MS. SLIPP: And if we go back to our McMahon Plant example, would you agree that McMahon Plant gas specifications dictate the specifications of the gas that flows on the South Peace Pipeline that connects to that plant? You can’t flow gas on the South Peace Pipeline that exceeds limits of the specifications of gas quality that can be received at McMahon?
5397. MS. BURNYEAT: That is correct.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp 5398. MS. SLIPP: And Zones 3 and 4 also have specific residue gas quality specifications, so they also set limits on certain constituents of the gas?
5399. MR. JOHNSON: Yes. And I think this map is a great example of the -- how T-North and the RGT developed. The McMahon Plant was built back in the fifties. The RGT system is very extensive, and essentially is the extensions of T-North. So you could -- rather than having the one central plant at McMahon, you could have multiple plants on that RGT system and then the gas gets processed, transported on what would then be called a residue line, versus RGT, onto the T-North system.
5400. The location of the plant and the gas quality has to be different on RGT to get to the plant. It’s somewhat maybe better to look at it that the plants could be anywhere. And these are big-inch gathering lines; they’re not little things. There’s the 26-inch Alaska Highway, for example, on this.
5401. So I just wanted to make that would -- that the people appreciate what we’re looking at here.
5402. MS. SLIPP: Sure. And just back to my question, which was just simply to confirm that Zone 3 and 4 have specific gas residue quality specifications?
5403. MR. JOHNSON: Correct, yes.
5404. MS. SLIPP: Thank you. And am I correct that Westcoast cannot transport gas on Zones 3 and Zones 4 that exceed prescribed limits on, for example, hydrogen sulfide and carbon dioxide?
5405. MR. JOHNSON: Yes.
5406. MS. SLIPP: I have a few questions for you about the framework for light-handed regulation, so just shifting topics. It’s my understanding that the framework for light-handed regulation was developed to help Westcoast address competition in its gathering and processing facilities -- competition to its gathering and processing facilities in Zones 1 and 2; is that correct?
5407. MS. BURNYEAT: That’s partially correct. The framework itself had a number of goals that are set out and that the producer community as well as Westcoast agreed to including addressing Westcoast’s ability to compete for gas
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp supply. To the greatest extent possible the parties would come to commercial resolution on terms and conditions rather than going through the regulatory process, that there is an unjust discrimination, things of that nature.
5408. MS. SLIPP: And ---
5409. MR. CHRISTIE: And it was to enhance the viability and competitiveness of the B.C. Natural Gas Basin by aligning more closely the interests of shippers and Westcoast by placing the responsibility for the recovery of existing investment costs on Westcoast and the responsibility for the cost of new facilities on the parties deciding to proceed with the facilities.
5410. MS. SLIPP: Thank you.
5411. And going back to the Fort St. John infrastructure map that’s shown on the screen, the competing gas gathering and processing facilities would be shown by those yellow triangles. And I think, as you said earlier, there would be more triangles today than there were at the time?
5412. MS. BURNYEAT: Not necessarily more. There may be more.
5413. MS. SLIPP: And leading up to the framework, is it correct that Westcoast was of the view -- or fair to say that Westcoast was of the view that traditional cost of service regulation that had historically applied in Zones 1 and 2 was incompatible with how its gathering and processing competitors in Northeast B.C. were operated?
5414. MS. BURNYEAT: I think that’s accurate.
5415. MS. SLIPP: And the framework would give -- in Westcoast’s view would give Westcoast the flexibility -- and this is, I think, what you were alluding to -- to work with customers to meet their individual circumstances just like its competitors were able to do.
5416. MS. BURNYEAT: That’s correct but I would also add that in doing so Westcoast agreed to take on the utilization and financial risk of those assets in exchange, partly, for having that flexibility to negotiate with its customers.
5417. MS. SLIPP: And that’s what we’re calling the “at-risk basis”?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp 5418. MS. BURNYEAT: Correct.
5419. MS. SLIPP: And I understand that under the framework Westcoast must offer unbundled gathering and processing services?
5420. MS. BURNYEAT: Yes.
5421. MS. SLIPP: And I understand that means that producers can get any combination of services they want from various competitors in the raw gas gathering and processing field.
5422. MS. BURNYEAT: Yes.
5423. MS. SLIPP: And there’s nothing in the framework that requires a producer using Zones 1 and 2 -- or there’s nothing that requires a producer who’s used Zones 1 and 2 to also continue to transport their gas onto Zones 3?
5424. MS. BURNYEAT: That’s correct.
5425. MS. SLIPP: I have a few questions for you about producer choice. And I went through some of this with the other panels yesterday but since Westcoast is the operator of both raw gas and sales gas facilities, I might throw a few extra factors at you just to see what you think and you can tell me if you agree that they inform producer choice, disagree, or just don’t know.
5426. First, I just wanted to understand Westcoast’s position in terms of what might influence producer choice. I understand that the position is that the toll treatment of sales gas pipeline facilities in Northeast B.C. can influence producer choice in respect of the gas value chain. Do I have that correct?
5427. MS. BURNYEAT: Yes, that’s correct.
5428. MS. SLIPP: And do you agree that producers are generally aware of the various options that are available to them in Northeast B.C. for raw gas gathering and processing services?
5429. MS. BURNYEAT: Yes.
5430. MS. SLIPP: So in terms of factors, just to start my list with factors that a producer might think about in choosing raw gas facilities -- so Ms.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp Burnyeat, maybe these questions are for you, but others can chime in as well.
5431. Is the first thing or one of the considerations that a producer would think about is the quality of its raw gas to determine which facility could actually take it on?
5432. MS. BURNYEAT: There’s a number of factors, as I imagine that you’re going to get to a list of different factors ---
5433. MS. SLIPP: M’hm.
5434. MS. BURNYEAT: --- that producers look at when they’re considering options to get their gas to market.
5435. MS. SLIPP: So quality of raw gas is one of those factors?
5436. MS. BURNYEAT: That’s correct.
5437. MS. SLIPP: The term of -- or sorry, whether the capacity -- or whether there’s capacity at the facility?
5438. MS. BURNYEAT: Whether there’s capacity at a facility today or when it’s aligned with their development plans doesn’t have to have a -- the producer would look at what their timeline horizon is and all -- a number of factors to get their gas to market.
5439. But at the end of the day, the reason that the producer is there is to make money and so, as they look at all the different factors that go into the choices that they make about gathering, processing, and sales transmission, they’re going to chase, over time, whatever the highest netback market is for them, whatever pathway is going to make them the most money.
5440. MS. SLIPP: Would you agree, though, that they’re -- I guess, maybe, because I don’t have another way to put it, they’re stuck with the quality of gas they have and that’s sort of the starting point for them?
5441. MS. BURNYEAT: It’s “a” point. It’s -- I don’t that it would -- I would necessarily say it’s the starting point.
5442. MS. SLIPP: Okay. If we looked at the sales gas transmission system,
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp or factors that inform choice of sales gas transmission system, would you agree with the evidence that Mr. Keys gave yesterday that the distinguishing features of various markets can influence producer choice in terms of sales gas transmission?
5443. And Mr. Johnson, this is probably a question for you.
5444. MR. JOHNSON: Yeah, that’s accurate. For example, T-North, you can deliver to Station 2, and we’ve got about 2 Bcf a day of contracts going to Station 2. And then -- or you can deliver into the NIT market, and that’s currently at 900 to go up to about 1.1 with the High Pine expansion.
5445. MS. BURNYEAT: But I think -- if I could just add, I think what -- one of the issues that we’re talking about here is that we’re talking serving the same market. We’re talking about serving the NIT market. And there’s competition to get that gas supply to the NIT market.
5446. MS. SLIPP: And market choice, just to be clear, is not dependant on where a producer has contracted raw gas gathering and processing service?
5447. MS. BURNYEAT: I’m not sure I understand your question.
5448. MS. SLIPP: You’re not obligated to go, for example, to Station 2 just because you have Zone 1 and 2 processing service?
5449. MS. BURNYEAT: That’s correct.
5450. MS. SLIPP: A producer, in choosing a gas sales transmission system, might also have downstream delivery obligations that would inform its choice?
5451. MR. JOHNSON: Correct.
5452. MS. SLIPP: And would you agree that available firm transportation capacity to reliably allow access to the chosen market would potentially inform producer choice, whether or not there’s firm transportation capacity available?
5453. MR. JOHNSON: For the producer?
5454. MS. SLIPP: M’hm.
5455. MR. JOHNSON: Yes, a producer is looking for certainty of being
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp able to deliver their gas to the market.
5456. MS. SLIPP: And I guess the flip side of that is that -- I don’t know if you’ll be able to answer this question or not, Mr. Johnson, but the flip side of that is that markets -- and I think Fortis said this in its evidence -- like firm transportation capacity because that means that their markets are reliably supplied?
5457. MR. JOHNSON: Generally speaking, yes. I think you can -- from a producer or a market perspective, they’re going to have firm; they may have IT and have a portfolio of IT. Again, it’s up to that market or that producer to decide how they want to structure their transportation arrangements.
5458. MS. SLIPP: But from a market perspective, firm is more reliable than IT?
5459. MR. JOHNSON: Yes.
5460. MS. SLIPP: And would you agree that the ability to access more than one market might help a producer to hedge against risk?
5461. MR. JOHNSON: Yes.
5462. MS. SLIPP: Thank you.
5463. I understand that generally a shipper with a distance of haul of less than 75 kilometres to a delivery point is eligible for a short-haul toll on Zone 3. Do I have that correct?
5464. MR. JOHNSON: Yeah. Maybe I’ll take a moment here and talk about the history of short haul.
5465. Short haul originally came out of the transition from the Westcoast, from a merchant pipeline to an open-access pipeline. And there was a social benefit toll in T-North that was given to the small towns in the north, whether it be Fort Nelson, Fort St. John et cetera.
5466. And that evolved over time to include Pine River to Station 2, which was a 20-kilometre length. It also evolved to McMahon where the Taylor gas liquid plant was built. It’s a couple of hundred yards away from McMahon. And
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp there were charges for the shrinkage, the NGLs that were taken out of McMahon.
5467. MS. SLIPP: And now I’m just going from memory, but I believe I read in one of your IR responses that there’s an exception to the -- a Northern Distribution Utilities exception? Am I recalling that correctly?
5468. MR. JOHNSON: Just a minute. Yes, that is the latest language.
5469. MS. SLIPP: Thank you. And then the other exception is that you can’t connect to the downstream NGTL or Alliance systems?
5470. MR. JOHNSON: Yeah. That too, if you go back in time into when this first was developed, it never contemplated delivering to interconnects, whether it be NGTL or Alliance.
5471. MS. SLIPP: Sir, are you aware that the Aitken Creek storage facility provides shippers with the option to connect to Zone 3 or Alliance?
5472. MR. JOHNSON: Yes.
5473. MS. SLIPP: And is Aitken Creek a delivery point as you define that term?
5474. MR. JOHNSON: Aitken Creek itself is a delivery point but there are no delivery points from the Aitken Creek T-North system onto Alliance.
5475. MS. SLIPP: Okay. Maybe I’ll just try this question with you.
5476. So I understand that shippers to Aitken Creek storage with a distance of haul of less than 75 kilometres are eligible to this short-haul toll. And that seemed strange to me because of the connection to Alliance.
5477. MR. JOHNSON: If a shipper wanted to go to Alliance once it goes off the system, presumably it goes into storage. I believe Aitken Creek -- they’ve got their own compression facilities. There would be some sort of charge that they would have to pull gas out of storage and deliver onto Alliance.
5478. MS. SLIPP: I understand, thank you.
5479. Sir, is it your understanding that gas that enters the NGTL system has
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp to meet certain gas quality specifications?
5480. MR. JOHNSON: Yes.
5481. MS. SLIPP: And I understand that those specifications are somewhat similar although not identical to the specifications in Zones 3 and 4?
5482. MR. JOHNSON: Correct.
5483. MS. SLIPP: And NGTL connects up gas off Zone 3 without further processing?
5484. MR. JOHNSON: Correct. It’s bi-directional.
5485. MS. SLIPP: Vice versa, yeah. And like Zone 3, NGTL could not accept Zone 1 gas directly without further processing?
5486. MR. JOHNSON: Yes.
5487. MS. SLIPP: Sir, I understand that Veresen -- and Ms. Burnyeat this is probably a question for you -- Veresen is a direct competitor to Westcoast Zones 1 and 2? Would you agree with that?
5488. MS. BURNYEAT: Yes.
5489. MS. SLIPP: If we were to update the Fort St. John infrastructure map we might add some of the Veresen Tower Saturn and Sunrise facilities, for example?
5490. MS. BURNYEAT: Yes.
5491. MS. SLIPP: And under the framework, would you agree that Westcoast has been given the tools to compete with provincially-regulated gathering and processing operators like Veresen?
5492. MS. BURNYEAT: What I would say is when Westcoast competes, we compete for gas supply. And so to just say that we’re just competing for gas supply just on a gathering and processing basis for an integrated system, what we’re competing against is producers making choices on how they’re going to get their gas to market.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp
5493. And so what we see with the Tower Lake section in particular is that if NGTL is successful in getting the applied-for toll treatment, is that gas value chain that we compete with, that they’re going to have an advantage to get gas to market. And over time Westcoast will lose volumes and will have challenges to attract gas in the future. And we’re arriving at that not because of fair competition, because there’s a regulatory outcome where one party is allowed to offer service at a toll that is well below what it costs to provide that toll.
5494. MS. SLIPP: Mr. Burnyeat, could you tell me if either or both of Westcoast or its affiliate Spectra Midstream had the opportunity and ability to provide the gathering and processing services to CRP that are now being undertaken by Veresen?
5495. MS. BURNYEAT: What I can say is that we did participate in a process, but the discussions are subject to confidentiality so I’m not prepared to share anything more. It was an affiliate of Westcoast.
5496. MS. SLIPP: Okay. I do understand that that confidentiality agreement has terminated on its terms. So maybe we can do this by way of undertaking, if you could confirm that that has expired and, maybe if you have, then to provide the information. And to be clear, all I’m looking for is that you had the opportunity to provide that service.
5497. MS. BURNYEAT: I can confirm that we were involved in discussions, yes.
5498. MS. SLIPP: Okay. That’s fine.
5499. And the facilities that are now being undertaken by Veresen, absent potentially confidential information aside, would be in the operational wheelhouse of Westcoast as the operator of Zones 1 and 2? It wouldn’t be a foreign service to you?
5500. MS. BURNYEAT: No. I can agree with that.
5501. MS. SLIPP: Just to my last line of questioning, am I correct that from Fort Nelson to Station 2, Zone 3 is fully contracted on a long-term firm basis?
5502. MR. JOHNSON: It is contracted. It depends how you define “long-
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp term”.
5503. MS. SLIPP: I’m taking this from one of your IR responses.
5504. MR. JOHNSON: Yes.
5505. MS. SLIPP: I won’t ask you what you mean by “long-term”.
5506. MR. JOHNSON: I was thinking “long-term” from previous discussions where they were talking 20 years.
5507. MS. SLIPP: And I understand, sir, that the purpose of the High Pine and Jackfish Expansions is to provide incremental firm transportation service on Zone 3 to particular shippers who would otherwise be subject to firm service capacity constraints? Is that correct?
5508. MR. JOHNSON: Correct.
5509. MS. SLIPP: And so the expansions would provide similar service to what’s now being provided on Zone 3?
5510. MR. JOHNSON: Yeah, both the High Pine and Jackfish Expansions are loop and compression. And the Westcoast position on those types of expansions is that the existing and the new shippers cause that expansion and therefore it should be rolled in.
5511. And if you look at existing shippers and new shippers, there's no difference in acquired rights. And whenever we do an open season, we also do a reverse open season. And by reverse open season, it's done simultaneously and -- as the open season -- and we ask existing shippers, "If you have capacity and you don’t want it, turn it back and we'll limit the scope of the build." And the existing shippers, if they don’t turn it back, then they're also causing the expansion.
5512. MS. SLIPP: And on the point of the open season, can you confirm that the minimum term bid was 10 years for both of those projects?
5513. MR. JOHNSON: Yeah, we go out to bid as part of the open season process. There's a minimum term of 10 years. Shippers are asked to -- are also -- are required, not asked, required to term up an equivalent volume if they are successful in their bid. When I say term up, term up to 10 years on existing
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp service as well.
5514. MS. SLIPP: And I understand that the High Pine and Jackfish projects are both point-to-point projects; is that correct?
