B-8 GAZ MÉTRO RESPONSE TO
IR No 1 from TCE
(Gaz Métro Documents 1.37 - 1.48)
(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:
TransCanada Energy Ltd.
Category A Costs
Reference:
(i)
Gaz-Métro-1, Document 1, Page 14, Lines 12-18
Preamble:
“As mentioned above, the connection of the reception point to the interconnection
point of the Gaz Métro network will be performed by the help of new distribution
pipelines manufactured by Gaz Métro and the costs of these new pipelines must
be recovered through a reception tariff. Moreover, if new investments regarding
the actual distribution network (i.e. downstream the interconnection point) were
requested only for the needs of the producers, the costs related to these
investments would be also at the expense of the producers.” (emphasis added)
Question:
1.1
Will any new investment made with regard to the existing required distribution network
(i.e. downstream the interconnection point) so as to allow Gaz Métro to supply the
acceptance service be at the expense of the producers? If not, please specify how Gaz
Métro will determine the part of the costs for the modification of the existing distribution
network that will be paid by the clients of the distribution service.
Answer:
Yes. In the case where new investments are required solely for producer needs.
Original: 2010.09.14
Gaz Métro – 1, Document 1.37
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:
TransCanada Energy Ltd.
Looping
Reference:
(i)
Gaz-Métro-1, Document 1, Page 9, Lines 11-17
Preamble:
“The construction of pipelines allowing the connection of the production sites to
the gas network of Gaz Métro may allow looping certain segments of the Gaz
Métro network besides the routing of the volumes towards the existing networks,
having the additional advantage that it serves certain areas and new markets,
mainly in agriculture. This looping would also allow increasing the injection
potential of natural gas in the network, from the producers’ point of view, by
increasing the access and safety regarding the supply of the clients.” (emphasis
added)
Question:
2.1
Please give an example of looping necessary due to the introduction of a connection
pipeline.
Answer:
[Refer to corresponding .pdf file to view image].
Question:
2.2
Please explain how the looping would allow to increase the injection potential.
Answer:
Looping could increase client access to gas produced within Gaz Métro’s territory
without going through TQM/TCPL. In addition, the local production of natural gas could
increase the network capacity in saturated sections.
Original: 2010.09.14
Gaz Métro – 1, Document 1.38
Page 1 of 2
Question:
2.3
If the construction of a connection pipeline led to the looping of the existing distribution
network, would the clients of the distribution service incur a part of the costs of the
connection pipeline? If affirmative, please specify how Gaz Métro will determine the part
of the costs incurred by the clients of the distribution service.
Answer:
Network looping by only one connection pipeline is highly unlikely. However, the
development of gas production over several years and the construction of several
connection pipelines may actually allow certain network portions to be looped in the long
term. In this case the connection pipeline costs would be reallocated so that consumer
clients would assume a part of them. Given that these looping possibilities should not
occur in the next few years, Gaz Métro has not determined the way in which the costs
will be reallocated. At a suitable time, Gaz Métro will develop and propose new cost
allocation methods.
Question:
2.4
If the construction of a connection pipeline led to the looping of the existing distribution
network and if this looping increased the natural gas injection potential, would the clients
of the acceptance service incur a part of the costs of the looping? If affirmative, please
specify how Gaz Métro will determine the allocation of these costs between the producer
and the clients of the distribution service.
Answer:
Yes. See answer to request for information 2.3.
Original: 2010.09.14
Gaz Métro – 1, Document 1.38
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:
TransCanada Energy Ltd.
Treatment of income differences related to the tariff at the suggested reception point
Reference:
(i)
Gaz-Métro-1, Document 1
Preamble:
Gaz Métro’s request does not refer to the treatment of the income differences related to different
acceptance tariff elements suggested (rate at the reception point, unit rate at the volume
delivered within territory, unit rate at the volume delivered outside the territory).
Question:
3.1
Please specify how Gaz Métro proposes to recover the opportunity cost of the reception
service.
