B-8 GAZ MÉTRO RESPONSE TO
IR No 1 from La Régie
(Gaz Métro Documents 1.1 - 1.12)
(English Translation)
Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
(i)
(ii)
Document B-6, Amended Request, Page 2
Document D-1-1, Junex
Preamble:
(i)
“9. Mainly, the acceptance service will include the following:
a)
(ii)
the production sites shall be connected to the existing network through new
pipelines whose installation, operation and maintenance will be the responsibility of
Gaz Métro (hereinafter referred to as “connection pipeline”),”
Junex indicates that it has installed a natural gas pipeline of 5 km in 2001 in the Gaspé
region.
Question:
1.1
Please indicate, referring to point (i), if Gaz Métro strictly refers to its exclusive right of
distribution when it mentions that the installation, operation and the maintenance of new
pipelines are considered to be its responsibility. Please elaborate.
Answer:
This paragraph only highlights the “connection pipeline” component of the reception
service offered by Gaz Métro. Gaz Métro does not refer to its exclusive distribution right
here.
With respect to Junex’s observation, Gaz Métro is unable to analyze it and it does not in
any way belong to the conclusions researched by the request, which are as follows:
“AUTHORIZE the creation of a receiving rate, according to the structure,
conditions and terms set out in the document Gaz Métro-1, Document 1;
STATE the general principles deemed necessary for determining and applying
the receiving rate;
APPROVE the structure of the new natural gas receiving rate, as described in
Gaz Métro-1, Document 1, Section 3.3;
ESTABLISH, for the purposes of establishing rates subject to receiving point
pricing, the distribution cost ratio unrelated to the gas network at 4%, as
described in Gaz Métro-1, Document 1, Section 3.4.1.1;
Original: 2010.09.14
Gaz Métro – 1, Document 1.1
Page 1 of 3
APPROVE the method for establishing applicable receiving point rates, as
described in Gaz Métro-1, Document 1, Sections 3.4.1, 3.4.1.2 and 3.4.1.3;
APPROVE the method for establishing rates subject to franchise delivery pricing,
as described in Gaz Métro-1, Document 1, Sections 3.2.1 and 3.4.2.1;
ESTABLISH at 0.70¢/m³ the rate subject to non franchise delivery point pricing,
as described in Gaz Métro-1, Document 1, Sections 3.2.2 and 3.4.2.2;
APPROVE the method for establishing applicable daily and cumulative
imbalance rates, as described in Gaz Métro-1, Document 1, Section 3.5.2.2;
ESTABLISH the applicable daily and cumulative imbalance rates in accordance
with the TCPL rates in effect at the time of decision, up to the next TCPL rate
change;
APPROVE the changes to service conditions, as proposed in Gaz Métro-1,
Document 1, section 4.1;
APPROVE the receiving rate text, as proposed in Gaz Métro-2, Document 1.”
In addition, Gaz Métro agrees with the Régie’s Decision D-2010-82 that identifies to
stakeholders the issues that will be addressed at public hearings:
“[4] At this stage of the case file, the Régie has three main issues: the connection
model at gas production sites and the underlying costs, the receiving rate
structure and the methods for establishing rates subject to this pricing.
[5] The Régie also readily specifies that issues related to natural gas production
methods in Quebec and the impact of this potential production on Gaz Métro’s
procurement plan will not be addressed in this case file.”
Lastly, in a letter dated September 9, 2010, Junex specified that they do not wish to
address their comment to this audience.
Question:
1.2
Please explain the observation of Junex concerning the installation of its own pipelines.
Answer:
See answer to Question 1.1.
Question:
1.3
Please specify if a producer may inject its gas directly in the TQM [Trans Québec &
Maritimes Pipelines Inc.] network. If affirmative, please specify who is responsible for
installing the required pipelines and equipment.
Original: 2010.09.14
Gaz Métro – 1, Document 1.1
Page 2 of 3
Answer:
Yes, it will be possible for a producer to inject gas directly into the TQM network. In fact,
in the event that Gaz Métro builds and operates a new pipeline that connects producer
facilities to the TQM network, the rate principles requested in this request would be
applicable. However, the producer would not have to pay for costs related to the use of
the existing network if the delivery point is outside the territory. Approval of an
investment request in this sense to be reviewed by the Régie in the future would also
inevitably be required.
Question:
1.4
Please specify if Gaz Métro considers allocating the operation and maintenance costs of
these new pipelines to producers. If affirmative, please explain how these costs will be
set and recovered. If negative, please explain why.
Answer:
Yes. Gaz Métro intends to allocate operation and maintenance costs for these new
pipelines to producers. These costs belong to Category “C” costs.
These costs will be allocated to producers via the service cost allocation study and in
accordance with allocation factors currently approved by the Régie.
Original: 2010.09.14
Gaz Métro – 1, Document 1.1
Page 3 of 3
Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
Gaz Métro 1, Document 1, page 12
Preamble:
“The physical facilities where new producers joining the connecting pipes for the
transportation of natural gas in existing gas transmission system is called the “point of
reception” (...) Normally, the injection point must correspond to the reception point since
the injection point is the physical place where the natural gas must be treated so as to
comply with the quality norms concerning routing in the Gaz Métro network or the
TCPL/TQM transmission network. If the injection point is different from the reception
point, then it will be located between the reception point and at the interconnection point
to the gas network of Gaz Métro as a maximum point.”
Question:
2.1
Please explain, using an example, the responsibilities of Gaz Métro and the natural gas
producers in terms of construction, installation, operation and maintenance of each of
the segments of the connection network starting with the exploitation site (wells) and up
to the existing network of Gaz Métro: Please indicate for each of the segments the
equipment required (compression, measurements, analysis, treatment etc.) and the
responsibilities related to the maintenance of the equipment.
Answer:
No involvement of Gaz Métro will be required with regard to the collection system, i.e.
the connection of pipelines to the receiving point. Producers will be responsible for the
installation, operation and maintenance of the pipelines, collection system, compressor
stations, as well as the drying and cleaning stations.
Gaz Métro is responsible for the construction, installation, operation and maintenance of
the new connection pipelines (located between the receiving point and the interchange
to Gaz Métro’s current gas system or to TCPL/TQM). The fact that the producer is
typically responsible for the installation of compressor stations does not exclude the fact
that Gaz Métro may also need to install compressor stations in order to maintain
sufficient pressure in the connection pipelines or strengthen the current gas system.
No change in responsibility is therefore envisioned with respect to Gaz Métro’s existing
gas network.