5515. MR. JOHNSON: All Westcoast T-North contracts on a receipt to delivery path, so it's same service as everything else.
5516. MS. SLIPP: And the path for the Jackfish Expansion is to Station 2?
5517. MR. JOHNSON: It -- yeah, McMahon area ---
5518. MS. SLIPP: M'hm.
5519. MR. JOHNSON: --- to Station 2. So it -- on this map, you can see McMahon Plant, Fort St. John, it's moving down towards CS-2.
5520. MS. SLIPP: And the High Pine path is to the Sunset compressor station, which is off the Stewart Lake line, and then connects to NGTL?
5521. MR. JOHNSON: Yeah, so the Sunset compressor station, we -- it's labelled CS-16 -- it's also known as the Groundbirch East on the NGTL system. That's the delivery point. The receipt points, if you go from Station 2, work up north, you see N-5, compressor station N-4, it's around the N-4 area is where the receipt contracts are.
5522. MS. SLIPP: And the shippers that underpinned both of those projects, they requested service to those locations?
5523. MR. JOHNSON: Yes.
5524. MS. SLIPP: Am I correct, though, that so long as it met the tariff requirements, a firm shipper tied to the Jackfish expansion, for example, could divert its volumes from Station 2 to other delivery points, using the existing Zone 3 system?
5525. MR. JOHNSON: Yeah. Excuse me. Similar to other pipeline systems, there's flexibility on the existing T-North system for shippers to move their -- relocate their contracts around, assuming capacity is available elsewhere. Also, I would note that if there was going to be an extension, it would be done on
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp a stand-alone basis and would not be able to accommodate that type of relocation. Only the receipt point, once it interconnects with the existing system, would have that flexibility.
5526. MS. SLIPP: And similarly, the High Pine Project, shippers on that could divert volumes from the Sunset Creek compressor station to an alternative delivery point, using Zone 3 facilities as well?
5527. MR. JOHNSON: Assuming capacity is available, correct.
5528. MS. SLIPP: And ---
5529. MR. JOHNSON: And there are some rules in the tariff which I won't get into, but yeah.
5530. MS. SLIPP: And you're aware that the High Pine Project is supported by Painted Pony?
5531. MR. JOHNSON: Yes.
5532. MS. SLIPP: And we can turn it up if we want to. I don't know that we need to, but in their letter of comment in the Towerbirch proceeding, Painted Pony says it's contracted with Westcoast for a total of 220 million cubic feet per day on the High Pine Project. Is that your understanding?
5533. MR. JOHNSON: Correct, that's what that letter states.
5534. MS. SLIPP: And are you aware that Painted Pony is also contracted with NGTL for a total of 130 million cubic feet per day on the Towerbirch Project?
5535. MR. JOHNSON: That's up to Painted Pony to determine what they're going to do. Their letter did state -- and other producers do the same thing -- that they are actively looking for more transportation. They have acquired some on NGTL. They are going to some buy-sell agreements at Sunset. They are going to enter into expansion contracts. I can't confirm if they have or not. I'll leave that to Painted Pony to talk about.
5536. Other options that are available to customers, they could -- similar to our system when I talked about relocations -- you can do the same on NGTL,
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp where you could be at a different receipt point on the Groundbirch lateral and change receipt points; you may be at a different receipt point elsewhere on the NGTL system and move receipt points. So there's a lot of flexibility for people to move around.
5537. MS. SLIPP: M'hm.
5538. MR. JOHNSON: Again, I leave that up to Painted Pony. They're a fairly significant shipper, so they know what they're doing.
5539. MS. SLIPP: Okay. And just assuming that the numbers are correct that I gave to you, by my math, that leaves 90 million cubic feet per day that they don’t have downstream contracting capacity for on NGTL. Could they use their diversion rights on Westcoast under the tariff to move those volumes instead to Station 2, for example?
5540. MR. JOHNSON: Maybe before we go to that question, I'm going to flip over to the Exhibit A75175-1, and this is NGTL's additional written evidence.
5541. THE REGULATORY OFFICER: Can you repeat that, please?'
5542. MR. JOHNSON: It's A75175-1. And then if we could go to -- and I apologize, I don't have the PDF, but it's paper page 2-4. This is Table 2-1, so ---
5543. THE REGULATORY OFFICER: Okay, sorry.
5544. MR. JOHNSON: Paper page 2-4. Just a minute and we'll see if we can find the PDF here.
5545. THE REGULATORY OFFICER: Sixteen (16)? Okay.
5546. MR. JOHNSON: Perfect, thank you. What this table shows, it's an updated -- their -- the update from NGTL on what all the contracts are for the Towerbirch Expansion, listing by customers. Cutbank Ridge is obviously named and then there's customers A, B, C, D, E, the meter station, and then the contract haul and quantity et cetera over to the contract demand volume, and I want to speak more to the contract demand volume column.
5547. If you go down and look at Customer B, C, and D, which are all delivering -- are all receiving gas on NGTL at Groundbirch East Expansion,
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Slipp Groundbirch East is the equivalency of Sunset. If you add up the volumes for Customer B, C, and D, it comes up to about 175 million a day. So that -- those are some of the expansion volumes that are going to, I would assume, match or take away with the High Pine Expansion. And as I said, the -- I know Painted Pony, they said in their letter, they’ve acquired service elsewhere, so ---
5548. MS. SLIPP: Okay, but just to be clear, my question was is that assuming they can't get that extra 90 onto the NGTL system, one of their options would be to divert to Station 2?
5549. MR. JOHNSON: Assuming they can't get the 90. They may already have it. I don't know.
5550. MS. SLIPP: They may already have?
5551. MR. JOHNSON: They may already have the 90.
5552. MS. SLIPP: Right, but assuming the numbers are correct?
5553. MR. JOHNSON: Correct.
5554. MS. SLIPP: And am I correct that when volumes on Zone 3 are subject to diversion, the shipper does not incur any additional toll for transportation to the new point?
5555. MR. JOHNSON: Yes, and I need to -- long-haul to long-haul, correct.
5556. MS. SLIPP: Thank you, panel. Those are my questions.
5557. THE CHAIRMAN: Thank you, Ms. Slipp. NGTL is next, and we'll just -- we won't bother leaving here. We'll just wait until they get seated.
5558. MR. DENSTEDT: I think I’m ready, Mr. Chairman. I get the funny feeling I’ve forgotten something but we’ll find out, I guess.
5559. THE CHAIRMAN: Go ahead.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt --- EXAMINATION BY/ INTERROGATOIRE PAR MR. DENSTEDT:
5560. MR. DENSTEDT: Thanks.
5561. Panel, my name is Shawn Denstedt. I’m with the -- representing NGTL here. I’ll give you my biases first. I’m a farm kid. So if I mess up on some of the technical stuff feel free to correct me; I won’t be offended.
5562. I have three lines of questions. The first one, I have a few questions for the company. More about your position and some the things around that. Then a few questions for Dr. Cicchetti about tolling principles, and then a few questions about competition. Those are the three areas I’m going to focus on.
5563. So, Mr. Johnson, I’ll probably ask you the question. Feel free to throw the ball to whoever you want to. If I have something specific for Dr. Cicchetti I’ll put the question directly to him, okay?
5564. So let me start. Thanks for the opening statement. It clarified your position very crisply so that shaved off about 15 minutes of questions for me which is a good thing, I think.
5565. I did have a couple of questions. So I think we could turn up Westcoast’s evidence. And I ask for Exhibit A75851-2 to be brought up. And you could go to Adobe page 2 on that. So do you have that, Mr. Johnson?
5566. MR. JOHNSON: Yes.
5567. MR. DENSTEDT: So just a quick question on this, which is paragraph 4 where you talk about the focus of your evidence. And you provide the three bullets, and that Westcoast is of the view that stand-alone tolling would be appropriate for the Tower Lake section. As I understand it, Mr. Johnson, you’re asking that the Board deny NGTL’s Part IV request?
5568. MR. JOHNSON: Yes, that’s correct, Mr. Denstedt. And additionally, as you’ve seen, we’re also asking that the Board direct that the Tower Lake section be tolled on a stand-alone basis.
5569. MR. DENSTEDT: Right.
5570. So, Mr. Christie, should I ask the next question to Mr. Christie or try
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt you again, sir?
5571. MR. JOHNSON: It depends.
5572. MR. DENSTEDT: All right. Well, then I’ll stick with the original plan; I’ll go through you.
5573. So, Mr. Johnson, if the Board determines that NGTL’s Part IV application is appropriate and that the tolls are just and reasonable, you don’t oppose the approval of the project, do you?
5574. MR. JOHNSON: Correct.
5575. MR. DENSTEDT: Okay, thank you.
5576. Before I move into another area I did have a question arising out of the cross-examination this morning and this afternoon. And I don’t have the benefit of the transcript so I can’t direct anybody anywhere and I’m going on my memory, but let’s give it a spin. And the questions were to you and Ms. Burnyeat from Mr. Schultz and then Ms. Slipp. And she asked you some questions, and I can’t recall it, but it had to do with the integrated nature of how Westcoast operates its business.
5577. That kind of jangled in my ear because my recollection of how systems that have different components to them work typically have codes of practice on how they interact with each other, and they separate computer systems, and they don’t share information. But I think I heard different. I think I heard you say Zones 1, 2, and 3 and the business units all share information amongst themselves in how they operate?
5578. MS. BURNYEAT: That’s not what I said, Mr. Denstedt.
5579. MR. DENSTEDT: Good, well, then I’m glad I asked the question.
5580. MS. BURNYEAT: What I said is that the federal undertaking -- or just to give a little bit more colour, the Zones 1, 2, and 3, and 4 are part of a federal undertaking that’s regulated by the National Energy Board and integrated system. But certainly our federally regulated system you can contract on for gathering and processing. You can contract on Zones 3 and 4. And we have affiliate rules between our provincially regulated affiliate that offers gathering and
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt processing services as well in B.C. and Alberta. And then there’s a pipeline code of conduct of course as well.
5581. MR. DENSTEDT: Okay. So just so I’m clear, Zones 1 and 2, because they’re part of the federal undertaking, can share their information on producers and their business activities with Zones 3 and 4 because it’s a federal undertaking; is that correct?
5582. MS. BURNYEAT: Mr. Denstedt, I’m not aware that there’s any restrictions in sharing information between pipeline and field services if that’s what your -- if that is what your question is.
5583. But you’re not required to contract on Zones 3 and 4, for example, if a shipper would like to have a negotiated gathering and processing services. And the reverse is also true.
5584. MR. DENSTEDT: Yeah. It’s probably just my experience with disparate parties and in this case because you’re one federal undertaking, so let me just ask the question. When you’re talking to customers about putting a plan together for the processing and gathering do you also work with Zone 3 to say, “Well, how can you assist in putting a package together?” Is that discussions that you have?
5585. MS. BURNYEAT: We talk to the customer first and understand what their needs and wants are and what they’re trying to accomplish as they look at their development plans. And then we can put a package together if they -- whichever sort of basket of services they would like to talk about. It doesn’t mean that we always come with a pipeline solution, a sales gas transmission solution but we may. But it really starts with the customer needs and wants.
5586. MR. DENSTEDT: That’s helpful, thanks.
5587. So let me ask just a couple of questions about the South Peace Pipeline. And maybe, Ms. Foreman, you could bring up GH-003-2008.
5588. So this decision obviously -- it’s not there yet. Let me ask the question while we’re -- because you might be able to answer this without the document.
5589. When did you apply for the South Peace Pipeline?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt 5590. MS. BURNYEAT: I don’t actually know, Mr. Denstedt.
5591. MR. DENSTEDT: Sometime before 2008, I assume, when the decision is in 2008.
5592. MS. BURNYEAT: Presumably, yes.
5593. MR. DENSTEDT: And do you know when that pipeline was approved?
5594. MS. BURNYEAT: I think it’s in 2008. The page just went by there. But I don’t know. I wasn’t in the role at the time.
5595. MR. DENSTEDT: Would you accept, subject to check, that this was approved in the spring of 2009 the South Peace -- does that sound about right?
5596. MS. BURNYEAT: I think so.
5597. MR. DENSTEDT: November 2008, my friend says.
5598. And do you know when it commenced operation?
5599. MR. CHRISTIE: Sorry, Mr. Denstedt, what reference are we looking for? We’re all scrambling for it.
5600. MR. DENSTEDT: GH-003-2008. It’s the Board’s decision on South Peace Pipeline.
5601. MR. CHRISTIE: I’m not sure if we have copies.
5602. MR. DENSTEDT: I just have the one copy. I only have one question on one page so we’ll bring it up. But I just was looking for some dates right now.
5603. MR. CHRISTIE: And did I hear you say you assume it was applied for before 2008?
5604. MR. DENSTEDT: The decision is GH-003-2008.
5605. MR. CHRISTIE: So it was a 2008 hearing order.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt 5606. MR. DAVIES: If we scroll back in this document to the beginning it probably indicates when the application was filed.
5607. MR. DENSTEDT: On the recital it says:
“...an Application dated 27 February, 2008...”
5608. Not that anything turns on it so we might as well move on.
5609. Can you tell me when the South Peace Pipeline commenced operation, Ms. Burnyeat?
5610. MS. BURNYEAT: I’m sorry, Mr. Denstedt, I don’t actually know.
5611. MR. DENSTEDT: Okay. Can you give me an undertaking then to give me that date on when the South Peace Pipeline commenced operation? I’m told it’s 2010. But you can take that subject to check or you can give me an undertaking. It’s whatever you choose.
5612. MS. BURNYEAT: Subject to check.
5613. MR. DENSTEDT: Okay. That will help keep us moving.
5614. So Ms. Foreman, can you scroll down to page 24 of the decision and we’ll give the witnesses a moment just to read one paragraph, four or five lines, actually? So page 24, that’s the paragraph just about the table, Ms. Foreman, if you could. And it’s just the last -- if you could read the last three sentences of that paragraph and I’ll give you a chance to do that.
5615. So just tell me when you’re ready and I have a couple of questions.
5616. MS. BURNYEAT: Can you just scroll down to see the balance of the table? I know you’re not asking me to read that but I’m just ---
5617. MR. DENSTEDT: Yeah, feel free to read whatever you choose.
5618. MR. CHRISTIE: We need it on the screen to read it.
5619. MR. DENSTEDT: Oh, Ms. Foreman, just whatever they need to see, let them see it.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt
5620. MS. BURNYEAT: And then if we could just pop back up to the three lines that we’re meant to be reading? Thank you.
5621. MR. DENSTEDT: A lot of work for a couple of simple questions.
5622. MS. BURNYEAT: Yes, I’m ready.
5623. MR. DENSTEDT: I’ll take responsibility for that.
5624. So can you just confirm a couple of things for me? So in the Board’s decision, the Board says the Westcoast provided evidence that the shippers had contracted for 94 percent of the project’s capability. Is that an accurate statement? I assume it is.
5625. MS. BURNYEAT: That is accurate. I can also comment that commercial agreements can change and they indeed have changed since that time.
5626. MR. DENSTEDT: And the next line after that says:
“Westcoast has stated that the Initial Shipper contracted volumes decline through to 2028 after 2014 but...”
5627. And it goes on to say:
“...[You] declined to disclose the exact number of Initial Shippers or [the] contract volumes...[because that’s] commercially sensitive.”
5628. So is that accurate, that those contracts decline through to 2028?
5629. MS. BURNYEAT: What I can confirm is that the commercial arrangements around the South Peace Pipeline or indeed any of our other gathering and processing assets can change over time. And so while that was definitely a true and accurate statement at the time that the evidence was filed, it may not be the same today. And in fact, it’s not the same today.
5630. MR. DENSTEDT: And you didn’t provide the Board with those contracts at the time, did you?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt 5631. MS. BURNYEAT: Not that I’m aware. But I actually don’t know.
5632. MR. DENSTEDT: And you haven’t provided the contracts for the South Peace Pipeline in this proceeding, have you?
5633. MS. BURNYEAT: No, we have not.
5634. MR. DENSTEDT: Mrs. Foreman, could you turn up Exhibit A77368-3? I think that’s the number but I better check. Yeah, A77368-3.
5635. And this is one of the documents that your counsel put to the NGTL panel. Did you provide those documents to your counsel, Mr. Johnson?
5636. MS. BURNYEAT: I don’t know who pulled it from the internet, but we did talk about having it. I don’t know who actually ---
5637. MR. DENSTEDT: I don’t need a name. I just was wondering if it’s the company that had provided Mr. Davies or whether he had Googled it himself.