Answer:
The Régie’s approval of investment projects will allow for determining the applicable
receiving point rates and also the volumes applicable to these projects. As per the Régie
in its decision D-2009-156, costs and income associated with investment projects of
more than $1.5 million must first be approved before being included in a rate case via
the use of a deferred fee account in order to process the spreads.
As a result, income will be anticipated upon the rate cause based on the predicted
volumes and rates in effect in the Service Conditions and Rates, like all other distribution
income.
Any spread between the anticipated income at the start of the year (rate cause) and the
actual income declared at the end of the year (annual report) will enter into the
calculation for determining an overpayment or shortfall and will be shared in accordance
with the terms set out in the incentive scheme, on the basis that a new regulatory regime
may also be in place.
Original: 2010.09.14
Gaz Métro – 1, Document 1.39
Page 1 of 2 Question:
3.2
Please specify how Gaz Métro proposes to manage the reverse situation (surplus) of the
one described in paragraph 3.1.
Answer:
See answer to request for information 3.1.
Original: 2010.09.14
Gaz Métro – 1, Document 1.39
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:
TransCanada Energy Ltd.
Determining the rates for costs not related to the gas network
Reference:
(i)
(ii)
Gaz-Métro-1, Document 1, Page 27, Line 19 to Page 28, Line 18
Gaz-Métro-1, Document 1, Page 28, Lines 22-27
Preamble:
Point a) identifies the costs not related to the gas network for which Gaz Métro established a
causal relation with the acceptance service. Point b) suggests hypothetical scenarios that
separated the 2.8% and 5.6% of the amounts invested for these costs
(i)
“Gaz Métro analyzed each of the distribution costs in order to establish a causal
relation between the supply of the producers and these costs (see column 1 of
table 2) in order to determine if they were applicable or not. (…) » (emphasis
added)
(ii)
“For this purpose, Gaz Métro established several hypothetical scenarios
concerning the level of the volumes 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%.” (emphasis added)
Question:
4.1
Among the costs available at point a), which are those that can be related to the level of
the investments?
Answer:
Allocation factors can be related directly (return based on pricing) or indirectly
(administration expenses) on the basis of investments. Allocation factors that vary on the
basis of income or volume are also related, but indirectly with investments. See also
answer to request for information 9.4 of the ACIG (Gaz Métro-1, Document 1.21).
Original: 2010.09.14
Gaz Métro – 1, Document 1.40
Page 1 of 2 Question:
4.2
Please submit the scenarios analyzed by Gaz Métro including the data necessary for
understanding the ratios generated.
Answer:
See answer to request for information 9.1 of the Régie (Gaz Métro-1, Document 1.9).
Question:
4.3
Please explain the causes for the variations among the ratios resulting for different
scenarios.
Answer:
Costs vary depending on volume and investments.
Question:
4.4
Please describe and explain all the elements, analyses and reasons allowing Gaz Métro
to choose the suggested ratio of 4%.
Answer:
See answer to request for information 9.6 of the Régie (Gaz Métro-1, Document 1.9).
Question:
4.5
Did Gaz Métro establish a correlation between the level of the investments and the
distribution costs allocated for all scenarios of the analyzed projects? If affirmative,
please provide all data and all necessary graphs for understanding this correlation.
Answer:
No. For further information, see answer to request for information 9.4 of the ACIG (Gaz
Métro-1, Document 1.21).
Original: 2010.09.14
Gaz Métro – 1, Document 1.40
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:
TransCanada Energy Ltd.