Original: 2010.09.14
Gaz Métro – 1, Document 1.2
Page 1 of 3 Question:
2.2
Please indicate for each identified segment in the previous question the costs that will be
included for pricing.
Answer:
Costs that will be integrated at the base of pricing are those related to the new
connection pipelines, i.e. pipelines that connect the receiving point to the interchange of
Gaz Métro’s or TCPL/TQM’s existing gas network, as well as the new investments on
the existing gas network such as, for example, additional compression stations. Details
on these investments can be found on page 14 of the document Gaz Métro-1, Document
1.
Question:
2.3
Please describe the circumstances that may lead to a different injection point than that of
the reception point.
Answer:
Barring exceptions that must be justified and approved by the Régie with respect to
future investment requests, the injection point will still equal the receiving point.
Gaz Métro proposes a distinction between the injection point and the receiving point in
their case, in order to allow producers that own production sites relatively close to each
other to transport the produced gas to a common cleaning and/or drying facility, and in
order to reduce production costs for the producers. In effect, the construction of one
common cleaning facility instead of two or three facilities may produce savings.
Producers will still be responsible for the cleaning facilities installation and operation
costs and will not be subject to pricing by Gaz Métro.
Question:
2.4
Please specify who is responsible for determining the geographical position of the
injection point and the point of reception, within Gaz Métro or among the producers.
Please specify the criteria used to determine the position of these points.
Answer:
As per the receiving rate request, Gaz Métro proposes that they determine the final
geographic location of the receiving point, as well as the location of connection pipelines.
Incidentally, the first clause of Article 2.1 of the Service Conditions and Rate was
changed and reads as follows:
“The distributor determines the location of their distribution network, which
includes the receiving point.”
Original: 2010.09.14
Gaz Métro – 1, Document 1.2
Page 2 of 3 The process can be described as follows:
•
The producer will ask Gaz Métro to be connected and will suggest a precise
physical point as receiving point.
•
Gaz Métro will evaluate the producer’s request and will propose changes that
they deem appropriate. Gaz Métro will evaluate the layout of the connection
pipeline based on various elements such as production site location, volume to
be injected by the producers, local and environmental constraints, etc.
•
The producer may discuss alternative scenarios with Gaz Métro. In effect, with
regard to the physical location of the receiving point, Gaz Métro proposes that
this be discussed with affected producers in order to optimize the reception and
transport of produced natural gas. Gaz Métro believes that it is appropriate to
encourage producers to group their different collection pipelines as fast as
possible to the receiving point. This will allow the transport of natural gas, via
connection pipelines to existing gas networks, by avoiding the unnecessary
multiplication of underground pipelines.
Gaz Métro will submit an investment project to the Régie.
Original: 2010.09.14
Gaz Métro – 1, Document 1.2
Page 3 of 3 Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
Gaz Métro 1, Document 1, page 13
Preamble:
“The input area is defined as the geographical area starting from an interconnection
point to the TCPL/TQM network delimiting the segment of the Gaz Métro network
connected to this interconnection point.”
Question:
3.1
Please identify the consumption areas included in the existing network.
Answer:
See attached map.
Original: 2010.09.14
Gaz Métro – 1, Document 1.3
Page 1 of 1 Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
Gaz Métro 1, Document 1, page 16
Preamble:
Category C costs - Distribution costs not related to the gas network.
Question:
4.1
When category C costs are concerned, please explain why a tariff of the type “postage
stamp” is not applied to all producers to cover these costs.
Answer:
A “postage stamp” rate may be desirable when established based on the recovery of
projected costs for transport services for all established clientele.
The receiving rate includes all category A, B, C and D costs and the proposed rate
structured in accordance with the receiving point and pricing in accordance with the
delivery point.
As described in Section 3.1.1 of the document Gaz Métro-1, Document 1, Gaz Métro
favours the establishment of applicable rates for each receiving point. As is also
explained in Section 3.1.1, receiving point pricing consists of category A and C costs.
The establishment of applicable receiving rates is largely based on a study of specific
required revenue for transport services for clients subject to this revenue. Investments
(category A costs) represent the most important part for establishing receiving point
rates.
For category C costs, the determination of operation and maintenance unit costs was
indefinite, given that currently there is no basis for establishing these costs (no current
clients) and that costs for future projects are also unknown. On the other hand, operation
and maintenance costs are traditionally expressed in percentage of investment project
costs.
Original: 2010.09.14
Gaz Métro – 1, Document 1.4
Page 1 of 2 It would have been possible to recover category C costs via a “postage stamp” rate, but
the rate would have had to have been no doubt substantially revised as explained in
Section 3.1.1 of the case. It seemed easier, more stable over time and acknowledged
some equity between applicable producer costs to include, based on required revenue
studies, a portion of operation and maintenance costs (distribution costs unrelated to the
gas network) chargeable to producers, as the same percentage was applicable to
everyone.
The processing of grouped category A and C costs therefore determined one single
series of receiving point rates, which also favours an easier rate structure.
Question:
4.2
Please explain why a tariff of the type “postage stamp” is not applied to all the producers
to cover the costs in the category C and the costs related to the gas network as is the
case for other Gaz Métro clients.
Answer:
See answer to previous question with respect to category C costs “gas networkunrelated distribution costs”.
With respect to gas network-related costs (category B costs), this is a postage stamp
rate where the applicable rate would be 0.70¢/m³ for volumes delivered outside the
territory.
Question:
4.3
Please explain mainly the elements differentiating the producers from other clients using
the network.
Answer:
In addition to the distinction provided by Gaz Métro at lines 18 to 27 on page 10 of the
document Gaz Métro-1, Document 1, an additional distinction is recognized with respect
to the nature of use of the current distribution network that varies according to the two
client types. Network user clients necessarily receive natural gas that has passed
through this network, while producer clients initially transport the produced natural gas to
an entry point on this network and do not require use unless in the case where natural
gas is destined outside the Gaz Métro territory.
Original: 2010.09.14
Gaz Métro – 1, Document 1.4
Page 2 of 2 Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
Gaz Métro 1, Document 1, Pages 15 and 16
Preamble:
“The connection to the existing distribution network of Gaz Métro of a new category of
clients also raised questions, namely which costs related to the existing distribution
network should be borne by the producers.
There is a distinction made within the same gas network, that is, the distribution network
and the transmission network of Gaz Métro: The distribution network includes essentially
low-pressure pipelines, building connections and measuring apparatuses. Gaz Métro
suggests that the costs related to the distribution function be invoiced only to existing
clients through the distribution tariffs. In fact, it is about the substructures necessary to
distribute natural gas to the clients’ facilities.