5638. MS. BURNYEAT: I don’t recall. I don’t know.
5639. MR. DENSTEDT: So you don’t know if he did it himself or the company gave it to him?
5640. MS. BURNYEAT: That’s correct.
5641. MR. DENSTEDT: Okay.
5642. Mr. Johnson, do you know?
5643. MS. BURNYEAT: I’m aware of the press release and what’s talked about in it.
5644. MR. DENSTEDT: Okay, good. Let’s look at the very first paragraph on this screen then and I’m going to read the second sentence to you. And this is about the Encana-Mitsubishi partnership that forms Cutbank Ridge. And it says:
“The Partnership holds about 409,000 net acres of Encana's undeveloped Montney-formation natural gas lands in the company's Cutbank Ridge resource play in northeast British
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt Columbia.”
5645. Do you see that?
5646. MS. BURNYEAT: I do.
5647. MR. DENSTEDT: And you’ll agree with me that whether this is true or not, the press release says that the acreage that is in the partnership are undeveloped Montney-formation lands? That’s what it says, right?
5648. MS. BURNYEAT: That is what it says.
5649. MR. DENSTEDT: Do you have any reason to disagree with that?
5650. MS. BURNYEAT: No.
5651. MR. DENSTEDT: And ---
5652. MS. BURNYEAT: Okay, sorry, Mr. Denstedt. Can we just confirm the date on this?
5653. MR. DENSTEDT: You read my mind. That’s where I’m going next.
5654. So if you turn the page over, the middle of that page provides the date of the release and that a conference call is being held the same day, which is February 17th, 2012. And you have no reason to doubt that?
5655. MS. BURNYEAT: I do not.
5656. MR. DENSTEDT: Thank you.
5657. Ms. Foreman, could you turn up Exhibit A77384-2? And I’m looking for Adobe page 8. If you’d scroll up to the graph, Ms. Foreman, that would be helpful. And again, this is another one of the documents that your counsel provided to NGTL, which is an Encana-Montney investor event held May 17th, 2016.
5658. And on that table it shows the “North American Natural Gas Fundamentals”. And you see that graph? It has the blue bars and then looking into the future there are cross-hatched blue bars. And that’s the Montney area and
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt then there’s a red line tracking that which says the Montney’s percentage of North America. And it shows the supply and the Montney Basin rising. I’m trying to pick a year. Let’s say 2012. That looks to be about 2 Bcf rising to about 6 Bcf. Do you see that?
5659. MS. BURNYEAT: I do.
5660. MR. DENSTEDT: And is that consistent with your understanding of the potential growth of the Montney area?
5661. MS. BURNYEAT: I think generally, yes.
5662. MR. DENSTEDT: Thank you.
5663. Okay, so we can turn up ---
5664. MR. DAVIES: Sorry, Mr. Denstedt.
5665. Just before we proceed, Mr. Chairman, I would just note that whereas this was one of the aids to cross-examination that I did provide to NGTL, it was not a document that I referred to during my cross-examination of NGTL, which does raise an issue as to what the Board is going to do with these documents that have been filed as aids to cross-examination but haven’t been referred to in the proceeding. Are they exhibits? Are they evidence? Are they to be ignored? I just raised that.
5666. I’ve got no objection to Mr. Denstedt referring to this document, certainly, and I also have no objection if he wants to enter it as an exhibit. But I just raise that issue for your consideration.
5667. MR. DENSTEDT: My view is that these already have exhibit numbers, sir. I don’t need to enter anything.
5668. THE CHAIRMAN: Mr. Davies?
5669. MR. DAVIES: If what Mr. Denstedt is saying, that everything that was filed as an aid to cross-examination becomes an exhibit whether a question is asked about it or not -- I mean, I heard him a few days ago saying, “Well, these” - - “This isn’t evidence. These aren’t” -- “This isn’t evidence in the proceeding.” And yet now he’s taken an aid to cross-exam and made it evidence in the
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt proceeding.
5670. I’m happy to have as evidence in the proceeding; I just think we need to know what the rules are.
5671. It does have an exhibit number. And if Mr. Denstedt is saying that it should now be evidence in the proceeding and be an exhibit in accordance with that number, I’m happy with that.
5672. MR. DENSTEDT: What ---
5673. THE CHAIRMAN: Go ahead, Mr. Denstedt.
5674. MR. DENSTEDT: Sorry. Yeah, I’m not saying it’s evidence in the proceeding at this -- there was no one to speak to this document. And there was no one to swear to the veracity of it. And it wasn’t to be cross-examined on. It was used as an aid to cross-examination and it was used to help me form my questions to Ms. Burnyeat, which I did. It’s not evidence.
5675. THE CHAIRMAN: I think, as someone explained earlier, that on the new LiveLink system that every time something is submitted, it’s given an exhibit number. So the fact that you’re not looking to make it as part of the -- you’re just using it as an aid to cross, then.
5676. Do you have any problems with that, Mr. Davies? Okay.
5677. MR. DENSTEDT: So Ms. Foreman, can we pull up Westcoast’s evidence, which is Exhibit A75851-2? And I think page 11 is the page I’d like to go to. We should start on page 10, actually. Thank you.
5678. So it’s paragraph 30 -- 33. I can’t see as well as I used to -- paragraph 33 which talks about both the Westcoast and NGTL pipeline systems. It has a description of them; it talks about the differences between the systems; and at the end -- the last sentence is what I’m interested in understanding better and I think - - well, Mr. Johnson, you pick who you want to answer the question. You say:
“However, the function of both pipeline systems is to transport gas and it is this transmission service that is the focus of the competition.” you say.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt 5679. And am I to understand when you use the words “transmission service”, you mean the sales gas service?
5680. MR. CHRISTIE: We were a little slow catching up to where you were so just a moment.
5681. MR. JOHNSON: The reference for transmission service is to transport natural gas whether it be in its raw or residue form, so it’s both.
5682. MR. DENSTEDT: So “transmission service” applies to the entire system for Westcoast and the sales gas system for NGTL? Is that right? I just want to be clear because I’ve got some questions that depend on that.
5683. MR. CHRISTIE: Yeah, and of course it also applies to other parties who own pipeline infrastructure delivering to either of those facilities.
5684. MR. DENSTEDT: Well, Mr. Christie, it doesn’t here. It just talks about the two -- both pipeline systems and it’s referred to NGTL and Westcoast. So it doesn’t refer to anybody but those two, right?
5685. MR. CHRISTIE: Fair point in that sentence but -- yeah, anyway.
5686. MS. BURNYEAT: Maybe I can help to clarify.
5687. MR. DENSTEDT: Sure.
5688. MS. BURNYEAT: Transmission service, it’s the movement of natural gas from one place to the other. As we say earlier in that paragraph, it doesn’t matter where the plants are; they can be centrally located; they can be in the gathering system; but what’s important is having the competitive playing field of all those gas value chains such that competition is fair to transmit -- to transport natural gas whether it’s in its raw or its sales form.
5689. MR. DENSTEDT: Okay, so it’s used in more of the generic sense; the transmission service is just movement of gas, essentially, correct?
5690. MS. BURNYEAT: Yes.
5691. MR. DENSTEDT: Okay. And is it fair to say, then, that those transmission services that NGTL and Westcoast are competing in are to capture
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt supply in the basin?
5692. MS. BURNYEAT: Yes, that would be accurate.
5693. MR. DENSTEDT: And one of the reasons -- it seems almost too trite to ask the question but let me ask it anyway. One of the reasons that you want to capture supply is you want to maximize your throughput and that helps minimize tolls and it makes you a stronger company, right? It’s good for everybody.
5694. MS. BURNYEAT: Mr. Denstedt, yes. I mean obviously Westcoast is in the business to add value and provide value for our shareholders and to make money. To attract gas supply is what we -- and to provide service to our customers is what we do whether it’s on a raw gas basis or a sales gas basis. So yes, that’s what we -- that’s what we do.
5695. What’s important to remember, and what Westcoast is concerned about, is our ability to compete for gas supply and, in particular, having one party, NGTL, to be able to -- to supply service at a cost that is well below what it cost to provide that service.
5696. So something that costs half a penny, a million dollars of revenue on an annual basis, but it actually costs $18M to provide that service, NGTL’s the only party that can do that. And to allow that to happen is, in our opinion, not fair competition.
5697. MR. DENSTEDT: Right. And NGTL would say it generates $56M in revenue and costs 18. So that’s kind of the debate we’re having here, right?
5698. So let me ask you ---
5699. MR. CHRISTIE: Which -- and of course we would say it would generate that if anybody built that pipeline and you dropped it off at Tremblay and there would be 18 million less of cost of service.
5700. MR. DENSTEDT: You’ll get your chance, Mr. Christie. Don’t worry.
5701. Dr. Cicchetti, a couple for you. And so I don’t think we need to turn this up but if we do, let’s -- I’ve got the exhibit number handy. So I really -- on page 4 of your evidence, question 6 if you want to have a look at it, but it just
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt talks about NGTL’s request to roll the cost of the facilities into the revenue requirement and then apply their toll methodology to -- for tolls. And I have a couple of questions about that.
5702. Do you need me to turn that up, Dr. Cicchetti, or is that ---
5703. DR. CICCHETTI: I have.
5704. MR. DENSTEDT: Okay. So let me, Ms. Foreman, ask you to pull up the response of Westcoast to CAPP. That’s Exhibit A76439-4.
5705. So if you have your evidence in front of you, we can pull this up on the screen or you can do what you choose, sir, but I want to ask a couple of questions.
5706. This is High Pine Application so you’re going to have to access the link that was provided, Ms. Foreman. So if you have to scroll to the bottom of that page, Ms. Foreman, and there’s a link to the High Pine Application. It’s the first link in A.
5707. THE REGULATORY OFFICER: That takes me to a LiveLink site that has about -- quite a few sections. Which one are you looking for?
5708. MR. DENSTEDT: I’m looking for the application which -- the first one.
5709. THE REGULATORY OFFICER: Okay.
5710. MR. DENSTEDT: The first one. Thanks.
5711. Great. So if you go to page 6 of 9 in that document. I have a couple of questions for Dr. Cicchetti.
5712. And if you look at the rationale, Dr. Cicchetti. And it’s in the third paragraph EC6-2. In Westcoast’s application they talk about some concerns that were expressed in September 22nd of 2015 by their toll and tariff taskforce which regarded the toll increase that would result from the High Pine application.
5713. And the last two sentences, and I’ll just read them for ease of reference:
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt
“Westcoast estimates that the toll impact for the Project will be 1.9 cents/Mcf, from a base toll of 13.6 cents/Mcf. [And] the T- North system has a significantly depreciated rate base, which means that expansions would typically be expected to result in toll increases.”
5714. So I have a couple of questions for you about that paragraph, Dr. Cicchetti. And am I correct when I read that is that when you roll-in facilities into a rate base there’s a variety of facilities in that rate base; some much are much depreciated, some are partially depreciated. And the new ones are just added into that and you come up with a total revenue requirement that you apply you tolling methodology to which results in tolls; is that how that works? And if it’s not, tell me what the right way is.
5715. DR. CICCHETTI: Yes, you have it right.
5716. MR. DENSTEDT: Good. And in the case of a system that is highly depreciated, it is more likely than not that new facilities would increase the tolls as opposed to decrease the tolls which is, I think, what Westcoast is saying here; is that fair?
5717. DR. CICCHETTI: I think you have to add other things being equal. And one of the things that you’d have to consider when you have an expansion is additional volume. And tolls are a function not only of the revenue requirements but also of the amount of throughput that you have for that expansion or after that expansion.
5718. MR. DENSTEDT: Right. And is it fair to say that volume in a directional sense at least should -- the more volume should drive down the tolls further?
5719. DR. CICCHETTI: Yes.
5720. MR. DENSTEDT: So in this case where the toll will go up 1.9 cents per Mcf as a result of the project being rolled into the rate base, is there some other justification that goes along with making that kind of an investment in a system to raise the tolls of everybody?
5721. DR. CICCHETTI: Yes. This is an expansion. I think it’s either
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt compression or looping, as I recall. But the idea here is that before the expansion you would have an open season to determine whether -- what the demand would be for this expansion. But you’d also have what Westcoast describes as a reverse open season where they’d look to see if any current customers would like to modify or reduce their use.
5722. After the net effect of that is considered Westcoast would make a determination of what the size of the pipe should be with compression and looping. And then they would determine based upon cost causality that both the old or existing customers and the new customers are causing the sizing to be changed. And therefore, under cost of service regulation the average costs and therefore, something like a rolled-in price would apply to all customers without any vintaging being involved in the process.
5723. MR. DENSTEDT: How do you pull the new and old shippers apart on a system that has embedded costs like Westcoast on T-North?
5724. DR. CICCHETTI: Well, you don’t do it on Westcoast T-North, you don’t do it on the Groundbirch Mainline. You don’t do it on any expansion. This is an expansion, meaning that you could either meet the incremental demand to use pipe by building pipe or by getting existing users to reduce use. And when you have those two components involved then it’s an expansion and therefore, the tolling that would make sense in terms of cost recovery would be a common cost pool.
5725. And therefore, rolling in the cost of the expansion to the existing cost pool would be the appropriate way for cost of service regulation to at least begin the process to setting the toll revenue requirement. Then you look to determine how to -- once you’ve got the toll revenue requirement to do a rate design or a toll design. And that would depend upon the historical evolution of a particular pipeline.
5726. MR. DENSTEDT: And is that the same answer if it’s one shipper shows up and says they need access and the system has to expand for that one customer by looping; the logic still applies to that?
5727. DR. CICCHETTI: The answer is yes because all the existing shippers would have an opportunity to reduce their firm capacity requirements. And therefore, the cost causality is that both the existing and the new shipper, even a single one, are causing the change in the sizing of the pipe or the
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt compression on the pipe or otherwise looping the pipe in one way, shape, or another.
5728. MR. DENSTEDT: Okay. Thanks, Dr. Cicchetti.
5729. Ms. Foreman, can you pull up Exhibit A76439-5, which is Westcoast’s Response to Encana. And your counsel invited me to investigate this further so, like I said, I’m a farm kid; I took him up on it. I’ve got some curiosity.
5730. If you look at page 8 of this application, can you just confirm -- maybe you should confirm with me before I start is -- when was this application filed for the T-North expansion, the Transmission North expansion?
5731. MR. JOHNSON: November 30th, 2010
5732. MR. DENSTEDT: November 30th, 2010. So if we go to Adobe page 8, in the second paragraph there’s a paragraph there in the middle -- or a sentence in the middle that says:
“In response to the open season, Westcoast received bids, and subsequently entered into binding expansion service agreements with shippers, for […] 169.2 MMcfd of incremental firm service […].”
5733. See that?
5734. MR. JOHNSON: Yes.
5735. MR. DENSTEDT: And that’s the number that NGTL used in their response to the Board and it’s the number that -- I would hesitate to say it but I think it’s fair to say -- that Mr. Davies was a little agitated about yesterday or the day before.
5736. And can you tell me when the Transmission North project was approved?
5737. MR. JOHNSON: April 21st, 2011.
5738. MR. DENSTEDT: Great. And the capacity of the Stewart Lake lateral is 500 million cubic feet a day; is that correct?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt
5739. MR. JOHNSON: Correct. And there’s some reasons behind that. Just let me get the right reference here.
5740. MR. DENSTEDT: Yeah, you bet. No problem.
5741. MR. JOHNSON: So, Ms. Foreman, if you could go to A76439-3.
5742. MR. DENSTEDT: That was my next exhibit, sir. We’re on the same page. This should go really quickly then.
5743. MR. JOHNSON: And I’ll guess you wanted to go to page 15 and 16?
5744. MR. DENSTEDT: You can go where you want now. I’m following you, sir. Here have my binder, then you get to know where I'm going.
--- (Laughter/Rires)
5745. THE REGULATORY OFFICER: Sorry for the delay. I'm almost there.
5746. MR. DENSTEDT: While we're looking for the document, Mr. Chairman, I should probably remind you that when I get into this mode I sometimes don’t watch the clock, so you'll have to stop me if -- when you want me to.
5747. MR. JOHNSON: Let's go to 15, 1-5, and then just scroll down. And let's get half of 15, half of 16, if you can. G is where I'm focused in on. That's good, thank you.
