Régie de l’énergie
Gaz Métro Limited Partnership
No. R-3732-2010
Submission of APGQ/QOGA
December 17, 2010
SUBMISSION OF ASSOCIATION PÉTROLIÈRE ET
GAZIÈRE DU QUÉBEC ("APGQ")/ QUÉBEC OIL AND
GAS ASSOCIATION ("QOGA")
I.
Introduction
In connection with an application by Gaz Métropolitan Limited Partnership ("Gaz Métro") for
the establishment of a receipt rate, the Régie de L'énergie ("Régie") issued a letter dated
November 26, 2010 (Exhibit A-19) to all participants in the subject proceeding. The Régie has
requested that the participants address three specific questions. QOGA's review of these
questions indicates that the Régie may have some doubt about the jurisdiction of the Régie to
establish certain components of the receipt rate as requested by Gaz Métro in its application..
QOGA's submissions at the hearing were that QOGA believes that the Régie can and should
establish a receipt rate which would apply to all pipelines which may be constructed by Gaz
Métro. This position was shared by Gaz Métro and all other hearing participants. QOGA will
further elaborate on its reasons for this position under the next two sections of this submission
entitled "II. Exclusivity is Not the Real Issue" and "III. Nature of the Facilities". In respect of the
matters discussed under these two sections of this submission, QOGA believes that the views of
QOGA are closely aligned with those of Gaz Métro. Through its specific questions, the Régie
has requested that the participants address the exclusivity matter. QOGA will do so in the
section of this submission entitled "IV. Scope of Gaz Métro's Exclusive Rights".
On the
exclusivity issue it is not surprising that the positions of each of the members of QOGA and Gaz
Métro may not be totally aligned. Any differences of opinion on the exclusivity issue should not,
in QOGA's respectful submission, preclude or delay the Régie from rendering a timely decision
on Gaz Métro's application.
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Gaz Métro Limited Partnership
No. R-3732-2010
Submission of APCQ/QOGA
December 17, 2010
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II.
Exclusivity is Not the Real Issue
QOGA's fundamental position is that the Régie has the jurisdiction to establish receipt rates on
any pipeline which may be constructed by Gaz Métro whether Gaz Métro does or does not have
an exclusive right to construct that particular pipeline.
There is no doubt that Gaz Métro is a "natural gas distributor" as that term is defined in Section 2
of An Act respecting the Régie de l'énergie, R.S.Q., chapter R-6.01 (the "Régie Act") as Gaz
Métro is a partnership which holds exclusive natural gas distribution rights. Section 31(1) of the
Régie Act, addressing the jurisdiction of the Régie, provides that the Régie has the exclusive
jurisdiction to fix the rates and conditions for the supply, transmission or delivery of gas by a
natural gas distributor (emphasis added). That is precisely what Gaz Métro is asking the Régie
to do. Gaz Métro is requesting a receipt rate to be established which would apply to the
transmission or delivery of natural gas by Gaz Métro. Whether or not Gaz Métro does or does
not have an exclusive right to provide such service is not, in QOGA's respectful submission, a
prerequisite to the Régie's Section 31(1) jurisdiction.
There would appear to be little
disagreement that Gaz Métro does have an exclusive natural gas distribution right to distribute
natural gas to consumers in Québec. There is nothing in Section 31(1) which requires the rates
to be fixed by the Régie in respect of transmission or delivery of natural gas by Gaz Métro to be
limited to those particular situations where Gaz Métro has an exclusive right. QOGA submits
that Section 31(1) applies to all rates and conditions of transmission or delivery of natural gas by
Gaz Métro whether Gaz Métro does or does not have an exclusive right to carry out that
particular transmission or delivery.