Modification of rates at the reception point
Reference:
(i)
(ii)
(iii)
Gaz-Métro-1, Document 1, Page 34, Lines 3-7
Gaz-Métro-1, Document 1, Page 32, Line 15 to Page33, Line 2
Gaz-Métro-1, Document 1, Page 33, Lines 2-11
Preamble:
(i)
“The rates at the reception points will be approved by the Régie [Public Bureau]
for each new project when investment requests are made according to the
method suggested in this section. Note that the rates can be consequently
modified, because of subsequent [tariff causes] based on the evolution of the
Costs (yield rates, taxes etc.)” (emphasis added)
(ii)
“The rates at a reception point can be revised if there are new producers who
wish to use the same connection pipelines or if Gaz Métro connects the new
clients to the pipelines that were previously used only to connect the production
sites to the gas network” (emphasis added)
(iii)
“For example, if the existing assets allow, another contract can be signed to allow
a producer to have access to a connection pipeline already used and this,
increasing the use of the investment, would reduce the rate necessary to recover
the costs incurred. If another producer wished to inject the same level of volume
(additional 500 Mm3) and no additional assets are necessary, the income
necessary would be of $7,525,000 per year divided by the new volumes of 1,000
Mm3/year and this would be equal to a rate of 0.75 ¢/m3. Gaz Métro will revise
the rates of the reception points concerned at the time of the subsequent tariff
cause to the investment request.” (emphasis added)
Question:
5.1
Based on point a), will any modification made at the level of one or more budget
elements determining the costs used to establish the rates at the reception points (yield
rate, taxes etc.) automatically lead to a review of these rates at the time of the
subsequent tariff causes, as it is the case for the distribution tariffs? If not, why?
Original: 2010.09.14
Gaz Métro – 1, Document 1.41
Page 1 of 4 Answer:
Yes. Any change of one or more budgetary items will indeed lead to a rate revision.
Question:
5.2
According to the parameters of the example suggested by Gaz Métro at point c), please
specify if this tariff review affecting the reception point in question will be made so as to
maintain the break-even point at 20 years.
Answer:
Yes. Gaz Métro will target a break-even point of approximately 20 years if there are no
additional investments. However, if investments were necessary in order to increase
capacity, the investment period may be reviewed for new investments.
Question:
5.3
Generally, please specify if any tariff review affecting the reception point will be made so
as to maintain the break even point at 20 years.
Answer:
Yes. Gaz Métro will target a break-even point of approximately 20 years if there are no
additional investments.
Question:
5.4
According to the parameters of the example suggested by Gaz Métro at point c) and if
no amount, indemnity or guarantee is available for compensation purposes, please
specify if the interruption of the activities of the additional producer or the previous
producer will lead to a review to the increase of the rate at the reception point
concerned, for the remaining producer, at the time of the subsequent tariff cause.
Answer:
In the case where the discontinuance of a producer’s business is not related to
bankruptcy, the client must pay fixed fees up to the expiry date of his contract or the
allowance after the initial period of the first 10-year contract. The rate paid by the other
producer at the same receiving point will not be subject to an adjustment.
In the case where the discontinuance of a producer’s business is as a result of
bankruptcy and that it is not possible for Gaz Métro to recover the allowance, the rate
paid by the other producer at the same receiving point will be subject to a slight
adjustment. See answers to requests for information 17.5 and 17.6 of the ACIG (Gaz
Métro-1, Document 1.29).
Original: 2010.09.14
Gaz Métro – 1, Document 1.41
Page 2 of 4 Question:
5.5
Point b) suggests that it is possible to connect a “new client” to the pipelines that were
previously used to connect the production sites to the gas network. If this “new client” is
a client of the distribution service:
a)
b)
please specify whether the arrival of this new client leads to:
i)
a review to the decrease of the rate at the reception point;
ii)
a review to the decrease of the level of investments used for the
calculation of the rate at the reception point;
iii)
a review to the decrease of the amount generated by the application of
the rate of 4% on the investments used for the calculation of the rate at
the reception point.
please specify if the interruption of the activities of this “new client” will lead, in
the absence of an indemnity, guarantee or contract obligations for compensation
purposes, to:
i)
a review to the increase of the rate at the reception point;
ii)
a review the to increase of the level of investments used for the
calculation of the rate at the reception point;
iii)
a review to the increase of the amount generated by the application of the
rate of 4% on the investments used for the calculation of the rate at the
reception point.