5748. So what -- this is the answer, and I'll start here and I'll expand upon it.
5749. MR. DENSTEDT: Yeah.
5750. MR. JOHNSON: The Stewart Lake Pipeline was part of the T-North expansion. We had -- prior to filing an application, we had two open seasons. The one open season was in May 2010, and that was for 169 million a day, and then we had a subsequent open season in October 2010, and again, that was a binding open season. These open seasons resulted in contracts for the north -- sorry, the T-North Expansion Project of 169.2. That was from Fort Nelson Plant
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt to the existing NGTL NIT system. That -- or NIT market, not NIT system, the NIT market. That had Fort Nelson to Sunset.
5751. Then there was the 2012 open season later that year. That resulted in another 300 million a day delivery to Sunset from the N-5 area and also another 69 delivering to Station 2. So at the time, we had signed contracts from both open seasons for Sunset deliveries of 369, which, if you add up the table there on the quantities, that's what you're going to get, is -- sorry, 469, not 3.
5752. MR. DAVIES: Mr. Johnson, you said 2012.
5753. MR. JOHNSON: Sorry.
5754. MR. DAVIES: The second 2012 open season. Did you mean October 2010?
5755. MR. JOHNSON: No, good question. The ---
5756. MR. DAVIES: I didn’t mean to cross-examine you. I was ---
--- (Laughter/Rires)
5757. MR. DENSTEDT: They clearly had my binder.
5758. MR. JOHNSON: This is where I get -- maybe I'll refer to it as the first and the second project, because the projects themselves -- and I apologize, I get confused -- we call it internally the 2011 project into the 2012 project, not to be confused with the dates of the open season, which the second project open season was October 2010. Was that hopefully helpful?
5759. So when we filed the application in November 2010, we had contracts for delivery to Sunset of 469. The actual Project 1, the actual application there was for the first open season, just for the 169. And it's -- maybe -- let me get another exhibit here. I want to walk through the facilities that were required for the first project, and that is going to be on A76439-3, PDF 32. And if you just shrink it down so we can see the whole map? A little bit bigger. Thank you.
5760. This was the first project T-North Expansion, essentially describing the facilities. And like I said, it was for 169 million a day. It was for the first open season, which was in May 2010, and it was for to move gas 169 from Fort
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt Nelson to Sunset, full path. And what it required on the Fort Nelson mainline was an N-4 upgrade, compressor upgrade, and 36 inch, and a loop, 24 kilometres, between N-4 and N-5, and then lastly, the Stewart Lake Pipeline and the Sunset Creek compressor station.
5761. So the focus of that application was on these facilities to move that full path for the open season. We already had -- also had a signed contract for the next project that had deliveries at Sunset to take it up to 470 million, and therefore, it made sense for the 20 kilometres of Stewart Lake to be a 36 inch. It also made sense to use the Stewart Lake Pipeline versus expanding the existing Westcoast system for deliveries at Gordondale. And I can walk through that too, if you'd like.
5762. MR. DENSTEDT: Do whatever you choose to, Mr. Johnson. I'm starting to understand why NGTL was confused about it.
5763. MR. JOHNSON: Bottom line, we had an open season in May 2010; we had a second binding open season, both with reverse open seasons, signed up additional volume for a second project, and then made the NEB application for the first project on November 30th, 2010. And then the second project, the application, you had to do all your environmental studies and such. The application was made November 14th, 2011. And that involved further loop on the Fort Nelson mainline. The Sunset had already been built.
5764. MR. DENSTEDT: So the facts of the Transmission North application filed in November of 2011 and approved -- or 2010 and approved in April of 2011, is that the National Energy Board approved that project on the basis of 169 million cubic feet a day? That was the information they had when they issued their approval?
5765. MR. JOHNSON: They had the information for 169 full path from Fort Nelson plant to Sunset, yes.
5766. MR. DENSTEDT: Yes, thank you.
5767. MR. CHRISTIE: And of course, the NEB relies on the check boxes in all of the OAS Section 58 applications, and this was unopposed.
5768. MR. DENSTEDT: I'm not saying it was opposed, sir. I'm saying I'm just trying to get the facts straight.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt
5769. Since we had it up, we should have another -- couple of final questions on this point. Could you pull up A76439-3 -- I think we were just there -- and page 14 of that document. We have that?
5770. So Mr. Johnson, can you look at request J by NGTL, and it says:
"Please provide the estimated stand-alone toll for the Stewart Lake Extension, including the cost of the Sunset Creek compressor station, based on the actual cost [in (d) and (e)]."
5771. And if you look across the page, you'll see those costs. And the contract quantity in (f) above, and (f) above is the 169.2 that we just talked about, and asked you to calculate the stand-alone toll. Then if we scroll down to the answer to J, you'll see the response from Westcoast, and instead of using the 169.2 you use the 469.2 million cubic feet a day.
5772. My question, Mr. Johnson, is when you were asked to use the 169.2 in (f) and then chose to use the 469, why didn’t you provide the explanation you just did, sir?
5773. MR. JOHNSON: I think we did in answer G.
5774. MR. DENSTEDT: No, you didn’t, sir. The specific request in J, it says calculate the stand-alone toll based on the 169.2 million cubic feet a day upon which the project was approved by the National Energy Board.
5775. That was the question and you chose not to answer it. And I’m asking why?
5776. MR. JOHNSON: We answered the way we interpreted the question.
5777. MR. DENSTEDT: All right. Fair enough, Mr. Johnson.
5778. Let’s try one more document, Ms. Foreman, and let’s turn up Exhibit A77420-6, which is an aid to cross that we provided to your counsel and it was filed.
5779. MS. BURNYEAT: Can you help us with which number that was, Mr. Denstedt?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt
5780. MR. DENSTEDT: A77420-6. Sorry.
5781. MR. JOHNSON: Can you describe it?
5782. MR. DENSTEDT: Oh, yeah. That is the Schedule V to the Transmission North Expansion. A77420-6.
5783. THE REGULATORY OFFICER: Can you repeat that?
5784. MR. DENSTEDT: A77420-6. Usually it’s me.
5785. Do you have that Mr. Johnson?
5786. MR. JOHNSON: Yes.
5787. MR. DENSTEDT: All right. It’s page 6 of that document, Adobe page 6, Ms. Foreman.
5788. So a couple of questions, Mr. Johnson. Are you ready, sir?
5789. MR. JOHNSON: Yes.
5790. MR. DENSTEDT: At the bottom of that page there’s an estimated toll impact as a result of the throughput of 169.2 million cubic feet a day. And you can confirm with me that it says the toll impact of the expansion would be 2.41 cents. Is that right?
5791. MR. JOHNSON: Correct.
5792. MR. DENSTEDT: And I had a question for you arising out of your provision of this document to Encana. When they requested the Transmission North Application, you provided them a hard copy without the schedules. But when you provided the copies of the High Pine and Jackfish Applications to CAPP, you provided them links which provided them access to all of the schedules.
5793. Is that inadvertent or did you try to exclude that schedule from us?
5794. MR. JOHNSON: Inadvertent.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt
5795. MR. DENSTEDT: Okay, thank you, sir.
5796. Dr. Cicchetti, back to you for a couple of more questions.
5797. I see I’m at three o’clock, sir; I don’t know if you want to break or ---
5798. THE CHAIRMAN: I guess, how long do you have?
5799. MR. DENSTEDT: Not until Saturday. I would estimate 30 minutes.
5800. THE CHAIRMAN: Yeah, why don’t you keep going, and then -- because after you complete your cross we’re going to take a break too before we do ours.
5801. MR. DENSTEDT: Okay, sure.
5802. THE CHAIRMAN: Okay.
5803. MR. DENSTEDT: Dr. Cicchetti, and I can give you a reference for this but I think you’d agree with me, is that in the North Montney Decision the Board said you really need to consider integration and nature of service and cost causation together; you can’t pull them apart and deal with it in that fashion. You have to look at them together. Is that fair?
5804. DR. CICCHETTI: The way I read North Montney I think the thrust was you start with cost causation, and then when it comes to integration and same service you have to consider them in conjunction with cost of service. So I didn’t view them as three equal things to think about together. I thought the emphasis was on cost causation. And then when you think about integration or same service it’s in the context of cost causation.
5805. MR. DENSTEDT: Fair enough.
5806. And Ms. Foreman, can you pull up Exhibit A75851-2 and go to page 7? And that’s Westcoast’s evidence.
5807. Mr. Johnson, you can feel free to chip in on this, but I have a question for Dr. Cicchetti.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt 5808. Are you there, sir? It’s paragraph 24 if you want to have a look at that, Dr. Cicchetti.
5809. DR. CICCHETTI: Can you tell me what I’m looking at? Is this the Westcoast ---
5810. MR. DENSTEDT: It’s paragraph 24 on Adobe page 7.
5811. DR. CICCHETTI: Is this document the Westcoast evidence?
5812. MR. DENSTEDT: Yes, it is.
5813. DR. CICCHETTI: Okay.
5814. MR. DENSTEDT: So you’ve got that?
5815. DR. CICCHETTI: Yes.
5816. MR. DENSTEDT: And I know that Westcoast has made their position on the record very clear in the opening statement. But I wanted to ask you a couple of questions about paragraph 24 and the statement there.
5817. So Westcoast says, and again my friend made some hay with this the other day about they’re not integrated in the same sense -- and then Westcoast says, “Well, that’s the man of one shipper.” And then it says that:
“...there are no existing NGTL facilities that could be used to transport [the] gas.”
5818. And that’s kind of the two things it talks about in that section.
5819. And I guess my question for you, Dr. Cicchetti, is it your view, is it your opinion that the sales gas transmission lines that compete in Northeast B.C. should have their footprints forever frozen?
5820. DR. CICCHETTI: No.
5821. MR. DENSTEDT: No? And is that, sir, because you would say any expansions of those systems shoulder be done on a stand-alone basis and not rolled in?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt
5822. DR. CICCHETTI: No. I explained earlier when we discussing expansions, which I think you’re asking me about now ---
5823. MR. DENSTEDT: Yeah, we should probably stop there because, as I said, I’m a farm kid; I make a mistake once in a while. So I meant extensions. So extensions of those systems should be tolled on a stand-alone basis and not rolled in to any of the rate bases of those three competing pipelines?
5824. DR. CICCHETTI: So I agree with the logic that the Board used in Komie North and in North Montney, which is that the starting point is cost causation. And in looking at an extension, it is the fact that one or a small group of shippers are causing a supply lateral or an extension to be built, and there’s no way that any change in use by anybody else on either the Groundbirch Mainline or the NGTL system more broadly could occur that would free up those other parts of the system to accommodate that demand to extend the system into a new supply area.
5825. So in that case, cost causality would lead me to say that stand-alone common cost pool would achieve the objective of cost causation; it would give special attention to competition; it would look at the public interest and economic efficiency of infrastructure expansion and product a choice; and it would also take into account any integration or same service ideas that might be present, but they would be done in the context of that overarching cost causation user-pay principle that the Board has adopted for northeast British Columbia in both the Komie North and North Montney cases.
5826. MR. DENSTEDT: So Dr. Cicchetti, you’re familiar with this Stewart Lake extension that Westcoast had approved and has been built. Are you familiar with that?
5827. DR. CICCHETTI: I think of it as an expansion because it was least- cost way of giving shippers on T-North access to NIT at Gordondale, or NIT anywhere for that matter, and therefore I view it as the least-cost expansion. So I view Stewart Lake as an expansion, not an extension.
5828. MR. DENSTEDT: So cost has some role to play in the tolling principles?
5829. DR. CICCHETTI: I think the objective of tolling is to come up with
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt an allocation of cost to a cost pool, a rate design consistent with recovering those costs that are being added to that cost pool but the presumption is that the pipeline is optimizing the system in the sense that it’s picking the least-cost way to accomplish the increased capacity requirements and destination preferences of the shippers which, in the case of Stewart Lake, is the shippers wanting to get onto NIT.
5830. MR. DENSTEDT: And if a pipeline extension is -- you may have heard the exchange between myself and Mr. Johnson about the competition to capture supply. If the purpose of the extension is to capture supply, does it matter whether it’s at one end of the pipeline or the other end of the pipeline?
5831. DR. CICCHETTI: I don’t know what you mean by “one end of the pipeline or not” but I think the objective of tolling is to achieve user-pay cost causation. The objective isn’t to achieve competition, as my friend, Dr. Makholm, I think suggested. I think competition is relevant; it informs and provides the context for thinking about the various tolling principles and how much weight to give to them.
5832. But I don’t think the objective of tolling is competition; I think the objective of tolling is -- as the Board has said in the last two cases, is cost- causation user-pay avoid undue cross-subsidies which reflect movement away from cost-causation user-pay and, further, to take into account the fact that pipelines accepting risk, or at least negotiating risk with shippers, is a key part of the cost-causation principle particularly when producer choice gets heightened attention given the presence of competition.
5833. MR. DENSTEDT: Great. Thanks, Dr. Cicchetti.
5834. Ms. Foreman, can you turn up another exhibit for me, please?
5835. MR. JOHNSON: Can I just add a little bit there?
5836. MR. DENSTEDT: Sure.
5837. MR. JOHNSON: You used the term “Stewart Lake extension” and it is the Westcoast position it is not an extension. And I think Dr. Cicchetti’s comments were as an extension -- or response to an extension but not the response to the Stewart Lake expansion. And let me explain the difference.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt 5838. Can we go to A76439-5? And let’s go to PDF 20.
5839. So what this shows, and what I want to get into, is the difference of -- are the two options that we had when we looked at building the Stewart Lake Pipeline. So map itself, we’ve talked about it before; there’s McMahon in the upper left area. There’s the RGT that is in dark blue; there is the T-North system, and T-North coming out of McMahon; when it goes to the west it’s going towards Station 2; and then when it’s going to the east, that’s the 26-inch going down to Gordondale. You can also see in the light purple the Groundbirch Mainline that NGTL owns.
5840. So when we had our two open seasons, that resulted in the 470 million a day of contract. And Westcoast builds to contract. We had two options. The first option -- and that’s in the aqua-blue labelled “the 26-inch Alberta Mainline Expansion Option”. And that was designed to move the gas once it got down to Station 2, the first part of the project, to get over to the existing NGTL system to access the NIT market.
5841. When we did the open season, we clearly outlined that there could be - - depending on the demand, that may be the preferred route, or there may be another route such as connecting to -- connecting at Sunset.
5842. This option, for the 470, required either 53 kilometres of 36 or 59 kilometres of 30-inch pipeline. And it also required an additional 30,000 horsepower compressor station at Gordondale. So that was a pretty big expansion for 470.
5843. We could accommodate the same volume if we did the Stewart Lake Pipeline. And the Stewart Lake Pipeline was only 20 kilometres long and only had a 20,000 horsepower compressor. So it was -- and Mr. Donahue described this well. It was the least-cost alternative to achieve what our customers were looking for, and that was to access the NIT market. And it would not be proper to build 50-plus kilometres of pipeline when you only had to build 20. And the 50 kilometres of pipeline, as Mr. Cicchetti was getting into, it was existing shippers and new shippers. It was a loop; it was additional compression at an existing compressor station.
5844. Instead of doing that, we did the Stewart Lake Pipeline, and that’s why it’s an expansion. So I don’t want to leave on the record that Stewart Lake is an extension; it is not.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt
5845. MR. DENSTEDT: Okay. So thanks, Mr. Johnson. So if I’ve got you correct, it’s a 20 kilometre piece of pipe that attaches at the one end of the Westcoast system, extends 20 kilometres on new right-of-way, but it’s an expansion?
5846. DR. CICCHETTI: Correct, it is an expansion.
5847. MR. CHRISTIE: And I think the important point there is it was continuing to serve an existing market. It wasn’t extending to a new supply space, or a new market for that matter. This was providing the same capacity to the same NIT market that ultimately was desired.
5848. MR. JOHNSON: And yeah, that’s a good point; there are no supply receipt points on this expansion at Stewart Lake.
5849. MR. DENSTEDT: Ms. Foreman, can we turn up Exhibit 77420-7?
5850. And you would have had some discussion with Mr. Schultz about this. He made my job easier. It’s also the benefit of going last; you get to do less. And this is the application to roll in the Westcoast Alberta Facilities. And before I ask a couple of questions on that, I think Mr. Schultz covered it quite well.
5851. I take, at least Mr. Christie, your view is that there’s a difference between going to supply areas and market areas?