Concerning the transmission pipelines of Gaz Métro, they are designed to serve the
existing clients and they currently bear the costs. If the producer wishes to route natural
gas outside the territory, the existing Gaz Métro transmission pipelines will be used by
the former. Thus, Gaz Métro suggests that the costs related to the transmission function
of the distribution network be invoiced only to existing clients if the natural gas injected
by the producers is consumed within the territory. Gaz Métro also suggests that the
expenses related to the use of these Gaz Métro transmission pipelines be invoiced to
the producers if the natural gas is used outside the territory.
In this situation, the existing costs of the transmission function of the distribution network
will be shared by the clients and the producers. Obviously, the producers would bear a
part of the transmission network costs and this will result in savings for the existing
clients of Gaz Métro.” (emphasis added).
Question:
5.1
Referring to the technical aspects of the gas network, please identify the characteristics
that differentiate the distribution pipelines from the feed and transmission pipelines of the
gas network.
Original: 2010.09.14
Gaz Métro – 1, Document 1.5
Page 1 of 2 Answer:
In the allocation of costs, there is a distinction between carrier pipelines and distribution
pipelines depending on the different pipeline pressures. The pressure of distribution
pipelines is less than 1,000 kPa. The pressure of carrier pipelines is greater than 1,000
kPa.
Question:
5.2
Please confirm that the producers can connect only to the transmission pipelines of the
gas network. Please discuss on the possibility that such connections be made through
interconnection points located on the feed pipelines.
Answer:
The projects currently evaluated by Gaz Métro actually imply a connection to the carrier
pipelines (which include supply pipelines).
Question:
5.3
Please explain the reasons why, in terms of cost causality, the “consumers” should bear
all costs of the existing gas network (distribution, feed and transmission) if the gas
injected is consumed within the territory and the maximum capacity of the consumption
area was not reached. Please specify why, in such situation, the “producers” do not bear
any part of the feed and transmission costs within the consumption area where the gas
is injected.
Answer:
The existing gas network was built to serve current customers without considering the
presence of natural gas producers to design the network. Thus, it is this current clientele,
i.e. consumer clients that should assume the costs when natural gas injected by
producers is delivered within the territory.
In effect, in the event where injected natural gas is consumed within the territory, the
arrival of producers does not change the availability of natural gas; it only moves natural
gas that traditionally comes from Western Canada. Thus, current customers remain the
only ones that assume the costs for using the gas network. However, Gaz Métro also
proposes that carrier pipeline usage fees be billed to producers when the natural gas is
destined outside the territory.
Refer also to the answer to requests for information 7.1 and 7.2 of the Régie (Gaz
Métro-1, Document 1.7).
Original: 2010.09.14
Gaz Métro – 1, Document 1.5
Page 2 of 2 Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
(i)
(i)
(i)
Gaz Métro 1, Document 1, Page 15
Gaz Métro 1, Document 1, Page 30
Gaz Métro 1, Document 1, Page 43
Preamble:
(i)
“The back stop agreements would be valid as of the beginning of the construction and
end at the moment the tariff contract between Gaz Métro and the producer enters into
force. The observance of the agreements would be guaranteed by a bank letter of credit
issued by an institution meeting the criteria defined before being valid until the tariff
contract is signed with Gaz Métro. The value of the letter of credit should cover the costs
incurred by Gaz Métro and would be progressively increased during the construction
period.”
(ii)
“Gaz Métro suggests that all the investments related to pipelines and installations part of
the connection pipeline be amortized based on their useful life estimated at 20 years. In
fact, this amortization period reflects the relation between the period these assets are
used (based on the data provided by Gaz Métro) and their weak income-generating
capacity after 20 years. Gaz Métro shall approve a neutral tariff equal to the life of the
asset in order to establish the rates applicable at the reception point.”
(iii)
“Gaz Métro will request that the initial contracts be concluded for at least 10 years for the
clients subject to the acceptance tariff. When the initial contract concluded with the
producer expires, the latter can renew the contract or, in certain cases, pay
compensation. If the producer decides not to renew the contract and if the break-even
point is not reached, the producer must pay compensation to Gaz Métro.”
Question:
6.1
Referring to (ii), please discuss the reasons explaining the low income-generating
capacity after 20 years.
Answer:
As mentioned in reference (ii), based on the information obtained from the gas
production industry by Gaz Métro, the conservative life expectancy of a production site,
i.e. its ability to produce natural gas, would be approximately 20 years. Gaz Métro
considers, with the information currently at their disposal, that an amortization period of
Original: 2010.09.14
Gaz Métro – 1, Document 1.6
Page 1 of 4 20 years of assets reflects the operation lifetime of a production site and is a reasonable
hypothesis to start investment pricing for this new clientele.
Question:
6.2
Referring to (ii), please submit and discuss the data referred to concerning the period
during which the assets in question are used.
Answer:
Gaz Métro does not have any documents to submit on the life expectancy of assets for
gas production. As mentioned in the answer to request for information 6.1, this
information is from discussions with producers and is deemed conservative by some.
In a first phase, Gaz Métro is willing to review the amortization period based on new
information that may be submitted by other stakeholders, including producers or the
COGA, at the time of this case file.
In addition, an amortization rate study is achieved by an external expert every five years.
This study will allow Gaz Métro to review the initial asset amortization period, if
necessary.
Finally, notwithstanding the fact that Gaz Métro currently proposes an amortization
period of 20 years, this period could be discussed at the time of specific investment
requests if the project specifications require a longer or shorter period. The Régie can
then issue an order for determining the amortization period at the time of investment
requests. The applicable receiving point rate will be established based on the
amortization period approved by the Régie.
Question:
6.3
Please justify why a neutral tariff is equal to the anticipated life of the asset. Please
explain especially why the neutral tariff set for the investments related to the connection
installations should be different from the neutral tariff set in the case of the business plan
of Gaz Métro.
Answer:
Gaz Métro sets distribution rates annually, which generates the company’s required
global revenue. Required revenue includes the capital cost, which consists of debt and
equity components. Current distribution rates are therefore set annually based on
weighted capital cost. When a new client joins, the client can choose among existing
distribution rates. Profitability analysis allows Gaz Métro to evaluate the marginal
profitability of the investment based on applicable rates. There are no existing gas
network cost allocations included in the required revenue (ex.: main pipelines).