Gaz Métro has also addressed this matter in its December 10, 2010 submission (Exhibit B-20
(English translation), Q. 3, p. 6-7, Gaz Métro-5 Document 1) and has pointed out a number of
situations where the Régie currently regulates or supervises certain of Gaz Métro's facilities or
activities even though Gaz Métro may not have an exclusive right in respect thereof. QOGA
agrees with Gaz Métro and submits that the Régie should continue to follow those past practices
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Gaz Métro Limited Partnership
No. R-3732-2010
Submission of APCQ/QOGA
December 17, 2010
Page 3 of 12
in respect of any pipelines which are to be constructed by Gaz Métro which will provide receipt
rate service. This is especially true when one considers the nature of the pipeline facilities which
may be constructed by Gaz Métro which is discussed in the next section of this submission.
III.
Nature of the Facilities
It must be noted that in most situations it will be impossible to make a precise determination as
to whether or not any particular pipeline will be utilized to solely serve markets within Gaz
Métro's territory or to solely serve markets outside of Gaz Métro's territory. At the extreme this
could change on a day to day basis as a Producer will have the daily right to place a nomination
(Exhibit B-8, Gaz Métro - APGQ/QOGA, Q. 10.1, Gaz Métro-1 Document 2.10 (English
version), Q. 44, Gaz Métro-1 Document 2.44 (English version)). The nomination would specify
either an in-territory delivery point or a delivery point at a TCPL/TQM interconnection point for
further transportation by the Producer to downstream markets. If the Régie's ability to regulate
receipt service on a particular connection pipeline depends solely on where the natural gas was
flowing to on the particular day, then theoretically one would have to wait until 10 a.m. each
morning to see if the Régie did or did not have jurisdiction. Furthermore, what would happen if
there were multiple Producers shipping gas from the same Receipt Point on a connection pipeline
or at other Receipt Points located on the connection pipeline? Would the Régie have jurisdiction
over the connection pipeline if the nomination of any one of these Producers was for in-territory
deliveries or would the Régie only have jurisdiction if the nominations of all of the Producers
were for deliveries within the territory? QOGA agrees with Gaz Métro's assessment that this
would create a "legally untenable situation".
QOGA also submits that one must look at the very plausible scenario as to how gas markets will
develop for Quebec sourced natural gas. While it may be a matter of pricing, it is not illogical to
assume that Producers will first seek to supply markets located in Quebec given that those
markets represent the closest markets to the source of Quebec gas production. Over time as the
Quebec markets within a particular Quebec consumption area become fully supplied, the next
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Gaz Métro Limited Partnership
No. R-3732-2010
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December 17, 2010
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logical markets are Quebec markets located in other Quebec consumption areas as these markets
will represent the next closest markets. Once the markets in all Quebec consumption areas are
fully supplied a Producer will then have no choice but to move its gas to markets located outside
of Gaz Métro's territory. Accordingly, it is very likely that in the foreseeable future connection
pipelines constructed by Gaz Métro will be utilized to serve markets within Gaz Métro's
territory.
It must be further noted that connection pipelines will not necessarily be solely utilized to
transport natural gas for Producers. Given that these pipelines will be physically located within
Gaz Métro's franchise area, Gaz Métro may utilize these facilities to serve the requirements of
Gaz Métro's consumer customers (Exhibit B-6 (English translation), Gaz Métro-1 Document 2,
Section 3.4.1.2, p. 32 line 15).
Where a connection pipeline connects into Gaz Métro's existing system there is no doubt that the
downstream Gaz Métro transmission facilities have been, and will continue to be, utilized by Gaz
Métro to serve its consumer customers. It would again not be tenable for the Régie to have
jurisdiction over only that portion of the existing Gaz Métro facilities which was being used to
provide service for markets within Gaz Métro's territory and not also over that portion of the
existing facilities which was being used to transport natural gas for a Producer which was
destined to markets outside of Gaz Métro's territory. It would simply not be possible for the
Régie to ensure the reasonableness of the Gaz Métro costs and charges which were being
attributable to the consumer customers' use of their portion of such facilities without also
examining the appropriate share of costs and charges which were being attributable to the
Producers' use of their portion of such facilities.