5852. MR. CHRISTIE: The point I was making was that this was -- the comment was in reference to the Stewart Lake Pipeline and it was serving an existing market. Similarly, if you were looping a supply pipeline, it would be similar that it would be caused by the aggregate demand of all those shippers.
5853. Anyone of them could turn back capacity; and if they did that to enough -- sorry, to a sufficient degree, you wouldn’t have to build it in the first place. Whereas if you’re building into a new market or a new supply space where you don’t have an ability to deliver or receive gas, in that case the loop or the turnback of capacity is not an option.
5854. MR. DENSTEDT: So we have the -- right, I’ve got the right document up. That’s good.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt 5855. So just a couple of questions and this relates to a comment you made, Mr. Johnson. And maybe it’s just terminology. And if we turn up -- I think you said the seven laterals that were part of that roll-in, and those seven laterals had, at one time, access supply. Is that fair?
5856. MR. JOHNSON: Long, long ago, yes, there was. It was a supply feeding into the merchant function.
5857. MR. DENSTEDT: Right. And if you could go to page -- paragraph, I guess, 28, page 13 of that document, have a look at that, Mr. Johnson, and I have a couple of questions about that. So I think you said, Mr. Johnson, that the laterals had been decommissioned?
5858. MR. JOHNSON: Good catch. Deactivated.
5859. MR. DENSTEDT: Right. Thanks, and in fact, what it says in paragraph 28, that is:
“Following the acquisition of the Westcoast Alberta Facilities by Westcoast, the Zone A laterals and the Bonanza Booster Station will be maintained in a deactivated state by Westcoast and the facilities will be available for a future reactivation by Westcoast if warranted by demand.”
5860. So it's still within your capability to reactivate those laterals?
5861. MR. JOHNSON: I don't know.
5862. MR. CHRISTIE: And just to clarify, I think the "I don't know" is assuming they're in deactivated states though? We're just -- we don’t know for sure that that's the case, as opposed to the permanent decommission.
5863. MR. JOHNSON: What I do know is, there is no supply connected onto that. That's 26 inch line.
5864. MR. DENSTEDT: And on August 22nd of 2007, when this application was filed, though, that possibility was available to you. In fact, you told the Board about it, that you could reactivate those if supply became available? That's correct, right?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt 5865. MR. JOHNSON: Correct.
5866. MR. DENSTEDT: And if those facilities are reactivated, do they then get taken out of the rate base and get tolled on a stand-alone basis?
5867. MR. JOHNSON: I don't know.
5868. MR. DENSTEDT: Fair enough.
5869. MR. CHRISTIE: I guess we'd be -- it would be an interesting circumstance, because I imagine those lines are probably close to or entirely depreciated, so we'd, yeah.
5870. MR. JOHNSON: One of them has been sold. It's being repurposed for something else.
5871. MR. DENSTEDT: So Ms. Foreman, if we go to page 21, and that was the map, and I think my friend, Mr. Manning, gave you actually a colour map to -- so we could see it better -- there we go. Yeah, that's it. So this is the map that was attached to that application. And if you'd look in the box in the right hand side of the page, you'll see a bunch of dotted lines around the Alberta facilities, and you'll see that Alliance Pipeline runs right through that area, and you'll see that NOVA also runs right through that area.
5872. So clearly, from the map, you'd agree with me that both NOVA and Alliance were already in that area accessing supply?
5873. MR. JOHNSON: Correct.
5874. MR. DENSTEDT: Dr. Cicchetti, can you turn up your evidence?
5875. That's -- Ms. Foreman, it’s A75851-3, and that is page 16.
5876. So Dr. Cicchetti, in the case of the Westcoast Alberta facilities when they were rolled in, at the top of that page 16 just under the quote, you say:
"When pipelines enter or extend into markets already being served, such entry should occur without reliance on cross- subsidies."
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt 5877. Is it your opinion that those facilities should not have been rolled in to Westcoast?
5878. DR. CICCHETTI: By "those facilities", you mean ---
5879. MR. DENSTEDT: The Westcoast Alberta ---
5880. DR. CICCHETTI: --- the Zone 5 or Zone A?
5881. MR. DENSTEDT: The Westcoast Alberta.
5882. DR. CICCHETTI: Yeah. No, I think they should have been rolled- in.
5883. MR. DENSTEDT: Thank you.
5884. MR. JOHNSON: I would also ---
5885. DR. CICCHETTI: And I think a good -- I was going to say, I think a good part of that is the repurposing of those assets for the purpose of bringing gas from the Westcoast system to deliver it onto NIT and the NGTL system. I mean, that was -- so when they -- when the decision was made what to do about the relatively small remaining undepreciated cost, this was not for the purpose of bringing in supply to some pipeline. It was about bringing gas off of Westcoast onto NGTL. And in that sense, they should be rolled in.
5886. MR. DENSTEDT: Thank you.
5887. MR. JOHNSON: And I would add that this was in 2007. There wasn’t the acknowledgement of competition at that time.
5888. MR. DENSTEDT: We've had lots of questions about fifties and sixties and eighties, so I didn’t think 2007 was much of a stretch there.
5889. Just a few quick questions for you, Mr. Johnson. I have some references, but I don’t think there's anything controversial here. I just had a question about, first of all, the High Pine Expansion, if you can confirm to me -- with me that that's a $360 million expansion for 240 million cubic feet a day?
5890. MR. JOHNSON: Correct.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt
5891. MR. DENSTEDT: And Jackfish Expansion is a $216 million expansion with 137 million cubic feet a day?
5892. MR. JOHNSON: Correct, and both are looping and compression ---
5893. MR. DENSTEDT: Yeah, I understand.
5894. MR. JOHNSON: --- on existing systems.
5895. MR. DENSTEDT: I understand. And the T-North Expansion was a $149 million expansion with -- for a capacity of 369 million a day?
5896. MR. JOHNSON: Subject to check, yes.
5897. MR. DENSTEDT: Okay. And Transmission North was $260 million expansion with 169 million cubic per day, and the original application, and I think it's all explained, the 469, where we are today. Does it agree with that?
5898. MR. JOHNSON: Correct.
5899. MR. DENSTEDT: Great, thanks. So I'm down to my last few questions, so I think the timing should be pretty good, sir.
5900. Ms. Foreman, could you bring up Exhibit 77420-4? And these are the applications in 2010, I think, to amend the Short Haul.
5901. MR. CHRISTIE: Mr. Denstedt, I think ---
5902. MR. DENSTEDT: Wrong one?
5903. MR. CHRISTIE: Yeah.
5904. MR. DENSTEDT: Okay, let's try A77420-5. Did I get that right? Sorry, I misspoke. Perfect. I gave you two letters here, one in November and one in December, only because I wasn’t sure if there was things in either of those letters that you might need to rely on, so I thought I'd give you both. I think the letter that's the super -- the December 10th letter, 2010, supersedes the November letter, but if it doesn’t, you tell me, okay?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt 5905. In that letter application, you deal with an amendment to the Short Haul and Northern Long Haul and Short Haul service, and if you could go to page 4-12 of that document -- and I think that's Adobe 4 -- are you there, sir?
5906. MR. CHRISTIE: Did you say page 4?
5907. MR. DENSTEDT: It's actually Adobe 4. I think it's page 7-1.
5908. MR. CHRISTIE: 7-1, thank you.
5909. MR. DENSTEDT: Are you there? And there's the definition of downstream pipelines, and it says:
"Downstream pipelines means the gas pipeline systems owned or operated by NOVA Gas Transmission and Alliance Pipeline."
5910. See that?
5911. MR. JOHNSON: Yes.
5912. MR. DENSTEDT: And then if we go to the -- where is it here -- the Short Haul service definition on how -- what it applies to, I think you'd agree with me that when you provide the Short Haul benefit to Short Haul shippers, deliveries to Alliance and NGTL are excluded from that; is that fair?
5913. MR. JOHNSON: Yes. Like I said before, Alliance and Gordon -- or NGTL deliveries are not included or never contemplated in Short Haul. The tariff has been like that for many, many years.
5914. MR. DENSTEDT: So Ms. Foreman, can we go to A76439-3 and Adobe page 4 of that document?
5915. So there we have information that was requested by NGTL and it talks about the tolls. Do you see that?
5916. MR. JOHNSON: Yes.
5917. MR. DENSTEDT: And you’ll see the McMahon Gas Plant to Sunset Creek, and Sunset Creek is an interconnect with NGTL.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt
5918. MR. JOHNSON: Correct.
5919. MR. DENSTEDT: And that’s under the 75 kilometres and the toll is 13.46 cents. Do you agree with that?
5920. MR. JOHNSON: Yes.
5921. MR. DENSTEDT: And then the Pine River Plant, which is 20 kilometres from Station 2, that gets the favourable short-haul treatment, which is less than a penny. It’s .93 cents. Have I got all that right?
5922. MR. JOHNSON: Yes.
5923. MR. DENSTEDT: Great. So I’m going to ask you to get a -- if you have a pencil handy it might be easier to take some numbers down, and then we’re going to go to a map and sort some things out.
5924. And Ms. Foreman, in the meantime can you pull up Westcoast Response to Encana, 76439-5 at page 23?
5925. Great. Okay, you have that pencil handy?
5926. Okay, so if you look at Fort Nelson, see there the distance to Station 2 is 355. If you can just jot that down so that you have that in your head when I ask the next questions.
5927. And then I go to Caribou West, which is 210 -- or 203 I think, actually -- 203 kilometres to Station 2. Got that?
5928. MR. JOHNSON: Yes.
5929. MR. DENSTEDT: And Altares West, which is 90 kilometres to Station 2. Got that?
5930. And then we have Farrell Creek, which is 73 kilometres to Station 2 and Groundbirch West to Sunset, which is the connect to NGTL, which is 20 kilometres? Is that correct? I think I read that right -- 29, sorry. I couldn’t read my own writing.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt 5931. So you have all that?
5932. MR. JOHNSON: Yes.
5933. MR. DENSTEDT: Great. So Ms. Foreman, could you pull up my last aid to cross-examination, which is the map A77420-8? So we need to see the whole map if we can. I think it’s useful. And it will be hard to see but we’ll sort it out as we go.
5934. THE REGULATORY OFFICER: Do you need the boxes surrounding it or just the map?
5935. MR. DENSTEDT: I just need the map. Well, we can scroll down as we need to, Ms. Foreman. I don’t think anything will turn on how we look at this.
5936. So let me start with Fort Nelson, which actually isn’t on this map because it’s farther north; it’s some place on the third floor. And the toll from Fort Nelson to Station 2 is 13 and a half cents, correct?
5937. MR. JOHNSON: Yes.
5938. MR. DENSTEDT: And so we travel 145 kilometres south to Caribou West and a shipper putting gas on at that location and going to Station 2 would be 13 and a half cents, correct?
5939. MR. JOHNSON: That is correct. The T-North system is a postage stamp ---
5940. MR. DENSTEDT: Yeah, I understand.
5941. MR. JOHNSON: It was approved by the Board. That model was approved by the Board back in the late eighties. The big reason it was approved is because of the bi-direction nature of T-North. You can’t really measure the distances and that’s why it’s postage-stamped. And when T-North connects to NGTL, T-North is a separate cost pool. And it pays 13 cents and then connects to NGTL, which is a separate cost pool. Similarly, T-North is delivering to Station 2 and then it connects to T-South, which is a separate cost pool.
5942. MR. DENSTEDT: And the folks who put gas onto the T-North system from the third floor at Fort Nelson down to Station 2 -- the people they get
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt that 14 kilometres; they don’t pay anything for that, do they? There’s no separate toll; it’s postage-stamped, right? That means you don’t have to pay for that, right?
5943. MR. JOHNSON: It is postage-stamped.
5944. MR. DENSTEDT: Right. And the same logic applies at Altares West, which is 90 kilometres. It’s also 13.5 cents, correct?
5945. MR. JOHNSON: Correct. Any postage stamp will apply to the existing system. And if an extension is built that would be stand-alone; it wouldn’t be rolled in to the system.
5946. MR. DENSTEDT: And then we get to Farrell Creek, which is further south, and now it’s less than 75 kilometres so it’s .93 cents to go those 73 kilometres to Station 2. Am I right there?
5947. MR. JOHNSON: Correct. That was the contract that was of discussion for the other documents you were referring to.
5948. MR. DENSTEDT: And Groundbirch West, which is 20 kilometres to Sunset, that’s 13 and a half cents, right? Because that goes to NGTL.
5949. MR. JOHNSON: Correct.
5950. MR. DENSTEDT: Okay. So for a shipper at Farrell Creek -- if I’m shipper A at Farrell Creek and I’m accessing Station 2, and I’m a shipper at Groundbirch West, Shipper B accessing NIT, the shipper at Groundbirch West, the one accessing NIT, pays 14 times more than the shipper at Farrell Creek. Do I have that right?
5951. MR. JOHNSON: That is the current toll design for T-North. I’m not sure if it would be very easy to convert your Groundbirch West to Sunset to short haul. I see some fairly significant problems with that because now you have a toll such as the Tower Lake Extension which is only collecting $1 million on a cost- of-service of 18 and that’s now competing with a T-North short-haul toll, which is less than a penny. That’s not the true cost of that.
5952. So now we have two cost-of-service pipelines competing with each other, sending improper price signals in an area where competition exists, which
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Mr. Denstedt is against where the Board has landed where with competition cost causation is important and proper price signals are important.
5953. It also would push out anybody else who didn’t have that model, whether it be field services or other pipeline companies wanting to compete.
5954. MR. DENSTEDT: But a shipper on T-North who wants to access NIT in that situation pays 14 times more than the other shipper.
5955. MR. JOHNSON: That is the toll design.
5956. MR. DENSTEDT: All right, thank you. And that’s all I have, sir. Thank you very much.
5957. Thank you, Panel.
5958. THE CHAIRMAN: Thank you, Mr. Denstedt.
5959. We’ll take about 15 minutes and then the Board will have their questions for the panel.
--- Upon recessing at 3:35 p.m./L’audience est suspendue à 15h35 --- Upon resuming at 3:52 p.m./L’audience est reprise à 15h52
5960. THE CHAIRMAN: Okay, Mr. Smellie, you go ahead.
5961. MR. SMELLIE: Thank you, Mr. Chairman. Sorry for the intrusion but it relates to an undertaking.
5962. You’ll recall this morning that my friend Mr. Duncanson -- perhaps it was yesterday; I can’t remember. In any event, he asked the Fortis panel for an undertaking to provide a copy of the non-confidential executive summary of the 2016/2017 FortisB.C. Energy annual contracting plan. And we took that away.
5963. We’ve since discovered, sir, that while the annual contracting plan is on file with the British Columbia Utilities Commission, the commission hasn’t yet made its decision. And until it makes its decision, that non-confidential executive summary is not available.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell 5964. Typically, that Commission's decision on those annual contracting plans is made about now but it might be July and since it's probably not going to be available before this record closes, I spoke to my friend, Mr. Duncanson, and he has relieved me of the undertaking, and if you would do that as well, then I can consider it discharged.
5965. THE CHAIRMAN: Was that Undertaking number 6?
5966. MR. SMELLIE: It was.
5967. THE CHAIRMAN: So that was the one that Ms. Foreman wanted me to find out to put a number on. We don’t have to put a number on it now.
--- (Laughter/Rires)
5968. THE CHAIRMAN: Thank you, very -- I think now I'm confused. You got what you wanted, Mr. ---
5969. MR. SMELLIE: I'll sit down. Thank you, sir.
5970. THE CHAIRMAN: Now I've got myself confused.
5971. Ms. Bell, you have some questions from ---
--- EXAMINATION BY/INTERROGATOIRE PAR MS. BELL:
5972. MS. BELL: Thank you, Mr. Chair. Good afternoon, panel. I'm going to start with a Board IR seeking details on Westcoast's claimed harm.
5973. Ms. Foreman, could you please turn up Exhibit number A76439-2, which is Westcoast's response to the NEB's IR, and let's go to Response 1.2(c.2) which is at PDF page 4 of 13. You could just scroll down a little -- yeah, scroll down a little bit more, please. Thanks. Oh, perfect.
5974. So in response to c.2, the first bullet there says that,
“Gas would leave the South Peace Pipeline (and the McMahon Gas Plant and the Zone 3 system) as the existing contracts on the South Peace Pipeline expire.”
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell 5975. Can you provide information as to when contracts on the South Peace Pipeline expire? And I appreciate that you'll likely need to take this on undertaking and aggregative information such as expiry date by volume is fine if necessary to protect confidential information.