Original: 2010.09.14
Gaz Métro – 1, Document 1.6
Page 2 of 4 With respect to costs unrelated to the existing gas network, for example invoicing, only
certain marginal costs are included in the profitability analysis. Only the investment
profitability specific to the new project is evaluated. A high internal rate of return (ex.:
20%) with a rate break-even point of 1 year means that the new project will cover the
marginal costs (including capital cost) and will contribute to existing network costs, such
as the main pipelines that reduce rates for existing clients. Conversely, an internal rate
of return equal to the capital cost (ex.: 7.67%) with a rate break-even point equal to the
amortization period (when the IRR is equal to the capital cost, the rate break-even point
is equal to the amortization period) means that the new project will cover the costs
(including capital cost) and will not contribute to existing network costs, such as main
pipelines that have a neutral impact on the rates of existing clients, over the amortization
period of new investments (increase in rates during a certain period and decrease
thereafter). If the profitability is not sufficient, a contribution may be required by Gaz
Métro in order to limit the increase in rates for other clients.
In the case of receiving rates, Gaz Métro wanted to ensure that marginal costs, such as
connection pipeline costs, were recovered and paid by the producers. This consists of
receiving point pricing. Targeting an internal rate of return equal to weighted capital
costs when setting receiving point prices allows Gaz Métro to recover amortization
expenses, investment financing charges, yields, income tax and sales tax from
producers over the amortization period. In addition, Gaz Métro proposes to add, when
setting receiving point rates, distribution costs unrelated to the existing gas network set
at 4% of investments. Given that producers will support their fair share of these incurred
costs for transport services for all current clients, rates for consumer clients will
decrease.
Gaz Métro could have set applicable receiving point rates by targeting a break-even
point of 1 year and an internal rate of return of 20%. However, this would have
generated revenue subject to receiving point pricing greater than the investment costs
related to connection pipelines and costs unrelated to the gas network (4%). In this
situation, the revenue generated over and above the producers’ required revenue would
decrease rates for consumer clients and create cross-subsidization between consumer
clients and producer clients (rate revenues paid by producers over 20 years will be much
higher than the service cost). Actually, revenue generated over and above the required
revenue would come back to indirectly charge producers an amount for costs unrelated
to the existing gas network higher than the 4% proposed by Gaz Métro and indirectly
charge producers a portion of the costs for Gaz Métro’s existing carrier network (carrier
function of the existing distribution network). For these last costs, related to the carrier
function of the existing distribution network, Gaz Métro proposes to recover them via
delivery point pricing and not via receiving point pricing. In effect, it is important to not
lose sight that the receiving rate consists of receiving point pricing and delivery point
pricing. Thus, the “receiving point pricing” component only consists of one part of the
receiving rate.
With respect to costs related to the carrier function of the existing distribution network,
Gaz Métro proposes that they not be assumed by the producers when natural gas is
delivered within the territory. However, Gaz Métro proposes to price the use of the
existing carrier pipelines of the distribution network when gas is delivered outside the
territory. Please refer to answers to question 5.3 in the document Gaz Métro-1,
Document 1.5, as well as questions 7.1 and 7.3 in the document Gaz Métro-1,
Document 1.7 for more details on Gaz Métro’s proposal. In the case where natural gas
Original: 2010.09.14
Gaz Métro – 1, Document 1.6
Page 3 of 4 will be delivered outside the territory, additional revenues (0.70¢/m³) will be added to
receiving point revenues. These additional revenues will increase the profitability of the
project because there will be a contribution to the existing carrier network and, thus, a
decrease in rates for consumer clients.
Question:
6.4
Please specify if Gaz Métro considers requiring guarantees to cover the indemnity
throughout the duration of the contract, which might be paid by the producer. If
affirmative, please describe these guarantees. If negative, please discuss the
advantages and disadvantages to request such guaranties.
Answer:
Gaz Métro does not foresee the need for particular guarantees to cover possible
compensation for producers, no more than for consumer clients who do not renew their
contracts. However, non negligible guaranties are anticipated as much at the receiving
rate contractual obligation level as for the deposit requirement (see answer to request for
information 9.2 of TCE (Gaz Métro-1, Document 1.45).
Original: 2010.09.14
Gaz Métro – 1, Document 1.6
Page 4 of 4 Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
(i)
(ii)
Gaz Métro 1, Document 1, Page 16
Gaz Métro 1, Document 1, Page 23
Preamble:
(i)
“Gaz Métro suggests thus that the costs related to the transmission function of the
distribution network continue to be invoiced only to the existing clients if the natural gas
injected by the producers is consumed within the territory.”
(ii)
“As specified in section 2.2.2 in this document, a producer who wishes to route the
natural gas outside the territory must use the existing transmission pipelines of Gaz
Métro. If a producer chooses the delivery point outside the territory, the expenses related
to the use of the Gaz Métro transmission network will be applicable.”
Question:
7.1
Referring to point (i), please confirm that, regardless of the fact that the gas injected by
the producers is consumed outside the consumption area or within the consumption
area, the transmission network of Gaz Métro must be used, be it for the routing of the
gas in another area or to ensure supply reliability for clients of the distributor in case the
local gas producers decrease their production.
Answer:
Yes. Gaz Métro’s carrier network is used. However, it must be determined who should
assume the costs; consumer customers only or sharing between producers and
consumer customers.
When natural gas is delivered by natural gas producers in Québec within Gaz Métro’s
territory that is the delivery point within the territory, costs for using Gaz Métro’s carrier
network must be assumed by consumer customers, as it is for natural gas currently from
Western Canada. In effect, producers from Western Canada do not assume Gaz Métro’s
distribution network costs, but rather consumer customers through existing distribution
rates. Take for example a consumer customer who supplies his own natural gas supply
service that delivers within the territory. In the case where the customer buys his gas in
Western Canada, he will ensure to transport it up to GMi-EDA, in the territory of the
distributor. Gaz Métro will then distribute this natural gas (with load balancing) to the
Original: 2010.09.14
Gaz Métro – 1, Document 1.7
Page 1 of 2 consumer customer who is subject to current distribution rates. No distribution rates are
billed to the Western Canadian producer. In the case where a customer buys his natural
gas from a natural gas producer in Québec instead of a producer from Western Canada,
he will continue to deliver within the distributor’s territory and be subject to distribution
rates.