In QOGA's respectful submission, the actual or possible dual use of the pipeline facilities to be
constructed by Gaz Métro provides sufficient justification for the Régie to regulate the use of
such facilities by all users or potential users of such facilities.
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Gaz Métro Limited Partnership
No. R-3732-2010
Submission of APCQ/QOGA
December 17, 2010
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IV.
Scope of Gaz Métro Exclusive Rights
As previously discussed, QOGA does not believe that it is necessary for the Régie to first
establish that Gaz Métro has an exclusive distribution right in respect of a particular facility in
order that the Régie may establish the receipt rate as requested by Gaz Métro in this proceeding.
On the basis that the Régie reaches a different conclusion, QOGA submits that the starting point
for any analysis of the exclusivity issue must be an examination of all of the provisions of the
Régie Act in respect of natural gas.
At the outset it must be remembered that Quebec legislation in respect of natural gas, as set out
in the Régie Act and its predecessor legislations, was enacted to address the distribution of
natural gas to consumers in Quebec by Gaz Métro and other natural gas distribution companies.
There was no significant natural gas production within Quebec when this legislation was enacted
and there was no service being provided by any natural gas distribution company to Producers to
move their natural gas to markets within or outside of Quebec. Accordingly, it will not be
surprising if the participants may have different interpretations as to how the current provisions
of the Régie Act may apply on the exclusivity issue.
In QOGA's submission the provisions of the Régie Act which are important are as follows:
Section 1:
Application
This Act applies to the supply, transmission and distribution of electric
power and to the supply, transmission, distribution and storage of natural
gas delivered or intended for delivery by pipeline to a consumer.
This Act also applies to any other energy matter to the extent provided for
herein.
Section 2:
In this Act, unless the context indicates otherwise:
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Gaz Métro Limited Partnership
No. R-3732-2010
Submission of APCQ/QOGA
December 17, 2010
Page 6 of 12
"natural gas" means methane in gaseous or liquid form, except biogas and
syngas.
"natural gas distribution system" means a network of conduits, equipment,
apparatus, structures, gas meters, meters and other devices and accessories
for the supply, transmission or delivery of natural gas in a given territory,
excluding any gas pipe or line installed in, under or on the outer surface of
a house, plant, building or other structure of a consumer.
"natural gas distributor" means a person or partnership holding exclusive
natural gas distribution rights or exercising such rights as lessee, trustee,
liquidator or trustee in bankruptcy or in any other capacity.
Section 31:
Jurisdiction
It is within the exclusive jurisdiction of the Régie to
(1)
fix or modify the rates and conditions for the transmission of
electric power by the electric power carrier or the distribution of
electric power by the electric power distributor, and the rates and
conditions for the supply, transmission or delivery of natural gas
by a natural gas distributor or for the storage of natural gas.
Section 48:
Rate Determination
The Régie shall, on the application of an interested person or on its own
initiative, fix or modify the rates and conditions for the transmission of
electric power by the electric power carrier or for the distribution of
electric power by the electric power distributor or the rates and conditions
for the supply, transmission or delivery of natural gas by a natural gas
distributor or for the storage of natural gas. The Régie may in particular
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December 17, 2010
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require the electric power carrier, the electric power distributor or a natural
gas distributor to file a modification proposal.
Section 63:
Distribution of Natural Gas
Exclusive natural gas distribution rights confer on the holder, within the
territory where they obtain and to the exclusion of anyone else, the right to
operate a natural gas distribution system and to transmit and deliver by
pipeline natural gas intended for consumption.
Exclusive natural gas distribution rights do not confer the exclusive right
to purchase, sell or store natural gas.
Section 64:
After obtaining the advice of the Régie, the Government may grant to a
person or partnership, subject to the conditions it determines, exclusive
natural gas distribution rights within the territory it determines.
Section 71:
No one, except the holder of exclusive natural gas distribution rights, may
operate a natural gas distribution system.
Section 77:
A natural gas distributor is required to supply and deliver natural gas to
every person who so requests within the territory served by the
distributor's distribution system.
