AIRD BERLIS Fred D. Cass Direct: 416.865.7742 E-mail: [email protected] April 19, 2018 Kirsten Walli Board Secretary Ontario Energy Board 2300 Yonge Street, Suite 2700 Toronto ON M4P 1E4 Dear Ms Walli: Re: EB-2017-0306/EB-2017-0307; MAADs Application by Enbridge Gas Distribution Inc, and Union Gas Limited_________________________________ In accordance with Procedural Order No. 5 issued by the Board in EB-2017-0306/EB- 2017-0307, we have enclosed the Submissions of the Applicants on the Motion by the School Energy Coalition. We have also enclosed redacted versions of the three Reports referred to in the Submissions. If you have any questions in this regard, please do not hesitate to contact us. Yours truly, AIRD & j3ERLIS LLP / / Fred D. Cass Ends. Aird & Berlis LLP Brookfield Place, 181 Bay Street, Suite 1800, Toronto, Canada MSJ 2T9 r 416.863.1500 r: 416,863.1515 ! airdberlis.com EB-2017-0306 EB-2017-0307 ONTARIO ENERGY BOARD IN THE MATTER OF the Ontario Energy Board Act, 1998, 3.0. 1998, c.15 (Sched. B); AND IN THE MATTER OF an Application by Enbridge Gas Distribution Inc. and Union Gas Limited, pursuant to section 43(1) of the Ontario Energy Board Act, 1998, for an order or orders granting leave to amalgamate as of January 1, 2019; AND IN THE MATTER OF an Application by Enbridge Gas Distribution Inc. and Union Gas Limited, pursuant to section 36 of the Ontario Energy Board Act, 1998, for an order or orders approving a rate setting mechanism and associated parameters during the deferred rebasing period, effective January 1, 2019. SUBMISSIONS ON MOTION BY SCHOOL ENERGY COALITION Introduction 1. The School Energy Coalition (“SEC”) has made a motion to the Board In this proceeding for an order requiring the Applicants to provide responses to particular questions. Specifically, SEC seeks: (a) in response to a “clarified and narrowed version” of SEC Interrogatory #3, a list of all documents provided to the Competition Bureau regarding the Ontario distribution, transmission and storage market; and (b) in response to an “expanded version” of Interrogatory #7a from the Association of Power Producers of Ontario (“APPrO”), all information, reports, analysis or similar documents related to the effect of the merger on competition in the Ontario gas storage market. 2. The SEC motion was addressed by the Board in Procedural Order No. 5, issued on April 16, 2018. In Procedural Order No. 5, the Board said that it will hear the motion in part. With respect to the first part of the SEC motion, set out in paragraph 1(a), above, the Board indicated that it will not be assisted by a lengthy list of documents provided to the Competition Bureau. With respect to the second part of the SEC motion, set out in EB-2017-0306 EB-2017-0307 2 paragraph 1(b), above, the Board said that it will hear the motion on the basis of the following request: all reports or analysis related to the effect of the amalgamation of Enbridge and Union on the storage market in Ontario. 3. Procedural Order No. 5 also provides context for the hearing of the motion. In particular, Procedural Order No. 5 sets out the following: (a) the Competition Bureau was reviewing the then proposed merger between Enbridge Inc., the parent company of Enbridge Gas Distribution Inc. (“EGD”), and Spectra Energy, the parent company of Union Gas Limited (“Union”), not the proposed amalgamation of EGD and Union; (b) the mandates of the Competition Bureau and the Board are different - the Board is charged with (amongst other things) protecting the interests of consumers; (c) while the Board has the power to consider some competition issues under section 29 of the Ontario Energy Board Act, 1998, this is not a section 29 proceeding; and (d) in this case, the Board will be considering storage in the context of Issue 6 on the Issues List, namely, “Would the proposed merger impact any other OEB policies, rules or orders (e.g. regulation of new storage, STAR)? If so, what are those impacts and how should the OEB address them?” 4. Having regard to the context provided by the Board in Procedural Order No. 5, the Applicants will respond to the motion request as framed by the Board in the Procedural Order. Applicants’ Response to the Motion 5. As stated above, Procedural Order No. 5 frames the motion request by reference to all reports or analysis related to the effect of the amalgamation of EGD and Union on the storage market in Ontario. The Applicants have not prepared or commissioned reports or analyses related specifically to the effect of the amalgamation of EGD and Union on the storage market in Ontario. However, third party reports were commissioned in connection with the Competition Bureau’s review of the merger of Enbridge Inc. and Spectra Energy Corp. (the “El/Spectra Merger”). 