From the perspective of a producer who supplies natural gas to consumer customers,
this customer will be subject to the receiving rate. Once the receiving point is identified,
giving the right to inject gas into the gas network, the producer will choose the delivery
point within the territory. In this case, the producer will not be charged for using Gaz
Métro’s existing carrier network as the gas injected at the receiving point is considered
as being delivered within the territory, such as gas from Western Canada. In fact, natural
gas injected into the receiving point and delivered within the territory does not exit Gaz
Métro’s territory, such as gas from Western Canada. In this case, producers do not use
Gaz Métro’s network as a “means” for transporting natural gas to a delivery point outside
the distributor’s territory. The costs for using Gaz Métro’s existing carrier network will
therefore continue to be charged to the customer via current distribution rates. However,
when Gaz Métro must transport natural gas between consumption zones, charges for
using TCPL/TQM’s carrier network will be charged to the producers in order to allow
them access to Gaz Métro’s territory.
In the case where the natural gas is destined to be delivered outside the distributor’s
territory, the natural gas enters Gaz Métro’s territory at the receiving points and passes
through the distributor’s network to eventually exit the system. In this case, Gaz Métro’s
network is used to transport natural gas outside the territory to another location where
the natural gas could be sold. Charges for using Gaz Métro’s existing carrier network will
therefore be billed. Gaz Métro will deliver the natural gas injected by producers to the
interchanges with TCPL/TQM’s network and the producer must contract his
transportation to TCPL/TQM up to the final destination outside the distributor’s territory.
Question:
7.2
If the answer to the previous question is affirmative, please explain the fairness of
adding to the tariff a contribution to the fixed costs of the Gaz Métro transmission
network if the gas is consumed outside the territory and not to add it if the it is consumed
within the territory.
Answer:
Gaz Métro considers that this is fair for producers in Western Canada and natural gas
producers in Québec. In addition, Gaz Métro considers that their proposal constitutes a
fair split of current distribution network costs based on the user-payer principle.
Original: 2010.09.14
Gaz Métro – 1, Document 1.7
Page 2 of 2 Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
(i)
Gaz Métro 1, Document 1, Pages 19 and 20
Preamble:
“There are four possibilities provided to Gaz Métro to acknowledge the diversity of the gas
production projects and to limit the fluctuation of rates from one year to another:
¾ The first possibility is to establish the rates based only on the supply of the first production
sites actually connected to the existing gas network. For that purpose, in order to allow the
additional production sites to be connected, the rates should be modified - increased or
decreased - so as to connect the other production sites each time a new pipeline is
connected. The first producers would have been subject to many tariff variations and a level
that could not be determined a priori, since it depends on the investments related to the
new connections.
¾ The second was to establish the rates corresponding to the final service of the entire gas
production in Quebec. (…)
¾ The third possibility was to establish the rates based on the short or medium term
development potential of the gas production. (…)
¾ The fourth option was to establish the rates for each reception point based on the costs of
the connection pipelines at each of these points. This option made it possible to reduce the
risk of imprecise real costs and thus of rates at the reception points and thus to ensure
stable rates for the producers. Moreover, it allowed limiting the level of cross subsidization
among producers (between the reception points).
The fourth option is that chosen by Gaz Métro.” (emphasis added)
Question:
8.1
Please specify whether Gaz Métro conducted benchmarking related to the activities of
other jurisdictions.
Original: 2010.09.14
Gaz Métro – 1, Document 1.8
Page 1 of 3 Answer:
Gaz Métro analyzed NOVA Gas Transmission Ltd. (“NOVA”)’s rates, in particular the
“Rate Schedule FT-R, Firm Transportation Receipt”, in particular with respect to the
service conditions offered by this transportation company under the jurisdiction of the
National Energy Board.
Gaz Métro also analyzed the receiving rate of Union Gas’ locally produced gas, that is
the “M13 Rate Schedule – Transportation of Locally Produced Gas”.
Question:
8.2
If the answer is Yes for 8.1, please specify which are the jurisdictions analyzed, and
explain the conclusions of these analyses underlining particularly the following
characteristics
-
the use of a constant annual value as income (required income) whereas the
service cost is decreasing on the entire period of the amortization;
the hypothesis of a neutral tariff corresponding to the last year of the useful life of
the asset;
the contribution to the fixed costs of the transmission and distribution network;
the risk associated with the interruption of the activities of the natural gas producer
before the full recovery of the service cost and if the producer fails to pay the
indemnity.
Answer:
The objective for reviewing NOVA and Union Gas’ rates was not to draw conclusions
with regards to the points indicated in the question above.
However, Gaz Métro drew the following conclusions from NOVA’s rates, whose services
best match the services offered to producers by Gaz Métro:
1. Rates are based on pricing according to receiving points and delivery points.
2. Specific rates are established for each receiving point based on investments,
contractual duration and contractual capacity. NOVA uses postage stamp
pricing for certain services. A formula determines the rates for each receiving
point based on various components and factors. Given the complexity of
NOVA’s network, a way for splitting common costs between the different
receiving points had to be found in order to determine the applicable rates.
Gaz Métro considers that this formula, which allows pricing per receiving
point to best match the costs (in order to limit the cross-subsidization
between receiving points), may somewhat resemble the balancing formula of
Gaz Métro’s balancing service. In Gaz Métro’s opinion, it is what seems to
best match NOVA’s rates.
3. For delivery points or according to distance (FT-D and FT-P rates,
respectively)
NOVA
uses
postage
stamp
pricing
(see
www.transcanada.com/customerexpress/854.html).
Original: 2010.09.14
Gaz Métro – 1, Document 1.8
Page 2 of 3 4. For the most part, the pricing structure is fixed.
5. NOVA’s service conditions were reviewed by Gaz Métro and supported the
elaboration of the modifications proposed in this file, including the following
provisions:
a. Gaz Métro distinctly proposes the same maximum contractual
capacity (MCC) revision rules as NOVA.
b. NOVA has provisions for processing the exceeding of the MCC and
spreads between injected volumes and “nominated” volumes. Gaz
Métro was also inspired by the provisions by making certain
adjustments.
c. NOVA also has rules for contract terms as well as for contract
renewals. Gaz Métro proposes different rules in order to remain
consistent with their current practices.
d. NOVA has standards for natural gas composition and calorific
content. Gaz Métro proposes using NEB standards. Gaz Métro
distinctly proposes using the same rules as NOVA in the case where
the gas is not compliant.
e. NOVA has pressure standards. Gaz Métro distinctly proposes using
the same rules for natural gas pressure.
NOVA has interruption standards and standards for reducing the reception of natural
gas. Gaz Métro distinctly proposes using the same rules for interruptions and reductions
as NOVA.