5976. MS. BURNYEAT: My only hesitation is that we wouldn't typically supply that information at all because it's commercially sensitive. Ms. Bell, I guess -- I have to say, I'm not quite sure how to answer your question to accept the undertaking. As you know, we're, you know, our gathering and processing contracts are confidential between the shippers, so ---
5977. MS. BELL: Is there a way to provide the information that wouldn't disclose anything commercially sensitive if it was aggregated at a high enough level?
5978. Perhaps I can help. May I suggest that you take it on undertaking and if there's something that you can provide that wouldn't require the disclosure of confidential information that you provide it, and if not, then you can just reply to the undertaking indicating that it’s not possible to answer that question; does that work?
5979. MS. BURNYEAT: Thank you. With those qualifications, we'll take that undertaking away.
5980. MR. DAVIES: Ms. Bell, just before we do that, I'm thinking, for example, if we could provide something which indicated -- of course, without divulging individual shipper names -- the expiry profile of contracts, which, I think, is what you were looking for? But I wonder if, in conjunction with that, we could hear from CBRP's counsel as to whether there would be any objection to filing that sort of information?
5981. THE CHAIRMAN: Ms. Slipp, are you ---
5982. MS. SLIPP: Thank you, sir. I might just need Mr. Davies to repeat that and have Mr. Dunlop listen closely.
5983. MR. DAVIES: I'm just thinking about ways to try to accommodate the request, and the request was for information with regard to expiry of contracts on the South Peace Pipeline. Now, of course, we wouldn't divulge individual shipper names. We'd try to aggregate the volumes, and I was just interested in
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell asking at this stage whether CBRP and Encana would have any objection to that.
5984. MS. BELL: I'm not sure it's necessary to do it right here. Could we just do it the undertaking way, where you go away, you can talk to whoever you need to talk to, and if they -- anything comes up back there. And if they're okay with the level of information, then provide it. If there is nothing you can provide without disclosing anything commercially sensitive, then that's fine too, and just indicate that in your response.
5985. MR. DAVIES: Sure.
5986. MS. SLIPP: And that's fine for us as well.
5987. THE REGULATORY OFFICER: That undertaking will be Number U-8 (sic), and we'll assign an exhibit number to it. The Exhibit number will be A77437.
--- UNDERTAKING NO./ENGAGEMENT No. U-7:
By Westcoast Energy Inc. to provide information with regard to expiry of contracts on the South Peace Pipeline.
--- EXHIBIT NO./PIÈCE No. A77437:
Westcoast Energy Inc. - Request relative to Undertaking U-7
5988. MS. BELL: In that line that I read to you, it doesn’t reference expiration of contracts on the McMahon gas plant or Zone 3, and so I'm wondering, is that because the loss of volumes at McMahon and on Zone 3 would be a result of the offloading of the South Peace Pipeline?
5989. MS. BURNYEAT: That's correct.
5990. MS. BELL: Are there additional contracts expiring as well at McMahon or Zone 3 that would also have an impact on gas leaving the system?
5991. MS. BURNYEAT: Would you repeat the question, please?
5992. MS. BELL: Sure. So you’ve indicated that this reference here where it says that gas would be leaving the McMahon gas plant and the Zone 3 system,
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell you’ve indicated that that's because of the offloading of the South Peace. Is that the entire reason or are there other contracts that will also be expiring, just on McMahon and on the Zone 3?
5993. MS. BURNYEAT: What we've provided here is just in relation to what gas could be offloaded from the South Peace Pipeline, McMahon, and Zone 3, all that gas valued link.
5994. MR. JOHNSON: Let me take a shot at it. I think your question is saying, are there other contracts at McMahon or T-North that could expire? Certainly there are. But whether they're renewed or not renewed is the normal course of business.
5995. When we look at the South Peace Pipeline, because of the improper price signals, because of the competition, the $1 million versus the $18 million in revenue, that's not normal course of business. No one can compete with a zero toll, or near zero toll. And that's where we're focusing, is on that -- those contracts as they expire, and they will, over time, declining as Mr. Denstedt showed us. That volume is going to go to the new Tower Lake section. It's going to go to the production dedication that Veresen had in the exhibits that Mr. Davies brought up the other day. And it's going there because of a half cent toll when it should be 9.2.
5996. MS. BELL: Thank you. I'd like to bring up something from Wednesday's transcript and then go to your evidence, just to get your views and clarify a few points.
5997. Ms. Foreman, can we begin with Transcript Volume 4 at line 4384? And in that passage, Mr. Schultz asked the Fortis panel some questions about footprint. He was speaking of NGTL’s toll methodology and ATCO integration application and he states:
“And I just wanted to confirm you understand that as part of that integration there was an asset swap that related to the integration agreement defining footprints within which only ATCO would build facilities or only NGTL would build facilities but they would stop competing with each other within their respective footprints.”
5998. Then Mr. Schultz asks if he has that understanding and Mr. Mertins
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell says that he does.
5999. My first question is, have Westcoast, Alliance, NGTL, producers in Northeast B.C., and other interested parties tried negotiating any sort of framework for the area that might set out footprints where pipelines will not compete with each other for each of the major pipelines in the area?
6000. MR. JOHNSON: No. And to put some colour around this, the reason behind that is it’s Westcoast’s position that they best way to develop the resources in the area is to have extensions tolled on a stand-alone and let the market decide that way. I would expect if there were ever an ATCO-NGTL-type discussion, you’re going to get into who’s ATCO and who’s NGTL.
6001. MS. BELL: Now, if you could please turn to Exhibit number A75851-2, which is Westcoast’s written evidence, at PDF page 14. And we’ll look at paragraph 45.
6002. MR. CHRISTIE: Sorry, Ms. Bell, just one second.
6003. MR. JOHNSON: Mr. Christie is giving me a gentle reminder. So back to your previous question, I don’t think there’s ever been a formal get together of all the different stakeholders and pipeline companies. Have there been discussions at the executive level? I’ll just say there may have been. Executive being above my level.
6004. MS. BELL: Thank you.
6005. Do you have paragraph 45 of Westcoast’s written evidence before you?
6006. MR. JOHNSON: Yes.
6007. MS. BELL: So the first line of the paragraph states:
“With regard to sales gas pipelines in [northeast BC], Westcoast’s position is as set out in its request for an inquiry and in its evidence in the subsequent GH-001-2012 and GH- 001-2014 proceedings.”
6008. Then we can skip down to the second-last line of that paragraph. And
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell in that passage it states that:
“...all new pipeline extensions connecting to the existing transmission systems in [northeast BC], including extensions proposed by Westcoast, should be tolled on a stand-alone basis, so that the users of the extensions are accountable for the costs that they cause.”
6009. Is it fair to describe that position as advocating for a limit of the areas in which each of NGTL and Westcoast could charge rolled-in tolls?
6010. MR. JOHNSON: Yeah. But I think as a general rule expansions are going to be rolled in and extensions would be tolled on a stand-alone basis. Those extensions could expand, I guess, the Westcoast footprint, but it would be Zone 3 footprint. And I shouldn’t use the word “footprint”; I should use the word “system”.
6011. There may be at some time in the future exceptions to that rule, but that’s why we have the NEB. Those facilities would be applied for and if there was this special case or this exception, that would be recognized at that time. I don’t know what that would look like. I just want to keep the options open here.
6012. MS. BELL: You’ve said you don’t want to use the term “footprint”, but isn’t that effectively advocating for a limit to NGTL and Westcoast footprints, that they would be able to do extensions as long as it was outside of a certain area and on a -- excuse me, did I say extensions? The extensions would have to be on a stand-alone basis and expansions would be rolled in but only within that area.
6013. MR. CHRISTIE: I guess if it’s helpful -- I mean, if we point to the Tower Lake section as an example, if it were tolled on a stand-alone basis it’s still an NGTL pipeline. So I guess that’s where the question of -- it’s not totally clear that you’re -- you’re not necessarily freezing the footprint. The rolling in of new expansions, you know, there’s a question there of where you can do that. I mean, you can roll something in where there’s an existing facility because you’re adding compression or loop. I don’t know if that’s helpful to what you’re asking.
6014. MS. BELL: Would it be fair to say that that is essentially freezing the footprint as far as toll methodology is concerned?
6015. MR. JOHNSON: The short answer is yes, but it’s hard to predict
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell where the future would go.
6016. MR. CHRISTIE: And the obvious thing, of course; toll methodology isn’t frozen. Like, it could change within those systems.
6017. MS. BELL: Perhaps you can help me with the logic behind drawing a line in the sand based on the current system footprints. So why should the Board rule that the footprints are appropriate as-is and that they shouldn’t each be smaller, larger, or something else? Or to put it another way, what reasoning or principles dictate when and where the Board should draw its line such that the toll methodology would be set to that footprint at least for that period of time until it was revisited?
6018. MR. JOHNSON: I’ll pass this over to Mr. Cicchetti in a moment -- “Doctor”, sorry.
6019. What we’re looking at is competition in Northeast B.C. And because of that competition, cost causation is very important; we want to make sure we have the right proper price signals. And when it comes to cost causation when you look at expansions on the existing systems, there’s existing shippers; there’s new shippers. We’ve talked about that.
6020. Extensions -- it’s very clear who’s causing that extension similar to the North Montney case where progress was clearly causing that extension. So because the only company or companies that are causing the extension are the shippers on that extension, it should be tolled on a stand-alone basis.
6021. Back to your question, Ms. Bell, I’m not sure where -- you know, if you can start dicing and slicing up the zones. If you look at the history of T- North, and this is going way back again, it was at one time distance-based. Then in the mid-eighties it changed to two separate zones; there was a zone on Fort Nelson and there was a zone on the Fort St. John Mainline. And then in the late eighties it became all one big zone with postage stamp.
6022. So things do change. I don’t want to leave the impression, and that’s as Mr. Christie was saying, that you have to look down the toll design. It may change. But at the very least let competition drive what’s going to get developed and where it’s going to get developed, and let the level playing field drive the market.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell 6023. And with that I’ll pass it over to Dr. Cicchetti.
6024. DR. CICCHETTI: Thank you.
6025. I don’t know which comes first, the idea of avoiding undue and unfair cross-subsidies and pipelines taking utilization risk including the risk of sizing of the pipe, or whether what comes first are the principles of cost-causation user-pay. But regardless of which come first I think that the Board has recognized in Komie North and North Montney that on a case by case basis these are the tolling principles that matter.
6026. And when these tolling principles are applied to an existing footprint in the sense that new shippers could use facilities that existing shippers are already using, then to me cost causality says a common cost pool, particularly when you have off-ramp that existing shippers in an open season have the right or the opportunity to give up some of their use -- when you have those two things present you could serve the new system by having some existing customers going off the system. When that’s present, then cost causation to me says a common cost pool.
6027. Then the toll design becomes a separate step, which I think the Board is also -- I know the Board has also recognized in its discussion in North Montney as a two-step process. That toll design is yet another issue or another matter to consider. And there I think the toll design starts to run into the heightened care that’s has to be given to public interests and economic efficiency in terms of infrastructure development when it comes to the choices that producers make. And this is where it becomes important to look at the toll design that’s in question as well.
6028. But when you put it all together, I think that it really comes right down to the fact that at least the presumptive starting point is that if it’s an extension, stand-alone cost allocation, and then review the toll design that’s associated with that, is the presumptive place for an extension.
6029. For an expansion I think the presumptive place is to understand that both existing and new shippers on a particular chunk of line are using that same line and are therefore jointly responsible for the incremental -- or for the total demand that’s causing the capacity to be in place. And that’s particularly present -- despite any objections that other experts might be having with it, that’s particularly relevant in Canada where there’s no acquired rights.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell
6030. And so I think the presumption for expansions is, again, case by case review -- as the Board has said it thinks is the right answer as opposed to some generic answer -- is to start on expansions with rolled-in and to start on extensions with stand-alone.
6031. MR. CHRISTIE: If I can just add, Ms. Bell, I think -- a way that I look at it is when you have a system that’s extending into an area all by itself, it’s quite a distinct scenario as compared to where they’re actually starting to -- you got two systems and you’re starting to duplicate facilities. And you’ve got different companies willing to connect the gas supply, willing to do it competitively, I think, you know, there’s -- there’s no question that over time the -- when the Board looks at cost-causation they -- it’s a factor.
6032. I think when you’ve got, you know, the potential to duplicate these facilities and also harm competition in the area, you know, I think you’ve got a scenario where you might not want to allow an existing toll design to continue to spread.
6033. MS. BELL: Thank you. I think I just have one last question on this topic and that is, I hear you saying that extensions should be paid for by those that require them and so they should be on a stand-alone basis. But I think that -- what I’m trying to get at here is, why this extension, or ones that follow, and why not the ones that preceded these ones?
6034. MR. CHRISTIE: Could you clarify which ones you’re referring to when you say “the ones that preceded them”?
6035. MS. BELL: Well, I think what we’re saying now is that everything that’s currently there, right, would continue to be tolled. If it was an expansion it would be rolled in. And if it was an extension that it would be stand-alone. So anything that would come after, so Tower -- presumably Tower Lake and anything that comes after, if it’s an extension, then it’s going to now be stand- alone whereas previously it may have been on a rolled-in basis.
6036. MR. CHRISTIE: Okay, I’ll start with this one and I think I’ll be handing it over to my peers up here.
6037. One thing -- I mean there’s -- as I think sometimes has been said by Mr. Johnson, you know, there’s some question when you look back, “What would
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell I have done then?” Maybe you’d have done things differently. And I'm talking from Westcoast’s perspective. Would we have intervened on another project if we had been aware of what was coming? Perhaps. But I mean I go to -- I mean, we agree with the idea -- this was in the Board’s North Montney Decision -- that -- I’ll quote it. At page 29 they said:
“The Board observes that once facilities are built, transition to a new rate design is difficult as the pipeline owner would have invested in fixed facilities and producers would have invested capital upstream of the pipeline.”
6038. I think that’s a reality that we recognize. And I mean part of it is the unscrambling the egg, which has been brought up. But, you know, also there’s the fact that the facilities are already in the ground, and it goes to that point.
6039. DR. CICCHETTI: I’d like to try to answer your question related to “Okay, now we’re talking about the new stuff; what about the old stuff?” And I’ll begin with the new stuff. And the new stuff here, in my mind, is the Tower Lake extension, that 32 kilometres. And in that case we’ve got a situation where the contribution to revenue is less than a -- or about $1 million a year relative to what it would be if the shipper wants to enter NIT and pay the NIT charge versus paying for Tower Lake.
6040. And the cost of service for Tower Lake is almost $18.5 million so there’s a $17.5 million shortfall of cost of service recover relative to the incremental revenue. And that $17.5 million shortfall has to be made up by somebody else. And I think that if you look at it -- and that’s on an annual basis. And over time the amount of contribution that all other shippers on the NGTL system have to make to the single shipper on Tower Lake, at least to me, passes the test that that’s an undue cross-subsidy.
6041. Second, related to, again, the existing system, getting at the utilization question, which I think is a component of a cross-subsidy, NGTL has a contract demand that for 550 million cubic feet a day is building a pipeline for 880 million cubic feet a day, which has roughly 60 percent excess capacity. Now, under their proposal, that -- the risk of that, the cost recovery of the, the cross-subsidy associated with that would be borne by the rest of the system.
6042. So I think that in the present case, which is what part of your question was dealing with, I think that the Board should do what it did in Komie North and
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell North Montney and recognize that this departure in terms of cross-subsidy and utilization risk from cost-causality user-pay is sufficient to deny the toll design and toll allocation method that NGTL is proposing. And I think that while it’s not the only solution, the idea of having a stand-alone toll and a stand-alone cost allocation would accomplish the objective of cost-causality and user-pay.
6043. Now, with respect to the second part of your question, which is, “What about the stuff that exists? How did we get there and what is that all about?”, I think the Board doesn’t get enough credit for recognizing in the Groundbirch Mainline Decision that it was -- it articulated the fact that it was not accepting -- or rather, it was not endorsing the principle of rolled-in tolling in authorizing the Groundbirch Mainline to go forward.
6044. And I think it was sort of warning us that there’s going to be some set of issues that we’re going to have to deal with. And it didn’t rise to the case of the Groundbirch Mainline because it was a line that was extending the NGTL access, the NIT access into northeast British Columbia.