6. The third party reports and analysis (the “Reports”) submitted to the Competition Bureau in connection with the El/Spectra merger were as follows: EB-2017-0306 EB-2017-0307 3 (a) Analysis of Merchant Natural Gas Storage Competition in Ontario, dated January 30, 2017, by ICF; (b) Statistical Analysis of Dawn Hub Gas Prices, dated January 31, 2017, by Charles River Associates; and (c) Enbridge/Spectra: Section 96 Trade-off Analysis, dated February 8, 2017 by Charles River Associates. 7. Consistent with the mandate of the Competition Bureau to determine whether proposed mergers will have the effect of substantially lessening competition in the relevant markets, the Reports address the impact of the El/Spectra Merger on competitive storage markets, including Ontario storage. In considering the impact of the El/Spectra Merger on competition in the storage market, the analysis in the Reports includes Ontario storage owned and operated by EGD and Union as under common control. 8. Procedural Order No. 5 indicates that, in the view of the Board, materials relating to the impacts of the merger on Ontario’s gas storage market “could be relevant” to this proceeding and thus the Procedural Order provides guidance to the Applicants in responding to the motion by SEC. As stated above, although the Reports were prepared in connection with the El/Spectra Merger, the analysis in the Reports includes Ontario storage owned and operated by EGD and Union as under common control. Accordingly, the Applicants believe that the Reports fall within the category of materials identified by the Board in Procedural Order No. 5 that could be relevant to this proceeding. 9. The Reports contain commercially sensitive information, including, in particular, information about customers and their activities and specific cost information regarding EGD’s unregulated storage business. For the reasons set out in these submissions, the Applicants will produce the Reports in a redacted and unredacted form. The Applicants request that the unredacted Reports be treated as confidential information in accordance with the Board’s Practice Direction on Confidential Filings. The redacted versions of the Reports are included with these submissions. All of which is respectfully submitted. April 19, 2018 Fred D. Cass Counsel for the Applicants. Filed: 2018-04-19 EB-2017-0306/EB-2017-0307 Applicants' Submission on SEC Motion Attachment 1 Page 1 of 58 Analysis of Merchant Natural Gas Storage Competition in Ontario January 30, 2017 – Protected and Confidential Submitted to: Richard Annan Goodmans LLP Oliver Borgers McCarthy Tetrault LLP Submitted by: Michael Sloan Protected and confidential. Do not copy, distribute, or disclose. Use or discl i Filed: 2018-04-19 Analysis of Merchant Natural Gas Storage Competition in Ontario EB-2017-0306/EB-2017-0307 Applicants' Submission on SEC Motion Attachment 1 Page 2 of 58 Table of Contents ES. Executive Summary .............................................................................................................. iv ES.1 Overall Conclusions ................................................................................................................... iv ES.2 The Storage Market is Highly Competitive ................................................................................. v ES.3 The Merger will not Significantly Impact Concentration in the Merchant Storage Market ......... vii ES.4 Trader and Marketers Dominate Merchant Storage at Dawn ..................................................... ix ES.5 Other Factors Limiting the Potential Exercise of Market Power ................................................. ix 1. Background on Natural Gas Storage .......................................................................................... 1 1.1 Natural Gas Storage Functions ................................................................................................ 1 1.2 Drivers of Storage Value ..................................................................................................... 3 1.3 Who Uses Ontario Natural Gas Merchant Storage? ........................................................... 3 1.3.1 Traders and Marketers ............................................................................................................... 5 1.3.2 Natural Gas LDCs ...................................................................................................................... 6 1.3.3 Industrial Customers .................................................................................................................. 6 1.3.4 Power Generation Customers .................................................................................................... 6 1.4 Ontario Storage Customers (Other than EGD and