Original: 2010.09.14
Gaz Métro – 1, Document 1.8
Page 3 of 3 Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
(i)
(ii)
(iii)
Gaz Métro 1, Document 1, Page 28
Gaz Métro 1, Document 1, Page 29
Gaz Métro 1, Document 1, Page 37
Preamble:
(i)
“Application of allocation methods
Consequently, the selected costs have been distributed according to the different
allocation factors between the producers and the existing clients, the producers being
added to the existing clients. For this purpose, Gaz Métro established several
hypothetical scenarios concerning the level of the volume injected in the network as well
as the investments made by Gaz Métro to serve these new clients. Subsequently, a ratio
has been calculated dividing the distribution costs allocated to producers (different from
the royalties) by the investments according to the hypotheses of different scenarios. The
ratios vary from 2.8% to 5.6%.”
(ii)
Table 2 - Example of distribution costs allocated (not related to the existing gas
network).
(iii)
“The distribution of capital assets obtained above is then used to distribute the
distribution network costs existing between their distribution and transmission functions.
The costs related to the gas distribution network are mainly the amortization, the taxes
on the network and the capital, the yield based on the tariffs, as well as the exploitation
expenses.
If the allocation factor of one of the costs is [CONDPRIN], the distribution percentage of
32% obtained by the allocation of main pipelines is used also to distribute the distribution
cost between its transmission and distribution functions. This very same percentage has
been also applied to distribute the cost of the gas lost in the network.
If the costs allocated based on the derived factors (yields based on tariffs and taxes), as
they are the result of the total costs a part of which have been allocated based on
CONDPRIN, the costs allocated considering these derived factors also include a part of
the costs related to the transmission pipelines. For all these costs, the percentage
allocated to the transmission function is of 16%.”
Original: 2010.09.14
Gaz Métro – 1, Document 1.9
Page 1 of 4 Question:
9.1
Please submit, for each scenario considered, according to point (i), the Excel table so as
to allow the Régie to read the formulas used for the calculation of the costs allocated for
columns 2 to 7 at (ii), as well as the hypothesis used for these calculations.
Answer:
See attached Excel spreadsheet “Scénario coûts”.
Question:
9.2
Referring to (ii), please specify if, to obtain the total for the three sections “taxes and
royalties,” “income taxes” and “yield on tariffs,” it is necessary to use the distribution
factors and percentages indicated at point (iii). If affirmative, please describe how these
factors are used to obtain these totals.
Answer:
These are the same cost allocation factors, but not the same allocation percentage
breakdowns as those indicated at reference (iii). The percentages used in table 2 only
take into account distribution costs unrelated to the gas network and allocated to
producers. The percentages used in table 4 only take into account distribution costs
related to gas networks and allocated to producers.
Following is the percentage used to allocate costs to share among consumer and
producer clients:
Percentage
Taxes and Fees
Network Tax
Capital Tax
Capital Tax – Green Fund
Transmission Network
Places of Business
Régie du bâtiment/de l’énergie fees
Income Tax
Income Tax
Income Tax – Green Fund
Productivity Gain Sharing Tax
Temporary Spread Tax and Other
Return Based on Pricing
Table 2
Table 4
10%
100%
100%
16%
16%
100%
-
10%
10%
16%
16%
Question:
9.3
Please specify and discuss the different possibilities considered to develop the
hypothetical scenarios concerning the producers added to the existing clients as
specified at point (i).
Original: 2010.09.14
Gaz Métro – 1, Document 1.9
Page 2 of 4 Answer:
Gaz Métro used three scenarios representative of the discussions with certain producers
that have taken place up to now.
These scenarios are what Gaz Métro has as the most tangible information for
connecting wells full term. However, Gaz Métro is not in the position to guarantee that
these scenarios are representative or to determine the plausibility of each one.
Question:
9.4
Please specify the nature and the value of the allocation factors serving to distribute the
selected costs between the producers and the existing clients as specified at point (i).
Answer:
For costs not based on a basic factor, such as volumes, number of clients and revenue,
Gaz Métro used the portion of the costs allocated at a rate of 4.9 in the 2009/2010 cost
allocation study. For basic factors, a single pro rata is applied in order to obtain a
marginal cost study, whereas for other costs, the result from the proper cost allocation
study for each factor at a rate of 4.09 is used.
Question:
9.5
Please detail the hypothetical scenarios and discuss the plausible character of each of
these scenarios as specified at point (i).
Answer:
The data used for the three scenarios is as follows:
1
2
3
Volume
(m3/year)
619,770,000
516,475,000
774,712,500
Investments
($)
34,704,000
45,792,000
72,672,000
Producers are presently in the testing and exploration phase in order to assess potential
natural gas production. Thus, considerable uncertainties remain with regard to how
actual production will affect volumes and investments.
Original: 2010.09.14
Gaz Métro – 1, Document 1.9
Page 3 of 4 Question:
9.6
Please discuss if, regardless of the fact that the value retained of 4% represents “a value
close to the mean of the variability range calculated based on different scenarios,” other
reasons allow validation of its use in the detriment of the ratios resulting from other
scenarios.
Answer:
Given that these costs are the equivalent of operation and maintenance costs and that it
is generally common practice to calculate these costs based on investments, Gaz Métro
proposes that the calculation of these costs be based on investments. Gaz Métro
believes that allocating these costs based on investments promotes equity between
producers. In effect, the allocation of these costs evenly among customers, for example,
fails to take into account the relative importance of investments related to producers.
Notwithstanding that the use of a ratio applied to investments is common practice in
project evaluation, the applicable percentage, however, is subject to debate. In general,
the applicable percentages vary between 2 to 5%. Gaz Métro has developed its own
method for determining this ratio.
For all of Gaz Métro’s assets (pricing base of $1.632 billion), annual distribution costs
unrelated to the gas network to share (between producers and consumer customers)
amounts to $ 160 million, giving a ratio of 10%. Gaz Métro considered that this figure
was too high as it takes into account all Gaz Métro customers, including residential and
CII customers.
Consequently, Gaz Métro attempted to assess this ratio, as explained in the evidence,
by basing cost estimates for producers not on the average price for all customers, but on
the average price for high volume consumer customers. Gaz Métro considers this
approach to be more fair as opposed to the average price for all customers.
Gaz Métro recalls that the range varying from 2.8 to 5.6%, in accordance with the
hypothetical scenarios, excludes fees. By including costs related to Régie de l’énergie
and Régie du bâtiment fees, the range varies between 3.9 and 7.5% (rather than 2.8 to
5.6%).