6045. But then what started to happen with Komie North and with North Montney, is NGTL’s request for additional extensions into northeast British Columbia were starting to bypass uneconomically assets that Westcoast and others had in place. And that uneconomic bypass was threatening the commercial viability and threatening to create stranded cost and raising questions related to the ability to compete against a rolled-in system that would essentially have tolls that would be capped at plus and minus 8 cents in a way that would make it impossible to come up with a toll that even began to make the additional contribution to revenue to cover the extra cost.
6046. And so when that uneconomic bypass comes, then there’s no question that you were going to, as I think even the Board anticipated in their Groundbirch Decision -- people are going to have to sort this out.
6047. And I think that’s what we’re talking about now. And I think the Board has also said, when Westcoast asked for an inquiry back four or five years ago, it wants to do it case-by-case. And I think in principle you can get the tolling principles straight and reinforce them case after case, but each case has its own unique set of facts which make it almost impossible to have one answer to fit all.
6048. But I think the principle that extensions should start with stand-alone and expansions should start with rolled-in, particularly when there’s uneconomic
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell bypass and particularly when it’s threatening to undermine competition and strand investments that have been made in the past under the rules and the economic conditions that existed, those are where the Board I think has to step in.
6049. MS. BURNYEAT: And if I just can add from the realities that Westcoast faces in Zones 1 and 2, we have facilities that exist today that we’re at risk for today, utilization and financial risk. And so what we see going forward is, again, if NGTL is allowed to get the rolled-in tolling that they’re seeking for the Tower Lake section, we’re going to be at a competitive disadvantage. And so what tools in the toolbox do we have to compete with that to try and keep gas today on our system or attract gas in the future as we lower our tolls?
6050. And we want to compete and we have to compete. We’d like to compete on a level playing field. We can compete by dropping our tolls in the short-term. In the long-term that makes it very challenging for us to have a sustainable business.
6051. Our concern of course in this proceeding is around the Tower Lake section. A concern that we have is, well, what’s next from NGTL? Is there going to be another line that’s proposed further north across the Peace River to the McMahon Plant or further on potentially stranding more of Westcoast assets where we have to compete with a toll design that turns out that tolls are priced well below what their costs are?
6052. MR. CHRISTIE: And just a correction. My quote was from Komie; I apologize.
6053. MS. BELL: Thank you.
6054. If we can now go to Exhibit A76789-1, which is NGTL’s reply evidence, at PDG page 24. And if we look at figure 2-3, we see that it’s an illustration of resulting tolls and stand-alone tolling for the Tower Lake section.
6055. Can you scroll up, please? Yeah, that’s good, thanks.
6056. So you can see in this illustration a toll of 35.9 cents per Mcf for Tower Lake receipt metre stations as well as existing tolls on other receipt metre stations in the area, such as a toll of 27.9 cents per Mcf on Saturn.
6057. Can Westcoast explain whether the stand-alone tolls on the Tower
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell Lake section could be considered not unjustly discriminatory while considering other tolls in the nearby vicinity on NGTL’s existing pipelines?
6058. DR. CICCHETTI: So this is partly a reference to what I call two wrongs don’t make a right that Mr. Reed has questioned in his appearance.
6059. The way I think about it is that the Saturn extension or the Saturn line had an incremental cost stand-alone of about 7 and a half cents, and it had a current NGTL tolling, with taking into account the toll design as well as the caps and the system, of I think it was 6 tenths of a cent. So there was about an 11-to-1 difference between the stand-alone number and the number that was actually charged incrementally for this extension.
6060. So I think that the Saturn extension should have failed the criteria of looking at the size of the core subsidy that’s involved. It was a $59-or-so million investment and the contribution under the toll design is an incredibly small amount relative to the extra cost involved in terms of stand-alone tolling versus incremental tolling.
6061. So I didn’t get into the numbers in my evidence, but I could just -- looking at it without even getting at the detail of the data, I could tell that that never should have been built and approved or accepted, however you want to put it that way; it never should have gone forward under the kind of rolled-in tolling existing toll design that was used for it.
6062. Now you’ve got a new one and the new one is Tower Lake. And here I think the issue isn’t price discrimination between a shipper on Tower Lake and on the Saturn extension. Here I think it’s a situation where Tower Lake has even greater costs, $158 or $159 million. The difference that we’re talking about is even greater; it’s like 18-to-1 as opposed to 11-to-1. And stand-alone tolling was justified on both.
6063. But I think the fact that Saturn sort of got through the system without it is not a sufficient reason to reject both the anti-competitive effects, the lack of a level playing field, and the inability of Tower Lake to be justified from a cost causality user-pay perspective.
6064. So I think if the Board continues the logic it used in Komie North and North Montney, Tower Lake should be on a stand-alone cost recovery and toll design that makes sense to get that recovery on a cost causality user-pay basis,
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell which probably means your starting point would be that 9 point some odd cents tolled that would be associated with that line.
6065. MR. CHRISTIE: And just to add from my perspective, I’m not sure where in the proceeding it was referred to, but there was a discussion about this already. And you know, the Board can approve different tolls for different routes and so on.
6066. And you know, my reading of that is the Board has latitude to decide what is just discrimination. We’re talking about facilities that go, you know, clearly -- I mean, looking at the map that we’ve all been referring that’s been on the screen, you know, it’s to a different location; it will be over a different route. At no point is going to be comingled with the gas from, for example, the Saturn extension until it gets down to the Tremblay point.
6067. So you know, it will have been built at a different time. I think there’s a lot of things that distinguish it. I mean, the Board could of course choose to adjust the tolls on the Saturn line if it felt that there was an issue there. That’s not what we’re advocating.
6068. We think that as we discussed earlier, you know, you can draw a line in terms of, okay, those investments have been made. We'll accept that, but if you -- if, by extension, you're then -- your hands are tied, in terms of not being able to do anything different with new toll design on new extensions, I mean, clearly, I think that's not the intent. The Board's hands are never tied in that way.
6069. MR. JOHNSON: I'd also add to that that the stand-alone toll of 9 cents, that's still a very good deal to get onto the or access to the NIT market. The T-North shippers pay 13 cents to get access to the NIT market.
6070. MS. BURNYEAT: And I think just one final comment on this issue; similar to what you've heard from some of the other panels up here, if we were able to walk back in time, we might have taken a different view on that application.
6071. MS. BELL: Thank you. Can we please turn to NEB -- the NEB's aid to cross-examination, which was Exhibit number A77371? Do you have that?
6072. MR. JOHNSON: Yes.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell 6073. MS. BELL: In this aid to cross, some figures have been pulled from NGTL and Westcoast's 2015 annual surveillance reports. And if we could go down to PDF page 2? That's great, thanks.
6074. So you can see on this page that the total revenue per throughput kilometre for NGTL, which is $28.54 per million cubic metre kilometre, and for Westcoast it is $28.83 per cubic -- sorry, per million cubic metre kilometre. So they're very close, those two figures.
6075. And are you familiar with the discussion I had with Mr. Keys yesterday where we talked about this?
6076. MR. JOHNSON: Yes.
6077. MS. BELL: So if we could pull up Transcript -- excuse me -- Transcript reference Volume 4, line 3085? And so we'll just read it in quickly. I know you said you're familiar with it.
6078. So Mr. Keys said that yes, mathematically the numbers are close.
"I don’t think we’ve ever looked at the comparison in this context but yes, numerically they’re very close. I’m not sure that’s indicative, from our perspective necessarily of the cost to provide particular services on either Westcoast’s system or ours, largely because numbers like this aren’t reflective of things like vintaging, for example, of facilities."
6079. Can you please comment on the usefulness of this metric as a comparable, particularly across systems?
6080. MR. JOHNSON: Mr. Keys and I may not agree on a few things, but this one we are completely aligned. I -- this report, it's really not an accurate measurement of the average distance of haul, and there are numerous reasons why, but no, it's -- I agree with Mr. Keys.
6081. MS. BELL: Nice to see that that happens once in a while. That's great.
6082. If we could now pull up Exhibit A75176-1, and we'll go to PDF page 55.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Ms. Bell
6083. So this is NGTL's response to NEB IR 1.22 (b). And NGTL has provided a table with a demand forecast for each export point on the NGTL system. The table identifies which specific market areas might be served through each export point via transportation on interconnecting pipelines.
6084. Could you please undertake to provide a projection, in table form, of Westcoast's demand forecast for the market areas described in Table 1.22-2 that Westcoast also serves?
6085. MR. JOHNSON: I can't pull out the quote right now, but the answer is, unfortunately, no. Westcoast does not do the -- a long-term market forecast for the markets. We do rely on certain publications from the downstream market to appreciate it, but we don’t do an internal one.
6086. MS. BELL: Okay, thank you.
6087. Just one final question, and this is a follow up to a response given to Member Lytle yesterday, and it's at paragraph 3188 on Transcript Volume 4.
6088. Mr. Keys, in that passage, refers to Westcoast's use of the Short Haul rate in Zone 3 to compete more effectively. And he says,
"A relevant example in this hearing, given the parties that are involved, is Westcoast on its Zone 3. Of course, it uses a postage stamp toll on its Zone 3 sales gas transmission line, but it also offers a short haul rate that's significantly less than the postage stamp rate for customers that are going less than 75 kilometres. And our understanding is, one of the rationales for that is to ensure that it's not uneconomically bypassed on its system and it competes more effectively."
6089. From this response, I understand that Westcoast uses the Zone 3 short haul firm service for competitive purposes. Is this correct?
6090. MR. JOHNSON: No, that's never been the intent of short haul. Short haul accounts for about 15 percent of the overall contract volume on T-North. If you start using that one cent toll, it's going to significantly and adversely affect the long haul toll.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Member Lytle
6091. Just for example, McMahon plant does 600 million a day. It falls within the short haul toll if you assume deliveries to Sunset or Gordondale. And there's significant impact just to start doing that.
6092. The second point, and I talked about it briefly before, is if you have competing cost of service regulated pipelines driving towards zero or free, that's not a proper price signal and cost causation is important in that competitive marketplace. So I -- you don’t want to go there.
6093. MS. BELL: Those are my questions. Thank you very much, Panel.
6094. THE CHAIRMAN: Thank you, Ms. Bell. The Panel does have questions for you, and I'll start with Dr. Lytle.
--- EXAMINATION BY/INTERROGATOIRE PAR MEMBER LYTLE:
6095. MEMBER LYTLE: Thank you, Mr. Chairman.
6096. I'm going to return to a variation on a theme, follow up on Ms. Bell. We've heard concerns that NGTL rolled-in tolls offer that company a significant competitive advantage. What I'm interested in hearing from you are the countervailing, if you want, competitive advantages that you offer to the marketplace that are not available to other NGTL or Alliance Pipelines.
6097. And in particular, if I may, I'd like to hear specifically about the nature of your -- what I'm calling "vertically integrated system" where you touch the molecules first and in my experience, whoever gets to the client first has usually got the best chance of keeping him. So in my mind, in my tiny tot view of the world, that seems to be an advantage, and I'd like your views on that.
6098. MR. JOHNSON: To answer your first or your last question first, that is not the case with Westcoast. We do have -- and some of the questions that were coming -- there can be straight RGT contracts; there could be RGT combination with processing; it could be RGT processing in T-North.
6099. But we have multiple, multiple plants on the system, third parties; they’re doing their own raw gas transmission, their own processing. Competition is alive and well, all feeding into T-North. There is no favoured benefit of staying on Westcoast. In fact, we’re not allowed to give that benefit between the two
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Member Lytle zones.
6100. Dr. Cicchetti?
6101. DR. CICCHETTI: I’d just like to add briefly, as I said earlier, I think the goal of toll design should be cost-causation as a principle. The effect on competition’s relevant but the -- I don’t the toll design should be focusing on the principle of competition.
6102. That said, I think the issue here is that the competition we’re talking about is not on the basis of cost. We have a cost of 158 million that NGTL is proposing. When you look at Westcoast or others, competition, to me, should be how much would they cost -- would their cost be to build it.
6103. And -- but the problem here is that the pricing that NGTL would use with the 158 million in cost only brings in about a $1 million relative to the $18 million in annual cost recovery of that return on and of that 158 million. And so the competition isn’t about two competitors or three competitors offering to do more or less the same thing but at different costs and therefore different prices; the problem here is that NGTL’s toll design has come up with a price that nobody else can compete against.
6104. And there’s nothing that Westcoast or anybody, I think, could reasonably do to make up that 95 percent or so gap between cost and price that the existing NGTL rolled in and other aspects of their toll design allow them to offer unfairly, and certainly on an un-level playing field, against what it is that NGTL is offering relative to what others would offer.
6105. MEMBER LYTLE: So I take it, then, that you wouldn’t agree with Mr. Keys’ assertion that there are other elements of competition that may in fact swap the price issue? And so there’s that question.
6106. And also, I still haven’t heard any -- are you saying that Westcoast has no other tools in its toolbox to offer competition that’s -- in a way that other companies can’t offer?
6107. MS. BURNYEAT: I think I’ll start on that. The tools in the toolbox that we have -- you know, a shipper can come to Westcoast for gathering and processing services; they can build facilities themselves; they can have another third party do it. Westcoast does have an advantage for our shippers if they want
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Member Lytle to get to the station to market; so there’s a -- with the T-North -- from T-North -- the T-North toll of 13 cents. If a producer was going to take a pathway, a gas value chain, where they had a plant and then they went on to NGTL and then came over to T-North to get to NIT, then there is an advantage to being on the -- to the Westcoast system and getting direct access to Station 2.
6108. And when there’s competition to attract gas supply, you have a cost- service pipeline transmission with -- which Mr. Johnson runs, and so you have your set postage-stamp toll.
6109. The other tool in our toolbox for Westcoast is on the gathering processing side. So where we’re competing to -- for gas supply, we can adjust our tolls and their market based tolls where at risk.
6110. And so, as I’ve stated before, you know, we’re prepared to compete; that’s the business that we’re in. What we’d like is to see a level playing field so that it’s not the Spectre shareholder that is -- or the Westcoast shareholder that is absorbing the price differential that another company is allowed to deliver to the market based on regulatory outcome of -- based on being able to provide service at costs that are lower than what it actually costs them to produce.
6111. So we do have advantages, especially depending on which market that you’re going to. Producers over time will always seek the highest netback market and least cost pathway to get there based on gathering, processing, and sales transmission.
6112. MR. CHRISTIE: The one comment I’d make -- I don’t have NGTL’s testimony in front of me about the benefits but I mean one thing that I’ve -- we’ve heard a lot about is the NIT -- the value of NIT. And I mean I think from our perspective that’s a bit of a distraction because the question isn’t, “Oh, people don’t want to get to NIT” or “NIT shouldn’t be there.” That’s the competition is getting to NIT and that there ought to be --you know, the cost of getting to NIT should be paid for by the people who cause it.
6113. And I mean I think back to the example that Ms. Bell took, I think it was, the NGTL Panel through, and the -- if you add the 9.1 cents -- I’m probably getting the numbers slightly wrong but you add that to the Tremblay toll so you get to 37. I forget exactly. You’re in NIT then.
6114. So it’s not a -- this isn’t about do something to harm NIT; it’s about,
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Member Lytle you know, to get to NIT there is competition. Competition is a good thing; the Board has said so lots. I mean the goal of economic efficiency is one of the Board’s goals for as long as I’m aware of. That’s the issue, is, yeah, the NIT market is valuable -- or the NIT hub, I should say. That’s not in dispute, well, by us.
6115. MR. JOHNSON: It may be helpful if I just walk through an example. So let’s think about North Montney; let’s think about T-North. Both of them will deliver gas to the existing NGTL system. Had North Montney been approved the way it was originally proposed, it would have been near zero, or in fact negative later on, and there would have been significant offloading of the T-North system for gas wanting to go to the NIT market. So that’s one scenario.
6116. The second scenario, and where the Board went with the decision, is let’s assume North Montney get’s built; let’s assume the transition period is over; now you have a stand-alone North Montney feeding -- or flowing gas to the NIT market. You have T-North, a separate stand-alone transmission pipeline, sending gas to the NIT market. And T-North and North Montney are competing for that function.
6117. DR. CICCHETTI: I don’t want make it seem like we’re -- everybody wants to answer your question, but I think there’s two important points in Komie North and North Montney that I think are very relevant to your question.