Within that territory, the distributor shall also, at the request of a consumer
or at the request of a natural gas broker acting in his own name or in the
name of a producer or a consumer, receive, transmit and deliver to the
consumer natural gas purchased from a third person by the consumer for
his own consumption.
Régie de l’énergie
Gaz Métro Limited Partnership
No. R-3732-2010
Submission of APCQ/QOGA
December 17, 2010
Page 8 of 12
Section 78:
Any interested person not served by a natural gas distribution system may
apply to the Régie for an order directing a natural gas distributor to expand
its distribution system within the territory where the distributor's exclusive
rights obtain.
Such interested person may also request the Régie to recommend to the
Government that it extend the territory where the exclusive rights of a
natural gas distributor obtain and to order the distributor to expand its
distribution system.
An examination of the provisions of Régie Act as a whole; Section 1, the definition of "natural
gas" and Section 63, in particular; and the constitutional limitations on legislative jurisdiction of
the Province of Quebec supports an interpretation that the scope of any exclusivity rights
established pursuant to the Régie Act is limited to the transmission and distribution of natural gas
to consumers within a franchise area within Quebec. There are two requirements which arise
from this interpretation. The first requirement is that the product being transported or distributed
must be natural gas which is suitable for consumption, that is natural gas that meets sales gas
quality specifications.
The second requirement is that the product must be transported or
distributed to Quebec consumers of natural gas who are located within Gaz Métro's franchise
area.
Applying these two requirements to the Régie's three questions is the basis for QOGA's answers
set out below (QOGA is utilizing the English translation of these questions as set out in the
English translation of Gaz Métro's submission as provided by Gaz Métro (Exhibit B-20 (English
translation), Gaz Métro-5 Document 1)).
Question 1:
Please explain how the transmission, by Gaz Métro, of natural gas intended for
delivery outside the territory is an activity that falls under its exclusive
distribution right and is therefore regulated by the Régie, particularly in respect of
Sections 1 and 63 of An Act respecting the Régie de l'énergie.
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Gaz Métro Limited Partnership
No. R-3732-2010
Submission of APCQ/QOGA
December 17, 2010
Page 9 of 12
Answer:
QOGA does not believe that the transmission of natural gas intended for delivery
outside of Gaz Métro's territory is an activity which falls under Gaz Métro's
exclusive distribution right as it does not satisfy the second requirement addressed
by QOGA above. In this situation natural gas would not be distributed to a
Quebec consumer within Gaz Métro's franchise area. For the reasons outlined
earlier in QOGA's submission, this should not, however, preclude the Régie from
establishing rates where Gaz Métro builds these facilities especially as these
pipeline facilities can be used to distribute natural gas to Quebec consumers
within Gaz Métro's franchise area. QOGA submits that it would be entirely
appropriate for all rate matters relating to those Gaz Métro pipeline facilities to be
established by the Régie.
Question 2:
Please explain how a pipeline between a receipt point and the TCPL/TQM
system, which could be used in whole or in part to ship natural gas outside the
territory, comes under Gaz Métro's exclusive distribution right and is therefore
regulated by the Régie.
Answer:
There are two elements to Question 2. A connection pipeline between a receipt
point and the TCPL/TQM system which would not utilize any portion of Gaz
Métro's system is often referred to as a "bullet line". If a "bullet line" is being
used "in part" to ship natural gas outside the territory then it must also be used "in
part" to ship natural gas inside the territory. In this situation QOGA's answer to
Question 1 is equally applicable to Question 2. If a "bullet line" was being used
"solely" to ship natural gas outside Gaz Métro's territory there is clearly no Gaz
Métro exclusive distribution right as the natural gas would not be being
distributed to a Quebec consumer within Gaz Métro's territory. Arguably there is
a lesser justification for the Régie to establish a receipt rate for service to be
provided on this second type of "bullet line". However, Section 31(1) of the
Régie Act provides the Régie with the necessary jurisdiction to do so. There is
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No. R-3732-2010
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December 17, 2010
Page 10 of 12
also always a possibility that even this second type of "bullet line" could, in the
future, either be utilized by other Producers to serve markets within Gaz Métro's
territory (e.g. for consumption in another Gaz Métro consumption area) or for
service to a consumer customer of Gaz Métro who would be served off of the
"bullet line".