Gaz Métro set the ratio for costs unrelated to the gas network at 4% (or 5.3% with Régie
de l’énergie and Régie du bâtiment fees), which represents a value close to the average
of the calculated range. In addition, this ratio is at the top of the interval generally used
for evaluating investment projects.
Original: 2010.09.14
Gaz Métro – 1, Document 1.9
Page 4 of 4 Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
(i)
(ii)
Gaz Métro 1, Document 1, Page 31
Gaz Métro 1, Document 1, Page 32
Preamble:
(i)
Table 3 - Input to the required incomes
(ii)
Table 4 - Calculation of required incomes
“As one may observe, the incomes are fixed, whereas the costs are decreasing during
the same period. Subsequently, the income is lower than the service cost during the first
years and it is higher during the last years. However, the income is set not to influence
the tariffs of other tariff classes during the life of the investment. For this purpose, the
cumulative net present value of the annual differences between the service cost and the
income must be equal to 0 after 20 years (last line of table 4). More exactly, a neutral
rate equal to the anticipated life of the asset is aimed for.”
Question:
10.1
Referring to (i), please explain the calculations allowing to determine the royalty rates to
the Régie de l’énergie and the Régie du batiment [Building Public Bureau] ($/103m3)
used as parameters regulated as input to the required income.
Answer:
Régie de l’énergie: 2009-2010 Annual Fees of $1,808,133/Actual Volume in 2008
Annual Report 5,804,868 103m3 = $0.311486/103m3
Régie du bâtiment: Rate in effect for 2009 calendar year of $0.41100/103m3
Question:
10.2
Please submit Table 4 at point (ii) in Excel format for the entire anticipated period so as
to allow the Régie to read the formulas used to calculate the costs allocated as well as
the hypotheses used in these calculations.
Original: 2010.09.14
Gaz Métro – 1, Document 1.10
Page 1 of 3 Answer:
Please refer to the attached Excel spreadsheet named Tableaux III et IV.
Question:
10.3
Referring to point (ii), the section “Difference between costs and incomes” indicates that,
during the useful life of the asset, the service cost exceeds the income during the first
years and vice versa during the last years. However, for the entire period, the income is
strictly equal to the service cost. Please explain the risk that the suggested methods lead
to a situation where there are not the same consumers who make good during the first
years the deficit between the incomes and the service cost as those who benefit from
the reversed situation during the last years of the contract signed by the natural gas
producer.
Answer:
It must be emphasized that it is already the case for our clientele for any break-even
point development over one year. In effect, for investments with break-even points of 10
years, revenue drawn from rates will be less than costs for a few years before being
greater than costs.
Although the question of marginal cost allocation, associated with the development of
new infrastructures and the joining of new clients, greater than average costs is regularly
the subject of discussion and debate before various regulating authorities in Canada or
elsewhere, experts and associated literature on the subject agree on some principles.
According to Gaz Métro, the most relevant is that the marginal cost produced by this
new client may be greater than average costs insofar as there is more or less long-term
benefit expectancy. In the case of this new rate, with the proposal of an allowance as
described in Section 3.5.3 of the evidence, client risk is limited to the risk of bad debt
and the benefit expectancy for sharing existing asset costs is actual and probably more
or less long-term. In addition, it is important to remember that receiving point pricing only
consists of one part of the receiving rate. Delivery point pricing outside the territory,
when included in the required revenue, increases project profitability and lowers rates for
existing clients.
Question:
10.4
Please specify whether Gaz Métro considers creating a reported expense account that
would allow avoiding a situation such as the one described above, which could
compromise the equity among the generation of clients.
Original: 2010.09.14
Gaz Métro – 1, Document 1.10
Page 2 of 3 Answer:
Gaz Métro does not foresee the creation of a deferred fee account. Firstly, as elaborated
in answer 10.3, Gaz Métro deems that the profitability associated with the development
of this new clientele is not that different from some current development projects. It must
be then mentioned that the applicable rate for this new market limits contractual risk and
expects additional revenue for clients as soon as the existing network is used to deliver
gas outside the territory, with profitability then resembling the profitability for adding load
without investment.
Project Hypothesis
Annual Volume (m3)
Total Capital Investment ($)
Distribution Costs Unrelated to Gas Network (4.0% of investment)
($)
Regulated Settings
Useful Life Expectancy of Assets (Years)
Régie de l’énergie Fee Rate ($/103m3)
Régie du bâtiment Fee Rate ($/103m3)
Utility Tax Rate
Tax Rate
Debt Rate (Weighted Cost)
Equity Rate (Weighted Cost of Ordinary and Privileged Shareholder
Equity)
Debt Percentage
Percentage of Shareholder Equity (Ordinary and Privileged)
Weighted Rate of Capital
Rate Break-even Point (Years)
500,000,000
45,000,000
1,800,000
20
0.311486
0.411000
1.50%
26.90%
6.91%
8.55%
54%
46%
7.67%
20
[For other table, please refer to corresponding .pdf file]
Original: 2010.09.14
Gaz Métro – 1, Document 1.10
Page 3 of 3 Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
(i)
(ii)
Gaz Métro 1, Document 1, Page 34
Gaz Métro 1, Document 1, Page 13
Preamble:
(i)
“If the volumes injected in the area exceed the volumes consumed by the clients, the
transmission cost corresponding to this TCPL/TQM exceeding transmission capacity,
which must be contracted by Gaz Métro to route the gas towards another consumption
areas, will be calculated. This TCPL/TQM transmission service cost will vary depending
on the distance covered.”
(ii)
“Once this consumption area is totally supplied by the producers, they must pay the
transmission costs applicable to the use of TCPL/TQM transmission substructures
because the exceeding gas must be routed through this transmission network to another
consumption area.”
Question:
11.1
If the natural gas injected exceeds the capacity of the consumption area, please specify
how Gaz Métro intends to control the natural gas flow. Please specify whether, in such
situation, investments in the Gaz Métro network are required and, if so, how these costs
will be allocated.
Answer:
In order to manage the flow of gas in the event that the natural gas injected into an area
on a given day exceeds the consumption of this same day for this area, Gaz Métro must
transport the excess gas to another consumption area. To do this, Gaz Métro must
contract TCPL/TQM in advance in order to have a transportation capacity that will allow
them to carry out such a transfer. In its daily management, Gaz Métro must anticipate
days where gas must be routed to another area and must place the appropriate
“nominations” with the transportation company.