6118. And the starting point is that producer choice or producers that are interested in value chain comparisons -- and they could look at a vertically integrated set of -- value chain or they could look at one where they put the pieces together themselves -- they’re mostly concerned with the netback of all that stuff in the value chain. That’s what producers care about.
6119. And I think that given that producer choice, in Komie North the Board recognized that that means you have to give heightened attention to economic efficiency and the public interest and look at what’s involved in the way the producers are making the choice and whether tariffs or toll design might have some undue influence on it.
6120. In North Montney the Board went even further and said that one of the goals of the decision in North Montney was to prevent pipelines from gaining an unfair regulatory advantage. And I would put it to you, as I think the Board
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Member Lytle recognized in North Montney, that if the toll produces close to a zero incremental toll for something that cost hundreds of millions of dollars -- in this case for Tower Lake, 158 million -- that that would mean that regulation -- applying that toll would give an unfair advantage.
6121. And it’s the unfair advantage that would drive producer choices away from economic efficiency, looking at cost differences as opposed to the price versus the cost difference, and looking at the other parts of the value chain in a way that, in effect, that, notwithstanding that NGTL doesn’t participate in those other parts of the value change.
6122. Their toll produces a producer choice that reflects their toll design, and others upstream or midstream will pick up a contribution from the shippers on the NGTL system of roughly $17.5 million a year in undue subsidy because the costs that we’re talking about not recovering is 18.5 million and the revenue that we’re talking about recovering under the toll design that gives that unfair regulatory advantage is only going to be about $1 million.
6123. MEMBER LYTLE: Thank you. A couple more questions.
6124. I have to admit to being somewhat confused about the short-haul toll. Am I correct in saying it’s 9 cents per Mcf for those shippers who are staying on the Westcoast system?
6125. MR. JOHNSON: Correct, yes.
6126. MEMBER LYTLE: So it seems to me you’ve met the .9 cent per Mcf challenge that NGTL has put up on Tower Lake.
6127. Now, I recognize that Tower Lake is taking it to the NIT and if you take it to the NIT it’s a higher price. But that’s your decision, isn’t it, whether it goes to a higher price or not? I’m not trying to put words in your mouth or anything; I’m just trying to understand this, how this all works.
6128. MR. JOHNSON: The short-haul toll, it was not designed to be a competitive toll. Again, I don’t think you want to be using a cost-of-service type model to compete against another cost-of-service model. There’s not a lot of benefit to do that over the long run. And maybe I’ll get Dr. Cicchetti to talk about that one.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Member Lytle 6129. And presumably because there’s such a large volume that could access that, the .93 cents is not the true cost of transporting it. Again, it’s historical.
6130. Maybe someday we’re going to have to relook at our toll design. And that may change; I don’t know. But I do know that you don’t want to start walking down the path of having regulated pipes compete with regulated pipes and then pushing the cost somewhere else. I don’t think that’s the best way to look at developing a market.
6131. MEMBER LYTLE: Just so that I understand, if somebody were to come into the area and wants to build a pipeline less than 75 kilometres, they’re going to have to meet the .93 cents, aren’t they? Haven’t you set the standard? You don’t want them to do it but you’re doing it. And if I want to build a pipeline I’m going to have to meet your .93 cent like it or not. Am I right in saying that?
6132. MR. JOHNSON: I think (a) you can’t build a 75 kilometre pipeline for .93. That’s just old, new. So this issue came back five years ago when a producer wanted to access the short-haul toll to get to Station 2 from the N5 area. And at the time we created a TTFF subcommittee with a select group of our customers, it was well-attended, with the idea being reviewed the short-haul design. And through that discussion, one of the options was status quo; that’s where we landed. Would it be reviewed again at some time in the future? It may be.
6133. But again, the short haul is only applicable to the existing system. So if you’re 70 kilometres away from that, that’s an extension and that’s tolled stand- alone.
6134. MEMBER LYTLE: Thank you.
6135. Last question is, were you given the opportunity to offer a proposal to Cutbank on this particular section of line?
6136. MS. BURNYEAT: For the Tower Lake section? We were not asked by Cutbank Ridge to provide a proposal on this. An affiliate of Westcoast provided a proposal to build the pipeline and to toll it stand-alone.
6137. MEMBER LYTLE: Thank you. That’s all my questions.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Member Parrish 6138. THE CHAIRMAN: Mr. Parrish?
--- EXAMINATION BY/INTERROGATOIRE PAR MEMBER PARRISH:
6139. MEMBER PARRISH: Well, it’s five o’clock. Thank you very much.
6140. I have but one question. I’ve enjoyed once again the opportunity to mull over all these. We did it for North Montney and here we are again.
6141. I would just like to bring up the transcripts from yesterday, what is it, where I was asking a question of Mr. Keys around our filing manual as you can see here. And then at 3242 -- just go down just a little bit there -- I asked the question:
“My concern is that NGTL is coming in with smaller or piecemeal applications so they can obtain a Board order allowing rolled-in tolling for the facilities.”
6142. And I asked him to comment on that. And I’d like to give you the same opportunity.
6143. MR. CHRISTIE: Member Parrish, do you mean comment on NGTL doing this?
6144. MEMBER PARRISH: Correct.
6145. MR. CHRISTIE: Okay, thank you.
6146. MR. JOHNSON: For the second time today I agree with Mr. Keys.
6147. MEMBER PARRISH: Great, thank you.
6148. Any comment from Dr. Cicchetti?
6149. DR. CICCHETTI: Yeah. My thinking is with respect to Tower Lake -- and this may be more partly an answer to Mr. Lytle as well, but from the perspective of a piecemeal, the piecemeal we’re talking about here is $158 million. So in my mind it’s a significant amount of money.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by Member Parrish 6150. And over the period of the first 10 years of estimating the revenue that would be collected, it’s about $8 million over 10 years. And the cost-of-service that needs to be recovered for that $158 million is about $160 million. And nobody, in my mind, would be in a position to have costs of 160 million and revenue of 8 million, which I hardly think is a piecemeal; that’s still a loss of $150 million. Nobody’s in a position to do that unless they get somebody else to pay the 150 million difference.
6151. And in the case of NGTL, they want all their other shippers to pay that 150 million. In the case of the same why did it cost 158 million? They’re putting 880 million cubic feet a day of capacity in and they’re only contracting for 550 million cubic feet a day. And again, I don’t think those sizes are piecemeal, number one.
6152. But number two, nobody else is in a position to essentially eschew or give up any utilization risk for that except for NGTL, which is coming in and proposing to do it as a rolled-in using an existing toll design system. And to me that’s where the problem comes.
6153. And so while I agree with the sentiment from both pipelines about piecemeal, I don’t think of this as piecemeal and I think that the inability to compete and also the inconsistency, given those numbers, with cost causation user-pay, I think are the things that to me drive away from the NGTL proposal.
6154. And I think the Board should reject that toll outcome and instead do what they did in North Montney, particularly in the second phase, and say stand- alone is the only thing that makes sense because that’s the only way of aligning the costs and the revenue in a fashion that others could imagine they might compete against in the future.
6155. MR. JOHNSON: And to clarify, I was agreeing with Mr. Keys in the 3243 where I think he is saying essentially that he’s bringing projects forward as they develop as the market asks for them. And that’s what I was agreeing with. I’m not even sure what’s on 3244.
6156. MEMBER PARRISH: I’m not sure I do at this point. My eyes are getting crossed, I believe.
6157. Thank you very much, Chair. Thank you, panel.
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by the Chairman
--- EXAMINATION BY / INTERROGATOIRE PAR THE CHAIRMAN:
6158. THE CHAIRMAN: I have a few questions.
6159. I’m going to follow up a little bit on Dr. Lytle’s question on your ability or your opportunity. And you said it was an affiliate of Westcoast that had an opportunity to discuss with Cutbank.
6160. Do you have or your affiliate have the ability to service that market with existing infrastructure or would it have to be all new?
6161. MS. BURNYEAT: What our affiliate proposed was a new build, essentially what NGTL is proposing. There aren’t existing facilities that are owned by our affiliate in the area that could serve the same purpose.
6162. THE CHAIRMAN: I don’t have the map and I don’t know the reference, but is the current location or the proposed location for the Tower Lake, does Westcoast have a pipe that’s close to that?
6163. MS. BURNYEAT: We do. It’s our South Peace Pipeline. It’s a raw gas gathering line that flows north to the McMahon gas plant.
6164. THE CHAIRMAN: Mr. Johnson, when you were answering Ms. Bell and you were talking about -- no, sorry, it was Mr. Denstedt and the postage stamp. And then in reference to a question from Ms. Bell you said competition drives change. What competition drove you to go to the postage stamp rates?
6165. MR. JOHNSON: The postage stamp -- it wasn’t driven by competition. This would be the late eighties. I don’t have all the specifics but it wasn’t competition-driven. It was a hearing in front of the National Energy Board. It was looking at the bi-directional nature of the pipe. And when you have bi-directional nature of pipes or flows, postage stamp is the proper toll design. And it really didn’t have anything to do with competition in that time period.
6166. THE CHAIRMAN: A hypothetical question because we get into this extension and expansion. And it’s your position as a company that any extension should be stand-alone and any expansion should be rolled in. Is that correct?
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by the Chairman 6167. MR. JOHNSON: Generally speaking, yes. And maybe I’ll turn it over to Mr. Christie and he can talk about what we were looking for.
6168. MR. CHRISTIE: Could you please repeat the question, Mr. Chair? I’m sorry; I was discussing something with Ms. Burnyeat about her answer a couple ago. Anyway, I apologize.
6169. THE CHAIRMAN: Actually, I do have it written down so it’s not like Mr. Schultz who said if I could remember it. I had to get back at being ---
6170. MR. CHRISTIE: With yesterday, yeah.
6171. THE CHAIRMAN: I have to (off mic) somehow.
6172. MR. CHRISTIE: With Mr. Schultz, if you don’t like the question, you can ask him to repeat it. That’s not my intent here.
6173. THE CHAIRMAN: My question was, is it the position of Westcoast that any extension to a pipeline should be tolled on the stand-alone; any expansion could be on a rolled-in? Is that your position?
6174. MR. CHRISTIE: Yes, essentially. I mean, we’re not talking about the world; we’re talking about Northeast B.C. where there’s existing competition. There’s been some chat here about the fact that Northeast B.C. is used generally, but maybe there are places where, you know, a strict border, B.C./Alberta border, isn’t the divide.
6175. You know, we recognize the decision here isn’t about all pipelines and it’s on a policy decision. So I guess to be a little more direct in terms of this proceeding is about the Towerbirch facilities, we’re saying that on the Tower Lake section it ought to be stand-alone.
6176. THE CHAIRMAN: So if the Board approves the construction, the Part III, and suggests or rules that Tower Lake should be stand-alone, and in five years’ time NOVA comes back and says, “We now want to loop Tower Lake,” is it an expansion or an extension and how do we toll it?
6177. MR. CHRISTIE: It’s an expansion of the Tower Lake section, first of all. And how you toll it, there is a -- Mr. Johnson spoke to this a little bit today. It would depend somewhat on how the original facilities were tolled. If
Transcript Hearing Order GH-003-2015 Westcoast Energy Inc. Examination by the Chairman someone -- say Cutbank and NGTL, the specific stand-alone tolling they came up with locked in rates, for example, then, you know, it might be structured in a way that they don’t -- you don’t see a change in their rates when the facilities are changed. Or it might be sort of standard cost-of-service in which case you’re looping it and it’s the change that, you know, for example you’d see with the looping and compression on the Groundbirch Mainline.
6178. MR. JOHNSON: Field services, they have been operating under this model for 20 years. With the field services model the contracts are negotiated with the customer and the tolls are locked in. There isn’t a reflection on what happens if de-contracting occurs, what happens if more contracts come up, or what happens if there’s expansions. That’s just a contract between that specific customer and field services where field services assumes utilization risk.
6179. So that’s the one model. And I guess to answer your question, it could fall under that model. Or it could be that the Cutbank Ridge and NGTL reach some sort of regulated cost-of-service and say when it gets expanded, when it gets looped, all customers share in that and Cutbank Ridge’s toll would adjust just like the other ones.
6180. THE CHAIRMAN: You’ve asked for, and Ms. Bell brought it up earlier; you’ve asked for in previous proceedings for an inquiry. Are you aware of the Fortis suggestion for an inquiry?
6181. MR. CHRISTIE: We’re aware of the Fortis suggestion and yeah, we in I think 2010 -- anyway, we asked for an inquiry in that case. I don’t believe we’ve asked for one in the subsequent facilities hearings because the decision from the Board was, you know, “We’ll look at the Part IV matters as they arise at the facilities hearings,” loosely. The Board was clear on being less clear.
6182. MR. JOHNSON: Our position is we don’t need an inquiry. What Westcoast is looking for is for the Tower Lake section to be tolled on a stand- alone basis. And that Board decision is going to send a very strong signal to the industry. And with that strong signal I think the industry is going to react, and I'm not sure we're going to be in this continual "let's have another hearing, here comes an extension". That signal can be very strong, and the industry will react accordingly.
6183. THE CHAIRMAN: Okay, so you don’t agree with Fortis' call for an inquiry?
Transcript Hearing Order GH-003-2015 Closing remarks Chairman
6184. MR. JOHNSON: That is correct.
6185. THE CHAIRMAN: Okay, that cancels the next couple of questions. That's all the questions I have.
6186. I do have a couple of housekeeping matters before we adjourn. The undertaking that was assigned to Westcoast that was listed as U-7, it should -- that was assigned as U-8, should actually be U-7, but the Exhibit number remains the same, is A77437.
6187. And you -- Ms. Kolber, you had a questioning look when we assigned the exhibit number, and I was wondering -- I was going to say something, but we need to get the exhibit number on the record and since we're finishing today, we assigned it as an exhibit number.
6188. Mr. Davies, I don't think I answered your question earlier. That's good that you don’t remember.
--- (Laughter/Rires)
6189. THE CHAIRMAN: It is getting late. You asked about how the Board was going to deal with aid to cross, and -- aids to cross and our answer is that we'll deal with them the way we always have, and when -- there was a discussion with Mr. Denstedt of is it an exhibit? We explained why it has an exhibit number, because everything that comes in on LiveLink, but the part two of it is that we will deal with aids to cross as we always have in the past. Does that answer the question?
6190. That's what you wrote to me, Ms. Bell. Don’t give me that look.
--- (Laughter/Rires)
6191. THE CHAIRMAN: Anyway, I've got to stop now because before I get myself in more trouble. On behalf of the Board, I do want to thank the Applicant. Sorry, Mr. Denstedt.
6192. MR. DENSTEDT: Well, I think actually should -- Mr. Davies may have redirect, but ---
Transcript Hearing Order GH-003-2015 Closing remarks Chairman 6193. MS. KOLBER: No, we don’t have any redirect, thank you.
--- (Laughter/Rires)
6194. MR. DENSTEDT: And there was a moment this morning where we thought we'd put up somebody to speak to the rivalry issue, but we think we're good with that. So we're done.
6195. Thanks, Mr. Chairman. And thanks to the Board staff. As usual, fabulous job.
6196. THE CHAIRMAN: It's 8:15 in PEI, so I'm going to take that as my excuse.
6197. On behalf of the Board, I do want to thank the Applicant and all the intervenors and the parties and their counsel for their participation in this hearing.
6198. As was said a number of times by my colleagues, we found it very important to hear the dialogue that went on in the question and answers and it will play a huge part when we make our decisions.
6199. I do want to thank the court reporter, our sound technicians, who are -- they were panicking when they thought, are we coming in Saturday?
--- (Laughter/Rires)
6200. THE CHAIRMAN: And finally, I want to thank the Board staff and counsel, and thank you, Mr. Denstedt, for your comments. As usual, they did an excellent job. We very much appreciate all their efforts and recognize that we could not do our mandate if it wasn’t for them.
6201. Parties will be informed of the decision in due course. Our internal service standard is 12 weeks from the close of the record. That's our objective, is to have this out by then, which will -- and it will be, once reply argument has been filed.
6202. As outlined in our Procedural Update No. 11, NGTL's final argument is due June 21st. Intervenors' final argument is due June 27th. The intervenor reply argument is due June 30th and then NGTL's reply argument is due July 8th.
Transcript Hearing Order GH-003-2015 Closing remarks Chairman 6203. And with that, this hearing is adjourned, and I thank you, and have a safe trip wherever you're going.
--- Upon adjourning at 5:17 p.m./L’audience est ajournée à 17h17
Transcript Hearing Order GH-003-2015