Given these circumstances QOGA again believes it would be
appropriate for the Régie to establish a receipt rate for any "bullet line" if it was
constructed by Gaz Métro even if Gaz Métro does not necessarily have the
exclusive right to construct such "bullet line".
Question 3:
Please explain how the transmission of raw gas between a well and a processing
plant can be an activity that comes under Gaz Métro's exclusive distribution right
and is therefore regulated by the Régie.
Answer:
In its response to Question 3 Gaz Métro (Exhibit B-20 (English translation), Q. 3,
p. 7, Gaz Métro-5 Document 1) indicated that the possibility raised by the Régie
in Question 3 "would represent a relatively rare case". QOGA shares this view.
Gaz Métro has also indicated that this activity would not fall within its exclusive
franchise right (Exhibit C-5-9 (English translation), Gaz Métro - Régie IR No. 2,
Q5.1, Gaz Métro-1 Document 1.63).
QOGA believes that the transmission of raw gas between a well and a processing
plant does not come within Gaz Métro's exclusive distribution right as this
situation does not satisfy either of the two requirements for exclusivity addressed
by QOGA above. Raw gas is not natural gas which is suitable for consumption.
Raw gas will contain substances other than methane including impurities and
water vapour. The raw gas must be further treated or processed in order that the
natural gas will meet all sales gas quality specifications including minimum and
maximum heating values and be suitable for consumption by consumers. The raw
gas would also not be transported by Gaz Métro for the purpose of consumption,
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Gaz Métro Limited Partnership
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December 17, 2010
Page 11 of 12
it would be transported by Gaz Métro from a Producer's well for redelivery to that
Producer at a processing plant so that the Producer could treat or process the raw
gas into gas which meets sales gas quality specifications. Such a transportation
service is not transporting natural gas for distribution to a Quebec consumer for
consumption.
While QOGA clearly believes that there is not any exclusive right of Gaz Métro
to transport raw gas in the situation described in Question 3, QOGA, once again,
would not object to the Régie establishing a receipt rate for Gaz Métro if Gaz
Métro was to build this type of pipeline as QOGA believes this would be a very
rare case. What would be very detrimental for the development of the Quebec
natural gas industry would be any decision or determination by the Régie that
somehow conveyed an impression that Gaz Métro had an exclusive right to
construct all raw gas facilities located downstream of a well. As pointed out by
Gaz Métro in its response to Question 3 (Exhibit B-20 (English translation), Q.3,
p. 6-7, Gaz Métro - 5 Document 1) it is expected that the Producers will be the
ones carrying out this activity. This is the situation in other producing areas and
QOGA sees no reason why it would not be the same in Quebec.
V.
Conclusion
As discussed during QOGA's final argument at the hearing, the development of Quebec natural
gas production will benefit the Producers, Gaz Métro, all consumers of gas in Quebec and the
Quebec economy. Gaz Métro's role is a very important part of the development of the shale gas
reserves of Quebec and that is why it is so important to have the basic economic parameters
which will apply for the receipt rate on any facilities which may be constructed by Gaz Métro, to
be established as soon as possible.
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Gaz Métro Limited Partnership
No. R-3732-2010
Submission of APCQ/QOGA
December 17, 2010
Page 12 of 12
Any uncertainty or inaction on the part of the Régie could contribute to a slowdown in the
development of Quebec's shale gas resources. This is not in anyone's interest and QOGA would
urge the Régie to render its decision on Gaz Métro's receipt rate application in a timely fashion.
All of which is respectfully submitted this 17th day of December, 2010.
Association pétrolière et gazière du Québec/
Québec Oil and Gas Association