Answer:
Yes. The connection of new consumer clients will lead to a revision at the decline of the
receiving point rate due to a reallocation of investments initially used only by producers.
The proposed 4% for costs unrelated to the gas network is an initial proposal in order to
be in a position to allocate costs even though this new clientele is not Gaz Métro’s
clientele. As soon as Gaz Métro has a few producer clients, this could readjust the costs
allocated to this client category based on the cost allocation study with or without
changing the factors currently in use. No matter the situation, the proposed 4% may
change as soon as Gaz Métro has producer clients.
In the case where this “new consumer client” subsequently discontinues their business,
the receiving point rate will indeed increase.
Question:
5.6
If the connection pipeline was partially used by the producer and a new client for
distribution (e.g., connecting a client to the distribution service at the middle of the
Original: 2010.09.14
Gaz Métro – 1, Document 1.41
Page 3 of 4 connection pipeline), please specify how Gaz Métro intends to allocate the level of the
investment used for the calculation of the rate at the reception point.
Answer:
See answer to request for information 11.4 of the ACIG (Gaz Métro-1, Document 1.23),
as well as answer to request for information 1.8 of the APGQ (Gaz Métro-1, Document
2.1).
Question:
5.7
In all situations, please specify how Gaz Métro intends to follow the investments related
to each of the reception points based on the clients added or retreated.
Answer:
The investment follow-up method related to each receiving point between producers and
consumer clients has not been determined for the moment. Gaz Métro will proceed with
their thoughts on this subject. It must be noted that Gaz Métro does not foresee the
connection of consumer clients to connection pipelines with respect to projects currently
under study.
Original: 2010.09.14
Gaz Métro – 1, Document 1.41
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:
TransCanada Energy Ltd.
Determining the proportion of the gas network in the transmission and distribution
pipelines
Reference:
(i)
(ii)
Gaz-Métro-1, Document 1, Page 37, Lines 1-3
Gaz-Métro-1, Document 1, Page 15, Lines 27-29
Preamble:
At point (i), Gaz Métro indicates the proportion of pipelines of the gas network considered as
transmission pipeline based on the application of the allocation factor of the CONDPRIN service
cost. At point b), Gaz Métro makes a distinction between the distribution network and the
transmission network based on the pressure of the pipelines.
(i)
“The application of this allocation factor within the study of the cost allocation 2008/2009
allowed identifying that 32% of the pipelines of the gas network are transmission
pipelines.” (emphasis added)
(ii)
“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, ...” (emphasis added)
Question:
6.1
Please explain how the application of CONDPRIN factor allowed Gaz Métro to identify
that 32% of the pipelines of the gas network are transmission pipelines.
Answer:
See answer to request for information 13.1 of the ACIG (Gaz Métro-1, Document
1.25.
Question:
6.2
Please provide all necessary calculations sustaining the conclusion of Gaz Métro that
32% of the pipelines of the gas network would be transmission pipelines.
Original: 2010.09.14
Gaz Métro – 1, Document 1.42
Page 1 of 2 Answer:
The cost allocation study led Gaz Métro to conclude that 32% of costs related to gas network
pipelines (and not 32% of the gas network pipelines) are carrier pipeline costs. See answer to
request for information 13.1 of the ACIG (Gaz Métro-1, Document 1.25).
Question:
6.3
Please specify what percentage would be obtained if the analysis were founded on the
exclusive use of the CAUCPA factor.
Answer:
The percentage would have been 100%.
Question:
6.4
Please specify the pressure level differentiating the distribution pipelines from the
transmission pipelines.
Answer:
See answer to request for information 5.1 of the Régie (Gaz Métro-1, Document 1.5).
Question:
6.5
Please indicate what percentage of pipelines of the gas network would be considered as
transmission pipelines if the distribution were founded on the pressure level.