In accordance with the particular point where Gaz Métro must inject gas into
TCPL/TQM’s carrier network, investments may be required on Gaz Métro’s existing
network. In the event that such investments would be required, producers would be
entirely responsible for charges. In accordance with the user-payer concept, fees related
Original: 2010.09.14
Gaz Métro – 1, Document 1.11
Page 1 of 3 to investments that are a direct consequence of the injection of natural gas into the
network must be assumed by those that produced them.
Question:
11.2
In relation with the transmission cost for the exceeding TCPL/TQM transmission
capacity, which must be contracted by Gaz Métro, please specify whether it is a new
TCPL/TQM transmission tariff or an existing tariff. Please elaborate.
Answer:
Gaz Métro must establish new transportation contracts with TCPL or TQM in order to
pass through the excess capacity. There is no existing rate that specifically addresses
this situation with TCPL or TQM. In their pricing, TQM has a similar service that
addresses gas withdrawal from storage sites located in Quebec. With respect to
TransCanada Pipelines, most of the various delivery points located in Quebec are not
recognized as being receiving points for the firm service. These points must therefore be
recognized as receiving points so that TCPL can calculate an applicable rate based on
the distance travelled by the gas. Gaz Métro anticipates that the existing methodology
used to set all payable rates on TCPL’s system will be applied to these new
transportation services. Everything will be subject to approval by the National Energy
Board.
Question:
11.3
Considering that the exceeding natural gas injected as compared to the capacity of the
consumption area might vary on a daily basis, please specify whether Gaz Métro is
asked to make an annual reservation to TCPL/TQM or whether it would be possible to
make a seasonal reservation.
Answer:
Gaz Métro considers that it is their responsibility to contract the required capacities on a
firm basis in order to be in a position to respond to the demand of their clientele. If Gaz
Métro anticipates that the capacity would be available without constraints on
TCPL/TQM’s network, Gaz Métro would therefore prefer to contract on a seasonal basis
in order to reduce costs. If Gaz Métro is not in a position to ensure seasonal availability
of the capacity or if investments are required by the transportation company and if such
investments must be justified by annual commitments, Gaz Métro must then contract on
an annual or multiannual basis. Gaz Métro’s decisions will therefore be based on
availability and transportation capacity and on rules set by the National Energy Board.
Original: 2010.09.14
Gaz Métro – 1, Document 1.11
Page 2 of 3 Question:
11.4
If the volume injected exceeded the consumption in the area and if there were several
producers, please confirm that the transmission service cost would be evenly distributed
between the producers in question based on their respective production. If negative,
please explain how the cost will be distributed.
Answer:
The cost of excess TCPL/TQM transportation capacity will be equally divided among
producers based not on their respective production, but on the volume injected into the
consumption area. It is important to remember that volumes delivered outside the
territory will not be considered in the calculation of applicable delivery point rates outside
the territory as producers must take care of contracting the capacity on the TCPL/TQM
transportation network themselves, thus assuming the costs.
Question:
11.5
Please indicate whether Gaz Métro examined the possibility of applying a unique tariff to
all the producers for the transmission cost corresponding to the exceeding TCPL/TQM
transmission capacity, which must be contracted by Gaz Métro. Please elaborate.
Answer:
Gaz Métro examined the possibility of applying a unique rate for all producers. However,
the set solution seems more fair for the moment.
In accordance with the user-payer concept, transportation fees that correspond to the
TCPL/TQM transportation capacity reservation are a direct consequence of routing
natural gas between various consumption areas, due to an excess of volume injected
into the given area with respect to the consumption needs of this same area. They must
then be assumed by those who produced them.
It therefore seemed more fair to bill all producers having created a TCPL/TQM
transportation capacity reservation for the additional fees related to additional costs.
Original: 2010.09.14
Gaz Métro – 1, Document 1.11
Page 3 of 3 Gaz Métro Limited Partnership
Creation of a Natural Gas Receiving Rate, R-3732-2010
GAZ MÉTRO’S RESPONSE TO A REQUEST FOR INFORMATION
Origin:
Request for information #1 dated August 19th, 2010
Applicant:
Régie de l’énergie
Reference:
(i)
(ii)
(ii)
Gaz Métro 1, Document 1, Page 37
Gaz Métro 1, Document 1, Page 38
Gaz Métro 1, Document 1, Page 39
Preamble:
(i)
“If the allocation factor of one of these costs is CONDPRIN, the distribution percentage
of 32% obtained following the allocation of the main pipelines is used also to distribute
the distribution cost between the transmission and distribution functions. This
percentage has been also applied to distribute the cost of the gas lost in the network.
If the costs allocated based on the derived factors (yields based on tariffs and taxes), as
they are the result of the total costs a part of which have been allocated based on
CONDPRIN, the costs allocated considering these derived factors also include a part of
the costs related to the transmission pipelines. For all these costs, the percentage
allocated to the transmission function is 16%.
(…)
In all, 32% of the costs allocated according to the “CONDPRIN” factor are associated
with the transmission function and also to the cost “Gas lost in the network.” The factors
“REVBRUTD,” “BASETARD” and “REVNETD” are derived factors and allocate thus 16%
of the associated costs to the transmission costs.” (emphasis added)
(ii)
Table 5 - Costs related to the transmission function
(iii)
“The transmission costs allocated to tariff D4 (excluding section 4.10) amount
$11,112,086 and the volumes of 1,582,973,10³m³.”
Question:
12.1
Referring to (i), please explain the operations whose results has lead to a uniform factor
of 16% if the costs are allocated according to the derived factors “REVBRUTD,”
“BASETARD” and “REVNETD.
Answer:
[Refer to corresponding .pdf file for table].
Original: 2010.09.14
Gaz Métro – 1, Document 1.12
Page 1 of 2 Question:
12.2
Referring to (ii), please detail the section “Yield based on tariffs” based on the
components of the tariffs and identifying the part of the costs related to the transmission
and supply part that can be allotted to each of these components for the production
budget.
Answer:
See answer to request for information 12.1 of the Régie.
Question:
12.3
Referring to (ii), please also explain the production budget of the costs related to the
transmission function per tariff category.
Answer:
[Refer to corresponding .pdf file for table].
Question:
12.4
Referring to (iii), please specify the source and detail the data making it possible to
estimate the transmission costs allocated to D4.
Answer:
[Refer to corresponding .pdf file for table].
Original: 2010.09.14
Gaz Métro – 1, Document 1.12
Page 2 of 2