Answer:
Gaz Métro estimates the percentage at 27%.
Original: 2010.09.14
Gaz Métro – 1, Document 1.42
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:
TransCanada Energy Ltd.
Update of unit rate to volumes delivered outside the territory
Reference:
(i)
(ii)
Gaz-Métro-1, Document 1, Page 39, Lines 25 and 26
Gaz-Métro-1, Document 1, Page 39, Lines 22-24
Preamble:
At point a), Gaz Métro requests the Régie to set the applicable rate of 0.70 ¢/m3 to the volumes
delivered outside the territory through this file. Then, it specifies at point b) that this rate can be
updated as part of the subsequent tariff causes.
(i)
“Gaz Métro requests the Régie to set the applicable rate of 0.70 ¢/m3 to the volumes
delivered outside the territory and this through this file.” (emphasis added)
(ii)
“The resulting unit rate is thus of 0.70 ¢/m3 and this is the rate applicable to producers.
Consequently, this rate can be updated for these subsequent tariff causes.” (emphasis
added)
Question:
7.1
Please explain all the reasons why Gaz Métro wishes to set as of this file the applicable
rate to the volumes delivered outside the territory.
Answer:
Contrary to the establishment of applicable receiving and distribution point rates within the
territory that depend on data specific to each investment project, the information required to
establish the applicable rate for volumes delivered outside the territory was already known at
the time this case was submitted. This rate, having already been established and not subject to
change at each investment request, is therefore not an item for discussion with respect to an
investment request and for which a decision does not have to be rendered.
Original: 2010.09.14
Gaz Métro – 1, Document 1.43
Page 1 of 2 Question:
7.2
Does Gaz Métro suggest automatically updating the rate applicable to the volumes
delivered outside the territory at the time of the subsequent tariff causes, as it is the case
of the distribution tariffs. If not, why.
Answer:
The applicable rate for volumes delivered outside the territory will be updated upon subsequent
rate causes.
Original: 2010.09.14
Gaz Métro – 1, Document 1.43
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:
TransCanada Energy Ltd.
Financial Guarantees
Reference:
(i)
(ii)
Gaz-Métro-1, Document 1, Page 43, Lines 11-20
Gaz-Métro-1, Document 1, Page 52, Lines 25-30
Preamble:
Consider a connection pipeline installed for a single producer serving only this client. Consider
the case where this single client interrupts its operations 10 years before reaching the neutral
rate of its reception point and there is no other amount or guarantee available than the 12 month
security deposit to pay the indemnities provided in the contract.
(i)
“Gaz Métro will request that the initial contracts be concluded for at least 10 years for
clients subject to the acceptance tariff. When the initial contract entered into with the
producer expires, the latter may renew the contract or, in certain cases, pay
compensation. If the producer decides not to renew the contract and if the neutral rate is
not reached, the producer must pay compensation to Gaz Métro. This compensation
would be equal to the book value of the assets at that moment plus the opportunity cost
(difference between its tariff and the income requested) that the producer will pay if it is
bound by a contract until the neutral rate is reached, which must correspond, in the
majority of situations, to the duration of the amortization, i.e. 20 years. (emphasis added)
(ii)
“The present provisions in terms of deposit authorize Gaz Métro to request a security
deposit equal to two months the consumption is the highest. In the regular context of the
Gaz Métro operations, this coverage of two months is appropriate. Moreover, in the
context of the production of natural gas in Quebec, Gas Métro considers that this
protection level would be insufficient and suggests a security deposit equal to 12 months
of service.” (emphasis added)
Question:
8.1
Referring to point b), why does Gaz Métro consider that a security deposit equal to two
service months is insufficient in the context of the production of natural gas in Quebec
and the creation of a reception tariff?
Original: 2010.09.14
Gaz Métro – 1, Document 1.44
Page 1 of 3 Answer:
The rate terms proposed by Gaz Métro will not eliminate the risk of bad debt, but seek to
limit it (see answers to questions 10.3 and 10.4 of the Régie in document Gaz Métro-1,
Document 1.10). Remember that current applicable terms, with a guarantee equal to
income over two winter months, apply to overall client billing, and not only distribution
income. These terms that are currently in effect cover the risk of loss of supply costs that
represent an important part of income collected over the year. In the case of
development of this new segment of clientele, we consider that a protection of 12
months will cover, at a minimum, the income spread before being able to adjust the rates
in a future rate case.
Question:
8.2
Based on the example available in the preamble, please describe how Gaz Métro will
use the security deposit:
b)
if the situation occurs at the beginning of the [tariff year];
c)
if the situation occurs in the middle of the tariff year;
d)
if the situation occurs at the end of the tariff year.
Answer:
Deposits are automatically reimbursed upon the conclusion date of an account regardless of
when it occurs during a pricing year. As set out in Articles 8.6.1.2 and 8.6.1.3 of the Service
Conditions and Rate, the distributor can apply the deposit to a client’s unpaid bill.
Question:
8.3
Also based on the example presented in the preamble, once the security deposit is
totally disposed of, please specify whether the clients of the distribution service continue
to pay the costs related to the investments necessary for the creation of this reception
point.
Answer:
In the preamble example, the initial 10-year client contract is concluded. The 12-month
deposit was probably reimbursed five years prior because the proposed retention period
is 60 consecutive months, unless at least one bill was not paid on the due date during
the retention period of the deposit.
In the case where the discontinuance of a producer’s business is not due to bankruptcy,
the client must pay the fixed fees up to the expiry date of his contract (if he signed a new
contract after the initial 10-year contract) or the allowance after the initial period of the
first 10-year contract if he did not sign a new contract. Current distribution service
consumer clients have not paid and will not pay for costs related to investments
allocated to the producer.
Original: 2010.09.14
Gaz Métro – 1, Document 1.44
Page 2 of 3 In the case where the discontinuance of a producer’s business is due to bankruptcy and
that it is not possible for Gaz Métro to recover the allowance, the rate paid by the other
producer at the same receiving point will be subject to a slight increase, like current
distribution rates applicable to consumer clients. See answers to requests for information
17.5 and 17.6 of the ACIG (Gaz Métro-1, Document 1.29).
Question:
8.4
Based on point b), please provide and explain all the elements and all the reasons why
Gas Métro considers that a security deposit equal to 12 months of service can be
sufficient for a client subject to the acceptance service?
Answer:
See answer to request for information 8.1 of TCE.
Original: 2010.09.14
Gaz Métro – 1, Document 1.44
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:
TransCanada Energy Ltd.
Financial Guarantees
Reference:
(i)
(ii)
Gaz-Métro-1, Document 1, Page 43, Lines 10-20
Gaz-Métro-1, Document 1, Page 15, Lines 4-22
Preamble:
Consider a connection pipeline installed for a single producer serving only this client. Consider
the case where this single client interrupts its operations 10 years before reaching the neutral
rate of its reception point and there is no other amount or guarantee available than the 12 month
security deposit to pay the indemnities provided in the contract.
“3.5.3 Validity of the contract, renewal and indemnity
(i)
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 an
indemnity. If the producer decides not to renew the contract and if the neutral rate is not
reached, the producer must pay compensation to Gaz Métro. This compensation must
be equal to the book value of the assets at that moment plus the opportunity cost
(difference between its tariff and the income requested) that the producer would pay if it
were bound by a contract until the neutral point is reached, which must correspond, in
the majority of situations, to the duration of the amortization, i.e. 20 years.” (emphasis
added)
““Back stop agreement
(ii)
In such a situation, Gaz Métro must have the necessary protection to make sure the
costs incurred during the construction period will be reimbursed by the producer if the
producer abandons its production site. The investments would be made, in the majority
of cases, before entering into force of a reception tariff contract of natural gas with the
producers.
Gaz Métro intends thus to sign with each producer a “back stop agreement.” This
agreement would describe the circumstances and conditions leading to the
reimbursement of expenses incurred. These agreements have the purpose to recover
the amounts Gaz Métro will have invested to ensure the connection of the reception
Original: 2010.09.14
Gaz Métro – 1, Document 1.45
Page 1 of 2 point to the existing gas network, should the project of the producer be abandoned
before the tariff contract enters into force.
(iii)
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.” (emphasis added)
Question:
9.1
Referring to point a), in which case(s) the indemnity requested is not equal to the book
value of the assets plus the opportunity cost?
Answer:
The allowance will always be equivalent to the book value of the assets plus the rate
shortfall. The use of the conditional has no other purpose than to refer to a situation that
has not yet occurred.
Question:
9.2
Please provide all reasons why Gaz Métro does not intend to request at the time the
tariff contract is signed a guarantee from the producer in order to ensure the costs
incurred and all opportunity costs will be reimbursed, as it is requested during the period
for which the investments are made by Gaz Métro.
Answer:
Gaz Métro always expects a guarantee from the producer client. From the time that the
rate contract is signed, the client’s rate obligations become the guarantee for recovering
transport service costs. In the case of producer clients, the rate is mostly fixed, the initial
duration of the contract is 10 years and the required deposit is equal to 12 months of
service with a retention time of 60 months and is renewable when the client fails to pay
at least one natural gas bill, which constitutes non negligible guarantees. Furthermore,
an allowance is anticipated in the case where the producer does not renew his contract if
the break-even point is not reached.
These guarantees seem fair, reasonable and sufficient in comparison with the
guarantees required from other clients.
Original: 2010.09.14
Gaz Métro – 1, Document 1.45
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:
TransCanada Energy Ltd.
Contract Renewal, Security Deposit and Indemnity Clauses
Reference:
(i)
Gaz-Métro-1, Document 1, Page 43, Lines 10-20
Preamble:
At point a), Gaz Métro specifies that it will request that the initial contracts be concluded for at
least 10 years and specifies that when the validity of the initial contract concluded with the
producer expires, the latter can renew its contract or, in certain situations, must pay
compensation.
(i)
“3.5.3 Validity of the contract, renewal and indemnity
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 neutral rate is
not reached, the producer must pay compensation to Gaz Métro. This compensation
must be equal to the book value of the assets at that moment plus the opportunity cost
(difference between its tariff and the income requested) that the producer would pay if it
were under contract until the neutral point is reached, which must correspond, in the
majority of situations, to the duration of the amortization, i.e. 20 years.” (emphasis
added)
Question:
10.1
Please clarify the minimum period that Gaz Métro intends to request at the time of a
contract renewal.
Answer:
The minimum contract duration required upon contract renewal is one year. See also
answers to requests for information 59.1 of the APGQ (Gaz Métro-1, Document 2.59)
and 17.2 of the ACIG (Gaz Métro-1, Document 1.29).
Original: 2010.09.14
Gaz Métro – 1, Document 1.46
Page 1 of 2 Question:
10.2
Please specify if all contract renewals will include a security deposit of 12 months similar
to that suggested as part of the initial contract.
Answer:
A contract renewal will not systematically include a guarantee deposit. As stipulated in
Article 8.4 of the Service Conditions and Rate, the retention period of the deposit can
however be renewed if the producer has not upheld his commitments.
Question:
10.3
Please specify if all contract renewals will include an indemnity clause similar to that
suggested as part of the initial contract.
Answer:
As mentioned in Article 16.6.3 of the Service Conditions and Rate, the contract renewal
will include an automatic renewal clause or, if the contract is not renewed, a requirement
of the producer to pay an allowance as long as the break-even point has not been
reached.
Original: 2010.09.14
Gaz Métro – 1, Document 1.46
Page 2 of 2